-----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, U3C4rYuLpeVRrMtw8tkl01WTdCRKGf8lLSIDXPgAkRixe3dDNttx8SuZ8Sm/MVj3 ThxPVIejB//IUID7F9Tc4g== 0000892569-97-002289.txt : 19970815 0000892569-97-002289.hdr.sgml : 19970815 ACCESSION NUMBER: 0000892569-97-002289 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09511 FILM NUMBER: 97662081 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-Q 1 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 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 2 THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) June 30, 1997 and December 31, 1996
June 30, December 31, 1997 1996 ----------- ----------- ASSETS (Unaudited) (Audited) ------ ----------- ----------- 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 ======== ========
The accompanying notes are an integral part of these statements. 2 3 THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------------- ------------------------- 1997 1996 1997 1996 -------- -------- -------- -------- 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 ======== ======== ======== ========
The accompanying notes are an integral part of these statements. 3 4 THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Six months ended June 30, (Unaudited)
1997 1996 -------- -------- 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 ======== ========
The accompanying notes are an integral part of these statements. 4 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:
Year Ending December 31, Equipment Facilities Total ----------- --------- ---------- -------- dollars in thousands) 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 ======= ======= =======
5 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 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 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 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 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 11 INDEX TO EXHIBITS
Sequentially Exhibit Numbered Page - ------- ------------- 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
E-1 EX-11.1 2 COMPUTATUIN OF LOSS PER SHARE 1 EXHIBIT 11.1 THE COAST DISTRIBUTION SYSTEM Computation of Loss Per Share Quarter Ended June 30, 1997
Primary Fully Diluted Loss Per Share Loss Per Share -------------- -------------- 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) ========== ==========
2 EXHIBIT 11.1 THE COAST DISTRIBUTION SYSTEM Computation of Loss Per Share Six Months Ended June 30, 1997
Primary Fully Diluted Loss Per Share Loss Per Share -------------- -------------- 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) ========== ==========
EX-27 3 FINANCIAL DATA SCHEDULE
5 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. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 2,512 0 20,864 0 40,207 66,520 5,135 0 95,478 20,340 35,327 418 0 19,560 19,872 95,478 76,805 76,805 65,289 76,018 897 0 1,843 (110) 33 (143) 0 0 0 (143) (.03) (.03)
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