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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 June 30, 2000
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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
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STRATEGIC DISTRIBUTION, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 22-1849240
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3220 Tillman Drive, Suite 200, Bensalem, PA 19020
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(Address of principal executive offices) (Zip Code)
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215-633-1900
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(Registrant's telephone number, including area code)
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(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 August 4, 2000: 30,912,210
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TABLE OF CONTENTS
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PAGE NO.
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PART I - FINANCIAL INFORMATION
ITEM 1
Consolidated Financial Statements:
- Consolidated Balance Sheets - 1
June 30, 2000 (unaudited)
and December 31, 1999
- Consolidated Statements of Operations 2
(unaudited) - Three Months and Six
Months Ended June 30, 2000 and 1999
- Consolidated Statements of Cash Flows 3
(unaudited) - Six Months Ended
June 30, 2000 and 1999
- Notes to Consolidated Financial Statements 4
(unaudited)
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
ITEM 3
Quantitative and Qualitative Disclosures About
Market Risk 11
PART II - OTHER INFORMATION
ITEM 4
Submission of Matters to a Vote of Security
Holders 12
ITEM 6
Exhibits and Reports on Form 8-K 12
Signatures 14
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
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<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,529 $ 1,508
Accounts receivable, net 62,577 53,137
Current portion of notes receivable 1,083 583
Inventories 61,324 46,458
Prepaid expenses and other current assets 647 675
Deferred income taxes 1,466 10,555
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Total current assets 128,626 112,916
Notes receivable 924 1,424
Property and equipment, net 15,428 17,273
Intangible assets, net 2,113 6,230
Other assets 811 682
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Total assets $ 147,902 $ 138,525
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 48,569 $ 40,264
Current portion of long-term debt 23 1,422
Net liabilities of discontinued operations 2,236 1,230
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Total current liabilities 50,828 42,916
Long-term debt 6,514 29,926
Deferred income taxes 72 120
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Total liabilities 57,414 72,962
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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: 50,000,000 shares; issued and
outstanding: 31,380,210 and 31,380,210 shares 3,138 3,138
Additional paid-in capital 95,184 95,184
Accumulated deficit (5,483) (30,516)
Notes receivable from related parties (1,303) (1,374)
Treasury stock, at cost (468,000 and 388,000 shares) (1,048) (869)
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Total stockholders' equity 90,488 65,563
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Total liabilities and stockholders' equity $ 147,902 $ 138,525
========= =========
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See accompanying notes to consolidated financial statements.
-1-
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands, except share data)
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<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
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Revenues $ 90,817 $ 73,292 $ 178,126 $ 138,275
Cost and expenses:
Cost of materials 74,148 57,867 143,716 108,809
Operating wages and benefits 6,714 5,613 13,727 10,982
Other operating expenses 2,369 2,065 5,172 3,916
Selling, general and administrative expenses 7,996 7,535 16,492 14,208
------------ ------------ ------------ ------------
Total costs and expenses 91,227 73,080 179,107 137,915
------------ ------------ ------------ ------------
Operating income (loss) (410) 212 (981) 360
Gain on sale of subsidiary -- -- 43,185 --
Interest income (expense):
Interest expense (55) (274) (599) (420)
Interest income 112 76 242 149
------------ ------------ ------------ ------------
Interest income (expense), net 57 (198) (357) (271)
------------ ------------ ------------ ------------
Income (loss) before income taxes (353) 14 41,847 89
Income tax benefit (expense) 127 -- (16,164) --
------------ ------------ ------------ ------------
Income (loss) from continuing operations (226) 14 25,683 89
Loss on sale of discontinued operations, net of tax -- -- (650) --
------------ ------------ ------------ ------------
Net income (loss) $ (226) $ 14 $ 25,033 $ 89
============ ============ ============ ============
Net income (loss) per common share - basic and diluted
Income (loss) from continuing operations $ (0.01) $ 0.00 $ 0.83 $ 0.00
Loss from discontinued operations -- -- (0.02) --
------------ ------------ ------------ ------------
Net income (loss) $ (0.01) $ 0.00 $ 0.81 $ 0.00
============ ============ ============ ============
Weighted average number of shares of common
stock outstanding:
Basic 30,912,210 31,007,329 30,950,452 31,124,959
============ ============ ============ ============
Diluted 30,912,210 31,102,375 30,995,914 31,222,107
============ ============ ============ ============
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See accompanying notes to consolidated financial statements.
