<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, 1996
----------------------------------------------
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
of incorporation or organization) Identification 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.
5,207,923 shares of Common Stock
as of May 6, 1996
Page 1 of 12 Pages
Index to Exhibits on Sequentially Numbered Page 10
<PAGE> 2
THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
ASSETS (Unaudited) (Audited)
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 362 $ 501
Accounts receivable - net 29,517 12,083
Inventories 50,319 48,225
Other current assets 2,847 2,664
-------- -------
Total current assets 83,045 63,473
PROPERTY, PLANT, AND EQUIPMENT - NET 5,972 6,133
OTHER ASSETS 22,711 22,530
-------- -------
$111,728 $92,136
======== =======
LIABILITIES
-----------
CURRENT LIABILITIES
Current maturities of long-term obligations $ 2,588 $ 2,588
Accounts payable - trade 18,405 7,376
Other current liabilities 2,739 2,005
Short-term notes payable 1,500 1,500
-------- -------
Total current liabilities 25,232 13,469
LONG-TERM OBLIGATIONS
Secured note payable to bank 36,204 29,024
Subordinated term note 7,000 7,000
Other long-term liabilities 2,594 2,667
-------- -------
45,798 38,691
REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 527 584
SHAREHOLDERS' EQUITY
Common stock, no par value;
authorized: 10,000,000; issued and
outstanding: 5,177,304 at March 31, 1996
and 5,155,429 at December 31, 1995 19,235 19,155
Cumulative translation adjustment 17 75
Retained earnings 20,919 20,162
-------- -------
40,171 39,392
-------- -------
$111,728 $92,136
======== =======
</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>
1996 1995
------- -------
<S> <C> <C>
Net sales $37,380 $44,355
Cost of sales, including distribution costs 29,879 35,724
------- -------
Gross Profit 7,501 8,631
Selling, general and administrative expenses 5,655 6,552
------- -------
Operating income 1,846 2,079
Other income (expense)
Equity in the net earnings of affiliate 441 245
Interest expense (935) (1,035)
Other (9) 21
------- -------
(503) (769)
------- -------
Income before income taxes 1,343 1,310
Income tax expense 580 538
------- -------
NET INCOME $ 763 $ 772
======= =======
Income per common share $ .15 $ .15
======= =======
</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>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 763 $ 772
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 591 625
Equity in net earnings of affiliated companies (441) (245)
Changes in assets and liabilities:
(Increase) in accounts receivable (17,434) (19,797)
(Increase) in inventories (2,094) (7,539)
(Increase) in prepaids and other current assets (183) (425)
Increase in accounts payable 11,029 19,680
Increase in note, accrueds, and other
current liabilities 734 3,108
-------- --------
Total adjustments (7,798) (4,593)
-------- --------
Net cash (used in) operating activities (7,035) (3,821)
Cash flows from investing activities:
Capital expenditures (125) (817)
Decrease (increase) in other assets (45) 33
-------- --------
Net cash used in investing activities (170) (784)
Cash flows from financing activities:
Net borrowings under line-of-credit agreement 7,180 4,578
Net borrowings (repayments) of other long-term debt (73) (25)
Issuance of Common Stock pursuant to Employee
Stock Option Plans 80 7
Redemption of redeemable preferred stock of subsidiary (57) (58)
Dividends on preferred stock of subsidiary (6) (12)
-------- --------
Net cash provided by financing activities 7,124 4,490
Effect of exchange rate changes on cash (58) 35
-------- --------
NET INCREASE (DECREASE) IN CASH (139) (80)
Cash beginning of period 501 413
-------- --------
Cash end of period $ 362 $ 333
======== ========
</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, 1996 and the
results of its operations and cash flows for the three months ended
March 31, 1996 and 1995. 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, 1995.
2. The results of operations for the three-month periods ended March 31,
1996 and 1995 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 (5,194,907 at March 31, 1996 and
5,205,730 at December 31, 1995).
