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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

THE COAST DISTRIBUTION SYSTEM, INC.
(Exact name of Registrant as specified in its charter)

          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.

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 October 28, 2002.

PART I — FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(Dollars in thousands)

The accompanying notes are an integral part of these statements.

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THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)

The accompanying notes are an integral part of these statements.

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THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Nine months ended September 30,
(Unaudited)

The accompanying notes are an integral part of these statements.

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THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

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THE COAST DISTRIBUTION SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

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ACCOUNTING POLICIES AND ESTIMATES

          General

          In accordance with accounting principles generally accepted in the United States of America (“GAAP”), we record assets at the lower of cost or fair value.  In determining the carrying value of such assets as accounts receivable, inventories, deferred income taxes and goodwill, we must make judgments, estimates and assumptions regarding future events and circumstances that could affect the value of those assets.  These include assumptions about such matters as future economic conditions that will affect our ability to collect our accounts receivable or sell our inventories in future periods.  Those estimates and assumptions are based on current information available to us at the time they are made.  If there are material changes in events or circumstances from those anticipated at the time we made our estimates and assumptions, GAAP will require us to adjust the earlier estimates that are affected by those changes.  Any downward adjustments are commonly referred to as “write-downs” of the assets involved.

          Additionally, decisions of when adjustments of this nature should be made also sometimes require an assessment or prediction of the effects on financial performance, or the duration, of new events or changes in circumstances.  It is not uncommon for it to take some time, after the occurrence of an event or the onset of changes in economic circumstances, for their effects to become recognizable or determinable.

          It is our practice to establish reserves or allowances against which we are able to charge any downward adjustments or “write-downs” in the carrying value of our assets.  Examples include reserves or allowances established for uncollectible accounts receivable (sometimes referred to as “bad debt reserves”) and reserves for inventory obsolescence.  Such reserves or allowances are established, and such write-downs are effectuated, by charges to income or increases in expense in our statement of operations in the periods when those reserves or allowances are established or those write-downs are recorded. With respect to other assets we write down their fair market value directly, by a charge against income, upon determining that, due to changes in events or circumstances, the amounts at which they are carried on our books exceed their current fair market value.  As a result, our judgments, estimates and assumptions about future events and circumstances can and will affect not only the amounts at which we record these assets on our balance sheet, but also our results of operations.

          Under GAAP, most businesses also must make estimates or judgments regarding the amounts at which and the periods during which sales are recorded.  Those estimates and judgments will depend on such factors as the steps or actions that a business must take to complete a sale of products to or the provision of services for a customer and the circumstances under which a customer would be entitled to return the products or reject or adjust the payment for services.  Additionally, in the case of a company that grants its customers contractual rights to return products sold to them, GAAP may require that a reserve or allowance be established for product returns by means of a reduction in the amount at which sales are recorded, primarily based on the nature, extensiveness and duration of those rights and its historical return experience.

          In making our estimates and assumptions we follow GAAP and accounting practices applicable to our business that we believe, after consultation with our independent public accountants, will enable us to make fair and consistent estimates of the fair value of those assets and establish adequate reserves or allowances.  Additionally, as part of the audit of our annual financial statements, our independent public accountants examine, on a test basis, the evidence on which we rely, and assess the accounting principles that we use and the significant estimates that we make, in determining the amounts at which we propose to record our assets and establish our reserves in our financial statements.

          Set forth below is a summary of the accounting policies that we believe are material to an understanding of our financial condition and results of operations that are discussed below.

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          Revenue Recognition and the Allowance for Product Returns.  We recognize revenue from the sale of a product upon its shipment to the customer.  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, based on historical experience with returns of like products and current economic data, which can affect the level at which customers submit product returns.

