<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 March 31, 1997
Commission file number 1-9375
SunSource 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 15
<PAGE>
SUNSOURCE L.P.
INDEX
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1997
(Unaudited), December 31, 1996, and March 31, 1996
(Unaudited) 3
Consolidated Statements of Income for
the three months ended March 31, 1997 and 1996
(Unaudited) 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1996
(Unaudited) 5
Consolidated Statements of Changes in Partners'
Capital for the years ended December 31, 1994, 1995
and 1996 and for the three months ended March 31, 1997 6
Notes to Consolidated Financial Statements
(Unaudited) 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
PART II. OTHER INFORMATION 14
SIGNATURES 15
Page 2 of 15
<PAGE>
SUNSOURCE L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, March 31,
1997 December 31, 1996
ASSETS (Unaudited) 1996 (Unaudited)
------ ------------- ------------- ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,096 $ 1,666 $ 633
Accounts and notes receivable, net 91,710 78,578 82,199
Inventories 101,379 102,396 93,847
Other current assets 4,819 4,672 5,435
----------- ----------- ----------
Total current assets 201,004 187,312 182,114
Property and equipment, net 21,442 21,409 20,156
Goodwill 42,661 43,036 43,915
Other intangibles 524 667 1,141
Deferred income taxes 5,331 5,007 3,098
Cash surrender value of
life insurance policies 4,437 4,566 2,999
Other assets 640 558 527
----------- ----------- ----------
Total assets $ 276,039 $ 262,555 $ 253,950
=========== =========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable, trade $ 54,745 $ 48,557 $ 46,428
Notes payable 1,717 2,670 2,815
Current portion of senior notes 6,395 6,395 6,395
Current portion of capitalized
lease obligations 135 107 --
Distributions payable to partners 1,944 1,857 1,715
Bank revolving credit 20,000 -- --
Accrued expenses:
Salaries and wages 4,287 5,696 3,879
Interest on senior notes 1,892 473 2,081
Management fee due the general partner 821 3,330 821
Income and other taxes 3,310 2,695 3,429
Other accrued expenses 14,934 14,751 14,505
----------- ----------- ----------
Total current liabilities 110,180 86,531 82,068
Senior notes 57,539 57,539 63,934
Bank revolving credit -- 11,000 4,000
Capitalized lease obligations 647 504 --
Deferred compensation 8,837 8,644 7,949
Other liabilities 3,721 3,718 1,336
----------- ----------- ----------
Total liabilities 180,924 167,936 159,287
----------- ----------- ----------
Commitments and contingencies
Partners' capital:
General partner 969 960 959
Limited partners:
Class A interests; 11,099,573
outstanding 67,642 67,642 67,642
Class B interests; 21,675,746
outstanding 29,868 29,040 28,869
Class B interests held in treasury (1,514) (1,514) (1,514)
Cumulative foreign currency
translation adjustment (1,850) (1,509) (1,293)
----------- ----------- -----------
Total partners' capital 95,115 94,619 94,663
----------- ----------- ----------
Total liabilities and
partners' capital $ 276,039 $ 262,555 $ 253,950
=========== =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3 of 15
<PAGE>
SUNSOURCE L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
FOR THE THREE MONTHS ENDED
(dollars in thousands, except for partnership interest amounts)
March 31, March 31,
1997 1996
----------- -----------
Net sales $ 169,016 $ 154,892
Cost of sales 101,416 92,992
------------ -----------
Gross profit 67,600 61,900
------------ -----------
Operating expenses:
Selling, general and administrative expenses 58,690 54,169
Management fee to general partner 821 821
Depreciation 1,018 868
Amortization 455 485
------------ -----------
Total operating expenses 60,984 56,343
------------ -----------
Transaction costs 350 --
------------ -----------
Income from operations 6,266 5,557
Interest income 36 32
Interest expense 1,867 1,659
Other income, net 113 4
------------ -----------
Income before provision for income taxes 4,548 3,934
Income tax benefit (28) (76)
------------ ------------
Net income $ 4,576 $ 4,010
============ ===========
Net income allocated to partners:
General partner $ 46 $ 40
----------- -----------
Class A limited partners $ 3,052 $ 3,052
----------- -----------
Class B limited partners $ 1,478 $ 918
----------- -----------
Earnings per Limited partnership interest:
Net Income
- Class A interest $ 0.27 $ 0.27
- Class B interest $ 0.07 $ 0.04
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
