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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-23378
THERMADYNE HOLDINGS CORPORATION
(Exact name of Registrant as Specified in its Charter)
<Table>
DELAWARE 74-2482571
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</Table>
COMMISSION FILE NUMBER 333-57457
THERMADYNE MFG. LLC
(Exact name of Registrant as Specified in its Charter)
<Table>
DELAWARE 74-2878452
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</Table>
COMMISSION FILE NUMBER 333-57457
THERMADYNE CAPITAL CORP.
(Exact name of Registrant as Specified in its Charter)
<Table>
DELAWARE 74-2878453
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</Table>
<Table>
101 S. HANLEY, SUITE 600 63105
ST. LOUIS, MISSOURI (ZIP Code)
(Address of Principal Executive Offices)
</Table>
Registrant's telephone number, including area code: (314) 721-5573
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
Common Stock, par value $0.01 per share
Indicate by checkmark whether the registrants: (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: approximately $80,000 based on the closing sales price of the
Common Stock, on March 18, 2002.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 3,590,286 shares of
Common Stock, outstanding at March 18, 2002.
Thermadyne Mfg. LLC and Thermadyne Capital Corp. meet the conditions set
forth in General Instruction I 1(a) and (b) of Form 10-K and are therefore
filing this form with the reduced disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The statements in this Annual Report on Form 10-K that relate to future
plans, events or performance are forward-looking statements. Actual results
could differ materially due to a variety of factors and the other risks
described in this Annual Report and the other documents the Company files from
time to time with the Securities and Exchange Commission. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect events or circumstances after the date hereof or that reflect
the occurrence of unanticipated events.
PART I
ITEM 1. BUSINESS.
GENERAL
Thermadyne Holdings Corporation, a Delaware corporation ("Thermadyne" or
the "Company"), is a leading global manufacturer of cutting and welding products
and accessories. The Company manufactures a broad range of gas (oxy-fuel) and
electric arc cutting and welding products that are ultimately sold to end-user
customers principally engaged in the aerospace, automotive, construction, metal
fabrication, mining, mill and foundry, petroleum and shipbuilding industries.
Thermadyne Mfg. LLC ("Thermadyne LLC") is wholly owned by, and the principal
operating subsidiary of, the Company, and Thermadyne Capital Corp. ("Thermadyne
Capital") is a wholly owned subsidiary of Thermadyne LLC.
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 "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. 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.
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As of December 31, 2001, the Company's eligible accounts receivable, inventories
and fixed assets supported access to $58.0 million of the DIP Facility. As of
December 31, 2001, the Company had borrowed $8.7 million and issued letters of
credit of $0.1 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, 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), 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 year
ended December 31, 2001, was $20.4 million, $4.0 million, $16.7 million and $4.7
million, respectively. Interest recorded for the Senior Subordinated Notes, the
Subordinated Notes, the Debentures and the Junior Notes was $18.7 million, $3.7
million, $15.2 million and $4.3 million, respectively. Contractual dividends for
the redeemable preferred stock were $9.5 million for the year ended December 31,
2001, which compares to recorded dividends of $8.7 million. 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 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. In total,
contractual interest on the Company's obligations was $80.3 million for the year
ended December 31, 2001, which was $4.0 million in excess of reported interest.
Pursuant to the provisions of the Bankruptcy Code, substantially 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 against the Debtors may be filed with
the Court through April 19, 2002. As debtor-in-possession, the Debtors have 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 second 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. The Company has moved the Court to extend the period during which
the Debtors may file a Plan of Reorganization through July 1, 2002. On April 2,
2001, the Court will consider the Company's motion for such extension. There can
be no assurance that the Court will grant such extension. 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.
Although the Chapter 11 filing raises substantial doubt 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
3
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 percent 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 sheet. Additionally, the
interests of existing preferred and common shareholders could be substantially
diluted or even eliminated. Further information about the financial impact of
the Chapter 11 filing is set forth in Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations and in the notes to
the financial statements.
ACQUISITIONS
In 2000, the Company made the following two acquisitions. On April 13, the
Company, through a 90% owned subsidiary, acquired all the assets of Unique
Welding Alloys ("Unique"), a business that sells industrial gases, welding
equipment and accessories to the retail end-user trade, and on November 9, the
Company, through a 90% owned subsidiary, acquired all the assets of Maxweld &
Braze (Pty) Ltd. ("Maxweld"), a wholesale business that sells welding equipment
and accessories to distributors and the retail end-user trade. Both of these
businesses are located in Boksburg, South Africa. The aggregate consideration
paid for these two acquisitions was approximately $4.4 million and was financed
through existing bank facilities. These transactions were accounted for as
purchases.
In 1999 the Company made the following two acquisitions. On March 11, the
Company acquired all the issued and outstanding capital stock of Soltec S.A.
("Soltec"), a manufacturer of manual electrodes and tubular wires for hardfacing
and special applications, located in Santiago, Chile. On April 14, the Company
acquired all the issued and outstanding capital stock of Tecmo Sri ("Tecmo"), a
manufacturer of torches and plasma and laser consumables, located in Rastignano,
Italy. The aggregate consideration paid for these two acquisitions was
approximately $6 million and was financed through existing bank facilities.
These transactions were accounted for as purchases.
In 1998 the Company made the following four acquisitions. On September 1,
the Company acquired all the issued and outstanding capital stock of Thermadyne
Victor Ltda. (formerly known as Equi Solda SA) ("Victor Brazil"), a leading
manufacturer of gas cutting apparatus in Brazil. On July 24, the Company
acquired substantially all the assets of Mid-America Cryogenics Company
("Mid-America"), which specializes in the design, installation and service of
cryogenic equipment and is located in Indianapolis, Indiana. On May 21, the
Company acquired substantially all the assets of OCIM Srl ("OCIM"), a
manufacturer of a variety of arc welding accessories including metal inert gas
("MIG") and tungsten inert gas ("TIG") torches and consumables, located in
Milan, Italy. On February 1, the Company acquired substantially all the assets
of Pro-tip, a division of Settles Ground Support, Inc., a producer of low-cost
oxygen fuel cutting tips in Cuthbert, Georgia. The aggregate consideration paid
for these four acquisitions was approximately $19 million.
On May 22, 1998, the Company consummated (i) the merger (the "Merger") of
Mercury Acquisition Corporation ("Mercury"), a corporation organized by DLJ
Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and entities
(the "DLJMB Funds"), with and into the Company and (ii) the associated
recapitalization of the Company (collectively, the "Recapitalization"). The
DLJMB Funds acquired approximately 80.6% of the outstanding common stock, par
value $0.01 per share ("Common Stock") of the Company pursuant to such
transactions.
PRINCIPAL PRODUCTS AND MARKETS
The Company manufactures a broad range of both gas (oxy-fuel) and arc
cutting and welding equipment (including a line of advanced plasma arc cutting
systems and oxy-fuel apparatus), accessories and consumables, including repair
parts used in the cutting and welding industry. Gas cutting and welding torches
burn a mixture of oxygen and fuel gas, typically acetylene. Arc cutting and
welding systems are powered by
4
electricity. The major arc cutting and welding systems are plasma, stick and
metal inert gas ("MIG"). Arc technology is more sophisticated than gas
technology and can be used on more types of metals. In addition, arc equipment
produces less distortion in the surrounding metal and it cuts and welds faster,
reducing labor costs. However, gas technology is more portable and generally
less expensive than arc technology and therefore remains important in many
industries.
The Company conducts its operations through the following subsidiaries:
Thermal Dynamics -- Plasma Arc Cutting Products. Thermal Dynamics
Corporation ("Thermal Dynamics"), located in West Lebanon, New Hampshire and
founded in 1957, developed many of the early plasma cutting systems and
maintains its position as a leading manufacturer of plasma cutting systems and
replacement parts. Thermal Dynamics' product line ranges from a portable 12-amp
unit to large 1,000-amp units. Thermal Dynamics' end users are engaged primarily
in fabrication and repair of sheet metal and plate products found in fabricated
structural steel and nonferrous metals, automotive products, appliances, sheet
metal, heating, ventilation and air conditioning ("HVAC"), general fabrication,
shipbuilding and general maintenance.
Advantages of the plasma cutting process over other methods include faster
cutting speeds, the ability to cut ferrous and nonferrous alloys and minimum
heat distortion on the material being cut. Plasma cutting also permits metal
cutting using only compressed air and electricity.
Tweco -- Electric Arc Products and Arc Gouging Systems. Tweco Products,
Inc. ("Tweco"), located in Wichita, Kansas and founded in 1936, manufactures a
line of arc welding replacement parts and accessories, including electrode
holders, ground clamps, cable connectors, terminal connectors and lugs and cable
splicers, and a variety of automatic and semiautomatic welding guns and cable
assemblies utilized in the arc welding process. Tweco also manufactures manual
stick electrode holders, ground clamps and accessories. Manual stick welding is
one of the oldest forms of welding and is used primarily by smaller welding
shops which perform general repair, maintenance and fabrication work. Tweco's
end users are primarily engaged in the manufacture or repair and maintenance of
transportation equipment, including automobiles, trucks, aircraft, trains and
ships; the manufacture of a broad range of machinery; and the production of
fabricated metal products, including structural metal, hand tools and general
hardware.
Tweco is a leading domestic manufacturer of MIG welding guns. The MIG
process is an arc welding process utilized in the fabrication of steel,
aluminum, stainless steel and other metal products and structures. In the MIG
process, a small diameter consumable electrode wire is continuously fed into the
arc. The welding arc area is protected from the atmosphere by a "shielding" gas.
The welding guns and cable assemblies manufactured by Tweco carry the continuous
wire electrode, welding current and shielding gas to the welding arc. Tweco
manufactures a related line of robotic welding accessory products. This
accessory line includes, but is not limited to, a robotic torch with patented
consumables, a robotic deflection mount, a robotic cleaning station, robotic
arms and an anti-splatter misting system.
Through its Arcair product line, Tweco manufactures equipment and related
consumable materials for "gouging," a technique that liquefies metal in a narrow
groove and then removes it using compressed air.
Gouging products are often used in joint preparation prior to a welding
process. Numerous other applications exist for these gouging systems, such as
removal of defective welds, removal of trim in foundries and repair of track,
switches and freight cars in the railroad industry. Tweco also manufactures a
line of underwater welding and gouging equipment.
In addition to gouging products, Tweco produces a patented exothermic
cutting system, SLICE(R). This system generates temperatures in excess of 7000
degrees F and can quickly cut through steel, concrete and other materials.
SLICE(R) has many applications, including opening clogged steel furnaces and
providing rapid entry in fire and rescue operations. Tweco has developed an
underwater version of the SLICE(R) cutting system for use in the marine repair
and salvage industry.
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Tweco provides a complete line of chemicals used in the welding industry.
Chemicals are used for weld cleaning and as agents to reduce splatter adherence
on the metal being welded. Chemicals are also used to reduce splatter adherence
in welding nozzles in MIG applications.
Victor -- Oxy-Fuel Gas Products. Victor Equipment Company ("Victor") has
plants in Abilene and Denton, Texas and Hermosillo, Sonoro, Mexico, and was
founded in 1913. Victor is a leading domestic manufacturer of gas-operated
cutting and welding torches and gas and flow pressure regulation equipment.
Victor's torches are used to cut ferrous metals and to weld, heat, solder and
braze a variety of metals, and its regulation equipment is used to control
pressure and flow of most industrial and specialty gases. In addition, Victor
manufactures a variety of replacement parts, including welding nozzles and
cutting tips of various types and sizes and a line of specialty gas regulators
purchased by end users in the process control, electronics and other industries.
Victor also manufactures a wide range of medical regulation equipment serving
the oxygen therapy market, including home health care and hospitals.
The torches produced by Victor are commonly referred to as oxy-fuel
torches. These torches combine a mixture of oxygen and a fuel gas, typically
acetylene, to produce a high-temperature flame. These torches are designed for
maximum durability, repairability and performance utilizing patented built-in
reverse flow check valves and flash arresters in several models. Victor also
manufactures lighter-duty handheld heating, soldering and brazing torches.
Pressure regulators, which are basically diaphragm valves, serve a broad range
of industrial and specialty gas process control operations.
The principal uses of the Victor torch are cutting steel in metal
fabricating applications such as shipbuilding, construction of oil refineries,
power plants and manufacturing facilities, and welding, heating, brazing and
cutting in connection with maintenance of machinery, equipment and facilities.
Victor sells its lighter-duty products to end-user customers principally
engaged in the plumbing, refrigeration and heating, ventilation and air
conditioning industries. The relative low cost, mobility and ease of use of
Victor torches make them suitable for a wide variety of uses.
Cigweld -- Electric Arc Products, Oxy-Fuel Products, Filler Metals, Gas
Control Products and Safety Products. The business now known as Cigweld, located
in Melbourne, Australia, and founded in 1922, is the leading Australian
manufacturer of gas equipment and welding products.
Cigweld manufactures arc welding equipment products for both the automatic
arc and manual arc welding markets. The Cigweld range of automatic welding
equipment includes packages specifically designed for particular market
segments. End users of this product range include the rural market and the
vehicle repair, metal fabrication, shipbuilding, general maintenance and heavy
industries. Manual arc equipment products range from small welders designed for
the home handyman to units designed for heavy industry.
Cigweld manufactures a range of consumable products (filler metals) for
manual and automatic arc and gas welding. The range of manual arc electrodes
includes over 50 individual electrodes for different applications. Cigweld
markets its manual arc electrodes under such brand names as Satincraft,
Weldcraft, Ferrocraft(R), Alloycraft(R), Satincrome, Cobalarc(R), Castcraft and
Weldall(R).
For automatic and semiautomatic welding applications, Cigweld manufactures
a significant range of solid and flux-cored wires, principally under the
Autocraft(R), Verti-Cor, Satin-Cor, Metal-Cor and Cobalarc(R) brand names. For
gas welding, Cigweld manufactures and supplies approximately 40 individual types
of wires and solders for use in different applications. Cigweld's filler metals
are manufactured to standards appropriate for their intended use, with the
majority of products approved by agencies such as Lloyd's Register of Shipping,
American Bureau of Shipping, De Norske Veritas and U.S. Naval Ships.
Cigweld manufactures a comprehensive range of equipment for gas welding and
cutting and ancillary products such as gas manifolds, gas regulators and
flowmeters. Gas welding and cutting equipment is sold in kit form or as
individual products. Kits are manufactured for various customer groups and their
components include combinations of oxygen and acetylene regulators, blowpipes,
cutting attachments, mixers, welding and heating tips, cutting nozzles, roller
guides, twin welding hoses, goggles, flint lighters and tip cleaners,
combination spanners and cylinder keys. In addition to its kits, Cigweld
manufactures and/or distributes a
6
complete range of gas equipment, including a range of blowpipes and attachments,
regulators (for oxygen, acetylene, argon and carbon dioxide), flashback
arrestors, cutting nozzles, welding and heating tips, hoses and fittings, gas
manifolds and accessories.
Cigweld also manufactures a range of gas control equipment including
specialty regulators (for use with different gases, including oxygen, acetylene,
liquefied petroleum gas, argon, carbon dioxide, nitrogen, air, helium, hydrogen,
carbon monoxide, ethylene, ethane and nitrous oxide), manifold systems, cylinder
valves and spares and natural gas regulators. Cigweld's gas control items are
primarily sold to gas companies.
Cigweld manufactures and/or distributes a range of safety products for use
in welding and complementary industries. The product range includes welding
helmets and accessories, respirators and masks, breathing apparatus, earmuffs
and earplugs, safety spectacles, safety goggles and gas welding goggles and
faceshields.
Medical products are also manufactured by Cigweld in its manufacturing
plant in Melbourne, Australia. These products are sold through distributors in
the Australian market and exported through third-party distributors and related
entities. The product range includes regulators, flowmeters, suction units,
oxygen therapy and resuscitation and outlet valves for medical gas systems.
