<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, 1995
-------------
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 _____ NO X
-----
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 June 30, 1995
(Unaudited), December 31, 1994, and June 30, 1994
(Unaudited) 3
Consolidated Statements of Income for
the Three Months ended June 30, 1995 and 1994
(Unaudited) 4
Consolidated Statements of Income for
the Six Months ended June 30, 1995 and 1994
(Unaudited) 5
Consolidated Statements of Cash Flows
for the Three Months ended June 30, 1995 and 1994
(Unaudited) 6
Consolidated Statements of Cash Flows
for the Six Months ended June 30, 1995 and 1994
(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>
ASSETS
--------------
JUNE 30, 1995 JUNE 30, 1994
(Unaudited) DECEMBER 31, 1994* (Unaudited)
----------- ------------------ -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $4,965 $4,903 $2,977
Accounts and notes receivable, net 83,012 77,521 96,909
Inventories 88,096 92,653 97,094
Other current assets 6,699 6,703 4,895
---------- --------- ---------
Total current assets 182,772 181,780 201,875
Property and equipment, net 21,537 27,514 29,238
Goodwill 44,174 48,458 54,623
Other intangibles 1,684 2,477 3,245
Deferred income taxes 2,628 2,144 1,729
Other assets 674 3,813 1,576
--------- --------- ---------
Total assets $253,469 $266,186 $292,286
========= ========= =========
LIABILITIES AND PARTNERS' CAPITAL
--------------------------------------------
Current liabilities:
Accounts payable $47,187 $44,435 $58,162
Notes payable 1,937 2,709 2,450
Current portion of senior notes 4,795 18,970 5,700
Current portion of capitalized lease obligations 25 387 549
Distributions payable to partners 1,649 7,774 1,625
Accrued expenses:
Salaries and wages 4,533 7,131 5,810
Interest on senior notes 556 661 703
Management fee due the general partner 1,651 3,330 1,651
Income and other taxes 3,249 3,338 3,260
Other accrued expenses 15,398 16,985 14,630
--------- --------- ---------
Total current liabilities 80,980 105,720 94,540
Senior notes 70,330 70,330 89,300
Bank revolving credit --- --- 20,000
Capitalized lease obligations --- 4,451 4,647
Deferred compensation 7,171 6,398 6,216
Other liabilities 238 68 837
--------- --------- ---------
Total liabilities 158,719 186,967 215,540
--------- --------- ---------
Commitments and contingencies
Partners' capital:
General partner 946 791 768
Limited partners:
Class A interests 67,642 67,642 67,642
Class B interests 27,676 12,300 9,850
Class B interests held in treasury (1,514) (1,514) (1,514)
--------- --------- ---------
Total partners' capital 94,750 79,219 76,746
--------- --------- ---------
Total liabilities and partners' capital $253,469 $266,186 $292,286
========= ========= =========
</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
June 30, 1995 June 30, 1994
------------- -------------
<S> <C> <C>
Net sales $163,820 $189,360
Cost of sales 97,918 117,341
---------- ----------
Gross profit 65,902 72,019
---------- ----------
Operating expenses:
Selling, general and administrative expenses 53,341 58,824
Management fee to general partner 830 830
Depreciation 927 1,181
Amortization 498 663
---------- ----------
Total operating expenses 55,596 61,498
---------- ----------
Income from operations 10,306 10,521
Interest income 32 14
Interest expense 1,779 2,576
Other income (expense), net (126) 58
---------- ----------
Income before provision for income taxes 8,433 8,017
Provision (credit) for income taxes 56 (9)
----------- -----------
Net income $8,377 $8,026
=========== ===========
Net income allocated to partners:
General partner $84 $80
---------- ----------
Class A limited partners $3,053 $3,053
---------- ----------
Class B limited partners $5,240 $4,893
---------- ----------
Earnings per Limited partnership interest:
- Class A interest $0.28 $0.28
- Class B interest $0.24 $0.23
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
</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>
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1994
------------- --------------
<S> <C> <C>
Net sales $318,612 $364,469
Cost of sales 191,269 224,993
---------- ----------
Gross profit 127,343 139,476
---------- ----------
Operating expenses:
Selling, general and administrative expenses 107,023 116,513
Management fee to general partner 1,651 1,651
Depreciation 1,840 2,357
Amortization 1,015 1,349
---------- ----------
Total operating expenses 111,529 121,870
---------- ----------
Income from operations 15,814 17,606
Interest income 301 27
Interest expense 3,869 5,048
Other expense, net (333) (327)
