<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K-A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
Registrant's telephone number, including area code: (215) 665-3650
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Class A Limited Partnership New York
Interests and Depositary Stock Exchange
Receipts therefore.
Class B Limited Partnership New York
Interests and Depositary Stock Exchange
Receipts therefore.
Indicate by check mark whether the registrant (l) 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 .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
-----
<PAGE>
PART I
Item 1 - Business.
General
Sun Distributors L.P., a Delaware limited partnership (the "Partnership"),
through its subsidiary limited partnership, SDI Operating Partners, L.P. (the
"Operating Partnership"), is one of the largest wholesale distributors of
industrial products and services in the United States. Since January 1987, the
business of the Partnership and the Operating Partnership has been managed by
SDI Partners I, L.P. (the "General Partner"), a limited partnership whose
general partner is Lehman/SDI, Inc., formerly known as Shearson/SDI, Inc., a
Delaware corporation and an indirect, wholly owned subsidiary of Lehman Brothers
Holdings, Inc. ("Lehman Holdings"). The General Partner owns 1% of the
Partnership and 1% of the Operating Partnership. All of the limited partnership
interests in the General Partner are beneficially owned by members of management
of the Partnership and the Operating Partnership (the "Management Employees").
While the Partnership has historically viewed its operations as one business
segment, changes in the marketplace, risks and the economy demand that the
Partnership now measure and value its businesses with a customer-based focus on
value added services such as engineering design, inventory management, and
integrated supply. These services are expected to provide greater revenue growth
in future years than general product distribution. In December 1995, the
Partnership reorganized its operating businesses, operating management, and
current strategic plan to support markets for industrial services and
merchandising services for hardware and glass. The current organization consists
of its headquarters operation and three business segments comprised of eleven
operating divisions, as follows:
<TABLE>
<CAPTION>
Principal Year Acquired/
Location Organized
------------- --------------
<S> <C> <C>
Sun Distributors Headquarters Phila., Pa. 1975
Industrial Services Segment
Sun Inventory Management Company ("SIMCO") Divisions
- Kar Products Chicago, Il. 1977
- A&H Bolt & Nut Company Windsor, Ontario 1989
- SIMCO/Special-T-Metals Lenexa, Ks. 1992/1981
Sun Technology Services Divisions
- Walter Norris Rosemont, Il. 1976
- J.N. Fauver Company Madison Heights, Mi. 1978
- Warren Fluid Power Denver, Co. 1987
- Air-Dreco Houston, Tx. 1988
- Activation Birmingham, Al. 1991
- Hydra Power Tlalnepantla, C.P., Mexico 1992
Hardware Merchandising Segment
- Hillman Cincinnati, Oh. 1982
Glass Merchandising Segment
- Harding Glass Kansas City, Mo. 1980
</TABLE>
2
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General, continued
In November 1995, the Operating Partnership's Hillman division acquired the
retail hardware business of Curtis Industries. Annual sales of Curtis' Retail
division are approximately $11 million. The acquisition of Curtis will
significantly expand Hillman's position as a supplier of goods and services to
the hardware home center market where Curtis has concentrated much of its
attention. In addition, the Curtis product line can now be offered to Hillman's
present customer base. This acquisition continues Hillman's long-term growth
strategy to become a major provider of products and services to all segments of
the merchandising hardware business.
The Operating Partnership sold the Electrical Products Group divisions on
December 5, 1994, the Dorman Products division on January 3, 1995, and the
Downey Glass division on October 27, 1995, (the "divested operations or
divisions sold") as listed below:
Divisions Sold Principal Location
-------------- ------------------
Electrical Products Group Divisions
- American Electric Company St. Joseph, Mo.
- Philips & Company Columbia, Mo.
- Keathley-Patterson Electric Co. N. Little Rock, Ar.
Dorman Products Division Warsaw, Ky.
Downey Glass Division Los Angeles, Ca.
For the year ended December 31, 1995, the Partnership had net sales of
approximately $600 million, excluding sales from the divested Downey Glass
division of $29 million, with the largest operating division contributing
approximately $154 million.
The Partnership's business strategy has been to identify and develop specific
industrial distribution markets. However, the Partnership's current strategic
plan seeks to increase its emphasis on sales of high gross-margin products by
providing its customers with value added services, such as engineering design
services through its Sun Technology Services divisions and inventory management
and integrated supply services primarily through its SIMCO divisions. In
addition, the Partnership has opened new service centers for repair of fluid
power equipment and seeks to expand this service outside its core geography and
across Canada. The Partnership also continues to enhance its retail service
offerings in the glass segment and broaden its retail merchandising of hardware
related products.
3
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General, continued
Presidents of the Partnership's operating divisions exercise broad discretion in
the conduct of their businesses, including responsibility for the management of
their suppliers, customers and employees. Strong formal and informal planning
and monitoring functions are performed by the General Partner, and the
individual presidents of operating units are evaluated against the financial and
non-financial goals established jointly each year with the General Partner. A
substantial portion of each president's compensation is tied to the performance
of his division against its annual plan. Also, certain presidents can earn
substantial deferred compensation for maintaining the results of their
operations in the upper quartile within the industrial distribution industry.
Management believes that much of the Partnership's prior success has been the
result of fostering and perpetuating the entrepreneurial drive of operating
management.
The Partnership evaluates on an ongoing basis the performance and prospects of
each of its operating divisions in light of the Partnership's overall business
strategy.
Acquisition Strategy
Since its inception in 1975, the business of the Partnership has grown primarily
through acquisitions of existing distribution companies. The acquisition
strategy has expanded the Partnership's operations, both geographically and in
the number and type of products and services offered. The Partnership evaluates
companies that have developed attractive product/market niches and have
demonstrated their ability to achieve high returns on invested capital. The
Partnership looks for companies with strong management capabilities and stable
growth patterns. Prior to making certain acquisitions, an extensive operational
review is performed by an external consulting firm. Subsequent to most
acquisitions, certain agreed upon procedures are performed by internal and
external auditors.
In December 1992, the Partnership refinanced its then outstanding $110.0 million
9 1/2% Senior Notes through proceeds provided by institutional investors in the
amount of $95.0 million and the balance from a $50.0 million Bank Credit
Agreement. Under the credit agreements, the Partnership was not permitted to
make acquisitions in 1993 and 1994. In 1995, this restriction was removed.
Acquisition spending amounted to $.7 million with authorized spending of up to
$15.0 million in accordance with the terms of the Partnership's credit
agreements. See Notes 5, 8 and 9 of Notes to Consolidated Financial Statements.
As the result of an analysis of strategic alternatives by the Partnership, the
Partnership sold the non-strategic businesses described above. Through the sale,
the Partnership has strengthened its balance sheet and is now in a position to
resume its acquisition program by focusing on businesses which fit its current
strategic plan.
4
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Products and Services
Excluding the divested operations discussed previously, the Partnership provides
distribution and value-added services related to over 1,300 product lines. Such
value-added services are typically provided to the Partnership's customers on a
non-fee basis and are an integral component of the Partnership's marketing
strategy. These products and services are provided in three main business
segments: (1) industrial services which consist of inventory management,
engineering and integrated supply services to industrial businesses through
sales of products such as fasteners (nuts, bolts, screws, etc.), hydraulic,
pneumatic and electronic systems and parts; (2) hardware merchandising through
sales of fasteners and related products to hardware and home center retail
stores; and (3) glass merchandising consisting of installation and repair
through sales of glass products such as large sheet glass, auto glass, insulated
glass, mirrors and specialty glass. The average single sale during the year
ended December 31, 1995, was approximately $297.
Inasmuch as the Partnership is principally providing product distribution and
related services, most of the products sold are manufactured by others. However,
several divisions sell a majority of their products under their own labels. In
some cases, most notably through its Technology Services divisions, the
Partnership assembles products or designs systems to the specifications of the
end-users and performs related product repairs. Through its Glass Merchandising
Segment, the Partnership produces insulated glass units according to customer
specifications. In addition, several of the products which the Partnership
distributes are purchased by the Partnership in bulk and subsequently repackaged
in small quantities.
The Partnership regularly uses a large number of suppliers and has long-term
relationships with many of them. Most items which the Partnership distributes
are purchased from several sources, and the Partnership believes that the loss
of any single supplier would not significantly affect the operations of the
Partnership viewed as a whole. No single supplier accounted for more than 5% of
the Partnership's purchases for the year ended December 31, 1995.
The following table shows the percentages of consolidated net sales reported for
the years ended December 31, 1995, 1994, and 1993 derived from the Partnership's
current business segments, excluding divisions sold:
Percentage of Consolidated Net Sales for
Year Ended December 31,
-----------------------------------------
Business Segment 1995 1994 1993
- ------------------- ------ ------ -----
Industrial Services
Technology Services divisions 47.6% 46.6% 45.5%
SIMCO divisions 23.0% 22.9% 23.9%
------ ------ ------
Total Industrial Services 70.6% 69.5% 69.4%
Hardware Merchandising 15.3% 17.4% 19.2%
Glass Merchandising 14.1% 13.1% 11.4%
------ ------ ------
100.0% 100.0% 100.0%
5
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Marketing
While the Partnership sells across three main business segments (industrial
services, hardware merchandising and glass merchandising), a substantial portion
of its sales are industrially based, and sales performance is tied closely to
the overall performance of the non-defense-goods producing sector of Gross
Domestic Product in the United States. However, risks and economic changes in
the marketplace demand a customer-based focus on value-added services which vary
by business segment. The principal markets for the Partnership's products and
services by business segment, as determined by management are as follows:
Maintenance and Repair Markets and Original Equipment Manufacturers
Customers in this market are served by the divisions in the Industrial
Services segment. These customers include diverse industrial plants and
commercial establishments as well as producers of automotive equipment,
farm equipment, machine tools and a broad range of other equipment.
Hardware Merchandising
This market is primarily comprised of retail hardware stores, home
service centers, and lumberyards seeking merchandising services for
hardware related products.
Glass Merchandising
This market is primarily comprised of individuals seeking automotive
and residential glass replacement as well as glazing contractor
services.
The Partnership has over 179,000 customers, the largest of which accounted for
less than 4% of net sales for the year ended December 31, 1995. Each division
maintains its own sales force which is compensated for the most part on a
commission basis. The divisions' sales forces vary in size, the largest of which
has approximately 775 sales people.
The Partnership's products and services are sold in all 50 states. While its
Glass Merchandising segment sells in regional markets, the remaining two
segments sell on a national scale. In general, fluid power products and
technology services are sold primarily in the upper Midwest, Southeast,
Southwest, Canada and Mexico; maintenance products and inventory management
services are sold nationwide in the U.S., Canada, and Mexico; retail
merchandising products and services are sold nationally in the U.S. and Mexico;
and retail glass products and services are sold primarily in the West, the
Midwest, the Mid-Atlantic and the Southeast.
6
<PAGE>
Competition
The distribution business is highly competitive, with the principal methods of
competition being quality of service, quality of products, product availability,
credit terms, price and the provision of value-added services such as
engineering design, integrated supply and inventory management. The Partnership
encounters competition from a large number of regional and local distributors
and from several national distributors, some of which have greater financial
resources than the Partnership. The wholesale distribution business is highly
fragmented, with a majority of the wholesale distributors in the United States
being operated as family-owned businesses. The Partnership's competitors have
annual sales of approximately $5 million on the average with approximately
one-half under $2 million. The Partnership believes that its business differs
from that of other large national distributors in that the Partnership carries a
diverse range of product lines and provides significant value-added services,
while most large distributors concentrate on only one or two product groups.
Insurance Arrangements
Under the Partnership's current insurance programs, commercial umbrella coverage
is obtained for catastrophic exposure and aggregate losses in excess of expected
claims. Since October 1991, the Partnership has retained the exposure on certain
expected losses related to workman's compensation, general liability and
automobile. The Partnership also retains the exposure on expected losses related
to health benefits of certain employees. The Partnership believes that its
present insurance is adequate for its businesses. See Note 14 of Notes to
Consolidated Financial Statements.
Employees
Currently, the Partnership, through the Operating Partnership, employs 3,843
employees, of which 1,670 are sales personnel, 1,142 are employed as warehouse
and delivery personnel, and 1,031 hold administrative positions. The Operating
Partnership has collective bargaining agreements with 5 unions representing a
total of 65 employees. In the opinion of management, employee relations are
good.
Backlog
The Partnership's sales backlog excluding divested operations was $54,935,000 as
of December 31, 1995, and $56,335,000 as of December 31, 1994. Normally, in the
distribution business, orders are shipped within a week of receipt. On average,
the Partnership's backlog is less than one month's sales.
7
<PAGE>
Federal Income Tax Considerations
The Revenue Act of 1987 (the "1987 Act") amended the Internal Revenue Code of
1986, as amended (the "Code") with respect to the tax treatment of publicly
traded partnerships, such as the Partnership, and the passive activity losses
and credits attributable thereto. Section 7704 of the Code provides that
publicly traded partnerships generally will be treated as corporations for tax
purposes commencing in tax years beginning after 1987. The effective date of
this amendment was delayed, however, for certain "existing partnerships," such
as the Partnership, until the taxable year beginning after December 31, 1997,
provided that such partnerships do not add any substantial new line of business
before the delayed effective date. The Partnership does not intend to add any
substantial new line of business during the period when it otherwise qualifies
for delayed effectiveness under Section 7704.
Section 469 of the Code provides that, in the case of publicly traded
partnerships that are not treated as corporations under Section 7704, net losses
and credits attributable to an interest in each such partnership shall not be
applied against the partner's other income. Such net losses and credits are
suspended and carried forward to be applied against net income from the
partnership in succeeding years. Since the commencement of operations, the
Partnership has not incurred a net loss for federal income tax purposes.
However, if the Partnership should incur a net loss for federal income tax
purposes in any subsequent year until taxable years beginning after December 31,
1997, such net losses will be suspended at the limited partner level, carried
forward and netted in a later year or years against the limited partner's share
of the net income of the Partnership, or will be used when the entire investment
is disposed of in a taxable transaction. Similarly, a limited partner's share of
any credits of the Partnership in excess of the tax liability attributable to
his or her interest in the Partnership will be suspended, carried forward and
applied against the tax liability attributable to the Partnership in a
subsequent year or years, or may be used to increase the basis of such
partnership interest when the entire investment is disposed of in a taxable
transaction. Generally, these credits may not be applied against tax liability
attributable to other activities.
