<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 June 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 [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 August 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>
<S> <C>
PART I - FINANCIAL INFORMATION
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.................13-21
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.....................22-27
Item 3. Quantitative and Qualitative Disclosures About Market Risk..............27
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders.....................28
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>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,082 $ 1,319
Accounts receivable, less allowance for doubtful
accounts of $3,246 and $2,852, respectively 83,850 87,905
Inventories 121,506 122,733
Prepaid expenses and other 5,141 7,365
--------- ---------
Total current assets 217,579 219,322
Property, plant and equipment, at cost, net 99,691 104,997
Deferred financing costs, net 21,255 23,118
Intangibles, at cost, net 43,788 39,159
Deferred income taxes 33,660 32,402
Other assets 2,501 1,251
--------- ---------
Total assets $ 418,474 $ 420,249
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 42,681 $ 44,170
Accrued and other liabilities 26,760 36,444
Accrued interest 7,452 3,154
Income taxes payable 4,523 5,211
Current maturities of long-term obligations 10,442 9,180
--------- ---------
Total current liabilities 91,858 98,159
Long-term obligations, less current maturities 709,336 701,529
Other long-term liabilities 63,084 62,834
Redeemable preferred stock (paid in kind), $0.01 par value,
15,000,000 shares authorized and 2,000,000 shares outstanding 57,624 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
June 30, 1999 and December 31, 1998, respectively 36 32
Additional paid-in capital (116,725) (116,551)
Accumulated deficit (363,087) (360,520)
Management loans (3,857) (3,753)
Accumulated other comprehensive loss (19,795) (15,534)
--------- ---------
Total shareholders' deficit (503,428) (496,326)
--------- ---------
Total liabilities and shareholders' deficit $ 418,474 $ 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 Six Months Six Months
Ended Ended Ended Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 133,465 $ 135,709 $ 263,699 $ 267,538
Operating expenses:
Cost of goods sold 85,190 84,337 168,825 166,121
Selling, general and administrative expenses 25,344 25,310 49,890 52,374
Amortization of intangibles 1,432 957 2,469 1,857
Net periodic postretirement benefits 1,250 450 2,300 1,100
Special charges 1,535 44,217 4,409 44,217
--------- --------- --------- ---------
Operating income (loss) 18,714 (19,562) 35,806 1,869
Other income (expense):
Interest expense (17,572) (13,897) (35,314) (24,731)
Amortization of deferred financing costs (898) (540) (1,786) (910)
Other, net 938 (1,140) 1,782 (974)
--------- --------- --------- ---------
Income (loss) before income tax provision and extraordinary item 1,182 (35,139) 488 (24,746)
Income tax provision (benefit) 3,413 (3,049) 3,055 1,535
--------- --------- --------- ---------
Income (loss) before extraordinary item (2,231) (32,090) (2,567) (26,281)
Extraordinary item-loss on early extinguishment of debt,
net of tax benefit of $8,151 -- (15,137) -- (15,137)
--------- --------- --------- ---------
Net loss (2,231) (47,227) (2,567) (41,418)
Preferred stock dividends (paid in kind) 1,815 704 3,572 704
--------- --------- --------- ---------
Net loss applicable to common shares $ (4,046) $ (47,931) $ (6,139) $ (42,122)
========= ========= ========= =========
Basic and diluted loss per share amounts applicable to
common shares:
Loss before extraordinary item $ (1.13) $ (4.25) $ (1.73) $ (2.86)
Net loss $ (1.13) $ (6.22) $ (1.73) $ (4.46)
</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>
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss $ (2,567) $ (41,418)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Net periodic postretirement benefits 2,300 1,100
Depreciation 9,455 7,112
