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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 September 30, 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 November 14, 2002 there were outstanding 7,635,042 shares of common stock, no
par value.
COASTCAST CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2002
(Unaudited) and December 31, 2001 3
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended September 30, 2002 and 2001 4
Nine Months Ended September 30, 2002 and 2001 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION:
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 19
Certifications 20
Forward Looking Statements
This document includes certain "forward looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
based on management's current expectations and are subject to uncertainty and
changes in circumstances. Actual results may differ materially from these
expectations due to changes in political, economic, business, competitive,
market and regulatory factors.
2
COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2002 2001
------------------------- -----------------------
A S S E T S
Current assets:
Cash and cash equivalents $ 17,619,000 $ 13,248,000
Trade accounts receivable, net of allowance for doubtful
accounts of $200,000 at September 30, 2002 and
at December 31, 2001 3,806,000 7,293,000
Inventories (Note 2) 5,636,000 9,319,000
Prepaid expenses and other current assets 3,541,000 2,376,000
Deferred income taxes - 264,000
Assets held for sale 5,672,000 8,600,000
------------------------- -----------------------
Total current assets 36,274,000 41,100,000
Property, plant and equipment, net 9,903,000 12,527,000
Deferred income taxes - 2,346,000
Other assets 1,219,000 1,458,000
------------------------- -----------------------
$47,396,000 $ 57,431,000
========================= =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,841,000 $ 3,196,000
Accrued liabilities 3,878,000 4,252,000
------------------------- -----------------------
Total current liabilities 5,719,000 7,448,000
Long term liabilities 2,181,000 1,728,000
------------------------- -----------------------
Total liabilities 7,900,000 9,176,000
------------------------- -----------------------
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;
7,635,042 shares issued and outstanding 26,067,000 26,067,000
Retained earnings 14,400,000 22,435,000
Accumulated other comprehensive loss (971,000) (247,000)
------------------------- -----------------------
Total shareholders' equity 39,496,000 48,255,000
------------------------- -----------------------
$ 47,396,000 $ 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 September 30,
------------------------------------------------
2002 2001
--------------------- ---------------------
Sales $ 12,436,000 $ 31,197,000
Cost of sales 12,717,000 27,942,000
--------------------- ---------------------
Gross (loss) profit (281,000) 3,255,000
Selling, general and administrative expenses 1,176,000 1,654,000
Impairment of fixed assets 1,724,000 -
Restructuring charges 2,170,000 -
--------------------- ---------------------
(Loss) income from operations (5,351,000) 1,601,000
Other (expense) income, net (49,000) 112,000
--------------------- ---------------------
(Loss) income before income taxes (5,400,000) 1,713,000
(Benefit) provision for income taxes (785,000) 525,000
--------------------- ---------------------
Net (loss) income $ (4,615,000) $ 1,188,000
===================== =====================
NET (LOSS) INCOME PER SHARE (Note 3)
Net (loss) income per share - basic $ (0.60) $ 0.16
===================== =====================
Weighted average shares outstanding 7,635,042 7,661,335
===================== =====================
Net (loss) income per share - diluted $ (0.60) $ 0.16
===================== =====================
Weighted average shares outstanding - diluted 7,635,042 7,661,383
===================== =====================
See accompanying notes to condensed consolidated financial statements.
4
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
------------------------------------------------
For the Nine Months
Ended September 30,
------------------------------------------------
2002 2001
--------------------- ---------------------
Sales $ 54,337,000 $ 90,684,000
Cost of sales 49,953,000 85,266,000
--------------------- ---------------------
Gross profit 4,384,000 5,418,000
Selling, general and administrative expenses 4,247,000 5,318,000
Impairment of fixed assets 3,474,000 -
Restructuring charges 3,603,000 -
--------------------- ---------------------
(Loss) income from operations (6,940,000) 100,000
Other income, net 80,000 341,000
--------------------- ---------------------
(Loss) income before income taxes (6,860,000) 441,000
Provision for income taxes 1,175,000 242,000
--------------------- ---------------------
Net (loss) income $ (8,035,000) $ 199,000
===================== =====================
NET (LOSS) INCOME PER SHARE (Note 3)
Net (loss) income per share - basic $ (1.05) $ 0.03
===================== =====================
Weighted average shares outstanding 7,635,042 7,670,411
===================== =====================
Net (loss) income per share - diluted $ (1.05) $ 0.03
===================== =====================
Weighted average shares outstanding - diluted 7,635,042 7,680,793
===================== =====================
See accompanying notes to condensed consolidated financial statements.
5
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended September 30,
-----------------------------------------------
2002 2001
--------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (8,035,000) $ 199,000
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,074,000 3,313,000
Goodwill amortization and impairment - 231,000
Impairment of fixed assets 3,474,000 -
Loss on disposal of machinery and equipment 44,000 241,000
Deferred compensation 152,000 202,000
Deferred income taxes 2,434,000 (63,000)
Changes in operating assets and liabilities:
Trade accounts receivable 3,487,000 (4,612,000)
Inventories 3,683,000 (2,539,000)
Prepaid expenses and other current assets (1,165,000) 1,184,000
Accounts payable and accrued liabilities (1,305,000) 242,000
--------------------- ----------------------
Net cash provided by (used in) operating activities 5,843,000 (1,602,000)
--------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,627,000) (2,234,000)
Proceeds from disposal of machinery and equipment 64,000 1,029,000
Other assets 91,000 90,000
--------------------- ----------------------
Net cash used in investing activities (1,472,000) (1,115,000)
--------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of
options net of related tax benefit - 410,000
Repurchase of common stock - (223,000)
Dividends paid - (40,376,000)
--------------------- ----------------------
Net cash used in financing activities - (40,189,000)
--------------------- ----------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,371,000 (42,906,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 13,248,000 52,168,000
--------------------- ----------------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 17,619,000 $ 9,262,000
===================== ======================
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, 2002, the related
condensed consolidated statements of operations for the three and nine months
and cash flows for the nine months ended September 30, 2002 and 2001 have been
prepared by Coastcast Corporation (the "Company") without audit. In the opinion
of management, all adjustments (consisting only of normal recurring accruals,
unless otherwise noted) have been made which are necessary to present fairly the
financial position, results of operations and cash flows of the Company at
September 30, 2002 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, 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 periods ended September 30, 2002 are not
necessarily indicative of the results for the full year.
Certain amounts in the prior year's financial statements have been reclassified
to conform to the September 30, 2002 presentation.
2. INVENTORIES
Inventories consisted of the following:
September 30, December 31,
2002 2001
---------------- ------------------
Raw materials and supplies $3,694,000 $ 5,009,000
Tooling 228,000 245,000
Work-in-process 1,428,000 3,658,000
Finished goods 286,000 407,000
-------------- --------------
$5,636,000 $9,319,000
========== ===========
7
3. EARNINGS PER SHARE
Basic net (loss) income per share is based on the weighted average number of
shares of common stock outstanding. Diluted net (loss) 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).