Assuming the continued effectiveness of Section 7704 of the Code in its current
form, if the Partnership remains a publicly traded partnership, the Partnership
would be treated as a corporation for tax purposes beginning in fiscal year
1998. Section 469 would then be inapplicable to the limited partners' treatment
of income or credits attributable to the Partnership. The income of the
Partnership would be taxed to it as a separate entity, and any losses of the
Partnership would not be deductible by limited partners. This tax at the
corporate level would reduce the amount distributable to partners and cash
distributions to limited partners would be taxed at the individual level as
dividends to the extent of earnings and profits. See Part II, Item 5, Market for
Registrant's Partnership Interests and Related Matters - Partnership Tax Status.
The Revenue Reconciliation Act of 1993 (the "1993 Act") amended the Code with
respect to the tax treatment of unrelated business taxable income ("UBTI") in an
effort to allow pension funds and other tax-exempt organizations (such as
individual retirement accounts and charitable organizations) to invest in
publicly traded partnerships. Such entities are subject to federal income tax on
net UBTI in excess of $1,000.
8
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Federal Income Tax Considerations, continued
The 1993 Act repeals the rule that automatically treats income from publicly
traded partnerships as gross income that is derived from an unrelated trade or
business. As a result, investments in publicly traded partnerships will be
treated the same as investments in other partnerships for purposes of the UBTI
rules for partnership years beginning on or after January 1, 1994.
Section 708 of the Code, in general, provides for termination of a partnership
if 50 percent or more of the total interest in partnership capital and profits
is sold or exchanged within a twelve-month period. However, the legislative
history to the Technical and Miscellaneous Revenue Act of 1988 indicates that
termination of a partnership within the meaning of Section 708 will not cause a
partnership to cease to qualify as an "existing partnership" for purposes of
Section 7704. Accordingly, sales or exchanges of Interests in the Partnership
pursuant to trading of the Partnership's Interests on the New York Stock
Exchange will not impair the status of the Partnership as an "existing
partnership" that qualifies for a delayed effective date under Section 7704.
Item 2 - Properties.
The Partnership currently has 200 warehouse and stocking facilities located
throughout the United States, Canada and Mexico. Most of these include sales
offices. Approximately 16% of these facilities are owned and the remainder are
leased. The Partnership's principal properties are warehouse facilities used by
the Operating Partnership, as follows:
Division Location Description
-------- -------- -----------
Hillman Fastener Cincinnati, Ohio 190,000 sq.ft. (leased)
Harding Glass Denver, Colorado 184,000 sq.ft. (owned)
Kar Products Itasca, Illinois 80,000 sq.ft. (owned)
In the opinion of management, the Partnership's existing facilities are in good
condition.
Item 3 - Legal Proceedings.
A civil complaint was filed by Dorman Products of America, Ltd., a subsidiary of
R&B, Inc. ("R&B"), against the Operating Partnership, in the United States
District Court for the Eastern District of Pennsylvania on February 27, 1996,
alleging misrepresentation of certain facts by the Partnership upon which R&B
allegedly based their offer to purchase the assets of the Dorman Products
division of the Partnership. The complaint sought damages of approximately $21
million. In the opinion of management, the ultimate resolution of this matter
will not have a material effect on the consolidated financial position,
operations or cash flows of the Partnership.
Item 4 - Submission of Matters to a Vote of Security Holders.
Not applicable.
9
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PART II
Item 5 - Market for Registrant's Partnership Interests and Related Matters.
Market Prices
Effective May 1, 1990, the Partnership separated its publicly traded limited
partnership Unit into one Class A Limited Partnership Interest and one Class B
Limited Partnership Interest. The Class A Interests and Class B Interests trade
separately on the New York Stock Exchange under the symbols SDP and SDPB,
respectively.
The following table shows the quarterly range of high and low closing sales
prices for the Class A and Class B Interests separately during 1995 and 1994.
CLOSING SALES PRICE
-------------------
1995 1994
-------------------- -------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
Class A Interests
First Quarter $10 3/4 $10 1/4 $10 3/4 $10 1/4
Second Quarter 11 10 3/8 10 3/4 10 1/4
Third Quarter 11 3/8 10 3/4 10 7/8 10 1/4
Fourth Quarter 11 3/8 10 7/8 10 5/8 10 1/8
Class B Interests
First Quarter $ 4 3/4 $ 4 $ 4 3/4 $ 4
Second Quarter 4 3/8 4 6 1/8 4
Third Quarter 4 7/8 4 6 5 1/4
Fourth Quarter 5 1/8 4 1/2 5 5/8 4 1/8
The total number of Class A Interests outstanding as of December 31, 1995 and
1994, was 11,099,573. The total number of Class B Interests outstanding as of
December 31, 1995 and 1994 was 21,675,746. The total number of Class A and Class
B Interest holders as of December 31, 1995 and 1994 was approximately 14,082 and
14,459, respectively.
10
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Cash Distributions
The holders of the Class A Interests are entitled to receive annually $1.10 per
Class A Interest (the "Priority Return") to the extent that cash is available
for distribution. Priority Return distributions are paid monthly on the last day
of the month to holders of record on the first day of that month.
When federal taxable income is allocated to the holders of Class B Interests,
such holders are entitled to annual tax distributions (the "Class B Tax
Distribution") equal to the product of (i) 125% of the then applicable maximum
federal income tax rate for individuals and (ii) the federal taxable income
allocated to the holders of Class B Interests with respect to the preceding
year.
The Priority Return and Class B Tax Distribution will be paid to the extent cash
is available for distribution and accumulate until paid. To the extent that the
Priority Return and Class B Tax Distribution have not been paid on a cumulative
basis, management fees due the General Partner will be deferred, and will be
paid, together with any management fees then owed with respect to any other
year, after the Priority Return and Class B Tax Distribution have been paid. If
cash available for distribution exceeds the amount necessary to pay the Priority
Return and Class B Tax Distribution, the General Partner may make additional
discretionary distributions to the holders of Class B Interests, provided that
no distribution, except the Class B Tax Distribution, may be made to holders of
the Class B Interests if, after such distribution, such holders' capital
accounts with respect to their Class B Interests would be below $.50 on a per
Interest basis.
The Partnership paid Priority Return distributions of $1.10 per Class A Interest
in 1995 and 1994. For 1995, the Class B Tax Distribution amounted to $14,807,000
or $.669517 per Class B Interest which was partially paid in the amount of $.02
per Class B interest per month for the period January through December, 1995,
along with a partial distribution of $.15 on April 10, 1995 to holders of record
on December 30, 1994, related to the taxable gain on the sale of Dorman
Products. The monthly tax distributions were paid to holders of record on the
first day of each month during 1995 and aggregated $.24 per Class B interest for
the full year 1995. On March 29, 1996, the Partnership will distribute the
balance of the tax distribution due of $.279517 per Class B Interest, as
follows: $.174544 to holders of record on December 30, 1994 for the balance due
on the taxable gain on the sale of Dorman Products; $.001968 per month to
holders of record of Class B Interests on the first day of the month during
January through December 1995 for the balance due on ordinary taxable income;
and $.081356 to holders of record on September 29, 1995 related to the taxable
gain on the sale of Downey Glass on October 27, 1995.
For 1994, the Class B Tax Distribution amounted to $10,895,000 or $.492619 per
Class B Interest which was partially paid in the amount of $.009352 per Class B
Interest per month for the period January through March 1994 and $.02 per Class
B Interest per month during the period April through December 1994. The monthly
tax distributions were paid to holders of record on the first day of each month
during 1994 and aggregated $.208056 per Class B Interest for the full year 1994.
On March 31, 1995, the Partnership distributed the balance of the tax
distribution due of $.284563 per Class B Interest, as follows: approximately
$.01981 per month to holders of record of Class B Interests on the first day of
the month during January through March 1994; $.00916 per month for April through
November 1994; and $.15185 for December 1994 which included $.14269 related to
the capital gain on the sale of the Electrical Group divisions on December 5,
1994.
11
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Cash Distributions, continued
Upon dissolution of the Partnership, the assets of the Partnership will be
liquidated and after payment of, or provision for, liabilities of the
Partnership, the remaining proceeds will be distributed in accordance with the
partners' respective ownership Interests. As a result, the holders of Class A
Interests generally will receive a preferential distribution, to the extent
available, equal to the amount of their initial capital investment ($10 per
Class A Interest) plus the amount, if any, of the Priority Return not previously
distributed to the holders of Class A Interests. The remaining proceeds will be
distributed to the General Partner and the holders of Class B Interests in
accordance with their respective ownership interests.
Taxable Income Allocations
Income taxes with respect to the Class A and Class B Interests are payable by
limited partners based upon the allocation of taxable income or loss pursuant to
the provisions of the Partnership Agreement. The allocation is made on a monthly
basis to the holders of record on the first day of each month. For 1995, federal
taxable income (ordinary income) was allocated to each Class A Interest in the
amount of $.0917 per month or an aggregate of $1.10 for the entire year. Federal
taxable income allocated to each Class B interest in 1995 amounted to ordinary
income of $.5326 and capital gains of $1.1597, of which $.9273 was related to
the sale of Dorman Products on January 3, 1995 and $.2324 was related to the
sale of Downey Glass on October 27, 1995. For 1994, federal taxable income
(ordinary income) was allocated to each Class A Interest in the amount of $.0917
per month or an aggregate of $1.10 for the entire year. Federal taxable income
allocated to each Class B Interest in 1994 amounted to ordinary income of $.7069
and a capital gain of $.4077 related to the sale of the Electrical Group
divisions on December 5, 1994.
Capital Accounts
The Class A capital account (as defined in the Partnership Agreement) was $10.00
per Class A Interest as of December 31, 1995 and 1994. The Class B Capital
Account (as defined in the Partnership Agreement) at December 31, 1995 and 1994,
was approximately $2.54 and $1.52 per Class B Interest, respectively.
Partnership Tax Status
As previously stated, after December 31, 1997, the Partnership will be taxed as
a corporation for federal income tax purposes. Management has been exploring
various restructuring alternatives such as converting into corporate form or
remaining as a limited partnership. If the Partnership remains a limited
partnership, the effect of the change in taxation will result in the Partnership
paying a corporate income tax at the Partnership level. Therefore, in accordance
with the Partnership Agreement, the Partnership's income will not be allocated
for tax purposes to the partners as is currently being done, and limited
partners will pay taxes only on distributions from the Partnership, if any.
Additionally, in accordance with the Partnership Agreement, the Partnership
would no longer make tax distributions with respect to Class B limited
partnership interests. Accordingly, a decision on whether any other distribution
will be made with respect to the Class B interests is solely within the
discretion of the General Partner. Based on current operations, it is likely
that cash will be retained in the Partnership to fund its acquisition program
and corporate requirements. If the Partnership remains a limited partnership,
there will be no change with respect to the priority return distribution paid to
the Class A interests in the amount of $.0917 per month to each Class A interest
to aggregate $1.10 annually.
12
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Item 6 - Selected Financial Data.
The following table sets forth selected consolidated financial data of the
Partnership as of and for the five years ended December 31, 1995. Data for all
periods shown is derived from financial statements of the Partnership which have
been audited by Coopers & Lybrand L.L.P., independent accountants, as indicated
in their reports thereon.
(dollars in thousands, except per partnership interest amounts)
<TABLE>
<CAPTION>
Income Statement Data for Years 1995 1994 1993 1992 1991
Ended December 31: -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 628,935 $ 735,861 $ 655,707 $ 612,052 $ 573,457
Income from operations 31,302 37,759 28,975 29,712 27,225
Gain on Sale of Divisions (Note 5) 20,644 3,523 -- -- --
Provision for income taxes 537 100 869 493 630
Income before extraordinary loss
and cumulative effect of change
in accounting principle 44,745 29,544 18,506 17,691 15,073
Extraordinary loss (629) -- -- (3,434) --
Cumulative effect on prior years
of change in accounting
principle -- -- -- 822 --
Net income 44,116 29,544 18,506 15,079 15,073
Earnings per limited partnership interest:
Income before extraordinary loss
and cumulative effect of change
in accounting principle
- Class A $ 1.10 $ 1.10 $ 1.10 $ 1.10 $ 1.10
- Class B $ 1.48 $ .79 $ .28 $ .25 $ .13
Extraordinary loss
- Class A $ -- $ -- $ -- $ -- $ --
- Class B $ (.03) $ -- $ -- $ (.16) $ --
Cumulative effect on prior years
of change in accounting principle
- Class A $ -- $ -- $ -- $ -- $ --
- Class B $ -- $ -- $ -- $ .04 $ --
Net income
- Class A $ 1.10 $ 1.10 $ 1.10 $ 1.10 $ 1.10
- Class B $ 1.45 $ .79 $ .28 $ .13 $ .13
Cash provided by operations $ 17,050 $ 17,704 $ 23,571 $ 27,056 $ 30,038
Cash distributions declared per
limited partnership interest
- Class A $ 1.10 $ 1.10 $ 1.10 $ 1.10 $ 1.10
- Class B $ .67 $ .49 $ .27 $ .13 $ .13
Balance Sheet Data at December 31:
Total assets $ 254,591 $ 266,186 $ 273,493 $ 261,588 $ 264,544
Long-term debt and capitalized
lease obligations 63,934 74,781 104,185 115,503 120,108
</TABLE>
See accompanying Notes to Consolidated Financial Statements
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for acquisitions and divestitures that affect comparability.
13
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion provides information which management believes is
relevant to an assessment and understanding of the Partnership's operations and
financial condition. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere herein.
General
The Partnership is a publicly traded master limited partnership operating in the
wholesale 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 Sun Technology Services divisions. The
SIMCO divisions are Kar Products, A&H Bolt and SIMCO/Special-T-Metals. The SIMCO
divisions provide maintenance products and inventory management services to both
original equipment manufacturers and maintenance and repair facilities,
including in-plant systems. Sun Technology Services, formerly the Fluid Power
group, is comprised of Activation, Air-Dreco, J.N. Fauver Co., Hydra-Power
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.
Acquisitions
On November 13, 1995, the Partnership's Hardware Merchandising Segment, through
its Hillman division, purchased certain assets of the Retail Division of Curtis
Industries of Eastlake, Ohio for an aggregate purchase price of $7.5 million and
the assumption of certain liabilities. Annual sales of the Curtis Retail
Division are approximately $17 million. The Curtis Retail division will be
integrated with the Hillman division. Curtis' sales were $1.6 million from the
acquisition date through December 31, 1995. There was no income contribution
from Curtis during this period due primarily to certain non-recurring transition
costs.