Amortization of intangibles 2,469 1,857
Non-cash interest expense 6,367 1,286
Amortization of deferred financing costs 1,786 910
Recognition of net operating loss carryforwards 3,401 --
Deferred income taxes (1,077) (5,240)
Issuance of common stock warrants -- 12,190
Extraordinary item -- (2,272)
Changes in operating assets and liabilities:
Accounts receivable 7,952 (9,989)
Inventories 4,600 (20,780)
Prepaid expenses and other 2,693 (916)
Accounts payable (3,332) (6,892)
Accrued and other liabilities (10,879) (4,124)
Accrued interest 4,282 (2,198)
Income taxes payable (1,094) 6,265
Other long-term liabilities (2,495) (2,046)
--------- ---------
Total adjustments 26,428 (23,737)
--------- ---------
Net cash provided by (used in) operating activities 23,861 (65,155)
--------- ---------
Cash flows used in investing activities:
Capital expenditures, net (5,182) (8,466)
Change in other assets (1,389) (465)
Acquisitions, net of cash (5,884) (3,654)
--------- ---------
Net cash used in investing activities (12,455) (12,585)
--------- ---------
Cash flows provided by (used in) financing activities:
Change in long-term receivables (101) 449
Repayment of long-term obligations (2,544) (390,002)
Borrowing of long-term obligations 3,356 727,106
Issuance of common stock 4 90,335
Issuance of preferred stock -- 50,000
Repurchase of common stock -- (368,815)
Change in accounts receivable securitization (1,140) (2,642)
Financing fees -- (23,820)
Other (5,218) 4,486
--------- ---------
Net cash provided by (used in)financing activities (5,643) 87,097
--------- ---------
Net increase in cash and cash equivalents 5,763 9,357
Cash and cash equivalents at beginning of period 1,319 1,481
--------- ---------
Cash and cash equivalents at end of period $ 7,082 $ 10,838
========= =========
</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" mean 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 six month periods ended June
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>
Six Months Six Months
Ended Ended
June 30, 1999 June 30,1998
------------- ------------
<S> <C> <C>
Interest $ 16,142 $ 25,778
Taxes 689 703
</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 Six Months Six Months
Ended Ended Ended Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic and diluted loss per share
applicable to common shares:
Loss before extraordinary item $ (1.13) $ (4.25) $ (1.73) $ (2.86)
Extraordinary item -- (1.97) -- (1.60)
------------- ------------- ------------- -------------
Net loss $ (1.13) $ (6.22) $ (1.73) $ (4.46)
============= ============= ============= =============
Weighted average shares-basic and diluted
loss per share 3,590,326 7,709,393 3,543,463 9,449,299
============= ============= ============= =============
</TABLE>
2. INVENTORIES
The composition of inventories at June 30, 1999 was as follows:
<TABLE>
<S> <C>
Raw materials $ 27,538
Work-in-process 27,306
Finished goods 68,232
LIFO Reserve (1,570)
---------
Total $ 121,506
=========
</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 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 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>
Six Months Ended June 30, 1999
Revenue from external customers $176,364 $ 27,012 $ 39,551 $ 20,772 $ -- $263,699
Intersegment revenues 19,306 7,023 2,136 -- (28,465) --
Operating income (loss) 44,246 1,566 (1,088) (734) (8,184) 35,806
Six Months Ended June 30, 1998
Revenue from external customers $171,352 $ 33,588 $ 47,596 $ 15,002 $ -- $267,538
Intersegment revenues 21,709 8,733 2,570 -- (33,012) --
Operating income (loss) 50,683 2,096 (657) 303 (50,556) 1,869
</TABLE>
8
<PAGE> 9
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
4. REORGANIZATION AND REALIGNMENT
Special charges of $1.5 million and $4.4 million were recorded in the three
and six month periods ended June 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,
and for rationalization of the Company's Australian facility.
5. COMPREHENSIVE LOSS
During the first six months of 1999 and 1998, total comprehensive loss
amounted to $(6,828) and $(43,959), respectively.
