10-Q 1 d01132e10vq.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2002 ---------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------- ---------------------- Commission file number 0-23378 Thermadyne Holdings Corporation -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 74-2482571 -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) Commission file number 333-57457 Thermadyne Mfg. LLC -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 74-2878452 -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) Commission file number 333-57457 Thermadyne Capital Corp. (Exact name of Registrant as Specified in Its Charter) Delaware 74-2878453 -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 101 S. Hanley, St. Louis, MO 63105 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (314) 721-5573 ---------------------------- Indicate by [X] whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the issuer's common stock, par value $0.01 per share, as of November 8, 2002 was 3,590,326. Thermadyne Mfg. LLC and Thermadyne Capital Corp. meet the conditions set forth in General Instruction H(1) of Form 10-Q and are therefore filing this form with the reduced disclosure format. THERMADYNE HOLDINGS CORPORATION INDEX PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements of Thermadyne Holdings Corporation (Unaudited) Condensed Consolidated Balance Sheets...............................................................3 Condensed Consolidated Statements of Operations.....................................................4 Condensed Consolidated Statements of Cash Flows.....................................................5 Notes to Condensed Consolidated Financial Statements.............................................6-17 Condensed Consolidated Financial Statements of Thermadyne Mfg. LLC (Unaudited) Condensed Consolidated Balance Sheets..............................................................18 Condensed Consolidated Statements of Operations....................................................19 Condensed Consolidated Statements of Cash Flows....................................................20 Notes to Condensed Consolidated Financial Statements............................................21-34 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................35-41 Item 4. Controls and procedures............................................................................42 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K...................................................................43 SIGNATURES....................................................................................................44-46 CERTIFICATIONS................................................................................................47-52
THERMADYNE HOLDINGS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31, 2002 2001 ----------- ----------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 13,021 $ 14,800 Accounts receivable, less allowance for doubtful accounts of $3,855 and $3,376, respectively 77,095 75,816 Inventories 97,555 89,748 Prepaid expenses and other 13,360 14,600 --------- --------- Total current assets 201,031 194,964 Property, plant and equipment, at cost, net 74,745 81,012 Deferred financing costs, net 11,340 13,825 Intangibles, at cost, net 13,338 13,422 Deferred income taxes 376 248 Other assets 7,472 6,922 --------- --------- Total assets $ 308,302 $ 310,393 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable $ 21,895 $ 19,520 Accrued and other liabilities 26,488 25,410 Accrued interest 5 471 Income taxes payable 1,317 508 Current maturities of long-term obligations 12,786 11,606 --------- --------- Total current liabilities 62,491 57,515 Liabilities subject to compromise 834,794 834,478 Long-term obligations, less current maturities 20,543 21,084 Other long-term liabilities 42,881 43,868 Redeemable preferred stock (paid in kind), $0.01 par value, 15,000,000 shares authorized and 2,000,000 shares issued and outstanding 78,509 78,509 Shareholders' deficit: Common stock, $0.01 par value, 30,000,000 shares authorized, and 3,590,286 shares issued and outstanding 36 36 Additional paid-in capital (128,523) (128,523) Accumulated deficit (556,871) (553,008) Management loans (1,531) (1,344) Accumulated other comprehensive loss (44,027) (42,222) --------- --------- Total shareholders' deficit (730,916) (725,061) --------- --------- Total liabilities and shareholders' deficit $ 308,302 $ 310,393 ========= =========
See accompanying notes to condensed consolidated financial statements. 3 THERMADYNE HOLDINGS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Net sales $ 98,610 $ 106,714 $ 309,373 $ 338,455 Operating expenses: Cost of goods sold 62,098 72,837 197,491 224,600 Selling, general and administrative expenses 25,042 23,989 78,377 74,025 Amortization of intangibles 193 570 767 1,611 Net periodic postretirement benefits 288 288 864 837 Special charges 636 4,400 2,436 13,628 --------- --------- --------- --------- Operating income 10,353 4,630 29,438 23,754 Other expense: Interest expense (contractual interest expense of $17,490 and $53,052 for the three and nine months ended September 30, 2002, respectively) (5,217) (19,576) (16,853) (60,870) Amortization of deferred financing costs (829) (829) (2,487) (2,486) Other, net (1,339) (1,663) (2,850) (2,433) --------- --------- --------- --------- Income (loss) before reorganization items and income tax provision 2,968 (17,438) 7,248 (42,035) Reorganization items 3,530 1,870 9,577 3,829 --------- --------- --------- --------- Loss before income tax provision (562) (19,308) (2,329) (45,864) Income tax provision 44 26 1,534 1,676 --------- --------- --------- --------- Net loss (606) (19,334) (3,863) (47,540) Preferred stock dividends (paid in kind) -- 2,418 -- 7,030 --------- --------- --------- --------- Net loss applicable to common shares $ (606) $ (21,752) $ (3,863) $ (54,570) ========= ========= ========= ========= Basic and diluted loss per share amounts: Net loss $ (0.17) $ (5.39) $ (1.08) $ (13.24) Net loss applicable to common shares $ (0.17) $ (6.06) $ (1.08) $ (15.20)
See accompanying notes to condensed consolidated financial statements. 4 THERMADYNE HOLDINGS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
Nine Months Nine Months Ended Ended September 30, September 30, 2002 2001 ------------- ------------- Cash flows provided by (used in) operating activities: Net loss $ (3,863) $(47,540) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Net periodic postretirement benefits 864 837 Depreciation 11,646 10,619 Amortization of intangibles 767 1,611 Amortization of deferred financing costs 2,487 2,486 Deferred income taxes 35 380 Non-cash interest expense -- 15,809 Changes in operating assets and liabilities: Accounts receivable 150 1,135 Inventories (8,155) 2,122 Prepaid expenses and other 1,189 (1,720) Accounts payable 307 (12,474) Accrued and other liabilities 1,043 2,409 Accrued interest (476) 18,239 Income taxes payable 757 (597) Other long-term liabilities (2,272) (714) -------- -------- Total adjustments 8,342 40,142 -------- -------- Net cash provided by (used in) operating activities 4,479 (7,398) -------- -------- Cash flows used in investing activities: Capital expenditures, net (6,522) (12,003) Change in other assets (756) (111) -------- -------- Net cash used in investing activities (7,278) (12,114) -------- -------- Cash flows provided by (used in) financing activities: Change in long-term receivables 320 (487) Borrowing under debtor-in-possession credit facility 1,500 -- Repayment of long-term obligations (4,247) (10,035) Borrowing of long-term obligations 3,389 40,007 Change in accounts receivable securitization -- 3,015 Financing fees -- 40 Other 58 (379) -------- -------- Net cash provided by financing activities 1,020 32,161 -------- -------- Net (decrease) increase in cash and cash equivalents (1,779) 12,649 Cash and cash equivalents at beginning of period 14,800 10,362 -------- -------- Cash and cash equivalents at end of period $ 13,021 $ 23,011 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) 1. BASIS OF PRESENTATION Thermadyne Holdings Corporation ("Thermadyne" or the "Company"), a Delaware corporation, is a global manufacturer of cutting and welding products and accessories. UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements of Thermadyne have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2001. BANKRUPTCY FILING On November 19, 2001, the Company and substantially all of its domestic subsidiaries, including Thermadyne LLC and Thermadyne Capital (collectively, the "Debtors"), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Missouri (the "Court".) The filing resulted from insufficient liquidity, and was determined to be the most efficient and favorable alternative to restructure the Company's balance sheet. Since 1998, the Company's operating results have been negatively impacted by a weak industrial economy in the U.S. as well as difficult economic conditions in most of its foreign markets. The deterioration of operating results and liquidity made it increasingly difficult for the Company to meet all of its debt service obligations. Prior to filing Chapter 11, the Company failed to make the semi-annual interest payments on the 10.75% subordinated notes, due November 1, 2003 (the "Subordinated Notes"), which were due on May 1 and November 1, 2001, and totaled approximately $4.0 million. In addition, the Company failed to make an interest payment in the amount of $10.2 million related to the 9.875% senior subordinated notes, due June 1, 2008 (the "Senior Subordinated Notes"), which was due on June 1, 2001. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre-petition debt, including the Senior Subordinated Notes and the Subordinated Notes, except pursuant to a confirmed plan of reorganization. The Company is in possession of its properties and assets and continues to manage the business as a debtor-in-possession subject to the supervision of the Court. On January 8, 2002, the Court entered the final order approving a new $60 million debtor-in-possession credit facility among Thermadyne LLC, as borrower, the Company and certain U.S. subsidiaries as guarantors, and a syndicate of lenders with ABN AMRO Bank N.V. as agent (the 6 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) "DIP Facility".) Prior to the final order, on November 21, 2001, the Court entered an interim order authorizing the Debtors to use up to $25 million of the DIP Facility for loans and letters of credit. The DIP Facility expires on the earlier of the consummation of a plan of reorganization or November 21, 2002. On November 1, 2002, the Debtors filed a motion with the Court to amend the DIP Facility to extend its expiration date to May 21, 2003. In addition, the motion to amend the DIP Facility would lower the total capacity from $60 million to $50 million. All other terms of the DIP Facility would remain substantially the same. On November 15, 2002, the Court will hear this motion for extension. The Company also expects its lenders to approve the extension of the DIP Facility prior to November 21, 2002. The DIP Facility is secured by substantially all the assets of the Debtors, including a pledge of the capital stock of substantially all their subsidiaries, subject to certain limitations with respect to foreign subsidiaries. Actual borrowing availability is subject to a borrowing base calculation. The amount available to the Company under the DIP Facility is equal to the sum of approximately 85% of eligible accounts receivable, 50% of eligible inventory and 72% of eligible fixed assets. As of September 30, 2002, the Company's eligible accounts receivable, inventories and fixed assets supported access to the full amount of the DIP Facility less outstanding borrowings and letters of credit. As of September 30, 2002, the Company had borrowed $10.2 million and issued letters of credit of $8.4 million under the DIP Facility. The DIP Facility contains financial covenants, including minimum levels of EBITDA (defined as net income or loss plus depreciation, amortization of goodwill, amortization of intangibles, net periodic postretirement benefits expense, interest expense, income taxes, amortization of