4. COMPREHENSIVE (LOSS) INCOME
Comprehensive (loss) income consisted of the following:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------------------------- -------------------------------------------
2002 2001 2002 2001
------------------------ -------------------- ------------------- --------------------
Net (loss) income $(4,615,000) $ 1,188,000 $(8,035,000) $199,000
Unrealized loss on
investments (40,000) (37,000) (41,000) (37,000)
Additional minimum pension
liability, net of income tax (507,000) - (683,000) -
------------------------ -------------------- ------------------- --------------------
Comprehensive (loss) income $(5,162,000) $1,151,000 $ (8,759,000) $162,000
======================== ==================== =================== ====================
5. BUSINESS SEGMENTS
The Company's management has organized its operations into 2 business segments:
Golf and Non-Golf. The following tables set forth summarized financial
information on the Company's reportable segments:
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------------------------- -------------------------------------------
2002 2001 2002 2001
-------------------- --------------------- ------------------ --------------------
Net sales:
Golf $10,132,000 $28,314,000 $ 46,972,000 $81,907,000
Non-golf 2,304,000 2,883,000 7,365,000 8,777,000
-------------------- --------------------- ------------------ --------------------
Total net sales 12,436,000 31,197,000 54,337,000 90,684,000
-------------------- --------------------- ------------------ --------------------
(Loss) income from operations:
Golf (5,039,000) 1,866,000 (6,423,000) 449,000
Non-golf (312,000) (265,000) (517,000) (349,000)
-------------------- --------------------- ------------------ --------------------
Total (loss) income from
operations $ (5,351,000) $ 1,601,000 $ (6,940,000) $ 100,000
-------------------- --------------------- ------------------ --------------------
8
September 30, December 31,
2002 2001
-------------------- ---------------------
Identifiable assets:
Golf $16,122,000 $25,457,000
Non-golf 4,523,000 5,484,000
Corporate 26,751,000 26,490,000
-------------------- ---------------------
Total identifiable assets $47,396,000 $57,431,000
==================== =====================
The impairment of fixed assets and restructuring charges were included in the
Golf business segment (See Note 6). Certain selling, general and administrative
expenses were allocated based on a specific identification basis, with the
remaining selling, general and administrative expenses allocated based on
percent of sales. Assets held for sale of $5,672,000 and $8,600,000, as of
September 30, 2002 and December 31, 2001, respectively, related to the Golf
business and have been reclassified to Corporate.
6. FIXED ASSET IMPAIRMENT, EMPLOYEE SEVERANCE AND OTHER RESTRUCTURING CHARGES
The Company has experienced a significant diminishment of its golf clubhead
sales and market share due principally to the increasing use by our customers of
suppliers in China. The products made in China are at prices lower than those
the Company is able to offer. As a result, the Company decided to implement a
plan which substantially reduced its workforce, closed certain facilities and
significantly decreased the space used by its Tijuana operations. As a result,
certain assets have been designated as "Held for Sale" or abandoned. One of the
closed facilities located in Gardena, California manufactured titanium golf
clubheads. The Company still has the capability to produce titanium golf
clubheads at its facility in Rancho Dominguez, California.
Statement of Financial Accounting Standards ("SFAS") No. 144, "Impairment or
Disposal of Long Lived Assets" was effective January 1, 2002. SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long lived assets, balance sheet classification of long lived assets and
provides guidance on implementation. See below "Fixed Asset Impairment" and
"Assets Held for Sale" for the impact on the Company of SFAS No. 144 for the
periods ended September 30, 2002.
Fixed Asset Impairment - The Company specifically identified fixed assets which
were not in use and expected to be disposed of or held for sale. During the
second and third quarters of 2002, the Company recorded impairment charges of
$1,750,000 and $1,724,000, respectively, representing the difference between the
carrying value of the assets and their estimated fair value.
Assets Held for Sale - As of September 30, 2002, the Company classified
$5,672,000 as assets held for sale from property, plant and equipment in
accordance with SFAS No. 144. These assets are mainly the land and buildings of
the Gardena facility and other fixed assets, primarily machinery and equipment,
not in use and available for immediate sale. In August 2002, the Gardena
facility was listed with a real estate agent. The other fixed assets are
expected to be sold at auction in early fiscal 2003. The assets held for sale
are stated at the lower of their carrying amount or estimated fair value less
the estimated cost to sell. In accordance with the requirements of SFAS No. 144,
the consolidated balance sheet as of December 31, 2001 has been restated to
reclassify the assets held for sale for comparative purposes, at the carrying
value of such assets as of that date.
9
Employee Severance - During the second and third quarters of 2002, the Company
recorded employee termination benefit charges of $1,433,000 and $1,019,000,
respectively, totaling $2,452,000 for the nine months ended September 30, 2002.
This represented 1,354 and 82 employees who were involuntarily terminated at the
Company's facilities in Mexico and California, respectively, in those two
quarters. All termination benefit charges were paid as of September 30, 2002.
CPAC Operations - In December 2001, the Company ceased the operations of its
subsidiary, California Precision Aluminum Castings, Inc. ("CPAC"), which
manufactured aluminum turbocharger compressor wheels for automotive
applications. An accrual of $775,000 for various exit activities was recorded as
of December 31, 2001. As of September 30, 2002, the remaining accrual was
$77,000 which is expected to be utilized in the last quarter of 2002.
Mexicali and Tijuana Leases - In December 2001, the Company decided to abandon
one of the Company's four leased facilities in Mexicali, Mexico. An accrual of
$375,000 representing the estimated total lease obligation, net of estimated
sublease income, was recorded as of December 31, 2001. During the third quarter
of 2002, the landlord agreed to cancel this lease commitment and the remaining
lease commitment on one other facility in Mexicali, Mexico. In exchange, the
Company entered into an agreement with the same landlord to extend the lease on
the two other facilities through December 31, 2007. The remaining accrual of
$225,000 was considered a lease incentive, which will be offset against future
rent expense for these facilities, on a straight-line basis, over the life of
the new leases. In addition, as of September 30, 2002, the Company accrued a
lease reserve of $1,150,000 relating to the Tijuana facility representing the
estimated lease obligation, net of estimated sublease income, resulting from the
expected idling of over 78,000 square feet of the Tijuana, Mexico facility.
The Company has substantially completed the current plan of consolidation and
downsizing.
7. PENSION PLAN
The Company has a defined benefit plan covering substantially all of its hourly
union employees. The plan provides for a monthly benefit payable for the
participant's lifetime commencing the first day of the month following the
attainment of age sixty-five. In connection with the closing of the Company's
Gardena facility during the third quarter of 2002, almost all of the employees
represented by the union have been terminated. As a result, the plan is
considered partially terminated and pension curtailment accounting adjustments
have been reflected in income and in other comprehensive income for the quarter
ended September 30, 2002. In addition, the board of directors approved an
amendment to the plan to cease future plan benefit accruals, effective October
1, 2002.
8. INCOME TAXES
Deferred income taxes are recognized based on differences between the financial
statement and the tax bases of assets and liabilities using presently enacted
tax rates. The deferred tax asset balance is evaluated and reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax assets may not be realized. During the second quarter, the
Company evaluated the need for a valuation allowance and determined that it was
more likely than not that such assets would not be realized and, accordingly a
valuation allowance was recorded equal to the balance of the deferred income
taxes as of that date. Subsequent movements in the underlying gross deferred tax
assets will change the valuation allowance recorded and as of September 30,
2002, the valuation allowance is equal to the deferred tax asset balance of
$3,592,000.
10
9. OTHER
The New York Stock Exchange (NYSE) notified the Company that it had fallen below
the NYSE's minimum equity and capitalization standards. The NYSE decided to
suspend trading and delist the Company, effective as of the close of business on
September 20, 2002. Effective September 23, 2002, the Company began trading on
the Over-the-Counter Bulletin Board.
Recent Accounting Pronouncements - In June 2002, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
146, "Accounting for Exit or Disposal Activities." SFAS No. 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. SFAS No. 146 replaces previous accounting guidance provided by EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)" and will be effective for the Company for exit or disposal
activities initiated after December 31, 2002. The Company has not determined the
impact that this statement will have on its consolidated financial position or
results of operations.
11
COASTCAST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales decreased 60.3% and 40.1% to $12.4 million and $54.3 million for the three
and nine months ended September 30, 2002, respectively, from $31.2 million and
$90.7 million for the three and nine months ended September 30, 2001,
respectively. The decline in sales was mainly due to a 64% and 43% decrease in
golf sales for the three and nine months ended September 30, 2002 as compared to
the three and nine months ended September 30, 2001, respectively. Golf clubhead
unit volume sales decreased 44% and 21% for the three and nine months ended
September 30, 2002, respectively from the comparable periods in 2001. Titanium
golf clubhead sales decreased 82% and 61% for the three and nine months ended
September 30, 2002 from the comparable periods in 2001. The Company believes
that this decrease in sales of golf clubheads resulted principally from the loss
of market share to Chinese competitors, which are able to offer lower prices
because of their lower labor costs. Non-golf sales decreased 20% and 16% for the
three and nine months ended September 30, 2002 from the comparable periods in
2001 primarily due to a decrease in medical sales.