- 2 -
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
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<CAPTION>
Six months ended June 30,
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2000 1999
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Cash flows from operating activities:
Income from continuing operations $ 25,683 $ 89
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 2,258 1,837
Gain on sale of subsidiary (43,185) --
Deferred income taxes 9,041 --
Changes in operating assets and liabilities:
Accounts receivable (11,507) (9,344)
Inventories (14,867) (6,127)
Prepaid expenses and other current assets (111) (136)
Accounts payable and accrued expenses 8,967 14,284
Other, net (239) 91
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Net cash provided by (used in) continuing operations (23,960) 694
Discontinued operations:
Net loss (650) --
Increase in net liabilities 1,005 238
-------- --------
Net cash provided by (used in) operating activities (23,605) 932
Cash flows from investing activities:
Proceeds from sale of business, net 50,356 44
Additions of property and equipment (1,811) (4,350)
-------- --------
Net cash provided by (used in) investing activities 48,545 (4,306)
-------- --------
Cash flows from financing activities:
Repurchase of common stock (108) (713)
Proceeds from (repayment of) notes payable (23,400) 4,500
Repayment of long-term obligations (1,411) (10)
-------- --------
Net cash provided by (used in) financing activities (24,919) 3,777
-------- --------
Increase in cash and cash equivalents 21 403
Cash and cash equivalents, beginning of the period 1,508 1,322
-------- --------
Cash and cash equivalents, end of the period $ 1,529 $ 1,725
======== ========
Supplemental cash flow information:
Taxes paid $ 3,321 $ 129
======== ========
Interest paid $ 928 $ 298
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
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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 of Form 10-Q. In the opinion of management, all adjustments (of
a normal and recurring nature) considered necessary for a fair presentation
of the results of operations for the three months and six months ended June
30, 2000 and 1999 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, 1999. The results for the three months and six months ended June
30, 2000 are not necessarily indicative of the results that may be expected
for a full fiscal year.
2. On March 2, 2000, the Company completed the sale of its INTERMAT, Inc.
subsidiary ("INTERMAT") to Project Software & Development, Inc. ("PSDI") for
$55,000,000 in cash. The Company realized a gain on sale of subsidiary of
$43,185,000, or approximately $26,544,000 after tax, on the transaction. The
disposition was made pursuant to the terms of that certain Stock Purchase
Agreement between the Company and PSDI, dated as of January 11, 2000 and as
amended by Amendment No. 1 to Stock Purchase Agreement, dated as of February
29, 2000.
3. Under terms of a 1997 sale of a business, the Company is required to
repurchase certain inventory of the sold business that remained as of June 2,
2000. During June 2000, the Buyer notified the Company that the amount of
such inventory was approximately $2,200,000. Based on data provided by the
Buyer, the Company believes the value of such inventory to be less than the
asserted amount and is in the process of evaluating the claim. The Company
believes that it has adequately provided for its obligations under the
contract and that any liability resulting from the claim will not have a
material impact to its consolidated financial position or results of
operations.
4. The Company has a revolving Loan and Security Agreement (the "credit
facility") with its bank, providing maximum borrowings of $50,000,000.
Interest on the borrowings is variable at margins up to 1.0% over the bank's
reference rate (9.5% as of June 30, 2000) and/or a Eurodollar rate, with a
commitment fee of 0.25% per annum on the unused portion of the credit
available. Effective July 21, 2000, the credit facility was amended to extend
the term to May 8, 2002 and to reduce the effective interest rate on
borrowings up to $25,000,000. As of June 30, 2000, there was $6,500,000 of
borrowings outstanding under the credit facility at an interest rate of 9.5%.