Gain on sale of division (note 3) 16,500 --
---------- ----------
Income before provision for income taxes 28,413 12,258
Provision for income taxes 174 67
---------- ----------
Income before extraordinary loss 28,239 12,191
Extraordinary loss from early extinguishment
of debt (note 4) (629) --
----------- ----------
Net income $27,610 $12,191
=========== ==========
Net income allocated to partners:
General partner $276 $122
---------- ----------
Class A limited partners $6,105 $6,105
---------- ----------
Class B limited partners $21,229 $5,964
---------- ----------
Earnings per Limited partnership interest:
Income before extraordinary loss
- Class A interest $0.55 $0.55
- Class B interest $1.01 $0.28
Extraordinary loss
- Class A interest -- --
- Class B interest ($0.03) --
Net income
- Class A interest $0.55 $0.55
- Class B interest $0.98 $0.28
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
</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
June 30, 1995 June 30, 1994*
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $8,377 $8,026
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,425 1,844
Provision for deferred compensation 419 904
Deferred income tax benefit (280) (244)
Changes in current operating items:
Increase in accounts and notes receivable (4,517) (6,099)
Increase in inventories (1,351) (827)
Decrease (increase) in other current assets (75) 168
Increase (decrease) in accounts payable (1,105) 1,874
Decrease in accrued interest (1,667) (2,108)
Increase in other accrued liabilities 791 728
Other items, net 230 (854)
------- -------
Net cash provided by operating activities 2,247 3,412
------- -------
Cash flows from investing activities:
Capital expenditures (1,619) (1,004)
Proceeds from sale of property and equipment 267 61
Other, net (5) 25
------- -------
Net cash used for investing activities (1,357) (918)
------- -------
Cash flows from financing activities:
Borrowings under the bank credit agreement --- 3,000
Cash distributions to partners (7,694) (4,419)
Repayments under other credit facilities, net (179) (758)
Principal payments under capitalized lease obligations (15) (154)
------- -------
Net cash used for financing activities (7,888) (2,331)
------- -------
Net increase (decrease) in cash and cash equivalents (6,998) 163
Cash and cash equivalents at beginning of period 11,963 2,814
------- -------
Cash and cash equivalents at end of period $4,965 $2,977
========= ==========
</TABLE>
* Reclassified for comparative purposes
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>
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1994*
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $27,610 $12,191
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,855 3,706
Gain on sale of division (16,500) ---
Extraordinary loss 629 ---
Provision for deferred compensation 1,257 1,396
Deferred income tax benefit (484) (319)
Changes in current operating items:
Increase in accounts and notes receivable (10,854) (16,903)
Increase in inventories (3,977) (1,477)
Decrease (increase) in other current assets (921) 399
Increase in accounts payable 5,392 7,829
Decrease in accrued interest (105) ---
Increase (decrease) in other accrued liabilities (7,108) 652
Other items, net 424 (1,273)
-------- --------
Net cash provided by (used for) operating activities (1,782) 6,201
-------- --------
Cash flows from investing activities:
Proceeds from sale of division 37,786 ---
Proceeds from sale of property and equipment 716 204
Capital expenditures (2,678) (2,193)
Other, net (49) 181
-------- --------
Net cash provided by (used for) investing activities 35,775 (1,808)
-------- --------
Cash flows from financing activities:
Early extinguishment of senior notes (14,175) ---
Borrowings under the bank credit agreement --- 10,000
Cash distributions to partners (18,325) (11,474)
Prepayment penalty (629) ---
Repayments under other credit facilities, net (772) (961)
Principal payments under capitalized lease obligations (30) (308)
-------- --------
Net cash used for financing activities (33,931) (2,743)
-------- --------
Net increase in cash and cash equivalents 62 1,650
Cash and cash equivalents at beginning of period 4,903 1,327
-------- --------
Cash and cash equivalents at end of period $4,965 $2,977
======== ========
</TABLE>
* Reclassified for comparative purposes
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
wholesale distributor of industrial products comprised of three product groups
with eleven operating divisions and an inventory management services division.
Certain divisions have operations in Canada and Mexico.
