-----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, UcYU4yc+ZijwXPQP5rfESooW91NXSDJsa40/JsMIFBeTXcWdGYyyE0rNTErO+E0f W6dKkOvUlTP0rptxpONVDg== 0000892569-97-000888.txt : 19970401 0000892569-97-000888.hdr.sgml : 19970401 ACCESSION NUMBER: 0000892569-97-000888 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 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 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09511 FILM NUMBER: 97570147 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 1 FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1995 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------------------------- FORM 10-K (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 PART I ITEM 1. BUSINESS General The Coast Distribution System (the "Company") is the largest wholesale distributor of replacement parts, supplies and accessories for recreational vehicles ("RVs"), and one of the largest wholesale distributors of replacement parts, supplies and accessories for boats, in North America. The Company supplies more than 25,000 products and serves more than 15,000 customers throughout the United States and Canada, from 14 regional distribution centers in the United States that are located in California, Texas, Oregon, Arizona, Colorado, Utah, Indiana, Pennsylvania, New York, Georgia, Florida, Wisconsin and Alaska and 4 regional distribution centers in Canada located, respectively, in Montreal, Toronto, Calgary and Vancouver. Reference is made to Note I to the Consolidated Financial Statements of the Company, contained elsewhere in this Report, for certain information regarding the respective operating results of the Company's operations in the United States and Canada in 1995 and 1996. The Company's customers are comprised primarily of recreational vehicle and boat dealers and recreational vehicle and boating parts supply stores and service centers. In order to improve its competitive position and increase its profitability, the Company has introduced into the marketplace a growing number of products that have been designed specifically for the Company by independent product design firms and are manufactured for the Company, generally on an exclusive basis, by a number of different independent manufacturers (the "proprietary products"). These proprietary products are marketed by the Company under its own brand-names in competition with brand name products from traditional suppliers. The Company is able to obtain the proprietary products at prices that generally are below those it would have to pay for functionally equivalent brand name products. Sales of proprietary products accounted for approximately 15% and 23% of the Company's net sales in the fiscal years ended December 31, 1995 and 1996, respectively. The Company's strategy is to become a supplier of an increasing number of the products that it distributes through alliances or longer term relationships with product manufacturers in order to have greater control over the supply and cost of the products it distributes and, thereby, to increase its profitability. As a result, the Company intends to increase the number of proprietary products that it sells and it expects that sales of proprietary products will increase in the fiscal year ending December 31, 1997. However, at the same time, there will be a significant number of products that the Company will continue to obtain from its traditional suppliers. See "Business-Products" and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" elsewhere in this Report. To provide its customers with a high level of service, the Company utilizes a computer-based order entry and warehousing system which enables customers to transmit orders either telephonically or electronically to the Company, and enables the Company to prepare and invoice most orders within 24 hours of receipt. The Company also has established a national customer service center to enable customers to obtain product information and place orders by telephone using Company toll-free telephone numbers. In addition, the Company has developed and implemented marketing and customer service programs through which the Company provides its customers with catalogues and pricing and promotional programs, all of which are designed to assist customers to increase their profitability and to strengthen the Company's relationships with its customers. The Company believes that the breadth of its product lines, the proprietary products it is able to offer to its customers, the computer integration of its operations and the marketing and customer support programs it offers, distinguish it from other distributors of recreational vehicle and boating parts, supplies and accessories. See "Business - Marketing." 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 changing product supply relationships in the RV industry and the uncertainties created by those changes; increased price competition within the industry; possible changes in economic conditions, prevailing interest rates or gasoline prices, or the occurrence of unusually severe winter weather conditions, all of which 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; the Company's reliance on borrowings to fund a substantial portion of its working capital requirements and capital expenditures; and the effects of currency fluctuations in the countries where the Company's foreign based affiliates are located. For information concerning such factors and risks, see "BUSINESS - Products - Arrangements with Manufacturers - Competition - Factors That Could Affect Future Performance" in Part I, Item 1 of this Report and 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. 2 3 Expansion of Company's Business In 1992, the Company acquired a minority ownership interest in a Canadian distributor of recreational vehicle parts and accessories with one distribution center in Montreal, Canada. That company changed its name to Coast Canada and, between 1992 and 1994, with additional capital and know-how provided by the Company, Coast Canada expanded its business westward, opening two additional distribution centers in Toronto and Calgary, respectively. In 1994, the Company acquired the remaining shares of Coast Canada and in 1995 opened a fourth distribution center, in Vancouver, British Columbia. In 1993 the Company acquired 5% of the outstanding common shares of H. Burden Ltd. ("Burden"), a corporation that is incorporated in the United Kingdom and which is engaged primarily in the wholesale distribution of recreational vehicle replacement parts, supplies and accessories in the United Kingdom, France and Holland. The Company also obtained an option to acquire the remaining shares of Burden from its shareholders in installments over an approximate 5 year period ending in the first calendar quarter of 1998. By December 31, 1996, the Company had partially exercised this option to increase its ownership to 35% of Burden's common shares. Burden recorded consolidated net sales of (pound)44,244,000 (U.K.) and net income of approximately (pound)1,125,000 (U.K) in its fiscal year ended September 30, 1996. The Company has not decided whether to exercise its option to purchase the remaining Burden shares, which would require the payment of an aggregate cash purchase price within the next twelve months of approximately $12,500,000. The Company also has ownership interests in two other foreign distributors of recreational vehicle parts, supplies and accessories: a company based in Sydney, Australia and the other based in Mexico City, Mexico. Both of these distributors are small, with annual sales of less than $2,500,000 each in 1996. However, the Company believes that both of these distributors have the potential to expand their markets and sales in the future. Burden and these two other smaller distribution companies are each managed by local managers who also hold ownership interests in these companies. The Company also has a 34% ownership interest in HWH Corporation ("HWH") a privately owned United States-based manufacturer of hydraulic leveling devices and jacks primarily for recreational vehicles. Because the Company does not own a controlling interest in these companies, it has little, if any, liquidity in its investments in those companies and is reliant on local management to successfully operate their businesses. In addition, as a result of the Company's investments in foreign based distribution businesses, the Company's future operating results could be affected by changes in foreign currency exchange rates in Canada or adverse economic conditions in Canada or Western Europe. The Company's investments in HWH, Burden and in the distribution companies based in Australia and Mexico are accounted for under the equity method of accounting. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Report. 3 4 The Parts, Supplies and Accessories Markets Many manufacturers of replacement parts, supplies and accessories rely on independent distributors, such as the Company, to market and distribute their products or to augment their own product distribution operations. Distributors relieve manufacturers of a portion of the costs associated with distribution of their products while providing geographically dispersed selling, order processing and delivery capabilities. At the same time, distributors offer retailers access to a broad line of products and the convenience of rapid delivery of orders. The market for recreational vehicle parts, supplies and accessories distributed by the Company includes both recreational vehicle dealers and recreational vehicle supply stores and service centers. Optional equipment and accessories, such as awnings, trailer hitches, air conditioning units, water heaters and other appliances make up a large proportion of the Company's sales to recreational vehicle dealers, while recreational vehicle replacement parts, maintenance supplies and smaller accessories make up a larger proportion of the Company's sales to recreational vehicle supply stores and service centers. Although recreational vehicle supply stores and service centers generally purchase lower cost products than those sold to recreational vehicle dealers, supply stores and service centers generally order more frequently and purchase a wider variety of products than do recreational vehicle dealers. The market for boating parts, supplies and accessories is comprised primarily of independent boat dealers that sell boats and boating parts, supplies and accessories at retail. Independent boat dealers purchase primarily replacement parts, boating supplies and smaller accessories from the Company. See "Business - Products." Sales to recreational vehicle and boat dealers generally have been more sensitive to changes in economic conditions than have sales to supply stores and service centers. During periods of higher interest rates or unemployment, consumers are likely to postpone purchases of higher priced items such as recreational vehicles and boats and higher priced accessories and convenience items such as appliances, awnings and hitches. By contrast, continued demand among recreational vehicle and boat owners for repair parts and supplies, and increases in the total number of recreational vehicles and boats in use, have increased the "aftermarket" for repair and maintenance items and for specialty products and supplies. As a result, sales to supply stores and service centers generally have been less sensitive to changes in economic conditions than sales to recreational vehicle and boat dealers. The Company's sales are also affected by weather conditions, because the usage and purchase of recreational vehicles and boats decline in the winter months due to the colder weather. As a result, the Company's operating income declines and it sometimes incurs losses in the winter months, particularly in years in which there are unusually severe winter weather conditions such as those encountered in the first four months of 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Seasonality and Inflation" in Item 7 of Part II of this Report. Products General. The Company carries a full line of more than 15,000 recreational vehicle parts, supplies and accessories which it purchases from more than 500 manufacturers. Recreational vehicle products distributed by the Company include awnings, antennae, vents, electrical items, towing equipment and hitches, appliances such as air conditioners, refrigerators, ranges and generators, LP gas equipment, portable toilets and plumbing parts, hardware and tools, specialized recreational vehicle housewares, chemicals and supplies, and various accessories, such as ladders, jacks, fans, load stabilizers, mirrors and compressors. The Company also distributes various replacement parts and supplies for manufactured housing, including tie-downs, skirting, windows and doors. 4 5 The Company stocks boating and marine parts, supplies and accessories at 13 of its 14 warehouse and distribution centers in the United States and at all four of its distribution centers in Canada. Products distributed by the Company include boat covers, stainless steel hardware, depth sounders, anchors, life jackets and other marine safety equipment and fishing equipment. Proprietary Products. In order to improve its competitive position and increase its profitability, the Company has introduced into the marketplace a growing number of proprietary products, which are manufactured specifically for the Company, generally on an exclusive basis, by a number of different manufacturers (the "proprietary products"). The proprietary products, which are designed for the Company by independent professional product design firms or by the independent manufacturers retained to manufacture the products for the Company, include trailer hitches, plastic wastewater tanks, portable toilets and toilet chemicals, vent lids and stabilizing jacks. These proprietary products are marketed by the Company under its own brand-names in competition with brand name products from traditional suppliers. Sales of proprietary products, on which the Company has generally realized higher margins than on sales of functionally equivalent name brand products, accounted for 23% of the Company's net sales in 1996, as compared to 15% in 1995, and the Company intends to introduce additional proprietary products which should result in an increase in sales of those products in 1997. However, such products currently lack name brand recognition, which may have a limiting effect on unit sales of and on the prices that the Company is able to charge for such products. It also means that the costs of marketing the proprietary products generally is greater, which somewhat offsets their margin advantage. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Report. Marketing and Sales The Company's customers include (i) recreational vehicle dealers, which primarily purchase optional equipment and accessories for new recreational vehicles and replacement and repair parts for their service departments, (ii) independent recreational vehicle supply stores and service centers that purchase parts, supplies and accessories for resale to owners of recreational vehicles and for their service centers, and (iii) independent boat dealers that purchase small accessories for new boats and replacement parts and boating supplies for resale to boat owners and operators. The Company is not dependent on any single customer for any material portion of its business. No single customer accounted for as much as 5% of the Company's sales in 1994, 1995 or 1996. During the past several years, the Company has developed marketing and customer service programs that are designed to assist its customers to increase their profitability and also strengthen the relationships between the Company and its customers. Customer Service Center and Computerized Order Entry and Warehousing System. The Company has designed and implemented a computer-based order entry and warehousing system which enables customer orders to be transmitted electronically to the Company's central computers and also enables the Company to prepare and invoice most customer orders within 24 hours of receipt. Approximately 1,000 of the Company's customers use this system to transmit orders electronically to the Company's central data processing center using the Company's toll-free telephone numbers. In 1995 the Company established a national customer service center in San Jose, California, which enables the Company's customers to obtain product information and to place orders by telephone using the Company's toll-free telephone numbers. With the exception of holidays, the customer service center is operational for a total of 13 hours per day, Monday through Friday, and 8 hours on Saturdays and is 5 6 staffed by sales personnel who are familiar with the Company's products and are trained to promote the sale of the Company's products and to handle customer service issues. Currently, the number of customer calls handled by the national customer service center, which can be accessed by virtually all of the Company's customers in the United States and Canada, ranges from 2,000 to 6,000 per day and the customer service center has enabled the Company not only to improve customer service, but also to reduce selling expenses. Orders transmitted from customers either electronically or by telephone to the national customer service center are input into the Company's IBM AS 400 computers and then are relayed to the regional distribution center selected by the customer, where the products are selected, packed and shipped. At the time the order is received, the customer is informed, either by electronic confirmation, or by the sales person handling the customer's call at the customer service center, that the order has been accepted and whether any items are not in stock. In addition, the Company offers to participating customers a "split shipment program" whereby, if a product is not available from the Company's distribution center closest to the customer, the product will be automatically ordered from another of the Company's distribution centers that has been pre-selected by that customer. The Company's computer system also prints retail price stickers which are shipped with the products ordered by the customer. The price stickers identify the part numbers and contain the customer's name and the customer's retail prices for the parts which are provided to the Company by the customer and stored in the Company's computer system. The Company's computerized ordering system also enables it to provide customers with inventory costing data with respect to items purchased from the Company. Distribution The Company's regional distribution and warehouse centers in North America carry an inventory of up to approximately 15,000 recreational vehicle parts, supplies and accessories. In addition, at 13 of the Company's distribution centers in the United States and at all four of its distribution centers in Canada, the Company carries, in varying quantities, up to approximately 10,000 boating and marine parts, supplies and accessories. Each regional distribution center is operated as a separate profit center. The Company relies primarily on independent freight companies to ship its products. Arrangements with Manufacturers General. The products which the Company distributes are purchased by it from more than 600 different manufacturers. As is typical in the industry, in most instances the Company acquires its products on a purchase order basis and has no guaranteed price or delivery agreements with manufacturers. As a result, short-term inventory shortages can occur. The Company sometimes chooses to carry only a single manufacturer's products for certain of the product lines that it sells, although comparable products usually are available from multiple sources. Dependence on a single manufacturer, however, presents some risks, including the inability to readily obtain alternative product supply sources in the event a sole source supplier encounters quality or other production problems, which can, and in 1996 did, adversely affect the Company's sales, as certain of the manufacturers were unable to meet the Company's product requirements, which resulted in lost sales opportunities for the Company (see "Recent Changes in Relationships With Manufacturers"). No manufacturer or supplier of products to the Company accounted for more than 5% of the Company's product purchases in 1996, other than Recreation Vehicle Products, Inc. ("RVP"), which supplies the Company with RV air conditioners sold under the Coleman(R) brand name and awnings under the Faulkner(R) brand name, the aggregate sales of which accounted for approximately 15% of the Company's net sales in 1996. Manufacturers generally warrant the products distributed by the Company and allow the Company to return defective products, including those that have been returned to the Company by its customers. The Company does not independently warrant the products that it distributes. Recent Changes in Relationships with Manufacturers. 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 products purchased by the Company from Dometic accounted for 22% and 24%, respectively, of the Company's sales in 1994 and 1995. In August 1995, Dometic notified the Company that Dometic had decided to integrate its operations 6 7 vertically and market its products directly to retail parts and supply stores, repair establishments and new and used recreational vehicle dealers, in direct competition with the Company beginning early in 1996, and, therefore, would be terminating its supply agreement with the Company. Following that notification, in order to ensure that the Company would have a source of supply for air conditioners and awnings, the Company entered into a multi-year product distribution agreement with RVP, under which RVP agreed to supply the Company with its requirements for RV air conditioners and awnings for a minimum term of five (5) years, beginning in 1996. However, during 1996 RVP encountered manufacturing and supply problems in its efforts to meet the Company's requirements for awnings. These problems, coupled with Dometic's entry into the market as a competitor of Coast, resulted in a substantial decline in the Company's sales of awning products in 1996. Since awning sales generate higher profit margins than air conditioners, this decline adversely affected the Company's operating results in 1996, and more than offset the positive effects of an increase in sales of air conditioners. See "Management's Discussion and Analysis of Financial Condition and Results of Operation." During 1995, three of the Company's brand name product suppliers whose products had accounted, in the aggregate, for approximately 8% of the Company's net sales in 1994, terminated their supply relationships with the Company as a result of the Company's introduction of competitive proprietary products. The full effects of those terminations were not felt, however, until 1996, because in 1995 the Company was able to meet substantially all of the customer demand for these types of products with a combination of its remaining inventories of these brand name products and available supplies of its functionally comparable proprietary products. In 1996, by contrast, the Company had to rely entirely on proprietary products to meet customer demand, which required it to significantly increase its orders for these products. The manufacturers, however, encountered problems producing these products in the significantly greater quantities required by the Company during the spring and early summer months of 1996, when customer demand for RV products is at its greatest. Consequently, although these problems were later resolved, the Company was unable to fully meet customer demand for these products, which caused a further loss of sales for the Company in 1996. 7 8 As a result of the changes that have occurred in supply relationships in the industry, there will continue to be increased competition from Dometic and other manufacturers and distributors in the future, which could adversely affect product pricing and the Company's sales and operating margins. Additionally, there is no assurance that the Company will be able to recapture fully the sales volume lost to these competitors in 1996. Competition The Company faces significant competition. In addition to Dometic, there are a number of national and regional distributors of recreational vehicle and boating parts, supplies and accessories that compete with the Company. In addition, certain mass merchandisers, catalog houses and national and regional retail chains specializing in the sale of recreational vehicle or boating parts, supplies and accessories, purchase products directly from manufacturers. Such mass merchandisers and national and regional chains compete directly with recreational vehicle and boating supply stores that purchase products from the Company. Such competition affects both the volume of Company's sales, and the prices it is able to charge for products sold, to such recreational vehicle and boating supply stores. Additionally, there is no assurance that other changes in supply relationships or new alliances within the recreational products industry will not occur that would further increase competition. See "Products" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company, like most of its competitors, competes on the basis of the quality, speed and reliability of its service, the breadth of its product lines and price. The Company believes that it is highly competitive in each of those areas. Certain Factors That Could Affect Future Performance Changes in Industry Supply Relationships; Increases in Competition. Since 1995 product supply relationships in the RV accessories market have undergone significant change. The changes led to a significant increase in competition and created supply problems for the Company in 1996, which adversely affected its sales and margins and caused the Company to sustain a substantial loss, that was largely offset by other income, in 1996. Although the Company believes that most of these supply problems have been resolved and it expects to be able to introduce a number of new proprietary products that should contribute to increased sales and improved profit margins in 1997, there is no assurance that the Company will be able to recapture fully the sales it lost in 1996 or that it will be able to return to profitability in 1997. There also is no assurance that additional changes, that would increase competition or create further uncertainties for the Company, as well as others in the industry, will not occur in the future. See "BUSINESS--Products-- Arrangements with Manufacturers--Competition" in Part I of this Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of this Report. Cyclical Nature of Business. The Company's sales are affected directly by the purchase and usage levels of RVs and boats which, in turn, 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 fuel prices which affect the costs of using RVs and boats, and unusually adverse winter weather conditions. A recurrence of adverse economic conditions, such as those experienced in 1990 and 1991, increases in interest rates or fuel prices, or the onset of unusually severe winter weather conditions affecting large regions of North America, such as occurred during the first four months of 1996, could result in declines in the Company's sales that would adversely affect the Company's future operating results. Reliance on Borrowings; Debt Service Requirements. The Company has financed its growth primarily with bank borrowings and institutional debt financing and relies heavily on bank borrowings to fund working capital requirements and capital expenditures. Although the Company did generate approximately $4,180,000 of positive cash flow from operations in 1996 (despite the decline in sales and the loss that it incurred during that year), and expects to be able to continue to fund its working capital requirements and capital expenditures in 1997 with a combination of internally generated funds and available borrowings under its revolving bank credit line, the amount of its outstanding borrowings could have adverse consequences for the Company in the future. Among other things, (i) the Company is likely to find it more difficult to obtain additional financing that might be needed to fund expansion or other business opportunities; and (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on indebtedness, which makes the Company more vulnerable to general economic downturns and competitive pressures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Employees At December 31, 1996, the Company had approximately 370 full-time employees, which includes employees in Canada. During the peak summer months, the Company also employs part-time workers at its regional distribution centers. None of the Company's employees is represented by a labor union. The Company believes that its relations with employees are good. 8 9 ITEM 2. PROPERTIES The Company operates 14 regional distribution centers in 13 states in the United States and 4 regional distribution centers, each located in a different Province, in Canada. Except for one facility owned by the Company, all of these facilities are leased under net leases which require the Company to pay, in addition to rent, real property taxes, insurance and maintenance costs. The following table sets forth certain information regarding these facilities.
