<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, 2000
--------------------------------------------------
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)
<TABLE>
<CAPTION>
Delaware 74-2482571
---------------------------------------------------------------------------------------------------------
<S> <C>
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
Commission file number 333-57457
---------------
Thermadyne Mfg. LLC
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
Delaware 74-2878452
---------------------------------------------------------------------------------------------------------
<S> <C>
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
Commission file number 333-57457
---------------
Thermadyne Capital Corp.
--------------------------------------------------------------------------------
(Exact name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
Delaware 74-2878453
---------------------------------------------------------------------------------------------------------
<S> <C>
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
101 S. Hanley, St. Louis, MO 63105
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (314) 721-5573
------------------------------
Indicate by x whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
The number of shares outstanding of the issuer's common stock, par value $0.01
per share, as of October 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
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C> <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 - 21
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..........................................22 - 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................25
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................................................26
SIGNATURES......................................................................................................27 - 29
</TABLE>
<PAGE> 3
THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30,
2000 December 31, 1999
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 13,149 $ 13,321
Accounts receivable, less allowance for doubtful
accounts of $2,791 and $2,852, respectively 71,216 94,731
Inventories 108,805 100,831
Prepaid expenses and other 7,320 5,954
------------- -----------------
Total current assets 200,490 214,837
Property, plant and equipment, at cost, net 83,895 93,811
Deferred financing costs, net 19,111 20,459
Intangibles, at cost, net 15,656 40,170
Deferred income taxes 912 29,105
Other assets 2,972 2,014
------------- -----------------
Total assets $ 323,036 $ 400,396
============= =================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 41,783 $ 41,773
Accrued and other liabilities 33,852 27,052
Accrued interest 8,655 3,080
Income taxes payable 9,138 9,575
Current maturities of long-term obligations 13,791 12,080
------------- -----------------
Total current liabilities 107,219 93,560
Long-term obligations, less current maturities 720,954 717,322
Other long-term liabilities 61,847 62,172
Redeemable preferred stock (paid in kind), $0.01 par value,
15,000,000 shares authorized and 2,000,000 shares outstanding 67,617 61,430
Shareholders' deficit:
Common stock, $0.01 par value, 30,000,000 shares authorized
and 3,590,326 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 36 36
Additional paid-in capital (117,631) (111,444)
Accumulated deficit (478,286) (394,819)
Management loans (4,134) (3,966)
Accumulated other comprehensive loss (34,586) (23,895)
------------- -----------------
Total shareholders' deficit (634,601) (534,088)
------------- -----------------
Total liabilities and shareholders' deficit $ 323,036 $ 400,396
============= =================
</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,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 124,872 $ 127,772 $ 393,153 $ 391,471
Operating expenses:
Cost of goods sold 79,806 84,670 251,118 253,495
Selling, general and administrative expenses 24,935 24,494 77,172 74,384
Amortization of intangibles 24,341 1,071 26,235 3,540
Net periodic postretirement benefits 207 450 914 2,750
Special charges 10,786 1,319 29,199 5,728
------------- ------------- ------------- -------------
Operating income (loss) (15,203) 15,768 8,515 51,574
Other income (expense):
Interest expense (20,125) (18,196) (60,180) (53,510)
Amortization of deferred financing costs (798) (889) (2,486) (2,675)
Other, net 373 (463) 543 1,319
------------- ------------- ------------- -------------
Loss before income tax provision (35,753) (3,780) (53,608) (3,292)
Income tax provision 27,074 4,786 29,859 7,841
------------- ------------- ------------- -------------
Net loss (62,827) (8,566) (83,467) (11,133)
Preferred stock dividends (paid in kind) 2,127 1,872 6,185 5,444
------------- ------------- ------------- -------------
Net loss applicable to common shares $ (64,954) $ (10,438) $ (89,652) $ (16,577)
============= ============= ============= =============
Per share data:
Basic loss per common share $ (18.09) $ (2.91) $ (24.97) $ (4.66)
Diluted loss per common share $ (18.09) $ (2.91) $ (24.97) $ (4.66)
</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, 2000 September 30, 1999
------------------ -------------------
<S> <C> <C>
Cash flows provided by operating activities:
Net loss $ (83,467) $ (11,133)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Net periodic postretirement benefits 914 2,750
Depreciation 12,531 13,672
Amortization of intangibles 26,235 3,540
Non-cash interest expense 14,038 8,661
Amortization of deferred financing costs 2,486 2,675
Recognition of net operating loss carryforwards -- 3,401
Deferred income taxes 28,208 3,197
Loss on asset disposal 6,762 --
