<PAGE>
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, 1996
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, Suite 320, Lakewood, CO 80228
(Address of principal
executive offices) (Zip Code)
303-234-1419
(Registrant's telephone number, including area code)
N/A
(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 shares of Common Shares outstanding at April 22, 1996: 21,779,550.
<PAGE>
TABLE OF CONTENTS
Part I - Financial Information
Page No.
Item 1 --------
Consolidated Financial Statements:
- Consolidated Balance Sheets -
March 31, 1996 (unaudited),
and December 31, 1995 1
- Consolidated Statements of Operations
(unaudited) - Three Months
Ended March 31, 1996 and 1995 2
- Consolidated Statements of Cash Flows
(unaudited) - Three Months Ended
March 31, 1996 and 1995 3
- Note 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 4
Submission of Matters to a Vote of Security Holders 8
Item 5
Other Information 8
Item 6
Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>1
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
1996 1995
--------- ------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 872,659 $ 640,360
Accounts receivable, net 19,051,554 20,104,270
Inventories 16,682,200 15,422,066
Prepaid expenses and
other current assets 670,827 588,188
Deferred tax asset 1,307,000 1,320,000
--------------- --------------
Total current assets 38,584,240 38,074,884
Property and equipment, net 3,739,766 3,352,948
Excess of costs of over fair value
of assets acquired, net 5,817,917 5,865,691
Other assets 738,658 757,121
--------------- --------------
Total assets $ 48,880,581 $ 48,050,644
=============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $17,866,578 $14,317,750
Current portion of long-term debt 147,469 158,553
Reserve for restructuring charge 920,000 --
--------------- --------------
Total current liabilities 18,934,047 14,476,303
Long-term debt 1,451,608 1,458,401
Note payable 2,710,000 4,445,000
Deferred tax liability 267,000 280,000
--------------- --------------
Total liabilities 23,362,655 20,659,704
--------------- --------------
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:
21,765,957 and 21,716,662 shares 2,176,596 2,171,666
Additional paid-in capital 33,949,442 33,861,694
Accumulated deficit (10,558,112) (8,592,420)
Notes receivable from sale of stock (50,000) (50,000)
--------------- --------------
Total stockholders' equity 25,517,926 27,390,940
--------------- --------------
Total liabilities and
stockholders' equity $48,880,581 $48,050,644
=============== ==============
See accompanying note to consolidated financial statements.
<PAGE>2
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three months ended March 31,
----------------------------
1996 1995
---- ----
Revenues $ 33,316,372 $ 25,396,090
Cost of sales 26,233,440 19,542,626
---------------- --------------
Gross profit 7,082,932 5,853,464
Selling, general and
administrative expenses 8,039,555 4,950,885
Restructuring charge 920,000 --
---------------- --------------
Operating income (loss) (1,876,623) 902,579
Interest expense (income):
Interest expense 92,885 35,686
Interest (income) (3,816) (40,794)
---------------- --------------
Interest (income) expense, net 89,069 (5,108)
---------------- --------------
Income (loss) before income taxes (1,965,692) 907,687
Income tax expense -- 368,000
---------------- --------------
Net income (loss) $ (1,965,692) $ 539,687
================ ==============
Net income (loss) per share $ (0.09) $ 0.02
================ ==============
Average number of shares of
common stock outstanding 21,740,823 21,661,222
================ ==============
See accompanying note to consolidated financial statements.
<PAGE>3
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31,
----------------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) $ (1,965,692) $ 539,687
Adjustments to reconcile
net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 366,678 241,097
Restructuring charge 920,000 --
Deferred taxes -- 296,000
Changes in operating assets
and liabilities:
Accounts receivable 1,052,716 (3,033,728)
Inventories (1,260,134) 12,332
Prepaid expenses and
other current assets (152,385) (205,210)
Accounts payable and
accrued expenses 3,563,102 2,439,970
Other, net (14,787) (1,520)
--------------- --------------
Net cash provided
by operating activities 2,509,498 288,628
--------------- --------------
Cash flows used in
investing activities-
Additions of property and
equipment (581,000) (217,146)
--------------- --------------
Cash flows from financing activities:
Proceeds from sale of stock 56,678 34,227
Repayment of note payable (1,735,000) --
Repayment of long-term
obligations (17,877) (50,884)
--------------- --------------
Net cash used in
financing activities (1,696,199) (16,657)
--------------- --------------
Increase in cash
and cash equivalents (232,299) ( 54,825)
Cash and cash equivalents,
at beginning of the period 640,360 3,022,428
--------------- --------------
Cash and cash equivalents,
at end of the period $ 872,659 $ 3,077,253
=============== ==============
Supplemental cash flow information:
Taxes paid $ 196,149 $ 85,290
Interest paid 89,453 32,692
See accompanying note to consolidated financial statements.
<PAGE>4
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Note to Consolidated Financial Statements
(unaudited)
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 months ended March 31, 1996 and 1995 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, 1995.