Gross loss of $.3 million for the three months ended September 30, 2002 compares
to a gross profit of $3.3 million for the three months ended September 30, 2001.
The gross (loss) profit margin was (2.3%) for the three months ended September
30, 2002 compared to 10.4% for the comparable period in 2001. The decrease in
margin was primarily due to the low sales volume and product mix shifting to
steel iron clubheads, which have lower margins and much lower average unit
selling prices than titanium golf clubheads and steel metal woods. Gross profit
decreased $1.0 million to $4.4 million for the nine months ended September 30,
2002 from $5.4 million for the comparable period in 2001. The gross profit
margin was 8.1% for the nine months ended September 30, 2002 versus 6.0% for the
nine months ended September 30, 2001. The low gross margins in both periods were
primarily due to the low volume and the shift in product mix for 2002 and to
high scrap rates in the titanium manufacturing operations for 2001.
The Company has experienced a significant diminishment of its golf clubhead
sales and market share due principally to the increasing use by our customers of
suppliers in China. The products made in China are at prices lower than those
the Company is able to offer. As a result, the Company decided to implement a
plan which substantially reduced its workforce, closed certain facilities and
significantly decreased the space used by its Tijuana operations. As a result,
certain assets have been designated as "Held for Sale" or abandoned. One of the
closed facilities located in Gardena, California manufactured titanium golf
clubheads. The Company still has the capability to produce titanium golf
clubheads at its facility in Rancho Dominguez, California.
Statement of Financial Accounting Standards ("SFAS") No. 144, "Impairment or
Disposal of Long Lived Assets" was effective January 1, 2002. SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long lived assets, balance sheet classification of long lived assets and
provides guidance on implementation. See below "Fixed Asset Impairment" and
"Assets Held For Sale" for the impact on the Company of SFAS No. 144 for the
periods ended September 30, 2002.
12
Fixed Asset Impairment - The Company specifically identified fixed assets which
were not in use and expected to be disposed of or held for sale. During the
second and third quarters of 2002, the Company recorded impairment charges of
$1.8 million and $1.7 million, respectively, representing the difference between
the carrying value of the assets and their estimated fair value.
Assets Held for Sale - As of September 30, 2002, the Company classified $5.7
million as assets held for sale from property, plant and equipment in accordance
with SFAS No. 144. These assets are mainly the land and buildings of the Gardena
facility and other fixed assets, primarily machinery and equipment, not in use
and available for immediate sale. In August 2002, the Gardena facility was
listed with a real estate agent. The other fixed assets are expected to be sold
at auction in early fiscal 2003. The assets held for sale are stated at the
lower of their carrying amount or estimated fair value less the estimated cost
to sell. In accordance with the requirements of SFAS No. 144, the consolidated
balance sheet as of December 31, 2001 has been restated to reclassify the assets
held for sale for comparative purposes, at the carrying value of such assets as
of that date.
Employee Severance - During the second and third quarters of 2002, the Company
recorded employee termination benefit charges of $1.4 million and $1.0 million,
respectively, totaling $2.4 million for the nine months ended September 30,
2002. This represented 1,354 and 82 employees who were involuntarily terminated
at the Company's facilities in Mexico and California, respectively, in those two
quarters. All termination benefit charges were paid as of September 30, 2002.
CPAC Operations - In December 2001, the Company ceased the operations of its
subsidiary, California Precision Aluminum Castings, Inc. ("CPAC"), which
manufactured aluminum turbocharger compressor wheels for automotive
applications. An accrual of $.8 million for various exit activities was recorded
as of December 31, 2001. As of September 30, 2002, the remaining accrual was $.1
million which is expected to be utilized in the last quarter of 2002.
Mexicali and Tijuana Leases - In December 2001, the Company decided to abandon
one of the Company's four leased facilities in Mexicali, Mexico. An accrual of
$.4 million representing the estimated total lease obligation, net of estimated
sublease income, was recorded as of December 31, 2001. During the third quarter
of 2002, the landlord agreed to cancel this lease commitment and the remaining
lease commitment on one other facility in Mexicali, Mexico. In exchange, the
Company entered into an agreement with the same landlord to extend the lease on
the two other facilities through December 31, 2007. The remaining accrual of
$225,000 was considered a lease incentive, which will be offset against future
rent expense for these facilities, on a straight-line basis, over the life of
the new leases. In addition, as of September 30, 2002, the Company accrued a
lease reserve of $1.2 million relating to the Tijuana facility representing the
estimated lease obligation, net of estimated sublease income, resulting from the
expected idling of over 78,000 square feet of the Tijuana, Mexico facility.
The Company has substantially completed the current plan of consolidation and
downsizing.
A full valuation allowance against the deferred tax asset balance of $3.6
million was charged to the provision for income taxes for the nine months ended
September 30, 2002, representing the deferred tax asset balance at the beginning
of the year and the increase in the deferred tax asset for the nine months ended
September 30, 2002.
13
The effective tax rate for the nine months ended September 30, 2002 was 35.3%,
excluding the valuation allowance on the deferred tax assets, compared to 54.9%
for the comparable prior year period. The decrease in the effective tax rate was
mainly due to non-deductible expenses for Mexico and non-deductible goodwill
amortization in the US in 2001.
The Company anticipates an operating loss for the fourth quarter of 2002 due to
lower sales for the three months ending December 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at September 30, 2002 was $17.6
million compared to $13.3 million on December 31, 2001, an increase of $4.3
million. Net cash provided by operating activities was $5.7 million for the nine
months ended September 30, 2002. The net cash provided by operating activities
included the decrease in inventories and receivables of $3.7 million and $3.5
million, respectively, and non-cash charges relating to the impairment of fixed
assets of $3.5 million, depreciation and amortization of $3.1 and the write-off
of the deferred tax asset of $2.4 million partially offset by a net loss of $8.0
million, an increase in prepaid expenses and other current assets of $1.2
million and a decrease in accounts payable and accrued liabilities of $1.3
million. Net cash used in investing activities of $1.4 million consisted mainly
of $1.6 million of net capital expenditures.
In December 1999, the Board of directors authorized the repurchase of up to 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, 2002, no shares
were repurchased under this authorization. As of September 30, 2002, there are
747,842 shares remaining to be purchased under this authorization.
The Company has no long term debt. In response to declining sales, the Company
reduced its workforce and has taken other steps in an effort to maintain its
current cash position and to improve the financial outlook based on lower sales.
The Company believes that its current cash position and cash flow from
operations should be adequate to meet its current financing requirements and
those for the next few years.
SUMMARY OF CRITICAL POLICIES AND ESTIMATES
In addition to those discussed in Item 7 of our Annual Report on Form 10-K for
the year ended December 31, 2001 as filed with the Securities and Exchange
Commission, we have identified the following new, or changes in, estimates,
which are critical to our business operations and the understanding of our
financial results for the nine months ended September 30, 2002.
Impairment of Long Lived Assets - The Company specifically identified fixed
assets which were not in use and expected to be disposed of or held for sale.
During the second and third quarters of 2002, the Company recorded impairment
charges of $1.8 million and $1.7 million, respectively, representing the
difference between the carrying value of the assets and their estimated fair
value.
14
In deriving the impairment of fixed assets charge, estimates were made to
determine the fair value. The Company obtained information from equipment
brokers, auction houses and other third parties. The fair value of the fixed
assets was reduced by the estimated cost to sell. No impairment charge was
recorded for the listing for sale of the Gardena land and buildings since the
carrying value was less than the estimated fair value based on sales of
comparative properties for the area provided by the Company's real estate agent
less cost to sell. Economic conditions may impact the value the Company receives
on the sale of the equipment and land and buildings. The Company's ability to
sell such fixed assets is based on market conditions and actual proceeds
received could be higher or lower than the current estimated fair value which
will affect the Company's impairment charge.
Accrued lease reserve - As of September 30, 2002, the Company accrued a lease
reserve of $1.2 million relating to the Tijuana facility representing the
estimated lease obligation, net of the Company's best estimate of the future
sublease income it expects to receive, resulting from the expected idling of
over 78,000 square feet of the Tijuana, Mexico facility.