deferred financing costs, any net loss realized in connection with the sale of any asset, any extraordinary loss or the non-cash portion of non-recurring expenses, and reorganization costs; minus any extraordinary gain), and other customary provisions. As of December 1, 2001, the Company discontinued accruing interest on the Senior Subordinated Notes, the Subordinated Notes, the 12.5% debentures, due June 1, 2008 (the "Debentures"), and the 15% junior subordinated notes, due December 15, 2009 (the "Junior Notes"), and ceased accruing dividends on its redeemable preferred stock. Contractual interest on the Senior Subordinated Notes, the Subordinated Notes, the Debentures and the Junior Notes for the quarter ended September 30, 2002, was $5.1 million, $1.0 million, $4.8 million and $1.4 million, respectively, and for the nine months ended September 30, 2002, was $15.3 million, $3.0 million, $14.0 million and $3.9 million, respectively. No interest was recorded for the Senior Subordinated Notes, the Subordinated Notes, the Debentures or the Junior Notes during the three or nine-month periods ended September 30, 2002. Contractual dividends for the redeemable preferred stock were $2.7 million and $8.0 million for the three and nine months ended September 30, 2002, respectively, but no dividends were recorded during these periods. As part of the Court order approving the DIP Facility, the Company was required to continue making periodic interest payments on its old syndicated senior secured credit agreement (the "Old Credit Agreement.") This order did not approve the payment of any principal outstanding under the Old Credit Facility as of the petition date, or the payment of any future mandatory amortization of the loans. In total, contractual interest on the Company's obligations was $17.5 million and $53.1 million, for the three and nine-month periods ended September 30, 2002, respectively, which was $12.3 million and $36.2 million in excess of reported interest, respectively. Pursuant to the provisions of the Bankruptcy Code, all actions to collect upon any of the Debtors' 7 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) liabilities as of the petition date or to enforce pre-petition date contractual obligations were automatically stayed. Absent approval from the Court, the Debtors are prohibited from paying pre-petition obligations. However, the Court has approved payment of certain pre-petition liabilities such as employee wages and benefits and certain other pre-petition obligations. Additionally, the Court has approved the retention of legal and financial professionals. Claims were allowed to be filed against the Debtors through April 19, 2002. As debtor-in-possession, the Company has the right, subject to court approval and certain other conditions, to assume or reject any pre-petition executory contracts and unexpired leases. Parties affected by such rejections may file pre-petition claims with the Court in accordance with bankruptcy procedures. The Company is currently developing a plan of reorganization (the "Plan of Reorganization") through, among other things, discussions with the official creditors' committee appointed in the Chapter 11 proceedings and the lenders. The objective of the Plan of Reorganization is to restructure the Company's balance sheet to significantly strengthen the Company's financial position. Management expects that a Plan of Reorganization will be completed and ready to file with the Court during the fourth calendar quarter of 2002. Although management expects to file the Plan of Reorganization, there can be no assurance at this time that a Plan of Reorganization will be proposed by the Company, approved or confirmed by the Court, or that such plan will be consummated. On October 30, 2002, the Court approved the Company's motion to extend the period during which the Debtors may file a Plan of Reorganization through November 18, 2002. If the exclusivity period were to expire or be terminated, other interested parties, such as creditors of the Debtors, would have the right to propose alternative plans of reorganization. Absent a successful restructuring of the Company's balance sheet, substantial doubt exists about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis. This basis contemplates the continuity of operations, realization of assets, and discharge of liabilities in the ordinary course of business. The statements also present the assets of the Company at historical cost and the current intention that they will be realized as a going concern and in the normal course of business. A Plan of Reorganization could materially change the amounts currently disclosed in the financial statements. The Company's financial statements do not present the amount which may ultimately be paid to settle liabilities and contingencies which may be allowed in the Chapter 11 case. Under Chapter 11, the rights of, and ultimate payment by the Company to, pre-petition creditors may be substantially altered. This could result in claims being paid in the Chapter 11 proceedings at less (and possibly substantially less) than 100% of their face value. At this time, because of material uncertainties, pre-petition claims are carried at face value in the accompanying financial statements, and are included in the line "liabilities subject to compromise" on the consolidated balance sheets. Additionally, the interests of existing preferred and common shareholders could be substantially diluted or even eliminated. 8 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) LIABILITIES SUBJECT TO COMPROMISE Under Chapter 11, certain claims against the debtor in existence prior to the filing of the petition for relief under federal bankruptcy laws are stayed while the debtor continues business operations as debtor-in-possession. These claims are shown in the accompanying balance sheets as "liabilities subject to compromise." Additional claims (liabilities subject to compromise) may arise subsequent to the filing date resulting from rejection of executory contracts, including leases, and from the determination by the Court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. Claims secured against the debtor's assets also are stayed, although the holders of such claims have the right to move the Court for relief from the stay. The principal categories of liabilities subject to compromise consisted of the following:
September 30, December 31, 2002 2001 ------------ ----------- Trade accounts payable $ 15,904 $ 17,334 Accrued and other liabilities 3,670 3,500 Accrued interest 24,809 24,809 Accrued income taxes 11,290 11,290 Old Credit Facility 355,241 353,437 Senior Subordinated Notes 207,000 207,000 Debentures 145,066 145,066 Subordinated Notes 37,060 37,060 Junior Notes 33,427 33,427 Other long-term obligations 1,327 1,555 -------- -------- Total $834,794 $834,478 ======== ========
REORGANIZATION ITEMS Reorganization items for the three-month period ended September 30, 2002, include $3.0 million of professional fees and expenses, $0.4 million of expenses related to financing fees associated with the DIP Facility, and $0.1 million of other reorganization costs. For the nine months ended September 30, 2002, reorganization items include $6.9 million of professional fees and expenses, $1.4 million of expenses related to financing fees associated with the DIP Facility, $0.4 million associated with a lease obligation that was rejected, $0.3 million related to payments under the key employee retention plan approved by the Court, and $0.6 million of other reorganization costs. Reorganization costs in 2001 consisted primarily of professional fees and expenses. 9 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) SPECIAL CHARGES Special charges incurred during the three months ended September 30, 2002 include $0.5 million related to an information technology transformation project and $0.1 million related to logistics initiatives. For the nine months ended September 30, 2002, special charges include $1.9 million related to the information technology transformation initiative and $0.5 related to the logistics projects. Included in special charges for the three months ended September 30, 2001, are costs of approximately $4.2 million related to the information technology and business reengineering project with the remaining costs attributable to the relocation of production to Mexico and Asia. For the nine months ended September 30, 2001, special charges include $2.2 million related to the relocation of production to Mexico and Asia, $10.1 million related to information technology and related business process reengineering projects with the balance of $1.3 million related primarily to severance. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications did not affect net loss. STATEMENTS OF CASH FLOWS For purposes of the Statements of Cash Flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Interest and taxes paid were as follows:
Nine Nine Months Months Ended Ended September 30, September 30, 2002 2001 ----------- ------------ Interest paid $17,319 $26,809 Taxes paid 569 1,730
Operating cash disbursements for the nine months ended September 30, 2002, related to the reorganization were $8.6 million and include $6.9 million of professional fees and expenses, $0.4 million of fees related to the DIP Facility, $0.3 million of payments made under the key employee retention plan approved by the Court, $0.4 million related to a rejected lease obligation, and $0.6 million of other reorganization related disbursements. For the nine months ended September 30, 2001, operating cash disbursements related to the reorganization were $3.8 million and included 10 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) approximately $3.2 million of professional fees and expenses, $0.5 million of bank fees and $0.1 million of other reorganization items. LOSS PER SHARE The following table sets forth the information used in the computation of basic and diluted loss per share for the periods indicated.
Three Three Nine Nine Months Months Months Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Numerator: Net loss $ (606) $ (19,334) $ (3,863) $ (47,540) Preferred stock dividends (paid in kind) -- (2,418) -- (7,030) ----------- ----------- ----------- ----------- Net loss applicable to common shares $ (606) $ (21,752) $ (3,863) $ (54,570) =========== =========== =========== =========== Denominator: Weighted average shares-basic and diluted 3,590,286 3,590,286 3,590,286 3,590,286 =========== =========== =========== =========== Basic and diluted loss per share amounts: Net loss $ (0.17) $ (5.39) $ (1.08) $ (13.24) Preferred stock dividends (paid in kind) -- (0.67) -- (1.96) ----------- ----------- ----------- ----------- Net loss applicable to common shares $ (0.17) $ (6.06) $ (1.08) $ (15.20) =========== =========== =========== ===========
2. INVENTORIES The composition of inventories was as follows:
September 30, December 31, 2002 2001 ------------- ------------ Raw materials $ 18,703 $ 18,142 Work-in-process 32,141 25,517 Finished Goods 47,576 46,442 LIFO reserve (865) (353) -------- -------- Total $ 97,555 $ 89,748 ======== ========
11 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) 3. SEGMENT INFORMATION The Company reports its segment information by geographic region. Although the Company's domestic operation is comprised of several individual business units, similarity of products, paths to market, end users, and production processes results in performance evaluation and decisions regarding allocation of resources being made on a combined basis. The Company's reportable geographic regions are the United States, Europe and Australia/Asia. The Company evaluates performance and allocates resources based principally on operating income net of any special charges or significant one-time charges. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales are based on market prices. Summarized financial information concerning the Company's reportable segments is shown in the following table. Export sales from the United States are included in the United States segment. The "Other" column includes the elimination of intersegment sales and profits, corporate related items and other costs not allocated to the reportable segments.