5. Net loss per common share - basic and diluted are equal for the three months
ended June 30, 2000, because the effect of the assumed
4
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issuance of potential shares of common stock is antidilutive. For the three
months ended June 30, 1999 and the six months ended June 30, 2000 and 1999, the
weighted average number of shares used to calculate diluted net income per
common share includes the assumed exercise of stock options equivalent to
95,046, 45,462 and 97,148 shares respectively, under the treasury stock method.
Options to purchase approximately 3,965,000 shares at prices ranging from $2.50
to $8.00 per share were outstanding during the three months ended June 30, 1999,
but were not included in the computation of diluted net income per common share
because the market price of the common shares did not exceed the options'
exercise prices for substantially all of the three consecutive months ending on
June 30, 1999. As of June 30, 2000 and 1999, there were stock options
outstanding for approximately 2,963,000 and 4,142,000 common shares.
6. The Company operates in one reportable segment and substantially all of
its revenues are derived from the procurement, handling and data management
of MRO supplies for large industrial customers. The Company provides
inventory management technology and services ("data management services") to
In-Plant Store customers and previously provided such services to industrial
users other than In-Plant Store-Registered Trademark- customers. Total
revenues derived from data management services is not determinable because
fees charged to In-Plant Store customers do not differentiate data management
services from other In-Plant Store services. Data management services to
customers other than In-Plant Store customers were provided primarily through
INTERMAT. During the three months ended June 30, 2000 and 1999, revenues from
data management services to customers other than In-Plant Store customers
amounted to $0 and $1,880,000. During the six months ended June 30, 2000 and
1999, revenues from data management services to customers other than In-Plant
Store customers amounted to $1,463,000 and $3,778,000.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Certain statements in this Form 10-Q constitute forward-looking
statements, which involve risks and uncertainties. The Company's actual results
in the future could differ significantly from the results discussed or implied
in such forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those related to the Company's
ability to manage growth, termination of contracts by the Company's customers,
competition in the Company's business, the Company's dependence on key
personnel, and the effects of recession on the Company and its customers. In the
event of an economic downturn, the Company could experience reduced volume of
business from its existing customers, as well as lost volume due to plant
shutdowns or consolidations by the Company's customers.
The Company provides proprietary maintenance, repair and operating
("MRO") supply procurement, handling and data management solutions to industrial
sites, primarily through its In-Plant Store Trademark program. At June 30, 2000,
the Company had 181 In-Plant Store facilities in the United States and Mexico.
SALE OF SUBSIDIARY
On March 2, 2000, the Company completed the sale of INTERMAT for
$55,000,000 in cash. The Company realized a gain on sale of subsidiary of
$43,185,000, or approximately $26,544,000 after tax, on the transaction. In
conjunction with the sale, the Company entered into a License and Services
Agreement with INTERMAT that allows the Company to continue to use both
current and future INTERMAT technology in the In-Plant Store operation. A
portion of the net proceeds from the INTERMAT sale transaction was used to
repay all outstanding bank borrowings as of March 2, 2000. The balance of the
net proceeds was used to pay federal tax deposits in connection with the sale
and to fund the expansion of the In-Plant Store program.
SYSTEMS IMPLEMENTATION
In late 1997, the Company began a planned project to replace its
operating and financial data processing systems, in order to provide better
access to business information, to meet the service requirements of its
customers and to allow for the expansion of its In-Plant Store program. The new
systems are referred to as the In-Site-TM- systems. During 1998, central system
hardware and software was acquired and development of the operating and
financial systems commenced. Financial systems were operational effective
January 1, 1999. Communications installations, establishment of a dedicated
6
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telecommunications network with the Company's data processing center,
acquisition of additional hardware, deployment of the operating systems to
the Company's In-Plant Store sites and integration with the financial systems
commenced in the second quarter of 1999. During the second half of 1999, the
Company experienced unanticipated difficulties with data conversion from
existing systems and in the flow and integration of information into the
financial systems. The Company also extended the deployment schedule into
2000 in order to allow sufficient time and resources to successfully complete
the project. The implementation problems and schedule changes have resulted
in increased overtime, temporary labor, travel and outside consultant
expenses. As of June 30, 2000, the In-Site operating system deployment was
approximately 80% complete and is expected to be substantially complete by
the end of 2000.