Square Geographic Location Footage Lease Expiration Date ------------------- ------- --------------------- Visalia, California............................ 70,000 February 28, 2007 Fort Worth, Texas............................. 90,670 April 30, 1999 San Antonio, Texas............................ 46,600 April 30, 1998 Denver, Colorado.............................. 50,000 September 30, 1999 Elkhart, Indiana.............................. 109,000 December 31, 1999 Lancaster, Pennsylvania....................... 64,900 February 29, 1999 Atlanta, Georgia.............................. 51,100 August 31, 1999 Tampa, Florida................................ 53,100 September 30, 1998 Phoenix, Arizona.............................. 36,500 March 31, 2002 Salt Lake City, Utah.......................... 37,800 March 31, 2000 Portland, Oregon.............................. 72,000 Owned Albany, New York.............................. 52,500 April 30, 2004 Eau Claire, Wisconsin ........................ 36,000 July 31, 1998 Anchorage, Alaska............................. 13,200 December 31, 1999 Montreal, Quebec.............................. 40,715 January 1, 2000 Toronto, Ontario.............................. 34,020 December 1, 1998 Calgary, Alberta.............................. 30,750 December 1, 1998 Vancouver, British Columbia................... 22,839 June 1, 1999
----------- The Company also leases 22,876 square feet of office space in San Jose, California where its executive offices are located. 9 10 ITEM 3. LEGAL PROCEEDINGS The Company from time to time is named as a defendant, sometimes along with product manufacturers and others, in product liability and personal injury litigation. The Company believes that this type of litigation is incident to its operations, and since it has insurance or indemnities from manufacturers covering any potential liability, it believes that such litigation will not materially affect the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF REGISTRANT
Name Age Position ---- --- -------- Thomas R. McGuire................. 53 Chairman of the Board, Chief Executive Officer and Director Sandra A. Knell................... 39 Executive Vice President - Finance, Chief Financial Officer and Secretary David A. Berger................... 43 Executive Vice President - Marine Sales and Marketing Jeffrey R. Wannamaker............. 36 Executive Vice President - Operations Dennis A. Castagnola.............. 49 Senior Vice President - Proprietary Products James N. Stark.................... 47 Senior Vice President - R.V. Sales and Marketing
10 11 Set forth below is certain information regarding the Company's executive officers. THOMAS R. MCGUIRE. Mr. McGuire is a founder of the Company and for more than five years has been Chairman of the Board and Chief Executive Officer of the Company. From 1981 until August 1985 he also served as the Company's Chief Financial Officer and Secretary. SANDRA A. KNELL. Mrs. Knell has been the Company's Executive Vice President - Finance, Chief Financial Officer and Secretary since August 1985. From 1984 until she joined the Company, Mrs. Knell was an Audit Manager, and for the prior four years was a senior and staff accountant, with Grant Thornton LLP (formerly Alexander Grant & Co.). Mrs. Knell is a Certified Public Accountant. DAVID A. BERGER. Mr. Berger served as Executive Vice President - Marketing from May 1988 until September 1993. Due to the growth of the Company's marine products sales, in September 1993 the Company's marketing department was restructured into two separate departments, one for marine products and the other for R.V. products, and Mr. Berger was placed in charge of marketing for the Company's marine products division. From August 1986 to May 1988, Mr. Berger was Senior Vice President Purchasing of the Company. For the prior 14 years he held various management positions with C/P Products Corp., a distributor of recreational vehicle parts and accessories acquired by the Company in 1985. JEFFREY R. WANNAMAKER. Mr. Wannamaker joined the Company in June 1984 as Vice President/Division Manager of the Company's Texas distribution center. Since that time, he has worked in several of the Company's distribution centers, hiring and training new management personnel. In August 1991, Mr. Wannamaker was promoted to Senior Vice President - Branch Operations and in 1995 was promoted to Executive Vice President - Operations. DENNIS A. CASTAGNOLA. Mr. Castagnola was appointed to his current position of Senior Vice President-Proprietary Products in May 1994, in which he directs the Company's proprietary products program. From September 1993 until May 1994, he served as Senior Vice President - R.V. Sales and Marketing. For the prior 19 years, he held various positions with the Company, including Vice President/Division Manager of the Company's Portland, Oregon Distribution Center. JAMES N. STARK. Mr. Stark was appointed Senior Vice President - R.V. Sales and Marketing in May 1994. For the prior 10 years he has held various positions with the Company, including Vice President and Division Manager of the Company's Tampa, Florida distribution center. 11 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The following table sets forth for the calendar quarters indicated the range of the high and low sales prices per share of the Company's common stock on the American Stock Exchange.
High Low ----- ------- 1995: First Quarter.................... $7-7/8 $6-1/2 Second Quarter................... 7-1/4 6-1/4 Third Quarter.................... 7-5/8 6 Fourth Quarter................... 7 5-13/16 1996: First Quarter.................... $8-3/4 $5-13/16 Second Quarter................... 8-5/8 6-1/16 Third Quarter.................... 6-3/8 4-3/4 Fourth Quarter................... 5-1/2 3-5/8
On March 24, 1997, the closing price per share of the Company's common stock on the American Stock Exchange was $3-3/4. There were approximately 1,322 holders of record of the Company's common stock as of March 24, 1997. Dividends The Company has a policy of retaining earnings to support the growth of its business and, therefore, does not anticipate that any cash dividends will be paid in the foreseeable future. In addition, payment of cash dividends by the Company is limited by its loan agreements. See Note E to the Company's Consolidated Financial Statements. 12 13 ITEM 6. SELECTED FINANCIAL DATA The selected financial data set forth below for the fiscal years ended December 31, 1996, 1995 and 1994 and at December 31, 1996 and 1995, are derived from the Company's audited financial statements included elsewhere in this report and should be read in conjunction with those financial statements. The selected financial data for the fiscal years ended December 31, 1993 and 1992 and at December 31, 1994, 1993, and 1992 are derived from audited financial statements which are not included in this report.
Year Ended December 31, ----------------------------------------------------------------- 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (In thousands except per share data) Operating Data: - --------------- Net Sales..................... $ 139,286 $ 169,559 $ 177,774 $ 140,152 $ 121,989 Cost of sales (including distribution costs).......... 118,361 138,806 146,987 115,670 100,026 --------- --------- --------- --------- --------- Gross margin.................. 20,925 30,753 30,787 24,482 21,963 Selling, general and administrative expenses...... 21,525 22,260 23,216 19,639 17,837 --------- --------- --------- --------- --------- Operating margin......... (600) 8,493 7,571 4,843 4,126 Equity in net earnings of affiliated companies......... 1,529 1,204 1,237 1,504 1,393 Other income (expense)........ (1,246) (4,271) (3,395) (3,302) (3,397 --------- --------- --------- --------- --------- Earnings (loss) before income taxes................. (317) 5,426 5,413 3,045 2,122 Income taxes (credits)........ (194) 2,082 1,828 608 594 --------- --------- --------- --------- --------- Net earnings (loss)........... $ (123) $ 3,344 $ 3,585 $ 2,437 $ 1,528 ========= ========= ========= ========= ========= Net earnings (loss) per share(1)................. $ (.03) $ .64 $ .70 $ .53 $ .35 ========= ========= ========= ========= ========= Weighted average number of shares.................... 5,198 5,206 5,186 4,879 4,425 ========= ========= ========= ========= =========
At December 31, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- (In thousands) Balance Sheet Data: - ------------------- Working capital............... $45,639 $50,004 $42,127 $33,537 $32,849 Total assets.................. 88,442 92,136 85,957 69,135 66,021 Long-term obligations(2)...... 33,771 38,376 32,624 28,339 30,455 Shareholders' equity.......... 39,450 39,392 35,722 28,487 26,064
- ---------------- (1) See Note K to the Company's Consolidated Financial Statements. (2) Exclusive of current portion. For additional information regarding long-term obligations, see Note E to the Company's Consolidated Financial Statements. 13 14 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 15 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 16 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 in 1996 includes the net proceeds of $ 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 17 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 18 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 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1995
Page ---- Consolidated Financial Statements: Report of Independent Certified Public Accountants.......................................... 20 Consolidated Balance Sheets, December 31, 1996 and 1995..................................... 21 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994.......................................................... 22 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994...................................... 23 Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994.............................................. 25 Notes to Consolidated Financial Statements.................................................. 26 Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 1992, 1993 and 1994 ..................................... 38 (Other Financial Statement Schedules are omitted as the information is not required, is not material or is otherwise furnished.)
