ITEM 1. BUSINESS.
GENERAL
Thermadyne Holdings Corporation, a Delaware corporation ("Thermadyne" or the "Company"), is a leading global manufacturer of cutting and welding products and accessories. The Company manufactures a broad range of gas (oxy-fuel) and electric arc cutting and welding products that are ultimately sold to end-user customers principally engaged in the aerospace, automotive, construction, metal fabrication, mining, mill and foundry, petroleum and shipbuilding industries. Thermadyne Mfg. LLC ("Thermadyne LLC") is a wholly owned and the principal operating subsidiary of the Company and Thermadyne Capital Corp. ("Thermadyne Capital") is a wholly owned subsidiary of Thermadyne LLC.
BACKGROUND
In 1999 the Company made the following two acquisitions. On March 11, the Company acquired all the issued and outstanding capital stock of Soltec S.A. ("Soltec"), a manufacturer of manual electrodes and tubular wires for hardfacing and special applications, located in Santiago, Chile. On April 14, the Company acquired all the issued and outstanding capital stock of Tecmo Srl ("Tecmo"), a manufacturer of torches and plasma and laser consumables, located in Rastignano, Italy. The aggregate consideration paid for these two acquisitions was approximately $6 million and was financed through existing bank facilities. These transactions were accounted for as purchases.
On May 22, 1998, the Company consummated (i) the merger (the "Merger") of Mercury Acquisition Corporation ("Mercury"), a corporation organized by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and entities (the "DLJMB Funds"), with and into the Company and (ii) the associated recapitalization of the Company (collectively, the "Recapitalization"). The DLJMB Funds acquired approximately 80.6% of the outstanding common stock, par value $0.01 per share ("Common Stock") of the Company pursuant to such transactions.
PRINCIPAL PRODUCTS
The Company manufactures a broad range of both gas (oxy-fuel) and arc cutting and welding equipment (including a line of advanced plasma arc cutting systems and oxy-fuel apparatus), accessories and consumables, including repair parts used in the cutting and welding industry. Gas cutting and welding torches burn a mixture of oxygen and fuel gas, typically acetylene. Arc cutting and welding systems are powered by electricity. The major arc cutting and welding systems are plasma, stick, metal inert gas ("MIG") and tungsten inert gas ("TIG"). Arc technology is more sophisticated than gas technology and can be used on more types of metals. In addition, arc equipment produces less distortion in the surrounding metal and it cuts and welds faster, reducing labor costs. However, gas technology is more portable and generally less expensive than arc technology and therefore remains important in many industries.
The Company conducts its operations through the following subsidiaries:
Thermal Dynamics -- Plasma Arc Cutting Products. Thermal Dynamics Corporation ("Thermal Dynamics"), located in West Lebanon, New Hampshire and founded in 1957, developed many of the early plasma cutting systems and maintains its position as a leading manufacturer of plasma cutting systems and replacement parts. Thermal Dynamics' product line ranges from a portable 12-amp unit to large 1,000-amp units. Thermal Dynamics' end users are engaged primarily in fabrication and repair of sheet metal and plate products found in fabricated structural steel and nonferrous metals, automotive products, appliances, sheet metal, heating, ventilation and air conditioning ("HVAC"), general fabrication, shipbuilding and general maintenance.
Advantages of the plasma cutting process over other methods include faster cutting speeds, the ability to cut ferrous and nonferrous alloys and minimum heat distortion on the material being cut. Plasma cutting also permits metal cutting using only compressed air and electricity.
Tweco -- Electric Arc Products and Arc Gouging Systems. Tweco Products, Inc. ("Tweco"), located in Wichita, Kansas and founded in 1936, manufactures a line of arc welding replacement parts and accessories, including electrode holders, ground clamps, cable connectors, terminal connectors and lugs and cable splicers, and a variety of automatic and semiautomatic welding guns and cable assemblies utilized in the arc welding process. Tweco also manufactures manual stick electrode holders, ground clamps and accessories. Manual stick welding is one of the oldest forms of welding and is used primarily by smaller welding shops which perform general repair, maintenance and fabrication work. Tweco's end users are primarily engaged in the manufacture or repair and maintenance of transportation equipment, including automobiles, trucks, aircraft, trains and ships; the manufacture of a broad range of machinery; and the production of fabricated metal products, including structural metal, hand tools and general hardware.
Tweco is a leading domestic manufacturer of MIG welding guns. The MIG process is an arc welding process utilized in the fabrication of steel, aluminum, stainless steel and other metal products and structures. In the MIG process, a small diameter consumable electrode wire is continuously fed into the arc. The welding arc area is protected from the atmosphere by a "shielding" gas. The welding guns and cable assemblies manufactured by Tweco carry the continuous wire electrode, welding current and shielding gas to the welding arc. Tweco manufactures a related line of robotic welding accessory products. This new accessory line includes, but is not limited to, a robotic torch with patented consumables, a robotic deflection mount, a robotic cleaning station, robotic arms and an anti-splatter misting system.
Through its Arcair product line, Tweco manufactures equipment and related consumable materials for "gouging," a technique that liquefies metal in a narrow groove and then removes it using compressed air. Gouging products are often used in joint preparation prior to a welding process. Numerous other applications exist for these gouging systems, such as removal of defective welds, removal of trim in foundries and repair of track, switches and freight cars in the railroad industry. Arcair also manufactures a line of underwater welding and gouging equipment.
In addition to gouging products, Arcair produces a patented exothermic cutting system, SLICE(R). This system generates temperatures in excess of 7000 degrees F and can quickly cut through steel, concrete and other materials. SLICE(R) has many applications, including opening clogged steel furnaces and providing rapid entry in fire and rescue operations. Arcair has developed an underwater version of the SLICE(R) cutting system for use in the marine repair and salvage industry.
Arcair also manufactures TIG torches and accessories. The TIG process can be used to fuse metals of almost all alloys and in thicknesses down to foil size. TIG welding is used for pressure vessels, such as tanks, valves and pipes and is relied on heavily in welding nuclear components. Fabrications involving aluminum, magnesium and other specialty metals for use in aircraft, ships and weapon systems also utilize the TIG process.
Arcair provides a complete line of chemicals used in the welding industry. Chemicals are used for weld cleaning and as agents to reduce splatter adherence on the metal being welded. Chemicals are also used to reduce splatter adherence in welding nozzles in MIG applications.
Victor -- Oxy-Fuel Gas Products. Victor Equipment Company ("Victor") has plants in Abilene and Denton, Texas and Gallman, Mississippi, and was founded in 1913. Victor is a leading domestic manufacturer of gas-operated cutting and welding torches and gas and flow pressure regulation equipment. Victor's torches are used to cut ferrous metals and to weld, heat, solder and braze a variety of metals, and its regulation equipment is used to control pressure and flow of most industrial and specialty gases. In addition, Victor manufactures a variety of replacement parts, including welding nozzles and cutting tips of various types and sizes and a line of specialty gas regulators purchased by end users in the process control, electronics and other industries. Victor also manufactures a wide range of medical regulation equipment serving the oxygen therapy market, including home health care and hospitals.
The torches produced by Victor are commonly referred to as oxy-fuel torches. These torches combine a mixture of oxygen and a fuel gas, typically acetylene, to produce a high-temperature flame. These torches are designed for maximum durability, repairability and performance utilizing patented built-in reverse flow check valves and flash arresters in several models. Victor also manufactures lighter-duty handheld heating, soldering and brazing torches. Pressure regulators, which are basically diaphragm valves, serve a broad range of industrial and specialty gas process control operations.
The principal uses of the Victor torch are cutting steel in metal fabricating applications such as shipbuilding, construction of oil refineries, power plants and manufacturing facilities, and welding, heating, brazing and cutting in connection with maintenance of machinery, equipment and facilities.
Victor sells its lighter-duty products to end-user customers principally engaged in the plumbing, refrigeration and heating, ventilation and air conditioning industries. The relative low cost, mobility and ease of use of Victor torches make them suitable for a wide variety of uses.
Cigweld -- Electric Arc Products, Oxy-Fuel Products, Filler Metals, Gas Control Products and Safety Products. The business now known as Cigweld, located in Melbourne, Australia, and founded in 1922, is the leading Australian manufacturer of gas equipment and welding products.
Cigweld manufactures arc welding equipment products for both the automatic arc and manual arc welding markets. The Cigweld range of automatic welding equipment includes packages specifically designed for particular market segments. End users of this product range include the rural market and the vehicle repair, metal fabrication, shipbuilding, general maintenance and heavy industries. Manual arc equipment products range from small welders designed for the home handyman to units designed for heavy industry.
Cigweld manufactures a range of consumable products (filler metals) for manual and automatic arc and gas welding. The range of manual arc electrodes includes over 50 individual electrodes for different applications. Cigweld markets its manual arc electrodes under such brand names as Satincraft, Weldcraft, Ferrocraft(R), Alloycraft(R), Satincrome, Cobalarc(R), Castcraft and Weldall(R).
For automatic and semiautomatic welding applications, Cigweld manufactures a significant range of solid and flux-cored wires, principally under the Autocraft(R), Verti-Cor, Satin-Cor, Metal-Cor and Cobalarc(R) brand names. For gas and TIG welding, Cigweld manufactures and supplies approximately 40 individual types of wires and solders for use in different applications. Cigweld's filler metals are manufactured to standards appropriate for their intended use, with the majority of products approved by agencies such as Lloyd's Register of Shipping, American Bureau of Shipping, De Norske Veritas and U.S. Naval Ships.
Cigweld manufactures a comprehensive range of equipment for gas welding and cutting and ancillary products such as gas manifolds, gas regulators and flowmeters. Gas welding and cutting equipment is sold in kit form or as individual products. Kits are manufactured for various customer groups and their components include combinations of oxygen and acetylene regulators, blowpipes, cutting attachments, mixers, welding and heating tips, cutting nozzles, roller guides, twin welding hoses, goggles, flint lighters and tip cleaners, combination spanners and cylinder keys. In addition to its kits, Cigweld manufactures and/or distributes a complete range of gas equipment, including a range of blowpipes and attachments, regulators (for oxygen, acetylene, argon and carbon dioxide), flashback arrestors, cutting nozzles, welding and heating tips, hoses and fittings, gas manifolds and accessories.
Cigweld also manufactures a range of gas control equipment including specialty regulators (for use with different gases, including oxygen, acetylene, liquefied petroleum gas, argon, carbon dioxide, nitrogen, air, helium, hydrogen, carbon monoxide, ethylene, ethane and nitrous oxide), manifold systems, cylinder valves and spares and natural gas regulators. Cigweld's gas control items are primarily sold to gas companies.
Cigweld manufactures and/or distributes a range of safety products for use in welding and complementary industries. The product range includes welding helmets and accessories, respirators and masks, breathing apparatus, earmuffs and earplugs, safety spectacles, safety goggles and gas welding goggles, safety helmets, faceshields, flashields (see-through welding curtains and screens) and welding apparel.
Medical products are also manufactured by Cigweld in its manufacturing plant in Melbourne, Australia. These products are sold through distributors in the Australian market and exported through third-party distributors and related entities. The product range includes regulators, flowmeters, suction units, oxygen therapy, resuscitation and outlet valves for medical gas systems.
C&G Systems -- Cutting Tables. C&G Systems Inc. ("C&G"), located in Itasca, Illinois, and founded in 1968, manufactures a line of mechanized cutting tables for fabricating sheet metal and metal plate. The machines utilize either oxy-fuel or plasma cutting torches produced by other divisions of the Company. C&G has a wide range of cutting tables from the relatively inexpensive cantilever type used in general fabrication and job shops to the large precision gantry type found in steel service centers and specialty cutting applications. These metal cutting tables can be used in virtually any metal fabrication plant.
Stoody -- Hardfacing Products. Stoody Company ("Stoody"), located in Bowling Green, Kentucky and with operations founded in 1921, is a recognized world leader in the development and manufacture of hardfacing welding wires, electrodes and rods. While Stoody's primary product line is iron-based welding wires, Stoody also participates in the markets for cobalt-based and nickel-based electrodes, rods and wires, which are essentially protective overlays, deposited on softer base materials by various welding processes. This procedure, referred to as "hardfacing" or "surface treatment," adds a more resistant surface, thereby increasing the component's useful life. Lower initial costs, the ability to treat large parts, and ease and speed of repairs in the field are some of the advantages of hardfacing over solid wear resistant components. A variety of products have been developed for hardfacing applications in industries utilizing earth-moving equipment, agricultural tools, crushing components, and steel mill rolls, and in virtually all applications where metal is exposed to external wear factors.
Thermal Arc -- Arc Welders, Plasma Welders and Wire Feeders. In 1997, the inverter and plasma arc welder business of Thermal Dynamics and the welding division of Prestolite Power Corporation ("Arcsys"), were combined to form Thermal Arc, Inc. ("Thermal Arc"). The combined operation is located in Troy, Ohio and produces a full line of inverter and transformer-based electric arc welders, plasma welders, engine-driven welders and wire feeders. Thermal Arc products compete in the marketplace for construction, industrial and automated applications, and serve a large and diverse user base.
The inverter arc welding power machines use high-frequency power transistors to provide welding machines that are extremely portable and power-efficient when compared to conventional welding power sources. Plasma welding dramatically improves productivity for the end user. Additionally, conventional transformer-based machines provide a cost-effective alternative for markets where low cost and simplicity of maintenance are a high priority.
GenSet -- Engine-Driven Welders and Generators. GenSet S.p.A. ("GenSet"), which was acquired by the Company in January 1997 and is located in Pavia, Italy, commenced operations in 1976 with the production of small generating sets. In 1976, it developed its first engine-driven welder and, in 1977, obtained its first patent for the synchronous alternator designed for welding purposes. It now offers a full range of technologically advanced generators and engine-driven welders that are sold throughout the world. These products are used both where main power is not available and for stand-by power where continuous power supply is a key requirement.
Victor Gas Systems -- Cryogenic Pumps, Ambient and Electric Vaporizers and Automatic Cylinder Filling Systems. The operations of Victor Gas Systems, Inc. ("Victor Gas"), formerly known as Woodland
Cryogenics Company, commenced in 1986, and were acquired by the Company in November 1997. Victor Gas is a leading manufacturer, distributor and installer of cryogenic and high-pressure gas fill plants, vaporizers and pumps, and its products are used to control, mix and package both cryogenic and high-pressure gases into containment vessels such as gas cylinders.
The principal uses of Victor Gas products are for the filling of cryogenic and high-pressure gases for applications in industrial, medical and specialty gas markets served by gas distributors and producers. Victor Gas has developed computerized filling equipment to maximize productivity while also offering conventional or manual filling equipment.
Victor Brazil -- Oxy-Fuel Products and Cutting Tables. Thermadyne Victor Ltda. ("Victor Brazil"), with offices and manufacturing facilities located in Rio de Janeiro, Brazil, was acquired by the Company in 1998. Victor Brazil is the leading manufacturer of oxy-fuel products for industrial and medical use and of mechanized cutting tables for shaping and fabricating sheet metal and metal plate in South America.
Victor Brazil primarily serves the Latin American market. The oxy-fuel product line is very competitive in the region and offers the customer a broad range of gas cutting and welding equipment. Metal fabricators of all sizes, including applications such as shipbuilding, steel construction, machinery manufacturing, pressure vessel producers, and steel mills, use the industrial oxy-fuel products. Hospitals, home care, and doctors' offices use the medical oxy-fuel products.