C&G Systems -- Cutting Tables. C&G Systems Inc. ("C&G"), located in Itasca,
Illinois, and founded in 1968, manufactures a line of mechanized cutting tables
for fabricating sheet metal and metal plate. The machines utilize either
oxy-fuel or plasma cutting torches produced by other divisions of the Company.
C&G has a wide range of cutting tables from the relatively inexpensive
cantilever type used in general fabrication and job shops to the large precision
gantry type found in steel service centers and specialty cutting applications.
These metal cutting tables can be used in virtually any metal fabrication plant.
Stoody -- Hardfacing Products. Stoody Company ("Stoody"), located in
Bowling Green, Kentucky and with operations founded in 1921, is a recognized
world leader in the development and manufacture of hardfacing welding wires,
electrodes and rods. While Stoody's primary product line is iron-based welding
wires, Stoody also participates in the markets for cobalt-based and nickel-based
electrodes, rods and wires, which are essentially protective overlays, deposited
on softer base materials by various welding processes. This procedure, referred
to as "hardfacing" or "surface treatment," adds a more resistant surface,
thereby increasing the component's useful life. Lower initial costs, the ability
to treat large parts, and ease and speed of repairs in the field are some of the
advantages of hardfacing over solid wear resistant components. A variety of
products have been developed for hardfacing applications in industries utilizing
earth moving equipment, agricultural tools, crushing components, and steel mill
rolls and in virtually all applications where metal is exposed to external wear
factors.
Thermal Arc -- Arc Welders, Plasma Welders and Wire Feeders. In 1997, the
inverter and plasma arc welder business of Thermal Dynamics and the welding
division of Prestolite Power Corporation ("Arcsys") were combined to form
Thermal Arc, Inc. ("Thermal Arc"). The combined operation is located in Troy,
Ohio and produces a full line of inverter and transformer-based electric arc
welders, plasma welders, engine-driven welders and wire feeders. Thermal Arc
products compete in the marketplace for construction, industrial and automated
applications, and serve a large and diverse user base.
The inverter arc welding power machines use high-frequency power
transistors to provide welding machines that are extremely portable and
power-efficient when compared to conventional welding power sources. Plasma
welding dramatically improves productivity for the end user. Additionally,
conventional transformer-based machines provide a cost-effective alternative for
markets where low cost and simplicity of maintenance are a high priority.
GenSet -- Engine-Driven Welders and Generators. GenSet S.p.A. ("GenSet"),
which was acquired by the Company in January 1997 and is located in Pavia,
Italy, commenced operations in 1976 with the production of small generating
sets. In 1976, it developed its first engine-driven welder and, in 1977,
obtained its first patent for the synchronous alternator designed for welding
purposes. It now offers a full range of technologically advanced generators and
engine-driven welders that are sold throughout the world.
7
These products are used both where main power is not available and for
standby power where continuous power supply is a key requirement.
Tec.Mo -- Plasma and Laser Cutting Replacement Consumables. Tec.Mo located
in Bologna, Italy manufactures replacement consumables for both plasma and laser
cutting systems. Tec.Mo has a full line of replacement parts for over 20
different manufacturers' products.
OCIM -- Electric Arc Welding Accessories. OCIM located in Milan, Italy
manufactures a complete line of Mig welding torches, Tig torches, and Robotic
Mig arc welding torches. In addition to its full line of torches, it
manufactures replacement consumable parts for these accessories, as well as a
full line of Robotic arc welding accessories.
Victor Brazil -- Oxy-Fuel Products and Cutting Tables. Thermadyne Victor
Ltda. ("Victor Brazil"), with offices and manufacturing facilities located in
Rio de Janeiro, Brazil, was acquired by the Company in 1998. Victor Brazil is
the leading manufacturer of oxy-fuel products for industrial and medical use and
of mechanized cutting tables for shaping and fabricating sheet metal and metal
plate in South America.
Victor Brazil primarily serves the Latin American market. The oxy-fuel
product line is very competitive in the region and offers the customer a broad
range of gas cutting and welding equipment. Metal fabricators of all sizes,
including applications such as shipbuilding, steel construction, machinery
manufacturing, pressure vessel producers, and steel mills, use the industrial
oxy-fuel products. Hospitals, home care, and doctors' offices use the medical
oxy-fuel products.
The cutting table line of products uses either oxy-fuel or plasma cutting
systems produced by Victor Brazil or other divisions of the Company. The line of
products is oriented to the needs of the Latin American market. Inexpensive
cantilever tables and higher-precision, computer numeric-controlled tables are
produced by Victor Brazil. These products are used in all types of metal
fabricating plants.
INTERNATIONAL BUSINESS
The Company had aggregate international sales of approximately $166.4
million, $193.7 million and $198.9 million for the fiscal years ended December
31, 2000, 1999 and 1998, respectively, or approximately 38%, 38% and 38%,
respectively, of the Company's net sales in each such period. The Company's
international sales are influenced by fluctuations in exchange rates of foreign
currencies, foreign economic conditions and other risks associated with foreign
trade. See "Quantitative and Qualitative Disclosures About Market Risk." The
Company's international sales consist of (a) export sales of Thermadyne products
manufactured at domestic manufacturing facilities and, to a limited extent,
products manufactured by third parties, sold through overseas field
representatives of Thermadyne International Corporation ("Thermadyne
International"), a subsidiary of Thermadyne, and (b) sales of Thermadyne
products manufactured at domestic and international manufacturing facilities,
sold by Thermadyne's foreign subsidiaries. For further information concerning
the international operations of the Company, see the notes to the consolidated
financial statements of the Company included elsewhere herein.
Thermadyne International was formed in 1980 to coordinate Thermadyne's
efforts to increase international sales and sells cutting and welding products
through independent distributors in more than 80 countries. In support of this
effort, the Company operates distribution centers in Canada, Australia, Italy,
Mexico, Japan, Singapore, Brazil, the Philippines, Malaysia, Indonesia and the
United Kingdom and employs salespeople located in 23 additional countries.
COMPETITION
The Company competes principally with a number of domestic manufacturers of
cutting and welding products, the majority of which compete only in limited
segments of the overall market. Management believes competition is based
primarily on product quality and brand name, breadth and depth of product lines,
effectiveness of distribution channels, a knowledgeable sales force capable of
solving customer application problems, price and quality of customer service. To
date, the Company has experienced little direct foreign competition in its U.S.
markets due to the relatively limited size of such markets, the inability of
foreign
8
manufacturers to establish effective distribution channels and the relatively
non-labor-intensive nature of the cutting and welding product manufacturing
process. The Company also competes in certain international markets in which it
faces substantial competition from foreign manufacturers of cutting and welding
products.
DISTRIBUTION
The Company's cutting and welding products are distributed through a
domestic network of approximately 1,100 independent cutting and welding products
distributors with over 2,800 locations that carry one or more of its product
lines. Relationships with the distributors are maintained by a separate sales
force for each of the Company's principal product lines. In addition, a national
accounts group exists to support the sale of all of the Company's product lines
to its major distributors. The Company's products are distributed
internationally through a direct sales force and independent distributors.
RAW MATERIALS
The Company has not experienced any difficulties in obtaining raw materials
for its operations because its principal raw materials, copper, brass, steel and
plastic, are widely available and need not be specially manufactured for use by
the Company. Certain of the raw materials used in hardfacing products, such as
cobalt and chromium, are available primarily from sources outside the United
States, some of which are located in countries that may be subject to economic
and political conditions which could affect pricing and disrupt supply. Although
the Company has historically been able to obtain adequate supplies of these
materials at acceptable prices and has been able to recover the costs of any
increases in the price of raw materials in the form of higher unit sales prices,
restrictions in supply or significant fluctuations in the prices of cobalt,
chromium and other raw materials could adversely affect the Company's business.
The Company also purchases certain products which it either uses in its
manufacturing processes or resells. These products include, but are not limited
to, electronic components, circuit boards, semiconductors, motors, engines,
pressure gauges, springs, switches, lenses and chemicals. The Company believes
its sources of such products are adequate to meet foreseeable demand.
RESEARCH AND DEVELOPMENT
The Company has research and development groups for each of its product
lines that primarily conduct process and product development to meet market
needs. As of December 31, 2001, the Company employed approximately 125 persons
in its research and development groups, most of whom are engineers.
EMPLOYEES
As of December 31, 2001, the Company employed 2,932 people, of whom
approximately 612 were engaged in sales and marketing activities, 260 were
engaged in administrative activities, 1,976 were engaged in manufacturing
activities and 84 were engaged in engineering activities. Labor unions represent
none of the Company's workforce in the United States and virtually all of the
manufacturing employees in its foreign operations. The Company believes that its
employee relations are good. The Company has not experienced any significant
work stoppages.
PATENTS, LICENSES AND TRADEMARKS
The Company's products are sold under a variety of trademarks and trade
names. The Company owns trademark registrations or has filed trademark
applications for all trademarks and has registered all trade names that the
Company believes are material to the operation of its businesses. The Company
also owns various patents and from time to time acquires licenses from owners of
patents to apply such patents to its operations. The Company does not believe
any single patent or license is material to the operation of its businesses
taken as a whole.
9
ITEM 2. PROPERTIES.
The Company operates 17 manufacturing facilities in the United States,
Italy, the Philippines, Brazil, Indonesia, Malaysia, Australia and Mexico. All
domestic manufacturing facilities, leases and leasehold interests are encumbered
by perfected first priority senior priming liens securing the Company's
obligations under the DIP Facility and primed liens securing the Debtors'
obligations under the Old Credit Facility. The Company considers its plants and
equipment to be modern and well-maintained and believes its plants have
sufficient capacity to meet future anticipated expansion needs.
The Company leases and maintains an 18,939-square-foot facility located in
St. Louis, Missouri, which houses the executive offices of the Company and its
operating subsidiaries, as well as all centralized services.
The following table describes the location and general character of the
Company's principal properties:
<Table>
<Caption>
SUBSIDIARY/ BUILDING SPACE/ PROPERTY
LOCATION OF FACILITY NUMBER OF BUILDINGS SIZE
- -------------------- ------------------- --------
Thermal Dynamics/West Lebanon, New
Hampshire.............................. 187,000 sq. ft 8.0 acres
5 buildings (office, manufacturing,
sales training)
Tweco/Wichita, Kansas.................... 177,655 sq. ft 21.5 acres
3 buildings (office, manufacturing,
storage space)
Victor/Denton, Texas..................... 222,403 sq. ft 30.0 acres
4 buildings (office, manufacturing,
storage, sales training center)
Victor/Abilene, Texas.................... 123,740 sq. ft 32.0 acres
1 building (office, manufacturing)
Victor Brazil/Rio de Janeiro, Brazil..... 200,000 sq. ft 6.0 acres
6 buildings (office, manufacturing,
warehouse)
Thermadyne Canada/Oakville, Ontario,
Canada................................. 48,710 sq. ft 8.3 acres
1 building (office, warehouse)
Comweld Malaysia/Selangor Malaysia....... 127,575 sq. ft. 4.6 acres
1 building (office, manufacturing)
Thermadyne Australia/Melbourne,
Australia.............................. 426,157 sq. ft 9.8 acres
2 buildings (office, manufacturing,
storage, research)
Comweld Philippines/Cebu, Philippines.... 41,380 sq. ft 1.2 acres
1 building (office, manufacturing)
Cigweld Indonesia/Jakarta, Indonesia..... 52,500 sq. ft 2.1 acres
1 building (office, manufacturing)
Cigweld Malaysia/Kuala Lumpur,
Malaysia............................... 56,000 sq. ft 2.2 acres
1 building (office, manufacturing)
C&G Systems/Itasca, Illinois............. 38,000 sq. ft 2.0 acres
1 building (office, manufacturing,
future expansion)
Stoody/Bowling Green, Kentucky........... 185,000 sq. ft 37.0 acres
1 building (office, manufacturing)
</Table>
10
<Table>
<Caption>
SUBSIDIARY/ BUILDING SPACE/ PROPERTY
LOCATION OF FACILITY NUMBER OF BUILDINGS SIZE
- -------------------- ------------------- --------
GenSet/Pavia, Italy...................... 211,651 sq. ft 8.0 acres
2 buildings (office, manufacturing,
warehouse)
GenSet/Pavia, Italy...................... 44,326 sq. ft. 2.0 acres
1 building (manufacturing)
OCIM/Milan, Italy........................ 24,757 sq. ft 0.9 acre
2 buildings (office, manufacturing)
Tec.Mo/Bologna, Italy.................... 27,276 sq. ft. 0.6 acre
2 buildings (office, manufacturing)
Thermal Arc/Troy, Ohio................... 120,000 sq. ft 6.5 acres
1 building (office, manufacturing,
warehouse, sales training)
Victor/Mars, Pennsylvania................ 33,314 sq. ft 5.0 acres
1 building (office, warehouse)
Victor De Mexico and Tweco de Mexico/
Sonora, Mexico......................... 143,013 sq. ft 9.9 acres
1 building (office, manufacturing)
</Table>
All of the above facilities are leased, except for the facilities located
in Melbourne, Cebu, the larger facility in Pavia and Rio de Janeiro, which are
owned. The initial lease terms for the facilities located in West Lebanon, New
Hampshire, Wichita, Kansas, Denton, Texas, Abilene, Texas and Ontario, Canada
will expire in May, 2003. The Company also has additional assembly and warehouse
facilities in Canada, the United Kingdom, Italy, Japan, Singapore, Mexico, the
Philippines, Indonesia, Brazil and Australia.
In addition, the Company had subleased 295,000 square feet of its
325,000-square-foot facility in City of Industry, California, which formerly was
the manufacturing facility for certain products now manufactured at the
Company's Bowling Green, Kentucky facility. On February 20, the Court approved
the Company's motion to reject this lease as of February 16.
ITEM 3. LEGAL PROCEEDINGS.
On November 19, 2001, the Company and substantially all of its domestic
subsidiaries filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code. For further information see Item 1.
"Business -- Bankruptcy Filing."
The Company is a party to ordinary litigation incidental to its businesses,
including a number of product liability cases seeking substantial damages. The
Company maintains insurance against any product liability claims. Coverage for
most years has a $500,000 self insured retention with $500,000 of primary
insurance per claim. In addition, the Company maintains umbrella policies
providing an aggregate of $75,000,000 in coverage for product liability claims.
Although it is difficult to predict the outcome of litigation with any
certainty, the Company believes the liabilities which might reasonably result
from such lawsuits, to the extent not covered by insurance, with the exception
of those matters relating to the Debtors' Chapter 11 proceedings, will not have
a material adverse effect on the Company's financial condition or results of
operations.
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes. The
Company is currently not aware of any citations or claims filed against it by
any local, state, federal and foreign governmental agencies, which, if
successful, would have a material adverse effect on the Company's financial
condition or results of operations.
The Company may be required to incur costs relating to remediation of
properties, including properties at which the Company disposes waste, and
environmental conditions could lead to claims for personal injury,
11
property damage or damages to natural resources. The Company is aware of
environmental conditions at certain properties which it now owns or leases or
previously owned or leased which are undergoing remediation. The Company does
not believe the cost of such remediation will have a material adverse effect on
the Company's business, financial condition or results of operations.
Certain environmental laws, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act and the
equivalent state laws, provide for strict, joint and several liability for
investigation and remediation of spills or other releases of hazardous
substances. Such laws may apply to conditions at properties presently or
formerly owned or operated by the Company or its subsidiaries or by their
predecessors or previously owned business entities, as well as to conditions at
properties at which wastes or other contamination attributable to the Company or
its subsidiaries or their predecessors or previously owned business entities
come to be located. The Company has in the past and may in the future be named a
potentially responsible party at off-site disposal sites to which it has sent
waste. The Company does not believe the ultimate cost relating to such sites
will have a material adverse effect on the Company's financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the shareholders during the fourth
quarter of 2001.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock began trading on The NASDAQ Stock Market
("NASDAQ") on May 17, 1994. On October 15, 1998 the NASDAQ delisted the Common
Stock. Following its delisting from NASDAQ, the Common Stock has traded in the
over the counter market. The following table shows, for the periods indicated,
the high and low sale prices of a share of the Common Stock for the fiscal years
2000 and 2001 as reported by published financial sources.
