-----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, D8Ecf/kZuCzIY7AkbgArnPp+wdsoDcxVXJab2e8bVB82h+NmF66x8Ui7Bg27E2Al U5its74XAxuTGobm0rCxSA== 0000892569-96-001544.txt : 19960814 0000892569-96-001544.hdr.sgml : 19960814 ACCESSION NUMBER: 0000892569-96-001544 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 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: 96610206 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 PERIOD ENDING JUNE 30, 1996 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, 1996 ------------------------------------------------ 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 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. 5,207,923 shares of Common Stock as of July 29, 1996 Page 1 of 14 Pages 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, 1996 and December 31, 1995
June 30, December 31, 1996 1995 ----------- ------------ ASSETS (Unaudited) (Audited) ------ ----------- ------------ CURRENT ASSETS Cash $ 912 $ 501 Accounts receivable - net 25,202 12,083 Inventories 48,776 48,225 Other current assets 1,297 2,664 -------- ------- Total current assets 76,187 63,473 PROPERTY, PLANT, AND EQUIPMENT - NET 5,865 6,133 OTHER ASSETS 23,567 22,530 -------- ------- $105,619 $92,136 ======== ======= LIABILITIES ----------- CURRENT LIABILITIES Current maturities of long-term obligations $ 2,615 $ 2,588 Accounts payable - trade 14,841 7,376 Other current liabilities 2,394 2,005 Short-term notes payable 1,500 1,500 -------- ------- Total current liabilities 21,350 13,469 LONG-TERM OBLIGATIONS Secured note payable to bank 35,226 29,024 Subordinated term note 4,667 7,000 Other long-term liabilities 2,602 2,667 -------- ------- 42,495 38,691 REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 531 584 SHAREHOLDERS' EQUITY Common stock, no par value; authorized: 10,000,000; issued and outstanding: 5,207,923 at June 30, 1996 and 5,155,429 at December 31, 1995 19,235 19,155 Cumulative translation adjustment (61) 75 Retained earnings 22,069 20,162 -------- ------- 41,243 39,392 -------- ------- $105,619 $92,136 ======== =======
The accompanying notes are an integral part of these statements. 2 3 THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES INTERIM CONDENSED STATEMENTS OF EARNINGS (Dollars in thousands)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ------------------- 1996 1995 1996 1995 ------- ------- ------- ------- Net sales $42,159 $53,514 $79,539 $97,869 Cost of sales, including distribution costs 36,014 43,457 65,893 79,181 ------- ------- ------- ------- Gross profit 6,145 10,057 13,646 18,688 Selling, general and administrative expenses 5,549 5,547 11,204 12,099 ------- ------- ------- ------- Operating income 596 4,510 2,442 6,589 Other income (expense): Equity in net earnings of affiliates 433 436 874 681 Interest expense (1,029) (1,217) (1,964) (2,252) Other 2,138 (35) 2,129 (14) ------- ------- ------- ------- 1,542 (816) 1,039 (1,585) ------- ------- ------- ------- Earnings before income taxes 2,138 3,694 3,481 5,004 Income tax provision 983 1,470 1,563 2,008 ------- ------- ------- ------- NET EARNINGS $ 1,155 $ 2,224 $ 1,918 $ 2,996 ======= ======= ======= ======= Earnings per common share (Note 3) $ .22 $ .42 $ .37 $ .57 ======= ======= ======= =======
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) 1996 1995 -------- -------- Cash flows from operating activities: Net income $ 1,918 $ 2,996 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,190 1,324 Equity in net earnings of affiliated companies (874) (681) Changes in assets and liabilities: (Increase) in accounts receivable (13,119) (13,257) (Increase) in inventories (551) (9,485) Decrease in prepaids and other current assets 1,367 178 Increase in accounts payable 7,465 9,334 Increase in note, accrueds, and other current liabilities 416 2,990 -------- -------- Total adjustments (4,106) (9,597) -------- -------- Net cash (used in) operating activities (2,188) (6,601) Cash flows from investing activities: Acquisition of businesses, net of cash acquired (683) (668) Capital expenditures (313) (1,164) Decrease in other assets (89) 5 -------- -------- Net cash used in investing activities (1,085) (1,827) Cash flows from financing activities: Net borrowings (repayments) under line-of-credit agreement 6,202 11,965 (Repayments) of other long-term debt (2,398) (3,371) Issuance of Common Stock pursuant to Employee Stock Option and Stock Purchase Plans 80 185 Redemption of redeemable preferred stock of subsidiary (53) (50) Dividends on preferred stock of subsidiary (11) (21) -------- -------- Net cash provided by financing activities 3,820 8,708 -------- -------- Effect of exchange rate changes on cash (136) (99) -------- -------- NET INCREASE (DECREASE) IN CASH 411 181 Cash beginning of period 501 413 -------- -------- Cash end of period $ 912 $ 594 ======== ========
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, 1996 and the results of its operations for the three and six month periods, and cash flows for the six months, ended June 30, 1996 and 1995. 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, 1995. 2. The results of operations for the three and six-month periods ended June 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year or for any other future periods. 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 seven years and the equipment leases expire over the next three 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, 1995 are as follows:
(Dollars in thousands) -------------------------------- Facilities Equipment Total ---------- --------- ------ Year ending December 31, 1996 $2,965 $19 $2,984 1997 2,661 6 2,667 1998 2,221 5 2,226 1999 1,103 5 1,108 2000 165 3 168 Later years 477 -- 477 ------ --- ------ $9,592 $38 $9,630 ====== === ======
