UNITED STATES
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 September 30, 2001
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 (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 October 29, 2001 there were outstanding 7,635,042 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 September 30, 2001 (Unaudited) and December 31, 2000 |
3 |
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Condensed Consolidated Statements of Income (Unaudited) Three Months Ended September 30, 2001 and 2000 |
4 |
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Nine Months Ended September 30, 2001 and 2000 | 5 | ||
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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 5. |
Other Information |
9 |
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Item 6. |
Exhibits and Reports on Form 8-K |
9 |
2
COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, 2001 |
December 31, 2000 |
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(Unaudited) |
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A S S E T S | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 9,262,000 | $ | 52,168,000 | ||||
Trade accounts receivable, net of allowance for doubtful accounts of $200,000 at September 30, 2001 and December 31, 2000 | 11,910,000 | 7,298,000 | ||||||
Inventories (Note 2) | 12,077,000 | 9,538,000 | ||||||
Prepaid expenses and other current assets | 2,346,000 | 3,530,000 | ||||||
Deferred income taxes | 915,000 | 889,000 | ||||||
Total current assets | 36,510,000 | 73,423,000 | ||||||
Property, plant and equipment, net | 21,085,000 | 23,434,000 | ||||||
Other assets | 2,172,000 | 2,493,000 | ||||||
$ | 59,767,000 | $ | 99,350,000 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable | $ | 4,144,000 | $ | 3,769,000 | ||||
Dividend payable | | 38,209,000 | ||||||
Accrued liabilities | 3,672,000 | 3,805,000 | ||||||
Total current liabilities | 7,816,000 | 45,783,000 | ||||||
Deferred compensation | 1,030,000 | 828,000 | ||||||
Total liabilities | 8,846,000 | 46,611,000 | ||||||
Commitments and contingencies | ||||||||
Shareholders' equity: | ||||||||
Series A Preferred stock, no par value, 200,000 shares authorized, none issued and outstanding | | | ||||||
Preferred stock, no par value, 1,800,000 shares authorized, none issued and outstanding | | | ||||||
Common stock, no par value, 20,000,000 shares authorized; 7,635,042 and 7,641,769 shares issued and outstanding as of September 30, 2001 and December 31, 2000, respectively | 26,034,000 | 25,847,000 | ||||||
Retained earnings | 24,924,000 | 26,892,000 | ||||||
Accumulated other comprehensive income (loss) | (37,000 | ) | | |||||
Total shareholders' equity | 50,921,000 | 52,739,000 | ||||||
$ | 59,767,000 | $ | 99,350,000 | |||||
See accompanying notes to condensed consolidated financial statements.
3
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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For the Three Months Ended September 30, |
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2001 |
2000 |
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Sales | $ | 31,197,000 | $ | 32,539,000 | ||
Cost of sales | 27,942,000 | 29,149,000 | ||||
Gross profit | 3,255,000 | 3,390,000 | ||||
Selling, general and administrative expenses | 1,654,000 | 1,388,000 | ||||
Income from operations | 1,601,000 | 2,002,000 | ||||
Other income, net | 112,000 | 749,000 | ||||
Income before income taxes | 1,713,000 | 2,751,000 | ||||
Provision for income taxes | 525,000 | 1,155,000 | ||||
Net income | $ | 1,188,000 | $ | 1,596,000 | ||
NET INCOME PER SHARE (Note 3) |
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Net income per sharebasic |
$ |
0.16 |
$ |
0.21 |
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Weighted average shares outstanding | 7,661,335 | 7,579,377 | ||||
Net income per sharediluted |
$ |
0.16 |
$ |
0.21 |
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Weighted average shares outstandingdiluted | 7,661,383 | 7,728,275 | ||||
See accompanying notes to condensed consolidated financial statements.
