<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission file number 0-23378
Thermadyne Holdings Corporation
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 74-2482571
- -------------------------------------------------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
101 S. Hanley, St. Louis, MO 63105
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 314/721-5573
Indicate by X whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- --------
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
------- ---------
The number of shares outstanding of the issuer's common stock, par
value $0.01 per share, as of October 29, 1997, was 11,103,966.
<PAGE> 2
THERMADYNE HOLDINGS CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets.....................................................................3
Consolidated Statements of Operations...........................................................4
Consolidated Statements of Cash Flows...........................................................5
Notes to Consolidated Financial Statements....................................................6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations................................. 8-11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .....................................................12
SIGNATURES .............................................................................................13
</TABLE>
<PAGE> 3
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,361 $ 1,420
Accounts receivable, less allowance for
doubtful accounts of $1,645 and
$1,649, respectively 74,870 54,286
Inventories 104,793 79,542
Prepaid expenses and other 12,474 9,763
Net assets of discontinued operations -- 29,455
--------- ---------
Total current assets 194,498 174,466
Property, plant and equipment, at cost, net 86,273 75,624
Deferred financing costs, net 6,202 7,508
Intangibles, at cost, net 36,419 62,645
Deferred income taxes 36,334 23,206
Other assets 2,087 9,956
--------- ---------
Total assets $ 361,813 $ 353,405
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 45,028 $ 28,266
Accrued and other liabilities 33,506 29,257
Accrued interest 12,957 6,461
Income taxes payable 6,766 7,948
Deferred income taxes 1,324 1,324
Current maturities of long-term obligations 2,398 4,205
--------- ---------
Total current liabilities 101,979 77,461
Long-term obligations, less current maturities 356,944 417,135
Other long-term liabilities 61,849 44,078
Shareholders' equity (deficit):
Common stock, $.01 par value, 25,000,000
shares authorized, and 11,103,966 and 11,020,311 shares
issued and outstanding at September 30, 1997 and
December 31, 1996, respectively 111 110
Additional paid-in capital 144,394 143,237
Accumulated deficit (298,723) (333,465)
Foreign currency translation (4,741) 4,849
--------- ---------
Total shareholders' deficit (158,959) (185,269)
--------- ---------
Total liabilities and shareholders' deficit $ 361,813 $ 353,405
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 131,902 $ 110,820 $ 384,828 $ 329,173
Operating Expenses:
Cost of goods sold 80,895 65,342 233,782 193,856
Selling, general and administrative expenses 28,469 24,023 82,047 71,398
Amortization of goodwill 421 19,637 1,183 64,193
Amortization of other intangibles 1,850 1,583 5,167 5,448
Net periodic postretirement benefits 585 834 1,755 2,022
------------ ------------ ------------ ------------
Operating income (loss) 19,682 (599) 60,894 (7,744)
Other expense:
Interest expense 11,025 11,853 34,532 34,445
Amortization of deferred financing costs 376 476 1,214 2,248
Other, net 1,044 (803) 896 1,110
------------ ------------ ------------ ------------
Income (loss) from continuing operations before income
tax provision and extraordinary item 7,237 (12,125) 24,252 (45,547)
Income tax provision 3,192 5,028 10,694 12,930
------------ ------------ ------------ ------------
Income (loss) from continuing operations before
extraordinary item 4,045 (17,153) 13,558 (58,477)
Discontinued operations:
Gain (loss) on disposal of discontinued operations, net of
applicable taxes of $12,623 and $14,732, respectively 18,015 (946) 18,015 8,480
Gain (loss) from discontinued operations, net of
income taxes 935 (1,517) 3,173 (4,157)
------------ ------------ ------------ ------------
Income (loss) before extraordinary item 22,995 (19,616) 34,746 (54,154)
Extraordinary item - Loss on early extinguishment of debt,
net of tax benefit of $2,001 -- -- -- (3,715)
------------ ------------ ------------ ------------
Net income (loss) $ 22,995 $ (19,616) $ 34,746 $ (57,869)
============ ============ ============ ============
Per share amounts:
Income (loss) from continuing operations $ 0.35 $ (1.59) $ 1.19 $ (5.44)
Income (loss) before extraordinary item 2.02 (1.82) 3.06 (5.04)
Net income ( loss) 2.02 (1.82) 3.06 (5.38)
Shares used in per share calculations 11,404,689 10,780,499 11,349,251 10,747,854
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ 34,746 $ (57,869)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Net periodic postretirement benefits 1,755 2,022
Depreciation 9,172 8,020
Amortization of goodwill 1,183 64,193
Amortization of other intangibles 5,167 5,448
Amortization of deferred financing costs 1,214 2,248
Recognition of net operating loss carryforwards 1,757 1,757
Deferred income taxes (1,757) --