In calculating the reserve related to the Tijuana lease commitment, certain
estimates were made including time to vacate a portion of the facility and
sublease terms. In developing these estimates, the Company obtained information
from its landlord and other third parties to estimate the anticipated third
party sublease income. Market conditions will affect the Company's ability to
sublease the available portion of the facility on terms consistent with its
estimates. The Company's ability to vacate the portion of the facility and
sublease the available space in accordance with its plan, or the negotiation of
lease terms resulting in higher or lower sublease income than estimated, will
affect the Company's accrual and the related restructuring charge.
Deferred Income Taxes - Deferred income taxes are recognized based on
differences between the financial statement and the tax bases of assets and
liabilities using presently enacted tax rates. The deferred tax asset balance is
evaluated and reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax assets may not be realized. During
the second quarter, the Company evaluated the need for a valuation allowance and
determined that it was more likely than not that such assets would not be
realized and, accordingly a valuation allowance was recorded equal to the
balance of the deferred income taxes as of that date. Subsequent movements in
the underlying gross deferred tax assets will change the valuation allowance
recorded and as of September 30, 2002, the valuation allowance is equal to the
deferred tax asset balance of $3.6 million. Due to uncertain economic conditions
and the competitive environment, at this time, the Company is assuming that it
will not be able to generate sufficient future taxable income to realize the
deferred tax asset. Should the Company determine that it will be able to realize
all or part of this deferred tax asset in the future, the Company will reverse a
portion or all of the valuation allowance and credit income tax expense in that
period.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
The Company maintains a system of internal controls and procedures designed to
provide reasonable assurance as to the reliability of the Company's published
financial statements and other disclosures included in this report. Within the
90-day period prior to the date of this report, the Company's Chief Executive
Officer and Chief Financial Officer evaluated the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation,
the Company's Chief Executive Officer and Chief Financial Officer concluded that
the Company's disclosure controls and procedures are effective to ensure that
the Company is able to collect, process and disclose the information it is
required to disclose in the reports it files with the Securities and Exchange
Commission within the required time periods.
15
Since the date of the most recent evaluation of the Company's internal controls
by the Chief Executive Officer and Chief Financial Officer, there have been no
significant changes in such controls or in other factors that could have
significantly affected those controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
16
COASTCAST CORPORATION
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 share values
Adverse effect of increase in energy costs
Shareholder rights plan could discourage acquisition proposals.
The New York Stock Exchange (NYSE) notified the Company that it had fallen below
the NYSE's minimum equity and capitalization standards. The NYSE decided to
suspend trading and delist the Company, effective as of the close of business on
September 20, 2002. Effective September 23, 2002, the Company began trading on
the Over-the-Counter Bulletin Board.
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, as amended April 19, 2001 (2)
10.1 Amended and Restated Coastcast Corporation Selected Employees
Pension Plan, as of October 1,1997
11 Statement re: computation of per share earnings
99.1 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)
99.2 Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(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
(2) Incorporated by reference to the exhibits to Form 10-Q for
the fiscal quarter ended June 30, 2001
(b) Reports on Form 8-K:
On September 12, 2002, the Company filed a report on Form 8-K reporting
that it received notification from the New York Stock Exchange ("NYSE")
that trading in the Company's common stock would be suspended prior to the
opening on Monday, September 23, 2002.
18
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
November 14, 2002 By /s/ Hans H. Buehler
- -------------------- -------------------
Dated Hans H. Buehler
Chief Executive Officer (Duly Authorized and Principal
Executive Officer)
November 14, 2002 By /s/ Norman Fujitaki
- ----------------- -------------------
Dated Norman Fujitaki
Chief Financial Officer (Duly Authorized and Principal
Financial Officer)
19
CERTIFICATION
I, Hans H. Buehler, Chief Executive Officer of Coastcast Corporation, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Coastcast
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or person performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/ Hans H. Buehler
Hans H. Buehler
Chief Executive Officer
20
CERTIFICATION
I, Norman Fujitaki, Chief Financial Officer of Coastcast Corporation, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Coastcast
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or person performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/ Norman Fujitaki
Norman Fujitaki
Chief Financial Officer
21
COASTCAST CORPORATION
SELECTED EMPLOYEES PENSION PLAN
Amended and Restated as of October 1, 1997
Exhibit 10.1
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS.............................................................................................2
1.1 "Accrued Benefit"....................................................................................2
---------------
1.2 "Actuarial Equivalent"...............................................................................2
--------------------
1.3 "Actuary"............................................................................................2
-------
1.4 "Administrator"......................................................................................2
-------------
1.5 "Affiliated Entity"..................................................................................2
-----------------
1.6 "Board of Directors".................................................................................3
------------------
1.7 "Break in Service"...................................................................................3
----------------
1.8 "Code"...............................................................................................3
----
1.9 "Commencement Date"..................................................................................3
-----------------
1.10 "Company"............................................................................................3
-------
1.11 "Compensation".......................................................................................3
------------
1.12 "Computation Period".................................................................................4
------------------
1.13 "Effective Date".....................................................................................4
--------------
1.14 "Eligible Classification"............................................................................4
-----------------------
1.15 "Employee"...........................................................................................4
--------
1.16 "ERISA"..............................................................................................4
-----
1.17 "Fund"...............................................................................................4
----
1.18 "Hour of Service"....................................................................................5
---------------
1.19 "Leased Employee"....................................................................................6
---------------
1.20 "Participant"........................................................................................7
-----------
1.21 "Plan"...............................................................................................7
----
1.22 "Plan Year"..........................................................................................7
---------
1.23 "Predecessor Company"................................................................................7
-------------------
1.24 "Predecessor Plan"...................................................................................7
----------------
1.25 "Prior Plan".........................................................................................7
----------
1.26 "Qualified Reemployment".............................................................................7
----------------------
1.27 "Severance"..........................................................................................7
---------
1.28 "Spouse".............................................................................................7
------
1.29 "Total Disability"...................................................................................7
----------------
1.30 "Trust Agreement"....................................................................................8
---------------
1.31 "Trustee"............................................................................................8
-------
1.32 "Union"..............................................................................................8
-----
1.33 "Years of Credited Service"..........................................................................8
-------------------------
1.34 "Years of Service"...................................................................................8
----------------
ARTICLE 2 TRANSITION AND ELIGIBILITY TO PARTICIPATE...............................................................8
2.1 Rights Affected......................................................................................8
---------------
2.2 Eligibility to Participate...........................................................................8
--------------------------
2.3 Exclusions from Participation........................................................................9
-----------------------------
2.4 Military Service....................................................................................10
----------------
ARTICLE 3 SERVICE AND CREDITED SERVICE...........................................................................10
3.1 Credited Service for Benefit Accrual................................................................10
------------------------------------
3.2 Partial Years of Credited Service...................................................................10
---------------------------------
3.3 Special Rules.......................................................................................11
-------------
3.4 Restoration of Service..............................................................................11
----------------------
i
3.5 Uniformity..........................................................................................12
----------
3.6 Military Service....................................................................................12
----------------
3.7 Cessation of Accruals...............................................................................12
---------------------
ARTICLE 4 ELIGIBILITY FOR BENEFITS...............................................................................12
4.1 Normal Retirement...................................................................................12
-----------------
4.2 Late Retirement.....................................................................................12
---------------
4.3 Early Retirement....................................................................................12
----------------
4.4 Disability Retirement...............................................................................13
---------------------
4.5 Furnishing Data.....................................................................................13
---------------
ARTICLE 5 CALCULATION OF BENEFITS................................................................................13
5.1 Normal Retirement...................................................................................13
-----------------
5.2 Minimum Benefit.....................................................................................14
---------------
5.3 Late Retirement.....................................................................................15