Other United Australia/ Geographic States Europe Asia Regions Other Consolidated --------- -------- ---------- ----------- -------- ------------ Nine Months Ended September 30, 2002 ------------------------------------ Revenue from external customers $199,320 $ 35,936 $ 34,521 $ 39,596 $ -- $309,373 Intersegment revenues 17,689 4,012 446 3,301 (25,448) -- Operating income (loss) 38,625 1,860 (459) 4,818 (15,406) 29,438 Nine Months Ended September 30, 2001 ------------------------------------ Revenue from external customers $228,486 $ 33,939 $ 34,327 $ 41,703 $ -- $338,455 Intersegment revenues 20,456 9,426 1,261 -- (31,143) -- Operating income (loss) 41,761 2,239 (2,212) 1,607 (19,641) 23,754
4. COMPREHENSIVE LOSS Comprehensive loss totaled $4,531 and $19,696 for the three months ended September 30, 2002 and 2001, respectively. For the nine-month periods ended September 30, 2002 and September 30, 2001, comprehensive loss was $5,668 and $52,398, respectively. 5. LONG-TERM OBLIGATIONS The DIP Facility provides for total borrowings of $60 million, of which up to $15 million may be used for letters of credit. Actual borrowing availability is subject to a borrowing base calculation, which is equal to the sum of approximately 85% of eligible accounts receivable, 50% of eligible inventory and 72% of eligible fixed assets. As of September 30, 2002, the Company's eligible 12 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) accounts receivable, inventories and fixed assets supported access to the full amount of the DIP Facility less outstanding borrowings and letters of credit. As of September 30, 2002, the Company had borrowed $10.2 million and issued letters of credit of $8.4 million under the DIP Facility. As of December 1, 2001, the Company discontinued accruing interest on the Senior Subordinated Notes, the Subordinated Notes, the Debentures, and the Junior Notes. Contractual interest on the Senior Subordinated Notes, the Subordinated Notes, the Debentures and the Junior Notes for the quarter ended September 30, 2002, was $5.1 million, $1.0 million, $4.8 million and $1.4 million, respectively, and for the nine months ended September 30, 2002, was $15.3 million, $3.0 million, $14.0 million and $3.9 million, respectively. No interest was recorded for the Senior Subordinated Notes, the Subordinated Notes, the Debentures or the Junior Notes during the three or nine-month periods ended September 30, 2002. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre-petition debt, including the Senior Subordinated Notes and the Subordinated Notes, except pursuant to a confirmed Plan of Reorganization. 6. RECENT ACCOUNTING PRONOUNCEMENTS On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142".) SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 requires these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. In addition, SFAS 142 requires goodwill included in the carrying value of equity method investments no longer be amortized. The Company ceased amortization on January 1, 2002 of its goodwill, which had a net balance of approximately $11,355 at January 1, 2002. During the third quarter of 2001 the Company recorded $114 of goodwill amortization. Excluding this expense the Company's net loss, net loss applicable to common shares, basic and diluted net loss per share, and basic and diluted net loss applicable to common shares would have been $19,220, $21,638, $5.39 and $6.06, respectively. During the first nine months of 2001 the Company recorded $249 of goodwill amortization. Excluding this expense the Company's net loss, net loss applicable to common shares, basic and diluted net loss per share, and basic and diluted net loss applicable to common shares would have been $47,291, $54,321, $13.17 and $15.13, respectively. The Company capitalizes loan origination fees and other costs incurred arranging long-term financing as deferred financing costs. The costs are amortized over the respective lives of the obligations using the effective interest method. Deferred financing costs totaled $25,843 at September 30, 2002 and December 31, 2001. Accumulated amortization totaled $14,503 and $12,018 at September 30, 2002 and December 31, 2001, respectively. Amortization expense amounted to $829 for the three-month periods ended September 30, 2002 and 2001, respectively. For the first nine months of 2002 and 2001, amortization expense was $2,487 and $2,486, respectively. Amortization expense for fiscal 2002 to 2006 is expected to be as follows: $3,316, $3,316, $3,316, $3,316, and $561. 13 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) The Company has other identifiable intangible assets such as patented technology, non-compete agreements and trademarks. These intangibles are amortized on a straight-line basis over the various estimated useful lives, which generally range from three to 25 years. The total cost of these intangible assets was $11,107 and $11,420 at September 30, 2002 and December 31, 2001, respectively. Accumulated amortization totaled $9,470 and $9,353 at September 30, 2002 and December 31, 2001, respectively. Amortization expense amounted to $193 and $456 for the three-month periods ended September 30, 2002 and 2001, respectively, and was $767 and $1,362 for the nine months ended September, 30, 2002 and 2001, respectively. Amortization expense is expected to be approximately $1,000 in 2002 and 2003, and approximately $425 in 2004. The adoption of SFAS 142 did not have a significant impact on the Company's financial position or results of operations. However, the ultimate value of the Company's assets is uncertain and may change materially when the Company emerges from bankruptcy. 7. DEBTOR FINANCIAL INFORMATION The following is condensed combined financial information for the Debtors. The combined financial statements have been prepared on the same basis as the consolidated financial statements. Liabilities subject to compromise shown on the September 30, 2002 and December 31, 2001 condensed combined balance sheets exclude the portion of the Term A Facility carried on the books of two foreign subsidiaries, which totaled $21,497 and $19,824, respectively. 14 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) CONDENSED COMBINED DEBTOR BALANCE SHEETS
September 30, December 31, 2002 2001 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents $ 4,590 $ 7,332 Accounts receivable 39,337 41,516 Inventories 58,093 51,505 Prepaid expenses and other 10,191 11,360 --------- --------- Total current assets 112,211 111,713 Property, plant and equipment, at cost, net 40,430 42,033 Deferred financing costs, net 11,340 13,825 Intangibles, at cost, net 5,953 6,461 Other assets 3,460 2,827 --------- --------- Total assets $ 173,394 $ 176,859 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable $ 4,677 $ 4,960 Accrued and other liabilities 19,208 18,392 Accrued interest 1 465 Income taxes payable 160 11 Current maturities of long-term obligations 10,593 8,962 --------- --------- Total current liabilities 34,639 32,790 Liabilities subject to compromise 813,297 814,654 Long-term obligations, less current maturities 15,031 15,483 Other long-term liabilities 33,991 34,471 Redeemable preferred stock 78,509 78,509 Shareholders' equity (deficit): Common stock 36 36 Additional paid-in-capital (130,054) (129,867) Accumulated other comprehensive loss (21,714) (26,914) Accumulated deficit (495,789) (491,447) --------- --------- Total shareholders' deficit (647,521) (648,192) Net equity and advances to/from subsidiaries (154,552) (150,856) --------- --------- Total liabilities and shareholders' deficit $ 173,394 $ 176,859 ========= =========
15 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) CONDENSED COMBINED STATEMENTS OF OPERATIONS
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2002 2001 2002 2001 --------- --------- --------- --------- Net sales $ 71,586 $ 84,964 $ 234,832 $ 271,513 Operating expenses: Cost of goods sold 46,740 59,588 150,150 181,857 Selling, general and administrative expenses 17,538 17,155 57,677 52,035 Amortization of intangibles 118 365 600 1,087 Net periodic postretirement benefits 288 288 864 837 Special charges 636 4,400 2,436 13,628 --------- --------- --------- --------- Operating income 6,266 3,168 23,105 22,069 Other income (expense): Interest expense (5,200) (18,859) (14,900) (58,697) Amortization of deferred financing costs (829) (829) (2,487) (2,486) Other, net 233 (140) (363) 769 --------- --------- --------- --------- Income (loss) before reorganization items and income tax provision 470 (16,660) 5,355 (38,345) Reorganization items 3,530 1,870 9,577 3,829 --------- --------- --------- --------- Loss before income tax provision (3,060) (18,530) (4,222) (42,174) Income tax provision (benefit) 32 (33) 234 255 --------- --------- --------- --------- Net loss (3,092) (18,497) (4,456) (42,429) Preferred stock dividends (paid in kind) -- 2,418 -- 7,030 --------- --------- --------- --------- Net loss applicable to common shares $ (3,092) $ (20,915) $ (4,456) $ (49,459) ========= ========= ========= =========
16 THERMADYNE HOLDINGS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) CONDENSED COMBINED STATEMENTS OF CASH FLOWS
Nine Months Nine Months Ended Ended September 30, September 30, 2002 2001 ------------- ------------- Net cash used in operating activities $ (553) $ (9,201) Cash flows provided by (used in) investing activities: Capital expenditures, net (4,384) (9,063) Change in other assets (725) 463 -------- -------- Net cash used in investing activities (5,109) (8,600) Cash flows provided by (used in) financing activities: Borrowing under debtor-in-possession credit facility 1,500 -- Repayment of long-term obligations (139) (5,280) Borrowing of long-term obligations 130 35,000 Change in accounts receivable securitization -- 3,015 Other 1,429 (4,740) -------- -------- Net cash provided by financing activities: 2,920 27,995 -------- -------- Net (decrease) increase in cash and cash equivalents (2,742) 10,194 Cash and cash equivalents at beginning of year 7,332 4,536 -------- -------- Cash and cash equivalents at end of period $ 4,590 $ 14,730 ======== ========
17 THERMADYNE MFG. LLC CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
September 30, December 31, 2002 2001 ------------- ------------ (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 13,021 $ 14,800 Accounts receivable, less allowance for doubtful accounts of $3,855 and $3,376, respectively 77,095 75,816 Inventories 97,555 89,748 Prepaid expenses and other 13,360 14,600 --------- --------- Total current assets 201,031 194,964 Property, plant and equipment, at cost, net 74,745 81,012 Deferred financing costs, net 9,206 11,409 Intangibles, at cost, net 13,338 13,422 Deferred income taxes 376 248 Other assets 4,384 3,834 --------- --------- Total assets $ 303,080 $ 304,889 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable $ 21,895 $ 19,520 Accrued and other liabilities 26,488 25,410 Accrued interest 5 471 Income taxes payable 1,317 508 Current maturities of long-term obligations 12,786 11,606 --------- --------- Total current liabilities 62,491 57,515 Liabilities subject to compromise 648,352 648,036 Long-term obligations, less current maturities 20,543 21,084 Other long-term liabilities 42,881 43,868 Shareholders' deficit: Accumulated deficit (506,134) (502,366) Accumulated other comprehensive loss (44,027) (42,222) --------- --------- Total shareholders' deficit (550,161) (544,588) Net equity and advances to/from parent 78,974 78,974 --------- --------- Total liabilities and shareholders' deficit $ 303,080 $ 304,889 ========= =========
See accompanying notes to condensed consolidated financial statements. 18 THERMADYNE MFG. LLC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2002 2001 2002 2001 ------------ ------------- ------------- ------------ Net sales $ 98,610 $ 106,714 $ 309,373 $ 338,455 Operating expenses: Cost of goods sold 62,098 72,837 197,491 224,600 Selling, general and administrative expenses 25,042 23,989 78,377 74,025 Amortization of intangibles 193 570 767 1,611 Net periodic postretirement benefits 288 288 864 837 Special charges 636 4,400 2,436 13,628 --------- --------- --------- --------- Operating income 10,353 4,630 29,438 23,754 Other expense: Interest expense (contractual interest expense of $11,676 and $38,086 for the three and nine month periods ended September 30, 2002) (5,217) (14,311) (16,853) (45,498) Amortization of deferred financing costs (735) (736) (2,205) (2,206) Other, net (1,403) (1,723) (3,037) (2,608) --------- --------- --------- --------- Income (loss) before reorganization items and income tax provision 2,998 (12,140) 7,343 (26,558) Reorganization items 3,530 1,870 9,577 3,829 --------- --------- --------- --------- Loss before income tax provision (532) (14,010) (2,234) (30,387) Income tax provision 44 26 1,534 1,676 --------- --------- --------- --------- Net loss $ (576) $ (14,036) $ (3,768) $ (32,063) ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements. 19 THERMADYNE MFG. LLC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine Months Nine Months Ended Ended September 30, September 30, 2002 2001 ------------- ------------- Cash flows provided by (used in) operating activities: Net loss $ (3,768) $(32,063) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Net periodic postretirement benefits 864 837 Depreciation 11,646 10,619 Amortization of intangibles 767 1,611 Amortization of deferred financing costs 2,205 2,206 Deferred income taxes 35 380 Non-cash interest expense -- 3,425 Changes in operating assets and liabilities: Accounts receivable 150 1,135 Inventories (8,155) 2,122 Prepaid expenses and other 1,189 (1,720) Accounts payable 307 (12,474) Accrued and other liabilities 1,043 2,409 Accrued interest (476) 15,251 Income taxes payable 757 (597) Other long-term liabilities (2,272) (714) -------- -------- Total adjustments 8,060 24,490 -------- -------- Net cash provided by (used in) operating activities 4,292 (7,573) -------- -------- Cash flows used in investing activities: Capital expenditures, net (6,522) (12,003) Change in other assets (756) (111) -------- -------- Net cash used in investing activities (7,278) (12,114) -------- -------- Cash flows provided by financing activities: Change in long-term receivables 319 (487) Borrowing under debtor-in-possession credit facility 1,500 -- Repayment of long-term obligations (4,247) (10,035) Borrowing of long-term obligations 3,389 40,007 Change in accounts receivable securitization -- 3,015 Financing fees -- 40 Other 246 (204) -------- -------- Net cash provided by financing activities 1,207 32,336 -------- -------- Net (decrease) increase in cash and cash equivalents (1,779) 12,649 Cash and cash equivalents at beginning of period 14,800 10,362 -------- -------- Cash and cash equivalents at end of period $ 13,021 $ 23,011 ======== ========
