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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2002
----------------------------------------
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
--- ---
The number of shares outstanding of the issuer's common stock, par value $0.01
per share, as of November 8, 2002 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.
THERMADYNE HOLDINGS CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements of
Thermadyne Holdings Corporation (Unaudited)
Condensed Consolidated Balance Sheets...............................................................3
Condensed Consolidated Statements of Operations.....................................................4
Condensed Consolidated Statements of Cash Flows.....................................................5
Notes to Condensed Consolidated Financial Statements.............................................6-17
Condensed Consolidated Financial Statements of Thermadyne Mfg. LLC (Unaudited)
Condensed Consolidated Balance Sheets..............................................................18
Condensed Consolidated Statements of Operations....................................................19
Condensed Consolidated Statements of Cash Flows....................................................20
Notes to Condensed Consolidated Financial Statements............................................21-34
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations................................................35-41
Item 4. Controls and procedures............................................................................42
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................................43
SIGNATURES....................................................................................................44-46
CERTIFICATIONS................................................................................................47-52
THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
2002 2001
----------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 13,021 $ 14,800
Accounts receivable, less allowance for doubtful
accounts of $3,855 and $3,376, respectively 77,095 75,816
Inventories 97,555 89,748
Prepaid expenses and other 13,360 14,600
--------- ---------
Total current assets 201,031 194,964
Property, plant and equipment, at cost, net 74,745 81,012
Deferred financing costs, net 11,340 13,825
Intangibles, at cost, net 13,338 13,422
Deferred income taxes 376 248
Other assets 7,472 6,922
--------- ---------
Total assets $ 308,302 $ 310,393
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 21,895 $ 19,520
Accrued and other liabilities 26,488 25,410
Accrued interest 5 471
Income taxes payable 1,317 508
Current maturities of long-term obligations 12,786 11,606
--------- ---------
Total current liabilities 62,491 57,515
Liabilities subject to compromise 834,794 834,478
Long-term obligations, less current maturities 20,543 21,084
Other long-term liabilities 42,881 43,868
Redeemable preferred stock (paid in kind), $0.01 par value,
15,000,000 shares authorized and
2,000,000 shares issued and outstanding 78,509 78,509
Shareholders' deficit:
Common stock, $0.01 par value, 30,000,000 shares authorized,
and 3,590,286 shares issued and outstanding 36 36
Additional paid-in capital (128,523) (128,523)
Accumulated deficit (556,871) (553,008)
Management loans (1,531) (1,344)
Accumulated other comprehensive loss (44,027) (42,222)
--------- ---------
Total shareholders' deficit (730,916) (725,061)
--------- ---------
Total liabilities and shareholders' deficit $ 308,302 $ 310,393
========= =========
See accompanying notes to condensed consolidated financial statements.
3
THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales $ 98,610 $ 106,714 $ 309,373 $ 338,455
Operating expenses:
Cost of goods sold 62,098 72,837 197,491 224,600
Selling, general and administrative expenses 25,042 23,989 78,377 74,025
Amortization of intangibles 193 570 767 1,611
Net periodic postretirement benefits 288 288 864 837
Special charges 636 4,400 2,436 13,628
--------- --------- --------- ---------
Operating income 10,353 4,630 29,438 23,754
Other expense:
Interest expense (contractual interest expense of
$17,490 and $53,052 for the three and nine
months ended September 30, 2002, respectively) (5,217) (19,576) (16,853) (60,870)
Amortization of deferred financing costs (829) (829) (2,487) (2,486)
Other, net (1,339) (1,663) (2,850) (2,433)
--------- --------- --------- ---------
Income (loss) before reorganization items and
income tax provision 2,968 (17,438) 7,248 (42,035)
Reorganization items 3,530 1,870 9,577 3,829
--------- --------- --------- ---------
Loss before income tax provision (562) (19,308) (2,329) (45,864)
Income tax provision 44 26 1,534 1,676
--------- --------- --------- ---------
Net loss (606) (19,334) (3,863) (47,540)
Preferred stock dividends (paid in kind) -- 2,418 -- 7,030
--------- --------- --------- ---------
Net loss applicable to common shares $ (606) $ (21,752) $ (3,863) $ (54,570)
========= ========= ========= =========
Basic and diluted loss per share amounts:
Net loss $ (0.17) $ (5.39) $ (1.08) $ (13.24)
Net loss applicable to common shares $ (0.17) $ (6.06) $ (1.08) $ (15.20)
See accompanying notes to condensed consolidated financial statements.
4
THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2002 2001
------------- -------------
Cash flows provided by (used in) operating activities:
Net loss $ (3,863) $(47,540)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Net periodic postretirement benefits 864 837
Depreciation 11,646 10,619
Amortization of intangibles 767 1,611
Amortization of deferred financing costs 2,487 2,486
Deferred income taxes 35 380
Non-cash interest expense -- 15,809
Changes in operating assets and liabilities:
Accounts receivable 150 1,135
Inventories (8,155) 2,122
Prepaid expenses and other 1,189 (1,720)
Accounts payable 307 (12,474)
Accrued and other liabilities 1,043 2,409
Accrued interest (476) 18,239
Income taxes payable 757 (597)
Other long-term liabilities (2,272) (714)
-------- --------
Total adjustments 8,342 40,142
-------- --------
Net cash provided by (used in) operating activities 4,479 (7,398)
-------- --------
Cash flows used in investing activities:
Capital expenditures, net (6,522) (12,003)
Change in other assets (756) (111)
-------- --------
Net cash used in investing activities (7,278) (12,114)
-------- --------
Cash flows provided by (used in) financing activities:
Change in long-term receivables 320 (487)
Borrowing under debtor-in-possession credit facility 1,500 --
Repayment of long-term obligations (4,247) (10,035)
Borrowing of long-term obligations 3,389 40,007
Change in accounts receivable securitization -- 3,015
Financing fees -- 40
Other 58 (379)
-------- --------
Net cash provided by financing activities 1,020 32,161
-------- --------
Net (decrease) increase in cash and cash equivalents (1,779) 12,649
Cash and cash equivalents at beginning of period 14,800 10,362
-------- --------
Cash and cash equivalents at end of period $ 13,021 $ 23,011
======== ========
See accompanying notes to condensed consolidated financial statements.
5
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
Thermadyne Holdings Corporation ("Thermadyne" or the "Company"), a
Delaware corporation, is a global manufacturer of cutting and welding
products and accessories.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
of Thermadyne have been prepared in accordance with accounting
principles generally accepted in the United States 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 accounting principles
generally accepted in the United States 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, 2002 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 2002. 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, 2001.
BANKRUPTCY FILING
On November 19, 2001, the Company and substantially all of its domestic
subsidiaries, including Thermadyne LLC and Thermadyne Capital
(collectively, the "Debtors"), filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Eastern District of Missouri (the
"Court".) The filing resulted from insufficient liquidity, and was
determined to be the most efficient and favorable alternative to
restructure the Company's balance sheet. Since 1998, the Company's
operating results have been negatively impacted by a weak industrial
economy in the U.S. as well as difficult economic conditions in most of
its foreign markets. The deterioration of operating results and
liquidity made it increasingly difficult for the Company to meet all of
its debt service obligations. Prior to filing Chapter 11, the Company
failed to make the semi-annual interest payments on the 10.75%
subordinated notes, due November 1, 2003 (the "Subordinated Notes"),
which were due on May 1 and November 1, 2001, and totaled approximately
$4.0 million. In addition, the Company failed to make an interest
payment in the amount of $10.2 million related to the 9.875% senior
subordinated notes, due June 1, 2008 (the "Senior Subordinated Notes"),
which was due on June 1, 2001. The Bankruptcy Code generally prohibits
the Company from making payments on unsecured, pre-petition debt,
including the Senior Subordinated Notes and the Subordinated Notes,
except pursuant to a confirmed plan of reorganization. The Company is
in possession of its properties and assets and continues to manage the
business as a debtor-in-possession subject to the supervision of the
Court.
On January 8, 2002, the Court entered the final order approving a new
$60 million debtor-in-possession credit facility among Thermadyne LLC,
as borrower, the Company and certain U.S. subsidiaries as guarantors,
and a syndicate of lenders with ABN AMRO Bank N.V. as agent (the
6
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
"DIP Facility".) Prior to the final order, on November 21, 2001, the
Court entered an interim order authorizing the Debtors to use up to $25
million of the DIP Facility for loans and letters of credit. The DIP
Facility expires on the earlier of the consummation of a plan of
reorganization or November 21, 2002. On November 1, 2002, the Debtors
filed a motion with the Court to amend the DIP Facility to extend its
expiration date to May 21, 2003. In addition, the motion to amend the
DIP Facility would lower the total capacity from $60 million to $50
million. All other terms of the DIP Facility would remain substantially
the same. On November 15, 2002, the Court will hear this motion for
extension. The Company also expects its lenders to approve the
extension of the DIP Facility prior to November 21, 2002. The DIP
Facility is secured by substantially all the assets of the Debtors,
including a pledge of the capital stock of substantially all their
subsidiaries, subject to certain limitations with respect to foreign
subsidiaries. Actual borrowing availability is subject to a borrowing
base calculation. The amount available to the Company under the DIP
Facility is equal to the sum of approximately 85% of eligible accounts
receivable, 50% of eligible inventory and 72% of eligible fixed assets.
As of September 30, 2002, the Company's eligible accounts receivable,
inventories and fixed assets supported access to the full amount of the
DIP Facility less outstanding borrowings and letters of credit. As of
September 30, 2002, the Company had borrowed $10.2 million and issued
letters of credit of $8.4 million under the DIP Facility. The DIP
Facility contains financial covenants, including minimum levels of
EBITDA (defined as net income or loss plus depreciation, amortization
of goodwill, amortization of intangibles, net periodic postretirement
benefits expense, interest expense, income taxes, amortization of
deferred financing costs, any net loss realized in connection with the
sale of any asset, any extraordinary loss or the non-cash portion of
non-recurring expenses, and reorganization costs; minus any
extraordinary gain), and other customary provisions.
As of December 1, 2001, the Company discontinued accruing interest on
the Senior Subordinated Notes, the Subordinated Notes, the 12.5%
debentures, due June 1, 2008 (the "Debentures"), and the 15% junior
subordinated notes, due December 15, 2009 (the "Junior Notes"), and
ceased accruing dividends on its redeemable preferred stock.
Contractual interest on the Senior Subordinated Notes, the Subordinated
Notes, the Debentures and the Junior Notes for the quarter ended
September 30, 2002, was $5.1 million, $1.0 million, $4.8 million and
$1.4 million, respectively, and for the nine months ended September 30,
2002, was $15.3 million, $3.0 million, $14.0 million and $3.9 million,
respectively. No interest was recorded for the Senior Subordinated
Notes, the Subordinated Notes, the Debentures or the Junior Notes
during the three or nine-month periods ended September 30, 2002.