HWH CORPORATION FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS DECEMBER 31, 1996 AND 1995 CONTENTS
Page ---- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................................................... 39 FINANCIAL STATEMENTS BALANCE SHEETS..................................................................................... 40 STATEMENTS OF EARNINGS............................................................................. 42 STATEMENTS OF STOCKHOLDERS' EQUITY................................................................. 43 STATEMENTS OF CASH FLOWS........................................................................... 44 NOTES TO FINANCIAL STATEMENTS...................................................................... 46 FINANCIAL STATEMENT SCHEDULE SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ................................................... 56
H. BURDEN LIMITED AND SUBSIDIARY UNDERTAKING INDEX TO FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1996
Page ---- Report of Auditors................................................................................... 57 Principal Accounting Policies........................................................................ 58 Consolidated Profit and Loss Account................................................................. 60 Consolidated Balance Sheet........................................................................... 61 Balance Sheet........................................................................................ 62 Consolidated Cash Flow Statement..................................................................... 63 Statement of Total Recognized Gains and Losses....................................................... 64 Notes to Financial Statements........................................................................ 65
19 20 [GRANT THORNTON LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders The Coast Distribution System We have audited the accompanying consolidated balance sheets of The Coast Distribution System and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Coast Distribution System and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. We have also audited Schedule II for each of the three years in the period ended December 31, 1996. In our opinion, this Schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ GRANT THORNTON LLP San Jose, California March 3, 1997 20 21 CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 1995 - ------------------------------------------------------------------------------------------------------- (dollars in thousands) ASSETS CURRENT ASSETS Cash $ 214 $ 501 Accounts receivable (less allowance for doubtful receivables of $1,086 in 1996 and $937 in 1995) 13,285 12,083 Inventories 43,193 48,225 Prepaid expenses 426 597 Deferred income taxes 2,038 1,782 Income tax refunds receivable 883 285 ------- ------- Total current assets 60,039 63,473 PROPERTY, PLANT & EQUIPMENT 5,355 6,133 OTHER ASSETS Investments in affiliates 12,458 10,891 Costs in excess of net assets of acquired businesses 9,048 9,447 Non-competition agreements 35 584 Other 1,507 1,608 ------- ------- 23,048 22,530 ------- ------- $88,442 $92,136 ======= ======= LIABILITIES CURRENT LIABILITIES Accounts payable $ 7,322 $ 7,376 Accrued liabilities 1,911 2,005 Notes payable 1,500 1,500 Current maturities of long-term obligations 3,667 2,588 ------- ------- Total current liabilities 14,400 13,469 LONG-TERM OBLIGATIONS 33,771 38,376 DEFERRED INCOME TAXES 348 315 COMMITMENTS - - REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 473 584 SHAREHOLDERS' EQUITY Common stock, no par value; authorized 10,000,000 shares; issued and outstanding, 5,210,723 shares in 1996 and 5,155,429 shares in 1995 19,440 19,155 Cumulative translation adjustment (11) 75 Retained earnings 20,021 20,162 ------- ------- 39,450 39,392 ------- ------- $88,442 $92,136 ======= =======
The accompanying notes are an integral part of these statements. 21 22 CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------- (dollars in thousands, except for per share amounts) Net sales $139,286 $169,559 $177,774 Cost of products sold (including distribution costs) 118,361 138,806 146,987 -------- -------- -------- Gross margin 20,925 30,753 30,787 Selling, general and administrative expenses 21,525 22,260 23,216 -------- -------- -------- Operating margin (600) 8,493 7,571 Equity in net earnings of affiliated companies 1,529 1,204 1,237 Other income (expense) Interest expense (3,600) (4,249) (3,572) Other 2,354 (22) 177 -------- -------- -------- Earnings (loss) before income taxes (317) 5,426 5,413 Income tax provision (benefit) (194) 2,082 1,828 -------- -------- -------- Net earnings (loss) $ (123) $ 3,344 $ 3,585 ======== ======== ======== Earnings (loss) per common and common equivalent share: Primary $ (.03) $ .64 $ .71 ======== ======== ======== Fully diluted $ (.03) $ .64 $ .70 ======== ======== ========
The accompanying notes are an integral part of these statements. 22 23 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------- (dollars in thousands) Cash flows from operating activities: Net earnings (loss) $ (123) $ 3,344 $ 3,585 Adjustment to reconcile net earnings (loss) to net cash provided (used) by operating activities: Depreciation 1,166 1,180 986 Amortization 1,084 1,501 2,167 Loss (gain) from sale of equipment (62) (4) (37) Equity in net earnings of affiliated companies, net of dividends (950) (645) (172) Deferred income taxes (110) 18 (255) Change in assets and liabilities net of effects from business acquisitions: Accounts receivable (1,202) 1,194 (1,343) Inventory 5,032 (5,647) (5,249) Prepaids and tax refunds receivable (505) 80 242 Accounts payable (54) 422 (927) Accrued liabilities (94) (1,259) 447 ------- ------- ------- 3,177 (5,210) (6,830) ------- ------- ------- Net cash provided (used) by operating activities 4,182 184 (556) Cash flows from investing activities: Proceeds from sale of equipment 124 17 283 Decrease (increase) in other assets 66 (797) (331) Acquisitions of businesses, net of cash acquired (827) (955) (2,621) Capital expenditures (445) (1,862) (1,948) ------- ------- ------- Net cash used in investing activities (1,082) (3,597) (4,617) Cash flows from financing activities: Net borrowings (repayments) under notes payable and line-of-credit agreements Proceeds from issuance of long-term debt (1,068) 6,477 6,832 Repayment of long-term debt 161 361 273 Issuance of common stock under employee (2,613) (3,448) (2,475) stock purchase and stock option plans Repurchase of common stock 285 716 195 Income tax benefit of exercise of stock options - (589) - Redemption of redeemable preferred stock - 88 53 of subsidiary Dividends on preferred stock of subsidiary (106) (71) (43) Net cash provided (used) by financing activities (18) (33) (25) ------- ------- ------- (3,359) 3,501 4,810
23 24 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------ (dollars in thousands) Effect of exchange rate changes on cash $ (28) $ - $ 122 ------ ------ ------ NET INCREASE (DECREASE) IN CASH (287) 88 (241) Cash beginning of year 501 413 654 ------ ------ ------ Cash end of year $ 214 $ 501 $ 413 ====== ====== ====== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $3,733 $4,329 $3,621 Income taxes 673 2,072 1,350 Supplemental schedule of non-cash investing and financing activities: In 1994, $1,000,000 of 9.25% convertible subordinated notes were converted into 200,000 shares of common stock In 1994, the Company issued 280,487 shares of its common stock, valued at $1,818,000, in connection with the investment in H. Burden Limited described in Note B to the financial statements In 1994, in connection with acquiring the remaining capital stock of the Coast Distribution System (Canada), Inc., as described in Note B, the Company issued 91,168 shares of its common stock, valued at $629,000, and caused preferred stock, valued at $741,000, to be issued by the subsidiary. In conjunction with this acquisition, liabilities were assumed as follows: Fair value of assets acquired $8,536 Cash and noncash consideration paid 2,764 ------ Liabilities assumed $5,772 ======
The accompanying notes are an integral part of these statements. 24 25 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Cumulative Common Retained Translation Three Years Ended December 31, 1996 Stock Earnings Adjustment Total - ----------------------------------------------------------------------------------------------------------- (dollars in thousands) Balance at January 1, 1994 $15,245 $13,291 $(49) $28,487 Net earnings for the year - 3,585 - 3,585 Foreign currency translation adjustments - - (20) (20) Issuance of common stock under employee stock purchase plan 156 - - 156 Exercise of stock options 39 - - 39 Conversion of convertible debt into common stock 1,000 - - 1,000 Issuance of common stock in connection with acquisitions 2,447 - - 2,447 Income tax benefit of exercise of non-qualified stock options 53 - - 53 Dividends on preferred stock of subsidiary - (25) - (25) ------- ------- ----- ------- Balance at December 31, 1994 18,940 16,851 (69) 35,722 Net earnings for the year - 3,344 - 3,344 Foreign currency translation adjustments - - 144 144 Issuance of common stock under employee stock purchase plan 171 - - 171 Exercise of stock options 545 - - 545 Repurchase of common stock (589) - - (589) Income tax benefit of exercise of non-qualified stock options 88 - - 88 Dividends on preferred stock of subsidiary - (33) - (33) ------- ------- ----- ------- Balance at December 31, 1995 19,155 20,162 75 39,392 ------- ------- ----- ------- Net loss for the year - (123) - (123) Foreign currency translation adjustments - - (86) (86) Issuance of common stock under employee stock purchase plan 198 - - 198 Exercise of stock options 87 - - 87 Dividends on preferred stock of subsidiary - (18) - (18) ------- ------- ----- ------- Balance at December 31, 1996 $19,440 $20,021 $ (11) $39,450 ======= ======= ===== =======
The accompanying notes are an integral part of this statement. 25 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows. 1. Principles of Consolidation. The Company consolidates the accounts of its wholly-owned subsidiaries. This includes the accounts of The Coast Distribution System (Canada) Inc. ("Coast Canada") subsequent to February 1994 when the Company purchased the remaining 64% of the outstanding common stock of Coast Canada. Previously, Coast Canada was accounted for as an equity investment. Investments in unconsolidated affiliates (Note D) are accounted for by the equity method. Operations of affiliates outside the United States and Canada are generally included for periods within three months of the Company's year-end to ensure preparation of consolidated financial statements on a timely basis. All material intercompany transactions have been eliminated. 2. Inventories. Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Inventories consist primarily of recreational replacement parts, supplies and accessories held for resale. 3. Property, Plant and Equipment. Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, principally on a straight-line basis. The estimated lives used in determining depreciation and amortization are: Buildings and improvements 12-40 years Warehouse and office equipment 5-7 years Automobiles 3-5 years Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Currently the amortization periods range from 5 to 17 years. 4. Revenue Recognition. Revenue from sales of product is recognized upon shipment. 5. Industry Segment. The Company operates in one industry segment which is the distribution of recreational replacement parts, supplies and accessories. The Company distributes its product from 18 distribution centers located throughout the United States and Canada. No single customer accounted for 10% or more of the Company's revenues in 1996, 1995, or 1994. 6. Intangible Assets. The costs in excess of net assets of acquired businesses are being amortized on a straight-line basis using periods ranging from four to thirty years. Non-competition agreements are being amortized on a straight-line basis over seven years. At December 31, 1996 and 1995, the accumulated amortization applicable to intangible assets was approximately $5,369,000 and $8,170,000, respectively. On an ongoing basis, management reviews the valuation and amortization of intangibles. As part of this review, the Company evaluates the recoverability of the intangibles based upon the operating income generated by the related acquired businesses to determine if impairment has occurred. 7. Foreign Currency Translation. Exchange adjustments resulting from foreign currency transactions are generally recognized in net earnings, whereas adjustments resulting from the translation of financial statements are reflected as a separate component of shareholders' equity. Net foreign currency transaction gains or losses are not material in any of the years presented. 8. Forward Exchange Contracts. On a selective basis, the Company enters into forward exchange contracts to reduce the impact of foreign currency fluctuations on a portion of the inventory purchases of its subsidiary. The gains or losses on these contracts are included in earnings in the period when the related transactions being hedged are recognized. The contracts do not subject the Company to significant market risk from exchange rate movements because the contracts offset gains and losses on the balances and transactions being hedged. At December 31, 1996, there were no forward exchange contracts outstanding. 9. Income Taxes. The Company provides a deferred tax expense or benefit equal to the net change in the deferred tax liability or asset during the year. Deferred income taxes represent tax credit carryforwards and future net tax effects resulting from temporary differences between the financial statement and tax basis of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when realization of the asset is not expected to occur. 26 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Reclassifications. Certain reclassifications, not affecting earnings or retained earnings, have been made to the prior years' financial statements to conform to the current year presentation. 11. Use of Estimates. In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE B: ACQUISITIONS THE COAST DISTRIBUTION SYSTEM (CANADA) INC. - In 1991, the Company began acquiring shares of Coast Canada. In 1994 the Company increased its ownership to 100% of the outstanding shares. The cumulative purchase price paid for the shares was $2,764,000. The investment in Coast Canada was accounted for by the equity method through February 1994, and, accordingly, the equity in net earnings of Coast Canada is included in the Company's consolidated statements of earnings from the date of acquisition through February 28, 1994. As of March 1, 1994 the accounts of Coast Canada have been consolidated along with the Company's other wholly-owned subsidiaries. H. BURDEN LIMITED - In 1993, the Company began acquiring shares of H. Burden Limited ("Burden"). In 1996 the Company increased its ownership to 35% of the outstanding shares. The cumulative purchase price paid for the shares was $4,025,000. The investment in Burden is accounted for by the equity method and, accordingly, the equity in net earnings of Burden is included in the Company's consolidated statements of earnings from the date of acquisition through September 30, 1996. Pro forma results of operations assuming the Coast Canada and Burden acquisitions had occurred as of the beginning of each respective year presented have not been presented as such results do not differ materially from the reported results of operations. NOTE C: PROPERTY, PLANT & EQUIPMENT Property and equipment consists of the following at December 31:
1996 1995 - ---------------------------------------------------------------------- (dollars in thousands) Building $ 2,791 $ 2,792 Warehouse equipment 3,305 3,563 Office equipment 4,686 5,072 Leasehold improvements 922 938 Automobiles 73 150 ------- ------- 11,777 12,515 Less accumulated depreciation and amortization 7,059 7,019 ------- ------- 4,718 5,496 Land 637 637 ------- ------- $ 5,355 $ 6,133 ======= =======
27 28 NOTE D: INVESTMENTS IN AFFILIATED COMPANIES The Company's 34% investment in HWH Corporation is accounted for using the equity method of accounting. Summarized financial information of HWH at December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996, is presented as follows:
Condensed Balance Sheets As of December 31, 1996 1995 - ----------------------------------------------------------------------- (dollars in thousands) Cash and cash equivalents $ 1,626 $ 1,259 Investments 1,719 3,733 Receivables 4,029 4,495 Inventory 9,052 4,984 Other current assets 659 651 Investments and long-term receivables 2,187 2,387 Property and equipment 1,251 2,719 Other assets 100 87 ------- ------- $20,623 $20,315 ======= ======= Current liabilities $ 2,789 $ 3,627 Long-term debt 120 141 Shareholders' equity 17,714 16,547 ------- ------- $20,623 $20,315 ======= =======
Condensed Statements of Earnings Year Ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------- (dollars in thousands) Net sales $32,279 $30,946 $26,291 Cost of goods sold 21,544 20,829 16,459 ------- ------- ------- Gross margin 10,735 10,117 9,832 Selling, general and administrative expenses 6,837 6,069 5,820 Other income 375 534 478 ------- ------- ------- Earnings before income taxes 4,273 4,582 4,490 Provision for income taxes 1,535 1,584 1,436 ------- ------- ------- Net earnings $ 2,738 $ 2,998 $ 3,054 ======= ======= =======
28 29 Summarized financial information of Burden at September 30, 1996 and 1995 and for the years ended September 30, 1996 and 1995 is presented as follows:
Condensed Balance Sheets As of September 30, 1996 1995 - ------------------------------------------------------------------------ (dollars in thousands) Cash $ 168 $ 115 Receivables 8,540 7,687 Inventory 14,023 12,210 Other current assets 498 388 Property and equipment 11,297 8,512 Other assets - 92 ------- ------- $34,526 $29,004 ======= ======= Current maturities $ 5,635 $ 5,158 Other current liabilities 8,408 6,945 Long-term debt 8,403 5,953 Shareholders' equity 12,080 10,948 ------- ------- $34,526 $29,004 ======= =======
Condensed Statements of Earnings Year Ended September 30, 1996 1995 - ------------------------------------------------------------------------- (dollars in thousands) Net sales $64,526 $59,617 Cost of goods sold 52,316 47,771 ------- ------- Gross margin 12,210 11,846 Selling, general and administrative expenses 8,818 9,276 Other (income) expense 803 947 ------- ------- Earnings before income taxes 2,589 1,623 Provision for income taxes 1,030 642 ------- ------- Net earnings $ 1,559 $ 981 ======= =======
29 30 The Company has investments in two joint ventures, Coast to Coast RV Services doing business in Australia and Accessorios Para Campers y Autobuses, S.A De C.V. doing business in Mexico. These investments are being accounted for using the equity method of accounting. The Company's investments in unconsolidated affiliates (excluding Coast Canada) are summarized as follows:
HWH Burden Other - ---------------------------------------------------------------------------- (dollars in thousands) Balance at 1/1/95 $5,959 $3,024 $398 Investments - 672 140 Equity in earnings (loss), net of goodwill amortization 944 279 (19) Dividends received (525) (34) - Translation adjustments - 63 (10) ------ ------ ---- Balance at 12/31/95 $6,378 $4,004 $509 Investments - 687 - Equity in earnings (loss), net of goodwill amortization 852 512 165 Dividends received (525) (48) - Translation adjustments - (84) (10) ------ ------ ---- Balance at 12/31/96 $6,705 $5,071 $682 ====== ====== ====
NOTE E: LONG-TERM OBLIGATIONS Long-term obligations consist of the following at
December 31: 1996 1995 - ----------------------------------------------------------------------------------------------------------- (dollars in thousands) Secured note payable to bank $27,956 $29,024 11.2% senior subordinated secured notes-due June 1, 1999 7,001 9,334 11.25% note collateralized by a deed of trust on land and building, due in monthly installments of $7, remaining principal due in November 1997 602 615 11.625% note collateralized by a deed of trust on land and building, due in monthly installments of $5, remaining principal due in November 1997 433 441 10% note collateralized by a deed of trust on land and building, due in monthly installments of $11, final payment due in September 2004 728 788 Other note payable 183 237 Capital lease obligations 535 525 ------- ------- 37,438 40,964 Current portion 3,667 2,588 ------- ------- $33,771 $38,376 ======= =======
Subsequent to 1997, annual maturities of long-term obligations (in thousands) are $2,645 in 1998, $2,576 in 1999, $28,128 in 2000, $97 in 2001 and $325 due thereafter. Secured Note Payable to Bank The secured note payable to bank represents a revolving credit agreement, collateralized by substantially all assets of the Company. The Company may borrow up to the lesser of (i) $50,000,000 or (ii) an amount equal to 80% of the value of their eligible accounts receivable and 50% of the value of their eligible inventory. Interest is payable at LIBOR, (5.65625% at December 31, 1996) plus 200 basis points. 30 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11.2% Senior Subordinated Secured Notes- Due June 1, 1999 The notes are collateralized by substantially all of the assets of the Company and bear interest at 11.2%. The notes require semiannual interest payments on June 1 and December 1 of each year. Annual principal payments of $2,333,000 commenced June 1, 1994 and continue through June 1, 1999. The note agreements relating to the secured note payable to bank and to the 11.2% senior subordinated secured notes contain certain restrictive covenants. Included are covenants regarding profitability, minimum liquidity ratios, restrictions on investments, and limitations on indebtedness, payment of dividends, long-term leases, and mergers and consolidations. The Company is in compliance with all the covenants. NOTE F: COMMITMENTS Operating Leases The Company leases its corporate offices, certain warehouse facilities, and data processing equipment. These leases are classified as operating leases as they do not meet the capitalization criteria of Statement of Financial Accounting Standards No. 13, "Accounting for Leases". The office and warehouse leases expire over the next eleven years and the equipment leases expire over the next four years. Minimum future rental commitments under non-cancelable 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 ==== ====== ======
Rent expense charged to operations amounted to (in thousands) $3,116 in 1996, $3,144 in 1995 and $3,780 in 1994. 31 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE G: STOCK OPTION AND STOCK PURCHASE PLANS Stock Option Plans - The Company has in effect a 1987 Nonqualified Stock Option Plan and a 1993 Stock Option and Incentive Plan ("the plans") which authorize the issuance of options to purchase 700,000 shares of the Company's common stock to key management employees of the Company and members of the Company's Board of Directors. The plans generally provide that option prices will not be less than fair market value per share on the date the option is granted, or 110% of fair market value in the case of an incentive stock option granted to any employee who, at the time of the grant, owns or is deemed to own more than 10% of the total combined voting power of all classes of stock of the Company. Accordingly, no compensation cost has been recognized for the plans. Had compensation cost for the plans been determined based on the fair value of the options at the grant dates consistent with the method of Statement of Financial Accounting Standards 123, Accounting for Stock-Based Compensation ("SFAS 123"), the Company's net earnings (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below. Pro forma amounts for 1996 and 1995 may not be indicative of pro forma results in future periods because the pro forma amounts below do not include pro forma compensation cost for options granted prior to January 1, 1995.
