<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 September 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 1 of 17
<PAGE>
SUN DISTRIBUTORS L.P.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE(S)
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September
30, 1994 (Unaudited), December 31, 1993, and
September 30, 1993 (Unaudited) 3
Consolidated Statements of Income for the
Three Months ended September 30, 1994 and 1993
(Unaudited) 4
Consolidated Statements of Income for the Nine
Months ended September 30, 1994 and 1993
(Unaudited) 5
Consolidated Statements of Cash Flows for the
Three Months ended September 30, 1994 and 1993
(Unaudited) 6
Consolidated Statements of Cash Flows for the
Nine Months ended September 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
</TABLE>
2 Page 2 of 17
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Sept. 30, 1994 Sept. 30, 1993*
ASSETS (Unaudited) December 31, 1993* (Unaudited)
----------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $2,645 $1,327 $1,576
Accounts and notes receivable, net 95,089 80,006 86,381
Inventories 103,839 95,617 94,040
Other current assets 4,346 5,294 3,142
---------- ---------- ----------
Total current assets 205,919 182,244 185,139
Property, plant and equipment, net 28,664 29,629 29,665
Goodwill 54,320 55,608 56,099
Other intangibles 2,959 3,838 4,151
Deferred income taxes 1,889 1,410 1,866
Other assets 2,704 764 787
---------- ---------- ----------
Total assets $296,455 $273,493 $277,707
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
--------------------------------------------
Current liabilities:
Accounts payable, trade $61,907 $50,333 $48,412
Current portion of senior notes 5,700 5,700 ---
Notes payable 2,308 3,411 2,444
Current portion of capitalized lease obligations 498 619 605
Distributions payable to partners 1,625 4,688 1,245
Accrued expenses:
Salaries and wages 6,322 5,426 5,551
Interest on senior notes 2,811 703 2,811
Management fee due the general partner 2,491 3,330 2,491
Income and other taxes 3,795 2,484 2,987
Other accrued expenses 14,080 13,459 13,771
---------- ---------- ----------
Total current liabilities 101,537 90,153 80,317
Senior notes 89,300 89,300 95,000
Bank revolving credit 13,000 10,000 15,000
Capitalized lease obligations 4,535 4,885 5,047
Deferred compensation 6,962 5,363 5,671
Other liabilities 1,116 910 960
Commitments and contingencies
Partners' capital:
General partner 800 729 757
Limited partners:
Class A interests 67,642 67,642 67,642
Class B interests 13,077 6,025 8,827
Class B interests held in treasury (1,514) (1,514) (1,514)
---------- ---------- ----------
Total liabilities and partners' capital $296,455 $273,493 $277,707
========== ========== ==========
</TABLE>
*Reclassified for comparative purposes
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 Page 3 of 17
<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
Sept. 30, 1994 Sept. 30, 1993
-------------- --------------
<S> <C> <C>
Net sales $192,547 $171,955
Cost of sales 119,061 106,132
------------ ------------
Gross profit 73,486 65,823
------------ ------------
Operating expenses:
Selling, general and administrative expenses 60,181 54,124
Management fee to general partner 840 840
Depreciation 1,134 1,371
Amortization 661 691
------------ ------------
Total operating expenses 62,816 57,026
------------ ------------
Income from operations 10,670 8,797
Interest income 24 11
Interest expense 2,654 2,508
Other expense, net (313) (199)
------------ ------------
Income before provision for income taxes 7,727 6,101
Provision for income taxes 71 144
------------ ------------
Net income $7,656 $5,957
============ ============
Net income allocated to partners:
General partner $76 $59
------------ ------------
Class A limited partners $3,052 $3,052
------------ ------------
Class B limited partners $4,528 $2,846
------------ ------------
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 $.27
- Class B interest $.21 $.13
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4 Page 4 of 17
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(dollars in thousands, except for partnership interest amounts)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
Sept. 30, 1994 Sept. 30, 1993
-------------- --------------
<S> <C> <C>
Net sales $557,016 $491,296
Cost of sales 344,054 301,205
------------ ------------
Gross profit 212,962 190,091
------------ ------------
Operating expenses:
Selling, general and administrative expenses 176,694 159,940
Management fee to general partner 2,491 2,491
Depreciation 3,491 4,037
Amortization 2,010 2,052
------------ ------------
Total operating expenses 184,686 168,520
------------ ------------
Income from operations 28,276 21,571
Interest income 51 76
Interest expense 7,702 7,574