Contractual dividends for the redeemable preferred stock were $2.7
million and $8.0 million for the three and nine months ended September
30, 2002, respectively, but no dividends were recorded during these
periods. As part of the Court order approving the DIP Facility, the
Company was required to continue making periodic interest payments on
its old syndicated senior secured credit agreement (the "Old Credit
Agreement.") This order did not approve the payment of any principal
outstanding under the Old Credit Facility as of the petition date, or
the payment of any future mandatory amortization of the loans. In
total, contractual interest on the Company's obligations was $17.5
million and $53.1 million, for the three and nine-month periods ended
September 30, 2002, respectively, which was $12.3 million and $36.2
million in excess of reported interest, respectively.
Pursuant to the provisions of the Bankruptcy Code, all actions to
collect upon any of the Debtors'
7
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
liabilities as of the petition date or to enforce pre-petition date
contractual obligations were automatically stayed. Absent approval from
the Court, the Debtors are prohibited from paying pre-petition
obligations. However, the Court has approved payment of certain
pre-petition liabilities such as employee wages and benefits and
certain other pre-petition obligations. Additionally, the Court has
approved the retention of legal and financial professionals. Claims
were allowed to be filed against the Debtors through April 19, 2002. As
debtor-in-possession, the Company has the right, subject to court
approval and certain other conditions, to assume or reject any
pre-petition executory contracts and unexpired leases. Parties affected
by such rejections may file pre-petition claims with the Court in
accordance with bankruptcy procedures.
The Company is currently developing a plan of reorganization (the "Plan
of Reorganization") through, among other things, discussions with the
official creditors' committee appointed in the Chapter 11 proceedings
and the lenders. The objective of the Plan of Reorganization is to
restructure the Company's balance sheet to significantly strengthen the
Company's financial position.
Management expects that a Plan of Reorganization will be completed and
ready to file with the Court during the fourth calendar quarter of
2002. Although management expects to file the Plan of Reorganization,
there can be no assurance at this time that a Plan of Reorganization
will be proposed by the Company, approved or confirmed by the Court, or
that such plan will be consummated. On October 30, 2002, the Court
approved the Company's motion to extend the period during which the
Debtors may file a Plan of Reorganization through November 18, 2002. If
the exclusivity period were to expire or be terminated, other
interested parties, such as creditors of the Debtors, would have the
right to propose alternative plans of reorganization.
Absent a successful restructuring of the Company's balance sheet,
substantial doubt exists about the Company's ability to continue as a
going concern. The accompanying financial statements have been prepared
on a going concern basis. This basis contemplates the continuity of
operations, realization of assets, and discharge of liabilities in the
ordinary course of business. The statements also present the assets of
the Company at historical cost and the current intention that they will
be realized as a going concern and in the normal course of business. A
Plan of Reorganization could materially change the amounts currently
disclosed in the financial statements.
The Company's financial statements do not present the amount which may
ultimately be paid to settle liabilities and contingencies which may be
allowed in the Chapter 11 case. Under Chapter 11, the rights of, and
ultimate payment by the Company to, pre-petition creditors may be
substantially altered. This could result in claims being paid in the
Chapter 11 proceedings at less (and possibly substantially less) than
100% of their face value. At this time, because of material
uncertainties, pre-petition claims are carried at face value in the
accompanying financial statements, and are included in the line
"liabilities subject to compromise" on the consolidated balance sheets.
Additionally, the interests of existing preferred and common
shareholders could be substantially diluted or even eliminated.
8
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
LIABILITIES SUBJECT TO COMPROMISE
Under Chapter 11, certain claims against the debtor in existence prior
to the filing of the petition for relief under federal bankruptcy laws
are stayed while the debtor continues business operations as
debtor-in-possession. These claims are shown in the accompanying
balance sheets as "liabilities subject to compromise." Additional
claims (liabilities subject to compromise) may arise subsequent to the
filing date resulting from rejection of executory contracts, including
leases, and from the determination by the Court (or agreed to by
parties in interest) of allowed claims for contingencies and other
disputed amounts. Claims secured against the debtor's assets also are
stayed, although the holders of such claims have the right to move the
Court for relief from the stay. The principal categories of liabilities
subject to compromise consisted of the following:
September 30, December 31,
2002 2001
------------ -----------
Trade accounts payable $ 15,904 $ 17,334
Accrued and other liabilities 3,670 3,500
Accrued interest 24,809 24,809
Accrued income taxes 11,290 11,290
Old Credit Facility 355,241 353,437
Senior Subordinated Notes 207,000 207,000
Debentures 145,066 145,066
Subordinated Notes 37,060 37,060
Junior Notes 33,427 33,427
Other long-term obligations 1,327 1,555
-------- --------
Total $834,794 $834,478
======== ========
REORGANIZATION ITEMS
Reorganization items for the three-month period ended September 30,
2002, include $3.0 million of professional fees and expenses, $0.4
million of expenses related to financing fees associated with the DIP
Facility, and $0.1 million of other reorganization costs. For the nine
months ended September 30, 2002, reorganization items include $6.9
million of professional fees and expenses, $1.4 million of expenses
related to financing fees associated with the DIP Facility, $0.4
million associated with a lease obligation that was rejected, $0.3
million related to payments under the key employee retention plan
approved by the Court, and $0.6 million of other reorganization costs.
Reorganization costs in 2001 consisted primarily of professional fees
and expenses.
9
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
SPECIAL CHARGES
Special charges incurred during the three months ended September 30,
2002 include $0.5 million related to an information technology
transformation project and $0.1 million related to logistics
initiatives. For the nine months ended September 30, 2002, special
charges include $1.9 million related to the information technology
transformation initiative and $0.5 related to the logistics projects.
Included in special charges for the three months ended September 30,
2001, are costs of approximately $4.2 million related to the
information technology and business reengineering project with the
remaining costs attributable to the relocation of production to Mexico
and Asia. For the nine months ended September 30, 2001, special charges
include $2.2 million related to the relocation of production to Mexico
and Asia, $10.1 million related to information technology and related
business process reengineering projects with the balance of $1.3
million related primarily to severance.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to
current period presentation. These reclassifications did not affect net
loss.
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:
Nine Nine
Months Months
Ended Ended
September 30, September 30,
2002 2001
----------- ------------
Interest paid $17,319 $26,809
Taxes paid 569 1,730
Operating cash disbursements for the nine months ended September 30,
2002, related to the reorganization were $8.6 million and include $6.9
million of professional fees and expenses, $0.4 million of fees related
to the DIP Facility, $0.3 million of payments made under the key
employee retention plan approved by the Court, $0.4 million related to
a rejected lease obligation, and $0.6 million of other reorganization
related disbursements. For the nine months ended September 30, 2001,
operating cash disbursements related to the reorganization were $3.8
million and included
10
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
approximately $3.2 million of professional fees and expenses, $0.5
million of bank fees and $0.1 million of other reorganization items.
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.
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Numerator:
Net loss $ (606) $ (19,334) $ (3,863) $ (47,540)
Preferred stock dividends (paid in kind) -- (2,418) -- (7,030)
----------- ----------- ----------- -----------
Net loss applicable to common shares $ (606) $ (21,752) $ (3,863) $ (54,570)
=========== =========== =========== ===========
Denominator:
Weighted average shares-basic and diluted 3,590,286 3,590,286 3,590,286 3,590,286
=========== =========== =========== ===========
Basic and diluted loss per share amounts:
Net loss $ (0.17) $ (5.39) $ (1.08) $ (13.24)
Preferred stock dividends (paid in kind) -- (0.67) -- (1.96)
----------- ----------- ----------- -----------
Net loss applicable to common shares $ (0.17) $ (6.06) $ (1.08) $ (15.20)
=========== =========== =========== ===========
2. INVENTORIES
The composition of inventories was as follows:
September 30, December 31,
2002 2001
------------- ------------
Raw materials $ 18,703 $ 18,142
Work-in-process 32,141 25,517
Finished Goods 47,576 46,442
LIFO reserve (865) (353)
-------- --------
Total $ 97,555 $ 89,748
======== ========
11
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
3. SEGMENT INFORMATION
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.
Other
United Australia/ Geographic
States Europe Asia Regions Other Consolidated
--------- -------- ---------- ----------- -------- ------------
Nine Months Ended September 30, 2002
- ------------------------------------
Revenue from external customers $199,320 $ 35,936 $ 34,521 $ 39,596 $ -- $309,373
Intersegment revenues 17,689 4,012 446 3,301 (25,448) --
Operating income (loss) 38,625 1,860 (459) 4,818 (15,406) 29,438
Nine Months Ended September 30, 2001
- ------------------------------------
Revenue from external customers $228,486 $ 33,939 $ 34,327 $ 41,703 $ -- $338,455
Intersegment revenues 20,456 9,426 1,261 -- (31,143) --
Operating income (loss) 41,761 2,239 (2,212) 1,607 (19,641) 23,754
4. COMPREHENSIVE LOSS
Comprehensive loss totaled $4,531 and $19,696 for the three months
ended September 30, 2002 and 2001, respectively. For the nine-month
periods ended September 30, 2002 and September 30, 2001, comprehensive
loss was $5,668 and $52,398, respectively.
5. LONG-TERM OBLIGATIONS
The DIP Facility provides for total borrowings of $60 million, of which
up to $15 million may be used for letters of credit. Actual borrowing
availability is subject to a borrowing base calculation, which is equal
to the sum of approximately 85% of eligible accounts receivable, 50% of
eligible inventory and 72% of eligible fixed assets. As of September
30, 2002, the Company's eligible
12
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
accounts receivable, inventories and fixed assets supported access to
the full amount of the DIP Facility less outstanding borrowings and
letters of credit. As of September 30, 2002, the Company had borrowed
$10.2 million and issued letters of credit of $8.4 million under the
DIP Facility.
As of December 1, 2001, the Company discontinued accruing interest on
the Senior Subordinated Notes, the Subordinated Notes, the Debentures,
and the Junior Notes. Contractual interest on the Senior Subordinated
Notes, the Subordinated Notes, the Debentures and the Junior Notes for
the quarter ended September 30, 2002, was $5.1 million, $1.0 million,
$4.8 million and $1.4 million, respectively, and for the nine months
ended September 30, 2002, was $15.3 million, $3.0 million, $14.0
million and $3.9 million, respectively. No interest was recorded for
the Senior Subordinated Notes, the Subordinated Notes, the Debentures
or the Junior Notes during the three or nine-month periods ended
September 30, 2002. The Bankruptcy Code generally prohibits the Company
from making payments on unsecured, pre-petition debt, including the
Senior Subordinated Notes and the Subordinated Notes, except pursuant
to a confirmed Plan of Reorganization.
6. RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142".) SFAS 142 prohibits the amortization of goodwill and
intangible assets with indefinite useful lives. SFAS 142 requires these
assets be reviewed for impairment at least annually. Intangible assets
with finite lives will continue to be amortized over their estimated
useful lives. In addition, SFAS 142 requires goodwill included in the
carrying value of equity method investments no longer be amortized.
The Company ceased amortization on January 1, 2002 of its goodwill,
which had a net balance of approximately $11,355 at January 1, 2002.
During the third quarter of 2001 the Company recorded $114 of goodwill
amortization. Excluding this expense the Company's net loss, net loss
applicable to common shares, basic and diluted net loss per share, and
basic and diluted net loss applicable to common shares would have been
$19,220, $21,638, $5.39 and $6.06, respectively. During the first nine
months of 2001 the Company recorded $249 of goodwill amortization.
Excluding this expense the Company's net loss, net loss applicable to
common shares, basic and diluted net loss per share, and basic and
diluted net loss applicable to common shares would have been $47,291,
$54,321, $13.17 and $15.13, respectively.
The Company capitalizes loan origination fees and other costs incurred
arranging long-term financing as deferred financing costs. The costs
are amortized over the respective lives of the obligations using the
effective interest method. Deferred financing costs totaled $25,843 at
September 30, 2002 and December 31, 2001. Accumulated amortization
totaled $14,503 and $12,018 at September 30, 2002 and December 31,
2001, respectively. Amortization expense amounted to $829 for the
three-month periods ended September 30, 2002 and 2001, respectively.
For the first nine months of 2002 and 2001, amortization expense was
$2,487 and $2,486, respectively. Amortization expense for fiscal 2002
to 2006 is expected to be as follows: $3,316, $3,316, $3,316, $3,316,
and $561.
13
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
The Company has other identifiable intangible assets such as patented
technology, non-compete agreements and trademarks. These intangibles
are amortized on a straight-line basis over the various estimated
useful lives, which generally range from three to 25 years. The total
cost of these intangible assets was $11,107 and $11,420 at September
30, 2002 and December 31, 2001, respectively. Accumulated amortization
totaled $9,470 and $9,353 at September 30, 2002 and December 31, 2001,
respectively. Amortization expense amounted to $193 and $456 for the
three-month periods ended September 30, 2002 and 2001, respectively,
and was $767 and $1,362 for the nine months ended September, 30, 2002
and 2001, respectively. Amortization expense is expected to be
approximately $1,000 in 2002 and 2003, and approximately $425 in 2004.
The adoption of SFAS 142 did not have a significant impact on the
Company's financial position or results of operations. However, the
ultimate value of the Company's assets is uncertain and may change
materially when the Company emerges from bankruptcy.
7. DEBTOR FINANCIAL INFORMATION
The following is condensed combined financial information for the
Debtors. The combined financial statements have been prepared on the
same basis as the consolidated financial statements. Liabilities
subject to compromise shown on the September 30, 2002 and December 31,
2001 condensed combined balance sheets exclude the portion of the Term
A Facility carried on the books of two foreign subsidiaries, which
totaled $21,497 and $19,824, respectively.
14
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
CONDENSED COMBINED DEBTOR BALANCE SHEETS
September 30, December 31,
2002 2001
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,590 $ 7,332
Accounts receivable 39,337 41,516
Inventories 58,093 51,505
Prepaid expenses and other 10,191 11,360
--------- ---------
Total current assets 112,211 111,713
Property, plant and equipment, at cost, net 40,430 42,033
Deferred financing costs, net 11,340 13,825
Intangibles, at cost, net 5,953 6,461
Other assets 3,460 2,827
--------- ---------
Total assets $ 173,394 $ 176,859
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 4,677 $ 4,960
Accrued and other liabilities 19,208 18,392
Accrued interest 1 465
Income taxes payable 160 11
Current maturities of long-term obligations 10,593 8,962
--------- ---------
Total current liabilities 34,639 32,790
Liabilities subject to compromise 813,297 814,654
Long-term obligations, less current maturities 15,031 15,483
Other long-term liabilities 33,991 34,471
Redeemable preferred stock 78,509 78,509
Shareholders' equity (deficit):
Common stock 36 36
Additional paid-in-capital (130,054) (129,867)
Accumulated other comprehensive loss (21,714) (26,914)
Accumulated deficit (495,789) (491,447)
--------- ---------
Total shareholders' deficit (647,521) (648,192)
Net equity and advances to/from subsidiaries (154,552) (150,856)
--------- ---------
Total liabilities and shareholders' deficit $ 173,394 $ 176,859
========= =========
15
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales $ 71,586 $ 84,964 $ 234,832 $ 271,513
Operating expenses:
Cost of goods sold 46,740 59,588 150,150 181,857
Selling, general and administrative expenses 17,538 17,155 57,677 52,035
Amortization of intangibles 118 365 600 1,087
Net periodic postretirement benefits 288 288 864 837
Special charges 636 4,400 2,436 13,628
--------- --------- --------- ---------
Operating income 6,266 3,168 23,105 22,069
Other income (expense):
Interest expense (5,200) (18,859) (14,900) (58,697)
Amortization of deferred financing costs (829) (829) (2,487) (2,486)
Other, net 233 (140) (363) 769
--------- --------- --------- ---------
Income (loss) before reorganization items and
income tax provision 470 (16,660) 5,355 (38,345)
Reorganization items 3,530 1,870 9,577 3,829
--------- --------- --------- ---------
Loss before income tax provision (3,060) (18,530) (4,222) (42,174)
Income tax provision (benefit) 32 (33) 234 255
--------- --------- --------- ---------
Net loss (3,092) (18,497) (4,456) (42,429)
Preferred stock dividends (paid in kind) -- 2,418 -- 7,030
--------- --------- --------- ---------
Net loss applicable to common shares $ (3,092) $ (20,915) $ (4,456) $ (49,459)
========= ========= ========= =========
16
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
Nine Months Nine Months
Ended Ended
September 30, September 30,
2002 2001
------------- -------------
Net cash used in operating activities $ (553) $ (9,201)
Cash flows provided by (used in) investing activities:
Capital expenditures, net (4,384) (9,063)
Change in other assets (725) 463
-------- --------
Net cash used in investing activities (5,109) (8,600)
Cash flows provided by (used in) financing activities:
Borrowing under debtor-in-possession credit facility 1,500 --
Repayment of long-term obligations (139) (5,280)
Borrowing of long-term obligations 130 35,000
Change in accounts receivable securitization -- 3,015
Other 1,429 (4,740)
-------- --------
Net cash provided by financing activities: 2,920 27,995
-------- --------
Net (decrease) increase in cash and cash equivalents (2,742) 10,194
Cash and cash equivalents at beginning of year 7,332 4,536
-------- --------
Cash and cash equivalents at end of period $ 4,590 $ 14,730
======== ========
17
THERMADYNE MFG. LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
2002 2001
------------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 13,021 $ 14,800
Accounts receivable, less allowance for doubtful
accounts of $3,855 and $3,376, respectively 77,095 75,816
Inventories 97,555 89,748
Prepaid expenses and other 13,360 14,600
--------- ---------
Total current assets 201,031 194,964
Property, plant and equipment, at cost, net 74,745 81,012
Deferred financing costs, net 9,206 11,409
Intangibles, at cost, net 13,338 13,422
Deferred income taxes 376 248
Other assets 4,384 3,834
--------- ---------
Total assets $ 303,080 $ 304,889
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 21,895 $ 19,520
Accrued and other liabilities 26,488 25,410
Accrued interest 5 471
Income taxes payable 1,317 508
Current maturities of long-term obligations 12,786 11,606
--------- ---------
Total current liabilities 62,491 57,515
Liabilities subject to compromise 648,352 648,036
Long-term obligations, less current maturities 20,543 21,084
Other long-term liabilities 42,881 43,868
Shareholders' deficit:
Accumulated deficit (506,134) (502,366)
Accumulated other comprehensive loss (44,027) (42,222)
--------- ---------
Total shareholders' deficit (550,161) (544,588)
Net equity and advances to/from parent 78,974 78,974
--------- ---------
Total liabilities and shareholders' deficit $ 303,080 $ 304,889
========= =========
See accompanying notes to condensed consolidated financial statements.
18
THERMADYNE MFG. LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------ ------------- ------------- ------------
Net sales $ 98,610 $ 106,714 $ 309,373 $ 338,455
Operating expenses:
Cost of goods sold 62,098 72,837 197,491 224,600
Selling, general and administrative expenses 25,042 23,989 78,377 74,025
Amortization of intangibles 193 570 767 1,611
Net periodic postretirement benefits 288 288 864 837
Special charges 636 4,400 2,436 13,628
--------- --------- --------- ---------
Operating income 10,353 4,630 29,438 23,754
Other expense:
Interest expense (contractual interest expense
of $11,676 and $38,086 for the three and
nine month periods ended September 30, 2002) (5,217) (14,311) (16,853) (45,498)
Amortization of deferred financing costs (735) (736) (2,205) (2,206)
Other, net (1,403) (1,723) (3,037) (2,608)
--------- --------- --------- ---------
Income (loss) before reorganization items and
income tax provision 2,998 (12,140) 7,343 (26,558)
Reorganization items 3,530 1,870 9,577 3,829
--------- --------- --------- ---------
Loss before income tax provision (532) (14,010) (2,234) (30,387)
Income tax provision 44 26 1,534 1,676
--------- --------- --------- ---------
Net loss $ (576) $ (14,036) $ (3,768) $ (32,063)
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
19
THERMADYNE MFG. LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2002 2001
------------- -------------
Cash flows provided by (used in) operating activities:
Net loss $ (3,768) $(32,063)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Net periodic postretirement benefits 864 837
Depreciation 11,646 10,619
Amortization of intangibles 767 1,611
Amortization of deferred financing costs 2,205 2,206
Deferred income taxes 35 380
Non-cash interest expense -- 3,425
Changes in operating assets and liabilities:
Accounts receivable 150 1,135
Inventories (8,155) 2,122
Prepaid expenses and other 1,189 (1,720)
Accounts payable 307 (12,474)
Accrued and other liabilities 1,043 2,409
Accrued interest (476) 15,251
Income taxes payable 757 (597)
Other long-term liabilities (2,272) (714)
-------- --------
Total adjustments 8,060 24,490
-------- --------
Net cash provided by (used in) operating activities 4,292 (7,573)
-------- --------
Cash flows used in investing activities:
Capital expenditures, net (6,522) (12,003)
Change in other assets (756) (111)
-------- --------
Net cash used in investing activities (7,278) (12,114)
-------- --------
Cash flows provided by financing activities:
Change in long-term receivables 319 (487)
Borrowing under debtor-in-possession credit facility 1,500 --
Repayment of long-term obligations (4,247) (10,035)
Borrowing of long-term obligations 3,389 40,007
Change in accounts receivable securitization -- 3,015
Financing fees -- 40
Other 246 (204)
-------- --------
Net cash provided by financing activities 1,207 32,336
-------- --------
Net (decrease) increase in cash and cash equivalents (1,779) 12,649
Cash and cash equivalents at beginning of period 14,800 10,362
-------- --------
Cash and cash equivalents at end of period $ 13,021 $ 23,011
======== ========
See accompanying notes to condensed consolidated financial statements.