The cutting table line of products uses either oxy-fuel or plasma cutting systems produced by Victor Brazil or other divisions of the Company. The line of products is oriented to the needs of the Latin American market. Inexpensive cantilever tables and higher-precision, computer numeric-controlled tables are produced by Victor Brazil. These products are used in all types of metal fabricating plants.
INTERNATIONAL BUSINESS
The Company had aggregate international sales from continuing operations of approximately $198.9 million, $199.4 million and $220.2 million for the fiscal years ended December 31, 1999, 1998 and 1997, respectively, or approximately 38%, 37% and 42%, respectively, of net sales in each such period. The Company's international sales are influenced by fluctuations in exchange rates of foreign currencies, foreign economic conditions and other risks associated with foreign trade. Additionally, as a result of the recent downturn in the Asian and certain South American economies, there may be a decrease in infrastructure development in these regions or an overall worldwide contraction of industrial development. The impact of decreased development could have a material adverse effect on the Company's business, financial condition or results of operations. The Company's international sales consist of (a) export sales of Thermadyne products manufactured at domestic manufacturing facilities and, to a limited extent, products manufactured by third parties, sold through overseas field representatives of Thermadyne International Corporation ("Thermadyne International"), a subsidiary of Thermadyne, and (b) sales of Thermadyne products manufactured at international manufacturing facilities, sold by Thermadyne's foreign subsidiaries. For further information concerning the international operations of the Company, see the notes to the consolidated financial statements of the Company included elsewhere herein.
Thermadyne International was formed in 1980 to coordinate Thermadyne's efforts to increase international sales and sells cutting and welding products through independent distributors in more than 80 countries. In support of this effort, the Company operates distribution centers in Canada, Australia, Italy, Mexico, Japan, Singapore, Brazil, the Philippines, Malaysia, Indonesia and the United Kingdom and employs salespeople located in 23 additional countries.
COMPETITION
The Company competes principally with a number of domestic manufacturers of cutting and welding products, the majority of which compete only in limited segments of the overall market. Management believes that competition is based primarily on product quality and brand name, breadth and depth of product lines, effectiveness of distribution channels, a knowledgeable sales force capable of solving customer application
problems, price and quality of customer service. To date, the Company has experienced little direct foreign competition in its U.S. markets due to the relatively limited size of such markets, the inability of foreign manufacturers to establish effective distribution channels and the relatively non-labor-intensive nature of the cutting and welding product manufacturing process. The Company also competes in certain international markets in which it faces substantial competition from foreign manufacturers of cutting and welding products.
DISTRIBUTION
The Company's cutting and welding products are distributed through a domestic network of approximately 1,100 independent cutting and welding products distributors with over 2,800 locations that carry one or more of its product lines. Relationships with the distributors are maintained by a separate sales force for each of the Company's principal product lines. In addition, a national accounts group exists to support the sale of all of the Company's product lines to its major distributors. The Company's products are distributed internationally through a direct sales force and independent distributors.
RAW MATERIALS
The Company has not experienced any difficulties in obtaining raw materials for its operations because its principal raw materials, copper, brass, steel and plastic, are widely available and need not be specially manufactured for use by the Company. Certain of the raw materials used in hardfacing products, such as cobalt and chromium, are available primarily from sources outside the United States, some of which are located in countries that may be subject to economic and political conditions which could affect pricing and disrupt supply. Although the Company has historically been able to obtain adequate supplies of these materials at acceptable prices and has been able to recover the costs of any increases in the price of raw materials in the form of higher unit sales prices, restrictions in supply or significant fluctuations in the prices of cobalt, chromium and other raw materials could adversely affect the Company's business.
The Company also purchases certain products which it either uses in its manufacturing processes or resells. These products include, but are not limited to, electronic components, circuit boards, semiconductors, motors, engines, pressure gauges, springs, switches, lenses and chemicals. The Company believes its sources of such products are adequate to meet foreseeable demand.
RESEARCH AND DEVELOPMENT
The Company has research and development groups for each of its product lines that primarily conduct process and product development to meet market needs. As of December 31, 1999, the Company employed approximately 125 persons in its research and development groups, most of whom are engineers.
EMPLOYEES
As of December 31, 1999, the Company employed 3,196 people, of whom approximately 587 were engaged in sales and marketing activities, 173 were engaged in administrative activities, 2,342 were engaged in manufacturing activities and 94 were engaged in engineering activities. Labor unions represent none of the Company's workforce in the United States and virtually all of the manufacturing employees in its foreign operations. The Company believes that its employee relations are good. The Company has not experienced any significant work stoppages.
PATENTS, LICENSES AND TRADEMARKS
The Company's products are sold under a variety of trademarks and trade names. The Company owns trademark registrations or has filed trademark applications for all trademarks and has registered all trade names that the Company believes are material to the operation of its businesses. The Company also owns various patents and from time to time acquires licenses from owners of patents to apply such patents to its operations. The Company does not believe any single patent or license is material to the operation of its businesses taken as a whole.
ITEM 2.
ITEM 2. PROPERTIES.
The Company operates 17 manufacturing facilities in the United States, Italy, the Philippines, Brazil, Indonesia, Malaysia and Australia. All domestic manufacturing facilities, leases and leasehold interests are encumbered by liens securing the Company's obligations under its senior credit facility. The Company considers its plants and equipment to be modern and well-maintained and believes its plants have sufficient capacity to meet future anticipated expansion needs.
The Company leases and maintains a 43,600-square-foot facility located in St. Louis, Missouri, which houses the executive offices of the Company and its operating subsidiaries, as well as all centralized services.
The following table describes the location and general character of the Company's principal properties:
All of the above facilities are leased, except for the facilities located in Melbourne, Cebu, Pavia, Rio de Janeiro and Gallman, which are owned. The facility in Gallman is unoccupied and currently listed for sale. The Company also has additional assembly and warehouse facilities in Canada, the United Kingdom, Italy, Japan, Singapore, Mexico, the Philippines, Indonesia, Brazil and Australia.
In addition, the Company has subleased 295,000 square feet of its 325,000-square-foot facility in City of Industry, California, which formerly was the manufacturing facility for certain products now manufactured at the Company's Bowling Green, Kentucky facility.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to ordinary litigation incidental to its businesses, including a number of product liability cases seeking substantial damages. The Company maintains insurance against any product liability claims. Coverage for most years has a $500,000 self insured retention with $500,000 of primary insurance per claim. In addition, the Company maintains umbrella policies providing an aggregate of $50,000,000 in coverage for product liability claims. Although it is difficult to predict the outcome of litigation with any certainty, the Company believes that the liabilities which might reasonably result from such lawsuits, to the extent not covered by insurance, will not have a material adverse effect on the Company's financial condition or results of operations.
The Company's operations are subject to federal, state, local and foreign laws and regulations relating to the storage, handling, generation, treatment, emission, release, discharge and disposal of certain substances and wastes. The Company is currently not aware of any citations or claims filed against it by any local, state, federal and foreign governmental agencies, which, if successful, would have a material adverse effect on the Company's financial condition or results of operations.
The Company may be required to incur costs relating to remediation of properties, including properties at which the Company disposes waste, and environmental conditions could lead to claims for personal injury, property damage or damages to natural resources. The Company is aware of environmental conditions at certain properties which it now owns or leases or previously owned or leased which are undergoing remediation. The Company does not believe that the cost of such remediation will have a material adverse effect on the Company's business, financial condition or results of operations.
Certain environmental laws, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act and the equivalent state laws, provide for strict, joint and several liability for investigation and remediation of spills or other releases of hazardous substances. Such laws may apply to conditions at properties presently or formerly owned or operated by the Company or by its predecessors or previously owned business entities, as well as to conditions at properties at which wastes or other contamination attributable to the Company or its predecessors or previously owned business entities come to be located. The Company has in the past and may in the future be named a potentially responsible party at off-site
disposal sites to which it has sent waste. The Company does not believe that the ultimate cost relating to such sites will have a material adverse effect on the Company's financial condition or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the shareholders during the fourth quarter of 1999.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock began trading on The NASDAQ Stock Market ("NASDAQ") on May 17, 1994. On October 15, 1998 the NASDAQ delisted the Common Stock. Following its delisting from NASDAQ, the Common Stock traded in the over the counter market. The following table shows, for the periods indicated, the high and low sale prices of a share of the Common Stock for the fiscal years 1998 and 1999 as reported by published financial sources.
On March 20, 2000 the last reported bid price for the Common Stock as reported by published financial sources was $19.50 per share. As of March 10, 2000 there were approximately 84 holders of record of Common Stock.
The Company has historically not paid any cash dividends on Common Stock and it does not have any present intention to commence payment of any cash dividends. The Company intends to retain earnings to provide funds for the operation and expansion of the Company's business and to repay outstanding indebtedness. The Company's debt agreements contain certain covenants restricting the payment of dividends on, or repurchases of, Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview."
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for and as of each of the years in the five-year period ended December 31, 1999 set forth below has been derived from the audited consolidated financial statements of the Company. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements including the notes thereto in each case included elsewhere herein.
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(1) In 1996 the Company announced plans to sell, and in 1997 consummated the sale of, its wear resistance business and in late 1995 announced its plans to sell, and in 1996 consummated the sale of, its gas containment and floor maintenance businesses. These businesses are accounted for as discontinued operations in the Company's consolidated financial statements.
(2) In conjunction with the Restructuring, the Company's assets and liabilities were revalued at the effective date thereof. The assets and liabilities were stated at their reorganization value. The portion of the reorganization value not attributable to specific assets was amortized over a three-year period.
(3) Includes $33.0 million in 1995 related to the write-down of intangible assets in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 121.
(4) Excludes net assets of discontinued operations.
(5) "Adjusted EBITDA" is defined as operating income plus depreciation, amortization of goodwill, amortization of intangibles, net periodic postretirement benefits expense and special charges and is a key financial measure but should not be construed as an alternative to operating income or cash flows from operating activities (as determined in accordance with generally accepted accounting principles). Adjusted EBITDA is also one of the financial measures by which the Company's compliance with its covenants is calculated under its debt agreements. The Company believes that Adjusted EBITDA is a useful supplement to net income (loss) and other consolidated 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.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
OVERVIEW
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.
The following is a discussion and analysis of the consolidated financial statements of the Company. The Company conducts its operations through its wholly owned subsidiary Thermadyne LLC. The accompanying 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 operating income plus depreciation, amortization of goodwill, amortization of intangibles, net periodic postretirement benefits expense and special charges and is a key financial measure but should not be construed as an alternative to operating income or cash flows from operating activities (as determined in accordance with generally accepted accounting principles). Adjusted EBITDA is also one of the financial measures by which the Company's compliance with its covenants is calculated under its debt agreements. The Company believes that Adjusted EBITDA is a useful supplement to net income (loss) and other consolidated 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.
RESULTS OF OPERATIONS
The following discussion of results of operations is presented for the fiscal years ended December 31, 1997, 1998 and 1999. The results of operations of the Company include the operations of GenSet, Arcsys, Victor Gas, Pro-tip, Mid-America, OCIM, Victor Brazil, Tecmo and Soltec from their respective dates of acquisition.
1999 COMPARED TO 1998
Net Sales
Net sales for the year ended December 31, 1999 were $521.1 million compared to net sales of $532.8 million for the year ended December 31, 1998, a decrease of $11.7 million, or 2.2%. Domestic sales were $322.2 million, a decrease of $11.2 million from 1998 domestic sales of $333.4 million. This 3.4% decrease is the result of the continued weak demand in most of the Company's domestic industrial markets. International sales were $198.9 million in 1999 which is essentially equal to 1998 international sales of $199.4 million. Excluding the results of businesses acquired in Europe and South America in 1999, international sales decreased $17.1 million, or 8.6%. Sales in Asia and Canada increased in 1999, up 11.2% and 6.0%, respectively, over 1998 sales. Sales in Australia continue to decline, down 9.0% in 1999, as the
Australian economy remains weakened from the economic crisis that hit Asia and Australia in late 1997. Sales in Latin America increased 26.0% in a comparison of 1999 and 1998 due to acquisitions in the area since September 1998. Excluding the results of these acquired businesses, sales in Latin America decreased 14.4% in 1999. This decrease resulted from weak economic conditions prevalent throughout the region and unfavorable currency fluctuations, particularly the Brazilian real against the U.S. dollar. The increase in sales reported for Europe was 3.3%, but when excluding the results of an April 1999 acquisition, sales in Europe in 1999 actually decreased 8.1% due in large part to weak demand in many of the industrial sectors of the European market.
Costs and Expenses
Cost of goods sold as a percentage of sales was 65.7% and 63.9% for the years ended December 31, 1999 and 1998, respectively. A major Company initiative in 1999 was to reduce working capital levels. This included eliminating a large number of low-volume, nonstrategic items from the Company's product offerings and liquidating slow-moving and excess inventory. In addition, lower sales brought on by a depressed industrial economy have resulted in a more competitive, price-driven market. The focus on working capital and a decrease in sales have combined to lower the volume of product flowing through the factories and the related absorption of fixed factory overhead.
Selling, general and administrative expenses were $99.2 million in 1999, a decrease of $3.4 million, or 3.3%, from $102.6 million in 1998. Excluding the incremental expenses related to acquisitions, this decrease is 5.7%. As a percentage of sales, selling, general and administrative expenses were 19.0% and 19.2% for the years ended December 31, 1999 and 1998, respectively. Cost reduction programs implemented in the past two years continue to produce positive results for the Company.
Special charges of $21.9 million were recorded in 1999. These charges related to the reorganization of the Company's Australian and Asian operations, the consolidation of two domestic facilities and detachable warrants issued in conjunction with junior subordinated notes. In 1998, special charges of $50.5 million were recorded related to the Merger and headcount reductions.
Interest expense was $72.4 million in 1999, an increase of $10.3 million, or 16.6%, from interest expense of $62.2 million in 1998. The average level of debt outstanding in 1999 was higher than that in 1998 as a result of the Merger in May 1998. Related amortization of deferred financing costs was also higher in 1999 as a result of the Merger, increasing $0.9 million to $3.6 million in 1999 compared to $2.7 million in 1998.
An income tax provision of $8.8 million was recorded in 1999 on a pre-tax loss of $25.5 million. The 1999 income tax provision differs from that determined by applying the U.S. federal statutory rate primarily due to the issuance of warrants for the purchase of the Company's common stock, the disallowance of foreign losses and an increase in the valuation allowance for deferred tax assets. In 1998, an income tax provision of $11.4 million was reported on a pre-tax loss of $34.8 million. Non-deductible expenses recorded in connection with the Merger and an increase in the valuation allowance for deferred tax assets result in an income tax provision different than that determined by applying the U.S. federal statutory rate.
Adjusted EBITDA
Adjusted EBITDA in 1999 was $98.6 million, or 18.9% of net sales. In 1998, Adjusted EBITDA was $105.1 million, or 19.7% of net sales.
1998 COMPARED TO 1997
Net Sales
Net sales from continuing operations for the year ended December 31, 1998 were $532.8 million, an increase of $12.3 million, or 2.4%, over net sales from continuing operations of $520.4 million for the year ended December 31, 1997. Domestic sales increased 10.6% in 1998, including $13.9 million related to acquisitions. Excluding acquisitions, domestic sales increased 6.0% in 1998, which is largely the result of successful new product introductions and marketing programs. International sales decreased 9.0% in a
comparison of 1998 and 1997. Results in Asia and Australia continue to significantly impact consolidated results. Combined sales in those regions decreased 27.4% in 1998. Approximately 70% of this decrease related to changes in currency exchange rates. Also included in the overall 9.0% international sales decrease is $4.5 million in sales attributable to a recently acquired company in Brazil. Excluding the effects of the decreases in Asia and Australia, and the acquisition in Brazil, international sales increased 7.7% in 1998 compared to 1997.