5 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ 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 ("aftermarket 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 weather conditions. Factors Affecting Recent Operating Results ------------------------------------------ Until 1993, the Company's business consisted primarily of distributing and marketing products that the Company purchased from third-party manufacturers and that were sold under the brand names of those manufacturers ("third-party brand name products"). In order to improve its competitive position and increase its profitability, during the past three years, the Company has introduced into the marketplace a growing number of products, including trailer hitches, plastic wastewater tanks, portable toilets and toilet chemicals, vent lids and stabilizing jacks (the "Proprietary Products"), that have been designed by independent design professionals, and are manufactured by a number of independent manufacturers, specifically for the Company. The Proprietary Products are marketed by the Company under its own brand names in competition with functionally equivalent third-party brand name products. The Company generally is able to obtain the Proprietary Products at prices that are below those it would have to pay for functionally equivalent or similar third-party brand name products and, as a result, the Company is able to realize higher margins on sales of its Proprietary Products. In the first half of 1995, three manufacturers of third-party named brand products, sales of which had accounted, in the aggregate, for approximately 8% of the Company's net sales in the fiscal year ended December 31, 1994, terminated their supply arrangements with the Company as a result of its introduction and promotion of functionally equivalent Proprietary Products. In an unrelated development, in October 1995 Dometic Corporation, a division of White Consolidated Industries ("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 that it had decided to integrate its operations vertically by marketing its products directly to retail RV dealers, supply stores and service centers in direct competition with the Company and other RV aftermarket product distributors and that, as a result, it was terminating its supply agreement with the Company. In response to Dometic's decision to terminate its supply agreement with the Company, the Company entered into a multi-year product supply agreement with 6 7 Recreation Vehicle Products, Inc. ("RVP"), which manufactures RV air conditioners under the Coleman(R) brand name and awnings under the Faulkner brand name. Under that product supply arrangement, RVP has agreed to supply all of the Company's requirements for RV air conditioners and awnings. Results of Operations - --------------------- The changes in the supply relationships within the RV products industry and, in particular, the change in the Company's supplier of air conditioners and awnings from Dometic to RVP, together with unusually severe weather conditions and a slowing in consumer purchases and usage of recreation vehicles, adversely affected the Company's operating results in the first six months of 1996, as compared to the first six months of 1995. Net sales decreased by approximately $18,330,000 or 19% in the six months ended June 30, 1996, and by $11,355,000 or 21% in the three months ended June 30, 1996, as compared to the corresponding six and three month periods ended June 30, 1995. These sales decrease were due to (i) the effects of the changes in supply relationships that occurred in 1995 and 1996, including supply shortages as new suppliers have had to increase their levels of production to meet the Company's product requirements; (ii) the replacement of third-party name brand products with Proprietary Products, because the Proprietary Products generally are sold at lower prices than the products they replaced; (iii) slowness in the sales of new recreational vehicles, which adversely affects sales of accessories distributed by the Company; and (iv) poor weather conditions throughout most of North America that were not only unusually severe, but also extended into the second quarter. The Company's gross margin decreased to 17.2% of net sales in the six months ended June 30, 1996 from 19.1% for the same period of 1995. For the quarter ended June 30, 1996, the gross margin decreased to 14.6% of net sales from 18.8% of net sales in 1995. These decreases were 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 the related supply problems that were occasioned by those changes; (ii) increased price competition in the markets in which the Company operates, which the Company believes is due, at least in part, to price reductions by other distributors in response to the competitive threat posed by the Company's Proprietary Products, and (iii) the impact of fixed costs on a lower sales base. Selling, general and administrative expenses, in absolute dollars, declined by 7% in the six months ended June 30, 1996, and were essentially unchanged in the second quarter of 1996, as compared to the same six months and quarter ended June 30, 1995. However, because of the decline in sales, these expenses increased, as a percentage of net sales, to 14.1% in the first six months of 1996 and 13.2% in the second quarter of 1996, as compared to 12.4% and 10.4% in the same periods of 1995. Due primarily to the combined effects of the declines in sales and gross margin, operating income declined to $2,442,000 in the six months, and to $596,000 in the quarter, ended June 30, 1996, as compared to operating income of $6,589,000 and $4,510,000 in the six months and the quarter ended June 30, 1995, respectively. The Company expects that the conditions that caused these declines in operating income and net earnings in the first half of 1996 also will cause operating income and net earnings in the second half of 1996 to be lower than in the second half of 1995. 