<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
-------------
Commission file number 1-9375
------
Sun Distributors L.P.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2439550
- - ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 One Logan Square
Philadelphia, Pennsylvania 19103
- - -------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(215) 665-3650
---------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed from last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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
--- ---
<PAGE>
SUN DISTRIBUTORS L.P.
INDEX
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1994
(Unaudited), December 31, 1993, and June
30,1993 (Unaudited) 3
Consolidated Statements of Income for
the Three Months ended June 30,
1994 and 1993 (Unaudited) 4
Consolidated Statements of Income for
the Six Months ended June 30, 1994 and 1993
(Unaudited) 5
Consolidated Statements of Cash Flows
for the Three Months ended June 30, 1994
and 1993 (Unaudited) 6
Consolidated Statements of Cash Flows
for the Six Months ended June 30, 1994
and 1993 (Unaudited) 7
Notes to Consolidated Financial Statements
(Unaudited) 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
PART II. OTHER INFORMATION 16
SIGNATURES 17
2
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
----------
JUNE 30, 1494 JUNE 30, 1993*
(Unaudited) DECEMBER 31, 1993* (Unaudited)
----------------- --------------------- -----------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $2,977 $1,327 $2,635
Accounts and notes receivable, net 96,909 80,006 85,680
Inventories 97,094 95,617 88,559
Other current assets 4,895 5,294 3,934
--------- --------- ---------
Total current assets 201,875 182,244 180,808
Property, plant and equipment, net 29,238 29,629 30,245
Goodwill 54,623 55,608 56,670
Other intangibles 3,245 3,838 4,455
Deferred income taxes 1,729 1,410 1,850
Other assets 1,576 764 790
--------- --------- ---------
Total assets $292,286 $273,493 $274,818
========= ========= =========
LIABILITIES AND PARTNERS' CAPITAL
-------------------------------------
Current liabilities:
Accounts payable, trade $58,162 $50,333 $47,207
Current portion of senior notes 5,700 5,700 ---
Notes payable 2,450 3,411 2,212
Current portion of capitalized lease obligations 549 619 607
Distributions payable to partners 1,625 4,688 1,245
Accrued expenses:
Salaries and wages 5,810 5,426 4,708
Interest on senior notes 703 703 703
Management fee due the general partner 1,651 3,330 1,651
Income and other taxes 3,260 2,484 2,984
Other accrued expenses 14,630 13,459 11,624
--------- --------- ---------
Total current liabilities 94,540 90,153 72,941
Senior notes 89,300 89,300 95,000
Bank revolving credit 20,000 10,000 21,000
Capitalized lease obligations 4,647 4,885 5,201
Deferred compensation 6,216 5,363 5,810
Other liabilites 837 910 1,413
Commitments and contingencies
Partners' capital:
General partner 768 729 735
Limited partners:
Class A interests 67,642 67,642 67,642
Class B interests 9,850 6,025 6,590
Class B interests held in treasury ( 1,514) ( 1,514) ( 1,514)
--------- --------- ---------
Total liabilities and partners' capital $292,286 $273,493 $274,818
========== ========== ==========
</TABLE>
*Reclassified for comparative purposes
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(dollars in thousands, except for partnership interest amounts)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, 1994 June 30, 1993
------------- -------------
<S> <C> <C>
Net sales $189,360 $169,355
Cost of sales 117,341 103,997
--------- ---------
Gross profit 72,019 65,358
--------- ---------
Operating expenses:
Selling, general and administrative expenses 58,824 53,436
Management fee to general partner 830 830
Depreciation 1,181 1,319
Amortization 663 686
--------- ---------
Total operating expenses 61,498 56,271
--------- ---------
Income from operations 10,521 9,087
Interest income 14 26
Interest expense 2,576 2,579
Other income, net 58 26
--------- ---------
Income before provision for income taxes 8,017 6,560
Provision (credit) for income taxes ( 9) 209
--------- ---------
Net income $8,026 $6,351
========= =========
Net income allocated to partners:
General partner $80 $64
--------- ---------
Class A limited partners $3,053 $4,202
--------- ---------
Class B limited partners $4,893 $2,085
--------- ---------
Weighted average number of outstanding
limited partnership interests:
- Class A interests 11,099,573 11,099,573
- Class B interests 21,675,746 21,675,746
Earnings per Limited partnership interest:
- Class A interest $.28 $.38
- Class B interest $.23 $.10
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(dollars in thousands, except for partnership interest amounts)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1994 June 30, 1993