Costs and Expenses
Cost of goods sold from continuing operations as a percentage of sales for the year ended December 31, 1998 was 63.9% compared to 61.5% for the year ended December 31, 1997. Acquisitions continue to put downward pressure on gross margins as the Company expands its product line in the cutting and welding industry which often includes adding lower gross margin businesses. Current sales mix is also influencing the gross margin percentage as the Company is experiencing growth in some of it's lower margin product lines, which results in a lower overall gross margin percentage. Cost of goods sold as a percentage of sales would have been 63.3%, excluding the effect of acquisitions.
Selling, general and administrative expenses from continuing operations decreased $8.1 million, or 7.4%, from $110.7 million for the year ended December 31, 1997 to $102.6 million for the year ended December 31, 1998. As a percentage of sales, selling, general and administrative expenses were 19.2% for the year ended December 31, 1998 compared to 21.3% for the year ended December 31, 1997. This decrease in costs is primarily the result of a broad cost reduction program implemented by the Company in 1998.
Amortization of other intangibles decreased 65.2%, or $4.4 million, to $2.4 million for the year ended December 31, 1998 compared to the year ended December 31, 1997. This decrease results from events that occurred during 1997, including the recognition of net operating loss carryforward benefits and the sale of the wear resistance business.
Special charges of $50.5 million in 1998 are the result of the Merger and headcount reductions in the third and fourth quarters. The amounts applicable to these two events were $44.2 million, and $6.3 million, respectively.
Interest expense increased $16.8 million in 1998 to $62.2 million, from $45.3 million in 1997. This 37.1% increase resulted from increased debt levels as a result of the Merger.
Amortization of deferred financing costs was $2.7 million for the year ended December 31, 1998 compared to $1.6 million for the year ended December 31, 1997. This $1.1 million, or 70.1%, increase is a result of Merger-related debt placement costs.
An income tax provision of $11.4 million was reported for the year ended December 31, 1998 on a pre-tax loss of $34.8 million. An income tax provision of $13.5 million was reported for the year ended December 31, 1997 on pre-tax income of $28.5 million. The 1998 income tax provision differs from the amount determined by applying the U.S. federal statutory rate to pre-tax loss primarily as a result of certain non-deductible expenses recorded in connection with the Merger as well as an increase in the valuation allowance for deferred tax assets. The 1997 income tax provision differs from the amount determined by applying the U.S. federal statutory rate to pre-tax income primarily as a result of non-deductible goodwill amortization and other non-deductible expenses.
Adjusted EBITDA
Adjusted EBITDA was $105.1 million, or 19.7% of net sales, for the year ended December 31, 1998. This compares to Adjusted EBITDA from continuing operations of $102.1 million for the year ended December 31, 1997, which is 19.6% of net sales.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the new statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm or forecasted commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows. Cash provided by operating activities was $53.9 million for the year ended December 31, 1999, an increase of $104.2 million over cash used by operating activities of $50.3 million for the year ended December 31, 1998. This increase in cash provided by operating activities is the result of an increase in earnings, adjusted for non-cash expenses, of $44.5 million plus a net decrease in operating assets and liabilities of $59.7 million in 1999 compared to 1998. The net loss reported in 1999 was $27.0 million less than that reported in 1998 primarily due to a decrease in special charges and extraordinary items of $43.8 million partially offset by increases in certain other expenses and non-cash items. A focus on reducing working capital provided a significant amount of cash in 1999. Net increases in cash flow in 1999, as compared to 1998, as a result of this initiative were $27.5 million in accounts receivable, $44.9 million in inventory and $7.9 million in accounts payable. Prepaid expenses and accrued interest were also net providers of cash in the amounts of $0.9 million and $2.4 million, respectively. These cash inflows were partially offset by increases in the use of cash of $13.3 million in accrued liabilities, $9.7 million in income taxes payable and $0.9 million in other long-term liabilities. The use of cash by accrued liabilities is the result of lower rebate and bonus accruals at December 31, 1999, compared to the prior year and the reduction of the severance and restructuring accruals due to payments throughout 1999. Net cash used in investing activities was $17.1 million in 1999, down $22.4 million from a $39.5 million use of cash in 1998. This decrease is primarily the result of the Company spending $13.1 million less on acquisitions and $7.3 million less on capital expenditures. Financing activities used $24.8 million in cash in the twelve months ended December 31, 1999, compared to providing cash of $89.7 million in the twelve months of the prior year. In 1999, $23.8 million was used in terminating the Company's accounts receivable securitization and an additional $0.9 million was used for financing fees. These uses of cash were offset by cash provided by net borrowings of $3.4 million, including $25.0 million in proceeds from the issuance of Junior Subordinated Notes, and other financing activities of $6.1 million. In 1998, the issuance of debt and equity securities in conjunction with the Merger provided $116.7 million in cash. This was partially offset by cash used for financing fees of $23.8 million and cash used in the accounts receivable securitization of $4.5 million.
Capital Expenditures. The Company had $10.2 million of capital expenditures related to continuing operations in 1999. The Company's new senior secured loan facility (the "New Credit Facility") contains restrictions on the Company's ability to make capital expenditures. Based on present estimates, management believes that the amount of capital expenditures permitted to be made under the New Credit Facility will be adequate to maintain the properties and businesses of the Company's continuing operations.
Liquidity. The Company's principal sources of liquidity are cash flow from operations and borrowings under the New Credit Facility. The Company's principal uses of cash will be debt service requirements, capital expenditures, acquisitions and working capital. The Company expects that ongoing requirements for debt service, capital expenditures and working capital will be funded from operating cash flow and borrowings under the New Credit Facility. In connection with future acquisitions, the Company may require additional funding which may be provided in the form of additional debt, equity financing or a combination thereof. There can be no assurance that any such additional financing will be available to the Company on acceptable terms, if at all.
The term loan facility under the New Credit Facility consists of (i) a $100 million Term A loan, (ii) a $115 million Term B loan, and (iii) a $115 million Term C loan. The Term A loan will mature in 2004, the Term B loan will mature in 2005 and the Term C loan will mature in 2006. The New Credit Facility also includes a $100 million revolving credit facility, which is subject to increase by up to $25 million upon request by Thermadyne LLC and which will terminate six years after the closing date.
On November 10, 1999, the Company amended the New Credit Facility to allow the restructuring of certain of its manufacturing operations and to adjust its financial covenants. In accordance with the amendment, the rate at which the New Credit Facility bears interest was adjusted to, at Thermadyne LLC's option, the administrative agent's alternative base rate or the reserve-adjusted London Interbank Offered Rate ("LIBOR") plus, in each case, applicable margins of (i) in the case of alternative base rate loans, (x) 1.50% 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. The applicable margin may vary based on Thermadyne LLC's ratio of consolidated indebtedness to Adjusted EBITDA. In addition, the amendment required the issuance of $25.0 million of Junior Subordinated Notes with detachable warrants for the purchase of the Company's common stock.
Thermadyne LLC's obligations under the New Credit Facility are secured by substantially all of the assets of Thermadyne LLC, including a pledge of the capital stock of all of its subsidiaries, subject to certain limitations with respect to foreign subsidiaries. In addition, the Company has guaranteed the obligations of Thermadyne LLC under the New Credit Facility. Such guarantee is the only recourse to the Company's pledge of all of the outstanding capital stock of Thermadyne LLC to secure Thermadyne LLC's obligations under the New Credit Facility. The New Credit Facility contains customary covenants and events of default including substantial restrictions on Thermadyne LLC's ability to make dividends or other distributions to the Company.
Mercury issued 12 1/2% Senior Discount Debentures (the "Debentures") which became obligations of the Company following the Merger and are not guaranteed by Thermadyne LLC or any of its consolidated subsidiaries. The debentures will mature in 2008 and will not require cash interest payments until 2003. The debentures contain customary covenants and events of default, including covenants that limit the ability of the Company and its subsidiaries to incur debt, pay dividends and make certain investments.
Thermadyne LLC and Thermadyne Capital issued 9 7/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes"), which were guaranteed by certain of the Company's domestic subsidiaries. Interest on the Senior Subordinated Notes will be payable semiannually in cash. The Senior Subordinated Notes contain customary covenants and events of default, including covenants that limit the ability of Thermadyne LLC and its subsidiaries to incur debt, pay dividends and make certain investments.
The Company anticipates that its operating cash flow, together with borrowings under the New Credit Facility, will be sufficient to meet its anticipated future operating expenses and capital expenditures and to service its debt requirements as they become due. However, the Company's ability to make scheduled payments of principal of, to pay interest on or to refinance its indebtedness and to satisfy its other debt obligations will depend upon its future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond its control.
MARKET RISK AND RISK MANAGEMENT POLICIES
The Company's earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. The Company is also exposed to changes in interest rates from its long-term debt arrangements. See Item 7A
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A substantial portion of the Company's operations consist of manufacturing and sales activities in foreign regions, particularly Europe, Australia/Asia, Canada and South America. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company distributes its products. The Company's exposure to foreign currency transactions is partially mitigated by having manufacturing locations in Australia, Italy, Indonesia, Malaysia, the Philippines and Brazil as well as in the United States. A substantial portion of the product manufactured in these regions is sold locally and denominated in the local currency. A significant amount of the export sales from the U.S. are denominated in U.S. dollars which further limits the Company's exposure to changes in the exchange rates. The Company is most susceptible to a strengthening U.S. dollar and the negative effect when local currency financial statements are translated into U.S. dollars, the Company's reporting currency.
The Company does not believe its exposure to transaction gains or losses resulting from changes in foreign currency exchange rates is material to its financial results. As a result, the Company does not actively try to manage its exposure through foreign currency forward or option contracts.
The Company is also exposed to changes in interest rates primarily from its long-term financial arrangements which are predominantly denominated in U.S. dollars. At December 31, 1999, the Company had approximately $294.8 million of variable rate U.S. debt. The Company limited its exposure to variations in the interest rate by entering into an interest rate swap arrangement effective January 1, 1999, with respect to approximately $61.5 million of this debt. The Company also has approximately $19.9 million and $10.5 million of variable rate debt denominated in Australian dollars and Italian lira, respectively. A hypothetical 100 basis point increase in the Company's variable borrowing rates would result in an increase in interest expense of approximately $2.6 million for the year ended December 31, 1999.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements that are filed as part of this Annual Report on Form 10-K are set forth in the Index to Consolidated Financial Statements at page hereof and are included at pages to thereof.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information concerning the current directors and executive officers of the Company. Each officer of the Company serves in the same capacity for Thermadyne LLC and Thermadyne Capital.
Mr. Curran has been a Director of the Company since February 1994 and was elected Chairman of the Board and Chief Executive Officer in February 1995, having previously served as President of the Company from August 1994 and as Executive Vice President and Chief Operating Officer of the Company from February 1994. From 1992 to 1994 Mr. Curran was President of the cutting and welding division of the Company. From 1986 to 1992, Mr. Curran was Chief Financial Officer of the Company and/or its predecessors. Prior to 1986, Mr. Curran held various executive positions with Cooper Industries, Inc. Mr. Curran presently serves on the boards of directors of Insilco Holding Co. and the Whitfield School.
Mr. Tate has been a Director of the Company since October 1995. He was elected Senior Vice President and Chief Financial Officer of the Company in February 1995, having previously served as Vice President of the Company and Vice President and Chief Financial Officer of the Company's subsidiaries since April 1993. Prior to joining the Company, Mr. Tate was employed by the accounting firm of Ernst & Young LLP for eighteen years, the last six of which he was a partner. Mr. Tate currently serves on the board of directors of Rowe International, Inc.
Mr. Grauer has been a Director of the Company since May 1998. Mr. Grauer has been a Managing Director of DLJ Merchant Banking II, Inc. ("DLJMB II Inc.") (and its predecessor) since September 1992. Mr. Grauer is a director of Doane Pet Care Enterprises, Inc., Total Renal Care Holdings, Inc., Formica Corporation and Bloomberg, Inc.
Mr. Dawson has been a Director of the Company since May 1998. Mr. Dawson has been a Principal of DLJMB II Inc. since August 1997. From December 1995 to August 1997, he was a Senior Vice President in Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC") High Yield Capital Markets Group. Prior thereto Mr. Dawson was a Vice President in the Leveraged Finance Group within DLJSC's Investment Banking Group. Mr. Dawson serves as a director of Von Hoffmann Corporation and Insilco Holding Co.
Mr. Fort has been a Director of the Company since May 1998. Mr. Fort is currently Chairman of the Board of Mueller-Grinnel Corp. and Insilco Corp. Mr. Fort retired as Chairman of the Board of Tyco International Ltd. in January of 1993. In 1964, after receiving degrees in Aeronautical Engineering and Industrial Management from Princeton and the MIT Sloan School, respectively, he joined the Simplex Wire & Cable Company (now a subsidiary of Tyco). Mr. Fort held a broad range of positions throughout his thirty years at Tyco. He currently holds directorships at Tyco International, Ltd., Roper Industries, Manufacturers Services, Ltd. and DeCrane Aircraft Holding Co. He is an active participant on advisory boards at MIT, Princeton University, Full Circle Investments and the Appalachian Mountain Club.
Mr. Poling has been a Director of the Company since May 1998. Mr. Poling retired as Chairman of the Board and Chief Executive Officer of Ford Motor Company on January 1, 1994, a position he held since 1990. Mr. Poling is a director of Shell Oil Company, Flint Ink Corporation, the Kellogg Company and Meritor Automotive, Inc. He is a board consultant for the LTV Corporation, a member of the DLJ Executive Advisory Board and a member of the board of directors and trustee of William Beaumont Hospital. Mr. Poling is a director of the Monmouth (Ill.) College Senate and a member of the Dean's Advisory Council for the Indiana University School of Business. He was national chairman of Indiana University's Annual Fund campaigns from 1986-88.
Mr. Schloss has been a Director of the Company since May 1998. Mr. Schloss has been the Managing Partner of DLJMB II Inc. since November 1995. Prior to November 1995, he was the Chief Operating Officer and a Managing Director of DLJ Merchant Banking, Inc. Mr. Schloss currently serves as Chairman of the Board of McCulloch Corporation and as a director of Merrill Corporation.
Ms. Josephson, having previously been elected Corporate Counsel and Corporate Secretary of the Company in March 1995, was elected Vice President and General Counsel in April 1995. Prior to joining the Company, Ms. Josephson was Corporate Counsel for Mills & Partners, Inc. from 1993 to 1995 and an Adjunct Professor at Saint Louis University School of Business in the MBA program from 1991 to 1993. Prior thereto, Ms. Josephson was employed in Houston, Texas as Counsel for Cooper Industries, Inc. and in private practice with the law firms Andrews & Kurth and Weycer and Kaplan from 1979 to 1991.
Mr. Drury was elected Vice President -- Human Resources of the Company in March 1995. Prior to that time, Mr. Drury served as Director of Human Resources for the Company since November 1991. Prior to joining the Company, Mr. Drury was Manager -- Human Resources at McDonnell Douglas Systems Integration Company from 1988 through 1991.
