<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, 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 (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.
5,246,879 shares of Common Stock
as of May 7, 1997
Page 1 of 13 Pages
Index to Exhibits on Sequentially Numbered Page 11
<PAGE> 2
THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
ASSETS (Unaudited) (Audited)
------ ----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,083 $ 214
Accounts receivable - net 29,959 13,285
Inventories 41,669 43,193
Other current assets 3,698 3,347
--------- ---------
Total current assets 76,409 60,039
PROPERTY, PLANT, AND EQUIPMENT - NET 5,295 5,355
OTHER ASSETS 23,083 23,048
--------- ---------
$ 104,787 $ 88,442
========= =========
LIABILITIES
-----------
CURRENT LIABILITIES
Current maturities of long-term
obligations $ 3,705 $ 3,667
Accounts payable - trade 13,327 7,322
Other current liabilities 2,356 1,911
Short-term notes payable 1,500 1,500
--------- ---------
Total current liabilities 20,888 14,400
LONG-TERM OBLIGATIONS
Secured note payable to bank 37,844 27,956
Subordinated term note 4,667 4,667
Other long-term liabilities 1,538 1,496
--------- ---------
44,049 34,119
REDEEMABLE PREFERRED STOCK
OF SUBSIDIARY 413 473
SHAREHOLDERS' EQUITY
Common stock, no par value;
authorized: 10,000,000;
issued and outstanding:
5,246,879 at March 31, 1997
and 5,210,723 at
December 31, 1996 19,560 19,440
Cumulative translation adjustment (49) (11)
Retained earnings 19,926 20,021
--------- ---------
39,437 39,450
--------- ---------
$ 104,787 $ 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)
Three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net sales $ 35,205 $ 37,380
Cost of sales, including
distribution costs 29,672 29,879
-------- --------
Gross Profit 5,533 7,501
Selling, general and administrative
expenses 5,007 5,655
-------- --------
Operating income 526 1,846
Other income (expense)
Equity in the net earnings
of affiliate 159 441
Interest expense (884) (935)
Other (1) (9)
-------- --------
(726) (503)
-------- --------
Income (loss) before income taxes (200) 1,343
Income tax expense (benefit) (108) 580
-------- --------
NET INCOME (LOSS) $ (92) $ 763
======== ========
Income (loss) per common share $ (.02) $ .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>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (92) $ 763
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 428 591
Equity in net earnings of affiliated companies (159) (441)
Changes in assets and liabilities:
(Increase) in accounts receivable (16,674) (17,434)
(Increase) decrease in inventories 1,524 (2,094)
(Increase) in prepaids and other
current assets (351) (183)
Increase in accounts payable 6,005 11,029
Increase in note, accrueds, and other
current liabilities 455 734
-------- --------
Total adjustments (8,772) (7,798)
-------- --------
Net cash (used in) operating activities (8,864) (7,035)
Cash flows from investing activities:
Capital expenditures (189) (125)
(Increase) in other assets (55) (45)
-------- --------
Net cash used in investing activities (244) (170)
Cash flows from financing activities:
Net borrowings under line-of-credit agreement 9,888 7,180
Net borrowings (repayments) of other long-term debt 70 (73)
Issuance of Common Stock pursuant to Employee
Stock Option Plans 120 80
Redemption of redeemable preferred stock of subsidiary (60) (57)
Dividends on preferred stock of subsidiary (3) (6)
-------- --------
Net cash provided by financing activities 10,015 7,124
Effect of exchange rate changes on cash (38) (58)
-------- --------
NET INCREASE (DECREASE) IN CASH 869 (139)
Cash beginning of period 214 501
-------- --------
Cash end of period $ 1,083 $ 362
======== ========
</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, 1997 and the results of its
operations and cash flows for the three months ended March 31,
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-month periods ended
March 31, 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 (5,212,330 at March 31,
1997 and 5,198,402 at December 31, 1996).
