10-K 1 d84674e10-k.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-23378 THERMADYNE HOLDINGS CORPORATION (Exact name of Registrant as Specified in its Charter) DELAWARE 74-2482571 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
COMMISSION FILE NUMBER 333-57457 THERMADYNE MFG. LLC (Exact name of Registrant as Specified in its Charter) DELAWARE 74-2878452 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
COMMISSION FILE NUMBER 333-57457 THERMADYNE CAPITAL CORP. (Exact name of Registrant as Specified in its Charter) DELAWARE 74-2878453 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
101 S. HANLEY, SUITE 600 63105 ST. LOUIS, MISSOURI (Zip Code) (Address of Principal Executive Offices)
Registrant's telephone number, including area code: (314) 721-5573 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: TITLE OF CLASS Common Stock, par value $0.01 per share Indicate by checkmark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant: approximately $350,000 based on the closing sales price of the Common Stock, on March 20, 2001. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 3,590,326 shares of Common Stock, outstanding at March 20, 2001. Thermadyne Mfg. LLC and Thermadyne Capital Corp. meet the conditions set forth in General Instruction I 1(a) and (b) of Form 10-K and are therefore filing this form with the reduced disclosure format. DOCUMENTS INCORPORATED BY REFERENCE: NONE -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS The statements in this Annual Report on Form 10-K that relate to future plans, events or performance are forward-looking statements. Actual results could differ materially due to a variety of factors and the other risks described in this Annual Report and the other documents the Company files from time to time with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or that reflect the occurrence of unanticipated events. PART I 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 wholly owned by, and the principal operating subsidiary of, the Company, and Thermadyne Capital Corp. ("Thermadyne Capital") is a wholly owned subsidiary of Thermadyne LLC. BACKGROUND In 2000, the Company made the following two acquisitions. On April 13, the Company, through a 90% owned subsidiary, acquired all the assets of Unique Welding Alloys ("Unique"), a business that sells industrial gases, welding equipment and accessories to the retail end-user trade, and on November 9, the Company, through a 90% owned subsidiary, acquired all the assets of Maxweld & Braze (Pty) Ltd., a wholesale business that sells welding equipment and accessories to distributors and the retail end-user trade. Both of these businesses are located in Boksburg, South Africa. The aggregate consideration paid for these two acquisitions was approximately $4.4 million and was financed through existing bank facilities. These transactions were accounted for as purchases. 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 Sri ("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. 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) ("Victor Brazil"), a leading manufacturer of gas cutting apparatus in Brazil. On July 24, the Company acquired substantially all the assets of Mid-America Cryogenics Company ("Mid-America"), 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 ("OCIM"), a manufacturer of a variety of arc welding accessories including metal inert gas ("MIG") and tungsten inert gas ("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. 2 3 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 AND MARKETS 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 and metal inert gas ("MIG"). 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 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. 3 4 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. Tweco also manufactures a line of underwater welding and gouging equipment. In addition to gouging products, Tweco 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. Tweco has developed an underwater version of the SLICE(R) cutting system for use in the marine repair and salvage industry. Tweco 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 Hermosillo, Sonoro, Mexico, 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 welding, Cigweld manufactures and supplies approximately 40 individual types of wires and 4 5 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 and faceshields. 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 and 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 5 6 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 standby power where continuous power supply is a key requirement. 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 a 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 of approximately $193.7 million, $198.9 million and $199.4 million for the fiscal years ended December 31, 2000, 1999 and 1998, respectively, or approximately 38%, 38% and 37%, respectively, of the Company's 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. See "Quantitative and Qualitative Disclosures About Market Risk." 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 domestic and 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 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 6 7 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, 2000, the Company employed approximately 125 persons in its research and development groups, most of whom are engineers. EMPLOYEES As of December 31, 2000, the Company employed 3,451 people, of whom approximately 559 were engaged in sales and marketing activities, 240 were engaged in administrative activities, 2,564 were engaged in manufacturing activities and 88 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. 7 8 ITEM 2. PROPERTIES. The Company operates 17 manufacturing facilities in the United States, Italy, the Philippines, Brazil, Indonesia, Malaysia, Australia and Mexico. 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 an 18,939-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:
SUBSIDIARY/ BUILDING SPACE/ PROPERTY LOCATION OF FACILITY NUMBER OF BUILDINGS SIZE -------------------- ------------------- -------- Thermal Dynamics/West Lebanon, New Hampshire.............................. 187,000 sq. ft 8.0 acres 5 buildings (office, manufacturing, sales training) Tweco/Wichita, Kansas.................... 220,816 sq. ft 21.7 acres 3 buildings (office, manufacturing, storage space) Victor/Denton, Texas..................... 222,403 sq. ft 30.0 acres 4 buildings (office, manufacturing, storage, sales training center) Victor/Abilene, Texas.................... 123,740 sq. ft 32.0 acres 1 building (office, manufacturing) Victor Brazil/Rio de Janeiro, Brazil..... 200,000 sq. ft 6.0 acres 6 buildings (office, manufacturing, warehouse) Thermadyne Canada/Oakville, Ontario, Canada................................. 48,710 sq. ft 8.3 acres 1 building (office, warehouse) Modern Engineering Company/Gallman, Mississippi............................ 60,000 sq. ft 10.0 acres 1 building (office, manufacturing) Thermadyne Australia/Melbourne, Australia.............................. 426,157 sq. ft 9.8 acres 2 buildings (office, manufacturing, storage, research) Comweld Philippines/Cebu, Philippines.... 41,380 sq. ft 1.2 acres 1 building (office, manufacturing) Comweld Indonesia/Jakarta, Indonesia..... 52,500 sq. ft 2.1 acres 1 building (office, manufacturing) Comweld Malaysia/Kuala Lumpur, Malaysia............................... 56,000 sq. ft 2.2 acres 1 building (office, manufacturing) C&G Systems/Itaska, Illinois............. 38,000 sq. ft 2.0 acres 1 building (office, manufacturing, future expansion) Stoody/Bowling Green, Kentucky........... 185,000 sq. ft 37.0 acres 1 building (office, manufacturing)
8 9
SUBSIDIARY/ BUILDING SPACE/ PROPERTY LOCATION OF FACILITY NUMBER OF BUILDINGS SIZE -------------------- ------------------- -------- GenSet/Pavia, Italy...................... 193,000 sq. ft 7.9 acres 2 buildings (office, manufacturing, warehouse) OCIM/Milan, Italy........................ 10,000 sq. ft 0.5 acre 1 building (office, manufacturing) Thermal Arc/Troy, Ohio................... 120,000 sq. ft 6.5 acres 1 building (office, manufacturing, warehouse, sales training) Victor Gas/Conshohocken, Pennsylvania.... 18,000 sq. ft 3.4 acres 1 building (office, manufacturing) Victor Gas/Indianapolis, Indiana......... 5,000 sq. ft 1.0 acre 1 building (office, manufacturing, warehouse) Victor/Mars, Pennsylvania................ 33,314 sq. ft 5.0 acres 1 building (office, warehouse) Victor De Mexico and Tweco de Mexico/ Sonora, Mexico......................... 90,000 sq. ft 1.0 acre 1 building (office, manufacturing)
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 initial lease terms for the facilities located in West Lebanon, New Hampshire, Wichita, Kansas, Denton, Texas, Abilene, Texas and Ontario, Canada will expire in May, 2003. 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. The Company has also sublet the facility in Mars, Pennsylvania. 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 $75,000,000 in coverage for product liability claims. Although it is difficult to predict the outcome of litigation with any certainty, the Company believes 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 9 10 certain properties which it now owns or leases or previously owned or leased which are undergoing remediation. The Company does not believe 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 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the shareholders during the fourth quarter of 2000. PART II 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 has 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 1999 and 2000 as reported by published financial sources.
CLOSING SALE PRICE($) ------------- HIGH LOW ---- --- 1999 First Quarter............................................. 20 13 Second Quarter............................................ 20 16 Third Quarter............................................. 22 7/8 18 3/4 Fourth Quarter............................................ 23 1/2 19 1/2 2000 First Quarter............................................. 21 20 Second Quarter............................................ 17 17 Third Quarter............................................. 18 1/2 6 Fourth Quarter............................................ 10 3/4 3 9/16
On March 20, 2001 the last reported bid price for the Common Stock as reported by published financial sources was $1.31 per share. As of March 2, 2001 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." 10 11 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, 2000 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 and the notes thereto, in each case included elsewhere herein.
FISCAL YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996(1) 1997 1998 1999 2000 ------- ------- ------- ------- ------- (IN MILLIONS, EXCEPT PER SHARE DATA) Operating Results Data: Net sales.................................. $ 439.7 $ 520.4 $ 532.8 $ 521.1 $ 510.1 Cost of goods sold......................... 259.8 320.0 340.2 342.2 327.5 Selling, general and administrative expenses................................ 95.9 110.7 102.6 99.2 102.6 Amortization of goodwill(2)................ 83.0 1.6 1.5 1.6 19.2 Amortization of intangibles................ 12.4 6.8 2.4 3.0 7.7 Net periodic postretirement benefits....... 2.7 2.8 2.6 3.2 1.1 Special charges............................ -- -- 50.5 21.9 42.4 ------- ------- ------- ------- ------- Operating income (loss).................... (14.1) 78.5 33.0 50.0 9.6 Interest expense........................... 45.7 45.3 62.2 72.4 81.4 Other expense, net......................... 3.7 4.6 5.6 3.1 3.1 Income (loss) from continuing operations available to common shares.............. (62.9) 15.1 (46.2) (34.3) (106.6) Income (loss) per share from continuing operations: Basic................................... (5.83) 1.36 (7.95) (11.68) (32.04) Diluted................................. (5.83) 1.33 (7.95) (11.68) (32.04) Consolidated Balance Sheet Data: Working capital(3)......................... $ 67.6 $ 88.5 $ 121.2 $ 121.3 $ 87.8 Total assets............................... 353.4 354.5 420.2 400.4 317.9 Total debt................................. 421.3 358.1 710.7 729.4 753.9 Total shareholders' deficit................ (185.3) (162.8) (496.3) (534.1) (658.4) Consolidated Cash Flow Data: Net cash provided by (used in) operating activities.............................. $ 21.5 $ 15.0 $ (50.3) $ 53.9 $ (4.8) Net cash provided by (used in) investing activities.............................. 18.7 36.8 (39.5) (17.1) (16.5) Net cash provided by (used in) financing activities.............................. (40.6) (51.7) 89.7 (24.8) 18.4 Other Data: Adjusted EBITDA(4)......................... $ 95.7 $ 102.1 $ 105.1 $ 98.6 $ 95.3 Depreciation............................... 11.7 12.5 15.1 18.9 15.3 Capital expenditures....................... 11.4 16.3 17.5 10.2 16.3
--------------- (1) In 1996, the Company announced plans to sell, and in 1997 consummated the sale of, its wear resistance business. This business was accounted for as a discontinued operation in the Company's 1996 consolidated financial statements. (2) In conjunction with its reorganization under Chapter 11 of the United States Bankruptcy Code in 1994, 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) Excludes net assets of discontinued operations. (4) "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). 11 12 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 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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 it debt agreements. The Company believes 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 description of results of operations is presented for the fiscal years ended December 31, 1998, 1999 and 2000. The results of operations of the Company include the operations of OCIM, Victor Brazil, Tecmo, Soltec, Unique and Maxweld & Braze from their respective dates of acquisition. 2000 COMPARED TO 1999 Net Sales Net sales for the year ended December 31, 2000 were $510.1 million, which is a decrease of 2.1% compared to 1999 sales of $521.1 million. Domestic sales ended the year at $316.4 million versus $322.2 million for 1999, a decrease of 1.8%. The decline in domestic sales is attributable to generally weak conditions in the industrial sector of the economy. International sales for the year ended December 31, 2000 were $193.7 million, which is a decrease of 2.8% from 1999 sales of $198.9 million. The decline in international sales results from Australia and Asia, which collectively are down from 1999 by 28.2%. Australia was hampered throughout 2000 by a weak industrial economy, unfavorable exchange rates and competitive pressures from imported products. The Asian business declined sharply over the latter part of 2000 as the U.S. economy began slowing down. The declines in Asia and Australia were substantially offset by increases in 12 13 other regions of the world most notably a 22.0% increase in Latin America and an almost 6% increase in Canada. Costs and Expenses Cost of goods sold as a percentage of sales declined from 65.7% for the year ended December 31, 1999 to 64.2% for 2000. This improvement resulted from ongoing cost reduction initiatives and improved factory efficiencies. Selling, general and administrative expenses were $102.6 million for the twelve months ended December 31, 2000 compared to $99.2 million for 1999, an increase of 3.3%. The majority of this increase related to increased spending on selling and marketing activities. As a percentage of sales selling, general and administrative expenses were 20.1% and 19.0% for the years ended December 31, 2000 and 1999, respectively. Special charges, as defined in the New Credit Facility, of $42.5 million were incurred during the year ended December 31, 2000 and are comprised primarily of $19.4 million of costs related to the relocation of production to Mexico and Asia, $11.0 million resulting from the Company's reorganization of its domestic gas management business, $5.0 million related to changes in senior management, and $4.7 million related to an information technology and business process reengineering project the Company initiated in the third quarter of 2000. Special charges of $21.9 million were recorded during 1999 and related mostly to the reorganization of the Company's Australian and Asian operations, the consolidation of two domestic facilities and detachable warrants issued in conjunction with the junior subordinated notes. Amortization expense for the year ended December 31, 2000 was $26.9 million compared to $4.6 million for 1999. The increase results from the Company's decision to write-off goodwill and other intangibles related to its Australian business after an assessment of estimated future cash flows of this business indicated the recoverability of these assets was doubtful. Prolonged weak economic conditions was the primary reasons for this write-off. Interest expense was $81.4 million for 2000 compared to $72.4 million for the year ended December 31, 1999. Higher interest rates resulted in an increase of $2.7 million in expense related to the Company's floating rate U.S. bank debt in spite of a $21.9 million decrease in the average outstanding principal balance in 2000 compared to 1999. Also, the Company's discount debentures and junior subordinated notes continue to accrete and have combined interest of $19.0 million, an increase of $5.9 million over the $13.1 million of expense incurred in 1999. An income tax provision of $31.9 million was recorded on a pretax loss of $74.8 million for the year ended December 31, 2000. The 2000 income tax provision differs from that determined by applying the U.S. federal statutory rate primarily due to nondeductible expenses, the disallowance of foreign losses, and an increase in the valuation allowance for deferred tax assets. An income tax provision of $8.8 million was recorded on a pre-tax loss of $25.5 million for the year ended December 31, 1999. 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. Adjusted EBITDA Adjusted EBITDA for the year ended December 31, 2000 was $95.4 million compared to $98.6 million for 1999, a decrease of 3.2%. 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% 13 14 decrease was 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 was 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 continued to decline, down 9.0% in 1999, as the Australian economy remained 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 prior two years continued 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 $62.1 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. 14 15 Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The Company adopted the new statement effective January 1, 2001. The Statement requires 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 adoption of this Statement did not have a significant effect on the Company's results of operations or financial position. LIQUIDITY AND CAPITAL RESOURCES Working Capital and Cash Flows. Operating activities used $4.8 million of cash during 2000, which compared to $53.9 million of cash provided in 1999. This decrease in cash from operations resulted from a net loss, adjusted for non-cash expenses, of $2.7 million for the year ended December 31, 2000 compared to net earnings of $27.8 million in 1999, together with an increase in net operating assets and liabilities of $2.2 million during 2000 versus cash provided of $26.1 million during 1999. The decrease in earnings, adjusted for non-cash expenses, resulted mostly from an increase in special charges and higher interest costs. The increase in net operating assets during 2000 of $2.2 million related mostly to inventory which increased $16.3 million. The increase in inventory resulted mostly from a build-up in stock as the Company relocates production to Mexico and Asia, but also relates partly to a decrease in demand in the latter part of the fourth quarter as the U.S. economy began slowing. The increase in inventory was substantially offset by accounts receivable, which provided cash of $7.0 million, and operating liabilities which collectively provided $6.0 million of cash. Investing activities used $16.5 million during the year ended December 31, 2000 compared to $17.1 million during 1999. Capital expenditures during 2000 were $16.3 million, an increase of $6.1 million over 1999, but were partially offset by $4.6 million of proceeds from the sale of certain land and buildings in Australia. Financing activities provided $18.4 million during 2000 compared to cash used of $24.8 million during the year ended December 31, 1999. The increase in cash provided related mostly from the Company's accounts receivable securitization program, which provided cash of $21.0 million during 2000 versus cash used of $23.8 million in 1999. The Company's old program was repaid during the fourth quarter of 1999 and the current program did not commence until January 2000. Capital Expenditures. The Company had $18.7 million of capital expenditures. 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 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 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 15 16 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 at 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. In connection with the Merger, Mercury issued 12 1/2% Senior Discount Debentures (the "Debentures") which became obligations of the Company following the Merger. The Debentures 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 is 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. In December 1999, Thermadyne LLC issued $25 million of 15% Junior Subordinated Notes due 2009 (the "Junior Subordinated 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 Subordinated 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 Subordinated Notes is prohibited under the terms of the New Credit Facility, interest shall be paid by the issuance of additional Junior Subordinated Notes. The Junior 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 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 it 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. 16 17 The Company has experienced declining revenues and Adjusted EBITDA during the three-year period ended December 31, 2000. Current business conditions indicate these trends may continue. The Company was in compliance with the various covenants of the New Credit Facility at December 31, 2000 however, if its operating results continue to deteriorate, the Company may not be able to remain in compliance with all of the financial covenants contained therein. If a covenant violation occurred, absent obtaining a waiver or amendment to the New Credit Facility, substantially all of the Company's long-term debt would be callable by its lenders. 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 "Quantitative and Qualitative Disclosures About Market Risk" for further discussion. EFFECT OF INFLATION; SEASONALITY Inflation has not been a material factor affecting the Company's business. In recent years, the cost of electronic components has remained relatively stable due to competitive pressures within the industry, which has enabled the Company to contain its service costs. The Company's general operating expenses, such as salaries, employee benefits, and facilities costs, are subject to normal inflationary pressures. The operations of the Company are generally not subject to seasonal fluctuations. 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, Mexico and Brazil as well as in the United States. A substantial portion of the product manufactured in most of 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, 2000, the Company had approximately $303.8 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 $15.6 million and $7.3 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, 2000. 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 F-1 hereof and are included at pages F-2 to F-53 thereof. 17 18 ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III 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.