Mr. Maddox was elected Vice President and Corporate Controller of the Company in April 1996. Prior to that time, Mr. Maddox served as Vice President and Controller of the Company's operating subsidiaries from April 1995 to April 1996 and Controller from May 1992 to April 1995. Prior to joining the Company, Mr. Maddox was a senior audit manager with the accounting firm of Ernst & Young LLP.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information in respect of the compensation of the Chief Executive Officer and each of the other four most highly compensated executive officers of the Company (collectively, the "Named Executive Officers") for services in all capacities to the Company and its subsidiaries for the years ended December 31, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
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(1) All other compensation includes group life insurance premiums paid by the Company and contributions made on behalf of the Named Executive Officers to the Company's 401(k) retirement and profit sharing plan. The amounts of insurance premiums paid and 401(k) contributions made on behalf of the Named Executive Officers for 1999 are as follows: Mr. Curran $5,148 and $32,141, respectively; Mr. Tate, $3,497 and $16,093, respectively; Ms. Josephson, $1,716 and $9,117, respectively; Mr. Drury, $859 and $7,416, respectively; and Mr. Maddox, $389 and $6,566, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the Named Executive Officers in 1999.
The following table provides information related to the number and value of options held by the Named Executive Officers at the end of 1999. On December 31, 1999, the last reported close price for the Common Stock was $19.50.
FISCAL YEAR-END OPTION VALUES
All options currently outstanding were granted under the Management Incentive Plan. For a discussion of the Management Incentive Plan, see "Employment Arrangements".
EMPLOYMENT ARRANGEMENTS
Employment Contracts. The employment agreements with Messrs. Curran, Tate, Drury and Maddox and Ms. Josephson have an original termination date of May 22, 2001; however, such agreements automatically renew for an additional year on each May 22 beginning in 1999 so that a new three-year term begins upon each extension (unless the agreements are earlier terminated as provided therein). Messrs. Curran, Tate, Drury and Maddox and Ms. Josephson serve in their current executive capacities with the Company as a requirement of their respective employment agreements.
Messrs. Curran, Tate, Drury and Maddox and Ms. Josephson are entitled to annual base salaries (subject to increase at the Board of Directors' discretion) of $575,000, $326,500, $178,500, $178,500 and $215,300, respectively. In addition, Messrs. Curran, Tate, Drury and Maddox and Ms. Josephson are eligible to participate in an annual bonus plan providing for an annual bonus opportunity of not less than 100%, 75%, 55%, 55% and 55%, respectively, of such executive's base salary. Each executive is also entitled to such benefits as are customarily provided to the executives of the Company and its subsidiaries. All five executives are required to devote all of their business time and attention to the business of the Company and its subsidiaries.
Each employment agreement provides that if the executive's employment ceases as a result of disability or death, the executive or the executive's estate, heirs or beneficiaries, as the case may be, will continue to receive the executive's then current salary for a period of 24 months from the date of his or her disability or death. If the executive's employment is terminated by the Company for Cause (as defined in each employment agreement) or voluntarily by the executive for any reason other than death, disability or upon a constructive termination (which includes, among other things, reduction of compensation, title, position or duties) the executive will not be entitled to receive compensation or any accrued benefits after the date of termination. If the executive's employment is terminated by the Company without Cause or is terminated by the executive upon a constructive termination, the executive will continue to receive his or her then current salary and other benefits provided by the agreement during the unexpired term of the agreement.
Management Incentive Plan. The Management Incentive Plan provides for the granting of options to acquire up to 500,000 shares of Common Stock to certain officers and employees of the Company. All options are non-qualified stock options granted at 100% of the fair market value on the grant date. In fiscal 1999, options to purchase approximately 19,700 shares of Common Stock were granted under the Management Incentive Plan to certain officers and employees of the Company at an exercise price of $34.50 per option share. These options vest pro rata over five years. Pursuant to the terms of the Management Incentive Plan,
options granted to certain members of senior management provide for both a "Time Vesting Option" and a "Cliff Vesting Option." Under the Time Vesting Option, the option vests and is exercisable with respect to 20% of the shares subject to the option on the day it was granted. Then, on each of the first five anniversaries from that date the Time Vesting Option was granted, an additional 16% of the shares subject to the option vests and becomes exercisable as long as the option recipient is still employed by the Company or its subsidiaries. The Cliff Vesting Option becomes vested and exercisable with respect to 20% of the shares on the thirtieth day after the availability of the audited financial statements for each of the fiscal years ended December 31, 1998 through December 31, 2002, provided that the option recipient is still employed by the Company or its subsidiaries on such date of determination, and further provided, that the targeted implied common equity value of the Company was met for such fiscal year. If the targeted implied common equity value of the Company is not attained for any fiscal year ending on or before December 31, 2002, the Cliff Vesting Option will be treated as vested and exercisable if the target is attained for any subsequent year as long as the option recipient is still employed by the Company or its subsidiaries on such date of determination. If, after eight years from receipt of the Cliff Vesting Option, all shares subject to such option have not vested, such shares shall become fully vested and exercisable as long as the option recipient is still employed by the Company or its subsidiaries on such date.
The following table sets forth the number of shares of Common Stock issuable upon the exercise of options granted to each Named Executive Officer under the Management Incentive Plan.
MANAGEMENT INCENTIVE PLAN OPTION GRANTS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Board of Directors served as an officer or employee of the Company or any of its subsidiaries during 1999.
COMPENSATION OF DIRECTORS
Other than Messrs. Curran, Tate, Dawson, Schloss and Grauer, each director of the Company is entitled to receive a $12,000 annual retainer plus a $1,000 fee for each regular meeting of the Board of Directors attended and a $500 fee for each meeting of a board committee attended. Additionally, certain non-employee directors (as described in the Thermadyne Holdings Corporation 1998 Non-Employee Directors Stock Option Plan (the "Directors Plan")) are eligible to receive options under the Directors Plan. The Directors Plan provides that certain non-employee directors shall receive options to purchase 3,000 shares of Common Stock upon becoming a director and options to purchase 500 shares of Common Stock each year thereafter. All options are non-qualified stock options granted at 100% of the fair market value on the grant date. During 1999, the Board of Directors awarded each of Messrs. Fort and Poling options to purchase 500 shares of Common Stock at $34.50 per share pursuant to the Directors Plan. Directors also are reimbursed for all reasonable travel and other expenses of attending meetings of the Board of Directors or committees of the Board of Directors.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 2, 2000, certain information regarding the ownership of Common Stock (i) by each person known by the Company to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii) by each director or director nominee of the Company, (iii) by each executive officer named in the Summary Compensation Table included elsewhere in this Annual Report on Form 10-K and (iv) by all current directors and executive officers of the Company as a group. Other than as set forth below, no director, director nominee, or executive officer of the Company is the beneficial owner of any shares of Common Stock. The Company believes that, unless otherwise noted, each person shown in the following table has sole voting and sole investment power with respect to the shares indicated.
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* Represents less than 1%.
(1) Based on 3,590,326 shares of Common Stock outstanding at March 2, 2000 and calculated in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
(2) Consists of shares held directly by DLJMB and the following investors related to DLJMB: DLJ Offshore Partners II, C.V. ("Offshore"), a Netherlands Antilles limited partnership, DLJ Diversified Partners, L.P. ("Diversified"), a Delaware limited partnership, DLJMB Funding II, Inc. ("Funding"), a Delaware corporation, DLJ Merchant Banking Partners II-A, L.P. ("DLJMBPIIA"), a Delaware limited partnership, DLJ Diversified Partners-A, L.P. ("Diversified A"), a Delaware limited partnership, DLJ Millennium Partners, L.P. ("Millennium"), a Delaware limited partnership, DLJ Millennium Partners-A, L.P. ("Millennium A"), a Delaware limited partnership, DLJ EAB Partners, L.P. ("EAB"), a Delaware limited partnership, UK Investment Plan 1997 Partners ("UK Partners"), a Delaware partnership, DLJ First ESC L.P. ("DLJ First ESC"), a Delaware limited partnership, and DLJ ESC II, L.P. ("DLJ ESC II"), a Delaware limited partnership. DLJMB, Offshore, Diversified, Funding, DLJMBPIIA, Diversified A, Millennium, Millennium A, EAB, DLJ First ESC and DLJ ESC II are herein referred to as the "DLJ Funds."The address of each of DLJMB, Diversified, Funding, DLJMBPIIA, Diversified A, Millennium, Millennium A, EAB, DLJ First ESC and DLJ ESC II is 277 Park Avenue, New York, New York 10172. The address of Offshore is John B. Gorsiraweg, 14 Willemstad, Curacao, Netherlands Antilles. The address of UK Partners is 2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California 90067. Includes 436,965 shares of Common Stock issuable upon exercise of warrants that are currently exercisable.
(3) The following information is based on a Schedule 13D, dated July 25, 1996, as amended on September 25, 1996, on February 12, 1998, on March 9, 1998, and on June 10, 1998, filed with the
Securities and Exchange Commission (the "Commission") by Magten Asset Management Corp. ("Magten"), an investment adviser registered under the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"). Magten has (i) shared voting power over 227,897 of the shares and no voting power over 39,442 of the shares and (ii) shared investment power over all 267,339 shares.
(4) Includes 25,843 shares of Common Stock issuable to Mr. Curran upon the exercise of vested stock options or stock options that will vest within 60 days.
(5) Includes 13,438 shares of Common Stock issuable to Mr. Tate upon the exercise of vested stock options or stock options that will vest within 60 days.
(6) Messrs. Grauer, Dawson and Schloss are officers of DLJMB II Inc., the general partner of DLJMB. Share data shown for such individuals excludes shares shown as held by the DLJMB Funds, as to which such individuals disclaim beneficial ownership.
(7) Includes 3,500 shares of Common Stock issuable to Mr. Fort upon the exercise of vested stock options or stock options that will vest within 60 days.
(8) Includes 3,500 shares of Common Stock issued to Mr. Poling upon the exercise of vested stock options or stock options that will vest within 60 days.
(9) Includes 2,756 shares of Common Stock issuable to Ms. Josephson upon the exercise of vested stock options or stock options that will vest within 60 days.
(10) Includes 2,756 shares of Common Stock issuable to Mr. Drury upon the exercise of vested stock options or stock options that will vest within 60 days.
(11) Includes 2,756 shares of Common Stock issuable to Mr. Maddox upon the exercise of vested stock options or stock options that will vest within 60 days.
(12) Includes 54,549 shares of Common Stock issuable upon the exercise of vested stock options or stock options that will vest within 60 days.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On December 22, 1999, the DLJ Funds purchased, for an aggregate purchase price of $25,000,000, pursuant to a Subscription Agreement ("Subscription Agreement") among the Company, Thermadyne Mfg. LLC (the "Subsidiary") and the DLJ Funds [defined elsewhere] dated December 22, 1999, a principal amount of $25,000,000 Junior Subordinated Notes due 2009 (the "Notes") of the Subsidiary and warrants to purchase 436,965 shares ("Warrants"). Each Warrant is exercisable at a price of $0.01 per Warrant Share (as defined below), subject to adjustment. The investment of additional capital in the Company and the Subsidiary was used for general corporate purposes.
The Company, the Subsidiary and the DLJ Funds have entered into a Registration Rights Agreement which grants the holders of 50% or more of the Notes or Warrants the right to demand the Company or the Subsidiary, as the case may be, to effect a registration of the Notes or Warrants under the Securities Act of 1933, as amended (the "Act"). The Company is obliged to effect one demand registration for the Warrants and the Subsidiary is obliged to effect up to two demand registrations for the Notes. If any Warrants are included in a demand registration, the Company must prepare a shelf registration statement under Rule 415 of the Act permitting the resale of Warrants and the shares issuable upon exercise of the warrants ("Warrant Shares") and must use its best efforts to cause the warrant shelf registration statement to be declared effective within 90 days of the time such demand registration is effected. The Company must keep the warrant shelf registration statement effective until the earlier of (i) two years following the date as of which no Warrants remain outstanding and (ii) if all of the Warrants expire unexercised, December 15, 2009.
The Company's registration obligations in respect of the Warrants shall expire on the earlier of (i) the date on which each Warrant or Warrant Share has been disposed of in accordance with a warrant registration statement or when such Warrant Share is issued upon exercise of a Warrant in accordance with a registration statement and (ii) the date on which each Warrant or Warrant Share is distributed to the public pursuant to Rule 144 under the Act. The Subsidiary's registration obligations in respect of the Notes shall expire on the
earlier of (i) the date on which each Note has been disposed in accordance with a note registration statement and (ii) the date on which each Note is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement also grants "piggy-back" rights to the DLJ Funds to participate in certain registration statements filed by Thermadyne in respect of any equity securities of the Company. The Registration Rights Agreement also contains a "lock-up" provision pursuant to which the DLJ Funds may be restricted from transferring Notes or Warrants in public sales during an underwriter's public offering of Notes or Warrants.
Pursuant to a letter agreement dated January 16, 1998 (the "Engagement Letter"), DLJMB engaged DLJSC to act as DLJMB's exclusive financial advisor for a period of five years (the "Engagement Period") with respect to the review and analysis of financial and structural alternatives available to the Company. DLJMB's obligations under the Engagement Letter have since been assumed by the Company.
As compensation for the services to be provided by DLJSC under the Engagement Letter, DLJSC is entitled to receive an annual advisory fee of $300,000, payable quarterly in equal installments of $75,000. DLJSC is also entitled to reimbursement for all of its out-of-pocket expenses incurred in connection with its engagement.
During the Engagement Period, DLJSC is also entitled to act as the Company's exclusive financial advisor, sole placement agent, sole initial purchaser, sole managing underwriter or sole dealer-manager, as the case may be, with respect to any Transaction (as hereinafter defined) the Company determines to pursue. The term "Transaction" includes the following: (i) the sale, merger, consolidation or any other business combination, in one or a series of transactions, involving any portion of the business, securities or assets of the Company; (ii) the acquisition (and any related matters such as financings, divestitures, etc.) in one or a series of transactions, of all or a portion of the business, securities or assets of another entity or person; (iii) any recapitalization, refinancing, repurchase or restructuring of the Company's equity or debt securities or indebtedness or any amendments or modifications to the Company's debt securities or indentures whether or not in connection therewith, involving, by or on behalf of the Company, an offer to purchase or exchange for cash, property, securities, indebtedness or other consideration, or a solicitation of consents, waivers of authorizations with respect thereto; (iv) any spin-off, split-off or other extraordinary dividend of cash, securities or other assets to stockholders of the Company; or (v) any sale of securities of the Company effected pursuant to a private sale or an underwritten public offering.
The Company has agreed to indemnify and hold harmless DLJSC and its affiliates, and the respective directors, officers, agents and employees of DLJSC and its affiliates (each, an "Indemnified Person") from and against any losses, claims, damages, judgments, assessments, costs and other liabilities and will reimburse such Indemnified Persons for all fees and expenses (including the reasonable fees and expenses of counsel) as they are incurred in investigating, preparing, pursuing or defending any claim, action, proceeding or investigation arising out of or in connection with advice or services rendered or to be rendered by any Indemnified Person pursuant to the Engagement Letter, the transactions contemplated by the Engagement Letter or any Indemnified Person's action or inactions in connection with any such advice, services or transactions, other than liabilities or expenses that are determined by a judgment of a court of competent jurisdiction to have resulted solely from such Indemnified Person's gross negligence or willful misconduct.