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4 of 15
<PAGE>
SUNSOURCE L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED
(dollars in thousands)
March 31, March 31,
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 4,576 $ 4,010
Adjustments to reconcile net income to net
cash (used for) provided by
operating activities:
Depreciation and amortization 1,473 1,353
Decrease in cash value of life insurance 129 --
Transaction costs 350 --
Provision for deferred compensation 817 707
Deferred income tax benefit (324) (254)
Changes in current operating items:
Increase in accounts and notes receivable (13,132) (6,375)
Decrease in inventories 1,017 2,175
Increase in other current assets (147) (693)
Increase in accounts payable 6,188 3,991
Increase in accrued interest 1,419 1,561
Decrease in accrued restructuring charges
and transaction costs (719) --
Decrease in other accrued liabilities (3,276) (4,483)
Other items, net (452) 96
------------ -----------
Net cash (used for) provided by
operating activities (2,081) 2,088
------------ -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 252 4
Capital expenditures (1,016) (834)
Other, net (52) (42)
------------ ------------
Net cash used for investing activities (816) (872)
------------ ------------
Cash flows from financing activities:
Cash distributions to partners (3,690) (10,545)
Borrowing under the bank credit agreement, net 9,000 4,000
Borrowings (repayments) under other
credit facilities, net (953) 62
Principal payments under capitalized
lease obligations (30) --
------------ -----------
Net cash provided by (used for)
financing activities 4,327 (6,483)
------------ ------------
Net increase (decrease) in cash
and cash equivalents 1,430 (5,267)
Cash and cash equivalents at beginning of period 1,666 5,900
------------ -----------
Cash and cash equivalents at end of period $ 3,096 $ 633
============ ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 5 of 15
<PAGE>
SUNSOURCE L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED
(dollars in thousands)
PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Cumulative
Foreign
Class A Class B Class B Translation
General Limited Limited Treasury Adjustment TOTAL
------- ------- -------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 963 $ 67,642 $ 29,252 $ (1,514) $ (1,400) $ 94,943
Net income 40 3,052 918 -- -- 4,010
Cash distributions paid and/or
declared to partners (44) (3,052) (1,301) -- -- (4,397)
Change in cumulative foreign
translation adjustment -- -- -- -- 107 107
-------- -------- -------- -------- --------- --------
Balance, March 31, 1996 959 67,642 28,869 (1,514) (1,293) 94,663
Net income 153 9,158 5,946 -- -- 15,257
Cash distributions paid and/or
declared to partners (152) (9,158) (5,775) -- -- (15,085)
Change in cumulative foreign
translation adjustment -- -- -- -- (216) (216)
-------- -------- -------- -------- --------- --------
Balance, December 31, 1996 960 67,642 29,040 (1,514) (1,509) 94,619
Net income 46 3,052 1,478 -- -- 4,576
Cash distributions paid and/or
declared to partners (37) (3,052) (650) -- -- (3,739)
Change in cumulative foreign
translation adjustment -- -- -- -- (341) (341)
-------- -------- -------- -------- --------- --------
Balance, March 31, 1997 $ 969 $ 67,642 $ 29,868 $ (1,514) $ (1,850) $ 95,115
========= ======== ======== ======== ========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 6 of 15
<PAGE>
SUNSOURCE 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
SunSource L.P. (the "Partnership"), formerly Sun Distributors L.P., and its
subsidiary partnership, SDI Operating Partners, L.P. (the "Operating
Partnership"). All significant intercompany balances and transactions have been
eliminated. The Partnership is one of the largest wholesale distributors of
industrial products and related services in the United States. The Partnership's
three business segments are Industrial Services, Hardware Merchandising and
Glass Merchandising.
The accompanying consolidated financial statements and related notes are
unaudited, except for the balance sheet as of December 31, 1996; 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
Partnership 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 Partnership's report on Form 10-K for the year ended December
31, 1996.
2. Related Party Transaction:
In March 1997, the Operating Partnership paid the 1996 management fee of $3,330
due the General Partner, SDI Partners I, L.P. (the "GP").
