Form: 8-K

Current report filing

March 17, 2000

Documents

8-K: Current report filing

Published on March 17, 2000



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934


Date of report (Date of earliest event reported): March 2, 2000
-------------

SUNSOURCE INC.
(Exact Name of Registrant Specified in Charter)

Delaware 1-13293 23-2874736
------------------- ---------------- -------------------
(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
Incorporation)



3000 One Logan Square
Philadelphia, PA 19103
------------------------- --------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (215) 282-1290
----------------

-------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)


Page 1 of 9
Exhibit Index on page 9






Item 2. Acquisition or Disposition of Assets.

On March 2, 2000, the Company completed a previously announced transaction with
GC SUN Holdings, L.P. (the "Partnership"), a newly-formed partnership affiliated
with Glencoe Capital, L.L.C. ("Glencoe ") a Chicago-based private equity
investment firm, pursuant to that certain Contribution Agreement by and among
SunSource Inc., SunSource Industrial Services Company, Inc., Kar Products Inc.,
A&H Holding Company, Inc., SunSource Canada Investment Company, A. & H. Bolt &
Nut Company Limited and the Partnership, dated as of February 10, 2000, as
amended by that certain Amendment No. 1 to Contribution Agreement, dated as of
March 2, 2000 (as amended, the "Contribution Agreement").

Pursuant to and at the closing of the transactions contemplated by the
Contribution Agreement, among other things, (1) the Company, through certain of
its indirect wholly-owned subsidiaries, contributed all of the equity interests
of Kar Products, LLC (as successor by merger to Kar Products Inc.) ("Kar
Products") and A. & H. Bolt & Nut Company Limited to the Partnership in exchange
for an aggregate 49% limited partnership interest in the Partnership, and (2)
affiliates of Glencoe, together with certain other investors, contributed an
aggregate of $22.5 million in cash (and committed to contribute an additional
$3.5 million in cash) to the Partnership in exchange for a 50.9% limited
partnership interest and a 0.1% general partnership interest in the Partnership.
In addition, in connection with the closing, a portion of the cash proceeds of
the equity and debt financing of the Partnership and its subsidiaries was used
to repay certain intercompany indebtedness in the amount of $105 million owed by
Kar Products to another wholly-owned subsidiary of the Company, which funds were
concurrently used to repay a portion of the outstanding indebtedness of the
Company and its subsidiaries under the existing credit facility with PNC Bank,
National Association, as administrative agent. The relative amount of
consideration received by the Company in exchange for its contribution was
determined by the parties in arms-length negotiations.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------

(a) Not applicable.

(b) Pro forma Financial Information.

(c) Exhibits.


Exhibit No. Description of Document

2.1 Contribution Agreement by and among SunSource Inc.,
SunSource Industrial Services Company, Inc., KAR
Products Inc., A&H Holding Company, Inc., SunSource
Canada Investment Company, A. & H. Bolt & Nut Company
Limited and GC-SUN Holdings, L.P. dated as of February
10, 2000.
2.2 Amendment No. 1 to Contribution Agreement by and among
SunSource Inc., SunSource Industrial Services Company,
Inc., Kar Products, LLC (as successor by merger to
Kar Products Inc.), A&H Holding Company, Inc.,
SunSource Canada Investment Company, A. & H. Bolt & Nut
Company Limited and GC-SUN Holdings, L.P. dated as of
March 2, 2000.
99.1 Press Release dated March 2, 2000

Page 2 of 9



SUNSOURCE INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

INTRODUCTION

On March 2, 2000 (the "Closing Date"), SunSource Inc. (the "Company") completed
a transaction with GC Sun Holdings, L.P. (the "Partnership"), a newly-formed
partnership affiliated with Glencoe Capital, L.L.C. ("Glencoe") of Chicago, a
private equity investment firm pursuant to a contribution agreement among the
parties (the "Contribution Agreement").

Pursuant to the Contribution Agreement, the Company, through certain of its
wholly owned subsidiaries, contributed all of the interests of its Kar Products
Inc. subsidiary and its A & H Bolt & Nut Company Limited subsidiary (the
"Contributed Entities") to the Partnership in exchange for an aggregate 49%
interest in the Partnership. At the closing, affiliates of Glencoe, together
with certain other investors, contributed $22.5 million in cash (and committed
to contribute an additional $3.5 million in cash) in exchange for an aggregate
51% interest in the Partnership. In addition, the Partnership repaid certain
intercompany indebtedness in the amount of $105 million owed to the Company (the
"Transaction"). The contributions by the Company and Glencoe and the repayment
of debt by the Partnership as outlined above reflect the Transaction.

The accompanying pro forma consolidated balance sheet and pro forma consolidated
statement of income give effect to the Transaction.

The pro forma financial information is unaudited and assumes that the
transaction for which pro forma effects are shown occurred as of December 31,
1999 for the pro forma consolidated balance sheet and as of January 1, 1999 for
the pro forma consolidated statement of income (the "Pro Forma Consolidated
Financial Information").

