<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1995
----------------------------------------------
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 1-9511
-----------------
THE COAST DISTRIBUTION SYSTEM
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2490990
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
1982 ZANKER ROAD, SAN JOSE, CALIFORNIA 95112
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 436-8611
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------------
(Former name, former address and former fiscal
year, if changed, since last year)
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 XXX 90 days. YES XX . NO .
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
5,098,338 shares of Common Stock
as of May 10, 1995
Page 1 of 10 Pages
Index to Exhibits on Sequentially Numbered Page 9
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THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, 1995 and December 31, 1994
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
ASSETS (Unaudited) (Audited)
------ --------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 333 $ 413
Accounts receivable - net 33,074 13,277
Inventories 50,117 42,578
Other current assets 3,023 2,598
-------- -------
Total current assets 86,547 58,866
PROPERTY, PLANT, AND EQUIPMENT - NET 6,064 5,450
OTHER ASSETS 21,431 21,641
-------- -------
$114,042 $85,957
======== =======
LIABILITIES
-----------
CURRENT LIABILITIES
Current maturities of long-term
obligations $ 3,483 $ 3,509
Accounts payable - trade 26,634 6,954
Other current liabilities 3,014 3,264
Short-term notes payable 6,396 3,012
-------- -------
Total current liabilities 39,527 16,739
LONG-TERM OBLIGATIONS
Secured note payable to bank 25,613 21,035
Subordinated term note 9,334 9,334
Other long-term liabilities 2,458 2,456
-------- -------
37,405 32,825
REDEEMABLE PREFERRED STOCK
OF SUBSIDIARY 615 671
SHAREHOLDERS' EQUITY
Common stock, no par value;
authorized: 10,000,000;
issued and outstanding:
5,067,246 at March 31, 1995
and 5,066,848 at
December 31, 1994 18,947 18,940
Cumulative translation adjustment (63) (69)
Retained earnings 17,611 16,851
-------- -------
36,495 35,722
-------- -------
$114,042 $85,957
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands)
Three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net sales $ 44,355 $ 42,357
Cost of sales, including
distribution costs 35,724 34,870
--------- ---------
Gross Profit 8,631 7,487
Selling, general and administrative
expenses 6,552 5,969
--------- ---------
Operating income 2,079 1,518
Other income (expense)
Equity in the net earnings
of affiliate 245 278
Interest expense (1,035) (799)
Other 21 2
--------- ---------
(769) (519)
--------- ---------
Income before income taxes 1,310 999
Income tax expense 538 358
--------- ---------
NET INCOME $ 772 $ 641
========= =========
Income per common share $ .15 $ .14
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Dollars in thousands)
Three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 772 $ 641
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 625 742
Equity in net earnings of affiliated companies (245) (278)
Changes in assets and liabilities:
(Increase) in accounts receivable (19,797) (19,472)
(Increase) in inventories (7,539) (905)
(Increase) in prepaids and other
current assets (425) (55)
Increase in accounts payable 19,680 13,959
Increase in note, accrueds, and other
current liabilities 3,108 654
-------- --------
Total adjustments (4,593) (5,355)
-------- --------
Net cash (used in) operating activities (3,821) (4,714)
Cash flows from investing activities:
Acquisition of businesses, net of cash
acquired -- (2,751)
Capital expenditures (817) (599)
Decrease in other assets 33 266
-------- --------
Net cash used in investing activities (784) (3,084)
Cash flows from financing activities:
Net borrowings (repayments) under
line-of-credit agreement 4,578 6,264
Net borrowings (repayments) of other long-term debt (25) 244
Issuance of Common Stock pursuant to Employee
Stock Option Plans 7 23
Issuance of Common Stock in connection with
acquisition of business -- 630
Issuance of preferred stock of subsidiary in connection
with acquisition of business -- 723
Redemption of redeemable preferred stock of subsidiary (68) --
Dividends on preferred stock of subsidiary (12) (2)
-------- --------
Net cash provided by financing activities 4,490 7,882
Effect of exchange rate changes on cash 35 (51)
-------- --------
NET INCREASE (DECREASE) IN CASH (80) 33
Cash beginning of period 413 654
-------- --------
Cash end of period $ 333 $ 687
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present the Company's financial position as of March 31, 1995 and the
results of its operations and cash flows for the three months ended
March 31, 1995 and 1994. The accounting policies followed by the
Company are set forth in note A to the Company's financial statements
in its Annual Report on Form 10-K for its fiscal year ended December
31, 1994.