3. Distributions:
On December 19, 1996, the Partnership in anticipation of its conversion to
corporate form, suspended payment of the monthly tax-related distributions to
Class B interest holders effective January 1, 1997, through March 31, 1997. Due
to the delay in completion of the proposed corporate conversion, the Partnership
resumed payment of monthly advance Class B tax distributions in April 1997. On
April 30, 1997, the Partnership paid a B tax distribution in the amount of $.03
per B Interest to holders of record April 1, 1997. On April 18, 1997, the
Partnership declared a B tax distribution in the amount of $.03 per B interest
payable May 30, 1997, to holders of record May 1, 1997. The Partnership intends
to pay this monthly rate to Class B holders until the effective date of the
conversion since it expects to allocate sufficient Class B taxable income in the
shortened tax year from January 1, 1997, through the effective date to require
the B tax distribution payment. The balance of the required 1997 Class B tax
distribution, if any will be paid on or before March 31, 1998.
Page 7 of 15
<PAGE>
SUNSOURCE L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
4. Lines of Credit and Long-Term Debt:
As of March 31, 1997, the Operating Partnership had $24,399 available under its
$50,000 Bank Credit Agreement which provides revolving credit for working
capital purposes and acquisitions through December 31, 1997. The $25,601
outstanding under the Bank Credit Agreement consisted of bank borrowings
amounting to $20,000 as reflected on the Partnership's consolidated balance
sheet at March 31, 1997, and letter of credit commitments aggregating $5,601.
The $20,000 in bank borrowings is included in the Partnership's current
liabilities as of March 31, 1997.
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 March 31, 1997. 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 no amount was outstanding at March 31, 1997.
On March 4, 1997, the Operating Partnership received the last of two financing
commitments which together aggregate $150,000 from lenders. These commitments
are available to the Partnership until June 30, 1997. The Partnership intends to
utilize the debt capacity to fund transaction costs and other payments related
to its conversion to corporate form, refinance its current outstanding senior
notes of $63,934 as of March 31, 1997, including interest thereon and related
make-whole amount of approximately $5,000, and outstanding bank revolver
borrowings of $20,000 as of March 31, 1997. Also, the new credit facilities will
provide working capital for reinvestment in the Partnership's businesses and
acquisition capital for future growth. The new financing commitments consist of
a $60,000 five-year fixed rate note at 7.66% and a $90,000 five-year bank
revolver with terms and conditions more favorable than the Partnership's
existing senior notes and bank credit lines including less restrictive covenants
and an effective interest rate reduction of approximately 1.00%.
Consummation of the refinancing with the new credit facilities is contingent
upon approval of the Partnership's conversion into corporate form and certain
other terms and conditions of closing being satisfied in a manner acceptable to
the lenders.
5. Contingencies:
On February 27, 1996, a lawsuit was filed against the Operating Partnership by
the buyer of its Dorman Products division for alleged misrepresentation of
certain facts by the Partnership upon which the buyer allegedly based its offer
to purchase Dorman. The complaint seeks damages of approximately $21,000.
On January 16, 1997, a holder of B Interests filed a purported class action
alleging that the terms of the Conversion unfairly transfer substantial equity
to the General Partner to the detriment of the B Interests and constitute a
breach of fiduciary duty. A second complaint containing substantially identical
allegations was filed by a limited partner on February 11, 1997. The cases have
been consolidated and an amended complaint was filed on April 16, 1997, which
added claims for breach of contract and breach of covenant of good faith and
fair dealing.
Certain other legal proceedings are pending which are either in the ordinary
course of business or incidental to the Partnership's business. Those legal
proceedings incidental to the business of the Partnership 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
cash flows of the Partnership.
Page 8 of 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
General
The Partnership is a publicly held master limited partnership operating in the
wholesale industrial distribution industry through a subsidiary partnership, SDI
Operating Partners, L.P. (the "Operating Partnership"). The Partnership consists
of a headquarters operation and three business segments which are Industrial
Services, Hardware Merchandising and Glass Merchandising.
The Partnership's Industrial Services segment is comprised of the Sun Inventory
Management ("SIMCO") divisions and the SunSource Technology Services divisions.
The SIMCO divisions are Kar Products, A&H Bolt, SIMCO/Special-T-Metals and SIMCO
de Mexico. The SIMCO divisions provide maintenance products and inventory
management services to both original equipment manufacturers and maintenance and
repair facilities, including in-plant systems. SunSource Technology Services,
formerly the Fluid Power group, is comprised of Activation, Air-Dreco, J.N.
Fauver Co., Hydra-Power de Mexico, Walter Norris and Warren Fluid Power. The
Technology Services divisions provide fluid power products, engineering design,
and equipment repair services to a wide variety of industrial customers.