          Accounts Receivable and the Allowance for Doubtful Accounts.  In the normal course of business we extend 30 day payment terms to our customers and, due to the seasonality of our business, during late fall and winter we grant extended payment terms to those of our customers that have good credit records.  We regularly review our customers’ accounts and estimate the amount of and establish an allowance for uncollectible amounts or “receivables.”  The amount of the allowance is based on several factors, including the age of unpaid amounts, a review of significant past due accounts and current economic trends, which affect the ability of customers to keep their accounts current.  Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period they become known.  For example, if the financial condition of the Company’s customers or economic conditions were to deteriorate, adversely affecting their ability to make payments, increases in the allowance may be required.  Additionally, charges against the allowance may necessitate that additions be made from time to time to replenish the reserve.  Since the allowance is created by recording a charge against income, an increase in or additions to the allowance will cause a decline in our operating results in the period when the increase or additions are made.

          Reserve for Excess and Obsolete Inventory.  Inventories are valued at the lower of cost (first-in, first-out) or market and are reduced by charging an allowance established for excess and slowing moving or obsolete inventories.  The amount of the allowance is determined on the basis of historical experience with different product lines, estimates concerning future economic conditions and estimates of future sales.  If there is an economic downturn or a decline in sales, causing inventories of some product lines to accumulate, it may become necessary to increase the allowance.  Other factors that can require increases in the allowance or inventory write downs are reductions in pricing or introduction of new or competitive products by manufacturers; however, due to the relative maturity of the markets in which the Company operates, usually these are not significant factors.  Increases in this allowance also will cause a decline in operating results as such increases are effectuated by charges against income.

          Allowance for Deferred Income Taxes.  We record as a “deferred tax asset” on our balance sheet tax loss and tax credit carryforwards, to the extent they are available to offset or reduce our future income tax liability.  At September 30, 2002, the amount of that asset totaled approximately $2.9 million, net of a valuation allowance of $120,000.  Under applicable federal and state income tax laws and regulations, deferred tax assets relating to tax loss and tax credit carryforwards will expire if not used within specified time periods.  Accordingly, the ability to use such assets depends on generating taxable income during those time periods.  As a result, we establish a valuation allowance, which is applied as a reduction of the gross amount of that deferred tax asset, to take account of the possibility that we will not generate sufficient taxable income in the future to fully utilize this asset.  In determining the amount of that allowance, we consider current operating and economic trends as they may affect the amounts and timing of future taxable income that we currently believe we can generate.  Currently, available evidence leads us to believe that it is more likely than not that we will be able to utilize the deferred tax asset that is recorded in our financial statements.  However, if due to future events or circumstances, such as an economic downturn that would adversely affect our operating results, we subsequently come to a different conclusion regarding our future taxable income and, hence, our ability to fully utilize this asset, we would increase the allowance and thereby reduce the amount at which we record the deferred tax asset.  That reduction would be effectuated by an increase in the provision (or a reduction in the credit) for income taxes in our statement of operations, which would have the effect of causing a decline in our operating results.

          Long-Lived Assets.  Until the current fiscal year, long-lived assets such as goodwill and intangible assets were reviewed for impairment when events or circumstances indicated that the carrying value might be not be recoverable.  Estimated undiscounted expected future cash flows were used to determine if an asset was impaired, in which case the carrying value of the asset would be reduced to fair value.  Any resulting impairment would be recorded as a charge against income in the period in which the impairment was recorded.  Beginning with our current fiscal year ending December 31, 2002, however, we are required to assess our goodwill for impairment based on the new standards established by SFAS No. 142.  See Note 6 to our Condensed Consolidated Financial Statements included elsewhere in this Report.  We will not be able to determine the full effect of these new standards on our financial position or our results of

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operations until we are able to complete our impairment analysis using the new standards.  Under previously applicable accounting standards, our assessment of goodwill indicated that no impairment existed as of December 31, 2001.  Based on the analysis that we have made to date under the new standards there is an indication that goodwill is impaired and, as a result, it is likely that we will be required to record a non-cash charge to our earnings in fiscal 2002, as a cumulative effect of a change in accounting principle, the amount of which is not presently determinable, but which could be as much as $6,280,000. Such a charge would reduce reported income (or increase any loss) in the fourth quarter of 2002; however, because it would be a non-cash charge, it would not affect the Company’s tangible net worth and is not expected to affect the Company’s business or financial position.