Sale of Certain Divisions
The Operating Partnership sold its three Electrical Group divisions on December
5, 1994, its Dorman Products division on January 3, 1995, and its Downey Glass
division on October 27, 1995, for an aggregate cash consideration, net of
expenses, of approximately $70.6 million (subject to certain post-closing
adjustments) and the assumption of certain liabilities. Sales from these
divisions aggregated $ 29.1 million for the year ended December 31, 1995, $177.1
million for the year ended December 31, 1994, and $162.3 million for the year
ended December 31, 1993.
14
<PAGE>
Income contributions from these divisions aggregated $.3 million or $.01 per
Class B interest in 1995, $8.6 million or $.39 per Class B interest in 1994, and
$6.6 million or $.30 per Class B interest in 1993. The proceeds from these
divestitures were used to reduce debt and for general Partnership purposes,
including acquisitions for integration with its remaining businesses.
The Partnership considered a number of strategic alternatives as part of the
process which led to the decision to sell these divisions. Other alternatives
considered but which were not ultimately pursued, included a sale of the entire
Partnership; the sale of all of its divisions followed by liquidation; or a
recapitalization and conversion to a corporate structure from the current
partnership form. The sale of these divisions brought to a conclusion the
process of considering strategic alternatives. The sale of these non-strategic
businesses has benefited the Operating Partnership by strengthening its balance
sheet, positioning it to resume its acquisition program and providing increased
management focus on its remaining businesses.
Market Developments
In 1995, the business of the Industrial Services and Hardware Merchandising
Segments continued to expand as a result of both economic strength across most
of the product markets and internal growth strategies developed since 1992. A
decline in sales volume experienced by the Glass Merchandising Segment is
primarily attributable to the discontinuation of certain product lines and
markets.
Operating expense control and liquidity in working capital investment allows the
operating divisions to respond quickly to market conditions effected by economic
recession or growth. Management has and will continue to respond to changing
market conditions.
Results of Operations
As previously stated, the Operating Partnership sold certain divisions in 1994
and 1995. In order to provide an analysis of the results of ongoing operations,
the sales, gross profit and operating expenses of these divisions have been
excluded from the following discussion of results of operations. The table below
reflects the results from ongoing operations of the Partnership for each year:
(dollars in thousands)
1995 1994 1993
---- ---- ----
Net sales $599,865 $558,754 $493,437
Cost of sales 355,004 331,609 292,878
-------- -------- --------
Gross profit 244,861 227,145 200,559
-------- -------- --------
Operating expenses:
Selling, general & admin. expenses 205,180 189,252 168,839
Management fee to general partner 3,330 3,330 3,330
Depreciation 3,358 3,249 3,556
Amortization 1,961 2,143 2,496
-------- -------- --------
Total operating expenses 213,829 197,974 178,221
-------- -------- --------
Income from operations $ 31,032 $ 29,171 $ 22,338
======== ======== ========
15
<PAGE>
Years Ended December 31, 1995 and 1994
Net income for the year ended December 31, 1995 was $44.1 million including a
combined gain of $20.6 million from the sale of the Downey Glass division in
October 1995 and the Dorman Products division in January 1995, compared with
$29.5 million earned in 1994 which included a gain of $3.5 million from the sale
of the Electrical Group divisions. Results for 1995 also included a $.6 million
charge related to the early retirement of debt and a reduction in net financing
costs of almost $3.2 million from the prior year. 1994 net income included
income from the Electrical Group of $4.1 million, from Dorman Products of $2.8
million, and from Downey Glass of $1.7 million. Excluding income contributions
and gains from divisions sold, as well as the extraordinary loss on the early
extinguishment of debt, net income for 1995 amounted to $23.8 million or 36.7%
above the comparable 1994 earnings of $17.4 million.
Net sales increased $41.1 million or 7.4% over 1994, resulting primarily from an
increase in the volume of products sold due to strengthening in most product
markets and significant growth from sales programs initiated since 1992.
Excluding divisions sold, sales recorded in 1995 were $599.9 million compared
with 1994 sales of $558.8 million. Sales increases (decreases) by business
segment are as follows:
Sales Increase (Decrease)
-------------------------
Amount %
------ ---
Industrial Services
Technology Services divisions $ 25.0 million 9.6 %
SIMCO divisions 10.1 million 7.9 %
-------
Total Industrial Services 35.1 million 9.1 %
Hardware Merchandising 11.9 million 16.3 %
Glass Merchandising (5.9)million (6.1)%
-------
Total Partnership $ 41.1 million 7.4 %
========
The decline in sales volume in the Glass Merchandising Segment is primarily
attributable to the discontinuation of certain product lines and markets served,
resulting in a sales reduction of $5.0 million from 1994. On a comparable basis
sales decreased $.9 million, or .9%, in the Glass Merchandising Segment.
Cost of sales increased $23.4 million or 7.1% from the twelve months ended
December 31, 1994, due primarily to increased sales levels in the comparison
period.
Excluding divisions sold, gross margins were 40.8% in 1995 compared with 40.7%
in 1994, comprised by business segment as follows:
Year Ended December 31
------------------------
1995 1994
---- ----
Industrial Services
Technology Services divisions 27.4% 27.7%
SIMCO divisions 64.5% 65.9%
Total Industrial Services 39.5% 40.3%
Hardware Merchandising 52.4% 51.0%
Glass Merchandising 35.9% 34.4%
Sales mix was the principal contributor to the changes in gross margins.
16
<PAGE>
Selling, general and administrative ("S,G&A") expenses, excluding divisions
sold, increased by $15.9 million or 8.4% over 1994, comprised as follows:
increased selling expenses of $8.9 million or 9.9%, increased warehouse and
delivery expenses of $3.2 million or 10.0% and increased general and
administrative expenses of $3.9 million or 5.7%. The increase in S,G&A expenses
supported increased 1995 sales levels and expansion programs by certain
operating units.
Excluding divisions sold, S,G&A expenses as a percentage of sales, were as
follows:
Year Ended December 31
------------------------
1995 1994
---- ----
Selling Expenses 16.5% 16.1%
Warehouse and Delivery Expenses 5.8% 5.7%
General and Administrative Expenses 11.9% 12.1%
----- -----
Total S,G&A Expenses 34.2% 33.9%
===== =====
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") is accrued in the amount of $3.3 million
annually, which is based on 3% of the aggregate initial capital investment ($111
million) of the limited partners.
Depreciation expense increased $.1 million in the comparison period due
primarily to an increase in the depreciable fixed asset base at the remaining
divisions of the Partnership.
Amortization expense decreased $.2 million in 1995 compared with 1994 due
primarily to the expiration of non-compete agreements in the Glass Services
segment.
Interest income increased $.3 million in the comparison period due primarily to
the investment of excess cash generated from divisions sold.
Interest expense decreased $2.6 million in the comparison period due primarily
to reduced financing costs of approximately $1.5 million from the prepayment of
senior notes on March 14, 1995, and $1.1 million from reduced borrowing levels
under the Partnership's revolving credit facility.
Other income was $.3 million for the twelve months ended December 31, 1995,
compared to $1.7 million of other expense recorded in the 1994 comparison
period. This change was primarily due to the favorable settlement of certain
non-recurring insurance and legal matters in the 1995 period.
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"). 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 Partnership's provision for income taxes in 1995
increased $.4 million from 1994 due primarily to an increase in state taxes for
the gains on divisions sold.
17
<PAGE>
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 $1.10 of
income per Class A limited partnership interest for the years ended December 31,
1995 and December 31, 1994; and $1.45 of income per Class B limited partnership
interest in 1995 compared with $.79 of income per Class B interest for the year
ended December 31, 1994. Income per Class B interest in 1995 included a combined
gain of $.94 from the sale of the Dorman Products and Downey Glass divisions and
an extraordinary loss of $.03 from the early extinguishment of debt. Income per
Class B interest for the twelve months ended December 31, 1994 included a gain
of $.16 on the sale of the Electrical Group divisions. Income per Class B
interest for the twelve months ended December 31, 1995 and 1994 included $.01
and $.39, respectively, of income from divisions sold.
Years Ended December 31, 1994 and 1993
Net income for the year ended December 31, 1994 was $29.5 million including a
gain of $3.5 million from the sale of the Electrical Group divisions in December
1994, compared with $18.5 million earned in 1993. This increase was a result of
continued economic expansion across all product markets and internal growth
strategies implemented primarily in 1993 and 1994.
Results for 1994 and 1993 included income from divisions sold as follows: Downey
Glass division of $ 1.7 and $ .1 million; Dorman Products division of $2.8 and
$3.3 million; and Electrical Group divisions of $4.1 and $3.2 million,
respectively. Excluding income contributions and gains from divisions sold, net
income for 1994 amounted to $17.4 million or 46.9% above the comparable 1993
earnings of $11.9 million.
Excluding divisions sold, net sales increased $65.4 million or 13.2 % over 1993,
resulting primarily from an increase in the volume of products sold due to
strengthening in most product markets and significant growth from sales programs
and services initiated since 1992. Sales recorded in 1994 were $558.8 million
compared with 1993 sales of $493.4 million. Sales increases by business segment
were as follows:
Sales Increase
--------------
Amount %
------ ---
Industrial Services
Technology Services divisions $ 35.9 million 16.0 %
SIMCO divisions 10.4 million 8.8 %
-------
Total Industrial Services 46.3 million 13.5 %
Hardware Merchandising 16.2 million 28.6 %
Glass Merchandising 2.9 million 3.0 %
-------
Total Partnership $ 65.4 million 13.2 %
=======
Cost of sales increased $38.7 million or 13.2%, due primarily to increased sales
levels in the existing businesses in the comparison period.
18
<PAGE>
Excluding divisions sold, gross margins were 40.7% in 1994 compared with 40.6%
in 1993, comprised by business segment as follows:
Year Ended December 31
----------------------
1994 1993
---- ----
Industrial Services
Technology Services divisions 27.7% 27.2%
SIMCO divisions 65.9% 66.4%
Total Industrial Services 40.3% 40.7%
Hardware Merchandising 51.0% 50.7%
Glass Merchandising 34.4% 34.4%
The erosion in gross margin in the SIMCO divisions is due mainly to increased
sales allowances related to business expansion programs and competitive pricing
pressures. Sales mix contributed principally to the change in gross margins in
the remaining divisions/segments.
Excluding divisions sold, total S,G&A expenses increased by $20.4 million or
12.1% compared with 1993, comprised as follows: increased selling expenses of
$12.1 million or 15.5%, increased warehouse and delivery expenses of $3.3
million or 11.7% and increased general and administrative expenses of $5.0
million or 8.0%.
Selling and warehouse and delivery expense increased during 1994 to support the
substantial increase in 1994 sales levels and expansion programs. General and
administrative expenses in 1994 increased primarily by inflationary growth in
fixed costs and increased incentive-based compensation for the management
segment as a result of 1994 net income performance.
Excluding divisions sold, S,G&A expenses, as a percentage of sales were as
follows in 1994 and 1993:
Year Ended December 31
----------------------
1994 1993
---- ----
Selling Expenses 16.1% 15.8%
Warehouse and Delivery Expenses 5.7% 5.8%
General and Administrative Expenses 12.1% 12.7%
----- -----
Total S,G&A Expenses 33.9% 34.2%
----- -----
Overall, as a percentage of sales, total S,G&A expenses decreased due mainly to
the increase in sales levels in relation to the fixed cost component of S,G&A
expenses.
The management fee due the GP is accrued in the amount of $3.3 million annually,
as previously discussed.
Depreciation expense decreased $.3 million due primarily to a reduction in the
depreciable fixed asset base as a result of fully depreciated assets.
Amortization expense decreased $.3 million due primarily to the expiration of
non-compete agreements in the Glass Merchandising Segment.
Interest expense increased $.1 million in the comparison period due mainly to
higher interest rates in 1994 over the comparable 1993 year.
Other expense of $1.7 million in 1994 consisted primarily of provisions for
legal, insurance and investment banking matters compared with favorable
resolution of legal and insurance matters in 1993 resulting in other income of
$.2 million.
19
<PAGE>
As previously stated, the Partnership incurs state, local and foreign income
taxes and provides for deferred income taxes as determined in accordance with
SFAS No. 109. The Partnership's provision for income taxes in 1994 decreased $.8
million from 1993 due to increased deferred tax benefits related to deferred
compensation.
The allocation of net income, which was previously discussed, resulted in $1.10
of income per Class A limited partnership interest for the year ended December
31, 1994, and December 31, 1993; and $.79 of income per Class B limited
partnership interest in 1994 including a gain of $.16 per Class B interest from
the sale of the Electrical Group divisions, compared with $.28 of income per
Class B limited partnership interest in 1993. Income per Class B interest for
the twelve months ended December 31, 1994 and 1993 included $.39 and $.30,
respectively, of income from divisions sold.
Liquidity and Capital Resources
Net cash provided by operations for the twelve months ended December 31, 1995
was $17.1 million a decrease of $.6 million from the prior year level of $17.7
million. The Partnership's net interest coverage ratio (earnings before
interest, taxes and gain on sale of divisions over net interest expense)
improved to 4.56X in 1995 from the 1994 level of 3.58X.
The Partnership's cash position of $5.9 million as of December 31, 1995,
increased $1.0 million from the balance at December 31, 1994. Cash was provided
during 1995 primarily from operations of $17.1 million and proceeds from the
sale of the Dorman Products and Downey Glass divisions of $44.9 million. Cash
was used during this period predominantly for distributions to the general and
limited partners ($27.2 million), repayment of debt obligations ($19.0 million),
acquisitions ($7.4 million), capital expenditures ($4.3 million) and the
purchase of life insurance ($3.1 million).
The Partnership's working capital position of $95.8 million at December 31,
1995, represents an increase of $19.8 million from the December 31, 1994 level
of $76.1 million. The increase is primarily attributable to reinvestment in
working capital of $12.8 million, a decrease in the current portion of Senior
Notes of $12.5 million due to repayments, and acquired working capital of $5.0
million related to the Curtis acquisition, offset by $10.5 million of divested
working capital related to the sale of Dorman Products and Downey Glass. The
Partnership's current ratio increased to 2.11 at December 31, 1995 from the
December 31, 1994 level of 1.72.
The Partnership's financial position has strengthened as a result of the sale of
its Electrical Group divisions, and the Dorman Products and Downey Glass
divisions. On March 14, 1995, the Partnership 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. On December 1, 1995 and 1994,
the Operating Partnership paid scheduled principal repayments on its senior
notes aggregating $4.8 million and $5.7 million, respectively. As of December
31, 1995, the Partnership's total debt as a percentage of its consolidated
capitalization is 42.3% compared with 54.4% as of December 31, 1994.