NAME AGE POSITION(S) ---- --- ----------- Karl R. Wyss........................... 60 Director of the Company, Thermadyne LLC and Thermadyne Capital, Chairman of the Board and Chief Executive Officer James H. Tate.......................... 53 Director of the Company, Thermadyne LLC and Thermadyne Capital, Senior Vice President and Chief Financial Officer, and Office of the Chairman Peter T. Grauer........................ 55 Director of the Company, Thermadyne LLC and Thermadyne Capital John F. Fort III....................... 59 Director of the Company Harold A. Poling....................... 75 Director of the Company Lawrence M.v.D. Schloss................ 46 Director of the Company Michael E. Mahoney..................... 51 Executive Vice President and Office of the Chairman Robert D. Maddox....................... 41 Vice President and Corporate Controller Douglas Muzzey......................... 44 Vice President of Information and Technology
Mr. Wyss has been a Director of the Company since April 2000 and was elected Chairman of the Board and Acting Chief Executive Officer of the Company in June 2000. He became Chief Executive Officer of the Company on January 12, 2001. Prior to joining the Company, Mr. Wyss was the Managing Director and Operating Partner with DLJ's Merchant Banking Group since 1993. Before his position at DLJ, he was Chairman and Chief Executive Officer of Lear Siegler Inc. Mr. Wyss currently serves on the board of directors of Brand Services, Inc., Localiza Rent A Car S.A. and Manufacturers Services Limited. Mr. Tate has been a Director of the Company since October 1995 and was appointed to the Office of the Chairman in June 2000. 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 18 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. Since 1995, Mr. Grauer has been a Managing Director of DLJ Merchant Banking III, Inc. ("DLJMB III Inc.") (and its predecessors). Mr. Grauer is a director of Doane Pet Care Enterprises, Inc., Total Renal Care Holdings, Inc., Formica Corporation and Chairman of the Board of Directors of Bloomberg, Inc. 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 1993. Mr. Fort has held a broad range of positions throughout his 30 years at Tyco. He currently holds directorships at Tyco International, Ltd., Manufacturers Services, Ltd. and DeCrane Aircraft Holding Co. 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 18 19 Automotive, Inc. 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 to 1988. Mr. Schloss has been a Director of the Company since May 1998. Mr. Schloss has been the Global Head of Private Equity Group of CSFB since December 2000 and 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 a director of Merrill Corporation. Mr. Mahoney was appointed to the Office of the Chairman in June 2000 and currently serves as the Executive Vice President for Tweco, Thermal Arc, Stoody, and European Operations. He previously served as the Executive Vice President of Thermal Dynamics, C&G, and the entire International Sales and Marketing group. Prior to joining Thermadyne in 1989, Mr. Mahoney spent ten years with Hobart Brothers and six years with British Oxygen Company. 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. Mr. Muzzey was elected Vice President of Information Technology in April 1999. Prior to that time, he served as IT Manager for Thermal Dynamics and C&G Systems. Prior to joining the Company in 1994, Mr. Muzzey spent 15 years with Digital Equipment Corporation as a Software Development Manager in Corporate Engineering. 19 20 ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth information in respect of the compensation of the Chief Executive Officer, each of the other four most highly compensated executive officers of the Company, the former Chief Executive Officer of the Company and two other former executive officers (collectively, the "Named Executive Officers") for services in all capacities to the Company and its subsidiaries for the years ended December 31, 2000, 1999 and 1998. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SECURITIES ALL OTHER -------------------- UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITIONS(S) YEAR SALARY($) BONUS($) OPTIONS(#) ($)(1) ------------------------------- ---- --------- -------- ------------ ------------ Karl R. Wyss(2)........................... 2000 526,151 -- -- 17,994 Chairman of the Board and 1999 N/A N/A N/A N/A Chief Executive Officer 1998 N/A N/A N/A N/A James H. Tate............................. 2000 326,500 -- -- 14,111 Director, Senior Vice President, Chief 1999 316,962 58,313 -- 19,590 Financial Officer, and Office of the Chairman 1998 294,741 219,488 51,686 19,230 Michael E. Mahoney........................ 2000 283,500 13,808 -- 12,545 Executive Vice President and 1999 N/A N/A N/A N/A Office of the Chairman 1998 N/A N/A N/A N/A Robert D. Maddox.......................... 2000 178,500 -- -- 6,639 Vice President and Controller 1999 173,269 23,375 -- 6,955 1998 150,481 78,279 10,603 6,854 Douglas Muzzey............................ 2000 117,550 -- -- 3,877 Vice President of Information and 1999 N/A N/A N/A N/A Technology 1998 N/A N/A N/A N/A Randall E. Curran(3)...................... 2000 263,173 -- -- 13,540 Former Chairman of the Board, President, 1999 564,724 134,600 -- 37,289 and Chief Executive Officer 1998 538,400 506,634 99,397 36,282 Stephanie N. Josephson(4)................. 2000 144,913 -- -- 6,177 Former Vice President, General Counsel 1999 208,962 28,188 -- 10,833 and Corporate Secretary 1998 181,577 94,935 10,603 10,248 Thomas C. Drury(5)........................ 2000 178,500 -- -- 6,853 Former Vice President -- Human Resources 1999 173,269 23,375 -- 8,275 1998 150,481 78,279 10,603 7,292
--------------- (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 (respectively) on behalf of the Named Executive Officers for 2000 are as follows: Mr. Wyss, $259 and $17,735; Mr. Tate, $2,567 and $11,544; Mr. Mahoney, $2,622 and $9,923; Mr. Maddox, $583 and $6,056; Mr. Muzzey, $51 and $3,826; Mr. Curran, $1,067 and $11,933; Ms. Josephson, $984 and $5,193; and Mr. Drury, $797 and $6,056. (2) Mr. Wyss has served as Chairman of the Board and Chief Executive Officer since June 1, 2000. (3) Mr. Curran served as Chairman of the Board, President and Chief Executive Officer until May 31, 2000. (4) Ms. Josephson served as Vice President, General Counsel and Corporate Secretary until August 18, 2000. (5) Mr. Drury served as Vice President of Human Resources until December 22, 2000. 20 21 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth certain information related to stock options granted to one of the Named Executive Officers in 2000. The Company did not grant stock options to any other Named Executive Officer in 2000. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS --------------------------------------------- NUMBER OF PERCENT OF SECURITIES TOTAL OPTIONS GRANT DATE UNDERLYING GRANTED TO EXERCISE OR PRESENT OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION VALUE NAME GRANTED(#)(1) FISCAL YEAR (%) ($/Sh) DATE ($)(2) ---- ------------- --------------- ----------- ---------- ---------- Douglas Muzzey................. 550 2.6% 4.00(3) 1/25/2010 $14.00
--------------- (1) The options to purchase Common Stock were granted under the Thermadyne Holdings Corporation Management Incentive Plan (the "Management Incentive Plan") and vest 20% ratably over five years. For a more complete description of the Management Incentive Plan, see "-- Employment Arrangements -- Management Incentive Plan." All options become exercisable upon a change of control. (2) The grant date present value of each option grant was determined using a variation of the Black-Scholes option pricing model. The estimated values presented are based on the following assumptions made as of the time of grant: an expected dividend yield of 0%; an expected option term of 10 years; volatility of 0.63; and a risk-free rate of 4.3%. The actual value, if any, that the Named Executive Officer would realize from the exercise of the options is the excess of the fair market value of the Common Stock on the date of exercise over the exercise price. See "-- Fiscal Year-End Option Values." (3) The exercise price of the options on the date of grant was $34.50. Effective December 12, 2000, these options were repriced to $4.00, the last reported closing price of the Company's common stock prior to December 12, 2000. The following table provides information related to the number and value of options held by the Named Executive Officers at the end of 2000. On December 20, 2000, the last day on which the Common Stock was traded during 2000, the closing sale price of Common Stock was $3.5625. FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS FISCAL YEAR-END AT FISCAL YEAR-END ---------------------------- ---------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME (#) (#) ($) ($) ---- ----------- ------------- ----------- ------------- Karl R. Wyss............................... -- -- -- -- James H. Tate.............................. 13,438 38,248 -- -- Michael E. Mahoney......................... 10,338 29,421 -- -- Robert D. Maddox........................... 2,756 7,847 -- -- Douglas Muzzey............................. 100 850 -- -- Randall E. Curran.......................... 25,843 -- -- -- Stephanie N. Josephson..................... 2,756 -- -- -- Thomas C. Drury............................ 2,756 -- -- --
All options currently outstanding were granted under the Management Incentive Plan. For a discussion of the Management Incentive Plan, see "Employment Arrangements -- Management Incentive Plan." 21 22 EMPLOYMENT ARRANGEMENTS Employment and Severance Agreements. The Company has entered into employment agreements with Messrs. Tate, Mahoney and Maddox. Neither Mr. Wyss nor Mr. Muzzey has an employment agreement with the Company. Mr. Curran resigned from the Company on May 31, 2000 and entered into the severance agreement described below on June 1, 2000. The employment agreements with Messrs. Tate, Mahoney and Maddox 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. Tate, Mahoney and Maddox serve in their current executive capacities with the Company as a requirement of their respective employment agreements. Messrs. Tate, Mahoney and Maddox are entitled to annual base salaries (subject to increase at the Board of Directors' discretion) of $326,500, $283,500 and $178,500, respectively. In addition, Messrs. Tate, Mahoney and Maddox are eligible to participate in an annual bonus plan providing for an annual bonus opportunity of not less than 75%, 70% 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 three 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 24 months from the date of the executive's 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 or 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. Prior to May 31, 2000, Mr. Curran was entitled to a base salary (subject to increase at the Board of Directors' discretion) of $575,000. In addition, Mr. Curran was eligible to participate in an annual bonus plan providing for an annual bonus opportunity of not less than 100% of his base salary. Mr. Curran was also entitled to those benefits customarily provided to the executives of the Company and its subsidiaries. Mr. Curran was required to devote all of his business time and attention to the business of the Company and its subsidiaries. Mr. Curran's employment agreement contained termination provisions identical to those described above. In connection with Mr. Curran's resignation, the Company entered into a severance agreement with Mr. Curran, the principal terms of which implement the severance provisions of his employment agreement. Pursuant to his employment agreement, Mr. Curran was entitled to receive (1) his then current basic compensation, (2) an amount in lieu of bonus equal to the average bonus received by him for the previous 24 months, and (3) the benefits to which he would otherwise be entitled and reimbursement for automobile expenses, all such amounts and benefits to continue until May 22, 2003, which together resulted in an aggregate cash payment (after receiving cash in lieu of benefits), which amount was confirmed in the severance agreement, of approximately $2,800,000. In addition, the Company agreed not to accelerate the due date under the promissory note made by Mr. Curran to the Company in the original principal amount of $1,249,890. In the severance agreement, Mr. Curran provided the Company with certain releases and agreed to certain confidentiality and non-compensation provisions. 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 2000, options to purchase approximately 20,000 shares of Common Stock were granted under the Management 22 23 Incentive Plan to certain officers and employees of the Company at an exercise price of $34.50 per option share. On December 12, 2000, all outstanding options issued to current employees and officers (as of December 12, 2000) under the Management Incentive Plan were repriced to $4.00, the last reported closing price of the Company's common stock prior to December 12, 2000. 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 the 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
NAME TIME VESTING SHARES CLIFF VESTING SHARES ---- ------------------- -------------------- Karl R. Wyss...................................... -- -- James H. Tate..................................... 25,843 25,843 Michael E. Mahoney................................ 19,880 19,875 Robert D. Maddox.................................. 5,302 5,301 Douglas Muzzey.................................... -- -- Randall E. Curran................................. 25,843 -- Stephanie N. Josephson............................ 2,756 -- Thomas C. Drury................................... 2,756 --
As approved by the Compensation Committee, all of Messrs. Tate, Mahoney, Maddox and Muzzey's options outstanding totaling 102,998 stock options at December 12, 2000, were repriced to $4.00, the last reported closing price of the Company's common stock prior to December 12, 2000. 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 2000. COMPENSATION OF DIRECTORS Compensation Arrangements. Other than Messrs. Wyss, Tate, Schloss and Grauer, each Director of the Company is entitled to receive a $25,000 annual fee. 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 2000, the Board of Directors awarded Messrs. Fort and Poling options to each purchase 500 shares of Common Stock at 23 24 $4.00 per share pursuant to the Directors Plan. On December 12, 2000, all outstanding options issued to current non-employee Directors (as of December 12, 2000) were repriced to $4.00, the last reported closing price of the Company's common stock prior to December 12, 2000. 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. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth, as of March 2, 2001, 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 of the Company, (iii) by each Named Executive Officer and (iv) by all current Directors and executive officers of the Company as a group. Other than as set forth below, no Director, 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.
