<PAGE> 1
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
-------------------------------------------------
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 of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Commission file number 333-57457
----------------------
Thermadyne Mfg. LLC
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 74-2878452
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Commission file number 333-57457
----------------------
Thermadyne Capital Corp.
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in Its Charter)
Delaware 74-2878453
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.
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 [ ] 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 [ ] 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 [ ] No
------ ------
The number of shares outstanding of the issuer's common stock, par value $0.01
per share, as of October 10, 1999 was 3,590,326.
Thermadyne Mfg. LLC and Thermadyne Capital Corp. meet the conditions set forth
in General Instruction H(1) of Form 10-Q and are therefore filing this form with
the reduced disclosure format.
<PAGE> 2
THERMADYNE HOLDINGS CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Condensed Consolidated Financial Statements of
Thermadyne Holdings Corporation
Condensed Consolidated Balance Sheets...........................................................3
Condensed Consolidated Statements of Operations.................................................4
Condensed Consolidated Statements of Cash Flows.................................................5
Notes to Condensed Consolidated Financial Statements........................................6 - 9
Condensed Consolidated Financial Statements of Thermadyne Mfg. LLC
Condensed Consolidated Balance Sheets..........................................................10
Condensed Consolidated Statements of Operations................................................11
Condensed Consolidated Statements of Cash Flows................................................12
Notes to Condensed Consolidated Financial Statements......................................13 - 22
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..........................................23 - 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................27
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on form 8-K...............................................................28
SIGNATURES......................................................................................................29 - 31
</TABLE>
<PAGE> 3
THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 8,788 $ 1,319
Accounts receivable, less allowanced for doubtful
accounts of $3,485 and $2,852, respectively 81,610 87,905
Inventories 112,500 122,733
Prepaid expenses and other 5,822 7,365
----------------- ----------------
Total current assets 208,720 219,322
Property, plant and equipment, at cost, net 96,395 104,997
Deferred financing costs, net 20,362 23,118
Intangibles, at cost, net 42,520 39,159
Deferred income taxes 29,364 32,402
Other assets 2,353 1,251
----------------- ----------------
Total assets $ 399,714 $ 420,249
================= ================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 36,097 $ 44,170
Accrued and other liabilities 27,283 36,444
Accrued interest 9,070 3,154
Income taxes payable 4,740 5,211
Current maturities of long-term obligations 10,519 9,180
----------------- -----------------
Total current liabilities 87,709 98,159
Long-term obligations, less current maturities 708,587 701,529
Other long-term liabilities 63,016 62,834
Redeemable preferred stock (paid in kind), $0.01 par value,
15,000,000 shares authorized and 2,000,000 shares outstanding 59,497 54,053
Shareholders' deficit:
Common stock, $0.01 par value, 30,000,000 shares authorized, and 3,590,326
and 3,236,898 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 36 32
Additional paid-in capital (118,597) (116,551)
Accumulated deficit (371,653) (360,520)
Management loans (3,912) (3,753)
Accumulated other comprehensive loss (24,969) (15,534)
----------------- -----------------
Total shareholders' deficit (519,095) (496,326)
----------------- -----------------
Total liabilities and shareholders' deficit $ 399,714 $ 420,249
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
THERMADYNE HOLDINGS CORPORATION
CONDENSED 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,
1999 1998 1999 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 127,772 $ 129,662 $ 391,471 $ 397,200
Operating expenses:
Cost of goods sold 84,670 82,708 253,495 248,829
Selling, general and administrative expenses 24,494 25,371 74,384 77,745
Amortization of intangibles 1,071 912 3,540 2,769
Net periodic postretirement benefits 450 650 2,750 1,750
Special charges 1,319 4,567 5,728 48,784
------------- ------------- -------------- -------------
Operating income 15,768 15,454 51,574 17,323
Other income (expense):
Interest expense (18,196) (18,507) (53,510) (43,238)
Amortization of deferred financing costs (889) (890) (2,675) (1,800)
Other, net (463) (1,061) 1,319 (2,035)
------------- ------------- -------------- -------------
Loss before income tax provision and extraordinary item (3,780) (5,004) (3,292) (29,750)
Income tax provision 4,786 10,570 7,841 12,105
------------- ------------- -------------- -------------
Loss before extraordinary item (8,566) (15,574) (11,133) (41,855)
Extraordinary item-loss on early extinguishment of debt,
net of tax benefit of $8,151 -- -- -- (15,137)
------------- ------------- -------------- -------------
Net loss (8,566) (15,574) (11,133) (56,992)
Preferred stock dividends (paid in kind) 1,872 1,648 5,444 2,352
------------- ------------- -------------- -------------
Net loss applicable to common shares $ (10,438) $ (17,222) $ (16,577) $ (59,344)
============= ============= ============== =============
Basic and diluted loss per share amounts applicable to common shares:
Loss before extraordinary item $ (2.91) $ (5.32) $ (4.66) $ (6.01)
Net loss $ (2.91) $ (5.32) $ (4.66) $ (8.07)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss $ (11,133) $ (56,992)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Net periodic postretirement benefits 2,750 1,750
Depreciation 13,672 10,865
Amortization of intangibles 3,540 2,769
Non-cash interest expense 8,661 4,246
Amortization of deferred financing costs 2,675 1,800
Recognition of net operating loss carryforwards 3,401 --