9
<PAGE> 10
THERMADYNE MFG. LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,082 $ 1,319
Accounts receivable, less allowance for doubtful
accounts of $3,246 and $2,852, respectively 83,850 87,905
Inventories 121,506 122,733
Prepaid expenses and other 5,141 7,365
--------- ---------
Total current assets 217,579 219,322
Property, plant and equipment, at cost, net 99,691 104,997
Deferred financing costs, net 17,899 19,572
Intangibles, at cost, net 43,788 39,159
Deferred income taxes 30,393 29,135
Other assets 2,501 1,251
--------- ---------
Total assets $ 411,851 $ 413,436
========= =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current Liabilities:
Accounts payable $ 42,681 $ 44,170
Accrued and other liabilities 26,760 36,444
Accrued interest 6,788 498
Income taxes payable 4,523 5,211
Current maturities of long-term obligations 10,442 9,180
--------- ---------
Total current liabilities 91,194 95,503
Long-term obligations, less current maturities 564,028 562,588
Other long-term liabilities 63,084 62,834
Shareholder's deficit:
Accumulated deficit (362,530) (368,408)
Accumulated other comprehensive loss (19,795) (15,534)
--------- ---------
Total shareholder's deficit (382,325) (383,942)
Net equity and advances to / from parent 75,870 76,453
--------- ---------
Total liabilities and shareholder's deficit $ 411,851 $ 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 Six Months Six Months
Ended Ended Ended Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 133,465 $ 135,709 $ 263,699 $ 267,538
Operating expenses:
Cost of goods sold 85,190 84,337 168,825 166,121
Selling, general and administrative expenses 25,344 25,310 49,890 52,374
Amortization of intangibles 1,432 957 2,469 1,857
Net periodic postretirement benefits 1,250 450 2,300 1,100
Special charges 1,535 44,217 4,409 44,217
--------- --------- --------- ---------
Operating income (loss) 18,714 (19,562) 35,806 1,869
Other income (expense):
Interest expense (13,362) (12,294) (26,955) (23,128)
Amortization of deferred financing costs (804) (509) (1,596) (879)
Other, net 886 (1,140) 1,678 (974)
--------- --------- --------- ---------
Income (loss) before income
tax provision and extraordinary item 5,434 (33,505) 8,933 (23,112)
Income tax provision (benefit) 3,413 (3,049) 3,055 1,535
--------- --------- --------- ---------
Income (loss) before extraordinary item 2,021 (30,456) 5,878 (24,647)
Extraordinary item-loss on early extinguishment of debt,
net of tax benefit of $8,151 -- (15,137) -- (15,137)
--------- --------- --------- ---------
Net income (loss) $ 2,021 $ (45,593) $ 5,878 $ (39,784)
========= ========= ========= =========
</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>
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ 5,878 $ (39,784)
Adjustments to reconcile net income(loss) to
net cash provided by (used in) operating activities:
Net periodic postretirement benefits 2,300 1,100
Depreciation 9,455 7,112
Amortization of intangibles 2,469 1,857
Amortization of deferred financing costs 1,596 879
Recognition of net operating loss carryforwards 3,401 --
Deferred income taxes (1,077) (5,240)
Extraordinary item -- (2,272)
Changes in operating assets and liabilities:
Accounts receivable 7,952 (9,989)
Inventories 4,600 (20,780)
Prepaid expenses and other 2,693 (916)
Accounts payable (3,332) (6,892)
Accrued and other liabilities (10,879) (4,124)
Accrued interest 6,274 (2,832)
Income taxes payable (1,094) 6,265
Other long-term liabilities (2,495) (2,046)
--------- ---------
Total adjustments 21,863 (37,878)
--------- ---------
Net cash provided by (used in) operating activities 27,741 (77,662)
--------- ---------
Cash flows used in investing activities:
Capital expenditures, net (5,182) (8,466)
Change in other assets (1,389) (465)
Acquisitions, net of cash (5,884) (3,654)
--------- ---------
Net cash used in investing activities (12,455) (12,585)
--------- ---------
Cash flows provided by (used in) financing activities:
Change in long-term receivables (101) 449
Repayment of long-term obligations (2,544) (390,002)
Borrowing of long-term obligations 3,356 595,432
Change in accounts receivable securitization (1,140) (2,642)
Financing fees -- (20,054)
Change in net equity of parent (3,984) (87,303)
Other (5,110) 3,724
--------- ---------
Net cash provided by (used in) financing activities (9,523) 99,604
--------- ---------
Net increase in cash and cash equivalents 5,763 9,357
Cash and cash equivalents at beginning of period 1,319 1,481
--------- ---------
Cash and cash equivalents at end of period $ 7,082 $ 10,838
========= =========
</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 six month periods
ended June 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>
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Interest $ 14,150 $ 26,095
Taxes 689 703
</TABLE>
2. INVENTORIES
The composition of inventories at June 30, 1999 was as follows:
<TABLE>
<S> <C>
Raw materials $ 27,538
Work-in-process 27,306
Finished goods 68,232
LIFO Reserve (1,570)
---------
Total $ 121,506
=========
</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 reportable segments are the same as
those described in the summary of significant accounting policies.
