SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| (Mark One) | |
/x/ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2001 |
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OR |
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/ / |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-12676
COASTCAST CORPORATION
(Exact name of registrant as specified in its charter)
California (State or other jurisdiction of incorporation or organization) |
95-3454926 (I.R.S. Employer Identification No.) |
|
3025 East Victoria Street, Rancho Dominguez, CA (Address of principal executive offices) |
90221 (Zip Code) |
Registrant's telephone number, including area code (310)638-0595
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
At July 27, 2001 there were outstanding 7,676,042 shares of common stock, no par value.
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Page Number |
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| PART I. FINANCIAL INFORMATION: | ||||
Item 1. Financial Statements |
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Condensed Consolidated Balance Sheets as of June 30, 2001 (Unaudited) and December 31, 2000 |
3 |
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Condensed Consolidated Statements of Operations (Unaudited) |
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| Three Months Ended June 30, 2001 and 2000 | 4 | |||
| Six Months Ended June 30, 2001 and 2000 | 5 | |||
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 (Unaudited) |
6 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
7 |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
8 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
8 |
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PART II. OTHER INFORMATION: |
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Item 4. Submission of Matter to a Vote of Securities Holders |
9 |
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Item 5. Other Information |
9 |
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Item 6. Exhibits and Reports on Form 8-K |
10 |
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2
COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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(Unaudited) |
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|---|---|---|---|---|---|---|---|---|
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June 30, 2001 |
December 31, 2000 |
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| A S S E T S | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 7,808,000 | $ | 52,168,000 | ||||
| Trade accounts receivable, net of allowance for doubtful accounts of $200,000 at June 30, 2001 and at December 31, 2000 | 11,279,000 | 7,298,000 | ||||||
| Inventories (Note 2) | 12,913,000 | 9,538,000 | ||||||
| Prepaid expenses and other current assets | 2,720,000 | 3,530,000 | ||||||
| Deferred income taxes | 889,000 | 889,000 | ||||||
| Total current assets | 35,609,000 | 73,423,000 | ||||||
| Property, plant and equipment, net | 21,581,000 | 23,434,000 | ||||||
| Other assets | 2,262,000 | 2,493,000 | ||||||
| $ | 59,452,000 | $ | 99,350,000 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities: |
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| Accounts payable | $ | 4,612,000 | $ | 3,769,000 | ||||
| Dividend payable | — | 38,209,000 | ||||||
| Accrued liabilities | 3,869,000 | 3,805,000 | ||||||
| Total current liabilities | 8,481,000 | 45,783,000 | ||||||
| Deferred compensation | 978,000 | 828,000 | ||||||
| Total liabilities | 9,459,000 | 46,611,000 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders' Equity: | ||||||||
| Preferred stock, no par value, 2,000,000 shares authorized; none issued and outstanding | ||||||||
| Common stock, no par value, 20,000,000 shares authorized; 7,676,042 and 7,641,769 shares issued and outstanding as of June 30, 2001 and December 31, 2000, respectively | 26,257,000 | 25,847,000 | ||||||
| Retained earnings | 23,736,000 | 26,892,000 | ||||||
| Total shareholders' equity | 49,993,000 | 52,739,000 | ||||||
| $ | 59,452,000 | $ | 99,350,000 | |||||
See accompanying notes to condensed consolidated financial statements.
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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For the Three Months Ended June 30, |
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|---|---|---|---|---|---|---|
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2001 |
2000 |
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| Sales | $ | 32,184,000 | $ | 46,705,000 | ||
| Cost of sales | 30,548,000 | 37,867,000 | ||||
| Gross profit | 1,636,000 | 8,838,000 | ||||
| Selling, general and administrative expenses | 1,820,000 | 2,324,000 | ||||
| (Loss) income from operations | (184,000 | ) | 6,514,000 | |||
| Other income, net | 44,000 | 538,000 | ||||
| (Loss) income before income taxes | (140,000 | ) | 7,052,000 | |||
| Provision for income taxes | 192,000 | 2,920,000 | ||||
| Net (loss) income | $ | (332,000 | ) | $ | 4,132,000 | |
NET (LOSS) INCOME PER SHARE (Note 3) |
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| Net (loss) income per share—basic | $ | (0.04 | ) | $ | 0.54 | |
| Weighted average shares outstanding | 7,676,042 | 7,707,245 | ||||
Net (loss) income per share—diluted |
$ |
(0.04 |
) |
$ |
0.52 |
|
| Weighted average shares outstanding—diluted | 7,691,851 | 7,969,591 | ||||
See accompanying notes to condensed consolidated financial statements.