Deferred income taxes 3,197 1,413
Issuance of common stock warrants -- 12,190
Extraordinary item -- (2,272)
Changes in operating assets and liabilities:
Accounts receivable 9,269 (8,817)
Inventories 13,173 (30,663)
Prepaid expenses and other 1,822 (3,268)
Accounts payable (9,883) (11,084)
Accrued and other liabilities (10,215) 2,397
Accrued interest 5,922 9,441
Income taxes payable (882) 9,834
Other long-term liabilities (2,814) (2,180)
------------- -------------
Total adjustments 44,288 (1,579)
------------- -------------
Net cash provided by (used in) operating activities 33,155 (58,571)
------------- -------------
Cash flows used in investing activities:
Capital expenditures, net (6,967) (11,831)
Change in other assets (1,139) (1,488)
Acquisitions, net of cash (5,886) (18,953)
------------- -------------
Net cash used in investing activities: (13,992) (32,272)
------------- -------------
Cash flows provided by (used in) financing activities:
Change in long-term receivables (91) 471
Repayment of long-term obligations (5,759) (402,145)
Borrowing of long-term obligations 3,718 750,587
Issuance of common stock 4 90,335
Issuance of preferred stock -- 50,000
Repurchase of common stock -- (368,815)
Change in accounts receivable securitization (389) (3,422)
Financing fees -- (23,824)
Other (9,177) (897)
------------- -------------
Net cash provided by (used in) financing activities (11,694) 92,290
------------- -------------
Net increase in cash and cash equivalents 7,469 1,447
Cash and cash equivalents at beginning of period 1,319 1,481
------------- -------------
Cash and cash equivalents at end of period $ 8,788 $ 2,928
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
As used in this report, the term "Mercury" means Mercury Acquisition
Corporation, the term "Issuer" means Mercury before the merger of the
Company in May of 1998 (the "Merger") and Thermadyne Holdings
Corporation after the Merger, the term "Holdings" means Thermadyne
Holdings Corporation, the terms "Thermadyne" and the "Company" means
Thermadyne Holdings Corporation, its predecessors and subsidiaries, the
term "Thermadyne LLC" means Thermadyne Mfg. LLC, a wholly owned and the
principal operating subsidiary of Thermadyne Holdings Corporation, and
the term "Thermadyne Capital" means Thermadyne Capital Corp., a wholly
owned subsidiary of Thermadyne LLC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
of Holdings have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three
and nine month periods ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1998.
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>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
---------------- ------------------
<S> <C> <C>
Interest $ 44,248 $ 29,662
Taxes 1,013 652
</TABLE>
6
<PAGE> 7
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
LOSS PER SHARE
The following table sets forth the information used in the computation
of basic and diluted loss per share for the periods indicated.
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic and diluted loss per share applicable to common shares:
Loss before extraordinary item $ (2.91) $ (5.32) $ (4.66) $ (6.01)
Extraordinary item -- -- -- (2.06)
------------- ------------- ------------- -------------
Net loss $ (2.91) $ (5.32) $ (4.66) $ (8.07)
============= ============= ============= =============
Weighted average shares-basic and diluted
loss per share 3,590,326 3,236,898 3,559,255 7,355,742
============= ============= ============= =============
</TABLE>
2. INVENTORIES
The composition of inventories at September 30, 1999 was as follows:
<TABLE>
<S> <C>
Raw materials $ 27,667
Work-in-process 26,414
Finished goods 59,228
LIFO reserve (809)
---------
Total $ 112,500
=========
</TABLE>
7
<PAGE> 8
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
3. SEGMENT INFORMATION
The Company has adopted the Financial Accounting Standards Board
Statements No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FASB 131") which changes the way the Company
reports information about its operating segments.
The Company reports its segment information by geographic region.
Although the Company's domestic operation is comprised of several
individual business units, similarity of products, paths to market, end
users, and production processes results in performance evaluation and
decisions regarding allocation of resources being made on a combined
basis. The Company's reportable geographic regions are the United
States, Europe and Australia/Asia.
The Company evaluates performance and allocates resources based
principally on operating income net of any special charges or
significant one-time charges. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. Intersegment sales are based on market prices.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. Export sales from the United
States are included in the United States segment. The "Other" column
includes the elimination of intersegment sales and profits, corporate
related items and other costs not allocated to the reportable segments.
<TABLE>
<CAPTION>
Other
United Australia/ Geographic
States Europe Asia Regions Other Consolidated
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1999
Revenue from external customers $259,072 $ 41,113 $ 59,921 $ 31,365 $ -- $391,471
Intersegment revenues 28,633 10,689 3,236 -- (42,558) --
Operating income (loss) 60,239 1,938 (2,080) (896) (7,627) 51,574
Nine Months Ended September 30, 1998
Revenue from external customers $272,014 $ 40,262 $ 62,482 $ 22,442 $ -- $397,200
Intersegment revenues 31,563 10,468 3,374 -- (45,405) --
Operating income (loss) 84,789 2,900 (1,020) 352 (69,698) 17,323
</TABLE>
8
<PAGE> 9
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
4. REORGANIZATION AND REALIGNMENT
Special charges of $1.3 million and $5.7 million were recorded in the
three and nine month periods ended September 30, 1999, respectively.
These charges were recorded in connection with the ongoing
reorganization and realignment of the Company which began in the third
quarter of 1998. These charges, which were recorded in accordance with
EITF issue 94-3, are primarily for headcount reductions and relate to
employee severance and related benefits, rationalization of the
Company's Australian facility, and the consolidation of a domestic
facility into an existing domestic operation.
5. COMPREHENSIVE LOSS
During the first nine months of 1999 and 1998, total comprehensive loss
amounted to $(20,568) and $(65,473), respectively.