See accompanying notes to condensed consolidated financial statements. 20 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) 1. BASIS OF PRESENTATION As used in the report, the terms "Thermadyne" and the "Company" mean Thermadyne Holdings Corporation, the term "Thermadyne LLC" means Thermadyne Mfg. LLC, a wholly owned and the principal operating subsidiary of Thermadyne Holdings Corporation, and the term "Thermadyne Capital" means Thermadyne Capital Corp., a wholly owned subsidiary of Thermadyne LLC. The Company is a global manufacturer of cutting and welding products and accessories. UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements of Thermadyne LLC have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2001. CO-ISSUER Thermadyne Capital was formed solely for the purpose of serving as a co-issuer of the 9-7/8% Senior Subordinated Notes due 2008. Thermadyne Capital has no substantial assets or liabilities and no operations of any kind, and the Indenture pursuant to which the Senior Subordinated Notes were issued limits Thermadyne Capital's ability to acquire or hold any significant assets, incur any liabilities or engage in any business activities, other than in connection with the issuance of the Senior Subordinated Notes. BANKRUPTCY FILING On November 19, 2001, the Company and substantially all of its domestic subsidiaries, including Thermadyne LLC and Thermadyne Capital (collectively, the "Debtors"), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Missouri (the "Court".) The filing resulted from insufficient liquidity, and was determined to be the most efficient and favorable alternative to restructure the Company's balance sheet. Since 1998, the Company's operating results have been negatively impacted by a weak industrial economy in the U.S. as well as difficult economic conditions in most of its foreign markets. The deterioration of operating results and liquidity made it increasingly difficult for the Company to meet all of its debt service obligations. Prior to filing Chapter 11, the Company failed to make the semi-annual interest payments on the 10.75% 21 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) subordinated notes, due November 1, 2003 (the "Subordinated Notes"), which were due on May 1 and November 1, 2001, and totaled approximately $4.0 million. In addition, the Company failed to make an interest payment in the amount of $10.2 million related to the 9.875% senior subordinated notes, due June 1, 2008 (the "Senior Subordinated Notes"), which was due on June 1, 2001. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre-petition debt, including the Senior Subordinated Notes and the Subordinated Notes, except pursuant to a confirmed plan of reorganization. The Company is in possession of its properties and assets and continues to manage the business as a debtor-in-possession subject to the supervision of the Court. On January 8, 2002, the Court entered the final order approving a new $60 million debtor-in-possession credit facility among Thermadyne LLC, as borrower, the Company and certain U.S. subsidiaries as guarantors, and a syndicate of lenders with ABN AMRO Bank N.V. as agent (the "DIP Facility".) Prior to the final order, on November 21, 2001, the Court entered an interim order authorizing the Debtors to use up to $25 million of the DIP Facility for loans and letters of credit. The DIP Facility expires on the earlier of the consummation of a plan of reorganization or November 21, 2002. On November 1, 2002, the Debtors filed a motion with the Court to amend the DIP Facility to extend its expiration date to May 21, 2003. In addition, the motion to amend the DIP Facility would lower the total capacity from $60 million to $50 million. All other terms of the DIP Facility would remain substantially the same. On November 15, 2002, the Court will hear this motion for extension. The Company also expects its lenders to approve the extension of the DIP Facility prior to November 21, 2002. The DIP Facility is secured by substantially all the assets of the Debtors, including a pledge of the capital stock of substantially all their subsidiaries, subject to certain limitations with respect to foreign subsidiaries. Actual borrowing availability is subject to a borrowing base calculation. The amount available to the Company under the DIP Facility is equal to the sum of approximately 85% of eligible accounts receivable, 50% of eligible inventory and 72% of eligible fixed assets. As of September 30, 2002, the Company's eligible accounts receivable, inventories and fixed assets supported access to the full amount of the DIP Facility less outstanding borrowings and letters of credit. As of September 30, 2002, the Company had borrowed $10.2 million and issued letters of credit of $4.4 million under the DIP Facility. The DIP Facility contains financial covenants, including minimum levels of EBITDA (defined as net income or loss plus depreciation, amortization of goodwill, amortization of intangibles, net periodic postretirement benefits expense, interest expense, income taxes, amortization of deferred financing costs, any net loss realized in connection with the sale of any asset, any extraordinary loss or the non-cash portion of non-recurring expenses, and reorganization costs; minus any extraordinary gain), and other customary provisions. As of December 1, 2001, Thermadyne LLC discontinued accruing interest on the Senior Subordinated Notes and the 15% junior subordinated notes, due December 15, 2009 (the "Junior Notes"). Contractual interest on the Senior Subordinated Notes and the Junior Notes for the quarter ended September 30, 2002, was $5.1 million and $1.4 million, respectively, and for the nine months ended September 30, 2002, was $15.3 million and $3.9 million, respectively. No interest was recorded for the Senior Subordinated Notes or the Junior Notes during the three or 22 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) nine-month periods ended September 30, 2002. As part of the Court order approving the DIP Facility, the Company was required to continue making period interest payments on its old syndicated senior secured credit agreement (the "Old Credit Agreement.") This order did not approve the payment of any principal outstanding under the Old Credit Facility as of the petition date, or the payment of any future mandatory amortization of the loans. In total, contractual interest on the Company's obligations was $11.7 million and $36.1 million, for the three and nine-month periods ended September 30, 2002, respectively, which was $6.5 million and $19.2 million in excess of reported interest, respectively. Pursuant to the provisions of the Bankruptcy Code, all actions to collect upon any of the Debtors' liabilities as of the petition date or to enforce pre-petition date contractual obligations were automatically stayed. Absent approval from the Court, the Debtors are prohibited from paying pre-petition obligations. However, the Court has approved payment of certain pre-petition liabilities such as employee wages and benefits and certain other pre-petition obligations. Additionally, the Court has approved the retention of legal and financial professionals. Claims were allowed to be filed against the Debtors through April 19, 2002. As debtor-in-possession, the Company has the right, subject to court approval and certain other conditions, to assume or reject any pre-petition executory contracts and unexpired leases. Parties affected by such rejections may file pre-petition claims with the Court in accordance with bankruptcy procedures. The Company is currently developing a plan of reorganization (the "Plan of Reorganization") through, among other things, discussions with the official creditor's committee appointed in the Chapter 11 proceedings and the lenders. The objective of the Plan of Reorganization is to restructure the Company's balance sheet to significantly strengthen the Company's financial position. Management expects that a Plan of Reorganization will be completed and ready to file with the Court during the fourth calendar quarter of 2002. Although management expects to file the Plan of Reorganization, there can be no assurance at this time that a Plan of Reorganization will be proposed by the Company, approved or confirmed by the Court, or that such plan will be consummated. On October 30, 2002, the Court approved the Company's motion to extend the period during which the Debtors may file a Plan of Reorganization through November 18, 2002. If the exclusivity period were to expire or be terminated, other interested parties, such as creditors of the Debtors, would have the right to propose alternative plans of reorganization. Absent a successful restructuring of the Company's balance sheet, substantial doubt exists about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis. This basis contemplates the continuity of operations, realization of assets, and discharge of liabilities in the ordinary course of business. The statements also present the assets of the Company at historical cost and the current intention that they will be realized as a going concern and in the normal course of business. A Plan of Reorganization could materially change the amounts currently disclosed in the financial statements. 23 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) The Company's financial statements do not present the amount which may ultimately be paid to settle liabilities and contingencies which may be allowed in the Chapter 11 case. Under Chapter 11, the rights of, and ultimate payment by the Company to, pre-petition creditors may be substantially altered. This could result in claims being paid in the Chapter 11 proceedings at less (and possibly substantially less) than 100% of their face value. At this time, because of material uncertainties, pre-petition claims are carried at face value in the accompanying financial statements, and are included in the line "liabilities subject to compromise" on the consolidated balance sheets. Additionally, the interests of existing preferred and common shareholders could be substantially diluted or even eliminated. LIABILITIES SUBJECT TO COMPROMISE Under Chapter 11, certain claims against the debtor in existence prior to the filing of the petition for relief under federal bankruptcy laws are stayed while the debtor continues business operations as debtor-in-possession. These claims are shown in the accompanying balance sheets as "liabilities subject to compromise." Additional claims (liabilities subject to compromise) may arise subsequent to the filing date resulting from rejection of executory contracts, including leases, and from the determination by the Court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. Claims secured against the debtor's assets also are stayed, although the holders of such claims have the right to move the Court for relief from the stay. The principal categories of liabilities subject to compromise consisted of the following:
September 30, December 31, 2002 2001 ------------- ------------ Trade accounts payable $ 15,904 $ 17,334 Accrued and other liabilities 3,670 3,500 Accrued interest 20,493 20,493 Accrued income taxes 11,290 11,290 Old Credit Facility 355,241 353,437 Senior Subordinated Notes 207,000 207,000 Junior Notes 33,427 33,427 Other long-term obligations 1,327 1,555 -------- -------- Total $648,352 $648,036 ======== ========