<PAGE>5
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company provides proprietary industrial supply procurement solutions to
industrial sites, primarily through its In-Plant Store(R) program. The Company
became a provider of industrial supply services in July 1990. The Company
conducts its operations primarily through its four subsidiaries, SafetyMaster
Corporation ("SafetyMaster"), Lewis Supply (Delaware), Inc. ("Lewis Supply"),
Industrial Systems Associates, Inc. ("ISA") and American Technical Services
Group, Inc. ("ATSG"). At March 31, 1996, the Company had 37 operational In-Plant
Store(R) facilities, representing 23 In-Plant Store(R) customers, 32
full-service branches, and ten sales and service offices.
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
(dollars in thousands)
Revenues $33,316 $25,396
100.0% 100.0%
Cost of sales 78.7 77.0
Gross profit 21.3 23.0
Selling, general and administrative expenses 24.1 19.4
Restructuring charge 2.8 --
Operating income (loss) (5.6) 3.6
Interest (income) expense, net 0.3 --
Income (loss) before income taxes (5.9) 3.6
Income tax expense -- 1.5
Net income (loss) (5.9) 2.1
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
Revenues for the three months ended March 31, 1996 increased 31.2% to
$33,316,372 from $25,396,090 for the three months ended March 31, 1995. During
the three months ended March 31, 1996, $16,804,823 of revenues were from
In-Plant Store(R) facilities and $16,511,549 were from branches (including
sales and service locations). During the three months ended March 31, 1995,
$11,126,084 of revenues were from In-Plant Store(R) facilities and $14,270,006
were from branches (including sales and service locations). Internal growth,
primarily from implementation of new In-Plant Store(R) facilities, accounted
for 66.2% of the increase. The balance of the increase came from the inclusion
of the results of operations of ATSG for the three months ended March 31,
1996. One In-Plant Store(R) customer (with which the Company operates under
four separate contracts) represented approximately 12.3% of revenues for the
three months ended March 31, 1995 but less than 10.0% of revenues for the
three months ended March 31, 1996. Another In-Plant Store(R) customer (with
which the Company operates under four separate
<PAGE>6
contracts) represented approximately 11.5% of revenues for the three months
ended March 31, 1996.
Cost of sales as a percentage of revenues increased to 78.7% for the three
months ended March 31, 1996 from 77.0% for the three months ended March 31,
1995. The increase resulted from the higher percentage of sales from In-Plant
Store(R) facilities which have lower margins than the branches.
Selling, general and administrative expenses as a percentage of revenues
increased to 24.1% for the three months ended March 31, 1996 from 19.4% for
the three months ended March 31, 1995. The increase resulted primarily from
expenses incurred by the Company in connection with its expansion of the
In-Plant Store(R) program.
On March 18, 1996, the Company announced the merger of SafetyMaster and Lewis
Supply. In connection with the merger, the Company recorded a restructuring
charge aggregating $920,000 for employee termination benefits, asset
write-offs and lease payments. The restructuring charge was equal to 2.8% of
revenues for the three months ended March 31, 1996.
Interest expense, net increased by $94,177 to $89,069 for the three months ended
March 31, 1996 from interest income, net of $5,108 for the three months ended
March 31, 1995. The increase in interest expense, net resulted primarily from
borrowings incurred to finance the working capital requirements of new In-Plant
Store(R) facilities.
Income tax expense decreased by $368,000 to $0 for the three months ended March
31, 1996. An income tax benefit was not recorded for the three months ended
March 31, 1996 because the Company does not believe that it is more likely than
not that the benefit will be realized during the current year.
The net loss for the three months ended March 31, 1996 was $1,965,692 compared
to net income of $539,687 for the three months ended March 31, 1995, primarily
as a result of the items previously discussed.
Liquidity and Capital Resources
Effective as of December 31, 1995, the Company entered into a new revolving
bank credit agreement providing for maximum outstanding borrowings of
$20,000,000. These borrowings bear interest at the prime rate (8.25% as of
March 31, 1996) and/or a Eurodollar rate, with a 1/4% commitment fee on the
unused portion of the credit available. The credit facility expires on January
31, 2000. At March 31, 1996, $2,710,000 was borrowed, at an interest rate of
8.25%, under the credit facility. The amount which the Company may borrow
under the credit facility is based upon eligible accounts receivable, which
were approximately $18,900,000 at March 31, 1996. The credit facility contains
customary financial and other covenants and is collateralized by substantially
all of the assets, as well as the pledge of the capital stock, of the
Company's subsidiaries.
<PAGE>7
The net cash provided by operating activities was $2,509,498 for the three
months ended March 31, 1996 compared to $288,628 for the three months ended
March 31, 1995. The increase resulted primarily from a decrease in accounts
receivable and an increase in accounts payable and accrued expenses, which
were partially offset by an increase in inventories and the change from net
income to a net loss.
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,
including the costs to be incurred by the Company in connection with the
anticipated expansion of the In-Plant Store(R) program.
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 is anticipated to be internally
generated cash and cash from future borrowings or sales of equity securities,
although there is no guarantee that the Company would be successful in raising
funds from such sources.