9
<PAGE> 10
THERMADYNE MFG. LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 8,788 $ 1,319
Accounts receivable, less allowance for doubtful
accounts of $3,485 and $2,852, respectively 81,610 87,905
Inventories 112,500 122,733
Prepaid expenses and other 5,822 7,365
---------- ----------
Total current assets 208,720 219,322
Property, plant and equipment, at cost, net 96,395 104,997
Deferred financing costs, net 17,098 19,572
Intangibles, at cost, net 42,520 39,159
Deferred income taxes 26,097 29,135
Other assets 2,353 1,251
---------- ----------
Total assets $ 393,183 $ 413,436
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 36,097 $ 44,170
Accrued and other liabilities 27,283 36,444
Accrued interest 7,410 498
Income taxes payable 4,740 5,211
Current maturities of long-term obligations 10,519 9,180
---------- ----------
Total current liabilities 86,049 95,503
Long-term obligations, less current maturities 559,934 562,588
Other long-term liabilities 63,016 62,834
Shareholders' deficit:
Accumulated deficit (366,717) (368,408)
Accumulated other comprehensive loss (24,969) (15,534)
---------- ----------
Total shareholders' deficit (391,686) (383,942)
Net equity and advances to/from parent 75,870 76,453
---------- ----------
Total liabilities and shareholders' deficit $ 393,183 $ 413,436
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
10
<PAGE> 11
THERMADYNE MFG. LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 127,772 $ 129,662 $ 391,471 $ 397,200
Operating expenses:
Cost of goods sold 84,670 82,708 253,495 248,829
Selling, general and administrative expenses 24,494 25,371 74,384 77,745
Amortization of intangibles 1,071 912 3,540 2,769
Net periodic postretirement benefits 450 650 2,750 1,750
Special charges 1,319 4,567 5,728 48,784
------------ ------------ ------------ ------------
Operating income 15,768 15,454 51,574 17,323
Other income (expense):
Interest expense (13,855) (14,520) (40,810) (37,648)
Amortization of deferred financing costs (797) (795) (2,393) (1,674)
Other, net (517) (1,130) 1,161 (2,104)
------------ ------------ ------------ ------------
Income (loss) before income tax provision and
extraordinary item 599 (991) 9,532 (24,103)
Income tax provision 4,786 10,570 7,841 12,105
------------ ------------ ------------ ------------
Income (loss) before extraordinary item (4,187) (11,561) 1,691 (36,208)
Extraordinary item-loss on early extinguishment of debt,
net of tax benefit of $8,151 -- -- -- (15,137)
------------ ------------ ------------ ------------
Net income (loss) $ (4,187) $ (11,561) $ 1,691 $ (51,345)
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
11
<PAGE> 12
THERMADYNE MFG. LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ 1,691 $ (51,345)
Adjustment to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Net periodic postretirement benefits 2,750 1,750
Depreciation 13,672 10,865
Amortization of intangibles 3,540 2,769
Amortization of deferred financing costs 2,393 1,674
Recognition of net operating loss carryforwards 3,401 --
Deferred income taxes 3,197 1,413
Extraordinary item -- (2,272)
Changes in operating assets and liabilities:
Accounts receivable 9,269 (8,817)
Inventories 13,173 (30,663)
Prepaid expenses and other 1,822 (3,268)
Accounts payable (9,883) (11,084)
Accrued and other liabilities (10,215) 2,397
Accrued interest 6,918 7,781
Income taxes payable (882) 9,834
Other long-term liabilities (2,814) (2,180)
------------ ------------
Total adjustments 36,341 (19,801)
------------ ------------
Net cash provided by (used in) operating activities 38,032 (71,146)
------------ ------------
Cash flows used in investing activities:
Capital expenditures, net (6,967) (11,831)
Change in other assets (1,139) (1,488)
Acquisitions, net of cash (5,886) (18,953)
------------ ------------
Net cash used in investing activities (13,992) (32,272)
------------ ------------
Cash flows provided by (used in) financing activities:
Change in long-term receivables (91) 471
Repayment of long-term obligations (6,810) (402,145)
Borrowing of long-term obligations 3,718 618,912
Change in accounts receivable securitization (389) (3,422)
Financing fees -- (20,058)
Change in net equity of parent (3,984) (87,303)
Other (9,015) (1,590)
------------ ------------
Net cash provided by (used in) financing activities (16,571) 104,865
------------ ------------
Net increase in cash and cash equivalents 7,469 1,447
Cash and cash equivalents at beginning of period 1,319 1,481
------------ ------------
Cash and cash equivalents at end of period $ 8,788 $ 2,928
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
12
<PAGE> 13
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
As used in this report, the term "Mercury" means Mercury Acquisition
Corporation, the term "Issuer" means Mercury before the merger of the
Company in May of 1998 (the "Merger") and Thermadyne Holdings
Corporation after the Merger, the term "Holdings" means Thermadyne
Holdings Corporation, the term "Thermadyne" means Thermadyne Holdings
Corporation, its predecessors and subsidiaries, the terms "Thermadyne
LLC" and the "Company" mean Thermadyne Mfg. LLC, a wholly owned and the
principal operating subsidiary of Thermadyne Holdings Corporation, and
the term "Thermadyne Capital" means Thermadyne Capital Corp., a wholly
owned subsidiary of Thermadyne LLC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
of Thermadyne LLC and Thermadyne Capital have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September
30, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1998.
CO-ISSUER
Thermadyne Capital, a wholly-owned subsidiary of Thermadyne LLC, was
formed solely for the purpose of serving as co-issuer of the 9-7/8%
Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes").
Thermadyne Capital has no substantial assets or liabilities and no
operations of any kind and the Indenture pursuant to which the Senior
Subordinated Notes were issued limits Thermadyne Capital's ability to
acquire or hold any significant assets, incur any liabilities or engage
in any business activities, other than in connection with the issuance
of the Senior Subordinated Notes.
13
<PAGE> 14
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
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>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Interest $ 36,554 $ 29,977
Taxes 1,013 652
</TABLE>
2. INVENTORIES
The composition of inventories at September 30, 1999 was as follows:
<TABLE>
<S> <C>
Raw materials $ 27,667
Work-in-process 26,414
Finished goods 59,228
LIFO reserve (809)
---------
Total $ 112,500
=========
</TABLE>
3. SEGMENT INFORMATION
The Company has adopted the Financial Accounting Standards Board
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FASB 131") which changes the way the Company
reports information about its operating segments.