---------------
5.4 Early Retirement....................................................................................15
----------------
5.5 Disability Retirement...............................................................................15
---------------------
5.6 Transfers...........................................................................................16
---------
5.7 Surviving Spouse's Benefit..........................................................................16
--------------------------
5.8 Post-Retirement Death Benefit.......................................................................16
-----------------------------
5.9 Maximum Benefit.....................................................................................16
---------------
5.10 Suspension of Benefits on Reemployment..............................................................21
--------------------------------------
ARTICLE 6 VESTING................................................................................................22
6.1 Eligibility.........................................................................................22
-----------
6.2 Amount of Benefit...................................................................................22
-----------------
6.3 Form and Payment of Benefit.........................................................................22
---------------------------
6.4 Termination of Benefit..............................................................................22
----------------------
ARTICLE 7 PAYMENTS OF BENEFITS...................................................................................22
7.1 Earliest and Latest Commencement of Benefits........................................................22
--------------------------------------------
7.2 Payment of Benefits.................................................................................23
-------------------
7.3 Normal Form of Benefit..............................................................................23
----------------------
7.4 Optional Forms of Benefits..........................................................................24
--------------------------
7.5 Rules for Election of Optional Benefits.............................................................24
---------------------------------------
7.6 Explanations to Participants........................................................................24
----------------------------
7.7 Termination of Benefits.............................................................................25
-----------------------
7.8 Mailing Address.....................................................................................25
---------------
7.9 Small Benefit Payments..............................................................................25
----------------------
7.10 Single Sum Payments.................................................................................25
-------------------
7.11 Eligible Rollover Distributions.....................................................................25
-------------------------------
ARTICLE 8 THE FUND AND FUNDING...................................................................................26
8.1 Company Contributions...............................................................................26
---------------------
8.2 Use of Company Contributions........................................................................27
----------------------------
8.3 Time of Contribution................................................................................27
--------------------
8.4 Trust Accounts......................................................................................27
--------------
8.5 Forfeitures.........................................................................................27
-----------
8.6 Expenses of Administration..........................................................................27
--------------------------
8.7 Sole Source of Benefits.............................................................................27
-----------------------
ARTICLE 9 ADMINISTRATION.........................................................................................27
9.1 Duties and Responsibilities of Fiduciaries; Allocation of Fiduciary Responsibility..................27
----------------------------------------------------------------------------------
ii
9.2 Powers and Responsibilities of the Administrator....................................................28
------------------------------------------------
9.3 Allocation of Duties and Responsibilities...........................................................29
-----------------------------------------
9.4 Appointment of the Administrator....................................................................29
--------------------------------
9.5 Expenses............................................................................................29
--------
9.6 Liabilities.........................................................................................29
-----------
9.7 Adverse Determinations..............................................................................30
----------------------
9.8 Appeal from Adverse Determination...................................................................30
---------------------------------
ARTICLE 10 AMENDMENT AND TERMINATION.............................................................................31
10.1 Power of Amendment and Termination..................................................................31
----------------------------------
10.2 Disposition on Termination..........................................................................31
--------------------------
10.3 Merger, Consolidation, or Transfer..................................................................32
----------------------------------
10.4 Exclusive Benefit of Participants and Beneficiaries.................................................32
---------------------------------------------------
ARTICLE 11 PAYMENTS DURING FIRST TEN YEARS.......................................................................33
11.1 Limitations.........................................................................................33
-----------
ARTICLE 12 TOP-HEAVY PROVISIONS..................................................................................33
12.1 General.............................................................................................33
-------
12.2 Definitions.........................................................................................33
-----------
12.3 Minimum Benefit for Non-Key Employees...............................................................36
-------------------------------------
12.4 Vesting.............................................................................................36
-------
12.5 Compensation........................................................................................37
------------
12.6 Social Security.....................................................................................37
---------------
12.7 Adjustment to Maximum Benefit Limitation............................................................37
----------------------------------------
12.8 Suspension of Benefits..............................................................................38
----------------------
ARTICLE 13 MISCELLANEOUS PROVISIONS..............................................................................38
13.1 Governing Law.......................................................................................38
-------------
13.2 Severability of Provisions..........................................................................38
--------------------------
13.3 Pronouns; Numbers...................................................................................38
-----------------
13.4 Headings............................................................................................38
--------
13.5 No Interest in Fund.................................................................................38
-------------------
13.6 Spendthrift Clause..................................................................................38
------------------
13.7 Facility of Payment.................................................................................39
-------------------
13.8 Withholding.........................................................................................39
-----------
13.9 No Employment Rights................................................................................39
--------------------
iii
COASTCAST CORPORATION
SELECTED EMPLOYEES PENSION PLAN
Amended and Restated as of October 1, 1997
In accordance with the power reserved by it in Section 10.1 of the
Coastcast Corporation Selected Employees Pension Plan (formerly the Rex
Precision Products, Inc. Hourly Employees Pension Plan) ("Plan"), Coastcast
Corporation, a California corporation ("Company"), hereby amends and restates
the Plan, effective as of October 1, 1997 or as of such later dates specifically
presented herein. Except as specified to the contrary herein, or as otherwise
required by law, this amendment and restatement of the Plan applies to Employees
whose employment with the Company terminates on or after October 1, 1997. The
rights and benefits of Employees who terminated employment prior to October 1,
1997 are determined under the prior versions of the Plan, including amendments
thereto as applicable.
BACKGROUND
1........As of October 31, 1980, Alco Standard Corporation (the
"Predecessor Company") maintained the Retirement Plan for Employees of Rex
Precision Products, Inc. Division of Alco Standard Corporation ("Prior Plan No.
1") and the Pension Plan for Employees of Plant #5 (Metcast) Location of Rex
Precision Products, Inc. Division of Alco Standard Corporation ("Prior Plan No.
2") for the benefit of all eligible employees of the Rex Precision Products,
Inc. Division and of its Metcast location, respectively.
2........A separate pension plan for the eligible hourly-paid employees
of the Rex Precision Products, Inc. Division was spun off from the Prior Plan
No. 1 effective as of November 1, 1980. Those assets and liabilities of the
Prior Plan No. 1 which pertained to the hourly-paid employees of the Predecessor
Company were transferred to a separate pension plan known as the Rex Precision
Products, Inc. Hourly Employees Pension Plan (the "Predecessor Plan").
3........Those assets and liabilities of the Prior Plan No. 2 which
pertained to the hourly-paid employees of the Company's Metcast location were
spun off from the Prior Plan No. 2 effective as of November 1, 1980 and
transferred to the Predecessor Plan as of the same date.
4........The Predecessor Plan was amended and restated effective as of
October 1, 1984 to conform to the requirements of the Tax Equity and Fiscal
Responsibility Act of 1982, the Deficit Reduction Act of 1984, the Retirement
Equity Act of 1984 and rulings and regulations promulgated by the Department of
Treasury; to reflect certain changes to the Plan made as a result of labor
negotiations by and between the Company-and the union; and to make certain other
clarifying changes of a technical nature to the Plan.
5........The Company purchased Rex Precision Products, Inc. Division
from Alco Standard Corporation and, effective as of June 30, 1987, the Company
adopted the Predecessor Plan and changed the name to the Coastcast Corporation
Selected Employees Pension Plan.
6........The Company amended and restated the Plan, effective as of
October 1, 1997, to conform the Plan to the legislative changes enacted under
the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1986, the
Omnibus Budget Reconciliation Act of 1987, the Technical and Miscellaneous
Revenue Act of 1988, the Omnibus Budget Reconciliation Act of 1989, and to the
related regulations, notices, and other guidance promulgated by the Internal
Revenue Service. This amendment and restatement also froze benefit accruals,
effective December 31, 1990, and partially terminated the Plan with respect to
Participants who were not covered by a collective bargaining agreement with the
union that provided for participation in the Plan.
7........The Company amended the Plan, effective as of various dates,
to clarify certain provisions, update the normal retirement calculation amounts,
to conform the Plan to legislative changes enacted under the Unemployment
Compensation Amendments of 1992, the Omnibus Budget Reconciliation Act of 1993
("OBRA `93") and the Uruguay Round Agreements Act General Agreement on Trade and
Tariffs of 1994.