Intersegment sales are based on market prices.
14
<PAGE> 15
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
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>
Six Months Ended June 30, 1999
Revenue from external customers $176,364 $ 27,012 $ 39,551 $ 20,772 $ -- $263,699
Intersegment revenues 19,306 7,023 2,136 -- (28,465) --
Operating income (loss) 44,246 1,566 (1,088) (734) (8,184) 35,806
Six Months Ended June 30, 1998
Revenue from external customers $171,352 $ 33,588 $ 47,596 $ 15,002 $ -- $267,538
Intersegment revenues 21,709 8,733 2,570 -- (33,012) --
Operating income (loss) 50,683 2,096 (657) 303 (50,556) 1,869
</TABLE>
4. REORGANIZATION AND REALIGNMENT
Special charges of $1.5 million and $4.4 million were recorded in the three
and six month periods ended June 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,
and for rationalization of the Company's Australian facility.
5. COMPREHENSIVE INCOME (LOSS)
During the first six months of 1999 and 1998, total comprehensive income
(loss) amounted to $10,139 and $(42,325), respectively.
15
<PAGE> 16
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
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 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
JUNE 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 $ -- $ 1,649 $ 5,433 $ -- $ 7,082
Restricted cash -- -- 27,803 (27,803) --
Accounts receivable -- 13,215 92,141 (21,506) 83,850
Inventories -- 66,247 55,259 -- 121,506
Prepaid expenses and other -- 1,726 3,624 (209) 5,141
--------- --------- --------- --------- ---------
Total current assets -- 82,837 184,260 (49,518) 217,579
Property, plant and equipment, at cost, net -- 45,833 53,858 -- 99,691
Deferred financing costs, net 17,518 -- 381 -- 17,899
Intangibles, at cost, net -- 14,012 29,776 -- 43,788
Deferred income taxes -- 29,352 1,041 -- 30,393
Investment in and advances to/from subsidiaries 225,662 11,368 -- (237,030) --
Other assets -- 1,012 1,489 -- 2,501
--------- --------- --------- --------- ---------
Total assets $ 243,180 $ 184,414 $ 270,805 $(286,548) $ 411,851
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current Liabilities:
Accounts payable $ -- $ 20,498 $ 22,183 $ -- $ 42,681
Accrued and other liabilities -- 17,026 9,734 -- 26,760
Accrued interest 6,769 8 11 -- 6,788
Income taxes payable -- 6,562 (2,039) -- 4,523
Current maturities of long-term obligations 7,513 (26) 2,955 -- 10,442
--------- --------- --------- --------- ---------
Total current liabilities 14,282 44,068 32,844 -- 91,194
Long-term obligations, less current maturities 514,975 16,068 82,985 (50,000) 564,028
Other long-term liabilities -- 52,430 10,654 -- 63,084
Shareholder's equity (deficit):
Retained earnings (Accumulated deficit) (362,530) (277,340) (26,493) 303,833 (362,530)
Accumulated other comprehensive loss -- (4,904) (14,891) -- (19,795)
--------- --------- --------- --------- ---------
Total shareholder's equity (deficit) (362,530) (282,244) (41,384) 303,833 (382,325)
Net equity and advances to/from subsidiaries 76,453 354,092 185,706 (540,381) 75,870
--------- --------- --------- --------- ---------
Total liabilities and shareholder's equity (deficit) $ 243,180 $ 184,414 $ 270,805 $(286,548) $ 411,851
========= ========= ========= ========= =========
</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 SHAREHOLDER'S 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
Shareholder's 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 shareholder's 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 JUNE 30, 1999
<TABLE>
<CAPTION>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
--------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 107,524 $ 53,530 $ (27,589) (a) $ 133,465
Operating expenses:
Cost of goods sold -- 68,470 44,253 (27,533) (a) 85,190
Selling, general and administrative expenses -- 16,939 8,405 -- 25,344
Amortization of intangibles -- 786 646 -- 1,432
Net periodic postretirement benefits -- 1,250 -- -- 1,250
Special charges -- 535 1,000 -- 1,535
--------- --------- --------- --------- ---------
Operating income (loss) -- 19,544 (774) (56) 18,714
Other income (expense):
Interest expense -- (12,221) (1,849) 708 (13,362)
Amortization of deferred financing costs -- (743) (61) -- (804)
Equity in net loss of subsidiaries 2,021 -- -- (2,021) --