BENEFICIAL OWNERSHIP OF COMMON STOCK ----------------------- NAME OF NUMBER PERCENT OF BENEFICIAL OWNER OF SHARES CLASS (1) ---------------- ---------- ---------- Credit Suisse First Boston and related investors(2)......... 3,399,089 82.5% Magten Asset Management Corp. .............................. 267,339 7.4% 35 East 21st Street New York, NY 10010(3) Karl R. Wyss................................................ -- * James H. Tate(4)............................................ 32,065 * Peter T. Grauer(5).......................................... -- * John F. Fort III(6)......................................... 13,000 * Harold A. Poling(7)......................................... 64,100 1.8% Lawrence M.v.D. Schloss(5).................................. -- * Michael E. Mahoney(8)....................................... 24,467 * Robert D. Maddox(9)......................................... 12,973 * Douglas Muzzey(10).......................................... 290 * Randall E. Curran(11)....................................... 75,117 2.1% Stephanie N. Josephson(12).................................. 14,126 * Thomas C. Drury(13)......................................... 11,556 * All Directors and executive officers as a group (9 persons)(5)(14)........................................... 146,895 4.1%
--------------- * Represents less than 1%. (1) Based on 3,590,326 shares of Common Stock outstanding 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 Credit Suisse First Boston ("CSFB") and the following investors related to CSFB: DLJ Offshore Partners II, C.V. ("Offshore"), a Netherlands Antilles limited partnership, DLJ Diversified Partners, L.P. ("Diversified"), a Delaware limited partnership, DLJ MB 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. CSFB, Offshore, Diversified, Funding, DLJMBPIIA, Diversified A, Millennium, Millennium A, EAB, UK Partners, DLJ First ESC and DLJ ESC II are herein referred to as the "DLJ Funds." The address of each of CSFB, 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 24 25 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 17,573 shares of Common Stock issuable to Mr. Tate upon the exercise of vested stock options or stock options that will vest within 60 days. (5) Messrs. Grauer 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 CSFB and affiliated funds and entities (the "CSFB Funds"), as to which such individuals disclaim beneficial ownership. (6) Includes 4,000 shares of Common Stock issuable to Mr. Fort upon the exercise of vested stock options or stock options that will vest within 60 days and 1,000 shares held by Mr. Fort's spouse. (7) Includes 4,000 shares of Common Stock issued to Mr. Poling upon the exercise of vested stock options or stock options that will vest within 60 days. (8) Includes 13,519 shares of Common Stock issuable to Mr. Mahoney upon the exercise of vested stock options or stock options that will vest within 60 days. (9) Includes 3,605 shares of Common Stock issuable to Mr. Maddox upon the exercise of vested stock options or stock options that will vest within 60 days. (10) Consists of 290 shares of Common Stock issuable to Mr. Muzzey upon the exercise of vested stock options. (11) Includes 25,843 shares of Common Stock issuable to Mr. Curran upon the exercise of vested stock options. (12) Includes 2,756 shares of Common Stock issuable to Ms. Josephson upon the exercise of vested stock options. (13) Includes 2,756 shares of Common Stock issuable to Mr. Drury upon the exercise of vested stock options. (14) Includes 42,987 shares of Common Stock issuable upon the exercise of vested stock options or stock options that will vest within 60 days. 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 LLC and the DLJ Funds dated December 22, 1999, $25,000,000 in principal amount of the Junior Subordinated Notes 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. 25 26 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. The Company has since assumed DLJMB's obligations under the Engagement Letter. 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 an Indemnified Person pursuant to the Engagement Letter, the transactions contemplated by the Engagement Letter or any Indemnified Person's action or inaction 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. 26 27 Messrs. Grauer and Schloss, Directors of the Company, are officers of DLJMB II Inc., which is an affiliate of each of CSFB, 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, Mahoney, Drury and Maddox and Ms. Josephson received secured, non-recourse loans from the Company in the amount of $1,249,890, $367,606, $277,708, $223,222, $237,630 and $288,413, respectively, to purchase shares of the Company. The current principal balances of the loans are $1,321,009, $388,523, $293,510, $235,923, $251,151 and $304,824, 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, the Company may accelerate any outstanding loan. The Company waived this acceleration with regard to Messrs. Curran's and Drury's and Ms. Josephson's outstanding loans. PART IV 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
EXHIBIT NO. EXHIBIT ------- ------- 2.1 -- Agreement Plan of Merger, dated as of January 20, 1998, between Thermadyne Holdings Corporation and Mercury Acquisition Corporation.(2) 2.2 -- Amendment No. 1 to Agreement and Plan of Merger between Thermadyne Holdings Corporation and Mercury Acquisition Corporation.(3) 2.3 -- Certificate of Merger of Mercury Acquisition Corporation with and into Thermadyne Holdings Corporation.(3) 3.1 -- Certificate of Incorporation of Thermadyne Holdings Corporation (included in Exhibit 2.4). 3.2 -- Bylaws of Thermadyne Holdings Corporation.(3) 3.3 -- Certificate of Incorporation of Thermadyne Capital Corp.(4) 3.4 -- Bylaws of Thermadyne Capital Corp.(4) 3.5 -- Limited Liability Company agreement of Thermadyne Mfg. LLC.(4)
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EXHIBIT NO. EXHIBIT ------- ------- 4.1 -- Indenture, dated as of May 22, 1998, between Mercury Acquisition Corporation and IBJ Schroder Bank & Trust Company, as Trustee.(3) 4.2 -- First Supplemental Indenture, dated as of May 22, 1998, between Thermadyne Holding Corporation and IBJ Schroder Bank & Trust Company, as Trustee.(3) 4.3 -- Form of 12 1/2% Senior Discount Debentures.(3) 4.4 -- A/B Exchange Registration Rights Agreement dated as of May 22, 1998, among Mercury Acquisition Corporation and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.5 -- Amendment to Registration Rights Agreement dated May 22, 1998, among Thermadyne Holdings Corporation and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.6 -- Indenture, dated as of February 1, 1994, between Thermadyne Holdings Corporation and Chemical Bank, as Trustee, with respect to $179,321,000 principal amount of the Senior Subordinated Notes due November 1, 2003.(1) 4.7 -- Form of Senior Subordinated Note (included in Exhibit 4.3).(1) 4.8 -- Indenture, dated May 22, 1998, among Thermadyne Mfg. LLC, Thermadyne Capital Corp., the guarantors named therein and State Street Bank and Trust Company, as Trustee.(3) 4.9 -- Form of 9 7/8% Senior Subordinated Notes.(3) 4.10 -- A/B exchange Registration Rights Agreement dated as of May 22, 1998, among Thermadyne Mfg. LLC, Thermadyne Capital Corp., the guarantors named therein and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.11 -- Subscription agreement dated December 22, 1999, among Thermadyne Mfg. LLC, Thermadyne Holdings Corporation, and the buyers named therein.(9) 4.12 -- Registration Rights Agreement dated December 22, 1999, among Thermadyne Mfg. LLC, Thermadyne Holdings Corporation, and the buyers named therein.(9) 4.13 -- Form of indenture relating to Junior Subordinated Notes.(9) 4.14 -- Form of Warrants (included in Exhibit 4.11).(9) 4.15 -- Form of Junior Subordinated Notes (included in Exhibit 4.11).(9) 10.1 -- Omnibus Agreement, dated as of June 3, 1988, among Palco Acquisition Company (now Thermadyne Holdings Corporation) and its subsidiaries and National Warehouse Investment Company.(5) 10.2 -- Escrow Agreement, dated as of August 11, 1988, among National Warehouse Investment Company, Palco Acquisition Company (now Thermadyne Holdings Corporation) and Title Guaranty Escrow Services, Inc.(5) 10.3 -- Amended and Restated Industrial Real Property Lease dated as of August 11, 1988, between National Warehouse Investment Company and Tweco Products, Inc., as amended by First Amendment to Amended and Restated Industrial Real Property Lease dated as of January 20, 1989.(5) 10.4 -- Schedule of substantially identical lease agreements.(5) 10.5 -- Amended and Restated Continuing Lease Guaranty, made as of August 11, 1988, by Palco Acquisition Company (now Thermadyne Holdings Corporation) for the benefit of National Warehouse Investment Company.(5) 10.6 -- Schedule of substantially identical lease guaranties(5)
28 29
EXHIBIT NO. EXHIBIT ------- ------- 10.7 -- Lease Agreement, dated as of October 10, 1990, between Stoody Deloro Stellite and Bowling Green-Warren County Industrial Park Authority, Inc.(5) 10.8 -- Lease Agreement, dated as of February 15, 1985, as amended, between Stoody Deloro Stellite, Inc. and Corporate Property Associates 6.(5) 10.9 -- Purchase Agreement, dated as of August 2, 1994, between Coyne Cylinder Company and BA Credit Corporation.(6) 10.10 -- Sublease Agreement, dated as of April 7, 1994, between Stoody Deloro Stellite, Inc., and Swat, Inc.(6) 10.11 -- Share Sale Agreement dated as of November 18, 1995, among certain scheduled persons and companies, Rosny Pty Limited, Byron Holdings Limited, Thermadyne Holdings Corporation, and Thermadyne Australia Pty Limited relating to the sale of the Cigweld Business.(7) 10.12 -- Rights Agreement dated as of May 1, 1997, between Thermadyne Holdings Corporation and BankBoston, N.A., as Rights Agent.(8) 10.13 -- First Amendment to Rights Agreement, dated January 20, 1998, between Thermadyne Holdings Corporation and BankBoston, N.A.(2) 10.14+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Randall E. Curran.(3) 10.15+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and James H. Tate.(3) 10.16+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Stephanie N. Josephson.(3) 10.17+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Thomas C. Drury.(3) 10.18+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Robert D. Maddox.(3) 10.19+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Randall E. Curran.(3) 10.20+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and James H. Tate.(3) 10.21+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Stephanie N. Josephson.(3) 10.22+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Thomas C. Drury.(3) 10.23+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Robert D. Maddox.(3) 10.24+ -- Thermadyne Holdings Corporation Management Incentive Plan.(3) 10.25+ -- Thermadyne Holdings Corporation Direct Investment Plan.(3) 10.26 -- Investors' Agreement dated as of May 22, 1998, between Thermadyne Holdings Corporation, the DLJ Entities (as defined therein) and the Management Stockholders (as defined therein).(3) 10.27 -- Credit Agreement dated as of May 22, 1998, between Thermadyne Mfg. LLC, Comweld Group Pty. Ltd., GenSet S.P.A. and Thermadyne Welding Products Canada Limited, as Borrowers, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent, Societe Generale, as Documentation Agent, and ABN Amro Bank N.V., as Administrative Agent.(3)
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EXHIBIT NO. EXHIBIT ------- ------- 10.28 -- First Amendment to Credit Agreement, dated as of November 10, 1999, among Thermadyne Mfg. LLC., Comweld Group Pty. Ltd., GenSet S.P.A. and Thermadyne Welding Products Canada Limited, as Borrowers, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent, Societe Generale, as Documentation Agent, and ABN Amro Bank N.V., as Administrative Agent. 10.29 -- Letter Agreement dated as of January 16, 1998, between Donaldson, Lufkin & Jenrette Securities Corporation and DLJ Merchant Banking II, Inc.(3) 10.30 -- Assignment and Assumption Agreement dated as of May 22, 1998, between DLJ Merchant Banking II, Inc. and Thermadyne Holdings Corporation.(3) 10.31 -- Receivables Participation Agreement, dated as of January 31, 2000, between Thermadyne Receivables, Inc. as the Transferor, and Bankers Trust Company, as Trustee.* 10.32 -- Executive, Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Michael E. Mahoney.* 21.1 -- Subsidiaries of Thermadyne Holdings Corporation.* 23.1 -- Consent of Ernst & Young LLP, Independent Auditors.*
--------------- + Indicates a management contract or compensatory plan or arrangement. * Filed herewith. (1) Incorporated by reference to the Company's Registration Statement of 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. (9) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 30 31 THERMADYNE HOLDINGS CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Thermadyne Holdings Corporation Report of Ernst & Young LLP, Independent Auditors......... F-2 Consolidated Balance Sheets at December 31, 2000 and 1999................................................... F-3 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998....................... F-4 Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 2000, 1999 and 1998... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998....................... F-6 Notes to Consolidated Financial Statements................ F-7 Thermadyne Mfg. LLC Report of Ernst & Young LLP, Independent Auditors......... F-26 Consolidated Balance Sheets at December 31, 2000 and 1999................................................... F-27 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998....................... F-28 Consolidated Statement of Shareholder's Equity (Deficit) for the years ended December 31, 2000, 1999 and 1998... F-29 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998....................... F-30 Notes to Consolidated Financial Statements................ F-31
F-1 32 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, 2000 and 1999, and the related consolidated statements of operations, shareholders' deficit, and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. As discussed in Note 8 to the financial statements, the Company was in compliance with the provisions of its debt covenants at December 31, 2000; however, the Company has concluded that it may not be able to remain in compliance during 2001. As a result, absent obtaining waivers or amendments to its debt agreements, substantially all of the Company's debt would be callable by its lenders. Accordingly, substantial doubt exists about the Company's ability to continue as a going concern. The 2000 financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ ERNST & YOUNG LLP St. Louis, Missouri February 14, 2001 F-2 33 THERMADYNE HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ Current assets: Cash and cash equivalents................................. $ 10,362 $ 13,321 Accounts receivable, less allowance for doubtful accounts of $3,509 and $3,275, respectively..................... 67,011 94,731 Inventories............................................... 112,451 100,831 Prepaid expenses and other................................ 4,597 5,954 --------- --------- Total current assets.............................. 194,421 214,837 Property, plant and equipment, at cost, net................. 84,725 93,811 Deferred financing costs, net............................... 18,238 20,459 Intangibles, at cost, net................................... 14,206 40,170 Deferred income taxes....................................... 792 29,105 Other assets................................................ 5,563 2,014 --------- --------- Total assets...................................... $ 317,945 $ 400,396 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable.......................................... $ 43,268 $ 41,773 Accrued and other liabilities............................. 35,290 27,052 Accrued interest.......................................... 2,646 3,080 Income taxes payable...................................... 10,119 9,575 Current maturities of long-term obligations............... 19,737 12,080 --------- --------- Total current liabilities......................... 111,060 93,560 Long-term obligations, less current maturities.............. 734,184 717,322 Other long-term liabilities................................. 61,244 62,172 Redeemable preferred stock (paid in kind), $0.01 par value, 15,000,000 shares authorized and 2,000,000 shares outstanding............................................... 69,814 61,430 Shareholders' deficit: Common stock, $0.01 par value, 30,000,000 shares authorized, and 3,590,326 shares issued and outstanding............................................ 36 36 Additional paid-in capital................................ (119,828) (111,444) Accumulated deficit....................................... (501,467) (394,819) Management loans.......................................... (1,503) (3,966) Accumulated other comprehensive loss...................... (35,595) (23,895) --------- --------- Total shareholders' deficit....................... (658,357) (534,088) --------- --------- Total liabilities and shareholders' deficit....... $ 317,945 $ 400,396 ========= =========
See accompanying notes to consolidated financial statements. F-3 34 THERMADYNE HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------- ------------- Net sales.......................................... $ 510,146 $521,115 $532,777 Operating expenses: Cost of goods sold............................... 327,480 342,250 340,236 Selling, general and administrative expenses..... 102,578 99,151 102,554 Amortization of goodwill......................... 19,176 1,575 1,524 Amortization of intangibles...................... 7,707 3,047 2,360 Net periodic postretirement benefits............. 1,121 3,200 2,550 Special charges.................................. 42,456 21,886 50,523 --------- -------- -------- Operating income................................. 9,628 50,006 33,030 Other income (expense): Interest expense................................. (81,358) (72,439) (62,151) Amortization of deferred financing costs......... (3,314) (3,590) (2,700) Other, net....................................... 251 531 (2,939) --------- -------- -------- Loss before income tax provision and extraordinary item............................................. (74,793) (25,492) (34,760) Income tax provision............................... 31,855 8,807 11,415 --------- -------- -------- Loss before extraordinary item..................... (106,648) (34,299) (46,175) Extraordinary item -- loss on early extinguishment of debt, net of income tax benefit of $8,151..... -- -- (15,137) --------- -------- -------- Net loss........................................... (106,648) (34,299) (61,312) Preferred stock dividends (paid in kind)........... 8,384 7,377 4,053 --------- -------- -------- Net loss applicable to common shares............... $(115,032) $(41,676) $(65,365) ========= ======== ======== Basic loss per share amounts applicable to common shares: Loss before extraordinary item................... $ (32.04) $ (11.68) $ (7.95) Net loss......................................... $ (32.04) $ (11.68) $ (10.35) Diluted loss per share amounts applicable to common shares: Loss before extraordinary item................... $ (32.04) $ (11.68) $ (7.95) Net loss......................................... $ (32.04) $ (11.68) $ (10.35)
See accompanying notes to consolidated financial statements. F-4 35 THERMADYNE HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN ACCUMULATED MANAGEMENT COMPREHENSIVE STOCK CAPITAL DEFICIT LOANS LOSS TOTAL ------ ---------- ----------- ---------- ------------- --------- January 1, 1998.................. $112 $ 149,023 $(299,208) $ -- $(12,774) $(162,847) Comprehensive loss: Net loss....................... -- -- (61,312) -- -- (61,312) Other comprehensive loss -- foreign currency translation................. -- -- -- -- (4,150) (4,150) --------- Comprehensive loss............... (65,462) --------- Exercise of stock options........ -- 624 -- -- -- 624 Merger........................... (80) (262,145) -- (3,632) 1,390 (264,467) Interest on management loans..... -- -- -- (121) -- (121) Accretion of preferred stock..... -- (4,053) -- -- -- (4,053) ---- --------- --------- ------- -------- --------- December 31, 1998................ 32 (116,551) (360,520) (3,753) (15,534) (496,326) Comprehensive loss: Net loss....................... -- -- (34,299) -- -- (34,299) Other comprehensive loss -- foreign currency translation................. -- -- -- -- (8,361) (8,361) --------- Comprehensive loss............... (42,660) --------- Exercise of warrants............. 4 (4) -- -- -- Issuance of warrants............. -- 9,175 -- -- -- 9,175 Interest on management loans..... -- -- -- (213) -- (213) Accretion of preferred stock..... -- (7,377) -- -- -- (7,377) Recognition of net operating loss carryforwards.................. -- 3,313 -- -- -- 3,313 ---- --------- --------- ------- -------- --------- December 31, 1999................ 36 (111,444) (394,819) (3,966) (23,895) (534,088) Comprehensive loss: Net loss....................... -- -- (106,648) -- -- (106,648) Other comprehensive loss -- foreign currency translation................. -- -- -- -- (11,700) (11,700) --------- Comprehensive loss............... (118,348) --------- Interest on management loans..... -- -- -- (226) -- (226) Accretion of preferred stock..... -- (8,384) -- -- -- (8,384) Reclassification of management loans.......................... -- -- -- 2,689 -- 2,689 ---- --------- --------- ------- -------- --------- December 31, 2000................ $ 36 $(119,828) $(501,467) $(1,503) $(35,595) $(658,357) ==== ========= ========= ======= ======== =========