8........The Company intends this amendment and restatement to
incorporate prior amendments discussed in the previous paragraphs that remain
effective as of October, 1997 and conform the Plan to the legislative changes
enacted under the Uniformed Services Employment and Reemployment Rights Act of
1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of
1997, the Transportation Equity Act of 1998, the Internal Revenue Service
Restructuring and Reform Act of 1998 and the Community Renewal Tax Relief Act of
2000. This amendment also reflects and is intended as good faith compliance with
the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
("EGTRRA").
ARTICLE 1
DEFINITIONS
1.1 "Accrued Benefit" shall mean the benefit calculated under Section
5.1 using Years of Credited Service under Section 3.1 as of the date of
calculation. No more than 35 years of Credited Service may be used to calculate
a Participant's Accrued Benefit.
1.2 "Actuarial Equivalent" shall mean the amount which has equal
actuarial value determined based on the assumptions and factors adopted by the
Administrator, described on Schedule A, as modified from time to time by the
Administrator.
1.3 "Actuary" shall mean the actuarial firm or individual selected by
the Administrator from time to time, which firm or individual meets all
applicable government requirements for enrollment then in effect.
1.4 "Administrator" shall mean the person or persons designated
pursuant to Section 9.4.
1.5 "Affiliated Entity" shall mean the Company and:
(a) any corporation which is a member of a controlled group of
corporations with the Company, as determined under section 414(b) of the Code;
and
(b) any trade or business under common control with the Company, as
determined under section 414(c) of the Code; and
2
(c) any member of an affiliated service group, as determined under
section 414(m) of the Code, of which the Company is a member;
(d) any other entity required to be aggregated with the Company or an
Affiliated Entity, as determined under regulations issued pursuant to section
414(o) of the Code; and
(e) "50% Affiliated Entity" shall mean an Affiliated Entity but with
"more than 50%" substituted for the "at least 80%" test in section 1563(a) of
the Code.
1.6 "Board of Directors" shall mean the Board of Directors of the
Company.
1.7 "Break in Service" shall mean a Computation Period in which an
Employee fails to complete more than 500 Hours of Service with the Company
and/or any Affiliated Entity.
1.8 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.9 "Commencement Date" shall mean the original effective date of the
Plan, the Effective Date, or the effective date of any amendment of the Plan
which increases the benefits under the Plan for individuals covered by the Plan
before such date or which extends benefits under the Plan to individuals not
previously covered by the Plan.
1.10 "Company" shall mean Coastcast Corporation.
1.11 "Compensation" shall mean a self-employed individual's earned
income within the meaning of Code section 401(c)(1), but determined without
regard to any exclusion under Code section 911.
For an Employee who is not a self-employed individual, Compensation
shall mean total wages for Affiliated Entities as defined in section 3401(a) of
the Code for purposes of reporting on Internal Revenue Form W 2 and withholding
of income taxes at the source, but determined without regard to any rules that
limit the remuneration included in wages based on the nature or location of the
employment or services performed (such as the exception for agricultural labor
in section 3401(a)(2) of the Code). Compensation shall also include foreign
earned income (as defined in Code section 911(b) whether or not excludable from
gross income under Code section 911. For Plan Years beginning after December 31,
1997, the term shall also include any elective deferral (as defined in Code
section 402(g)(3)) and any salary reduction contributions to a cafeteria plan
meeting the requirements of section 125 of the Code that the Employer maintains
under Code sections 402(g)(3), 125 or 457. For Plan Years beginning on or after
January 1, 2001, Compensation shall also include cash amounts contributed by the
Employer at the election of an Employee which are not includible in the gross
income of Employee by reason of Code section 132(f).
For purposes of Section 5.9, the term "Compensation" shall included
Compensation from the 50% Affiliated Entities. In addition, notwithstanding the
foregoing, for purposes of Article 12 the following shall apply:
3
(a) For Plan Years beginning on and after January 1, 1989, but before
January 1, 1994, the Compensation of any Participant shall not exceed $200,000
(as adjusted under section 415(d) of the Code);
(b) For Plan Years beginning on and after January 1, 1994, but before
January 1, 2001, the Compensation of any Participant shall not exceed $150,000
(as adjusted under section 401(a)(17)(B) of the Code); and
(c) For Plan Years beginning after December 31, 2001, the Compensation
of any Participant shall not exceed $150,000 (as adjusted under section
401(a)(17)(B) of the Code).
1.12 "Computation Period" shall mean the following:
(a) For purpose of determining when an employee is eligible to
participate in the Plan under Article 2:
(1) initially, the 12-month period beginning on the date on which the
Employee first is credited with an Hour of Service, and
(2) thereafter, each Plan Year beginning after such date.
(b) For all other purposes of the Plan: (1) effective January 1,
1990, the Plan Year, and (2) for periods prior to January 1,
1990, the calendar year.
(c) For purposes of the short Computation Period beginning January 1,
1990 and ending September 30, 1990, the number of Hours of Service used to
determine a Break in Service, a Year of Service and a Year of Credited Service
shall be prorated by multiplying the required Hours of Service by seventy-five
percent (.75).
1.13 "Effective Date" shall mean October 1, 1997, the effective date of
this amended and restated Plan, except as otherwise provided herein. The Plan
was originally effective on November 1, 1980.
1.14 "Eligible Classification" means employment as an Employee covered
by a collective bargaining agreement between the Company and the Union that
expressly provides for participation in the Plan.
1.15 "Employee" shall mean any person who is employed by or is a Leased
Employee in accordance with Section 1.19 of the Company or an Affiliated Entity
in an employer/employee relationship. Such term shall not include services
rendered by independent contractors.
1.16 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.17 "Fund" shall mean the assets held by the Trustee, increased from
time to time by contributions and investment gains and earnings and decreased
from time to time by payment of benefits, expenses, and investment losses.
4
1.18 "Hour of Service" shall mean:
(a) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for an Affiliated Entity. These hours shall be
credited to the Employee only for the Computation Period in which the duties are
performed.
(b) Each hour for which an Employee is paid, or entitled to payment, by
an Affiliated Entity on account of a period of time during which no duties are
performed irrespective (of whether the employment relationship has terminated)
due to vacation, holiday, illness, incapacity (including disability), layoff,
jury duty, military duty, or leave of absence. No more than 501 Hours of Service
shall be credited under this paragraph to which the Employee performs no duties
(whether or not such period occurs in a single Computation Period), and no
credit shall be given for hours for which no duties are performed but for which
payment by the Affiliated Entity is made or due under a plan maintained solely
for the purpose of complying with applicable workers' compensation, unemployment
compensation, or disability insurance laws or where payment solely reimburses an
Employee for medical or medically-related expenses incurred by the Employee.
Hours under this paragraph will be calculated and credited pursuant to section
2530.200b-2 of the Department of Labor Regulations which are incorporated herein
by this reference.
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by an Affiliated Entity. The same Hours
of Service shall not be credited both under paragraph (a) or paragraph (b), as
the case may be, and under this paragraph (c). These hours shall be credited to
the Employee for the Computation Period to which the award or agreement pertains
rather than the Computation Period in which the award, agreement, or payment is
made.
(d) Solely for purposes of determining whether an employee has a Break
in Service, Hours of Service shall also include an uncompensated authorized
leave of absence not in excess of one year, layoff for a period not in excess of
one year, authorized disability for a period not in excess of one year, jury
duty, or military leave while the Employee's reemployment rights are protected
by law or such additional or other periods as granted by an Affiliated Entity as
military leave, provided the Employee returns to employment at the end of his
leave of absence or within 90 days of the end of his military leave, whichever
is applicable (all of the above credited on the basis of 40 Hours of Service per
each week or eight Hours of Service per working day).
(e) Hours of Service will be credited for employment with any of the
Affiliated Entities. Hours of Service also will be credited for services
rendered to the Affiliated Entities by a Leased Employee who is treated as an
Employee.
(f) Solely for purposes of determining whether an Employee has a Break
in Service, Hours of Service shall also include absence from work for maternity
or paternity reasons. During this absence, the Employee shall be credited with
the Hours of Service which would have been credited but for the absence, or, if
such hours cannot be determined, with eight hours per day. An absence from work
for maternity or paternity reasons means an absence:
5
(1) by reason of the pregnancy of the Employee,
(2) by reason of the birth of a child of the Employee,
(3) by reason of the placement of a child with the Employee in
connection with adoption, or
(4) for purposes of caring for such a child for a period immediately
following such birth or placement.
