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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 March 31, 1994
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Commission file number 1-9375
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Sun Distributors L.P.
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(Exact name of registrant as specified in its charter)
Delaware 23-2439550
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 One Logan Square
Philadelphia, Pennsylvania 19103
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(Address of principal executive offices) (Zip Code)
(215) 665-3650
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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Page 1 of 13
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SUN DISTRIBUTORS L.P.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1994
(Unaudited), December 31, 1993, and March 31, 1993
(Unaudited) 3
Consolidated Statements of Income for
the Quarters ended March 31, 1994 and 1993
(Unaudited) 4
Consolidated Statements of Cash Flows
for the Quarters ended March 31, 1994 and 1993
(Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II. OTHER INFORMATION 12
SIGNATURES 13
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2 Page 2 of 13
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SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
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MARCH 31, 1994 MARCH 31, 1993
(Unaudited) DECEMBER 31,1993* (Unaudited)
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<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $2,814 $1,327 $2,127
Accounts and notes receivable, net 90,810 80,006 79,207
Inventories 96,267 95,617 87,079
Other current assets 5,063 5,294 4,297
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Total current assets 194,954 182,244 172,710
Property, plant and equipment, net 29,513 29,629 30,698
Goodwill 55,034 55,608 57,159
Other intangibles 3,529 3,838 4,700
Deferred income taxes 1,485 1,410 1,768
Other assets 766 764 788
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Total assets $285,281 $273,493 $267,823
========= ========= =========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
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<S> <C> <C> <C>
Current liabilities:
Accounts payable, trade $56,288 $50,333 $41,626
Current portion of senior notes 5,700 5,700 ---
Notes payable 3,208 3,411 2,424
Current portion of capitalized lease obligations 586 619 613
Distributions payable to partners 1,603 4,688 1,245
Accrued expenses:
Salaries and wages 4,253 5,426 4,087
Interest on senior notes 2,811 703 2,296
Management fee due the general partner 2,486 3,330 2,486
Income and other taxes 3,376 2,484 3,190
Other accrued expenses 14,508 13,459 10,422
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Total current liabilities 94,819 90,153 68,389
Senior notes 89,300 89,300 95,000
Bank revolving credit 17,000 10,000 21,000
Capitalized lease obligations 4,764 4,885 5,352
Deferred compensation 5,855 5,363 5,515
Other liabilities 426 910 1,767
Commitments and contingencies
Partners' capital:
General partner 732 729 708
Limited partners:
Class A interests 67,642 67,642 66,493
Class B interests 6,257 6,025 5,113
Class B interests held in treasury ( 1,514) ( 1,514) ( 1,514)
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Total liabilities and partners' capital $285,281 $273,493 $267,823
========= ========= =========
</TABLE>
*Reclassified for comparative purposes
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 Page 3 of 13
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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
March 31, 1994 March 31, 1993
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<S> <C> <C>
Net sales $175,109 $149,986
Cost of sales 107,652 91,076
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Gross profit 67,457 58,910
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Operating expenses:
Selling, general and administrative expenses 57,689 52,380
Management fee to general partner 821 821
Depreciation 1,176 1,347
Amortization 686 675
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Total operating expenses 60,372 55,223
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Income from operations 7,085 3,687
Interest income 13 39
Interest expense 2,472 2,487
Other income (expense), net ( 385) 750
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Income before provision for income taxes 4,241 1,989
Provision for income taxes 76 67
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Net income 4,165 1,922
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Net income allocated to partners:
General partner $42 $19
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Class A limited partners $3,052 $1,903
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Class B limited partners $1,071 --
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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 $.27 $.17
- Class B interest $.05 --
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4 page 4 of 13
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SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1994 March 31, 1993
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<S> <C> <C>
Cash flows from operating activities:
Net income $4,165 $1,922
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,862 2,022
Provision for deferred compensation 492 402
Deferred income tax benefit ( 75) ( 150)
Changes in current operating items:
Increase in accounts and notes receivable ( 10,804) ( 4,056)
Increase in inventories ( 650) ( 2,151)
Decrease in other current assets 231 182
Increase in accounts payable 5,955 1,835
Increase in accrued interest 2,108 2,109
Decrease in other accrued liabilities ( 76) ( 2,103)
Other items, net ( 419) 161
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Net cash provided by operating activities 2,789 173
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Cash flows from investing activities:
Capital expenditures ( 1,189) ( 702)
Proceeds from sale of property, plant and equipment 143 12
Other, net 156 ( 100)
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Net cash used for investing activities ( 890) ( 790)
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Cash flows from financing activities:
Borrowings under the bank credit agreement 7,000 6,000
Cash distributions to partners ( 7,055) ( 3,734)
Repayments under other credit facilities, net ( 203) ( 170)
Principal payments under capitalized lease obligations ( 154) ( 157)
Other, net --- 60
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Net cash provided by (used for) financing activities ( 412) 1,999
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Net increase in cash and cash equivalents 1,487 1,382
Cash and cash equivalents at beginning of period 1,327 745
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Cash and cash equivalents at end of period $2,814 $2,127
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5 Page 5 of 13
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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:
During the first quarter of 1994, the Operating Partnership paid $1,665 of
the 1993 management fee of $3,330 due the General Partner, SDI Partners I,
L.P. (the "GP"), on March 31, 1994. Management deferred payment of the
remaining balance of the GP's 1993 management fee to maintain compliance with
requirements of its credit agreements. Management expects to pay the balance
due the GP by June 30, 1994.