1996 1995 ---- ---- Net Earnings (loss) As reported $(123,000) $3,344,000 Pro Forma $(193,000) $3,256,000 Per share As reported $ (0.03) $ 0.64 Pro Forma $ (0.04) $ 0.63
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: no expected dividends; expected volatility of 45%; risk-free interest rates of 6.1% and 7.2%; and expected lives of 4 years. A summary of the status of the Company's stock option plan as of December 31, 1996 and 1995, and changes during the years ending on those dates is presented below:
1996 1995 1994 ------------------------------------------------------------------------------------ Weighted Average Weighted Average Weighted Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ------------------------------------------------------------------------------------ Outstanding at beginning of year 198,250 $6.00 432,709 $5.75 238,576 $ 3.86 Granted 10,000 5.63 97,500 6.94 209,600 7.75 Exercised (24,675) 3.50 (151,034) 3.57 (11,442) (3.38) Forfeited (375) 3.62 (180,925) 6.93 (4,025) (4.24) ------- -------- ------- Outstanding at end of year 183,200 7.03 198,250 6.00 432,709 5.75 Weighted average fair value of options granted during the year $2.40 $3.05 $ 2.52
The following information applies to options outstanding at December 31, 1996: Range of exercise prices $4.63-$6.50 $7.13-$7.88 Options outstanding 57,200 126,000 Weighted average exercise price $6.05 $7.47 Weighted average remaining contractual life (years) 8 6 Options exercisable 57,200 57,200 Weighted average exercise price $6.05 $7.63
32 33 1987 Employee Stock Purchase Plan The Company has in effect an Employee Stock Purchase Plan under which 450,000 shares of the Company's common stock are reserved for issuance to all permanent employees who have met minimum employment criteria. Employees who do not own 5% or more of the outstanding shares are eligible to participate through payroll deductions in amounts related to their basic compensation. At the end of each offering period, shares are purchased by the participants at 85% of the lower of the fair market value at the beginning or the end of the offering period. During the years ended December 31, 1996 and 1995, 30,619 and 26,013 shares, respectively, of common stock were issued under the Employee Stock Purchase Plan. At December 31, 1996, 201,335 shares remain available for issuance in future offering periods. NOTE H: EMPLOYEE BENEFIT PLAN The Company adopted a 401(K) profit sharing plan as of January 1, 1989. All full-time employees are eligible to participate on the first quarter following completion of six months of employment. The plan allows participants to make pretax contributions and apply for and secure loans from their account. The plan provides for the Company to make discretionary contributions to be determined annually. The Company contributed $39,803 in 1996, $41,299 in 1995 and $20,363 in 1994. NOTE I: FOREIGN OPERATIONS A summary of the Company's operations by geographic area is presented below:
1996 1995 - ------------------------------------------------------------ (dollars in thousands) Net Sales United States $120,957 $148,021 Canada 19,295 22,438 Eliminations (966) (900) Operating Margin United States (1,013) 7,073 Canada 478 1,450 Eliminations (65) (30) Identifiable Assets United States 82,711 86,007 Canada 8,873 8,950 Eliminations (3,142) (2,821)
Transfers between geographic areas have not been presented as they are not significant. 33 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J: INCOME TAXES Pretax income for the years ended December 31 was taxed under the following jurisdictions:
1996 1995 1994 - ------------------------------------------------------------------------ (dollars in thousands) Domestic $(378) $4,486 $4,021 Foreign 61 940 1,392 ----- ------ ------ $(317) $5,426 $5,413 ===== ====== ====== - ------------------------------------------------------------------------
The provision for income taxes is summarized as follows for the year ended December 31:
1996 1995 1994 - ---------------------------------------------------------------------- (dollars in thousands) Current: Federal $(137) $1,386 $1,308 State 12 273 246 Foreign 41 405 529 ----- ------ ----- (84) 2,064 2,083 ===== ====== ===== Deferred: Federal (129) (44) (174) State 14 62 (86) Foreign 5 - 5 ----- ------ ----- (110) 18 (255) ----- ------ ----- Income tax provision $(194) $2,082 $1,828 ===== ====== ===== - ----------------------------------------------------------------------
The total operating loss carryforwards available for state income tax purposes at December 31, 1996 aggregate $1,930,000. The earliest carryforwards begin to expire in 1997. 34 35 Deferred tax assets (liabilities) are comprised of the following at December 31:
1996 1995 1994 - ----------------------------------------------------------------------- (dollars in thousands) Deferred tax assets Inventory capitalization $1,034 $ 918 $1,096 Bad debt provision 382 345 423 Inventory reserve 507 403 307 Property, plant and equipment 1 41 92 Loss carryforwards 145 181 252 Other 45 11 5 ------ ------ ------ Gross deferred tax assets 2,114 1,899 2,175 Less valuation allowance (72) (76) (82) ------ ------ ------ $2,042 $1,823 $2,093 ------ ------ ------ Deferred tax liabilities Unremitted earnings of affiliates $ (257) $ (233) $ (197) Property, plant and equipment (91) (82) (4) ------ ------ ------ Gross deferred tax liabilities (348) (315) (201) ------ ------ ------ Net deferred tax assets $1,694 $1,508 $1,892 ====== ====== ====== - -----------------------------------------------------------------------
A reconciliation between actual tax expense (benefit) for the year and expected tax expense is as follows:
1996 1995 1994 - ------------------------------------------------------------------------------ (dollars in thousands) Earnings (loss) before income taxes $(317) $5,426 $5,413 ----- ------ ------ Expected income tax expense at 34% (108) 1,845 1,840 Higher rates on earnings of foreign operations 8 69 46 Goodwill amortization 229 267 233 Dividend exclusion on earnings of affiliate (242) (269) (294) State taxes (net of federal benefit) 44 225 79 Decrease in valuation allowance (4) (6) (2) Exclusion of earnings (benefit) of foreign affiliates (133) (71) (63) Other 12 22 (11) ----- ------ ------ Income tax provision $(194) $2,082 $1,828 ===== ====== ====== - ------------------------------------------------------------------------------
Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries or foreign joint ventures as they have been and will continue to be reinvested. Where it is contemplated that earnings will not be reinvested, the Company believes U.S. foreign tax credits would largely eliminate any U.S. tax. 35 36 NOTE K: EARNINGS PER SHARE Earnings per share are based upon the average number of common and dilutive common equivalent (stock options and convertible notes) shares outstanding during each year (5,198,402 shares in 1996, 5,205,730 shares in 1995, and 5,185,775 shares in 1994). NOTE L: ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31:
1996 1995 - ----------------------------------------------------------------------- (dollars in thousands) Payroll and related benefits $ 723 $ 659 Rent 267 347 Income and other taxes 461 331 Other 460 668 ------ ------ $1,911 $2,005 ====== ======
36 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE M: NOTES PAYABLE At December 31, 1996 and 1995 the Company owed its affiliate HWH $1,500,000. The notes payable are due on demand and interest is paid monthly at the Company's current rate payable on its secured note payable to bank (see note E). NOTE N: FINANCIAL INSTRUMENTS The fair values of financial instruments, other than long-term debt, closely approximate their carrying value. Investments in affiliates consists of securities for which a reasonable estimate of fair value could not be made as no quoted market prices for the securities exist and the costs of determining fair value would be excessive. As of December 31, 1996, the estimated fair value of long-term debt, based on the current rates offered to the Company for debt of the same remaining maturities, exceed the carrying value by approximately $300,000. NOTE O: SIGNIFICANT CONCENTRATIONS The Company's ability to satisfy demand for its products may be limited by the availability of those products from the Company's suppliers. In 1995, the Company entered into a multi-year supply agreement with Recreational Vehicle Products, Inc. ("RVP"), which manufactures air conditioners under the Coleman(R) brand name and awnings under the Faulkner(R) brand name. RVP has agreed to supply the Company with its requirements for these products, the sales of which accounted for 15% of the Company's net sales in 1996. NOTE P: OTHER INCOME Other income consists primarily of the proceeds to the Company from the favorable settlement of a lawsuit with a leading supplier. The resultant gain is shown net of certain expenses incurred as a result of the Company's involvement in the lawsuit. 37 38 SCHEDULE II THE COAST DISTRIBUTION SYSTEM AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS December 31, 1994, 1995 and 1996
Balance, Balance, beginning of end of Description period Additions(1) Deductions(2) period - ----------- ----------- ------------ ------------- ---------- Allowance for doubtful accounts: Year Ended December 31, 1994 $1,000,000 $375,000 $235,000 $1,140,000 Year Ended December 31, 1995 $1,140,000 $161,000 $364,000 $ 937,000 Year Ended December 31, 1996 $ 937,000 $534,000 $385,000 $1,086,000
- --------------- (1) Includes addition of $78,000 as a result of an acquisition of receivables (2) Write-off of doubtful accounts against the allowance and recoveries.
Balance, Balance, beginning of end of Description period Additions(1) Deductions(2) period - ----------- ----------- ------------ ------------- ---------- Allowance for obsolete or slow-moving inventory: Year Ended December 31, 1994 $ 880,000 $388,000 $270,000 $ 998,000 Year Ended December 31, 1995 $ 998,000 $594,000 $269,000 $1,323,000 Year Ended December 31, 1996 $1,323,000 $427,000 $380,000 $1,370,000
- ---------------- (1) Includes addition of $149,000 as a result of an acquisition of inventory. (2) Write-off of slow-moving or obsolete inventory or sale of inventory at reduced margin. 38 39 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors HWH Corporation We have audited the accompanying balance sheets of HWH Corporation (a Montana corporation) as of December 31, 1996 and 1995 and the related statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HWH Corporation as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. We have also audited Schedule II for each of the three years in the period ended December 31, 1996. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ GRANT THORNTON LLP Chicago, Illinois February 14, 1997 39 40 HWH CORPORATION BALANCE SHEETS DECEMBER 31, ================================================================================
ASSETS 1996 1995 ----------- ----------- CURRENT ASSETS Cash and cash equivalents ................................ $ 1,626,264 $ 1,258,956 Investments .............................................. 1,718,522 3,733,398 Receivables Trade, less allowance for doubtful accounts of $200,000 in 1996 and $400,000 in 1995 ...................... 3,993,928 4,377,586 Notes, including affiliate notes of $1,500,000 in 1996 and 1995 .......................................... 1,525,436 1,575,000 Interest .............................................. 9,537 42,640 ----------- ----------- 5,528,907 5,995,226 Inventories .............................................. 9,052,423 4,983,865 Other current assets ..................................... 659,016 651,098 ----------- ----------- Total current assets ....................... 18,585,126 16,622,543 LONG-TERM INVESTMENTS AND RECEIVABLES Investments .............................................. 687,295 687,295 Notes receivable, less current maturities ................ - 200,000 ----------- ----------- 687,295 887,295 PROPERTY, PLANT AND EQUIPMENT Land ..................................................... 58,492 58,492 Building and building improvements ....................... 1,457,558 1,401,875 Machinery and equipment .................................. 1,155,973 1,115,054 Transportation equipment ................................. 547,349 437,440 Office equipment ......................................... 494,364 428,206 ----------- ----------- 3,713,736 3,441,067 Less accumulated depreciation ......................... 2,462,973 2,247,809 ----------- ----------- 1,250,763 1,193,258 Construction in progress .............................. - 1,525,747 ----------- ----------- 1,250,763 2,719,005 OTHER ASSETS ................................................. 100,404 87,481 ----------- ----------- $20,623,588 $20,316,324 =========== ===========
40 41 HWH CORPORATION BALANCE SHEETS - CONTINUED DECEMBER 31, ================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ----------- ----------- CURRENT LIABILITIES Current maturities of long-term debt .................... $ 20,000 $ 20,000 Note payable -director .................................. - 675,000 Accounts payable ........................................ 1,397,136 1,391,823 Accrued expenses ........................................ 1,372,217 1,233,080 Income taxes payable .................................... - 307,354 ----------- ----------- Total current liabilities ..................... 2,789,353 3,627,257 LONG-TERM DEBT, less current maturities ..................... 120,000 140,000 COMMITMENTS AND CONTINGENCIES ............................... - - DEFERRED INCOME TAX LIABLITITY .............................. - 2,000 STOCKHOLDERS' EQUITY Capital stock Common, Class A, 8.19 votes per share; no par value; authorized, issued and outstanding, 10,000 shares 10,000 10,000 Common, Class B, .63 votes per share; no par value; authorized, 240,000 shares; issued, 201,926 shares 264,428 264,428 Retained earnings ....................................... 17,514,442 16,311,927 Net unrealized gain on investments available-for-sale ... 4,220 39,567 ----------- ----------- 17,793,090 16,625,922 Less 7,210 shares of Class B common stock in treasury in 1996 and 1995 - at cost .............................. 78,855 78,855 ----------- ----------- 17,714,235 16,547,067 ----------- ----------- $20,623,588 $20,316,324 =========== ===========
The accompanying notes are an integral part of these statements. 41 42 HWH CORPORATION STATEMENTS OF EARNINGS YEAR ENDED DECEMBER 31, ================================================================================
1996 1995 1994 ------------ ------------ ------------ Net sales .................................. $ 32,279,451 $ 30,946,325 $ 26,291,351 Cost of goods sold ......................... 21,544,069 20,829,025 16,458,700 ------------ ------------ ------------ Gross profit .................... 10,735,382 10,117,300 9,832,651 Selling, general and administrative expenses 6,836,917 6,069,166 5,820,434 ------------ ------------ ------------ Operating profit ................ 3,898,465 4,048,134 4,012,217 Other income (expense) Dividend income ........................ 169,852 160,435 130,700 Interest income ........................ 237,620 349,795 400,185 Interest expense ....................... (44,983) (10,943) (7,158) Gain (loss) gain on sale of securities . 6,551 34,659 (52,167) Miscellaneous .......................... 5,750 558 6,312 ------------ ------------ ------------ 374,790 534,504 477,872 ------------ ------------ ------------ Earnings before income taxes .... 4,273,255 4,582,638 4,490,089 Income tax expense (benefit) Current ................................ 1,485,370 1,598,399 1,482,420 Deferred ............................... 50,000 (14,000) (46,000) ------------ ------------ ------------ 1,535,370 1,584,399 1,436,420 ------------ ------------ ------------ NET EARNINGS .................... $ 2,737,885 $ 2,998,239 $ 3,053,669 ============ ============ ============ EARNINGS PER COMMON SHARE ....... $ 13.37 $ 14.65 $ 14.92 ============ ============ ============
The accompanying notes are an integral part of these statements. 42 43 HWH CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY THREE YEARS ENDED DECEMBER 31, 1996 ================================================================================
Common Common Treasury Net unrealized gain Total stock stock stock Retained (loss) on investments stockholders' Class A Class B at cost earnings available-for-sale equity ------- -------- -------- ------------ -------------------- ------------- Balance at January 1, 1994 .............. $10,000 $264,428 $(78,855) $ 14,866,129 $ - $ 15,061,702 Net effect of change in accounting for investments available-for-sale at January 1, 1994 .................. - - - - 42,725 42,725 Net earnings ............................ - - - 3,053,669 - 3,053,669 Cash dividends on common stock ($15.00 per share) .................. - - - (3,070,740) - (3,070,740) Decrease in net unrealized gain (loss) on investments available-for-sale ...... - - - - (198,731) (198,731) ------- -------- -------- ------------ --------- ------------ Balance at December 31, 1994 ............ 10,000 264,428 (78,855) 14,849,058 (156,006) 14,888,625 Net earnings ............................ - - - 2,998,239 - 2,998,239 Cash dividends on common stock ($7.50 per share) ................... - - - (1,535,370) - (1,535,370) Increase in net unrealized gain (loss) on investments available-for-sale ...... - - - - 195,573 195,573 ------- -------- -------- ------------ --------- ------------ Balance at December 31, 1995 ............ 10,000 264,428 (78,855) 16,311,927 39,567 16,547,067 Net earnings ............................ - - - 2,737,885 - 2,737,885 Cash dividends on common stock ($7.50 per share) ................... - - - (1,535,370) - (1,535,370) Decrease in net unrealized gain (loss) on investments available-for-sale ...... - - - - (35,347) (35,347) ------- -------- -------- ------------ --------- ------------ Balance at December 31, 1996 ............ $10,000 $264,428 $(78,855) $ 17,514,442 $ 4,220 $ 17,714,235 ======= ======== ======== ============ ========= ============
The accompanying notes are an integral part of these statements. 43 44 HWH CORPORATION STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, ================================================================================
1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Net earnings ......................................... $ 2,737,885 $ 2,998,239 $ 3,053,669 Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Depreciation and amortization ................. 229,647 190,396 196,381 Loss on sale of fixed assets .................. 1,056 - - (Gain) loss on sale of securities ............. (6,551) (34,659) 52,167 Deferred income taxes ......................... 50,000 (14,000) (46,000) Provision for losses on accounts receivable ... (108,424) 18,112 47,237 (Increase) decrease in assets Receivables ................................ 525,185 (1,411,153) 515,062 Inventories ................................ (4,068,558) (1,671,378) (541,831) Prepaid expenses ........................... 10,151 (54,556) (153,023) Refundable income taxes .................... (50,069) 188,396 (188,396) Increase (decrease) in liabilities Accounts payable ........................... 5,313 826,790 32,742 Accrued expenses ........................... 139,137 56,184 104,139 Income taxes payable ....................... (307,354) 307,354 (254,854) ----------- ----------- ----------- Total adjustments ...................... (3,580,467) (1,598,514) (236,376) ----------- ----------- ----------- Net cash (used in) provided by operating activities .......................... (842,582) 1,399,725 2,817,293 Cash flows from investing activities: Disbursements on notes receivable .................... (436) (1,650,000) (225,000) Principal payments received on notes receivable ...... 250,000 855,283 207,680 Proceeds from sale of securities ..................... 1,981,638 2,944,804 2,554,631 Purchase of securities ............................... (15,558) (140,177) (4,920,615) Capital expenditures ................................. (376,913) (1,476,936) (335,594) Proceeds from sale of fixed assets ................... 1,615,045 - - Increase in cash surrender value of life insurance policy .................................. (13,516) (12,043) (11,118) ----------- ----------- ----------- Net cash provided by (used in) investing activities ................ 3,440,260 520,931 (2,730,016)