4
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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For the Six Months Ended June 30, |
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|---|---|---|---|---|---|---|
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2001 |
2000 |
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| Sales | $ | 59,487,000 | $ | 83,935,000 | ||
| Cost of sales | 57,324,000 | 68,616,000 | ||||
| Gross profit | 2,163,000 | 15,319,000 | ||||
| Selling, general and administrative expenses | 3,664,000 | 4,259,000 | ||||
| (Loss) income from operations | (1,501,000 | ) | 11,060,000 | |||
| Other income, net | 229,000 | 1,067,000 | ||||
| (Loss) income before income taxes | (1,272,000 | ) | 12,127,000 | |||
| Provision for income taxes | (283,000 | ) | 5,043,000 | |||
| Net (loss) income | $ | (989,000 | ) | $ | 7,084,000 | |
| NET (LOSS) INCOME PER SHARE (Note 3) | ||||||
| Net (loss) income per share—basic | $ | (0.13 | ) | $ | 0.92 | |
| Weighted average shares outstanding | 7,675,024 | 7,704,408 | ||||
Net (loss) income per share—diluted |
$ |
(0.13 |
) |
$ |
0.90 |
|
| Weighted average shares outstanding—diluted | 7,690,573 | 7,907,715 | ||||
See accompanying notes to condensed consolidated financial statements.
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the Six Months Ended June 30, |
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|---|---|---|---|---|---|---|---|---|---|---|---|
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2001 |
2000 |
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| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net (loss) income | $ | (989,000 | ) | $ | 7,084,000 | ||||||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization | 2,273,000 | 2,184,000 | |||||||||
| Goodwill amortization | 231,000 | 14,000 | |||||||||
| Loss on disposal of machinery and equipment | 244,000 | 16,000 | |||||||||
| Deferred compensation | 150,000 | 143,000 | |||||||||
| Deferred income taxes | — | 54,000 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivable | (3,981,000 | ) | (8,679,000 | ) | |||||||
| Inventories | (3,375,000 | ) | (892,000 | ) | |||||||
| Prepaid expenses and other current assets | 810,000 | 393,000 | |||||||||
| Accounts payable and accrued liabilities | 907,000 | 1,415,000 | |||||||||
| Net cash provided by operating activities | (3,730,000 | ) | 1,732,000 | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchase of property, plant and equipment | (1,690,000 | ) | (1,943,000 | ) | |||||||
| Proceeds from disposal of machinery and equipment | 1,026,000 | 12,000 | |||||||||
| Other assets | — | (125,000 | ) | ||||||||
| Net cash used in investing activities | (664,000 | ) | (2,056,000 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from issuance of common stock upon exercise of options net of related tax benefit | 410,000 | 524,000 | |||||||||
| Dividends paid | (40,376,000 | ) | — | ||||||||
| Net cash (used in) provided by financing activities | (39,966,000 | ) | 524,000 | ||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (44,360,000 | ) | 200,000 | ||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 52,168,000 | 42,740,000 | |||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 7,808,000 | $ | 42,940,000 | |||||||
See accompanying notes to condensed consolidated financial statements.
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COASTCAST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 2001, the related condensed consolidated statements of operations for the three and six months and cash flows for the six months ended June 30, 2001 and 2000 have been prepared by Coastcast Corporation (the "Company") without audit. In the opinion of management, all adjustments (consisting only of normal recurring accruals) have been made which are necessary to present fairly the financial position, results of operations and cash flows of the Company at June 30, 2001 and for the periods then ended.
Although the Company believes that the disclosure in the condensed consolidated financial statements is adequate for a fair presentation thereof, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The December 31, 2000 audited statements were included in the Company's annual report on Form 10-K under the Securities Exchange Act of 1934 for the year ended December 31, 2000. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto contained in that annual report.
Certain reclassifications were made to 2000 balances to conform to the 2001 presentation.
The results of operations for the periods ended June 30, 2001 are not necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
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June 30, 2001 |
December 31, 2000 |
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|---|---|---|---|---|---|---|
| Raw materials and supplies | $ | 4,711,000 | $ | 3,854,000 | ||
| Tooling | 291,000 | 268,000 | ||||
| Work-in-process | 7,362,000 | 5,038,000 | ||||
| Finished goods | 549,000 | 378,000 | ||||
| $ | 12,913,000 | $ | 9,538,000 | |||
3. EARNINGS PER SHARE
Basic net income (loss) per share is based on the weighted average number of shares of common stock outstanding. Diluted net income (loss) per share is based on the weighted average number of shares of common stock outstanding and dilutive potential common equivalent shares from stock options (using the treasury stock method).