The Partnership's Hardware Merchandising segment consists of the Hillman
division. Hillman distributes hardware items and related products and also
provides merchandising systems service and support to both large and small
hardware retailers.
The Partnership's Glass Merchandising segment consists of the Harding Glass
division. Harding provides glass products and point-of-sale related services
such as the installation and repair of automobile and flat glass.
Conversion to Corporate Form
On December 11, 1996, the Partnership announced the terms of a plan to convert
from its current limited partnership structure to a taxable C corporation, which
must be approved by a majority of the holders of the Class A and Class B
interests unaffiliated with SDI Partners I, L.P., the General Partner, each
voting separately as a class. In connection with the conversion of the
partnership to corporate form (the "Conversion"), the Partnership intends to
refinance its outstanding debt. The conversion and refinancing transaction will
be effected through the formation of a new corporation, SunSource Inc., of which
the Operating Partnership would be a wholly-owned subsidiary partnership. On
December 30, 1996, and amended thereafter, the Partnership filed a preliminary
proxy statement with the U.S. Securities and Exchange Commission (the "SEC")
relating to the proposed transaction. Review by the SEC and mailing of the proxy
statement are pending. The Partnership expects to complete the Conversion by
July 31, 1997.
The Partnership has recorded $2.5 million of transaction costs related to the
proposed conversion as of March 31, 1997 ($2.1 million in the fourth quarter of
1996 and $.4 million in the first quarter of 1997) and anticipates incurring an
additional $1.1 million of transaction costs to complete the conversion process.
Page 9 of 15
<PAGE>
Results of Operations
Three Months Ended March 31, 1997 and March 31, 1996
Net income for the quarter ended March 31, 1997, was $4.6 million compared with
$4.0 million in 1996. The results for the first quarter of 1997 included a $.4
million charge for transaction costs associated with the proposed conversion to
a C corporation. Excluding this non-recurring item, net income increased $.9
million or 22.8% over the first quarter of 1996.
Net sales increased $14.1 million or 9.1% over the first quarter of 1996
resulting primarily from an increase in the volume of products sold due to
continued strengthening in existing product markets as well as additional market
penetration from new product lines and value-added services. Sales recorded in
the first quarter of 1997 were $169.0 million compared with the first quarter of
1996 of $154.9 million.
Sales increases (decreases) by business segment are as follows:
Sales Increase (Decrease)
-------------------------
Amount %
------ ---
Industrial Services
Technology Services $ 5.9 million 8.1 %
Inventory Management 5.5 million 14.5 %
-------
Total Industrial Services 11.4 million 10.3 %
Hardware Merchandising 4.1 million 18.5 %
Glass Merchandising (1.4)million (6.6)%
-------
Total Partnership $ 14.1 million 9.1 %
=======
The sales increase in the Hardware Merchandising segment is due primarily to an
expansion of Hillman's customer base and market penetration from new product
lines associated with the Curtis acquisition. The increase in sales in the
Inventory Management divisions is comprised of sales growth primarily from new
inventory management programs of $4.2 million and in maintenance products of
$1.3 million.
The decline in sales volume in the Glass Merchandising Segment is attributable
to decreases in retail flat glass, wholesale glass and other product line sales
aggregating $1.8 million, offset by an increase in retail automotive glass sales
of $.4 million.
Cost of sales increased $8.4 million or 9.1% from the first quarter of 1996, due
primarily to increased sales levels in the comparison period. The 1996 period
also reflects a reclassification of $.6 million in costs from selling, warehouse
and delivery and general and administrative expense (S,G&A) to cost of sales.
Gross margins were 40.0% in the first quarter of 1997 and 1996, comprised by
business segment as follows:
1st Quarter
-----------
1997 1996
---- ----
Industrial Services
Technology Services 25.8% 25.7%
Inventory Management 58.5% 63.0%
Total Industrial Services 37.3% 38.4%
Hardware Merchandising 51.8% 50.6%
Glass Merchandising 40.8% 36.9%
The erosion in gross margin in the Industrial Services segment is due mainly to
competitive pricing pressures and changes in sales mix, primarily in the
Inventory Management divisions.
Page 10 of 15
<PAGE>
Gross margins in the Hardware Merchandising segment increased due to reduced
packaging costs from the comparable 1996 period.
The increase in gross margins in the Glass Merchandising segment is due
primarily to improved purchasing management in retail glass and exiting from
low-margin product lines.
