<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 JUNE 30, 1997
-------------
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 of (I.R.S. Employer
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.
5,246,879 shares of Common Stock
as of August 6, 1997
Index to Exhibits on Sequentially Numbered Page 11
<PAGE> 2
THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
ASSETS (Unaudited) (Audited)
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,512 $ 214
Accounts receivable - net 20,864 13,285
Inventories 40,207 43,193
Other current assets 2,937 3,347
-------- --------
Total current assets 66,520 60,039
PROPERTY, PLANT, AND EQUIPMENT - NET 5,135 5,355
OTHER ASSETS 23,823 23,048
-------- --------
$ 95,478 $ 88,442
======== ========
LIABILITIES
-----------
CURRENT LIABILITIES
Current maturities of long-term
obligations $ 3,706 $ 3,667
Accounts payable - trade 12,894 7,322
Other current liabilities 2,240 1,911
Short-term notes payable 1,500 1,500
-------- --------
Total current liabilities 20,340 14,400
LONG-TERM OBLIGATIONS
Secured note payable to bank 31,460 27,956
Subordinated term note 2,334 4,667
Other long-term liabilities 1,533 1,496
-------- --------
35,327 34,119
REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 418 473
SHAREHOLDERS' EQUITY
Common stock, no par value;
authorized: 10,000,000;
issued and outstanding:
5,246,879 at June 30, 1997
and 5,210,723 at
December 31, 1996 19,560 19,440
Cumulative translation adjustment (39) (11)
Retained earnings 19,872 20,021
-------- --------
39,393 39,450
-------- --------
$ 95,478 $ 88,442
======== ========
</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 OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 41,600 $ 42,159 $ 76,805 $ 79,539
Cost of sales, including
distribution costs 35,617 36,014 65,289 65,893
-------- -------- -------- --------
Gross Profit 5,983 6,145 11,516 13,646
Selling, general and
administrative expenses 5,722 5,549 10,729 11,204
-------- -------- -------- --------
Operating income 261 596 787 2,442
Other income (expense)
Equity in net earnings
of affiliates 788 433 947 874
Interest expense (959) (1,029) (1,843) (1,964)
Other -- 2,138 (1) 2,129
-------- -------- -------- --------
(171) 1,542 (897) 1,039
-------- -------- -------- --------
Income (loss) before
income taxes 90 2,138 (110) 3,481
Income tax expense 141 983 33 1,563
-------- -------- -------- --------
NET INCOME (LOSS) $ (51) $ 1,155 $ (143) $ 1,918
======== ======== ======== ========
Income (loss) per common
share (Note 3) $ (.01) $ .22 $ (.03) $ .37
======== ======== ======== ========
</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)
Six months ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (143) $ 1,918
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 825 1,190
Equity in net earnings of affiliated companies (947) (874)
Changes in assets and liabilities:
(Increase) in accounts receivable (7,579) (13,119)
(Increase) decrease in inventories 2,986 (551)
Decrease in prepaids and other current assets 410 1,367
Increase in accounts payable 5,572 7,465
Increase in note, accrueds, and other
current liabilities 368 416
-------- --------
Total adjustments 1,635 (4,106)
-------- --------
Net cash generated from (used in) operating activities 1,492 (2,188)
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired -- (683)
Capital expenditures (284) (313)
Increase in other assets (149) (89)
-------- --------
Net cash used in investing activities (433) (1,085)
Cash flows from financing activities:
Net borrowings under line-of-credit agreement 3,504 6,202
Net repayments of other long-term debt (2,296) (2,398)
Issuance of Common Stock pursuant to Employee
Stock Option and Stock Purchase Plans 120 80
Redemption of redeemable preferred stock of subsidiary (55) (53)
Dividends on preferred stock of subsidiary (6) (11)
-------- --------
Net cash provided by financing activities 1,267 3,820
Effect of exchange rate changes on cash (28) (136)
-------- --------
NET INCREASE IN CASH 2,298 411
Cash beginning of period 214 501
-------- --------
Cash end of period $ 2,512 $ 912
======== ========
</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 June 30, 1997 and the
results of its operations and cash flows for the three and six month
periods ended June 30, 1997 and 1996. 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,
1996.
2. The results of operations for the three and six month periods ended June
30, 1997 and 1996 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.
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 eleven years and the
equipment leases expire over the next four 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, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Equipment Facilities Total
----------- --------- ---------- --------
dollars in thousands)
<S> <C> <C> <C>
1997 $ 81 $ 2,930 $ 3,011
1998 79 2,555 2,634
1999 13 1,482 1,495
2000 3 454 457
2001 - 434 434
Thereafter - 1,439 1,439
------- ------- -------
$ 176 $ 9,294 $ 9,470
======= ======= =======
</TABLE>
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 ("After-Market 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.
