COAST DISTRIBUTION SYSTEM INC - 10-Q Quarterly Report

UNITED STATES

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 March 31, 2004

¨	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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES ¨ NO x

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.

4,545,913 shares of Common Stock as of May 3, 2004.

THE COAST DISTRIBUTION SYSTEM, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2004

TABLE OF CONTENTS


			Page No.

Part I. Financial Information

	Item 1. Financial Statements		1

		Condensed Consolidated Interim Balance Sheets March 31, 2004 (unaudited) and December 31, 2003	1

		Condensed Consolidated Interim Statements of Earnings for the three months ended March 31, 2004 and 2003 (unaudited)	2

		Condensed Consolidated Interim Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (unaudited)	3

		Notes to Condensed Consolidated Financial Statements (unaudited)	4

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		7
		Accounting Policies and Estimates	7
		General	7
		Critical Accounting Policies	7
		Results of Operations	9
		Financial Condition, Liquidity and Capital Resources	11
		Forward Looking Information and Factors that Could Affect Our Future Financial Performance	12

	Item 3. Quantitative and Qualitative Disclosures About Market Risk		13

	Item 4. Controls and Procedures		13

Part II. Other Information

	Item 6. Exhibits and Reports on Form 8-K		14

SIGNATURES			S-1

EXHIBITS

	Exhibit 31.1 Certifications of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

	Exhibit 31.2 Certifications of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

	Exhibit 32.1 Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002

	Exhibit 32.2 Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS

(Dollars in Thousands)


	March 31, 2004		December 31, 2003
	(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	819	$	991
Accounts receivable – net of allowances of $2,144 and $981 as of March 31, 2004 and December 31, 2003, respectively		35,426		12,799
Inventories		42,288		41,352
Other current assets		3,383		3,947

Total current assets		81,916		59,089
PROPERTY, PLANT, AND EQUIPMENT, NET		2,264		2,264
OTHER ASSETS		695		748

	$	84,875	$	62,101

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations	$	46	$	48
Accounts payable		22,646		10,613
Accrued liabilities		3,630		3,743

Total current liabilities		26,322		14,404
LONG-TERM OBLIGATIONS		33,571		23,799
STOCKHOLDERS’ EQUITY
Preferred stock, $.001 par value: 2,000,000 shares authorized: none issued or outstanding:		—		—
Common stock, $.001 par value: 10,000,000 shares authorized; 4,535,579 and 4,520,098 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively		17,059		17,126
Accumulated other comprehensive income		38		73
Retained earnings		7,885		6,699

		24,982		23,898

	$	84,875	$	62,101

The accompanying notes are an integral part of these statements.

THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF EARNINGS

(Dollars in thousands, except per share data)

Three Months Ended March 31,

(Unaudited)


	2004		2003
			(As restated; see Note 8)
Net sales	$	48,697	$	40,631
Cost of sales, including distribution costs		38,732		33,173

Gross profit		9,965		7,458
Selling, general and administrative expenses		7,252		5,712

Operating income		2,713		1,746
Other expense
Interest		291		352
Other		18		1

		309		353

Earnings before income taxes		2,404		1,393
Income tax provision		945		557

Net earnings	$	1,459	$	836

Basic earnings per share	$	0.32	$	0.19
Diluted earnings per share:	$	0.30	$	0.19

The accompanying notes are an integral part of these statements.

THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Three months ended March 31,

(Unaudited)


	2004			2003
				(As restated; see Note 8)
Cash flows from operating activities:
Net earnings	$	1,459		$	836
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization		208			213
Changes in assets and liabilities:
Accounts receivable		(22,627	)		(18,972	)
Inventories		(936	)		(2,925	)
Other current assets		564			70
Accounts payable		12,033			5,914
Accrued liabilities		(386	)		(344	)

Total adjustments		(11,144	)		(16,044	)

Net cash used in operating activities		(9,685	)		(15,208	)
Cash flows from investing activities:
Capital expenditures		(208	)		(451	)
Increase in other assets		53			(109	)

Net cash used in investing activities		(155	)		(288	)
Cash flows from financing activities:
Net borrowings of long-term debt		9,772			14,311
Issuance of common stock pursuant to employee stock option and purchase plans		130			25
Redemption of common stock		(197	)		—

Net cash provided by financing activities		9,703			14,336
Effect of exchange rate changes on cash		(35	)		251

NET DECREASE IN CASH		(172	)		(909	)
Cash at beginning of period		991			1,996

Cash at end of period	$	819		$	1,087

Non-cash financing activities:

Cash dividends of $0.06 per share, declared in each of the quarters ended March 31, 2004 and 2003, and totaling $273,000 and $265,000, respectively, were paid in April of 2004 and 2003, respectively.