          Foreign Currency Translation.  The financial position and results of operations of our foreign subsidiaries are measured using local currency as the functional currency.  Assets and liabilities of each foreign subsidiary are translated into U.S. dollars at the rate of exchange in effect at the end of each reporting period.  Revenues and expenses are translated into US dollars at the average exchange rate for the reporting period.  Foreign currency translation gains and losses not impacting cash flows are credited to or charged against other comprehensive income (loss).  Foreign currency translation gains and losses arising from cash transactions are credited to or charged against current earnings.

RESULTS OF OPERATIONS

          Factors Generally Affecting Sales of RV and Boating Products

          We believe that we are one of the largest wholesale distributor of replacement parts, accessories and supplies for recreational vehicles (“RVs”), and one of the largest distributors of replacement parts, accessories and supplies for boats, in North America.  Our sales are made to retail parts and supplies stores, service and repair establishments and new and used RV and boat dealers (“After-Market Customers”).  Our sales are affected primarily by (i) usage of RVs and boats which affects the consumers’ needs for and purchases of replacement parts, repair services and supplies, and (ii) sales of new RVs and boats, because consumers often “accessorize” their RVs and boats at the time of purchase.

          The usage and the purchase, by consumers, of RVs 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 RVs and boats.  Additionally, shortages in the supply and increases in the prices of gasoline also can lead to declines in the usage and purchases of RVs and boats.  As a result, our 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 gasoline prices which adversely affect the costs of using RVs and boats, and unusually adverse weather conditions.

          Net Sales.  Net sales increased by $3,628,000 or 10.1% in the third quarter, and by $8,582,000 or 7.5% in the nine months, ended September 30, 2002 as compared to the corresponding periods in 2001.  We believe that these increases reflect an improvement in consumer confidence, increased purchases and usage of RVs and, therefore, increased purchases of our products, and our progress in implementing our inventory management and deployment program, which has enabled us to improve our service levels to our customers.

          Gross Margin.  Our gross margin increased to 16.7% of net sales in the three months, and 17.0% in the nine months, ended September 30, 2002 from 12.3% and 14.5%, respectively, in the comparable periods of 2001.  These increases were due to (i) an overall reduction in the prices that we paid for products purchased from our suppliers due to volume purchases, (ii) a reduction in freight-in costs, net of supplier allowances, associated with receiving product from our suppliers and redistributing it to our regional distribution centers, (iii) a reduction in warehouse labor costs as a percentage of net sales due to their relatively fixed nature of such costs as compared to our net sales, and (iv) a reduction in shipping costs as a percentage of net sales due to improved fill rates to our customers.  These reductions are largely attributable to our inventory management and deployment system.

          Selling, General and Administrative Expenses.  Our selling, general and administrative (“SG&A”) expenses decreased in the quarter and nine months ended September 30, 2002 by $100,000, or 1.8%, and $1,156,000, or 6.6%, respectively, as compared to the corresponding periods of 2001.  These decreases were due primarily to our continuing cost containment efforts, including reductions in labor costs that resulted from reductions in both the

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number of employees and in salaries.  Also contributing to the reduction in SG&A expenses was a reduction in marketing and computer expenses and the elimination of the amortization of goodwill resulting from the implementation of SFAS 142.

          Operating Income.  Operating income increased by $2,312,000 in the quarter, and by $5,413,000 in the nine months, ended September 30, 2002, as compared to the respective corresponding periods of 2001, due to the combined effects of the increases in sales and gross margin and the reductions in SG&A expenses.

