<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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, 2000
--------------------
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, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2490990
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
350 Woodview Avenue, Morgan Hill, California 95037
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 782-6686
- --------------------------------------------------------------------------------
(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 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.
4,330,654 shares of Common Stock
as of May 8, 2000
<PAGE> 2
THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 530 $ 641
Accounts receivable - net 38,328 12,981
Inventories 41,444 38,655
Other current assets 3,818 3,462
-------- --------
Total current assets 84,120 55,739
PROPERTY, PLANT, AND EQUIPMENT - NET 4,543 4,364
OTHER ASSETS 9,368 9,584
-------- --------
$ 98,031 $ 69,687
======== ========
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term obligations $ 257 $ 288
Accounts payable - trade 19,697 7,748
Other current liabilities 2,451 2,050
-------- --------
Total current liabilities 22,405 10,086
LONG-TERM OBLIGATIONS
Secured note payable to bank 42,010 26,340
Other long-term liabilities 1,816 1,867
-------- --------
43,826 28,207
REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 99 151
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value;
authorized: 5,000,000 shares;
none issued and outstanding: -- --
Common stock, $.001 par value;
authorized: 20,000,000 shares;
4,330,654 and 4,302,846 issued as of
March 31, 2000 and December 31, 1999, respectively: 16,800 16,751
Accumulated other comprehensive income (loss) (371) (367)
Retained earnings 15,272 14,859
-------- --------
31,701 31,243
-------- --------
$ 98,031 $ 69,687
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales $ 43,872 $ 41,129
Cost of sales, including distribution costs 35,758 33,999
-------- --------
Gross profit 8,114 7,130
Selling, general and administrative expenses 6,598 5,717
-------- --------
Operating income 1,516 1,413
Other income (expense)
Interest (722) (623)
Other (9) (13)
-------- --------
(731) (636)
-------- --------
Earnings before income taxes 785 777
Income tax provision 372 437
-------- --------
NET EARNINGS $ 413 $ 340
======== ========
Earnings per common share:
Basic $ .10 $ .07
======== ========
Diluted $ .10 $ .07
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 413 $ 340
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 333 359
Changes in assets and liabilities:
Increase in accounts receivable (25,347) (21,684)
Increase in inventories (2,789) (2,154)
Increase in prepaids and other current assets (356) (239)
Increase in accounts payable 11,949 11,352
Increase in other current liabilities 370 312
-------- --------
Total adjustments (15,840) (12,054)
-------- --------
Net cash used in operating activities (15,427) (11,714)
Cash flows from investing activities:
Capital expenditures (385) (300)
Decrease in other assets 89 953
-------- --------
Net cash provided by (used in) investing activities (296) 653
Cash flows from financing activities:
Net borrowings under line-of-credit agreement 15,670 12,259
Net repayments of other long-term debt (51) (25)
Issuance of Common Stock pursuant to Employee
Stock Option and Stock Purchase Plans 49 86
Redemption of redeemable preferred stock of subsidiary (52) (47)
Dividends on preferred stock of subsidiary -- (2)
Retirement of common stock -- (1,441)
-------- --------
Net cash provided by financing activities 15,616 10,830
Effect of exchange rate changes on cash (4) 54
-------- --------
NET DECREASE IN CASH (111) (177)
Cash beginning of period 641 435
-------- --------
Cash end of period $ 530 $ 258
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
THE COAST DISTRIBUTION SYSTEM, INC. 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, 2000 and the
results of its operations and cash flows for the three months ended March
31, 2000 and 1999. 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, 1999.
2. The Company's business is seasonal and its results of operations for the
three months ended March 31, 2000 and 1999 are not necessarily indicative
of the results to be expected for the full year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
elsewhere in this Report.
3. Basic earnings per share are computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share are
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares consist of
the incremental common shares issuable upon the exercise of stock options
(using the treasury stock method). Common equivalent shares are excluded
from the computation if their effect is anti-dilutive. A total of 548,500
options in the quarter ended March 31, 2000 were excluded from the
computation of diluted earnings per share because the option exercise price
was greater than the average per share market price of our common stock.
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 ten 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, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, EQUIPMENT FACILITIES TOTAL
------------ --------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
2000 $ 332 $ 2,766 $ 3,098
2001 325 2,673 2,998
2002 317 2,414 2,731
2003 300 2,341 2,641
2004 50 1,581 1,631
Thereafter -- 4,418 4,418
------ ------- -------
$1,324 $16,193 $17,517
====== ======= =======
</TABLE>
5. The Company has one operating segment, the distribution of replacement
parts, accessories and supplies for recreational vehicles and boats.
Geographic net sales for the three months ended March 31, 2000 are as
follows:
<TABLE>
<S> <C>
USA..................................... $34,673,000
Canada ................................. 9,199,000
-----------
$43,872,000
===========
</TABLE>
6. Comprehensive income for the quarter ended March 31, 2000 was $409,000.
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
We believe that the Company is the largest wholesale distributor of
replacement parts, accessories and supplies for recreational vehicles ("RVs"),
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 RV
and boat dealers ("After-Market Customers"). The Company's sales are affected
primarily by (i) usage of RVs and boats and (ii) sales of new RVs and boats,
because consumers often "accessorize" their RVs and boats at the time of
purchase.