See accompanying notes to consolidated financial statements. F-5 36 THERMADYNE HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- ----------------- Cash flows provided by (used in) operating activities: Net loss................................................. $(106,648) $(34,299) $ (61,312) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Net periodic postretirement benefits................ 1,121 3,200 2,550 Depreciation........................................ 15,335 18,860 15,089 Amortization of goodwill............................ 19,176 1,575 1,524 Amortization of other intangibles................... 7,707 3,047 2,360 Non-cash interest expense........................... 18,972 13,134 7,270 Amortization of deferred financing costs............ 3,314 3,590 2,700 Recognition of net operating loss carryforwards..... -- 3,313 -- Deferred income taxes............................... 28,310 3,468 3,185 Loss on asset disposal.............................. 9,990 2,740 -- Issuance of common stock warrants................... -- 9,175 12,190 Non-cash portion of extraordinary item.............. -- -- (2,272) Changes in operating assets and liabilities: Accounts receivable................................. 6,996 19,239 (8,251) Inventories......................................... (16,273) 25,425 (19,487) Prepaid expenses and other.......................... 1,082 1,638 728 Accounts payable.................................... 992 (3,751) (11,610) Accrued and other liabilities....................... 8,361 (10,453) 2,809 Accrued interest.................................... (445) (71) (2,429) Income taxes payable................................ 424 (1,818) 7,920 Other long-term liabilities......................... (3,291) (4,126) (3,272) --------- -------- --------- Total adjustments.............................. 101,771 88,185 11,004 --------- -------- --------- Net cash provided by (used in) operating activities................................... (4,877) 53,886 (50,308) --------- -------- --------- Cash flows used in investing activities: Capital expenditures, net.............................. (18,691) (10,168) (17,506) Proceeds from sale of assets........................... 6,961 -- -- Change in other assets................................. (1,051) (1,046) (3,046) Acquisitions, net of cash.............................. (3,767) (5,886) (18,953) --------- -------- --------- Net cash used in investing activities.......... (16,548) (17,100) (39,505) --------- -------- --------- Cash flows provided by (used in) financing activities: Change in long-term receivables........................ 384 (353) 638 Repayment of long-term obligations..................... (26,477) (23,166) (408,970) Borrowing of long-term obligations..................... 34,216 26,535 753,865 Issuance of common stock............................... -- 4 90,624 Issuance of preferred stock............................ -- -- 50,000 Repurchase of common stock............................. -- -- (368,815) Change in accounts receivable securitization........... 20,999 (23,843) (4,462) Financing fees......................................... (1,125) (901) (23,824) Other.................................................. (9,531) (3,060) 595 --------- -------- --------- Net cash provided by (used in) financing activities................................... 18,466 (24,784) 89,651 --------- -------- --------- Net increase (decrease) in cash and cash equivalents..... (2,959) 12,002 (162) Cash and cash equivalents at beginning of year........... 13,321 1,319 1,481 --------- -------- --------- Cash and cash equivalents at end of year................. $ 10,362 $ 13,321 $ 1,319 ========= ======== =========
See accompanying notes to consolidated financial statements. F-6 37 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, as defined in the New Credit Facility, of $42.5 million were incurred during the year ended December 31, 2000, and are comprised primarily of $19.4 million of costs related to the relocation of production to Mexico and Asia, $11.0 million resulting from the Company's reorganization of its domestic gas management business, $5.0 million related to changes in senior management, and $4.7 million related to an information technology and business process reengineering project the Company initiated in the third quarter of 2000. In 1999, special charges of $21.9 million were recorded 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 of the Company and headcount reductions. As of December 31, 2000, the Company has made payments of approximately $1.5 million against severance and other accruals totaling $9.2 million which were established in connection with special charges. 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 refinancing. 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 F-7 38 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 Holding 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 2000, the Company made the following two acquisitions. On April 13, the Company, through a 90% owned subsidiary, acquired all the assets of Unique Welding Alloys ("Unique"), a business that sells industrial gases, welding equipment and accessories to the retail end-user trade, and on November 9, the Company, through a 90% owned subsidiary, acquired all the assets of Maxweld & Braze (Pty) Ltd., a wholesale business that sells welding equipment and accessories to distributors and the retail end-user trade. Both of these businesses are located in Boksburg, South Africa. The aggregate consideration paid for these two acquisitions was approximately $4.4 million and was financed through existing bank facilities. These transactions were accounted for as purchases. 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 F-8 39 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) assets of Pro-tip, a division of Settles Ground Support, Inc., a producer of low-cost oxygen fuel cutting tips located 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. 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, 2000, 1999, and 1998 have not been presented, since they would not have differed materially from actual results. 3. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of Thermadyne and its majority owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. 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 $47,698 and $42,179 at December 31, 2000 and 1999, 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 are 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 patented 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 the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. 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 basis. 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. Cost and related expenses to manufacture cutting and welding products are recorded as cost of sales when the related revenue is recognized. F-9 40 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Comprehensive Loss. During 2000, 1999, and 1998, total comprehensive loss amounted to $118,348, $42,660, and $65,462, respectively. Earnings Per Share. The effects of options, warrants and convertible securities have not been considered in the determination of earnings per share for the years ended December 31, 2000, 1999 and 1998 because the result would be anti-dilutive.
2000 1999 1998 ---------- ---------- ---------- Basic loss per share amounts applicable to common shares: Loss before extraordinary item......................... $ (32.04) $ (11.68) $ (7.95) Extraordinary item -- loss on early extinguishment of long-term debt...................................... -- -- (2.40) ---------- ---------- ---------- Net Loss................................................. $ (32.04) $ (11.68) $ (10.35) ========== ========== ========== Diluted Loss per share amounts applicable to common shares: Loss before extraordinary item......................... $ (32.04) $ (11.68) $ (7.95) Extraordinary item -- loss on early extinguishment of long-term debt...................................... -- -- (2.40) ---------- ---------- ---------- Net Loss....................................... $ (32.04) $ (11.68) $ (10.35) ========== ========== ========== Weighted average shares -- basic and diluted earnings per share.................................................. 3,590,326 3,567,087 6,317,568
Stock-Based Compensation. The Company grants stock options for a fixed number of shares to employees with an exercise price equal to or greater than 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. In December 2000, the Company repriced certain stock options previously granted. This repricing did not require the recording of compensation expense as the Company's stock price was less than the repriced amount at December 31, 2000. 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 following table shows the interest and taxes paid (refunded) during the periods presented in the accompanying Consolidated Statements of Cash Flows:
2000 1999 1998 ------- ------- ------- Interest................................................ $62,830 $59,376 $57,407 Taxes................................................... 3,129 2,663 (989)
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' 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 described in Note 14. 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 Financial Accounting Standards Board ("FASB") issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," F-10 41 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) which is required to be adopted in years beginning after June 15, 2000. The Company adopted the Statement effective January 1, 2001. The Statement requires 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 adoption of this Statement did not have a significant effect on the results of the Company's operations or financial position. 4. ACCOUNTS RECEIVABLE On January 31, 2000, the Company entered into a trade accounts receivable securitization agreement whereby it sells on an ongoing basis participation interests in up to $45,000 of designated accounts receivable. The Company retains servicing responsibilities for accounts receivable collections, but receives no servicing fee. The amount of participation interests sold under this financing arrangement is subject to change based on the level of eligible receivables and restrictions on concentrations of receivables, and was approximately $20,999 at December 31, 2000. The sold accounts receivable are reflected as a reduction of accounts receivable on the Consolidated Balance Sheets. Interest expense is incurred on participation interests at the rate of one-month LIBOR plus 65 basis points, per annum. The Company records no gains or losses from the securitization arrangement. Previously, the Company was party to a similar accounts receivable securitization agreement which expired on November 15, 1999, whereby it sold participation interests in up to $50,000 of designated accounts receivable. The terms, eligibility criteria and accounting treatment were substantially the same as the current agreement. Interest expense accrued at the rate of one-month LIBOR plus 50 basis points, per annum. 5. INVENTORIES The composition of inventories at December 31, is as follows:
2000 1999 -------- -------- Raw materials............................................... $ 20,829 $ 26,707 Work-in-process............................................. 26,853 23,718 Finished goods.............................................. 65,582 51,278 -------- -------- 113,264 101,703 LIFO reserve................................................ (813) (872) -------- -------- $112,451 $100,831 ======== ========
F-11 42 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. PROPERTY, PLANT, AND EQUIPMENT The composition of property, plant and equipment at December 31, is as follows:
2000 1999 -------- -------- Land........................................................ $ 10,016 $ 15,148 Building.................................................... 35,834 35,080 Machinery and equipment..................................... 99,197 102,428 -------- -------- 145,047 152,656 Accumulated depreciation.................................... (60,322) (58,845) -------- -------- $ 84,725 $ 93,811 ======== ========
Assets recorded under capitalized leases were $19,641 ($13,165 net of accumulated depreciation) and $19,245 ($13,835 net of accumulated depreciation) at December 31, 2000 and 1999, respectively. 7. INTANGIBLES The composition of intangibles at December 31, is as follows:
2000 1999 ------- -------- Goodwill.................................................... $ 6,761 $ 36,673 Other....................................................... 11,872 14,399 ------- -------- 18,633 51,072 Accumulated amortization.................................... (4,427) (10,902) ------- -------- $14,206 $ 40,170 ======= ========
During the third quarter of 2000, the Company recorded impairment losses of $18.5 million and $4.9 million related to goodwill and other intangible assets, respectively, associated with its Australian business. These impairment losses were recorded through increased amortization expense. The Company records impairment losses on long-lived assets including goodwill or related intangibles when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the related carrying amounts. Prolonged weak economic conditions in Australia led to the Company's reassessment and ultimate write-down of these assets. F-12 43 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:
2000 1999 -------- -------- Revolving Credit Facility................................... $ 23,500 $ -- Term A Facility -- United States............................ 61,453 68,250 Term A Facility -- Australia................................ 15,596 19,943 Term A Facility -- Italy.................................... 7,286 8,771 Term B Facility............................................. 109,427 113,275 Term C Facility............................................. 109,427 113,275 Senior subordinated notes, due June 1, 2008, 9 7/8% interest payable semiannually on June 1 and December 1............. 207,000 207,000 Debentures, due June 1, 2008, 12 1/2% interest payable semiannually on June 1 and December 1..................... 129,839 115,015 Subordinated notes, due November 1, 2003, 10.75% interest payable semiannually on May 1 and November 1.............. 37,060 37,060 Junior subordinated notes due December 15, 2009, 15% interest payable quarterly on March 15, June 15, September 15 and December 15........................................ 29,148 25,000 Capital leases.............................................. 19,943 18,333 Other....................................................... 4,242 3,480 -------- -------- 753,921 729,402 Current maturities.......................................... (19,737) (12,080) -------- -------- $734,184 $717,322 ======== ========
At December 31, 2000, the schedule of principal payments on long-term debt, excluding capital lease obligations, is as follows: 2001..................................................... $ 18,899 2002..................................................... 24,017 2003..................................................... 70,040 2004..................................................... 96,929 2005..................................................... 105,568 Thereafter............................................... 418,525
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 agree, at the time of Thermadyne LLC's request, to provide it. At December 31, 2000, the Company had $10,599 of standby letters of credit outstanding under the Revolving Credit Facility. Unused borrowing capacity under the Revolving Credit Facility was $65,901. F-13 44 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, 2000, the prime rate was 9.0%. 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:
YEAR TERM LOAN A TERM LOAN B TERM LOAN C ---- ----------- ----------- ----------- 1............................................... 0.0% 1.0% 1.0% 2............................................... 5.0% 1.0% 1.0% 3............................................... 10.0% 1.0% 1.0% 4............................................... 20.0% 1.0% 1.0% 5............................................... 25.0% 1.0% 1.0% 6............................................... 40.0% 1.0% 1.0% 7............................................... -- 94.0% 1.0% 8............................................... -- -- 93.0% ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
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 F-14 45 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; a minimum Interest Coverage Ratio; a minimum Fixed Charge Coverage Ratio; and a maximum Leverage Ratio (each as defined in the New Credit Facility). The Company has experienced declining revenues and Adjusted EBITDA (defined as operating income plus depreciation, amortization of goodwill, amortization of intangibles, net periodic postretirement benefits expense and special charges) during the three-year period ended December 31, 2000. Current business conditions indicate these trends may continue. The Company was in compliance with the various covenants of the New Credit Facility at December 31, 2000; however, if its operating results continue to deteriorate, the Company may not be able to remain in compliance with all of the financial covenants contained therein. If a covenant violation occurred, absent obtaining a waiver or amendment to the New Credit Facility, substantially all of the Company's long-term debt would be callable by its lenders. 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 at December 31, 2000, $129.8 million 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 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 F-15 46 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 at December 31, 2000, $29.1 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 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. 9. REDEEMABLE PREFERRED STOCK Holdings has outstanding 2,000,000 shares of Holding 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 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. F-16 47 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. STOCK OPTIONS The Company has elected to follow APB 25 and related Interpretations in accounting for its employee stock options because, as described below, the alternative fair value accounting provided for under FASB 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 or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. In December 2000, the Company repriced certain stock options previously granted. This repricing did not require the recording of compensation expense as the Company's stock price was less than the repriced amount at December 31, 2000. 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 2000, 1999, and 1998, respectively: risk-free interest rates of 4.3%, 5.3%, and 5.6%, a dividend yield of 0.0% for each year presented; volatility factors of the expected market price of the Company's common stock of 0.63, 0.65, and 0.35, 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:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Pro forma net loss applicable to common shares.... $(115,613) $(42,476) $(66,166) Pro forma net loss per share: Basic........................................... (32.20) (11.91) (10.47) Diluted......................................... (32.20) (11.91) (10.47)
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 F-17 48 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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:
2000 1999 1998 --------------------------- --------------------------- ------------------------------ WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE -------- ---------------- -------- ---------------- ----------- ---------------- Outstanding -- beginning of year.......................... 343,356 $34.50 326,566 $34.50 1,061,217 $16.91 Granted......................... 21,100 34.50 20,700 34.50 328,866 34.50 Exercised....................... -- -- -- -- (27,549) 12.17 Canceled or forfeited........... (121,072) 34.50 (3,910) 34.50 (1,035,968) 17.08 -------- -------- ----------- Outstanding-end of year......... 243,384 9.00 343,356 34.50 326,566 34.50 ======== ======== =========== Exercisable at end of year: 1998 Management Plan.......... 88,024 57,354 30,213 1998 Directors Plan........... 8,000 7,000 6,000 Reserved for future grants: 1998 Management Plan.......... 264,616 163,644 179,434 1998 Directors Plan........... 12,000 13,000 14,000 Weighted-average fair value of options granted during the year.......................... $ 14.00 $ 11.83 $ 15.16 Weighted-average remaining contractual life of options (years)....................... 7.7 8.50 9.40
In December 2000, 194,057 stock options from the 1998 Management Plan and 8,000 stock options from the 1998 Directors Plan were repriced to the fair value at that time of $4. This repricing did not require the recording of compensation expense as the Company's stock price was less than the repriced amount at December 31, 2000. Following is a summary of stock options outstanding as of December 31, 2000:
NUMBER OF WEIGHTED-AVERAGE OPTIONS REMAINING LIFE --------- ---------------- Options Outstanding: Exercise Price of $4..................................... 202,057 7.7 Exercise Price of $34.50................................. 41,327 7.5 -------- 243,384 ======== Options Exercisable: Exercise Price of $4..................................... 54,777 7.7 Exercise Price of $34.50................................. 41,247 7.5 -------- 96,024 ========
F-18 49 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. LEASES Future minimum lease payments under leases with initial or remaining noncancelable lease terms in excess of one year at December 31, 2000 are as follows:
CAPITAL OPERATING LEASES LEASES -------- --------- 2001........................................................ $ 3,073 $ 4,088 2002........................................................ 3,019 3,512 2003........................................................ 3,143 2,703 2004........................................................ 3,312 2,274 2005........................................................ 3,057 1,915 Thereafter.................................................. 22,860 8,451 -------- Total minimum lease payments...................... 38,464 Amount representing interest................................ (18,521) -------- Present value of net minimum lease payments, including current obligations of $254............................... $ 19,943 ========
Rent expense under operating leases from continuing operations amounted to $6,602, $7,347, and $9,533 for the years ended December 31, 2000, 1999, and 1998, respectively. 12. INCOME TAXES Pre-tax loss was taxed under the following jurisdictions:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- ----------------- Domestic............................ $(50,227) $ (7,228) $(27,450) Foreign............................. (24,566) (18,264) (7,310) -------- -------- -------- Loss before income taxes.......... $(74,793) $(25,492) $(34,760) ======== ======== ========
The provision (benefit) for income taxes is as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- ----------------- Current: Federal........................... $ -- $ 240 $ (768) Foreign........................... 3,393 2,206 1,458 State and local................... 150 400 350 ------- ------ ------- Total current............. 3,543 2,846 1,040 ------- ------ ------- Deferred............................ 28,312 5,961 10,375 ------- ------ ------- $31,855 $8,807 $11,415 ======= ====== =======
F-19 50 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The composition of deferred tax assets and liabilities attributable to continuing operations at December 31 is as follows:
2000 1999 -------- -------- Deferred tax assets: Post-employment benefits.................................. $ 9,303 $ 9,126 Accrued liabilities....................................... 6,758 4,685 Intangibles............................................... 8,329 8,535 Deferred interest......................................... 12,674 6,770 Other..................................................... 5,392 4,640 Fixed assets.............................................. 9,967 7,090 Net operating loss carryforwards.......................... 43,589 37,711 -------- -------- Total deferred tax assets......................... 96,012 78,557 Valuation allowance for deferred tax assets............... (90,382) (45,653) -------- -------- Net deferred tax assets........................... 5,630 32,904 -------- -------- Deferred tax liabilities: Inventories............................................... 4,838 3,799 -------- -------- Total deferred tax liabilities.................... 4,838 3,799 -------- -------- Net deferred tax assets........................... $ 792 $ 29,105 ======== ========
The income tax provision for the year ended December 31, 2000 includes a charge of $43.0 million to increase the valuation allowance on the net deferred tax amount as management does not believe this asset will be fully realized based on projections of income in future periods. 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:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- ----------------- Tax at U.S. statutory rates......... $(26,178) $(8,922) $(12,166) Nondeductible goodwill amortization and other nondeductible expenses.......................... 8,474 1,032 2,660 Change in valuation allowance....... 42,987 5,000 12,000 Foreign tax rate differences and nonrecognition of foreign tax loss benefits.......................... 6,422 8,225 1,032 Issuance of warrants................ -- 3,212 -- Nondeductible merger costs.......... -- -- 7,662 State income taxes, net of federal tax benefits...................... 150 260 227 -------- ------- -------- $ 31,855 $ 8,807 $ 11,415 ======== ======= ========
At December 31, 2000, the Company had net operating loss carryforwards of approximately $106,000 available for U.S. federal income tax purposes which expire between 2001 and 2020. Utilization of the majority of these net operating loss carryforwards is subject to various limitations due to 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, F-20 51 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) "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, 2000. 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 matching contributions of 50% for the first 6% of the voluntary employee contribution. Total expense for this plan was approximately $2,115, $2,223, and $2,115 for the years ended December 31, 2000, 1999, and 1998, respectively. 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. Prepaid benefit cost at December 31, 2000 was $163, and accrued benefit liability at December 31, 1999 was $192. 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, 2000 and 1999 was $5,630 and $6,172, respectively. There were no accrued benefit liabilities at December 31, 2000 or 1999. Other Postretirement Benefits. The Company has a retirement plan covering both salaried and non-salaried 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. F-21 52 THERMADYNE HOLDINGS CORPORATION 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 Sheets for the years ended December 31, 2000 and 1999:
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS ------------------ ------------------- 2000 1999 2000 1999 -------- ------- -------- -------- Change in Benefit Obligation: Benefit obligation at beginning of year... $ 40,482 $41,702 $ 13,005 $ 12,774 Service cost.............................. 1,070 989 791 761 Participant contributions................. 452 732 -- -- Interest cost............................. 2,142 2,514 1,022 842 Actuarial (gain) loss..................... 2,004 (209) 523 872 Foreign currency exchange rate changes.... (3,844) 1,643 -- -- Plan amendments........................... -- -- (1,216) Benefits paid............................. (10,012) (6,889) (694) (2,244) -------- ------- -------- -------- Benefit obligation at end of year......... $ 32,294 $40,482 $ 13,431 $ 13,005 ======== ======= ======== ======== Change in plan assets: Fair value of plan assets at beginning of year................................... $ 49,719 $45,266 Actual return on plan assets.............. 2,662 8,040 Sponsor contributions..................... 533 798 Participant contributions................. 452 732 Benefits paid............................. (10,012) (6,889) Foreign currency exchange rate changes.... (4,822) 1,890 Administrative expenses................... (126) (118) -------- ------- Fair value of plan assets at end of year................................... $ 38,406 $49,719 ======== ======= Funded status of the plan (underfunded)..... $ 6,112 $ 9,237 $(13,431) $(13,005) Unrecognized net actuarial gain........... (372) (3,333) (9,692) (10,807) Unrecognized prior service cost........... 53 76 (2,388) (1,272) -------- ------- -------- -------- Prepaid (accrued) benefit cost............ $ 5,793 $ 5,980 $(25,511) $(25,084) ======== ======= ======== ======== Weighted-average assumptions as of December 31: Discount rate............................. 7.5% 8% 7.5% 8% Expected return on plan assets............ 8% 8% N/A N/A Rate of compensation increase............. 3% 3% N/A N/A
Net periodic pension and other postretirement benefit costs include the following components:
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS --------------------------- ------------------------------ 2000 1999 1998 2000 1999 1998 ------- ------- ------- -------- -------- -------- Components of the net periodic benefit cost: Service cost......................... $ 1,070 $ 989 $ 1,057 $ 791 $ 761 $1,218 Interest cost........................ 2,142 2,514 2,424 1,022 842 1,330 Expected return on plan assets....... (3,294) (3,733) (3,366) -- -- -- Recognized (gain) loss............... (153) -- -- (591) 1,698 2 Prior service cost recognized........ 23 23 25 (101) (101) -- ------- ------- ------- ------ ------ ------ Benefit cost (credit).................. $ (212) $ (207) $ 140 $1,121 $3,200 $2,550 ======= ======= ======= ====== ====== ======
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 8.5% in 2000, declining gradually to 6.0% in 2012. The assumed health care cost trend rate used F-22 53 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in measuring the accumulated postretirement benefit obligation was 9.5% in 1999 and 1998. A one percentage point change in the assumed health care cost trend rate would have the following effects:
1-PERCENTAGE 1-PERCENTAGE POINT INCREASE POINT DECREASE -------------- -------------- Effect on total of service and interest cost components in 2000.................................................... $ 235 $ (193) Effect on postretirement benefit obligation as of December 31, 2000................................................ $2,144 $(1,844)
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. 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.
ALL OTHER UNITED GEOGRAPHIC STATES EUROPE AUSTRALIA/ASIA REGIONS OTHER CONSOLIDATED -------- ------- -------------- ---------- -------- ------------ 2000 Revenue from external customers................. $342,392 $56,434 $ 54,062 $57,258 $ -- $510,146 Intersegment revenues....... 37,996 15,674 1,985 -- (55,655) -- Depreciation and amortization of intangibles............... 9,104 2,546 20,259 1,923 8,386 42,218 Operating income (loss)..... 65,969 4,469 (27,616) (903) (32,291) 9,628 Identifiable assets......... 135,758 59,319 48,548 46,615 27,705 317,945 Capital expenditures........ 6,144 5,172 3,697 1,859 1,819 18,691 1999 Revenue from external customers................. 343,521 56,449 76,763 44,382 -- 521,115 Intersegment revenues....... 34,290 15,678 2,819 414 (53,201) -- Depreciation and amortization of intangibles............... 11,164 2,737 4,603 590 4,388 23,482 Operating income (loss)..... 71,941 3,109 (5,576) (1,460) (18,008) 50,006 Identifiable assets......... 146,860 54,756 91,949 32,213 74,618 400,396 Capital expenditures........ 5,047 644 2,623 1,317 537 10,168 1998 Revenue from external customers................. 363,371 54,657 82,238 32,511 -- 532,777 Intersegment revenues....... 39,715 14,355 4,447 -- (58,517) -- Depreciation and amortization of intangibles............... 9,562 2,682 3,979 646 2,104 18,973 Operating income (loss)..... 90,691 3,953 (1,549) (48) (60,017) 33,030 Identifiable assets......... 174,272 57,539 107,991 31,686 48,761 420,249 Capital expenditures........ 7,965 1,114 7,091 420 916 17,506
F-23 54 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- ----------------- Gas apparatus....................... $190,996 $186,279 $183,688 Arc welding equipment............... 87,860 104,857 103,803 Arc welding consumables............. 146,494 149,693 162,696 Plasma and automated cutting equipment......................... 79,995 71,083 71,742 All other........................... 4,801 9,203 10,848 -------- -------- -------- $510,146 $521,115 $532,777 ======== ======== ========
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. 16. FINANCIAL INSTRUMENTS Derivative Financial Instruments The Company only uses derivatives for hedging purposes. The following is a summary of the Company's risk management strategies and the effect of these strategies on the Company's consolidated financial statements. Interest Rate Swap At December 31, 2000, the Company has an interest rate swap agreement outstanding with a notional amount of $61.5 million, which matures in January 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 New Credit Facility from a floating rate obligation to a fixed rate obligation. 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. Concentrations of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, trade accounts receivable, and derivatives. The Company maintains cash and cash equivalents with various financial institutions. These financial institutions are located in different parts of the country and the Company's policy is designed to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company does not require collateral on these financial instruments. F-24 55 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities compromising the Company's customer base. The Company does not require collateral for trade accounts receivable. The Company is exposed to credit risk in the event of non-performance by the counterparty to its interest rate swap. The Company believes this exposure is limited due to the high credit rating of the counterparty. Fair Value The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Accounts receivable and accounts payable: The carrying amounts reported in the balance sheet for accounts receivable and accounts payable approximate their fair value. Interest rate swap: Fair value is estimated based on current interest rates and was $389 at December 31, 2000. The carrying value of the swap agreement was zero at December 31, 2000. Long-term debt: 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, the subordinated notes, and the Junior Notes were based on the most recent market information available, and are estimated to be 65%, 5%, 65% and 5% of their current carrying values at December 31, 2000, or $134,550, $6,492, $24,089 and $1,457, respectively. The fair values of the obligations outstanding under the New Credit Facility 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. F-25 56 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, 2000 and 1999, and the related consolidated statements of operations, shareholder's deficit, and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. As discussed in Note 8 to the financial statements, the Company was in compliance with the provisions of its debt covenants at December 31, 2000; however, the Company has concluded that it may not be able to remain in compliance during 2001. As a result, absent obtaining waivers or amendments to its debt agreements, substantially all of the Company's debt would be callable by its lenders. Accordingly, substantial doubt exists about the Company's ability to continue as a going concern. The 2000 financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ ERNST & YOUNG LLP St. Louis, Missouri February 14, 2001 F-26 57 THERMADYNE MFG. LLC CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ Current assets: Cash and cash equivalents................................. $ 10,362 $ 13,321 Accounts receivable, less allowance for doubtful accounts of $3,509 and $3,275 respectively...................... 67,011 94,731 Inventories............................................... 112,451 100,831 Prepaid expenses and other................................ 4,597 5,954 --------- --------- Total current assets.............................. 194,421 214,837 Property, plant and equipment, at cost, net................. 84,725 93,811 Deferred financing costs, net............................... 15,445 17,289 Intangibles, at cost, net................................... 14,206 40,170 Deferred income taxes....................................... 792 25,838 Other assets................................................ 2,874 2,014 --------- --------- Total assets...................................... $ 312,463 $ 393,959 ========= ========= LIABILITIES AND SHAREHOLDER'S DEFICIT Current liabilities: Accounts payable.......................................... $ 43,268 $ 41,773 Accrued and other liabilities............................. 35,290 27,052 Accrued interest.......................................... 1,982 2,416 Income taxes payable...................................... 10,119 9,575 Current maturities of long-term obligations............... 19,737 12,080 --------- --------- Total current liabilities......................... 110,396 92,896 Long-term obligations, less current maturities.............. 567,285 565,247 Other long-term liabilities................................. 61,244 62,172 Shareholder's deficit: Accumulated deficit....................................... (469,843) (385,425) Accumulated other comprehensive loss...................... (35,595) (23,895) --------- --------- Total shareholder's deficit....................... (505,438) (409,320) Net equity and advances to/from parent.................... 78,976 82,964 --------- --------- Total liabilities and shareholder's deficit....... $ 312,463 $ 393,959 ========= =========
See accompanying notes to consolidated financial statements. F-27 58 THERMADYNE MFG. LLC CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Net sales............................................. $510,146 $521,115 $532,777 Operating expenses: Cost of goods sold.................................. 327,480 342,250 340,236 Selling, general and administrative expenses........ 102,578 99,151 102,554 Amortization of goodwill............................ 19,176 1,575 1,524 Amortization of other intangibles................... 7,707 3,047 2,360 Net periodic postretirement benefits................ 1,121 3,200 2,550 Special charges..................................... 42,456 21,886 50,523 -------- -------- -------- Operating income...................................... 9,628 50,006 33,030 Other income (expense): Interest expense.................................... (62,545) (55,321) (52,545) Amortization of deferred financing costs............ (2,941) (3,214) (2,480) Other............................................... 28 319 (3,059) -------- -------- -------- Loss before income tax provision and extraordinary item................................................ (55,830) (8,210) (25,054) Income tax provision.................................. 28,588 8,807 14,682 -------- -------- -------- Loss before extraordinary item........................ (84,418) (17,017) (39,736) Extraordinary item-loss on early extinguishment of long-term debt, net of income tax benefit of $8,151.............................................. -- -- (15,137) -------- -------- -------- Net loss.............................................. $(84,418) $(17,017) $(54,873) ======== ======== ========
See accompanying notes to consolidated financial statements. F-28 59 THERMADYNE MFG. LLC CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (IN THOUSANDS)
ACCUMULATED OTHER ACCUMULATED COMPREHENSIVE DEFICIT LOSS TOTAL ----------- ------------- --------- January 1, 1998......................................... $(299,208) $(12,774) $(311,982) Comprehensive loss: Net loss.............................................. (54,873) -- (54,873) Other comprehensive loss -- foreign currency translation........................................ -- (4,150) (4,150) --------- Comprehensive loss...................................... (59,023) Merger.................................................. (14,327) 1,390 (12,937) --------- -------- --------- December 31, 1998....................................... (368,408) (15,534) (383,942) Comprehensive loss: Net loss.............................................. (17,017) -- (17,017) Other comprehensive loss -- foreign currency translation........................................ -- (8,361) (8,361) --------- Comprehensive loss...................................... (25,378) --------- -------- --------- December 31, 1999....................................... (385,425) (23,895) (409,320) Comprehensive loss: Net loss.............................................. (84,418) -- (84,418) Other comprehensive loss -- foreign currency translation........................................ -- (11,700) (11,700) --------- Comprehensive loss.................................... (96,118) --------- -------- --------- December 31, 2000....................................... $(469,843) $(35,595) $(505,438) ========= ======== =========
See accompanying notes to consolidated financial statements. F-29 60 THERMADYNE MFG. LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Cash flows provided by (used in) operating activities: Net loss................................................ $(84,418) $ (17,017) $ (54,873) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Net periodic postretirement benefits............... 1,121 3,200 2,550 Depreciation....................................... 15,335 18,860 15,089 Amortization of goodwill........................... 19,176 1,575 1,524 Amortization of other intangibles.................. 7,707 3,047 2,360 Non-cash portion of interest expense............... 4,148 -- -- Amortization of deferred financing costs........... 2,941 3,214 2,480 Recognition of net operating loss carryforwards.... -- 3,313 -- Deferred income taxes.............................. 25,043 3,468 6,452 Loss on asset disposal............................. 9,990 2,739 -- Non-cash portion of extraordinary item............. -- -- (2,272) Changes in operating assets and liabilities: Accounts receivable................................ 6,996 19,239 (8,251) Inventories........................................ (16,273) 25,425 (19,487) Prepaid expenses and other......................... 1,082 1,638 728 Accounts payable................................... 992 (3,751) (11,610) Accrued and other liabilities...................... 8,361 (10,453) 2,809 Accrued interest................................... (445) 1,921 (5,085) Income taxes payable............................... 424 (1,818) 7,920 Other long-term liabilities........................ (3,291) (4,126) (3,272) -------- --------- --------- Total adjustments............................. 83,307 67,491 (8,065) -------- --------- --------- Net cash provided by (used in) operating activities.................................. (1,111) 50,474 (62,938) -------- --------- --------- Cash flows used in investing activities: Capital expenditures, net............................. (18,691) (10,168) (17,506) Proceeds from sale of assets.......................... 6,961 -- -- Change in other assets................................ (1,051) (1,046) (3,046) Acquisitions, net of cash............................. (3,767) (5,886) (18,953) -------- --------- --------- Net cash used in investing activities......... (16,548) (17,100) (39,505) -------- --------- --------- Cash flows provided by (used in) financing activities: Change in long-term receivables....................... 384 (353) 638 Repayment of long-term obligations.................... (26,477) (23,166) (408,970) Borrowing of long-term obligations.................... 34,216 26,535 622,194 Change in accounts receivable securitization.......... 20,999 (23,843) (4,462) Financing fees........................................ (1,125) (901) (20,058) Change in net equity of parent........................ (3,988) 3,198 (87,010) Other................................................. (9,309) (2,842) (51) -------- --------- --------- Net cash provided by (used in) financing activities.................................. 14,700 (21,372) 102,281 -------- --------- --------- Net increase (decrease) in cash and cash equivalents.... (2,959) 12,002 (162) Cash and cash equivalents at beginning of year.......... 13,321 1,319 1,481 -------- --------- --------- Cash and cash equivalents at end of year................ $ 10,362 $ 13,321 $ 1,319 ======== ========= =========
