<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 March 31, 1998
-------------------------------------------------
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
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Thermadyne Holdings Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 74-2482571
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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 May 1, 1998 was 11,217,233.
<PAGE> 2
THERMADYNE HOLDINGS CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets ......................................... 3
Consolidated Statements of Income ................................... 4
Consolidated Statements of Cash Flows ............................... 5
Notes to Consolidated Financial Statements ........................ 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations .........9-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .......................... 11
SIGNATURES .................................................................. 12
<PAGE> 3
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 173 $ 1,481
Accounts receivable, less allowance for
doubtful accounts of $2,278 and
$2,217, respectively 82,171 76,847
Inventories 118,966 105,135
Prepaid expenses and other 8,316 8,534
--------- ---------
Total current assets 209,626 191,997
Property, plant and equipment, at cost, net 86,025 85,257
Deferred financing costs, net 5,550 5,754
Intangibles, at cost, net 33,797 33,970
Deferred income taxes 35,551 35,552
Other assets 1,893 1,997
--------- ---------
Total assets $ 372,442 $ 354,527
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 49,906 $ 55,390
Accrued and other liabilities 26,478 32,697
Accrued interest 12,976 5,680
Income taxes payable 9,725 4,769
Current maturities of long-term obligations 6,256 4,912
--------- ---------
Total current liabilities 105,341 103,448
Long-term obligations, less current maturities 364,160 353,175
Other long-term liabilities 59,718 60,751
Shareholders' equity (deficit):
Common stock, $.01 par value, 25,000,000
shares authorized, 11,217,233 and 11,189,675 shares
issued and outstanding at March 31, 1998 and
December 31, 1997, respectively 112 112
Additional paid-in capital 149,358 149,023
Accumulated deficit (293,399) (299,208)
Foreign currency translation (12,848) (12,774)
--------- ---------
Total shareholders' deficit (156,777) (162,847)
--------- ---------
Total liabilities and shareholders' deficit $ 372,442 $ 354,527
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net sales $ 131,829 $ 117,751
Operating expenses:
Cost of goods sold 81,784 70,342
Selling, general and administrative expenses 27,064 26,270
Amortization of goodwill 382 357
Amortization of other intangibles 518 1,692
Net periodic postretirement benefits 650 585
--------- ---------
Operating income 21,431 18,505
Other expense:
Interest expense (10,834) (11,538)
Amortization of deferred financing costs (370) (460)
Other, net 166 406
--------- ---------
Income from continuing operations before income tax
provision 10,393 6,913
Income tax provision 4,584 2,981
--------- ---------
Income from continuing operations 5,809 3,932
Discontinued operations:
Gain from discontinued operations, net of income taxes -- 1,036
--------- ---------
Net income $ 5,809 $ 4,968
========= =========
Basic earnings per share amounts:
Income from continuing operations $ 0.52 $ 0.36
Net income 0.52 0.45
Diluted earnings per share amounts:
Income from continuing operations 0.50 0.35
Net income 0.50 0.44
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 5,809 $ 4,968
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Net periodic postretirement benefits 650 585
Depreciation 3,556 2,876
Amortization of goodwill 382 357
Amortization of other intangibles 518 1,692
Amortization of deferred financing costs 370 460
Recognition of net operating loss carryforwards -- 586
Deferred income taxes -- (586)
Noncash charges for discontinued operations -- 565
Changes in operating assets and liabilities:
Accounts receivable (6,179) (2,577)
Inventories (13,502) (4,625)
Prepaid expenses and other (52) (334)
Accounts payable (5,347) 358
Accrued and other liabilities (6,246) (7,762)
Accrued interest 7,370 7,249
Income taxes payable 5,098 (1,513)
Other long-term liabilities (1,562) (321)
Discontinued operations -- 903
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Total adjustments (14,944) (2,087)
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Net cash provided by (used in) operating activities (9,135) 2,881
-------- --------
Cash flows provided by (used in) investing activities:
Capital expenditures, net (3,756) (2,395)
Change in other assets (349) 8,512
Acquisitions, net of cash (640) (27,755)
Investing activities of discontinued operations -- (570)
-------- --------
Net cash used in investing activities (4,745) (22,208)
-------- --------
Cash flows provided by (used in) financing activities:
Change in long-term receivables 263 17
Repayment of long-term obligations (10,592) (9,928)
Borrowing of long-term obligations 22,370 33,683
Issuance of common stock 335 436
Change in accounts receivable securitization 376 4,631
Financing activities of discontinued operations -- (1,227)
Other (180) (2,168)
-------- --------
Net cash provided by financing activities 12,572 25,444
-------- --------
Net increase (decrease) in cash and cash equivalents (1,308) 6,117
Cash and cash equivalents at beginning of period 1,481 1,420
-------- --------
Cash and cash equivalents at end of period $ 173 $ 7,537
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
5
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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 months ended March 31, 1998
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 three months or less to
be cash equivalents. Interest and taxes paid were as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Interest $ 3,538 $ 4,561
Taxes (624) 3,801
</TABLE>
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share ("FASB 128"). FASB 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earning per share amounts for all
periods have been presented to conform to the Statement 128 requirements. All
exchange arrangements contemplated by the Company's 1994 financial restructuring
are assumed to have been completed.
