-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EUukUiq5trLrRW4iIYFbuI8NYAPdznu4Rzguoo2LSSoRcxdgDFZ4cj7WrvoDJxwO AwT67obssMA0zijsAsLw0g== 0000892569-97-000978.txt : 19970410 0000892569-97-000978.hdr.sgml : 19970410 ACCESSION NUMBER: 0000892569-97-000978 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970409 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COAST DISTRIBUTION SYSTEM CENTRAL INDEX KEY: 0000728303 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MOTOR VEHICLE SUPPLIES & NEW PARTS [5013] IRS NUMBER: 942490990 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-09511 FILM NUMBER: 97577494 BUSINESS ADDRESS: STREET 1: 1982 ZANKER RD CITY: SAN JOSE STATE: CA ZIP: 95112 BUSINESS PHONE: 4084368611 MAIL ADDRESS: STREET 1: 1982 ZANKER RD CITY: SAN JOSE STATE: CA ZIP: 95112 FORMER COMPANY: FORMER CONFORMED NAME: COAST RV INC DATE OF NAME CHANGE: 19880619 10-K405/A 1 FORM 10-K 405 AMENDMENT #1 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------------------------- FORM 10-K/A Amendment No. 1 (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 Identification No.) incorporation or organization) 1982 Zanker Road, San Jose, California 95112 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (408) 436-8611 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: (Name of Each Exchange on (Title of class) which Registered) ---------------- ------------------------- Common Stock, without par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 /X/ NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K /x/. As of March 24, 1997, the aggregate market value of the Common Stock held by non-affiliates was approximately $13,395,000. As of March 25, 1997, a total of 5,210,723 shares of Registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III of the Form 10-K is incorporated by reference from Registrant's Definitive Proxy Statement for its 1997 Annual Meeting which is to be filed on or before April 29, 1997. ----------------------------------------------------- 2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL 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 purchase 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. A recurrence of adverse economic conditions, increases in interest rates or gasoline prices, or the onset of unusually severe winter weather conditions affecting large regions of the country, could results in declines in the Company's sales that would adversely affect the Company's future operating. RECENT DEVELOPMENTS IN THE RV INDUSTRY. Until 1993, the Company's business consisted primarily of distributing and marketing to its customers products that Coast purchased from third party manufacturers and that were sold under the brand names of those manufacturers. During the past three years, the Company has introduced into the marketplace a growing number of proprietary products, which consist of products, such as tow hitches, vent lids, wastewater tanks, portable toilets and toilet chemicals, that have been designed by independent design professionals, and are produced by independent manufacturers, specifically for the Company and which 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. During the first quarter of 1995, three of Coast's traditional name-brand product suppliers, the products of which accounted for 4%, 3% and 1%, respectively, of the Company's net sales in 1994, discontinued the sale of their products to the Company as a result of its introduction of competitive proprietary products. In an unrelated development, in late 1995 Dometic Corporation ("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 after-market customers in direct competition with Coast and other After-Market distributors and that, as a result, it was terminating its supply agreements with the Company. In response to that action by Dometic, the Company entered into a supply contract with Recreational Vehicle Products, Inc. ("RVP"), which manufactures air conditioners under the Coleman(R) brand name and awnings under the Faulkner(R) 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. See "BUSINESS -- Arrangements with Manufacturers" in Part I of this Report. These changes in supply relationships resulted in increased price competition within the RV products After-Market and, at the same time, caused supply problems for the Company, as RVP and the manufacturers of certain of the Company's newly introduced proprietary products encountered manufacturing difficulties in attempting to produce and ship the increased quantity of products needed by the Company. These supply problems prevented the Company from fully meeting product demand of its customers and, consequently, resulted in lost sales for the Company in 1996. Coupled with the increase in competition, and unusually severe winter weather conditions in the first four months of 1996, the Company's sales and margins declined and Coast sustained a net loss in 1996 of $123,000, which would have been substantially greater but for other income, totaling $2,354,000 (net of related expenses), that was realized from the favorable settlement of a lawsuit in the second quarter of 1996. These changes may affect the Company's operating results in 1997. See "BUSINESS -- Factors That Could Affect Future Performance" in Part 1 of this Report. 