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, 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 quarter
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.
Results of Operations
- ---------------------
Net sales decreased by approximately $2,175,000 or 6% in the quarter
ended March 31, 1997, as compared to the corresponding quarter of 1996.
The Company's gross margin decreased to 15.7% of net sales in the three
months ended March 31, 1997 from 20.1% for the same period of 1996. This
decrease was 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 declined by 11% or
$648,000 in three months ended March 31, 1997, as compared to the same period of
1996. As a percentage of sales, these expenses decreased to 14.2% of net sales
in the first quarter of 1997 from 15.1% in the first quarter of 1996. These
decreases were primarily a result of increased efficiencies associated with the
Company's national call center and the expiration of certain non-competition
agreements that were entered into in connection with prior acquisitions by the
Company.
Due to the combined effects of the decline in sales and gross margin,
operating income declined to $526,000 in the quarter ended March 31, 1997, as
compared to $1,846,000 in the quarter ended March 31, 1996.
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."
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 three months of 1997.
7
<PAGE> 8
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, 1997, outstanding borrowings under the revolving
credit facility were approximately $37,500,000.
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's accounts receivable, inventories, accounts payable and
the amount of its outstanding borrowings under its revolving credit facility,
increase in the first quarter of each year as a result of increases in product
purchases by its customers in anticipation of seasonal increases in consumer
demand for RV and boating products that occur in the spring and summer. As a
result, the Company generally uses cash for, rather than generating cash from,
operations in the first quarter of the year. Net cash used in operating
activities was $8,864,000 in the first quarter of 1997, as compared to
$7,035,000 in the first quarter of 1996.
During the first quarter of 1997, borrowings under the Company's
revolving line of credit increased by $9,888,000, as compared to an increase of
$7,180,000 in the same quarter of 1996. The increased borrowings were used by
the Company to finance accounts receivable growth and 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 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 event 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.
--------------------------------
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. 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 Operation." 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.
8
<PAGE> 9
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 Ended March 31, 1997.
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, 1997.
<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: May 14, 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 Ended March 31, 1997
Exhibit 27. Financial Data Schedule 13
</TABLE>
<PAGE> 1
EXHIBIT 11.1
------------
THE COAST DISTRIBUTION SYSTEM
Computation of Earnings Per Share
Quarter Ended March 31, 1997
<TABLE>
<CAPTION>
Primary Fully Diluted
Loss Per Share Loss Per Share
-------------- --------------
<S> <C> <C>
I. Weighted Averages Shares Outstanding 5,212,330 5,212,330
II. Net Loss $ (92,000) $ (92,000)
Dividends paid on preferred stock of
subsidiary (3,000) (3,000)
----------- -----------
Net loss attributable to common
shareholders $ (95,000) $ (95,000)
Divided by Common and Equivalent
Shares 5,212,330 5,212,330
----------- -----------
Loss Per Share $ (0.02) $ (0.02)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF, AND THE STATEMENT OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 1997
INCLUDED IN REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH BALANCE
SHEET AND STATEMENT OF OPERATIONS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,083
<SECURITIES> 0
<RECEIVABLES> 29,959
<ALLOWANCES> 0
<INVENTORY> 41,669
<CURRENT-ASSETS> 76,409
<PP&E> 5,295
<DEPRECIATION> 0
<TOTAL-ASSETS> 104,787
<CURRENT-LIABILITIES> 20,888
<BONDS> 42,511
413
0
<COMMON> 19,560
<OTHER-SE> 19,877
<TOTAL-LIABILITY-AND-EQUITY> 104,787
<SALES> 35,205
<TOTAL-REVENUES> 35,205
<CGS> 29,672
<TOTAL-COSTS> 5,007
<OTHER-EXPENSES> (726)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 884
<INCOME-PRETAX> (200)
<INCOME-TAX> (108)
<INCOME-CONTINUING> (92)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
