Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2014

Principles of Consolidation

Principles of Consolidation. The Company consolidates the accounts of its wholly-owned subsidiaries, The Coast Distribution System (Canada) Inc. (“Coast Canada”) and Eur-Asia Recreational Vehicle Accessories Taiwan Company (“Coast Taiwan”). Investments in unconsolidated affiliates are accounted for by the equity method. All material intercompany transactions have been eliminated.

Inventories

Inventories. All of our inventory consists of finished goods, which are comprised of replacement parts, supplies and accessories held for resale. Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or net realizable value. We regularly assess the appropriateness of the inventory valuations with particular attention to obsolete, slow-moving and non-saleable inventory. At December 31, 2014 and 2013, our reserves for excess and obsolete inventory were $1,395,000 and $1,454,000, respectively.

Property and Equipment

Property and Equipment. Property 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 15 years.

Revenue Recognition

Revenue Recognition. Revenue from sales of products is recognized upon shipment. Shipping and handling costs that are billed to our customers are included in revenue. We provide our customers with a limited right of return. We establish an allowance for potential returns which reduces the amounts of our reported sales. We estimate the allowance based on historical experience with returns of like products and current economic data, which can affect the level at which customers submit product returns.

Segment Reporting

Segment Reporting. We have one operating segment, which is the distribution of replacement parts, supplies and accessories principally for recreational vehicles. We distribute those products from 17 distribution centers located throughout the United States and Canada. No single customer accounted for 10% or more of our net sales in 2014, 2013 or 2012.

Long-Lived Assets

Long-Lived Assets. Long-lived assets are reviewed for possible impairment at least annually or, more frequently, if and when events or changes in circumstances indicate the carrying amount of any of those assets may not be recoverable in full, by comparing the fair value of the long-lived asset to its carrying amount.

Foreign Currency Translation

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 stockholders’ equity. The functional currency of our Canadian subsidiary is the Canadian dollar.

Derivative Financial Instruments

Derivative Financial Instruments. We sometimes use derivatives to partially offset our exposure to fluctuations in certain foreign currencies. We do not enter into derivatives for speculative or trading purposes. Derivatives are recorded at fair value on the balance sheet and gains or losses resulting from changes in fair value of a derivative are recorded based on the derivative’s hedge designation.

Cash and Cash Equivalents

Cash and Cash Equivalents. Cash and cash equivalents include highly liquid instruments with maturities of three months or less and overnight investments funded with cash from sweep accounts maintained by the Company at one or more banks.

Income Taxes

Income Taxes. We provide 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 deductions and tax loss carryforwards and future net tax effects resulting from temporary differences between the book and tax bases of assets and liabilities, using enacted tax rates. A valuation allowance is established against deferred tax assets if and to the extent we determine that it is more likely, than not, that the deferred tax assets will not be realized in full.

Use of Estimates

Use of Estimates. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), we are 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.

Earnings (Loss) per Share

Earnings (Loss) per Share. Basic earnings (loss) per share for any period are computed using the weighted average number of common shares outstanding during that period. Unvested restricted shares are excluded from outstanding shares for purposes of this calculation. Diluted loss per share are computed using the weighted average number of common and potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise of stock options and vested restricted shares (using the treasury stock method). Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive.

Options to purchase 101,000, 279,000 and 433,000 shares in 2014, 2013 and 2012, respectively, were excluded from the computation of diluted earnings (loss) per share because their inclusion in that computation would have been anti-dilutive. In addition, 268,985, 318,660 and 312,501 restricted shares were excluded from the computation of diluted loss per share in 2014, 2013 and 2012, respectively, because their inclusion in that computation would have been anti-dilutive.

Fair Value Measurement of Financial Assets and Liabilities

Fair Value Measurement of Financial Assets and Liabilities. We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring the fair values of financial and non-financial assets and liabilities. These tiers consist of:

Level 1:	Quoted market prices in active markets for identical assets or liabilities
Level 2:	Observable market based inputs or unobservable inputs that are corroborated by market data
Level 3:	Unobservable inputs that are not corroborated by market data

The following tables summarize the fair value measurements (in thousands of dollars) of our financial assets:

	At December 31, 2014
	Total		Quoted Market prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash equivalents – Overnight Investments	$	—	$	—	$	—
			At December 31, 2013
	Total		Quoted Market prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash equivalents – Overnight Investments	$	1,623	$	—	$	1,623

The Company had no level 3 assets or liabilities at December 31, 2014 and 2013.