REORGANIZATION ITEMS Reorganization items for the three-month period ended September 30, 2002, include $3.0 million of professional fees and expenses, $0.4 million of expenses related to financing fees associated 24 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) with the DIP Facility, and $0.1 million of other reorganization costs. For the nine months ended September 30, 2002, reorganization items include $6.9 million of professional fees and expenses, $1.4 million of expenses related to financing fees associated with the DIP Facility, $0.4 million associated with a lease obligation that was rejected, $0.3 million related to payments under the key employee retention plan approved by the Court, and $0.6 million of other reorganization costs. Reorganization costs in 2001 consisted primarily of professional fees and expenses. SPECIAL CHARGES Special charges incurred during the three months ended September 30, 2002 include $0.5 million related to an information technology transformation project and $0.1 million related to logistics initiatives. For the nine months ended September 30, 2002, special charges include $1.9 million related to the information technology transformation initiative and $0.5 related to the logistics projects. Included in special charges for the three months ended September 30, 2001, are costs of approximately $4.2 million related to the information technology and business reengineering project with the remaining costs attributable to the relocation of production to Mexico and Asia. For the nine months ended September 30, 2001, special charges include $2.2 million related to the relocation of production to Mexico and Asia, $10.1 million related to information technology and related business process reengineering projects with the balance of $1.3 million related primarily to severance. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications did not affect net loss. STATEMENTS OF CASH FLOWS For purposes of the Statements of Cash Flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Interest and taxes paid were as follows:
Nine Months Nine Months Ended Ended September 30, September 30, 2002 2001 ------------ ------------- Interest paid $17,319 $26,809 Taxes paid 569 1,730
25 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) Operating cash disbursements for the nine months ended September 30, 2002, related to the reorganization were $8.6 million and include $6.9 million of professional fees and expenses, $0.4 million of fees related to the DIP Facility, $0.3 million of payments made under the key employee retention plan approved by the Court, $0.4 million related to a rejected lease obligation, and $0.6 million of other reorganization related disbursements. For the nine months ended September 30, 2001, operating cash disbursements related to the reorganization were $3.8 million and included approximately $3.2 million of professional fees and expenses, $0.5 million of bank fees and $0.1 million of other reorganization items. 2. INVENTORIES The composition of inventories was as follows:
September 30, December 31, 2002 2001 ------------- ------------ Raw materials $ 18,703 $ 18,142 Work-in-process 32,141 25,517 Finished goods 47,576 46,442 LIFO reserve (865) (353) -------- -------- Total $ 97,555 $ 89,748 ======== ========
3. SEGMENT INFORMATION The Company reports its segment information by geographic region. Although the Company's domestic operation is comprised of several individual business units, similarity of products, paths to market, end users, and production processes results in performance evaluation and decisions regarding allocation of resources being made on a combined basis. The Company's reportable geographic regions are the United States, Europe and Australia/Asia. The Company evaluates performance and allocates resources based principally on operating income net of any special charges or significant one-time charges. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales are based on market prices. Summarized financial information concerning the Company's reportable segments is shown in the following table. Export sales from the United States are included in the United States segment. The "Other" column includes the elimination of intersegment sales and profits, corporate related items and other costs not allocated to the reportable segments. 26 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED)
Other United Australia/ Geographic States Europe Asia Regions Other Consolidated --------- -------- -------- -------- -------- ------------ Nine Months Ended September 30, 2002 ------------------------------------ Revenue from external customers $199,320 $ 35,936 $ 34,521 $ 39,596 $ -- $309,373 Intersegment revenues 17,689 4,012 446 3,301 (25,448) -- Operating income (loss) 38,625 1,860 (459) 4,818 (15,406) 29,438 Nine Months Ended September 30, 2001 ------------------------------------ Revenue from external customers $228,486 $ 33,939 $ 34,327 $ 41,703 $ -- $338,455 Intersegment revenues 20,456 9,426 1,261 -- (31,143) -- Operating income (loss) 41,761 2,239 (2,212) 1,607 (19,641) 23,754
4. COMPREHENSIVE LOSS Comprehensive loss totaled $4,501 and $14,398 for the three months ended September 30, 2002 and 2001, respectively. For the nine-month periods ended September 30, 2002 and 2001, comprehensive loss was $5,573 and $36,921, respectively. 5. LONG-TERM OBLIGATIONS The DIP Facility provides for total borrowings of $60 million, of which up to $15 million may be used for letters of credit. Actual borrowing availability is subject to a borrowing base calculation, which is equal to the sum of approximately 85% of eligible accounts receivable, 50% of eligible inventory and 72% of eligible fixed assets. As of September 30, 2002, the Company's eligible accounts receivable, inventories and fixed assets supported access to the full amount of the DIP Facility less outstanding borrowings and letters of credit. As of September 30, 2002, the Company had borrowed $10.2 million and issued letters of credit of $8.4 million under the DIP Facility. As of December 1, 2001, the Company discontinued accruing interest on the Senior Subordinated Notes and the Junior Notes. Contractual interest on the Senior Subordinated Notes and the Junior Notes for the quarter ended September 30, 2002, was $5.1 million and $1.4 million, respectively, and for the nine months ended September 30, 2002, was $15.3 million and $3.9 million, respectively. No interest was recorded for the Senior Subordinated Notes or the Junior Notes during the three or nine-month periods ended September 30, 2002. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre-petition debt, including the Senior Subordinated Notes and the Subordinated Notes, except pursuant to a confirmed Plan of Reorganization. 6. RECENT ACCOUNTING PRONOUNCEMENTS On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142".) SFAS 142 prohibits the amortization of 27 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) goodwill and intangible assets with indefinite useful lives. SFAS 142 requires these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. In addition, SFAS 142 requires goodwill included in the carrying value of equity method investments no longer be amortized. The Company ceased amortization on January 1, 2002 of its goodwill, which had a net balance of approximately $11,355 at January 1, 2002. During the third quarter of 2001 the Company recorded $114 of goodwill amortization, and through the first nine months of 2001 recorded goodwill amortization of $249. Excluding this expense the Company's net loss would have been $13,922 and $31,814 for the three and nine-month periods ended September 30, 2001, respectively. The Company capitalizes loan origination fees and other costs incurred arranging long-term financing as deferred financing costs. The costs are amortized over the respective lives of the obligations using the effective interest method. Deferred financing costs totaled $22,077 at September 30, 2002 and December 31, 2001. Accumulated amortization totaled $12,871 and $10,668 at September 30, 2002 and December 31, 2001, respectively. Amortization expense amounted to $735 for the three-month period ended September 30, 2002 and was $736 for the same period in 2001. Amortization expense was $2,205 and $2,206 for the nine-month periods ended September 30, 2002 and 2001, respectively. Amortization expense for fiscal 2002 to 2005 is expected to be as follows: $2,940, $2,940, $2,940, and $2,589. The Company has other identifiable intangible assets such as patented technology, non-compete agreements and trademarks. These intangibles are amortized on a straight-line basis over the various estimated useful lives, which generally range from three to 25 years. The total cost of these intangible assets was $11,107 and $11,420 at September 30, 2002 and December 31, 2001, respectively. Accumulated amortization totaled $9,470 and $9,353 at September 30, 2002 and December 31, 2001, respectively. Amortization expense amounted to $193 and $456 for the three-month periods ended September 30, 2002 and 2001, respectively, and was $767 and $1,362 for the nine months ended September, 30, 2002 and 2001, respectively. Amortization expense is expected to be approximately $1,000 in 2002 and 2003 and approximately $425 in 2004. The adoption of SFAS 142 did not have a significant impact on the Company's financial position or results of operations. However, the ultimate value of the Company's assets is uncertain and may change materially when the Company emerges from bankruptcy. 7. GUARANTOR SUBSIDIARIES AND DEBTOR FINANCIAL INFORMATION Guarantor Subsidiaries Thermadyne LLC and Thermadyne Capital, both wholly-owned subsidiaries of Thermadyne, issued $207 million of Senior Subordinated Notes. Thermadyne received all of the net proceeds from the issuance of the Senior Subordinated Notes and Thermadyne LLC and Thermadyne Capital are jointly and severally liable for all payments under the Senior Subordinated Notes. 28 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) Additionally, the Senior Subordinated Notes are fully and unconditionally (as well as jointly and severally) guaranteed on an unsecured senior subordinated basis by certain subsidiaries of the Company (the "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is wholly-owned by Thermadyne LLC. The following condensed consolidating financial information of Thermadyne LLC includes the accounts of Thermadyne LLC, the combined accounts of the Guarantor Subsidiaries and the combined accounts of the non-guarantor subsidiaries for the periods indicated. Separate financial statements of each of the Guarantor Subsidiaries are not presented because management has determined that such information is not material in assessing the Guarantor Subsidiaries. Debtor Financial Information In the following condensed financial information the combination of the amounts in the columns "Thermadyne LLC" and "Total Guarantors" represents, in all material respects, the financial position of the Debtors, excluding Thermadyne Holdings Corporation, as of September 30, 2002 and December 31, 2001, and their results of operations and cash flows for the three and nine-month periods ended September 30, 2002 and 2001. This information was prepared on the same basis as the consolidated financial statements. 29 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2002
Thermadyne Total Total LLC Guarantors Non-Guarantors Eliminations Total ---------- ---------- -------------- ------------ --------- ASSETS Current Assets: Cash and cash equivalents $ -- $ 4,590 $ 8,431 $ -- $ 13,021 Accounts receivable -- 39,337 37,758 -- 77,095 Inventories -- 58,093 39,462 -- 97,555 Prepaid expenses and other -- 10,191 3,169 -- 13,360 --------- --------- --------- --------- --------- Total current assets -- 112,211 88,820 -- 201,031 Property, plant and equipment, at cost, net -- 40,430 34,315 -- 74,745 Deferred financing costs, net 9,206 -- -- -- 9,206 Intangibles, at cost, net -- 5,953 7,385 -- 13,338 Deferred income taxes -- -- 376 -- 376 Investment in and advances to/from subsidiaries 168,448 -- -- (168,448) -- Other assets -- 372 4,012 -- 4,384 --------- --------- --------- --------- --------- Total assets $ 177,654 $ 158,966 $ 134,908 $(168,448) $ 303,080 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable $ -- $ 4,677 $ 17,218 $ -- $ 21,895 Accrued and other liabilities -- 19,208 7,280 -- 26,488 Accrued interest 1 -- 4 -- 5 Income taxes payable -- 160 1,157 -- 1,317 Current maturities of long-term obligations 10,150 443 2,193 -- 12,786 --------- --------- --------- --------- --------- Total current liabilities 10,151 24,488 27,852 -- 62,491 Liabilities subject to compromise 594,663 32,192 21,497 -- 648,352 Long-term obligations, less current maturities -- 15,031 5,512 -- 20,543 Other long-term liabilities -- 33,991 8,890 -- 42,881 Shareholders' deficit: Accumulated deficit (506,134) (354,509) (89,863) 444,372 (506,134) Accumulated other comprehensive loss -- (21,714) (22,313) -- (44,027) --------- --------- --------- --------- --------- Total shareholders' deficit (506,134) (376,223) (112,176) 444,372 (550,161) Net equity and advances to/from subsidiaries 78,974 429,487 183,333 (612,820) 78,974 --------- --------- --------- --------- --------- Total liabilities and shareholders' deficit $ 177,654 $ 158,966 $ 134,908 $(168,448) $ 303,080 ========= ========= ========= ========= =========
30 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2001
Thermadyne Total Total LLC Guarantors Non-Guarantors Eliminations Total ---------- ---------- -------------- ------------ --------- ASSETS Current Assets: Cash and cash equivalents $ -- $ 7,332 $ 7,468 $ -- $ 14,800 Restricted Cash -- -- -- -- -- Accounts receivable -- 41,516 34,300 -- 75,816 Inventories -- 51,505 38,243 -- 89,748 Prepaid expenses and other -- 11,360 3,240 -- 14,600 --------- --------- --------- --------- --------- Total current assets -- 111,713 83,251 -- 194,964 Property, plant and equipment, at cost, net -- 42,033 38,979 -- 81,012 Deferred financing costs, net 11,409 -- -- -- 11,409 Intangibles, at cost, net -- 6,461 6,961 -- 13,422 Deferred income taxes -- -- 248 -- 248 Investment in and advances to/from subsidiaries 168,839 -- -- (168,839) -- Other assets -- (261) 4,095 -- 3,834 --------- --------- --------- --------- --------- Total assets $ 180,248 $ 159,946 $ 133,534 $(168,839) $ 304,889 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable $ -- $ 4,960 $ 14,560 $ -- $ 19,520 Accrued and other liabilities -- 18,392 7,018 -- 25,410 Accrued interest 457 8 6 -- 471 Income taxes payable -- 11 497 -- 508 Current maturities of long-term obligations 8,650 312 2,644 -- 11,606 --------- --------- --------- --------- --------- Total current liabilities 9,107 23,683 24,725 -- 57,515 Liabilities subject to compromise 594,533 33,679 19,824 -- 648,036 Long-term obligations, less current maturities -- 15,483 5,601 -- 21,084 Other long-term liabilities -- 34,471 9,397 -- 43,868 Shareholders' deficit: Accumulated deficit (502,366) (350,148) (90,434) 440,582 (502,366) Accumulated other comprehensive loss -- (26,914) (15,308) -- (42,222) --------- --------- --------- --------- --------- Total shareholders' deficit (502,366) (377,062) (105,742) 440,582 (544,588) Net equity and advances to/from subsidiaries 78,974 429,692 179,729 (609,421) 78,974 --------- --------- --------- --------- --------- Total liabilities and shareholders' deficit $ 180,248 $ 159,946 $ 133,534 $(168,839) $ 304,889 ========= ========= ========= ========= =========