20
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
As used in the report, the terms "Thermadyne" and the "Company" mean
Thermadyne Holdings Corporation, 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. The Company is a global manufacturer of cutting and
welding products and accessories.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
of Thermadyne LLC have been prepared in accordance with accounting
principles generally accepted in the United States 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 accounting principles
generally accepted in the United States 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 nine-month
period ended September 30, 2002 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2002. 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, 2001.
CO-ISSUER
Thermadyne Capital was formed solely for the purpose of serving as a
co-issuer of the 9-7/8% Senior Subordinated Notes due 2008. 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.
BANKRUPTCY FILING
On November 19, 2001, the Company and substantially all of its domestic
subsidiaries, including Thermadyne LLC and Thermadyne Capital
(collectively, the "Debtors"), filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Eastern District of Missouri (the
"Court".) The filing resulted from insufficient liquidity, and was
determined to be the most efficient and favorable alternative to
restructure the Company's balance sheet. Since 1998, the Company's
operating results have been negatively impacted by a weak industrial
economy in the U.S. as well as difficult economic conditions in most of
its foreign markets. The deterioration of operating results and
liquidity made it increasingly difficult for the Company to meet all of
its debt service obligations. Prior to filing Chapter 11, the Company
failed to make the semi-annual interest payments on the 10.75%
21
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
subordinated notes, due November 1, 2003 (the "Subordinated Notes"),
which were due on May 1 and November 1, 2001, and totaled approximately
$4.0 million. In addition, the Company failed to make an interest
payment in the amount of $10.2 million related to the 9.875% senior
subordinated notes, due June 1, 2008 (the "Senior Subordinated Notes"),
which was due on June 1, 2001. The Bankruptcy Code generally prohibits
the Company from making payments on unsecured, pre-petition debt,
including the Senior Subordinated Notes and the Subordinated Notes,
except pursuant to a confirmed plan of reorganization. The Company is
in possession of its properties and assets and continues to manage the
business as a debtor-in-possession subject to the supervision of the
Court.
On January 8, 2002, the Court entered the final order approving a new
$60 million debtor-in-possession credit facility among Thermadyne LLC,
as borrower, the Company and certain U.S. subsidiaries as guarantors,
and a syndicate of lenders with ABN AMRO Bank N.V. as agent (the "DIP
Facility".) Prior to the final order, on November 21, 2001, the Court
entered an interim order authorizing the Debtors to use up to $25
million of the DIP Facility for loans and letters of credit. The DIP
Facility expires on the earlier of the consummation of a plan of
reorganization or November 21, 2002. On November 1, 2002, the Debtors
filed a motion with the Court to amend the DIP Facility to extend its
expiration date to May 21, 2003. In addition, the motion to amend the
DIP Facility would lower the total capacity from $60 million to $50
million. All other terms of the DIP Facility would remain substantially
the same. On November 15, 2002, the Court will hear this motion for
extension. The Company also expects its lenders to approve the
extension of the DIP Facility prior to November 21, 2002. The DIP
Facility is secured by substantially all the assets of the Debtors,
including a pledge of the capital stock of substantially all their
subsidiaries, subject to certain limitations with respect to foreign
subsidiaries. Actual borrowing availability is subject to a borrowing
base calculation. The amount available to the Company under the DIP
Facility is equal to the sum of approximately 85% of eligible accounts
receivable, 50% of eligible inventory and 72% of eligible fixed assets.
As of September 30, 2002, the Company's eligible accounts receivable,
inventories and fixed assets supported access to the full amount of the
DIP Facility less outstanding borrowings and letters of credit. As of
September 30, 2002, the Company had borrowed $10.2 million and issued
letters of credit of $4.4 million under the DIP Facility. The DIP
Facility contains financial covenants, including minimum levels of
EBITDA (defined as net income or loss plus depreciation, amortization
of goodwill, amortization of intangibles, net periodic postretirement
benefits expense, interest expense, income taxes, amortization of
deferred financing costs, any net loss realized in connection with the
sale of any asset, any extraordinary loss or the non-cash portion of
non-recurring expenses, and reorganization costs; minus any
extraordinary gain), and other customary provisions.
As of December 1, 2001, Thermadyne LLC discontinued accruing interest
on the Senior Subordinated Notes and the 15% junior subordinated notes,
due December 15, 2009 (the "Junior Notes"). Contractual interest on the
Senior Subordinated Notes and the Junior Notes for the quarter ended
September 30, 2002, was $5.1 million and $1.4 million, respectively,
and for the nine months ended September 30, 2002, was $15.3 million and
$3.9 million, respectively. No interest was recorded for the Senior
Subordinated Notes or the Junior Notes during the three or
22
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
nine-month periods ended September 30, 2002. As part of the Court order
approving the DIP Facility, the Company was required to continue making
period interest payments on its old syndicated senior secured credit
agreement (the "Old Credit Agreement.") This order did not approve the
payment of any principal outstanding under the Old Credit Facility as
of the petition date, or the payment of any future mandatory
amortization of the loans. In total, contractual interest on the
Company's obligations was $11.7 million and $36.1 million, for the
three and nine-month periods ended September 30, 2002, respectively,
which was $6.5 million and $19.2 million in excess of reported
interest, respectively.
Pursuant to the provisions of the Bankruptcy Code, all actions to
collect upon any of the Debtors' liabilities as of the petition date or
to enforce pre-petition date contractual obligations were automatically
stayed. Absent approval from the Court, the Debtors are prohibited from
paying pre-petition obligations. However, the Court has approved
payment of certain pre-petition liabilities such as employee wages and
benefits and certain other pre-petition obligations. Additionally, the
Court has approved the retention of legal and financial professionals.
Claims were allowed to be filed against the Debtors through April 19,
2002. As debtor-in-possession, the Company has the right, subject to
court approval and certain other conditions, to assume or reject any
pre-petition executory contracts and unexpired leases. Parties affected
by such rejections may file pre-petition claims with the Court in
accordance with bankruptcy procedures.
The Company is currently developing a plan of reorganization (the "Plan
of Reorganization") through, among other things, discussions with the
official creditor's committee appointed in the Chapter 11 proceedings
and the lenders. The objective of the Plan of Reorganization is to
restructure the Company's balance sheet to significantly strengthen the
Company's financial position.
Management expects that a Plan of Reorganization will be completed and
ready to file with the Court during the fourth calendar quarter of
2002. Although management expects to file the Plan of Reorganization,
there can be no assurance at this time that a Plan of Reorganization
will be proposed by the Company, approved or confirmed by the Court, or
that such plan will be consummated. On October 30, 2002, the Court
approved the Company's motion to extend the period during which the
Debtors may file a Plan of Reorganization through November 18, 2002. If
the exclusivity period were to expire or be terminated, other
interested parties, such as creditors of the Debtors, would have the
right to propose alternative plans of reorganization.
Absent a successful restructuring of the Company's balance sheet,
substantial doubt exists about the Company's ability to continue as a
going concern. The accompanying financial statements have been prepared
on a going concern basis. This basis contemplates the continuity of
operations, realization of assets, and discharge of liabilities in the
ordinary course of business. The statements also present the assets of
the Company at historical cost and the current intention that they will
be realized as a going concern and in the normal course of business. A
Plan of Reorganization could materially change the amounts currently
disclosed in the financial statements.
23
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
The Company's financial statements do not present the amount which may
ultimately be paid to settle liabilities and contingencies which may be
allowed in the Chapter 11 case. Under Chapter 11, the rights of, and
ultimate payment by the Company to, pre-petition creditors may be
substantially altered. This could result in claims being paid in the
Chapter 11 proceedings at less (and possibly substantially less) than
100% of their face value. At this time, because of material
uncertainties, pre-petition claims are carried at face value in the
accompanying financial statements, and are included in the line
"liabilities subject to compromise" on the consolidated balance sheets.
Additionally, the interests of existing preferred and common
shareholders could be substantially diluted or even eliminated.
LIABILITIES SUBJECT TO COMPROMISE
Under Chapter 11, certain claims against the debtor in existence prior
to the filing of the petition for relief under federal bankruptcy laws
are stayed while the debtor continues business operations as
debtor-in-possession. These claims are shown in the accompanying
balance sheets as "liabilities subject to compromise." Additional
claims (liabilities subject to compromise) may arise subsequent to the
filing date resulting from rejection of executory contracts, including
leases, and from the determination by the Court (or agreed to by
parties in interest) of allowed claims for contingencies and other
disputed amounts. Claims secured against the debtor's assets also are
stayed, although the holders of such claims have the right to move the
Court for relief from the stay. The principal categories of liabilities
subject to compromise consisted of the following:
September 30, December 31,
2002 2001
------------- ------------
Trade accounts payable $ 15,904 $ 17,334
Accrued and other liabilities 3,670 3,500
Accrued interest 20,493 20,493
Accrued income taxes 11,290 11,290
Old Credit Facility 355,241 353,437
Senior Subordinated Notes 207,000 207,000
Junior Notes 33,427 33,427
Other long-term obligations 1,327 1,555
-------- --------
Total $648,352 $648,036
======== ========
REORGANIZATION ITEMS
Reorganization items for the three-month period ended September 30,
2002, include $3.0 million of professional fees and expenses, $0.4
million of expenses related to financing fees associated
24
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
with the DIP Facility, and $0.1 million of other reorganization costs.
For the nine months ended September 30, 2002, reorganization items
include $6.9 million of professional fees and expenses, $1.4 million of
expenses related to financing fees associated with the DIP Facility,
$0.4 million associated with a lease obligation that was rejected, $0.3
million related to payments under the key employee retention plan
approved by the Court, and $0.6 million of other reorganization costs.
Reorganization costs in 2001 consisted primarily of professional fees
and expenses.
