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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For
 
the quarterly period ended June 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For
 
the transition period from                                                                       to                                                                       
 
Commission File Number 1-9511
 
THE COAST DISTRIBUTION SYSTEM, INC.
(Exact name of Registrant as specified in its charter)
 
 
DELAWARE
     
94-2490990
(State or other jurisdiction
of incorporation or organization)
     
(I.R.S. Employer
Identification Number)
        
350 Woodview Avenue, Morgan Hill, California
     
95037
(Address of principal executive offices)
     
(Zip Code)
 
(408) 782-6686
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed, since last year)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
 
APPLICABLE ONLY TO CORPORATE ISSUERS:
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
4,390,864 shares of Common Stock as of August 1, 2002
 
 
 

 
PART I—FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
 
THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(Dollars in thousands)
    
June 30,
2002
     
December 31,
2001
  
    
(unaudited)
         
ASSETS
                  
CURRENT ASSETS
                  
Cash
   
$
1,165
 
   
$
1,001
 
Accounts receivable – net of allowances of $1,125 and $971, respectively
   
 
24,131
 
   
 
12,760
 
Inventories
   
 
31,431
 
   
 
32,356
 
Other current assets
   
 
1,616
 
   
 
1,980
 
    
  
Total current assets
   
 
58,343
 
   
 
48,097
 
PROPERTY, PLANT, AND EQUIPMENT—NET
   
 
2,574
 
   
 
2,137
 
OTHER ASSETS
   
 
8,900
 
   
 
10,002
 
    
  
    
$
69,817
 
   
$
60,236
 
    
  
LIABILITIES
                  
CURRENT LIABILITIES
                  
Current maturities of long-term obligations
   
$
35
 
   
$
26
 
Accounts payable – trade
   
 
9,824
 
   
 
10,603
 
Other current liabilities
   
 
2,052
 
   
 
2,241
 
    
  
Total current liabilities
   
 
11,911
 
   
 
12,870
 
                   
LONG-TERM OBLIGATIONS
                  
Secured note payable to bank
   
 
30,696
 
   
 
21,785
 
Other long-term liabilities
   
 
257
 
   
 
206
 
    
  
    
 
30,953
 
   
 
21,991
 
                   
STOCKHOLDERS’ EQUITY
                  
Preferred stock, $.001 par value: 5,000,000 shares authorized: none issued and outstanding:
   
 
—
 
   
 
—
 
Common stock, $.001 par value: 20,000,000 shares authorized; 4,390,864 and 4,366,880 issued, respectively
   
 
16,837
 
   
 
16,823
 
Accumulated comprehensive loss
   
 
(732
)
   
 
(968
)
Retained earnings
   
 
10,848
 
   
 
9,520
 
    
  
    
 
26,953
 
   
 
25,375
 
    
  
    
$
69,817
 
   
$
60,236
 
    
  
The accompanying notes are an integral part of these statements.

2

 
THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
 
    
Three Months Ended
June 30,
     
Six Months Ended
June 30,
  
    
2002
     
2001
     
2002
     
2001
  
Net sales
   
$
44,885
 
   
$
40,273
 
   
$
83,082
 
   
$
78,128
 
Cost of sales, including distribution costs
   
 
37,803
 
   
 
34,463
 
   
 
68,876
 
   
 
65,969
 
    
  
  
  
Gross profit
   
 
7,082
 
   
 
5,810
 
   
 
14,206
 
   
 
12,159
 
Selling, general and administrative expenses
   
 
5,535
 
   
 
6,153
 
   
 
10,881
 
   
 
11,935
 
    
  
  
  
Operating income (loss)
   
 
1,547
 
   
 
(343
)
   
 
3,325
 
   
 
224
 
Other income (expense)
                                    
Interest
   
 
(462
)
   
 
(711
)
   
 
(793
)
   
 
(1,373
)
Other
   
 
(11
)
   
 
32
 
   
 
(10
)
   
 
48
 
    
  
  
  
    
 
(473
)
   
 
(679
)
   
 
(803
)
   
 
(1,325
)
    
  
  
  
Income (loss) before income taxes
   
 
1,074
 
   
 
(1,022
)
   
 
2,522
 
   
 
(1,101
)
Income tax provision (benefit)
   
 
465
 
   
 
(289
)
   
 
1,194
 
   
 
(318
)
    