2. The results of operations for the three-month periods ended March 31,
1995 and 1994 are not necessarily indicative of the results to be
expected for the full year.
3. Earnings per share are based upon the average number of common and
common equivalent (dilutive stock options and warrants) shares
outstanding during each period (5,306,264 at March 31, 1995 and
5,185,775 at December 31, 1994).
4. The Company leases its corporate offices, warehouse facilities and
data processing equipment. Those leases are classified as operating
leases as they do not meet the capitalization criteria of FASB
Statement No. 13. The office and warehouse leases expire over the
next eight years and the equipment leases expire over the next five
years.
The minimum future rental commitments under noncancellable operating
leases having an initial or remaining term in excess of one year as of
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Equipment Facilities Total
---------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
1995 $ 54 $ 2,741 $ 2,795
1996 11 2,683 2,694
1997 1 2,333 2,334
1998 -- 1,925 1,925
1999 -- 1,075 1,075
Thereafter -- 642 642
---- ------- -------
$ 66 $11,399 $11,465
==== ======= =======
</TABLE>
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Results of Operations
- ---------------------
Net sales increased by approximately $1,998,000 or 5% in the first
quarter of 1995 as compared to the same quarter of 1994. This sales increase
was due to (i) the acquisition and consolidation of The Coast Distribution
System (Canada) Inc. ("Coast Canada") as of March 1, 1994, the full effects of
which were not reflected in quarterly operating results until after the first
quarter of 1994, and (ii) the addition, in the second quarter of 1994, of a new
distribution center in Eau Claire, Wisconsin. Same center sales were
relatively flat in the first quarter of 1995 as compared to the same period in
1994 due to a softening in the economy and poor weather conditions throughout
the country.
The Company's gross margin increased to 19.5% of net sales in the
quarter ended March 31, 1995 as compared to 17.7% of net sales in the quarter
ended March 31, 1994. This increase was due primarily to (i) increased sales
of the Company's proprietary products, and (ii) price increases on selected
products.
Selling, general and administrative expenses increased as a percentage
of net sales to 14.8% in the first quarter of 1995 from 14.1% for the same
quarter of 1994. This increase was due primarily to increases in selling costs
resulting from the promotion of the Company's proprietary products and the
establishment of a national customer service center in San Jose, California.
The Company maintains ownership positions of between 25% and 50% in
several companies in related industries. The Company's ownership interests in
these companies are accounted for under the equity method of accounting. Under
this method, the Company includes in its operating results its pro rata share
of the net income of these companies which is reported as "equity in net
earnings of affiliates." The Company's equity in the net earnings of these
companies is not cash, and the Company is dependent on the declaration of cash
dividends by those companies to realize any current cash from these
investments. No dividends were declared by those companies in the first
quarter of 1995.
The improvement in operating income for the first quarter of 1995, as
compared to the first quarter of 1994, is primarily attributable to the
increase in the Company's gross margin.
In the first quarter of 1995, interest expense increased by $236,000,
or 29.5%, as compared to the same period in 1994, as a result of increases in
outstanding borrowings the proceeds of which were used to fund (i) a portion of
the price paid by the Company for the remaining shares of Coast Canada that
were acquired in March 1994, and (ii) increased working capital requirements as
a result of the Company's expanded operations, both in Canada and the United
States, where the Company opened new distribution centers, in Eau Claire,
Wisconsin, Vancouver, British Columbia, and Anchorage, Alaska.
The provision for income taxes increased by $180,000 or 50.3% in 1995
as compared to 1994 due to (i) the increase in pre-tax earnings in the first
quarter of 1995, and (ii) a higher effective tax rate in Canada due to
increased earnings in Provinces which impose higher rates of tax on income.
Liquidity and Capital Resources
- -------------------------------
The Company finances its working capital requirements for its domestic
operations primarily with borrowings under a long-term revolving bank credit
facility and internally generated funds. Under that credit facility, the
Company may borrow up to the lesser of (i) $32,000,000, or (ii) an amount equal
6
<PAGE> 7
to 80% of its eligible accounts receivable and 50% of its eligible inventory
(the "borrowing base"). At May 9, 1995, outstanding borrowings under the
revolving credit facility were approximately $28,446,000.
