<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, 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 X NO
------ ------
Page 1 of 18
<PAGE>
SUN DISTRIBUTORS L.P.
INDEX
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1995
(Unaudited), December 31, 1994, and September 30, 1994
(Unaudited) 3
Consolidated Statements of Income for the Three Months
ended September 30, 1995 and 1994
(Unaudited) 4
Consolidated Statements of Income for the Nine Months
ended September 30, 1995 and 1994
(Unaudited) 5
Consolidated Statements of Cash Flows for the Three Months
ended September 30, 1995 and 1994
(Unaudited) 6
Consolidated Statements of Cash Flows for the Nine Months
ended September 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 10-16
PART II. OTHER INFORMATION 17
SIGNATURES 18
2 Page 2 of 18
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
------------
Sept. 30, 1995 Sept. 30, 1994
(Unaudited) DECEMBER 31, 1994 (Unaudited)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $9,249 $4,903 $2,645
Accounts and notes receivable, net 83,255 77,521 95,089
Inventories 91,064 92,653 103,839
Other current assets 3,586 6,703 4,346
-------- -------- --------
Total current assets 187,154 181,780 205,919
Property and equipment, net 21,605 27,514 28,664
Goodwill 43,912 48,458 54,320
Other intangibles 1,489 2,477 2,959
Deferred income taxes 2,709 2,144 1,889
Other assets 698 3,813 2,704
-------- -------- --------
Total assets $257,567 $266,186 $296,455
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
--------------------------------------------
Current liabilities:
Accounts payable $45,955 $44,435 $61,907
Notes payable 2,145 2,709 2,308
Current portion of senior notes 4,795 18,970 5,700
Current portion of capitalized lease obligations 70 387 498
Distributions payable to partners 1,638 7,774 1,625
Accrued expenses:
Salaries and wages 5,263 7,131 6,322
Interest on senior notes 2,223 661 2,811
Management fee due the general partner 2,491 3,330 2,491
Income and other taxes 3,182 3,338 3,795
Other accrued expenses 13,261 16,985 14,080
-------- -------- --------
Total current liabilities 81,023 105,720 101,537
Senior notes 70,330 70,330 89,300
Bank revolving credit --- --- 13,000
Capitalized lease obligations 135 4,451 4,535
Deferred compensation 7,547 6,398 6,962
Other liabilities 350 68 1,116
-------- -------- --------
Total liabilities 159,385 186,967 216,450
-------- -------- --------
Commitments and contingencies
Partners' capital:
General partner 980 791 800
Limited partners:
Class A interests 67,642 67,642 67,642
Class B interests 31,074 12,300 13,077
Class B interests held in treasury (1,514) (1,514) (1,514)
-------- -------- --------
Total partners' capital 98,182 79,219 80,005
-------- -------- --------
Total liabilities and partners' capital $257,567 $266,186 $296,455
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 Page 3 of 18
<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, 1995 Sept. 30, 1994
-------------- --------------
<S> <C> <C>
Net sales $163,214 $192,547
Cost of sales 96,704 119,061
------ ------
Gross profit 66,510 73,486
------ ------
Operating expenses:
Selling, general and administrative expenses 54,461 60,181
Management fee to general partner 840 840
Depreciation 959 1,134
Amortization 500 661
------ ------
Total operating expenses 56,760 62,816
------ ------
Income from operations 9,750 10,670
Interest income 41 24
Interest expense 1,756 2,654
Other expense, net (19) (313)
------ ------
Income before provision for income taxes 8,016 7,727
Provision for income taxes 188 71
------- -------
Net income $7,828 $7,656
=========== ===========
Net income allocated to partners:
General partner $78 $76
------ ------
Class A limited partners $3,052 $3,052
------ ------
Class B limited partners $4,698 $4,528
------ ------
Earnings per Limited partnership interest:
- Class A interest $0.27 $0.27
- Class B interest $0.22 $0.21
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 18
<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, 1995 Sept. 30, 1994
-------------- --------------
<S> <C> <C>
Net sales $481,826 $557,016
Cost of sales 287,973 344,054
------- -------
Gross profit 193,853 212,962
------- -------
Operating expenses:
Selling, general and administrative expenses 161,484 176,694
Management fee to general partner 2,491 2,491
Depreciation 2,799 3,491
Amortization 1,515 2,010
------- -------
Total operating expenses 168,289 184,686
------- -------
Income from operations 25,564 28,276
Interest income 342 51
Interest expense 5,625 7,702
Other expense, net (352) (640)
Gain on sale of division (note 3) 16,500 --
------ ------
Income before provision for income taxes 36,429 19,985
Provision for income taxes 362 138
------ ------
Income before extraordinary loss 36,067 19,847