Net gain on sale of discontinued operations (18,015) (8,481)
Extraordinary item -- 3,715
Noncash charges for discontinued operations 1,621 9,222
Changes in operating assets and liabilities:
Accounts receivable (15,910) (10,203)
Inventories (15,252) (13,721)
Prepaid expenses and other (2,757) (1,172)
Accounts payable 9,679 2,703
Accrued and other liabilities (4,449) (5,684)
Accrued interest 6,872 8,066
Income taxes payable (1,427) 1,130
Other long-term liabilities (1,829) (2,551)
Discontinued operations 285 (107)
--------- ---------
Total adjustments (22,691) 66,605
--------- ---------
Net cash provided by operating activities 12,055 8,736
--------- ---------
Cash flows provided by (used in) investing activities:
Capital expenditures, net (11,912) (7,747)
Change in other assets 5,512 (3,276)
Acquisitions, net of cash (35,255) (74,011)
Proceeds from sale of discontinued operations 88,543 112,359
Investing activities of discontinued operations (1,680) (2,690)
--------- ---------
Net cash provided by investing activities 45,208 24,635
--------- ---------
Cash flows provided by (used in) financing activities:
Change in long-term receivables 150 153
Repayment of long-term obligations (108,571) (133,068)
Borrowing of long-term obligations 49,464 112,710
Issuance of common stock 1,157 2,014
Change in accounts receivable securitization 5,473 (7,470)
Financing activities of discontinued operations (2,808) (1,311)
Financing fees -- (3,855)
Other (1,187) 717
--------- ---------
Net cash used in financing activities (56,322) (30,110)
--------- ---------
Net increase in cash and cash equivalents 941 3,261
Cash and cash equivalents at beginning of period 1,420 1,838
--------- ---------
Cash and cash equivalents at end of period $ 2,361 $ 5,099
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements reflect all
material adjustments (only of a normal recurring nature) which are, in the
opinion of management, necessary for a fair presentation of financial position
and results of operations. The results for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for a full fiscal year.
STATEMENTS OF CASH FLOWS
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid investments purchased with a maturity of six months or less to be
cash equivalents. Interest and taxes paid were as follows:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Interest $30,612 $28,773
Taxes 11,682 11,440
</TABLE>
EARNINGS (LOSS) PER SHARE
Per share amounts for the three and nine months ended September 30,
1997 are based on the weighted average number of common and common equivalent
shares outstanding. Per share amounts for the three and nine months ended
September 30, 1996 are based on the weighted average number of shares
outstanding. All exchange arrangements contemplated by the Company's 1994
financial restructuring are assumed to have been completed.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in an
6
<PAGE> 7
increase in primary earnings per share for the three and nine months ended
September 30, 1997 of $0.05 and $0.08 per share, respectively. No impact is
expected for the corresponding periods in 1996. The impact of Statement 128 on
the calculation of fully diluted earnings per share for these quarters is not
expected to be material.
2. INVENTORIES
The composition of inventories at September 30, 1997 was as follows:
<TABLE>
<S> <C> <C>
Raw materials $ 14,885
Work-in-process 24,777
Finished goods 68,073
LIFO Reserve (2,942)
-------
Total $104,793
</TABLE>
3. DISCONTINUED OPERATIONS
On September 30, 1997, the Company completed the sale of its Wear
Resistance business for $96,000 consisting of $88,453 in cash and $7,547 in
assumed liabilities. The Company realized a net gain of $18,015, net of
applicable taxes of $12,623. Wear Resistance reported net sales of $76,163 for
the nine months ended September 30, 1997.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Included in the following discussions are comparisons of earnings
before interest, taxes, depreciation, amortization and extraordinary items
("EBITDA"). The Company believes that EBITDA is a useful supplement to net
earnings (loss) and other consolidated income statement data in understanding
cash flows generated from operations that is available for taxes, debt service
and capital expenditures, but should not be construed as an alternative to
operating income or cash flows from operating activities (as determined in
accordance with generally accepted accounting principles). EBITDA is also one of
the financial measures by which the Company's covenants are calculated under its
debt agreements.
RESULTS OF OPERATIONS
Three Months ended September 30, 1997 compared to Three Months ended September
30, 1996
Net sales from continuing operations for the three months ended September 30,
1997 were $131.9 million, up $21.1 million, or 19.0%, over net sales from
continuing operations for the three months ended September 30, 1996 of $110.8
million. EBITDA increased $1.5 million, or 6.3% in the third quarter of 1997
compared to the same quarter of 1996. GenSet sales of $7.7 million are included
in the 1997 quarterly net sales total. Excluding sales related to GenSet, which
was acquired effective February 1, 1997, net sales from continuing operations
increased $13.4 million, or 12.1%, over the quarter ended September 30, 1996.