  
  
  
NET INCOME (LOSS)
   
$
609
 
   
$
(733
)
   
$
1,328
 
   
$
(783
)
    
  
  
  
Net income (loss) per share:
                                    
Basic
   
$
0.14
 
   
$
(0.17
)
   
$
0.30
 
   
$
(0.18
)
    
  
  
  
Diluted
   
$
0.14
 
   
$
(0.17
)
   
$
0.30
 
   
$
(0.18
)
    
  
  
  
Shares used in computing net income (loss) per share:
                                    
Basic
   
 
4,390,864
 
   
 
4,366,890
 
   
 
4,383,046
 
   
 
4,353,432
 
Diluted
   
 
4,509,975
 
   
 
4,366,890
 
   
 
4,464,524
 
   
 
4,353,432
 
 
The accompanying notes are an integral part of these statements.

3

 
THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 
Six months ended June 30,
(Unaudited)
 
    
2002
     
2001
  
Cash flows from operating activities:
                  
Net income (loss)
   
$
1,328
 
   
$
(783
)
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
                  
Depreciation and amortization
   
 
400
 
   
 
645
 
Changes in assets and liabilities:
                  
Increase in accounts receivable
   
 
(11,371
)
   
 
(13,965
)
Decrease (increase) in inventories
   
 
925
 
   
 
(3,837
)
Decrease (increase) in prepaids and other current assets
   
 
364
 
   
 
(49
)
Increase (decrease) in accounts payable
   
 
(779
)
   
 
9,333
 
Decrease in other current liabilities
   
 
(189
)
   
 
(54
)
    
  
Total adjustments
   
 
(10,650
)
   
 
(7,927
)
    
  
Net cash used in operating activities
   
 
(9,322
)
   
 
(8,710
)
Cash flows from investing activities:
                  
Capital expenditures
   
 
(823
)
   
 
(154
)
Decrease in other assets
   
 
1,088
 
   
 
381
 
    
  
Net cash provided by investing activities
   
 
265
 
   
 
227
 
Cash flows from financing activities:
                  
Net borrowings under line-of-credit agreement
   
 
8,911
 
   
 
8,942
 
Net borrowings (repayments) of other long-term debt
   
 
60
 
   
 
(3
)
Issuance of common stock pursuant to employee stock option and purchase plans
   
 
14
 
   
 
23
 
Redemption of redeemable preferred stock of subsidiary
   
 
—
 
   
 
(48
)
    
  
Net cash provided by financing activities
   
 
8,985
 
   
 
8,914
 
Effect of exchange rate changes on cash
   
 
236
 
   
 
(60
)
    
  
NET INCREASE IN CASH
   
 
164
 
   
 
371
 
Cash beginning of period
   
 
1,001
 
   
 
539
 
    
  
Cash end of period
   
$
1,165
 
   
$
910
 
    
  
 
The accompanying notes are an integral part of these statements.

4

 
THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 
1.
 
The accompanying condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information (“GAAP”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments and accruals) necessary for a fair presentation of the Company’s financial position as of June 30, 2002 and the results of its operations and cash flows for the three and six months ended June 30, 2002 and 2001. The accounting policies followed by the Company are set forth in Note A to the Company’s financial statements in its Annual Report on Form 10-K for its fiscal year ended December 31, 2001 and additional information regarding those policies is set forth in Item 2 of this Report, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
2.
 
The Company’s business is seasonal and its results of operations for the three and six months ended June 30, 2002 and 2001 are not necessarily indicative of the results to be expected in the subsequent quarters of or for the full year ending December 31, 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Seasonality and Inflation” in Item 2 of Part I of this Report.
 
3.
 
Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings 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 the exercise of stock options (using the treasury stock method). Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. For the three and six month periods ended June 30, 2002, 430,500 common shares issuable on exercise of stock options were excluded from the computation of diluted earnings per share because their exercise prices were greater than the average market price of the Company’s common stock during these periods. For the three and six month periods ended June 30, 2001, a total of 751,500 common shares issuable on exercise of stock options were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.
 
    
Three Months Ended
June 30,
     
Six Months Ended
June 30,
  
    
2002
   
2001
     
2002
   
2001
  
    
(In thousands)
  
Numerator:
                                
Net income (loss)
   
$
609
   
$
(733
)
   
$
1,328
   
$
(783
)
Denominator: