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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 September 30, 1995
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 0-5228
STRATEGIC DISTRIBUTION, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-1849240
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
12136 W. Bayaud, Lakewood, CO 80228
(Address of principal executive offices) (Zip Code)
303-234-1419
(Registrant's telephone number, including area code)
12600 W. Colfax Avenue, Lakewood, CO 80215
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 [ ]
Number of Common Shares outstanding at November 13, 1995: 21,075,947.
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TABLE OF CONTENTS
Part I - Financial Information
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Page No.
Item 1 --------
- ------
Consolidated Financial Statements:
- Consolidated Balance Sheets -
September 30, 1995 (unaudited),
and December 31, 1994 1
- Consolidated Statements of Income
(unaudited) - Three and Nine Months
Ended September 30, 1995 and 1994 2
- Consolidated Statements of Cash Flows
(unaudited) - Nine Months Ended
September 30, 1995 and 1994 3
- Notes to Consolidated Financial
Statements (unaudited) 4
Item 2
- ------
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Part II - Other Information
---------------------------
Item 6
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Exhibits and Reports on Form 8-K 9
Signatures 10
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
1995 December 31,
Assets (unaudited) 1994
- ------ ------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 758,997 $ 3,022,428
Accounts receivable, net 20,541,305 10,078,210
Inventories 14,381,079 13,469,229
Prepaid expenses and other current assets 908,772 418,926
Deferred tax asset 1,053,900 1,793,000
---------- ----------
Total current assets 37,644,053 28,781,793
Property and equipment, net 3,001,432 2,571,796
Excess of cost over fair value of net assets acquired, net 5,982,350 5,158,911
Other assets 809,752 895,541
---------- ----------
Total assets $47,437,587 $37,408,041
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued expenses $17,201,250 $10,670,635
Current portion of long-term debt 140,743 209,643
---------- ----------
Total current liabilities 17,341,993 10,880,278
Long-term debt 1,495,112 1,617,517
Note payable to bank 825,000 --
Deferred tax liability 203,750 189,000
---------- ----------
Total liabilities 19,865,855 12,686,795
---------- ----------
Stockholders' equity:
Preferred stock, par value $.10 per share. Authorized:
500,000 shares; issued and outstanding: none -- --
Common stock, par value $.10 per share. Authorized:
25,000,000 shares; issued and outstanding:
21,070,781 and 21,020,535 shares 2,107,078 2,102,054
Additional paid-in capital 29,761,131 28,154,039
Accumulated deficit (4,246,477) (5,484,847)
Note receivable from sale of stock (50,000) (50,000)
---------- ----------
Total stockholders' equity 27,571,732 24,721,246
---------- ----------
Total liabilities and stockholders' equity $47,437,587 $37,408,041
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $31,926,589 $20,568,439 $84,557,180 $56,308,657
Cost of sales 25,401,817 15,731,189 65,999,148 43,210,506
---------- ---------- ---------- ----------
Gross profit 6,524,772 4,837,250 18,558,032 13,098,151
Selling, general and administrative expenses 5,932,325 4,281,675 16,332,328 11,657,741
---------- ---------- ---------- ----------
Operating income 592,447 555,575 2,225,704 1,440,410
Interest expense (income):
Interest expense 44,948 316,608 116,232 716,645
Interest (income) (6,892) (9,549) (78,898) (35,323)
---------- ---------- ---------- ----------
Interest expense, net 38,056 307,059 37,334 681,322
---------- ---------- ---------- ----------
Income before income taxes 554,391 248,516 2,188,370 759,088
Income taxes 237,000 - 950,000 -
---------- ---------- ---------- ----------
Net income $ 317,391 $ 248,516 $ 1,238,370 $ 759,088
========== ========== ========== ==========
Net income per common share $0.02 $0.02 $0.06 $0.05
========== ========== ========== ==========
Average number of shares of common
stock outstanding 21,064,692 15,263,195 21,051,455 16,498,277
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,238,370 $ 759,088
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 847,843 579,986
Deferred taxes, net 753,850 --
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable (8,676,683) (3,312,726)
Inventories (911,850) (2,364,425)
Prepaid expenses and other current assets (586,205) (297,861)
Accounts payable and accrued expenses 5,222,074 1,407,754
Other, net (9,101) (72,732)
---------- ----------
Net cash used in operating activities (2,121,702) (3,300,916)
---------- ----------
Cash flows used in investing activities:
Acquisition of businesses 73,576 (5,020,777)
Additions of property and equipment (651,016) (423,940)
---------- ----------
Net cash used in investing activities (577,440) (5,444,717)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock, net 52,016 2,982,051
Proceeds from notes payable 825,000 6,330,324
Repayment of long-term obligations (441,305) (495,964)
---------- ----------
Net cash provided by financing activities 435,711 8,816,411
---------- ----------
Increase (decrease) in cash and cash equivalents (2,263,431) 70,778
Cash and cash equivalents, at beginning of the period 3,022,428 1,271,985
---------- ----------
Cash and cash equivalents, at end of the period $ 758,997 $ 1,342,763
========== ==========
Supplemental cash flow information:
Taxes paid $ 147,136 $ 218,042
Interest paid 95,358 690,279
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
1. The accompanying unaudited consolidated financial statements include the
accounts of Strategic Distribution, Inc. and subsidiaries (the
"Company"). These financial statements have been prepared in
accordance with the instructions to Form 10-Q. In the opinion of
management, all adjustments (consisting of normal, recurring accruals)
considered necessary for a fair presentation of the results of
operations for the three and nine months ended September 30, 1995 and
1994 have been included. The statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended December 31,
1994.
2. On June 16, 1994, a subsidiary of the Company, Lewis Supply (Delaware),
Inc. ("Lewis"), acquired certain assets of the Industrial Supplies
Division of Lufkin Industries, Inc., (the "Lufkin Division"). The
purchase price consisted of: (i) $2,040,000 in cash and (ii) a mortgage
note in the amount of $600,000. The source of the cash portion of the
purchase price was borrowings under a revolving bank facility.
On May 12, 1995, the Company acquired all of the outstanding common stock
of American Technical Services Group, Inc. ("ATSG"). The purchase price
consisted of options to purchase an aggregate of 1,006,516 shares of the
Company's Common Stock at a price of $6.00 per share. The fair market
value of these options, as determined by an independent investment bank,
was $1,560,100.
Presented below is an unaudited pro forma condensed statement of income
for the nine months ended September 30, 1995 and 1994. The applicable
pro forma adjustments give effect in 1994 to the acquisition of the
Lufkin Division as if such acquisition occurred on January 1, 1994, and
the applicable pro forma adjustments give effect in 1994 and 1995 to the
acquisition of ATSG as if such acquisition occurred on January 1 of each
period.
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
Revenues $ 87,328,576 $ 68,406,063
Operating income $ 1,627,653 $ 1,412,595
Net income $ 668,484 $ 645,358
Net income per common share $ 0.03 $ 0.04
For the nine months ended September 30, 1995 and 1994, one customer
(dealing with the Company under four separate contracts) represented
approximately 10.3% and 12.9% of the pro forma revenues.
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<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- -------
The Company is a leading provider of industrial supply services to industrial
and commercial customers in the United States. The Company conducts its
operations through its four subsidiaries, SafetyMaster Corporation
("SafetyMaster"), Lewis, Industrial Systems Associates, Inc. ("ISA") and
ATSG. The Company, at September 30, 1995, operated 29 full-service branch
warehouses, nine sales and service locations and 28 In-Plant Store[SM]
facilities, which service over 13,000 customers in 25 states and Mexico.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C>
Revenues $31,926,589 $20,568,439 $84,557,180 $56,308,657
100.0% 100.0% 100.0% 100.0%
Cost of sales 79.6% 76.5% 78.1% 76.7%
Gross profit 20.4% 23.5% 21.9% 23.3%
Selling, general and
administrative expenses 18.6% 20.8% 19.3% 20.7%
Operating income 1.8% 2.7% 2.6% 2.6%
Interest expense, net .1% 1.5% -- 1.3%
Income before income taxes 1.7% 1.2% 2.6% 1.3%
Income taxes .7% -- 1.1% --
Net income 1.0% 1.2% 1.5% 1.3%
</TABLE>
Three Months Ended September 30, 1995 Compared to Three Months Ended
September 30, 1994
- --------------------------------------------------------------------
Revenues for the three months ended September 30, 1995 increased 55.2% to
$31,926,589 from $20,568,439 in 1994. For the 1995 period, $14,992,267 of
revenues were from In-Plant Store[SM] facilities and $16,934,322 were from
Local Branches (including sales and service locations). For the 1994 period,
$8,046,895 of revenues were from In-Plant Store[SM] facilities and $12,521,544
were from Local Branches. Internal growth, primarily from ISA, accounted for
69.3% of the increase. The balance of the increase came from the inclusion of
the results of operations of ATSG for the three months ended September 30,
1995. One customer (dealing with the Company under four separate contracts)
represented approximately 10.8% and 14.0% of the revenues for the three months
ended September 30, 1995 and 1994.
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Cost of sales as a percentage of revenues increased to 79.6% for the three
months ended September 30, 1995 from 76.5% for the comparable period in 1994.
The increase resulted primarily from the higher percentage of sales from
ISA's In-Plant Store[SM] program which has lower margins than the Company's
Local Branch program.
Selling, general and administrative expenses as a percentage of revenues
decreased to 18.6% for the three months ended September 30, 1995 from
20.8% for the comparable period in 1994. The improvement resulted primarily
from the higher percentage of sales from ISA's In-Plant Store[SM] program
which has lower levels of selling, general and administrative expenses than
the Company's Local Branch program. Despite the fact that ISA's In-Plant
Store[SM] program has a lower level of selling, general and administrative
expenses than the Company's Local Branch program, ISA's selling, general and
administrative expenses have increased as a percentage of ISA's revenue,
primarily as a result of expenses incurred by ISA in connection with its
expansion of the In-Plant Store[SM] program.
Interest expense, net decreased by $269,003 to $38,056 for the three months
ended September 30, 1995 from interest expense, net of $307,059 in 1994. The
decrease in interest expense, net resulted primarily from the repayment of the
Company's bank indebtedness with the net proceeds from the sale of 5,750,000
shares of the Company's Common Stock on October 13, 1994.
The Company had no Federal income tax expense for the three months ended
September 30, 1994 due to its utilization of a net operating loss
carryforward, which was not previously recognized.
Net income for the three months ended September 30, 1995 was $317,391 as
compared to net income of $248,516 for the comparable period in 1994. This
change was primarily the result of the items previously discussed.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1994
- ------------------------------------------------------------------
Revenues for the nine months ended September 30, 1995 increased 50.2% to
$84,557,180 from $56,308,657 in 1994. For the 1995 period, $37,587,785 of
revenues were from In-Plant Store[SM] facilities and $46,969,395 were from
Local Branches (including sales and service locations). For the 1994 period,
$23,342,660 of revenues were from In-Plant Store[SM] facilities and
$32,965,997 were from Local Branches. Internal growth, primarily from ISA,
accounted for 62.7% of the increase. The balance of the increase came from
the inclusion of the results of operations of the Lufkin Division and ATSG
for the nine months ended September 30, 1995. One customer (dealing with the
Company under four separate contracts) represented approximately 10.6% and
16.7% of the revenues for the nine months ended September 30, 1995 and 1994.
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Cost of sales as a percentage of revenues increased to 78.1% for the nine
months ended September 30, 1995 from 76.7% for the comparable period in 1994.
The increase resulted primarily from the higher percentage of sales from
ISA's In-Plant Store[SM] program which has lower margins than the Company's
Local Branch program.
Selling, general and administrative expenses as a percentage of revenues
decreased to 19.3% for the nine months ended September 30, 1995 from
20.7% for the comparable period in 1994. The improvement resulted primarily
from the higher percentage of sales from ISA's In-Plant Store[SM] program
which has lower levels of selling, general and administrative expenses than
the Company's Local Branch program. Despite the fact that ISA's In-Plant
Store[SM] program has a lower level of selling, general and administrative
expenses than the Company's Local Branch program, ISA's selling, general and
administrative expenses have increased as a percentage of ISA's revenue,
primarily as a result of expenses incurred by ISA in connection with its
expansion of the In-Plant Store[SM] program.
Interest expense, net decreased $643,988 to $37,334 for the nine months ended
September 30, 1995 from interest expense, net of $681,322 in 1994. The
decrease in interest expense, net resulted primarily from the repayment of the
Company's bank indebtedness with the net proceeds from the sale of 5,750,000
shares of the Company's Common Stock on October 13, 1994, and interest income
earned on the remaining net proceeds.
The Company had no Federal income tax expense for the nine months ended
September 30, 1994 due to its utilization of a net operating loss
carryforward, which was not previously recognized.
Net income for the nine months ended September 30, 1995 was $1,238,370 as
compared to net income of $759,088 for the comparable period in 1994. This
change was primarily the result of the items previously discussed.
Liquidity and Capital Resources
- -------------------------------
SafetyMaster and Lewis maintain a revolving bank credit facility which
provides maximum borrowings at any time of $15,000,000 for SafetyMaster and
$5,000,000 for Lewis (with the aggregate amount borrowed not to exceed
$15,000,000). SafetyMaster and Lewis are permitted to make loans to ISA
under the credit facility, subject to certain limitations set forth therein.
The credit facility expires on January 4, 1997. $825,000 was borrowed under
the credit facility as of September 30, 1995. The amount that SafetyMaster
and Lewis may borrow under the credit facility is based upon a percentage of
eligible accounts receivable and inventory. The maximum availability at
September 30, 1995 was $15,000,000. Under the credit facility,
SafetyMaster, Lewis and ISA are restricted from paying any dividends to the
Company other than semi-annual payments equal to 50% of after tax income
(calculated on the basis of taxes actually paid). The Company and its
subsidiaries file a consolidated federal income tax return. The credit
facility is
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collateralized by substantially all of the subsidiaries' assets (net book
value of approximately $34,177,000) and a pledge of all the capital stock of
SafetyMaster, Lewis, ISA and SafetyMaster's wholly-owned subsidiary, Coulson
Technologies, Inc. The Company and ISA have also guaranteed the full and
prompt payment of all liabilities of SafetyMaster and Lewis under the credit
facility.
On October 13, 1994, the Company sold 5,750,000 shares of Common Stock in an
underwritten public offering (the "Offering"). The net proceeds to the
Company were $15,405,500. The Company's bank indebtedness was repaid, with
the balance of the proceeds available for working capital, for general
corporate purposes and for possible corporate acquisitions.
The net cash used in operating activities was $2,121,702 for the nine months
ended September 30, 1995, down from $3,300,916 in the comparable period in
1994, principally as a result of a smaller increase in inventories, an
increase in deferred taxes, and accounts payable and accrued expenses which
were partially offset by an increase in accounts receivable.
The Company believes that cash on hand, cash generated from operations and
cash from the Company's bank credit facility will generate sufficient funds to
permit the Company to meet its liquidity needs for the foreseeable future.
The Company has stated its intention to seek further acquisition
opportunities. If the Company is able to identify satisfactory acquisitions,
the source of funds for such acquisitions will be internally generated cash
and cash from future borrowings or sales of equity, although there is no
guarantee that the Company would be successful in raising funds from such
sources.
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PART II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). None
(b). None
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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.
STRATEGIC DISTRIBUTION, INC.
Date: November 13, 1995 By: /s/ Andrew M. Bursky
- ------------------------ --------------------
Andrew M. Bursky,
Chairman of the Board
Date: November 13, 1995 By: /s/ Charles J. Martin
- ------------------------ ---------------------
Charles J. Martin,
Vice President, Controller and
Chief Accounting Officer
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