6
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<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Basic earnings per share amounts:
Income from continuing operations $ 0.52 $ 0.36
Discontinued operations -- 0.09
---------- ----------
Net income $ 0.52 $ 0.45
========== ==========
Diluted earnings per share amounts:
Income from continuing operations $ 0.50 $ 0.35
Discontinued operations -- 0.09
---------- ----------
Net income $ 0.50 $ 0.44
========== ==========
Weighted average shares - basic earnings per share 11,208,536 11,028,126
Effect of dilutive securities:
Employee stock options 328,064 287,571
---------- ----------
Weighted average shares - diluted earnings per share 11,536,600 11,315,697
========== ==========
</TABLE>
2. INVENTORIES
The composition of inventories at March 31, 1998 was as follows:
<TABLE>
<S> <C>
Raw materials $ 20,612
Work-in-process 25,874
Finished goods 73,240
LIFO Reserve (760)
---------
Total $ 118,966
=========
</TABLE>
3. MERGER WITH MERCURY ACQUISITION CORPORATION
On January 20, 1998, the Company and Mercury Acquisition Corporation
("Mercury") an affiliate of DLJ Merchant Banking Partners II, L.P. ("DLJ"),
entered into a definitive merger agreement (the "Merger Agreement"). Under the
terms of the Merger Agreement, Mercury will merge with and into the Company,
and, subject to the following sentence, the holders of each share of the
Company's common stock can elect to receive $34.50 in cash for such share or to
retain such share in the merged Company. In any event, holders will be required
to retain 485,010 shares, or approximately 4.3%, of the Company's common stock
outstanding immediately prior to the merger. In addition, DLJ has entered into
voting agreements with Magten Asset Management (on behalf of itself and certain
of its clients) and Fidelity Capital and Income Fund, pursuant to which these
current shareholders, subject to certain conditions, have
7
<PAGE> 8
agreed to vote in favor of the merger 5,942,708 shares of the Company's common
stock owned by them. These shares represent approximately 53% of the Company's
common stock outstanding on December 31, 1997.
That proposed merger, which will be recorded as a recapitalization for
accounting purposes, is subject to a number of conditions, including regulatory
approvals and approval by Company shareholders. The transaction is estimated to
have an aggregate value of approximately $790 million, including refinancing of
the Company's existing revolving credit facility and senior and subordinated
notes. The Company expects the merger to close by June 30, 1998.
As a result of the proposed merger, the Company and Mercury will incur
various costs, currently estimated to range between $50 million and $60 million,
on a pretax basis, in connection with consummating the transaction. These costs
consist primarily of professional fees, registration costs, compensation costs
and other expenses. Although the exact timing, nature and amount of these merger
transaction costs are subject to change, the Company expects that a one-time
charge for these costs will be recorded in the quarter during which the merger
in consummated.
4. RECENT ACCOUNTING PRONOUNCEMENT
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires foreign currency translation adjustments, which
prior to adoption were reported separately in shareholders' equity to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement 130.
During the first quarter of 1998 and 1997, total comprehensive income
amounted to $5,735 and $1,724.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Included in the following discussions are comparisons of Adjusted
EBITDA which is defined as operating income plus depreciation, amortization of
goodwill, amortization of intangibles and net periodic postretirement benefits
expense and is a key financial measure 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).
Adjusted EBITDA is also one of the financial measures by which the Company's
compliance with its covenants is calculated under its debt agreements. The
Company believes that Adjusted EBITDA is a useful supplement to net income
(loss) and other consolidated income statement data in understanding cash flows
generated from operations that are available for taxes, debt service and
capital expenditures. However, the Company's method of computation may or may
not be comparable to other similarly titled measures of other companies. In
addition, Adjusted EBITDA is not necessarily indicative of amounts that may be
available for discretionary uses and does not reflect any legal or contractual
restrictions on the Company's use of funds.