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, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Equipment Facilities Total
----------- --------- ---------- --------
(dollars in thousands)
<S> <C> <C> <C>
1996 $ 19 $ 2,965 $ 2,984
1997 6 2,661 2,667
1998 5 2,221 2,226
1999 5 1,103 1,108
2000 3 165 168
Thereafter -- 477 477
------- --------- --------
$ 38 $ 9,592 $ 9,630
======= ========= ========
</TABLE>
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
General
- -------
Factors Generally Affecting Sales of RV and Boating Products
------------------------------------------------------------
The Company is the largest wholesale distributor of replacement parts,
accessories and supplies for recreational vehicles, and one of the largest
distributors of replacement parts, accessories and supplies for boats, in North
America. Sales are made by the Company to retail parts and supplies stores,
service and repair establishments, and new and used recreational vehicle and
boat dealers ("aftermarket customers"). The Company's sales are affected
primarily by (i) usage of recreational vehicles and boats which affects the
consumers' needs for and purchases of replacement parts, repair services and
supplies, and (ii) sales of new recreational vehicles and boats, because
consumers often "accessorize" their recreational vehicles and boats at the time
of purchase.
The usage and the purchase, by consumers, of recreational vehicles and
boats depend, in large measure, upon the extent of discretionary income
available to consumers and their confidence about economic conditions. Weather
conditions also affect the usage of recreational vehicles and boats. As a
result, the Company's sales and operating results can be, and in the past have
been, adversely affected by recessionary economic conditions, increases in
interest rates, which affect the availability and affordability of financing
for purchases of recreational vehicles and boats, increases in gasoline prices
which adversely affect the costs of using recreational vehicles and boats, and
unusually adverse winter weather conditions.
Factors Affecting Recent Operating Results
------------------------------------------
Until 1993, the Company's business consisted primarily of distributing
and marketing products that the Company purchased from third-party
manufacturers and that were sold under the brand names of those manufacturers
("third-party brand name products"). In order to improve its competitive
position and increase its profitability, during the past three years, the
Company has introduced into the marketplace a growing number of products,
including trailer hitches, plastic wastewater tanks, portable toilets and
toilet chemicals, vent lids and stabilizing jacks (the "Proprietary Products"),
that have been designed by independent design professionals, and are
manufactured by a number of independent manufacturers, specifically for the
Company. The Proprietary Products are marketed by the Company under its own
brand names in competition with functionally equivalent third-party brand name
products. The Company generally is able to obtain the Proprietary Products at
prices that are below those it would have to pay for functionally equivalent or
similar third-party brand name products and, as a result, the Company is able
to realize higher margins on sales of its Proprietary Products.
In October 1995, Dometic Corporation, a division of White Consolidated
Industries ("Dometic"), which had supplied the Company with substantially all
of its requirements for air conditioners, awnings and refrigerators, that had
accounted for 22% and 24%, respectively, of the Company's net sales in 1994 and
1995, announced it had decided to integrate its operations vertically by
marketing its products directly to retail RV dealers, supply stores and service
centers in direct competition with the Company and other RV aftermarket product
distributors and that, as a result, it was terminating its supply agreement
with the Company. In response to Dometic's decision to terminate its supply
agreement with the Company, the Company entered into a multi-year product
supply agreement with Recreation Vehicle Products, Inc. ("RVP"), which
manufactures RV air conditioners under the Coleman(R) brand name and awnings
under the Faulkner brand name. Under that product supply arrangement RVP has
agreed to supply all of the Company's requirements for RV air conditioners and
awnings.
6
<PAGE> 7
Results of Operations
- ---------------------
Net sales decreased by approximately $6,975,000 or 16% in the first
quarter of 1996 as compared to the same quarter of 1995. A number of factors
contributed to this decrease, including (i) a change in the mix of product sales
to a higher proportion of Proprietary Products, which the Company generally
sells at unit prices that are lower than the prices at which it had been able to
sell functionally similar third-party brand name products and reductions in
sales of functionally similar third-party brand name products; (ii) Dometic's
decision to sell its products directly to aftermarket customers and the change
in the Company's supplier of RV air conditioners and awnings from Dometic to
RVP, which adversely affected sales of those products because those changes
created uncertainties among aftermarket customers that led them to defer
purchases of these products and because of the time that has been required to
coordinate the transition and build inventories of RVP products; (iii) a slowing
of sales of new RV's during the first quarter of 1996; and (iv) poor weather
conditions throughout North America. The effects of the changes in supply
relationships that resulted from Dometic's decision to sell its products
directly to aftermarket customers and anticipated increases in sales of
Proprietary Products and corresponding decreases in unit sales of functionally
similar third-party brand name products could adversely affect the Company's
sales in the second quarter of 1996.
The Company's gross margin increased to 20.1% of net sales in the
quarter ended March 31, 1996 from 19.5% of net sales in the quarter ended March
31, 1995. This increase was due primarily to the increased sales of the
Company's higher margin Proprietary Products.