Other income (expense), net (640) 577
------------ ------------
Income before provision for income taxes 19,985 14,650
Provision for income taxes 138 420
------------ ------------
Net income $19,847 $14,230
============ ============
Net income allocated to partners:
General partner $198 $142
------------ ------------
Class A limited partners $9,157 $9,157
------------ ------------
Class B limited partners $10,492 $4,931
------------ ------------
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 $.82 $.82
- Class B interest $.48 $.23
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5 Page 5 of 17
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
Sept. 30, 1994 Sept. 30, 1993
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $7,656 $5,957
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,795 2,062
Provision for deferred compensation 750 315
Deferred income tax benefit (160) (16)
Changes in current operating items:
Decrease (increase) in accounts and notes receivable 1,820 (701)
Increase in inventories (6,745) (5,481)
Decrease in other current assets 549 792
Increase in accounts payable 3,745 1,205
Increase in accrued interest 2,108 2,108
Increase in other accrued liabilities 1,337 3,833
Increase in other assets (1,135) ---
Other items, net 306 (830)
---------- ----------
Net cash provided by operating activities 12,026 9,244
---------- ----------
Cash flows from investing activities:
Capital expenditures (723) (1,056)
Proceeds from sale of property, plant and equipment 216 264
Other, net (105) 148
---------- ----------
Net cash used for investing activities (612) (644)
---------- ----------
Cash flows from financing activities:
Repayments under the bank credit agreement (7,000) (6,000)
Cash distributions to partners (4,441) (3,735)
Borrowings (repayments) under other credit facilities, net (142) 232
Principal payments under capitalized lease obligations (163) (156)
---------- ----------
Net cash used for financing activities (11,746) (9,659)
---------- ----------
Net decrease in cash and cash equivalents (332) (1,059)
Cash and cash equivalents at beginning of period 2,977 2,635
---------- ----------
Cash and cash equivalents at end of period $2,645 $1,576
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6 Page 6 of 17
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
Sept. 30, 1994 Sept. 30, 1993
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $19,847 $14,230
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,501 6,089
Provision for deferred compensation 2,146 1,012
Deferred income tax benefit (479) (248)
Changes in current operating items:
Increase in accounts and notes receivable (15,083) (11,230)
Increase in inventories (8,222) (9,112)
Decrease in other current assets 948 1,337
Increase in accounts payable 11,574 8,621
Increase in accrued interest 2,108 2,624
Increase in other accrued liabilities 1,989 2,512
Increase in other assets (1,977) ---
Other items, net (125) (950)
---------- ----------
Net cash provided by operating activities 18,227 14,885
---------- ----------
Cash flows from investing activities:
Capital expenditures (2,916) (2,667)
Proceeds from sale of property, plant and equipment 420 324
Other, net 76 64
---------- ----------
Net cash used for investing activities (2,420) (2,279)
---------- ----------
Cash flows from financing activities:
Borrowings under the bank credit agreement 3,000 ---
Cash distributions to partners (15,915) (11,205)
Repayments under other credit facilities, net (1,103) (150)
Principal payments under capitalized lease obligations (471) (470)
Other, net --- 50
---------- ----------
Net cash used for financing activities (14,489) (11,775)
---------- ----------
Net increase in cash and cash equivalents 1,318 831
Cash and cash equivalents at beginning of period 1,327 745
---------- ----------
Cash and cash equivalents at end of period $2,645 $1,576
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 Page 7 of 17
<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 8 of 17
<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 September 30, 1994, the Operating Partnership had $24,357 outstanding
under its $50,000 Bank Credit Agreement of which bank borrowings amounted to
$13,000 as reflected on the accompanying consolidated balance sheet, and
letter of credit commitments aggregated $11,357.
The Operating Partnership has other confirmed credit facilities available in
the amount of $6,005 for letters of credit of which $5,308 was outstanding at
September 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 $1,862 of which $834 was outstanding at September 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 and the
Company agreed to suspend 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. 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.
