-----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, TkjyZHbQwMDXSXXmYV5FljRXxnc0G+aT4zN+l0C68fH+KFdxv2eY7y5Qb7x3Mu1N A5UL5SAwuFifMEBAZAViAA== 0001157523-02-000347.txt : 20020509 0001157523-02-000347.hdr.sgml : 20020509 ACCESSION NUMBER: 0001157523-02-000347 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COASTCAST CORP CENTRAL INDEX KEY: 0000914479 STANDARD INDUSTRIAL CLASSIFICATION: [3949] 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: 02638949 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 a4175149.txt COASTCAST 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 March 31, 2002 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 offices) (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 May 9, 2002 there were outstanding 7,635,042 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 March 31, 2002 (Unaudited) and December 31, 2001 3 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2001 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 9 PART II. OTHER INFORMATION: Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 10 2 COASTCAST CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) March 31, December 31, ASSETS 2002 2001 Current assets: Cash and cash equivalents $ 10,757,000 $ 13,248,000 Accounts receivable, net of allowance for doubtful accounts of $200,000 at March 31, 2002 and December 31, 2001 10,448,000 7,293,000 Inventories (Note 2) 9,974,000 9,319,000 Prepaid expenses and other current assets 1,638,000 2,376,000 Deferred income taxes 254,000 264,000 Total current assets 33,071,000 32,500,000 Property, plant and equipment, net 20,712,000 21,127,000 Deferred income taxes 2,346,000 2,346,000 Other assets 1,418,000 1,458,000 Total assets $ 57,547,000 $ 57,431,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,667,000 $ 3,196,000 Accrued liabilities 4,185,000 4,252,000 Total current liabilities 6,852,000 7,448,000 Long term liabilities 1,704,000 1,728,000 Total liabilities 8,556,000 9,176,000 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 shares issued and outstanding as of March 31, 2002 and December 31, 2001 26,067,000 26,067,000 Retained earnings 23,158,000 22,435,000 Accumulated other comprehensive loss (234,000) (247,000) Total shareholders' equity 48,991,000 48,255,000 Total liabilities and shareholders' equity $57,547,000 $57,431,000
See accompanying notes to condensed consolidated financial statements. 3 COASTCAST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended March 31, --------------------------------------------- 2002 2001 ------------------- -------------------- Sales $ 21,956,000 $ 27,303,000 Cost of sales 19,064,000 26,776,000 ------------------- -------------------- Gross profit 2,892,000 527,000 Selling, general and administrative expenses 1,603,000 1,844,000 ------------------- -------------------- Income (loss) from operations 1,289,000 (1,317,000) Other income, net 34,000 185,000 ------------------- -------------------- Income (loss) before income taxes 1,323,000 (1,132,000) Provision (benefit) for income taxes 600,000 (475,000) ------------------- -------------------- Net income (loss) $ 723,000 $ (657,000) =================== ==================== NET INCOME (LOSS) PER SHARE (Note 3) Net income (loss) per share - basic $ 0.09 $ (0.09) =================== ==================== Weighted average shares outstanding 7,635,042 7,673,996 =================== ==================== Net income (loss) per share - diluted $ 0.09 $ (0.09) =================== ==================== Weighted average shares outstanding - diluted 7,636,792 7,673,996 =================== ====================
See accompanying notes to condensed consolidated financial statements. 4 COASTCAST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31, --------------------------------------- 2002 2001 ----------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 723,000 $ (657,000) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 1,022,000 1,142,000 Goodwill amortization and impairment - 231,000 Loss on disposal of machinery and equipment 3,000 1,000 Deferred compensation 75,000 75,000 Pension liability (99,000) - Deferred income taxes 23,000 (45,000) Changes in operating assets and liabilities: Accounts receivable (3,155,000) (3,306,000) Inventories (655,000) (1,792,000) Prepaid expenses and other current assets 738,000 551,000 Accounts payable and accrued liabilities (596,000) 707,000 ----------------- ------------------ Net cash used in operating activities (1,921,000) (3,093,000) ----------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (625,000) (1,236,000) Proceeds from disposal of machinery and equipment 15,000 - Other assets 40,000 30,000 ----------------- ------------------ Net cash used in investing activities (570,000) (1,206,000) ----------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock upon exercise of options - 410,000 Dividend paid - (38,380,000) ----------------- ------------------ Net cash used in financing activities - (37,970,000) ----------------- ------------------ NET (DECREASE) IN CASH AND CASH EQUIVALENTS (2,491,000) (42,269,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,248,000 52,168,000 ----------------- ------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,757,000 $ 9,899,000 ================= ==================