<Table>
<Caption>
CLOSING SALE
PRICE($)
-------------
HIGH LOW
----- -----
2000
First Quarter............................................. 21.00 20.00
Second Quarter............................................ 17.00 17.00
Third Quarter............................................. 18.50 6.00
Fourth Quarter............................................ 10.75 3.56
2001
First Quarter............................................. 3.56 1.25
Second Quarter............................................ 1.31 .32
Third Quarter............................................. .51 .38
Fourth Quarter............................................ .50 .11
</Table>
On March 18, 2002 the last reported bid price for the Common Stock as
reported by published financial sources was $.30 per share. As of March 21, 2002
there were approximately 86 holders of record of Common Stock.
The Company has historically not paid any cash dividends on Common Stock
and it does not have any present intention to commence payment of any cash
dividends. The Company intends to retain earnings to provide funds for the
operation and expansion of the Company's business and to repay outstanding
indebtedness. The Company's debt agreements contain certain covenants
restricting the payment of dividends on, or repurchases of, Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
12
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for and as of each of the years in the
five-year period ended December 31, 2001 set forth below has been derived from
the audited consolidated financial statements of the Company. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and the notes thereto, in each case included
elsewhere herein.
<Table>
<Caption>
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999 2000 2001
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Operating Results Data:
Net sales.................................. $ 520.4 $ 532.8 $ 521.1 $ 510.1 $ 438.2
Cost of goods sold......................... 320.0 340.2 342.2 327.5 296.5
Selling, general and administrative
expenses................................ 110.7 102.6 99.2 102.6 97.1
Amortization of goodwill................... 1.6 1.5 1.6 19.2 0.4
Amortization of intangibles................ 6.8 2.4 3.0 7.7 1.8
Net periodic postretirement benefits....... 2.8 2.6 3.2 1.1 1.1
Special charges............................ -- 50.5 21.9 42.4 14.9
------- ------- ------- ------- -------
Operating income........................... 78.5 33.0 50.0 9.6 26.4
Interest expense........................... 45.3 62.2 72.4 81.4 76.4
Other expense, net......................... 4.6 5.6 3.1 3.1 5.6
Reorganization items....................... -- -- -- -- (6.7)
Net Income (loss).......................... 15.1 (46.2) (34.3) (106.6) (51.5)
Income (loss) per share applicable to
common shares:
Basic................................... 1.36 (7.95) (11.68) (32.04) (16.78)
Diluted................................. 1.33 (7.95) (11.68) (32.04) (16.78)
Consolidated Balance Sheet Data:
Working capital(2)......................... $ 88.5 $ 121.2 $ 121.3 $ 83.4 $ 137.4
Total assets............................... 354.5 420.2 400.4 317.9 310.4
Total debt(1).............................. 358.1 710.7 729.4 753.9 808.7
Total shareholders' deficit................ (162.8) (496.3) (534.1) (658.4) (725.1)
Consolidated Cash Flow Data:
Net cash provided by (used in) operating
activities.............................. $ 15.0 $ (50.3) $ 53.9 $ (4.9) $ 6.4
Net cash provided by (used in) investing
activities.............................. 36.8 (39.5) (17.1) (16.5) (16.1)
Net cash provided by (used in) financing
activities.............................. (51.7) 89.7 (24.8) 18.5 14.2
Other Data:
Adjusted EBITDA(3)......................... $ 99.0 $ 91.5 $ 89.1 $ 64.2 $ 45.5
Depreciation............................... 12.5 15.1 18.9 15.3 17.1
Capital expenditures....................... 16.3 17.5 10.2 18.7 15.3
</Table>
- ---------------
(1) Amount for 2001 includes approximately $776.0 million classified as
"liabilities subject to compromise" on the accompanying consolidated balance
sheets.
(2) Amount for 2001 excludes liabilities subject to compromise.
(3) "Adjusted EBITDA" 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 portion of non-recurring expenses, and reorganization costs; minus
any
13
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 Adjusted EBITDA is a useful
supplement to net income (loss) and other consolidated statement of
operations data in understanding cash flows generated from operations that
are available for taxes, debt service and capital expenditures. However, the
Company's method of computation may or may not be comparable to other
similarly titled measures of other companies. In addition, Adjusted EBITDA
is not necessarily indicative of amounts that may be available for
discretionary uses and does not reflect any legal or contractual
restrictions on the Company's use of funds.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
BANKRUPTCY FILING
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.
On November 19, 2001, the Company and substantially all of its domestic
subsidiaries, including Thermadyne LLC and Thermadyne Capital, 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
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 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 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 Debentures, and 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 year ended December 31, 2001, was
$20.4 million, $4.0 million, $16.7 million and $4.7 million, respectively.
Interest recorded for the Senior Subordinated Notes, the Subordinated Notes, the
Debentures and the Junior Notes was $18.7 million, $3.7 million, $15.2 million
and $4.3 million, respectively. Contractual dividends for the redeemable
preferred stock were $9.5 million for the year ended December 31, 2001, which
compares to recorded dividends of $8.7 million. 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.
In total, contractual interest on the Company's obligations was $80.3 million
for the year ended December 31, 2001, which was $4.0 million in excess of
reported interest.
Pursuant to the provisions of the Bankruptcy Code, substantially 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
14
wages and benefits and certain other pre-petition obligations. Additionally, the
Court has approved the retention of legal and financial professionals. Claims
against the Debtors may be filed with the Court through April 19, 2002. As
debtor-in-possession, the Debtors have 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 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 second 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. The Company has moved the Court to extend the period during which
the Debtors may file a Plan of Reorganization through July 1, 2002. On April 2,
2001, the Court will consider the Company's motion for such extension. There can
be no assurance that the Court will grant such extension. 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.
Although the Chapter 11 filing raises substantial doubt 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 percent 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 sheet. 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 consolidated financial
statements of the Company. The Company conducts its operations through its
wholly owned subsidiary Thermadyne LLC. The accompanying consolidated financial
statements for the Company and Thermadyne LLC are substantially the same except
for certain debt and equity securities issued by the Company, and therefore, a
separate discussion of Thermadyne LLC is not presented.
Included in the following discussions are comparisons of Adjusted EBITDA
which is defined as 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. 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 Adjusted EBITDA is a
useful supplement to net income (loss) and other consolidated statement of
operations data in understanding cash flows generated from
15
operations that are available for taxes, debt service and capital expenditures.
However, the Company's method of computation may or may not be comparable to
other similarly titled measures of other companies. In addition, Adjusted EBITDA
is not necessarily indicative of amounts that may be available for discretionary
uses and does not reflect any legal or contractual restrictions on the Company's
use of funds.
RESULTS OF OPERATIONS
The following description of results of operations is presented for the
fiscal years ended December 31, 1999, 2000 and 2001. The results of operations
of the Company include the operations of Tecmo, Soltec, Unique and Maxweld &
Braze from their respective dates of acquisition.
2001 COMPARED TO 2000
Net Sales
Net sales for the year ended December 31, 2001 were $438.2 million, which
is a decrease of 14.1% compared to 2000 sales of $510.1 million. Domestic sales
declined 14.1% from $316.5 million for the year ended December 31, 2000 to
$271.8 million for 2001. The weak industrial economy in the U.S. was the primary
reason for this decrease. International sales for the year ended December 31,
2001 were $166.4 million, also a 14.1% decrease, compared to sales of $193.7
million for the twelve months ended December 31, 2000. The decline in
international sales was seen in all major geographic areas and was primarily the
result of generally weak economic conditions. Also contributing to the decline
in international sales was a strengthening U.S. dollar as local currency sales
translated to lower amounts compared to last year.
Costs and Expenses
Cost of goods sold as a percentage of sales increased from 64.2% for 2000
to 67.7% for 2001. The decline in sales volume was the primary reason for this
increase as the Company has been unable to reduce fixed costs commensurate with
the drop in sales.
Selling, general and administrative expenses were $97.1 million for the
twelve months ended December 31, 2001 compared to $102.6 million for 2000, a
decrease of 5.3%. The majority of this decrease results from the Company's
efforts to reduce costs. Selling, general and administrative expenses as a
percentage of sales were 22.2% for 2001 compared to 20.1% for the year ended
December 31, 2000. The increase in this percentage results primarily from the
decline in sales as certain costs are fixed and do not fluctuate with sales.
Special charges incurred during the year ended December 31, 2001, were
$14.9 million and were comprised primarily of $7.0 million related to business
reengineering initiatives, $3.2 million related to an information technology
transformation project, and $2.4 million to logistics initiatives. The remainder
resulted mostly from the relocation of production to Mexico.
Reorganization items in 2001, include $4.8 million of professional fees and
expenses, a benefit of $12.2 million resulting from the Court's approval of a
Company motion to reject a non-cancelable lease obligation on a substantially
idle facility, and $0.7 million of other reorganization costs.
Amortization expense for the twelve months ended December 31, 2001, was
$2.2 million compared to $26.9 million for the year ended December 31, 2000,
which included impairment losses of $23.4 million related to goodwill and other
intangible assets associated with the Company's Australian business.
Interest expense recorded for the year ended December 31, 2001, was $76.4
million compared to $81.4 million for 2000. This decline in interest from last
year was primarily the result of lower interest rates in the U.S. as the Company
incurred $3.8 million less interest on its variable rate debt in spite of the
average outstanding balance increasing $36.9 million from $291.3 million for
2000 to $328.2 million for 2001. The Company ceased accruing interest on the
Senior Subordinated Notes, the Subordinated Notes, the Debentures, and the
Junior Notes effective December 1, 2001, which also contributed to the decline
in the interest costs. Contractual interest for 2001, was $80.3 million.
16
An income tax provision of $2.7 million was recorded on a pretax loss of
$48.8 million for the year ended December 31, 2001. The 2001 income tax
provision differs from that determined by applying the U.S. federal statutory
rate primarily due to nondeductible expenses, the disallowance of foreign
losses, and an increase in the valuation allowance for deferred tax assets. An
income tax provision of $31.9 million was recorded on a pretax loss of $74.8
million for the year ended December 31, 2000. The 2000 income tax provision
differs from that determined by applying the U.S. federal statutory rate
primarily due to nondeductible expenses, the disallowance of foreign losses, and
an increase in the valuation allowance for deferred tax assets.
Adjusted EBITDA
Adjusted EBITDA for the year ended December 31, 2001 was $45.5 million
compared to $64.2 million for 2000, a decrease of 29.1%.
2000 COMPARED TO 1999
Net Sales
Net sales for the year ended December 31, 2000 were $510.1 million, which
is a decrease of 2.1% compared to 1999 sales of $521.1 million. Domestic sales
ended the year at $316.4 million versus $322.2 million for 1999, a decrease of
1.8%. The decline in domestic sales is attributable to generally weak conditions
in the industrial sector of the economy. International sales for the year ended
December 31, 2000 were $193.7 million, which is a decrease of 2.8% from 1999
sales of $198.9 million. The decline in international sales results from
Australia and Asia, which collectively are down from 1999 by 28.2%. Australia
was hampered throughout 2000 by a weak industrial economy, unfavorable exchange
rates and competitive pressures from imported products. The Asian business
declined sharply over the latter part of 2000 as the U.S. economy began slowing
down. The declines in Asia and Australia were substantially offset by increases
in other regions of the world most notably a 22.0% increase in Latin America and
an almost 6% increase in Canada.
Costs and Expenses
Cost of goods sold as a percentage of sales declined from 65.7% for the
year ended December 31, 1999 to 64.2% for 2000. This improvement resulted from
ongoing cost reduction initiatives and improved factory efficiencies.
Selling, general and administrative expenses were $102.6 million for the
twelve months ended December 31, 2000 compared to $99.2 million for 1999, an
increase of 3.3%. The majority of this increase related to increased spending on
selling and marketing activities. As a percentage of sales selling, general and
administrative expenses were 20.1% and 19.0% for the years ended December 31,
2000 and 1999, respectively.
Special charges of $42.5 million were incurred during the year ended
December 31, 2000 and are comprised primarily of $19.4 million of costs related
to the relocation of production to Mexico and Asia, $11.0 million resulting from
the Company's reorganization of its domestic gas management business, $5.0
million related to changes in senior management, and $4.7 million related to an
information technology and business process reengineering project the Company
initiated in the third quarter of 2000. Special charges of $21.9 million were
recorded during 1999 and related mostly to the reorganization of the Company's
Australian and Asian operations, the consolidation of two domestic facilities
and detachable warrants issued in conjunction with the junior subordinated
notes.
Amortization expense for the year ended December 31, 2000 was $26.9 million
compared to $4.6 million for 1999. The increase results from the Company's
decision to write-off goodwill and other intangibles related to its Australian
business after an assessment of estimated future cash flows of this business
indicated the recoverability of these assets was doubtful. Prolonged weak
economic conditions were the primary reasons for this write-off.
Interest expense was $81.4 million for 2000 compared to $72.4 million for
the year ended December 31, 1999. Higher interest rates resulted in an increase
of $2.7 million in expense related to the Company's floating
17
rate U.S. bank debt in spite of a $21.9 million decrease in the average
outstanding principal balance in 2000 compared to 1999. Also, the Debentures and
Junior Notes continue to accrete and have combined interest of $19.0 million, an
increase of $5.9 million over the $13.1 million of expense incurred in 1999.
An income tax provision of $31.9 million was recorded on a pretax loss of
$74.8 million for the year ended December 31, 2000. The 2000 income tax
provision differs from that determined by applying the U.S. federal statutory
rate primarily due to nondeductible expenses, the disallowance of foreign
losses, and an increase in the valuation allowance for deferred tax assets. An
income tax provision of $8.8 million was recorded on a pre-tax loss of $25.5
million for the year ended December 31, 1999. The 1999 income tax provision
differs from that determined by applying the U.S. federal statutory rate
primarily due to the issuance of warrants for the purchase of the Company's
common stock, the disallowance of foreign losses, and an increase in the
valuation allowance for deferred tax assets.
Adjusted EBITDA
Adjusted EBITDA for the year ended December 31, 2000 was $64.2 million
compared to $89.1 million for 1999, a decrease of 27.9%.
Recent Accounting Pronouncements
In June, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations", and No. 142, "Goodwill and Other Intangible Assets." SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS 141 also includes guidance on
the initial recognition and measurement of goodwill and other intangible assets
arising from business combinations completed after June 30, 2001. SFAS 142
prohibits the amortization of goodwill and intangible assets with indefinite
useful lives. SFAS 142 requires that these assets be reviewed for impairment at
least annually. Intangible assets with finite lives will continue to be
amortized over their estimated useful lives. Additionally, SFAS 142 requires
that goodwill included in the carrying value of equity method investments no
longer be amortized.
The Company will apply SFAS 142 beginning in the first quarter of 2002.
Application of the nonamortization provisions of SFAS 142 is expected to
increase operating income by approximately $0.5 million in 2002. The Company
will test goodwill for impairment using the two-step process prescribed in SFAS
142. The first step is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. The Company does not believe
these tests will have a material effect on its results of operations or its
financial position.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows. Operating activities provided $6.4 million
of cash during the year ended December 31, 2001, compared to cash used of $4.9
million in 2000. This increase resulted primarily from a net decrease of $25.4
million in net operating assets compared to a net increase of $2.2 million in
2000, a positive difference of $27.6 million. Inventory provided cash of $10.8
million in 2001, compared to cash used of $16.3 million in 2000. The difference
in inventory is the result of the build up in stock in 2000 as the Company
prepared to move production to Mexico together with lower inventory levels
required because of the decrease in demand during 2001. Prepaid assets have used
$9.4 million in 2001, compared to cash provided of $1.1 million in 2000. The
increase in prepaid assets is a direct result of the Chapter 11 filing as many
of the Company's key suppliers will only ship product on cash-in-advance terms.