5. Subsequent Event:
In October 1994, the Operating Partnership entered into agreements to sell
its three Electrical Group divisions and one of its Maintenance Group
divisions, Dorman Products, for an aggregate consideration of approximately
$73 million. The sales are subject to regulatory approval and other customary
conditions of closing. The Company expects the sales to result in significant
non-recurring gains with the Electrical Group divisions scheduled to close in
December 1994 and the Dorman Products division scheduled to close in January
1995. Sales from these operations aggregated $112,871 for the first nine
months of 1994 and $101,981 for the comparable prior year period. Income from
these operations aggregated $5,811 for the nine months ended September 30,
1994 and $4,955 for the prior year nine-month period.
9 Page 9 of 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
____________________________________________________________________
Results of Operations
Three Months Ended September 30, 1994 and September 30, 1993
------------------------------------------------------------
Net income amounted to $7.7 million in the third quarter of 1994, 28.5% above
the $6.0 million earned in the third quarter of 1993 as a result of continued
economic expansion across all product markets and internal growth strategies
developed primarily within the last two years.
Net sales during the third quarter of 1994 increased $20.6 million or 12.0%
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 $8.7 million 15.2%
Maintenance Products 7.6 million 14.4%
Glass Products 2.5 million 7.6%
Electrical Products 1.6 million 5.7%
Sun Inventory Management ("SIMCO") .3 million 16.7%
</TABLE>
Total cost of sales for the third quarter of 1994 increased $12.9 million or
12.2% from the comparable quarter in 1993 due primarily to increased sales
levels in the comparison period.
Gross margins in the third quarter of 1994 were 38.2% compared with 38.3% in the
1993 period. A comparative summary of gross margins by product group is as
follows:
<TABLE>
<CAPTION>
3rd Quarter
--------------------
1994 1993
------ -----
<S> <C> <C>
Maintenance Products 61.1% 62.2%
Glass Products 34.9% 33.7%
Fluid Power Products 27.2% 26.9%
Electrical Products 22.8% 22.8%
SIMCO 21.3% 20.8%
</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, Fluid Power Products
Group and SIMCO.
Total selling, general and administrative ("S,G&A") expenses increased $6.1
million or 11.2% during the three months ended September 30, 1994, compared with
the third quarter of 1993, comprised as follows: increased selling expenses of
$3.7 million or 15.5%, increased warehouse and delivery expenses of $1.4 million
or 13.3% and increased general and administrative expenses of $.9 million or
4.8%.
10 Page 10 of 17
<PAGE>
Selling and warehouse and delivery expenses increased in the third 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
third 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 third quarter of
1994 and 1993:
<TABLE>
<CAPTION>
3rd Quarter
--------------------
1994 1993
------ -----
<S> <C> <C>
Selling Expenses 14.3% 13.9%
Warehouse and Delivery Expenses 6.3% 6.2%
General and Administrative Expenses 10.7% 11.4%
---- ----
Total S,G&A Expenses 31.3% 31.5%
---- ----
</TABLE>
Overall, as a percentage of sales, total S,G&A expenses decreased to 31.3%
during the third quarter of 1994 compared with 31.5% during the third 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.
Interest expense increased $.1 million in the comparison period due mainly to
higher borrowing rates in the 1994 period over the comparable 1993 period.
Other expense increased $.1 million in the comparison period due to increased
provisions for insurance and investment banking matters.
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 $.1
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 $.27 of
income per Class A limited partnership interest for the quarters ended September
30, 1994, and September 30, 1993; and $.21 of income per Class B limited
partnership interest in the third quarter of 1994 compared with $.13 of income
per Class B limited partnership interest for the quarter ended September 30,
1993.
11 Page 11 of 17
<PAGE>
Nine Months Ended September 30, 1994 and September 30, 1993
-----------------------------------------------------------
Net income amounted to $19.8 million for the first nine months of 1994, 39.5%
above the $14.2 million earned in the first nine months of 1993 as a result of
economic expansion across all product markets and internal growth strategies
developed within the last two years.
Net sales during the first nine months of 1994 increased $65.7 million or 13.4%
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 $25.9 million 15.4%
Maintenance Products 20.5 million 13.4%
Glass Products 9.4 million 10.6%
Electrical Products 9.3 million 12.3%
SIMCO .5 million 11.0%
</TABLE>
Total cost of sales for the first nine months of 1994 increased $42.8 million or
14.2% from the comparable period in 1993 due primarily to increased sales levels
in the comparison period.