RESULTS OF OPERATIONS
The following table of revenues and percentages sets forth selected items
of the results of operations.
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<CAPTION>
Three months ended Six months ended
June 30, June 30,
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2000 1999 2000 1999
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(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $90,817 $73,292 $178,126 $138,275
100.0% 100.0% 100.0% 100.0%
Cost of materials 81.7 78.9 80.7 78.7
Operating wages and benefits 7.4 7.7 7.7 7.9
Other operating expenses 2.6 2.8 2.9 2.8
Selling, general and administrative expenses 8.8 10.3 9.3 10.3
Operating income (loss) (0.5) 0.3 (0.6) 0.3
Gain on sale of subsidiary -- -- 24.2 --
Interest income (expense), net 0.1 (0.3) (0.2) (0.2)
Income (loss) before income taxes (0.4) -- 23.4 0.1
Income tax benefit (expense) 0.1 -- (9.1) --
Income (loss) from continuing operations (0.3) -- 14.3 0.1
Loss on sale of discontinued operations, net of tax -- -- (0.4) --
Net income (loss) (0.3) -- 13.9 0.1
</TABLE>
7
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THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Revenues for the three months ended June 30, 2000 increased 23.9% to
$90,817,000 from $73,292,000 for the three months ended June 30, 1999. This
growth resulted primarily from the maturation of In-Plant Store facilities
opened over the last six quarters. The number of In-Plant Store facilities
increased from 153 at June 30, 1999, to 181 at June 30, 2000. During the
three months ended June 30, 2000 and 1999, three In-Plant Store customers
comprised approximately 27% and 21% of the Company's revenues although no
customer exceeded 10% in 1999. One In-Plant Store customer represented
approximately 14% of revenues for the three months ended June 30, 2000.
Cost of materials as a percentage of revenues increased to 81.7% for
the three months ended June 30, 2000, from 78.9% in 1999. The increase was
primarily due to lower data management service revenues as a result of the
sale of INTERMAT. Direct material costs associated with data management
services were insignificant. The consolidated percentage increase also
reflects a change in revenue mix and higher freight costs for the In-Plant
Store operations for the three months ended June 30, 2000 as compared to 1999.
Operating wages and benefits expenses as a percentage of revenues
decreased to 7.4% for the three months ended June 30, 2000 from 7.7% in 1999.
This decrease reflects growth in the Mexican In-Plant Store business, which had
lower wages as a percentage of revenues than the United States business, and the
decline in data management service revenues. Operating wages and benefits
associated with data management services were historically higher as a
percentage of revenues than those associated with In-Plant Store operations.
Other operating expenses as a percentage of revenues decreased to 2.6%
for the three months ended June 30, 2000 from 2.8% in 1999. The decrease
reflects the decline in data management service revenues. Other operating
expenses associated with data management services were historically higher as a
percentage of revenues than those associated with In-Plant Store operations. The
decrease was partially offset by higher costs for In-Site systems, including
amortization of capitalized costs, telecommunications network costs and higher
temporary labor costs in connection with the implementation.
Selling, general and administrative expenses as a percentage of
revenues decreased to 8.8% for the three months ended June 30, 2000 from 10.3%
in 1999. The decrease was primarily due to the decline in data management
service revenues as a result of the sale of INTERMAT, which had a significantly
higher percentage of these costs than the In-Plant Store business. In-Plant
Store selling, general and administrative expenses for the three months ended
June 30, 2000, as a percentage of revenues, were lower than 1999. Higher costs
for In-Site infrastructure, temporary labor and travel in connection with the
implementation of In-Site systems were more than offset as a percentage of
revenues, as the Company leveraged the overall growth of the business.