The usage and the purchase, by consumers, of RVs 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 RVs 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 RVs and boats, increases in
gasoline prices which adversely affect the costs of using RVs and boats, and
unusually adverse weather conditions.
RESULTS OF OPERATIONS
Net Sales. Net sales increased 7% to $43,872,000 in the first quarter
of 2000 as compared to $41,129,000 for the same quarter in 1999. This increase
was a result of an increase in customer orders, for both RV and marine products,
during the first part of the quarter ended March 31, 2000.
Gross Margin. Our gross margin increased to 18.5% of net sales in the
three months ended March 31, 2000 from 17.3% for the same period of 1999. This
increase was due primarily to the strengthening of the Canadian dollar which
reduced the costs of products sold by our Canadian subsidiary in the quarter
ended March 31, 2000, as compared to the corresponding quarter of 1999 and
the margin associated with our proprietary products that we purchased through
our Taiwanese subsidiary, during the quarter ended March 31, 2000.
Selling, General and Administrative Expenses. As a percentage of net
sales, selling, general and administrative expenses increased to 15.0% for the
first quarter of 2000 from 13.9% in the comparable quarter of 1999. This
increase was primarily the result of increased selling expenses during the
quarter ended March 31, 2000.
Operating Income. Due to the combined effects of the increase in sales
and gross margin, which more than offset the increase in selling, general and
administrative expenses, operating income during the quarter ended March 31,
2000 increased by 7.3% to $1,516,000 from $1,413,000 in the first quarter of
1999.
Interest Expense. Interest expense increased by $99,000 or 16% in the
quarter ended March 31, 2000, as compared to the same quarter of 1999, largely
due to an increase in outstanding borrowings under our revolving credit facility
to fund increases in working capital requirements in the first quarter of 2000
and borrowings under a term credit facility that we used to purchase shares of
our common stock in the second half of 1999. We will continue to rely on
borrowings to fund a substantial portion of our working capital requirements and
future growth and, as a result, we anticipate that interest will continue to be
a significant expense in future periods.
6
<PAGE> 7
Income Taxes. The Company's effective income tax rate was 47% in the
first quarter of 2000 and 56% in the first quarter of 1999. The effective tax
rate is affected by the amount of our expenses that are not deductible for
income tax purposes and by varying tax rates on income generated by our foreign
subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
We finance our working capital requirements primarily with borrowings
under a long-term revolving bank credit facility and internally generated funds.
We also have obtained a $5,000,000 term loan from the same bank from which we
obtained our revolving credit facility. Under the terms of the revolving credit
facility and the term note, which expire in May 2001, we may borrow up to the
lesser of (i) $35,000,000 with a seasonal increase to $45,000,000 between March
1 and June 20 of each year, or (ii) an amount equal to 80% of eligible accounts
receivable and 50% of eligible inventory (the "borrowing base") plus $5,000,000.
Interest on the revolving credit facility is payable at the bank's prime rate
plus 50 basis points or, at the Company's option but subject to certain
limitations, borrowings will bear interest at the bank's LIBOR rate, plus 225
basis points. Interest on the $5,000,000 term loan is payable at the bank's
prime rate plus 100 basis points or at the bank's LIBOR rate, plus 275 basis
points.
At May 8, 2000, outstanding borrowings under the revolving credit
facility and the term loan totaled $40,710,000. Borrowings under the credit
facility and term loan are secured by substantially all of the Company's assets
and rank senior in priority to other indebtedness of the Company.
We believe that available credit under the revolving credit facility,
together with internally generated funds, will be sufficient to enable us to
meet our working capital and other cash requirements over the next twelve
months. We do not presently anticipate any material increases in our cash
requirements or material changes in our sources of funds in the foreseeable
future.
We generally use cash for, rather than generating cash from, operations
in the first half of the year, because we build inventories, and accounts
receivables increase, as our customers begin increasing their product purchases
for the spring and summer selling seasons. See "Seasonality and Inflation"
below.
Capital expenditures, primarily for enhancements to our computer
system, were $385,000 in the first quarter of 2000 and $300,000 in the
corresponding quarter of 1999.
In early 1999 we adopted an open market and private stock repurchase
program. During 1999, we purchased 1,012,304 shares of our common stock for an
aggregate of $2,975,000 under this program. We funded those purchases with
proceeds of the term loan we obtained from our bank lender. We do not currently
expect to make any purchases of shares during 2000, unless we have opportunities
to acquire additional shares on favorable terms.
We lease the majority of our facilities and certain of our equipment
under non-cancelable operating leases. Our future lease commitments are
described in Note 4 of Notes to the our Interim Condensed Consolidated Financial
Statements included elsewhere in this report.