Gross margins in the first nine months of 1994 were 38.2% compared with 38.7% in
the comparable period in 1993. A comparative summary of gross margins by
product group is as follows:
<TABLE>
<CAPTION>
Nine Months
------------------
1994 1993
------ -----
<S> <C> <C>
Maintenance Products 60.6% 62.0%
Glass Products 34.6% 34.2%
Fluid Power Products 27.2% 27.0%
Electrical Products 23.7% 24.0%
SIMCO 21.3% 20.9%
</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. Changes in
sales mix contributed principally to the increase in gross margins in the Glass
Products Group, the Fluid Power Products Group and SIMCO.
Total S,G&A expenses increased $16.8 million or 10.5% during the nine months
ended September 30, 1994, compared with the first nine months of 1993, comprised
as follows: increased selling expenses of $10.6 million or 15.1%, increased
warehouse and delivery expenses of $3.7 million or 12.1% and increased general
and administrative expenses of $2.5 million or 4.2%.
Selling and warehouse and delivery expenses increased in the first nine 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 nine months of 1994 increased primarily by inflationary growth in fixed
costs.
12 Page 12 of 17
<PAGE>
S,G&A expenses, as a percentage of sales were as follows in the first nine
months of 1994 and 1993:
<TABLE>
<CAPTION>
Nine Months
------------------
1994 1993
------ -----
<S> <C> <C>
Selling Expenses 14.4% 14.2%
Warehouse and Delivery Expenses 6.2% 6.2%
General and Administrative Expenses 11.1% 12.2%
---- ----
Total S,G&A Expenses 31.7% 32.6%
---- ----
</TABLE>
Overall, as a percentage of sales, total S,G&A expenses decreased slightly to
31.7% during the first nine months of 1994 from 32.6% during the first nine
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 $.5 million in the comparison period due
primarily to a reduction in the depreciable fixed asset base as a result of
fully depreciated assets.
Interest expense increased $.1 million in the comparison period due mainly to
higher borrowing rates in the 1994 period over the comparable 1993 period.
Other expense of $.6 million in the first nine months of 1994 consisted
primarily of provisions for legal, insurance and investment banking matters
compared with favorable resolution of legal and insurance matters in the first
nine months of 1993 resulting in other income of $.6 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 nine months
of 1994 decreased $.3 million from the comparable prior year period due
primarily to an increase in deferred tax benefits related to provisions for
deferred compensation in the comparable 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 $.82 of income
per Class A limited partnership interest for the nine months ended September 30,
1994, and September 30, 1993; and $.48 of income per Class B limited partnership
interest for the nine months ended September 30, 1994, compared with $.23 of
income per Class B limited partnership interest for the nine months ended
September 30, 1993.
13 Page 13 of 17
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities during the first nine months of 1994
was $18.2 million, an increase of $3.3 million from the first nine months of
1993. The increase was due principally to greater income from operations of
$5.6 million in the comparison period, offset by increased working capital
reinvestment in operations of $2.3 million. The Company's net interest coverage
ratio (earnings before interest and taxes over net interest expense) improved to
3.61 in the first nine months of 1994 from 2.95 in the comparable prior year
period.
The Company's cash position of $2.6 million as of September 30, 1994, increased
$1.3 million from the balance at December 31, 1993. Cash was provided during
the nine months ended September 30, 1994, primarily by operations and net
borrowings under the Company's credit facilities in the amount of $18.2 million
and $1.9 million, respectively. Cash was used during this period predominantly
for distributions to the general and limited partners and capital expenditures
in the amounts of $15.9 million and $2.9 million, respectively.
The Company's working capital position of $104.4 million at September 30, 1994,
represented an increase of $12.3 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 slightly to 2.03 at September 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 September 30, 1994, the Operating Partnership had $25.6 million available
under its $50.0 million Bank Credit Agreement which provides revolving credit
for working capital purposes and acquisitions. The $24.4 million outstanding
under the Bank Credit Agreement consisted of bank borrowings amounting to $13.0
million and letter of credit commitments aggregating $11.4 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 $6.0 million for letter of credit commitments of which $5.3 million
were issued as of September 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 $1.9 million of which $.8 million was
outstanding at September 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 14 of 17
<PAGE>
In connection with the sale of the operating divisions described below, the
Operating Partnership is required to make a mandatory prepayment of its senior
notes and bank revolver borrowings in the aggregate amount of approximately
$25.0 million and also to reduce permanently some portion of the bank revolver
commitment. However, the lenders may elect not to accept the prepayment offers
and maintain the existing bank credit commitment.