------------- -------------
<S> <C> <C>
Net sales $364,469 $319,341
Cost of sales 224,993 195,073
----------- ----------
Gross profit 139,476 124,268
Operating expenses:
Selling, general and administrative expenses 116,513 105,816
Management fee to general partner 1,651 1,651
Depreciation 2,357 2,666
Amortization 1,349 1,361
----------- ----------
Total operating expenses 121,870 111,494
----------- ----------
Income from operations 17,606 12,774
Interest income 27 65
Interest expense 5,048 5,066
Other income (expense), net ( 327) 776
----------- ----------
Income before provision for income taxes 12,258 8,549
Provision for income taxes 67 276
----------- ----------
Net income $12,191 $8,273
=========== ==========
Net income allocated to partners:
General partner $122 $83
----------- ----------
Class A limited partners $6,105 $6,105
----------- ----------
Class B limited partners $5,964 $2,085
----------- ----------
Weighted average number of outstanding
limited partnership interests:
- Class A interests 11,099,573 11,099,573
- Class B interests 21,675,746 21,675,746
Earnings per Limited partnership interest:
- Class A interest $.55 $.55
- Class B interest $.28 $.10
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, 1994 June 30, 1993
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $8,026 $6,351
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,844 2,005
Provision for deferred compensation 904 295
Deferred income tax benefit ( 244) ( 82)
Changes in current operating items:
Increase in accounts and notes receivable ( 6,099) ( 6,473)
Increase in inventories ( 827) ( 1,480)
Decrease in other current assets 168 363
Increase in accounts payable 1,874 5,581
Decrease in accrued interest ( 2,108) ( 1,593)
Increase in other accrued liabilities 728 782
Increase in other assets ( 842) ---
Other items, net ( 12) ( 281)
------- -------
Net cash provided by operating activities 3,412 5,468
------- -------
Cash flows from investing activities:
Capital expenditures ( 1,004) ( 909)
Proceeds from sale of property, plant and equipment 61 48
Other, net 25 16
------- -------
Net cash used for investing activities ( 918) ( 845)
------- -------
Cash flows from financing activities:
Borrowings under the bank credit agreement 3,000 ---
Cash distributions to partners ( 4,419) ( 3,736)
Repayments under other credit facilities, net ( 758) ( 212)
Principal payments under capitalized lease obligations ( 154) ( 157)
Other, net --- ( 10)
------- -------
Net cash used for financing activities ( 2,331) ( 4,115)
------- -------
Net increase in cash and cash equivalents 163 508
Cash and cash equivalents at beginning of period 2,814 2,127
------- -------
Cash and cash equivalents at end of period $2,977 $2,635
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1994 June 30, 1993
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $12,191 $8,273
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,706 4,027
Provision for deferred compensation 1,396 697
Deferred income tax benefit ( 319) ( 232)
Changes in current operating items:
Increase in accounts and notes receivable ( 16,903) ( 10,529)
Increase in inventories ( 1,477) ( 3,631)
Decrease in other current assets 399 545
Increase in accounts payable 7,829 7,416
Increase in accrued interest --- 516
Increase (decrease) in other accrued liabilities 652 ( 1,321)
Increase in other assets ( 842) ---
Other items, net ( 431) ( 120)
-------- --------
Net cash provided by operating activities 6,201 5,641
-------- --------
Cash flows from investing activities:
Capital expenditures ( 2,193) ( 1,611)
Proceeds from sale of property, plant and equipment 204 60
Other, net 181 ( 84)
-------- --------
Net cash used for investing activities ( 1,808) ( 1,635)
-------- --------
Cash flows from financing activities:
Borrowings under the bank credit agreement 10,000 6,000
Cash distributions to partners ( 11,474) ( 7,470)
Repayments under other credit facilities, net ( 961) ( 382)
Principal payments under capitalized lease obligations ( 308) ( 314)
Other, net -- 50
-------- --------
Net cash used for financing activities ( 2,743) ( 2,116)
-------- --------
Net increase in cash and cash equivalents 1,650 1,890
Cash and cash equivalents at beginning of period 1,327 745
-------- --------
Cash and cash equivalents at end of period $2,977 $2,635
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Basis of Presentation:
The accompanying financial statements include the consolidated accounts of
Sun Distributors L.P. (the "Company") and its subsidiary partnership, SDI
Operating Partners, L.P. (the "Operating Partnership"). All significant
intercompany balances and transactions have been eliminated. The Operating
Partnership is a distributor of industrial products through seventeen
operating units.