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COASTCAST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales decreased 31.0% and 29.1% to $32.2 million and $59.5 million for the three months and six months ended June 30, 2001, respectively, from $46.7 million and $83.9 million for the three months and six months ended June 30, 2000, respectively. The decrease was primarily due to a slightly over 50% drop in steel golf clubhead sales.
Gross profit decreased 81.5% and 85.9% to $1.6 million and $2.2 million for the three months and six months ended June 30, 2001, respectively, from $8.8 million and $15.3 million for the three months and six months ended June 30, 2000. Gross profit margins decreased to 5.1% and 3.6% for the three months and six months ended June 30, 2001 respectively, from 18.9% and 18.3% for the comparable prior year periods, due principally to the decrease in steel golf clubhead sales and the continuing high scrap rates in the titanium manufacturing operations.
The effective tax rate for the six months ended June 30, 2001 was 22.2% compared to 41.6% for the comparable prior year period. The decrease in tax rate was mainly due to the operating losses incurred in the first half of the year partially offset by income taxes required to be paid by the company's foreign operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at June 30, 2001 was $7.8 million compared to $52.2 million on December 31, 2000, a decrease of $44.4 million. Net cash used in operating activities was $3.7 million for the six months ended June 30, 2001. The net cash used in operating activities consisted of net loss of $1.0 million and an increase in receivables and inventory of $4.0 million and $3.4 million, respectively partially offset by depreciation and amortization of $2.3 million, an increase in accounts payable and accrued liabilities of $.9 million and a decrease in prepaid expenses and other current assets of $.8 million. Net cash used in investing activities of $.7 million consisted mainly of $1.7 million of net capital expenditures partially offset by proceeds from disposal of machinery and equipment of $1.0 million. Net cash used in financing activities of $40.0 million consists of cash dividends paid of $40.4 million offset by proceeds from exercise of stock options including related tax benefits of $.4 million.
The Company maintains an unsecured revolving line of credit which allows the Company to borrow up to $5 million and which had no outstanding balance at June 30, 2001. This line of credit which expires on May 30, 2002, bears interest at the bank's prime rate or LIBOR plus 2%.
In December 1999, the Board of directors authorized the repurchase of an additional one million shares of Coastcast common stock from time to time in the open market or negotiated transactions. For the six months ended June 30, 2001, no shares were repurchased under this authorization. As of June 30, 2001, there are 788,842 shares remaining to be purchased under the December 1999 authorization.
The Company has no long term debt. The Company believes that its current cash position, cash flow from operations and the ability to borrow should be adequate to meet its financing requirements for the foreseeable future.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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PART II. OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Securities Holders
The Company held its annual meeting of shareholders on June 20, 2001. The following matters were voted on and approved by the shareholders.
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Votes For |
Votes Withheld |
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|---|---|---|---|---|
| Hans H. Buehler | 7,132,617 | 77,717 | ||
| Robert H. Goon | 7,180,247 | 30,087 | ||
| Edwin A. Levy | 7,095,867 | 114,467 | ||
| Gary V. Meloni | 7,174,617 | 35,717 | ||
| Lee E. Mikles | 7,181,167 | 29,167 | ||
| Paul A. Novelly | 6,137,717 | 1,072,617 |
Item 5. Other Information
The following business risks, as disclosed in Part II, Item 5 "Market for Registrant's Common Equity and Related Stockholder Matters" on Form 10-K for the fiscal year ended December 31, 2000, are hereby incorporated by reference as though set forth fully herein:
Customer
concentration
Competition
New products
New materials and processes
Manufacturing cost variations
Dependence on polishing and finishing plant in Mexico
Hazardous waste
Dependence on discretionary consumer spending
Seasonality; fluctuations in operating results
Reliance on key personnel
Shares eligible for future sale
Fluctuations in Callaway Golf Company share values.
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Item 6. Exhibits and Reports on Form 8-K
(a) |
Exhibits: |
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3.1.1 |
Articles of Incorporation of the Company, as amended (1) |
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3.1.2 |
Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on December 6, 1993 (1) |
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3.2 |
Bylaws of the Company, as amended April 19, 2001 |
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10.1 |
Revolving Line of Credit Note Documents, effective May 31, 2001, between the Company and Imperial Bank |
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10.2 |
Coastcast Corporation 2001 Non-Employee Director Stock Option Plan |
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11 |
Statement re: computation of per share earnings |
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99.1 |
Pages 11-13 of Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 (incorporated by reference to such Form 10-K filed with the Commission) |
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None
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| COASTCAST CORPORATION | |||
July 27, 2001 Dated |
By |
/s/ NORMAN FUJITAKI Norman Fujitaki Chief Financial Officer (Duly Authorized and Principal Financial Officer) |
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