Domestic sales for the third quarter of 1997 were up 14.7% over the third
quarter of 1996. New product launches, increased sales in acquired product lines
and more volume through alternate distribution channels all contributed to the
increase. International sales, excluding the effects of GenSet, grew 8.5%
compared to the third quarter of 1996. The focus on initiatives begun in the
Asian and Latin American markets continues to produce positive results, although
less than favorable exchange rates in some of the Asian markets have somewhat
tempered the growth rates experienced earlier in the year.
Cost of goods sold as a percentage of sales from continuing operations was 61.3%
for the quarter ended September 30, 1997, compared to 59.0% for the same quarter
of the prior year. GenSet products have a somewhat lower average gross margin
when compared to the Company's other businesses' blended margin, and results in
this increased cost of goods sold percentage.
Selling, general and administrative expenses were up 18.5%, or $4.5 million, to
$28.5 million for the three months ended September 30, 1997 compared to $24.0
million for the three months ended September 30, 1996. Investments in the form
of human resources, infrastructure and business development related to the
initiatives in Asia and Latin America, together with the additional expenses
resulting from the GenSet acquisition in February 1997, are the reasons for this
increase. As a percentage of sales, selling, general and administrative expenses
were 21.6% and
8
<PAGE> 9
21.7% for the three months ended September 30, 1997 and 1996, respectively.
Increased sales volume lowered the percentage as certain costs are fixed and do
not vary with sales volume.
Amortization of goodwill decreased $19.2 million during the quarter ended
September 30, 1997 compared to the quarter ended September 30, 1996, as goodwill
recorded in connection with the Company's 1994 reorganization became fully
amortized in 1996.
Income tax expense for the third quarter of 1997 was $3.2 million on pre-tax
income from continuing operations of $7.2 million. Income tax expense for the
third quarter of 1996 was $5.0 million on a pre-tax loss from continuing
operations of $12.1 million, which included $18.4 million of non-deductible
goodwill amortization.
Nine Months ended September 30, 1997 compared to Nine Months ended September
30, 1996
Net sales from continuing operations for the nine months ended September 30,
1997 increased $55.7 million, or 16.9%, to $384.8 million from $329.2 million
for the nine months ended September 30, 1996. EBITDA for the first nine months
of 1997 was $78.2 million, an increase of $6.3 million, or 8.7%, over $71.9
million for the first nine months of 1996. Net sales for the nine months ended
September 30, 1997 include $24.4 million related to GenSet, which was acquired
effective February 1, 1997. Excluding GenSet sales, net sales from continuing
operations increased 9.5%, or $31.3 million, in the first nine months of 1997
compared to the same period of the prior year. Domestically, sales increased
7.3% year-to-date over 1996. Recently acquired product lines continue to gain
acceptance in the domestic market, new product introductions have been well
received and the domestic cutting and welding market has gained momentum in the
second half of 1997. International sales, excluding GenSet, were up 12.9% for
the nine months ended September 30, 1997 over the same period of 1996.
Initiatives implemented in conjunction with the acquisitions of CIGWELD in early
1996 and GenSet in early 1997 have resulted in broader market penetration and
increased sales in the fast-growing markets of Latin America and Asia.
Cost of goods sold as a percentage of sales from continuing operations increased
from 58.9% for the first nine months of 1996 to 60.7% for the first nine months
of 1997. The acquisition of GenSet in February 1997 caused the increase in this
percentage as its average gross margin is lower than the blended gross margin of
the Company's existing businesses.
Selling, general and administrative expenses were $82.0 million for the nine
months ended September 30, 1997 compared to $71.4 million for the nine months
ended September 30, 1996, an increase of $10.6 million, or 14.9%. The primary
reasons for this increase are the acquisition of GenSet and spending on
international initiatives in Asia and Latin America. As a percentage of sales,
selling, general and administrative expenses decreased from 21.7% for the nine
months ended September 30, 1996 to 21.3% for the nine months ended September 30,
1997. This decrease was expected as certain costs are fixed and others vary with
sales volume.
9
<PAGE> 10
Amortization of goodwill decreased $63.0 million from $64.2 million for the nine
months ended September 30, 1996 to $1.2 million for the nine months ended
September 30, 1997. Goodwill amortization in the 1997 financial statements
relates to acquisitions that have taken place since the Company's reorganization
in 1994. In 1996, goodwill recorded in connection with the reorganization became
fully amortized.