The accompanying consolidated financial statements and related notes are
unaudited, except for the balance sheet as of December 31, 1993; however, in
management's opinion all adjustments (consisting of normal recurring
accruals) considered necessary for the fair presentation of financial
position, income and cash flows for the periods shown have been reflected.
Results for the interim period are not necessarily indicative of those to be
expected for the full year.
Certain information in note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to Form 10-Q requirements
although the Company believes that disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's report on Form 10-K for the year
ended December 31, 1993.
2. Related Party Transaction:
In June 1994, the Operating Partnership paid $1,665, the remaining balance
due its General Partner, SDI Partners I, L.P., of the 1993 management fee of
$3,330 due on March 31, 1994. The payment had been deferred to maintain
compliance with requirements of its credit agreements.
8
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
3. Lines of Credit and Long-Term Debt:
As of June 30, 1994, the Operating Partnership had $31,573 outstanding under
its $50,000 Bank Credit Agreement of which bank borrowings amounted to
$20,000 as reflected on the accompanying consolidated balance sheet, and
letter of credit commitments aggregated $11,573.
The Operating Partnership has other confirmed credit facilities available in
the amount of $6,313 for letters of credit of which $5,710 was outstanding at
June 30, 1994. In addition, an indirect, wholly-owned Canadian subsidiary of
the Operating Partnership has a working capital line of credit in the amount
of $1,807 of which $967 was outstanding at June 30, 1994.
The Company's Bank Credit and Senior Note Agreements require the maintenance
of specific coverage ratios and levels of financial position and restrict
incurrence of additional debt, distributions from the Operating Partnership
to the Company and the GP and the sale of assets. For 1994 and future years,
the Banks and Senior Noteholders have agreed to modify certain coverage
ratios and other financial requirements as requested by the Company.
However, the Company is prohibited from acquisition spending in 1994.
4. Contingencies:
Certain legal proceedings are pending which are either in the ordinary course
of business or incidental to the Company's business. Those legal proceedings
incidental to the business of the Company are generally not covered by
insurance or other indemnity. Although the ultimate outcome of these
proceedings cannot be ascertained at this time, it is reasonably possible
that some of them could be resolved unfavorably. In the opinion of counsel
and management, the ultimate resolution of these matters will not have a
material effect on the consolidated financial position of the Company.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
Results of Operations
Three Months Ended June 30, 1994 and June 30, 1993
--------------------------------------------------
Net income amounted to $8.0 million in the second quarter of 1994, 26.4% above
the $6.4 million earned in the second quarter of 1993 as a result of continued
economic strengthening across all product markets and internal growth strategies
developed within the last two years.
Net sales during the second quarter of 1994 increased $20.0 million or 11.8%
compared with the same quarter in 1993 as a result of substantial strength in
all product markets and significant growth from sales programs and services
initiated since 1992. Sales increases by product group are as follows:
<TABLE>
<CAPTION>
Sales Increase
--------------
Amount %
------ -
<S> <C> <C>
Fluid Power Products $8.0 million 13.7%
Maintenance Products 5.6 million 10.5%
Electrical Products including
Sun Inventory Management ("SIMCO") 3.4 million 12.6%
Glass Products 3.0 million 9.9%
</TABLE>
Total cost of sales for the second quarter of 1994 increased $13.3 million or
12.8% from the comparable quarter in 1993 due primarily to increased sales
levels in the comparison period.