Changes in operating assets and liabilities:
Accounts receivable (2,561) 9,269
Inventories (13,657) 13,173
Prepaid expenses and other (1,654) 1,822
Accounts payable 1,298 (9,883)
Accrued and other liabilities 6,918 (10,215)
Accrued interest 5,581 5,922
Income taxes payable (411) (882)
Other long-term liabilities (1,832) (2,814)
------------------ ------------------
Total adjustments 84,856 44,288
------------------ ------------------
Net cash provided by operating activities 1,389 33,155
------------------ ------------------
Cash flows used in investing activities:
Capital expenditures, net (13,282) (6,967)
Proceeds from sale of assets 4,563
Change in other assets (2,083) (1,139)
Acquisitions, net of cash (1,008) (5,886)
------------------ ------------------
Net cash used in investing activities: (11,810) (13,992)
------------------ ------------------
Cash flows provided by (used in) financing activities:
Change in long-term receivables 92 (91)
Repayment of long-term obligations (19,322) (5,759)
Borrowing of long-term obligations 14,060 3,718
Issuance of common stock -- 4
Issuance of preferred stock -- --
Repurchase of common stock -- --
Change in accounts receivable securitization 23,926 (389)
Financing fees (1,169) --
Other (7,338) (9,177)
------------------ ------------------
Net cash provided by (used in) financing activities 10,249 (11,694)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (172) 7,469
Cash and cash equivalents at beginning of period 13,321 1,319
------------------ ------------------
Cash and cash equivalents at end of period $ 13,149 $ 8,788
================== ==================
</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 notes
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, 2000 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1999.
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, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Interest $ 10,331 $ 44,248
Taxes 669 1,013
</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,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net loss applicable to common shares-
basic and diluted $ (64,954) $ (10,438) $ (89,652) $ (16,577)
============= ============= ============= =============
Denominator:
Weighted average shares-basic and diluted 3,590,326 3,590,326 3,590,326 3,559,255
============= ============= ============= =============
Basic loss per common share $ (18.09) $ (2.91) $ (24.97) $ (4.66)
============= ============= ============= =============
Diluted loss per common share $ (18.09) $ (2.91) $ (24.97) $ (4.66)
============= ============= ============= =============
</TABLE>
2. ACCOUNTS RECEIVABLE
On January 31, 2000, the Company entered into a trade accounts
receivable securitization agreement whereby it sells on an ongoing
basis participation interests in up to $45,000 of designated accounts
receivable. The amount of participation interests sold under this
financing arrangement is subject to change based on the level of
eligible receivables and restrictions on concentrations of receivables
and was approximately $23,926 at September 30, 2000. The sold accounts
receivable are reflected as a reduction of accounts receivable on the
September 30, 2000 Consolidated Balance Sheet. Interest expense is
incurred on participation interests at the rate of one-month LIBOR plus
65 basis points, per annum.
3. INVENTORIES
The composition of inventories at September 30, was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials $ 22,271 $ 26,707
Work-in-process 20,552 23,718
Finished goods 67,366 51,278
LIFO reserve (1,384) (872)
------------- ------------
Total $ 108,805 $ 100,831
============= ============
</TABLE>
7
<PAGE> 8
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
4. INTANGIBLES
During the third quarter, the Company recorded an impairment loss of
$23.4 million related to goodwill and other intangible assets
associated with its Australian business. The Company records impairment
losses on long-lived assets including goodwill or related intangibles
when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the related carrying amounts. Prolonged weak
economic conditions in Australia led to the Company's reassessment and
ultimate write-down of these assets.
5. SEGMENT INFORMATION
The Company has adopted the Financial Accounting Standard's 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, 2000
Revenue from external customers $266,588 $ 41,879 $ 43,123 $ 41,563 $ -- $ 393,153
Intersegment revenues 29,772 11,631 1,584 -- (42,987) --
Operating income (loss) 30,351 2,730 (1,540) (61) (22,965) 8,515
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
</TABLE>
8
<PAGE> 9
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
6. REORGANIZATION AND REALIGNMENT
Included in special charges for the three months ended September 30,
2000 are costs of approximately $6.5 million related to the relocation
of production to Mexico and Asia and $2.0 million incurred in
connection with changes in senior management. For the nine months ended
September 30, 2000 special charges include $14.6 million related to the
relocation of production to Mexico and Asia, a loss of $7.7 million
associated with the decision to exit a portion of the gas management
business and $5.0 million related to changes in senior management. Also
included in special charges for the three and nine months ended
September 30, 2000 are costs of approximately $1.5 million related to
an information technology transformation and related business process
reengineering project the Company initiated in the third quarter. As of
September 30, 2000, the Company has made payments of approximately $.9
million against severance or other accruals established in connection
with these special charges.