Accrued liabilities used $0.2 million of cash during the year ended December 31,
2001, after providing cash of $8.4 million during the twelve months ended
December 31, 2000. Included in 2000, was an accrual of approximately $4.2
million for severance related to the relocation of production to Mexico and $5.0
million for severance accrued for changes in senior management. Accrued interest
provided $22.7 million during 2001, which resulted primarily from the
non-payment of the interest due on June 1 and December 1, 2001, for the Senior
Subordinated Notes totaling $20.4 million together with the non-payment of the
interest due on May 1 and November 1, 2001, for the Subordinated Notes totaling
$4.0 million. The increase in cash provided from net operating assets was
partially
18
offset by net loss, which after adjusting for non-cash items was $19.1 million
for the year ended December 31, 2001, compared to $2.7 million for the year
ended December 31, 2000. Investing activities used $16.1 million of cash during
2001, which compares to $16.5 million used in 2000. Capital expenditures were
$15.3 million in 2001, which is $3.4 million less than last year. Also included
in 2000 investing activities was $7.0 million of proceeds from the sale of land
and buildings in Australia, and $3.8 million used for acquisitions. Financing
activities provided $14.2 million of cash during 2001, which is $4.2 million
less than they provided in 2000. Contributing to the difference was the
Company's accounts receivable securitization program, which as a result of the
Chapter 11 filing, began liquidating and was fully funded by December 31, 2001,
using $21.0 million of cash. This use of cash compares to cash provided of the
same amount last year as the program was initiated in January 2000. Partially
offsetting the effect of the securitization program was a net increase in
long-term borrowings of $28.7 million during 2001 compared to 2000.
Capital Expenditures. The Company had $15.3 million of capital expenditures
in 2001. The Company's DIP Facility contains restrictions on the Company's
ability to make capital expenditures. Based on present estimates, management
believes the amount of capital expenditures permitted to be made under the DIP
Facility will be adequate to maintain the properties and businesses of the
Company's operations.
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 December 31, 2001, the Company's eligible
accounts receivable, inventories and fixed assets supported access to $58.0
million of the DIP Facility. Interest on the DIP Facility accrues at the
administrative agent's adjusted base rate plus 2.25% in the case of alternate
base rates 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 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. At December 31,
2001, the Company had borrowed approximately $8.7 million and issued $0.1
million of letters of credit under the DIP Facility, resulting in availability
of approximately $49.2 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) 1.50% for revolving and Term A loans, (y) 1.75% for Term B loans
and (z) 2.00% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.75%
for revolving and Term A loans, (y) 3.00% for Term B loans and (z) 3.25% for
Term C loans. At December 31, 2001, the Company had outstanding $77.7 million in
Term A loans, $108.6 million in Term B loans, $108.6 million in Term C loans,
and $58.5 million of loans under the revolver. In addition, there were $8.1
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 Facility.
At December 31, 2001, 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
19
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 anticipates 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.
MARKET RISK AND RISK MANAGEMENT POLICIES
The Company's earnings and cash flow are subject to fluctuations due to
changes in foreign currency exchange rates. The Company is also exposed to
changes in interest rates from its long-term debt arrangements. See Item 7A
"Quantitative and Qualitative Disclosures About Market Risk" for further
discussion.
EFFECT OF INFLATION; SEASONALITY
Inflation has not been a material factor affecting the Company's business.
In recent years, the cost of electronic components has remained relatively
stable due to competitive pressures within the industry, which has enabled the
Company to contain its service costs. The Company's general operating expenses,
such as salaries, employee benefits, and facilities costs, are subject to normal
inflationary pressures.
The operations of the Company are generally not subject to seasonal
fluctuations.
CRITICAL ACCOUNTING POLICIES
Inventories
Inventories are the Company's most significant asset, representing 29% of
total assets. They are valued at the lower of cost or market, with the domestic
subsidiaries using the last in, first-out (LIFO) method, which represents 57.7%
of consolidated inventories, and the foreign subsidiaries using the first-in,
first-out (FIFO) method, which represents 42.3% of consolidated inventories.
The Company continually applies its judgment in valuing its inventories by
assessing the net realizable value of its inventories based on current selling
prices. Should the Company not achieve its expectations of the net realizable
value of this inventory, potential future losses may occur.
Income Taxes
The Company provides taxes for the effects of timing differences between
financial and tax reporting. These differences relate primarily to net operating
loss carryforwards, fixed assets, deferred interest, and post-employment
benefits.
The Company does not provide deferred taxes on the accumulated unremitted
earnings of its foreign subsidiaries as its intention is to reinvest these
earnings indefinitely. However, upon distribution of those earnings in the form
of dividends or otherwise, the Company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable to the various foreign countries.
Contingencies
On November 19, 2001, the Company and substantially all of its domestic
subsidiaries, including Thermadyne LLC and Thermadyne Capital, filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code. The
Chapter 11 bankruptcy filing introduces numerous uncertainties which may affect
the Company's business, results of operations, and prospects. Further
information about the financial
20
impact of the Chapter 11 filing is set forth in Item 1 of the Form 10-K and in
the notes to the consolidated financial statements.
The Company is the defendant in several claims and lawsuits arising in the
normal course of business. The Company does not believe any of these proceedings
will have a material adverse effect on its consolidated financial position. It
is possible, however, future results of operations for any particular quarter or
annual period could be materially affected by changes in assumptions related to
these proceedings. The Company accrues its best estimate of the cost of
resolution of these claims in accordance with SFAS No. 5. Legal defense costs of
such claims are recognized in the period in which they are incurred.
The Company is periodically audited by domestic and foreign tax authorities
regarding the amount of taxes due. In evaluating issues raised in such audits,
reserves are provided for exposures as appropriate. To the extent the Company
were to prevail in matters for which accruals have been established or be
required to pay amounts in excess of reserves, the effective tax rate in a given
financial statement period may be materially impacted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A substantial portion of the Company's operations consist of manufacturing
and sales activities in foreign regions, particularly Europe, Australia/Asia,
Canada and South America. As a result, the Company's financial results could be
significantly affected by factors such as changes in foreign currency exchange
rates or weak economic conditions in the foreign markets in which the Company
distributes its products. The Company's exposure to foreign currency
transactions is partially mitigated by having manufacturing locations in
Australia, Italy, Indonesia, Malaysia, the Philippines, Mexico and Brazil as
well as in the United States. A substantial portion of the product manufactured
in most of these regions is sold locally and denominated in the local currency.
A significant amount of the export sales from the U.S. are denominated in U.S.
dollars which further limits the Company's exposure to changes in the exchange
rates. The Company is most susceptible to a strengthening U.S. dollar and the
negative effect when local currency financial statements are translated into
U.S. dollars, the Company's reporting currency.
The Company does not believe its exposure to transaction gains or losses
resulting from changes in foreign currency exchange rates is material to its
financial results. As a result, the Company does not actively try to manage its
exposure through foreign currency forward or option contracts.
The Company is also exposed to changes in interest rates primarily from its
long-term financial arrangements which are predominantly denominated in U.S.
dollars. At December 31, 2001, the Company had approximately $342.3 million of
variable rate U.S. debt. The Company limited its exposure to variations in the
interest rate by entering into an interest rate swap arrangement effective
January 1, 1999, with respect to approximately $61.5 million of this debt. At
December 31, 2001, the Company also had approximately $13.3 million and $6.5
million of variable rate debt denominated in Australian dollars and euros,
respectively. A hypothetical 100 basis point increase in the Company's variable
borrowing rates would result in an increase in interest expense of approximately
$2.9 million for the year ended December 31, 2001.
The Debtors' Chapter 11 bankruptcy filings also introduces numerous
uncertainties, which may affect the Company's business, results of operations,
and prospects.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements that are filed as part of this Annual Report on
Form 10-K are set forth in the Index to Consolidated Financial Statements at
page F-1 hereof and are included at pages F-2 to F-60 thereof.
21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information concerning the current
directors and executive officers of the Company. Each officer of the Company
serves in the same capacity for Thermadyne LLC and Thermadyne Capital.
<Table>
<Caption>
NAME AGE POSITION(S)
- ---- --- -----------
Karl R. Wyss........................... 61 Director of the Company, Thermadyne LLC and Thermadyne
Capital, Chairman of the Board and Chief Executive
Officer
James H. Tate.......................... 54 Director of the Company, Thermadyne LLC and Thermadyne
Capital, Senior Vice President and Chief Financial
Officer, and Office of the Chairman
Harold A. Poling....................... 76 Director of the Company
Kirk B. Wortman........................ 39 Director of the Company
Michael E. Mahoney..................... 52 Executive Vice President and Office of the Chairman
Robert D. Maddox....................... 42 Vice President and Corporate Controller
Osvaldo Ricci.......................... 46 Vice President of Logistics
</Table>
Mr. Wyss has been a Director of the Company since April 2000 and was
elected Chairman of the Board and Acting Chief Executive Officer of the Company
in June 2000. He became Chief Executive Officer of the Company on January 12,
2001. Prior to joining the Company, Mr. Wyss was the Managing Director and
Operating Partner with DLJ's Merchant Banking Group since 1993. Before his
position at DLJ, he was Chairman and Chief Executive Officer of Lear Siegler
Inc. Mr. Wyss currently serves on the board of directors of Brand Services,
Inc., Localiza Rent A Car S.A., Manufacturers Services Limited and ComVault,
Inc.
Mr. Tate has been a Director of the Company since October 1995 and was
appointed to the Office of the Chairman in June 2000. He was elected Senior Vice
President and Chief Financial Officer of the Company in February 1995, having
previously served as Vice President of the Company and Vice President and Chief
Financial Officer of the Company's subsidiaries since April 1993. Prior to
joining the Company, Mr. Tate was employed by the accounting firm of Ernst &
Young LLP for 18 years, the last six of which he was a partner. Mr. Tate
currently serves on the board of directors of Rowe International, Inc. and Joy
Global, Inc.
Mr. Poling has been a Director of the Company since May 1998. Mr. Poling
retired as Chairman of the Board and Chief Executive Officer of Ford Motor
Company on January 1, 1994, a position he held since 1990. Mr. Poling is a
director of Flint Ink Corporation and a member of the DLJ Executive Advisory
Board. Mr. Poling is a director of the Monmouth (Ill.) College Senate and a
member of the Dean's Advisory Council for the Indiana University School of
Business. He was national chairman of Indiana University's Annual Fund campaigns
from 1986 to 1988.
Mr. Wortman has been a Director of the Company since October 2001. Mr.
Wortman is the President of Riverside Capital Partners, LLC a private equity
investment firm. For the five years prior to joining Riverside Capital Partners
Mr. Wortman was a senior member of DLJ Merchant Banking.
Mr. Mahoney was appointed to the Office of the Chairman in June 2000 and
currently serves as the Executive Vice President for Tweco, Thermal Arc, Stoody,
and European Operations. He previously served as the Executive Vice President of
Thermal Dynamics, C&G, and the entire International Sales and Marketing group.
Prior to joining Thermadyne in 1989, Mr. Mahoney spent ten years with Hobart
Brothers and six years with British Oxygen Company.
22
Mr. Maddox was elected Vice President and Corporate Controller of the
Company in April 1996. Prior to that time, Mr. Maddox served as Vice President
and Controller of the Company's operating subsidiaries from April 1995 to April
1996 and Controller from May 1992 to April 1995. Prior to joining the Company,
Mr. Maddox was a senior audit manager with the accounting firm of Ernst & Young
LLP.
Mr. Ricci has been the Vice President of Logistics since May 2001. Prior to
joining the Company, he held the position of Senior Vice President Supply Chain
for S&S Worldwide. He has over 24 years of experience in key executive Supply
Chain positions in logistics and manufacturing within the consumer goods,
apparel, and furniture industries. More recently he held the position of Vice
President Distribution for Ames Department Stores and Director of Operations for
the Starter Corporation. He worked and lived in Montreal, Quebec prior to 1990.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information in respect of the compensation
of the Chief Executive Officer, each of the other four most highly compensated
executive officers of the Company, the former Chief Executive Officer of the
Company and two other former executive officers (collectively, the "Named
Executive Officers") for services in all capacities to the Company and its
subsidiaries for the years ended December 31, 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITIONS(S) YEAR SALARY($) BONUS($) OPTIONS(#) ($)(1)
- ------------------------------- ---- --------- -------- ------------ ------------
Karl R. Wyss(2)........................... 2001 900,000 -- -- 50,428
Chairman of the Board and 2000 526,151 -- -- 17,994
Chief Executive Officer 1999 N/A N/A N/A N/A
James H. Tate............................. 2001 326,500 -- -- 12,362
Director, Senior Vice President, Chief 2000 326,500 -- -- 14,111
Financial Officer, and Office of the 1999 316,962 58,313 -- 19,590
Chairman
Michael E. Mahoney........................ 2001 283,500 -- -- 11,679
Executive Vice President and 2000 283,500 13,808 -- 12,545
Office of the Chairman 1999 N/A N/A N/A N/A
Robert D. Maddox.......................... 2001 178,500 -- -- 5,938
Vice President and Controller 2000 178,500 -- -- 6,639
1999 173,269 23,375 -- 6,955
Osvaldo Ricci............................. 2001 174,038 -- -- 5,364
Vice President 2000 N/A N/A N/A N/A
Logistics 1999 N/A N/A N/A N/A
</Table>
- ---------------
(1) All other compensation includes group life insurance premiums paid by the
Company and contributions made on behalf of the Named Executive Officers to
the Company's 401(k) retirement and profit sharing plan. The amounts of
insurance premiums paid and 401(k) contributions made (respectively) on
behalf of the Named Executive Officers for 2000 are as follows: Mr. Wyss,
$6,732 and $43,696; Mr. Tate, $2,567 and $9,795; Mr. Mahoney, $2,760 and
$8,919; Mr. Maddox, $583 and $5,355; Mr. Ricci, $391 and $4,973.
(2) Mr. Wyss has served as Chairman of the Board since June 1, 2000 and Chief
Executive Officer since January 11, 2001.
23
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information related to stock options
granted to the Named Executive Officers in 2001. The Company did not grant stock
options to any other Named Executive Officers in 2001.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
INDIVIDUAL GRANTS
---------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS GRANT DATE
UNDERLYING GRANTED TO EXERCISE OR PRESENT
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME GRANTED(#)(1) FISCAL YEAR (%) ($/SH) DATE ($)(2)
- ---- ------------- --------------- ----------- ---------- ----------
Karl Wyss...................... 200,000 87% $4.00 7/18/2011 $ .24
Osvaldo Ricci.................. 30,000 13% $4.00 1/13/2011 $3.39
</Table>
- ---------------
(1) The options to purchase Common Stock were granted under the Thermadyne
Holdings Corporation Management Incentive Plan (the "Management Incentive
Plan") and vest 20% ratably over five years. For a more complete description
of the Management Incentive Plan, see "-- Employment
Arrangements -- Management Incentive Plan." All options become exercisable
upon a change of control.
(2) The grant date present value of each option grant was determined using a
variation of the Black-Scholes option pricing model. The estimated values
presented are based on the following assumptions made as of the time of
grant: an expected dividend yield of 0%; an expected option term of 10
years; volatility of 0.83; and a risk-free rate of 5.2%. The actual value,
if any, that the Named Executive Officer would realize from the exercise of
the options is the excess of the fair market value of the Common Stock on
the date of exercise over the exercise price. See "-- Fiscal Year-End Option
Values."
The following table provides information related to the number and value of
options held by the Named Executive Officers at the end of 2001. On December 20,
2001, the last day on which the Common Stock was traded during 2001, the closing
sale price of Common Stock was $.35.