31 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
Thermadyne Total Total LLC Guarantors Non-Guarantors Eliminations Total ---------- ---------- -------------- ------------ --------- Net sales $ -- $ 71,586 $ 43,750 $(16,726) $ 98,610 Operating expenses: Cost of goods sold -- 46,740 32,282 (16,924) 62,098 Selling, general and administrative expenses -- 17,538 7,504 -- 25,042 Amortization of intangibles -- 118 75 -- 193 Net periodic postretirement benefits -- 288 -- -- 288 Special charges -- 636 -- -- 636 -------- -------- -------- -------- -------- Operating income -- 6,266 3,889 198 10,353 Other income (expense): Interest expense -- (5,200) (311) 294 (5,217) Amortization of deferred financing costs -- (735) -- -- (735) Equity in net loss of subsidiaries (576) -- -- 576 -- Other -- 169 (1,278) (294) (1,403) -------- -------- -------- -------- -------- Income (loss) before reorganization items and income tax provision (576) 500 2,300 774 2,998 Reorganization items -- 3,530 -- -- 3,530 -------- -------- -------- -------- -------- Income (loss) before income tax provision (576) (3,030) 2,300 774 (532) Income tax provision -- 32 12 -- 44 -------- -------- -------- -------- -------- Net loss $ (576) $ (3,062) $ 2,288 $ 774 $ (576) ======== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
Thermadyne Total Total LLC Guarantors Non-Guarantors Eliminations Total ---------- ---------- -------------- ------------ --------- Net sales $ -- $ 84,964 $ 39,531 $ (17,781) $ 106,714 Operating expenses: Cost of goods sold -- 59,588 31,492 (18,243) 72,837 Selling, general and administrative expenses -- 17,155 6,834 -- 23,989 Amortization of intangibles -- 365 205 -- 570 Net periodic postretirement benefits -- 288 -- -- 288 Special charges -- 4,349 51 -- 4,400 --------- --------- --------- --------- --------- Operating income -- 3,219 949 462 4,630 Other income (expense): Interest expense -- (13,070) (1,493) 252 (14,311) Amortization of deferred financing costs -- (736) -- -- (736) Equity in net loss of subsidiaries (14,036) -- -- 14,036 -- Other -- (401) (696) (626) (1,723) --------- --------- --------- --------- --------- Income (loss) before reorganization items and income tax provision (14,036) (10,988) (1,240) 14,124 (12,140) Reorganization items -- 1,870 -- -- 1,870 --------- --------- --------- --------- --------- Income (loss) before income tax provision (14,036) (12,858) (1,240) 14,124 (14,010) Income tax (benefit) provision -- (33) 59 -- 26 --------- --------- --------- --------- --------- Net loss $ (14,036) $ (12,825) $ (1,299) $ 14,124 $ (14,036) ========= ========= ========= ========= =========
32 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
Thermadyne Total Total LLC Guarantors Non-Guarantors Eliminations Total ---------- ---------- -------------- ------------ --------- Net sales $ -- $ 234,832 $ 122,360 $ (47,819) $ 309,373 Operating expenses: Cost of goods sold -- 150,150 95,182 (47,841) 197,491 Selling, general and administrative expenses -- 57,677 20,700 -- 78,377 Amortization of intangibles -- 600 167 -- 767 Net periodic postretirement benefits -- 864 -- -- 864 Special charges -- 2,436 -- -- 2,436 --------- --------- --------- --------- --------- Operating income -- 23,105 6,311 22 29,438 Other income (expense): Interest expense -- (14,900) (2,799) 846 (16,853) Amortization of deferred financing costs -- (2,205) -- -- (2,205) Equity in net loss of subsidiaries (3,768) -- -- 3,768 -- Other -- (550) (1,641) (846) (3,037) --------- --------- --------- --------- --------- Income (loss) before reorganization items and income tax provision (3,768) 5,450 1,871 3,790 7,343 Reorganization items -- 9,577 -- -- 9,577 --------- --------- --------- --------- --------- Income (loss) before income tax provision (3,768) (4,127) 1,871 3,790 (2,234) Income tax provision -- 234 1,300 -- 1,534 --------- --------- --------- --------- --------- Net loss $ (3,768) $ (4,361) $ 571 $ 3,790 $ (3,768) ========= ========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Thermadyne Total Total LLC Guarantors Non-Guarantors Eliminations Total ---------- ---------- -------------- ------------ --------- Net sales $ -- $ 271,513 $ 127,336 $ (60,394) $ 338,455 Operating expenses: Cost of goods sold -- 181,857 103,187 (60,444) 224,600 Selling, general and administrative expenses -- 52,035 21,990 -- 74,025 Amortization of intangibles -- 1,087 524 -- 1,611 Net periodic postretirement benefits -- 837 -- -- 837 Special charges -- 13,025 603 -- 13,628 --------- --------- --------- --------- --------- Operating income -- 22,672 1,032 50 23,754 Other income (expense): Interest expense -- (41,422) (5,461) 1,385 (45,498) Amortization of deferred financing costs -- (2,206) -- -- (2,206) Equity in net loss of subsidiaries (32,063) -- -- 32,063 -- Other -- (152) (133) (2,323) (2,608) --------- --------- --------- --------- --------- Income (loss) before reorganization items and income tax provision (32,063) (21,108) (4,562) 31,175 (26,558) Reorganization items -- 3,829 -- -- 3,829 --------- --------- --------- --------- --------- Income (loss) before income tax provision (32,063) (24,937) (4,562) 31,175 (30,387) Income tax provision -- 255 1,421 -- 1,676 --------- --------- --------- --------- --------- Net loss $ (32,063) $ (25,192) $ (5,983) $ 31,175 $ (32,063) ========= ========= ========= ========= =========
33 THERMADYNE MFG. LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
Thermadyne Total Total LLC Guarantors Non-Guarantors Eliminations Total ---------- ---------- -------------- ------------ --------- Net cash provided by (used in) operating activities $ (4,224) $ (285) $ 5,011 $ 3,790 $ 4,292 Cash flows used in investing activities: Capital expenditures, net -- (4,384) (2,138) -- (6,522) Change in other assets -- (726) (30) -- (756) -------- -------- -------- -------- -------- Net cash used in investing activities -- (5,110) (2,168) -- (7,278) Cash flows provided by (used in) financing activities: Changes in long-term receivables -- -- 319 -- 319 Borrowing under debtor-in-possession facility 1,500 -- -- -- 1,500 Repayment of long-term obligations -- (138) (4,109) -- (4,247) Borrowing of long-term obligations 130 -- 3,259 -- 3,389 Change in accounts receivable securitization -- -- -- -- -- Financing fees -- -- -- -- -- Change in net equity and advances to/from subsidiaries 2,594 (2,408) 3,604 (3,790) -- Other -- 5,199 (4,953) -- 246 -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities 4,224 2,653 (1,880) (3,790) 1,207 -------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents -- (2,742) 963 -- (1,779) Cash and cash equivalents at beginning of period -- 7,332 7,468 -- 14,800 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ -- $ 4,590 $ 8,431 $ -- $ 13,021 ======== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Thermadyne Total Total LLC Guarantors Non-Guarantors Eliminations Total ---------- ---------- -------------- ------------ --------- Net cash (used in) provided by operating activities $(16,826) $(22,855) $ 933 $ 31,175 $ (7,573) Cash flows provided by (used in) investing activities: Capital expenditures, net -- (9,063) (2,940) -- (12,003) Change in other assets -- (78) (33) -- (111) -------- -------- -------- -------- -------- Net cash used in investing activities -- (9,141) (2,973) -- (12,114) Cash flows provided by (used in) financing activities: Changes in long-term receivables -- 543 (1,030) -- (487) Repayment of long-term obligations (5,193) (87) (4,755) -- (10,035) Borrowing of long-term obligations 35,000 -- 5,007 -- 40,007 Change in accounts receivable securitization -- 3,015 -- -- 3,015 Financing fees -- -- 40 -- 40 Change in net equity and advances to/from subsidiaries (13,011) 38,723 5,463 (31,175) -- Other 30 (4) (230) -- (204) -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities 16,826 42,190 4,495 (31,175) 32,336 -------- -------- -------- -------- -------- Net increase in cash and cash equivalents -- 10,194 2,455 -- 12,649 Cash and cash equivalents at beginning of period -- 4,536 5,826 -- 10,362 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ -- $ 14,730 $ 8,281 $ -- $ 23,011 ======== ======== ======== ======== ========
34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Thermadyne, through its subsidiaries, is engaged in the design, manufacture and distribution of cutting and welding products and accessories. Since 1994, the Company has embarked on a strategy designed to focus its business exclusively on the cutting and welding industry and enhance the Company's market position within that industry. BANKRUPTCY FILING On November 19, 2001, the Company and substantially all of its domestic subsidiaries, including Thermadyne LLC and Thermadyne Capital (collectively, the "Debtors"), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Missouri (the "Court".) The filing resulted from insufficient liquidity, and was determined to be the most efficient and favorable alternative to restructure the Company's balance sheet. Since 1998, the Company's operating results have been negatively impacted by a weak industrial economy in the U.S. as well as difficult economic conditions in most of its foreign markets. The deterioration of operating results and liquidity made it increasingly difficult for the Company to meet all of its debt service obligations. Prior to filing Chapter 11, the Company failed to make the semi-annual interest payments on the 10.75% subordinated notes, due November 1, 2003 (the "Subordinated Notes"), which were due on May 1 and November 1, 2001, and totaled approximately $4.0 million. In addition, the Company failed to make an interest payment in the amount of $10.2 million related to the 9.875% senior subordinated notes, due June 1, 2008 (the "Senior Subordinated Notes"), which was due on June 1, 2001. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre-petition debt, including the Senior Subordinated Notes and the Subordinated Notes, except pursuant to a confirmed plan of reorganization. The Company is in possession of its properties and assets and continues to manage the business as a debtor-in-possession subject to the supervision of the Court. The Company has a $60 million debtor-in-possession credit facility in place (see Liquidity and Capital Resources.) As of December 1, 2001, the Company discontinued accruing interest on the Senior Subordinated Notes, the Subordinated Notes, the 12.5% debentures, due June 1, 2008 (the "Debentures"), and the 15% junior subordinated notes, due December 15, 2009 (the "Junior Notes"), and ceased accruing dividends on its redeemable preferred stock. Contractual interest on the Senior Subordinated Notes, the Subordinated Notes, the Debentures and the Junior Notes for the quarter ended September 30, 2002, was $5.1 million, $1.0 million, $4.8 million and $1.4 million, respectively, and for the nine months ended September 30, 2002, was $15.3 million, $3.0 million, $14.0 million and $3.9 million, respectively. No interest was recorded for the Senior Subordinated Notes, the Subordinated Notes, the Debentures or the Junior Notes during the three or nine-month periods ended September 30, 2002. Contractual dividends for the redeemable preferred stock were $2.7 million and $8.0 million for the three and nine months ended September 30, 2002, respectively, but no dividends were recorded during these periods. As part of the Court order approving the DIP Facility, the Company is required to continue making periodic interest payments on its old syndicated senior secured credit agreement (the "Old Credit Agreement.") This order did not approve the payment of any principal outstanding under the Old Credit Facility as of the petition date, or the payment of any future mandatory amortization of the loans. In total, contractual interest on 35 the Company's obligations was $17.5 million and $53.1 million, for the three and nine-month periods ended September 30, 2002, respectively, which was $12.3 million and $36.2 million in excess of reported interest, respectively. Pursuant to the provisions of the Bankruptcy Code, all actions to collect upon any of the Debtors' liabilities as of the petition date or to enforce pre-petition date contractual obligations were automatically stayed. Absent approval from the Court, the Debtors are prohibited from paying pre-petition obligations. However, the Court has approved payment of certain pre-petition liabilities such as employee wages and benefits and certain other pre-petition obligations. Additionally, the Court has approved the retention of legal and financial professionals. Claims were allowed to be filed against the Debtors through April 19, 2002. As debtor-in-possession, the Company