The accompanying notes are an integral part of these statements. 44 45 HWH CORPORATION STATEMENTS OF CASH FLOWS - CONTINUED YEAR ENDED DECEMBER 31, ================================================================================
1996 1995 1994 ----------- ----------- ----------- Cash flows from financing activities: Dividends paid ......................................................... $(1,535,370) $(1,535,370) $(3,070,740) Principal payment on long-term debt .................................... (20,000) (20,000) (20,000) Proceeds from issuance of note payable ................................. - 675,000 - Payment of note payable ................................................ (675,000) - - ----------- ----------- ----------- Net cash used in financing activities .................... (2,230,370) (880,370) (3,090,740) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................................... 367,308 1,040,286 (3,003,463) Cash and cash equivalents at beginning of year ............................. 1,258,956 218,670 3,222,133 ----------- ----------- ----------- Cash and cash equivalents at end of year ................................... $ 1,626,264 $ 1,258,956 $ 218,670 =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest ............................................................ $ 44,393 $ 10,943 $ 7,333 Income taxes ........................................................ 1,819,310 1,106,804 1,925,530 Supplemental schedule of non-cash investing and financing activities: Increase (decrease) in net unrealized gain (loss) on investments available-for-sale, net of deferred tax (benefit) expense of $(20,000) in 1996, $106,000 in 1995 and $(84,000) in 1994 ........................................ $ (35,347) $ 195,573 $ (198,731)
The accompanying notes are an integral part of these statements. 45 46 HWH CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 ================================================================================ NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS HWH Corporation (the "Company") manufactures vehicle leveling systems and related parts. The Company grants credit to customers, the majority of whom are manufacturers and distributors in the recreational vehicle industry throughout the United States and Europe. Certain reclassifications have been made to the 1995 amounts to conform with the 1996 presentation. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. PROPERTY, PLANT AND EQUIPMENT Depreciation of property, plant and equipment is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, using both straight-line and accelerated methods. Depreciable lives by asset classification are as follows:
Life in years ----- Building and building improvements............................... 5 - 31 Machinery and equipment.......................................... 3 - 10 Transportation equipment......................................... 3 - 7 Office equipment................................................. 5 - 10
46 47 HWH CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 ================================================================================ NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INVESTMENTS IN DEBT AND QUALIFYING EQUITY SECURITIES Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with SFAS No. 115, investments in debt and qualifying equity securities are classified as either held-to-maturity, trading or available-for-sale. Held-to-maturity investments are debt securities that the Company has the positive intent and ability to hold to maturity. These investments are recorded at amortized cost. Debt and equity securities purchased principally for the purpose of resale in the near term are classified as trading investments and are recorded at fair value. Unrealized gains or losses on these investments are included in earnings of the current period. Other debt and equity securities that are not categorized as held-to-maturity or trading are classified as available-for-sale and reported at fair value. Unrealized gains or losses on these securities are reported as a separate component of stockholders' equity, net of applicable income tax expense or benefit. The effect of adopting this statement was not material. INCOME TAXES Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. The principal types of differences between assets and liabilities for financial statement and tax return purposes are inventory capitalization, bad debt provision, and warranty claims accrual. EARNINGS PER SHARE Earnings per common share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the year. LOAN ACQUISITION COSTS Loan acquisition costs are being amortized over the life of the bond issue on a straight-line basis. 47 48 HWH CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 ================================================================================ NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED CASH EQUIVALENTS For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ================================================================================ NOTE B - NOTES RECEIVABLE Notes receivable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- Unsecured note receivable from The Coast Distribution System ("Coast"), an affiliated company, due on demand, with interest to be paid monthly at LIBOR plus 1.5% (6.875% at December 31, 1996) .................................... $1,500,000 $1,500,000 9.5% note, receivable in installments of $50,000 on January 1, 1996 and 1997, with the balance due January 1, 1998, interest to be paid semiannually, collateralized by certain real estate and personal property, balance of note paid in 1996 ............................ - 250,000 Other .......................................................................... 25,436 25,000 ---------- ---------- 1,525,436 1,775,000 Less current maturities .................................................... 1,525,436 1,575,000 ---------- ---------- $ - $ 200,000 ========== ==========
48 49 HWH CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 ================================================================================ NOTE C - INVESTMENTS The Company holds the following investments as of December 31:
1996 1995 ---------- ---------- Current Marketable equity securities ........ $1,718,522 $2,019,900 Government mutual funds ............. - 112,951 U.S. treasury securities ............ - 1,349,179 Obligations of political subdivisions - 251,368 ---------- ---------- $1,718,522 $3,733,398 ========== ========== Long-term Marketable corporate bonds .......... $ 257,282 $ 257,282 Obligations of political subdivisions 430,013 430,013 ---------- ---------- $ 687,295 $ 687,295 ========== ==========
The amortized cost and fair value of available-for-sale securities as of December 31, 1996 are summarized as follows:
Gross Gross Amortized Amortized Unrealized Unrealized Cost at Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- Marketable equity securities................. $1,712,301 $111,265 $105,044 $1,718,522 ========== ======== ======== =========
Proceeds from sales of available-for-sale securities were approximately $381,000 for the year ended December 31, 1996. These sales resulted in gross realized gains of approximately $62,000 and gross realized losses of approximately $55,000 using a specific identification basis. The net unrealized holding gain decreased approximately $55,000 in 1996. 49 50 HWH CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 ================================================================================ NOTE C - INVESTMENTS - CONTINUED The amortized cost and fair value of held-to-maturity securities as of December 31, 1996 are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value -------- ---------- ---------- ---------- Marketable corporate bonds .......... $257,281 $ - $9,435 $247,846 Obligations of political subdivisions 430,014 3,960 - 433,974 -------- ------ ------ -------- $687,295 $3,960 $9,435 $681,820 ======== ====== ====== ========
The amortized cost and fair value of securities being held-to-maturity as of December 31, 1996, by contractual maturity, are shown below:
Amortized Cost Fair Value --------- ---------- Due in one year or less .............. $ - $ - Due after one year through five years 330,014 332,824 Due after five years through ten years 100,000 101,150 Due after ten years .................. 257,281 247,846 -------- -------- $687,295 $681,820 ======== ========
50 51 HWH CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 ================================================================================ NOTE D - INVENTORIES Inventories consist of the following at December 31:
1996 1995 ---------- ---------- Purchased materials $4,872,386 $3,175,177 Work-in-process ... 3,416,685 1,322,151 Finished goods .... 763,352 486,537 ---------- ---------- Total ......... $9,052,423 $4,983,865 ========== ==========
================================================================================ NOTE E - RELATED PARTY TRANSACTIONS During the years ended December 31, 1996, 1995 and 1994, the Company had sales to Coast of approximately $2,600,000, $3,700,000 and $3,600,000, respectively. Coast owns 69,971 shares, or approximately 36% of the Company's outstanding Class B common stock. Trade receivable balances from Coast at December 31, 1996 and 1995 were approximately $348,000 and $55,000, respectively. During the years ended December 31, 1996, 1995 and 1994, the Company paid for production services from UP Electronics, an affiliated company, which totaled approximately $2,420,000, $1,540,000, and $1,120,000, respectively. Amounts due to UP Electronics included in accounts payable at December 31, 1996 and 1995 were approximately $589,000 and $292,000, respectively. In addition, during the years ended December 31, 1996 and 1995, the Company paid for production services to CCO, Inc., an affiliated company, which totaled approximately $1,310,000 and $190,000, respectively. Amounts due to CCO, Inc. included in accounts payable at December 31, 1996 were approximately $124,000. No amounts were due at December 31, 1995. Leases with CDC Limited ("CDC"), an affiliated company, and UP Electronics are described in note H. In 1995, a Director of the Company loaned $675,000 to the Company in the form of a demand note, bearing interest at an annual rate of 5.5%. The note was paid in 1996. 51 52 HWH CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 ================================================================================ NOTE F - PLEDGED ASSETS AND LONG-TERM DEBT In August, 1983, the Company obtained $400,000 of the City of Wilton, Iowa, Industrial Development Revenue Bonds, Series 1983 for the purpose of providing funds to construct and expand the existing manufacturing facility of the Company. The bonds bear interest equal to a defined money market certificate rate (5.34% at December 31, 1996) and mature in annual amounts of $20,000 on each August 1 through 2003. As of December 31, 1996, $140,000 of the bonds remain outstanding. The Company maintains a $120,000 line of credit, which expires February, 1997, with interest at the bank's base rate. There were no outstanding borrowings under the line of credit as of December 31, 1996 and 1995. The outstanding revenue bonds and any amounts borrowed under the line of credit are collateralized by all receivables, inventories and property and equipment of the Company. Future annual maturities of long-term debt as of December 31, 1996 are as follows: Year ending December 31, 1997......................................... $ 20,000 1998......................................... 20,000 1999......................................... 20,000 2000......................................... 20,000 2001......................................... 20,000 2002 and thereafter.......................... 40,000 -------- $140,000 ========
================================================================================ NOTE G - PROFIT-SHARING PLAN The Company has a profit-sharing plan for all eligible employees who have met certain qualifications as prescribed by the plan. The Company's contribution is discretionary and determined annually by the Board of Directors. Amounts contributed for the years ended December 31, 1996, 1995 and 1994 were approximately $533,000, $407,000, and $350,000, respectively. 52 53 HWH CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 ================================================================================ NOTE H - LEASE COMMITMENTS The Company leases certain machinery and equipment from CDC, under a master lease agreement dated October 1, 1996. The lease is for a period of one year. The lease requires annual rentals of $875,000 plus the payment of insurance and normal maintenance. The Company also leases space and certain facilities from UP Electronics. The lease requires monthly rent payments which are determined, in part, on actual production services performed by UP Electronics. Rent expense under all leases for the years ended December 31, 1996, 1995 and 1994 was approximately $944,000, $905,000, and $734,000, respectively. ================================================================================ NOTE I - ACCRUED EXPENSES Accrued expenses consist of the following at December 31:
1996 1995 ----------- ----------- Payroll....................................................... $ 124,526 $ 153,051 Profit-sharing................................................ 533,456 407,177 Warranty claims............................................... 500,000 500,000 Commissions................................................... 98,764 106,359 Other......................................................... 115,471 66,493 ----------- ----------- $1,372,217 $1,233,080 ========== ==========
================================================================================ NOTE J - INCOME TAXES The difference between income tax rates computed by applying the Federal statutory income tax rate to income before provision for income taxes and the effective income tax rate is reconciled as follows at December 31:
1996 1995 1994 ---- ---- ---- Federal statutory rate....................................... 34.0% 34.0% 34.0% Other - net.................................................. 1.9 .6 (2.0) ---- ---- ---- Effective income tax rate.................................... 35.9% 34.6% 32.0% ==== ==== ====
53 54 HWH CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 ================================================================================ NOTE J - INCOME TAXES - CONTINUED The tax effects of existing temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities at December 31 are as follows:
1996 1995 --------- --------- Deferred income tax assets: Allowance for doubtful receivables ......... $ 70,000 $ 140,000 Warranty claims ............................ 175,000 175,000 Uniform inventory capitalization ........... 95,000 80,000 Depreciation ............................... 3,000 - --------- --------- Total deferred income tax assets .... 343,000 395,000 Deferred income tax liabilities: Unrealized gain on investments ............. (2,000) (22,000) Depreciation ............................... - (2,000) --------- --------- Total deferred income tax liabilities (2,000) (24,000) --------- --------- Net deferred tax assets ............. $ 341,000 $ 371,000 ========= =========
================================================================================ NOTE K - MAJOR CUSTOMERS Net sales for the years ended December 31, 1996, 1995 and 1994 included sales to the following major customers:
Net Sales ---------------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Customer A........................................... $ 5,447,000 $ 5,461,000 $ 4,810,000 Customer B........................................... 5,483,000 3,913,000 3,597,000 Customer C........................................... 2,634,000 3,683,000 2,458,000 ----------- ----------- ----------- $13,564,000 $13,057,000 $10,865,000 =========== =========== ===========
At December 31, 1996, approximately 43% of total receivables was due from the Company's two most significant customers. 54 55 HWH CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 ================================================================================ NOTE L - STOCK PURCHASE PLAN Under the provisions of a stock purchase plan, the Company has offered to purchase its outstanding common stock at a price of $82 per share which is equal to five times the after tax earnings per share, averaged over the past five years. The total value of shares to be offered for purchase is determined annually by the Board of Directors. This offer is effective through April 1, 1997. ================================================================================ NOTE M - LITIGATION The Company is a defendant in several lawsuits seeking monetary damages. Management believes that the outcome of these lawsuits will not have a material impact on the Company. 55 56 FINANCIAL STATEMENT SCHEDULE HWH CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Additions charged to Balance at -------------------------------- Balance beginning Costs and Other at end of Description of period expenses accounts Deductions (1) period - ----------- ----------- ---------- --------- -------------- -------- Allowance for doubtful receivables Year ended December 31, 1996 $400,000 $ 91,576 $ - $291,576 (2) $200,000 Year ended December 31, 1995 $400,000 $ 18,112 $ - $ 18,112 (1) $400,000 Year ended December 31, 1994 $330,000 $ 47,237 $ - $ (22,763) (1) $400,000 Warranty reserve Year ended December 31, 1996 $500,000 $473,341 $ - $473,341 $500,000 Year ended December 31, 1995 $500,000 $421,467 $ - $421,467 $500,000 Year ended December 31, 1994 $500,000 $398,494 $ - $398,494 $500,000