Gross margins in the second quarter of 1994 were 38.0% compared with 38.6% in
the 1993 period. A comparative summary of gross margins by product group is as
follows:
<TABLE>
<CAPTION>
2nd Quarter
-----------
1994 1993
----- ----
<S> <C> <C>
Maintenance Products 59.7% 61.7%
Glass Products 34.8% 33.8%
Fluid Power Products 27.1% 27.0%
Electrical Products including SIMCO 22.9% 23.3%
</TABLE>
The erosion in gross margin in the Maintenance Products Group is due mainly to
increased sales allowances related to business expansion programs and
competitive pricing pressures. Changes in sales mix contributed primarily to
the increase in gross margins in the Glass Products Group, while competitive
pricing pressures were the primary cause of the gross margin decline in the
Electrical Products Group.
Total selling, general and administrative ("S,G&A") expenses increased $5.4
million or 10.1% during the three months ended June 30, 1994, compared with the
second quarter of 1993, comprised as follows: increased selling expenses of
$3.5 million or 15.1%, increased warehouse and delivery expenses of $1.1 million
or 10.6% and increased general and administrative expenses of $.8 million or
3.9%.
10
<PAGE>
Selling and warehouse and delivery expenses increased in the second quarter of
1994 to support the substantial increase in 1994 sales levels and expansion
programs by certain operating units. General and administrative expenses in the
second quarter of 1994 increased primarily by inflationary growth in fixed
costs.
S,G&A expenses, as a percentage of sales were as follows in the second quarter
of 1994 and 1993:
<TABLE>
<CAPTION>
2nd Quarter
-----------
1994 1993
----- ----
<S> <C> <C>
Selling Expenses 14.3% 13.9%
Warehouse and Delivery Expenses 5.9% 6.0%
General and Administrative Expenses 10.9% 11.7%
---- ----
Total S,G&A Expenses 31.1% 31.6%
---- ----
</TABLE>
Overall, as a percentage of sales, total S,G&A expenses decreased to 31.1%
during the second quarter of 1994 compared with 31.6% during the second quarter
of 1993 due mainly to the increase in sales levels in relation to the fixed cost
component of S,G&A expenses.
As calculated in accordance with the partnership agreement, the management fee
due the General Partner (the "GP") annually amounts to $3.3 million which is
based on 3% of the aggregate initial capital investment ($111 million) of the
limited partners. The management fee is accrued each quarter in the amount of
approximately $.8 million.
Depreciation expense decreased $.1 million in the comparison period due
primarily to a reduction in the depreciable fixed asset base as a result of
fully depreciated assets.
Currently, the Company incurs state and local income taxes on its domestic
operations and foreign income taxes on its Canadian and Mexican Operations.
Also, the Company provides for deferred income taxes as determined in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS #109"), which represent state and federal income tax benefits
expected to be realized after December 31, 1997, when the Company will be taxed
as a corporation. The Company's provision for income taxes decreased $.2
million due primarily to an increase in deferred tax benefits related to
provisions for deferred compensation in the comparison period.
The allocation of net income to the GP is based on the GP's 1% ownership
interest in the profits of the Company. The allocation of net income to the
limited partners for financial statement purposes represents a 99% interest in
the profits of the Company. The net income allocation resulted in $.28 of
income per Class A limited partnership interest for the quarter ended June 30,
1994, compared with $.38 of income per Class A limited partnership interest for
the quarter ended June 30, 1993; and $.23 of income per Class B limited
partnership interest in the second quarter of 1994 compared with $.10 of income
per Class B limited partnership interest for the quarter ended June 30, 1993.
11
<PAGE>
Six Months Ended June 30, 1994 and June 30, 1993
------------------------------------------------
Net income amounted to $12.2 million for the first six months of 1994, 47.4%
above the $8.3 million earned in the first six months of 1993 as a result of
economic strengthening across all product markets and internal growth strategies
developed within the last two years.