has the right, subject to Court approval and certain other conditions, to assume or reject any pre-petition executory contracts and unexpired leases. Parties affected by such rejections may file pre-petition claims with the Court in accordance with bankruptcy procedures. The Company is currently developing a plan of reorganization (the "Plan of Reorganization") through, among other things, discussions with the official creditor's committee appointed in the Chapter 11 proceedings and the lenders. The objective of the Plan of Reorganization is to restructure the Company's balance sheet to significantly strengthen the Company's financial position. Management expects that a Plan of Reorganization will be completed and ready to file with the Court during the fourth calendar quarter of 2002. Although management expects to file the Plan of Reorganization, there can be no assurance at this time that a Plan of Reorganization will be proposed by the Company, approved or confirmed by the Court, or that such plan will be consummated. On October 30, 2002, the Court approved the Company's motion to extend the period during which the Debtors may file a Plan of Reorganization through November 18, 2002. If the exclusivity period were to expire or be terminated, other interested parties, such as creditors of the Debtors, would have the right to propose alternative plans of reorganization. The Company's financial statements do not present the amount which may ultimately be paid to settle liabilities and contingencies which may be allowed in the Chapter 11 case. Under Chapter 11, the rights of, and ultimate payment by the Company to, pre-petition creditors may be substantially altered. This could result in claims being paid in the Chapter 11 proceedings at less (and possibly substantially less) than 100% of their face value. At this time, because of material uncertainties, pre-petition claims are carried at face value in the accompanying financial statements, and are included in the line "liabilities subject to compromise" on the consolidated balance sheets. Additionally, the interests of existing preferred and common shareholders could be substantially diluted or even eliminated. OVERVIEW The following is a discussion and analysis of the condensed consolidated financial statements of Company. The Company conducts its operations through its wholly-owned subsidiary Thermadyne LLC. The accompanying condensed consolidated financial statements for the Company and Thermadyne LLC are substantially the same except for certain debt and equity securities issued by the Company, and therefore, a separate discussion of Thermadyne LLC is not presented. Included in the following discussions are comparisons of Adjusted EBITDA which is defined as net income or loss plus depreciation, amortization of goodwill, amortization of intangibles, net periodic postretirement benefits expense, interest expense, income taxes, amortization of deferred financing costs, any net loss realized in connection with the sale of any asset, any extraordinary loss or the non-cash 36 portion of non-recurring expenses, and reorganization costs; minus any extraordinary gain. Adjusted EBITDA is a key financial measure but should not be construed as an alternative to operating income or cash flows from operating activities (as determined in accordance with generally accepted accounting principles.) Adjusted EBITDA is also one of the financial measures by which the Company's compliance with its covenants is calculated under the DIP Facility. The Company believes that Adjusted EBITDA is a useful supplement to net income (loss) and other consolidated statement of operations data in understanding cash flows generated from operations that are available for taxes, debt service and capital expenditures. However, the Company's method of computation may or may not be comparable to other similarly titled measures of other companies. In addition, Adjusted EBITDA is not necessarily indicative of amounts that may be available for discretionary uses and does not reflect any legal or contractual restrictions on the Company's use of funds. The statements in this Quarterly Report on Form 10-Q that relate to future plans, events or performance are forward-looking statements. Actual results could differ materially due to a variety of factors and the other risks described in this Quarterly Report and the other documents the Company files from time to time with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or that reflect the occurrence of unanticipated events. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001 Net sales of the three-month period ended September 30, 2002, were $98.6 million, which was a decrease of 7.6% from net sales of $106.7 million for the same three-month period in 2001. Poor economic conditions, primarily in the U.S., continued during the third quarter and were the primary reason for the decline compared to 2001. Domestic sales were $56.4 million for the third quarter compared to $66.4 million for the same period last year, which is a decrease of 15.0%. The weak industrial economy in the U.S. hampered demand throughout the third quarter of 2002. International sales were $42.2 million for the three months ended September 30, 2002, compared to $40.3 million for the same three-month period in 2001, which is an increase of 4.6%. Europe and Australia had solid sales growth in the third quarter, and were 16.5% and 9.1% over the comparable quarter in 2001, respectively. This increase in sales was partially offset by sales declines in Latin America and Canada, which were down compared to the third quarter of 2001 by 14.7% and 3.1%, respectively. Cost of goods sold was 63.0% of sales for the three-month period ended September 30, 2002, which compares to 68.3% for the same quarterly period in 2001. This favorable change results primarily from various cost reduction initiatives such as the Company's efforts to relocate production to locations with lower labor costs and plant consolidation efforts. Selling, general and administrative expenses were $25.0 million for the three-month period ended September 30, 2002, or 4.4% more than the same three-month period in 2001. As a percentage of sales, selling, general and administrative expenses were 25.4% for quarter ended September 30, 2002, versus 22.5% for the three months ended September 30, 2001. The increase in selling, general and administrative expenses compared to 2001 results primarily from higher costs related to the Company's 37 information technology infrastructure and investments made related to certain sales and marketing initiatives. Special charges incurred during the three months ended September 30, 2002 include $0.5 million related to an information technology transformation project and $0.1 million related to logistics initiatives. Included in special charges for the three months ended September 30, 2001, are costs of approximately $4.2 million related to the information technology and a business reengineering project with the remaining costs attributable to the relocation of production to Mexico and Asia. Reorganization items for the three-month period ended September 30, 2002, include $3.0 million of professional fees and expenses, $0.4 million of expenses related to financing fees associated with the DIP Facility, and $0.1 million of other reorganization costs. Reorganization costs in 2001 consisted primarily of professional fees and expenses. Interest expense for the third quarter of 2002 was $5.2 million, which compares to $19.6 million for the third quarter of 2001. The difference relates primarily to interest on the Senior Subordinated Notes, the Subordinated Notes, the Debentures and the Junior Notes, which the Company ceased accruing on December 1, 2001. The income tax provision recorded on pretax loss of $0.6 million for the three months ended September 30, 2002, relates primarily to foreign taxable income. The income tax provision differs from that determined by applying the U.S. federal statutory rate primarily due to nondeductible expenses and the disallowance of foreign losses. The income tax provision recorded in the three-month period ended September 30, 2001, on a pre-tax loss of $19.3 million relates mostly to foreign taxable income. The income tax provision differs from that determined by applying the U.S. federal statutory rate primarily due to nondeductible expenses and the disallowance of foreign losses. Adjusted EBITDA for the third quarter of 2002 was $13.7 million compared to $6.7 million for the same quarter in 2001, for an increase of 104.0%. NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001 Net sales for the first nine months of 2002 were $309.4 million compared to $338.5 million for the same nine-month period in 2001, or a decrease of 8.6%. Domestic sales for the nine months ended September 30, 2002, were $186.4 million, which is a decline of 11.8% compared to net sales of $211.3 million for the nine months ended September 30, 2001. Generally weak economic conditions in the U.S., particularly in the industrial sector, are the main reason for the decrease in sales. International sales were $123.0 million for the nine months ended September 30, 2002, or 3.3% lower than sales of $127.1 million for the same period in 2001. Europe and Australia had modest increases in sales compared to the nine months of 2001, but were more than offset by declines in all other key international markets. Similar to the U.S., most of the Company's major international markets have suffered from poor economic conditions throughout most of 2002. Cost of goods sold was 63.8% of sales for the nine months ended September 30, 2002, which compares to 66.4% for the same nine-month period in 2001. This improvement results from the Company's cost reduction efforts such as increasing automation, moving production to locations with lower labor costs, and plant consolidations. 38 Selling, general and administrative expenses were $78.4 million for the nine months ended September 30, 2002, which is 5.9% higher than the comparable period in 2001. As a percentage of sales, selling, general and administrative expenses were 25.3% for the first three quarters of 2002 versus 21.9% for the nine months ended September 30, 2001. The increase in selling, general and administrative expenses compared to 2001 results primarily from higher costs related to the Company's information technology infrastructure and investments made related to certain sales and marketing initiatives. Also increasing selling, general and administrative expenses in the nine-month period ended September 30, 2002, was approximately $2.0 million accrued related to the Company's management incentive plan. No similar expense was recorded in the comparable nine-month period in 2001. The increase in selling, general and administrative expenses as a percentage of sales results partly to the decline in sales as certain expenses are fixed and do not fluctuate with revenue. Special charges for the nine months ended September 30, 2002, include $1.9 million related to an information technology transformation initiative and $0.5 related to logistics projects. For the nine months ended September 30, 2001, special charges include $2.2 million related to the relocation of production to Mexico and Asia, $10.1 million related to information technology and related business process reengineering projects with the balance of $1.3 million related primarily to severance. Reorganization items for the nine months ended September 30, 2002, include $6.9 million of professional fees and expenses, $1.4 million of expenses related to financing fees associated with the DIP Facility, $0.4 million associated with a lease obligation that was rejected, $0.3 million related to payments under the key employee retention plan approved by the Court, and $0.6 million of other reorganization costs. Reorganization costs in 2001 consisted primarily of professional fees and expenses. Interest expense for the first nine months of 2002 was $16.9 million, which compares to $60.9 million for the same period in 2001. The difference relates mostly to interest on the Senior Subordinated Notes, the Subordinated Notes, the Debentures and the Junior Notes, which the Company ceased accruing on December 1, 2001. An income tax provision of $1.5 million was recorded on a pretax loss of $2.3 million for the nine months ended September 30, 2002. The income tax provision differs from that determined by applying the U.S. federal statutory rate primarily due to nondeductible expenses and the disallowance of foreign losses. An income tax provision of $1.7 million was recorded on a pretax loss of $45.9 million for the nine months ended September 30, 2001. The income tax provision differs from that determined by applying the U.S. federal statutory rate primarily due to nondeductible expenses and the disallowance of foreign losses. Adjusted EBITDA through the third quarter of 2002 was $39.9 million compared to $34.4 million for the same period in 2001, or an increase of 15.9%. LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL AND CASH FLOWS Operating activities provided $4.5 million of cash during the first nine months of 2002, which compares to cash used of $7.4 million during the same time period in 2001. Earnings, after adjusting for non-cash expenses, were $11.9 million for the nine months ended September 30, 2002, compared to a loss of $15.8 million for the comparable time frame in 2001. This difference results primarily from lower interest costs. Operating assets and liabilities used $7.5 million of cash in the nine-month period ended