The accompanying consolidated financial statements and related notes are
unaudited, except for the balance sheet as of December 31, 1994; 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,
1994.
2. Related Party Transaction:
In March 1995, the Operating Partnership paid the 1994 management fee of $3,330
due the General Partner, SDI Partners I, L.P. (the "GP").
3. Gain on Sale of Division:
On January 3, 1995, the Operating Partnership sold certain assets of Dorman
Products for a cash consideration, net of expenses, of approximately $35,500
(subject to certain post-closing adjustments) and the assumption of certain
liabilities. The Operating Partnership recorded a gain on the sale in the amount
of $16,500 or $.75 per Class B interest included in the consolidated statement
of income for the six months ended June 30, 1995. The aggregate assets sold, net
of liabilities, in connection with the sale of Dorman Products was approximately
$19,000.
4. Extraordinary Loss:
During the first quarter of 1995, the Company recorded an extraordinary loss of
$629 or approximately $.03 per Class B limited partnership interest due to a
prepayment penalty related to early extinguishment of a portion of the Operating
Partnership's Series A 9.08% and Series B 8.44% senior notes. (See Note 5, Lines
of Credit and Long-Term Debt).
8 Page 8 of 17
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(dollars in thousands)
5. Lines of Credit and Long-Term Debt:
As of June 30, 1995, the Operating Partnership had $39,471 available under its
$50,000 Bank Credit Agreement which provides revolving credit for working
capital purposes and acquisitions. The Company had no bank borrowings
outstanding at June 30, 1995 under the Bank Credit Agreement. The $10,529
outstanding under the Bank Credit Agreement represented letter of credit
commitments only.
The Operating Partnership has another credit facility available in the amount of
$500 for letter of credit commitments only, of which no amount was outstanding
as of June 30, 1995. 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 $342 USD was outstanding at June 30, 1995.
In connection with the sale of the Electrical Group divisions in December 1994
and the Dorman Products division in January 1995, the Operating Partnership was
required to offer the holders of its senior notes prepayment in the amount of
$14,175 which the noteholders accepted. Prepayment of the senior notes was made
on March 14, 1995, including accrued interest thereon of $360 and a prepayment
penalty of $629. (See Note 4 - Extraordinary Loss.)
6. 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 management, the ultimate resolution of
these matters will not have a material effect on the consolidated financial
position, operations or cashflows of the Company.
9 Page 9 of 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994
--------------------------------------------------
Net income amounted to $8.4 million in the second quarter of 1995, 4.4% above
the $8.0 million earned in the second quarter of 1994. Excluding income
contributions from divisions sold in 1994 (Dorman Products on January 3, 1995
and the Electrical Group divisions in December 1994), second quarter 1995 net
income increased $1.8 million or $26.4% from the comparable 1994 quarter. This
income growth is a result of internal growth strategies and continued economic
expansion across most of the Company's product markets.
Second quarter sales were $163.8 million compared with $189.4 million recorded
in the prior year period. Excluding $37.7 million in 1994 sales from divisions
sold, net sales increased 8.0% from the second quarter of 1994. Sales results
in 1995 reflect internal growth strategies and continued economic expansion
across most of the Company's product markets. The change in sales by product
group excluding divisions sold are as follows:
<TABLE>
<CAPTION>
SALES INCREASE (DECREASE)
-------------------------
AMOUNT %
------ -
<S> <C> <C>
Technology Services (Fluid Power) Group 8.5 million 12.8%
Maintenance Products Group 4.5 million 9.6%
Sun Inventory Management Company ("SIMCO") .4 million 7.5%
Glass Products Group (1.2) million (3.6)%
</TABLE>
The sales decline in the Glass Products Group is attributable to the
discontinuation of certain product lines and markets served resulting in a sales
reduction of $1.6 million from the prior year quarter. On a comparable basis,
sales increased $.4 million or 1.4% in the Glass Products Group.
Total cost of sales for the second quarter of 1995 decreased $19.4 million or
16.6% from the comparable quarter in 1994 due primarily to the aforementioned
divisions sold. Excluding 1994 cost of sales from divisions sold, cost of goods
sold increased $6.9 million or 7.6% due primarily to increased sales levels in
the comparison period.
Gross margins in the second quarter of 1995 were 40.2% compared with 38.0% in
the 1994 period. The increase is due mainly to the divestiture of Dorman and
the Electrical Group divisions which, in the aggregate, earned gross margins
lower than that of the Company on a consolidated basis.