Net sales during the first six months of 1994 increased $45.1 million or 14.1%
compared with the same period in 1993 as a result of substantial strength in all
product markets and significant growth from sales programs and services
initiated since 1992. Sales increases by product group are as follows:
<TABLE>
<CAPTION>
Sales Increase
--------------
Amount %
------ -
<S> <C> <C>
Fluid Power Products $17.2 million 15.4%
Maintenance Products 13.0 million 12.9%
Electrical Products including
SIMCO 7.9 million 15.9%
Glass Products 7.0 million 12.2%
</TABLE>
Total cost of sales for the first six months of 1994 increased $29.9 million or
15.3% from the comparable period in 1993 due primarily to increased sales levels
in the comparison period.
Gross margins in the first six months of 1994 were 38.3% compared with 38.9% in
the comparable period in 1993. A comparative summary of gross margins by
product group is as follows:
<TABLE>
<CAPTION>
Six Months
-----------
1994 1993
----- ----
<S> <C> <C>
Maintenance Products 60.3% 61.9%
Glass Products 34.5% 34.5%
Fluid Power Products 27.2% 27.0%
Electrical Products including SIMCO 24.0% 24.5%
</TABLE>
The erosion in gross margin in the Maintenance Products Group is due mainly to
increased sales allowances related to business expansion programs and
competitive pricing pressures. In the Electrical Products Group, competitive
pricing pressures contributed primarily to the gross margin decline.
Total S,G&A expenses increased $10.7 million or 10.1% during the six months
ended June 30, 1994, compared with the first six months of 1993, comprised as
follows: increased selling expenses of $6.9 million or 14.9%, increased
warehouse and delivery expenses of $2.3 million or 11.5% and increased general
and administrative expenses of $1.5 million or 3.9%.
Selling and warehouse and delivery expenses increased in the first six months of
1994 to support the substantial increase in 1994 sales levels and expansion
programs by certain operating units. General and administrative expenses in the
first six months of 1994 increased primarily by inflationary growth in fixed
costs.
12
<PAGE>
S,G&A expenses, as a percentage of sales were as follows in the first six months
of 1994 and 1993:
<TABLE>
<CAPTION>
Six Months
----------
1994 1993
----- ----
<S> <C> <C>
Selling Expenses 14.5% 14.4%
Warehouse and Delivery Expenses 6.1% 6.3%
General and Administrative Expenses 11.4% 12.4%
---- ----
Total S,G&A Expenses 32.0% 33.1%
---- ----
</TABLE>
Overall, as a percentage of sales, total S,G&A expenses decreased to 32.0%
during the first six months of 1994 compared with 33.1% during the first six
months of 1993 due mainly to the increase in sales levels in relation to the
fixed cost component of S,G&A expenses.
As calculated in accordance with the partnership agreement, the management fee
due the GP annually amounts to $3.3 million which is based on 3% of the
aggregate initial capital investment ($111 million) of the limited partners.
The management fee is accrued each quarter in the amount of approximately $.8
million.
Depreciation expense decreased $.3 million in the comparison period due
primarily to a reduction in the depreciable fixed asset base as a result of
fully depreciated assets.
Other expense of $.3 million in the first six months of 1994 consisted primarily
of provisions for legal and insurance matters compared with favorable resolution
of similar matters in the first six months of 1993 resulting in other income of
$.8 million.
Currently, the Company incurs state and local income taxes on its domestic
operations and foreign income taxes on its Canadian and Mexican Operations.
Also, the Company provides for deferred income taxes as determined in accordance
with SFAS #109 which represent state and federal income tax benefits expected to
be realized after December 31, 1997, when the Company will be taxed as a
corporation. The Company's provision for income taxes for the first six months
of 1994 decreased $.2 million from the comparable prior year period due
primarily to a reduction in the foreign income tax provision related to lower
foreign taxable income in the comparison period.
The allocation of net income to the GP is based on the GP's 1% ownership
interest in the profits of the Company. The allocation of net income to the
limited partners for financial statement purposes represents a 99% interest in
the profits of the Company. The net income allocation resulted in $.55 of income
per Class A limited partnership interest for both the six months ended June 30,
1994, and June 30, 1993; and $.28 of income per Class B limited partnership
interest for the six months ended June 30, 1994, compared with $.10 of income
per Class B limited partnership interest for the six months ended June 30, 1993.
