-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N0JBelwRE2f8/5E73DGLNNdbFuyNo58nXpaJ6HfPBiiO/MGK0657Cp/v4kMV7zCL 7WIYXlLBcI9wl+UmFPO7DA== 0000912057-96-015342.txt : 19960806 0000912057-96-015342.hdr.sgml : 19960806 ACCESSION NUMBER: 0000912057-96-015342 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960725 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COASTCAST CORP CENTRAL INDEX KEY: 0000914479 STANDARD INDUSTRIAL CLASSIFICATION: 3360 IRS NUMBER: 953454926 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12676 FILM NUMBER: 96598501 BUSINESS ADDRESS: STREET 1: 3025 E VICTORIA ST CITY: RANCHO DOMINGUEZ STATE: CA ZIP: 90221 BUSINESS PHONE: 3106380595 MAIL ADDRESS: STREET 1: 3025 EAST VICTORIA ST CITY: RANCHO DOMINIQUEZ STATE: CA ZIP: 90221 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (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, 1996 OR [ ] 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 95-3454926 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3025 EAST VICTORIA STREET, RANCHO DOMINGUEZ, CA 90221 (Address of principal executive office) (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 22, 1996 there were outstanding 8,790,424 shares of common stock, no par value. 1 COASTCAST CORPORATION INDEX
Page Number ------ PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 (Unaudited) 3 Condensed Consolidated Statements of Income Three Months Ended June 30, 1996 and 1995 (Unaudited) 4 Six Months Ended June 30, 1996 and 1995 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION: Item 1. Legal Proceedings 11 Item 4. Submission of Matter to a Vote of Securities Holders 11 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12
2 COASTCAST CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) ASSETS June 30, December 31, 1996 1995 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 10,534,000 $ 9,237,000 Short-term investments, at cost, which approximates market value 4,630,000 14,718,000 Accounts receivable, net of allowance for doubtful accounts of $400,000 and $300,000 at June 30, 1996 and December 31, 1995, respectively 18,648,000 7,198,000 Inventories (Note 2) 16,231,000 7,611,000 Prepaid expenses and other current assets 2,439,000 2,743,000 Deferred income taxes 1,240,000 1,240,000 Net current assets of discontinued operations (Note 3) 762,000 697,000 ------------ ------------ Total current assets 54,484,000 43,444,000 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of $13,722,000 and $12,676,000 at June 30, 1996 and December 31, 1995, respectively 18,821,000 15,214,000 OTHER ASSETS 305,000 250,000 ------------ ------------ TOTAL ASSETS $73,610,000 $58,908,000 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 6,581,000 $ 3,833,000 Accrued liabilities 7,321,000 4,823,000 ------------ ------------ Total current liabilities 13,902,000 8,656,000 LONG TERM DEBT - - ------------ ------------ Total liabilities 13,902,000 8,656,000 ------------ ------------ ------------ ------------ 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; 8,788,499 and 8,734,694 shares issued and outstanding as of June 30, 1996 and December 31, 1995, respectively 37,970,000 37,036,000 Retained earnings 21,738 000 13,216,000 ------------ ------------ Total shareholders' equity 59,708,000 50,252,000 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $73,610,000 $58,908,000 ------------ ------------ ------------ ------------
See notes to condensed consolidated financial statements. 3 COASTCAST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended June 30, ----------------------------- 1996 1995 ----------------------------- Sales $ 42,508,000 $ 23,518,000 Cost of sales 30,933,000 18,249,000 ------------- ------------- Gross profit 11,575,000 5,269,0000 Selling, general and administrative expenses 3,188,000 1,759,000 ------------- ------------- Income from operations 8,387,000 3,510,000 Other income 240,000 369,000 ------------- ------------- Income before provision for income taxes 8,627,000 3,879,000 Provision for income taxes 3,623,000 1,602,000 ------------- ------------- Net income $ 5,004,000 $ 2,277,000 ------------- ------------- ------------- ------------- Net income per share (Note 4) $ .55 $ .25 ------------- ------------- Weighted average shares outstanding 9,174,891 9,148,559 See notes to condensed consolidated financial statements. 4 COASTCAST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Six Months Ended June 30, ----------------------------- 1996 1995 ------------ ----------- Sales $71,852,000 $44,719,000 Cost of sales 52,496,000 35,529,000 ----------- ----------- Gross profit 19,356,000 9,190,000 Selling, general and administrative expenses 5,374,000 3,578,000 ----------- ----------- Income from operations 13,982,000 5,612,000 Other income 608,000 736,000 ----------- ----------- Income before provision for income taxes 14,590,000 6,348,000 Provision for income taxes 6,068,000 2,602,000 ----------- ----------- Net income $ 8,522,000 $ 3,746,000 ----------- ----------- ----------- ----------- Net income per share (Note 4) $ .94 $ .41 ----------- ----------- Weighted average shares outstanding 9,052,352 9,151,598 See notes to condensed consolidated financial statements. 