          Interest Expense.  Interest expense declined by $194,000, or 36%, and by $783,000, or 41%, in the quarter and nine months ended September 30, 2002, from the respective corresponding periods of 2001.  These decreases were the result of declines in the average rate of interest charged due to declining market rates of interest during 2001 and decreases in average long-term borrowings outstanding during the quarter and nine months ended September 30, 2002, made possible by increases in internally generated cash flows.

          Income Taxes.  Our effective tax rate is affected by the amount of our expenses that are not deductible for income tax purposes and by varying tax rates on income generated by our foreign subsidiaries. 

Liquidity and Capital Resources

          We finance our working capital requirements for our operations primarily with borrowings under a long-term revolving bank credit facility and internally generated funds.  Under the terms of the revolving credit facility, which expires in May 2005, we may borrow up to the lesser of (i) $40,000,000 with seasonal reductions ranging from $30,000,000 to $35,000,000 between August 1 and February 28 of each year, or (ii) an amount equal to 80% of eligible accounts receivable and between 50% to 55% of eligible inventory.  Interest on the revolving credit facility is payable at the bank’s prime rate plus 1.25% or, at the Company’s option but subject to certain limitations, at the bank’s LIBOR rate, plus 3.0 percent.

          At October 31, 2002, outstanding bank borrowings totaled $22,400,000.  Our bank borrowings are secured by substantially all of our assets, and rank senior in priority to other indebtedness of the Company.

          We generally use cash for, rather than generate cash from, operations in the first half of the year, because we build inventories, and accounts receivables increase, as our customers begin increasing their product purchases for the spring and summer selling seasons. “Seasonality and Inflation” below.   However, during the current fiscal year we continued to increase inventories in the third quarter as well, in response to increased product demand.  We also were able to use internally generated cash flow to speed up the payment of our accounts payable and thereby take advantage of supplier discounts.

          Although our sales increased 10% during the quarter ended September 30, 2002 as compared to the same period of 2001, our accounts receivable balance declined by $1,379,000 or 9.5% at September 30, 2002  as compared to our accounts receivable balance at September 30, 2001.  This decline was due primarily to an acceleration in our accounts receivable collections.

          During the third quarter of 2001 we sold our Portland, Oregon distribution facility, which generated $2,669,000 of cash for us, net of selling expenses.  We have leased a smaller facility in nearby Wilsonville, Oregon.

          Capital expenditures, primarily for computer enhancements, telephone and warehouse equipment, were $1,056,000 in the nine months ended September 30, 2002 and $366,000 in the corresponding nine months of 2001.

          We lease the majority of our facilities and certain of our equipment under non-cancelable operating leases.  Our future lease commitments are described in Note 4 of Notes to the Company’s Interim Condensed Consolidated Financial Statements included elsewhere in this report.

          We believe that borrowings under our revolving bank credit facility and internally generated funds will be sufficient to fund our cash requirements for at least the next twelve months and we do not currently anticipate any material changes in the cash requirements of our business or in the sources of funds for our operations.

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Seasonality and Inflation

          Seasonality.  Sales of recreational vehicle and boating parts, supplies and accessories are seasonal.  We have significantly higher sales during the six-month period from April through September than we do during the remainder of the year.  Because a substantial portion of our expenses are fixed, operating income declines and the Company sometimes incurs losses and must rely more heavily on borrowings to fund operating requirements in the months when sales are lower.

          Inflation.  Generally, we have been able to pass inflationary price increases on to our customers. However, inflation also may cause or may be accompanied by increases in gasoline prices and interest rates.  Such increases, or even the prospect of increases in the price or shortages in the supply of gasoline, can adversely affect the purchase and usage of RVs and boats, which can result in a decline in the demand for our products.