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. 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.
Sale of Certain Divisions
In October 1994, Sun Distributors L.P. announced that it entered into agreements
to sell its three Electrical Group divisions and one of its Maintenance Group
divisions, Dorman Products, for an aggregate consideration of approximately $73
million. Sales from these operating divisions aggregated $39.4 million and
$112.9 million for the third quarter and first nine months of 1994,
respectively. Income generated from these operations amounted to $2.2 million
or $.10 per Class B interest and $5.8 million or $.26 per Class B interest,
respectively for the same periods. The transactions are subject to compliance
with provisions of the Hart-Scott-Rodino Act. The proceeds from these
divestitures will be used to reduce debt and for general Company purposes
including acquisitions for addition to its remaining businesses.
The taxable gain from the sale of the four divisions will be allocated entirely
to Class B Interest holders of record on the first day of the month within which
each transaction is closed. It is presently anticipated that the sale of the
Electrical Group divisions in December 1994 will result in a taxable gain of
approximately $5 million, and the sale of Dorman Products division in January
1995 will result in a taxable gain of approximately $20 million. The
Partnership will make a cash tax distribution to affected Class B record holders
in accordance with the partnership agreement equal to approximately 35% of the
taxable gain. The cash distribution will be made in March of the year following
the year in which the sale occurs.
The Company considered a number of strategic alternatives as part of the process
which led to the decision to sell these divisions. Other alternatives
considered but which were not ultimately pursued, included a sale of the entire
Company; the sale of all of its divisions followed by liquidation; or a
recapitalization and conversion to a corporate structure from the current
partnership form.
The sale of the Electrical Group divisions and the Dorman Products division
brings to a conclusion the process of considering strategic alternatives. The
Company believes that the sale of these non-strategic businesses will benefit
the Operating Partnership by strengthening its balance sheet, positioning it to
resume its acquisition program and providing increased management focus on its
remaining businesses.
15 Page 15 of 17
<PAGE>
PART II
OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Reports on Form 8-K
-----------------------
The Company filed Form 8-K on October 12, 1994, to report Item 5 - Other
Events as of October 5, 1994. The event was as follows: the Registrant issued a
press release announcing (1) that agreement had been reached for the sale of its
Dorman Products and Electrical Group divisions for an aggregate consideration of
approximately $73 million and (2) that the Registrant had determined not to
pursue other strategic alternatives at this time.
16 Page 16 of 17
<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: /s/ Louis J. Cissone BY: /s/ Joseph M. Corvino
---------------------------- ---------------------------
Louis J. Cissone Joseph M. Corvino
Senior Vice President Vice President and
and Chief Financial Officer Controller
(Chief Accounting Officer)
DATE: November 11, 1994
17 Page 17 of 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information extracted from (See Balance
Sheet at 9/30/94 and Income Statement for the 9 months ended 9/30/94) and is
qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-START> Jan-01-1994
<PERIOD-END> Sep-30-1994
<CASH> 2,645
<SECURITIES> 0
<RECEIVABLES> 97,858
<ALLOWANCES> 2,769
<INVENTORY> 103,839
<CURRENT-ASSETS> 205,919
<PP&E> 65,872
<DEPRECIATION> 37,208
<TOTAL-ASSETS> 296,455
<CURRENT-LIABILITIES> 101,537
<BONDS> 106,835 <FN>
<COMMON> 0
0
0
<OTHER-SE> 80,005
<TOTAL-LIABILITY-AND-EQUITY> 296,455
<SALES> 557,016
<TOTAL-REVENUES> 557,016
<CGS> 344,054
<TOTAL-COSTS> 184,686
<OTHER-EXPENSES> 640
<LOSS-PROVISION> 1,265
<INTEREST-EXPENSE> 7,702
<INCOME-PRETAX> 19,985
<INCOME-TAX> 138
<INCOME-CONTINUING> 19,847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,847
<EPS-PRIMARY> .48 <FN>
<EPS-DILUTED> .48
<FN> EPS represents Class B limited partnership interest only. Bonds
represents all long term debt including capitalized Lease Obligations,
Senior Notes and Bank Revolver Debt.
</TABLE>