5 COASTCOAST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, ---------------------------- 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,522,000 $ 3,746,000 Adustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 1,113,000 900,000 Loss on disposal of machinery and equipment 55,000 7,000 Deferred income taxes 50,000 45,000 Changes in operating assets and liabilities: Accounts receivable (11,450,000) (2,589,000) Inventories (8,620,000) 834,000 Prepaid expenses and other current asset 210,000 392,000 Income taxes payable 1,783,000 - Accounts payable and accrued liabilities 3,557,000 1,400,000 Change in accrual for disposal of aerospace business (115,000) (110,000) ------------ ------------ Net cash (used in) provided by operating activities (4,895,000) 4,625,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Net sales (purchases) of short-term investments 10,088,000 (5,657,000) Purchase of property, plant and equipment (4,775,000) (1,806,000) Proceeds from disposal of machinery and equipment - - Other assets (55,000) (173,000) ------------ ------------ Net cash provided by (used in) investing activities 5,258,000 (7,636,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock upon exercise of options net of related tax benefit 806,000 - Non-employee director stock options 135,000 - Repurchase of common stock (7,000) - ------------ ------------ Net cash provided by financing activities 934,000 - ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,297,000 (3,011,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,237,000 7,188,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,534,000 $ 4,177,000 ------------ ------------ ------------ ------------ See notes to condensed consolidated financial statements. 6 COASTCAST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) 1. BASIS OF PRESENTATION The condensed consolidated balance sheet as of June 30, 1996, the related condensed consolidated statements of income for the three and six months and cash flows for the six months ended June 30, 1996 and 1995 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, 1996 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 generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The December 31, 1995 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, 1995. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto contained in that annual report. The results of operations for the periods ended June 30, 1996 are not necessarily indicative of the results for the full year. 2. INVENTORIES Inventories consisted of the following: June 30, December 31, 1996 1995 ----------- ----------- Raw materials and supplies $5,538,000 $1,546,000 Tooling 246,000 178,000 Work-in-process 8,931,000 4,981,000 Finished goods 1,516,000 906,000 ----------- ----------- $16,231,000 $7,611,000 ----------- ----------- ----------- ----------- 3. DISCONTINUED OPERATIONS The plan adopted in October 1993 to phase out the aerospace business was essentially completed by June 1994. The net current assets of discontinued operations as of June 30, 1996 were $762,000, principally 7 consisting of the estimated net realizable value of the Wallingford, Connecticut property including the related deferred tax asset. In connection with the offering for sale of the Wallingford, Connecticut property, the Company had an environmental assessment performed, which identified the presence of certain chemicals associated with chlorinated solvents in groundwater beneath a portion of the property. The Company is currently conducting further investigation to determine the source and extent of the contamination. The Company has recorded the net assets associated with its discontinued operations at the estimated net realizable value. However, since the precise source and extent of the contamination has not been identified at this time, no assurances can be given that the proceeds to be realized upon the sale of this property less the cost of remediation will equal or exceed the estimated net realizable value. 4. EARNINGS PER SHARE Net income per share is based on the weighted average number of shares of common stock outstanding and dilutive common equivalent shares from stock options, using the treasury stock method. 8 COASTCAST CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales increased 80.8% and 60.9% to $42.5 million and $71.9 million for the three months and six months ended June 30, 1996, respectively, from $23.5 million and $44.7 million for the three months and six months ended June 30, 1995, respectively. The increase was primarily due to sales of titanium clubheads, which have significantly higher unit sales prices than steel-alloy clubheads. Sales of titanium clubheads more than offset a decrease in sales of steel-alloy metal wood and iron clubheads. Gross profit increased 118.9% and 110.9% to $11.6 million and $19.4 million for the three months and six months ended June 30, 1996, respectively, from $5.3 million and $9.2 million for the three months and six months ended June 30, 1995. Gross profit margins increased to 27.2% and 26.9% for the three months and six months ended June 30, 1996 respectively, from 22.4% and 20.6% for the comparable prior year periods, due principally to the shift in production to titanium clubheads. Selling, general and administrative expense increased $1.4 million and $1.8 million, or 77.8% and 50.0%, to $3.2 million and $5.4 million for the three months and six months ended June 30, 1996, respectively, from $1.8 million and $3.6 million for the comparable prior year periods. The increase was due primarily to increased legal fees and increased payroll and related bonus expense. DISCONTINUED OPERATIONS The plan adopted in October 1993 to phase out the aerospace business was essentially completed by June 1994. The net current assets of discontinued operations as of June 30, 1996 were $762,000, principally consisting of the estimated net realizable value of the Wallingford, Connecticut property including the related deferred tax asset. In connection with the offering for sale of the Wallingford, Connecticut property, the Company had an environmental assessment performed, which identified the presence of certain chemicals associated with chlorinated solvents in groundwater beneath a portion of the property. The Company is currently conducting further investigation to determine the source and extent of the contamination. The Company has recorded the net assets associated with its discontinued operations at the estimated net realizable value. However, since the precise source and extent of the contamination has not been identified at this time, no assurances can be given that the proceeds to be realized upon the sale of this property less the cost of remediation will equal or exceed the estimated net realizable value. 