See accompanying notes to consolidated financial statements. F-30 61 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, as defined in the New Credit Facility, of $42.5 million were incurred during the year ended December 31, 2000, and are comprised primarily of $19.4 million of costs related to the relocation of production to Mexico and Asia, $11.0 million resulting from the Company's reorganization of its domestic gas management business, $5.0 million related to changes in senior management, and $4.7 million related to an information technology and business process reengineering project the Company initiated in the third quarter of 2000. In 1999, special charges of $21.9 million were recorded 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 of the Company and headcount reductions. As of December 31, 2000, the Company has made payments of approximately $1.5 million against severance and other accruals totaling $9.2 million which were established in connection with these special charges. 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 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 F-31 62 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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 2000, the Company made the following two acquisitions. On April 13, the Company, through a 90% owned subsidiary, acquired all the assets of Unique Welding Alloys ("Unique"), a business that sells industrial gases, welding equipment and accessories to the retail end-user trade, and on November 9, the Company, through a 90% owned subsidiary, acquired all the assets of Maxweld & Braze (Pty) Ltd., a wholesale business that sells welding equipment and accessories to distributors and the retail end-user trade. Both of these businesses are located in Boksburg, South Africa. The aggregate consideration paid for these two acquisitions was approximately $4.4 million and was financed through existing bank facilities. These transactions were accounted for as purchases. 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. F-32 63 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 located 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. 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, 2000, 1999, and 1998 have not been presented since they would not have differed materially from actual results. 3. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of Thermadyne and its majority owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. 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 amount 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 $47,698 and $42,179 at December 31, 2000 and 1999, 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 patented 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 the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. 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 basis. 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. F-33 64 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 Loss. During 2000, 1999, and 1998, total comprehensive loss amounted to $96,118, $25,378, and $59,023, 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 following table shows the interest and taxes paid (refunded ) during the periods presented in the accompanying Consolidated Statements of Cash Flows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- ----------------- Interest............................ $58,842 $53,400 $57,722 Taxes............................... 3,129 2,663 (989)
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 shareholder's 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 described 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 Financial Accounting Standards Board ("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 Company adopted the Statement effective January 1, 2001. The Statement requires 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 adoption of this Statement did not have a significant effect on the results of the Company's operations or financial position. 4. ACCOUNTS RECEIVABLE On January 31, 2000, the Company entered into a trade accounts receivable securitization agreement whereby it sells on an ongoing basis participation interests in up to $45,000 of designated accounts receivable. The Company retains servicing responsibilities for accounts receivable collections, but receives no serving fee. The amount of participation interests sold under this financing arrangement is subject to change based on the level of eligible receivables and restrictions on concentrations of receivables, and was approximately $20,999 at December 31, 2000. The sold accounts receivable are reflected as a reduction of accounts receivable on the Consolidated Balance Sheets. Interest expense is incurred on participation interests at the rate of one-month F-34 65 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LIBOR plus 65 basis points, per annum. The Company records no gains or losses from the securitization arrangement. Previously, the Company was party to a similar accounts receivable securitization agreement which expired on November 15, 1999, whereby it sold participation interests in up to $50,000 of designated accounts receivable. The terms, eligibility criteria and accounting treatment were substantially the same as the current agreement. Interest expense accrued at the rate of one-month LIBOR plus 50 basis points, per annum. 5. INVENTORIES The composition of inventories at December 31, is as follows:
2000 1999 -------- -------- Raw materials........................................... $ 20,829 $ 26,707 Work-in-process......................................... 26,853 23,718 Finished goods.......................................... 65,582 51,278 -------- -------- 113,264 101,703 LIFO reserve............................................ (813) (872) -------- -------- $112,451 $100,831 ======== ========
6. PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment at December 31, is as follows:
2000 1999 -------- -------- Land.................................................... $ 10,016 $ 15,148 Building................................................ 35,834 35,080 Machinery and equipment................................. 99,197 102,428 -------- -------- 145,047 152,656 Accumulated depreciation................................ (60,322) (58,845) -------- -------- $ 84,725 $ 93,811 ======== ========
Assets recorded under capitalized leases were $19,641 ($13,165 net of accumulated depreciation) and $19,245 ($13,835 net of accumulated depreciation) at December 31, 2000 and 1999, respectively. 7. INTANGIBLES The composition of intangibles at December 31, is as follows:
2000 1999 ------- -------- Goodwill................................................. $ 6,761 $ 36,673 Other.................................................... 11,872 14,399 ------- -------- 18,633 51,072 Accumulated amortization................................. (4,427) (10,902) ------- -------- $14,206 $ 40,170 ======= ========
During the third quarter of 2000, the Company recorded impairment losses of $18.5 million and $4.9 million related to goodwill and other intangible assets, respectively, associated with its Australian business. These impairment losses were recorded through increased amortization expense. 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 F-35 66 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) generated by those assets are less than the related carrying amounts. Prolonged weak economic conditions in Australia led to the Company's reassessment and ultimate write-down of these assets. 8. LONG-TERM OBLIGATIONS The composition for long-term obligations at December 31, is as follows:
2000 1999 -------- -------- Revolving Credit Facility............................... $ 23,500 $ -- Term A Facility -- United States........................ 61,453 68,250 Term A Facility -- Australia............................ 15,596 19,943 Term A Facility -- Italy................................ 7,286 8,771 Term B Facility......................................... 109,427 113,275 Term C Facility......................................... 109,427 113,275 Senior subordinated notes, due June 1, 2008, 9 7/8% interest payable semiannually on June 1 and December 1..................................................... 207,000 207,000 Junior subordinated notes, due December 15, 2009, 15% interest payable quarterly on March 15, June 15, September 15, and December 15......................... 29,148 25,000 Capital leases.......................................... 19,943 18,333 Other................................................... 4,242 3,480 -------- -------- 587,022 577,327 Current maturities...................................... (19,737) (12,080) -------- -------- $567,285 $565,247 ======== ========
At December 31, 2000, the schedule of principal payments on long-term debt, excluding capital lease obligations, is as follows: 2001..................................................... $ 18,899 2002..................................................... 24,017 2003..................................................... 32,980 2004..................................................... 96,929 2005..................................................... 105,568 Thereafter............................................... 288,686
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 agree, at the time of Thermadyne LLC's request, to provide it. At December 31, 2000, the Company had $10,599 of standby letters of credit outstanding under the Revolving Credit Facility. Unused borrowing capacity under the Revolving Credit Facility was $65,901. F-36 67 THERMADYNE MFG. LLC 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, 2000, the prime rate was 9.0%. 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:
YEAR TERM LOAN A TERM LOAN B TERM LOAN C ---- ----------- ----------- ----------- 1....................................... 0.0% 1.0% 1.0% 2....................................... 5.0% 1.0% 1.0% 3....................................... 10.0% 1.0% 1.0% 4....................................... 20.0% 1.0% 1.0% 5....................................... 25.0% 1.0% 1.0% 6....................................... 40.0% 1.0% 1.0% 7....................................... -- 94.0% 1.0% 8....................................... -- -- 93.0% ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
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 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 F-37 68 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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; a minimum Interest Coverage Ratio; a minimum Fixed Charge Coverage Ratio; and a maximum Leverage Ratio (each as defined in the New Credit Facility). The Company has experienced declining revenues and Adjusted EBITDA (defined as operating income plus depreciation, amortization of goodwill, amortization of intangibles, net periodic postretirement benefits expense and special charges) during the three-year period ended December 31, 2000. Current business conditions indicate these trends may continue. The Company was in compliance with the various covenants of the New Credit Facility at December 31, 2000; however, if its operating results continue to deteriorate, the Company may not be able to remain in compliance with all of the financial covenants contained therein. If a covenant violation occurred, absent obtaining a waiver or amendment to the New Credit Facility, substantially all of the Company's long-term debt would be callable by its lenders. 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. 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 at December 31, 2000, $29.1 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 F-38 69 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 9. LEASES Future minimum lease payments under leases with initial or remaining noncancelable lease terms in excess of one year at December 31, 2000 are as follows:
CAPITAL OPERATING LEASES LEASES -------- --------- 2001........................................................ $ 3,073 $4,088 2002........................................................ 3,019 3,512 2003........................................................ 3,143 2,703 2004........................................................ 3,312 2,274 2005........................................................ 3,057 1,915 Thereafter.................................................. 22,860 8,451 -------- Total minimum lease payments...................... 38,464 Amount representing interest................................ (18,521) -------- Present value of net minimum lease payments, including current obligations of $254............................... $ 19,943 ========
Rent expense under operating leases from continuing operations amounted to $6,602, $7,347, and $9,533 for the years ended December 31, 2000, 1999, and 1998, respectively. 10. INCOME TAXES Pre-tax loss was taxed under the following jurisdictions:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- ----------------- Domestic............................ $(31,264) $ 10,054 $(17,744) Foreign............................. (24,566) (18,264) (7,310) -------- -------- -------- Loss before income taxes.......... $(55,830) $ (8,210) $(25,054) ======== ======== ========
The provision (benefit) for income taxes is as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- ----------------- Current: Federal........................... $ -- $ 240 $ (768) Foreign........................... 3,393 2,206 1,458 State and local................... 150 400 350 ------- ------ ------- Total current............. 3,543 2,846 1,040 ------- ------ ------- Deferred............................ 25,045 5,961 13,642 ------- ------ ------- $28,588 $8,807 $14,682 ======= ====== =======
F-39 70 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The composition of deferred tax assets and liabilities attributable to continuing operations at December 31 is as follows:
2000 1999 -------- -------- Deferred tax assets: Post-employment benefits.................................. $ 9,303 $ 9,126 Accrued liabilities....................................... 6,758 4,685 Intangibles............................................... 8,329 8,535 Other..................................................... 4,811 4,150 Fixed assets.............................................. 9,967 7,090 Net operating loss carryforwards.......................... 33,963 27,870 -------- -------- Total deferred tax assets......................... 73,131 61,456 Valuation allowance for deferred tax assets............... (67,501) (31,818) -------- -------- Net deferred tax asset............................ 5,630 29,638 -------- -------- Deferred tax liabilities: Inventories............................................... 4,838 3,800 -------- -------- Total deferred tax liabilities.................... 4,838 3,800 -------- -------- Net deferred tax asset............................ $ 792 $ 25,838 ======== ========
The income tax provision for the year ended December 31, 2000 includes a charge of $33.8 million to increase the valuation allowance on the net deferred tax amount as management does not believe this asset will be fully realized based on projections of income in future periods. 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:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Tax at U.S. statutory rates..................... $(19,542) $(2,874) $(8,767) Nondeductible goodwill amortization and other nondeductible expenses........................ 7,741 793 2,528 Change in valuation allowance................... 33,817 (809) 12,000 Foreign tax rate differences and nonrecognition of foreign tax loss benefits.................. 6,422 8,225 1,032 Issuance of warrants............................ -- 3,212 -- Non-deductible merger costs..................... -- -- 7,662 State income taxes, net of federal tax benefit....................................... 150 260 227 -------- ------- ------- $ 28,588 $ 8,807 $14,682 ======== ======= =======
At December 31, 2000, the Company had net operating loss carryforwards of approximately $78,000 available for U.S. federal income tax purposes which expire between 2001 and 2020. Utilization of the majority of these net operating loss carryforwards is subject to various limitations due to 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 F-40 71 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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, 2000. 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 contributions of 50% of the first 6% of the voluntary employee contribution. Total expense for this plan was approximately $2,115, $2,223, and $2,115 for the years ended December 31, 2000, 1999, and 1998, respectively. 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. Prepaid benefit cost at December 31, 2000 was $163, and accrued benefit liability at December 31, 1999 was $192. 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, 2000 and 1999 was $5,630 and $6,172, respectively. There were no accrued benefit liabilities at December 31, 2000 or 1999. Other Postretirement Benefits. The Company has a retirement plan covering both salaried and non-salaried 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. F-41 72 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 Sheets for the Years ended December 31, 2000 and 1999:
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS ------------------ ------------------- 2000 1999 2000 1999 -------- ------- -------- -------- Change in Benefit Obligation: Benefit obligation at beginning of year... $ 40,482 $41,702 $ 13,005 $ 12,774 Service cost.............................. 1,070 989 791 761 Participant contributions................. 452 732 -- -- Interest cost............................. 2,142 2,514 1,022 842 Actuarial (gain) loss..................... 2,004 (209) 523 872 Foreign currency exchange rate changes.... (3,844) 1,643 -- -- Plan amendments........................... -- -- (1,216) -- Benefits paid............................. (10,012) (6,889) (694) (2,244) -------- ------- -------- -------- Benefit obligation at end of year......... $ 32,294 $40,482 $ 13,431 $ 13,005 ======== ======= ======== ======== Change in plan assets: Fair value of plan assets at beginning of year................................... $ 49,719 $45,266 Actual return on plan assets.............. 2,662 8,040 Sponsor contributions..................... 533 798 Participant contributions................. 452 732 Benefits paid............................. (10,012) (6,889) Foreign currency exchange rate changes.... (4,822) 1,890 Administrative expenses................... (126) (118) -------- ------- Fair value of plan assets at end of year................................... $ 38,406 $49,719 ======== ======= Funded status of the plan (underfunded)..... $ 6,112 $ 9,237 $(13,431) $(13,005) Unrecognized net actuarial gain........... (372) (3,333) (9,692) (10,807) Unrecognized prior service cost........... 53 76 (2,388) (1,272) -------- ------- -------- -------- Prepaid (accrued) benefit cost............ $ 5,793 $ 5,980 $(25,511) $(25,084) ======== ======= ======== ======== Weighted-average assumptions as of December 31: Discount rate............................. 7.5% 8% 7.5% 8% Expected return on plan assets............ 8% 8% N/A N/A Rate of compensation increase............. 3% 3% N/A N/A
Net periodic pension and other postretirement benefit costs include the following components:
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS --------------------------- ------------------------------ 2000 1999 1998 2000 1999 1998 ------- ------- ------- -------- -------- -------- Components of the net periodic benefit cost: Service cost......................... $ 1,070 $ 989 $ 1,057 $ 791 $ 761 $1,218 Interest cost........................ 2,142 2,514 2,424 1,022 842 1,330 Expected return on plan assets....... (3,294) (3,733) (3,366) -- -- -- Recognized (gain) loss............... (153) -- -- (591) 1,698 2 Prior service cost recognized........ 23 23 25 (101) (101) -- ------- ------- ------- ------ ------ ------ Benefit cost (credit).................. $ (212) $ (207) $ 140 $1,121 $3,200 $2,550 ======= ======= ======= ====== ====== ======
F-42 73 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 8.5% in 2000, 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 1999 and 1998. A one percentage point change in the assumed health care cost trend rate would have the following effects:
1-PERCENTAGE 1-PERCENTAGE POINT INCREASE POINT DECREASE -------------- -------------- Effect on total of service and interest cost components in 2000.................................................... $ 235 $ (193) Effect on postretirement benefit obligation as of December 31, 2000.................................................... $2,144 $(1,844)
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. F-43 74 THERMADYNE MFG. LLC 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.