The Engagement Letter makes available the resources of DLJSC concerning a variety of financial and operational matters. The services that have been and will continue to be provided by DLJSC could not otherwise be obtained by the Company without the addition of personnel or the engagement of outside professional advisors. In the opinion of management, the fees provided for under the Engagement Letter reasonably reflect the benefits received and to be received by the Company.
Messrs. Grauer, Dawson and Schloss, directors of the Company, are officers of DLJMB II Inc., which is an affiliate of each of DLJMB, DLJSC, DLJ Capital Funding, Inc. and DLJ Bridge Finance, Inc.
The Company has entered into the Investors' Agreement with the DLJMB Funds and the senior executive officers of the Company. The Investors' Agreement, among other things, contains provisions regarding the composition of the Board of Directors of the Company, grants the parties thereto certain
registration rights and contains provisions requiring the senior executive officers parties thereto to sell their shares of Common Stock in connection with certain sales of the Common Stock by the DLJMB Funds and granting the senior executive officers parties thereto the right to include a portion of their shares of Common Stock in certain sales of the Common Stock by the DLJMB Funds.
In 1998, Messrs. Curran, Tate, Maddox and Drury and Ms. Josephson received secured, non-recourse loans from the Company in the amount of $1,249,890, $367,606, $237,630, $223,222 and $288,413, respectively, to purchase shares of the Company. The current principal balances of the loans are $1,284,957, $377,920, $244,297, $229,485 and $296,505, respectively. The loans bear interest at the rate of 5.69% per annum and are due in full on May 22, 2006. Upon the termination of a participant's employment with the Company, other than as a result of the participant's death, any outstanding loan will become due and payable.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENT SCHEDULES
Report of Ernst & Young LLP, Independent Auditors is included at page S-1 hereof.
Schedule II -- Valuation and Qualifying Accounts is included at page S-2 hereof.
All other schedules for which provision is made in the applicable accounting regulation of the Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
REPORTS ON FORM 8-K
None.
EXHIBITS
- ---------------
+ Indicates a management contract or compensatory plan or arrangement.
* Filed herewith.
(1) Incorporated by reference to the Company's Registration Statement on Form 10 (File No. 0-23378) filed under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on February 7, 1994.
(2) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on January 21, 1998.
(3) Incorporated by reference to the Company's Registration Statement on Form S-1, (File No. 333-57455) filed on June 23, 1998.
(4) Incorporated by reference to Thermadyne LLC and Thermadyne Capital's Registration Statement on Form S-1 (File No. 333-57457) filed on June 23, 1998.
(5) Incorporated by reference to the Company's Registration Statement on Form 10/A, Amendment No. 2 (File No. 0-23378) filed under Section 12(g) of the Exchange Act, on April 28, 1994.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(7) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on January 18, 1996.
(8) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on May 12, 1997.
THERMADYNE HOLDINGS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors Thermadyne Holdings Corporation
We have audited the accompanying consolidated balance sheets of Thermadyne Holdings Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thermadyne Holdings Corporation and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri February 11, 2000
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
See accompanying notes to consolidated financial statements.
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA)
See accompanying notes to consolidated financial statements.
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS)
See accompanying notes to consolidated financial statements.
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See accompanying notes to consolidated financial statements.
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
Thermadyne Holdings Corporation ("Thermadyne" or the "Company"), a Delaware corporation, is a global manufacturer of cutting and welding products and accessories.
As used in this report, the term "Mercury" means Mercury Acquisition Corporation, the term "Issuer" means Mercury before the Merger and Thermadyne Holdings Corporation after the Merger (as defined in Note 2), the term "Holdings" means Thermadyne Holdings Corporation, the terms "Thermadyne" and the "Company" mean Thermadyne Holdings Corporation, its predecessors and subsidiaries, the term "Thermadyne LLC" means Thermadyne Mfg. LLC, a wholly owned and the principal operating subsidiary of Thermadyne Holdings Corporation, and the term "Thermadyne Capital" means Thermadyne Capital Corp., a wholly owned subsidiary of Thermadyne LLC.
2. RECENT EVENTS
Special Charges
Special charges of $21.9 million were recorded in 1999 and relate to the reorganization of the Company's Australian and Asian operations, the consolidation of two domestic facilities and detachable warrants issued in conjunction with junior subordinated notes. In 1998, special charges of $50.5 million were recorded related to the merger of the Company and headcount reductions.
Merger with Mercury Acquisition Corporation
On May 22, 1998, Holdings consummated the merger of Mercury, a corporation organized by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and entities (the "DLJMB Funds"), with and into Holdings, with Holdings continuing as the surviving corporation (the "Merger").
The funding required to pay cash for common stock not receiving the right to retain Holdings common stock; to pay cash in lieu of each previously outstanding employee stock option; to pay cash in lieu of the right to purchase common stock under the Company's employee stock purchase plan; to refinance and/or retire outstanding indebtedness of the Company; and to pay expenses incurred in connection with the Merger was approximately $808 million. These cash requirements were funded with the proceeds obtained from concurrent equity and debt financings. Thermadyne LLC and Thermadyne Capital issued $207 million principal amount of 9 7/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes") and Thermadyne LLC entered into a syndicated senior secured loan facility providing for term loan borrowings in the aggregate principal amount of $330 million and revolving loan borrowings of $100 million (the "New Credit Facility"). In connection with the Merger, Thermadyne LLC borrowed all term loans available under the New Credit Facility plus $25 million of revolving loans, which were subsequently repaid. The revolving loans are available to fund the working capital requirements of Thermadyne LLC. The proceeds of such financings were distributed to Holdings in the form of a dividend.
Mercury issued approximately $94.6 million aggregate proceeds of 12 1/2% Senior Discount Debentures due 2008 (the "Debentures"). In connection with the Merger, Holdings succeeded to the obligations of Mercury with respect to the Debentures. The DLJMB Funds also purchased 2,608,696 shares of common stock of Mercury ("Mercury Common Stock"), 2,000,000 shares of preferred stock of Mercury ("Mercury Preferred Stock") and warrants to purchase 353,428 shares of Mercury Common Stock at an exercise price of $0.01 per share (the "DLJMB Warrants") for approximately $140 million. As a result of the Merger, the proceeds of such purchases became an asset of Holdings, each share of Mercury Common Stock became a share of Holdings Common Stock, each share of Mercury Preferred Stock became a share of exchangeable preferred stock of Holdings ("Holdings Preferred Stock") and each DLJMB Warrant to acquire Mercury Common Stock became exercisable for an equal number of shares of Holdings Common Stock. In addition, in
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection with the Merger, certain members of senior management purchased 143,192 shares of Holdings Common Stock for approximately $4.9 million (the "Management Share Purchase"), of which approximately $3.6 million was provided through non-recourse loans from Holdings (the "Management Loans"). The Management Loans have a term of eight years and bear interest at the rate of 5.69% compounded annually.
As a result of these transactions, the Company experienced an approximate 85% ownership change, the DLJMB Funds obtained ownership of approximately 80.6% of the Company's outstanding common stock, and the Company became highly leveraged. The Merger and related transactions have been treated as a leveraged recapitalization in which the issuance and retirement of debt have been accounted for as financing transactions, the sales and purchases of the Company's common stock have been accounted for as capital transactions at amounts paid to or received from stockholders, and no changes were made to the carrying values of the Company's assets and liabilities that were not directly affected by the transaction.
In connection with the Merger, the Company incurred special charges of approximately $44.2 million, consisting of expenses of approximately $18.5 million related to employee stock options and related plans and $25.7 million of non-capitalizable transaction fees. In addition, the Company recorded an extraordinary loss in the amount of $23.3 million due to the early extinguishment of long-term debt. The Company paid DLJMB approximately $20 million for professional services in connection with the Merger.
Acquisitions
In 1999 the Company made the following two acquisitions. On March 11, the Company acquired all the issued and outstanding capital stock of Soltec S.A., a manufacturer of manual electrodes and tubular wires for hardfacing and special applications, located in Santiago, Chile. On April 14, the Company acquired all the issued and outstanding capital stock of Tecmo Srl, a manufacturer of torches and plasma and laser consumables, located in Rastignano, Italy. The aggregate consideration paid for these two acquisitions was approximately $6 million and was financed through existing bank facilities. These transactions were accounted for as purchases.
In 1998 the Company made the following four acquisitions. On September 1, the Company acquired all the issued and outstanding capital stock of Thermadyne Victor Ltda. (formerly known as Equi Solda SA), a leading manufacturer of gas cutting apparatus in Brazil. On July 24, the Company acquired substantially all the assets of Mid-America Cryogenics Company, which specializes in the design, installation and service of cryogenic equipment and is located in Indianapolis, Indiana. On May 21, the Company acquired substantially all the assets of OCIM Srl, a manufacturer of a variety of arc welding accessories including MIG and TIG torches and consumables, located in Milan, Italy. On February 1, the Company acquired substantially all the assets of Pro-tip, a division of Settles Ground Support, Inc., a producer of low-cost oxygen fuel cutting tips in Cuthbert, Georgia. The aggregate consideration paid for these four acquisitions was approximately $19 million and was financed through existing bank facilities. These transactions were all accounted for as purchases.
In 1997 the Company completed three acquisitions. On November 25, the Company acquired substantially all of the assets of Woodland Cryogenics, Incorporated, a manufacturer of cryogenic pumps, ambient and electric vaporizers and automatic cylinder filling systems located in Philadelphia, Pennsylvania. On September 26, the Company acquired substantially all of the assets of the welding division of Prestolite Power Corporation, a manufacturer of arc welders, plasma welders and wire feeders, located in Troy, Ohio. On January 31, the Company acquired all of the issued and outstanding capital stock of GenSet S.p.A., a leading manufacturer of engine-driven welders and generators in Italy. The aggregate consideration paid for these three acquisitions was approximately $38 million and was financed through existing bank facilities. These transactions were all accounted for as purchases.
The operating results of the acquired companies have been included in the Consolidated Statements of Operations from their respective dates of acquisition. Pro forma unaudited results of operations for the twelve
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
months ended December 31, 1999, 1998 and 1997 have not been presented, since they would not have differed materially from actual results.
Sale of Discontinued Operations
On September 30, 1997, the Company completed the sale of its Wear Resistance business for $96,000 which consisted of $88,500 in cash and $7,500 in the assumption of long-term liabilities. The Company realized a net gain of $16,015 on this transaction, net of income taxes of $12,623. The net proceeds were used to reduce debt. The financial results of the Wear Resistance operations were reported separately as discontinued operations in the Consolidated Statements of Operations.
Sales from the discontinued business totaled $76,163 for the year ended December 31, 1997. Certain expenses were allocated to discontinued operations including interest expense, which was allocated on a ratio of earnings before interest, taxes, depreciation and amortization for the year presented. Interest expense allocated to discontinued operations was $2,048 for the year ended December 31, 1997. Income (loss) from discontinued operations included in the accompanying Consolidated Statements of Operations includes immaterial amounts of income taxes.
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Thermadyne and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Certain amounts from prior years have been reclassified to conform to current year presentation.
Preparation of financial statements in conformity with generally accepted accounting principles requires certain estimates and assumptions be made that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Inventories. Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method for domestic subsidiaries and the first-in, first-out ("FIFO") method for foreign subsidiaries. Inventories at foreign subsidiaries amounted to approximately $42,179 and $56,183 at December 31, 1999 and 1998, respectively.
Property, Plant and Equipment. Property, plant and equipment are carried at cost and are depreciated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: buildings -- 25 years; and machinery and equipment -- two to ten years. Property, plant and equipment recorded under capital leases is depreciated using the lower of either the lease term or the underlying assets useful life.
Deferred Financing Costs. The Company capitalizes loan origination fees and other costs incurred arranging long-term financing. These costs are amortized over the respective lives of the obligations using the effective interest method.
Intangibles. The excess of costs over the net tangible assets of businesses acquired consists of assembled workforces, customer and distributor relationships, patented and unpatented technology, and goodwill. Identified intangible assets are amortized on a straight-line basis over the various estimated useful lives of such assets, which generally range from three to 25 years. Goodwill related to acquisitions is amortized over 40 years. The Company records impairment losses on long-lived assets including goodwill or related intangibles when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.
Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the carrying value of assets and liabilities for financial
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reporting purposes and their tax bases and carryforward items. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.
Revenue Recognition. Revenue from the sale of cutting and welding products is recognized upon shipment to the customer. Costs and related expenses to manufacture cutting and welding products are recorded as cost of sales when the related revenue is recognized.
Comprehensive Income. As of January 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income" ("FASB 130"). FASB 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or shareholders' equity. FASB 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of FASB 130.
During 1999, 1998 and 1997, total comprehensive income (loss) amounted to $(42,660), $(65,462) and $16,634, respectively.
Earnings Per Share. Basic and diluted earnings per share is calculated in accordance with the Financial Accounting Standards Board Statement No. 128, "Earnings per Share". All earnings per share amounts for all periods have been presented to conform to the requirements of Statement 128. The effects of options, warrants and convertible securities have not been considered for the years ended December 31, 1999 and 1998 because the result would be anti-dilutive.
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation. The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for these stock option grants in accordance with Accounting Principles Board Opinion No. 25 -- "Accounting for Stock Issued to Employees" ("APB 25"), and, accordingly, recognizes no compensation expense for the stock option grants.
Statements of Cash Flows. For purposes of the statements of cash flows, Thermadyne considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value because of the short maturity of these investments.
The following table shows the interest and taxes paid (refunded) during the periods presented in the accompanying Consolidated Statements of Cash Flows:
Foreign Currency Translation. Local currencies have been designated as the functional currencies for all subsidiaries. Accordingly, assets and liabilities of foreign subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items of these subsidiaries are translated at average monthly rates of exchange. The resultant translation gains or losses are included in other comprehensive income in the component of shareholders' equity (deficit) designated "Foreign currency translation." The effect on the consolidated statements of operations of transaction gains and losses is insignificant for all years presented. The Company's foreign operations are discussed in Note 13.
Interest Rate Swap. The Company uses an interest rate swap to manage its cost of borrowing on a portion of its floating rate debt, as required by its credit facility.
Recent Accounting Pronouncements. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the new Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm or forecasted commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position.
4. ACCOUNTS RECEIVABLE
The Company was party to a trade accounts receivable securitization agreement whereby it sold on an ongoing basis, through November 15, 1999, participation interests in up to $50,000 of designated accounts receivable. The amount of participation interests sold under this financing arrangement was subject to change based on the level of eligible receivables and restrictions on concentrations of receivables, and was approximately $23,843 at December 31, 1998. The sold accounts receivable are reflected as a reduction of accounts receivable on the Consolidated Balance Sheets. Interest expense was incurred on participation interests at the rate of one-month LIBOR plus 50 basis points, per annum.
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 31, 2000, the Company entered into a similar accounts receivable securitization agreement for a three year period, whereby it will sell participation interests in up to $45,000 of designated accounts receivable. The terms, eligibility criteria and accounting treatment have not materially changed. Interest expense will be incurred at the rate of one-month LIBOR plus 65 basis points, per annum.
5. INVENTORIES
The composition of inventories at December 31, is as follows:
6. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at December 31, is as follows:
Assets recorded under capitalized leases were $19,245 ($13,835 net of accumulated depreciation) and $17,556 ($13,619 net of accumulated depreciation) at December 31, 1999 and 1998, respectively.