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Interest income, net was $57,000 for the three months ended June 30,
2000 compared to interest expense, net of $198,000 for the three months ended
June 30, 1999. During the 2000 quarter, the Company invested available net
proceeds from the INTERMAT sale.
Net loss for the three months ended June 30, 2000 was $226,000, net of
an income tax benefit of $127,000, compared to net income of $14,000 in 1999, as
a result of the operating results previously discussed.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenues for the six months ended June 30, 2000 increased 28.8% to
$178,126,000 from $138,275,000 for the six months ended June 30, 1999. This
growth resulted primarily from the maturation of In-Plant Store facilities
opened over the last six quarters. The number of In-Plant Store facilities
increased from 153 at June 30, 1999 to 181 at June 30, 2000. During the six
months ended June 30, 2000 and 1999, three In-Plant Store customers comprised
approximately 26% and 19% of the Company's revenues although no customer
exceeded 10% in 1999. One In-Plant Store customer represented approximately 14%
of revenues for the six months ended June 30, 2000.
Cost of materials as a percentage of revenues increased to 80.7% for
the six months ended June 30, 2000 from 78.7% in 1999. The increase was
primarily due to lower data management service revenues as a result of the
sale of INTERMAT. Direct material costs associated with data management
services were insignificant. The consolidated percentage increase also
reflects a change in revenue mix and higher freight costs for the In-Plant
Store operations for the six months ended June 30, 2000 as compared to 1999.
Operating wages and benefits expenses as a percentage of revenues
decreased to 7.7% for the six months ended June 30, 2000 from 7.9% in 1999. This
decrease reflects growth in the Mexican In-Plant Store business, which had lower
wages as a percentage of revenues than the United States business, and the
decline in data management service revenues. Operating wages and benefits
associated with data management services were historically higher as a
percentage of revenues than those associated with In-Plant Store operations.
Other operating expenses as a percentage of revenues increased to 2.9%
for the six months ended June 30, 2000 from 2.8% in 1999. The increase reflects
higher costs for In-Site systems, including amortization of capitalized costs,
telecommunications network costs and higher temporary labor costs in connection
with the implementation. The decrease was partially offset by lower costs
related to the decline in data management service revenues. Other operating
expenses associated with data management services were historically higher as a
percentage of revenues than those associated with In-Plant Store operations.
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Selling, general and administrative expenses as a percentage of
revenues decreased to 9.3% for the six months ended June 30, 2000 from 10.3% in
1999. The decrease was primarily due to the decline in data management service
revenues as a result of the sale of INTERMAT, which had a significantly higher
percentage of these costs than the In-Plant Store business. In-Plant Store
selling, general and administrative expenses for the six months ended June 30,
2000, as a percentage of revenues, were comparable to 1999, despite growth in
the business. This reflected higher costs for In-Site infrastructure, temporary
labor and travel in connection with the implementation of In-Site systems.
Loss from discontinued operations was $650,000, net of income tax
benefit of $350,000, for the six months ended June 30, 2000, reflecting a charge
for contractual obligations from a prior sale of a business.
Interest expense, net was $357,000 for the six months ended June 30,
2000 compared to interest expense, net of $271,000 for the six months ended June
30, 1999. The increase reflects higher average borrowings in 2000 against the
Company's credit facility, as well as cumulative increases of 1.75% in the prime
borrowing rate since June 30, 1999.
Net income for the six months ended June 30, 2000 was $25,033,000,
compared to net income of $89,000 in 1999, as a result of the sale of
INTERMAT and the other operating results previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
The Company's credit facility provides maximum borrowings of
$50,000,000. Effective July 21, 2000, the credit facility was amended to
extend the term to May 8, 2002 and to reduce the Company's borrowing rate. As
of June 30, 2000, there were $6,500,000 of borrowings outstanding under the
credit facility at an interest rate of 9.5%. Future borrowings under the
facility are expected to be used primarily to fund working capital
requirements for the expansion of the In-Plant Store program.