SPECIAL CHARGES
Special charges incurred during the three months ended September 30,
2002 include $0.5 million related to an information technology
transformation project and $0.1 million related to logistics
initiatives. For the nine months ended September 30, 2002, special
charges include $1.9 million related to the information technology
transformation initiative and $0.5 related to the logistics projects.
Included in special charges for the three months ended September 30,
2001, are costs of approximately $4.2 million related to the
information technology and business reengineering project with the
remaining costs attributable to the relocation of production to Mexico
and Asia. For the nine months ended September 30, 2001, special charges
include $2.2 million related to the relocation of production to Mexico
and Asia, $10.1 million related to information technology and related
business process reengineering projects with the balance of $1.3
million related primarily to severance.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to
current period presentation. These reclassifications did not affect net
loss.
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:
Nine Months Nine Months
Ended Ended
September 30, September 30,
2002 2001
------------ -------------
Interest paid $17,319 $26,809
Taxes paid 569 1,730
25
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
Operating cash disbursements for the nine months ended September 30,
2002, related to the reorganization were $8.6 million and include $6.9
million of professional fees and expenses, $0.4 million of fees related
to the DIP Facility, $0.3 million of payments made under the key
employee retention plan approved by the Court, $0.4 million related to
a rejected lease obligation, and $0.6 million of other reorganization
related disbursements. For the nine months ended September 30, 2001,
operating cash disbursements related to the reorganization were $3.8
million and included approximately $3.2 million of professional fees
and expenses, $0.5 million of bank fees and $0.1 million of other
reorganization items.
2. INVENTORIES
The composition of inventories was as follows:
September 30, December 31,
2002 2001
------------- ------------
Raw materials $ 18,703 $ 18,142
Work-in-process 32,141 25,517
Finished goods 47,576 46,442
LIFO reserve (865) (353)
-------- --------
Total $ 97,555 $ 89,748
======== ========
3. SEGMENT INFORMATION
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.
26
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
Other
United Australia/ Geographic
States Europe Asia Regions Other Consolidated
--------- -------- -------- -------- -------- ------------
Nine Months Ended September 30, 2002
- ------------------------------------
Revenue from external customers $199,320 $ 35,936 $ 34,521 $ 39,596 $ -- $309,373
Intersegment revenues 17,689 4,012 446 3,301 (25,448) --
Operating income (loss) 38,625 1,860 (459) 4,818 (15,406) 29,438
Nine Months Ended September 30, 2001
- ------------------------------------
Revenue from external customers $228,486 $ 33,939 $ 34,327 $ 41,703 $ -- $338,455
Intersegment revenues 20,456 9,426 1,261 -- (31,143) --
Operating income (loss) 41,761 2,239 (2,212) 1,607 (19,641) 23,754
4. COMPREHENSIVE LOSS
Comprehensive loss totaled $4,501 and $14,398 for the three months
ended September 30, 2002 and 2001, respectively. For the nine-month
periods ended September 30, 2002 and 2001, comprehensive loss was
$5,573 and $36,921, respectively.
5. LONG-TERM OBLIGATIONS
The DIP Facility provides for total borrowings of $60 million, of which
up to $15 million may be used for letters of credit. Actual borrowing
availability is subject to a borrowing base calculation, which is equal
to the sum of approximately 85% of eligible accounts receivable, 50% of
eligible inventory and 72% of eligible fixed assets. As of September
30, 2002, the Company's eligible accounts receivable, inventories and
fixed assets supported access to the full amount of the DIP Facility
less outstanding borrowings and letters of credit. As of September 30,
2002, the Company had borrowed $10.2 million and issued letters of
credit of $8.4 million under the DIP Facility.
As of December 1, 2001, the Company discontinued accruing interest on
the Senior Subordinated Notes and the Junior Notes. Contractual
interest on the Senior Subordinated Notes and the Junior Notes for the
quarter ended September 30, 2002, was $5.1 million and $1.4 million,
respectively, and for the nine months ended September 30, 2002, was
$15.3 million and $3.9 million, respectively. No interest was recorded
for the Senior Subordinated Notes or the Junior Notes during the three
or nine-month periods ended September 30, 2002. The Bankruptcy Code
generally prohibits the Company from making payments on unsecured,
pre-petition debt, including the Senior Subordinated Notes and the
Subordinated Notes, except pursuant to a confirmed Plan of
Reorganization.
6. RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142".) SFAS 142 prohibits the amortization of
27
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
goodwill and intangible assets with indefinite useful lives. SFAS 142
requires these assets be reviewed for impairment at least annually.
Intangible assets with finite lives will continue to be amortized over
their estimated useful lives. In addition, SFAS 142 requires goodwill
included in the carrying value of equity method investments no longer
be amortized.
The Company ceased amortization on January 1, 2002 of its goodwill,
which had a net balance of approximately $11,355 at January 1, 2002.
During the third quarter of 2001 the Company recorded $114 of goodwill
amortization, and through the first nine months of 2001 recorded
goodwill amortization of $249. Excluding this expense the Company's net
loss would have been $13,922 and $31,814 for the three and nine-month
periods ended September 30, 2001, respectively.
The Company capitalizes loan origination fees and other costs incurred
arranging long-term financing as deferred financing costs. The costs
are amortized over the respective lives of the obligations using the
effective interest method. Deferred financing costs totaled $22,077 at
September 30, 2002 and December 31, 2001. Accumulated amortization
totaled $12,871 and $10,668 at September 30, 2002 and December 31,
2001, respectively. Amortization expense amounted to $735 for the
three-month period ended September 30, 2002 and was $736 for the same
period in 2001. Amortization expense was $2,205 and $2,206 for the
nine-month periods ended September 30, 2002 and 2001, respectively.
Amortization expense for fiscal 2002 to 2005 is expected to be as
follows: $2,940, $2,940, $2,940, and $2,589.
The Company has other identifiable intangible assets such as patented
technology, non-compete agreements and trademarks. These intangibles
are amortized on a straight-line basis over the various estimated
useful lives, which generally range from three to 25 years. The total
cost of these intangible assets was $11,107 and $11,420 at September
30, 2002 and December 31, 2001, respectively. Accumulated amortization
totaled $9,470 and $9,353 at September 30, 2002 and December 31, 2001,
respectively. Amortization expense amounted to $193 and $456 for the
three-month periods ended September 30, 2002 and 2001, respectively,
and was $767 and $1,362 for the nine months ended September, 30, 2002
and 2001, respectively. Amortization expense is expected to be
approximately $1,000 in 2002 and 2003 and approximately $425 in 2004.
The adoption of SFAS 142 did not have a significant impact on the
Company's financial position or results of operations. However, the
ultimate value of the Company's assets is uncertain and may change
materially when the Company emerges from bankruptcy.
7. GUARANTOR SUBSIDIARIES AND DEBTOR FINANCIAL INFORMATION
Guarantor Subsidiaries
Thermadyne LLC and Thermadyne Capital, both wholly-owned subsidiaries
of Thermadyne, issued $207 million of Senior Subordinated Notes.
Thermadyne 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.
28
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
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.
Debtor Financial Information
In the following condensed financial information the combination of the
amounts in the columns "Thermadyne LLC" and "Total Guarantors"
represents, in all material respects, the financial position of the
Debtors, excluding Thermadyne Holdings Corporation, as of September 30,
2002 and December 31, 2001, and their results of operations and cash
flows for the three and nine-month periods ended September 30, 2002 and
2001. This information was prepared on the same basis as the
consolidated financial statements.
29
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2002
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ 4,590 $ 8,431 $ -- $ 13,021
Accounts receivable -- 39,337 37,758 -- 77,095
Inventories -- 58,093 39,462 -- 97,555
Prepaid expenses and other -- 10,191 3,169 -- 13,360
--------- --------- --------- --------- ---------
Total current assets -- 112,211 88,820 -- 201,031
Property, plant and equipment, at cost, net -- 40,430 34,315 -- 74,745
Deferred financing costs, net 9,206 -- -- -- 9,206
Intangibles, at cost, net -- 5,953 7,385 -- 13,338
Deferred income taxes -- -- 376 -- 376
Investment in and advances to/from subsidiaries 168,448 -- -- (168,448) --
Other assets -- 372 4,012 -- 4,384
--------- --------- --------- --------- ---------
Total assets $ 177,654 $ 158,966 $ 134,908 $(168,448) $ 303,080
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ -- $ 4,677 $ 17,218 $ -- $ 21,895
Accrued and other liabilities -- 19,208 7,280 -- 26,488
Accrued interest 1 -- 4 -- 5
Income taxes payable -- 160 1,157 -- 1,317
Current maturities of long-term obligations 10,150 443 2,193 -- 12,786
--------- --------- --------- --------- ---------
Total current liabilities 10,151 24,488 27,852 -- 62,491
Liabilities subject to compromise 594,663 32,192 21,497 -- 648,352
Long-term obligations, less current maturities -- 15,031 5,512 -- 20,543
Other long-term liabilities -- 33,991 8,890 -- 42,881
Shareholders' deficit:
Accumulated deficit (506,134) (354,509) (89,863) 444,372 (506,134)
Accumulated other comprehensive loss -- (21,714) (22,313) -- (44,027)
--------- --------- --------- --------- ---------
Total shareholders' deficit (506,134) (376,223) (112,176) 444,372 (550,161)
Net equity and advances to/from subsidiaries 78,974 429,487 183,333 (612,820) 78,974
--------- --------- --------- --------- ---------
Total liabilities and shareholders' deficit $ 177,654 $ 158,966 $ 134,908 $(168,448) $ 303,080
========= ========= ========= ========= =========
30
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ 7,332 $ 7,468 $ -- $ 14,800
Restricted Cash -- -- -- -- --
Accounts receivable -- 41,516 34,300 -- 75,816
Inventories -- 51,505 38,243 -- 89,748
Prepaid expenses and other -- 11,360 3,240 -- 14,600
--------- --------- --------- --------- ---------
Total current assets -- 111,713 83,251 -- 194,964
Property, plant and equipment, at cost, net -- 42,033 38,979 -- 81,012
Deferred financing costs, net 11,409 -- -- -- 11,409