Extraordinary loss from early extinguishment
of debt (note 4) (629) --
------- -------
Net income $35,438 $19,847
=========== ==========
Net income allocated to partners:
General partner $354 $198
------ ------
Class A limited partners $9,157 $9,157
------ ------
Class B limited partners $25,927 $10,492
------- -------
Earnings per Limited partnership interest:
Income before extraordinary loss
- Class A interest $0.82 $0.82
- Class B interest $1.23 $0.48
Extraordinary loss
- Class A interest -- --
- Class B interest ($0.03) --
Net income
- Class A interest $0.82 $0.82
- Class B interest $1.20 $0.48
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 18
<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, 1995 Sept. 30, 1994
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $7,828 $7,656
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,459 1,795
Provision for deferred compensation 801 750
Deferred income tax benefit (81) (160)
Changes in current operating items:
Decrease (increase) in accounts and notes receivable (243) 1,820
Increase in inventories (2,968) (6,745)
Decrease in other current assets 3,113 549
Increase (decrease) in accounts payable (1,232) 3,745
Increase in accrued interest 1,667 2,108
Increase (decrease) in other accrued liabilities (1,110) 1,337
Other items, net 231 (829)
------- -------
Net cash provided by operating activities 9,465 12,026
------- -------
Cash flows from investing activities:
Capital expenditures (793) (723)
Proceeds from sale of property and equipment 46 262
Other, net (170) (151)
------- -------
Net cash used for investing activities (917) (612)
------- -------
Cash flows from financing activities:
Repayments under the bank credit agreement --- (7,000)
Cash distributions to partners (4,452) (4,441)
Borrowings (repayments) under other credit facilities, net 208 (142)
Principal payments under capitalized lease obligations (20) (163)
------- -------
Net cash used for financing activities (4,264) (11,746)
------- -------
Net increase (decrease) in cash and cash equivalents 4,284 (332)
Cash and cash equivalents at beginning of period 4,965 2,977
------ ------
Cash and cash equivalents at end of period $9,249 $2,645
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6 Page 6 of 18
<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, 1995 Sept. 30, 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $35,438 $19,847
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,314 5,501
Gain on sale of division (16,500) ---
Extraordinary loss 629 ---
Provision for deferred compensation 2,058 2,146
Deferred income tax benefit (565) (479)
Changes in current operating items:
Increase in accounts and notes receivable (11,097) (15,083)
Increase in inventories (6,945) (8,222)
Decrease in other current assets 2,192 948
Increase in accounts payable 4,160 11,574
Increase in accrued interest 1,562 2,108
Increase (decrease) in other accrued liabilities (8,218) 1,909
Other items, net 655 (2,022)
------ ------
Net cash provided by operating activities 7,683 18,227
------ ------
Cash flows from investing activities:
Proceeds from sale of division 37,786 ---
Proceeds from sale of property and equipment 762 379
Capital expenditures (3,471) (2,916)
Other, net (219) 117
------ -------
Net cash provided by (used for) investing activities 34,858 (2,420)
------ -------
Cash flows from financing activities:
Early extinguishment of senior notes (14,175) ---
Borrowings under the bank credit agreement --- 3,000
Cash distributions to partners (22,777) (15,915)
Prepayment penalty (629) ---
Repayments under other credit facilities, net (564) (1,103)
Principal payments under capitalized lease obligations (50) (471)
------- -------
Net cash used for financing activities (38,195) (14,489)
------- -------
Net increase in cash and cash equivalents 4,346 1,318
Cash and cash equivalents at beginning of period 4,903 1,327
------ ------
Cash and cash equivalents at end of period $9,249 $2,645
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 Page 7 of 18
<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 its
Dorman Products Division 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 nine months ended September 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 18
<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 September 30, 1995, the Operating Partnership had $39,966 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 September 30, 1995 under the Bank Credit Agreement.
The $10,034 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 September 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 $671 USD was outstanding
at September 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.) No prepayment will be required as a result of the
divestment of certain assets of the Downey Glass Division (see Note 7).