Income from continuing operations of $25,683,000 for the six months
ended June 30, 2000, included a gain from the sale of INTERMAT, net of taxes, of
approximately $26,544,000. After adjusting for the noncash effect of the
INTERMAT sale, net cash used by operating activities was $23,605,000 for the six
months ended June 30, 2000 compared to net cash provided of $932,000 in 1999.
The increase resulted primarily due to an increase in accounts receivable and
inventories, which were partially offset by an increase in accounts payable and
accrued expenses. Accounts receivable and inventories increased primarily due to
the increase in the number of In-Plant Store facilities, as well as the
maturation of facilities opened in the last 3 quarters. Accounts payable and
accrued expenses increased primarily due to higher inventory levels.
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The net cash provided by investing activities was $48,545,000 for the
six months ended June 30, 2000 compared to net cash used of $4,306,000 in 1999.
Cash was provided from the sale of INTERMAT and was partially offset by
expenditures for computer systems and related equipment, which were lower in
2000 than in 1999.
The net cash used in financing activities was $24,919,000 for the six
months ended June 30, 2000 compared to net cash provided of $3,777,000 in 1999.
The net cash used in 2000 reflected payment of a $1,400,000 note to an officer
of the Company, the payment of all outstanding borrowings under the credit
facility with INTERMAT sale proceeds as of March 2, 2000, less subsequent
borrowings under the credit facility in June 2000. In 1999, cash was provided
primarily from the Company's credit facility.
The Company believes that cash on hand, cash generated from future
operations, and cash from the credit facility will generate sufficient funds to
permit the Company to support the anticipated expansion of the In-Plant Store
program and completion of the In-Site project.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2000, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 138, "Accounting for
Derivative Instruments and Certain Hedging Activities (an amendment of FASB
Statement No. 133)". The statement is effective for fiscal years beginning
after June 15, 2000.
In March 2000, the FASB issued FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 is generally
effective for transactions occurring after July 1, 2000, but applies to
option repricings and certain other transactions after December 15, 1998.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). The implementation of SAB 101 has been delayed and
will be effective for the Company in the fourth quarter of 2000.
The Company believes adoption of the accounting standards will not
have a material effect on the Company's financial position or results of
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material exposure to market risk
associated with activities in derivative financial instruments, other financial
instruments and derivative commodity instruments.
11
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PART II
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2000 Annual Meeting of Stockholders (the "2000
Annual Meeting") was held on May 17, 2000. At the 2000 Annual
Meeting, William R. Berkley, Andrew M. Bursky, Arnold W.
Donald, Catherine B. James, Robert D. Neary, Jack H. Nusbaum,
Joshua A. Polan, Mitchell I. Quain and John M. Sergey were
elected to the Company's Board of Directors, to serve until the
next annual meeting of stockholders and until their successors
are elected and qualify, or until their earlier resignation or
removal. At the 2000 Annual Meeting, 23,404,585 shares were
voted for Mr. Berkley and 580,913 votes were withheld,
23,374,385 shares were voted for Mr. Bursky and 611,113 votes
were withheld, 23,404,585 shares were voted for Mr. Donald and
580,913 votes were withheld, 23,404,378 shares were voted for
Ms. James and 581,120 votes were withheld, 23,403,879 shares
were voted for Mr. Neary and 581,619 votes were withheld,
23,374,585 shares were voted for Mr. Nusbaum and 610,913 votes
were withheld, 23,404,585 shares were voted for Mr. Polan and
580,913 votes were withheld, 23,404,379 shares were voted for
Mr. Quain and 581,119 votes were withheld, 23,404,123 shares
were voted for Mr. Sergey and 581,375 votes were withheld.
At the 2000 Annual Meeting, holders of Common Stock were asked
to (i) approve the increase to 275,000 in the number of shares
of Common Stock reserved for issuance under the Company's
Amended and Restated 1996 Non-Employee Director Stock Plan
("Proposal II"), and (ii) ratify the appointment of KPMG LLP as
independent auditors of the Company for the fiscal year ending
December 31, 2000 ("Proposal III"). The following table sets
forth the shares of Common Stock voted for, against, and
abstaining with respect to Proposal II and Proposal III. There
were no broker non-votes with respect to either Proposal II or
Proposal III.