The Partnership anticipates spending approximately $3.4 million for capital
expenditures in 1996, primarily for machinery and equipment.
20
<PAGE>
As of December 31, 1995, the Operating Partnership had $39.9 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
Partnership had no bank borrowings outstanding at December 31, 1995 under the
Bank Credit Agreement. The $10.1 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 $.5 million USD was outstanding at December 31, 1995.
The Partnership was restricted from making acquisition investments in 1993 and
1994 under the Senior Note and Bank Credit Agreements. The acquisition
restriction in 1994 was a result of an amendment to the credit agreements
executed in the first quarter of 1994 that eased certain coverage ratios and
other financial requirements of the credit agreements. In 1995, acquisition
spending amounted to $7.5 million. Management intends to continue its
acquisition strategy in 1996, with authorized spending of up to $15.0 million in
the aggregate, to complement internal growth.
The Operating Partnership was required to reduce permanently the bank revolver
commitment under the bank credit agreement by approximately $13.0 million as a
result of the sale of certain operating divisions. However, the banks have
waived this permanent reduction and maintained the existing bank credit
commitment of $50.0 million. For 1995 and future years, the lenders have agreed
to revise certain covenant tests to exclude the impact of cash distributions to
holders of Class B interests related solely to tax gains on divisions sold.
The taxable gain from the sale of the Dorman Products and Downey Glass divisions
in 1995 amounted to $.927 and $.232 per Class B interest, respectively. The sale
of the Electrical Group divisions in December 1994 resulted in a taxable gain of
$.408 per Class B Interest. With respect to the sale of Dorman Products on
January 3, 1995, the Operating 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 for the taxable gain on the sale of Dorman Products in the amount
of $.175 per Class B Interest will be paid on March 29, 1996, along with a tax
distribution in the amount of $.081 per Class B interest to holders of record as
of September 29, 1995 related to the sale of the Downey Glass division on
October 27, 1995. Related to the sale of the Electrical Group divisions, the
Partnership made a tax distribution on March 31, 1995 to Class B holders of
record as of December 30, 1994, equal to approximately $.143 per Class B
Interest.
See Item 3 - Legal Proceedings, for the description of a recent lawsuit with
respect to the sale of the Partnership's Dorman Products division. 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.
Income Taxes
As a result of the Partnership's adoption of SFAS No. 109 in 1992, the
Partnership has a deferred tax asset aggregating $2.8 million as of December 31,
1995. Management believes that the Partnership's deferred tax asset will be
realized through the reversal of existing temporary differences after December
31, 1997, when the Partnership will be treated as a corporation for federal
income tax purposes.
21
<PAGE>
The temporary differences expected to reverse after December 31, 1997, between
the financial statement and tax bases, are composed of prepayment penalties in
the amount of $.8 million and deferred compensation liabilities in the amount of
$7.5 million, net of a valuation allowance of $.4 million. See Note 13 of Notes
to Consolidated Financial Statements.
The minimum level of future taxable income necessary to realize the
Partnership's recorded deferred tax asset at December 31, 1995, is approximately
$7.1 million. For the three years ended December 31, 1995, the Partnership's
consolidated net income per the financial statements reconciled to federal
taxable income in thousands of dollars is shown below:
1995 1994 1993
------ ------ -----
Consolidated Net Income per the
Financial Statements ("Book") $44,116 $29,544 $18,506
Tax Adjustments to Book Income:
Goodwill & Other Intangible Asset
Amortization 1,252 1,634 1,807
Depreciation 467 506 796
Deferred Compensation, net 942 2,917 384
Self-Insurance Accrued Expenses, net (776) 844 3,331
Tax gain in excess of book gain from
sale of Divisions 1,977 1,216 --
Other Increase (Decrease) to
Book Income, net 1,893 451 (288)
------- ------- --------
Federal Taxable Income $49,871 $37,112 $24,536
======= ======= =======
Partnership Tax Status
As previously stated, after December 31, 1997, the Partnership will be taxed as
a corporation for federal income tax purposes. Management has been exploring
various restructuring alternatives such as converting into corporate form or
remaining as a limited partnership. If the Partnership remains a limited
partnership, the effect of the change in taxation will result in the Partnership
paying a corporate income tax at the Partnership level. Therefore, in accordance
with the Partnership Agreement, the Partnership's income will not be allocated
for tax purposes to the partners as is currently being done, and limited
partners will pay taxes only on distributions from the Partnership, if any.
Additionally, in accordance with the Partnership Agreement, the Partnership
would no longer make tax distributions with respect to Class B limited
partnership interests. Accordingly, a decision on whether any other distribution
will be made with respect to the Class B interests is solely within the
discretion of the General Partner. Based on current operations, it is likely
that cash will be retained in the Partnership to fund its acquisition program
and other partnership requirements. If the Partnership remains a limited
partnership, there will be no change with respect to the priority return
distribution paid to the Class A interests in the amount of $.0917 per month to
each Class A interest to aggregate $1.10 annually.
Inflation
Inflation in recent years has had a modest impact on the operations of the
Partnership. Continued inflation, over a period of years at higher than current
rates, would result in significant increases in inventory costs and operating
expenses. However, such higher cost of sales and operating expenses can
generally be offset by increases in selling prices, although the ability of the
Partnership's operating divisions to raise prices is dependent upon competitive
market conditions.
22
<PAGE>
Item 8 - Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
Report of Independent Accountants 24
Financial Statements:
Consolidated Balance Sheets, December 31, 1995 and 1994 25
Consolidated Statements of Income, Years ended
December 31, 1995, 1994 and 1993 26
Consolidated Statements of Cash Flows, Years ended
December 31, 1995, 1994 and 1993 27
Consolidated Statements of Changes in Partners' Capital,
Years ended December 31, 1995, 1994 and 1993 28
Notes to Consolidated Financial Statements 29-44
Financial Statement Schedules:
I Condensed Financial Information of Registrant 45
II Valuation Accounts 46
23
<PAGE>
Report of Independent Accountants
The Board of Directors
Lehman/SDI, Inc.
We have audited the accompanying consolidated balance sheets of Sun Distributors
L.P. and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in partners' capital and cash flows
for each of the three years in the period ended December 31, 1995. We have also
audited the financial statement schedules listed in Item 14 (a)(2) of this Form
10-K. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sun Distributors L.P.
and subsidiary as of December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
As discussed in Note 1, the financial statements have been revised to modify
certain presentations and disclosures.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 8, 1996
24
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1995 1994
------------ ----------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,900 $ 4,903
Accounts and notes receivable, net of
allowance for doubtful accounts of
$1,827 and $2,472, respectively 75,824 77,521
Inventories 96,022 92,653
Other current assets 4,742 6,703
----------- -----------
Total current assets 182,488 181,780
Property and equipment, net 20,181 27,514
Goodwill (net of accumulated amortization
of $11,739 and $11,259, respectively) 44,250 48,458
Other intangibles (net of accumulated
amortization of $13,724 and $14,396, respectively) 1,312 2,477
Deferred income taxes 2,844 2,144
Cash surrender value of life insurance policies 3,009 --
Other assets 507 3,813
----------- -----------
Total assets $ 254,591 $ 266,186
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 42,437 $ 44,435
Notes payable 2,753 2,709
Current portion of senior notes 6,395 18,970
Current portion of capitalized lease obligations -- 387
Distributions payable to partners 7,819 7,774
Accrued expenses:
Salaries and wages 5,109 7,131
Management fee due the general partner 3,330 3,330
Income and other taxes 3,398 3,338
Other accrued expenses 15,406 17,646
----------- -----------
Total current liabilities 86,647 105,720
Senior notes 63,934 70,330
Capitalized lease obligations -- 4,451
Deferred compensation 7,829 6,398
Other liabilities 1,238 1,406
----------- -----------
Total liabilities 159,648 188,305
----------- -----------
Commitments and contingencies
Partners' capital:
General partner 963 791
Limited partners:
Class A interests 67,642 67,642
Class B interests 29,252 12,300
Class B interests held in treasury (1,514) (1,514)
Cumulative foreign currency translation adjustment (1,400) (1,338)
------------ ------------
Total partners' capital 94,943 77,881
------------ -----------
Total liabilities and partners' capital $ 254,591 $ 266,186
============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for partnership interest amounts)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 628,935 $ 753,861 $ 655,707
Cost of sales 375,425 451,785 402,441
--------- --------- ---------
Gross profit 253,510 284,076 253,266
--------- --------- ---------
Operating expenses:
Selling, general and administrative expenses 213,221 235,845 213,007
Management fee to general partner 3,330 3,330 3,330
Depreciation 3,661 4,502 5,106
Amortization 1,996 2,640 2,848
--------- --------- ---------
Total operating expenses 222,208 246,317 224,291
--------- --------- ---------
Income from operations 31,302 37,759 28,975
Interest income 412 66 85
Interest expense 7,332 9,956 9,876
Other income (expense), net 256 (1,748) 191
Gain on sale of division (note 5) 20,644 3,523 --
--------- --------- ---------
Income before provision for income taxes 45,282 29,644 19,375
--------- --------- ---------
Provision for income taxes 537 100 869
--------- --------- ---------
Income before extraordinary loss 44,745 29,544 18,506
Extraordinary loss from early extinguishment
of debt (note 4) (629) -- --
---------- --------- ---------
Net income $ 44,116 $ 29,544 $ 18,506
========== ========= =========
Net income allocated to partners:
General partner $ 441 $ 295 $ 185
--------- --------- ---------
Class A limited partners $ 12,210 $ 12,210 $ 12,210
--------- --------- ---------
Class B limited partners $ 31,465 $ 17,039 $ 6,111
--------- --------- ---------
Earnings per Limited partnership interest:
Income before extraordinary loss
- Class A interest $ 1.10 $ 1.10 $ 1.10
- Class B interest $ 1.48 $ 0.79 $ 0.28
Extraordinary loss
- Class A interest -- -- --
- Class B interest $ (0.03) -- --
Net income
- Class A interest $ 1.10 $ 1.10 $ 1.10
- Class B interest $ 1.45 $ 0.79 $ 0.28
Weighted average number of outstanding limited partnership interests:
- Class A interests 11,099,573 11,099,573 11,099,573
- Class B interests 21,675,746 21,675,746 21,675,746
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 44,116 $ 29,544 $ 18,506
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization:
- Existing divisions 5,319 5,392 6,052
- Divested divisions 338 1,750 1,902
Decrease in cash value of life insurance 58 -- --
Gain on sale of divisions (20,644) (3,523) --
Extraordinary loss 629 -- --
Provision for deferred compensation 2,340 3,187 721
Deferred income tax expense (benefit) (700) (734) 208
Changes in current operating items:
Increase in accounts and notes receivable (3,666) (11,783) (4,855)
Increase in inventories (8,209) (9,436) (10,689)
Decrease (increase) in other current assets 857 347 (815)
Increase in accounts payable 2,531 1,865 10,542
Increase (decrease) in accrued interest (141) (42) 516
Increase (decrease) in other
accrued liabilities (6,062) 4,836 2,415
Other items, net 284 (3,699) (932)
---------- ---------- ----------
Net cash provided by operating activities 17,050 17,704 23,571
---------- ---------- ---------
Cash flows from investing activities:
Proceeds from sale of divisions 44,873 26,561 --
Proceeds from sale of property and equipment 757 724 384
Payment for purchase of assets (7,385) -- --
Investment in life insurance policies (3,067) -- --
Capital expenditures (4,299) (4,263) (3,734)
Other, net (93) 228 55
---------- ---------- ---------
Net cash provided by (used for)
investing activities 30,786 23,250 (3,295)
---------- ---------- ----------
Cash flows from financing activities:
Repayment of senior notes (18,971) (5,700) --
Repayments under the bank credit agreement, net -- (10,000) (5,000)
Prepayment penalties and related costs (629) -- --
Cash distributions to partners (27,218) (20,357) (14,940)
Borrowings (repayments) under other
credit facilities, net 44 (702) 817
Principal payments under capitalized
lease obligations (65) (619) (618)
Other, net -- -- 47
---------- ---------- ---------
Net cash used for financing activities (46,839) (37,378) (19,694)
---------- ---------- ----------
Net increase in cash and cash equivalents 997 3,576 582
Cash and cash equivalents at beginning of period 4,903 1,327 745
---------- ---------- ---------
Cash and cash equivalents at end of period $ 5,900 $ 4,903 $ 1,327
========== ========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED
(dollars in thousands)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL
-----------------------------------------------------------------------------
Cumulative
Foreign
Currency
Class A Class B Class B Translation
General Limited Limited Treasury Adjustment TOTAL
------- ------- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 726 $ 67,642 $ 5,721 $ (1,514) $ (254) $ 72,321
Net income 185 12,210 6,111 -- -- 18,506
Cash distributions paid and/or
declared to partners (182) (12,210) (5,807) -- -- (18,199)
Change in cumulative foreign
currency translation
adjustment -- -- -- -- (440) (440)
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1993 729 67,642 6,025 (1,514) (694) 72,188
Net income 295 12,210 17,039 -- -- 29,544
Cash distributions paid and/or
declared to partners (233) (12,210) (10,764) -- -- (23,207)
Change in cumulative foreign
currency translation
adjustment -- -- -- -- (644) (644)
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1994 791 67,642 12,300 (1,514) (1,338) 77,881
Net income 441 12,210 31,465 -- -- 44,116
Cash distributions paid and/or
declared to partners (269) (12,210) (14,513) -- -- (26,992)
Change in cumulative foreign
currency translation
adjustment -- -- -- -- (62) (62)
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1995 $ 963 $ 67,642 $ 29,252 $ (1,514) $ (1,400) $ 94,943
========= ========= ========= ========= ========== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28
<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.
Nature of Operations:
The Company is one of the largest wholesale distributors of industrial products
and related services in the United States. The Company's three operating
segments are: (1) industrial products and services, primarily maintenance and
fluid power products and inventory management services sold to industrial
customers for machine and plant maintenance and for manufacturing of original
equipment; (2) hardware merchandising, primarily of fasteners and related
products sold to retail hardware stores; and (3) glass merchandising of flat
glass and auto glass products sold to construction and retail markets. Based on
net sales, excluding divisions sold, for the year ended December 31, 1995, the
Industrial Services Segment provides approximately 71% of the Company's sales
through its Sun Technology Services divisions (48% of net sales) and the Sun
Inventory Management Company ("SIMCO") divisions (23% of net sales). The
Hardware Merchandising and Glass Merchandising Segments provide approximately
14% and 15%, respectively, of the Company's net sales.