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.
7. Subsequent Event:
In October 1995, the Operating Partnership sold certain assets of its Downey
Glass Division for a cash consideration, net of expenses, of approximately
$6,700 (subject to certain post-closing adjustments) and the assumption of
certain liabilities. The Operating Partnership expects to record a gain of
approximately $4,000 on the sale of Downey in the fourth quarter of 1995.
The aggregate assets sold, net of liabilities, in connection with the sale of
Downey Glass was approximately $2,700.
In November 1995, the Company's Hillman Fastener Division purchased certain
assets of the Retail Division of Curtis Industries of Eastlake, Ohio. Annual
sales of Curtis' Retail Division are approximately $17,000.
9 Page 9 of 18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Results of Operations
Three Months Ended September 30, 1995 and September 30, 1994
------------------------------------------------------------
Net income amounted to $7.8 million in the third quarter of 1995, 2.2% above the
$7.7 million earned in the third quarter of 1994. Excluding income
contributions from divisions sold (Dorman Products on January 3, 1995 and the
Electrical Group divisions in December 1994), third quarter 1995 net income
increased $2.4 million or 44.2% from the comparable 1994 quarter. This income
growth is a result of both internal growth strategies and reduced financing
costs in the comparison period.
Third quarter sales were $163.2 million compared with $192.5 million recorded in
the prior year period. Excluding $39.4 million in 1994 sales from divisions
sold, net sales increased $10.0 million or 6.6% from the third 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 $6.5 million 9.8%
Maintenance Products Group 3.3 million 7.0%
Sun Inventory Management Company ("SIMCO") 1.8 million 35.5%
Glass Products Group (1.6) million (4.5)%
</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 $1.3 million from the third quarter of 1994. On a comparable
basis, sales decreased $.3 million or .9% in the Glass Products Group.
Total cost of sales for the third quarter of 1995 decreased $22.4 million or
18.8% 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 $4.9 million or 5.4% due primarily to increased sales levels in
the comparison period.
Gross margins in the third quarter of 1995 were 40.8% compared with 38.2% 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>
3rd Quarter
-----------
1995 1994
----- ----
<S> <C> <C>
Maintenance Products Group 64.7% 64.2%
Glass Products Group 36.2% 34.9%
Technology Services (Fluid Power) Group 27.6% 27.2%
SIMCO Division 24.2% 26.8%
</TABLE>
10 Page 10 of 18
<PAGE>
Excluding the divisions sold, gross margins were 40.8% in the third quarter of
1995 compared to 40.1% in the comparable period in 1994.
Total selling, general and administrative ("S,G&A") expenses decreased $5.7
million or 9.5% during the three months ended September 30, 1995, compared with
the third quarter of 1994. Excluding divisions sold in 1994, expenses increased
by $3.7 million or 7.4% from the third quarter of 1994, comprised as follows:
increased selling expenses of $1.6 million or 6.9%, increased warehouse and
delivery expenses of $.8 million or 8.1% and increased general and
administrative expenses of $1.3 million or 7.5%. The increase in S,G&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 third quarter of 1995 and 1994:
<TABLE>
<CAPTION>
3rd Quarter
-----------
1995 1994
---- ----
<S> <C> <C>
Selling Expenses 15.4% 15.3%
Warehouse and Delivery Expenses 6.2% 6.1%
General and Administrative Expenses 11.8% 11.7%
---- ----
Total S,G&A Expenses 33.4% 33.1%
---- ----
</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 $.2 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 $.9 million in the comparison period due primarily to
reduced financing costs of approximately $.4 million from the prepayment of
senior notes on March 14, 1995, and $.4 million from reduced borrowing levels
under the Company's revolving credit facility.
Other expense, net decreased $.3 million in the third quarter of 1995 compared
with the third quarter of 1994 due primarily to the recognition of certain non-
recurring insurance and legal settlements in the 1994 period.
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 18
<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 $.27 per
Class A limited partnership interest for the quarter ended September 30, 1995
and September 30, 1994; and $.22 of income per Class B limited partnership
interest in the third quarter of 1995, compared with $.21 of income per Class B
limited partnership interest in the 1994 period which included income
contributions from divisions sold of approximately $.10 per Class B interest.