9 LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and short-term investments position at June 30, 1996 was $15.2 million compared to $23.9 million on December 31, 1995, a decrease of $8.7 million. Net cash used in operating activities was $4.9 million for the six months ended June 30, 1996. Capital expenditures for the six months ended June 30, 1996 totaled $4.8 million. On October 25, 1995, the Board of Directors authorized the Company to purchase up to 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, 1996, the Company purchased and retired 700 shares for $7,000. As of June 30, 1996, there were 609,500 shares remaining to purchase under this authorization. The Company has no long term debt. The Company believes that its current cash position, working capital generated from future operations and the ability to borrow from financial institutions should be adequate to meet its financing requirements for the foreseeable future. 10 COASTCAST CORPORATION PART II. OTHER INFORMATION Item 1. Legal Proceedings On October 24, 1995, the Company announced an agreement for settlement of the securities class action lawsuits pending against the Company and certain of its officers and directors in the United States District Court for the Central District of California. On November 6, 1995 the parties entered into a Stipulation of Settlement which provides for the creation of a settlement fund of $6.25 million to be paid by or on behalf of the defendants to class members who purchased Company common stock during the class period, January 24, 1994 to August 17, 1994. The Company's officers' and directors' liability insurer has contributed $4.175 million towards the settlement fund, which has been fully funded. The Company charged $2.075 million against its operating results for the year ended December 31, 1995. The $2.075 million was funded in January 1996. On May 6, 1996, the United States District Court granted final approval of the Company's securities litigation class action settlement. Item 4. Submission of Matter to a Vote of Securities Holders The Company held its annual meeting of shareholders on June 12, 1996. The following matters were voted and approved by the shareholders. 1. Election of Directors to hold office until the 1997 Annual Meeting: Votes For Votes Withheld --------- -------------- Hans H. Buehler 7,753,656 111,354 Edward L. White 7,750,606 114,404 Richard W. Mora 7,753,606 111,404 Edwin A. Levy 7,753,806 111,204 Paul A. Novelly 7,754,106 110,904 George L. Graziadio 7,753,306 111,704 Lee E. Mikles 7,749,181 115,829 2. Amendment of the 1993 Amended and Restated Employee Stock Option Plan was voted upon by the shareholders. The amendment increases the number of shares covered by the plan by 650,000 shares, extends the expiration date of the plan by two years, and limits the aggregate number of shares in respect of which options may be granted in any calendar year to any one person to 450,000 shares. Holders of 5,070,787 shares voted for the amendment, holders of 763,110 shares voted against the amendment, and holders of 45,684 shares abstained from voting on such amendment. 3. Amendment of the Non-Employee Director Stock Option Plan was voted upon by the shareholders. The amendment increases the number of shares covered by the plan by 150,000 shares, and increases the number of shares issuable to each eligible director under the plan. Holders of 4,754,346 shares voted for 11 the amendment, holders of 1,080,059 shares voted against the amendment, and holders of 45,176 shares abstained from voting on such amendment. 4. Ratification of Deloitte & Touche LLP as the Company's independent auditors was a proposal voted upon by the shareholders. Holders of 7,823,350 shares voted for such ratification, holders of 6,603 shares voted against such ratification and holders of 35,057 shares abstained from voting on such ratification. 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, 1995, are hereby incorporated by reference as those 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 shares. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit: 11.1 Statement re: computation of per share earnings (b) Reports on Form 8-K: None 12 SIGNATURES 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 22, 1996 By /s/ Robert C. Bruning ---------------- ------------------------------------- Dated Robert C. Bruning Chief Financial Officer (Duly Authorized and Principal Financial Officer) 13 EX-11.1 2 EXHIBIT 11.1 COASTCAST CORPORATION COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
Three Months Six Months Ended June 30, Ended June 30, -------------------------- -------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Common stock outstanding at beginning of period 8,760,960 9,091,994 8,734,694 9,091,994 Repurchase of common stock - - (700) - Exercise of options 27,539 - 54,505 - ------------ ------------ ------------ ------------ Common stock outstanding at end of 8,788,499 9,091,994 8,788,499 9,091,994 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Weighted average shares outstanding 8,779,108 9,091,994 8,762,333 9,091,994 Dilutive effect of stock options after application of treasury stock method 395,783 56,565 290,019 59,604 ------------ ------------ ------------ ------------ Total 9,174,891 9,148,559 9,052,352 9,151,598 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net income $ 5,004,000 $ 2,277,000 $ 8,522,000 $ 3,746,000 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net income per common and common equivalent share $ .55 $ .25 $ .94 $ .41 ----- ----- ----- -----
Exhibit 11.1 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 APR-01-1996 JUN-30-1996 10,534 4,630 19,048 400 16,231 54,484 32,543 13,722 73,610 13,902 0 0 0 37,970 21,738 73,610 71,852 71,852 52,496 52,496 5,374 0 0 14,590 6,068 8,522 0 0 0 8,522 .94 0
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