6 Page 6 of 13
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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 March 31, 1994, the Operating Partnership had $28,900 outstanding under
its $50,000 Bank Credit Agreement of which bank borrowings amounted to $17,000
as reflected on the accompanying consolidated balance sheet, and letter of
credit commitments aggregated $11,900.
The Operating Partnership has other confirmed credit facilities available in the
amount of $6,313 for letters of credit of which $5,548 was outstanding at March
31, 1994. In addition, an indirect, wholly-owned Canadian subsidiary of the
Operating Partnership has a $2,500 Canadian dollar line of credit for working
capital purposes of which $1,467 USD was outstanding at March 31, 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 ease 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.
7 Page 7 of 13
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Results of Operations
Three Months Ended March 31, 1994 and March 31, 1993
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Net income amounted to $4.2 million in the first quarter of 1994, or 116.7%
greater than the $1.9 million earned in the first quarter 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 quarter of 1994 increased $25.1 million or 16.8%
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
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Amount %
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<S> <C> <C>
Fluid Power Products $9.3 million 17.4%
Maintenance Products 7.3 million 15.7%
Electrical Products including
Sun Inventory Management ("SIMCO") 4.5 million 19.7%
Glass Products 4.0 million 14.9%
</TABLE>
Total cost of sales for the first quarter of 1994 increased $16.6 million or
18.2% from the comparable quarter in 1993 due primarily to increased sales
levels in the comparison period.
Gross margins in the first quarter of 1994 were 38.5% compared with 39.3% in the
1993 period. The decline is due mainly to competitive pricing pressures and
changes in sales mix.
A comparative summary of gross margins by product group is as follows:
<TABLE>
<CAPTION>
1st Quarter
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1994 1993
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<S> <C> <C>
Maintenance Products 60.9% 62.2%
Glass Products 34.1% 35.3%
Fluid Power Products 27.3% 26.9%
Electrical Products including SIMCO 25.1% 25.9%
</TABLE>
Total selling, general and administrative ("S,G&A") expenses increased $5.3
million or 10.1% during the three months ended March 31, 1994, compared with the
first quarter of 1993, comprised as follows: increased selling expenses of $3.3
million or 14.7%, increased warehouse and delivery expenses of $1.2 million or
12.3% and increased general and administrative expenses of $.8 million or 3.9%.
8 Page 8 of 13
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SG&A expenses increased in the first 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 first 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 first quarter of
1994 and 1993:
<TABLE>
<CAPTION>
1st Quarter
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1994 1993
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<S> <C> <C>
Selling Expenses 14.8% 15.0%
Warehouse and Delivery Expenses 6.3% 6.6%
General and Administrative Expenses 11.8% 13.3%
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Total S,G&A Expenses 32.9% 34.9%
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</TABLE>
Overall, as a percentage of sales, total S,G&A expenses decreased to 32.9%
during the first quarter of 1994 compared with 34.9% during the first 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 $.2 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 $.4 million in the first quarter of 1994 consisted primarily of
provisions for legal and insurance matters compared with favorable resolution of
similar matters in the first quarter 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 Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, 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 allocation of net income to the GP is based on the GP's l% 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 $.27 per
Class A limited partnership interest for the quarter ended March 31, 1994,
compared with $.17 per Class A interest for the quarter ended March 31, 1993;
and $.05 per Class B limited partnership interest in the first quarter of 1994.
9 Page 9 of 13
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Liquidity and Capital Resources
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Net cash provided by operating activities during the first quarter of 1994 was
$2.8 million, an increase of $2.6 million from the first quarter 1993 level.
The increase was principally due to greater income from operations of $2.3
million in the comparison period. The Company's net interest coverage ratio
(earnings before interest and taxes over net interest expense) improved to 2.72
in the first quarter of 1994 from 1.81 in the comparable prior year period.
The Company's cash position of $2.8 million as of March 31, 1994, increased $1.5
million from the balance at December 31, 1993. Cash was provided during the
three months ended March 31, 1994, primarily by operations and net borrowings
under the Company's credit facilities in the amount of $2.8 million and $7.0
million, respectively. Cash was used during this period predominantly for
distributions to the general and limited partners and capital expenditures in
the amounts of $7.1 million and $1.2 million, respectively.
The Company's working capital position of $100.1 million at March 31, 1994,
represented an increase of $8.0 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
increased to 2.05 at March 31, 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 March 31, 1994, the Operating Partnership had $21.1 million available
under its $50.0 million Bank Credit Agreement which provides revolving credit
for working capital purposes and acquisitions. The $28.9 million outstanding
under the Bank Credit Agreement consisted of bank borrowings amounting to $17.0
million and letter of credit commitments aggregating $11.9 million.
In accordance with its Senior Note and Bank Credit Agreements, the Company was
not permitted to make acquisitions in 1993 and will also be restricted in 1994
from acquisition expenditures. 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 $5.5 million
were issued as of March 31, 1994. In addition, an indirect, wholly-owned
Canadian subsidiary of the Operating Partnership has a $2.5 million Canadian
dollar line of credit for working capital purposes of which $1.5 million USD was
outstanding at March 31, 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.
10 Page 10 of 13
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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 Advisers
In September 1993, the Board of Directors of the Company's General Partner
authorized the engagement of financial advisers 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 advisers continue to explore the alternatives. There can be no
assurance that any transaction will result from this effort.
11 Page 11 of 13
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PART II
OTHER INFORMATION
NONE
12 Page 12 of 13
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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: /s/ Louis J. Cissone BY: /s/ Joseph M. Corvino
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Louis J. Cissone Joseph M. Corvino
Senior Vice President Vice President and
and Chief Financial Officer Controller
(Chief Accounting Officer)
DATE: May 13, 1994
13 Page 13 of 13