ALL OTHER UNITED GEOGRAPHIC STATES EUROPE AUSTRALIA/ASIA REGIONS OTHER CONSOLIDATED -------- ------- -------------- ---------- --------- ------------ 2000 Revenue from external customers..................... $342,392 $56,434 $ 54,062 $57,258 $ -- $510,146 Intersegment revenues........... 37,996 15,674 1,985 -- (55,655) -- Depreciation and amortization of intangibles................... 9,104 2,546 20,259 1,923 8,386 42,218 Operating income (loss)......... 65,969 4,469 (27,616) (903) (32,291) 9,628 Identifiable assets............. 135,758 59,319 48,548 46,615 22,223 312,463 Capital expenditures............ 6,144 5,172 3,697 1,859 1,819 18,691 1999 Revenue from external customers..................... 343,521 56,449 76,763 44,382 -- 521,115 Intersegment revenues........... 34,290 15,678 2,819 414 (53,201) -- Depreciation and amortization of intangibles................... 11,164 2,737 4,603 590 4,388 23,482 Operating income (loss)......... 71,941 3,109 (5,576) (1,460) (18,008) 50,006 Identifiable assets............. 146,860 54,756 91,949 32,213 68,181 393,959 Capital expenditures............ 5,047 644 2,623 1,317 537 10,168 1998 Revenue from external customers..................... 363,371 54,657 82,238 32,511 -- 532,777 Intersegment revenues........... 39,715 14,355 4,447 -- (58,517) -- Depreciation and amortization of intangibles................... 9,562 2,682 3,979 646 2,104 18,973 Operating income (loss)......... 90,691 3,953 (1,549) (48) (60,017) 33,030 Identifiable assets............. 174,272 57,539 107,991 31,686 41,948 413,436 Capital expenditures............ 7,965 1,114 7,091 420 916 17,506
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:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Gas apparatus................................... $190,996 $186,279 $183,688 Arc welding equipment........................... 87,860 104,857 103,803 Arc welding consumables......................... 146,494 149,693 162,696 Plasma and automated cutting equipment.......... 79,995 71,083 71,742 All other....................................... 4,801 9,203 10,848 -------- -------- -------- $510,146 $521,115 $532,777 ======== ======== ========
F-44 75 THERMADYNE MFG. LLC 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. FINANCIAL INSTRUMENTS Derivative Financial Instruments The Company only uses derivatives for hedging purposes. The following is a summary of the Company's risk management strategies and the effect of these strategies on the Company's consolidated financial statements. Interest Rate Swap At December 31, 2000, the Company has an interest rate swap agreement outstanding with a notional amount of $61.5 million, which matures in January 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 New Credit Facility from a floating rate obligation to a fixed rate obligation. 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. Concentrations of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, trade accounts receivable, and derivatives. The Company maintains cash and cash equivalents with various financial institutions. These financial institutions are located in different parts of the country and the Company's policy is designed to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company does not require collateral on these financial instruments. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base. The Company does not require collateral for trade accounts receivable. The Company is exposed to credit risk in the event of non-performance by the counterparty to its interest rate swap. The Company believes this exposure is limited due to the high credit rating of the counterparty. Fair Value The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Accounts receivable and accounts payable: The carrying amounts reported in the balance sheet for accounts receivable and accounts payable approximate their fair value. Interest rate swap: Fair value is estimated based on current interest rates and was $389 at December 31, 2000. The carrying value of the swap agreement was zero at December 31, 2000. F-45 76 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Long-term Debt: 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 and the Junior Notes were based on the most recent market information available, and are estimated to be 65% and 5% of their current carrying values at December 31, 2000, or $134,550 and $1,457, respectively. The fair values of the obligations outstanding under the New Credit Facility 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. 15. 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 such information is not material in assessing the Guarantor Subsidiaries. F-46 77 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2000 ASSETS
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ --------- Current Assets: Cash and cash equivalents..... $ -- $ 4,536 $ 5,826 $ -- $ 10,362 Restricted cash............... -- -- 24,779 (24,779) -- Accounts receivable........... -- (312) 90,254 (22,931) 67,011 Inventories................... -- 65,303 47,148 -- 112,451 Prepaid expenses and other.... -- 1,877 3,297 (577) 4,597 --------- --------- --------- --------- --------- Total current assets.............. -- 71,404 171,304 (48,287) 194,421 Property, plant and equipment, at cost, net............... -- 41,184 43,541 -- 84,725 Deferred financing costs, net........................ 15,393 -- 52 -- 15,445 Intangibles, at cost, net..... -- 6,233 7,973 -- 14,206 Deferred income taxes......... -- (2) 794 -- 792 Investment in and advances to/from subsidiaries....... 135,656 13,911 -- (149,567) -- Other assets.................. -- 461 2,413 -- 2,874 --------- --------- --------- --------- --------- Total assets.......... $ 151,049 $ 133,191 $ 226,077 $(197,854) $ 312,463 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable.............. $ -- $ 21,479 $ 21,789 $ -- $ 43,268 Accrued and other liabilities................ -- 25,871 9,419 -- 35,290 Accrued interest.............. 1,961 6 15 -- 1,982 Income taxes payable.......... -- 11,153 (1,034) -- 10,119 Current maturities of long-term obligations...... 12,487 286 6,964 -- 19,737 --------- --------- --------- --------- --------- Total current liabilities......... 14,448 58,795 37,153 -- 110,396 Long-term obligations, less current maturities............ 527,468 15,654 69,163 (45,000) 567,285 Other long-term liabilities..... -- 50,074 11,170 -- 61,244 Shareholders' equity (deficit): Accumulated deficit........... (469,843) (326,380) (83,651) 410,031 (469,843) Accumulated other comprehensive loss......... -- (18,508) (17,087) -- (35,595) --------- --------- --------- --------- --------- Total shareholders' deficit............. (469,843) (344,888) (100,738) 410,031 (505,438) Net equity and advances to/from subsidiaries.................. 78,976 353,556 209,329 (562,885) 78,976 --------- --------- --------- --------- --------- Total liabilities and shareholders' deficit............. $ 151,049 $ 133,191 $ 226,077 $(197,854) $ 312,463 ========= ========= ========= ========= =========
F-47 78 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999 ASSETS
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ --------- Current Assets: Cash and cash equivalents..... $ -- $ 2,566 $ 10,755 $ -- $ 13,321 Accounts receivable........... -- 51,895 42,836 -- 94,731 Inventories................... -- 59,042 41,789 -- 100,831 Prepaid expenses and other.... -- 2,853 3,101 -- 5,954 --------- --------- --------- --------- --------- Total current assets.............. -- 116,356 98,481 -- 214,837 Property, plant and equipment, at cost, net............... -- 43,985 49,826 -- 93,811 Deferred financing costs, net........................ 17,020 -- 269 -- 17,289 Intangibles, at cost, net..... -- 11,937 28,233 -- 40,170 Deferred income taxes......... -- 25,046 792 -- 25,838 Investment in and advances to/ from subsidiaries.......... 209,719 -- -- (209,719) -- Other assets.................. -- 692 1,322 -- 2,014 --------- --------- --------- --------- --------- Total assets.......... $ 226,739 $ 198,016 $ 178,923 $(209,719) $ 393,959 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable.............. $ -- $ 18,141 $ 23,632 $ -- $ 41,773 Accrued and other liabilities................ -- 18,060 8,992 -- 27,052 Accrued interest.............. 2,400 -- 16 -- 2,416 Income taxes payable.......... -- 11,725 (2,150) -- 9,575 Current maturities of long-term obligations...... 9,800 253 2,027 -- 12,080 --------- --------- --------- --------- --------- Total current liabilities......... 12,200 48,179 32,517 -- 92,896 Long-term obligations, less current maturities............ 517,000 16,906 31,341 -- 565,247 Other long-term liabilities..... -- 51,797 10,375 -- 62,172 Shareholders' deficit: Accumulated deficit........... (385,425) (279,825) (46,716) 326,541 (385,425) Accumulated other comprehensive loss......... -- (7,742) (16,153) -- (23,895) --------- --------- --------- --------- --------- Total shareholders' deficit............. (385,425) (287,567) (62,869) 326,541 (409,320) Net equity and advances to/from subsidiaries.................. 82,964 368,701 167,559 (536,260) 82,964 --------- --------- --------- --------- --------- Total liabilities and shareholders' deficit............. $ 226,739 $ 198,016 $ 178,923 $(209,719) $ 393,959 ========= ========= ========= ========= =========
F-48 79 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ -------- Net sales....................... $ -- $414,318 $192,511 $(96,683)(a) $510,146 Operating expenses: Cost of goods sold............ -- 266,939 158,043 (97,502)(a) 327,480 Selling, general and administrative expenses.... -- 71,660 30,918 -- 102,578 Amortization of goodwill...... -- 1,769 17,407 -- 19,176 Amortization of other intangibles................ -- 6,843 864 -- 7,707 Net periodic postretirement benefits................... -- 1,121 -- -- 1,121 Special charges............... -- 33,132 9,324 -- 42,456 -------- -------- -------- -------- -------- Operating income (loss)......... -- 32,854 (24,045) 819 9,628 Other income (expense): Interest expense.............. -- (56,835) (9,006) 3,296 (62,545) Amortization of deferred financing costs............ -- (2,934) (7) -- (2,941) Equity in net loss of subsidiaries............... (84,418) -- -- 84,418 -- Other......................... -- 5,816 (745) (5,043) 28 -------- -------- -------- -------- -------- Loss before income tax provision..................... (84,418) (21,099) (33,803) 83,490 (55,830) Income tax provision............ -- 25,456 3,132 -- 28,588 -------- -------- -------- -------- -------- Net loss........................ $(84,418) $(46,555) $(36,935) $ 83,490 $(84,418) ======== ======== ======== ======== ========
--------------- (a) Reflects the elimination of intercompany sales among all of the Company's subsidiaries. F-49 80 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ -------- Net sales.......................... $ -- $408,406 $200,827 $(88,118)(a) $521,115 Operating expenses: Cost of goods sold............... -- 262,185 169,780 (89,715)(a) 342,250 Selling, general and administrative expenses....... -- 66,766 32,385 -- 99,151 Amortization of goodwill......... -- 97 1,478 -- 1,575 Amortization of other intangibles................... -- 1,931 1,116 -- 3,047 Net periodic postretirement benefits...................... -- 3,200 -- -- 3,200 Special charges.................. -- 12,524 9,362 -- 21,886 -------- -------- -------- -------- -------- Operating income (loss)............ -- 61,703 (13,294) 1,597 50,006 Other income (expense): Interest expense................. -- (49,808) (8,243) 2,730 (55,321) Amortization of deferred financing costs............... -- (2,973) (241) -- (3,214) Equity in net loss of subsidiaries.................. (17,017) -- -- 17,017 -- Other............................ -- 11,277 (4,252) (6,706) 319 -------- -------- -------- -------- -------- Income (loss) before income tax provision........................ (17,017) 20,199 (26,030) 14,638 (8,210) Income tax provision............... -- 4,322 4,485 -- 8,807 -------- -------- -------- -------- -------- Net income (loss).................. $(17,017) $ 15,877 $(30,515) $ 14,638 $(17,017) ======== ======== ======== ======== ========
--------------- (a) Reflects the elimination of intercompany sales among all of the Company's subsidiaries. F-50 81 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ -------- Net sales....................... $ -- $438,013 $195,940 $(101,176)(a) $532,777 Operating expenses: Cost of goods sold............ -- 279,470 161,817 (101,051)(a) 340,236 Selling, general and administrative expenses.... -- 73,081 29,473 -- 102,554 Amortization of goodwill...... -- 72 1,452 -- 1,524 Amortization of other intangibles................ -- 1,520 840 -- 2,360 Net periodic postretirement benefits................... -- 2,550 -- -- 2,550 Special charges............... -- 46,448 4,075 -- 50,523 -------- -------- -------- --------- -------- Operating income (loss)......... -- 34,872 (1,717) (125) 33,030 Other income (expense): Interest expense.............. -- (46,447) (9,583) 3,485 (52,545) Amortization of deferred financing costs............ -- (2,276) (204) -- (2,480) Equity in net loss of subsidiaries............... (54,873) -- -- 54,873 -- Other......................... -- 2,276 (775) (4,560) (3,059) -------- -------- -------- --------- -------- Loss before income tax provision..................... (54,873) (11,575) (12,279) 53,673 (25,054) Income tax provision............ -- 14,428 254 -- 14,682 -------- -------- -------- --------- -------- Loss before extraordinary item.......................... (54,873) (26,003) (12,533) 53,673 (39,736) Extraordinary item, net of tax........................... -- (15,137) -- -- (15,137) -------- -------- -------- --------- -------- Net Loss........................ $(54,873) $(41,140) $(12,533) $ 53,673 $(54,873) ======== ======== ======== ========= ========
--------------- (a) Reflects the elimination of intercompany sales among all of the Company's subsidiaries. F-51 82 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2000
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ -------- Net cash provided by (used in) operating activities.............. $(84,857) $ 11,238 $(10,982) $ 83,490 $ (1,111) Cash flows used in investing activities: Capital expenditures, net......... -- (9,660) (9,031) -- (18,691) Proceeds from sale of assets...... -- -- 6,961 -- 6,961 Change in other assets............ -- 970 (2,021) -- (1,051) Acquisitions, net of cash......... -- -- (3,767) -- (3,767) -------- -------- -------- -------- -------- Net cash used in investing activities........................ -- (8,690) (7,858) -- (16,548) Cash flows provided by (used in) financing activities: Change in long-term receivables... -- 24 360 -- 384 Repayment of long-term obligations.................... (14,493) (355) (11,629) -- (26,477) Borrowing of long-term obligations.................... 23,500 -- 10,716 -- 34,216 Change in accounts receivable securitization................. -- 20,999 -- -- 20,999 Financing fees.................... -- (1,125) -- -- (1,125) Changes in net equity and advances to/from subsidiaries........... 75,850 (11,623) 15,275 (83,490) (3,988) Other............................. -- (8,498) (811) -- (9,309) -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities.............. 84,857 (578) 13,911 (83,490) 14,700 -------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents.................. -- 1,970 (4,929) -- (2,959) Cash and cash equivalents at beginning of year................. -- 2,566 10,755 -- 13,321 -------- -------- -------- -------- -------- Cash and cash equivalents at end of year.............................. $ -- $ 4,536 $ 5,826 $ -- $ 10,362 ======== ======== ======== ======== ========