Other -- 3,012 (251) (1,875) 886
--------- --------- --------- --------- ---------
Income (loss) before income tax provision 2,021 9,592 (2,935) (3,244) 5,434
Income tax provision -- 577 2,836 -- 3,413
--------- --------- --------- --------- ---------
Net income (loss) $ 2,021 $ 9,015 $ (5,771) $ (3,244) $ 2,021
========= ========= ========= ========= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
--------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 113,475 $ 48,364 $ (26,130) (a) $ 135,709
Operating expenses:
Cost of goods sold -- 71,204 39,315 (26,182) (a) 84,337
Selling, general and administrative expenses -- 17,772 7,538 -- 25,310
Amortization of intangibles -- 423 534 -- 957
Net periodic postretirement benefits -- 450 -- -- 450
Special charges -- 44,217 -- -- 44,217
--------- --------- --------- --------- ---------
Operating income (loss) -- (20,591) 977 52 (19,562)
Other income (expense):
Interest expense -- (10,909) (2,291) 906 (12,294)
Amortization of deferred financing costs -- (458) (51) -- (509)
Equity in net loss of subsidiaries (45,593) -- -- 45,593 --
Other -- 1,700 (1,537) (1,303) (1,140)
--------- --------- --------- --------- ---------
Income (loss) before income tax benefit and
extraordinary item (45,593) (30,258) (2,902) 45,248 (33,505)
Income tax benefit -- (2,700) (349) -- (3,049)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item (45,593) (27,558) (2,553) 45,248 (30,456)
Extraordinary item, net of tax -- (15,137) -- -- (15,137)
--------- --------- --------- --------- ---------
Net income (loss) $ (45,593) $ (42,695) $ (2,553) $ 45,248 $ (45,593)
========= ========= ========= ========= =========
</TABLE>
(a) Reflects the elimination of intercompany sales among all of the Company's
subsidiaries.
19
<PAGE> 20
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
--------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 212,707 $ 100,857 $ (49,865) (a) $ 263,699
Operating expenses:
Cost of goods sold -- 134,838 83,922 (49,935) (a) 168,825
Selling, general and administrative expenses -- 33,883 16,007 -- 49,890
Amortization of intangibles -- 1,284 1,185 -- 2,469
Net periodic postretirement benefits -- 2,300 -- -- 2,300
Special charges -- 1,471 2,938 -- 4,409
--------- --------- --------- --------- ---------
Operating income (loss) -- 38,931 (3,195) 70 35,806
Other income (expense):
Interest expense -- (24,168) (4,267) 1,480 (26,955)
Amortization of deferred financing costs -- (1,484) (112) -- (1,596)
Equity in net loss of subsidiaries 5,878 -- -- (5,878) --
Other -- 5,390 30 (3,742) 1,678
--------- --------- --------- --------- ---------
Income (loss) before income tax provision 5,878 18,669 (7,544) (8,070) 8,933
Income tax provision -- 307 2,748 -- 3,055
--------- --------- --------- --------- ---------
Net income (loss) $ 5,878 $ 18,362 $ (10,292) $ (8,070) $ 5,878
========= ========= ========= ========= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
--------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 224,986 $ 96,189 $ (53,637) (a) $ 267,538
Operating expenses:
Cost of goods sold -- 140,914 78,485 (53,278) (a) 166,121
Selling, general and administrative expenses -- 37,492 14,882 -- 52,374
Amortization of intangibles -- 783 1,074 -- 1,857
Net periodic postretirement benefits -- 1,100 -- -- 1,100
Special charges -- 44,217 -- -- 44,217
--------- --------- --------- --------- ---------
Operating income (loss) -- 480 1,748 (359) 1,869
Other income (expense):
Interest expense -- (20,443) (4,667) 1,982 (23,128)
Amortization of deferred financing costs -- (774) (105) -- (879)
Equity in net loss of subsidiaries (39,784) -- -- 39,784 --
Other -- 2,049 (231) (2,792) (974)
--------- --------- --------- --------- ---------
Income (loss) before income tax provision
and extraordinary item (39,784) (18,688) (3,255) 38,615 (23,112)
Income tax provision -- 1,269 266 -- 1,535
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item (39,784) (19,957) (3,521) 38,615 (24,647)
Extraordinary item, net of tax -- (15,137) -- -- (15,137)
--------- --------- --------- --------- ---------
Net income (loss) $ (39,784) $ (35,094) $ (3,521) $ 38,615 $ (39,784)
========= ========= ========= ========= =========
</TABLE>
(a) Reflects the elimination of intercompany sales among all of the Company's
subsidiaries.