Special charges of $5.7 million were recorded for the first nine months
of 1999. These charges were primarily for headcount reductions and
other site rationalization costs in Australia.
7. COMPREHENSIVE LOSS
During the first nine months of 2000 and 1999, total comprehensive loss
amounted to $(94,158) and $(20,568), respectively. The difference in
these amounts compared to net loss for the respective periods relates
primarily to foreign currency translation adjustments.
8. INCOME TAXES
The income tax provision for the three and nine months ended September
30, 2000 includes a charge of $27.3 million to increase the valuation
allowance on the net deferred tax amount as management does not believe
this asset will be fully realized based on projections of income in
future periods.
9
<PAGE> 10
THERMADYNE MFG. LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 13,149 $ 13,321
Accounts receivable, less allowance for doubtful
accounts of $2,791 and $2,852, respectively 71,216 94,731
Inventories 108,805 100,831
Prepaid expenses and other 7,320 5,954
------------- ------------
Total current assets 200,490 214,837
Property, plant and equipment, at cost, net 83,895 93,811
Deferred financing costs, net 16,224 17,289
Intangibles, at cost, net 15,656 40,170
Deferred income taxes 912 25,838
Other assets 2,972 2,014
------------- ------------
Total assets $ 320,149 $ 393,959
============= ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 41,783 $ 41,773
Accrued and other liabilities 33,852 27,052
Accrued interest 6,995 2,416
Income taxes payable 9,138 9,575
Current maturities of long-term obligations 13,791 12,080
------------- ------------
Total current liabilities 105,559 92,896
Long-term obligations, less current maturities 557,912 565,247
Other long-term liabilities 61,847 62,172
Shareholders' deficit:
Accumulated deficit (454,819) (385,425)
Accumulated other comprehensive loss (34,586) (23,895)
------------- ------------
Total shareholders' deficit (489,405) (409,320)
Net equity and advances to/from parent 84,236 82,964
------------- ------------
Total liabilities and shareholders' deficit $ 320,149 $ 393,959
============= ============
</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,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 124,872 $ 127,772 $ 393,153 $ 391,471
Operating expenses:
Cost of goods sold 79,806 84,670 251,118 253,495
Selling, general and administrative expenses 24,935 24,494 77,172 74,384
Amortization of intangibles 24,341 1,071 26,235 3,540
Net periodic postretirement benefits 207 450 914 2,750
Special charges 10,786 1,319 29,199 5,728
------------- ------------- ------------- -------------
Operating income (loss) (15,203) 15,768 8,515 51,574
Other income (expense):
Interest expense (15,349) (13,855) (46,221) (40,810)
Amortization of deferred financing costs (705) (797) (2,206) (2,393)
Other, net 316 (517) 377 1,161
------------- ------------- ------------- -------------
Income (loss) before income tax provision (30,941) 599 (39,535) 9,532
Income tax provision 27,074 4,786 29,859 7,841
------------- ------------- ------------- -------------
Net income (loss) $ (58,015) $ (4,187) $ (69,394) $ 1,691
============= ============= ============= =============
</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,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ (69,394) $ 1,691
Adjustment to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Net periodic postretirement benefits 914 2,750
Depreciation 12,531 13,672
Amortization of intangibles 26,235 3,540
Amortization of deferred financing costs 2,206 2,393
Recognition of net operating loss carryforwards -- 3,401
Deferred income taxes 24,941 3,197
Loss on disposal of assets 6,762 --
Non-cash interest expense 3,071 --
Changes in operating assets and liabilities:
Accounts receivable (2,561) 9,269
Inventories (13,657) 13,173
Prepaid expenses and other (1,654) 1,822
Accounts payable 1,298 (9,883)
Accrued and other liabilities 6,918 (10,215)
Accrued interest 4,585 6,918
Income taxes payable (411) (882)
Other long-term liabilities (1,832) (2,814)
------------- -------------
Total adjustments 69,346 36,341
------------- -------------
Net cash provided by (used in) operating activities (48) 38,032
------------- -------------
Cash flows used in investing activities:
Capital expenditures, net (13,282) (6,967)
Change in other assets (2,083) (1,139)
Proceeds from sale of assets 4,563 --
Acquisitions, net of cash (1,008) (5,886)
------------- -------------
Net cash used in investing activities (11,810) (13,992)
------------- -------------
Cash flows provided by (used in) financing activities:
Change in long-term receivables 92 (91)
Repayment of long-term obligations (19,322) (6,810)
Borrowing of long-term obligations 14,060 3,718
Change in accounts receivable securitization 23,926 (389)
Financing fees (1,169) --
Change in net equity of parent 1,272 (3,984)
Other (7,173) (9,015)
------------- -------------
Net cash provided by (used in) financing activities 11,686 (16,571)
------------- -------------
Net increase in cash and cash equivalents (172) 7,469
Cash and cash equivalents at beginning of period 13,321 1,319
------------- -------------
Cash and cash equivalents at end of period $ 13,149 $ 8,788
============= =============
</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 notes 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, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. For further information,
refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1999.