Although its sales are primarily industrially-based, the Company has over
179,000 customers, the largest of which accounted for less than 4% of net sales
for the year ended December 31, 1995. The Company's products and services are
sold throughout all 50 states as well as in Canada and Mexico. Foreign sales
account for less than 5% of total revenues. The average single sale during the
year ended December 31, 1995 was less than three hundred dollars. Sales
performance is tied closely to the overall performance of the non-defense-goods
producing sector of Gross Domestic Product in the United States. Substantially
all of the Company's revenue growth in 1995 was related to increases in the
volume of products sold.
Revision of Certain Items:
Statements of Income:
The consolidated statements of income have been revised to replace the Net
sales, Cost of sales, Gross profit and Operating expenses of the divisions sold
in 1995 and 1994 (see Note 5) which had previously been presented as Net results
of operations from divisions sold. This revision has no effect on income from
operations or net income.
Translation of Foreign Currencies:
The Cumulative foreign currency translation adjustment has been classified as a
separate component of Partners' capital with a corresponding increase in Other
Liabilities.
29
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
1. Basis of Presentation, continued:
Retirement Benefits:
The Company has revised Note 12 to include additional disclosures pursuant to
SFAS No. 87, "Employers' Accounting for Pensions", as related to its defined
benefit plans.
Segment Information:
The Company has added Note 18 to include disclosures pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 14, "Financial Reporting for
Segments of a Business Enterprise".
2. Summary of Significant Accounting Policies:
Cash Equivalents:
Cash equivalents consist of commercial paper, U.S. Treasury obligations and
other liquid securities purchased with initial maturities less than 90 days and
are stated at cost which approximates market value.
Inventories:
Inventories, which consist of products purchased for resale, are valued at the
lower of cost or market, cost being determined principally on the first-in,
first-out method.
Property and Equipment:
Property and equipment, including assets acquired under capital leases, is
carried at cost and includes expenditures for new facilities and major renewals.
Maintenance and repairs are charged to expense as incurred. When assets are
sold, or otherwise disposed of, the cost and related accumulated depreciation
are removed from their respective accounts, and the resulting gain or loss is
reflected in current operations.
Depreciation:
For financial accounting purposes, depreciation, including that related to plant
and equipment acquired under capital leases, is computed on the straight-line
method over the estimated useful lives of the assets, generally three to
twenty-five years, or, if shorter, over the terms of the related leases.
Goodwill and Other Intangible Assets:
Goodwill related to the excess of acquisition cost over the fair value of net
assets acquired is amortized on a straight-line basis over forty years. Other
intangible assets arising principally from acquisitions by the Operating
Partnership are amortized on a straight-line basis over periods ranging from
three to ten years.
30
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
2. Summary of Significant Accounting Policies, continued:
Income Taxes:
As a partnership, the Company incurs no liability for federal income taxes.
Accordingly, no current provision for federal income taxes is reflected in the
accompanying consolidated financial statements. However, the Company does incur
certain state and local income taxes on its domestic operations and foreign
income taxes on its Canadian and Mexican operations. Therefore, a current
provision for state, local and foreign income taxes is reflected in the
accompanying consolidated financial statements.
The Revenue Act of 1987 provides that certain "existing publicly traded
partnerships", such as the Company, generally will not be treated as
corporations for federal income tax purposes until after December 31, 1997,
provided that such partnerships do not add any substantial new line of business
before the effective date.
SFAS No. 109 requires the Company to recognize deferred tax assets and
liabilities for expected future tax consequences of events that have been
recognized in the consolidated financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
temporary differences are expected to reverse. The Company's deferred taxes are
determined from temporary differences expected to reverse after December 31,
1997, when the Company will be taxed as a corporation. Therefore, a deferred
provision or benefit for state and federal income taxes is reflected in the
accompanying consolidated statements of income.
Retirement Benefits:
Certain employees are covered under profit-sharing retirement plans ("defined
contribution plans") for which contributions are determined on an annual basis
in accordance with the requirements of each plan.
Defined benefit plan contributions covering certain employees are funded, at a
minimum, in accordance with the requirements of the Employee Retirement Income
Security Act of 1974, as amended.
In accordance with collective bargaining agreements, annual contributions to
multi-employer pension plans are made. These contributions, which are based on
fixed contributions per month for each hour worked, are charged to income as
incurred.
Certain employees are covered under post-retirement benefit plans for which
benefits are determined in accordance with the requirements of each plan.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers
Accounting for Post-retirement Benefits Other Than Pensions". The Company has
elected to amortize the accumulated post-retirement benefit liability
(transition obligation) resulting in delayed recognition. The impact of the
adoption on the Company's financial position and results of operations is
immaterial.
31
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
2. Summary of Significant Accounting Policies, continued:
Fair Value of Financial Instruments:
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments" requires
disclosure of the fair value of certain financial instruments. Cash, accounts
receivable, short-term borrowings, accounts payable, accrued liabilities and
bank revolving credit are reflected in the consolidated financial statements at
fair value because of the short-term maturity or revolving nature of these
instruments. The fair values of the Company's debt instruments are disclosed in
Note 9.
Translation of Foreign Currencies:
The translation of applicable foreign-currency-based financial statements into
U.S. dollars is performed for balance sheet accounts using exchange rates in
effect at the balance sheet date and for revenue and expense accounts using an
average exchange rate during the period. The changes in the cumulative foreign
translation adjustment for each period relate to translation adjustments in
their entirety.
Exchange adjustments resulting from foreign currency transactions are recognized
in net income and were immaterial for the three years ending December 31, 1995.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Ownership Structure:
The General Partner of the Company and the Operating Partnership is SDI Partners
I, L.P. (the "GP"), a Delaware limited partnership whose sole general partner is
Lehman/SDI, Inc., formerly known as Shearson/SDI, Inc., an indirect,
wholly-owned subsidiary of Lehman Brothers Holdings, Inc. ("Lehman Holdings"),
formerly known as Shearson Lehman Brothers Holdings, Inc.
The Company's Class A and Class B limited partnership interests outstanding, as
of December 31, 1995, are held as follows:
<TABLE>
<CAPTION>
Class A Class B
Interests Interests
----------- -----------
<S> <C> <C> <C> <C>
Public Investors 11,010,035 ( 99.2%) 11,637,103 ( 53.7%)
Lehman Holdings and
Affiliates -- 5,896,678 ( 27.2%)
Executive Officers and
Directors (a) 89,538 ( 0.8%) 4,141,965 ( 19.1%)
------------------- -------------------
Total 11,099,573 (100.0%) 21,675,746 (100.0%)(b)
=================== ======================
</TABLE>
(a) Executive officers of the Company and the Operating Partnership and
Directors of Lehman/SDI, Inc., including beneficial ownership.
(b) Net of 523,400 Class B interests held in the Company's treasury
as of December 31, 1995.
32
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
3. Ownership Structure, continued:
Except as expressly limited by the partnership agreement, the GP has complete
and exclusive discretion in the management and control of the affairs and
business of the Company and its subsidiary partnership. The holders of Class A
and Class B interests have certain limited voting rights under the partnership
agreement generally regarding the removal of the GP and the sale of all or
substantially all of the assets of the Company or the Operating Partnership or
dissolution of the Company.
Holders of Class A interests are entitled to receive, to the extent cash is
available, $1.10 annually (the "priority return") per Class A interest, which is
currently paid monthly. On December 15, 1995, the Company declared a priority
return distribution for the month of January 1996 in the amount of $1,038 or
$.091666 per Class A interest payable January 31, 1996, to holders of record
December 29, 1995. The Class A capital account as of December 31, 1995 and 1994,
was $10.00 per Class A interest.
All items of income and loss and cash distributions of the Operating Partnership
are allocated 99% to the Company and l% to the GP. The GP is allocated l% of the
Company's share of income or loss and cash distributions, with the remaining 99%
allocated to the limited partners.
Income for federal income tax purposes is allocated to the holders of Class A
interests, until the Class A capital account of each holder is equal to the sum
of their initial capital investment ($10.00 per Class A interest), plus any
unpaid priority return. For years 1995, 1994, and 1993, federal taxable income
per Class A interest amounted to $1.10 per year, all of which represented
ordinary income. Any remaining income after the Class A allocation is allocated
to the holders of Class B interests. The holders of Class B interests receive an
allocable share of loss until the Class B capital account (as defined in the
partnership agreement) of each holder is reduced to zero. Thereafter, any
unallocated loss is allocated to the holders of Class A interests.
For 1995, 1994 and 1993, federal taxable income amounted to $1.6923, $1.1146 and
$.5411 per Class B interest, respectively. Federal taxable income in 1995
consists of ordinary income of $.5326 per Class B interest and a combined
capital gain of $1.1597 per Class B interest related to the sale of the Dorman
Products and Downey Glass divisions (see Note 5, Acquisitions/Divestitures).
Federal taxable income in 1994 consisted of ordinary income of $.7069 per Class
B interest and a capital gain of $.4077 per Class B interest related to the sale
of the Electrical Products Group divisions. In 1993, federal taxable income
consisted of ordinary income only. The Class B capital account as of December
31, 1995 and 1994, was approximately $2.54 and $1.52 per Class B interest,
respectively.
Holders of Class B interests are entitled to receive annual cash distributions
sufficient to cover their tax liabilities on taxable income allocated to the
Class B interests (the "Class B Tax Distribution"). For 1995, the Class B Tax
Distribution amounted to $14,807 or $.6695 per Class B interest which was
partially paid in the amount of $.02 per Class B interest per month for the
period January through December 1995 and a partial distribution of $.15 paid on
April 10, 1995 to holders of record on December 30, 1994, related to the taxable
gain on the sale of the Dorman Products division on January 3, 1995. On March
29, 1996, the Partnership intends to distribute the balance of the tax
distribution due of $.2795 per Class B interest, as follows: approximately
$.1745 to holders of record on December 30, 1994 for the balance due on the
taxable gain on the sale
33
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
3. Ownership Structure, continued:
of Dorman Products; $.00197 per month to holders of record of Class B interests
on the first day of the month during January through December 1995 for the
balance due on ordinary income; and $.0814 to holders of record on September 29,
1995 related to the taxable gain on the sale of the Downey Glass division (see
Note 5, Acquisitions/Divestitures).
For 1994, the Class B Tax Distribution amounted to $10,895 or $.492619 per Class
B interest which was partially paid in the amount of $.009352 per Class B
interest per month for the period January through March 1994 and $.02 per Class
B interest per month during the period April through December 1994. The monthly
tax distributions were paid to holders of record on the first day of each month
during 1994 and aggregated $.208056 per Class B interest for the full year 1994.
On March 31, 1995, the Partnership paid the balance of the tax distribution due
of $.284563 per Class B interest, as follows: approximately $.01981 per month to
holders of record of Class B interests on the first day of the month during
January through March 1994, $.00916 per month for April through November 1994,
and $.15185 for December 1994 which includes $.14269 related to the capital gain
on the sale of the Electrical Products Group divisions. (See Note 5,
Acquisitions/ Divestitures.)
For 1993, the Class B Tax Distribution amounted to $5,925 or $.267864 per Class
B interest which was paid in the amount of $.009352 per Class B interest per
month during 1993 to holders of record on the first day of each month. The
remaining balance due of $.15564 per Class B Interest was paid on March 31, 1994
to holders of record on the first day of each month during 1993 in the amount of
$.01297 per Class B Interest.
On December 15, 1995, the Company declared a Class B Tax Distribution for the
month of January 1996 in the amount of $442 or $.02 per Class B interest payable
January 31, 1996, to holders of record on December 29, 1995.
4. Extraordinary Loss:
In 1995, the Company recorded an extraordinary loss of $629 or approximately
$.03 per Class B limited partnership interest, due to early extinguishment of a
portion of the Operating Partnership's Series A 9.08% and Series B 8.44% Senior
Notes (See Note 9, Long-Term Debt).
5. Acquisitions/Divestitures:
In November 1995, the Company's Hillman Fastener division purchased certain
assets of the Retail division of Curtis Industries of Eastlake, Ohio, for an
aggregate purchase price of $7,457 and the assumption of certain liabilities.
The aggregate purchase price includes goodwill of $2,051. This acquisition has
been accounted for as a purchase and, accordingly, the results of operations
have been included in the accompanying consolidated financial statements from
the date of acquisition.
No acquisitions were consummated during 1994 and 1993 as a result of
restrictions on acquisition expenditures imposed by the credit agreements of the
Operating Partnership (See Note 8, Lines of Credit and Note 9, Long-Term Debt).
34
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
5. Acquisitions/Divestitures, continued:
On October 27, 1995, the Operating Partnership sold certain assets of its Downey
Glass division for a cash consideration, net of expenses, of approximately
$6,237 (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 $4,144 or $.19 per Class B interest included in the 1995
consolidated statement of income. The aggregate assets sold, net of liabilities,
in connection with the sale of the Downey Glass division was approximately
$2,093.
On January 3, 1995, the Operating Partnership sold certain assets of its Dorman
Products division for a cash consideration, net of expenses, of approximately
$36,600 (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 1995
consolidated statement of income. The aggregate assets sold, net of liabilities,
in connection with the sale of Dorman Products was approximately $20,100.
On December 5, 1994, the Operating Partnership sold certain assets of its
Electrical Products Group divisions for a cash consideration, net of expenses,
of approximately $27,800 (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 $3,523 or $.16 per Class B interest included in the
1994 consolidated statement of income. The aggregate assets sold, net of
liabilities, in connection with the sale of the Electrical Products Group
divisions was approximately $24,300.
Sales from the divested divisions aggregated $29,077, $177,107 and $162,270 for
the years ended December 31, 1995, 1994 and 1993, respectively. Total assets for
the divested divisions were $37,982 at December 31, 1994.
6. Related Party Transactions:
The GP earns a management fee annually from the Operating Partnership equal to
3% of the aggregate initial Capital Investment of the holders of Class A
interests ($110,996). The management fee will be paid only after cumulative
outstanding priority returns and additional required cash distributions are
paid. In addition, the management fee can be paid only if the Company complies
with covenants required by the credit agreements (see Note 8, Lines of Credit,
and Note 9, Long-Term Debt). Management fees earned but not paid accumulate
until paid. Management fees earned in each of years 1995, 1994 and 1993 were
$3,330. In March 1995, the Operating Partnership paid $3,330 of the 1994
management fee. In March 1994, the Operating Partnership paid $1,665 of the 1993
management fee and deferred payment of the remaining $1,665 until June 1994 to
maintain compliance with requirements of the credit agreements. In March of
1993, the Operating Partnership paid $1,665 of the 1992 management fee and
deferred payment of the remaining $1,665 until June 1993 to maintain compliance
with requirements of credit agreements. Management expects to pay in full the
1995 management fee due March 31, 1996.
