COAST DISTRIBUTION SYSTEM INC - 10-Q Quarterly Report

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, 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 Securities Exchange Act Rule 12b-2)

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.

4,603,347 shares of Common Stock as of August 1, 2004

THE COAST DISTRIBUTION SYSTEM, INC.

TABLE OF CONTENTS


			Page No.
Part I. Financial Information

	Item 1. Financial Statements

		Condensed Consolidated Interim Balance Sheets June 30, 2004 (unaudited) and December 31, 2003	1

		Condensed Consolidated Interim Statements of Earnings for the Three Months and Six Months Ended June 30, 2004 and 2003 (unaudited)	2

		Condensed Consolidated Interim Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (unaudited)	3

		Notes to Condensed Consolidated Interim 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	8
		Results of Operations	9
		Financial Condition, Liquidity and Capital Resources	11
		Seasonality and Inflation	12
		Forward Looking Information	12

	Item 3. Quantitative and Qualitative Disclosures About Market Risk		13

	Item 4 Controls and Procedures		14

Part II. Other Information

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

SIGNATURES			S-1


EXHIBITS

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

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

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

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

(i)

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS

(Dollars in thousands, except per share data)


	June 30. 2004			December 31, 2003
	(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	1,480		$	991
Accounts receivable – net of allowances of $1,114 and $981 as of June 30, 2004 and December 31, 2003, respectively		25,667			12,799
Inventories		44,965			41,352
Other current assets		2,712			3,947

Total current assets		74,824			59,089
PROPERTY, PLANT, AND EQUIPMENT—NET		2,112			2,264
OTHER ASSETS		713			748

	$	77,649		$	62,101

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations	$	43		$	48
Accounts payable		14,205			10,613
Other current liabilities		3,922			3,743

Total current liabilities		18,170			14,404

LONG-TERM OBLIGATIONS		31,851			23,799

STOCKHOLDERS’ EQUITY
Preferred stock, $.001 par value: 2,000,000 shares authorized: none issued and outstanding:		—			—
Common stock, $.001 par value: 10,000,000 shares authorized; 4,578,347 and 4,520,098 issued as of June 30, 2004 and December 31, 2003, respectively		17,156			17,126
Accumulated comprehensive loss		(56	)		73
Retained earnings		10,528			6,699

Total Stockholders equity		27,628			23,898

	$	77,649		$	62,101

The accompanying notes are an integral part of these financial statements.

THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF EARNINGS

(Dollars in thousands, except per share data)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
				(as restated)⁽¹⁾						(as restated)⁽¹⁾
Net sales	$	52,141		$	47,530		$	100,838		$	88,161
Cost of sales, including distribution costs		41,392			38,101			80,124			71,274

Gross profit		10,749			9,429			20,714			16,887
Selling, general and administrative expenses		6,026			6,365			13,278			12,077

Operating income		4,723			3,064			7,436			4,810
Other income (expense)
Interest		(316	)		(443	)		(607	)		(795	)
Other		12			117			(6	)		116

		(304	)		(326	)		(613	)		(679	)

Earnings before income taxes		4,419			2,738			6,823			4,131
Income tax provision		1,776			1,118			2,721			1,675

Net earnings	$	2,643		$	1,620		$	4,102		$	2,456

Basic earnings per share	$	0.58		$	0.37		$	0.90		$	0.56

Diluted earnings per share	$	0.55		$	0.35		$	0.85		$	0.54

(1)	See Note 7 below.

The accompanying notes are an integral part of these financial statements.

THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Six months ended June 30,

(Unaudited)


	2004			2003
				(as restated)⁽¹⁾
Cash flows from operating activities:
Net earnings	$	4,102		$	2,456
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization		426			436
Changes in assets and liabilities:
Accounts receivable		(12,868	)		(11,740	)
Inventories		(3,613	)		190
Other current assets		1,235			2,038
Accounts payable		3,592			(610	)
Current liabilities		179			293

Total adjustments		(11,049	)		(9,393	)

Net cash used in operating activities		(6,947	)		(6,937	)

Cash flows from investing activities:
Capital expenditures		(274	)		(387	)
Increase (decrease) in other assets		35			(23	)

Net cash used in investing activities		(239	)		(410	)

Cash flows from financing activities:
Net borrowings of long-term debt		8,047			8,096
Issuance of common stock pursuant to employee stock option and purchase plans		227			31
Redemption of common stock		(197	)		—
Payment of cash dividend		(273	)		(265	)

Net cash provided by financing activities		7,804			7,862
Effect of exchange rate changes on cash		(129	)		657

NET INCREASE IN CASH		489			1,172
Cash beginning of period		991			1,996

Cash end of period	$	1,480		$	3,168

(1)	See Note 7 below.

Non-cash financing activities:

Cash dividends of $0.06 per share, declared in each of the six months ended June 30, 2004 and 2003, 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 financial 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 generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of management, these unaudited condensed interim 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, 2004 and the results of its operations and cash flows for the three and six month periods ended June 30, 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 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.”

The Company’s business is seasonal and its results of operations for the three and six month periods ended June 30, 2004 and 2003 are not necessarily indicative of the results to be expected for any interim period during or for the full year ending December 31, 2004 or for any other fiscal period. 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 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 months ended June 30, 2004, a total of 13,000 and 9,000 common shares, respectively, that were 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, 2003, a total of 279,000 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 June 30				Six Months Ended June 30,
	2004		2003		2004		2003
			(as restated)⁽¹⁾				(as restated)⁽¹⁾
	(In thousands)
Numerator:
Net earnings	$	2,643	$	1,620	$	4,102	$	2,456
Denominator:
Weighted average shares outstanding		4,549		4,417		4,541		4,408
Dilutive effect of stock options		292		148		301		126

Denominator for diluted net income per share		4,841		4,565		4,842		4,534

(1)

See Note 7 below.

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

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