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,
2000 1999
------------- -------------
<S> <C> <C>
Interest $ 10,330 $ 36,554
Taxes 669 1,013
</TABLE>
2. ACCOUNTS RECEIVABLE
On January 31, 2000, the Company entered into a trade accounts
receivable securitization agreement whereby it sells on an ongoing
basis participation interest in up to $45,000 of designated accounts
receivable. The amount of participation interests sold under this
financing arrangement is subject to change based on the level of
eligible receivables and restrictions on concentrations of receivables,
and was approximately $23,926 at September 30, 2000. The sold accounts
receivable are reflected as a reduction of accounts receivable on the
September 30, 2000 Consolidated Balance Sheet. Interest expense is
incurred on participation interests at the rate of one-month LIBOR plus
65 basis points, per annum.
3. INVENTORIES
The composition of inventories at September 30, 2000 was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Raw materials $ 22,271 $ 26,707
Work-in-process 20,552 23,718
Finished goods 67,366 51,278
LIFO reserve (1,384) (872)
------------- -------------
Total $ 108,805 $ 100,831
============= =============
</TABLE>
14
<PAGE> 15
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
4. INTANGIBLES
During the third quarter, the Company recorded an impairment loss of
$23.4 million related to goodwill and other intangible assets
associated with its Australian business. The Company records impairment
losses on long-lived assets including goodwill or related intangibles
when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the related carrying amounts. Prolonged weak
economic conditions in Australia led to the Company's reassessment and
ultimate write-down of these assets.
5. SEGMENT INFORMATION
The Company has adopted the Financial Accounting Standard's 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>
Nine Months Ended September 30, 2000
Revenue from external customers $266,588 $ 41,879 $ 43,123 $ 41,563 $ -- $ 393,153
Intersegment revenues 29,772 11,631 1,584 -- (42,987) --
Operating income (loss) 30,351 2,730 (1,540) (61) (22,965) 8,515
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
</TABLE>
15
<PAGE> 16
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
6. RELOCATION AND REORGANIZATION
Included in special charges for the three months ended September 30,
2000 are costs of approximately $6.5 million related to the relocation
of production to Mexico and Asia and $2.0 million incurred in
connection with changes in senior management. For the nine months ended
September 30, 2000 special charges include $14.6 million related to the
relocation of production to Mexico and Asia, a loss of $7.7 million of
costs associated with the decision to exit a portion of the gas
management business and $5.0 million related to changes in senior
management. Also included in special charges for the three and nine
months ended September 30, 2000 are costs of approximately $1.5 million
related to an information technology transformation and related
business process reengineering project the Company initiated in the
third quarter. The balance of special charges for both periods is
related primarily to the relocation of production to Mexico and Asia.
As of September 30, 2000, the Company has made payments of
approximately $.9 million against severance or other accruals
established in connection with these special charges.
Special charges of $5.7 million were recorded for the first nine months
of 1999. These charges were primarily for headcount reductions and
other site rationalization costs in Australia.
7. COMPREHENSIVE INCOME (LOSS)
During the first nine months of 2000 and 1999, total comprehensive
income (loss) amounted to $(80,085) and $(7,744), respectively. The
difference in these amounts compared to net loss for the respective
periods relates primarily to foreign currency translation adjustments.
8. INCOME TAXES
The income tax provision for the three and nine months ended September
30, 2000 includes a charge of $27.3 million to increase the valuation
allowance on the net deferred tax amount as management does not believe
this asset will be fully realized based on projections of income in
future periods.