14 3 RESULTS OF OPERATIONS Net Sales. Net sales in 1996 decreased by approximately $30,273,000 or 17.9% as compared to 1995. This sales decrease was due to a number of factors, including (i) the changes in supply relationships that occurred in 1995 and 1996 which, among other things, have caused supply shortages for the Company as some of its new suppliers have not, as yet, been able to increase production to levels needed to meet the Company's product requirements, which has prevented the Company from fully replacing the sales of third-party brand name products that are no longer sold by the Company with sales of new products; (ii) increased price competition due to Dometic's entry into the marketplace as a vertically integrated supplier to aftermarket customers and price reductions by other distributors on various third-party name brand products, which the Company believes is a strategy adopted by such distributors in an effort to increase their market share and to respond to the competitive threat posed by the Company's proprietary products; (iii) slowness in sales of new recreational vehicles, during the year, which adversely affected sales of accessories distributed by the Company and (iv) unusually severe weather conditions throughout most of North America that extended through the first quarter and into the second quarter of 1996, adversely affecting usage of recreational vehicles and boats and, therefore, also purchases of Aftermarket products, during those periods. Net sales in 1995 decreased by approximately $8,215,000 or 4.6% as compared to 1994. This sales decrease was due to (i) a slowing of sales of new recreational vehicles in 1995 which resulted in reductions in purchases of accessories by recreational vehicle dealers, (ii) the introduction, in the first half of 1995, of several new proprietary products which replaced sales of certain products that had been purchased in the past from name brand manufacturers, as well as the termination by certain of these manufacturers of their supply relationships with the company, and (iii) the termination by Dometic, the Company's largest supplier, of its supply agreement with the Company. Gross Margin. The Company's gross margin decreased to 15.0% of net sales in 1996 as compared to 18.1% of net sales in 1995. This decrease was due primarily to (i) changes in product mix to a greater proportion of lower margin products that were attributable primarily to the changes in supply relationships that occurred in 1995 and 1996 and related supply problems that have been occasioned by those changes, which has prevented the Company from fully replacing sales of third-party brand name products that are no longer sold by the Company; (ii) increased price competition which, as discussed above, also adversely affected the Company's sales revenue; and (iii) the impact of fixed costs on a lower sales base, the combined effect of which more than offset the more favorable margins which the Company realizes on sales of its Proprietary Products. The Company's gross margin increased to 18.1% of net sales in 1995 as compared to 17.3% of net sales in 1994. This increase was due primarily to sales of proprietary products, which in 1995, increased both in absolute dollars and as a percentage of total net sales. In 1995 sales of proprietary products accounted for approximately 15% of net sales as compared to approximately 10% of net sales in 1994. The Company realizes greater profit margins on its sales of proprietary products than it does on name brand products obtained from traditional manufacturers. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to 15.5% of net sales in 1996 from 13.1% in 1995. In absolute dollars, these expense declined approximately $735,000 in 1996 as compared to 1995. Selling, general and administrative expenses declined by nearly $1,000,000 in 1995 as compared to 1994, primarily as a result of the expiration of certain non-competition agreements that were entered into in connection with prior acquisitions, the expiration of certain equipment leases, and reductions in selling expenses that were primarily attributable to the establishment of the national customer service center. As a percentage of net sales, selling, general and administrative expenses were 13.1% in both 1995 and 1994. Equity in Net Earnings of Affiliates. The Company has ownership interests in certain companies in similar or related businesses, including a 34% ownership interest in HWH and a 35% ownership interest in Burden. The Company's ownership interest in these companies are accounted for under the equity method of accounting. Under this method, the Company includes in its operating results it pro rata share of the net income of or any loss incurred by the companies, which is reported as "equity in net earnings of affiliates." The Company's equity in the net earnings of the companies is not cash, and the Company is dependent upon the declaration of dividends by those companies to realize any current cash from these investments. Historically, HWH has paid cash dividends in the fourth quarter of the calendar year and in 1996 and 1995, the Company received cash dividends from HWH of $525,000 each year. There can be no assurance, however, that cash dividends will continue to be paid by HWH in the future. Although Burden has paid cash dividends in the past, such dividends have not been significant. Other Income and Expense. Interest expense is the most significant component of Other Income & Expense. During 1996, interest expense decreased by $649,000 or 15.3%, as compared to 1995, as a result of: (i) a decrease in the rate of interest charged under the Company's revolving bank credit facility, and (ii) reductions in average long-term borrowings outstanding during the second half of 1996 as compared to the same period in 1995. During 1995, interest expense increased by $677,000 or 18.9% as compared to 1994, primarily as a result of increases in outstanding borrowings the proceeds of which were used to fund increased working capital requirements as a result of (i) expansion of the company's operations, both in the United States, where the Company opened new distribution centers in Eau Claire, Wisconsin and Anchorage, Alaska and in Canada where the Company opened a new distribution center in Vancouver, British Columbia, and (ii) increases in inventories due to the addition of several new proprietary product lines that the Company introduced in late 1994 and early 1995 and the addition of marine products at the Company's distribution centers in Canada. 15 4 The Company will continue to rely on borrowings to fund a substantial portion of its working capital requirements and future growth and, as a result, it anticipates that interest will continue to be a significant expense for the Company. Other income (expense) in 1996 includes the net proceeds of $2,354,000 from the favorable settlement of a lawsuit recorded in the second quarter of 1996, which largely offset the losses that resulted from the decline in sales and gross margin. 