13
<PAGE>
Liquidity and Capital Resources
- - -------------------------------
Net cash provided by operating activities during the first six months of 1994
was $6.2 million, an increase of $.6 million from the first six months of 1993.
The increase was due principally to greater income from operations of $3.9
million in the comparison period, offset by increased working capital
reinvestment in operations of $2.8 million. The Company's net interest coverage
ratio (earnings before interest and taxes over net interest expense) improved to
3.44 in the first half of 1994 from 2.71 in the comparable prior year period.
The Company's cash position of $3.0 million as of June 30, 1994, increased $1.7
million from the balance at December 31, 1993. Cash was provided during the six
months ended June 30, 1994, primarily by operations and net borrowings under the
Company's credit facilities in the amount of $6.2 million and $9.0 million.
Cash was used during this period predominantly for distributions to the general
and limited partners and capital expenditures in the amounts of $11.5 million
and $2.2 million, respectively.
The Company's working capital position of $107.3 million at June 30, 1994,
represented an increase of $15.2 million from the December 31, 1993 level of
$92.1 million. The increase is primarily attributable to reinvestment in net
working capital to support increased sales levels. The Company's current ratio
improved to 2.14 at June 30, 1994 from the December 31, 1993, level of 2.02.
The Company anticipates spending approximately $3.4 million for capital
expenditures for the full year 1994, primarily for machinery and equipment.
As of June 30, 1994, the Operating Partnership had $18.4 million available under
its $50.0 million Bank Credit Agreement which provides revolving credit for
working capital purposes and acquisitions. The $31.6 million outstanding under
the Bank Credit Agreement consisted of bank borrowings amounting to $20.0
million and letter of credit commitments aggregating $11.6 million.
In accordance with its Senior Note and Bank Credit Agreements, the Company was
not permitted to make acquisitions in 1993 and 1994. The acquisition
restriction in 1994 is a result of an amendment to the credit agreements agreed
to in the first quarter of 1994 that eases certain coverage ratios and other
financial requirements of the credit agreements. The Company intends to resume
making acquisitions in 1995.
The Operating Partnership has other confirmed credit facilities available in the
amount of $6.3 million for letter of credit commitments of which $5.7 million
were issued as of June 30, 1994. In addition, an indirect, wholly-owned
Canadian subsidiary of the Operating Partnership has a line of credit for
working capital purposes in the amount of $1.8 million of which $1.0 million was
outstanding at June 30, 1994.
Cash generated from operations along with bank credit facilities will be
sufficient, in management's judgment, to fund future cash requirements for
seasonal working capital, capital expenditures, debt service and cash
distributions to the GP and the limited partners.
14
<PAGE>
Certain legal proceedings are pending which are either in the ordinary course of
business or incidental to the Company's business. Those legal proceedings
incidental to the business of the Company are generally not covered by insurance
or other indemnity. Although the ultimate outcome of these proceedings cannot
be ascertained at this time, it is reasonably possible that some of them could
be resolved unfavorably. In the opinion of counsel and management, the ultimate
resolution of these matters will not have a material effect on the consolidated
financial position of the Company.
Engagement of Financial Advisors
In September 1993, the Board of Directors of the Company's General Partner
authorized the engagement of financial advisors to explore alternatives of
enhancing partnership values. Transactions to be considered include a possible
restructuring or sale of assets and liquidation. In the event of a sale of
assets and liquidation, holders of Class A limited partnership interests would
be entitled to a liquidation preference of $10.00 per interest. The Company and
its financial advisors continue to explore the alternatives. There can be no
assurance that any transaction will result from this effort.
15
<PAGE>
PART II
OTHER INFORMATION
NONE
16
<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.
SUN DISTRIBUTORS L.P.
BY: BY:
----------------------------- ---------------------------
Louis J. Cissone Joseph M. Corvino
Senior Vice President Vice President and
and Chief Financial Officer Controller
(Chief Accounting Officer)
DATE: August 12, 1994
17