7. INTANGIBLES
The composition of intangibles at December 31, is as follows:
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31, is as follows:
At December 31, 1999, the schedule of principal payments on long-term debt, excluding capital lease obligations, is as follows:
New Credit Facility
The New Credit Facility includes a $330 million term loan facility (the "Term Loan Facility") and a $100 million revolving credit facility (subject to adjustment as provided below), which provides for revolving loans and up to $50 million of letters of credit (the "Revolving Credit Facility"). The Term Loan Facility is comprised of a term A facility of $100 million (the "Term A Facility"), which has a maturity of six years, a term B facility of $115 million (the "Term B Facility"), which has a maturity of seven years, and a term C facility of $115 million (the "Term C Facility"), which has a maturity of eight years. The Revolving Credit Facility terminates six years after the date of initial funding of the New Credit Facility and is subject to a potential, but uncommitted, increase of up to $25 million at Thermadyne LLC's request at any time prior to such sixth anniversary. Such increase is available only if one or more financial institutions agrees, at the time of Thermadyne LLC's request, to provide it. At December 31, 1999, the Company had $10,323 of standby letters of credit outstanding under the Revolving Credit Facility. Unused borrowing capacity under the Revolving Credit Facility was $89,677.
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 10, 1999, the Company amended the New Credit Facility to allow the restructuring of certain of its manufacturing operations and to adjust its financial covenants. In accordance with the amendment, the rate at which the New Credit Facility bears interest was adjusted to, at Thermadyne LLC's option, the administrative agent's alternative base rate or the reserve-adjusted London Interbank Offered Rate ("LIBOR") plus, in each case, applicable margins of (i) in the case of alternative base rate loans, (x) 1.50% 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. The applicable margin may vary based on Thermadyne LLC's ratio of consolidated indebtedness to Adjusted EBITDA. In addition, the amendment required the issuance of $25.0 million of Junior Subordinated Notes with detachable warrants for the purchase of the Company's common stock. At December 31, 1999, the prime rate was 8.5%.
Prior to the amendment of the New Credit Facility applicable margins were (i) in the case of alternative base rate loans, (x) 1.00% for revolving and Term A loans, (y) 1.25% for Term B loans and (z) 1.50% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.25% for revolving and Term A loans, (y) 2.50% for Term B loans and (z) 2.75% for Term C loans.
Thermadyne LLC pays a commitment fee calculated at a rate of 0.50% per annum on the daily average unused commitment under the Revolving Credit Facility (whether or not then available). Such fee is payable quarterly in arrears and upon termination of the Revolving Credit Facility (whether at stated maturity or otherwise).
The applicable margin for the Term A Facility and the Revolving Credit Facility, as well as the commitment fee and letter of credit fee, is subject to possible reductions based on the ratio of consolidated Debt to EBITDA (each as defined in the New Credit Facility).
Thermadyne LLC pays a letter of credit fee calculated (i) in the case of standby letters of credit, at a rate per annum equal to the then applicable margin for LIBOR loans under the Revolving Credit Facility minus 0.125% and (ii) in the case of documentary letters of credit, at a rate per annum equal to 1.25% plus, in each case, a fronting fee on the stated amount of each letter of credit. Such fees are payable quarterly in arrears. In addition, Thermadyne LLC pays customary transaction charges in connection with any letters of credit.
The Term Loan Facility is subject to the following amortization schedule:
The Term Loan Facility is subject to mandatory prepayment: (i) with 100% of the net cash proceeds from the issuance of debt, subject to certain exceptions, (ii) with 100% of the net cash proceeds of asset sales and casualty events, subject to certain exceptions, (iii) with 50% of Thermadyne LLC's excess cash flow (as defined in the New Credit Facility) to the extent that the Leverage Ratio (as defined in the New Credit Facility) exceeds 3.5 to 1.0, and (iv) with 50% of the net cash proceeds from the issuance of equity to the extent that the Leverage Ratio exceeds 4.0 to 1.0. Thermadyne LLC's obligations under the New Credit
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Facility are secured by a first-priority perfected lien on: (i) substantially all domestic property and assets, tangible and intangible (other than accounts receivable sold or to be sold into the accounts receivable program and short-term real estate leases), of Thermadyne LLC and its domestic subsidiaries (other than the special purpose subsidiaries involved in the accounts receivable program); (ii) the capital stock of (a) Thermadyne LLC held by Holdings and (b) all subsidiaries of Thermadyne LLC (provided that no more than 65% of the equity interest in non-U.S. subsidiaries held by Thermadyne LLC and its domestic subsidiaries and no equity interests in subsidiaries held by foreign subsidiaries are required to be pledged); and (iii) all intercompany indebtedness. Holdings has guaranteed the obligations of Thermadyne LLC under the New Credit Facility. In addition, obligations under the New Credit Facility are guaranteed by all domestic subsidiaries.
The New Credit Facility contains customary covenants and restrictions on Thermadyne LLC's ability to engage in certain activities, including, but not limited to: (i) limitations on the incurrence of liens and indebtedness, (ii) restrictions on sale lease-back transactions, consolidations, mergers, sale of assets, capital expenditures, transactions with affiliates and investments, and (iii) severe restrictions on dividends, and other similar distributions.
The New Credit Facility contains financial covenants requiring Thermadyne LLC to maintain a minimum level of Adjusted EBITDA (as defined in the New Credit Facility); a minimum Interest Coverage Ratio (as defined in the New Credit Facility); a minimum Fixed Charge Coverage Ratio (as defined in the New Credit Facility); and a maximum Leverage Ratio (as defined in the New Credit Facility).
Interest Rate Swap
At December 31, 1999, the Company has an interest rate swap agreement outstanding with a notional amount of $61,500, which matures in January of 2000, under which the Company pays a fixed rate of interest and receives a floating rate of interest over the term of the interest rate swap agreement without the exchange of the underlying notional amount. The interest rate swap agreement converted a portion of the credit facility from a floating rate obligation to a fixed rate obligation. The fair market value of the interest rate swap is estimated based on current interest rates, and was $1,419 at December 31, 1999. The Company is subject to loss if the counterparty to this agreement does not perform. Interest differentials to be paid or received because of the swap agreement are reflected as an adjustment to interest expense over the related debt period. This agreement is accounted for on the accrual basis.
Senior Subordinated Notes
Thermadyne LLC and Thermadyne Capital have outstanding $207 million aggregate principal amount of the Senior Subordinated Notes. The Senior Subordinated Notes are general unsecured obligations of Thermadyne LLC and Thermadyne Capital and will be subordinated in right of payment to all existing and future senior indebtedness of Thermadyne LLC and Thermadyne Capital (including borrowings under the New Credit Facility). The Senior Subordinated Notes are unconditionally guaranteed on a senior subordinated basis by certain of Thermadyne LLC's existing domestic subsidiaries (the "Guarantor Subsidiaries"). The note guarantees will be general unsecured obligations of the Guarantor Subsidiaries, are subordinated in right of payment to all existing and future senior indebtedness of the Guarantor Subsidiaries, including indebtedness under the New Credit Facility, and will rank senior in right of payment to any future subordinated indebtedness of the Guarantor Subsidiaries.
Debentures
Holdings has outstanding $115,015 of Debentures. The Debentures initially are limited in aggregate principal amount at maturity to $174 million. The Debentures were issued at $94.6 million, a substantial discount from their principal amount at maturity. Until June 1, 2003, no interest will accrue on the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Debentures, but the accreted value will increase (representing amortization of original issue discount) between the date of original issuance and June 1, 2003, on a semiannual bond equivalent basis using a 360-day year comprised of twelve 30-day months, such that the accreted value shall be equal to the full principal amount at maturity of the Debentures on June 1, 2003. Beginning on June 1, 2003, interest on the Debentures will accrue at the rate of 12 1/2% per annum and will be payable in cash semiannually in arrears on June 1 and December 1, commencing on December 1, 2003, to holders of record on the immediately preceding May 15 and November 15. Interest on the Debentures will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from June 1, 2003. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Subject to certain covenants, additional notes may be issued under the Indenture having the same terms in all respects as the Debentures.
The indentures governing the Senior Subordinated Notes, the Debentures and the subordinated notes restrict, subject to certain exceptions, the Company and its subsidiaries from incurring additional debt, paying dividends or making other distributions on or redeeming or repurchasing capital stock, making investments, loans or advances, disposing of assets, creating liens on assets and engaging in transactions with affiliates.
Junior Subordinated Notes
Thermadyne LLC has outstanding $25.0 million of Junior Subordinated Notes (the "Junior Notes") with detachable warrants for the purchase of the Company's common stock. The Junior Notes are general unsecured obligations of Thermadyne LLC and will be subordinated in right of payment to all existing and future senior and senior subordinated indebtedness of Thermadyne LLC. Thermadyne LLC, at its option, may pay interest in additional Junior Notes between the date of original issuance and December 15, 2004 on each March 15, June 15, September 15 and December 15 at the rate of 15%. Beginning December 15, 2004, interest will accrue at the rate of 15% per annum on each interest payment date, provided that if and for so long as payment of interest on the Junior Notes is prohibited under the terms of the New Credit Facility, interest shall be paid by the issuance of additional Junior Notes.
The estimated fair value amounts of the Company's long-term obligations have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required to develop the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The fair values of the Senior Subordinated Notes, the Debentures and the subordinated notes were based on the most recent market information available, and are estimated to be 86%, 68.8% and 92.25% of their current carrying values at December 31, 1999, or $178,020, $79,130 and $34,188, respectively. The fair value of the Junior Notes is estimated to be their carrying value since these notes have not traded since their issuance in December 1999. The fair values of the credit agreement and the Company's other long-term obligations are estimated at their current carrying values since these obligations are fully secured and have varying interest charges based on current market rates.
9. REDEEMABLE PREFERRED STOCK
Holdings has outstanding 2,000,000 shares of Holdings Preferred Stock, par value $0.01 per share, with an initial liquidation preference of $25.00 per share. Holdings Preferred Stock accrues dividends at a rate equal to 13% per annum, computed on the basis of a 360-day year. Such dividends are payable quarterly on March 31, June 30, September 30, and December 31 of each year. Prior to the fifth anniversary of the issuance of the Holdings Preferred Stock, dividends are payable through increases in the liquidation preference of the Holdings Preferred Stock or, at the election of the holders, dividends may be payable by the issuance of additional shares. Following the fifth anniversary of the issuance, dividends shall be payable in cash. The Holdings Preferred Stock is mandatorily redeemable on May 15, 2010 at a redemption price of 100% of the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liquidation preference plus accrued and unpaid dividends. In the event of a change in control, the Holdings Preferred Stock is mandatorily redeemable at a redemption price of 101% of the liquidation preference plus accrued and unpaid dividends. The Holdings Preferred Stock may be redeemed by Holdings prior to May 15, 2001, in whole, at a redemption price per share equal to 113% of the liquidation preference per share plus accrued and unpaid dividends with the proceeds of a public equity offering. In addition, the Holdings Preferred Stock may be redeemed at any time on or after May 15, 2003, in whole, at certain established redemption prices. Holders of a majority of the outstanding shares of Holdings Preferred Stock will have the right to elect two members to the board of directors of Holdings upon the failure of Holdings to pay cash dividends for more than four consecutive quarters or six quarters, satisfy mandatory redemption obligations, provide required notices or comply with certain other specified provisions relating to the Holdings Preferred Stock. This right terminates and the term of the additional directors ceases upon cure. In addition, Holdings cannot amend, alter or repeal any provision that would adversely affect the preferences, rights or powers of the Holdings Preferred Stock or create, authorize or issue any class of stock ranking prior to or on a parity with the Holdings Preferred Stock without the written consent of a majority of the holders.
10. STOCK OPTIONS
The Company has elected to follow APB 25 and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" ("FASB 123"), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by FASB 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of 5.3%, 5.6% and 6.1%; a dividend yield of 0.0% for each year presented; volatility factors of the expected market price of the Company's common stock of 0.65, 0.35, and 0.38; and a weighted-average expected life of the options of six years for each year presented.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has two option plans for the grant of options to its employees and directors. The 1998 Management Incentive Plan (the "1998 Management Plan") provides for the grant of options to acquire up to 500,000 shares of common stock to key officers and employees of the Company or its affiliates. Grants under the 1998 Management Plan vest either a) immediately on the date of grant, b) ratably over five years from the date of grant, c) upon the attainment of yearly targeted implied common equity values of the Company or, d) if yearly targeted implied common equity values are not attained, after an eight-year period. The Non-Employee Directors Stock Option Plan (the "1998 Directors Plan") provides for the grant of options to acquire up to 20,000 shares of common stock to non-employee directors of the Company. Grants under the 1998 Directors Plan vest immediately on the date of grant. All options granted under the two plans described above are non-qualified stock options granted at 100% of the fair market value on the grant dates. In connection with the Merger, the 1993 Management Option Plan (the "1993 Management Plan"), the Non-Employee Directors Plan (the "1995 Directors Plan") and the 1996 Employee Stock Option Plan (the "1996 Employee Plan") were terminated. At that time, the option holders received a cash payment with respect to each option and the underlying options were canceled.
Information regarding stock options is summarized as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. LEASES
Future minimum lease payments related to continuing operations under leases with initial or remaining noncancelable lease terms in excess of one year at December 31, 1999 are as follows:
Rent expense under operating leases from continuing operations amounted to $7,347, $9,528 and $9,358 for the years ended December 31, 1999, 1998 and 1997, respectively.
12. INCOME TAXES
Pre-tax income (loss) from continuing operations was taxed under the following jurisdictions:
The provision (benefit) for income taxes charged to continuing operations is as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The composition of deferred tax assets and liabilities attributable to continuing operations at December 31 is as follows:
The provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income from continuing operations as a result of the following differences:
At December 31, 1999, the Company had net operating loss carryforwards of approximately $108,000 available for U.S. federal income tax purposes which expire beginning 2001. Utilization of the majority of these net operating loss carryforwards is subject to various limitations because of previous changes in control of ownership (as defined in the Internal Revenue Code) of the Company. Pursuant to the requirements of the American Institute of Certified Public Accountants Statement of Position No. 90-7, "Financial Entities in Reorganization Under the Bankruptcy Code," the tax benefit resulting from the utilization of net operating loss carryforwards that existed on the effective date of the Company's financial reorganization will be reported as a direct addition to paid-in capital.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's foreign subsidiaries have undistributed earnings at December 31, 1999. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.
13. EMPLOYEE BENEFIT PLANS
401(k) Retirement Plan. The 401(k) Retirement Plan covers the majority of the Company's domestic employees. The Company, at its discretion, can make a base contribution of 1% of each employee's compensation and an additional contribution equal to as much as 4% of the employee's compensation. At the employee's discretion, an additional 1% to 15% voluntary employee contribution can be made. The plan requires the Company to make a matching contribution of 50% of the first 6% of the voluntary employee contribution. Total expense for this plan related to continuing operations was approximately $2,223, $2,115, and $2,628 for the years ended December 31, 1999, 1998 and 1997, respectively.
Employee Stock Purchase Plan. The Employee Stock Purchase Plan was canceled in connection with the Merger. For the plan year ended December 31, 1997, 1,098 employee participants purchased 82,085 shares at an aggregate purchase price of $1,989.