A comparative summary of gross margins by product group, excluding divisions
sold, is as follows:
<TABLE>
<CAPTION>
2ND QUARTER
-----------
1995 1994
---- ----
<S> <C> <C>
Maintenance Products Group 63.9% 63.6%
Glass Products Group 35.5% 34.8%
Technology Services (Fluid Power) Group 27.0% 27.1%
SIMCO Division 24.8% 25.7%
</TABLE>
Excluding the divisions sold, gross margins were 40.2% in the second quarter of
1995 compared to 40.0% in the comparable period in 1994.
10 Page 10 of 17
<PAGE>
Total selling, general and administrative ("S,G&A") expenses decreased $5.5
million or 9.3% during the three months ended June 30, 1995, compared with the
second quarter of 1994. Excluding divisions sold in 1994, expenses increased by
$4.1 million or 8.4% from the second quarter of 1994, comprised as follows:
increased selling expenses of $2.4 million or 10.4%, increased warehouse and
delivery expenses of $1.1 million or 12.8% and increased general and
administrative expenses of $.6 million or 3.6%. The increase in SG&A expenses
supports increased 1995 sales levels and expansion programs by certain operating
units.
S,G&A expenses, excluding divestitures, as a percentage of sales were as follows
in the second quarter of 1995 and 1994:
<TABLE>
<CAPTION>
2ND QUARTER
-----------
1995 1994
---- ----
<S> <C> <C>
Selling Expenses 15.4% 15.1%
Warehouse and Delivery Expenses 6.1% 5.8%
General and Administrative Expenses 11.1% 11.5%
---- ----
Total S,G&A Expenses 32.6% 32.4%
---- ----
</TABLE>
The increase in S,G&A as a percentage of sales is due mainly to increased
support payments, incentive programs and marketing efforts for the sales force.
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 $.3 million in the comparison period due
primarily to a reduction in the depreciable fixed asset base as a result of the
divestiture of Dorman Products and the Electrical Group divisions.
Amortization expense decreased $.2 million in the comparison period due
primarily to a reduction in goodwill and other intangible assets as a result of
the divisions sold.
Interest expense decreased $.8 million in the comparison period due primarily to
interest expense savings of approximately $.4 million from prepayment of senior
notes on March 14, 1995, and reduced borrowing levels under the Company's
revolving credit facility which aggregated $.3 million of interest expense
savings.
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.
11 Page 11 of 17
<PAGE>
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 per
Class A limited partnership interest for the quarter ended June 30, 1995 and
June 30, 1994; and $.24 of income per Class B limited partnership interest in
the second quarter of 1995, compared with $.23 of income per Class B limited
partnership interest in 1994 which included income contributions from divisions
sold of approximately $.06 per Class B interest.
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994
------------------------------------------------
Net income of $27.6 million for the first six months of 1995 included a $16.5
million gain from the sale of the Company's Dorman Products division in January
1995 and an extraordinary loss of $.6 million related to the early
extinguishment of debt. Net income increased $1.9 million or 19.8% from the
amount earned in the first six months of 1994 of $9.8 million, excluding these
items and 1994 income from divisions sold (Dorman and the Electrical Group
divisions sold in December 1994).
Net sales for the first six months of 1995 were $318.6 million compared with
$364.5 million recorded in the prior year period. Excluding $72.3 million in
1994 sales from the aforementioned divisions sold, net sales increased $26.4
million or 9.0% from the comparable 1994 period. Sales results in 1995 reflect
internal growth strategies and continued economic expansion across most of the
Company's product markets. The change in sales by product group excluding
divisions sold are as follows:
<TABLE>
<CAPTION>
SALES INCREASE (DECREASE)
-------------------------
AMOUNT %
------ -
<S> <C> <C>
Technology Services (Fluid Power) Group 16.4 million 12.7%
Maintenance Products Group 10.2 million 11.5%
SIMCO Division 1.2 million 11.6%
Glass Products Group (1.4) million (2.1)%
</TABLE>
The sales decline in the Glass Products group is attributable to the
discontinuation of certain product lines and markets served resulting in a sales
reduction of $3.0 million from the prior year period. On a comparable basis,
sales increased $1.6 million or 2.7% in the Glass Products group.