Intangibles, at cost, net -- 6,461 6,961 -- 13,422
Deferred income taxes -- -- 248 -- 248
Investment in and advances to/from subsidiaries 168,839 -- -- (168,839) --
Other assets -- (261) 4,095 -- 3,834
--------- --------- --------- --------- ---------
Total assets $ 180,248 $ 159,946 $ 133,534 $(168,839) $ 304,889
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ -- $ 4,960 $ 14,560 $ -- $ 19,520
Accrued and other liabilities -- 18,392 7,018 -- 25,410
Accrued interest 457 8 6 -- 471
Income taxes payable -- 11 497 -- 508
Current maturities of long-term obligations 8,650 312 2,644 -- 11,606
--------- --------- --------- --------- ---------
Total current liabilities 9,107 23,683 24,725 -- 57,515
Liabilities subject to compromise 594,533 33,679 19,824 -- 648,036
Long-term obligations, less current maturities -- 15,483 5,601 -- 21,084
Other long-term liabilities -- 34,471 9,397 -- 43,868
Shareholders' deficit:
Accumulated deficit (502,366) (350,148) (90,434) 440,582 (502,366)
Accumulated other comprehensive loss -- (26,914) (15,308) -- (42,222)
--------- --------- --------- --------- ---------
Total shareholders' deficit (502,366) (377,062) (105,742) 440,582 (544,588)
Net equity and advances to/from subsidiaries 78,974 429,692 179,729 (609,421) 78,974
--------- --------- --------- --------- ---------
Total liabilities and shareholders' deficit $ 180,248 $ 159,946 $ 133,534 $(168,839) $ 304,889
========= ========= ========= ========= =========
31
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
Net sales $ -- $ 71,586 $ 43,750 $(16,726) $ 98,610
Operating expenses:
Cost of goods sold -- 46,740 32,282 (16,924) 62,098
Selling, general and administrative expenses -- 17,538 7,504 -- 25,042
Amortization of intangibles -- 118 75 -- 193
Net periodic postretirement benefits -- 288 -- -- 288
Special charges -- 636 -- -- 636
-------- -------- -------- -------- --------
Operating income -- 6,266 3,889 198 10,353
Other income (expense):
Interest expense -- (5,200) (311) 294 (5,217)
Amortization of deferred financing costs -- (735) -- -- (735)
Equity in net loss of subsidiaries (576) -- -- 576 --
Other -- 169 (1,278) (294) (1,403)
-------- -------- -------- -------- --------
Income (loss) before reorganization items and
income tax provision (576) 500 2,300 774 2,998
Reorganization items -- 3,530 -- -- 3,530
-------- -------- -------- -------- --------
Income (loss) before income tax provision (576) (3,030) 2,300 774 (532)
Income tax provision -- 32 12 -- 44
-------- -------- -------- -------- --------
Net loss $ (576) $ (3,062) $ 2,288 $ 774 $ (576)
======== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
Net sales $ -- $ 84,964 $ 39,531 $ (17,781) $ 106,714
Operating expenses:
Cost of goods sold -- 59,588 31,492 (18,243) 72,837
Selling, general and administrative expenses -- 17,155 6,834 -- 23,989
Amortization of intangibles -- 365 205 -- 570
Net periodic postretirement benefits -- 288 -- -- 288
Special charges -- 4,349 51 -- 4,400
--------- --------- --------- --------- ---------
Operating income -- 3,219 949 462 4,630
Other income (expense):
Interest expense -- (13,070) (1,493) 252 (14,311)
Amortization of deferred financing costs -- (736) -- -- (736)
Equity in net loss of subsidiaries (14,036) -- -- 14,036 --
Other -- (401) (696) (626) (1,723)
--------- --------- --------- --------- ---------
Income (loss) before reorganization items and income
tax provision (14,036) (10,988) (1,240) 14,124 (12,140)
Reorganization items -- 1,870 -- -- 1,870
--------- --------- --------- --------- ---------
Income (loss) before income tax provision (14,036) (12,858) (1,240) 14,124 (14,010)
Income tax (benefit) provision -- (33) 59 -- 26
--------- --------- --------- --------- ---------
Net loss $ (14,036) $ (12,825) $ (1,299) $ 14,124 $ (14,036)
========= ========= ========= ========= =========
32
THERMADYNE MFG. LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
Net sales $ -- $ 234,832 $ 122,360 $ (47,819) $ 309,373
Operating expenses:
Cost of goods sold -- 150,150 95,182 (47,841) 197,491
Selling, general and administrative expenses -- 57,677 20,700 -- 78,377
Amortization of intangibles -- 600 167 -- 767
Net periodic postretirement benefits -- 864 -- -- 864
Special charges -- 2,436 -- -- 2,436
--------- --------- --------- --------- ---------
Operating income -- 23,105 6,311 22 29,438
Other income (expense):
Interest expense -- (14,900) (2,799) 846 (16,853)
Amortization of deferred financing costs -- (2,205) -- -- (2,205)
Equity in net loss of subsidiaries (3,768) -- -- 3,768 --
Other -- (550) (1,641) (846) (3,037)
--------- --------- --------- --------- ---------
Income (loss) before reorganization items and income
tax provision (3,768) 5,450 1,871 3,790 7,343
Reorganization items -- 9,577 -- -- 9,577
--------- --------- --------- --------- ---------
Income (loss) before income tax provision (3,768) (4,127) 1,871 3,790 (2,234)
Income tax provision -- 234 1,300 -- 1,534
--------- --------- --------- --------- ---------
Net loss $ (3,768) $ (4,361) $ 571 $ 3,790 $ (3,768)
========= ========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
Net sales $ -- $ 271,513 $ 127,336 $ (60,394) $ 338,455
Operating expenses:
Cost of goods sold -- 181,857 103,187 (60,444) 224,600
Selling, general and administrative expenses -- 52,035 21,990 -- 74,025
Amortization of intangibles -- 1,087 524 -- 1,611
Net periodic postretirement benefits -- 837 -- -- 837
Special charges -- 13,025 603 -- 13,628
--------- --------- --------- --------- ---------
Operating income -- 22,672 1,032 50 23,754
Other income (expense):
Interest expense -- (41,422) (5,461) 1,385 (45,498)
Amortization of deferred financing costs -- (2,206) -- -- (2,206)
Equity in net loss of subsidiaries (32,063) -- -- 32,063 --
Other -- (152) (133) (2,323) (2,608)
--------- --------- --------- --------- ---------
Income (loss) before reorganization items and income
tax provision (32,063) (21,108) (4,562) 31,175 (26,558)
Reorganization items -- 3,829 -- -- 3,829
--------- --------- --------- --------- ---------
Income (loss) before income tax provision (32,063) (24,937) (4,562) 31,175 (30,387)
Income tax provision -- 255 1,421 -- 1,676
--------- --------- --------- --------- ---------
Net loss $ (32,063) $ (25,192) $ (5,983) $ 31,175 $ (32,063)
========= ========= ========= ========= =========
33
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, 2002
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
Net cash provided by (used in) operating activities $ (4,224) $ (285) $ 5,011 $ 3,790 $ 4,292
Cash flows used in investing activities:
Capital expenditures, net -- (4,384) (2,138) -- (6,522)
Change in other assets -- (726) (30) -- (756)
-------- -------- -------- -------- --------
Net cash used in investing activities -- (5,110) (2,168) -- (7,278)
Cash flows provided by (used in) financing activities:
Changes in long-term receivables -- -- 319 -- 319
Borrowing under debtor-in-possession facility 1,500 -- -- -- 1,500
Repayment of long-term obligations -- (138) (4,109) -- (4,247)
Borrowing of long-term obligations 130 -- 3,259 -- 3,389
Change in accounts receivable securitization -- -- -- -- --
Financing fees -- -- -- -- --
Change in net equity and advances to/from subsidiaries 2,594 (2,408) 3,604 (3,790) --
Other -- 5,199 (4,953) -- 246
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities 4,224 2,653 (1,880) (3,790) 1,207
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents -- (2,742) 963 -- (1,779)
Cash and cash equivalents at beginning of period -- 7,332 7,468 -- 14,800
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 4,590 $ 8,431 $ -- $ 13,021
======== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Thermadyne Total Total
LLC Guarantors Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ---------
Net cash (used in) provided by operating activities $(16,826) $(22,855) $ 933 $ 31,175 $ (7,573)
Cash flows provided by (used in) investing activities:
Capital expenditures, net -- (9,063) (2,940) -- (12,003)
Change in other assets -- (78) (33) -- (111)
-------- -------- -------- -------- --------
Net cash used in investing activities -- (9,141) (2,973) -- (12,114)
Cash flows provided by (used in) financing activities:
Changes in long-term receivables -- 543 (1,030) -- (487)
Repayment of long-term obligations (5,193) (87) (4,755) -- (10,035)
Borrowing of long-term obligations 35,000 -- 5,007 -- 40,007
Change in accounts receivable securitization -- 3,015 -- -- 3,015
Financing fees -- -- 40 -- 40
Change in net equity and advances to/from subsidiaries (13,011) 38,723 5,463 (31,175) --
Other 30 (4) (230) -- (204)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities 16,826 42,190 4,495 (31,175) 32,336
-------- -------- -------- -------- --------
Net increase in cash and cash equivalents -- 10,194 2,455 -- 12,649
Cash and cash equivalents at beginning of period -- 4,536 5,826 -- 10,362
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ -- $ 14,730 $ 8,281 $ -- $ 23,011
======== ======== ======== ======== ========
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thermadyne, through its subsidiaries, is engaged in the design, manufacture and
distribution of cutting and welding products and accessories. Since 1994, the
Company has embarked on a strategy designed to focus its business exclusively on
the cutting and welding industry and enhance the Company's market position
within that industry.
BANKRUPTCY FILING
On November 19, 2001, the Company and substantially all of its domestic
subsidiaries, including Thermadyne LLC and Thermadyne Capital (collectively, the
"Debtors"), filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the Eastern
District of Missouri (the "Court".) The filing resulted from insufficient
liquidity, and was determined to be the most efficient and favorable alternative
to restructure the Company's balance sheet. Since 1998, the Company's operating
results have been negatively impacted by a weak industrial economy in the U.S.
as well as difficult economic conditions in most of its foreign markets. The
deterioration of operating results and liquidity made it increasingly difficult
for the Company to meet all of its debt service obligations. Prior to filing
Chapter 11, the Company failed to make the semi-annual interest payments on the
10.75% subordinated notes, due November 1, 2003 (the "Subordinated Notes"),
which were due on May 1 and November 1, 2001, and totaled approximately $4.0
million. In addition, the Company failed to make an interest payment in the
amount of $10.2 million related to the 9.875% senior subordinated notes, due
June 1, 2008 (the "Senior Subordinated Notes"), which was due on June 1, 2001.
The Bankruptcy Code generally prohibits the Company from making payments on
unsecured, pre-petition debt, including the Senior Subordinated Notes and the
Subordinated Notes, except pursuant to a confirmed plan of reorganization. The
Company is in possession of its properties and assets and continues to manage
the business as a debtor-in-possession subject to the supervision of the Court.
The Company has a $60 million debtor-in-possession credit facility in place (see
Liquidity and Capital Resources.)