The Company reports its segment information by geographic region.
Although the Company's domestic operation is comprised of several
individual business units, similarity of products, paths to market, end
users, and production processes results in performance evaluation and
decisions regarding allocation of resources being made on a combined
basis. The Company's reportable geographic regions are the United
States, Europe and Australia/Asia.
The Company evaluates performance and allocates resources based
principally on operating income net of any special charges or
significant one-time charges. The accounting policies of the
14
<PAGE> 15
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited)
reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment sales are based on market
prices.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. Export sales from the United
States are included in the United States segment. The "Other" column
includes the elimination of intersegment sales and profits, corporate
related items and other costs not allocated to the reportable segments.
<TABLE>
<CAPTION>
Other
United Australia/ Geographic
States Europe Asia Regions Other Consolidated
-------- -------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1999
Revenue from external customers $259,072 $ 41,113 $ 59,921 $ 31,365 $ -- $391,471
Intersegment revenues 28,633 10,689 3,236 -- (42,558) --
Operating income (loss) 60,239 1,938 (2,080) (896) (7,627) 51,574
Nine Months Ended September 30, 1998
Revenue from external customers $272,014 $ 40,262 $ 62,482 $ 22,442 $ -- $397,200
Intersegment revenues 31,563 10,468 3,374 -- (45,405) --
Operating income (loss) 84,789 2,900 (1,020) 352 (69,698) 17,323
</TABLE>
4. REORGANIZATION AND REALIGNMENT
Special charges of $1.3 million and $5.7 million were recorded in the
three and nine month periods ended September 30, 1999, respectively.
These charges were recorded in connection with the ongoing
reorganization and realignment of the Company which began in the third
quarter of 1998. These charges, which were recorded in accordance with
EITF issue 94-3, are primarily for headcount reductions and relate to
employee severance and related benefits, rationalization of the
Company's Australian facility, and the consolidation of a domestic
facility into an existing domestic operation.
5. COMPREHENSIVE INCOME (LOSS)
During the first nine months of 1999 and 1998, total comprehensive
income (loss) amounted to $(7,744) and $(59,826), respectively.
6. GUARANTOR SUBSIDIARIES
In connection with the merger of Holdings and Mercury, Thermadyne LLC
and Thermadyne Capital, both wholly-owned subsidiaries of Holdings,
issued $207 million of Senior Subordinated Notes. Holdings received all
of the net proceeds from the issuance of the Senior Subordinated
15
<PAGE> 16
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited)
Notes and Thermadyne LLC and Thermadyne Capital are jointly and
severally liable for all payments under the Senior Subordinated Notes.
Additionally, the Senior Subordinated Notes are fully and
unconditionally (as well as jointly and severally) guaranteed on an
unsecured senior subordinated basis by certain subsidiaries of the
Company (the "Guarantor Subsidiaries"). Each of the Guarantor
Subsidiaries is wholly-owned by Thermadyne LLC.
The following condensed consolidating financial information of
Thermadyne LLC includes the accounts of Thermadyne LLC, the combined
accounts of the Guarantor Subsidiaries and the combined accounts of the
non-guarantor subsidiaries for the periods indicated. Separate
financial statements of each of the Guarantor Subsidiaries are not
presented because management has determined that such information is
not material in assessing the Guarantor Subsidiaries.
16
<PAGE> 17
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ 2,619 $ 6,169 $ -- $ 8,788
Restricted cash -- 27,053 (27,053) --
Accounts receivable -- 11,330 91,645 (21,365) 81,610
Inventories -- 63,189 49,311 -- 112,500
Prepaid expenses and other -- 2,753 3,308 (239) 5,822
---------- ---------- ---------- ---------- ----------
Total current assets -- 79,891 177,486 (48,657) 208,720
Property, plant and equipment, at cost, net -- 44,387 52,008 -- 96,395
Deferred financing costs, net 16,773 -- 325 -- 17,098
Intangibles, at cost, net -- 13,703 28,817 -- 42,520
Deferred income taxes -- 25,046 1,051 -- 26,097
Investment in and advances to/from subsidiaries 219,425 12,103 -- (231,528) --
Other assets -- 883 1,470 -- 2,353
---------- ---------- ---------- ---------- ----------
Total assets $ 236,198 $ 176,013 $ 261,157 $ (280,185) $ 393,183
========== ========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ -- $ 15,340 $ 20,757 $ -- $ 36,097
Accrued and other liabilities -- 18,278 9,005 -- 27,283
Accrued interest 7,392 10 8 -- 7,410
Income taxes payable -- 6,497 (1,757) -- 4,740
Current maturities of long-term obligations 7,300 194 3,025 -- 10,519
---------- ---------- ---------- ---------- ----------
Total current liabilities 14,692 40,319 31,038 -- 86,049
Long-term obligations, less current maturities 511,551 15,903 82,480 (50,000) 559,934
Other long-term liabilities -- 52,296 10,720 -- 63,016
Shareholders' equity (deficit):
Retained earnings (accumulated deficit) (366,717) (278,238) (29,593) 307,831 (366,717)
Accumulated other comprehensive loss -- (7,279) (17,690) -- (24,969)
---------- ---------- ---------- ---------- ----------
Total shareholders' equity (deficit) (366,717) (285,517) (47,283) 307,831 (391,686)
Net equity and advances to/from subsidiaries 76,672 353,012 184,202 (538,016) 75,870
---------- ---------- ---------- ---------- ----------
Total liabilities and shareholders'
equity (deficit) $ 236,198 $ 176,013 $ 261,157 $ (280,185) $ 393,183
========== ========== ========== ========== ==========
</TABLE>
17
<PAGE> 18
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ (1,051) $ 2,370 $ -- $ 1,319
Restricted cash -- 26,646 (26,646) --
Accounts receivable -- 13,682 96,606 (22,383) 87,905
Inventories -- 68,742 53,991 -- 122,733
