Strategic Distribution Reports Revenues Down 26.4 Percent in Q2

Strategic Distribution, a provider of maintenance, repair and operating (MRO) supply chain management services, today reported financial results for the second quarter ended June 30, with revenues down 26.4 percent.

Revenues for the second quarter of 2004 were $27.4 million, compared to $37.4 million for the second quarter of 2003. The $10 million decrease was primarily attributable to the termination of the El Paso Corporation (EPC) integrated supply agreement in July 2003, the company said.

The EPC termination accounted for $7.5 million of the revenue decrease, the company said. It said the remaining decrease was due to the termination of other integrated supply service contracts totaling $3 million and to year over year weakness within the company’s core customer base totaling $500,000.

New Customers

These revenue decreases were partially offset by $1 million of revenues generated from new customers, the company explained.

The company reported a net loss of $700,000, or 23 cents per diluted share, in the second quarter of 2004, compared to net income of $400,000, or 12 cents per diluted share, in the same quarter of 2003.

The company said the primary driver of the second quarter net loss as lost profits due to the loss of customers.

The second quarter of 2004 was boosted by $400,000 from a settlement of a liability with a vendor, and the second quarter of 2003 included a $700,000 benefit from a legal settlement. At June 30, 2004, the company had $33 million in cash and cash equivalents on hand.

For the first half of 2004, Strategic Distribution reported revenues of $59.4 million, compared to revenues of $78.1 million reported for the first half of 2003.

Lost Customers

Of that $18.7 million drop, the company said $15 million was due to the termination of the EPC integrated supply.

The remaining decrease in revenues was attributable to the termination of other integrated supply service contracts totaling $8.6 million (including a $2.5 million final inventory sale related to a first quarter 2003 store closing) and to year over year weakness within the core customer base totaling $1.9 million, the company reported.

These revenue decreases were partially offset by $6.8 million of revenues generated from new customers, the company said. The new customer revenues included the recognition of $5.7 million primarily related to product revenues and other service fees associated with sales to a new customer in the third quarter of 2003. Revenues were not recognized until all of the criteria required by Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, were met, which occurred in the first quarter of 2004, the company explained.

Strategic Distribution reported a net loss of $1.2 million, or 39 cents per diluted share, in the first half of 2004 compared to net income of $400,000, or 14 cents per diluted share, in the same period of 2003.

Lawsuit Settlements

The first half of 2004 results were primarily driven by the loss of revenue from lost customers offset by revenue and associated profit from the new customer noted above. The first six months of 2004 included a $400,000 benefit related to the favorable settlement of a liability with a vendor and the first six months of 2003 included a $700,000 benefit from a legal settlement.

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