4
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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For the Nine Months Ended September 30, |
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2001 |
2000 |
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Sales | $ | 90,684,000 | $ | 116,474,000 | ||
Cost of sales | 85,266,000 | 97,765,000 | ||||
Gross profit | 5,418,000 | 18,709,000 | ||||
Selling, general and administrative expenses | 5,318,000 | 5,647,000 | ||||
Income from operations | 100,000 | 13,062,000 | ||||
Other income, net | 341,000 | 1,816,000 | ||||
Income before income taxes | 441,000 | 14,878,000 | ||||
Provision for income taxes | 242,000 | 6,198,000 | ||||
Net income | $ | 199,000 | $ | 8,680,000 | ||
NET INCOME PER SHARE (Note 3) |
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Net income per sharebasic |
$ |
0.03 |
$ |
1.13 |
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Weighted average shares outstanding | 7,670,411 | 7,662,427 | ||||
Net income per sharediluted |
$ |
0.03 |
$ |
1.11 |
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Weighted average shares outstandingdiluted | 7,680,793 | 7,847,597 | ||||
See accompanying notes to condensed consolidated financial statements.
5
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the Nine Months Ended September 30, |
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2001 |
2000 |
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CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net income | $ | 199,000 | $ | 8,680,000 | |||||||
Adjustments to reconcile net income to net cash provided by | |||||||||||
(used in) operating activities: | |||||||||||
Depreciation and amortization | 3,313,000 | 3,289,000 | |||||||||
Goodwill amortization | 231,000 | 21,000 | |||||||||
Loss on disposal of machinery and equipment | 241,000 | 16,000 | |||||||||
Deferred compensation | 202,000 | 215,000 | |||||||||
Deferred income taxes | (63,000 | ) | 85,000 | ||||||||
Changes in operating assets and liabilities: | |||||||||||
Trade accounts receivable | (4,612,000 | ) | (781,000 | ) | |||||||
Inventories | (2,539,000 | ) | 1,955,000 | ||||||||
Prepaid expenses and other current assets | 1,184,000 | (605,000 | ) | ||||||||
Accounts payable and accrued liabilities | 242,000 | 1,045,000 | |||||||||
Net cash (used in) provided by operating activities | (1,602,000 | ) | 13,920,000 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Purchase of property, plant and equipment | (2,234,000 | ) | (2,829,000 | ) | |||||||
Proceeds from disposal of machinery and equipment | 1,029,000 | 12,000 | |||||||||
Other assets | 90,000 | (163,000 | ) | ||||||||
Net cash used in investing activities | (1,115,000 | ) | (2,980,000 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Proceeds from issuance of common stock upon exercise of | |||||||||||
options, including related tax benefit | 410,000 | 548,000 | |||||||||
Dividends paid | (40,376,000 | ) | | ||||||||
Repurchase of common stock | (223,000 | ) | (5,543,000 | ) | |||||||
Net cash used in financing activities | (40,189,000 | ) | (4,995,000 | ) | |||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (42,906,000 | ) | 5,945,000 | ||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
52,168,000 |
42,740,000 |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 9,262,000 | $ | 48,685,000 | |||||||
See accompanying notes to condensed consolidated financial statements.
6
COASTCAST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of September 30, 2001, and the related condensed consolidated statements of income for the three and nine months and cash flows for the nine months ended September 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 September 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.
The results of operations for the periods ended September 30, 2001 are not necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
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September 30, 2001 |
December 31, 2000 |
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Raw materials and supplies | $ | 4,878,000 | $ | 3,854,000 | ||
Tooling | 301,000 | 268,000 | ||||
Work-in-process | 6,005,000 | 5,038,000 | ||||
Finished goods | 893,000 | 378,000 | ||||
$ | 12,077,000 | $ | 9,538,000 | |||
3. EARNINGS PER SHARE
Basic net income per share is based on the weighted average number of shares of common stock outstanding. Diluted net income 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).
7
COAST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales decreased 4.0% and 22.1% to $31.2 million and $90.7 million for the three months and nine months ended September 30, 2001, respectively, from $32.5 million and $116.5 million for the three months and nine months ended September 30, 2000, respectively. The slight decrease in sales in the quarter was due to a decrease in medical and other specialty product sales. The decrease in sales for the nine months ended September 30, 2001 was mainly due to decreased sales of irons and steel metal woods partially offset by an increase in titanium metal wood sales.