Prepaid expenses and other -- 1,259 6,325 (219) 7,365
--------- --------- --------- --------- ---------
Total current assets -- 82,632 185,938 (49,248) 219,322
Property, plant and equipment, at cost, net -- 48,023 56,974 -- 104,997
Deferred financing costs, net 19,001 -- 571 -- 19,572
Intangibles, at cost, net -- 10,561 28,598 -- 39,159
Deferred income taxes -- 26,470 2,665 -- 29,135
Investment in and advances to/from subsidiaries 209,369 9,969 -- (219,338) --
Other assets -- (55) 1,306 -- 1,251
--------- --------- --------- --------- ---------
Total assets $ 228,370 $ 177,600 $ 276,052 $(268,586) $ 413,436
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ -- $ 21,003 $ 23,167 $ -- $ 44,170
Accrued and other liabilities -- 26,060 10,384 -- 36,444
Accrued interest 275 6 217 -- 498
Income taxes payable -- 7,927 (2,716) -- 5,211
Current maturities of long-term obligations 5,000 60 4,120 -- 9,180
--------- --------- --------- --------- ---------
Total current liabilities 5,275 55,056 35,172 -- 95,503
Long-term obligations, less current maturities 515,050 16,101 81,437 (50,000) 562,588
Other long-term liabilities -- 52,116 10,718 -- 62,834
Shareholders' equity (deficit):
Retained earnings (accumulated deficit) (368,408) (295,702) (16,201) 311,903 (368,408)
Accumulated other comprehensive income (loss) -- 224 (15,758) -- (15,534)
--------- --------- --------- --------- ---------
Total shareholders' equity (deficit) (368,408) (295,478) (31,959) 311,903 (383,942)
Net equity and advances to/from subsidiaries 76,453 349,805 180,684 (530,489) 76,453
--------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity (deficit) $ 228,370 $ 177,600 $ 276,052 $(268,586) $ 413,436
========= ========= ========= ========= =========
</TABLE>
18
<PAGE> 19
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 98,039 $ 49,075 $ (19,342) $ 127,772
Operating Expenses
Cost of goods sold -- 63,760 41,201 (20,291) 84,670
Selling, general and administrative
expenses -- 16,553 7,941 -- 24,494
Amortization of intangibles -- 379 692 -- 1,071
Net periodic postretirement benefits -- 450 -- -- 450
Special charges -- 550 769 -- 1,319
--------- --------- --------- --------- ---------
Operating income (loss) -- 16,347 (1,528) 949 15,768
Other income (expense):
Interest expense -- (12,422) (2,137) 704 (13,855)
Amortization of deferred financing costs -- (745) (52) -- (797)
Equity in net loss of subsidiaries (4,187) -- -- 4,187 --
Other -- 288 1,037 (1,842) (517)
--------- --------- --------- --------- ---------
Income (loss) before income tax provision (4,187) 3,468 (2,680) 3,998 599
income tax provision -- 4,366 420 -- 4,786
--------- --------- --------- --------- ---------
Net income (loss) $ (4,187) $ (898) $ (3,100) $ 3,998 $ (4,187)
========= ========= ========= ========= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 107,037 $ 48,025 $ (25,400) $ 129,662
Operating expenses:
Cost of goods sold -- 68,376 39,654 (25,322) 82,708
Selling, general and administrative expenses -- 17,992 7,379 -- 25,371
Amortization of intangibles -- 405 507 -- 912
Net periodic postretirement benefits -- 650 -- -- 650
Special charges -- 2,231 2,336 -- 4,567
---------- ---------- ---------- ---------- ----------
Operating income (loss) -- 17,383 (1,851) (78) 15,454
Other income (expense):
Interest expense -- (12,796) (2,560) 836 (14,520)
Amortization of deferred financing costs -- (746) (49) -- (795)
Equity in net loss of subsidiaries (11,561) -- -- 11,561 --
Other -- (621) 630 (1,139) (1,130)
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax provision (benefit) (11,561) 3,220 (3,830) 11,180 (991)
Income tax provision (benefit) -- 11,036 (466) -- 10,570
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (11,561) $ (7,816) $ (3,364) $ 11,180 $ (11,561)
========== ========== ========== ========== ==========
</TABLE>
19
<PAGE> 20
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 310,746 $ 149,932 $ (69,207) $ 391,471
Operating expenses:
Cost of goods sold -- 198,598 125,123 (70,226) 253,495
Selling, general and administrative expenses -- 50,436 23,948 -- 74,384
Amortization of intangibles -- 1,663 1,877 -- 3,540
Net periodic postretirement benefits -- 2,750 -- -- 2,750
Special charges -- 2,021 3,707 -- 5,728
---------- ---------- ---------- ---------- ----------
Operating income (loss) -- 55,278 (4,723) 1,019 51,574
Other income (expense):
Interest expense -- (36,590) (6,371) 2,151 (40,810)
Amortization of deferred financing costs -- (2,229) (164) -- (2,393)
Equity in net loss of subsidiaries 1,691 -- -- (1,691) --
Other -- 5,678 1,034 (5,551) 1,161
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax provision 1,691 22,137 (10,224) (4,072) 9,532
Income tax provision -- 4,673 3,168 -- 7,841
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 1,691 $ 17,464 $ (13,392) $ (4,072) $ 1,691
========== ========== ========== ========== ==========
</TABLE>
20
<PAGE> 21
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 332,023 $ 144,214 $ (79,037) $ 397,200
Operating expenses:
Cost of goods sold -- 209,290 118,139 (78,600) 248,829
Selling, general and administrative expenses -- 55,484 22,261 -- 77,745
Amortization of intangibles -- 1,188 1,581 -- 2,769
Net periodic postretirement benefits -- 1,750 -- -- 1,750
Special charges -- 46,448 2,336 -- 48,784
---------- ---------- ---------- ---------- ----------
Operating income (loss) -- 17,863 (103) (437) 17,323
Other income (expense):
Interest expense -- (33,239) (7,227) 2,818 (37,648)
Amortization of deferred financing costs -- (1,520) (154) -- (1,674)
Equity in net loss of subsidiaries (51,345) -- -- 51,345 --
Other -- 1,428 399 (3,931) (2,104)
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax provision (benefit)
and extraordinary item (51,345) (15,468) (7,085) 49,795 (24,103)
Income tax provision (benefit) -- 12,305 (200) -- 12,105
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item (51,345) (27,773) (6,885) 49,795 (36,208)
Extraordinary item, net of tax -- (15,137) -- -- (15,137)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (51,345) $ (42,910) $ (6,885) $ 49,795 $ (51,345)