SEASONALITY AND INFLATION
Seasonality. Sales of recreational vehicle and boating parts, supplies
and accessories are seasonal. We have significantly higher sales during the
seven-month period from March through September than we do during the remainder
of the year. Because a substantial portion of our expenses are fixed, operating
income declines and we sometimes incurs losses and must rely more heavily on
borrowings to fund operating requirements in the months when sales are lower.
Inflation. Generally, we have been able to pass inflationary price
increases on to 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 increase in the price or shortages in the supply of
gasoline, can adversely affect the purchase and usage of RVs and boats, which
can result in a decline in the demand for the our products.
7
<PAGE> 8
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk with respect to financial instruments is
primarily related to changes in interest rates with respect to borrowing
activities, which may adversely affect our financial position, results of
operations and cash flows. To a lesser degree, we are exposed to market risk
from foreign currency fluctuations associated with our Canadian operations and
our Canadian currency denominated debt. We do not use financial instruments for
trading or other speculative purposes and we are not a party to any derivative
financial instruments.
In seeking to minimize the risks from interest rate fluctuations, we
manage exposures through our regular operating and financing activities. As of
March 31, 2000, we had outstanding $42.0 million under our revolving credit
facility. At March 31, 2000 a hypothetical 100 basis point increase in interest
rates would result in a reduction of approximately $215,000 in 2000 pretax
earnings. The fair value of borrowings under our revolving credit facility
approximate the carrying value of those obligations.
We sometimes enter into forward exchange agreements to reduce the
effect of foreign currency fluctuations on a portion of our inventory purchases
in Canada for our Canadian operations. The gains and losses on these contracts
are reflected in earnings in the period during which the transactions being
hedged are recognized. We believe that these agreements do not subject us to
significant market risk from exchange rate movements because the agreements
offset gains and losses on the balances and transactions being hedged. As of
March 31, 2000, there were no such agreements outstanding.
Approximately 20% of our debt is denominated in Canadian currency,
which also exposes us to market risk associated with exchange rate movements.
Historically, we have not used derivative financial instruments to manage our
exposure to foreign currency rate fluctuations since the market risk associated
with our foreign currency denominated debt has not been considered significant.
--------------------------
FORWARD-LOOKING INFORMATION
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 changing product supply
relationships in our industry and the uncertainties created by those changes;
the potential for increased price competition; 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 RVs and boats and which, in turn, affects purchases by consumers of the
products that we sell. For information concerning such factors and risks, see
the foregoing discussion in this section of this Report entitled, "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and the
Section entitled "Certain Factors That Could Affect Future Performance" in our
Annual Report on Form 10K for the fiscal year ended December 31, 1999 that was
filed with the Securities and Exchange Commission in March 2000. 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 - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND EXHIBITS
(a) Exhibits.
Exhibit 11.1 Computation of Earnings (Loss) Per Share for the quarter
ended March 31, 2000 and 1999.
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K:
None
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: May 12, 2000 THE COAST DISTRIBUTION SYSTEM, INC.
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
------- -------------
<C> <S> <C>
11.1 Computation of Income (Loss) Per Share for the Quarter ended
March 31, 2000 and 1999
27. Financial Data Schedule
</TABLE>
E-1
<PAGE> 1
EXHIBIT 11.1
THE COAST DISTRIBUTION SYSTEM, INC.
Computation of Earnings Per Share
Quarter Ended March 31,
<TABLE>
<CAPTION>
2000
----
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ----------------- ----------------
<S> <C> <C> <C>
Net earnings $413,000
--------
Net earnings available to common shareholders $413,000
========
Basic and diluted earnings per share $413,000 4,314,804 $0.10
======== ========= =====
<CAPTION>
1999
----
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ----------------- ----------------
<S> <C> <C> <C>
Net earnings $340,000
Dividends paid on preferred stock of subsidiary (2,000)
--------
Net earnings available to common shareholders $338,000
========
Basic and diluted earnings per share $338,000 5,143,526 $0.07
======== ========= =====
</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, 2000
INCLUDED IN REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH BALANCE
SHEET AND STATEMENT OF INCOME AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 530
<SECURITIES> 0
<RECEIVABLES> 38,328
<ALLOWANCES> 0
<INVENTORY> 41,444
<CURRENT-ASSETS> 84,120
<PP&E> 4,543
<DEPRECIATION> 0
<TOTAL-ASSETS> 98,031
<CURRENT-LIABILITIES> 22,405
<BONDS> 43,826
99
0
<COMMON> 16,800
<OTHER-SE> 14,901
<TOTAL-LIABILITY-AND-EQUITY> 98,031
<SALES> 43,872
<TOTAL-REVENUES> 43,872
<CGS> 35,758
<TOTAL-COSTS> 6,598
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 722
<INCOME-PRETAX> 785
<INCOME-TAX> 372
<INCOME-CONTINUING> 413
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413
<EPS-BASIC> .10<F1>
<EPS-DILUTED> .10
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