The working capital requirements for the Company's operations in
Canada are financed primarily with borrowings under a separate revolving credit
facility and internally generated funds. Under that credit facility, the
Company may borrow up to the lesser of (i) C$10,000,000 for the period February
1 through July 5 of each year, and C$6,000,000 during the period July 6 through
January 31 of each year, or (ii) an amount equal to 80% of the eligible
accounts receivable and 25% of the eligible inventory of Coast Canada. At May
9, 1995, outstanding borrowings under the revolving credit facility were
approximately C$7,648,000.
The Company believes that available credit under the revolving credit
facilities, together with internally generated funds, will be sufficient to
enable the Company to meet its working capital requirements for the foreseeable
future.
The increases in accounts receivable, inventory, accounts payable and
bank borrowings at March 31, 1995, as compared to December 31, 1994, are
primarily the result of increases in product sales to customers and increases
in inventories to meet customer demand that typically occur in the latter part
of the first quarter in anticipation of increased consumer usage, in the spring
and summer, of recreational vehicles and boats and a concomitant increase in
demand for the repair and replacement parts and accessories which the Company
distributes.
Seasonality and Inflation
- -------------------------
Sales of recreational vehicle and boating parts, supplies and
accessories are seasonal. The Company has significantly higher sales during
the six-month period from April through September than it does during the
remainder of the year. Because a substantial portion of the Company's expenses
are fixed, operating income declines and the Company sometimes incurs losses
and must rely more heavily on borrowings to fund operating requirements in the
months when sales are lower.
Generally, the Company has been able to pass inflationary price
increases on to its customers. However, inflation also may cause or may be
accompanied by increases in gasoline prices and interest rates. Such
increases, or even the prospect of increases in the price or shortages in the
supply of gasoline, can adversely affect the purchase and usage of recreational
vehicles, which can result in a decline in the demand for the Company's
products.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND EXHIBITS
---------------------------------------------
(a) Exhibits.
---------
Exhibit 11.1 Computation of Fully Diluted Earnings Per
Share for the Quarter Ended March 31, 1995.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
No Reports on Form 8-K were filed during the quarter ended
March 31, 1995.
7
<PAGE> 8
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.
Dated: May 11, 1995 THE COAST DISTRIBUTION SYSTEM
By: /s/ SANDRA A. KNELL
-----------------------------
Sandra A. Knell
Executive Vice President
and Chief Financial Officer
S-1
<PAGE> 9
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C> <C>
Exhibit 11.1 Computation of Fully Diluted Per Share
Earnings for the Quarter Ended March 31, 1995 10
Exhibit 27 Financial Data Schedule 11
</TABLE>
<PAGE> 1
EXHIBIT 11.1
THE COAST DISTRIBUTION SYSTEM
Computation of Fully Diluted Earnings Per Share
Quarter Ended March 31, 1995
<TABLE>
<CAPTION>
Weighted Average
Number of Shares
----------------
<S> <C> <C> <C>
I. Weighted Average Shares Outstanding 5,066,848
II. Common Stock Equivalents 114,416
III. Other Dilutive Securities 125,000
---------
Average Number of Common and Common
Equivalent Shares 5,306,264
=========
Net Earnings $ 772,000
After-tax interest on
convertible debt 16,000
Dividend paid on preferred stock
of subsidiary (12,000)
----------
Earnings available to
common shareholders $ 776,000
Divided by Shares 5,306,264
----------
$ 0.15
=======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF, AND THE STATEMENT OF INCOME FOR THE PERIOD ENDED MARCH 31, 1995
INCLUDED IN REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH BALANCE
SHEET AND STATEMENT OF INCOME AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 333
<SECURITIES> 0
<RECEIVABLES> 33,074
<ALLOWANCES> 0
<INVENTORY> 50,117
<CURRENT-ASSETS> 86,547
<PP&E> 6,064
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,042
<CURRENT-LIABILITIES> 39,527
<BONDS> 37,405
<COMMON> 18,947
615
0
<OTHER-SE> 17,548
<TOTAL-LIABILITY-AND-EQUITY> 114,042
<SALES> 44,355
<TOTAL-REVENUES> 44,355
<CGS> 35,724
<TOTAL-COSTS> 42,276
<OTHER-EXPENSES> 769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,035
<INCOME-PRETAX> 1,310
<INCOME-TAX> 538
<INCOME-CONTINUING> 772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 772
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