We use the income approach to value derivatives, using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single discounted present amount, assuming that participants are motivated but not compelled to transact. Level 2 inputs are limited to quoted prices that are observable for the asset and liabilities, which include interest rate and credit risk. We have used mid-market pricing as a practical expedient for fair value measurements.

Accounts Receivable and the Allowance for Doubtful Accounts

Accounts Receivable and the Allowance for Doubtful Accounts. The majority of our accounts receivable are due from RV dealers, supply stores and service centers. Credit is extended to a customer based on evaluation of its financial condition and, generally, collateral is not required. We maintain allowances for doubtful accounts for estimated losses that would result from the inability of customers to make required payments on their accounts. We regularly evaluate the adequacy of the allowance for doubtful accounts. We estimate potential losses on our accounts receivable on the basis of the aging of accounts receivable balances, a review of significant past due accounts, and our historical write-off experience, net of recoveries. If the financial condition of our customers were to deteriorate, whether due to deteriorating economic conditions generally or otherwise, adversely affecting their ability to make payments, it could become necessary for us to make additional provisions to increase the allowance for doubtful accounts.

Stock-Based Compensation

Stock-Based Compensation. We account for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) 718, Stock Compensation, which requires the recognition of the fair value of compensation paid in stock or other equity instruments to employees or directors as an expense in the calculation of net earnings (loss). We generally recognize stock-based compensation expense over the period in which the employee or director is required to provide service, which is generally over the vesting period of the individual equity instruments. However, if the vesting of an equity award is conditioned on the achievement of a financial or other performance goal, we do not recognize stock-based compensation expense unless and until we have concluded that achievement of the performance goal has become probable. If we have made such a determination, but the performance goal is not ultimately achieved, due to subsequent events or circumstances, then the previously recognized stock-based compensation expense would be reversed.

Warranty Costs

Warranty Costs. We generally do not independently warrant the products that we distribute. Instead, in most instances, the manufacturers warrant their products and allow us to return defective products, including those that have been returned to us by our customers. However, we sell a line of portable generators under a product supply arrangement which obligates us to provide warranty services for these products and provides for us to share the costs of providing those services with the manufacturer. The warranty period is 24 months following the sale of the product to a retail customer. Accordingly, we maintain a reserve for warranty claims we may receive with respect to generators that have been sold to consumers. At December 31, 2014 and 2013, those warranty reserves totaled $762,000 and $737,000, respectively. We periodically increase the warranty reserve to replenish it after it has been reduced by warranty claims charged against it or to increase the reserve as a result of unanticipated increases in claims or material increases in the number of generators that we have sold. Those increases are effectuated by means of a provision for warranty claims which is recorded as a component of our costs of sales in our consolidated statements of operations and, as a result, increases in the warranty reserve can result in a reduction in our income for the period during which such provisions are made.

Although we do not maintain insurance for product warranty claims, we do maintain insurance to protect us against product liability claims relating to all of the products we distribute and sell, including the generator products.

Recent Accounting Pronouncements

Recent Accounting Pronouncements. With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2014 that we believe are of significance, or potential significance, to the Company based on our current operations.

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-12, which clarifies the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. ASU 2014-12 is effective for annual and interim periods beginning after December 15, 2015 with early adoption permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts With Customers, a new standard on revenue recognition. The new standard will supersede existing revenue recognition guidance and apply to all entities that enter into contracts to provide goods or services to customers. The guidance also addresses the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as real estate, and property and equipment. The new standard will become effective for us beginning in the first quarter of 2017 and can be adopted either retrospectively to each reporting period presented or as a cumulative effect adjustment as of the date of adoption. We are currently evaluating the impact of adopting this new guidance on our consolidated financial statements.

In April 2014, the FASB issued a new standard relating to the reporting and disclosure of discontinued operations, which changes the criteria and requires additional disclosures for reporting discontinued operations. This new standard will be effective for all disposals of components of an entity that occur within annual periods beginning on or after December 15, 2015. We do not expect this new standard to have a material impact on our consolidated financial statements or disclosures in our financial statements.