20
<PAGE> 21
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 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 $ 12,372 $ 26,004 $ (2,565) $ (8,070) $ 27,741
Cash flows provided by (used in) investing activities:
Capital expenditures, net -- (2,720) (2,462) -- (5,182)
Change in other assets -- (1,831) 442 -- (1,389)
Acquisitions, net of cash -- (3,000) (2,884) -- (5,884)
-------- -------- -------- -------- --------
Net cash used in investing activities -- (7,551) (4,904) -- (12,455)
Cash flows provided by (used in) financing activities
Changes in long-term receivables -- (276) 175 -- (101)
Repayment of long-term obligations (575) (119) (1,850) -- (2,544)
Borrowing of long-term obligations 3,013 -- 343 -- 3,356
Change in accounts receivable securitization -- (1,140) -- -- (1,140)
Change in net equity and advances to/from
subsidiaries (14,810) (7,283) 10,039 8,070 (3,984)
Other -- (6,935) 1,825 -- (5,110)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities (12,372) (15,753) 10,532 8,070 (9,523)
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents -- 2,700 3,063 -- 5,763
Cash and cash equivalents at beginning of period -- (1,051) 2,370 -- 1,319
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 1,649 $ 5,433 $ -- $ 7,082
======== ======== ======== ======== ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 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 $ (42,699) $ (62,735) $ (10,843) $ 38,615 $ (77,662)
Cash flows used in investing activities:
Capital expenditures, net -- (4,127) (4,339) -- (8,466)
Change in other assets -- (369) (96) -- (465)
Acquisitions, net of cash -- (640) (3,014) -- (3,654)
--------- --------- --------- --------- ---------
Net cash used in investing activities -- (5,136) (7,449) -- (12,585)
Cash flows provided by (used in) financing activities
Changes in long-term receivables -- -- 449 -- 449
Repayment of long-term obligations (390,002) -- -- -- (390,002)
Borrowing of long-term obligations 576,893 130 18,409 -- 595,432
Change in accounts receivable securitization -- (2,642) -- -- (2,642)
Financing fees (20,054) -- -- -- (20,054)
Change in net equity and advances to/from
subsidiaries (124,138) 79,789 (4,339) (38,615) (87,303)
Other -- -- 3,724 -- 3,724
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities 42,699 77,277 18,243 (38,615) 99,604
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents -- 9,406 (49) -- 9,357
Cash and cash equivalents at beginning of period -- 308 1,173 -- 1,481
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ -- $ 9,714 $ 1,124 $ -- $ 10,838
========= ========= ========= ========= =========
</TABLE>
21
<PAGE> 22
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 June 30, 1999 compared to Three Months ended June 30, 1998
Net sales were $133.5 million for the three months ended June 30, 1999 compared
to $135.7 million for the three months ended June 30, 1998. Domestic sales
decreased 1.9% in a comparison of the quarters ended June 30, 1999 and 1998 due
to general weakness in the U.S. industrial economy. International sales
decreased 1.2% (13.3% excluding acquisitions) for the quarter ended June 30,
1999 compared to the same period of the prior year. Australia/Asia sales are
down 7.4% in the quarter, although Asia is showing signs
22
<PAGE> 23
of recovery and is up slightly over the same period of the prior year. Weak
economies in Europe have resulted in a decline of 17.7%, excluding acquisitions.
Latin America sales decreased 17.2% in the quarter, excluding acquisitions,
while experiencing both soft economic conditions and weak currencies.
Cost of goods sold as a percentage of sales was 63.8% for the three months ended
June 30, 1999 compared to 62.1% for the three months ended June 30, 1998.