Forward Looking Information and Risks and Uncertainties Regarding Future Financial Performance

          This Report contains statements regarding our expectations and beliefs about our future financial performance (including forecasts and statements concerning business trends and future profitability) that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.  Readers of this Report are cautioned not to place undue reliance on such forward-looking statements, or to rely on historical operating results, to predict future financial performance, because actual results in the future may differ materially, depending on the effect of a number of risks and uncertainties.  Those risks and uncertainties include, but are not limited to: the possibility of increased price competition within the Company’s distribution channels; possible changes in economic conditions, prevailing interest rates or gasoline prices, or the occurrence of unusually severe weather conditions, that can affect both the purchase and usage of RVs and boats and which, in turn, affects purchases by consumers of the products that the Company sells; the possibility that economic conditions will not improve significantly or that interest rates will increase, causing consumers to reduce discretionary spending which can result in reduced sales; the potential for increases in gasoline prices due to, among other things, political conditions in the Middle East, which could reduce usage of RV’s and pleasure boats and hence the purchase of the products we distribute; the possibility of changes in the structure of relationships between manufacturers, distributors and retailers within our industry, which could create supply problems and operating costs or lead to

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increased competition; and the possibility of a West Coast dockworkers strike or lockout that could hurt sales or increase shipping costs of products obtained from Asian suppliers. For information concerning some of these and other factors and risks, see the foregoing discussion in the section of this Report titled, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our Annual Report on Form 10-K for the fiscal year ended December 31, 2001. 

          The Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

          Our exposure to market risk with respect to financial instruments is primarily related to changes in interest rates with respect to borrowing activities, which may adversely affect our financial position, results of operations and cash flows. The fair value of borrowings under our revolving credit facility approximate the carrying value of such obligations.  As of September 30, 2002, we had outstanding $24.2 million under our revolving credit facility.

          To a lesser degree, we are exposed to market risk from foreign currency fluctuations associated with our Canadian operations and our Canadian currency denominated debt.  We do not use financial instruments for trading or other speculative purposes and are not party to any derivative financial instruments.

          We sometimes enter into forward exchange agreements to reduce the effect of foreign currency fluctuations on a portion of our inventory purchases in Canada for our Canadian operations.  The gains and losses on these contracts are reflected in earnings in the period during which the transactions being hedged are recognized.  We believe that these agreements do not subject us to significant market risk from exchange rate movements because the agreements offset gains and losses on the balances and transactions being hedged.  As of September 30, 2002, there were no such agreements outstanding.

          Approximately 12% of our debt is denominated in Canadian currency, which also exposes us to market risk associated with exchange rate movements.  Historically, we have not used derivative financial instruments to manage our exposure to foreign currency rate fluctuations since the market risk associated with our foreign currency denominated debt has not been considered significant

          Within the past 90 days we carried out an evaluation, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have each concluded that those controls and procedures were effective in making known to them, on a timely basis, the material information needed for the preparation of this Report on Form 10-Q.  There were no significant changes in the Company’s internal controls or in other factors that could significantly affect those internal controls since the date of their evaluation nor did we find any significant deficiencies or material weaknesses that would have required corrective actions to be taken with respect to those controls.

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PART II—OTHER INFORMATION

          Our Annual Meeting of Stockholders was held on August 15, 2002.  At the Meeting, stockholders voted on (i) the election of one Class II director to serve for a term of three years, and (ii) a proposed amendment to the Company’s Certificate of Incorporation to reduce the authorized number of shares of Common Stock from 20 million shares to 10 million shares and the authorized number of shares of Preferred Stock from 5 million shares to 2 million shares.

          Election of Directors.  The candidate nominated by the Board of Directors, John W. Casey, was the only person nominated for election as a Class II Director at the Meeting and his election was uncontested. Set forth below are the number of votes cast for his election and the number withheld. As the election was uncontested, there were no broker non-votes.

          Reduction in the Authorized Number of Shares.  The amendment to the Certificate of Incorporation reducing the authorized number of the Company’s shares to 10 million shares of Common Stock and 2 million shares of Preferred Stock was approved by the following vote of the Company's stockholders:

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SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

S-1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT

S-2

CERTIFICATIONS OF CHIEF FINANCIAL OFFICER
UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT

S-3

Index to Exhibits

E-1