These Hours of Service shall be credited in the Computation Period
following the computation period in which the absence begins, except as
necessary to prevent a Break in Service in the Computation Period in which the
absence begins. However, no more than 501 Hours of Service will be credited for
purposes of any such maternity or paternity absence from work.
(g) Notwithstanding the foregoing, an Employee not paid on an hourly
basis shall be credited with 45 Hours of Service for each weekly payroll period
during which he would be credited with at least one Hour of Service pursuant to
the provisions of this Section.
(h) The term Hour of Service shall also include military leave while
the Employee's re-employment rights are protected by law or such additional or
other periods as are granted by the Company as military leave, provided the
Employee returns to employment within 90 days of the end of such military leave,
or within such period of time as his re-employment rights are protected by law,
whichever is greater. Hours under this paragraph shall be credited on the basis
of the lesser of (i) a forty (40) hour work week or applicable pro-rata portion
thereof or (ii) his customarily scheduled work week or applicable prorata
portion thereof.
1.19 "Leased Employee" shall mean any person, for years beginning after
December 31, 1996, (other than an employee of the recipient) who pursuant to an
agreement between the recipient and any other person ("leasing organization")
has performed services for the recipient (or for the recipient and related
persons determined in accordance with section 414(n)(6) of the Internal Revenue
Code) on a substantially full-time basis for a period of at least one year, and
such services are performed under primary direction or control by the recipient.
Contributions or benefits provided a Leased Employee by the leasing organization
which are attributable to services performed for the recipient employer shall be
treated as provided by the recipient employer.
Notwithstanding anything in this Plan to the contrary, a Leased
Employee shall not be considered an employee of the recipient if: (i) such
employee is covered by a money purchase pension plan providing: (1) a
nonintegrated employer contribution rate of at least 10% of compensation, as
defined in section 415(c)(3) of the Internal Revenue Code, but including amounts
contributed pursuant to a salary reduction agreement which are excludable from
the employee's gross income under section 125, section 402(e)(3), section
402(h)(1)(B) or section 403(b) of the Internal Revenue Code, (2) immediate
participation, and (3) full and immediate vesting; and (ii) Leased Employees do
not constitute more than 20% of the recipient's nonhighly compensated workforce.
6
1.20 "Participant" shall mean an Employee who has satisfied the
requirements for participation under Article 2, a former Employee who has been
transferred out of an Eligible Classification but who continues to be employed
by the Company or an Affiliated Entity, or a former Employee whose employment
with the Company has ceased and who is receiving benefits under the Plan or who
has a present or future right to receive benefits under the Plan.
1.21 "Plan" shall mean the Coastcast Corporation Selected Employee
Pension Plan as herein set forth and as it may be amended from time to time.
1.22 "Plan Year" shall mean the 12-month period commencing October 1
and ending the following September 30.
1.23 "Predecessor Company" shall mean Rex Precision Products, Inc.
Division of Alco Standard Corporation, the assets of which were purchased by the
Company in July, 1987.
1.24 "Predecessor Plan" shall mean the Rex Precision Products, Inc.
Hourly Employees Pension Plan, as maintained by the Predecessor Company prior to
June 30, 1987.
1.25 "Prior Plan" shall mean either (a) the Retirement Plan for
Employees of Rex Precision Products, Inc. Division of Alco Standard Corporation
or (b) the Pension Plan for Employees of Plant #5 (Metcast) Location of Rex
Precision Products, Inc. Division of Alco Standard Corporation, as maintained by
the Predecessor Company prior to November 1, 1980.
1.26 "Qualified Reemployment" shall mean the re-employment of a
Participant by the Company or an Affiliated Entity or the continued employment
of a Participant after his Normal Retirement Date in such a capacity that the
Participant receives or is entitled to receive compensation for at least 40
Hours of Service (not including Hours of Service under Section 1.18(c)) during a
calendar month.
1.27 "Severance" shall mean an Employee's voluntary or involuntary
termination of employment with the Affiliated Entitles for any reason at any
time.
1.28 "Spouse" shall mean the person to whom a Participant is legally
married on the applicable date.
1.29 "Total Disability" shall mean a Participant's inability, due to
accident, injury, or disease, to engage in any work for remuneration or profit
for the balance of his life. Disability resulting from the following causes
shall not constitute Total Disability under the Plan:
(a) service in the Armed Forces or Merchant Marine of the United
States or any other country;
(b) warfare or acts of a public enemy;
(c) willful participation in any criminal act;
(d) intentionally self-inflicted injury or self-incurred injury; or
7
(e) use of drugs or narcotics contrary to law.
1.30 "Trust Agreement" shall mean the agreement between the Company and
the Trustee, the terms of which are incorporated herein by reference.
1.31 "Trustee" shall mean the individual trustees collectively or the
corporate trustee designated by the Board of Directors to serve as a trustee
pursuant to the Trust Agreement.
1.32 "Union" shall mean the United Steelworkers of America, AFL-CIO,
Local 2018, whose members participate hereunder pursuant to the collective
bargaining agreement by and between such Union and the Company.
1.33 "Years of Credited Service" shall mean the number of full and
partial Computation Periods counted with respect to determining an Employee's
Accrued Benefit under the Plan, as determined under Article 3.
1.34 "Years of Service" shall mean the number of Computation Periods
during which an Employee completes 1000 or more Hours of Service (whether or not
continuous) with the Affiliated Entities or the Predecessor Company. Years of
Service are used to determine an Employee's eligibility to participate and
vested status under the Plan.
ARTICLE 2
TRANSITION AND ELIGIBILITY TO PARTICIPATE
2.1 Rights Affected . All former Employees who have retired or have
terminated service in an Eligible Classification before the Effective Date shall
receive no additional rights as a result of this amended and restated Plan, but
shall have their rights and benefits determined solely under the Plan as in
effect before the Effective Date. Any former Employee who has terminated
employment in an Eligible Classification and who is re-employed as an Employee
after the Effective Date shall have his participation and benefit rights
determined hereunder, except as otherwise provided herein.
2.2 Eligibility to Participate.
(a) Employees shall be Participants as follows:
(1) Each Employee hired by the Company concurrently with the company's
asset purchase from the Predecessor Company who was eligible to participate in
the Predecessor Plan immediately prior to the purchase shall continue to be a
Participant under the terms of this Plan as long as employment in an Eligible
Classification continues.
(2) Each other Employee who is employed in an Eligible Classification
shall become a Participant on the October 1st or the April 1st coinciding with
or next following the date on which he has completed one Year of Service at the
end of a 12-month Computation Period if he continues employment in an Eligible
Classification.
8
(b) A Participant whose employment is terminated and who is later
re-employed by the Company shall resume his participation in the Plan as of the
date of his re-employment in an Eligible Classification.
(c) An Employee whose employment is terminated and who is later
re-employed by ;the Company or an Affiliated Entity shall have his periods of
employment aggregated for purposes of determining his eligibility to
participate.
2.3 Exclusions from Participation.
(a) An Employee who otherwise would be eligible to participate in the
Plan shall not become a Participant if he is a Leased Employee. If such Employee
should cease to be a Leased Employee and enter an Eligible Classification, he
shall become a Participant on the first date on which he thereafter performs an
Hour of Service in an Eligible Classification.
(b) An Employee who otherwise would be eligible to participate in the
Plan shall not become a Participant if he is covered by a collective bargaining
agreement that does not expressly provide for participation in the Plan
(provided that the Employee representative with whom the collective bargaining
agreement is executed has had an opportunity to bargain concerning retirement
benefits for such Employees). If such Employee should cease to be covered by
such a collective bargaining agreement and enter an Eligible Classification, or
such collective bargaining agreement is amended to expressly provide for
participation in the Plan, he shall become a Participant on the first date on
which he thereafter completes an Hour of Service in an Eligible Classification.