Income tax expense was $10.7 million and $12.9 million for the nine months ended
September 30, 1997 and 1996, respectively. Pre-tax income from continuing
operations was $24.3 million in the first nine months of 1997 compared to a
pre-tax loss of $45.5 million in the first nine months of 1996. The nine month
1996 pre-tax loss included $64.2 million of non-deductible goodwill
amortization.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows. Cash provided by operating activities
was $12.1 million for the nine months ended September 30, 1997 compared to $8.7
million for the nine months ended September 30, 1996. This increase in cash
provided by operating activities is the result of an increase in earnings
(adjusted for noncash expenses) of $6.6 million in the first nine months of 1997
compared to the first nine months of 1996 partially offset by a net increase in
operating assets and liabilities of $3.2 million in a comparison of the same two
periods. Net cash provided by investing activities increased $20.6 million to
$45.2 million in the nine months ended September 30, 1997 compared to $24.6
million in the nine months ended September 30, 1996. Cash used for acquisitions
was $38.8 million less in the first nine months of 1997 compared to the first
nine months of 1996, and other assets provided $8.8 million more in cash thus
far in 1997 compared to 1996. The two amounts were partially offset by an
increase in capital expenditures of $4.2 million and a decrease in cash proceeds
from the sale of discontinued operations of $23.8 million in the nine months
ended September 30, 1997 compared to the nine months ended September 30, 1996.
Cash used in financing activities increased $26.2 million in the first nine
months of 1997 to $56.3 million from $30.1 million in the first nine months of
1996. The biggest factor in this increase was the net change in long-term
obligations which resulted in a net repayment of $59.1 million in the first nine
months of 1997 compared to a net repayment of $20.4 million in the first nine
months of 1996. Cash proceeds from the sale of discontinued operations were
partially offset by borrowings used to acquire GenSet and the welding division
of Prestolite Power Corporation in 1997, and in 1996 divestiture proceeds were
partially offset by funds borrowed to acquire CIGWELD. The accounts receivable
securitization has provided cash of $5.5 million thus far in 1997 compared to
using cash of $7.5 million in the first nine months of 1996. This fluctuation is
largely the result of cash used to fund the securitization program as a result
of the divestitures which totaled approximately $11.7 million in 1996 and $2.3
million in 1997. Financing fees have used no cash to date in 1997, but used $3.9
million in the first nine months of 1996.
10
<PAGE> 11
Liquidity. In the first nine months of 1997 the Company reduced its
long-term obligations $69.5 million, which includes $7.5 million related to
discontinued operations. At September 30, 1997, the balance outstanding on the
Company's revolving credit facility was $41.3 million, and there was
approximately $10.1 million in standby letters of credit. This results in
available borrowing capacity of approximately $198.6 million as of September 30,
1997. The major uses of cash in the remainder of 1997 are expected to be for
debt service requirements, capital expenditures and tax payments. Management
believes that cash from operating activities, together with available borrowings
under its revolving credit facility, if necessary, will be sufficient to permit
the Company to meet these financial obligations.
The Company will continue from time to time to explore additional
auxiliary financing methods and other means to lower its cost of capital, which
could include stock issuances or debt financing and the application of the
proceeds therefrom to the payment of bank debt, or the purchase of senior or
senior subordinated notes.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 - Financial Data Schedule
b) Reports on Form 8-K - None.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THERMADYNE HOLDINGS CORPORATION
By: /s/ Randall E. Curran
------------------------------------
Randall E. Curran
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ James H. Tate
------------------------------------
James H. Tate
Senior Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 13, 1997
13
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,361
<SECURITIES> 0
<RECEIVABLES> 74,870
<ALLOWANCES> 1,645
<INVENTORY> 104,793
<CURRENT-ASSETS> 194,498
<PP&E> 86,273
<DEPRECIATION> 0
<TOTAL-ASSETS> 361,813
<CURRENT-LIABILITIES> 101,979
<BONDS> 359,342
0
0
<COMMON> 111
<OTHER-SE> (159,070)
<TOTAL-LIABILITY-AND-EQUITY> 361,813
<SALES> 384,828
<TOTAL-REVENUES> 384,828
<CGS> 233,782
<TOTAL-COSTS> 233,782
<OTHER-EXPENSES> 90,152
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,532
<INCOME-PRETAX> 24,252
<INCOME-TAX> 10,694
<INCOME-CONTINUING> 13,558
<DISCONTINUED> 21,188
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,746
<EPS-PRIMARY> 3.06
<EPS-DILUTED> 3.06
</TABLE>