FISCAL YEAR-END OPTION VALUES
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (#) ($) ($)
- ---- ----------- ------------- ----------- -------------
Karl R. Wyss............................... 19,446 180,554 -- --
James H. Tate.............................. 17,574 34,112 -- --
Michael E. Mahoney......................... 13,519 26,240 -- --
Robert D. Maddox........................... 3,605 6,999 -- --
Osvaldo Ricci.............................. 3,000 27,000 -- --
</Table>
All options currently outstanding were granted under the Management
Incentive Plan. For a discussion of the Management Incentive Plan, see
"Employment Arrangements -- Management Incentive Plan."
EMPLOYMENT ARRANGEMENTS
Employment and Severance Agreements. The Company has entered into
employment agreements with Messrs. Wyss, Tate, Mahoney, Maddox, and Ricci.
The employment agreement with Mr. Wyss had an original termination date of
January 13, 2003. The agreement was amended on May 3, 2001, to provide a
termination date of January 13, 2004; however the agreement automatically
extends on each January 13 so a new three-year term begins upon each extension
(unless the agreement is earlier terminated by its terms).
24
Mr. Wyss is entitled to an annual base salary (subject to increase at the
Board of Director's discretion) of $900,000. Mr. Wyss is eligible to participate
in an annual bonus plan providing for an annual bonus opportunity of 100% of his
salary. He is also eligible for a special bonus of $7,425,000 if the value of
the DLJMB ownership exceeds $165,000,000. In addition, Mr. Wyss is eligible for
a sale bonus equal to 1% of the amount the value of the Company exceeds
$808,100,000 as of the date the DLJMB entities fully dispose of their investment
in the Company.
The employment agreements with Messrs. Tate, Mahoney and Maddox have an
original termination date of May 22, 1999; however, such agreements
automatically renew for an additional year on each May 22 beginning in 2000 so
that a new three-year term begins upon each extension (unless the agreements are
earlier terminated as provided therein).
Messrs. Tate, Mahoney and Maddox are entitled to annual base salaries
(subject to increase at the Board of Directors' discretion) of $326,500,
$283,500 and $178,500, respectively. In addition, Messrs. Tate, Mahoney and
Maddox are eligible to participate in an annual bonus plan providing for an
annual bonus opportunity of not less than 75%, 70% and 55%, respectively, of
such executive's base salary. Each executive is also entitled to such benefits
as are customarily provided to the executives of the Company and its
subsidiaries. All three executives are required to devote all of their business
time and attention to the business of the Company and its subsidiaries.
The employment agreement with Mr. Ricci has no automatic termination date
and was signed on May 21, 2001. Mr. Ricci was paid a signing bonus of $50,000.
It continues until terminated in accordance with its terms. Mr. Ricci is
entitled to an annual base salary of $215,000. In addition, he is eligible to
participate in an annual bonus plan providing for an annual bonus opportunity of
50% of his base pay. For 2001, the employment agreement provides a guaranteed
bonus of $40,000.
Each employment agreement with Messrs. Wyss, Tate, Mahoney and Maddox
provides that if the executive's employment ceases as a result of disability or
death, the executive or the executive's estate, heirs or beneficiaries, as the
case may be, will continue to receive the executive's then current salary for 24
months from the date of the executive's disability or death. Mr. Ricci's
agreement provides for 18 months salary continuation in the event of his death
or disability. If the executive's employment is terminated by the Company for
Cause (as defined in each employment agreement) or voluntarily by the executive
for any reason other than death or disability or upon a constructive termination
(as defined in each employment agreement) the executive will not be entitled to
receive compensation or any accrued benefits after the date of termination. If
any of Messrs. Wyss, Tate, Mahoney or Maddox are terminated by the Company
without Cause or is terminated by the executive upon a constructive termination,
the executive will continue to receive his then current salary and other
benefits provided by the agreement during the unexpired term of the agreement.
However, if the key employee retention program proposed to the Court by the
Company is approved an executive terminated without Cause or by constructive
termination would continue to receive his then current salary and other benefits
provided by the agreement for 24 months. If Mr. Ricci is terminated without
Cause or upon constructive termination, he will continue to receive his then
current salary and other benefits for 12 months or for 24 months if he is
constructively terminated.
Management Incentive Plan. The Management Incentive Plan provides for the
granting of options to acquire up to 500,000 shares of Common Stock to certain
officers and employees of the Company. All options are non-qualified stock
options granted at no less than 100% of the fair market value on the grant date.
In fiscal 2001, options to purchase approximately 23,000 shares of Common Stock
were granted under the Management Incentive Plan to certain officers and
employees of the Company at an exercise price of $4.00 per share. Pursuant to
the terms of the Management Incentive Plan, options granted to certain members
of senior management provide for both a "Time Vesting Option" and a "Cliff
Vesting Option." Under the Time Vesting Option, the option vests and is
exercisable with respect to 20% of the shares subject to the option on the day
it was granted. Then, on each of the first five anniversaries from the date the
Time Vesting Option was granted, an additional 16% of the shares subject to the
option vest and become exercisable as long as the option recipient is still
employed by the Company or its subsidiaries.
25
With respect to the grants to Messrs. Tate, Mahoney and Maddox, the Cliff
Vesting Option becomes vested and exercisable with respect to 20% of the shares
on the thirtieth day after the availability of the audited financial statements
for each of the fiscal years ended December 31, 1998 through December 31, 2002,
provided that the option recipient is still employed by the Company or its
subsidiaries on such date of determination and further provided that the
targeted implied common equity value of the Company was met for such fiscal
year. If the targeted implied common equity value of the Company is not attained
for any fiscal year ending on or before December 31, 2002, the Cliff Vesting
Option will be treated as vested and exercisable if the target is attained for
any subsequent year as long as the option recipient is still employed by the
Company or its subsidiaries on such date of determination. If, after eight years
from receipt of the Cliff Vesting Option, all shares subject to such option have
not vested, such shares shall become fully vested and exercisable as long as the
option recipient is still employed by the Company or its subsidiaries on such
date.
With respect to Mr. Wyss, the Cliff Vesting Option becomes vested and
exercisable with respect to 33% of the shares on the thirtieth day after the
availability of the audited financial statements for each of the three fiscal
years of the Company ended December 31, 2001, provided that the Company EBITDA
is at least equal to target EBITDA for such fiscal year, and provided Mr. Wyss
is still employed by the Company or its subsidiaries on such Cliff Vesting Date.
If the target EBITDA for any of the first two fiscal years referred to above is
not attained, the portion of the Cliff Vesting Option that would otherwise have
vested for such fiscal year shall be treated as vested and exercisable as of the
Cliff Vesting Date for any subsequent fiscal year ending on or before December
31, 2003 for which the target EBITDA for such subsequent year is attained,
provided Mr. Wyss is employed by the Company or a Subsidiary on such Cliff
Vesting Date. Alternatively, upon the occurrence of a liquidation event,
provided the DLJ IRR, defined below, is at least 25% and provided Mr. Wyss is in
the employ of the Company or a subsidiary as of such liquidation event, the
Cliff Vesting Option shall become vested and exercisable with respect to that
portion of the shares subject thereto as to which the Option has not yet vested.
DLF IRR means the annual discount rate which, when applied to (i) all initial
investments as of May 22, 1998, by the DLJ Entities in shares of common and
preferred stock of the Company, as well as all investments by the DLJ Entities
during 1999 in shares of preferred stock of the Company, and (ii) all amounts
realized by the DLJ Entities with respect to such shares, causes the net present
value of such investments and amounts realized to equal zero.
If, after eight years from receipt of the Cliff Vesting Option, all shares
subject to such option have not vested, such shares shall become fully vested
and exercisable as long as Mr. Wyss is still employed by the Company or its
subsidiaries on such date.
With respect to Mr. Ricci, the Cliff Vesting Option becomes vested and
exercisable with respect to 33% of the shares on the thirtieth day after the
availability of the audited financial statements for each of the three fiscal
years of the Company ended December 31, 2001, provided that the Company EBITDA
is at least equal to target EBITDA for such fiscal year, and provided Mr. Ricci
is still employed by the Company or its subsidiaries on such Cliff Vesting Date.
If the target EBITDA for any of the first two fiscal years referred to above is
not attained, the portion of the Cliff Vesting Option that would otherwise have
vested for such fiscal year shall be treated as vested and exercisable as of the
Cliff Vesting Date for any subsequent fiscal year ending on or before December
31, 2003 for which the target EBITDA for such subsequent year is attained,
provided Mr. Ricci is employed by the Company or a subsidiary on such Cliff
Vesting Date. Alternatively, upon the occurrence of a liquidation event,
provided the DLJ IRR, defined below, is at least 25% and provided Mr. Ricci is
in the employ of the Company or a subsidiary as of such liquidation event, the
Cliff Vesting Option shall become vested and exercisable with respect to that
portion of the shares subject thereto as to which the Option has not yet vested.
DLF IRR means the annual discount rate which, when applied to (i) all initial
investments as of May 22, 1998, by the DLJ Entities in shares of common and
preferred stock of the Company, as well as all investments by the DLJ Entities
during 1999 in shares of preferred stock of the Company, and (ii) all amounts
realized by the DLJ Entities with respect to such shares, causes the net present
value of such investments and amounts realized to equal zero.
If, after eight years from receipt of the Cliff Vesting Option, all shares
subject to such option have not vested, such shares shall become fully vested
and exercisable as long as Mr. Ricci is still employed by the Company or its
subsidiaries on such date.
26
The following table sets forth the number of shares of Common Stock
issuable upon the exercise of options granted to each Named Executive Officer
under the Management Incentive Plan.
MANAGEMENT INCENTIVE PLAN OPTION GRANTS
<Table>
<Caption>
NAME TIME VESTING SHARES CLIFF VESTING SHARES
- ---- ------------------- --------------------
Karl R. Wyss.............................................. 100,000 100,000
James H. Tate............................................. 25,843 25,843
Michael E. Mahoney........................................ 19,880 19,875
Robert D. Maddox.......................................... 5,302 5,301
Osvaldo Ricci............................................. 15,000 15,000
</Table>
Other Compensation Arrangements. In connection with the Company's Chapter
11 proceeding, the Company has proposed to the Court a Key Employee Retention
Program (the "Program"). The Court is expected to rule on this proposal in April
of 2002. The Program, which the Company's board of directors has approved, has
five components.
The first component provides for an assumption of ten employment contracts
that existed on the date the Chapter 11 was commenced. The ten employment
contracts are with the following employees (the "Key Employees"): Karl R. Wyss,
Chairman and Chief Executive Officer; James H. Tate, Senior Vice President and
Chief Financial Officer; John Boisvert, Executive Vice President of Thermal
Dynamics; James Delaney, Executive Vice President of Victor Equipment Company
and Latin America; Dennis Klanjscek, Executive Vice President of Cigweld and
Australia, Robert Maddox, Vice President and Controller, Michael E. Mahoney,
Executive Vice President of Tweco, Thermal Arc, Stoody and Europe, Douglas
Muzzey, Vice President Information Technology; and Patricia S. Williams, Vice
President General Counsel and Corporate Secretary.
The second component would pay each of the ten Key Employees an amount
equal to 100% of his or her base pay in three equal installments (the "Stay
Incentive") as follows: 1/3 payable on May 31, 2002; 1/3 payable on the
effective date of a Plan of Reorganization (the "Effective Date"); and 1/3
payable six months after the Effective Date. Each Key Employee must be employed
by the Company on the date each payment is due, and must not have voluntarily
terminated (except for good reason) or have been terminated for Cause. If the
Key Employee is terminated without Cause, or constructively terminated, or if
the Company is sold to a third party, the entire amount of the Stay Incentive
would be paid. The Stay Incentive is not offset by any other severance owed to
the Key Employee, except, however, Karl R. Wyss's Stay Incentive would offset
severance if the Effective Date occurs prior to March 1, 2003, and his
employment is terminated prior to the Effective Date or if the Effective Date
occurs after March 1, 2003 and the CEO is not retained by the reorganized
company after the Effective Date.
The third component of the Program establishes a management incentive
program for approximately 175 employees. This program replaces the Company's
previous annual bonus program. Each business unit is assigned a Free Cash Flow
("FCF") target defined as EBITDAR(1) plus/minus changes in working capital less
capital expenditures. Each eligible employee is assigned a target bonus (ranging
from 5% to 100%) and to one or more business units, depending on their areas of
responsibility. If FCF is at or below 80%, no incentives are paid. The business
unit would pay 5% of each participant's target bonus for each 1% above 80% FCF
up to 100% FCF. The business unit would pay 2% of each participant's target
bonus for each 1% above 100% FCF up to 125% FCF.
The fourth component of the Program provides authorization for the CEO to
pay up to $750,000 in bonuses to employees other than the Key Employees as
needed for retention and motivation.
The fifth component asks the Court to recognize balances held by the Key
Employees in the Company's excess 401(k) account as administrative expenses of
the estate.
- ---------------
(1) Earnings before interest, taxes, depreciation, amortization and
restructuring charges.
27
The Company estimates the total cost of the Program will be $3,554,600
(which represents payments under the Stay Incentive and CEO discretionary bonus
pool).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Board of Directors served as
an officer or employee of the Company or any of its subsidiaries during 2001.
COMPENSATION OF DIRECTORS
Compensation Arrangements. Other than Messrs. Wyss and Tate, each Director
of the Company is entitled to receive a $25,000 annual fee. Additionally,
certain non-employee Directors (as described in the Thermadyne Holdings
Corporation 1998 Non-Employee Directors Stock Option Plan (the "Directors
Plan")), are eligible to receive options under the Directors Plan. The Directors
Plan provides that certain non-employee Directors shall receive options to
purchase 3,000 shares of Common Stock upon becoming a Director and options to
purchase 500 shares of Common Stock each year thereafter. All options are non-
qualified stock options granted at 100% of the fair market value on the grant
date. During 2001, the Board of Directors awarded Mr. Poling options to purchase
500 shares of Common Stock at $4.00 per share pursuant to the Directors Plan.
Directors also are reimbursed for all reasonable travel and other expenses of
attending meetings of the Board of Directors or committees of the Board of
Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 2, 2002, certain information
regarding the ownership of Common Stock (i) by each person known by the Company
to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii)
by each Director of the Company, (iii) by each Named Executive Officer and (iv)
by all current Directors and executive officers of the Company as a group. Other
than as set forth below, no Director, or executive officer of the Company is the
beneficial owner of any shares of Common Stock. The Company believes that,
unless otherwise noted, each person shown in the following table has sole voting
and sole investment power with respect to the shares indicated.
<Table>
<Caption>
BENEFICIAL OWNERSHIP OF
COMMON STOCK
-----------------------
NAME OF NUMBER PERCENT OF
BENEFICIAL OWNER OF SHARES CLASS (1)
- ---------------- ---------- ----------
Credit Suisse First Boston and related investors(2)......... 3,399,089 82.5%
Magten Asset Management Corp. .............................. 267,339 7.4%
35 East 21st Street
New York, NY 10010(3)
Karl R. Wyss(4)............................................. 30,558 *
James H. Tate(5)............................................ 36,200 *
Harold A. Poling(6)......................................... 4,500 *
Michael E. Mahoney(7)....................................... 27,648 *
Robert D. Maddox(8)......................................... 13,822 *
Kirk B. Wortman............................................. -- *
Osvaldo Ricci(9)............................................ 3,000 *
All Directors and executive officers as a group (7
persons)(10).............................................. 115,728 3.2%
</Table>
- ---------------
* Represents less than 1%.
(1) Based on 3,590,286 shares of Common Stock outstanding and calculated in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(2) Consists of shares held directly by Credit Suisse First Boston ("CSFB") and
the following investors related to CSFB: DLJ Offshore Partners II, C.V.