9. 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
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ 5,038 $ 8,111 $ -- $ 13,149
Restricted cash -- 0 20,280 (20,280) --
Accounts receivable -- 413 93,300 (22,497) 71,216
Inventories -- 64,659 44,146 -- 108,805
Prepaid expenses and other -- 3,980 3,793 (453) 7,320
---------- ---------- -------------- ------------ ---------
Total current assets -- 74,090 169,630 (43,230) 200,490
Property, plant and equipment, at cost, net -- 41,908 41,987 -- 83,895
Deferred financing costs, net 16,128 -- 96 -- 16,224
Intangibles, at cost, net -- 8,264 7,392 -- 15,656
Deferred income taxes -- -- 912 -- 912
Investment in and advances to/from subsidiaries 146,915 14,084 -- (160,999) --
Other assets -- 664 2,308 -- 2,972
---------- ---------- -------------- ------------ ---------
Total assets $ 163,043 $ 139,010 $ 222,325 $ (204,229) $ 320,149
========== ========== ============== ============ =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ -- $ 20,707 $ 21,076 $ -- $ 41,783
Accrued and other liabilities -- 26,282 7,570 -- 33,852
Accrued interest 6,980 4 11 -- 6,995
Income taxes payable -- 10,603 (1,465) -- 9,138
Current maturities of long-term obligations 11,050 287 2,454 -- 13,791
---------- ---------- -------------- ------------ ---------
Total current liabilities 18,030 57,883 29,646 -- 105,559
Long-term obligations, less current maturities 515,596 15,495 71,821 (45,000) 557,912
Other long-term liabilities -- 51,040 10,807 -- 61,847
Shareholders' equity (deficit):
Retained earnings (accumulated deficit) (454,819) (320,387) (73,705) 394,092 (454,819)
Accumulated other comprehensive loss -- (20,278) (14,308) -- (34,586)
---------- ---------- -------------- ------------ ---------
Total shareholders' equity (deficit) (454,819) (340,665) (88,013) 394,092 (489,405)
Net equity and advances to/from subsidiaries 84,236 355,257 198,064 (553,321) 84,236
---------- ---------- -------------- ------------ ---------
Total liabilities and shareholders' equity (deficit) $ 163,043 $ 139,010 $ 222,325 $ (204,229) $ 320,149
========== ========== ============== ============ =========
</TABLE>
17
<PAGE> 18
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 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 $ -- $ 2,566 $ 10,755 $ -- $ 13,321
Restricted cash -- -- -- -- --
Accounts receivable -- 51,895 42,836 -- 94,731
Inventories -- 59,042 41,789 -- 100,831
Prepaid expenses and other -- 2,853 3,101 -- 5,954
---------- ---------- -------------- ------------ ---------
Total current assets -- 116,356 98,481 -- 214,837
Property, plant and equipment, at cost, net -- 43,985 49,826 -- 93,811
Deferred financing costs, net 17,020 -- 269 -- 17,289
Intangibles, at cost, net -- 11,937 28,233 -- 40,170
Deferred income taxes -- 25,046 792 -- 25,838
Investment in and advances to/from subsidiaries 209,719 -- -- (209,719) --
Other assets -- 692 1,322 -- 2,014
---------- ---------- -------------- ------------ ---------
Total assets $ 226,739 $ 198,016 $ 178,923 $ (209,719) $ 393,959
========== ========== ============== ============ =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ -- $ 18,141 $ 23,632 $ -- $ 41,773
Accrued and other liabilities -- 18,060 8,992 -- 27,052
Accrued interest 2,400 -- 16 -- 2,416
Income taxes payable -- 11,725 (2,150) -- 9,575
Current maturities of long-term obligations 9,800 253 2,027 -- 12,080
---------- ---------- -------------- ------------ ---------
Total current liabilities 12,200 48,179 32,517 -- 92,896
Long-term obligations, less current maturities 517,000 16,906 31,341 -- 565,247
Other long-term liabilities -- 51,797 10,375 -- 62,172
Shareholders' equity (deficit):
Retained earnings (accumulated deficit) (385,425) (279,825) (46,716) 326,541 (385,425)
Accumulated other comprehensive income (loss) -- (7,742) (16,153) -- (23,895)
---------- ---------- -------------- ------------ ---------
Total shareholders' equity (deficit) (385,425) (287,567) (62,869) 326,541 (409,320)
Net equity and advances to/from subsidiaries 82,964 368,701 167,559 (536,260) 82,964
---------- ---------- -------------- ------------ ---------
Total liabilities and shareholders' equity (deficit) $ 226,739 $ 198,016 $ 178,923 $ (209,719) $ 393,959
========== ========== ============== ============ =========
</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, 2000
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 101,438 $ 47,067 $ (23,633) $ 124,872
Operating expenses:
Cost of goods sold -- 65,286 37,695 (23,175) 79,806
Selling, general and administrative expenses -- 17,320 7,615 -- 24,935
Amortization of intangibles -- 6,965 17,376 -- 24,341