Pension Plans. The Company's subsidiaries have had various noncontributory defined benefit pension plans which covered substantially all U.S. employees. The Company froze and combined its three noncontributory defined benefit pension plans through amendments to such plans effective December 31, 1989. All former participants of these plans became eligible to participate in the 401(k) Retirement Plan effective January 1, 1990. There was no prepaid benefit cost at December 31, 1999 or 1998. Accrued benefit liabilities at December 31, 1999 and 1998 were $192 and $336, respectively. In addition, the Company's Australian subsidiary has a Superannuation Fund established by a Trust Deed which operates on a lump sum scheme to provide benefits for its employees. Prepaid benefit cost at December 31, 1999 and 1998 was $6 and $5, respectively. There were no accrued benefit liabilities at December 31, 1999 or 1998.
Other Postretirement Benefits. The Company has a retirement plan covering both salaried and nonsalaried retired employees, which provides postretirement health care benefits (medical and dental) and life insurance benefits. The postretirement health care portion is contributory, with retiree contributions adjusted annually as determined by the Company based on claim costs. The postretirement life insurance portion is noncontributory. The Company recognizes the cost of postretirement benefits on the accrual basis as employees render service to earn the benefit. The Company continues to fund the cost of health care and life insurance benefits in the year incurred.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides a reconciliation of benefit obligations, plan assets and status of the Pension and Other Postretirement Benefit Plans as recognized in the Company's Consolidated Balance Sheet for the years ended December 31, 1999 and 1998:
Net periodic pension and other postretirement benefit costs include the following components:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.5% in 1999, declining gradually to 6.0% in 2012. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.5% in 1998 and 10.5% in 1997. A one percentage point change in the assumed health care cost trend rate would have the following effects:
14. 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column includes the elimination of intersegment sales and profits, corporate related items and other costs not allocated to the reportable segments.
Product Line Information
The Company manufactures a variety of products, substantially all of which are used in the cutting, welding or fabrication of metal. End users of the Company's products are engaged in various applications including construction, automobile manufacturing, repair and maintenance and shipbuilding. The following table shows sales for each of the Company's key product lines:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. CONTINGENCIES
Thermadyne and certain of its wholly owned subsidiaries are defendants in various legal actions, primarily in the product liability area. While there is uncertainty relating to any litigation, management is of the opinion that the outcome of such litigation will not have a material adverse effect on the Company's financial condition or results of operations.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors Thermadyne Mfg. LLC
We have audited the accompanying consolidated balance sheets of Thermadyne Mfg. LLC and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholder's equity (deficit), and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thermadyne Mfg. LLC and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri February 11, 2000
THERMADYNE MFG. LLC
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
ASSETS
See accompanying notes to consolidated financial statements.
THERMADYNE MFG. LLC
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
See accompanying notes to consolidated financial statements.
THERMADYNE MFG. LLC
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS)
See accompanying notes to consolidated financial statements.
THERMADYNE MFG. LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See accompanying notes to consolidated financial statements.
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
As used in this report, the term "Mercury" means Mercury Acquisition Corporation, the term "Issuer" means Mercury before the Merger and Thermadyne Holdings Corporation after the Merger (as defined in Note 2), the term "Holdings" means Thermadyne Holdings Corporation, the terms "Thermadyne" and the "Company" mean Thermadyne Holdings Corporation, its predecessors and subsidiaries, the term "Thermadyne LLC" means Thermadyne Mfg. LLC, a wholly owned and the principal operating subsidiary of Thermadyne Holdings Corporation, and the term "Thermadyne Capital" means Thermadyne Capital Corp., a wholly owned subsidiary of Thermadyne LLC. The Company is a global manufacturer of cutting and welding products and accessories.
Thermadyne Capital, a wholly owned subsidiary of Thermadyne LLC, was formed solely for the purpose of serving as co-issuer of the 9 7/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes"). Thermadyne Capital has no substantial assets or liabilities and no operations of any kind and the Indenture pursuant to which the Senior Subordinated Notes were issued limits Thermadyne Capital's ability to acquire or hold any significant assets, incur any liabilities or engage in any business activities, other than in connection with the issuance of the Senior Subordinated Notes.
2. RECENT EVENTS
Special Charges
Special charges of $21.9 million were recorded in 1999 and relate to the reorganization of the Company's Australian and Asian operations, the consolidation of two domestic facilities and detachable warrants issued in conjunction with junior subordinated notes. In 1998, special charges of $50.5 million were recorded related to the merger of the Company and headcount reductions.
Merger with Mercury Acquisition Corporation
On May 22, 1998, Holdings consummated the merger of Mercury, a corporation organized by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and entities (the "DLJMB Funds"), with and into Holdings, with Holdings continuing as the surviving corporation (the "Merger").
The funding required to pay cash for common stock not receiving the right to retain Holdings common stock; to pay cash in lieu of each previously outstanding employee stock option; to pay cash in lieu of the right to purchase common stock under the Company's employee stock purchase plan; to refinance and/or retire outstanding indebtedness of the Company; and to pay expenses incurred in connection with the Merger was approximately $808 million. These cash requirements were funded with the proceeds obtained from concurrent equity and debt financings. Thermadyne LLC and Thermadyne Capital issued the Senior Subordinated Notes and Thermadyne LLC entered into a syndicated senior secured loan facility providing for term loan borrowings in the aggregate principal amount of $330 million and revolving loan borrowings of $100 million (the "New Credit Facility"). In connection with the Merger, Thermadyne LLC borrowed all term loans available under the New Credit Facility plus $25 million of revolving loans, which were subsequently repaid. The revolving loans are available to fund the working capital requirements of Thermadyne LLC. The proceeds of such financings were distributed to Holdings in the form of a dividend.
Mercury issued approximately $94.6 million aggregate proceeds of 12 1/2% Senior Discount Debentures due 2008 (the "Debentures"). In connection with the Merger, Holdings succeeded to the obligations of Mercury with respect to the Debentures. The DLJMB Funds also purchased 2,608,696 shares of common stock of Mercury ("Mercury Common Stock"), 2,000,000 shares of preferred stock of Mercury ("Mercury Preferred Stock") and warrants to purchase 353,428 shares of Mercury Common Stock at an exercise price of $0.01 per share (the "DLJMB Warrants") for approximately $140 million. As a result of the Merger, the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
proceeds of such purchases became an asset of Holdings, each share of Mercury Common Stock became a share of Holdings Common Stock, each share of Mercury Preferred Stock became a share of exchangeable preferred stock of Holdings ("Holdings Preferred Stock") and each DLJMB Warrant to acquire Mercury Common Stock became exercisable for an equal number of shares of Holdings Common Stock. In addition, in connection with the Merger, certain members of senior management purchased 143,192 shares of Holdings Common Stock for approximately $4.9 million (the "Management Share Purchase"), of which approximately $3.6 million was provided through non-recourse loans from Holdings (the "Management Loans"). The Management Loans have a term of eight years and bear interest at the rate of 5.69% compounded annually.
As a result of these transactions, the Company experienced an approximate 85% ownership change, the DLJMB Funds obtained ownership of approximately 80.6% of the Company's outstanding common stock, and the Company became highly leveraged. The Merger and related transactions have been treated as a leveraged recapitalization in which the issuance and retirement of debt have been accounted for as financing transactions, the sales and purchases of the Company's common stock have been accounted for as capital transactions at amounts paid to or received from stockholders, and no changes were made to the carrying values of the Company's assets and liabilities that were not directly affected by the transaction.
In connection with the Merger, the Company incurred special charges of approximately $44.2 million, consisting of expenses of approximately $18.5 million related to employee stock options and related plans and $25.7 million of non-capitalizable transaction fees. In addition, the Company recorded an extraordinary loss in the amount of $23.3 million due to the early extinguishment of long-term debt. The Company paid DLJMB approximately $20 million for professional services in connection with the Merger.
Acquisitions
In 1999 the Company made the following two acquisitions. On March 11, the Company acquired all the issued and outstanding capital stock of Soltec S.A., a manufacturer of manual electrodes and tubular wires for hardfacing and special applications, located in Santiago, Chile. On April 14, the Company acquired all the issued and outstanding capital stock of Tecmo Srl, a manufacturer of torches and plasma and laser consumables located in Rastignano, Italy. The aggregate consideration paid for these two acquisitions was approximately $6 million and was financed through existing bank facilities. These transactions were accounted for as purchases.
In 1998 the Company made the following four acquisitions. On September 1, the Company acquired all the issued and outstanding capital stock of Thermadyne Victor Ltda. (formerly known as Equi Solda SA), a leading manufacturer of gas cutting apparatus in Brazil. On July 24, the Company acquired substantially all the assets of Mid-America Cryogenics Company, which specializes in the design, installation and service of cryogenic equipment and is located in Indianapolis, Indiana. On May 21, the Company acquired substantially all the assets of OCIM Srl, a manufacturer of a variety of arc welding accessories including MIG and TIG torches and consumables, located in Milan, Italy. On February 1, the Company acquired substantially all the assets of Pro-tip, a division of Settler Ground Support, Inc., a producer of low-cost oxygen fuel cutting tips in Cuthbert, Georgia. The aggregate consideration paid for these four acquisitions was approximately $19 million and was financed through existing bank facilities. These transactions were all accounted for as purchases.
In 1997 the Company completed three acquisitions. On November 25, the Company acquired substantially all of the assets of Woodland Cryogenics, Incorporated, a manufacturer of cryogenic pumps, ambient and electric vaporizers and automatic cylinder filling systems located in Philadelphia, Pennsylvania. On September 26, the Company acquired substantially all of the assets of the welding division of Prestolite Power Corporation, a manufacturer of arc welders, plasma welders and wire feeders, located in Troy, Ohio. On January 31, the Company acquired all of the issued and outstanding capital stock of GenSet S.p.A., a leading manufacturer of engine-driven welders and generators in Italy. The aggregate consideration paid for these
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
three acquisitions was approximately $38 million and was financed through existing bank facilities. These transactions were all accounted for as purchases.
The operating results of the acquired companies have been included in the Consolidated Statements of Operations from their respective dates of acquisition. Pro forma unaudited results of operations for the twelve months ended December 31, 1999, 1998 and 1997 have not been presented since they would not have differed materially from actual results.
Sale of Discontinued Operations
On September 30, 1997, the Company completed the sale of its Wear Resistance business for $96,000 which consisted of $88,500 in cash and $7,500 in the assumption of long-term liabilities. The Company realized a net gain of $16,015 on this transaction, net of income taxes of $12,623. The net proceeds were used to reduce debt. The financial results of the Wear Resistance operations were reported separately as discontinued operations in the Consolidated Statements of Operations.
Sales from the discontinued business totaled $76,163 for the year ended December 31, 1997. Certain expenses were allocated to discontinued operations including interest expense, which was allocated on a ratio of earnings before interest, taxes, depreciation and amortization for the year presented. Interest expense allocated to discontinued operations was $2,048 for the year ended December 31, 1999. Income from discontinued operations included in the accompanying Consolidated Statements of Operations includes immaterial amounts of income taxes.
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Thermadyne and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Certain amounts from prior years have been reclassified to conform to current year presentation.
Preparation of financial statements in conformity with generally accepted accounting principles requires certain estimates and assumptions be made that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Inventories. Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method for domestic subsidiaries and the first-in, first-out ("FIFO") method for foreign subsidiaries. Inventories at foreign subsidiaries amounted to approximately $42,179 and $56,183 at December 31, 1999 and 1998, respectively.
Property, Plant and Equipment. Property, plant and equipment are carried at cost and are depreciated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: buildings -- 25 years; and machinery and equipment -- two to ten years. Property, plant and equipment recorded under capital leases is depreciated using the lower of either the lease term or the underlying asset's useful life.
Deferred Financing Costs. The Company capitalizes loan origination fees and other costs incurred arranging long-term financing. These costs are amortized over the respective lives of the obligations using the effective interest method.
Intangibles. The excess of costs over the net tangible assets of businesses acquired consists of assembled workforces, customer and distributor relationships, patented and unpatented technology, and goodwill. Identified intangible assets are amortized on a straight-line basis over the various estimated useful lives of such assets, which generally range from three to 25 years. Goodwill related to acquisitions is amortized over 40 years. The Company records impairment losses on long-lived assets including goodwill or related
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
intangibles when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.
Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the carrying value of assets and liabilities for financial reporting purposes and their tax bases and carryforward items. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.
Revenue Recognition. Revenue from the sale of cutting and welding products is recognized upon shipment to the customer. Costs and related expenses to manufacture cutting and welding products are recorded as cost of sales when the related revenue is recognized.
Comprehensive Income. As of January 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income" ("FASB 130"). FASB 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or shareholders' equity. FASB 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of FASB 130.
During 1999, 1998 and 1997, total comprehensive income (loss) amounted to $(25,378), $(59,023) and $16,634, respectively.
Statements of Cash Flows. For purposes of the statements of cash flows, Thermadyne considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value because of the short maturity of these investments.
The following table shows the interest and taxes paid (refunded) during the periods presented in the accompanying Consolidated Statements of Cash Flows:
Foreign Currency Translation. Local currencies have been designated as the functional currencies for all subsidiaries. Accordingly, assets and liabilities of foreign subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items of these subsidiaries are translated at average monthly rates of exchange. The resultant translation gains or losses are included in other comprehensive income in the component of shareholders' equity (deficit) designated "Foreign currency translation." The effect on the consolidated statements of operations of transaction gains and losses is insignificant for all years presented. The Company's foreign operations are discussed in Note 12.
Interest Rate Swap. The Company uses an interest rate swap to manage its cost of borrowing on a portion of its floating rate debt, as required by its credit facility.
Recent Accounting Pronouncements. In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the new Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability or firm or forecasted commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position.
4. ACCOUNTS RECEIVABLE
The Company was party to a trade accounts receivable securitization agreement whereby it sold on an ongoing basis, through November 15, 1999, participation interests in up to $50,000 of designated accounts receivable. The amount of participation interests sold under this financing arrangement was subject to change based on the level of eligible receivables and restrictions on concentrations of receivables, and was approximately $23,843 at December 31, 1998. The sold accounts receivable are reflected as a reduction of accounts receivable on the Consolidated Balance Sheets. Interest expense was incurred on participation interests at the rate of one-month LIBOR plus 50 basis points, per annum.
On January 31, 2000, the Company entered into a similar accounts receivable securitization agreement for a three year period, whereby it will sell participation interests in up to $45,000 of designated accounts receivable. The terms, eligibility criteria and accounting treatment have not materially changed. Interest expense will be incurred at the rate of one-month LIBOR plus 65 basis points, per annum.
5. INVENTORIES
The composition of inventories at December 31, is as follows:
6. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at December 31, is as follows:
Assets recorded under capitalized leases were $19,245 ($13,835 net of accumulated depreciation) and $17,556 ($13,619 net of accumulated depreciation) at December 31, 1999 and 1998, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INTANGIBLES
The composition of intangibles at December 31, is as follows:
8. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31, is as follows:
At December 31, 1999, the schedule of principal payments on long-term debt, excluding capital lease obligations, is as follows:
New Credit Facility
The New Credit Facility includes a $330 million term loan facility (the "Term Loan Facility") and a $100 million revolving credit facility (subject to adjustment as provided below), which provides for revolving loans and up to $50 million of letters of credit (the "Revolving Credit Facility"). The Term Loan Facility is comprised of a term A facility of $100 million (the "Term A Facility"), which has a maturity of six years, a term B facility of $115 million (the "Term B Facility"), which has a maturity of seven years, and a term C
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
facility of $115 million (the "Term C Facility"), which has a maturity of eight years. The Revolving Credit Facility terminates six years after the date of initial funding of the New Credit Facility and is subject to a potential, but uncommitted, increase of up to $25 million at Thermadyne LLC's request at any time prior to such sixth anniversary. Such increase is available only if one or more financial institutions agrees, at the time of Thermadyne LLC's request, to provide it. At December 31, 1999, the Company had $10,323 of standby letters of credit outstanding under the Revolving Credit Facility. Unused borrowing capacity under the Revolving Credit Facility was $89,677.