September 30, 2002, compared to 39 cash provided of $8.4 million during the same period last year. Inventory has used $8.2 million of cash through the first nine months of 2002, which compared to cash provided of $2.1 million during the same nine-month period last year. The increase in inventory results primarily from increasing stock levels in regional warehouses in the U.S., increasing safety stock levels, and stock added related to new product introductions. Accounts payable provided $0.3 million of cash in the first three quarters of 2002, or approximately $12.8 million more than the same period in 2001. Absent approval from the Court, the Company is prohibited from paying pre-petition obligations including trade accounts payable. Accordingly, the amount of accounts payable recorded as of the petition date has not changed significantly. The increase in payables results from the Company's efforts to negotiate normal payment terms with some of its vendors. Accrued interest used $0.5 million of cash during the nine-month period ended September 30, 2002, compared to cash provided of $18.2 million in 2001. The Company ceased recording interest on the Senior Subordinated Notes and the Subordinated Notes effective December 1, 2001, which is the primary reason for this difference. Investing activities used $7.3 million during the nine months ended September 30, 2002, which compares to $12.1 million for the same period in 2001. Capital expenditures were $6.5 million during the nine months ended September 30, 2002, which is $5.5 million less than was spent during the same period last year. The difference relates primarily to expenditures made in 2001 as the Company pushed toward more automation in its factories. Financing activities provided $1.0 million during the nine months ended September 30, 2002 compared to cash provided of $32.2 million during the same period last year. This difference results primarily from net long-term borrowings, which were $30.0 million during the first three quarters of 2001 compared to $0.6 million during the nine months ended September 30, 2002. The Company also generated $3.0 million of cash from its accounts receivable securitization program during the first three quarters of last year. As a result of the Chapter 11 filing, this program liquidated and was fully funded by December 31, 2001. Operating cash disbursements for the nine months ended September 30, 2002, related to the reorganization were $8.6 million and include $6.9 million of professional fees and expenses, $0.4 million of fees related to the DIP Facility, $0.3 million of payments made under the key employee retention plan approved by the Court, $0.4 million related to a rejected lease obligation, and $0.6 million of other reorganization related disbursements. For the nine months ended September 30, 2001, operating cash disbursements related to the reorganization were $3.8 million and included approximately $3.2 million of professional fees and expenses, $0.5 million of bank fees and $0.1 million of other reorganization items. LIQUIDITY The Company's principal uses of cash will be debt service requirements under the DIP Facility and the Old Credit Facility, capital expenditures, and working capital. The Company expects that ongoing requirements for debt service, capital expenditures and working capital will be funded from operating cash flow and borrowings under the DIP Facility. The DIP Facility provides for total borrowings of $60 million, of which up to $15 million may be used for letters of credit. Actual borrowing availability is subject to a borrowing base calculation, which is equal to the sum of approximately 85% of eligible accounts receivable, 50% of eligible inventory and 72% of eligible fixed assets. As of September 30, 2002, the Company's eligible accounts receivable, inventories and fixed assets supported access to the full amount of the DIP Facility less outstanding borrowings and letters of credit. Interest on the DIP Facility accrued at the administrative agent's adjusted base rate plus 2.25% in the case of alternate base rate loans, and at an adjusted London Interbank Offered Rate ("LIBOR") plus 3.5% in the case of LIBOR loans. The DIP Facility is secured by substantially all the 40 assets of the Debtors, including a pledge of the capital stock of substantially all their subsidiaries, subject to certain limitations with respect to foreign subsidiaries. The DIP Facility contains financial covenants, including minimum levels of EBITDA (defined as net income or loss plus depreciation, amortization of goodwill, amortization of intangibles, net periodic postretirement benefits expense, interest expense, income taxes amortization of deferred financing costs, any net loss realized in connection with the sale of any asset, any extraordinary loss or the non-cash portion of non-recurring expenses, and reorganization costs; minus any extraordinary gain) and other customary provisions. The DIP Facility expires on the earlier of the consummation of a plan of reorganization or November 21, 2002. On November 1, 2002, the Debtors filed a motion with the Court to amend the DIP Facility to extend its expiration date to May 21, 2003. In addition, the motion to amend the DIP Facility would lower the total capacity from $60 million to $50 million. All other terms of the DIP Facility would remain substantially the same. On November 15, 2002, the Court will hear this motion for extension. The Company also expects its lenders to approve the extension of the DIP Facility prior to November 21, 2002. As of September 30, 2002, the Company had borrowed $10.2 million and issued letters of credit of $8.4 million under the DIP Facility, resulting in availability of approximately $41.4 million. The Old Credit Facility bears interest, at Thermadyne LLC's option, at the administrative agent's alternative base rate or at the reserve-adjusted LIBOR plus, in each case, applicable margins of (i) in the case of alternative base rate loans, (x) 1.5% for revolving and Term A loans, (y) 1.75% for Term B loans and (z) 2.00% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.75% for revolving and Term A loans, (y) 3.00% for Term B loans and (z) 3.25% for Term C loans. At September 30, 2002, the Company had outstanding $79.4 million in Term A loans, $108.6 million in Term B loans, $108.6 million in Term C loans, and $58.6 million of loans under the revolver. In addition, there was $3.5 million of letters of credit outstanding under the Old Credit Facility. As part of the Court order approving the DIP Facility, the Company was required to continue making periodic interest payments on the Old Credit Facility. This order did not approve the payment of any principal outstanding under the Old Credit Facility as of the petition date, or the payment of any future mandatory amortization of the loans. As a result of the Chapter 11 filing and other ongoing covenant violations, the Company has no borrowing availability under the Old Credit Agreement. At September 30, 2002, the Company had outstanding $207.0 million of Senior Subordinated Notes, $37.1 million of Subordinated Notes, $145.1 million of Debentures and $33.4 million of Junior Notes. On December 1, 2001, the Company ceased accruing interest on all of these obligations. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre-petition debt, including the Senior Subordinated Notes and the Subordinated Notes, except pursuant to a confirmed Plan of Reorganization. The Company expects its operating cash flow, together with borrowings under the DIP Facility, will be sufficient to meet its anticipated future operating expenses and capital expenditures and the debt service requirements of the DIP Facility and Old Credit Facility, as allowed by the Court, as they become due. However, the Company's ability to generate sufficient cash flow to meet its operating needs will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond its control. 41 CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. The Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of a date within 90 days before the filing date of this quarterly report. Based on that evaluation, the CEO and CFO have concluded that the Company's current disclosure controls and procedures are effective in timely providing them with material information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act. (b) Changes in internal controls. There have not been any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses, and therefore no corrective actions were taken. 42 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits Thermadyne Holdings Corporation ------------------------------- 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 Thermadyne Mfg. LLC ------------------- 99.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 99.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 Thermadyne Capital Corp. ------------------------ 99.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 99.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 b) Reports on Form 8-K None 43 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THERMADYNE HOLDINGS CORPORATION By: /s/ Karl R. Wyss --------------------------------------- Karl R. Wyss Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ James H. Tate --------------------------------------- James H. Tate Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 14, 2002 44 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THERMADYNE MFG. LLC By: /s/ Karl R. Wyss --------------------------------------- Karl R. Wyss Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ James H. Tate --------------------------------------- James H. Tate Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 14, 2002 45 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THERMADYNE CAPITAL CORP. By: /s/ Karl R. Wyss --------------------------------------- Karl R. Wyss Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ James H. Tate --------------------------------------- James H. Tate Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 14, 2002 46 CERTIFICATIONS I, Karl R. Wyss, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Thermadyne Holdings Corporation. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements and other financial information included in the quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the Audit Committee of the registrant's Board of Directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ KARL R. WYSS ----------------------------------- Karl R. Wyss Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: November 14, 2002 47 CERTIFICATIONS I, James H. Tate, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Thermadyne Holdings Corporation. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements and other financial information included in the quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the Audit Committee of the registrant's Board of Directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ JAMES H. TATE ----------------------------------- James H. Tate Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 14, 2002 48 CERTIFICATIONS I, Karl R. Wyss, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Thermadyne Mfg. LLC. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements and other financial information included in the quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the Audit Committee of the registrant's Board of Directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ KARL R. WYSS ----------------------------------- Karl R. Wyss Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: November 14, 2002 49 CERTIFICATIONS I, James H. Tate, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Thermadyne Mfg LLC. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements and other financial information included in the quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the Audit Committee of the registrant's Board of Directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ JAMES H. TATE ----------------------------------- James H. Tate Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 14, 2002 50 CERTIFICATIONS I, Karl R. Wyss, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Thermadyne Capital Corp. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements and other financial information included in the quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the Audit Committee of the registrant's Board of Directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ KARL R. WYSS ----------------------------------- Karl R. Wyss Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: November 14, 2002 51 CERTIFICATIONS I, James H. Tate, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Thermadyne Capital Corp. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements and other financial information included in the quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the Audit Committee of the registrant's Board of Directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ JAMES H. TATE ----------------------------------- James H. Tate Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 14, 2002 52 EXHIBIT INDEX
EXHIBITS DESCRIPTION -------- ----------- Thermadyne Holdings Corporation ------------------------------- 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 Thermadyne Mfg. LLC ------------------- 99.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 99.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 Thermadyne Capital Corp. ------------------------ 99.5 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 99.6 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002