Until 1993, the Company's business consisted primarily of distributing
and marketing to its customers products that the Company purchased from third
party manufacturers and that were sold under the brand names of those
manufacturers. During the past four years, the Company has introduced into the
marketplace a growing number of "proprietary products". These products have been
designed for the Company by independent design professionals, to the Company's
product specifications, are produced by independent manufacturers specifically
for the Company and are marketed and sold by the Company under its own brand
names. Sales of proprietary products, which accounted for 10% of the Company's
net sales in 1994, increased to 15% and then to 23% of net sales in 1995 and
1996, respectively, both as a result of greater market acceptance of the
Company's proprietary products and additions by the Company of new products to
its proprietary products line.
Factors Affecting Recent Operating Results
------------------------------------------
During the five-year period ended December 31, 1995, the Company
purchased substantially all of its requirements for air conditioners, awnings
and refrigerators for recreational vehicles from Dometic Corporation
("Dometic"), a division of White Consolidated Industries. Sales of such products
accounted for 22% and 24%, respectively, of the Company's sales in 1994 and
1995. During the first quarter of 1996 Dometic terminated its supply agreement
with the Company (as well as its supply agreements with other independent
distributors) as a result of its decision to integrate its operations vertically
by marketing its products directly to After-Market Customers in direct
competition with the Company and other After-Market distributors of RV products.
In response to that action by Dometic, the Company entered into a supply
contract with Recreation Vehicle Products, Inc. ("RVP"), which manufactures air
conditioners under the Coleman(R) brand name and awnings under the Faulkner
brand name. Under that contract, RVP agreed to supply all of the Company's
requirements for RV air conditioners and awnings for a minimum term of five
years, commencing in 1996.
6
<PAGE> 7
As a result of both the magnitude and timing of the changes in supply
relationships and the introduction, at the same time, of a number of new
proprietary products, RVP and certain of the Company's proprietary product
manufacturers encountered difficulties in meeting the Company's requirements for
their products for the spring and summer months when demand from After-Market
customers is at its highest (see "Seasonality and Inflation"). In addition, the
Company encountered increased competition within the RV products After-Market
due to Dometic's entry as a competitor in that market and increased price
competition from other distributors seeking to regain market share lost to the
Company's proprietary products and to Dometic. Since the supply problems
encountered by the Company primarily affected its supply of, and therefore its
ability to meet customer demand for, higher margin products, the supply problems
and the increased competition adversely affected the Company's sales and
margins, particularly in the last three quarters of 1996, as the Company lost
sales of such products to its competitors.
The changes in supply relationships and increased competition in 1996
also adversely affected the Company's net sales and margins in the first six
months of 1997 and are expected to have an adverse effect on operating results
in the succeeding quarters of 1997, the extent of which is difficult to predict.
There also is no assurance that additional changes within the After-Market, that
would increase competition or create further uncertainties for the Company, as
well as others in the industry, will not occur in the future. The recent strike
at United Parcel Service (the "UPS Strike") also is expected to affect sales
adversely and increase distribution costs at least during the third quarter
of 1997.
Results of Operations
- ---------------------
Net sales decreased by approximately $559,000 or 1% in the quarter
ended June 30, 1997, as compared to the corresponding quarter of 1996. For the
six months ended June 30, 1997, sales declined by 3% to $76,805,000 from
$79,539,000 in the same six months of 1996. These sales decreases were due to a
softening in consumer purchases of replacement parts and accessories, due in
part to difficult weather conditions in the Northern United States and Canada.
The Company's gross margin decreased to 14.4% of net sales in the three
months ended June 30, 1997 from 14.6% for the same period of 1996. In the six
months ended June 30, 1997, the Company's gross margin decreased to 15.0% of net
sales from 17.2% in the same six months of 1996. These decreases were due
primarily to (i) changes in product mix to a greater proportion of lower margin
products; (ii) increased price competition in the markets in which the Company
operates, and (iii) the impact of fixed costs on a lower sales base.
Selling, general and administrative expenses increased by $173,000 or
3.1% in the three months ended June 30, 1997, as compared to the same three
months of 1996. Such expenses declined by $475,000 or 4.2% in the six months
ended June 30, 1997 as compared to the same period of 1996. The increase in the
quarter ended June 30, 1997 was due primarily to cost associated with new
advertising programs. The decrease in the six months ended June 30, 1997 was
primarily the result of increased efficiencies associated with the Company's
national call center and the expiration of certain non-compete agreements that
were entered into in connection with prior acquisitions.
Due to the combined effects of the declines in sales and gross margin,
operating income declined to $261,000 in the quarter ended June 30, 1997, as
compared to $596,000 in 1996 and to $787,000 in the six months ended June 30,
1997 as compared to $2,442,000 in 1996.
The Company maintains 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."
The Company's equity in the net earnings of these companies is not cash, and the
Company is dependent on the declaration
7
<PAGE> 8
of cash dividends by those companies to realize any current cash from these
investments. No dividends were declared by those companies in the first six
months of 1997.
Other income in the quarter and six months ended June 30, 1996 includes
approximately $2,130,000 which represents the net proceeds received by the
Company from the favorable settlement of a lawsuit. But for that settlement, the
Company's income before income taxes would have been $-0- and $1,352,000 for the
quarter and six months ended June 30, 1996, respectively.