========== ========== ========== ========== ==========
</TABLE>
21
<PAGE> 22
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $ 8,808 $ 32,647 $ 649 $ (4,072) $ 38,032
Cash flows provided by (used in) investing
activities:
Capital expenditures, net -- (3,817) (3,150) -- (6,967)
Change in other assets -- (1,708) 569 -- (1,139)
Acquisitions, net of cash -- (3,000) (2,886) -- (5,886)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities -- (8,525) (5,467) -- (13,992)
Cash flows provided by (used in) financing
activities:
Changes in long-term receivables -- (268) 177 -- (91)
Repayment of long-term obligations (1,726) (64) (5,020) -- (6,810)
Borrowing of long-term obligations 527 -- 3,191 -- 3,718
Change in accounts receivable securitization -- (389) -- -- (389)
Change in net equity and advances to/from
subsidiaries (7,609) (10,421) 9,974 4,072 (3,984)
Other -- (9,310) 295 -- (9,015)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities (8,808) (20,452) 8,617 4,072 (16,571)
---------- ---------- ---------- ---------- ----------
Net increase in cash and cash equivalents -- 3,670 3,799 -- 7,469
Cash and cash equivalents at beginning of period -- (1,051) 2,370 -- 1,319
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ -- $ 2,619 $ 6,169 $ -- $ 8,788
========== ========== ========== ========== ==========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $ (44,014) $ (58,396) $ (18,531) $ 49,795 $ (71,146)
Cash flows provided by (used in) investing
activities:
Capital expenditures, net -- (5,742) (6,089) -- (11,831)
Change in other assets -- (2,361) 873 -- (1,488)
Acquisitions, net of cash -- (1,125) (17,828) -- (18,953)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities -- (9,228) (23,044) -- (32,272)
Cash flows provided by (used in) financing
activities:
Changes in long-term receivables -- -- 471 -- 471
Repayment of long-term obligations (402,145) -- -- -- (402,145)
Borrowing of long-term obligations 604,035 319 14,558 -- 618,912
Change in accounts receivable securitization -- (3,422) -- -- (3,422)
Financing fees (20,058) -- -- -- (20,058)
Change in net equity and advances to/from
subsidiaries (137,818) 70,334 29,976 (49,795) (87,303)
Other -- -- (1,590) -- (1,590)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities 44,014 67,231 43,415 (49,795) 104,865
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents -- (393) 1,840 -- 1,447
Cash and cash equivalents at beginning of period -- 308 1,173 -- 1,481
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ -- $ (85) $ 3,013 $ -- $ 2,928
========== ========== ========== ========== ==========
</TABLE>
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the condensed consolidated
financial statements of Holdings. Holdings conducts its operations through its
wholly-owned subsidiary Thermadyne LLC. The accompanying condensed consolidated
financial statements for Holdings and Thermadyne LLC are substantially the same
except for certain debt and equity securities issued by Holdings, and therefore,
a separate discussion of Thermadyne LLC is not presented.
Included in the following discussions are comparisons of Adjusted EBITDA which
is defined as operating income plus depreciation, amortization of goodwill,
amortization of intangibles, net periodic postretirement benefits expense and
special charges 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.
The statements in this Quarterly Report on Form 10-Q that relate to future
plans, events or performance are forward-looking statements. Actual results
could differ materially due to a variety of factors and the other risks
described in this Quarterly Report and the other documents the Company files
from time to time with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or
that reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Net sales were $127.8 million and $129.7 million for the three months ended
September 30, 1999 and 1998, respectively, a decrease of $1.9 million, or 1.5%.
Domestic sales were down 5.4% and continue to be hurt by industry-wide weakness
in welding markets. International sales increased 5.3% in the third quarter of
1999 compared to the third quarter of 1998. When excluding the sales of
businesses recently acquired, international sales decreased 4.0% in a comparison
of the quarters. Except for Asia, which increased 28.7% in the quarter, sales
were down in all major geographic markets. Australia decreased 4.5%, Europe was
down 2.7% and Latin America fell 14.4% in the three months ended September 30,
1999. Weak economic conditions in each of these welding markets and currency
fluctuations in Latin America have resulted in these declines.
23
<PAGE> 24
Cost of goods sold as a percentage of sales was 66.3% for the quarter ended
September 30, 1999, up from 63.8% for the quarter ended September 30, 1998. The
increase in this percentage was caused by several factors. Soft demand in most
markets and a focus on reducing working capital have been the major contributors
to this increase in cost of goods sold as a percentage of sales. These two
factors have resulted in less unit volume in the factories and the resultant
lower absorption of fixed factory overhead costs. Increasingly competitive
pricing in the marketplace has also had a negative impact. A shift in sales mix
from higher margin consumables to lower margin equipment has put additional
pressure on gross margin percentages.
Selling, general and administrative expenses were $24.5 million for the three
months ended September 30, 1999 and includes $0.8 million applicable to recent
acquisitions. This total is down $0.9 million, or 3.5%, from $25.4 million for
the three months ended September 30, 1998. As a percentage of sales, selling,
general and administrative expenses were 19.2% and 19.6% for the three months
ended September 30, 1999 and 1998, respectively. The decrease in selling,
general and administrative expense dollars and as a percent of sales illustrates
the Company's success with ongoing cost reduction initiatives.