RESULTS OF OPERATIONS
Three Months ended March 31, 1998 compared to Three Months ended March 31, 1997
Net sales were $131.8 million for the three months ended March 31, 1998
compared to $117.8 million for the three months ended March 31, 1997, an
increase of 12.0%. Domestic sales for the first three months of 1998 were up
20.3% (10.5% excluding acquisitions) over the same period of a year ago.
International sales increased approximately 1.0% overall despite the continuing
economic turmoil in Asia. Europe, Latin America and the Middle East regions all
recorded significant increases over the prior year.
Cost of goods sold as a percentage of sales for the quarter ended March
31, 1998 was 62.0% compared to 59.7% for the quarter ended March 31, 1997. This
increase is the result of recent acquisitions which generally carry a somewhat
lower average gross margin than the Company's existing businesses, and sales mix
as the Company expands its product offering to include items in more
price-competitive markets.
Selling, general and administrative expenses were $27.1 million for the
first three months of 1998, an increase of $0.8 million, or 3.0% over the first
three months of 1997. As a percentage of sales, selling, general and
administrative expenses were 20.5% for the three months ended March 31, 1998 and
22.3% for the three months ended March 31, 1997. This improvement is due in part
to the Company's growth in sales as a portion of its costs are fixed in nature
as well as the realization of savings from a cost reduction program the Company
initiated in December 1997.
9
<PAGE> 10
Interest expense decreased from $11.5 million in the first quarter of
1997 to $10.8 million in the first quarter of 1998, a decrease of $0.7 million
or 6.1%. This is largely the result of lower debt levels in 1998 compared to
1997.
Income tax provision was $4.6 million on pre-tax income of $10.4
million for the three months ended March 31, 1998, compared to an income tax
provision of $3.0 million on pre-tax income of $6.9 million for the three months
ended March 31, 1997.
Adjusted EBITDA was $26.5 million for the quarter ended March 31, 1998
compared to $24.0 million for the quarter ended March 31, 1997, an increase of
$2.5 million or 10.5%.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows. Cash used in operating activities was
$9.1 million for the first quarter of 1998, a decrease of $12.0 million from the
first quarter of 1997 in which cash flow from operations provided $2.9 million.
This use of cash by operating activities is the result of a net increase in
operating assets and liabilities of $12.9 million. Net cash used in investing
activities decreased from $22.2 million in the first quarter of 1997 to $4.7
million in the first quarter of 1998. Cash used for acquisitions decreased $27.1
million and was offset by an increase in capital expenditures of $1.4 million
and a decrease in cash provided by other assets of $8.9 million. Cash provided
by financing activities decreased $12.9 million to $12.6 million for the quarter
ended March 31, 1998 from $25.4 million for the quarter ended March 31, 1997.
Net borrowings of long-term debt decreased $12.0 million in a comparison of
these same periods. In addition, the accounts receivable securitization program
provided $4.3 million less in the first three months of 1998 compared to 1997,
while financing activities of discontinued operations and other financing
activities used $1.2 million and $2.0 million less in the first quarter of 1998,
respectively.
Liquidity. The major uses of cash in the remainder of 1998 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.
10
<PAGE> 11
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.
A Current Report on Form 8-K dated January 21, 1998 was filed
by the Company regarding its merger with an affiliate of DLJ Merchant Banking
Partners II.
A Current Report on Form 8-K/A dated February 23, 1998 was
filed by the Company regarding its merger with an affiliate of DLJ Merchant
Banking Partners II.
11
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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: May 15, 1998
--------------
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) QUARTERLY REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 173
<SECURITIES> 0
<RECEIVABLES> 82,171
<ALLOWANCES> 2,278
<INVENTORY> 118,966
<CURRENT-ASSETS> 209,626
<PP&E> 86,025
<DEPRECIATION> 0
<TOTAL-ASSETS> 372,442
<CURRENT-LIABILITIES> 105,341
<BONDS> 370,416
0
0
<COMMON> 112
<OTHER-SE> (156,889)
<TOTAL-LIABILITY-AND-EQUITY> 372,442
<SALES> 131,829
<TOTAL-REVENUES> 131,829
<CGS> 81,784
<TOTAL-COSTS> 81,784
<OTHER-EXPENSES> 28,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,834
<INCOME-PRETAX> 10,393
<INCOME-TAX> 4,584
<INCOME-CONTINUING> 5,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,809
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.50
</TABLE>