The accompanying notes are an integral part of these statements.

THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The accompanying condensed consolidated interim financial statements have been prepared in accordance with accounting principles and Securities and Exchange Commission rules applicable to interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America 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 March 31, 2004 and the results of its operations and cash flows for the three months ended March 31, 2004 and 2003. 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, 2003.

The Company’s business is seasonal and its results of operations for the three months ended March 31, 2004 and 2003 are not necessarily indicative of the results to be expected in any other interim period during, or for the full year ending, December 31, 2004. 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.

Basic earnings per share for each period are computed using the weighted average number of common shares outstanding during such 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 month periods ended March 31, 2004 and 2003, a total of 9,000 and 486,500, respectively, of 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.


	Three Months Ended March 31,
	2004		2003 (As restated, see Note 8)
	(In thousands)
Numerator:
Net earnings	$	1,459	$	836

Denominator:
Weighted average shares outstanding		4,535		4,399
Dilutive effect of stock options		310		105

Denominator for diluted net earnings per share		4,845		4,504

The Company leases its corporate offices, warehouse facilities and data processing equipment. Those leases are classified as operating leases as they do not meet the capitalization criteria of SFAS No. 13. The office and warehouse leases expire over the next ten years. Minimum future rental commitments under non-cancelable operating leases are as follows:


Year Ending December 31,	(In thousands)
2004	$	3,000
2005		2,599
2006		2,591
2007		1,844
2008		1,563
Thereafter		3,099

	$	14,696

THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

5.	The Company has one operating segment, the distribution of replacement parts, accessories and supplies for recreational vehicles and boats. The following table sets forth the net sales of that segment, by region, for the periods presented below:


	Three Months Ended March 31,
	2004		2003
	(In thousands)
USA	$	38,861	$	32,375
Canada		9,836		8,256

	$	48,697	$	40,631

6.	Comprehensive Earnings.


	Three Months Ended March 31,
	2004			2003 (As restated; see Note 8)
	(In thousands)
Net earnings	$	1,459		$	836
Change in accumulated foreign currency translation adjustment		(35	)		251

Comprehensive earnings	$	1,424		$	1,087

Stock Based Compensation. The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations in accounting for stock based compensation. Accordingly, no compensation expense has been recognized in the accompanying consolidated financial statements for stock-based awards to employees. Had compensation cost for the stock-based awards been determined based on fair value at the grant dates, consistent with the method prescribed in SFAS No. 123, Accounting for Stock-Based Compensation, the Company’s net earnings and earnings per share for the three month periods ended March 31, 2004 and 2003 would have been reduced to the respective pro forma amounts indicated below. The following table illustrates the effect on net earnings and net earnings per common share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.


	Three Months Ended March 31,
	2004			2003 (As restated; see Note 8)
	(In thousands, except per share data)
Net earnings	$	1,459		$	836
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects		(16	)		(20	)

Pro forma net earnings	$	1,443		$	816

Net earnings per common share
Basic-as reported	$	0.32		$	0.19
Basic-pro forma	$	0.32		$	0.19
Diluted-as reported	$	0.30		$	0.19
Diluted-pro forma	$	0.30		$	0.18

THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

Prior Period Adjustment. The Company has restated its previously issued interim condensed consolidated statement of earnings for the quarter ended March 31, 2003 to record an adjustment for a deferral of income taxes on inter-company profits that the Company inadvertently failed to record in connection with transfers of assets (principally product inventories) within its consolidated group of companies in that quarter. As the following table indicates, this restatement decreased previously reported net earnings for the quarter ended March 31, 2003 by $13,000, but had no effect on basic or diluted earnings per share for that quarter.


	Three Months Ended March 31, 2003
	In thousands, except per share data)
Net earnings:
As previously reported	$	849
As restated	$	836

Basic and diluted earnings per share
As previously reported	$	0.19
As restated	$	0.19

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