See accompanying notes to condensed consolidated financial statements. 5 COASTCAST CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The interim condensed consolidated balance sheet as of March 31, 2002, and the related condensed consolidated statements of operations and cash flows for the three months ended March 31, 2002 and 2001 have been prepared by Coastcast Corporation (the "Company") and are unaudited. 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 March 31, 2002, and for the period then ended. Although the Company believes that the disclosure in the interim 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, 2001 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, 2001. 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 period ended March 31, 2002, are not necessarily indicative of the results for the full year. 2. INVENTORIES Inventories consisted of the following:
March 31, December 31, 2002 2001 ------------------------ ----------------------- Raw materials and supplies $ 4,907,000 $ 5,009,000 Tooling 312,000 245,000 Work-in-process 4,086,000 3,658,000 Finished goods 669,000 407,000 ------------------------ ----------------------- $ 9,974,000 $ 9,319,000 ======================== =======================
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). 6 4. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) consisted of the following:
For the Three Months Ended March 31, -------------------------------------------------------- 2002 2001 ------------------------ ----------------------- Net income (loss) $ 723,000 $ (657,000) Unrealized gain (loss) on investment, net of income tax expense 13,000 (26,000) ------------------------ ----------------------- Comprehensive income (loss) $ 736,000 $ (683,000) ======================== =======================
5. SUBSEQUENT EVENT The Company is experiencing a continuing diminishment of its golf clubhead market share due to the increasing use by our customers of suppliers in China. The products coming from China are at prices lower than those the Company is able to offer. As a result, sales to our major customers are declining. We have also learned that a major customer, Callaway Golf, is in the process of acquiring certain assets of one of our former competitors for use in manufacturing golf clubheads. If this acquisition is completed, it may result in a further decline in business from Callaway. The Company is taking aggressive steps to downsize its operations and reduce costs in order to remain profitable on much lower revenues. This will result in substantial consolidation charges which the Company expects to recognize over the rest of 2002 and possibly into 2003. In February 2002, the New York Stock Exchange (NYSE) notified the Company that it had fallen below the NYSE's minimum equity and capitalization standards, and requested that the Company provide a business plan demonstrating how it intends to achieve and sustain compliance. According to the criteria, companies are required to have a minimum shareholders' equity of $50 million and a minimum market capitalization of $50 million over any consecutive 30-day trading period. Companies below these levels must submit a business plan for the NYSE's approval, demonstrating how the company anticipates meeting the standards within an eighteen-month period. On April 18, 2002, the Company announced that it had submitted a plan to the NYSE setting forth the action that the Company intends to take to comply with the eligibility standards. After reviewing the plan, the Committee will either accept it (following which the Company will be subject to quarterly monitoring for compliance with the plan), or not (in which event the Company will be subject to NYSE trading suspension and delisting). The Company is evaluating its alternatives should the Company's shares cease being traded on the NYSE. 7 COASTCAST CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Three months ended March 31, 2002 compared with three months ended March 31, 2001: Sales decreased $5.3 million, or 19.4%, to $22.0 million for the three months ended March 31, 2002 from $27.3 million for the three months ended March 31, 2001. The decrease was mostly due to a decrease in titanium golf clubhead sales. Gross profit increased $2.4 million, to $2.9 million for 2002 from $.5 million for 2001. Gross profit margins increased to 13.2% in 2002 from 1.9% in 2001. The increase in gross profit margin was primarily due to significantly lower scrap rates in the titanium golf manufacturing operations in the first quarter of 2002 compared to the first quarter of 2001. Selling, general and administrative expenses decreased $.2 million, or 11.1%, to $1.6 million for 2002 from $1.8 million for 2001. The decrease was mainly due to a decrease in payroll and related benefits. SUBSEQUENT EVENT The Company is experiencing a continuing diminishment of its golf clubhead market share due to the increasing use by our customers of suppliers in China. The products coming from China are at prices lower than those the Company is able to offer. As a result, sales to our major customers are declining. We have also learned that a major customer, Callaway Golf, is in the process of acquiring certain assets of one of our former competitors for use in manufacturing golf clubheads. If this acquisition is completed, it may result in a further decline in business from Callaway. The Company is taking aggressive steps to downsize its operations and reduce costs in order to remain profitable on much lower revenues. This will result in substantial consolidation charges which the Company expects to recognize over the rest of 2002 and possibly into 2003. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents position at March 31, 2002 was $10.7 million compared to $13.2 million on December 31, 2001, a decrease of $2.5 million. Net cash used by operating activities was $1.9 million for the three months ended March 31, 2002. Net cash used in operating activities was primarily due to a $3.2 million increase in receivables and a $.7 million increase in inventories partially offset by depreciation and amortization of $1.0 million and net income of $.7 million. Net cash used in investing activities of $.6 million consisted mainly of net capital expenditures for the three months ended March 31, 2002. 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 March 31, 2002. This line of credit, which expires on May 31, 2002, bears interest at the bank's prime rate or LIBOR plus 2%. The Company expects to renew this line of credit in June 2002. 8 The Company has no long term debt. The Company believes that its current cash position and the ability to borrow should be adequate to meet its financing requirements for current operations and the foreseeable future. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable. PART II. OTHER INFORMATION 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, 2001, 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 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 Shareholders rights plan could discourage acquisition proposals. In February 2002, the New York Stock Exchange (NYSE) notified the Company that it had fallen below the NYSE's minimum equity and capitalization standards, and requested that the Company provide a business plan demonstrating how it intends to achieve and sustain compliance. According to the criteria, companies are required to have a minimum shareholders' equity of $50 million and a minimum market capitalization of $50 million over any consecutive 30-day trading period. Companies below these levels must submit a business plan for the NYSE's approval, demonstrating how the company anticipates meeting the standards within an eighteen-month period. On April 18, 2002, the Company announced that it had submitted a plan to the NYSE setting forth the action that the Company intends to take to comply with the eligibility standards. After reviewing the plan, the Committee will either accept it (following which the Company will be subject to quarterly monitoring for compliance with the plan), or not (in which event the Company will be subject to NYSE trading suspension and delisting). The Company is evaluating its alternatives should the Company's shares cease being traded on the NYSE. 9 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3.1.1 Articles of Incorporation of the Company, as amended (1) 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 (1) (1) Incorporated by reference to the exhibits to the Registration Statement on Form S-1 (Registration No. 33-71294) filed on November 17, 1993, Amendment No. 2 filed on December 1, 1993, and Amendment No. 3 filed on December 9, 1993 11 Statement re: computation of per share earnings 99 Pages 10-12 of Registrant's annual report on Form 10-K for the year ended December 31, 2001 (incorporated by reference to such Form 10-K filed with the Commission) (b) Reports on Form 8-K: None 10 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 May 9, 2002 By /s/ Norman Fujitaki ___________ __________________________________ Dated Norman Fujitaki Chief Financial Officer (Duly Authorized and Principal Financial Officer) 11
EXHIBIT 11 COASTCAST CORPORATION COMPUTATION OF PER SHARE EARNINGS (LOSS) (UNAUDITED) Three Months Ended March 31, ------------------------------------------ 2002 2001 ------------------ ------------------ Common stock outstanding at beginning of period 7,635,042 7,641,769 Exercise of stock options - 34,273 ------------------ ------------------ Common stock outstanding at end of period 7,635,042 7,676,042 ================== ================== Weighted average shares outstanding, for computation of basic EPS 7,635,042 7,673,996 Dilutive effect of stock options after application of treasury stock method 1,750 - ------------------ ------------------ Total diluted weighted average shares outstanding, for computation of Diluted earnings per share 7,636,792 7,673,996 ================== ================== Net income (loss) $ 723,000 $ (657,000) ================== ================== Net income (loss) per common share - basic $ 0.09 $ (0.09) ================== ================== Net income (loss) per common and common equivalent share - diluted $ 0.09 $ (0.09) ================== ==================
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