As of December 1, 2001, the Company discontinued accruing interest on the Senior
Subordinated Notes, the Subordinated Notes, the 12.5% debentures, due June 1,
2008 (the "Debentures"), and the 15% junior subordinated notes, due December 15,
2009 (the "Junior Notes"), and ceased accruing dividends on its redeemable
preferred stock. Contractual interest on the Senior Subordinated Notes, the
Subordinated Notes, the Debentures and the Junior Notes for the quarter ended
September 30, 2002, was $5.1 million, $1.0 million, $4.8 million and $1.4
million, respectively, and for the nine months ended September 30, 2002, was
$15.3 million, $3.0 million, $14.0 million and $3.9 million, respectively. No
interest was recorded for the Senior Subordinated Notes, the Subordinated Notes,
the Debentures or the Junior Notes during the three or nine-month periods ended
September 30, 2002. Contractual dividends for the redeemable preferred stock
were $2.7 million and $8.0 million for the three and nine months ended September
30, 2002, respectively, but no dividends were recorded during these periods. As
part of the Court order approving the DIP Facility, the Company is required to
continue making periodic interest payments on its old syndicated senior secured
credit agreement (the "Old Credit Agreement.") This order did not approve the
payment of any principal outstanding under the Old Credit Facility as of the
petition date, or the payment of any future mandatory amortization of the loans.
In total, contractual interest on
35
the Company's obligations was $17.5 million and $53.1 million, for the three and
nine-month periods ended September 30, 2002, respectively, which was $12.3
million and $36.2 million in excess of reported interest, respectively.
Pursuant to the provisions of the Bankruptcy Code, all actions to collect upon
any of the Debtors' liabilities as of the petition date or to enforce
pre-petition date contractual obligations were automatically stayed. Absent
approval from the Court, the Debtors are prohibited from paying pre-petition
obligations. However, the Court has approved payment of certain pre-petition
liabilities such as employee wages and benefits and certain other pre-petition
obligations. Additionally, the Court has approved the retention of legal and
financial professionals. Claims were allowed to be filed against the Debtors
through April 19, 2002. As debtor-in-possession, the Company has the right,
subject to Court approval and certain other conditions, to assume or reject any
pre-petition executory contracts and unexpired leases. Parties affected by such
rejections may file pre-petition claims with the Court in accordance with
bankruptcy procedures.
The Company is currently developing a plan of reorganization (the "Plan of
Reorganization") through, among other things, discussions with the official
creditor's committee appointed in the Chapter 11 proceedings and the lenders.
The objective of the Plan of Reorganization is to restructure the Company's
balance sheet to significantly strengthen the Company's financial position.
Management expects that a Plan of Reorganization will be completed and ready to
file with the Court during the fourth calendar quarter of 2002. Although
management expects to file the Plan of Reorganization, there can be no assurance
at this time that a Plan of Reorganization will be proposed by the Company,
approved or confirmed by the Court, or that such plan will be consummated. On
October 30, 2002, the Court approved the Company's motion to extend the period
during which the Debtors may file a Plan of Reorganization through November 18,
2002. If the exclusivity period were to expire or be terminated, other
interested parties, such as creditors of the Debtors, would have the right to
propose alternative plans of reorganization.
The Company's financial statements do not present the amount which may
ultimately be paid to settle liabilities and contingencies which may be allowed
in the Chapter 11 case. Under Chapter 11, the rights of, and ultimate payment by
the Company to, pre-petition creditors may be substantially altered. This could
result in claims being paid in the Chapter 11 proceedings at less (and possibly
substantially less) than 100% of their face value. At this time, because of
material uncertainties, pre-petition claims are carried at face value in the
accompanying financial statements, and are included in the line "liabilities
subject to compromise" on the consolidated balance sheets. Additionally, the
interests of existing preferred and common shareholders could be substantially
diluted or even eliminated.
OVERVIEW
The following is a discussion and analysis of the condensed consolidated
financial statements of Company. The Company conducts its operations through its
wholly-owned subsidiary Thermadyne LLC. The accompanying condensed consolidated
financial statements for the Company and Thermadyne LLC are substantially the
same except for certain debt and equity securities issued by the Company, 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 net income or loss plus depreciation, amortization of goodwill,
amortization of intangibles, net periodic postretirement benefits expense,
interest expense, income taxes, amortization of deferred financing costs, any
net loss realized in connection with the sale of any asset, any extraordinary
loss or the non-cash
36
portion of non-recurring expenses, and reorganization costs; minus any
extraordinary gain. Adjusted EBITDA 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 the DIP Facility.
The Company believes that Adjusted EBITDA is a useful supplement to net income
(loss) and other consolidated statement of operations 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, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
Net sales of the three-month period ended September 30, 2002, were $98.6
million, which was a decrease of 7.6% from net sales of $106.7 million for the
same three-month period in 2001. Poor economic conditions, primarily in the
U.S., continued during the third quarter and were the primary reason for the
decline compared to 2001. Domestic sales were $56.4 million for the third
quarter compared to $66.4 million for the same period last year, which is a
decrease of 15.0%. The weak industrial economy in the U.S. hampered demand
throughout the third quarter of 2002. International sales were $42.2 million for
the three months ended September 30, 2002, compared to $40.3 million for the
same three-month period in 2001, which is an increase of 4.6%. Europe and
Australia had solid sales growth in the third quarter, and were 16.5% and 9.1%
over the comparable quarter in 2001, respectively. This increase in sales was
partially offset by sales declines in Latin America and Canada, which were down
compared to the third quarter of 2001 by 14.7% and 3.1%, respectively.
Cost of goods sold was 63.0% of sales for the three-month period ended September
30, 2002, which compares to 68.3% for the same quarterly period in 2001. This
favorable change results primarily from various cost reduction initiatives such
as the Company's efforts to relocate production to locations with lower labor
costs and plant consolidation efforts.
Selling, general and administrative expenses were $25.0 million for the
three-month period ended September 30, 2002, or 4.4% more than the same
three-month period in 2001. As a percentage of sales, selling, general and
administrative expenses were 25.4% for quarter ended September 30, 2002, versus
22.5% for the three months ended September 30, 2001. The increase in selling,
general and administrative expenses compared to 2001 results primarily from
higher costs related to the Company's
37
information technology infrastructure and investments made related to certain
sales and marketing initiatives.
Special charges incurred during the three months ended September 30, 2002
include $0.5 million related to an information technology transformation project
and $0.1 million related to logistics initiatives. Included in special charges
for the three months ended September 30, 2001, are costs of approximately $4.2
million related to the information technology and a business reengineering
project with the remaining costs attributable to the relocation of production to
Mexico and Asia.
Reorganization items for the three-month period ended September 30, 2002,
include $3.0 million of professional fees and expenses, $0.4 million of expenses
related to financing fees associated with the DIP Facility, and $0.1 million of
other reorganization costs. Reorganization costs in 2001 consisted primarily of
professional fees and expenses.
Interest expense for the third quarter of 2002 was $5.2 million, which compares
to $19.6 million for the third quarter of 2001. The difference relates primarily
to interest on the Senior Subordinated Notes, the Subordinated Notes, the
Debentures and the Junior Notes, which the Company ceased accruing on December
1, 2001.
The income tax provision recorded on pretax loss of $0.6 million for the three
months ended September 30, 2002, relates primarily to foreign taxable income.
The income tax provision differs from that determined by applying the U.S.
federal statutory rate primarily due to nondeductible expenses and the
disallowance of foreign losses. The income tax provision recorded in the
three-month period ended September 30, 2001, on a pre-tax loss of $19.3 million
relates mostly to foreign taxable income. The income tax provision differs from
that determined by applying the U.S. federal statutory rate primarily due to
nondeductible expenses and the disallowance of foreign losses.
Adjusted EBITDA for the third quarter of 2002 was $13.7 million compared to $6.7
million for the same quarter in 2001, for an increase of 104.0%.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001
Net sales for the first nine months of 2002 were $309.4 million compared to
$338.5 million for the same nine-month period in 2001, or a decrease of 8.6%.
Domestic sales for the nine months ended September 30, 2002, were $186.4
million, which is a decline of 11.8% compared to net sales of $211.3 million for
the nine months ended September 30, 2001. Generally weak economic conditions in
the U.S., particularly in the industrial sector, are the main reason for the
decrease in sales. International sales were $123.0 million for the nine months
ended September 30, 2002, or 3.3% lower than sales of $127.1 million for the
same period in 2001. Europe and Australia had modest increases in sales compared
to the nine months of 2001, but were more than offset by declines in all other
key international markets. Similar to the U.S., most of the Company's major
international markets have suffered from poor economic conditions throughout
most of 2002.
Cost of goods sold was 63.8% of sales for the nine months ended September 30,
2002, which compares to 66.4% for the same nine-month period in 2001. This
improvement results from the Company's cost reduction efforts such as increasing
automation, moving production to locations with lower labor costs, and plant
consolidations.
38
Selling, general and administrative expenses were $78.4 million for the nine
months ended September 30, 2002, which is 5.9% higher than the comparable period
in 2001. As a percentage of sales, selling, general and administrative expenses
were 25.3% for the first three quarters of 2002 versus 21.9% for the nine months
ended September 30, 2001. The increase in selling, general and administrative
expenses compared to 2001 results primarily from higher costs related to the
Company's information technology infrastructure and investments made related to
certain sales and marketing initiatives. Also increasing selling, general and
administrative expenses in the nine-month period ended September 30, 2002, was
approximately $2.0 million accrued related to the Company's management incentive
plan. No similar expense was recorded in the comparable nine-month period in
2001. The increase in selling, general and administrative expenses as a
percentage of sales results partly to the decline in sales as certain expenses
are fixed and do not fluctuate with revenue.
Special charges for the nine months ended September 30, 2002, include $1.9
million related to an information technology transformation initiative and $0.5
related to logistics projects. For the nine months ended September 30, 2001,
special charges include $2.2 million related to the relocation of production to
Mexico and Asia, $10.1 million related to information technology and related
business process reengineering projects with the balance of $1.3 million related
primarily to severance.
Reorganization items for the nine months ended September 30, 2002, include $6.9
million of professional fees and expenses, $1.4 million of expenses related to
financing fees associated with the DIP Facility, $0.4 million associated with a
lease obligation that was rejected, $0.3 million related to payments under the
key employee retention plan approved by the Court, and $0.6 million of other
reorganization costs. Reorganization costs in 2001 consisted primarily of
professional fees and expenses.
Interest expense for the first nine months of 2002 was $16.9 million, which
compares to $60.9 million for the same period in 2001. The difference relates
mostly to interest on the Senior Subordinated Notes, the Subordinated Notes, the
Debentures and the Junior Notes, which the Company ceased accruing on December
1, 2001.