Gross profit decreased 2.9% and 71.1% to $3.3 million and $5.4 million for the three months and nine months ended September 30, 2001, respectively, from $3.4 million and $18.7 million for the three months and nine months ended September 30, 2000, respectively. Gross profit margins were flat at 10.4% for both the three months ended September 30, 2001 and September 30, 2000. Gross profit margins decreased to 6.0% for the nine months ended September 30, 2001 versus 16.1% for the nine months ended September 30, 2000 primarily due to a decrease in steel golf clubhead sales and the high scrap rates in the titanium manufacturing operations during the first half of 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at September 30, 2001 was $9.3 million compared to $52.2 million on December 31, 2000, a decrease of $42.9 million. Net cash used in operating activities was $1.6 million for the nine months ended September 30, 2001. The net cash used in operating activities consisted of an increase in accounts receivables and inventories of $7.2 million partially offset by net income of $.2 million, depreciation and amortization of $3.3 million and a decrease in prepaid expenses and other current assets of $1.2 million. Net cash used by investing activities of $1.1 million consisted mainly of capital expenditures of $2.2 million partially offset by proceeds from disposal of fixed assets of $1.0 million. Net cash used by financing activities of $40.2 million consisted of dividends paid of $40.4 million and the repurchase of company common stock of $.2 million offset by $0.4 million in proceeds from the issuance of common stock upon exercise of stock options, including related tax benefit.
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 September 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 nine months ended September 30, 2001, the Company purchased 41,000 shares at a cost of $.2 million dollars, with 747,842 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, anticipated working capital generated from future operations and the ability to borrow should be adequate to meet its financing requirements for the foreseeable future.
FORWARD LOOKING INFORMATION
Except for the historical information, other statements in this report are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially, including, but not limited to, industry conditions, economic conditions, competitive factors and pricing pressures, shifts in market demand and trends, and the costs of product development and production as well as other risks detailed in the Company's Securities and Exchange Commission filings.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
8
COASTCAST CORPORATION
Customer
concentration
Competition
New products
New materials and processes
Manufacturing cost variations
Dependence on manufacturing plants 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
Adverse effect of increased energy costs
Shareholder rights plan could discourage acquisition proposals.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: | ||
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) | |
3.2 | Bylaws of the Company, as amended April 19, 2001(2) | |
11 | Statement re: computation of per share earnings | |
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) |
None
9
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 | |||
Dated October 29, 2001 | By | /s/ NORMAN FUJITAKI Norman Fujitaki Chief Financial Officer (Duly Authorized and Principal Financial Officer) |
10
COASTCAST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
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|
2001 |
2000 |
2001 |
2000 |
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Common stock outstanding at beginning of period | 7,676,042 | 7,738,372 | 7,641,769 | 7,701,571 | ||||||||||
Exercise of options | | 1,667 | 34,273 | 38,468 | ||||||||||
Repurchase of common stock | (41,000 | ) | (375,658 | ) | (41,000 | ) | (375,658 | ) | ||||||
Common stock outstanding at end of period | 7,635,042 | 7,364,381 | 7,635,042 | 7,364,381 | ||||||||||
Weighted average shares outstanding, | ||||||||||||||
for computation of basic earnings per share | 7,661,335 | 7,579,377 | 7,670,411 | 7,662,427 | ||||||||||
Dilutive effect of stock options after application of |
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treasury stock method | 48 | 148,898 | 10,382 | 185,170 | ||||||||||
Total diluted weighted average shares outstanding, | ||||||||||||||
for computation of diluted earnings per share | 7,661,383 | 7,728,275 | 7,680,793 | 7,847,597 | ||||||||||
Net income |
$ |
1,188,000 |
$ |
1,596,000 |
$ |
199,000 |
$ |
8,680,000 |
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Net income per share data: | ||||||||||||||
Net income per sharebasic |
$ |
0.16 |
$ |
0.21 |
$ |
0.03 |
$ |
1.13 |
||||||
Net income per sharediluted | $ | 0.16 | $ | 0.21 | $ | 0.03 | $ | 1.11 | ||||||
11