Net periodic postretirement benefits -- 207 -- -- 207
Special charges -- 10,463 323 -- 10,786
---------- ---------- -------------- ------------ ---------
Operating income (loss) -- 1,197 (15,942) (458) (15,203)
Other income (expense):
Interest expense -- (13,981) (2,203) 835 (15,349)
Amortization of deferred financing costs -- (734) 29 -- (705)
Equity in net loss of subsidiaries (58,015) -- -- 58,015 --
Other -- 5,232 (3,637) (1,279) 316
---------- ---------- -------------- ------------ ---------
Loss before income tax provision (58,015) (8,286) (21,753) 57,113 (30,941)
Income tax provision -- 26,553 521 -- 27,074
---------- ---------- -------------- ------------ ---------
Net Loss $ (58,015) $ (34,839) $ (22,274) $ 57,113 $ (58,015)
========== ========== ============== ============ =========
</TABLE>
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 Loss $ (4,187) $ (898) $ (3,100) $ 3,998 $ (4,187)
========== ========== ============== ============ =========
</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, 2000
<TABLE>
<CAPTION>
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 322,183 $ 146,515 $ (75,545) $ 393,153
Operating expenses:
Cost of goods sold -- 205,900 120,377 (75,159) 251,118
Selling, general and administrative expenses -- 53,704 23,468 -- 77,172
Amortization of intangibles -- 7,893 18,342 -- 26,235
Net periodic postretirement benefits -- 914 -- -- 914
Special charges -- 28,099 1,100 -- 29,199
---------- ---------- -------------- ------------ ---------
Operating income (loss) -- 25,673 (16,772) (386) 8,515
Other income (expense):
Interest expense -- (42,113) (6,602) 2,494 (46,221)
Amortization of deferred financing costs -- (2,199) (7) -- (2,206)
Equity in net loss of subsidiaries (69,394) -- -- 69,394 --
Other -- 6,073 (1,745) (3,951) 377
---------- ---------- -------------- ------------ ---------
Loss before income tax provision (69,394) (12,566) (25,126) 67,551 (39,535)
Income tax provision -- 27,996 1,863 -- 29,859
---------- ---------- -------------- ------------ ---------
Net Loss $ (69,394) $ (40,562) $ (26,989) $ 67,551 $ (69,394)
========== ========== ============== ============ =========
</TABLE>
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
and extraordinary item 1,691 22,137 (10,224) (4,072) 9,532
Income tax provision -- 4,673 3,168 -- 7,841
---------- ---------- -------------- ------------ ---------
Income (loss) before extraordinary item 1,691 17,464 (13,392) (4,072) 1,691
Extraordinary item, net of tax -- -- -- -- --
---------- ---------- -------------- ------------ ---------
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 CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<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 $ (64,814) $ (1,871) $ (914) $ 67,551 $ (48)
Cash flows provided by (used in) investing activities:
Proceeds from sale of assets -- -- 4,563 -- 4,563
Capital expenditures, net -- (7,451) (5,831) -- (13,282)
Change in other assets -- (909) (1,174) -- (2,083)
Acquisitions, net of cash -- -- (1,008) -- (1,008)
---------- ---------- -------------- ------------ --------
Net cash used in investing activities -- (8,360) (3,450) -- (11,810)
Cash flows provided by (used in) financing activities:
Changes in long-term receivables -- 92 -- -- 92
Repayment of long-term obligations (12,225) (511) (6,586) -- (19,322)
Borrowing of long-term obligations 9,000 (865) 5,925 -- 14,060
Financing fees -- (1,169) -- -- (1,169)
Change in accounts receivable securitization -- 23,926 -- -- 23,926
Change in net equity and advances to/from
subsidiaries 68,039 (2,577) 3,361 (67,551) 1,272
Other -- (6,193) (980) -- (7,173)
---------- ---------- -------------- ------------ --------
Net cash provided by financing activities 64,814 12,703 1,720 (67,551) 11,686
---------- ---------- -------------- ------------ --------
Net increase (decrease) in cash and cash equivalents -- 2,472 (2,644) -- (172)
Cash and cash equivalents at beginning of period -- 2,566 10,755 -- 13,321
---------- ---------- -------------- ------------ --------
Cash and cash equivalents at end of period $ -- $ 5,038 $ 8,111 $ -- $ 13,149
========== ========== ============== ============ ========
</TABLE>
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 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)
Financing fees -- -- -- -- --
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>
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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Net sales for the three months ended September 30, 2000 were $124.9 million
compared to $127.8 million for the same period in 1999, a decrease of 2.3%.