Nine Months Ended September 30, 1995 and September 30, 1994
-----------------------------------------------------------
Net income of $35.4 million for the first nine 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 $4.3 million or 28.5% from the
amount earned in the first nine months of 1994 of $15.2 million, excluding these
items and 1994 income from divisions sold (Dorman Products on January 3, 1995
and the Electrical Group divisions in December 1994).
Net sales for the first nine months of 1995 were $481.8 million compared with
$557.0 million recorded in the prior year period. Excluding $111.7 million in
1994 sales from the aforementioned divisions sold, net sales increased $36.5
million or 8.2% 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 $22.8 million 11.7%
Maintenance Products Group 13.5 million 9.9%
SIMCO Division 3.1 million 19.6%
Glass Products Group (2.9) million (3.0)%
</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 $4.2 million from the prior year period. On a comparable basis,
sales increased $1.3 million or 1.4% in the Glass Products group.
Total cost of sales for the first nine months of 1995 decreased $56.1 million or
16.3% 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 $20.8 million or 7.8% due primarily to increased sales levels in
the comparison period.
Gross margins in the first nine months of 1995 were 40.2% compared with 38.2% 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 18
<PAGE>
A comparative summary of gross margins by product group, excluding divisions
sold, is as follows:
<TABLE>
<CAPTION>
Nine Months
-----------
1995 1994
---- ----
<S> <C> <C>
Maintenance Products Group 64.4% 64.1%
Glass Products Group 34.8% 34.6%
Technology Services (Fluid Power) Group 27.2% 27.2%
SIMCO Division 25.0% 26.4%
</TABLE>
Excluding the divisions sold, gross margins were 40.2% compared to 40.0% in the
comparable 1994 period.
Total S,G&A expenses decreased $15.2 million or 8.6% during the nine months
ended September 30, 1995, compared with the first nine months of 1994.
Excluding divisions sold, S,G&A expenses increased by $13.9 million or 9.0% from
the first nine months of 1994, comprised as follows: increased selling expenses
of $7.2 million or 10.6%, increased warehouse and delivery expenses of $2.5
million or 9.2% and increased general and administrative expenses of $4.2
million or 8.0%. The increase in S,G&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 nine months of 1995 and 1994:
<TABLE>
<CAPTION>
Nine Months
-----------
1995 1994
---- ----
<S> <C> <C>
Selling Expenses 15.6% 15.2%
Warehouse and Delivery Expenses 6.2% 6.2%
General and Administrative Expenses 11.7% 11.7%
---- ----
Total S,G&A Expenses 33.5% 33.1%
---- ----
</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 $.7 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 $.5 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 $2.1 million in the comparison period due primarily
to reduced financing costs of $1.1 million from the prepayment of senior notes
on March 14, 1995 in the amount of $14.2 million and $.9 million from reduced
borrowing levels under the Company's revolving credit facility.
13 Page 13 of 18
<PAGE>
Other expense, net decreased $.3 million in the first nine months of 1995
compared with the first nine months of 1994 due primarily to the recognition of
non-recurring legal and insurance settlements in the 1994 period.
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 $.82 per
Class A limited partnership interest for the nine months ended September 30,
1995 and September 30, 1994; and $1.20 of income per Class B limited partnership
interest in the first nine months of 1995, compared with $.48 of income per
Class B limited partnership interest in 1994. The first nine 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 $.48 in the first nine months of 1995 compared
with $.48 in the first nine months of 1994. Results in 1994 included income
contributions from the aforementioned divisions sold of approximately $.21 per
Class B interest.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operations during the first nine months of 1995 was $7.7
million, a decrease of $10.5 million from the first nine months of 1994. The
decrease 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 4.77 in the first nine
months of 1995 from 3.61 in the comparable prior year period.
The Company's cash position of $9.2 million as of September 30, 1995, increased
$4.3 million from the balance at December 31, 1994. Cash was provided during
this period primarily from operations and the proceeds from the sale of Dorman
Products in the amounts of $7.7 million and $37.8 million, respectively. Cash
was used during the nine months ended September 30, 1995, primarily for
distributions to general and limited partners ($22.8 million), debt repayment
($14.7 million), and capital expenditures ($3.5 million).
The Company's working capital position of $106.1 million at September 30, 1995,
represented an increase of $30.0 million from the December 31, 1994 level of
$76.1 million. The increase is primarily attributable to reinvestment in
working capital of $20.2 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 $.8 million, less working capital related to
the sale of Dorman Products aggregating $11.3 million. The Company's current
ratio increased to 2.31 at September 30, 1995 from the December 31, 1994, level
of 1.72.