Note: (1) Uncollectible receivables charged off, net of recoveries. (2) Amount includes $91,576 in uncollectible receivables charged off and a $200,000 reduction in the allowance. 56 57 [LOGO OF GRANT THORNTON] REPORT OF THE AUDITORS TO THE MEMBERS OF H BURDEN LIMITED We have audited the accompanying consolidated balance sheet of H Burden Limited and subsidiaries as of 30 September 1996 and the related consolidated statements of profit and loss account and cash flows for the year ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United Kingdom and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of H Burden Limited as of 30 September 1996 and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles in the United Kingdom. Generally accepted accounting principles in the United Kingdom vary in certain significant respects from generally accepted accounting principles in the United States. Application of generally accepted accounting principles in the United States would have affected the results of operations for the year ending 30 September 1996 and the shareholders' equity as of 30 September 1996 to the extent summarized in Note 27 to the consolidated financial statements. GRANT THORNTON REGISTERED AUDITORS CHARTERED ACCOUNTANTS KETTERING 12 DECEMBER 1996 57 58 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS PRINCIPAL ACCOUNTING POLICIES - -------------------------------------------------------------------------------- BASIS OF PREPARATION The financial statements have been prepared in accordance with applicable accounting standards and under the historical cost convention. The principal accounting policies of the group have remained unchanged from the previous year and are set out below. BASIS OF CONSOLIDATION The group financial statements consolidate those of the company and of its subsidiary undertakings (see note 8) drawn up to 30 September 1996. The results of subsidiary undertakings acquired during the year have been included from the date of acquisition. Profits or losses on intra-group transactions are eliminated in full. On acquisition of a subsidiary, all of the subsidiary's assets and liabilities which exist at the date of acquisition are recorded at their fair values reflecting their condition at that date. Goodwill arising on consolidation, representing the excess of the fair value of the consideration given over the fair values of the identifiable net assets acquired, is written off to reserves immediately on acquisition. TURNOVER Turnover is the total amount receivable by the group for goods supplied and services provided, excluding VAT and trade discounts. DEPRECIATION Depreciation is calculated to write down the cost of all tangible fixed assets other than freehold land and certain freehold buildings by equal annual installments over their expected useful lives. The periods generally applicable are: Freehold buildings - 25 years Short leasehold premises - the lease term Plant and equipment - 5 to 10 years Motor vehicles - 4 to 5 years No depreciation is provided on certain freehold buildings or long leasehold premises, as it is the group's policy to maintain these assets in a continual state of sound repair. The useful economic lives of these assets are thus so long and residual values so high that any depreciation would not be material. Residual values are based on prices prevailing at the date of acquisition or subsequent valuation. Provision is made in the profit and loss account for any permanent diminution in value. INVESTMENTS Investments are stated at cost less amounts written off. 58 59 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS PRINCIPAL ACCOUNTING POLICIES (CONTINUED) - ------------------------------------------------------------------------------- STOCKS Stocks are stated at the lower of cost and net realisable value. DEFERRED TAXATION Deferred tax is provided for under the liability method using the tax rates estimated to arise when the timing differences reverse and is accounted for to the extent that it is probable that a liability or asset will crystallise. Unprovided deferred tax is disclosed as a contingent liability. FOREIGN CURRENCIES Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. The financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the balance sheet date. The exchange differences arising from the retranslation of the opening net investment in subsidiaries are taken directly to reserves. Where exchange differences result from the translation of foreign currency borrowings raised to acquire foreign assets (including equity investments) they are taken to reserves and offset against the differences arising from the translation of those assets. All other exchange differences are dealt with through the profit and loss account. CONTRIBUTIONS TO PENSION FUNDS DEFINED CONTRIBUTION SCHEME The pension costs charged against profits represent the amount of the contributions payable to the scheme in respect of the accounting period. DEFINED BENEFIT SCHEME The pensions costs charged against profits are based on an actuarial method and assumptions designed to spread the anticipated costs of providing these benefits over the service lives of the employees entitled to receive them, so as to ensure that the regular cost of providing benefits represents a substantially level percentage of the current and expected future payroll. Variations from regular cost are spread over the remaining service lives of current employees in the scheme. LEASED ASSETS Assets held under finance leases and hire purchase contracts are capitalised in the balance sheet and depreciated over their expected useful lives. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the profit and loss account over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the profit and loss account on a straight-line basis over the lease term. 59 60 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 1996 NOTE pounds pounds ---- ------ ---------- TURNOVER 1 42,846,548 change in stocks of finished goods 1,397,739 ---------- 44,244,287 Purchases of goods for resale 32,838,484 ---------- 11,405,803 Staff costs 3 3,986,798 ---------- 7,419,005 Depreciation 1 387,930 Other operating charges 4,591,457 4,979,387 --------- ---------- OPERATING PROFIT 18 2,439,618 Net interest 2 721,843 ---------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 1 1,717,775 Tax on profit on ordinary activities 4 593,250 ---------- PROFIT FOR THE FINANCIAL YEAR 17 1,124,525 Dividends 6 90,040 ---------- PROFIT RETAINED 16 1,034,485 ========== The accompanying accounting policies and notes form an integral part of these financial statements. 60 61 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS CONSOLIDATED BALANCE SHEET AT 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 1996 Note pounds pounds ---- --------- --------- FIXED ASSETS Tangible assets 7 7,564,108 CURRENT ASSETS Stocks 9 8,960,739 Debtors 10 5,775,064 Cash at bank and in hand 107,162 ---------- 14,842,965 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 11 8,940,905 ---------- NET CURRENT ASSETS 5,902,060 ---------- TOTAL ASSETS LESS CURRENT LIABILITIES 13,466,168 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 12 5,369,634 PROVISIONS FOR LIABILITIES AND CHARGES 14 32,632 ---------- 8,063,902 ========== CAPITAL AND RESERVES Called up share capital 15 101,670 Share premium account 16 777,213 Other reserve 16 31,707 Profit and loss account 16 7,153,312 ---------- SHAREHOLDERS' FUNDS 17 8,063,902 ========== Equity shareholders' funds 7,967,902 Non-equity shareholders' funds 96,000 ---------- 8,063,902 ========== The financial statements were approved by the Board of Directors on 12 December 1996. M S Bowyer Directors E C Lister The accompanying accounting policies and notes form an integral part of these financial statements. 61 62 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS BALANCE SHEET AT 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 1996 Note pounds pounds ---- --------- --------- FIXED ASSETS Tangible assets 7 2,999,799 Investments 8 2,128,906 --------- 5,128,685 CURRENT ASSETS Stocks 9 4,863,801 Debtors 10 6,187,688 Cash at bank and in hand 9,423 ---------- 11,060,912 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 11 7,536,153 ---------- NET CURRENT ASSETS 3,524,759 --------- TOTAL ASSETS LESS CURRENT LIABILITIES 8,653,444 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 12 2,687,832 PROVISIONS FOR LIABILITIES AND CHARGES 14 0 --------- 5,965,612 ========= CAPITAL AND RESERVES Called up share capital 15 101,670 Share premium account 16 777,213 Profit and loss account 16 5,086,729 --------- SHAREHOLDERS' FUNDS 5,965,612 ========= Equity shareholders' funds 5,869,612 Non-equity shareholders' funds 96,000 --------- 5,965,612 ========= The financial statements were approved by the Board of Directors on 12 December 1996. M S Bowyer Directors E C Lister The accompanying accounting policies and notes form an integral part of these financial statements. 62 63 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 1996 NOTE pounds ---- ------ NET CASH INFLOW FROM OPERATING ACTIVITIES 18 1,302,857 ---------- RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest paid (702,472) Interest received 1,146 Dividends paid (90,040) ---------- NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (791,366) ---------- TAXATION Corporation tax paid (219,260) ---------- INVESTING ACTIVITIES Purchase of tangible fixed assets (2,506,749) Sale of tangible fixed assets 51,179 ---------- NET CASH OUTFLOW FROM INVESTING ACTIVITIES (2,455,570) ---------- NET CASH OUTFLOW BEFORE FINANCING (2,163,339) FINANCING Issue of shares 100,985 Receipts from borrowing 2,186,567 Repayment of borrowing (286,435) Purchase of own shares (100,985) Capital element of finance lease rentals (19,118) ---------- NET CASH INFLOW FROM FINANCING 19 1,881,014 ---------- DECREASE IN CASH AND CASH EQUIVALENTS 20 (282,325) ========== The accompanying accounting policies and notes form an integral part of these financial statements. 63 64 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 1996 pounds ------ Profit for the financial year 1,034,485 Currency differences on foreign currency net investments (115,450) --------- TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR 919,035 ========= The accompanying accounting policies and notes form an integral part of these financial statements. 64 65 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 1 TURNOVER AND PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION The turnover and profit before taxation are attributable to one activity, the supply of caravan, camping and marine accessories. An analysis of turnover by geographical market is given below: 1996 pounds ---------- United Kingdom 25,559,503 Other European countries 17,287,045 ---------- 42,846,548 ========== The profit on ordinary activities is stated after: 1996 Franc ---------- Auditors' remuneration: Audit services 58,428 Non-audit services 7,300 Depreciation of tangible fixed assets: Owned 387,930 Held under finance leases and hire purchase contracts 0 Hire of plant and machinery 5,562 Other operating lease rentals 126,514 ========== 2 NET INTEREST 1996 pounds ---------- On bank loans and overdrafts 719,507 Other interest payable and similar charges 3,482 ---------- 722,989 other interest receivable and similar income (1,146) ---------- 721,843 ========== 65 66 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 3 DIRECTORS AND EMPLOYEES Staff costs during the year were as follows: 1996 pounds ---------- Wages and salaries 3,345,504 Social security costs 491,253 Other pension costs 150,041 ---------- 3,986,798 ========== The average number of employees of the group during the year was: 1996 Number ---------- Office and management 68 Selling and distribution 139 ---------- 207 ========== Remuneration in respect of directors was as follows: 1996 pounds ---------- Management remuneration 115,717 ========== The emoluments of the directors, excluding pension contributions, were as follows: 1996 pounds ---------- The Chairman 46,764 ========== The emoluments of the other director, excluding pension contributions, fell within the following range: 1996 Number ---------- Francs 25,001 to Francs 30,000 1 ========== 66 67 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 4 TAX ON PROFIT ON ORDINARY ACTIVITIES The tax charge is based on the profit for the year and represents: 1996 pounds ---------- UK corporation tax @ 33% 416,434 Overseas taxation payable 181,040 ---------- 597,474 Adjustments in respect of prior year: Corporation tax 10,776 Deferred tax (note 14) (15,000) ---------- 593,250 ========== 5 PROFIT FOR THE FINANCIAL YEAR The parent company has taken advantage of Section 230 of the Companies Act 1985 and has not included its own profit and loss account in these financial statements. The group profit for the year includes pounds 801,875 which is dealt with in the financial statements of the company. 6 DIVIDENDS 1996 pounds ---------- Equity dividend: Ordinary shares - interim dividend of pounds 15.88 per share paid 24 September 1996 90,040 ========== 67 68 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 7 TANGIBLE FIXED ASSETS
Long Short Freehold leasehold leasehold land and land and land and Plant and Motor Total buildings buildings buildings machinery vehicles The group pounds pounds pounds pounds pounds pounds --------- ------ --------- --------- --------- --------- ---------- Cost At 1 October 1995 8,228,220 4,498,985 1,148,236 22,000 1,435,176 1,123,823 Additions 2,506,749 0 2,026,139 0 204,307 276,303 Exchange adjustment (265,392) (211,537) 0 0 (41,272) (12,583) ---------- --------- --------- ------ --------- --------- 10,469,577 4,287,448 3,174,375 22,000 1,598,211 1,387,543 Disposals (254,470) (6,803) 0 0 (8,725) (238,942) ---------- --------- --------- ------ --------- --------- At 30 September 1996 10,215,107 4,280,645 3,174,375 22,000 1,589,486 1,148,601 ---------- --------- --------- ------ --------- --------- Depreciation At 1 October 1995 2,549,138 774,526 0 9,284 995,702 769,626 Provided in the year 387,930 121,810 0 574 115,263 150,283 Exchange adjustment (84,354) (45,748) 0 0 (31,921) (6,685) ---------- --------- --------- ------ --------- --------- 2,852,714 850,588 0 9,858 1,079,044 913,224 Eliminated on disposals (201,715) (5,566) 0 0 (8,654) (187,495) ---------- --------- --------- ------ --------- --------- At 30 September 1996 2,650,999 845,022 0 9,858 1,070,390 725,729 ---------- --------- --------- ------ --------- --------- Net book amount at 30 September 1996 7,564,108 3,435,623 3,174,375 12,142 519,096 422,872 ========== ========= ========= ====== ========= =========
The gross value of the land and buildings on which depreciation is being provided is pounds 3,631,738. 68 69 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- TANGIBLE FIXED ASSETS (CONTINUED)
Long Freehold leasehold Plant land and land and and Motor Total buildings buildings machinery vehicles The company pounds pounds pounds pounds pounds - ----------- ------ --------- --------- --------- -------- Cost At 1 October 1995 1,943,507 463,320 0 658,614 821,573 Additions 2,256,381 0 2,026,139 18,243 211,999 --------- ------- --------- ------- --------- 4,199,888 463,320 2,026,139 676,857 1,033,572 Disposals (187,690) 0 0 0 (187,690) --------- ------- --------- ------- --------- At 30 September 1996 4,012,198 463,320 2,026,139 676,857 845,882 --------- ------- --------- ------- --------- Depreciation At 1 October 1995 1,008,939 0 0 409,204 599,735 Provided in the year 159,862 0 0 55,128 104,734 --------- ------- --------- ------- --------- 1,168,801 0 0 464,332 704,469 Eliminated on disposals (156,382) 0 0 0 (156,382) --------- ------- --------- ------- --------- At 30 September 1996 1,012,419 0 0 464,332 548,087 --------- ------- --------- ------- --------- Net book amount at 30 September 1996 2,999,779 463,320 2,026,139 212,525 297,795 ========= ======= ========= ======= =========
69 70 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 SEPTEMBER 1996 - -------------------------------------------------------------------------------- 8 INVESTMENT IN SUBSIDIARY UNDERTAKINGS Pounds ------ Cost at 1 October 1996 and at 30 September 1996 2,128,906 ========= At 30 September 1996 the company held more than 20% of the allotted share capital of the following undertakings:
Country of registration (or incorporation) Description and Name of company and operation proportion held --------------- ---------------- -------------------- Joy & King Limited England Ordinary shares 100% Dolphin Leisure Limited England Ordinary shares 100% Mark Dowland Marine Limited England Ordinary shares 100% Mike Davies Leisure Limited England Ordinary shares 100% Galliots Limited England Ordinary shares 100% CMC Holding BV Holland Ordinary shares 100% CMC Holland BV* Holland Ordinary shares 100% CMC France SCP* France Ordinary shares 100% Schaft Estate BV* Holland Ordinary shares 100% Nieuwe Schaft Estate BV* Holland Ordinary shares 100% Caravanne Equipement SA* France Ordinary shares 100% SCI CMC* France Ordinary shares 100% CMC Camping Master Collection Germany Ordinary shares 100% Deutschland GmbH* CMC Belgium BVBA* Belgium Ordinary shares 100%
* Held by subsidiary undertaking CMC Holding BV. The nature of the subsidiary undertakings businesses are those of the supply of caravan, camping and marine accessories, with exception to Joy & King Limited and Galliots Limited who are dormant. As of 1 October 1996, following hive-up to its parent undertaking, Mark Dowland Marine Limited also became dormant. All of the subsidiary undertakings have been consolidated in the group financial statements. 9 STOCKS
The group The company 1996 1996 pounds pounds --------- ----------- Goods for resale 8,960,739 4,863,801 ========= =========
In the opinion of the directors the replacement cost of stocks is not materially different from their book value. 70 71 BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS TO THE FINANCIAL STATEMENTS (CONTINUED) THE YEAR ENDED 30 SEPTEMBER 1996 - -------------------------------------------------------------------------------- 10 DEBTORS
The group The company 1996 1996 pounds pounds --------- ----------- Trade debtors 5,456,922 3,971,188 Amounts owed by group undertakings 0 2,104,067 Other debtors 64,407 36,578 Prepayments and accrued income 253,735 75,855 --------- --------- 5,775,064 6,187,688 ========= =========
THE COMPANY Included above are the following amounts which are due after more than one year:
1996 pounds ------ Amounts owed by group undertakings 296,451 =======
11 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
The group The company 1996 1996 pounds pounds --------- ----------- Bank loans (see note 12) 615,895 366,554 Bank overdrafts 2,984,869 2,081,278 Trade creditors 2,914,495 2,167,803 Amounts owed to group undertakings 0 1,198,364 Current taxation 618,698 395,410 Social security and other taxes 751,317 601,188 Other creditors 485,110 485,110 Pension contributions 6,129 6,129 Accruals 564,392 234,317 --------- --------- 8,940,905 7,536,153 ========= =========
The bank overdrafts are secured by a fixed and floating charge over all the assets of the group and company. The overdraft of CMC Holding BV is also secured by an undertaking from H Burden Limited, that the equity capital of CMC Holding BV will be maintained at a level of at least NLG 500,000. 71 72 BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS TO THE FINANCIAL STATEMENTS (CONTINUED) THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 12 CREDITORS: AMOUNTS CALLING DUE AFTER MORE THAN ONE YEAR
The group The company 1996 1996 pounds pounds --------- ----------- Bank loans 5,340,634 2,687,832 Other loans 29,000 0 --------- --------- 5,369,634 2,687,832 ========= =========