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 7 8 income of these companies which is reported as "equity in net earnings of affiliates." During the first six months of 1996, the Company's earnings from its affiliate investments increased $193,000 or 28% from the same period in 1995. 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 six months of 1996. In the six months ended June 30, 1996, interest expense decreased by $288,000, or 13%, as compared to the same period in 1995. Interest expense in the quarter ended June 30, 1996 decreased by $188,000 or 15% as compared to the same quarter of 1995. These decreases were the result of a decrease in the rate of interest charged under the Company's revolving credit facility. Other income for the six and three month periods ended June 30, 1996 includes the net proceeds from the favorable settlement of a lawsuit, which partially offset the decline in operating income in those periods. 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 July 23, 1996 outstanding borrowings under the revolving credit facility were approximately $33,200,000. 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 builds inventories, and accounts receivable increase, as its customers begin increasing their product purchases for the spring and summer selling seasons. During the first six months of 1996, reductions in inventories enabled the Company to reduce the cash used for operations by approximately $4,400,000, as compared to the same six months of 1995. Net cash used in investing activities was $1,085,000 in the first six months of 1996 and $1,827,000 for the same period in 1995. Capital expenditures were $313,000 in 1996 and $1,164,000 in 1995. Cash used in acquisition of businesses of $683,000 in 1996 and $668,000 in 1995 related to the additional acquisition of a 5% interest in H. Burden, Ltd. in each year. Net cash provided by financing activities, which primarily represents increases in borrowings under the Company's revolving bank credit facility, totaled $3,820,000 in the first six months of 1996 as compared to $8,708,000 in the first six months of 1995. During the first six months of 1996, the Company retired $2,333,000 principal amount of subordinated term notes with a combination of borrowings under its revolving bank line of credit and cash from operations. 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. 8 9 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 increase 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 effects 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 entitled "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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND EXHIBITS --------------------------------------------- (a) Exhibits. --------- Exhibit 11.1 Computations of Fully Diluted Earnings Per Share for the Quarter and Six Months Ended June 30, 1996 Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K. -------------------- No reports on Form 8-K was filed during the quarter ended June 30, 1996. 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. Date: August 12 , 1996 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 Numbered Exhibit Page - ------- ------------ Exhibit 11.1 Computations of Earnings Per Share for the Quarter and Six Months Ended June 30, 1996 12 Exhibit 27 Financial Data Schedule 14 EX-11.1 2 COMPUTATIONS OF FULLY DILUTED EARNINGS PER SHARE 1 EXHIBIT 11.1 ------------ THE COAST DISTRIBUTION Computation of Earnings Per Share Quarter Ended June 30, 1996
Primary Fully Diluted Earnings Earnings Per Share Per Share ----------- ------------- I. Weighted Average Shares Outstanding 5,203,885 5,203,885 II. Common Stock Equivalents 13,281 13,281 ----------- ----------- Average Number of Common and Common Equivalent Shares 5,217,166 5,217,166 =========== =========== Net Earnings $ 1,155,000 $ 1,155,000 Dividends paid on preferred stock of subsidiary (5,000) (5,000) ----------- ----------- Net earnings available to common shareholders $ 1,150,000 $ 1,150,000 Divided by Common and Equivalent Shares 5,217,166 5,217,166 ----------- ----------- Earnings Per Share $ 0.22 $ 0.22 =========== ===========
2 EXHIBIT 11.1 (Cont'd.) ------------ THE COAST DISTRIBUTION Computation of Earnings Per Share Six Months Ended June 30, 1996
Primary Fully Diluted Earnings Earnings Per Share Per Share ------------ ------------- I. Weighted Average Shares Outstanding 5,186,650 5,186,650 II. Common Stock Equivalents 19,131 19,278 ----------- ------------ Average Number of Common and Common Equivalent Shares 5,205,781 5,205,928 =========== ============ Net Earnings $ 1,918,000 $ 1,918,000 Dividends paid on preferred stock of subsidiary (11,000) (11,000) ----------- ------------ Net earnings available to common shareholders $ 1,907,000 $ 1,907,000 Divided by Common and Equivalent Shares 5,205,781 5,205,928 ----------- ------------ Earnings Per Share $ 0.37 $ 0.37 =========== ============
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF JUNE 30, 1996 AND THE STATEMENT OF INCOME FOR THE PERIOD ENDED JUNE 30, 1996 INCLUDED IN REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996 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-31-1996 JAN-01-1996 JUN-30-1996 912 0 25,202 0 48,776 76,187 5,865 0 105,619 21,350 42,495 531 0 19,235 22,069 105,619 79,539 79,539 65,893 77,097 (1,039) 0 1,964 3,481 1,563 1,918 0 0 0 1,918 .37 .37
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