Special charges of $1.3 million in the third quarter of 1999 relate to ongoing
headcount reductions and costs related to the reorganization of the Company's
Australian facility and the consolidation of a domestic facility into an
existing division's operations. In the third quarter of 1998, the Company
recorded $4.6 million in conjunction with headcount reductions in that period.
Interest expense for the three months ended September 30, 1999 was $18.2 million
and was essentially flat when compared to interest expense of $18.5 million for
the three months ended September 30, 1998.
An income tax provision of $4.8 million was reported in the third quarter of
1999 on a pre-tax loss of $3.8 million and included a charge of $5.0 million
which increased the valuation allowance for deferred tax assets. In the third
quarter of 1998 an income tax provision of $10.6 million was recorded on a
pre-tax loss of $5.0 million. The deferred tax asset valuation allowance was
increased during this period with a charge of $6.7 million.
Adjusted EBITDA was $22.8 million, or 17.9% of sales, for the three months ended
September 30, 1999. For the three months ended September 30, 1998, Adjusted
EBITDA was $25.3 million, or 19.7% of sales.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Net sales for the nine months ended September 30, 1999 were $391.5 million, a
decrease of $5.7 million, or 1.4% , from net sales of $397.2 million for the
nine months ended September 30, 1998. Sales in the United States are down 2.3%
from the same period of a year ago and reflect softening demand in the domestic
market. International sales are flat compared to the same nine-month period of
1998, and down 9.2% when excluding sales related to acquisitions. All of the
Company's major international markets are down, except for Asia, which has
increased 8.0% year-to-date. Sales in Australia, Europe and Latin America have
decreased 5.3%, 9.2% and 15.0%, respectively, compared to the first nine months
of 1998. Weak industrial economies in these markets have negatively impacted
the Company's results. In addition, currency fluctuations in Latin America,
particularly Brazil, have resulted in lower reported sales.
Cost of goods sold as a percentage of sales was 64.8% and 62.6% for the nine
months ended September 30, 1999 and 1998, respectively. The single biggest
factor in this decrease in gross margins is the loss of unit
24
<PAGE> 25
volume in the Company's factories. The decrease in unit volume is the result of
the decreased sales level and the Company's efforts to reduce its working
capital. Other factors negatively affecting the Company's gross margins are
increased pricing pressures, a less favorable sales mix shifting sales dollars
from higher margin consumables to lower margin equipment, and recent
acquisitions, which combined typically carry a lower gross margin than the
Company's existing businesses blended margin.
Selling, general and administrative expenses decreased $3.4 million, or 4.3%, to
$74.4 million for the first nine months of 1999 compared to $77.7 million for
the first nine months of 1998. Excluding selling, general and administrative
expenses related to acquisitions the decrease is $5.4 million, or 6.9%. As a
percentage of sales, selling, general and administrative expenses were 19.0% for
the nine months ended September 30, 1999 and 19.6% for the nine months ended
September 30, 1998. Selling, general and administrative expenses have decreased
both in dollars and as a percentage of sales as a result of Company's continuing
efforts at cost reduction.
Special charges of $5.7 million relate to headcount reductions and site
rationalization thus far in 1999. The reorganization of the Company's Australian
facility continues and a domestic facility has been consolidated into a related
existing domestic business. In the first nine months of 1998, special charges of
$48.8 million were recorded. The merger in May of 1998 resulted in $44.2 million
of the total, and the remaining $4.6 million resulted from headcount reductions
in September of 1998.
Interest expense was $53.5 million for the nine months ended September 30, 1999
compared to $43.2 million for the nine months ended September 30, 1998. This
increase of $10.3 million, or 23.8%, is attributable to the significant increase
in debt levels in conjunction with the merger in May of 1998.
An income tax provision of $7.8 million was recorded on a pre-tax loss of $3.3
million in the nine months ended September 30, 1999. This included a $5.0
million charge to reduce the Company's deferred tax asset by increasing the
related valuation allowance. In the nine months ended September 30, 1998, an
income tax provision of $12.1 million was recorded on a pre-tax loss of $29.8
million. This included a charge of $1.4 million which increased the valuation
allowance for deferred tax assets as well as the tax effect of certain
non-deductible expenses incurred in the merger.
Adjusted EBITDA for the first nine months of 1999 was $77.3 million, or 19.7% of
sales. For the first nine months of 1998, Adjusted EBITDA was $81.5 million, or
20.5% of sales.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOWS
Operating activities provided cash of $33.2 million in the nine months ended
September 30, 1999. This compares to a $58.6 million use of cash by operating
activities in the nine months ended September 30, 1998. Earnings (adjusted for
non-cash expenses) in the nine months ended September 30, 1999 were $26.8
million, an increase of $51.0 million over the comparable loss of $24.2 million
in the nine months ended September 30, 1998. Operating assets and liabilities
provided a net increase in cash of $40.7 million in the first nine months of
1999 compared to the same period of 1998. The Company's focus on reducing
working capital resulted in net increases over 1998 in cash flow in the
following areas: accounts receivable - $18.1 million, inventory - $43.8 million,
prepaid expenses - $5.1 million and accounts payable - $1.2 million. These
positive cash flow changes were partially offset by negative cash flow changes
in accrued liabilities of $12.6 million, accrued interest of $3.5 million,
income taxes payable of
25
<PAGE> 26
$10.7 million and other long-term liabilities of $0.6 million. Cash used in
investing activities decreased from $32.3 million in the first nine months of
1998 to $14.0 million in the first nine months of 1999. The primary changes in
use of cash were decreases in capital expenditures and acquisitions of $4.9
million and $13.1 million, respectively, when comparing the nine-month period of
1999 with the nine-month period of 1998. Financing activities used cash of $11.7
million in the nine months ended September 30, 1999 compared to providing cash
of $92.3 million in the same period of 1998. Cash flow related to changes in and
the issuance of debt and equity securities decreased $119.0 million in the first
nine months of 1999 compared to the same period of 1998 during which time the
Company completed its merger. In addition, other expenditures used $8.3 million
more in cash thus far in 1999 compared to 1998. These net uses of cash were
partially offset by a net decrease in the use of cash for financing fees of
$23.8 million in a comparison of the two periods.