Throughout 1999, the Company has been focused on reducing working capital and
especially inventory levels. This has resulted in less volume being run through
the factories and a lower absorption of fixed overhead costs on a per unit
basis. An unfavorable sales mix, with lower margin equipment sales replacing
some higher margin parts and consumables business, has also negatively affected
margins. In addition, recent acquisitions have diluted gross margins as they
typically do not carry an average gross margin as high as that of the Company's
existing business.
Selling, general and administrative expenses are essentially flat at $25.3
million for the three month periods ended June 30, 1999 and 1998. Expenses for
the three months ended June 30, 1999, include approximately $1.0 million related
to acquisitions. As a percentage of sales, selling and administrative expenses
were 19.0% for the three months ended June 30, 1999 and 18.7% for the three
months ended June 30, 1998. The increase in this percentage is the result of the
overall sales decline as certain expenses are fixed and do not vary with sales.
Special charges of $1.5 million recorded in the three month period ended June
30, 1999 relate primarily to factory rationalization costs in Australia and to
ongoing headcount reductions. Special charges of $44.2 million in the three
month period ended June 30, 1998 are the result of the merger of the Company in
May 1998.
Interest expense was $17.6 million in the quarter ended June 30, 1999 compared
to $13.9 million in the quarter ended June 30, 1998. This increase of 26.4%, or
$3.7 million, is due to the higher debt levels resulting from the merger of the
Company in May 1998.
An income tax provision of $3.4 million was reported in the second quarter of
1999 on pre-tax income of $1.2 million. An income tax benefit of $3.0 million
was recorded on a pre-tax loss of $35.1 million in the second quarter of 1998.
Adjusted EBITDA was $28.3 million for the three months ended June 30, 1999, or
21.2% of sales. This compares to Adjusted EBITDA for the three months ended June
30, 1998 of $29.6 million, or 21.8% of sales.
23
<PAGE> 24
Six Months ended June 30, 1999 compared to Six Months ended June 30, 1998
Net sales for the six months ended June 30, 1999 and 1998 were $263.7 million
and $267.5 million, respectively. Sales in the U.S. decreased 0.8% in a
comparison of the two periods while international sales decreased 2.5% (11.6%
excluding acquisitions). The Australia/Asia region has declined 5.0%, and when
excluding the sales of businesses acquired since the beginning of 1998 Latin
America has decreased 15.3% and Europe is down 12.2%. Overall weak demand in
the industrial sectors of these economies is the primary reason for the
decrease in sales. The sales decline in Latin America was also affected by that
region's weakening currencies.
Cost of goods sold as a percentage of sales was 64.0% and 62.1% for the six
months ended June 30, 1999 and 1998, respectively. The decrease in gross margins
recently experienced by the Company is the result of three factors. First of
all, the Company is focused on reducing its working capital. The related efforts
to reduce inventory have resulted in less volume through the factories and a
lower per unit absorption of fixed factory overhead costs. Secondly, businesses
acquired over the past twelve months have also diluted gross margins.
Acquisitions seldom support the same gross margins as the Company's established
domestic facilities. Lastly, a less favorable sales mix has negatively affected
margins as decreased demand in relatively higher margin consumable business has
been replaced by sales of lower margin equipment.
Selling, general and administrative expenses were $49.9 million for the first
six months of 1999 compared to $52.4 million for the first six months of 1998.
As a percentage of sales, selling, general and administrative expenses were
18.9% and 19.6% for the first half of 1999 and 1998, respectively. The decreases
in dollars and as a percent of sales are the result of the Company's efforts
with ongoing cost reduction initiatives. These decreases have been partially
offset by the additional selling, general and administrative expenses of
business recently acquired, which amounts to approximately $1.2 million.
Special charges of $4.4 million were recorded in the first six months of 1999.
These charges relate primarily to ongoing headcount reductions and site
rationalization in Australia. The merger in May of 1998 resulted in special
charges of $44.2 million in the results reported for the six months ended June
30, 1998.
Interest expense rose $10.6 million, or 42.8%, to $35.3 million for the six
months ended June 30, 1999 from $24.7 million for the six months ended June 30,
1998. Debt levels increased significantly as a result of the merger in May 1998
and interest expense has increased accordingly.