SG&A expenses increased by $4.5 million or 8.3% over the first quarter of 1996,
comprised as follows: increased selling expenses of $2.0 million or 7.5%,
supporting increased 1997 sales levels; increased warehouse and delivery
expenses of $.9 million or 9.2% due to the addition of five large in-plant
accounts in the Industrial Services segment and expansion programs by certain
operating units; and increased general and administrative expenses of $1.6
million or 9.2% to support the increased number of system accounts in the
Industrial Services segment and the overall increase in 1997 sales levels.
S,G&A expenses as a percentage of sales, were as follows:
1st Quarter
-----------
1997 1996
---- ----
Selling Expenses 16.7% 17.0%
Warehouse and Delivery Expenses 6.2% 6.2%
General and Administrative Expenses 11.8% 11.8%
----- -----
Total S,G&A Expenses 34.7% 35.0%
===== =====
Overall, as a percentage of sales, total S,G&A expense decreased 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.
Interest expense increased $.2 million in the comparison period due primarily to
increased borrowing levels under the Partnership's revolving credit facility to
support working capital requirements, offset by reduced financing costs from the
scheduled principal repayment on senior notes in the amount of $6.4 million on
December 1, 1996.
Other income increased by $.1 million in the comparison period due primarily to
gains from the sale of fixed assets.
Currently, the Partnership incurs state and local income taxes on its domestic
operations and foreign income taxes on its Canadian and Mexican Operations.
Also, the Partnership provides for deferred income taxes as determined in
accordance with Statement of Financial Accounting Standard No. 109 ("SFAS
#109"). As currently calculated, deferred income taxes represent state and
federal income tax benefits expected to be realized after December 31, 1997,
when the Partnership 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 Partnership. The allocation of net income to the
limited partners for financial statement purposes represents a 99% interest in
the profits of the Partnership. The net income allocation resulted in $.27 of
income per Class A limited partnership interest for the quarters ended March 31,
1997 and March 31, 1996; and $.07 of income per Class B limited partnership
interest in the first quarter of 1997 compared with $.04 of income per Class B
interest for the first quarter of 1996. Income per Class B interest in 1997
includes non-recurring transaction costs related to the proposed conversion to
corporate form of $.01. Excluding the transaction costs, income per Class B
limited partnership interest amounted to $.08 in the first quarter of 1997
compared with $.04 in the first quarter of 1996.
Page 11 of 15
<PAGE>
Liquidity and Capital Resources
Net cash used for operations in the first quarter of 1997 was $2.1 million
compared with net cash provided by operations in the first quarter of 1996 of
$2.1 million, a change of $4.2 million. This change was due primarily to
increased working capital investment in operations in the comparison period of
approximately $4.8 million offset by increased net income of $.6 million. The
Partnership's net interest coverage ratio (earnings before interest, taxes and
gain on sale of divisions over net interest expense) improved to 3.68X in the
first quarter of 1997 from 3.42X in the comparable prior year period.
The Partnership's cash position of $3.1 million as of March 31, 1997, decreased
$1.4 million from the balance at December 31, 1996. Cash was provided during
this period primarily from borrowings under the bank credit agreement of $9.0
million and proceeds from the sale of property and equipment of $.3 million.
Cash was used during this period predominantly for operations, distributions to
the general and limited partners, capital expenditures, repayments under other
credit facilities and other items in the amounts of $2.1 million, $3.7 million,
$1.0 million, $1.0 million and $.1 million, respectively.
The Partnership's working capital position of $90.8 million at March 31, 1997,
represents a decrease of $10.0 million from the December 31, 1996 level of
$100.8 million. The decrease is attributable to an increase in current
liabilities of $20.0 million as a result of the classification of bank revolver
debt as current at March 31, 1997, an increase in interest payable on senior
notes of $1.4 million, and an increase in distributions payable to partners of
$.1 million; offset by reinvestment in working capital of $7.6 million, an
increase in cash balance of $1.4 million and a decrease in management fee
payable to the General Partner of $2.5 million. The Partnership's current ratio
decreased to 1.82 at March 31, 1997 from the December 31, 1996 level of 2.16,
primarily as a result of the classification of bank revolver debt as current at
March 31, 1997, compared with long-term at December 31, 1996.
As of March 31, 1997, the Partnership's total debt as a percentage of its
consolidated capitalization is 46.6% compared with 43.7% as of March 31, 1996.