An income tax provision of $1.5 million was recorded on a pretax loss of $2.3
million for the nine months ended September 30, 2002. The income tax provision
differs from that determined by applying the U.S. federal statutory rate
primarily due to nondeductible expenses and the disallowance of foreign losses.
An income tax provision of $1.7 million was recorded on a pretax loss of $45.9
million for the nine months ended September 30, 2001. The income tax provision
differs from that determined by applying the U.S. federal statutory rate
primarily due to nondeductible expenses and the disallowance of foreign losses.
Adjusted EBITDA through the third quarter of 2002 was $39.9 million compared to
$34.4 million for the same period in 2001, or an increase of 15.9%.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOWS
Operating activities provided $4.5 million of cash during the first nine months
of 2002, which compares to cash used of $7.4 million during the same time period
in 2001. Earnings, after adjusting for non-cash expenses, were $11.9 million for
the nine months ended September 30, 2002, compared to a loss of $15.8 million
for the comparable time frame in 2001. This difference results primarily from
lower interest costs. Operating assets and liabilities used $7.5 million of cash
in the nine-month period ended September 30, 2002, compared to
39
cash provided of $8.4 million during the same period last year. Inventory has
used $8.2 million of cash through the first nine months of 2002, which compared
to cash provided of $2.1 million during the same nine-month period last year.
The increase in inventory results primarily from increasing stock levels in
regional warehouses in the U.S., increasing safety stock levels, and stock added
related to new product introductions. Accounts payable provided $0.3 million of
cash in the first three quarters of 2002, or approximately $12.8 million more
than the same period in 2001. Absent approval from the Court, the Company is
prohibited from paying pre-petition obligations including trade accounts
payable. Accordingly, the amount of accounts payable recorded as of the petition
date has not changed significantly. The increase in payables results from the
Company's efforts to negotiate normal payment terms with some of its vendors.
Accrued interest used $0.5 million of cash during the nine-month period ended
September 30, 2002, compared to cash provided of $18.2 million in 2001. The
Company ceased recording interest on the Senior Subordinated Notes and the
Subordinated Notes effective December 1, 2001, which is the primary reason for
this difference.
Investing activities used $7.3 million during the nine months ended September
30, 2002, which compares to $12.1 million for the same period in 2001. Capital
expenditures were $6.5 million during the nine months ended September 30, 2002,
which is $5.5 million less than was spent during the same period last year. The
difference relates primarily to expenditures made in 2001 as the Company pushed
toward more automation in its factories.
Financing activities provided $1.0 million during the nine months ended
September 30, 2002 compared to cash provided of $32.2 million during the same
period last year. This difference results primarily from net long-term
borrowings, which were $30.0 million during the first three quarters of 2001
compared to $0.6 million during the nine months ended September 30, 2002. The
Company also generated $3.0 million of cash from its accounts receivable
securitization program during the first three quarters of last year. As a result
of the Chapter 11 filing, this program liquidated and was fully funded by
December 31, 2001.
Operating cash disbursements for the nine months ended September 30, 2002,
related to the reorganization were $8.6 million and include $6.9 million of
professional fees and expenses, $0.4 million of fees related to the DIP
Facility, $0.3 million of payments made under the key employee retention plan
approved by the Court, $0.4 million related to a rejected lease obligation, and
$0.6 million of other reorganization related disbursements. For the nine months
ended September 30, 2001, operating cash disbursements related to the
reorganization were $3.8 million and included approximately $3.2 million of
professional fees and expenses, $0.5 million of bank fees and $0.1 million of
other reorganization items.
LIQUIDITY
The Company's principal uses of cash will be debt service requirements under the
DIP Facility and the Old Credit Facility, capital expenditures, 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 the DIP Facility.
The DIP Facility provides for total borrowings of $60 million, of which up to
$15 million may be used for letters of credit. Actual borrowing availability is
subject to a borrowing base calculation, which is equal to the sum of
approximately 85% of eligible accounts receivable, 50% of eligible inventory and
72% of eligible fixed assets. As of September 30, 2002, the Company's eligible
accounts receivable, inventories and fixed assets supported access to the full
amount of the DIP Facility less outstanding borrowings and letters of credit.
Interest on the DIP Facility accrued at the administrative agent's adjusted base
rate plus 2.25% in the case of alternate base rate loans, and at an adjusted
London Interbank Offered Rate ("LIBOR") plus 3.5% in the case of LIBOR loans.
The DIP Facility is secured by substantially all the
40
assets of the Debtors, including a pledge of the capital stock of substantially
all their subsidiaries, subject to certain limitations with respect to foreign
subsidiaries. The DIP Facility contains financial covenants, including minimum
levels of EBITDA (defined as net income or loss plus depreciation, amortization
of goodwill, amortization of intangibles, net periodic postretirement benefits
expense, interest expense, income taxes amortization of deferred financing
costs, any net loss realized in connection with the sale of any asset, any
extraordinary loss or the non-cash portion of non-recurring expenses, and
reorganization costs; minus any extraordinary gain) and other customary
provisions. The DIP Facility expires on the earlier of the consummation of a
plan of reorganization or November 21, 2002. On November 1, 2002, the Debtors
filed a motion with the Court to amend the DIP Facility to extend its expiration
date to May 21, 2003. In addition, the motion to amend the DIP Facility would
lower the total capacity from $60 million to $50 million. All other terms of the
DIP Facility would remain substantially the same. On November 15, 2002, the
Court will hear this motion for extension. The Company also expects its lenders
to approve the extension of the DIP Facility prior to November 21, 2002. As of
September 30, 2002, the Company had borrowed $10.2 million and issued letters of
credit of $8.4 million under the DIP Facility, resulting in availability of
approximately $41.4 million.
The Old Credit Facility bears interest, at Thermadyne LLC's option, at the
administrative agent's alternative base rate or at the reserve-adjusted LIBOR
plus, in each case, applicable margins of (i) in the case of alternative base
rate loans, (x) 1.5% for revolving and Term A loans, (y) 1.75% for Term B loans
and (z) 2.00% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.75%
for revolving and Term A loans, (y) 3.00% for Term B loans and (z) 3.25% for
Term C loans. At September 30, 2002, the Company had outstanding $79.4 million
in Term A loans, $108.6 million in Term B loans, $108.6 million in Term C loans,
and $58.6 million of loans under the revolver. In addition, there was $3.5
million of letters of credit outstanding under the Old Credit Facility. As part
of the Court order approving the DIP Facility, the Company was required to
continue making periodic interest payments on the Old Credit Facility. This
order did not approve the payment of any principal outstanding under the Old
Credit Facility as of the petition date, or the payment of any future mandatory
amortization of the loans. As a result of the Chapter 11 filing and other
ongoing covenant violations, the Company has no borrowing availability under the
Old Credit Agreement.
At September 30, 2002, the Company had outstanding $207.0 million of Senior
Subordinated Notes, $37.1 million of Subordinated Notes, $145.1 million of
Debentures and $33.4 million of Junior Notes. On December 1, 2001, the Company
ceased accruing interest on all of these obligations. The Bankruptcy Code
generally prohibits the Company from making payments on unsecured, pre-petition
debt, including the Senior Subordinated Notes and the Subordinated Notes, except
pursuant to a confirmed Plan of Reorganization.
The Company expects its operating cash flow, together with borrowings under the
DIP Facility, will be sufficient to meet its anticipated future operating
expenses and capital expenditures and the debt service requirements of the DIP
Facility and Old Credit Facility, as allowed by the Court, as they become due.
However, the Company's ability to generate sufficient cash flow to meet its
operating needs will be affected by general economic, financial, competitive,
legislative, regulatory, business and other factors beyond its control.
41
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company's Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO") have
reviewed and evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 240.13a-14(c)
and 15d-14(c)) as of a date within 90 days before the filing date of
this quarterly report. Based on that evaluation, the CEO and CFO have
concluded that the Company's current disclosure controls and procedures
are effective in timely providing them with material information
relating to the Company required to be disclosed in the reports the
Company files or submits under the Exchange Act.
(b) Changes in internal controls. There have not been any significant
changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of
their evaluation. There were no significant deficiencies or material
weaknesses, and therefore no corrective actions were taken.
42
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Thermadyne Holdings Corporation
-------------------------------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
Thermadyne Mfg. LLC
-------------------
99.3 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
99.4 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
Thermadyne Capital Corp.
------------------------
99.5 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
99.6 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
b) Reports on Form 8-K
None
43
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, 2002
44
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, 2002
45
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, 2002
46
CERTIFICATIONS
I, Karl R. Wyss, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Thermadyne
Holdings Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements and other financial
information included in the quarterly report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
the quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant,
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
Audit Committee of the registrant's Board of Directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ KARL R. WYSS
-----------------------------------
Karl R. Wyss
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2002
47
CERTIFICATIONS
I, James H. Tate, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Thermadyne
Holdings Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements and other financial
information included in the quarterly report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
the quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant,
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
Audit Committee of the registrant's Board of Directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ JAMES H. TATE
-----------------------------------
James H. Tate
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 14, 2002
48
CERTIFICATIONS
I, Karl R. Wyss, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Thermadyne Mfg.
LLC.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements and other financial
information included in the quarterly report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
the quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant,
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
Audit Committee of the registrant's Board of Directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ KARL R. WYSS
-----------------------------------
Karl R. Wyss
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2002
49
CERTIFICATIONS
I, James H. Tate, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Thermadyne Mfg
LLC.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements and other financial
information included in the quarterly report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
the quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant,
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
Audit Committee of the registrant's Board of Directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ JAMES H. TATE
-----------------------------------
James H. Tate
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 14, 2002
50
CERTIFICATIONS
I, Karl R. Wyss, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Thermadyne
Capital Corp.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements and other financial
information included in the quarterly report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
the quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant,
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
Audit Committee of the registrant's Board of Directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ KARL R. WYSS
-----------------------------------
Karl R. Wyss
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2002
51
CERTIFICATIONS
I, James H. Tate, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Thermadyne
Capital Corp.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements and other financial
information included in the quarterly report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
the quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant,
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
Audit Committee of the registrant's Board of Directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ JAMES H. TATE
-----------------------------------
James H. Tate
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 14, 2002
52
EXHIBIT INDEX
EXHIBITS DESCRIPTION
-------- -----------
Thermadyne Holdings Corporation
-------------------------------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
Thermadyne Mfg. LLC
-------------------
99.3 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
99.4 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
Thermadyne Capital Corp.
------------------------
99.5 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002
99.6 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of
2002