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 August 1, 1997, outstanding borrowings under the revolving
credit facility were approximately $29,000,000.
The Company believes that available credit under the revolving credit
facility, together with internally generated funds, will be sufficient to enable
the Company to meet its working capital requirements for the foreseeable future.
The Company generally uses cash for, rather than generating cash from,
operations in the first half of the year, because the Company's accounts
receivable and inventory builds 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. However, due to an
inventory reduction program which was commenced in late 1996 and continued into
1997, the Company generated cash from operating activities of $1,492,000 in the
first six months of 1997 as compared to using cash of $2,188,000 in the first
six months of 1996.
During the first six months of 1997, borrowings under the Company's
revolving line of credit increased by $3,504,000, as compared to an increase of
$6,202,000 in the same period of 1996. The Company made principal reduction
payments of $2,333,000 on its outstanding senior subordinated notes (the
"Subordinated Notes") in each of 1997 and 1996, principally with borrowings
under its long-term bank credit facility.
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.
--------------------------------
8
<PAGE> 9
This Report contains forward-looking information which reflects
Management's current views of future financial performance. The forward-looking
information is subject to certain risks and uncertainties, including, but not
limited to, the effect on future performance of the changing product supply
relationships in the industry and the uncertainties created by those changes;
the potential for increased price competition; and possible changes in economic
conditions, prevailing interest rates or gasoline prices, or the occurrence of
unusually severe weather conditions, that can affect both the purchase and usage
of recreational vehicles and boats and which, in turn, affects purchases by
consumers of the products that the Company sells, and the effects of the UPS
strike on sales and on distribution costs. For information concerning such
factors and risks, see the foregoing discussion in this section of this Report
titled, "Management's Discussion and Analysis of Financial Condition and Results
of Operations." Due to such uncertainties and risks, readers are cautioned not
to place undue reliance on such forward-looking statements, which speak only as
of the date of this Report.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND EXHIBITS
---------------------------------------------
(a) Exhibits.
---------
Exhibit 11.1 -- Computation of Loss Per Share for the
quarter and six months ended June 30, 1997
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
No Reports on Form 8-K were filed during the quarter ended
June 30, 1997.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 12, 1997 THE COAST DISTRIBUTION SYSTEM
By: /s/ SANDRA A. KNELL
---------------------------
Sandra A. Knell
Executive Vice President
and Chief Financial Officer
S-1
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C>
Exhibit 11.1 -- Computation of Loss Per Share 12
for the Quarter and Six Months Ended
June 30, 1997
Exhibit 27 -- Financial Data Schedule 14
</TABLE>
E-1
<PAGE> 1
EXHIBIT 11.1
THE COAST DISTRIBUTION SYSTEM
Computation of Loss Per Share
Quarter Ended June 30, 1997
<TABLE>
<CAPTION>
Primary Fully Diluted
Loss Per Share Loss Per Share
-------------- --------------
<S> <C> <C>
I. Weighted Averages Shares Outstanding 5,246,879 5,246,879
II. Net Loss $ (51,000) $ (51,000)
Dividends paid on preferred stock of subsidiary (3,000) (3,000)
---------- ----------
Net loss attributable to common shareholders $ (54,000) $ (54,000)
Divided by Common and Equivalent Shares 5,246,879 5,246,879
---------- ----------
Loss Per Share $ (0.01) $ (0.01)
========== ==========
</TABLE>
<PAGE> 2
EXHIBIT 11.1
THE COAST DISTRIBUTION SYSTEM
Computation of Loss Per Share
Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Primary Fully Diluted
Loss Per Share Loss Per Share
-------------- --------------
<S> <C> <C>
I. Weighted Averages Shares Outstanding 5,229,700 5,229,700
II. Net Loss $ (143,000) $ (143,000)
Dividends paid on preferred stock of subsidiary (6,000) (6,000)
---------- ----------
Net loss attributable to common shareholders $ (149,000) $ (149,000)
Divided by Common and Equivalent Shares 5,229,700 5,229,700
---------- ----------
Loss Per Share $ (0.03) $ (0.03)
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1997 AND THE STATEMENT OF OPERATIONS FOR THE PERIOD ENDED
JUNE 30, 1997 INCLUDED IN REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED JUNE 30, 1997 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,512
<SECURITIES> 0
<RECEIVABLES> 20,864
<ALLOWANCES> 0
<INVENTORY> 40,207
<CURRENT-ASSETS> 66,520
<PP&E> 5,135
<DEPRECIATION> 0
<TOTAL-ASSETS> 95,478
<CURRENT-LIABILITIES> 20,340
<BONDS> 35,327
418
0
<COMMON> 19,560
<OTHER-SE> 19,872
<TOTAL-LIABILITY-AND-EQUITY> 95,478
<SALES> 76,805
<TOTAL-REVENUES> 76,805
<CGS> 65,289
<TOTAL-COSTS> 76,018
<OTHER-EXPENSES> 897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,843
<INCOME-PRETAX> (110)
<INCOME-TAX> 33
<INCOME-CONTINUING> (143)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (143)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