The Pro Forma Consolidated Financial Information presented herein is not
necessarily indicative of what the financial position or results of operations
would have been had the Transaction occurred on those dates, nor are they
necessarily indicative of the future results of operations of the Company.
Management believes the pro forma adjustments reflected in the accompanying
consolidated balance sheet and consolidated statement of income give effect to
all material changes arising from the Transaction. The Pro Forma Consolidated
Financial Information should be read in conjunction with the historical
consolidated financial information and related notes included in the Company's
report on Form 10-K for the year ended December 31, 1998 and report on Form 10Q
for the quarter ended September 30, 1999.



Page 3 of 9



SUNSOURCE INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
(UNAUDITED)
(dollars in thousands)



Contributed
Entities Pro Forma
Historical (a) Adjustments Pro Forma
---------- ----------- ----------- ----------

ASSETS

Current assets:
Cash and cash equivalents $ 5,186 $ (2,502) $ - $ 2,684
Accounts receivable, net 65,141 (17,475) - 47,666
Inventories 92,691 (17,968) - 74,723
Deferred income taxes 7,110 86 - 7,196
Net assets held for sale 35,249 - - 35,249
Income taxes receivable 11,669 - 1,853 (c) 13,522
Other current assets 5,226 (834) - 4,392
--------- ---------- -------- ----------
Total current assets 222,272 (38,693) $ 1,853 185,432
Property and equipment, net 17,282 (5,511) - 11,771

Goodwill an other intangibles, net 52,404 (20,385) - 32,019
Deferred financing fees 3,493 - - 3,493
Deferred income taxes 5,865 (559) - 5,306
Cash surrender value of life insurance policies 14,190 - - 14,190
Other assets 7,511 (246) 2,639 (b) 9,904
--------- ---------- -------- ----------
Total assets $ 323,017 $ (65,394) $ 4,492 $ 262,115
========= ========== ======== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable $ 44,358 $ (7,658) $ - $ 36,700
Notes payable 376 - - 376
Current portion of capitalized lease obligations 923 - - 923
Dividends / distributions payable 1,019 - - 1,019
Deferred tax liability 929 - - 929
Current portion of senior secured term loan 3,750 - - 3,750
Accrued expenses:
Salaries and wages 5,343 (1,875) - 3,468
Income and other taxes 3,299 (1,013) - 2,286
Accrued losses on discontinued operation 2,703 - - 2,703
Other accrued expenses 23,961 (3,740) - 20,221
--------- ---------- -------- ----------
Total current liabilities 86,661 (14,286) - 72,375
Senior notes - - - -
Senior secured term loan 17,750 - (1,554)(d) 16,196
Bank revolving credit 102,791 - (102,791)(d) -
Capitalized lease obligations 1,509 - - 1,509
Deferred compensation 14,173 - - 14,173
Other liabilities 2,148 (1,954) - 194
--------- ---------- -------- ----------
Total liabilities 225,032 (16,240) (104,345) 104,447
--------- ---------- -------- ----------
Guaranteed preferred beneficial interests in the
Company's junior subordinated debentures 115,200 - - 115,200
--------- ---------- -------- ----------
Commitments and contingencies

Stockholders' equity (deficit):
Preferred stock, $.01 par, 1,000,000 shares
authorized, none issued - - - -
Common stock, $.01 par, 20,000,000 shares authorized, 72 - - 72
Additional paid-in capital 21,342 - - 21,342
Retained earnings (25,297) (50,480) 108,837 (e) 33,060
Unearned compensation (283) - - (283)
Accumulated other comprehensive income (4,344) 1,326 - (3,018)
Treasury stock (8,705) - - (8,705)
--------- ---------- -------- ----------
Total stockholders' equity (deficit) (17,215) (49,154) 108,837 42,468
--------- ---------- -------- ----------
Total liabilities and stockholders'
equity (deficit) $ 323,017 $ (65,394) $ 4,492 $ 262,115
========= ========== ======== ==========


SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL INFORMATION


Page 4 of 9

SUNSOURCE INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
(dollars in thousands, except for share amounts)



Contributed
Entities Pro Forma
Historical (f) Adjustments Pro Forma
----------- ----------- ----------- ----------

Net sales $ 555,652 $ (124,780) $ - $ 430,872
Cost of sales 326,399 (38,576) - 287,823
Cost of sales - Inventory write-down
related to restructuring 2,130 - - 2,130
----------- ----------- -------- -----------
Gross profit 227,123 (86,204) - 140,919
----------- ----------- -------- -----------
Operating expenses:
Selling, general and administrative expenses 218,437 (67,291) - 151,146
Depreciation 4,272 (1,060) - 3,212
Amortization 1,847 (665) - 1,182
----------- ----------- -------- -----------
Total operating expenses 224,556 (69,016) - 155,540
----------- ----------- -------- -----------
Provision for litigation matters -
divested operations - - - -
Transaction and other related costs
Restructuring charges and asset write-off 8,118 (1,020) - 7,098
Gain on curtailment of defined benefit
pension plan 5,608 - - 5,608
Other income 685 (52) 2,639 (g) 3,272
----------- ----------- -------- -----------
Income (loss) from operations 742 (16,220) 2,639 (12,839)