On November 10, 1999, the Company amended the New Credit Facility to allow the restructuring of certain of its manufacturing operations and to adjust its financial covenants. In accordance with the amendment, the rate at which the New Credit Facility bears interest was adjusted to, at Thermadyne LLC's option, the administrative agent's alternative base rate or the reserve-adjusted London Interbank Offered Rate ("LIBOR") plus, in each case, applicable margins of (i) in the case of alternative base rate loans, (x) 1.50% 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. The applicable margin may vary based on Thermadyne LLC's ratio of consolidated indebtedness to Adjusted EBITDA. In addition, the amendment required the issuance of $25.0 million of Junior Subordinated Notes with detachable warrants for the purchase of the Company's common stock. At December 31, 1999, the prime rate was 8.5%.
Prior to the amendment of the New Credit Facility applicable margins were (i) in the case of alternative base rate loans, (x) 1.00% for revolving and Term A loans, (y) 1.25% for Term B loans and (z) 1.50% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.25% for revolving and Term A loans, (y) 2.50% for Term B loans and (z) 2.75% for Term C loans.
Thermadyne LLC pays a commitment fee calculated at a rate of 0.50% per annum on the daily average unused commitment under the Revolving Credit Facility (whether or not then available). Such fee is payable quarterly in arrears and upon termination of the Revolving Credit Facility (whether at stated maturity or otherwise).
The applicable margin for the Term A Facility and the Revolving Credit Facility, as well as the commitment fee and letter of credit fee, is subject to possible reductions based on the ratio of consolidated Debt to EBITDA (each as defined in the New Credit Facility).
Thermadyne LLC pays a letter of credit fee calculated (i) in the case of standby letters of credit, at a rate per annum equal to the then applicable margin for LIBOR loans under the Revolving Credit Facility minus 0.125% and (ii) in the case of documentary letters of credit, at a rate per annum equal to 1.25% plus, in each case, a fronting fee on the stated amount of each letter of credit. Such fees are payable quarterly in arrears. In addition, Thermadyne LLC pays customary transaction charges in connection with any letters of credit.
The Term Loan Facility is subject to the following amortization schedule:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Term Loan Facility is subject to mandatory prepayment: (i) with 100% of the net cash proceeds from the issuance of debt, subject to certain exceptions, (ii) with 100% of the net cash proceeds of asset sales and casualty events, subject to certain exceptions, (iii) with 50% of Thermadyne LLC's excess cash flow (as defined in the New Credit Facility) to the extent that the Leverage Ratio (as defined in the New Credit Facility) exceeds 3.5 to 1.0, and (iv) with 50% of the net cash proceeds from the issuance of equity to the extent that the Leverage Ratio exceeds 4.0 to 1.0. Thermadyne LLC's obligations under the New Credit Facility are secured by a first-priority perfected lien on: (i) substantially all domestic property and assets, tangible and intangible (other than accounts receivable sold or to be sold into the accounts receivable program and short-term real estate leases), of Thermadyne LLC and its domestic subsidiaries (other than the special purpose subsidiaries involved in the accounts receivable program); (ii) the capital stock of (a) Thermadyne LLC held by Holdings and (b) all subsidiaries of Thermadyne LLC (provided that no more than 65% of the equity interest in non-U.S. subsidiaries held by Thermadyne LLC and its domestic subsidiaries and no equity interests in subsidiaries held by foreign subsidiaries are required to be pledged); and (iii) all intercompany indebtedness. Holdings has guaranteed the obligations of Thermadyne LLC under the New Credit Facility. In addition, obligations under the New Credit Facility are guaranteed by all domestic subsidiaries.
The New Credit Facility contains customary covenants and restrictions on Thermadyne LLC's ability to engage in certain activities, including, but not limited to: (i) limitations on the incurrence of liens and indebtedness, (ii) restrictions on sale lease-back transactions, consolidations, mergers, sale of assets, capital expenditures, transactions with affiliates and investments, and (iii) severe restrictions on dividends, and other similar distributions.
The New Credit Facility contains financial covenants requiring Thermadyne LLC to maintain a minimum level of Adjusted EBITDA (as defined in the New Credit Facility); a minimum Interest Coverage Ratio (as defined in the New Credit Facility); a minimum Fixed Charge Coverage Ratio (as defined in the New Credit Facility); and a maximum Leverage Ratio (as defined in the New Credit Facility).
Interest Rate Swap
At December 31, 1999, the Company has an interest rate swap agreement outstanding with a notional amount of $61,500, which matures in January of 2002, under which the Company pays a fixed rate of interest and receives a floating rate of interest over the term of the interest rate swap agreement without the exchange of the underlying notional amount. The interest rate swap agreement converted a portion of the Credit Facility from a floating rate obligation to a fixed rate obligation. The fair market value of the interest rate swap is estimated based on current interest rates, and was $1,419 at December 31, 1999. The Company is subject to loss if the counterparty to this agreement does not perform. Interest differentials to be paid or received because of the swap agreement are reflected as an adjustment to interest expense over the related debt provided. This agreement is accounted for on the accrual basis.
Senior Subordinated Notes
Thermadyne LLC and Thermadyne Capital have outstanding $207 million aggregate principal amount of the Senior Subordinated Notes. The Senior Subordinated Notes are general unsecured obligations of Thermadyne LLC and Thermadyne Capital and will be subordinated in right of payment to all existing and future senior indebtedness of Thermadyne LLC and Thermadyne Capital (including borrowings under the New Credit Facility). The Senior Subordinated Notes are unconditionally guaranteed on a senior subordinated basis by certain of Thermadyne LLC's existing domestic subsidiaries (the "Guarantor Subsidiaries"). The note guarantees will be general unsecured obligations of the Guarantor Subsidiaries, are subordinated in right of payment to all existing and future senior indebtedness of the Guarantor Subsidiaries, including
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indebtedness under the New Credit Facility, and will rank senior in right of payment to any future subordinated indebtedness of the Guarantor Subsidiaries.
The indentures governing the Senior Subordinated Notes restrict, subject to certain exceptions, the Company and its subsidiaries from incurring additional debt, paying dividends or making other distributions on or redeeming or repurchasing capital stock, making investments, loans or advances, disposing of assets, creating liens on assets and engaging in transactions with affiliates.
Junior Subordinated Notes
Thermadyne LLC has outstanding $25.0 million of Junior Subordinated Notes (the "Junior Notes") with detachable warrants for the purchase of the Company's common stock. The Junior Notes are general unsecured obligations of Thermadyne LLC and will be subordinated in right of payment to all existing and future senior and senior subordinated indebtedness of Thermadyne LLC. Thermadyne LLC, at its option, may pay interest in additional Junior Notes between the date of original issuance and December 15, 2004 on each March 15, June 15, September 15 and December 15 at the rate of 15%. Beginning December 15, 2004, interest will accrue at the rate of 15% per annum on each interest payment date, provided that if and for so long as payment of interest on the Junior Notes is prohibited under the terms of the New Credit Facility, interest shall be paid by the issuance of additional Junior Notes.
The estimated fair value amounts of the Company's long-term obligations have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required to develop the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The fair value of the Senior Subordinated Notes was based on the most recent market information available, and is estimated to be 86% of their current carrying value at December 31, 1999, or $178,020. The fair value of the Junior Notes is estimated to be their carrying value since these notes have not traded since their issuance in December 1999. The fair values of the credit agreement and the Company's other long-term obligations are estimated at their current carrying values since these obligations are fully secured and have varying interest charges based on current market rates.
9. LEASES
Future minimum lease payments related to continuing operations under leases with initial or remaining noncancelable lease terms in excess of one year at December 31, 1999 are as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense under operating leases from continuing operations amounted to $7,347, $9,528 and $9,358 for the years ended December 31, 1999, 1998 and 1997, respectively.
10. INCOME TAXES
Pre-tax income (loss) from continuing operations was taxed under the following jurisdictions:
The provision (benefit) for income taxes charged to continuing operations is as follows:
The composition of deferred tax assets and liabilities attributable to continuing operations at December 31 is as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income from continuing operations as a result of the following differences:
At December 31, 1999, the Company had net operating loss carryforwards of approximately $86,000 available for U.S. federal income tax purposes which expire beginning 2001. Utilization of the majority of these net operating loss carryforwards is subject to various limitations because of previous changes in control of ownership (as defined in the Internal Revenue Code) of the Company. Pursuant to the requirements of the American Institute of Certified Public Accountants Statement of Position No. 90-7, "Financial Entities in Reorganization Under the Bankruptcy Code," the tax benefit resulting from the utilization of net operating loss carryforwards that existed on the effective date of the Company's financial reorganization will be reported as a direct addition to paid-in capital.
The Company's foreign subsidiaries have undistributed earnings at December 31, 1999. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.
11. EMPLOYEE BENEFIT PLANS
401(k) Retirement Plan. The 401(k) Retirement Plan covers the majority of the Company's domestic employees. The Company, at its discretion, can make a base contribution of 1% of each employee's compensation and an additional contribution equal to as much as 4% of the employee's compensation. At the employee's discretion, an additional 1% to 15% voluntary employee contribution can be made. The plan requires the Company to make a matching contribution of 50% of the first 6% of the voluntary employee contribution. Total expense for this plan related to continuing operations was approximately $2,223, $2,115, and $2,628 for the years ended December 31, 1999, 1998 and 1997, respectively.
Employee Stock Purchase Plan. The Employee Stock Purchase Plan was canceled in connection with the Merger. For the plan year ended December 31, 1997, 1,098 employee participants purchased 82,085 shares at an aggregate purchase price of $1,989.
Pension Plans. The Company's subsidiaries have had various noncontributory defined benefit pension plans which covered substantially all U.S. employees. The Company froze and combined its three noncontrib-
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
utory defined benefit pension plans through amendments to such plans effective December 31, 1989. All former participants of these plans became eligible to participate in the 401(k) Retirement Plan effective January 1, 1990. There was no prepaid benefit cost at December 31, 1999 or 1998. Accrued benefit liabilities at December 31, 1999 and 1998 were $192 and $336, respectively. In addition, the Company's Australian subsidiary has a Superannuation Fund established by a Trust Deed which operates on a lump sum scheme to provide benefits for its employees. Prepaid benefit cost at December 31, 1999 and 1998 was $6 and $5, respectively. There were no accrued benefit liabilities at December 31, 1999 or 1998.
Other Postretirement Benefits. The Company has a retirement plan covering both salaried and nonsalaried retired employees, which provides postretirement health care benefits (medical and dental) and life insurance benefits. The postretirement health care portion is contributory, with retiree contributions adjusted annually as determined by the Company based on claim costs. The postretirement life insurance portion is noncontributory. The Company recognizes the cost of postretirement benefits on the accrual basis as employees render service to earn the benefit. The Company continues to fund the cost of health care and life insurance benefits in the year incurred.
The following tables provide a reconciliation of benefit obligations, plan assets and status of the Pension and Other Postretirement Benefit Plans as recognized in the Company's Consolidated Balance Sheet for the years ended December 31, 1999 and 1998:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension and other postretirement benefit costs include the following components:
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.5% in 1999, declining gradually to 6.0% in 2012. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.5% in 1998 and 10.5% in 1997. A one percentage point change in the assumed health care cost trend rate would have the following effects:
12. 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column includes the elimination of intersegment sales and profits, corporate related items and other costs not allocated to the reportable segments.
Product Line Information
The Company manufactures a variety of products, substantially all of which are used in the cutting, welding or fabrication of metal. End users of the Company's products are engaged in various applications including construction, automobile manufacturing, repair and maintenance and shipbuilding. The following table shows sales for each of the Company's key product lines:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONTINGENCIES
Thermadyne and certain of its wholly owned subsidiaries are defendants in various legal actions, primarily in the product liability area. While there is uncertainty relating to any litigation, management is of the opinion that the outcome of such litigation will not have a material adverse effect on the Company's financial condition or results of operations.
14. GUARANTOR SUBSIDIARIES
In connection with the merger of Holdings and Mercury, Thermadyne LLC and Thermadyne Capital, both wholly owned subsidiaries of Holdings, issued $207 million of Senior Subordinated Notes. Holdings received all of the net proceeds from the issuance of the Senior Subordinated Notes and Thermadyne LLC and Thermadyne Capital are jointly and severally liable for all payments under the Senior Subordinated Notes. Additionally, the Senior Subordinated Notes are fully and unconditionally (as well as jointly and severally) guaranteed on an unsecured senior subordinated basis by certain subsidiaries of the Company (the "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is wholly owned by Thermadyne LLC.
The following condensed consolidating financial information of Thermadyne LLC includes the accounts of Thermadyne LLC, the combined accounts of the Guarantor Subsidiaries and the combined accounts of the non-guarantor subsidiaries for the periods indicated. Separate financial statements of each of the Guarantor Subsidiaries are not presented because management has determined that such information is not material in assessing the Guarantor Subsidiaries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999
ASSETS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1998
ASSETS
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
- ---------------
(a) Reflects the elimination of intercompany sales among all of the Company's subsidiaries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
- ---------------
(a) Reflects the elimination of intercompany sales among all of the Company's subsidiaries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
- ---------------
(a) Reflects the elimination of intercompany sales among all of the Company's subsidiaries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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/ JAMES H. TATE ------------------------------------ James H. Tate Senior Vice President and Chief Financial Officer
Date: March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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/ JAMES H. TATE ---------------------------------- James H. Tate Senior Vice President and Chief Financial Officer
Date: March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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/ JAMES H. TATE ---------------------------------- James H. Tate Senior Vice President and Chief Financial Officer
Date: March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors Thermadyne Holdings Corporation
We have audited the consolidated financial statements of Thermadyne Holdings Corporation and Thermadyne Mfg. LLC as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999 and have issued our report thereon dated February 11, 2000. Our audits also included the financial statement schedule, Schedule II, Valuation and Qualifying Accounts. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri February 11, 2000
S-1
SCHEDULE II THERMADYNE HOLDINGS CORPORATION THERMADYNE MFG. LLC
VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
S-2
INDEX TO EXHIBITS
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+ Indicates a management contract or compensatory plan or arrangement.
* Filed herewith.
(1) Incorporated by reference to the Company's Registration Statement on Form 10 (File No. 0-23378) filed under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on February 7, 1994.
(2) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on January 21, 1998.
(3) Incorporated by reference to the Company's Registration Statement on Form S-1, (File No. 333-57455) filed on June 23, 1998.
(4) Incorporated by reference to Thermadyne LLC and Thermadyne Capital's Registration Statement on Form S-1 (File No. 333-57457) filed on June 23, 1998.
(5) Incorporated by reference to the Company's Registration Statement on Form 10/A, Amendment No. 2 (File No. 0-23378) filed under Section 12(g) of the Exchange Act, on April 28, 1994.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(7) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on January 18, 1996.
(8) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on May 12, 1997.