Total cost of sales for the first six months of 1995 decreased $33.7 million or
15.0% from the comparable 1994 period due primarily to the aforementioned
divisions sold. Excluding 1994 cost of sales from divisions sold, cost of goods
sold increased $15.9 million or 9.0% due primarily to increased sales levels in
the comparison period.
Gross margins in the first six months of 1995 were 40.0% compared with 38.3% in
the 1994 period. The increase is due mainly to the divestiture of Dorman and
the Electrical Group divisions which, in the aggregate, earned gross margins
lower than that of the Company on a consolidated basis.
12 Page 12 of 17
<PAGE>
A comparative summary of gross margins by product group, excluding divisions
sold, is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
----------
1995 1994
---- ----
<S> <C> <C>
Maintenance Products Group 64.2% 64.1%
Glass Products Group 34.1% 34.5%
Technology Services (Fluid Power) Group 27.0% 27.2%
SIMCO Division 25.4% 26.2%
</TABLE>
Excluding the divisions sold, gross margins were about 40.0% in both comparison
periods.
Total S,G&A expenses decreased $9.5 million or 8.1% during the six months ended
June 30, 1995, compared with the first six months of 1994. Excluding divisions
sold, SG&A expenses increased by $10.1 million or 10.5% from the first six
months of 1994, comprised as follows: increased selling expenses of $5.6
million or 12.5%, increased warehouse and delivery expenses of $2.1 million or
11.8% and increased general and administrative expenses of $2.5 million or 7.2%.
The increase in SG&A expenses supports increased 1995 sales levels and expansion
programs by certain operating units.
S,G&A expenses, excluding divestitures, as a percentage of sales were as follows
in the first six months of 1995 and 1994:
<TABLE>
<CAPTION>
SIX MONTHS
----------
1995 1994
---- ----
<S> <C> <C>
Selling Expenses 15.7% 15.2%
Warehouse and Delivery Expenses 6.2% 6.1%
General and Administrative Expenses 11.7% 11.9%
---- ----
Total S,G&A Expenses 33.6% 33.2%
---- ----
</TABLE>
The increase in S,G&A as a percentage of sales is due mainly to increased
support payments, incentive programs and marketing efforts for the sales force.
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 the
divestiture of Dorman Products and the Electrical Group divisions.
Amortization expense decreased $.3 million in the comparison period due
primarily to a reduction in goodwill and other intangible assets as a result of
the divisions sold.
Interest income increased $.3 million in the comparison period due primarily to
investment of surplus cash generated from sale of the aforementioned operating
divisions.
Interest expense decreased $1.2 million in the comparison period due primarily
to the prepayment of senior notes on March 14, 1995 in the amount of $14.2
million which resulted in $.6 million of interest expense savings and reduced
borrowing levels under the Company's revolving credit facililty aggregating $.5
million of interest expense savings.
13 Page 13 of 17
<PAGE>
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 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 per
Class A limited partnership interest for the six months ended June 30, 1995 and
June 30, 1994; and $.98 of income per Class B limited partnership interest in
the first six months of 1995, compared with $.28 of income per Class B limited
partnership interest in 1994. The first six months 1995 results include the
gain from sale of the Dorman Products division of $.75 per Class B interest and
the extraordinary loss of $.03 per Class B interest.
Excluding the extraordinary loss related to the early extinguishment of debt and
the gain on the sale of Dorman Products division, income per Class B limited
partnership interest amounted to $.26 in the first six months of 1995 compared
with $.28 in the first six months of 1994. Results in 1994 included income
contributions from the aforementioned divisions sold of approximately $.11 per
Class B interest.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash used in operations during the first six months of 1995 was $1.8
million, compared with net cash provided by operations in the first six months
of 1994 of $6.2 million, a difference of $8.0 million. The change was due
primarily to increased working capital reinvestment in operations in the
comparison period. The Company's net interest coverage ratio (earnings before
interest, taxes, gain from the sale of Dorman and the extraordinary loss over
net interest expense) improved to 4.34 in the first half of 1995 from 3.44 in
the comparable prior year period.
The Company's cash position of $5.0 million as of June 30, 1995, increased $.1
million from the balance at December 31, 1994. Cash was provided during this
period primarily from proceeds from the sale of Dorman Products in the amount of
$37.8 million. Cash was used during the six months ended June 30, 1995,
primarily for distributions to general and limited partners ($18.3 million),
debt repayment ($14.9 million), capital expenditures ($2.7 million) and for
operations ($1.8 million).