Certain warehouse and office facilities are leased from employees under various
operating leases. Charges to income applicable to these leases totaled $260 in
1995, $405 in 1994, and $367 in 1993. Aggregate future minimum lease obligations
under these leases at December 31, 1995, were $156.
35
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
7. Property and Equipment:
Property and equipment consist of the following at December 31, 1995 and 1994:
1995 1994
-------- ------
Land $ 3,319 $ 3,589
Buildings and leasehold improvements 18,048 24,133
Machinery and equipment 16,290 23,526
Furniture and fixtures 9,208 9,316
------- -------
46,865 60,564
Less accumulated depreciation 26,684 33,050
------- -------
$20,181 $27,514
======= =======
8. Lines of Credit:
On December 22, 1992, the Operating Partnership entered into a $50,000 bank
credit agreement with three lenders. This agreement provides borrowings on a
revolving credit basis at interest rates based on the London Interbank Offered
Rate ("LIBOR") plus 1 and 3/4% and prime. Letters of credit commitments are
issued at varying rates. The bank credit agreement's original termination date
of December 22, 1995 has been extended to December 31, 1997. The credit facility
requires a commitment fee of 1/2 of 1% per year on the average daily unused
portion of the commitment and an annual agent's fee. There is no compensating
balance requirement under this facility. The Company had no bank borrowings
outstanding at December 31, 1995, under the bank credit agreement. The $10,103
outstanding balance under the facility at December 31, 1995, represents letter
of credit commitments only.
The bank credit agreement contains covenants restricting distributions from the
Operating Partnership to the Company and the GP. Amounts available for
distribution in accordance with the bank credit agreement at December 31, 1995,
were $8,620. The agreement also requires the maintenance of specific coverage
ratios and levels of financial position and restricts incurrence of additional
debt and the sale of assets. The bank credit agreement did not permit the
Company to consummate acquisitions in 1994 and 1993. Amendments to the agreement
were negotiated in March and December of 1994 to ease certain coverage ratios
and other financial requirements in 1994 and future years. The December 1994
amendment allows for acquisition spending in 1995 and future years up to $15,000
in any calendar year, absent a default or event of default as defined in the
bank credit agreement.
In connection with the sale of operating divisions (see note 5, Acquisitions/
Divestitures) the Operating Partnership was required to reduce permanently the
bank revolver commitment under the bank credit agreement by approximately
$13,000. However, the banks waived this permanent reduction and maintained the
existing bank credit commitment of $50,000. For 1995 and future years, the
lenders have agreed to revise certain covenant tests to exclude the impact of
cash distributions to holders of Class B interests related solely to tax gains
on divisions sold.
The Operating Partnership has another credit facility available in the amount of
$500 for letters of credit of which no amount was outstanding at December 31,
1995. The letters of credit commitments are issued at varying rates. This
facility, renewable annually, is not subject to compensating balance
requirements or unused commitment fees.
36
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
8. Lines of Credit, continued:
An indirect, wholly-owned Canadian subsidiary of the Operating Partnership has a
$2,500 Canadian dollar line of credit with a local lender for working capital
purposes of which $463 USD was outstanding at December 31, 1995. This facility,
which is renewable annually, provides bank borrowings at an interest rate of
prime plus 1/4 of 1%. There are no compensating balance requirements or
commitment fees associated with this facility.
Notes payable consisted of the following at December 31, 1995 and 1994:
1995 1994
---- ----
Short-term bank borrowings drawn on
working capital lines of credit $ 463 $ 449
Trade notes payable in accordance with
glass inventory financing arrangements 1,474 1,474
Notes payable in accordance with insurance
financing arrangements 816 786
------ ------
$2,753 $2,709
====== ======
The weighted average interest rate on the outstanding notes payable borrowings
at December 31, 1995 and 1994 was 3.01% and 2.84%, respectively.
9. Long-Term Debt:
On December 22, 1992, the Operating Partnership issued $95,000 of senior notes
with a final maturity of December 1, 2002, through a private placement with
several institutional investors. The proceeds from the sale of the senior notes
in conjunction with the bank credit were used principally to extinguish $110,000
9 1/2% senior notes, interest thereon and related prepayment penalties (see Note
8, Lines of Credit).
The new senior notes were issued in two series, as follows: $65,000 Series A
notes at 9.08% and $30,000 Series B notes at 8.44%. Interest is required to be
paid semiannually on June 1 and December 1 on the outstanding principal of the
senior notes. The Operating Partnership repaid $4,796 and $5,700 of principal on
December 1, 1995 and 1994, respectively. This consisted of $3,282 and $3,900 in
Series A notes, and $1,514 and $1,800 in Series B notes in 1995 and 1994,
respectively. Principal repayments required on the senior notes during each of
the five years subsequent to December 31, 1995, are as follows:
Series A Series B
-------- --------
December 1, 1996 $4,375 $2,020
December 1, 1997 4,375 2,020
December 1, 1998 5,468 2,522
December 1, 1999 6,562 3,030
December 1, 2000 8,201 3,786
Optional prepayments, in multiples of $100, may be made at anytime, as a whole
or in part, with accrued interest thereon plus a penalty ("make-whole amount"),
if any, as defined in the note agreement.
37
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
9. Long-Term Debt, continued:
If the Company sells a significant amount of assets as defined in the note
agreement, it must make an offer of prepayment of note principal to the senior
noteholders determined on an applicable share basis with the bank credit
agreement. The prepayment offer also must include accrued interest thereon plus
a make-whole amount, if any, as defined in the note agreement. Related to the
sale of operating divisions in December 1994 and January 1995 (see Note 5,
Acquisition/Divestitures), the Operating Partnership was required to offer the
noteholders prepayment of senior notes in the amount of $14,175. The noteholders
accepted the prepayment offer which the Operating Partnership paid on March 14,
1995, including accrued interest thereon of $360 and a prepayment penalty of
$629 (see Note 4, Extraordinary Loss).
The senior note agreement contains covenants restricting distributions from the
Operating Partnership to the Company and the GP. Additionally, the note
agreement restricts the incurrence of additional debt and the sale of assets and
requires the maintenance of specific coverage ratios and levels of financial
position. Also, the senior note agreement did not permit the Company to
consummate acquisitions in 1993 and 1994. For 1994 and future years, the senior
noteholders have agreed to ease certain coverage ratios and other financial
requirements. The Operating Partnership is permitted acquisition spending in
1995 and future years of up to $15,000 in any calendar year, absent a default or
event of default as defined in the senior note agreement.
As of December 31, 1995, the fair value estimate of the Company's senior notes
is approximately $73,000 as determined in accordance with SFAS No. 107. The
Company discounted the future cash flows of its senior notes based on borrowing
rates for debt with similar terms and remaining maturities. The fair value
estimate is made at a specific point in time and is subjective in nature and
involves uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimate.
10. Leases:
Certain warehouse and office space and equipment are leased under capital and
operating leases with terms in excess of one year. Future minimum lease payments
under noncancellable leases consisted of the following at December 31, 1995:
Operating
Leases
------
1996 $ 9,362
1997 7,892
1998 6,086
1999 4,084
2000 3,228
Later years 5,933
-------
Total minimum lease payments $36,585
=======
Total rental expenses for all operating leases amounted to $14,232 in 1995,
$15,153 in 1994, and $13,830 in 1993.
38
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
11. Deferred Compensation Plans:
Certain officers and employees earn performance-based compensation, payment of
which is deferred until future periods.
The Company adopted a new deferred compensation plan for its officers effective
January 1, 1994. Under this plan, awards are earned based on operating
performance over a five-year period which vest and are paid in cash only at the
end of the fifth year. At the end of any year within the five-year program, the
cumulative award is subject to reduction or forfeiture if performance goals are
not achieved. Upon a change in control of the Operating Partnership,
participants are entitled to payment of awards earned through completion of the
most recent plan year. The amounts charged to income under this plan were $1,186
in 1995 and $850 in 1994. The portion of the Operating Partnership's deferred
compensation liability attributable to this plan is $2,036 as of December 31,
1995.
For a plan adopted in 1987 and amended thereafter, certain employees earned
awards which vest at the rate of 20% per year over the 5-year period following
the year in which the award was earned. The awards will be paid at age 60, if
elected by the employee, or upon death, disability or retirement and accrue
interest until paid. Upon a change in control of the Operating Partnership,
participants are entitled to payment of all vested and non-vested amounts
including accrued interest. The full award is charged to operations in the year
earned. The amounts charged to income under the plan were $1,135, $2,295 and
$700 in 1995, 1994 and 1993, respectively. During the three years ended December
31, 1995, distributions from the plan amounted to $1,422 in 1995, $240 in 1994,
and $332 in 1993. The deferred compensation liability attributable to the plan
amounted to $6,229 at December 31, 1995 of which $1,160 is included in other
accrued expenses.
Under a former plan, effective through December 31, 1986, certain employees and
officers earned deferred compensation amounts which unconditionally vested at
the rate of 20% per year over the 5-year period following the year in which the
award was earned. Participants of the former plan have elected to defer all
outstanding awards until retirement. Upon a change in control of the Operating
Partnership, participants are entitled to payment of their total account balance
including accrued interest. Amounts charged to income and distributions related
to the former plan for the three years ended December 31, 1995 were immaterial.
The portion of the Operating Partnership's deferred compensation liability
attributable to this plan is $724 at December 31, 1995.
In December 1995, the Operating Partnership established a Rabbi trust to assist
in funding the liabilities of the Deferred Compensation plans described above.
This trust purchased insurance policies on the lives of certain participants in
the Deferred Compensation plans. The Operating Partnership is the sole
beneficiary of these insurance policies. The cash surrender value of these
insurance policies was $3,009 at December 31, 1995.
The change of control provision in the deferred compensation plans is triggered
upon a sale of all of the Operating Partnership's business, a change in the GP
or a change, other than due to death or retirement, in a majority of the
directors of Lehman/SDI, Inc., during any one-year period.
39
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
12. Retirement Benefits:
Net periodic pension cost (income) in 1995, 1994, and 1993 for non-contributory
defined benefit plans consists of:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost during the period $ 675 $ 1,102 $ 945
Interest cost on projected benefit obligations 1,578 1,534 1,473
Actual return on assets (3,503) (2,100) (2,050)
Net amortization and deferral 1,509 (270) (224)
------- ------- -------
Net periodic pension cost $ 259 $ 266 $ 144
======= ======= =======
</TABLE>
Significant assumptions used in determining pension cost (income) include:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate 8.25% 7.00% 7.50%
Rates of increase in compensation levels 6.50% 6.50% 4.0%-6.5%
Expected long-term rate of return
on plan assets 8.50% 9.50% 9.50%
</TABLE>
The following table sets forth the defined benefit plans' funded status and
amounts recognized in the Company's balance sheets at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
-------------------------- -------------------------
Assets Projected Assets Projected
Exceed Benefit Exceed Benefit
Projected Obligations Projected Obligations
Actuarial present value of Benefit Exceed Benefit Exceed
beneficial obligations: Obligations Assets Obligations Assets
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Vested benefit obligation $ 17,304 $ 1,016 $ 9,923 $ 7,513
======== ======== ======== ========
Accumulated benefit obligation $ 17,450 $ 1,016 $ 10,141 $ 7,534
======== ======== ======== ========
Projected benefit obligation $ 21,467 $ 1,016 $ 12,487 $ 7,707
Plan assets at fair value 24,220 897 14,757 7,030
-------- -------- -------- --------
Projected benefit obligation
less than(in excess of)
plan assets 2,753 (119) 2,270 (677)
Unrecognized net loss (668) (161) (1,157) 701
Prior service cost not yet
recognized in net periodic
pension cost (352) -- (376) --
Unamortized balance of
unrecognized net transition
asset established at
January 1, 1987 (1,693) (189) (672) (544)
-------- -------- -------- --------
Prepaid pension cost (pension
liability) recognized
in the balance sheet $ 40 $ (469) $ 65 $ (520)
======== ======== ======== ========
</TABLE>
40
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
12. Retirement Benefits, continued:
The discount rate assumptions used in determining actuarial present value of
benefit obligations at December 31, 1995 and 1994 were 7.25% and 8.25%,
respectively.
Certain employees of the Company's Kar Products, J.N. Fauver Co., and its
divested Dorman Products and American Electric Co. divisions are covered by
these defined benefit retirement plans. Assets of the defined benefit plans
consist of insurance contracts and assets managed under a commingled trust
agreement. The trust assets are invested primarily in equity and fixed income
holdings.
Costs charged to operations under all retirement benefit plans are as follows:
1995 1994 1993
---- ---- ----
Defined contribution plans $2,693 $3,498 $2,574
Multi-employer pension plans 374 362 422
Defined benefit plans 259 266 144
------ ------ ------
Total $3,326 $4,126 $3,140
====== ====== ======
Management estimates that its share of unfunded vested liabilities under
multi-employer pension plans is not material.
For the years ended December 31, 1995, 1994 and 1993, the costs of
post-retirement benefits charged to income were $81, $115 and $347,
respectively. The 1995 and 1994 charges were determined in accordance with SFAS
No. 106 on an accrual basis with costs recognized in prior years upon payment of
the post-retirement obligations. The Company's unrecognized accumulated
post-retirement benefit liability as of December 31, 1995, 1994 and 1993 was
$705, $744 and $840, respectively.
13. Income Taxes:
Deferred tax assets are comprised of the following at December 31, 1995 and
1994:
1995 1994
---- ----
Gross deferred tax assets:
Deferred compensation $2,936 $2,123
Prepayment penalties related to
early extinguishment of debt 299 346
------ ------
3,235 2,469
Valuation allowance for deferred
tax assets (391) (325)
------- -------
Net deferred tax asset $2,844 $2,144
======= ======
Management has determined, based on the Company's history of prior operating
earnings and its expectations for the future, that operating income of the
Company will more likely than not be sufficient to recognize fully these net
deferred tax assets. The Company has no deferred tax liability at December 31,
1995 or December 31, 1994.
As of December 31, 1995, the Company's tax basis of its assets and liabilities
was greater than its financial statement basis by approximately $72,000.