14 Page 14 of 18
<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 September 30, 1995, the Company's total debt as a percentage of its
consolidated capitalization is 44% compared with 59% at September 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 September 30, 1995, the Operating Partnership had $40.0 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 September 30, 1995 under the Bank Credit Agreement.
The $10.0 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 $.7 million USD was outstanding
at September 30, 1995.
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.
Sale of Division
In August 1995, Sun Distributors L.P. announced that it entered into an
agreement to sell certain assets of Downey Glass, one of the divisions within
its Glass Products Group. The sale was completed in October 1995 for an
aggregate consideration, net of expenses, of approximately $6.7 million (subject
to certain post-closing adjustments) and the assumption of certain liabilities.
Sales from Downey Glass aggregated $9.1 million and $26.3 million for the third
quarter and first nine months of 1995, respectively. The proceeds from this
divestiture will be used for general Company purposes including acquisitions for
additions to its remaining businesses.
The taxable gain from the sale of Downey Glass of approximately $.21 per class B
interest, will be allocated entirely to Class B Interest holders of record on
the first day of October 1995. The Partnership will make a cash tax
distribution to 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 1996.
15 Page 15 of 18
<PAGE>
Acquisitions
Sun Distributors, L.P. is actively pursuing its acquisition strategy, with
permissible spending up to $15.0 million in 1995 and each succeeding year.
The acquisition program is concentrated within the existing areas of business
interest.
In November 1995, the Company's Hillman Fastener Division purchased certain
assets of the Retail Division of Curtis Industries of Eastlake, Ohio. Annual
sales of Curtis' Retail Division are approximately $17 million. The acquisition
is strategically designed to augment Hillman's long-term growth strategy in the
hardware home center market.
16 Page 16 of 18
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Events
------------
Reference is made to the description of the sale of certain assets of the Downey
Glass Division on October 30, 1995 under "Sale of Division" in Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
description is incorporated herein by reference.
In September 1995, Sun Distributors, L.P. announced that it had executed a
letter of intent to purchase all the outstanding stock of American Management
Group (with its wholly-owned subsidiary, Dover Glass Co., together referred to
as "Portland Glass"), headquartered in Portland, Maine. In October 1995, the
parties mutually agreed not to continue the negotiations for a possible business
combination; further due diligence made it clear that the strategic fit between
the two companies' business lines within the glass products market was not as
strong as it originally appeared.
17 Page 17 of 18
<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/ BY: /s/
---------------------------- ----------------------------
Louis J. Cissone Joseph M. Corvino
Senior Vice President Vice President and
and Chief Financial Officer Controller
(Chief Accounting Officer)
DATE: November 14, 1995
18 Page 18 of 18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1995 AND THE RELATED STATEMENT OF INCOME FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1995 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 9,249
<SECURITIES> 0
<RECEIVABLES> 85,348
<ALLOWANCES> 2,093
<INVENTORY> 91,064
<CURRENT-ASSETS> 187,154
<PP&E> 50,175
<DEPRECIATION> 28,570
<TOTAL-ASSETS> 257,567
<CURRENT-LIABILITIES> 81,023
<BONDS> 70,330<F1>
<COMMON> 0
0
0
<OTHER-SE> 98,182
<TOTAL-LIABILITY-AND-EQUITY> 257,567
<SALES> 481,826
<TOTAL-REVENUES> 481,826
<CGS> 287,973
<TOTAL-COSTS> 168,289
<OTHER-EXPENSES> 352
<LOSS-PROVISION> 935
<INTEREST-EXPENSE> 5,625
<INCOME-PRETAX> 36,429
<INCOME-TAX> 362
<INCOME-CONTINUING> 36,067
<DISCONTINUED> 0
<EXTRAORDINARY> (629)
<CHANGES> 0
<NET-INCOME> 35,438
<EPS-PRIMARY> 1.20<F2>
<EPS-DILUTED> 1.20<F2>
<FN>
<F1> BONDS REPRESENTS ALL LONG-TERM DEBT FOR SENIOR NOTES.
<F2> EPS REPRESENTS CLASS B LIMITED PARTNERSHIP INTEREST ONLY.
</FN>
</TABLE>