<PAGE>8
PART II
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 14, 1996, the Board of Directors (the "Board") of the Company
furnished an Information Statement to stockholders of the Company pursuant to
Rule 14c-2 under the Securities Exchange act of 1934 (the "Exchange Act"), in
connection with an amendment (the "Amendment") to the Restated Certificate of
Incorporation (the "Certificate of Incorporation") of the Company to provide
for an increase in the number of authorized shares of the Company's common
stock, par value $.10 per share (the "Common Stock"), from 25,000,000 shares
to 50,000,000 shares. The Amendment was unanimously approved by the Board. As
required by the Delaware General Corporation Law (the "DGCL"), the Amendment
was approved by the holders of a majority of the outstanding shares of Common
Stock by written consent in lieu of a meeting pursuant to Section 228(a) of
the DGCL. The Amendment became effective upon the filing of a Certificate of
Amendment of the Certificate of Incorporation with the Secretary of State of
Delaware which, pursuant to Rule 14c-2 under the Exchange Act, did not take
place until a date at least 20 days following the date on which the
Information Statement was mailed to the stockholders of the Company. The
Information Statement also served as notice to stockholders of an action taken
by less than unanimous written consent as required by Section 228(d) of the
DGCL. The Information Statement was mailed on or about March 14, 1996 to
persons who were stockholders of record on February 28, 1996.
Item 5.
OTHER INFORMATION
On April 10, 1996, the Company announced that it had filed a registration
statement with the Securities and Exchange Commission for an offering of
8,200,000 shares of Common Stock. Of the 8,200,000 shares being offered,
7,000,000 shares are being offered by the Company and 1,200,000 shares are being
offered by certain selling stockholders.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission, but has not yet become effective. The
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This report shall not constitute
an offer to sell or the solicitation of an offer to buy, nor shall there be any
sale of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of such State.
<PAGE>9
Item 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) 3.1 Restated Certificate of Incorporation of the
Company as amended through November 9, 1990
(incorporated by reference to Exhibits 3.1 through
3.1(e) of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
3.2 Amendment to Certificate of Incorporation of the
Company filed April 8, 1996 with the Secretary of
State of Delaware.
3.3 Amended and Restated Bylaws of the Company, as
amended (incorporated by reference to Exhibits 3.2
and 3.2(a) of the Company's Annual Report on Form
10-K for the third fiscal year ended December 31,
1995).
(b) None
<PAGE>10
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: April 26, 1996 By: /s/ Andrew M. Bursky
Andrew M. Bursky,
Chairman of the Board
Date: April 26, 1996 By: /s/ Charles J. Martin
Charles J. Martin,
Vice President, Controller and
Chief Accounting Officer
<PAGE>1
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
STRATEGIC DISTRIBUTION, INC.
Strategic Distribution, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: Paragraph A of Article Fourth of the Restated
Certificate of Incorporation of the Corporation is hereby amended so as to
read in its entirety as follows:
"A. The total number of shares of all classes of stock
which the corporation shall have the authority to
issue is Fifty Million Five Hundred Thousand Shares,
consisting of Fifty Million shares of a par value of
Ten Cents ($.10) each, designated as Common Stock, and
Five Hundred Thousand shares of a par value of Ten
Cents ($.10) each, designated as Preferred Stock."
SECOND: In accordance with the provisions of Section 242 and
Section 228 of the General Corporation Law of the State of Delaware, the
foregoing amendment to the Restated Certificate of Incorporation has been duly
adopted by the holders of a majority of the issued and outstanding stock of
the Corporation acting by written consent in lieu of a meeting and notice of
such action has been given to those stockholders who have not consented in
writing.
<PAGE>2
IN WITNESS WHEREOF, Strategic Distribution, Inc. has caused
this Certificate to be signed by its President and attested by its Secretary
this 8th day of April, 1996, pursuant to Section 103(a) of the General
Corporation Law of the State of Delaware.
STRATEGIC DISTRIBUTION, INC.
By :/s/ Theodore R. Rieple
Theodore R. Rieple, President
ATTEST:
By:/s/ Catherine B. James
Catherine B. James, Secretary
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<NAME> STRATEGIC DISTRIBUTION, INC.
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 872,659
<SECURITIES> 0
<RECEIVABLES> 19,051,554
<ALLOWANCES> 0
<INVENTORY> 16,682,200
<CURRENT-ASSETS> 38,584,240
<PP&E> 3,739,766
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<TOTAL-ASSETS> 48,880,581
<CURRENT-LIABILITIES> 18,934,047
<BONDS> 4,161,608
<COMMON> 2,176,596
0
0
<OTHER-SE> 23,341,330
<TOTAL-LIABILITY-AND-EQUITY> 48,880,581
<SALES> 33,316,372
<TOTAL-REVENUES> 33,316,372
<CGS> 26,233,440
<TOTAL-COSTS> 26,233,440
<OTHER-EXPENSES> 8,959,555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,069
<INCOME-PRETAX> (1,965,692)
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