1996 Bank loans (excluding current instalments) pounds ------------------------------------------ ------ THE GROUP Mortgage on freehold land and buildings at a fixed interest rate (30 September 1996 - 6.3% per annum), repayable in quarterly instalments of NLG 32,000 commencing 31 March 1987 680,597 Capital consolidation credit at variable interest rates (30 September 1996 - 6.1% per annum), repayable in quarterly instalments of NLG 3,335 commencing 31 March 1990 36,050 Mortgage on freehold land and buildings at 2.10% per quarter, repayable in quarterly instalments of NLG 7,182 77,724 Mortgage on freehold land and buildings at 1.56% per quarter, repayable in quarterly instalments of NLG 12,117 132,270 Long term bank loan at 3 month short term market interest rate plus 1.75%. Repayable in quarterly instalments of 15,000 FrFr commencing 19 October 1989 51,951 Long term bank loan at 3 month short term market interest rate plus 2%. Repayable in one instalment on 30 April 2001 371,083 Long term bank loan at fixed interest rate (30 September 1996 -7.0% per annum), repayable in quarterly instalments of NLG 13,350 from 31 December 1991 375,952
72 73 BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS TO THE FINANCIAL STATEMENTS (CONTINUED) THE YEAR ENDED 30 SEPTEMBER 1996 - -------------------------------------------------------------------------------- CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (CONTINUED)
1996 pounds -------- Long term bank loan at fixed interest rate (30 September 1996 - 7.0% per annum), repayable in quarterly instalments of NLG 21,360 from 30 June 1991 592,586 Long term loan of FrFr 1,800,000 established in October 1992, carrying interest at 10.85% per annum and repayable before 30 September 1999 222,649 Long term loan at variable interest rate (30 September 1996 - 4.9% per annum), repayable in quarterly instalments of NLG 25,000 from 31 December 1995 111,940 Bank loans included in the books of H Burden Limited (see below) 2,687,832 --------- 5,340,634 ========= 1996 THE COMPANY pounds ----------- ---------- Bank loan at 1.5% above LIBOR per annum repayable by quarterly instalments of pounds 25,000 687,832 Long term property loan with no fixed repayment date. Interest is currently charged at 1.5% above Base Rate 2,000,000 --------- 2,687,832 =========
The loans relating to the Dutch subsidiary, CMC Holding BV and its sub-group (note 8) are secured by the following: - a fixed charge over the freehold property of the CMC Holding BV for NLG 8,500,000 - state guarantees - a guarantee from H Burden Limited of 3,000,000 French Francs - assignment of stock - assignment of rental income - assignment of the shares held of CMC France SCP - assignment of all accounts receivable The amount payable by instalments within five years in respect of the group and the company primarily relate to a bank loan which is secured by way of a mortgage over the freehold property at Pytchley Lodge Road Industrial Estate, Kettering and a second mortgage over the company's leasehold land and buildings at Canley, Coventry. 73 74 BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS TO THE FINANCIAL STATEMENTS (CONTINUED) THE YEAR ENDED 30 SEPTEMBER 1996 - -------------------------------------------------------------------------------- 13 BORROWINGS Borrowings are repayable as follows:
The group The company 1996 1996 pounds pounds --------- ----------- Within one year Bank and other borrowings 3,600,764 2,447,832 After one and within two years: Bank and other borrowings 278,088 100,000 After two and within five years: Bank and other borrowings 1,390,683 300,000 After five years: Bank and other borrowings 3,700,863 2,287,832 --------- --------- 8,970,398 5,135,664 ========= =========
Borrowings repayable after five years comprise:
The group The company 1996 1996 pounds pounds --------- ----------- Bank loans 4,875,737 2,787,832 Other loans 29,000 0 --------- --------- 4,904,737 2,787,832 ========= =========
14 PROVISIONS FOR LIABILITIES AND CHARGES
Deferred Other taxation provisions Total The group pounds pounds pounds --------- -------- ---------- ------ At 1 October 1995 15,000 66,649 81,649 Utilised during the year (15,000) (34,017) (49,017) ------- ------- ------- At 30 September 1996 0 32,632 32,632 ======= ======= =======
74 75 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENT (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- PROVISIONS FOR LIABILITIES AND CHARGES (CONTINUED) Deferred taxation pounds -------- THE COMPANY At 1 October 1995 15,000 Utilised during the year (15,000) -------- At 30 September 1996 0 ======== 15 SHARE CAPITAL 1996 pounds ------ Authorised, allotted, called up and fully paid 5,670 ordinary shares of pounds 1 each 5,670 96,000 deferred shares of pounds 1 each 96,000 -------- 101,670 ======== DEFERRED SHARES The deferred shares are non-equity shares which carry no entitlement to a dividend. Holders of deferred shares have no right to notice of, or attendance to, or vote at any general meeting held by the company. Deferred shareholders have the right on a winding-up to receive the amount paid up for such shares. SHARE ISSUE AND SUBSEQUENT ACQUISITION OF COMPANY'S OWN SHARES 64 ordinary shares of pounds 1 each were issued at pounds 1,577.89 per share on 22 May 1996 in order that the company could acquire 64 ordinary shares of pounds 1 each, representing 0.06% of the called up capital. The total consideration received of pounds 100,985 was used to acquire the shares. No transfer is required to capital redemption reserve under the Companies Act 1985, as the proceeds of the fresh issue are applied by the company in making a purchase of its own shares. 75 76 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 16 SHARE PREMIUM ACCOUNT AND RESERVES Share premium Reserve on Profit and account consolidation loss account pounds pounds pounds ------------- ------------- ------------ THE GROUP At 1 October 1995 777,213 31,707 6,234,277 Retained profit for the year 0 0 1,034,485 Exchange differences 0 0 (115,450) ------- ------ --------- At 30 September 1996 777,213 31,707 7,153,312 ======= ====== ========= Share premium Reserve on Profit and account consolidation loss account pounds pounds pounds ------------- ------------- ------------ THE COMPANY At 1 October 1995 777,213 0 4,284,854 Retained profit for the year 0 0 801,875 ------- ----- --------- At 30 September 1996 777,213 0 5,086,729 ======= ===== ========= The cumulative amount of goodwill arising from acquisitions in current and prior years which has been written off to group reserves is pounds 31,278. 17 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 1996 pounds ------------ Profit for the financial year 1,124,525 Dividends (90,040) --------- 1,034,485 Exchange differences (115,450) Issue of shares 100,985 Purchase of own shares (100,985) --------- Net increase in shareholders' funds 919,035 Shareholders' funds at 1 October 1995 7,144,867 --------- Shareholders' funds at 30 September 1996 8,063,902 ========= 76 77 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 18 NET CASH INFLOW FROM OPERATING ACTIVITIES 1996 pounds ---------- Operating profit 2,439,618 Depreciation 387,930 Loss on sale of tangible fixed assets 1,576 Increase in stocks (1,397,739) Increase in debtors (712,737) Increase in creditors 614,247 Movements on provisions (30,038) ---------- Net cash inflow from operating activities 1,302,857 ========== 19 ANALYSIS OF CHANGES IN FINANCING Share capital Loans and Total financing (including finance lease net of cash at premium) obligations bank and in hand 1996 1996 1996 pounds pounds pounds ------------- ------------- ---------------- At 1 October 1995 878,883 4,293,256 5,172,139 Net cash inflow from financing 0 1,881,014 1,881,014 Foreign exchange rate changes 0 (188,741) (188,741) ------- --------- --------- At 30 September 1996 878,883 5,985,529 6,864,412 ======= ========= ========= 20 ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS 1996 pounds ----------- At 1 October 1995 (2,600,912) Net cash outflow (282,325) Effect of foreign exchange rate changes 5,530 ---------- At 30 September 1996 (2,877,707) ========== 77 78 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 21 ANALYSIS OF CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise: Change in 1996 1995 1996 pounds pounds pounds ----------- ----------- ----------- Cash at bank and in hand 107,162 72,709 34,453 Bank overdrafts (2,984,869) (2,673,621) (311,248) ---------- ---------- -------- (2,877,707) (2,600,912) (276,795) ========== ========== ======== 22 CAPITAL COMMITMENTS The group The company 1996 1996 pounds pounds --------- ----------- Contracted for but not provided in these financial statements 66,000 66,000 ====== ====== 23 CONTINGENT LIABILITIES THE GROUP There were no contingent liabilities at 30 September 1996. THE COMPANY H Burden Limited has given guarantees, in favour of Lloyds Bank plc, amounting to pounds 50,000 on behalf of Dolphin Leisure Limited and unlimited guarantees in favour of Joy & King Limited, Mike Davies Leisure Limited, Galliots Limited and Mark Dowland Marine Limited. The company has given a guarantee in favour of Lloyds Bank SA amounting to 3,000,000 French Francs on behalf of the Dutch subsidiary, CMC Holding BV and its subgroup (note 8). 78 79 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- 24 PENSION CONTRIBUTIONS Defined contribution scheme The group operates a defined contribution pension scheme for the benefit of the employees. The assets of the scheme are administered by trustees in a fund independent from those of the group. Defined benefit scheme The group operates a defined benefit scheme for the benefit of certain employees. The assets of the scheme are administered by trustees in a fund independent from those of the group. Pension costs are assessed in accordance with the advice of a qualified actuary using the accrued benefits method. The assumptions which have the most significant effect on the results of the valuation are a rate of interest of 8.5% per annum coupled with an allowance for increases in members' earnings of 8% per annum. The most recent actuarial valuation was as at 1 October 1995. The market value of the scheme assets at 1 October 1995 was pounds 965,579. The actuarial value of these funds shows the fund covers the value of the benefits that have accrued to members. The contributions of the group have been 9.5% since 1 October 1991. 25 LEASING COMMITMENTS At 30 September 1996 the group has annual non-cancellable operating lease commitments relating to the rental of land and buildings of pounds 99,000, expiring after five years. 26 POST BALANCE SHEET EVENT THE COMPANY On 1 October 1996 the trade, assets and liabilities of Mark Dowland Marine Limited, a wholly owned subsidiary, were transferred to H Burden Limited. 27 UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United Kingdom. The principles differ in a number of important respects from accounting principles generally accepted in the United States. With respect to the financial statements of the Company, as shown in the following summary, there were significant adjustments to net profit for the year ended 30 September 1996, and shareholders' equity as of 30 September 1996, which would have been required had accounting principles generally accepted in the United States been applied. 79 80 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAF")(CONTINUED) A DEPRECIATION As disclosed in note 7, no depreciation is provided or certain freehold buildings. For US GAAP purposes, these buildings are being depreciated over 30 years. B COST OF SALES AND GROSS PROFIT The UK GAAP financial statements do not disclose an amount for gross profit. Also, certain costs relating to the sale of products are classified as staff costs and operating charges and sales discounts are classified as operating charges. For US GAAP purposes, amounts would be reclassified resulting in cost of sales and gross profit as follows: Year ended 30 September 1995 pounds ------------ Sales 41,715,888 Cost of sales 33,821,602 ---------- Gross profit 7,894,286 Selling, general and administrative expenses 5,700,683 ---------- Operating profit 2,193,603 ========== This adjustment does not affect net profit or net shareholders' equity. C PROVISION FOR LIABILITIES AND CHARGES The UK GAAP balance sheet includes provision for liabilities and charges as other non-current liabilities. The nature of these items is such that for US GAAP purposes, they would be classified as current liabilities. Accordingly, as of 30 September 1996 pounds 32,632 has been reclassified as current liabilities. This adjustment does not affect net profit or net shareholders' equity. D RENT INCOME One of the company's foreign subsidiaries rents property and premises to third parties. The rental income from these activities amounted to pounds 202,718 for the year ended 30 September 1996. In the UK GAAP financial statements this amount has been classified as a reduction of operating expenses. Under US GAAP the rental income would be shown as non-operating income. This adjustment would not affect net profit or shareholders' equity. E DEFERRED INCOME TAXES As a result of the adjustments described above and other reconciling items, under US GAAP the company will record deferred taxes net of amounts provided under UK GAAP. 80 81 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP")(CONTINUED) F CUMULATIVE TRANSLATION ADJUSTMENT The consolidated group includes foreign subsidiaries located in The Netherlands, France, Germany and Belgium. For each of these entities, the local currency is the functional currency. As such, all translation adjustments are included in shareholders' equity. For UK GAAP purposes, this amount is included in profit and loss account (retained earnings). For US GAAP purposes, cumulative translation adjustment is shown separately within shareholders' equity. This adjustment does not affect net profit or net shareholders' equity. Cumulative translation adjustment pounds ---------------------- Balance at 30 September 1995 357,367 Changes in period (115,450) -------- Balance at 30 September 1996 241,917 ======== G The following reconciliations show the effect on net profit for the years ended 30 September 1996 of using the US GAAP basis of accounting for the matters outlined in items a to f above. Year ended 30 September 1996 pounds ------------ Net profit in accordance with UK GAAP 1,124,525 Adjustment for depreciation on freehold property (43,297) Adjustment for income taxes (73,000) --------- Net income as adjusted to US GAAP 1,008,228 ========= 81 82 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP")(CONTINUED) The following reconciliations show the effect on shareholders' equity for the years ended 30 September 1996, of using the US GAAP basis of accounting for the matters outlined in items a to f above. Year ended 30 September 1996 pounds ------------ Shareholders' equity in accordance with UK GAAP 8,063,902 Reconciliation adjustments: Depreciation (345,191) --------- Ending shareholders' equity in accordance with US GAAP 7,718,711 ========= The following information shows the resulting balance sheets as of 30 September 1996, of using the US GAAP basis of accounting for the matters outlined in items a to f above. Year ended 30 September 1996 pounds ------------ Cash 107,162 Receivables 5,456,922 Inventory 8,960,739 Other current assets 318,142 Property and equipment 7,218,917 Other assets 0 ---------- 22,061,882 ========== Current maturities 3,600,764 Other current liabilities 5,372,773 Long term debt 5,369,634 Shareholders' equity 7,718,711 ---------- 22,061,882 ========== 82 83 H BURDEN LIMITED AND ITS SUBSIDIARY UNDERTAKINGS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER 1996 - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS Under UK GAAP, taxation payments, returns on investments and servicing of finance are shown as a separate activity in the consolidated statements of cash flows. Under US GAAP, these amounts would be included in cash flows from operating activities. Also, the company reconciles the statement of cash flows to an amount that includes bank overdraft balances. Under US GAAP, changes to such balances re generally included as financing activities. 83 84 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Except for information concerning the Company's executive officers which is included in Part I of this Report, the information required by Item 10 is incorporated by reference from the Company's definitive proxy statement to be filed with the Commission on or before April 29, 1997 for the Company's 1997 annual shareholders' meeting. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference from the Company's definitive proxy statement to be filed with the Commission on or before April 29, 1997 for the Company's 1997 annual shareholders' meeting. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference from the Company's definitive proxy statement to be filed with the Commission on or before April 29, 1997 for the Company's 1997 annual meeting. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference from the Company's definitive proxy statement to be filed with the Commission on or before April 29, 1997 for the Company's 1997 annual shareholders' meeting. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) Financial Statements of The Coast Distribution System and Financial Statement Schedules: See Index to Financial Statements on Page 19. (2) Separate Financial Statements of HWH Corporation, a 50% or less owned person: See Index to Financial Statements of HWH Corporation on Page 19. (3) Separate Financial Statements of H. Burden Limited, a 50% or less owned person: see Index to Financial Statements of H. Burden Limited on Page 19. (4) Exhibits: 84 85
Exhibit Number ------- 3.1* Articles of Incorporation of the Company, as currently in effect. 3.2* Bylaws of the Company, as currently in effect. 10.1** Bank of America NT&SA Loan Agreement (Receivables and Inventory). 10.2** Bank of America NT&SA Master Note. 10.3** Bank of America NT&SA Security Agreement (Receivables and Inventory). 10.4** Bank of America NT&SA Security Agreement (Equipment and Farm Products). 10.5** Continuing Guarantee of Indebtedness of Coast R.V., Inc. by Coast Fabrication, Inc. 10.6** Continuing Guarantee of Indebtedness of Coast R.V., Inc. by Thomas R. McGuire. 10.7** 1983 Employee Incentive Stock Option Plan. 10.8** Industrial Lease Agreement dated May 30, 1978. 10.10** Standard Lease Agreement dated July 19, 1983. 10.11 Agreement of Purchase and Sale dated September 13, 1984, among the Company, Trailer Equipment Distributors, Inc. ("Tedco") and its Principal Shareholder. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated September 26, 1984.) 10.12 Lease Agreement dated September 26, 1984, by and between the Company and Tedco. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated September 26, 1984.) 10.13 Option Agreement, with form of Real Estate Purchase Agreement attached, relating to the warehouse and office facility being leased by the Company from Tedco. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated September 26, 1984.) 10.14 Bank Loan Agreement dated July 19, 1984, between the Company and Bank of America NT&SA. (Incorporated by reference to the same numbered exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1984.) 10.15 Agreement of Purchase and sale dated May 3, 1985, between the Company and Rogers Distributing Corporation. (Incorporated by reference to the same numbered exhibit in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1985.) 10.16 Stock Purchase Agreement dated April 29, 1985, among the Company and certain purchasers named therein. (Incorporated by reference to the same numbered exhibit in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1985.) 10.17* Amended and Restated 1983 Employee Stock Option Plan.