An income tax provision of $3.1 million was recorded on pre-tax income of $0.5
million in the six months ended June 30, 1999. Income tax expense of $1.5
million was recorded for the six months ended June 30, 1998 on a pre-tax loss of
$24.7 million.
24
<PAGE> 25
Adjusted EBITDA was $54.4 million for the six months ended June 30, 1999, or
20.6% of sales. This compares to $56.2 million in Adjusted EBITDA for the six
months ended June 30, 1998, which is 21.0% of sales.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows
Operating activities provided cash of $23.9 million in the first six months of
1999, compared to using cash of $65.2 million in the first six months of 1998.
Earnings (adjusted for non-cash expenses) were $22.1 million the first six
months of 1999 compared to a loss of $24.5 million in 1998, an increase of $46.6
million. A net loss of $41.4 million was reported through June 30, 1998 due to
expenses recorded in connection with the merger of the Company in May 1998.
Operating assets and liabilities provided a net increase in cash of $42.4
million in the first six months of 1999 compared to the first six months of
1998. The Company is focused on reducing working capital which is evident by the
following net increases in cash flow when compared to 1998: accounts receivable
- - $17.9 million; inventory - $25.4 million; prepaid expenses - $3.6 million;
accounts payable - $3.6 million; and, accrued interest - $6.5 million. These net
increases were partially offset by an increase in the use of cash by accrued
liabilities of $6.8 million and income taxes payable of $7.4 million. Cash used
in investing activities was $12.5 million and $12.6 million for the six months
ended June 30, 1999 and 1998, respectively. The Company used $3.3 million less
for capital expenditures in the first six months of 1999 compared to the same
period of 1998. This was mostly offset by an increase in the use of cash of $0.9
million for other assets and $2.2 million for acquisitions in a comparison of
the same periods. Financing activities used $5.6 million in cash in the first
half of 1999 while providing cash of $87.1 million in the first half of 1998.
Debt and equity securities issued in connection with the merger of the Company
in May of 1998, partially offset by cash for related financing fees and
repurchase of common stock, are the primary reasons for this change in cash
flow.
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 a
combination thereof. There can be no assurance that any such additional
financing will be available to the Company on acceptable terms.
25
<PAGE> 26
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.
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
26
<PAGE> 27
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. Through June 30, 1999, the Company has
spent approximately $6.0 million of this total. 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 second 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 4. Submission of matters to a vote of security holders.
At the annual meeting of shareholders of the registrant held on April 27, 1999,
there were 3,590,326 shares of common stock of the Company issued and
outstanding and entitled to be voted, if represented. The following matter was
presented to the meeting for a vote and the result of such voting is as follows:
Election of Directors.
<TABLE>
<CAPTION>
FOR WITHHELD
--------- --------
<S> <C> <C>
Randall E. Curran 3,418,124 41
William F. Dawson, Jr. 3,418,124 41
John F. Fort III 3,418,124 41
Peter T. Grauer 3,418,124 41
Harold A. Poling 3,418,124 41
Lawrence M.v.D. Schloss 3,418,124 41
James H. Tate 3,418,124 41
</TABLE>
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: August 13, 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: August 13, 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: August 13, 1999
31
<PAGE> 32
EXHIBIT INDEX
<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 FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT
</LEGEND>
<CIK> 0000850660
<NAME> THERMADYNE HOLDINGS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,082
<SECURITIES> 0
<RECEIVABLES> 83,850
<ALLOWANCES> 3,246
<INVENTORY> 121,506
<CURRENT-ASSETS> 217,579
<PP&E> 99,691
<DEPRECIATION> 0
<TOTAL-ASSETS> 418,474
<CURRENT-LIABILITIES> 91,858
<BONDS> 719,778
57,624
0
<COMMON> 36
<OTHER-SE> (503,464)
<TOTAL-LIABILITY-AND-EQUITY> 418,474
<SALES> 263,699
<TOTAL-REVENUES> 263,699
<CGS> 168,825
<TOTAL-COSTS> 168,825
<OTHER-EXPENSES> 59,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,314
<INCOME-PRETAX> 488
<INCOME-TAX> 3,055
<INCOME-CONTINUING> (2,567)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,567)
<EPS-BASIC> (1.73)
<EPS-DILUTED> (1.73)
</TABLE>