Interest expense, net 9,724 6 (8,248)(h) 1,482
Distributions on guaranteed preferred
beneficial interests 12,232 - - 12,232
----------- ----------- -------- -----------
Income (loss) from continuing operations
before provision (benefit) for income taxes (21,214) (16,226) 10,887 (26,553)

Provision (benefit) for income taxes (10,100) (1,853)(i) (11,953)
----------- ----------- -------- -----------
Income (loss) from continuing operations (11,114) (14,600)
----------- -----------
Discontinued operations
Income (loss) from operations of discontinued
Harding segment, less applicable income
taxes of ($1,080) (2,188) (2,188)
Estimated loss on disposal of discontinued Harding
segment (23,834) (23,834)
----------- -----------
Income (loss) from discontinued operations (26,022) (26,022)
----------- -----------
Income (loss) before extraordinary item (37,136) (40,622)

Extraordinary loss from early extinguishment
of debt, less applicable income taxes of ($126)
in the 1999 period (235) (235)
----------- -----------
Net income (loss) $ (37,371) $ (40,857)
=========== ===========

Basic and diluted income (loss) per common share:
Income (loss) from continuing operations $ (1.65) $ (2.16)
Income (loss) from operations of discontinued
Harding segment, net of taxes (0.33) (0.32)
Estimated loss on disposal of discontinued
Harding segment (3.53) (3.53)
----------- -----------
Income (loss) before extraordinary item (5.51) (6.01)
Extraordinary loss from early extinguishment
of debt, net of taxes (0.03) (0.03)
----------- -----------
Net income (loss) $ (5.54) $ (6.04)
=========== ===========
Weighted average number of
outstanding common shares 6,747,142 6,747,142

SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL INFORMATION

Page 5 of 9

SUNSOURCE INC. AND SUBSIDIARIES

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(dollars in thousands)


1. Basis of Presentation

The Pro Forma Consolidated Financial Information is unaudited and assumes
that the Transaction for which the pro forma effects are shown occurred as
of December 31, 1999, for the pro forma consolidated balance sheet and as of
January 1, 1999, for the pro forma consolidated statement of income.

The gain of approximately $53,000 and other non-recurring charges related to
this Transaction have been excluded from the accompanying pro forma
consolidated statement of income as such amounts do not represent on-going
income or costs of operations.

2. Pro forma adjustments to consolidated balance sheet:

(a) Adjustment to reflect the elimination of historical assets and
liabilities of the Contributed Entities as of December 31, 1999.

(b) Adjustment to reflect 49% equity in net income of the Partnership for
the twelve months ended December 31, 1999.

(c) Adjustment to reflect increase in income taxes receivable as a result
of the Transaction.

(d) Adjustment to reflect repayment of outstanding senior secured term loan
and bank revolving credit borrowings with proceeds received from the
Partnership for repayment of certain intercompany indebtedness in the
aggregate amount of $105,000, less payments of cash expenses on the
Transaction of $655.

(e) Adjustment to equity to reflect pro forma adjustments (a) through (c)
noted above.

Page 6 of 9

SUNSOURCE INC. AND SUBSIDIARIES, continued

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(dollars in thousands)



3. Pro forma adjustments to consolidated statement of income for the twelve
months ended December 31, 1999:

(f) Adjustment to reflect elimination of the results of operations of the
Contributed Entities for the twelve months ended December 31, 1999.

(g) Adjustment to reflect the Company's 49% interest in the net income of
the Partnership for the twelve months ended December 31, 1999
incorporating historical earnings of the Contributed Entities for the
1999 year adjusted for interest expense expected to be incurred by the
Partnership based on effective interest rates at the Closing Date and
adjusted for non-cash charges of $988 related to purchase accounting.

(h) Adjustment to reflect reduced interest expense resulting from the
repayment of the outstanding bank revolving line of credit and senior
secured term loan based on weighted average interest rates incurred
during 1999. (reference Note 2--pro forma adjustment (e).

(i) Adjustment to reflect additional consolidated net tax benefits as a
result of pro forma adjustments (e), (f) and (g) noted above.


Page 7 of 9


SIGNATURE
---------



Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.


SUNSOURCE INC.



Date: March 17, 2000 By: /s/ Joseph M. Corvino
----------------------------------
Joseph M. Corvino
Vice President- Finance and Chief
Financial Officer


Page 8 of 9

EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------


2.1 Contribution Agreement by and among SunSource Inc., SunSource
Industrial Services Company, Inc., KAR Products Inc., A & H
Holding Company, Inc., SunSource Canada Investment Company,
A. & H. Bolt & Nut Company Limited and GC-SUN Holdings,
L.P. dated as of February 10, 2000.
2.2 Amendment No. 1 to Contribution Agreement by and among
SunSource Inc., SunSource Industrial Services Company, Inc.,
Kar Products LLC (as successor by merger to Kar Products,
Inc.), A&H Holding Company, Inc., SunSource Canada
Investment Company, A. & H. Bolt & Nut Company Limited and
GC-SUN Holdings, L.P. dated as of March 2, 2000.
99.1 Press Release dated March 2, 2000



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