41
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
13. Income Taxes, continued:
The provision (benefit) for income taxes consists of the following:
Current income taxes 1995 1994 1993
-------- ------- ------
State and local $ 608 $ 276 $ 260
Foreign 629 558 401
------- ------ -----
1,237 834 661
------- ------ -----
Deferred income taxes
Federal (627) (657) 186
State and local (73) (77) 22
-------- ------- -----
(700) (734) 208
-------- ------- -----
Total income taxes $ 537 $ 100 $ 869
======== ======= =====
14. Commitments and Contingencies:
Performance and bid bonds are issued on the Company's behalf during the ordinary
course of business through surety bonding companies as required by certain
contractors. As of December 31, 1995, the Company had outstanding performance
and bid bonds aggregating $911. As required by sureties, the Company has standby
letters of credit outstanding in the amount of $650 as of December 31, 1995.
Letters of credit are issued by the Company during the ordinary course of
business through major domestic banks as required by certain vendor contracts,
legal proceedings and acquisition activities. As of December 31, 1995, the
Company had outstanding letters of credit in the aggregate amount of $4,902
related to these activities.
As of December 31, 1995 the Company has guaranteed approximately $1,773 worth of
lease obligations, principally relating to businesses previously disposed. The
Company is not currently aware of any existing conditions which would cause a
financial loss related to these guarantees.
Under the Company's insurance programs, commercial umbrella coverage is obtained
for catastrophic exposure and aggregate losses in excess of normal claims.
Beginning in 1991, the Company has retained risk on certain expected losses from
both asserted and unasserted claims related to workman's compensation, general
liability and automobile as well as the health benefits of certain employees.
Provisions for losses expected under these programs are recorded based on an
analysis of historical insurance claim data and certain actuarial assumptions.
As of December 31, 1995, the Company has provided insurers letters of credit
aggregating $4,551 related to certain insurance programs.
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 Company upon which the buyer based its offer to purchase
Dorman. The complaint seeks damages of approximately $21,000. In the opinion of
management, the ultimate resolution of this matter will not have a material
effect on the consolidated financial position, operations or cash flows of the
Company.
Certain other 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 cash flows of the Company.
42
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
15. Statements of Cash Flows:
Supplemental disclosures of cash flow information are presented below:
<TABLE>
<CAPTION>
Cash paid during the period for: 1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Interest $ 7,304 $10,097 $ 9,412
------- ------- -------
Income taxes $ 1,190 $ 792 $ 955
------- ------- -------
Supplemental schedule of non-cash investing activities:
Assumed liabilities in connection with
the purchase of assets (See Note 5,
Acquisitions/Divestitures) $ 232 $ -- $ --
------- ------- -------
</TABLE>
16. Quarterly Data (unaudited):
<TABLE>
<CAPTION>
1995 First Second Third Fourth
---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales $154,792 $163,820 $163,214 $147,109
Gross profit 61,441 65,902 66,510 59,657
Income before extraordinary loss 19,862 8,377 7,828 8,678
Extraordinary loss (Note 4) (629) -- -- --
Net income 19,233 8,377 7,828 8,678
Earnings per limited partnership interest:
Income before extraordinary loss:
- Class A $.27 $.28 $.27 $.28
- Class B $.77 $.24 $.22 $.25
Extraordinary loss:
- Class A $ -- $ -- $ -- $ --
- Class B $(.03) $ -- $ -- $ --
Net Income:
- Class A $.27 $.28 $.27 $.28
- Class B $.74 $.24 $.22 $.25
1994
----
Net sales $175,109 $189,360 $192,547 $178,845
Gross profit 67,457 72,019 73,486 71,114
Net income 4,165 8,026 7,656 9,697
Net income per limited
partnership interest
- Class A $.27 $.28 $.27 $.28
- Class B $.05 $.23 $.21 $.30
</TABLE>
17. Concentration of Credit Risk:
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of cash and cash equivalents and trade
receivables. The Company places its cash and cash equivalents with high credit
quality financial institutions. Concentrations of credit risk with respect to
sales and trade receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different industries and geographies.
43
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
18. Segment Information:
The following are the segment disclosures required under SFAS No. 14 with
respect to the Company's reportable segments as identified in Note 1, "Basis of
Presentation" under "Nature of Operations":
<TABLE>
<CAPTION>
Year Ended December 31,
Industry Segment Data:
=================================================================================================================================
1995 1994 1993
=================================================================================================================================
<S> <C> <C> <C>
Net Sales
- --------------------
Industrial Services $ 424,978 $ 532,719 $ 480,742
Hardware Merchandising 84,720 72,841 56,631
Glass Merchandising 120,650 132,063 120,269
Adjustments and eliminations (1,413) (1,762) (1,935)
----------- ----------- -----------
Consolidated Net Sales $ 628,935 $ 735,861 $ 655,707
- ---------------------------------------------------------------------------------------------------------------------------------
Income from Operations
- ----------------------
Industrial Services $ 31,834 $ 39,773 $ 33,021
Hardware Merchandising 9,592 7,096 4,750
Glass Merchandising 3,387 5,756 3,740
Corporate Expenses (13,511) (14,866) (12,536)
----------- ----------- -----------
Consolidated Income from Operations $ 31,302 $ 37,759 $ 28,975
- ---------------------------------------------------------------------------------------------------------------------------------
Identifiable Assets
- -------------------
Industrial Services $ 162,681 $ 181,545 $ 197,936
Hardware Merchandising 36,340 24,357 21,518
Glass Merchandising 42,041 53,058 50,299
Corporate Assets 13,635 7,352 3,766
Adjustments and Eliminations (106) (126) (26)
----------- ----------- -----------
Consolidated Assets $ 254,591 $ 266,186 $ 273,493
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures
- --------------------
Industrial Services $ 2,315 $ 2,736 $ 2,580
Hardware Merchandising 539 339 396
Glass Merchandising 1,254 1,094 570
Corporate 191 94 188
----------- ----------- ----------
Consolidated Capital Expenditures $ 4,299 $ 4,263 $ 3,734
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation and Amortization
- -----------------------------
Industrial Services $ 3,339 $ 4,458 $ 4,850
Hardware Merchandising 401 364 392
Glass Merchandising 1,839 2,271 2,573
Corporate 78 49 139
----------- ----------- ----------
Consolidated Total $ 5,657 $ 7,142 $ 7,954
=================================================================================================================================
</TABLE>
44
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(dollars in thousands)
<TABLE>
<CAPTION>
Balance Sheets as of December 31 1995 1994 1993
- -------------------------------- ---- --- ----
<S> <C> <C> <C>
Assets
Investment in SDI Operating Partners, L.P. $ 94,943 $ 79,219 $ 79,882
======== ======== ========
Partners' Capital
General partner's capital $ 963 $ 791 $ 729
Limited partners' capital-Class A Interests 67,642 67,642 67,642
Limited partners' capital-Class B Interests 29,252 12,300 6,025
Class B interests held in treasury (1,514) (1,514) (1,514)
Cumulative foreign currency translation adjustment (1,400) -- --
-------- -------- --------
Total partners' capital $ 94,943 $ 79,219 $ 72,882
======== ======== ========
Statements of Income for the Years Ended December 31
Equity in net income of SDI Operating
Partners, L.P. $ 44,116 $ 29,544 $ 18,506
======== ======== ========
Net income allocated to general partner $ 441 $ 295 $ 185
-------- -------- --------
Net income allocated to limited partners
- Class A interests $ 12,210 $ 12,210 $ 12,210
-------- -------- --------
- Class B interests $ 31,465 $ 17,039 $ 6,111
-------- -------- --------
Statement of Cash Flows
for the Years Ended December 31
Cash provided by operations -- -- --
Cash provided from investment in SDI Operating
Partners, L. P $ 26,946 $ 20,153 $ 14,791
Cash distributions to general partner and limited
partners $(26,946) $(20,153) $(14,791)
-------- -------- --------
Increase (decrease) in cash -- -- --
======== ======== ========
</TABLE>
This financial information should be read in conjunction with the consolidated
financial statements of the Company.
45
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
Schedule II - VALUATION ACCOUNTS
(dollars in thousands)
<TABLE>
<CAPTION>
Deducted From Assets in Balance Sheet
---------------------------------------------------------------------------
Valuation
Allowance for Allowance for Accumulated Accumulated Allowance for
Doubtful Obsolete Amortization Amortization Deferred
Accounts Inventories of Goodwill of Intangibles Income Taxes
-------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 2,356 $ 2,702 $ 8,833 $12,588 $ 225
Additions charged to cost
and expenses 1,714 1,859 1,772 1,233 100
Deductions 1,688(A) 1,393(A) -- -- --
------- ------- ------- ------- -------
Balance, December 31, 1993 $ 2,382 $ 3,168 $10,605 $13,821 $ 325
Additions charged to cost
and expenses 1,453 2,236 1,629 1,168 --
Deductions 1,363(A) 1,622(A) -- -- --
Sale of divisions -- 291 975 593 --
------- ------- ------- ------- -------
Balance, December 31, 1994 2,472 3,491 11,259 14,396 325
Additions charged to cost
and expenses 1,070 1,704 1,364 845 66
Deductions 1,552(A) 1,306(A) -- -- --
Sale of divisions 163 479 884 1,517 --
------- ------- ------- ------- -------
Balance, December 31, 1995 $1,827 $3,410 $11,739 $13,724 $ 391
====== ====== ======= ======= =====
</TABLE>
Notes:
(A) Includes write-off of accounts receivable (net of bad debt recoveries) and
inventories.
46
<PAGE>
Item 9 - Disagreements on Accounting and Financial Disclosure.
Not applicable.
47
<PAGE>
PART III
Item 10 - Directors and Executive Officers of the Registrant.
The business of the Company and the Operating Partnership is managed by the
General Partner, whose general partner is Lehman/SDI. The directors of
Lehman/SDI, each of whom has served as such since February 1987, except for Mr.
Eliot M. Fried, who has served since December 1994, Mr. Henri I. Talerman, who
has served since March 1995, and Mr. John P. McDonnell, who has served since May
1995, are set forth below:
<TABLE>
<CAPTION>
Principal Occupation; Five-Year
Employment History; Other
Name and Age Directorships
------------ -------------------------------
<S> <C>
O. Gordon Brewer, Jr., 59 Vice President-Finance, Alco Standard
Corporation (distributor of office and
paper products); Executive Officer,
Alco Standard Corporation, 1970 to
present; Director, Corporate Insurance
and Reinsurance Limited.
Norman V. Edmonson, 55 Executive Vice President of the Company
since December 1994; Group Vice President
of the Company prior to December 1994.
Eliot M. Fried, 63 Managing Director, Lehman Brothers Inc.;
Director, Axysis Technologies, Inc.;
Bridgeport Machines, Inc.; Energy Ventures,
Inc.; Lear Seating Corporation; and Vernitron
Corporation.
Arnold S. Hoffman, 60 Senior Managing Director, Legg Mason Wood
Walker, Incorporated, Jan. 1992 to present;
Chairman, The Middle Market Group,
L.P. (investment banking, mergers,
acquisitions and divestitures), 1990 to
January 1992.
Donald T. Marshall, 62 Chairman and Chief Executive Officer
of the Company.
John P. McDonnell, 60 President of the Company since December
1994; Group Vice President of the Company
prior to December 1994.
Ernest L. Ransome, III, 69 Chairman, Giles & Ransome, Inc.
(distributor of construction equipment),
1988 to present; Director, Mannington
Mills, Inc.
Donald A. Scott, 66 Senior Partner, Morgan, Lewis & Bockius;
Director, Provident Mutual Life Insurance
Company.
Henri I. Talerman, 38 Managing Director, Lehman Brothers Inc.;
Director, McBride plc; Financier Gerflor
SA; Advisory Director, Europe Capital Partners.
</TABLE>
All directors hold office until the next annual meeting of the sole stockholder
of Lehman/SDI, and until their successors are duly elected and qualified.
48
<PAGE>
The executive officers of the Company and the Operating Partnership
(constituting, except for Mr. Brus, the "Management Employees" referred to
herein), each of whom has served as such for the past five years, except as
noted, are set forth below:
<TABLE>
<CAPTION>
Positions with the Company;
Name and Age Five-year Employment History
------------ ----------------------------
<S> <C>
Richard J. Brus, 58 President, Sun Technology Services since
1995; President, Activation Division 1992 to
1995; and Vice President-Sales & Marketing,
Activation Division, prior to 1992.
Harold J. Cornelius, 47 Group Vice President.
Joseph M. Corvino, 42 Vice President-Finance, Chief Financial
Officer, Treasurer and Secretary since
December 1995; Vice President and Controller
prior to December 1995.
Norman V. Edmonson, 55 Executive Vice President since December
1994; Group Vice President prior to
December 1994.
Max W. Hillman, Jr., 49 Group Vice President, since March 1991;
President, Hillman Fastener Division, 1982
to February, 1991.
Donald T. Marshall, 62 Chairman and Chief Executive Officer.
John P. McDonnell, 60 President and Chief Operating Officer
since December 1994; Group Vice President
prior to December 1994.
</TABLE>
All executive officers hold office at the pleasure of the board of directors.
49
<PAGE>
Item 11 - Executive Compensation.
The following table sets forth all cash compensation paid and accrued by the
Operating Partnership for services rendered during the three years ended
December 31, 1995, by each of the Chief Executive Officer and the four other
most highly compensated executive officers of the Company and the Operating
Partnership whose remuneration exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Name and --------------------- All Other
Principal Position Year Salary Bonus (1) Compensation
- ------------------ ------ ------ --------- --------------
<S> <C> <C> <C> <C> <C>
Donald T. Marshall 1995 488,688 4,347 10,234 (2)
Chairman and Chief 1994 454,043 221,144 8,185 (2)
Executive Officer 1993 403,392 62,897 6,367 (2)
John P. McDonnell 1995 374,451 32,812 2,500 (2)
President and Chief 1994 295,354 96,915 2,135 (2)
Operating Officer 1993 273,947 44,278 1,843 (2)
Norman V. Edmonson 1995 333,849 82,200 1,638 (2)
Executive Vice President 1994 300,477 94,400 1,418 (2)
1993 285,144 89,000 1,250 (2)
Harold J. Cornelius 1995 291,609 27,400 --
Group Vice President 1994 275,375 102,729 90,128
1993 261,147 37,621 58,818 (3)
Max W. Hillman, Jr. 1995 268,920 36,250 50,186 (3)
Group Vice President 1994 294,793 104,898 107,632 (3)
1993 234,707 16,578 13,661 (3)
</TABLE>
(1) Represents Earned Bonus for services rendered in each year. Does not
include the management fee payable to the General Partner. See "Management
Fee" under Item 13.
(2) Represents primarily term life insurance premiums paid by the Operating
Partnership for the benefit of the named executive officer.
(3) Represents deferred compensation earned and awarded for services rendered
in the year which unconditionally vests at the rate of 20% per year over
the five-year period from the date earned.