(c) An Employee who otherwise would be eligible to participate in the
Plan but who is not employed in an Eligible Classification shall not become a
Participant until the date on which he is credited with one or more Hours of
Service in an Eligible Classification.
(d) An Employee who otherwise would be eligible to participate in the
Plan but who is then on an approved leave of absence without pay or in the
service of the armed forces of the United States shall not become a Participant
until the date on which he subsequently is credited with an Hour of Service in
an Eligible Classification, provided that the Employee returns to service with
an Affiliated Employer immediately following such leave of absence or, in the
case of an Employee who is on military leave, during the period in which his
re-employment rights are guaranteed by law.
(e) A Participant who becomes ineligible under this Section because he
is no longer employed in an Eligible Classification shall continue to receive
credit for Hours of Service for purposes of determining vesting under Article 6
but during the period of such ineligibility his Hours of Service shall not be
taken into account for purposes of determining Years of Credited Service.
(f) A Participant as of December 31, 1990, who ceases to be employed in
an Eligible Classification after December 31, 1990 because he is not covered by
the collective bargaining agreement between the Company and the Union that
provides for participation in this Plan, shall be an affected Participant in the
partial termination of the Plan and shall be fully vested in his Accrued Benefit
through December 31, 1990; provided, however, any Participant who received a
cashout of his vested Accrued Benefit prior to the December 31, 1990 partial
termination of the Plan shall not be an affected Participant for purposes of
this Section or Section 10.2. A cashout may occur by the distribution to the
Participant of a single sum payment pursuant to Sections 7.9 or 7.10, or by the
distribution to the Participant of an individual annuity contract that provides
for the payment of the full amount of his vested Accrued Benefit in a form
provided under the Plan. In addition, a cashout will be deemed to have occurred
if the Participant had a Severance at a time when he had no vested Accrued
Benefit.
9
2.4 Military Service. Notwithstanding any provision of this Plan to the
contrary, contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with section 414(u) of the Code.
ARTICLE 3
SERVICE AND CREDITED SERVICE
3.1 Credited Service for Benefit Accrual.
(a) For Computation Periods beginning after September 30, 1990, a
Participant shall accrue a Year of Credited Service for each Computation Period
prior to October 1, 2002 in which he completes 1,000 Hours of Service in an
Eligible Classification. A Participant who does not complete 1,000 Hours of
Service in an Eligible Classification will not be credited with any portion of a
Year of Credited Service; provided, however, nothing herein shall reduce the
Accrued Benefit of any Participant as of the date of adoption of this restated
and amended Plan. On and after October 1, 2002, a Participant shall not be
credited with any additional Years of Credited Service.
(b) Except as provided in Sections 3.2 and 3.7, a Participant shall
accrue a Year of Credited Service for each Computation Period prior to October
1, 1990 in which he completes at least the number of his regularly scheduled,
annual Hours of service. A Participant's number of regularly scheduled, annual
Hours of Service shall be determined by the Administrator, which shall apply
uniform and nondiscriminatory standards developed on the basis of objective
criteria including, but not limited to, job classification. In no event,
however, shall a Participant's number of regularly scheduled, annual Hours of
Service be deemed to exceed 2,080 for purposes of the Plan. For purposes of this
Section and Section 3.2, a Participant shall accrue a Year of Credited Service
(or any portion thereof) only in an Eligible Classification with the Company or
a Predecessor Company (including periods in which he would have been a
Participant but for the eligibility waiting period under Section 2.2) to the
earliest of (a) transfer to a position with the Company that is not an Eligible
Classification, (b) transfer to an Affiliated Entity that has not adopted the
Plan, (c) termination of employment with the Company for any other reason,
including early retirement, Total Disability (except as described in Section
3.3, or death, or (d) completion of 35 Years of Credited Service.
3.2 Partial Years of Credited Service. Subject to the limitations in
Section 3.1, a Participant shall accrue a partial Year of Credited Service for
any Computation Period prior to October 1, 1990 in which he is credited with
fewer than the number of his regularly scheduled, annual Hours of Service. Such
fractional credit shall be in the greater of (a) or (b) below.
10
(a) one-twelfth (1/12) of a Year of Credited Service for each 83 Hours
of Service credited during a Computation Period; provided, however, that in no
event shall Credited Service under this Subsection exceed the actual number of
months that a Participant was employed in an Eligible Classification, rounded to
the next higher month, or
(b) that portion of a Year of Credited Service determined from a
fraction, the numerator of which is the number of Hours of Service in an
Eligible Classification with which the Participant is credited in the
Computation Period and the denominator of which is the number of his regularly
scheduled, annual Hours of Service. The fraction described in this Subsection
shall not exceed 1.
3.3 Special Rules . For purposes of Section 3.1, an Employee shall
receive credit for service during the 26-week waiting period in which no
disability retirement benefits are paid, if he thereafter is determined to
suffer a Total Disability.
3.4 Restoration of Service.
(a) A Participant who has a vested right to a benefit under Section 6.1
and who incurs a Break in Service shall have his pre- break and post-break Years
of Service and Years of Credited Service with the Company and all Affiliated
Entities aggregated for purposes of Sections 1.34, 3.1, 3.2 and 6.1 on his
reemployment by the Company or an Affiliated Entity.
(b) A Participant who does not have a vested right to a benefit under
Section 6.1 and who incurs a Break in Service after October 1, 1985 shall have
his pre-break and post-break Years of Service and Years of Credited Service with
the Company and all Affiliated Entities aggregated for purposes of Sections
1.34, 3.1, 3.2 and 6.1 if he is re-employed at a time when the number of his
consecutive Breaks in Service is less than the greater of (i) the number of
Years of Service he had accrued before his Break in Service, or (ii) five. If
the number of his consecutive Breaks in Service is equal to or greater than the
number of his Years of Service before the break or five, if greater, he shall
receive no credit for his pre-break Years of Service and Years of Credited
Service for purposes of Sections 1.34, 3.1, 3.2 and 6.1.
(c) Break in Service before October 1, 1985.
(1) A Participant who does not have a vested right to a benefit under
Section 6.1 and who incurs a Break in Service before October 1, 1985 shall have
his pre-break and post-break Years of Service and Years of Credited Service with
the Company and all Affiliated Entities aggregated for purposes of Sections
1.34, 3.1, 3.2 and 6.1 if:
(A) he is re-employed before October 1, 1985; and
(B) as of the date of his reemployment, the number of his consecutive
Breaks in Service is less than the number of Years of Service he had accrued
before his Break in Service.
(2) A Participant who does not have a vested right to a benefit under
Section 6.1 and who incurs a Break in Service before October 1, 1985 shall have
his pre-break and post-break Years of Service and Years of Credited Service with
the Company and all Affiliated Entities aggregated for purposes of Sections
1.34, 3.1, 3.2 and 6.1 if:
11
(A) he is re-employed on or after October 1, 1985;
(B) as of October 1, 1985, the number of his consecutive Breaks in
Service is less than the number of Years of Service he had accrued before his
Break in Service; and
(C) as of the date of his reemployment, the number of his consecutive
Breaks in Service is less than the greater of (i) the number of Years of Service
he had accrued before his Break in- Service or (ii) five.
(3) If a Participant described in Subsection (c)(1) or (c)(2) is not
entitled to have his pre-break and post-break Years of Service and Years of
Credited Service aggregated under that Subsection, he shall receive no credit
for his pre-break Years of Service and Years of Credited Service for purposes of
Sections 1.34, 3.1, 3.2 and 6.1.
3.5 Uniformity . The provisions of this Article 3 shall be applied
according to non-discriminatory rules of general application.
3.6 Military Service . Notwithstanding any provision of this Plan to
the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with section 414(u) of
the Code.
3.7 Cessation of Accruals . No increases in a Participant's Accrued
Benefit shall occur with respect to service on and after October 1, 2002. Each
Participant's Accrued Benefit based on Years of Credited Service as of September
30, 2002 shall be frozen and additional benefit accruals shall cease after such
date.
ARTICLE 4
ELIGIBILITY FOR BEN