Although selling, general and administrative expenses decreased by
$897,000 in the first quarter of 1996 as compared to the same period in 1995,
these expenses increased as a percentage of net sales to 15.1% in the first
quarter of 1996 from 14.8% in the first quarter of 1995. This increase was
primarily the result of the sales decline in the first quarter and the fixed
nature of many of these expenses.
The Company maintains minority ownership positions 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." During the first quarter of 1996, the Company's earnings from its
affiliates increased $196,000 or 80% from the same quarter in 1995. 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 1996.
In the first quarter of 1996, interest expense decreased by $100,000
or 9.7%, as compared to the same period in 1995, as a result of a decrease in
the rate of interest charged under the Company's revolving credit facility.
Liquidity and Capital Resources
- -------------------------------
The Company finances its working capital requirements for its
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) $50,000,000, or (ii) an amount equal
to 80% of its eligible accounts receivable and 50% of its eligible inventory
(the "borrowing base"). At May 6, 1996, outstanding borrowings under the
revolving credit facility were approximately $38,974,000.
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.
7
<PAGE> 8
The Company generally uses cash for, rather than generating cash from,
operations in the first quarter of the year, because the Company builds
inventories, and accounts receivable increase as its customers begin increasing
their product purchases, in anticipation of seasonal increases in consumer
demand for RV and boating products that occur in the spring and summer. Net
cash used in operating activities was $7,035,000 in the first quarter of 1996
as compared to $3,821,000 in the first quarter of 1995. This increase was due
primarily to the acceleration of payments of accounts payable which also
enabled the Company to take advantage of early payment discounts offered by
some of the Company's suppliers.
During the first quarter of 1996, borrowings under the Company's
revolving line of credit increased by $7,180,000, as compared to an increase of
$4,578,000 in the same quarter of 1995. The increased borrowings were used by
the Company to accelerate payment of the Company's accounts payable.
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 in
the winter months when sales are lower, particularly in years in which there
occurs unusually severe winter weather conditions in large regions of the
country.
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, which can
adversely affect the Company's sales. See "General -- Factors Generally
Affecting Sales of RV and Boating 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, 1996.
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, 1996.
8
<PAGE> 9
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 13, 1996 THE COAST DISTRIBUTION SYSTEM
By: /s/ SANDRA A. KNELL
-----------------------------
Sandra A. Knell
Executive Vice President
and Chief Financial Officer
9
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C> <C>
Exhibit 11.1 Computation of Earnings Per Share 11
for the Quarter Ended March 31, 1996
Exhibit 27. Financial Data Schedule 12
</TABLE>
10
<PAGE> 1
EXHIBIT 11.1
THE COAST DISTRIBUTION SYSTEM
Computation of Earnings Per Share
Quarter Ended March 31, 1996
<TABLE>
<CAPTION>
Primary Fully Diluted
Earnings Per Share Earnings Per Share
------------------ ------------------
<S> <C> <C> <C>
I. Weighted Averages Shares Outstanding 5,169,633 5,169,633
II. Common Stock Equivalents 19,449 25,274
III. Other Dilutive Securities
---------- ----------
Average Number of Common and Common
Equivalent Shares 5,189,082 5,194,907
========== ==========
Net Earnings $ 763,000 $ 763,000
After-tax interest on convertible debt (6,000) (6,000)
Dividend paid on preferred stock of subsidiary
---------- ----------
Earnings available to common shareholders $ 757,000 $ 757,000
Divided by Shares 5,189,082 5,194,907
---------- ----------
$ 0.15 $ 0.15
========== ==========
</TABLE>
11
<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, 1996
INCLUDED IN REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1996 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-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 362
<SECURITIES> 0
<RECEIVABLES> 29,517
<ALLOWANCES> 0
<INVENTORY> 50,319
<CURRENT-ASSETS> 83,045
<PP&E> 5,972
<DEPRECIATION> 0
<TOTAL-ASSETS> 111,728
<CURRENT-LIABILITIES> 25,232
<BONDS> 45,798
527
0
<COMMON> 19,235
<OTHER-SE> 20,936
<TOTAL-LIABILITY-AND-EQUITY> 111,728
<SALES> 37,380
<TOTAL-REVENUES> 37,380
<CGS> 29,879
<TOTAL-COSTS> 35,534
<OTHER-EXPENSES> 503
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 935
<INCOME-PRETAX> 1,343
<INCOME-TAX> 580
<INCOME-CONTINUING> 763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 763
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