The Company's working capital position of $101.8 million at June 30, 1995,
represented an increase of $25.7 million from the December 31, 1994 level of
$76.1 million. The increase is primarily attributable to reinvestment in working
capital of $15.0 million from the December 31, 1994 level, repayment of the
current portion of senior notes in the amount of $14.2 million, a decrease in
distributions payable to partners of $6.1 million, and a decrease in management
fee payable to the GP of $1.7 million, less working capital related to the sale
of Dorman Products aggregating $11.3 million. The Company's current ratio
increased to 2.26 at June 30, 1995 from the December 31, 1994, level of 1.72.
14 Page 14 of 17
<PAGE>
The Company's financial position has strengthened as a result of the sale of its
Dorman Products and Electrical Group divisions. On March 14, 1995, the Company
prepaid a portion of its senior notes in the amount of $14.2 million, including
accrued interest thereon of $.4 million and a make-whole penalty of $.6 million.
As of June 30, 1995, the Company's total debt as a percentage of its
consolidated capitalization is 45% compared with 62% at June 30, 1994.
The Company anticipates spending approximately $4.0 million for capital
expenditures for the full year 1995, primarily for machinery and equipment.
As of June 30, 1995, the Operating Partnership had $39.5 million available under
its $50.0 million Bank Credit Agreement which provides revolving credit for
working capital purposes and acquisitions. The Company had no bank borrowings
outstanding at June 30, 1995 under the Bank Credit Agreement. The $10.5 million
outstanding under the Bank Credit Agreement represented letter of credit
commitments only. 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 $.3 million USD was outstanding at June 30,
1995.
In accordance with its Senior Note and Bank Credit Agreements, the Company was
not permitted to make acquisitions in 1994. Management has resumed its
acquisition strategy in 1995, with permissible spending up to $15.0 million in
the aggregate to complement internal growth. The acquisition program will be
concentrated in the areas of technology services (fluid power) and glass
products.
The taxable gain in 1995 from sale of the Dorman Products division will be
allocated entirely to Class B Interest holders of record on December 30, 1994,
which is currently estimated at approximately $.80 per Class B Interest.
Related to the sale, the Partnership paid a partial tax distribution on April
10, 1995 to Class B holders of record as of December 30, 1994, in the amount of
$.15 per Class B Interest. The remaining balance of the tax distribution will
be paid on March 31, 1996, upon determination of the taxable gain for 1995
federal income tax purposes.
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 management, the ultimate resolution of
these matters will not have a material effect on the consolidated financial
position, operations or cashflows of the Company.
15
<PAGE>
PART II
OTHER INFORMATION
NONE
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 and Vice President and Controller
Chief Financial Officer (Chief Accounting Officer)
DATE: August 14, 1995
17 Page 17 of 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF JUNE 30, 1995 AND RELATED STATEMENT OF INCOME FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 4,965
<SECURITIES> 0
<RECEIVABLES> 84,957
<ALLOWANCES> 1,945
<INVENTORY> 88,096
<CURRENT-ASSETS> 182,772
<PP&E> 49,249
<DEPRECIATION> 27,712
<TOTAL-ASSETS> 253,469
<CURRENT-LIABILITIES> 80,980
<BONDS> 70,330<F1>
<COMMON> 0
0
0
<OTHER-SE> 94,750
<TOTAL-LIABILITY-AND-EQUITY> 253,469
<SALES> 318,612
<TOTAL-REVENUES> 318,612
<CGS> 191,269
<TOTAL-COSTS> 111,529
<OTHER-EXPENSES> 333
<LOSS-PROVISION> 578
<INTEREST-EXPENSE> 3,869
<INCOME-PRETAX> 28,413
<INCOME-TAX> 174
<INCOME-CONTINUING> 28,239
<DISCONTINUED> 0
<EXTRAORDINARY> (629)
<CHANGES> 0
<NET-INCOME> 27,610
<EPS-PRIMARY> .98<F2>
<EPS-DILUTED> .98<F2>
<FN>
<F1>BONDS REPRESENTS ALL LONG-TERM DEBT FOR SENIOR NOTES.
<F2>EPS REPRESENTS CLASS B LIMITED PARTNERSHIP INTERESTS ONLY.
</FN>
</TABLE>