85 86 10.18 Agreement of Purchase and Sale dated June 25, 1985, between Coast R.V., Inc. and Coachmen Industries, Inc. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated June 28, 1985.) 10.19 Loan and Security Agreement dated June 28, 1985, between Coast R.V., Inc. and Mellon Financial Services Corporation. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated June 28, 1985.) 10.20 Note Purchase Agreement dated June 27, 1985 relating to the Company's 11.5% Convertible Subordinated Notes due 1993. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated June 28, 1985.) 10.21 Amendment No. 2 dated February 29, 1988 to Loan and Security Agreement between Coast R.V., Inc. and Mellon Financial Services Corporation. (Incorporated by reference to the same numbered exhibit in the Company's Annual Report on Form 10-K dated March 28, 1988.) 10.22 Nonqualified Stock Option Plan - 1987. (Incorporated by reference to Exhibit 4.1 in the Company's Registration Statement on Form S-8 (File No. 33-15322) filed with the Commission on June 25, 1987.) 10.23 1987 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 4.1 in the Company's Registration Statement on Form S-8 (File No. 33-18696) filed with the Commission on December 1, 1987.) 10.24 Agreement of Purchase and Sale of Assets dated as of March 24, 1988 entered into between the Company and SunWest Wholesale Distributors. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated April 1, 1988.) 10.25 Note Agreement dated as of March 15, 1988 between the Company and Massachusetts Mutual Life Insurance Company and MassMutual Corporate Investors. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 10-K dated April 1, 1988.) 10.26 Stock Purchase Agreement dated as of May 22, 1989 relating to the acquisition of shares of HWH Corporation. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated May 24, 1989.) 10.27 Letter Agreement between Company and Furman Selz relating to HWH Shares. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated May 24, 1989.) 10.28 Note Agreement dated as of June 1, 1989 among the Company and Massachusetts Mutual Life Insurance Company, MassMutual Participation Investors, and MassMutual Corporate Investors, relating to sale and issuance of $14,000,000 of 10-year Subordinated Notes and $1,000,000 of 6-year Convertible Subordinated Notes. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated August 17, 1989.) 86 87 10.29 Asset Purchase Agreement dated as of August 17, 1989 which provides for the acquisition of substantially all of the assets of Griffin's Outboard Marine, Inc. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated August 17, 1989.) 10.30 Amendment dated September 22, 1989 to Griffin's Outboard Marine Asset Purchase Agreement. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated September 22, 1989.) 10.31 1993 Stock Option and Incentive Plan. (Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (No. 33-64582) filed with the Commission on June 17, 1993.) 10.32 Share Option Agreement dated as of March 19, 1993, among the Company, H. Burden Limited ("Burden) and the shareholders of Burden, pursuant to which the Company has acquired common shares, and may acquire additional common shares, of Burden. (Incorporated by reference from Exhibit 2.1 to the Company's Current Report on Form 8-K dated April 29, 1994.) 10.33 Second Amended and Restated Loan Agreement between the Company and Mellon Bank, together with First Amendment thereto (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1995.) 10.34 Distribution Agreement dated October 11, 1995 between the Company and Recreation Vehicle Products, Inc. (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1995). 11.1 Statement re Computation of Earnings per Share 21 Subsidiaries. 23.1 Consent of Grant Thornton, Independent Certified Public Accountants, re Consolidated Financial Statements of The Coast Distribution System. 23.2 Consent of Grant Thornton, Independent Certified Public Accountants, re Financial Statements of HWH Corporation. 23.3 Consent of Grant Thornton, Independent Certified Public Accountants, re Consolidated Financial Statements of H. Burden Limited. 24 Power of Attorney - Included on Signature Page 27 Financial Data Sheet 87 88 Compensation Plans and Arrangements - ----------------------------------- 1983 Employee Stock Option Plan, as amended -- See Exhibit 10.17 above. Nonqualified Stock Option Plan - 1987 -- See Exhibit 10.22 above. 1987 Employee Stock Purchase Plan, as amended -- See Exhibit 10.32 above. 1993 Stock Option and Incentive Plan -- See Exhibit 10.31 above. - ---------------- * Incorporated by reference to the same numbered exhibit in the Company's Registration Statement on Form S-1 (File No. 33-4393) filed with the Commission on March 28, 1986. ** Incorporated by reference to the same numbered exhibit in the Company's Registration Statement No. 2-86420LA on Form S-18. (b) There were no reports on Form 8-K filed by the Company during the quarter ended December 31, 1996. 88 89 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: March 28, 1997 THE COAST DISTRIBUTION SYSTEM By: /s/ Thomas R. McGuire ------------------------------------- Thomas R. McGuire, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons in the capacities and on the dates indicated. Each person whose signature to this Report appears below hereby appoints Thomas R. McGuire, Sandra A. Knell and David Berger, or any of them, to act severally as attorneys-in-fact and agents, with power of substitution and resubstitution, for each of them, to sign on his behalf, individually and in the capacities stated below, and to file any and all amendments to this Annual Report, which amendment or amendments may make changes and additions as such attorneys-in-fact may deem necessary or appropriate.
Signature Title Date --------- ----- ---- /s/ Thomas R. McGuire Chairman of the Board of March 28, 1997 - -------------------------------------- Directors, Chief Executive Thomas R. McGuire Officer and Director /s/ Sandra A. Knell Executive Vice President March 28, 1997 - -------------------------------------- (Principal Financial and Sandra A. Knell Principal Accounting Officer) /s/ John E. Turco Director March 28, 1997 - -------------------------------------- John E. Turco /s/ Louis B. Sullivan Director March 28, 1997 - -------------------------------------- Louis B. Sullivan Director March , 1997 - -------------------------------------- Robert S. Throop /s/ Ben A. Frydman Director March 28, 1997 - -------------------------------------- Ben A. Frydman /s/ Brian P. Friedman Director March 28, 1997 - -------------------------------------- Brian P. Friedman
S-1 90 INDEX TO EXHIBITS
Sequentially Exhibit Numbered Number Page ------- ------------ 3.1* Articles of Incorporation of the Company, as currently in effect. -- 3.2* Bylaws of the Company, as currently in effect. -- 10.1** Bank of America NT&SA Loan Agreement (Receivables and Inventory). -- 10.2** Bank of America NT&SA Master Note. -- 10.3** Bank of America NT&SA Security Agreement (Receivables and Inventory). -- 10.4** Bank of America NT&SA Security Agreement (Equipment and Farm Products). -- 10.5** Continuing Guarantee of Indebtedness of Coast R.V., Inc. by Coast Fabrication, Inc. -- 10.6** Continuing Guarantee of Indebtedness of Coast R.V., Inc. by Thomas R. McGuire. -- 10.7** 1983 Employee Incentive Stock Option Plan. -- 10.8** Industrial Lease Agreement dated May 30, 1978. -- 10.10** Standard Lease Agreement dated July 19, 1983. -- 10.11 Agreement of Purchase and Sale dated September 13, 1984, among the Company, Trailer Equipment Distributors, Inc. ("Tedco") and its Principal Shareholder. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated September 26, 1984.) -- 10.12 Lease Agreement dated September 26, 1984, by and between the Company and Tedco. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated September 26, 1984.) -- 10.13 Option Agreement, with form of Real Estate Purchase Agreement attached, relating to the warehouse and office facility being leased by the Company from Tedco. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated September 26, 1984.) --
91
Sequentially Exhibit Numbered Number Page ------- ------------ 10.14 Bank Loan Agreement dated July 19, 1984, between the Company and Bank of America NT&SA. (Incorporated by reference to the same numbered exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1984.) -- 10.15 Agreement of Purchase and sale dated May 3, 1985, between the Company and Rogers Distributing Corporation. (Incorporated by reference to the same numbered exhibit in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1985.) -- 10.16 Stock Purchase Agreement dated April 29, 1985, among the Company and certain purchasers named therein. (Incorporated by reference to the same numbered exhibit in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1985.) -- 10.17* Amended and Restated 1983 Employee Stock Option Plan. -- 10.18 Agreement of Purchase and Sale dated June 25, 1985, between Coast R.V., Inc. and Coachmen Industries, Inc. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated June 28, 1985.) -- 10.19 Loan and Security Agreement dated June 28, 1985, between Coast R.V., Inc. and Mellon Financial Services Corporation. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated June 28, 1985.) -- 10.20 Note Purchase Agreement dated June 27, 1985 relating to the Company's 11.5% Convertible Subordinated Notes due 1993. (Incorporated by reference to the same numbered exhibit in the Company's Current Report on Form 8-K dated June 28, 1985.) -- 10.21 Amendment No. 2 dated February 29, 1988 to Loan and Security Agreement between Coast R.V., Inc. and Mellon Financial Services Corporation. (Incorporated by reference to the same numbered exhibit in the Company's Annual Report on Form 10-K dated March 28, 1988.) -- 10.22 Nonqualified Stock Option Plan - 1987. (Incorporated by reference to Exhibit 4.1 in the Company's Registration Statement on Form S-8 (File No. 33-15322) filed with the Commission on June 25, 1987.) -- 10.23 1987 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 4.1 in the Company's Registration Statement on Form S-8 (File No. 33-18696) filed with the Commission on December 1, 1987.) -- 10.24 Agreement of Purchase and Sale of Assets dated as of March 24, 1988 entered into between the Company and SunWest Wholesale Distributors. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated April 1, 1988.) --
92
Sequentially Exhibit Numbered Number Page ------- ------------ 10.25 Note Agreement dated as of March 15, 1988 between the Company and Massachusetts Mutual Life Insurance Company and MassMutual Corporate Investors. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 10-K dated April 1, 1988.) -- 10.26 Stock Purchase Agreement dated as of May 22, 1989 relating to the acquisition of shares of HWH Corporation. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated May 24, 1989.) -- 10.27 Letter Agreement between Company and Furman Selz relating to HWH Shares. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated May 24, 1989.) -- 10.28 Note Agreement dated as of June 1, 1989 relating to sale and issuance of $14,000,000 of 10-year Subordinated Notes and $1,000,000 of 6-year Convertible Subordinated Notes. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated August 17, 1989.) -- 10.29 Asset Purchase Agreement dated as of August 17, 1989 which provides for the acquisition of substantially all of the assets of Griffin's Outboard Marine, Inc. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated August 17, 1989.) -- 10.30 Amendment dated September 22, 1989 to Griffin's Outboard Marine Asset Purchase Agreement. (Incorporated by reference to the same numbered exhibit to the Company's Current Report on Form 8-K dated September 22, 1989.) -- 10.31 1993 Stock Option and Incentive Plan. (Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (File No. 33-64582) filed with the Commission on June 17, 1993.) -- 10.32 Share Option Agreement dated as of March 19, 1993, among the Company, H. Burden Limited ("Burden) and the shareholders of Burden, pursuant to which the Company has acquired common shares, and may acquire additional common shares, of Burden. (Incorporated by reference from Exhibit 2.1 to the Company's Current Report on Form 8-K dated April 29, 1994.) -- 10.33 Second Amended and Restated Loan Agreement between the Company and Mellon Bank, together with First Amendment thereto (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1995.) -- 10.34 Distribution Agreement dated October 11, 1995 between the Company and Recreation Vehicle Products, Inc. (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1995). -- 11.1 Statement re Computation of Earnings per Share
93
Sequentially Exhibit Numbered Number Page ------- ------------ 21 Subsidiaries. 23.1 Consent of Grant Thornton, Independent Certified Public Accountants, re Consolidated Financial Statements of The Coast Distribution System. 23.2 Consent of Grant Thornton, Independent Certified Public Accountants, re Financial Statements of HWH Corporation. 23.3 Consent of Grant Thornton, Independent Certified Public Accountants, re Consolidated Financial Statements of H. Burden Limited. 24 Power of Attorney - Included on Signature Page. -- 27 Financial Data Sheet.
EX-11.1 2 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 THE COAST DISTRIBUTION SYSTEM Computation of Loss Per Share Year Ended December 31, 1996
Primary Fully Diluted Loss Loss Per Share Per Share ---------- ------------- I. Weighted Average Shares Outstanding 5,198,402 5,198,402 ========== ========== II. Net Loss $ (123,000) $ (123,000) Dividends paid on preferred stock of subsidiary (18,000) (18,000) ---------- ---------- Net loss attributable to common shareholders $ (141,000) $ (141,000) ========== ========== Net loss per weighted average shares outstanding $(0.03) $(0.03) ========== ==========
EX-21 3 SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT*
Name State of Incorporation ---- ---------------------- Subsidiaries Incorporated in the United States: - ----------------------------------------------- C/P Products Corp. . . . . . . . . . . . . . . . . . . Indiana United Sales & Warehouse of Texas, Inc. . . . . . . . . Texas Foreign Subsidiaries: - --------------------- The Coast Distribution System (Canada) Inc. . . . . . . Quebec, Canada
- ------------------- * In accordance with the descriptions set forth in Paragraph (b) of Item 601 of Regulation S-K, there have been omitted those subsidiaries that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of December 31, 1995. EX-23.1 4 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated March 3, 1997, accompanying the consolidated financial statements and schedule of The Coast Distribution System and Subsidiaries (the Company) included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. We hereby consent to the incorporation by reference of said report in the Company's Registration Statements on Forms S-8 (File Nos. 33-10769, 33-15322, 33-18696, 33-64582 and 33-86072, effective December 12, 1986, June 25, 1987, December 1, 1987, June 17, 1993 and November 8, 1994, respectively) and on Form S-3 (File No. 33-33780, effective March 9, 1990). GRANT THORNTON LLP /s/ Grant Thornton LLP San Jose, California March 3, 1997 EX-23.2 5 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated February 14, 1997, accompanying the financial statements and schedule of HWH Corporation included in the Annual Report of The Coast Distribution System and Subsidiaries (the "Company") on Form 10-K for the year ended December 31, 1996. We hereby consent to the incorporation by reference of said report in the Company's Registration Statements on Forms S-8 (File Nos. 33-10769, 33-15322, 33-18696, 33-64582 and 33-86072, effective December 12, 1986, June 25, 1987, December 1, 1987, June 17, 1993, and November 8, 1994, respectively) and on Form S-3 (File No. 33-33780, effective March 9, 1990). /s/ GRANT THORNTON LLP San Jose, California March 25, 1997 EX-23.3 6 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated 12 December 1996, accompanying the financial statements and schedules of H Burden Limited and Subsidiaries included in the Annual Report of The Coast Distribution System and Subsidiaries (the "Company") on Form 10-K for the year ended 31 December 1996. We hereby consent to the incorporation by reference of said report in the Company's Registration Statements on Forms S-8 (File Nos. 33-10769, 33-15322, 33-18696, 33-64582 and 33-86072, effective 12 December 1986, 25 June 1987, 1 December 1987, 17 June 1993 and 8 November 1994 respectively) and on Form S-3 (File No. 33-33780, effective 9 March 1990). /s/ GRANT THORNTON - ----------------------- GRANT THORNTON KETTERING ENGLAND March 27, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF, AND THE STATEMENT OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1996 INCLUDED IN REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH BALANCE SHEET AND STATEMENT OF INCOME AND THE NOTES THERETO. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 214 0 13,285 1,086 43,193 60,039 5,355 0 88,442 14,400 33,771 473 0 19,440 20,010 88,442 139,286 139,286 118,361 139,886 (3,883) 0 3,600 (317) (194) (123) 0 0 0 (123) (.03) (.03)
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