F-52 83 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ -------- Net cash provided by (used in) operating activities.............. $(14,892) $ 47,751 $ 2,977 $ 14,638 $ 50,474 Cash flows used in investing activities: Capital expenditures, net......... -- (7,003) (3,165) -- (10,168) Change in other assets............ -- (488) (558) -- (1,046) Acquisitions, net of cash......... -- (3,000) (2,886) -- (5,886) -------- -------- -------- -------- -------- Net cash used in investing activities........................ -- (10,491) (6,609) -- (17,100) Cash flows provided by (used in) financing activities: Change in long-term receivables... -- (530) 177 -- (353) Repayment of long-term obligations.................... (4,049) -- (19,117) -- (23,166) Borrowing of long-term obligations.................... 10,799 998 14,738 -- 26,535 Change in accounts receivable securitization................. -- (23,843) -- -- (23,843) Financing fees.................... -- (901) -- -- (901) Changes in net equity and advances to/from subsidiaries........... 8,142 (6,110) 15,804 (14,638) 3,198 Other............................. -- (3,257) 415 -- (2,842) -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities.............. 14,892 (33,643) 12,017 (14,638) (21,372) -------- -------- -------- -------- -------- Net increase in cash and cash equivalents....................... -- 3,617 8,385 -- 12,002 Cash and cash equivalents at beginning of year................. -- (1,051) 2,370 -- 1,319 -------- -------- -------- -------- -------- Cash and cash equivalents at end of year.............................. $ -- $ 2,566 $ 10,755 $ -- $ 13,321 ======== ======== ======== ======== ========
F-53 84 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ --------- Net cash used in operating activities.......................... $ (60,028) $(36,628) $(19,955) $ 53,673 $ (62,938) Cash flows used in investing activities: Capital expenditures, net........... -- (8,227) (9,279) -- (17,506) Change in other assets.............. -- (2,592) (454) -- (3,046) Acquisitions, net of cash........... -- (1,125) (17,828) -- (18,953) --------- -------- -------- -------- --------- Net cash used in investing activities.......................... -- (11,944) (27,561) -- (39,505) Cash flows provided by (used in) financing activities: Change in long-term receivables..... -- -- 638 -- 638 Repayment of long-term obligations...................... (408,810) (160) -- -- (408,970) Borrowing of long-term obligations...................... 608,751 -- 13,443 -- 622,194 Change in accounts receivable securitization................... -- (4,462) -- -- (4,462) Financing fees...................... (20,058) -- -- -- (20,058) Changes in net equity and advances to/from subsidiaries............. (119,855) 51,835 34,683 (53,673) (87,010) Other............................... -- -- (51) -- (51) --------- -------- -------- -------- --------- Net cash provided by financing activities.......................... 60,028 47,213 48,713 (53,673) 102,281 --------- -------- -------- -------- --------- Net increase (decrease) in cash and cash equivalents.................... -- (1,359) 1,197 -- (162) Cash and cash equivalents at beginning of year............................. -- 308 1,173 -- 1,481 --------- -------- -------- -------- --------- Cash and cash equivalents at end of year................................ $ -- $ (1,051) $ 2,370 $ -- $ 1,319 ========= ======== ======== ======== =========
F-54 85 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, 2000 and 1999, and for each of the three years in the period ended December 31, 2000 and have issued our reports thereon dated February 14, 2001. 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. The financial statement schedule does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the uncertainly regarding the Company's ability to continue as a going concern. /s/ ERNST & YOUNG LLP St. Louis, Missouri February 14, 2001 S-1 86 SCHEDULE II THERMADYNE HOLDINGS CORPORATION THERMADYNE MFG. LLC VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
COLLECTION BALANCE AT OF PREVIOUSLY BALANCE AT BEGINNING OF WRITTEN OFF END OF ALLOWANCE FOR DOUBTFUL ACCOUNTS PERIOD PROVISION WRITEOFFS ACCOUNTS PERIOD ------------------------------- ------------ ---------- --------- ------------- ---------- Year ended December 31, 2000.......... $3,275 $ 947 $713 $ -- $3,509 Year ended December 31, 1999.......... 2,852 916 916 423 3,275 Year ended December 31, 1998.......... 2,217 1,267 632 -- 2,852
S-2 87 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 30, 2001 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.
NAME TITLE DATE ---- ----- ---- /s/ KARL R. WYSS Director, Chairman of the March 30, 2001 ----------------------------------------------------- Board, and Chief Executive Karl R. Wyss Officer /s/ JAMES H. TATE Director, Senior Vice March 30, 2001 ----------------------------------------------------- President, Chief Financial James H. Tate Officer, and Office of the Chairman /s/ PETER T. GRAUER Director March 30, 2001 ----------------------------------------------------- Peter T. Grauer /s/ JOHN F. FORT III Director March 30, 2001 ----------------------------------------------------- John F. Fort III /s/ HAROLD A. POLING Director March 30, 2001 ----------------------------------------------------- Harold A. Poling /s/ LAWRENCE M.V.D. SCHLOSS Director March 30, 2001 ----------------------------------------------------- Lawrence M.v.D. Schloss
88 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 30, 2001 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.
NAME TITLE DATE ---- ----- ---- /s/ KARL R. WYSS Director, Chairman of the March 30, 2001 ----------------------------------------------------- Board, and Chief Executive Karl R. Wyss Officer /s/ JAMES H. TATE Director, Senior Vice March 30, 2001 ----------------------------------------------------- President, Chief Financial James H. Tate Officer, and Office of the Chairman /s/ PETER T. GRAUER Director March 30, 2001 ----------------------------------------------------- Peter T. Grauer
89 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 30, 2001 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.
NAME TITLE DATE ---- ----- ---- /s/ KARL R. WYSS Director, Chairman of the March 30, 2001 ----------------------------------------------------- Board, and Chief Executive Karl R. Wyss Officer /s/ JAMES H. TATE Director, Senior Vice March 30, 2001 ----------------------------------------------------- President, Chief Financial James H. Tate Officer, and Office of the Chairman /s/ PETER T. GRAUER Director March 30, 2001 ----------------------------------------------------- Peter T. Grauer
90 INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT ------- ------- 2.1 -- Agreement Plan of Merger, dated as of January 20, 1998, between Thermadyne Holdings Corporation and Mercury Acquisition Corporation.(2) 2.2 -- Amendment No. 1 to Agreement and Plan of Merger between Thermadyne Holdings Corporation and Mercury Acquisition Corporation.(3) 2.3 -- Certificate of Merger of Mercury Acquisition Corporation with and into Thermadyne Holdings Corporation.(3) 3.1 -- Certificate of Incorporation of Thermadyne Holdings Corporation (included in Exhibit 2.4). 3.2 -- Bylaws of Thermadyne Holdings Corporation.(3) 3.3 -- Certificate of Incorporation of Thermadyne Capital Corp.(4) 3.4 -- Bylaws of Thermadyne Capital Corp.(4) 3.5 -- Limited Liability Company agreement of Thermadyne Mfg. LLC.(4) 4.1 -- Indenture, dated as of May 22, 1998, between Mercury Acquisition Corporation and IBJ Schroder Bank & Trust Company, as Trustee.(3) 4.2 -- First Supplemental Indenture, dated as of May 22, 1998, between Thermadyne Holding Corporation and IBJ Schroder Bank & Trust Company, as Trustee.(3) 4.3 -- Form of 12 1/2% Senior Discount Debentures.(3) 4.4 -- A/B Exchange Registration Rights Agreement dated as of May 22, 1998, among Mercury Acquisition Corporation and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.5 -- Amendment to Registration Rights Agreement dated May 22, 1998, among Thermadyne Holdings Corporation and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.6 -- Indenture, dated as of February 1, 1994, between Thermadyne Holdings Corporation and Chemical Bank, as Trustee, with respect to $179,321,000 principal amount of the Senior Subordinated Notes due November 1, 2003.(1) 4.7 -- Form of Senior Subordinated Note (included in Exhibit 4.3).(1) 4.8 -- Indenture, dated May 22, 1998, among Thermadyne Mfg. LLC, Thermadyne Capital Corp., the guarantors named therein and State Street Bank and Trust Company, as Trustee.(3) 4.9 -- Form of 9 7/8% Senior Subordinated Notes.(3) 4.10 -- A/B exchange Registration Rights Agreement dated as of May 22, 1998, among Thermadyne Mfg. LLC, Thermadyne Capital Corp., the guarantors named therein and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.11 -- Subscription agreement dated December 22, 1999, among Thermadyne Mfg. LLC, Thermadyne Holdings Corporation, and the buyers named therein.(9) 4.12 -- Registration Rights Agreement dated December 22, 1999, among Thermadyne Mfg. LLC, Thermadyne Holdings Corporation, and the buyers named therein.(9) 4.13 -- Form of indenture relating to Junior Subordinated Notes.(9) 4.14 -- Form of Warrants (included in Exhibit 4.11).(9) 4.15 -- Form of Junior Subordinated Notes (included in Exhibit 4.11).(9) 10.1 -- Omnibus Agreement, dated as of June 3, 1988, among Palco Acquisition Company (now Thermadyne Holdings Corporation) and its subsidiaries and National Warehouse Investment Company.(5)
91
EXHIBIT NO. EXHIBIT ------- ------- 10.2 -- Escrow Agreement, dated as of August 11, 1988, among National Warehouse Investment Company, Palco Acquisition Company (now Thermadyne Holdings Corporation) and Title Guaranty Escrow Services, Inc.(5) 10.3 -- Amended and Restated Industrial Real Property Lease dated as of August 11, 1988, between National Warehouse Investment Company and Tweco Products, Inc., as amended by First Amendment to Amended and Restated Industrial Real Property Lease dated as of January 20, 1989.(5) 10.4 -- Schedule of substantially identical lease agreements.(5) 10.5 -- Amended and Restated Continuing Lease Guaranty, made as of August 11, 1988, by Palco Acquisition Company (now Thermadyne Holdings Corporation) for the benefit of National Warehouse Investment Company.(5) 10.6 -- Schedule of substantially identical lease guaranties(5) 10.7 -- Lease Agreement, dated as of October 10, 1990, between Stoody Deloro Stellite and Bowling Green-Warren County Industrial Park Authority, Inc.(5) 10.8 -- Lease Agreement, dated as of February 15, 1985, as amended, between Stoody Deloro Stellite, Inc. and Corporate Property Associates 6.(5) 10.9 -- Purchase Agreement, dated as of August 2, 1994, between Coyne Cylinder Company and BA Credit Corporation.(6) 10.10 -- Sublease Agreement, dated as of April 7, 1994, between Stoody Deloro Stellite, Inc., and Swat, Inc.(6) 10.11 -- Share Sale Agreement dated as of November 18, 1995, among certain scheduled persons and companies, Rosny Pty Limited, Byron Holdings Limited, Thermadyne Holdings Corporation, and Thermadyne Australia Pty Limited relating to the sale of the Cigweld Business.(7) 10.12 -- Rights Agreement dated as of May 1, 1997, between Thermadyne Holdings Corporation and BankBoston, N.A., as Rights Agent.(8) 10.13 -- First Amendment to Rights Agreement, dated January 20, 1998, between Thermadyne Holdings Corporation and BankBoston, N.A.(2) 10.14+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Randall E. Curran.(3) 10.15+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and James H. Tate.(3) 10.16+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Stephanie N. Josephson.(3) 10.17+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Thomas C. Drury.(3) 10.18+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Robert D. Maddox.(3) 10.19+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Randall E. Curran.(3) 10.20+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and James H. Tate.(3) 10.21+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Stephanie N. Josephson.(3) 10.22+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Thomas C. Drury.(3)
92
EXHIBIT NO. EXHIBIT ------- ------- 10.23+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Robert D. Maddox.(3) 10.24+ -- Thermadyne Holdings Corporation Management Incentive Plan.(3) 10.25+ -- Thermadyne Holdings Corporation Direct Investment Plan.(3) 10.26 -- Investors' Agreement dated as of May 22, 1998, between Thermadyne Holdings Corporation, the DLJ Entities (as defined therein) and the Management Stockholders (as defined therein).(3) 10.27 -- Credit Agreement dated as of May 22, 1998, between Thermadyne Mfg. LLC, Comweld Group Pty. Ltd., GenSet S.P.A. and Thermadyne Welding Products Canada Limited, as Borrowers, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent, Societe Generale, as Documentation Agent, and ABN Amro Bank N.V., as Administrative Agent.(3) 10.28 -- First Amendment to Credit Agreement, dated as of November 10, 1999, among Thermadyne Mfg. LLC., Comweld Group Pty. Ltd., GenSet S.P.A. and Thermadyne Welding Products Canada Limited, as Borrowers, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent, Societe Generale, as Documentation Agent, and ABN Amro Bank N.V., as Administrative Agent. 10.29 -- Letter Agreement dated as of January 16, 1998, between Donaldson, Lufkin & Jenrette Securities Corporation and DLJ Merchant Banking II, Inc.(3) 10.30 -- Assignment and Assumption Agreement dated as of May 22, 1998, between DLJ Merchant Banking II, Inc. and Thermadyne Holdings Corporation.(3) 10.31 -- Receivables Participation Agreement, dated as of January 31, 2000, between Thermadyne Receivables, Inc. as the Transferor, and Bankers Trust Company, as Trustee.* 10.32 -- Executive, Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Michael E. Mahoney.* 21.1 -- Subsidiaries of Thermadyne Holdings Corporation.* 23.1 -- Consent of Ernst & Young LLP, Independent Auditors.*
--------------- + Indicates a management contract or compensatory plan or arrangement. * Filed herewith. (1) Incorporated by reference to the Company's Registration Statement of 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. 93 (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. (9) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1999.