Domestic sales were down 1.9% in a comparison of the three month periods ended
September 30, 2000 and 1999 due to general weakness in the U.S. industrial
economy. International sales decreased 2.9% for the quarter ended September 30,
2000 compared to the same period in the prior year. Australia/Asia sales were
down in the quarter due primarily to weak economic conditions and unfavorable
currency fluctuations. European sales decreased by 15.4% for the quarter, due in
large part to a strong U.S. dollar, but were more than offset by increases of
almost 48% and 16% in Latin America and Canada, respectively, over the same
quarter in 1999.
22
<PAGE> 23
Cost of goods sold as a percentage of sales for the three months ended September
30, 2000 was 63.9% compared to 66.3% for the three months ended September 30,
1999. This improvement is the result of the cost containment and cost reduction
efforts being made by the Company.
Selling, general and administrative expenses were $24.9 million for the three
months ended September 30, 2000. In comparison to the same period in the prior
year, this total has increased by 1.8%. As a percentage of sales, selling,
general and administrative costs were 20.0% for the third quarter versus 19.2%
for the same period last year. The increase in selling, general and
administrative expenses over 1999 results mostly from increased sales and
marketing and promotional expenditures as well as increased costs related to new
channels of business.
Special charges of $10.8 million recorded during the three months ended
September 30, 2000 consist primarily of $6.5 million of costs related to the
relocation of production to Mexico and Asia and costs of approximately $2.0
million incurred in connection with changes in senior management. Also included
in special charges are costs of approximately $1.5 million incurred related to
an information technology transformation and related business process
reengineering project the Company recently initiated. The Company expects this
project to continue through most of 2001. Special charges of $1.3 million
recorded in the third quarter of 1999 relate primarily to factory
rationalization costs in Australia and related headcount reductions.
Amortization of intangibles increased to $24.3 million for the current quarter
compared to $1.1 million for the same three month period in 1999. This increase
results from the write-off of goodwill and other intangibles related to the
Company's Australian operations. As a result of the continuing weak economic
conditions, an unfavorable exchange rate, and increasing competition from
imports, the Company believed the ultimate realization of these assets was
doubtful.
Interest expense was $20.1 million during the third quarter of 2000 compared to
$18.2 million for the same period last year. Higher interest rates and changes
in the Company's long-term debt mix have combined to increase the Company's
average interest cost from 10.1% for the three months ended September 30, 1999
to 11.0% for the same period this year.
An income tax provision of $27.1 million was recorded in the third quarter of
2000 on a pre - tax loss of $35.8 million. This provision included a charge of
$27.3 million which increased the valuation allowance on deferred tax assets as
management does not believe these assets will be fully realized based on
projections of income in future periods. In the third quarter of 1999 an income
tax provision of $4.8 million was recorded on a pre - tax loss of $3.8 million.
This provision included a charge of $5.0 million which increased the valuation
allowance on deferred tax assets.
Adjusted EBITDA was $24.1 million, or 19.3% of sales, for the three months ended
September 30, 2000. For the three months ended September 30, 1999, Adjusted
EBITDA was $22.8 million, or 17.9% of sales.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Net sales for the nine months ended September 30, 2000 were $393.2 million, an
increase of $1.7 million from net sales of $391.5 million for the nine months
ended September 30, 1999. Domestic sales were 2.0% higher when compared to the
same period in 1999 due primarily to solid demand in the first half of the year.
International sales ended the period at $146.3 million, a 2.1% decline from
$149.4 million for the same period in 1999. The decrease in the international
business results from Australia, which has been hampered by unfavorable exchange
rates, a weak industrial economy and competitive
23
<PAGE> 24
pressures from less expensive imports. The decline in Australia has been
substantially offset by increases of 30.1% and 10.5% in Latin America and
Canada, respectively.
Cost of goods sold as a percentage of sales declined slightly from 64.8% for the
nine months ended September 30, 1999 to 63.9% for the first nine months this
year with this improvement resulting primarily from ongoing cost reduction
initiatives.