("Offshore"), a Netherlands Antilles limited partnership, DLJ Diversified
Partners, L.P. ("Diversified"), a Delaware limited partnership, DLJ MB
28
Funding II, Inc. ("Funding"), a Delaware corporation, DLJ Merchant Banking
Partners II-A, L.P. ("DLJMBPIIA"), a Delaware limited partnership, DLJ
Diversified Partners-A, L.P. ("Diversified A"), a Delaware limited
partnership, DLJ Millennium Partners, L.P. ("Millennium"), a Delaware
limited partnership, DLJ Millennium Partners-A, L.P. ("Millennium A"), a
Delaware limited partnership, DLJ EAB Partners, L.P. ("EAB"), a Delaware
limited partnership, UK Investment Plan 1997 Partners ("UK Partners"), a
Delaware partnership, DLJ First ESC L.P. ("DLJ First ESC"), a Delaware
limited partnership, and DLJ ESC II, L.P. ("DLJ ESC II"), a Delaware
limited partnership. CSFB, Offshore, Diversified, Funding, DLJMBPIIA,
Diversified A, Millennium, Millennium A, EAB, UK Partners, DLJ First ESC
and DLJ ESC II are herein referred to as the "DLJ Funds." The address of
each of CSFB, Diversified, Funding, DLJMBPIIA, Diversified A, Millennium,
Millennium A, EAB, DLJ First ESC and DLJ ESC II is 277 Park Avenue, New
York, New York 10172. The address of Offshore is John B. Gorsiraweg, 14
Willemstad, Curacao, Netherlands Antilles. The address of UK Partners is
2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California
90067. Includes 436,965 shares of Common Stock issuable upon exercise of
warrants that are currently exercisable.
(3) The following information is based on a Schedule 13D, dated July 25, 1996,
as amended on September 25, 1996, on February 12, 1998, on March 9, 1998,
and on June 10, 1998, filed with the Securities and Exchange Commission
(the "Commission") by Magten Asset Management Corp. ("Magten"), an
investment adviser registered under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"). Magten has (i) shared voting power
over 227,897 of the shares and no voting power over 39,442 of the shares
and (ii) shared investment power over all 267,339 shares.
(4) Includes 30,558 shares of Common Stock issuable to Mr. Wyss upon the
exercise of vested stock options or stock options that will vest in 60
days.
(5) Includes 21,708 shares of Common Stock issuable to Mr. Tate upon the
exercise of vested stock options or stock options that will vest within 60
days.
(6) Includes 4,500 shares of Common Stock issued to Mr. Poling upon the
exercise of vested stock options or stock options that will vest within 60
days.
(7) Includes 16,700 shares of Common Stock issuable to Mr. Mahoney upon the
exercise of vested stock options or stock options that will vest within 60
days.
(8) Includes 4,454 shares of Common Stock issuable to Mr. Maddox upon the
exercise of vested stock options or stock options that will vest within 60
days.
(9) Consists of 3,000 shares of Common Stock issuable to Mr. Ricci upon the
exercise of vested stock options.
(10) Includes 80,920 shares of Common Stock issuable upon the exercise of vested
stock options or stock options that will vest within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On December 22, 1999, the DLJ Funds purchased, for an aggregate purchase
price of $25,000,000, pursuant to a Subscription Agreement ("Subscription
Agreement") among the Company, Thermadyne LLC and the DLJ Funds dated December
22, 1999, $25,000,000 in principal amount of the Junior Subordinated Notes and
warrants to purchase 436,965 shares ("Warrants"). Each Warrant is exercisable at
a price of $0.01 per Warrant Share (as defined below), subject to adjustment.
The investment of additional capital in the Company and the Subsidiary was used
for general corporate purposes.
The Company, the Subsidiary and the DLJ Funds have entered into a
Registration Rights Agreement which grants the holders of 50% or more of the
Notes or Warrants the right to demand the Company or the Subsidiary, as the case
may be, to effect a registration of the Notes or Warrants under the Securities
Act of 1933, as amended (the "Act"). The Company is obliged to effect one demand
registration for the Warrants and the Subsidiary is obliged to effect up to two
demand registrations for the Notes. If any Warrants are included in a demand
registration, the Company must prepare a shelf registration statement under Rule
415 of the Act permitting the resale of Warrants and the shares issuable upon
exercise of the Warrants ("Warrant Shares") and must use its best efforts to
cause the warrant shelf registration statement to be declared effective
29
within 90 days of the time such demand registration is effected. The Company
must keep the warrant shelf registration statement effective until the earlier
of (i) two years following the date as of which no Warrants remain outstanding
and (ii) if all of the Warrants expire unexercised, December 15, 2009.
The Company's registration obligations in respect of the Warrants shall
expire on the earlier of (i) the date on which each Warrant or Warrant Share has
been disposed of in accordance with a warrant registration statement or when
such Warrant Share is issued upon exercise of a Warrant in accordance with a
registration statement and (ii) the date on which each Warrant or Warrant Share
is distributed to the public pursuant to Rule 144 under the Act. The
Subsidiary's registration obligations in respect of the Notes shall expire on
the earlier of (i) the date on which each Note has been disposed in accordance
with a note registration statement and (ii) the date on which each Note is
distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement also grants "piggy-back" rights to the
DLJ Funds to participate in certain registration statements filed by Thermadyne
in respect of any equity securities of the Company. The Registration Rights
Agreement also contains a "lock-up" provision pursuant to which the DLJ Funds
may be restricted from transferring Notes or Warrants in public sales during an
underwriter's public offering of Notes or Warrants.
Pursuant to a letter agreement dated January 16, 1998 (the "Engagement
Letter"), DLJMB engaged DLJSC to act as DLJMB's exclusive financial advisor for
a period of five years (the "Engagement Period") with respect to the review and
analysis of financial and structural alternatives available to the Company. The
Company has since assumed DLJMB's obligations under the Engagement Letter.
As compensation for the services to be provided by DLJSC under the
Engagement Letter, DLJSC is entitled to receive an annual advisory fee of
$300,000, payable quarterly in equal installments of $75,000. DLJSC is also
entitled to reimbursement for all of its out-of-pocket expenses incurred in
connection with its engagement.
During the Engagement Period, DLJSC is also entitled to act as the
Company's exclusive financial advisor, sole placement agent, sole initial
purchaser, sole managing underwriter or sole dealer-manager, as the case may be,
with respect to any Transaction (as hereinafter defined) the Company determines
to pursue. The term "Transaction" includes the following: (i) the sale, merger,
consolidation or any other business combination, in one or a series of
transactions, involving any portion of the business, securities or assets of the
Company; (ii) the acquisition (and any related matters such as financings,
divestitures, etc.) in one or a series of transactions, of all or a portion of
the business, securities or assets of another entity or person; (iii) any
recapitalization, refinancing, repurchase or restructuring of the Company's
equity or debt securities or indebtedness or any amendments or modifications to
the Company's debt securities or indentures whether or not in connection
therewith, involving, by or on behalf of the Company, an offer to purchase or
exchange for cash, property, securities, indebtedness or other consideration, or
a solicitation of consents, waivers of authorizations with respect thereto; (iv)
any spin-off, split-off or other extraordinary dividend of cash, securities or
other assets to stockholders of the Company; or (v) any sale of securities of
the Company effected pursuant to a private sale or an underwritten public
offering.
The Company has agreed to indemnify and hold harmless DLJSC and its
affiliates, and the respective directors, officers, agents and employees of
DLJSC and its affiliates (each, an "Indemnified Person") from and against any
losses, claims, damages, judgments, assessments, costs and other liabilities and
will reimburse such Indemnified Persons for all fees and expenses (including the
reasonable fees and expenses of counsel) as they are incurred in investigating,
preparing, pursuing or defending any claim, action, proceeding or investigation
arising out of or in connection with advice or services rendered or to be
rendered by an Indemnified Person pursuant to the Engagement Letter, the
transactions contemplated by the Engagement Letter or any Indemnified Person's
action or inaction in connection with any such advice, services or transactions,
other than liabilities or expenses that are determined by a judgment of a court
of competent jurisdiction to have resulted solely from such Indemnified Person's
gross negligence or willful misconduct.
The Engagement Letter makes available the resources of DLJSC concerning a
variety of financial and operational matters. The services that have been and
will continue to be provided by DLJSC could not
30
otherwise be obtained by the Company without the addition of personnel or the
engagement of outside professional advisors. In the opinion of management, the
fees provided for under the Engagement Letter reasonably reflect the benefits
received and to be received by the Company.
The Company has entered into the Investors' Agreement with the DLJMB Funds
and the senior executive officers of the Company. The Investors' Agreement,
among other things, contains provisions regarding the composition of the Board
of Directors of the Company, grants the parties thereto certain registration
rights and contains provisions requiring the senior executive officers parties
thereto to sell their shares of Common Stock in connection with certain sales of
the Common Stock by the DLJMB Funds and granting the senior executive officers
parties thereto the right to include a portion of their shares of Common Stock
in certain sales of the Common Stock by the DLJMB Funds.
In 1998, Messrs. Tate, Mahoney, and Maddox received secured, non-recourse
loans from the Company in the amount of $367,606, $277,708 and $237,630,
respectively, to purchase shares of the Company. The current principal balances
of the loans are $388,523, $293,510 and $251,151, respectively. The loans bear
interest at the rate of 5.69% per annum and are due in full on May 22, 2006.
Upon the termination of a participant's employment with the Company, other than,
as a result of the participant's death, the Company may accelerate any
outstanding loan.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENT SCHEDULES
Report of Independent Auditors is included at page S-1 hereof.
Schedule II -- Valuation and Qualifying Accounts is included at page S-2
hereof.
All other schedules for which provision is made in the applicable
accounting regulation of the Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.
REPORTS ON FORM 8-K
On November 29, 2001, the Company filed a Current Report on Form 8-K
reporting that the Debtors filed voluntary petitions for relief under Chapter 11
of the United States Bankruptcy Code in the Court.
EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. EXHIBIT
------- -------
2.1 -- Agreement Plan of Merger, dated as of January 20, 1998,
between Thermadyne Holdings Corporation and Mercury
Acquisition Corporation.(2)
2.2 -- Amendment No. 1 to Agreement and Plan of Merger between
Thermadyne Holdings Corporation and Mercury Acquisition
Corporation.(3)
2.3 -- Certificate of Merger of Mercury Acquisition Corporation
with and into Thermadyne Holdings Corporation.(3)
3.1 -- Certificate of Incorporation of Thermadyne Holdings
Corporation (included in Exhibit 2.4).
3.2 -- Bylaws of Thermadyne Holdings Corporation.(3)
3.3 -- Certificate of Incorporation of Thermadyne Capital
Corp.(4)
3.4 -- Bylaws of Thermadyne Capital Corp.(4)
</Table>
31
<Table>
<Caption>
EXHIBIT
NO. EXHIBIT
------- -------
3.5 -- Limited Liability Company agreement of Thermadyne Mfg.
LLC.(4)
4.1 -- Indenture, dated as of May 22, 1998, between Mercury
Acquisition Corporation and IBJ Schroder Bank & Trust
Company, as Trustee.(3)
4.2 -- First Supplemental Indenture, dated as of May 22, 1998,
between Thermadyne Holdings Corporation and IBJ Schroder
Bank & Trust Company, as Trustee.(3)
4.3 -- Form of 12 1/2% Senior Discount Debentures.(3)
4.4 -- A/B Exchange Registration Rights Agreement dated as of
May 22, 1998, among Mercury Acquisition Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.(3)
4.5 -- Amendment to Registration Rights Agreement dated May 22,
1998, among Thermadyne Holdings Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.(3)
4.6 -- Indenture, dated as of February 1, 1994, between
Thermadyne Holdings Corporation and Chemical Bank, as
Trustee, with respect to $179,321,000 principal amount of
the Senior Subordinated Notes due November 1, 2003.(1)
4.7 -- Form of Senior Subordinated Note (included in Exhibit
4.3).(1)
4.8 -- Indenture, dated May 22, 1998, among Thermadyne Mfg. LLC,
Thermadyne Capital Corp., the guarantors named therein
and State Street Bank and Trust Company, as Trustee.(3)
4.9 -- Form of 9 7/8% Senior Subordinated Notes.(3)
4.10 -- A/B exchange Registration Rights Agreement dated as of
May 22, 1998, among Thermadyne Mfg. LLC, Thermadyne
Capital Corp., the guarantors named therein and
Donaldson, Lufkin & Jenrette Securities Corporation.(3)
4.11 -- Subscription agreement dated December 22, 1999, among
Thermadyne Mfg. LLC, Thermadyne Holdings Corporation, and
the buyers named therein.(9)
4.12 -- Registration Rights Agreement dated December 22, 1999,
among Thermadyne Mfg. LLC, Thermadyne Holdings
Corporation, and the buyers named therein.(9)
4.13 -- Form of indenture relating to Junior Subordinated
Notes.(9)
4.14 -- Form of Warrants (included in Exhibit 4.11).(9)
4.15 -- Form of Junior Subordinated Notes (included in Exhibit
4.11).(9)
4.16 -- Third Amendment and Forbearance Agreement dated as of May
24, 2001 by and among Thermadyne Holdings Corporation,
and certain of its subsidiaries, the Lenders party
thereto and ABN AMRO Bank, N.V., as agent for the
Lenders, as supplemented by that certain letter agreement
dated as of July 24, 2001, but effective as of July 31,
2001 by and among Thermadyne Holdings Corporation,
certain of its subsidiaries and ABN AMRO Bank, N.V., as
agent for the Lenders.
10.1 -- Omnibus Agreement, dated as of June 3, 1988, among Palco
Acquisition Company (now Thermadyne Holdings Corporation)
and its subsidiaries and National Warehouse Investment
Company.(5)
10.2 -- Escrow Agreement, dated as of August 11, 1988, among
National Warehouse Investment Company, Palco Acquisition
Company (now Thermadyne Holdings Corporation) and Title
Guaranty Escrow Services, Inc.(5)
10.3 -- Amended and Restated Industrial Real Property Lease dated
as of August 11, 1988, between National Warehouse
Investment Company and Tweco Products, Inc., as amended
by First Amendment to Amended and Restated Industrial
Real Property Lease dated as of January 20, 1989.(5)
</Table>
32
<Table>
<Caption>
EXHIBIT
NO. EXHIBIT
------- -------
10.4 -- Schedule of substantially identical lease agreements.(5)
10.5 -- Amended and Restated Continuing Lease Guaranty, made as
of August 11, 1988, by Palco Acquisition Company (now
Thermadyne Holdings Corporation) for the benefit of
National Warehouse Investment Company.(5)
10.6 -- Schedule of substantially identical lease guaranties.(5)
10.7 -- Lease Agreement, dated as of October 10, 1990, between
Stoody Deloro Stellite and Bowling Green-Warren County
Industrial Park Authority, Inc.(5)
10.8 -- Lease Agreement, dated as of February 15, 1985, as
amended, between Stoody Deloro Stellite, Inc. and
Corporate Property Associates 6.(5)
10.9 -- Purchase Agreement, dated as of August 2, 1994, between
Coyne Cylinder Company and BA Credit Corporation.(6)
10.10 -- Sublease Agreement, dated as of April 7, 1994, between
Stoody Deloro Stellite, Inc., and Swat, Inc.(6)
10.11 -- Share Sale Agreement dated as of November 18, 1995, among
certain scheduled persons and companies, Rosny Pty
Limited, Byron Holdings Limited, Thermadyne Holdings
Corporation, and Thermadyne Australia Pty Limited
relating to the sale of the Cigweld Business.(7)
10.12 -- Rights Agreement dated as of May 1, 1997, between
Thermadyne Holdings Corporation and BankBoston, N.A., as
Rights Agent.(8)
10.13 -- First Amendment to Rights Agreement, dated January 20,
1998, between Thermadyne Holdings Corporation and
BankBoston, N.A.(2)
10.14+ -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Randall E.
Curran.(3)
10.15+ -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and James H.
Tate.(3)
10.16+ -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Stephanie N.
Josephson.(3)
10.17+ -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Thomas C.
Drury.(3)
10.18+ -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Robert D.