LIQUIDITY
The Company's principal sources of liquidity are cash flow from operations and
borrowings under the Company's existing bank facility. The Company's principal
uses of cash will be debt service requirements, capital expenditures,
acquisitions and working capital. The Company expects that ongoing requirements
for debt service, capital expenditures and working capital will be funded from
operating cash flow and borrowings under its existing bank facility. In
connection with future acquisitions, the Company may require additional funding
which may be provided in the form of additional debt, equity financing or
combination thereof. There can be no assurance that any such additional
financing will be available to the Company on acceptable terms.
The Company anticipates that its operating cash flow, together with borrowings
under its existing bank facility, will be sufficient to meet its anticipated
future operating expenses, capital expenditures and to service its debt
requirements as they become due. However, the Company's ability to make
scheduled payments of principal of, to pay interest on or to refinance its
indebtedness and to satisfy its other debt obligations will depend upon its
future operating performance, which will be affected by general economic,
financial, competitive, legislative, regulatory, business and other factors
beyond its control.
YEAR 2000 ISSUE
The "Year 2000 Issue" is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The operating subsidiaries of the Company have been assembled through a series
of acquisitions beginning in 1987. As such, the Company consists of over twenty
locations operating on a variety of business computer systems. In late 1997 the
Company decided to standardize and upgrade all business computer systems at all
but three locations, and as part of this standardization, address the Year 2000
Issue. The excluded locations are "Year 2000 Ready" and will convert to the
standardized system in early 2000.
In addressing the Year 2000 Issue, the Company is currently evaluating its
computer-based systems, facilities and products and identifying all steps
necessary to determine they are all Year 2000 Ready. The Company is employing a
combination of internal resources and outside consultants to address this issue.
26
<PAGE> 27
The Company's information technology department is responsible for its business
computers, PC's and related software. General managers of the Company's
manufacturing facilities oversee the Year 2000 Issue at their respective plants
including all engineering computer systems, PC's and related software,
manufacturing equipment and facilities' systems, such as security, climate
control and telecommunication systems. Detailed checklists have been developed
for all of the aforementioned areas which note the review date, actions required
and completion date. The Company has identified systems which are not Year 2000
Ready, and is in the process of upgrading or replacing those systems. The
Company is currently on schedule to complete these upgrades and replacements by
the year 2000. The Company has completed its assessment of its products and has
identified no Year 2000 Issues. In addition, the Company has contacted its
vendors to determine whether they are Year 2000 Ready, and is in the process of
accumulating those responses. Initial responses indicate most of the Company's
vendors are addressing their Year 2000 Issues and that all critical vendors are
either Year 2000 Ready or will be in the near future. As a precaution,
alternative vendors have been identified.
While the Year 2000 Issue is a top priority of the Company and a significant
amount of resources have been allocated to this issue, there can be no assurance
that all of its systems and equipment or its vendors will be Year 2000 Ready.
However, at this time, the Company does not believe that its or its vendors Year
2000 related issues will have a material adverse effect on the Company's
business. In the unlikely event of a systems failure at one of the Company's
facilities, any one of a number of other facilities' systems could be utilized
as a backup system.
The total cost to standardize and upgrade all business computer systems is
currently estimated to be $6.5 million and this project is virtually complete.
Given the nature of this project and the fact that it addresses many issues in
addition to preparing the Company for the Year 2000, it is impractical to
attempt to estimate the total costs specifically related to the Year 2000 Issue.
In compliance with generally accepted accounting principles, costs incurred by
the Company for hardware, software and consultants are capitalized, while costs
incurred in training employees are expensed as incurred. As the process to
become Year 2000 Ready continues, additional costs may be identified that have
not yet been considered. Consequently, the full cost of all upgrades,
replacements and modifications that may be required to become Year 2000 Ready
has not yet been determined.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the third quarter of 1999. Refer to the
Company's discussion in its Annual Report on Form 10-K for the year ended
December 31, 1998.
27
<PAGE> 28
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
28
<PAGE> 29
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 and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: November 12, 1999
29
<PAGE> 30
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 MFG. LLC
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 and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: November 12, 1999
30
<PAGE> 31
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 CAPITAL CORP.
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 and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: November 12, 1999
31
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT
</LEGEND>
<CIK>0000850660
<NAME>THERMADYNE HOLDINGS CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,788
<SECURITIES> 0
<RECEIVABLES> 81,610
<ALLOWANCES> 3,485
<INVENTORY> 112,500
<CURRENT-ASSETS> 208,720
<PP&E> 96,395
<DEPRECIATION> 0
<TOTAL-ASSETS> 399,714
<CURRENT-LIABILITIES> 87,709
<BONDS> 719,106
59,497
0
<COMMON> 36
<OTHER-SE> 519,131
<TOTAL-LIABILITY-AND-EQUITY> 399,714
<SALES> 391,471
<TOTAL-REVENUES> 391,471
<CGS> 253,495
<TOTAL-COSTS> 253,495
<OTHER-EXPENSES> 86,402
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,510
<INCOME-PRETAX> (3,292)
<INCOME-TAX> 7,841
<INCOME-CONTINUING> (11,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,133)
<EPS-BASIC> (4.66)
<EPS-DILUTED> (4.66)
</TABLE>