The above table excludes deferred compensation awards earned in 1995 and 1994 by
the executive officers in accordance with the Company's Long-Term Performance
Share Plan since the awards earned are subject to reduction or forfeiture
through 1998 if performance goals are not achieved. The value of the awards
credited for December 31, 1995 and December 31, 1994, respectively, for each
executive officer are as follows: Donald T. Marshall $553,934 and $586,037;
Norman V. Edmonson, $364,012 and $385,110; John P. McDonnell, $174,092 and
$184,182; Harold J. Cornelius, $174,092 and $184,182 and Max W. Hillman,
$174,092 and $184,182.
Directors of Lehman/SDI, Inc., who are not employees of the Company or Lehman
Brothers Inc. are paid an annual fee of $14,000 and a fee of $1,000 for each
board or committee meeting attended. Such fees are paid by the General Partner.
50
<PAGE>
CHANGE IN CONTROL ARRANGEMENTS
The executive officers named in Item 11 were participants in the Company's
Deferred Compensation Plans (the "Plans") in certain years. Upon a change in
control, the Plans provide for payment of all vested and non-vested amounts
including accrued interest. The change in control provision is triggered upon a
sale of all of the Operating Partnership's business, a change in the General
Partner, or a change, other than due to death or retirement, in a majority of
the directors of Lehman/SDI during any one-year period. See Note 11 of Notes to
Consolidated Financial Statements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of Lehman/SDI, Inc.,
consisted of Arnold S. Hoffman, Director. Mr. Hoffman is an officer of Legg
Mason Wood Walker, Incorporated, which performed investment banking services
for the Company during 1995.
51
<PAGE>
Item 12 - Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners
Since the Company is managed by its General Partner and has no
Board of Directors, there are no "voting securities" of the
Company outstanding within the meaning of Item 403(a) of
Regulation S-K and Rule 12b-2 under the Securities Exchange Act
of 1934. As set forth under Item 1 of this Annual Report on Form
10-K, the general partner of the General Partner is Lehman/SDI,
Inc., an indirect, wholly owned subsidiary of Lehman Brothers
Holdings, Inc., American Express Tower, World Financial Center,
New York, NY 10285-1800.
(b) Security Ownership of Management
The following table shows for each director, for each executive
officer named in the Summary Compensation Table and for all
officers and directors as a group, the beneficial ownership of
Class A and Class B Interests of the Company as of January 31,
1996. None of the amounts equals more than 1% of the outstanding
Class A Interests.
<TABLE>
<CAPTION>
Name of Class A Class B Class B
Beneficial Owner Amount(l) Amount(l) Percent of Class
---------------- --------- --------- ----------------
<S> <C> <C> <C>
O. Gordon Brewer, Jr. 3,000 1,000 -- (5)
Harold J. Cornelius 200 200 -- (5)
Norman V. Edmonson 14,715 1,300,916 6.0%
Eliot M. Fried -- (2) -- (2) -- (2)
Max W. Hillman, Jr. 4,000 6,500 -- (5)
Arnold S. Hoffman 13,000(2)(3) 13,000 (2)(3) -- (5)
Donald T. Marshall 30,311 2,075,232 9.6%
John P. McDonnell 7,711 623,071 2.9%
Ernest L. Ransome, III 5,000 (4) 5,000 (4) -- (5)
Donald A. Scott 9,000 9,000 -- (5)
Henri I. Talerman -- (2) -- (2) -- (2)
All directors and executive
officers as a group 89,538 4,141,965 19.1%
</TABLE>
- ----------------------
52
<PAGE>
(1) In addition to the Interests listed, the Management Employees
beneficially own limited partnership interests in the General Partner
(the "GP Interests"). The GP Interests held by the Management Employees
collectively represent 46.2% of the limited partnership interests in the
General Partner. The General Partner owns 1% of the Company and the
Operating Partnership. The table does not include the GP Interests
owned by the Management Employees.
(2) Does not include (i) 108,554 Class B Interests owned by Lehman LTD I,
Inc., or (ii) 5,788,124 Class B Interests owned by Lehman Brothers
Capital Partners I ("Capital Partners"), affiliates of Lehman Brothers
Inc. Messrs. Hoffman and Fried, as limited partners of Capital
Partners, derive economic benefit of approximately 1% from interests
held by Capital Partners. An affiliate of Lehman Brothers Inc., of
which Messrs. Fried and Talerman are officers, also owns all of the
capital stock of Lehman/SDI, Inc., which is the general partner of the
GP and holds the remaining interest in the GP not owned by the
Management Employees.
(3) 3,000 of these Class A and B Interests are owned by Hoffman Investment
Co., of which Mr. Hoffman is Managing Partner. In addition, Mr.
Hoffman's children own 3,000 Class A and B Interests with respect to
which he disclaims beneficial ownership.
(4) 2,500 of these Class A and B Interests are held in a trust, of which Mr.
Ransome is a trustee.
(5) Represents less than 1% of the outstanding Class B Interests.
- -----------------------
(c) Changes In Control
Not applicable.
53
<PAGE>
Item 13 - Certain Relationships and Related Transactions.
MANAGEMENT FEE
The Operating Partnership pays a Management Fee to the General Partner. The
Management Fee, payable annually on March 31 (with respect to the preceding
year), is equal to 3% of the aggregate initial capital investment of
$110,995,730 by the limited partners. The amount of the Management Fee payable
on March 31, 1996, is $3,329,872. The amount of management fee paid in 1995 with
respect to 1994 was $3,329,872. See footnotes (1) and (2) to "Security Ownership
of Management" under Item 12 for ownership of the General Partner. The interests
of Lehman/SDI, Inc., and the Management Employees, in the fee for 1996 were as
follows: Lehman/SDI, Inc. $1,791,471; Harold J. Cornelius, $92,304; Joseph M.
Corvino, $30,768; Norman V. Edmonson, $384,600; Max W. Hillman, Jr., $92,304;
Donald T. Marshall, $599,977; and John P. McDonnell, $184,608.
CERTAIN BUSINESS RELATIONSHIPS
Mr. Scott is a partner in Morgan, Lewis & Bockius, a law firm that has performed
services for the Company during the last fiscal year.
Messrs. Fried and Talerman are officers of Lehman Brothers Inc., which performed
investment banking services for the Company during 1995.
Mr. Hoffman is an officer of Legg Mason Wood Walker, Incorporated, which
performed investment banking services for the Company during 1995.
The Company proposes to have these firms perform similar services as needed
during the current fiscal year.
54
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports
on Form 10-K.
(a) Documents Filed as a Part of the Report:
1. Financial Statements.
The information concerning financial statements
called for by Item 14 of Form 10-K is set forth in Part II, Item 8 of this
annual report on Form 10-K.
2. Financial Statement Schedules.
The information concerning financial statement
schedules called for by Item 14 of Form 10-K is set forth in Part II, Item 8 of
this annual report on Form 10-K.
3. Exhibits, Including Those Incorporated by
Reference.
The following is a list of exhibits filed as
part of this annual report on Form 10-K. Where so indicated by footnote,
exhibits which were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous filing is
indicated in parentheses.
Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
2.1 Asset Purchase Agreement for the Acquisition
of the Assets of the Electrical Products Group
Divisions of SDI Operating Partners, L.P. by
Consolidated Electrical Distributors, Inc.,
dated as of October 4, 1994, as amended.
(1) (Exhibit 2.1).
2.2 Asset Purchase Agreement for the Acquisition
of the Assets of the Dorman Products Division
of SDI Operating Partners, L.P. by R&B, Inc.,
dated as of October 5, 1994, as amended.
(2) (Exhibit 2.1).
55
<PAGE>
Articles of Incorporation and By-Laws
3.1 Amended and Restated Agreement of Limited
Partnership of Sun Distributors L.P. (3)
(Exhibit 3.2; included as Exhibit A to the
Prospectus).
Instruments Defining the Rights of Security Holders,
Including Indentures
4.1 Deposit Agreement (with forms of Class A and Class B
Depositary Receipts attached), dated as of February 1,
1987 (4) (Exhibit 4.1).
4.2 Amendment and Succession Agreement To Deposit
Agreement, dated as of February 1, 1987
(5) (Exhibit 4.2)
4.3 (a) Note Purchase Agreement dated as of December 15,
1992, between SDI Operating Partners, L.P., and
Teachers Insurance and Annuity Association of
America, New York Life Insurance Company, New
York Life Insurance and Annuity Corporation and
Massachusetts Mutual Life Insurance Company.
(6) (Exhibit 4.1)
(b) Amendment No. 1 to Note Purchase Agreement (7)
(Exhibit 4.1)
(c) Amendment No. 2 to Note Purchase Agreement (7)
(Exhibit 4.1)
4.4 Partner Guarantee dated as of December 15, 1992, by Sun
Distributors L.P. (6) (Exhibit 4.2)
Material Contracts
10.1 (a) Credit Agreement dated December 22, 1992, among
CoreStates Bank, N.A., for itself and as agent,
The Bank of Nova Scotia, for itself and as
co-agent, The Fuji Bank, Limited, SDI Operating
Partners, L.P., SDI Partners I, L.P., and Sun
Distributors L.P. (6) (Exhibit 10.1)
(b) Amendment No. 1 to Credit Agreement (9)
(Exhibit 10.3(b))
(c) Amendment No. 2 to Credit Agreement (9)
(Exhibit 10.3(c))
(d) Amendment No. 3 to Credit Agreement (9)
(Exhibit 10.3(d))
(e) Amendment No. 4 to Credit Agreement (7)
(Exhibit 10.1)
**(f) Amendment No. 5 to Credit Agreement
10.2 *Sun Distributors Incentive Compensation Plan.
(8) (Exhibit 10.5)
10.3 *Sun Distributors, Inc. Long-Term Performance Award Plan.
(As Amended June 1985) (8) (Exhibit 10.6)
10.4 *SDI Operating Partners, L.P. Deferred Compensation Plan
for Division Presidents (As amended September 13, 1993).
(9) (Exhibit 10.7)
56
<PAGE>
10.5 *SDI Operating Partners, L.P. Long-Term Performance
Share Plan dated January 1, 1994. (9) (Exhibit 10.8)
Subsidiaries of the Registrant
**21.1 Subsidiaries
Financial Data Schedules
**27.1 Summary financial information as of and for the year
ended December 31, 1996.
------------------------
(1) Filed on December 20, 1994, as an exhibit to Form 8-K
for events reportable as of December 5, 1994.
(2) Filed on January 18, 1995, as an exhibit to Form 8-K
for events reportable as of January 3, 1995.
(3) Filed on February 5, 1987, as an exhibit to Amendment
No. 2 to Registration Statement No. 33-10613 on Form
S-1 and incorporated herein by reference.
(4) Filed on March 31, 1988, as an exhibit to Annual Report
on Form 10-K for the year ended December 31, 1987.
(5) Filed on March 30, 1992, as an exhibit to Annual Report
on Form 10K for the year ended December 31, 1991.
(6) Filed on January 4, 1993, as an exhibit to Form 8-K for
events reportable as of December 22, 1992.
(7) Filed on May 12, 1995, as an exhibit to Quarterly
Report on Form 10Q for the quarterly period ended March
31, 1995.
(8) Filed on March 31, 1993, as an exhibit to Annual Report
on Form 10K for the year ended December 31, 1992.
(9) Filed on March 31, 1994, as an exhibit to Annual Report
on Form 10K for the year ended December 31, 1993.
* Management contract or compensatory plan or arrangement
required to be filed as an Exhibit pursuant to Item
14(c) of this report.
** Filed herewith
(b) Reports on Form 8-K.
Not applicable.
57
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: SDI Partners I, L.P.,
General Partner
By: Lehman/SDI, Inc.,
General Partner
Date: March 7, 1997 By:______________________________________
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of l934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Each person in so signing also makes, constitutes and appoints Donald T.
Marshall and Joseph M. Corvino, and each of them, his true and lawful
attorney-in-fact, in his name, place and stead to execute and cause to be filed
with the Securities and Exchange Commission any or all amendments to this
report.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
Director, Lehman/SDI, March 7, 1997
- ---------------------------- Inc.
O. Gordon Brewer, Jr.
Director, Lehman/SDI, March 7, 1997
- ---------------------------- Inc.
Norman V. Edmonson
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C>
Director, Lehman/SDI, March 7, 1997
- ---------------------------- Inc.
Eliot M. Fried
Director, Lehman/SDI, March 7, 1997
- ---------------------------- Inc.
Arnold S. Hoffman
Director, Lehman/SDI, March 7, 1997
- ---------------------------- Inc.
Donald T. Marshall
Director, Lehman/SDI, March 7, 1997
- ---------------------------- Inc.
John P. McDonnell
Director, Lehman/SDI, March 7, 1997
- ---------------------------- Inc.
Ernest L. Ransome, III
Director, Lehman/SDI, March 7, 1997
- ---------------------------- Inc.
Donald A. Scott
Director, Lehman/SDI, March 7, 1997
- ---------------------------- Inc.
Henri I. Talerman
Principal Financial March 7, 1997
- ---------------------------- Officer
Joseph M. Corvino
Principal Accounting March 7, 1997
- ---------------------------- Officer
John J. Dabrowski
</TABLE>
59
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Balance Sheet as of December 31, 1995 and the related Statement of Income
for the year ended December 31, 1995, revised.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 5,900
<SECURITIES> 0
<RECEIVABLES> 77,651
<ALLOWANCES> 1,827
<INVENTORY> 96,022
<CURRENT-ASSETS> 182,022
<PP&E> 46,865
<DEPRECIATION> 26,684
<TOTAL-ASSETS> 254,591
<CURRENT-LIABILITIES> 86,647
<BONDS> 63,934<F1>
0
0
<COMMON> 0
<OTHER-SE> 94,943
<TOTAL-LIABILITY-AND-EQUITY> 254,591
<SALES> 628,935
<TOTAL-REVENUES> 628,935
<CGS> 375,425
<TOTAL-COSTS> 222,208
<OTHER-EXPENSES> 256
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 7,332
<INCOME-PRETAX> 45,282
<INCOME-TAX> 537
<INCOME-CONTINUING> 44,745
<DISCONTINUED> 0
<EXTRAORDINARY> (629)
<CHANGES> 0
<NET-INCOME> 44,116
<EPS-PRIMARY> 1.45<F2>
<EPS-DILUTED> 1.45<F2>
<FN>
<F1>Bonds represents all Long-Term Debt for Senior Notes.
<F2>EPS represents Class B Limited Partbnership Interest only.
</FN>
</TABLE>