Maddox.(3)
10.19+ -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Randall E. Curran.(3)
10.20+ -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and James H. Tate.(3)
10.21+ -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Stephanie N. Josephson.(3)
10.22+ -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Thomas C. Drury.(3)
10.23+ -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Robert D. Maddox.(3)
10.24+ -- Thermadyne Holdings Corporation Management Incentive
Plan.(3)
10.25+ -- Thermadyne Holdings Corporation Direct Investment
Plan.(3)
</Table>
33
<Table>
<Caption>
EXHIBIT
NO. EXHIBIT
------- -------
10.26 -- Investors' Agreement dated as of May 22, 1998, between
Thermadyne Holdings Corporation, the DLJ Entities (as
defined therein) and the Management Stockholders (as
defined therein).(3)
10.27 -- Credit Agreement dated as of May 22, 1998, between
Thermadyne Mfg. LLC, Comweld Group Pty. Ltd., GenSet
S.P.A. and Thermadyne Welding Products Canada Limited, as
Borrowers, Various Financial Institutions, as Lenders,
DLJ Capital Funding, Inc., as Syndication Agent, Societe
Generale, as Documentation Agent, and ABN Amro Bank N.V.,
as Administrative Agent.(3)
10.28 -- First Amendment to Credit Agreement, dated as of November
10, 1999, among Thermadyne Mfg. LLC., Comweld Group Pty.
Ltd., GenSet S.P.A. and Thermadyne Welding Products
Canada Limited, as Borrowers, Various Financial
Institutions, as Lenders, DLJ Capital Funding, Inc., as
Syndication Agent, Societe Generale, as Documentation
Agent, and ABN Amro Bank N.V., as Administrative
Agent.(9)
10.29 -- Letter Agreement dated as of January 16, 1998, between
Donaldson, Lufkin & Jenrette Securities Corporation and
DLJ Merchant Banking II, Inc.(3)
10.30 -- Assignment and Assumption Agreement dated as of May 22,
1998, between DLJ Merchant Banking II, Inc. and
Thermadyne Holdings Corporation.(3)
10.31 -- Receivables Participation Agreement, dated as of January
31, 2000, between Thermadyne Receivables, Inc. as the
Transferor, and Bankers Trust Company, as Trustee.(10)
10.32+ -- Executive, Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Michael E.
Mahoney.(10)
10.33+ -- Executive Employment Agreement dated July 10, 2001,
between Thermadyne Holdings Corporation and Douglas W.
Muzzey.(11)
10.34+ -- Executive Employment Agreement dated May 21, 2001,
between Thermadyne Holdings Corporation and Osvaldo
Ricci.(11)
10.35+ -- Executive Employment Agreement dated January 13, 2001,
between Thermadyne Holdings Corporation and Karl R.
Wyss.(11)
10.36 -- Revolving Credit and Guaranty Agreement dated as of
November 26, 2001, among Thermadyne Mfg. LLC., as the
Borrower, Thermadyne Holdings Corporation, Thermadyne
Capital Corp., Thermadyne Industries, Inc., Victor
Equipment Company, Thermadyne International Corp.,
Thermadyne Cylinder Co., Thermal Dynamics Corp., C&G
Systems Holding, Inc., MECO Holding Co., Tweco Products,
Inc., Tag Realty, Inc., Victor-Coyne International, Inc.,
Victor Gas Systems, Inc., Stoody Company, Thermal Arc,
Inc., C&G Systems, Inc., Marison Cylinder Company,
Wichita Warehouse Corp., Coyne Natural Gas Systems, Inc.,
Modern Engineering Company, Inc., as the U.S. Guarantors
and ABN AMRO Bank N.V. as the Agent.*
</Table>
34
<Table>
<Caption>
EXHIBIT
NO. EXHIBIT
------- -------
10.37 -- First Amendment to Credit and Guaranty Agreement dated as
of January 3, 2002 among Thermadyne Mfg. LLC., Thermadyne
Holdings Corporation, Thermadyne Capital Corp.,
Thermadyne Industries, Inc., Victor Equipment Company,
Thermadyne International Corp., Thermadyne Cylinder Co.,
Thermal Dynamics Corp., C&G Systems Holding, Inc., MECO
Holding Co., Tweco Products, Inc., Tag Realty, Inc.,
Victor-Coyne International, Inc., Victor Gas Systems,
Inc., Stoody Company, Thermal Arc, Inc., C&G Systems,
Inc., Marison Cylinder Company, Wichita Warehouse Corp.,
Coyne Natural Gas Systems, Inc., Modern Engineering
Company, Inc., as the U.S. Guarantors and ABN AMRO Bank
N.V. as the Agent.*
21.1 -- Subsidiaries of Thermadyne Holdings Corporation.*
23.1 -- Consent of Independent Auditors.*
</Table>
- ---------------
+ Indicates a management contract or compensatory plan or arrangement.
* Filed herewith.
(1) Incorporated by reference to the Company's Registration Statement on Form
10 (File No. 0-23378) filed under Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), on February 7, 1994.
(2) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on January 21,
1998.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-1, (File No. 333-57455) filed on June 23, 1998.
(4) Incorporated by reference to Thermadyne LLC and Thermadyne Capital's
Registration Statement on Form S-1, (File No. 333-57457) filed on June 23,
1998.
(5) Incorporated by reference to the Company's Registration Statement on Form
10/A, Amendment No. 2 (File No. 0-23378) filed under Section 12(g) of the
Exchange Act, on April 28, 1994.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(7) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on January 18,
1996.
(8) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on May 12, 1997.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30,2001.
35
THERMADYNE HOLDINGS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Thermadyne Holdings Corporation
Report of Independent Auditors............................ F-2
Consolidated Balance Sheets at December 31, 2001 and
2000................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999....................... F-4
Consolidated Statements of Shareholders' Deficit for the
years ended December 31, 2001, 2000 and 1999........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999....................... F-6
Notes to Consolidated Financial Statements................ F-7
Thermadyne Mfg. LLC
Report of Independent Auditors............................ F-31
Consolidated Balance Sheets at December 31, 2001 and
2000................................................... F-32
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999....................... F-33
Consolidated Statements of Shareholder's Deficit for the
years ended December 31, 2001, 2000 and 1999........... F-34
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999....................... F-35
Notes to Consolidated Financial Statements................ F-36
</Table>
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Thermadyne Holdings Corporation
We have audited the accompanying consolidated balance sheets of Thermadyne
Holdings Corporation and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, shareholders' deficit, and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Thermadyne
Holdings Corporation and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that
Thermadyne Holdings Corporation will continue as a going concern. As more fully
described in Note 2 to the financial statements, on November 19, 2001, the
Company filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code in the Eastern District of Missouri. The filing was
necessary due to events of default on the Company's debt covenants. In addition,
the Company has incurred recurring net losses applicable to common shares and
has a shareholder deficiency. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The accompanying financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri
February 28, 2002
F-2
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<Table>
DECEMBER 31, DECEMBER 31,
2001 2000
--------- ---------
Current assets:
Cash and cash equivalents................................. $ 14,800 $ 10,362
Accounts receivable, less allowance for doubtful accounts
of $3,376 and $3,509, respectively..................... 75,816 67,011
Inventories............................................... 89,748 112,451
Prepaid expenses and other................................ 14,600 4,597
--------- ---------
Total current assets.............................. 194,964 194,421
Property, plant and equipment, at cost, net................. 81,012 84,725
Deferred financing costs, net............................... 13,825 18,238
Intangibles, at cost, net................................... 13,422 14,206
Deferred income taxes....................................... 248 792
Other assets................................................ 6,922 5,563
--------- ---------
Total assets...................................... $ 310,393 $ 317,945
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 19,520 $ 43,268
Accrued and other liabilities............................. 25,410 35,290
Accrued interest.......................................... 471 2,646
Income taxes payable...................................... 508 10,119
Current maturities of long-term obligations............... 11,606 19,737
--------- ---------
Total current liabilities......................... 57,515 111,060
Liabilities subject to compromise........................... 834,478 --
Long-term obligations, less current maturities.............. 21,084 734,184
Other long-term liabilities................................. 43,868 61,244
Redeemable preferred stock (paid in kind), $0.01 par value,
15,000,000 shares authorized and 2,000,000 shares
outstanding............................................... 78,509 69,814
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) (119,828)
Accumulated deficit....................................... (553,008) (501,467)
Management loans.......................................... (1,344) (1,503)
Accumulated other comprehensive loss...................... (42,222) (35,595)
--------- ---------
Total shareholders' deficit....................... (725,061) (658,357)
--------- ---------
Total liabilities and shareholders' deficit....... $ 310,393 $ 317,945
========= =========
</Table>
See accompanying notes to consolidated financial statements.
F-3
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
Net sales............................................. $438,224 $ 510,146 $521,115
Operating expenses:
Cost of goods sold.................................. 296,538 327,480 342,250
Selling, general and administrative expenses........ 97,152 102,578 99,151
Amortization of goodwill............................ 371 19,176 1,575
Amortization of intangibles......................... 1,804 7,707 3,047
Net periodic postretirement benefits................ 1,125 1,121 3,200
Special charges..................................... 14,855 42,456 21,886
-------- --------- --------
Operating income.................................... 26,379 9,628 50,006
Other income (expense):
Interest expense (contractual interest expense of
$80,332 in 2001)................................. (76,360) (81,358) (72,439)
Amortization of deferred financing costs............ (4,360) (3,314) (3,590)
Other, net.......................................... (1,226) 251 531
-------- --------- --------
Loss before reorganization items and income tax
provision........................................... (55,567) (74,793) (25,492)
Reorganization items.................................. (6,723) -- --
-------- --------- --------
Loss before income tax provision...................... (48,844) (74,793) (25,492)
Income tax provision.................................. 2,697 31,855 8,807
-------- --------- --------
Net loss.............................................. (51,541) (106,648) (34,299)
Preferred stock dividends (paid in kind).............. 8,695 8,384 7,377
-------- --------- --------
Net loss applicable to common shares.................. $(60,236) $(115,032) $(41,676)
======== ========= ========
Basic and diluted loss per share amounts:
Net loss............................................ $ (14.36) $ (29.70) $ (9.62)
Net loss applicable to common shares................ (16.78) (32.04) (11.68)
</Table>
See accompanying notes to consolidated financial statements.
F-4
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)
<Table>
<Caption>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN ACCUMULATED MANAGEMENT COMPREHENSIVE
STOCK CAPITAL DEFICIT LOANS LOSS TOTAL
------ ---------- ----------- ---------- ------------- ---------
January 1, 1999.................. $32 $(116,551) $(360,520) $(3,753) $(15,534) $(496,326)
Comprehensive loss:
Net loss....................... -- -- (34,299) -- -- (34,299)
Other comprehensive
loss -- foreign currency
translation................. -- -- -- -- (8,361) (8,361)
---------
Comprehensive loss............... (42,660)
---------
Exercise of warrants............. 4 (4) -- -- -- --
Issuance of warrants............. -- 9,175 -- -- -- 9,175
Interest on management loans..... -- -- -- (213) -- (213)
Accretion of preferred stock..... -- (7,377) -- -- -- (7,377)
Recognition of net operating loss
Carryforwards.................. -- 3,313 -- -- -- 3,313
--- --------- --------- ------- -------- ---------
December 31, 1999................ 36 (111,444) (394,819) (3,966) (23,895) (534,088)
Comprehensive loss:
Net loss....................... -- -- (106,648) -- -- (106,648)
Other comprehensive
loss -- foreign currency
translation................. -- -- -- -- (11,700) (11,700)
---------
Comprehensive loss............... (118,348)
---------
Interest on management loans..... -- -- -- (226) -- (226)
Accretion of preferred stock..... -- (8,384) -- -- -- (8,384)
Reclassification of management
loans.......................... -- -- -- 2,689 -- 2,689
--- --------- --------- ------- -------- ---------
December 31, 2000................ 36 (119,828) (501,467) (1,503) (35,595) (658,357)
Comprehensive loss:
Net loss....................... -- -- (51,541) -- -- (51,541)
Other comprehensive income
(loss):
Foreign currency
translation............... -- -- -- -- (7,335) (7,335)
Pension..................... 708 708
---------
Comprehensive loss............... (58,168)
---------
Interest on management loans..... -- -- -- (237) -- (237)
Accretion of preferred stock..... -- (8,695) -- -- -- (8,695)
Reclassification of management
loans.......................... -- -- -- 396 -- 396
--- --------- --------- ------- -------- ---------
December 31, 2001................ $36 $(128,523) $(553,008) $(1,344) $(42,222) $(725,061)
=== ========= ========= ======= ======== =========
</Table>
See accompanying notes to consolidated financial statements.
F-5
THERMADYNE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- ----------------- -----------------
Cash flows provided by (used in) operating activities:
Net loss................................................ $(51,541) $(106,648) $(34,299)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Net periodic postretirement benefits............... 1,125 1,121 3,200
Depreciation....................................... 17,055 15,335 18,860
Amortization of goodwill........................... 371 19,176 1,575
Amortization of other intangibles.................. 1,804 7,707 3,047
Non-cash interest expense.......................... 19,476 18,972 13,134
Amortization of deferred financing costs........... 4,360 3,314 3,590
Benefit from rejection of executory contracts...... (12,228) -- --
Recognition of net operating loss carryforwards.... -- -- 3,313
Deferred income taxes.............................. 527 28,310 3,468
Loss on asset disposal............................. -- 9,990 2,740
Issuance of common stock warrants.................. -- -- 9,175
Changes in operating assets and liabilities:
Accounts receivable................................ 9,874 6,996 19,239
Inventories........................................ 10,814 (16,273) 25,425
Prepaid expenses and other......................... (9,437) 1,082 1,638
Accounts payable................................... (5,416) 992 (3,751)
Accrued and other liabilities...................... (240) 8,361 (10,453)
Accrued interest................................... 22,652 (445) (71)
Income taxes payable............................... (324) 424 (1,818)
Other long-term liabilities........................ (2,508) (3,291) (4,126)
-------- --------- --------
Total adjustments............................. 57,905 101,771 88,185
-------- --------- --------
Net cash provided by (used in) operating
activities.................................. 6,364 (4,877) 53,886
-------- --------- --------
Cash flows used in investing activities:
Capital expenditures, net............................. (15,323) (18,691) (10,168)
Proceeds from sale of assets.......................... -- 6,961 --
Change in other assets................................ (826) (1,051) (1,046)
Acquisitions, net of cash............................. -- (3,767) (5,886)
-------- --------- --------
Net cash used in investing activities......... (16,149) (16,548) (17,100)
-------- --------- --------
Cash flows provided by (used in) financing activities:
Change in long-term receivables....................... (425) 384 (353)
Borrowing under debtor-in-possession credit
facility........................................... 8,650 -- --
Repayment of long-term obligations.................... (12,283) (26,477) (23,166)
Borrowing of long-term obligations.................... 40,049 34,216 26,535
Issuance of common stock.............................. -- -- 4
Change in accounts receivable securitization.......... (20,999) 20,999 (23,843)
Financing fees........................................ -- (1,125) (901)
Other................................................. (769) (9,531) (3,060)
-------- --------- --------
Net cash provided by (used in) financing
activities.................................. 14,223 18,466 (24,784)
-------- --------- --------
Net increase (decrease) in cash and cash equivalents.... 4,438 (2,959) 12,002
Cash and cash equivalents at beginning of year.......... 10,362 13,321 1,319
-------- --------- --------
Cash and cash equivalents at end of year................ $ 14,800 $ 10,362 $ 13,321
======== ========= ========
</Table>
See accompanying notes to consolidated financial statements.
F-6
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
Thermadyne Holdings Corporation ("Thermadyne" or the "Company"), a Delaware
corporation, is a global manufacturer of cutting and welding products and
accessories.
As used in this report, the term "Thermadyne LLC" means Thermadyne Mfg.
LLC, a wholly owned and the principal operating subsidiary of Thermadyne
Holdings Corporation, and the term "Thermadyne Capital" means Thermadyne Capital
Corp., a wholly owned subsidiary of Thermadyne LLC.