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 is entitled to 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"). Borrowings under this credit facility bear interest at a per annum rate of interest equal to the bank's prime rate or, at the Company's option but subject to certain limitations, borrowings under the credit facility will bear interest at the bank's available LIBOR rate, plus 2% per annum. At March 24, 1997, outstanding borrowings under this credit facility were $36,342,000. Borrowings under the credit facility are secured by substantially all of the Company's assets and rank senior in priority to other indebtedness of the Company and the agreement governing the credit facility (the "Credit Agreement") contains certain restrictive covenants. The Company was in compliance with those covenants at December 31, 1996, the most recent date as of which compliance with such covenants was required to be determined under the Credit Agreement. The Company believes that available credit under its revolving credit facility, together with internally generated funds, will be sufficient to enable the Company to meet its working capital requirements over the next 12 months. In 1996, reductions in inventories enabled the Company to generate cash from operating activities of $4,182,000 as compared to $184,000 in 1995. The Company anticipates that it will be able to reduce inventories further in 1997 and, as a result, expects to generate positive cash flow from operations in 1997, which could approximate the cash flow generated by operations in 1996. Net cash used in investing activities totaled $1,082,000 in 1996, $3,597,000 in 1995 and $4,617,000 million in 1994. Capital expenditures were $445,000 in 1996, $ 1,862,000 in 1995 and $1,948,000 in 1994. Capital expenditures during the three years ended December 31, 1996 related principally to the expansion by the Company into new locations, the acquisition of warehouse equipment, the establishment and equipping of the national customer service center, and additional investments in data processing equipment. The Company also used cash of $687,000 in 1996 and $672,000 in 1995 to acquire additional shares, that increased its equity ownership from 25% to 35%, in H. Burden, Limited, which is an affiliate of the Company that distributes, at wholesale in Western Europe, parts, supplies and accessories for recreational vehicles and boats. The Company leases the majority of its facilities and certain of its equipment under noncancelable operating leases. In 1996, rent expense under all operating leases was approximately $3.1 million. The Company's future lease commitments are discussed in Note F to the Company's Consolidated Financial Statements contained elsewhere in this Report. Net cash used in financing activities was $3,359,000 in 1996, as compared to net cash provided of $3,501,000 in 1995 and $4,810,000 in 1994. The cash provided by financing activities in 1995 and 1994 were generated primarily from increases in net borrowings aggregating $6,477,000 in 1995 and $6,832,000 in 1994 under the Company's revolving bank credit facility. In 1996 and 1995, the Company made principal reduction payments of $2,333,000 and $3,333,000, respectively, on its outstanding senior subordinated notes (the "Subordinated Notes"), principally with borrowings under its long term revolving bank credit facility. The Company is required to make an additional principal reduction payment in the amount of $2,333,000 on the Subordinated Notes in 1997, which it expects to fund with a combination of bank borrowings and internally generated funds. 16 5 Seasonality and Inflation Seasonality. 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. Set forth below is a summary of quarterly financial data for the two years ended December 31, 1996, which indicates the effects on operating results of the seasonality of the Company's business.
QUARTER ENDED -------------------------------------------------------------- March June September December 1996 1996 1996 1996 ------- ------- --------- -------- (Unaudited) (In thousands except per share data) Revenues.............................. $37,380 $42,159 $37,552 $22,195 Gross profit.......................... 7,501 6,145 4,769 2,510 Net earnings (loss)................... 763 1,155 (464) (1,577) Net earnings (loss) per share........ $.15 $.22 $(.09) $(.30)
QUARTER ENDED -------------------------------------------------------------- March June September December 1995 1995 1995 1995 ------- ------- --------- -------- (Unaudited) (In thousands except per share data) Revenues.............................. $44,355 $53,514 $46,805 $24,885 Gross profit.......................... 8,631 10,057 7,723 4,342 Net earnings (loss)................... 772 2,224 1,242 (894) Net earnings (loss) per share........ $.15 $.42 $.24 $(.18)
17 6 Inflation. 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 adversely affect the purchase and usage of recreational vehicles and boats, which can adversely affect sales of the Company's products. 18 7 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 9, 1997 THE COAST DISTRIBUTION SYSTEM By: /s/ Sandra A. Knell ----------------------------------- Sandra A. Knell, Executive Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K/A has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Thomas R. McGuire* Chairman of the Board of April 9, 1997 - -------------------------------------- Directors, Chief Executive Thomas R. McGuire Officer and Director /s/ Sandra A. Knell Executive Vice President April 9, 1997 - -------------------------------------- (Principal Financial and Sandra A. Knell Principal Accounting Officer) /s/ John E. Turco* Director April 9, 1997 - -------------------------------------- John E. Turco /s/ Louis B. Sullivan* Director April 9, 1997 - -------------------------------------- Louis B. Sullivan Director April , 1997 - -------------------------------------- Robert S. Throop /s/ Ben A. Frydman* Director April 9, 1997 - -------------------------------------- Ben A. Frydman /s/ Brian P. Freidman* Director April 9, 1997 - -------------------------------------- Brian P. Friedman *By: /s/ Sandra A. Knell April 9, 1997 ---------------------------------- Sandra A. Knell, as Attorney-In-Fact
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