The Partnership's existing bank credit facility of $50 million expires December
31, 1997. Financing commitments of $150 million are available to the Partnership
until June 30, 1997, to fund costs related to its conversion to corporate form,
prepay its existing senior notes and provide capital for internal and
acquisition growth. The new financing arrangements will provide capital for a
five-year term from the date of conversion to corporate form. If the Conversion
is not consummated, an extension of the Partnership's existing bank credit
facility beyond December 31, 1997, will be requested. See Note 4 of Notes to
Financial Statements.
The Partnership anticipates spending approximately $4.7 million for capital
expenditures in 1997, primarily for machinery and equipment.
As of March 31, 1997, the Operating Partnership had $24.4 million available
under its $50.0 million Bank Credit Agreement which provides revolving credit
for working capital purposes and acquisitions through December 31, 1997. The
$25.6 million outstanding under the Bank Credit Agreement consisted of bank
borrowings totaling $20.0 million and Letter of Credit commitments aggregating
$5.6 million. 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 no amount was outstanding at March 31, 1997.
Page 12 of 15
<PAGE>
On March 31, 1997, the Partnership distributed the balance of the tax
distribution due of $.0265 per Class B Interest to holders of record for the
entire year of 1996 which amounted to $.6 million in the aggregate. The 1996
Class B tax distribution amounted to $7.7 million or $.35 per B interest, which
was partially paid in the amount of $.02 per B interest per month for the period
January through April 1996 and in the amount of $.03 per B interest per month
for the period May through December 1996.
The Partnership suspended the payment of monthly advance B tax distributions
effective January 1, 1997 through March 31, 1997, pending the conversion to
corporate form. Due to the delay in completion of the proposed corporate
conversion, the Partnership resumed payment of monthly advance Class B tax
distributions in April 1997 in the amount of $.03 per B Interest. On April 18,
1997, the Partnership declared a B tax distribution in the amount of $.03 per B
Interest payable May 30, 1997, to holders of record May 1, 1997. The Partnership
intends to pay this monthly rate to Class B holders until the effective date of
the conversion since it expects to allocate sufficient Class B taxable income in
the shortened tax year from January 1, 1997, through the effective date to
require the B tax distribution payment. The balance of the required 1997 Class B
tax distribution, if any will be paid on or before March 31, 1998.
See Item 3 - Legal Proceedings, of Form 10-K dated December 31, 1996, and Note 5
of Notes to Consolidated Financial Statements, for the description of a lawsuit
with respect to the sale of the Partnership's Dorman Products Division and
lawsuits involving the Partnership's General Partner related to the proposed
Conversion to corporate form. Certain other legal proceedings are pending which
are either in the ordinary course of business or incidental to the Partnership's
business. Those legal proceedings incidental to the business of the Partnership
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 cash flows of the
Partnership.
Page 13 of 15
<PAGE>
PART II
OTHER INFORMATION
Items 1-6 - None
Page 14 of 15
<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.
SUNSOURCE L.P.
BY:__________________________ BY___________________________
Joseph M. Corvino John J. Dabrowski
Vice President - Finance Controller
Chief Financial Officer (Chief Accounting Officer)
DATE: May 15, 1997
Page 15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet as of March 31, 1997 and the related Statement of Income for the three
months ended March 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,096
<SECURITIES> 0
<RECEIVABLES> 93,988
<ALLOWANCES> 2,278
<INVENTORY> 101,379
<CURRENT-ASSETS> 201,004
<PP&E> 51,717
<DEPRECIATION> 30,275
<TOTAL-ASSETS> 276,039
<CURRENT-LIABILITIES> 110,180
<BONDS> 57,539<F1>
0
0
<COMMON> 0
<OTHER-SE> 95,115
<TOTAL-LIABILITY-AND-EQUITY> 276,039
<SALES> 169,019
<TOTAL-REVENUES> 169,019
<CGS> 101,416
<TOTAL-COSTS> 60,984
<OTHER-EXPENSES> (113)
<LOSS-PROVISION> 335
<INTEREST-EXPENSE> 1,867
<INCOME-PRETAX> 4,548
<INCOME-TAX> (28)
<INCOME-CONTINUING> 4,576
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,576
<EPS-PRIMARY> .07<F2>
<EPS-DILUTED> .07<F2>
<FN>
<F1>Bonds represents all long-term debt for Senior Notes.
<F2>EPS represents Class B Limited Partnership Interests only.
</FN>
</TABLE>
