Hazards seen for Coastcast as Calloway eyes foundry. (Corporate Focus).

THERE'S some rough terrain ahead for Coastcast Corp.

The Rancho Dominguez-based manufacturer of golf club heads has seen business fall as its customers divert purchases to China, where the heads can be made more cheaply.

Now comes news that its biggest customer, Callaway Golf Co., is in the midst of buying a business that would allow it to bring the work it currently farms out to Coastcast and others in-house.

"It's going to be a difficult row for us to hoe," said Hans Buehler, Coastcast's enigmatic chairman, in a brief telephone interview.

If Buehler doesn't sound optimistic, neither do his shareholders. "Things have sort of unraveled, but I don't know what he's going to do," said Stephen Weinress, a partner with the brokerage firm LH Friend Weinress Frankson in Irvine.

Callaway has made no announcement, but the San Diego Union Tribune reported that Carlsbad-based Callaway is in talks to buy some of the assets of Cast Alloys, a club-head foundry that closed its Tijuana operations this past winter.

Coastcast said in a press release accompanying its first quarter earnings report on April 22 that the acquisition, if completed, "may result in a further decline in business from Callaway."

A Callaway spokesman, Larry Dorman, said Coastcast's statement is only speculation. He said the company is in due diligence on an acquisition, and doesn't know how it will affect business with Coastcast. The foundry operation would give Calloway a secure environment in which to conduct research and development, he said.

Regardless, Coastcast's stock fell on the news. Already depressed, it fell further, closing at $2.55 on May 23. First quarter sales fell to $22 million from $27.3 million in the like year-earlier period, but through cost-cutting Coastcast managed a $723,000 profit (9 cents a share) vs. a loss of $657,000 (9 cents) in the year-ago first quarter.

Coastcast will continue to scale back its operations, taking significant charges this year and next, and it will try to develop products in niche markets, Buehler said. But "by and large the bulk of what we are doing will migrate overseas if it hasn't already."

About 90 percent of Coastcast's business is in clubheads. Its specialty is titanium, and it has dabbled in the markets for orthopedic implants and surgical tools.

The company has the tools to reposition, but it's not going as fast as investors have wanted.

It has $10 million in cash, or $1.40 a share, and no long-term debt. Shareholder equity is more than $6.40 per share. However, the market keeps bidding the shares downward, partly because there's little indication of what, if anything, Buehler plans to do. "There's not a sense of urgency," said Weinress.

Buehler, who owns 13.1 percent of the company, has come under investor scrutiny before.

In 1998, a shareholder named Jonathan Vannini sought a special meeting, calling for a more active management and a reduction in Buehler's pay, which had totaled $1.9 million, plus stock options, over the previous three years. He also sought to undo a generous retirement package for Buehler.

In November of that year, Buehler granted Vannini a seat on the board, reduced his pay 20 percent and relinquished his rights under the retirement plan. Vannini dropped his demands and stayed on the board until February 2001, stepping down after Coastcast paid a special $5 a share dividend.

Weinress doesn't know what Buehler plans to do now. He'd like to see more effort placed into diversifying the product line, perhaps into aerospace. He notes that Coastcast has state-of-the art equipment, with all the permits needed to do high-end work.

But he speculated that Buehler might be downplaying the company's prospects in hopes of taking the firm private. "I don't know what he's up to, but he's too smart of a guy not to have a plan," Weinress said. He said he knows of one high-profile shareholder activist who's already taken a large position in the stock.

(In July 2000, while trading at $18, Coastcast announced it was turning down several unsolicited offers it deemed too low.)

Other shareholders also see value. John Buckingham, president of Al Frank Asset Management in Laguna Beach, has been buying more shares at recent low prices.

"We give them the benefit of the doubt that they're not going to blow through the cash."

Golf Property Sold

National Golf Properties Inc., the Santa Monica-based golf-course landlord, sold one of its beacon properties, the SeaCliff Country Club in Huntington Beach. "We closed escrow a couple of weeks ago," said Robert Ohill, chairman of Newport Beach-based Ohill Partners, which purchased SeaCliff through two affiliates. Ohill declined to give the purchase price, but sources put it at just over $19 million. National Golf officials declined to comment.

Ohill Properties, based in Newport Beach, owns the Newport Beach Country Club. Like National Golf, it is strictly a landlord; National Golf affiliate American Golf Corp. will continue to operate the property under a lease, Ohill said. The club, which has about 525 members, will remain private, Ohill said. As previously reported, National Golf has been selling portfolio properties in an attempt to raise cash as it restructures its finances.

[GRAPH OMITTED]

Coastcast Corp.

Stock Prices

May 23, 2001  $8.06
May 23, 2002  $2.55

Note: Table made from line graph

SUMMARY

Business: Golf club head manufacturer

Headquarters: Rancho Dominguez

Chief Executive: Hans Buehler

Market Cap: $19.5 million

Dividend Yield: 38.2%

Total Liabilities: $8.6 million

P/E Ratio: N/A

Long-Term Debt: $0

Financial Editor Anthony Palazzo can he reached at 323-549-5225, ext. 224, or at [e-mail].