<TABLE>
PROPOSAL FOR AGAINST ABSTAINING
<S> <C> <C> <C>
Proposal II 22,738,320 1,236,435 10,743
Proposal III 23,759,306 22,306 203,885
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits:
3.1 Second Restated Certificate of Incorporation of
the Company filed June 21, 1996 with the Secretary
of State of the State of Delaware (incorporated by
reference to Exhibit 3.2 of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
June 30, 1996).
12
<PAGE>
3.2 Amended and Restated Bylaws of the Company, dated
July 24, 1986, 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 fiscal year ended
December 31, 1995).
4.1 The instruments defining the rights of holders of
the long-term debt securities of the Company are
omitted pursuant to Section (b)(4)(iii)(A) of Item
601 of Regulation S-K. The Company agrees to
furnish supplementary copies of these instruments to
the Commission upon request.
10.1 First Amended and Restated Loan and Security Agreement,
dated April 27, 2000, among the financial institutions
named therein as the lenders, Bank of America, N.A.
(formerly known as Bank of America National Trust and
Savings Association, successor-in-interest to
BankAmerica Business Credit, Inc.) as the Agent and
Industrial Systems Associates, Inc. as the Borrower.
10.2 Amendment No. 1 to First Amended and Restated Loan and
Security Agreement, dated July 21, 2000, by and among
Bank of America, N.A., Mellon Bank, N.A. and Industrial
Systems Associates, Inc., amending the First Amended
and Restated Loan and Security Agreement, dated as of
April 27, 2000, among the financial institutions
named therein as the lenders, Bank of America, N.A.
(formerly known as Bank of America National Trust and
Savings Association, successor-in-interest to
BankAmerica Business Credit, Inc.) as the Agent and
Industrial Systems Associates, Inc. as the Borrower.
27 Financial Data Schedule
(b). Reports on Form 8-K:
The Company did not file any Reports on Form 8-K during the second
quarter of 2000.
13
<PAGE>
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: August 11, 2000 By: /s/ John M. Sergey
-------------------------
John M. Sergey
President and Chief
Executive Officer
Date: August 11, 2000 By: /s/ David L. Courtright
---------------------------
David L. Courtright,
Controller and
Chief Accounting Officer
14
<PAGE>
EXHIBIT INDEX
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits:
3.1 Second Restated Certificate of Incorporation of
the Company filed June 21, 1996 with the Secretary
of State of the State of Delaware (incorporated by
reference to Exhibit 3.2 of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
June 30, 1996).
3.2 Amended and Restated Bylaws of the Company, dated
July 24, 1986, 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 fiscal year ended
December 31, 1995).
4.2 The instruments defining the rights of holders of
the long-term debt securities of the Company are
omitted pursuant to Section (b)(4)(iii)(A) of Item
601 of Regulation S-K. The Company agrees to
furnish supplementary copies of these instruments to
the Commission upon request.
10.3 First Amended and Restated Loan and Security Agreement,
dated April 27, 2000, among the financial institutions
named therein as the lenders, Bank of America, N.A.
(formerly known as Bank of America National Trust and
Savings Association, successor-in-interest to
BankAmerica Business Credit, Inc.) as the Agent and
Industrial Systems Associates, Inc. as the Borrower.
10.4 Amendment No. 1 to First Amended and Restated Loan and
Security Agreement, dated July 21, 2000, by and among
Bank of America, N.A., Mellon Bank, N.A. and Industrial
Systems Associates, Inc., amending the First Amended
and Restated Loan and Security Agreement, dated as of
April 27, 2000, among the financial institutions
named therein as the lenders, Bank of America, N.A.
(formerly known as Bank of America National Trust and
Savings Association, successor-in-interest to
BankAmerica Business Credit, Inc.) as the Agent and
Industrial Systems Associates, Inc. as the Borrower.
27 Financial Data Schedule
15