Selling, general and administrative expenses were $77.2 million through
September, which is 3.7% over the $74.4 million reported for the same period in
1999. The majority of the increase relates to increased spending on selling and
marketing activities. As a percentage of sales selling, general and
administrative expenses were 19.6% and 19.0% for the nine month periods ended
September 30, 2000 and 1999, respectively.
Special charges of $29.2 million during the first nine months of 2000 are
comprised of approximately $14.6 million related to the relocation of production
to Mexico and Asia, $7.7 million related to the decision to exit a portion of
the gas management business, and $5.0 million related to changes in senior
management. Special charges of $5.7 million were recorded in the first nine
months of 1999 and resulted primarily from headcount reductions and other site
rationalization costs in Australia.
Amortization expense increased from $3.5 million for the first nine months of
1999, to $26.2 million for the nine months ended September 30, 2000. This
increase results from the Company's write-off of goodwill and other intangibles
related to its Australian operations after an assessment of estimated future
cash flows of this business indicated the recoverability of these assets was
doubtful. Prolonged weak economic conditions together with a depressed currency
and increasing competition resulted in the write-off of these assets.
Interest expense increased to $60.2 million for the nine months ended September
30, 2000 from $53.5 million for the same period last year. Higher interest rates
have resulted in a $2.2 million increase in expense related to the Company's
floating rate U.S. bank debt in spite of an average principal balance that was
$25.6 million less in the first nine months of 2000 compared to the same period
in 1999. In addition, the Company's discount debentures and junior subordinated
notes continue to accrete and had combined interest costs of $14.0 million
during the nine months ended September 30, 2000, compared to $9.7 million for
the same period in 1999.
An income tax provision of $29.9 million was recorded on a pre-tax loss of $53.6
million in the nine months ended September 30, 2000. This provision included a
charge of $27.3 million which increased the valuation allowance on deferred tax
assets as management does not believe these assets will be fully realized based
on projections of income in future periods. In the nine months ended September
30, 1999, an income tax provision of $7.8 million was recorded on a pre-tax loss
of $3.3 million. This provision included a charge of $5.0 million which
increased the valuation allowance on deferred tax assets.
Adjusted EBITDA for the first nine months of 2000 was $77.4 million, and was
essentially flat when compared to Adjusted EBITDA of $77.3 million for the nine
months ended September 30, 1999.
24
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOWS
Operating activities provided cash of $1.4 million in the nine months ended
September 30, 2000, which compares to cash provided of $33.2 million during the
same period in 1999. Operating assets and liabilities used cash of $6.3 million
during the first nine months of 2000 compared to cash provided of $6.4 million
during the same period of 1999. This change relates primarily to increased
inventory levels being maintained as production is relocated to Mexico and Asia.
Also contributing to the difference in cash used or provided by operating
activities was a net loss of $83.5 million for the first nine months of 2000
compared to a net loss of $11.1 million during the same nine month period in
1999. The increase in net loss resulted primarily from special charges,
increased amortization expense, increased tax expense and higher interest costs.
Investing activities used $11.8 million of cash during the first nine months of
2000, a decrease of $2.2 million from the comparable period in 1999. Capital
expenditures used $13.3 million during the first nine months of 2000 compared to
$7.0 million during the same period last year. The Company also received
proceeds of approximately $4.6 million during the nine months ended September
30, 2000, from the sale of property in Australia. Cash used for acquisitions was
$1.0 million in the first nine months of 2000, which is $4.9 million less than
the same period last year. Financing activities provided $10.2 million during
the nine months ended September 30, 2000, compared to a use of $11.7 million for
the same period in 1999. This increase in cash provided resulted mainly from the
Company's accounts receivable securitization program which provided $24.3
million more in cash during the nine months ended September 30, 2000 when
compared to the same period in 1999. During the fourth quarter of 1999 the
Company's old securitization program was repaid and the new program did not
commence until January 2000.
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.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the third quarter of 2000. Refer to the
Company's discussion in its Annual Report on Form 10-K for the year ended
December 31, 1999.
25
<PAGE> 26
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
26
<PAGE> 27
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/ Karl R. Wyss
---------------------------
Karl R. Wyss
Chairman of the Board, 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 14, 2000
27
<PAGE> 28
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/ Karl R. Wyss
---------------------------
Karl R. Wyss
Chairman of the Board, 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 14, 2000
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 CAPITAL CORP.
By: /s/ Karl R. Wyss
---------------------------
Karl R. Wyss
Chairman of the Board, 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 14, 2000
29
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
