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Strategic 2003 Annual Revenues Plummet

Strategic Distribution, Inc., Bensalem, PA, reported revenues for the fourth quarter of 2003 were $26.4 million, compared to revenues of $40.9 million reported for the fourth quarter of 2002. The $14.5 million decrease in revenues was primarily attributable to the termination of the El Paso Corporation (EPC) integrated supply agreement in July 2003. The EPC termination accounted for $8.0 million of the decrease. The company reported no EPC revenues in the fourth quarter of 2003. Additional decreases in revenues were attributable to the termination of other integrated supply service contracts totaling $4.4 million and to continued weakness within our core customer base totaling $2.1 million.

The company reported a net loss of $0.7 million or 23 cents per share in the fourth quarter of 2003 compared to a net loss of $0.1 million or 3 cents per share for the same period of the prior year. The majority of the change in the net loss from the fourth quarter of 2002 to the fourth quarter of 2003 was attributable to the loss of operating income from closed sites. In addition, the company determined that certain other liabilities and reserves were overstated by approximately $1.4 million. The adjustments required to correct the liabilities and reserves were based on recent developments that led management to refine estimates related to certain liabilities and reserves. Of these adjustments, $0.9 million was reflected as a reduction to cost of materials in 2003 due to overestimated liabilities to suppliers.

For the year ended 2003, the company reported revenues of $134.6 million compared to $253.6 million for the year ended December 31, 2002. The termination of the EPC integrated supply agreement in 2003 and the termination of the Kraft Foods North America, Inc. (Kraft) integrated supply agreement in 2002 accounted for $95.7 million of the decrease in aggregate, or $18.7 million and $77.0 million (including a $26.2 million one-time inventory sale), respectively. The company reported $18.7 million of EPC revenues and no Kraft revenues in the full year 2003. Additional decreases in revenues were attributable to the termination of other integrated supply contracts totaling $19.7 million and to continued weakness within our core customer base totaling $4.6 million. The revenue decreases were partially offset by a one-time $1.0 million inventory sale to an existing customer.

The company reported a net loss of $0.7 million or 24 cents per share for the full year 2003 compared to a net loss of $3.4 million or $1.11 per share for the same period of the prior year. The full year of 2002 included $4.5 million of severance and long-lived asset impairment charges associated with the Kraft termination, a $1.9 million non-cash charge related to the adoption of Statement of Financial Accounting Standards No. 142 -- Goodwill and Other Intangible Assets, the benefit of $1.7 million of profit on the Kraft inventory sale, the $0.9 million benefit related to the more favorable conclusion of previously estimated contract termination matters, and the benefit of a $0.3 million insurance recovery.

In addition to the 2002 items described above, the net loss generated in the full year 2003 as compared to the full year 2002 results was attributable to the loss of operating income from closed sites. The full year ended 2003 included a legal settlement that was more favorable than previously estimated by $0.7 million and included a benefit of approximately $1.4 million attributable to reductions in costs and expenses due to changes in estimates. These benefits were offset by the recognition of $0.5 million of expense as a result of re-pricing the company's outstanding stock options and changing the methodology for administering the company's vacation policy. The company did not recognize revenues and the associated profits on the shipment of supplies, costing $4.6 million, to a new customer as a result of not meeting all of the criteria

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