2. RECENT EVENTS
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 "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. 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 December 31, 2001, the Company's eligible accounts receivable, inventories
and fixed assets supported access to $58.0 million of the DIP Facility. As of
December 31, 2001, the Company had borrowed $8.7 million and issued letters of
credit of $0.1 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, 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), and other customary
provisions.
F-7
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 year
ended December 31, 2001, was $20.4 million, $4.0 million, $16.7 million and $4.7
million, respectively. Interest recorded for the Senior Subordinated Notes, the
Subordinated Notes, the Debentures and the Junior Notes was $18.7 million, $3.7
million, $15.2 million and $4.3 million, respectively. Contractual dividends for
the redeemable preferred stock was $9.5 million for the year ended December 31,
2001, which compares to recorded dividends of $8.7 million. 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 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. In total,
contractual interest on the Company's obligations was $80.3 million, for the
year ended December 31, 2001, which was $4.0 million in excess of reported
interest.
Pursuant to the provisions of the Bankruptcy Code, substantially 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 against the Debtors may be filed with
the Court through April 19, 2002. As debtor-in-possession, the Debtors have 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 second 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. The Company has moved the Court to extend the period during which
the Debtors may file a Plan of Reorganization through July 1, 2002. On April 2,
2001, the Court will consider the Company's motion for such extension. There can
be no assurance that the Court will grant such extensions. 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.
Although the Chapter 11 filing raises substantial doubt 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
F-8
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
result in claims being paid in the Chapter 11 proceedings at less (and possibly
substantially less) than 100 percent 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 sheet. 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 December 31, 2001, balance sheet 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 at December
31, 2001, consisted of the following:
<Table>
Trade accounts payable...................................... $ 17,334
Accrued and other liabilities............................... 3,500
Accrued interest............................................ 24,809
Accrued income taxes........................................ 11,290
Old Credit Facility......................................... 353,437
Senior Subordinated Notes................................... 207,000
Debentures.................................................. 145,066
Subordinated Notes.......................................... 37,060
Junior Notes................................................ 33,427
Other long-term liabilities................................. 1,555
--------
Total............................................. $834,478
========
</Table>
Reorganization Items
Reorganization items in 2001, include $4.8 million of professional fees and
expenses, a benefit of $12.2 million resulting from the Court's approval of a
Company motion to reject a non-cancelable lease obligation on a substantially
idle facility, and $0.7 million of other reorganization costs.
Special Charges
Special charges incurred during the year ended December 31, 2001, were
$14.9 million and were comprised primarily of $7.0 million related to business
reengineering initiatives, $3.2 million related to an information technology
transformation project, and $2.4 million to logistics initiatives. The remainder
resulted mostly from the relocation of production to Mexico. Special charges of
$42.5 million were incurred during the year ended December 31, 2000, and are
comprised primarily of $19.4 million of costs related to the relocation of
production to Mexico and Asia, $11.0 million resulting from the Company's
reorganization of its domestic gas management business, $5.0 million related to
changes in senior management, and $4.7 million related to an information
technology and business process reengineering project the Company initiated in
the third quarter of 2000. In 1999, special charges of $21.9 million were
recorded related to the reorganization of the Company's Australian and Asian
operations, the consolidation of two domestic facilities and detachable warrants
issued in conjunction with junior subordinated notes.
F-9
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisitions
In 2000, the Company made the following two acquisitions. On April 13, the
Company, through a 90% owned subsidiary, acquired all the assets of Unique
Welding Alloys ("Unique"), a business that sells industrial gases, welding
equipment and accessories to the retail end-user trade, and on November 9, the
Company, through a 90% owned subsidiary, acquired all the assets of Maxweld &
Braze (Pty) Ltd., a wholesale business that sells welding equipment and
accessories to distributors and the retail end-user trade. Both of these
businesses are located in Boksburg, South Africa. The aggregate consideration
paid for these two acquisitions was approximately $4.4 million and was financed
through existing bank facilities. These transactions were accounted for as
purchases.
In 1999, the Company made the following two acquisitions. On March 11, the
Company acquired all the issued and outstanding capital stock of Soltec S.A., a
manufacturer of manual electrodes and tubular wires for hardfacing and special
applications, located in Santiago, Chile. On April 14, the Company acquired all
the issued and outstanding capital stock of Tecmo Srl, a manufacturer of torches
and plasma and laser consumables, located in Rastignano, Italy. The aggregate
consideration paid for these two acquisitions was approximately $6 million and
was financed through existing bank facilities. These transactions were accounted
for as purchases.
The operating results of the acquired companies have been included in the
Consolidated Statements of Operations from their respective dates of
acquisition. Pro forma unaudited results of operations for the twelve months
ended December 31, 2000 and 1999 have not been presented, since they would not
have differed materially from actual results.
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Thermadyne
and its majority owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Bankruptcy Accounting. Since the Chapter 11 bankruptcy filing, the Company
has applied the provisions in Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7.") SOP 90-7
does not change the application of generally accepted accounting principles in
the preparation of financial statements, but it does require that the financial
statements for periods including and subsequent to filing the Chapter 11
petition distinguish transactions and events that are directly associated with
the reorganization from the ongoing operations of the business.
Estimates. Preparation of financial statements in conformity with generally
accepted accounting principles requires certain estimates and assumptions be
made that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventories. Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out ("LIFO") method for domestic
subsidiaries and the first-in, first-out ("FIFO") method for foreign
subsidiaries. Inventories at foreign subsidiaries amounted to approximately
$37,986 and $47,698 at December 31, 2001 and 2000, respectively.
Property, Plant and Equipment. Property, plant and equipment are carried at
cost and are depreciated using the straight-line method. The average estimated
lives utilized in calculating depreciation are as follows: buildings -- 25
years; and machinery and equipment -- two to ten years. Property, plant and
equipment recorded under capital leases are depreciated using the lower of
either the lease term or the underlying asset's useful life.
F-10
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Financing Costs. The Company capitalizes loan origination fees and
other costs incurred arranging long-term financing. These costs are amortized
over the respective lives of the obligations using the effective interest
method.
Intangibles. The excess of costs over the net tangible assets of businesses
acquired consists of patented technology and goodwill. Identified intangible
assets are amortized on a straight-line basis over the various estimated useful
lives of such assets, which generally range from three to 25 years. Goodwill
related to acquisitions is amortized over 40 years. The Company records
impairment losses on long-lived assets including goodwill or related intangibles
when events and circumstances indicate the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
their carrying amounts.
Income Taxes. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to temporary differences between
the carrying value of assets and liabilities for financial reporting purposes
and their tax basis. The measurement of current and deferred tax assets and
liabilities is based on provisions of the enacted tax law; the effects of future
changes in tax laws or rates are not anticipated. The measurement of deferred
tax assets is reduced, if necessary, by the amount of any tax benefits that,
based on available evidence, are not expected to be realized.
Revenue Recognition. Revenue from the sale of cutting and welding products
is recognized upon shipment to the customer. Cost and related expenses to
manufacture cutting and welding products are recorded as cost of sales when the
related revenue is recognized.
Comprehensive Loss. At December 31, 2001, 2000, and 1999, accumulated
comprehensive loss amounted to $42,930, $35,595, and $23,895, respectively, for
foreign currency translation. Accumulated comprehensive income for pensions was
$708 at December 31, 2001.
Earnings Per Share. The effects of options, warrants and convertible
securities have not been considered in the determination of earnings per share
for the years ended December 31, 2001, 2000 and 1999 because the result would be
anti-dilutive.
<Table>
<Caption>
2001 2000 1999
---------- ---------- ----------
Numerator:
Net loss............................................... $ (51,541) $ (106,648) $ (34,299)
Preferred stock dividends (paid in kind)............... (8,695) (8,384) (7,377)
---------- ---------- ----------
Net loss applicable to common shares................... $ (60,236) $ (115,032) $ (41,676)
========== ========== ==========
Denominator:
Weighted average shares for basic and diluted earnings
per share........................................... 3,590,286 3,590,286 3,567,087
========== ========== ==========
Basic and diluted loss per share amounts:
Net loss............................................... $ (14.36) $ (29.70) $ (9.62)
Preferred stock dividends (paid in kind)............... (2.42) (2.34) (2.06)
---------- ---------- ----------
Net loss applicable to common shares................... $ (16.78) $ (32.04) $ (11.68)
========== ========== ==========
</Table>
Stock-Based Compensation. The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to or greater than
the fair value of the shares at the date of grant. The Company accounts for
these stock option grants in accordance with Accounting Principles Board Opinion
No. 25 -- "Accounting for Stock Issued to Employees" ("APB 25"), and,
accordingly, recognizes no compensation expense for the stock option grants. In
December 2000, the Company repriced certain stock options previously granted
creating variable options. This repricing did not require the recording of
compensation expense as the Company's stock price was less than the repriced
amount at December 31, 2000.
F-11
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Cash Flows. For purposes of the statements of cash flows,
Thermadyne considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
The following table shows the interest and taxes paid during the periods
presented in the accompanying Consolidated Statements of Cash Flows:
<Table>
<Caption>
2001 2000 1999
------- ------- -------
Interest................................................ $34,220 $62,830 $59,376
Taxes................................................... 2,353 3,129 2,663
</Table>
Operating cash disbursements resulting from the reorganization include $6.0
million related to professional fees and expenses , $1.9 million of fees related
to the DIP Facility and the Old Credit Facility, and $0.1 of other
reorganization costs. Included in the amount paid for professional fees and
expenses was approximately $2.0 million of retainers, which were included in
prepaid assets at December 31, 2001.
Foreign Currency Translation. Local currencies have been designated as the
functional currencies for all subsidiaries. Accordingly, assets and liabilities
of foreign subsidiaries are translated at the rates of exchange at the balance
sheet date. Income and expense items of these subsidiaries are translated at
average monthly rates of exchange. The resultant translation gains or losses are
included in other comprehensive income in the component of shareholders' deficit
designated "Foreign currency translation." The effect on the consolidated
statements of operations of transaction gains and losses is insignificant for
all years presented. The Company's foreign operations are described in Note 14.
Derivatives. Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 133, as
amended, requires the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability, or firm or forecasted
commitment through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings. Any ineffective portion of the
derivative's change in fair value will be immediately recognized in earnings.
The adoption of this statement did not have a material impact on the Company's
results of operations or financial position.
During 2001, 2000 and 1999 the Company used an interest rate swap to manage
its cost of borrowing on a portion of its floating rate debt, as required by the
Old Credit Facility. On January 4, 2002, the swap expired and was not replaced.
Recent Accounting Pronouncements. In June, 2001, the Financial Accounting
Standards Board issued SFAS No. 141, "Business Combinations", and No. 142,
"Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. SFAS 142 prohibits the amortization
of goodwill and intangible assets with indefinite useful lives. SFAS 142
requires that these assets be reviewed for impairment at least annually.
Intangible assets with finite lives will continue to be amortized over their
estimated useful lives. Additionally, SFAS 142 requires that goodwill included
in the carrying value of equity method investments no longer be amortized.
The Company will apply SFAS 142 beginning in the first quarter of 2002.
Application of the nonamortization provisions of SFAS 142 is expected to
increase operating income by approximately $0.5 million in 2002. The Company
will test goodwill for impairment using the two-step process prescribed in SFAS
142. The first step is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. The Company does not believe
these tests will have a material effect on its results of operations or its
financial position.
F-12
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS RECEIVABLE
On January 31, 2000, the Company entered into a trade accounts receivable
securitization agreement whereby it sold on an ongoing basis participation
interests in up to $45,000 of designated accounts receivable. The Company
retained servicing responsibilities for accounts receivable collections, but
received no servicing fee. Effective with the Chapter 11 filing this program
began to liquidate and at December 31, 2001, all participation interests had
been fully funded. On January 4, 2002, the program was terminated and final
distributions made to investors. The amount of participation interests sold
under this financing arrangement was approximately $20,999 at December 31, 2000.
The sold accounts receivable are reflected as a reduction of accounts receivable
on the Consolidated Balance Sheets. Interest expense is incurred on
participation interests at the rate of one-month LIBOR plus 65 basis points, per
annum. The Company records no gains or losses from the securitization
arrangement.
Previously, the Company was party to a similar accounts receivable
securitization agreement which expired on November 15, 1999, whereby it sold
participation interests in up to $50,000 of designated accounts receivable. The
terms, eligibility criteria and accounting treatment were substantially the same
as the current agreement. Interest expense accrued at the rate of one-month
LIBOR plus 50 basis points, per annum.
5. INVENTORIES
The composition of inventories at December 31, is as follows:
<Table>
<Caption>
2001 2000
-------- --------
Raw materials............................................... $ 18,142 $ 20,829
Work-in-process............................................. 25,517 26,853
Finished goods.............................................. 46,442 65,582
-------- --------
90,101 113,264
LIFO reserve................................................ (353) (813)
-------- --------
$ 89,748 $112,451
======== ========
</Table>
6. PROPERTY, PLANT, AND EQUIPMENT
The composition of property, plant and equipment at December 31, is as
follows:
<Table>
<Caption>
2001 2000
-------- --------
Land........................................................ $ 9,065 $ 10,016
Building.................................................... 29,547 35,834
Machinery and equipment..................................... 114,186 99,197
-------- --------
152,798 145,047
Accumulated depreciation.................................... (71,786) (60,322)
-------- --------
$ 81,012 $ 84,725
======== ========
</Table>
Assets recorded under capitalized leases were $23,320 ($15,822 net of
accumulated depreciation) and $19,641 ($13,165 net of accumulated depreciation)
at December 31, 2001 and 2000, respectively.
F-13
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INTANGIBLES
The composition of intangibles at December 31, is as follows:
<Table>
<Caption>
2001 2000
-------- -------
Goodwill.................................................... $ 13,509 $13,489
Other....................................................... 11,421 11,645
-------- -------
24,930 25,134
Accumulated amortization.................................... (11,508) (10,928)
-------- -------
$ 13,422 $14,206
======== =======
</Table>
During the third quarter of 2000, the Company recorded impairment losses of
$18.5 million and $4.9 million related to goodwill and other intangible assets,
respectively, associated with its Australian business. These impairment losses
were recorded through increased amortization expense. The Company records
impairment losses on long-lived assets including goodwill or related intangibles
when events and circumstances indicate the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the related carrying amounts. Prolonged weak economic conditions in Australia
led to the Company's reassessment and ultimate write-down of these assets.
8. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31, is as follows:
<Table>
<Caption>
2001 2000
--------- --------
Debtor-in-Possession Credit Facility........................ $ 8,650 $ --
Revolving Credit Facility(1)................................ 58,500 23,500
Term A Facility -- United States(1)......................... 57,885 61,453
Term A Facility -- Australia(1)............................. 13,342 15,596
Term A Facility -- Italy(1)................................. 6,482 7,286
Term B Facility(1).......................................... 108,614 109,427
Term C Facility(1).......................................... 108,614 109,427
Senior subordinated notes, due June 1, 2008, 9 7/8% interest
payable semiannually on June 1 and December 1(1).......... 207,000 207,000
Debentures, due June 1, 2008, 12 1/2% interest payable
semiannually on June 1 and December 1(1).................. 145,066 129,839
Subordinated notes, due November 1, 2003, 10.75% interest
payable semiannually on May 1 and November 1(1)........... 37,060 37,060
Junior subordinated notes due December 15, 2009, 15%
interest payable quarterly on March 15, June 15, September
15 and December 15(1)..................................... 33,427 29,148
Capital leases.............................................. 21,191 19,943
Other....................................................... 2,849 4,242
--------- --------
808,680 753,921
Amounts classified as liabilities subject to compromise..... (775,990) --
--------- --------
32,690 753,921
Current maturities.......................................... (11,606) (19,737)
--------- --------
$ 21,084 $734,184
========= ========
</Table>
- ---------------
(1) Amounts outstanding at December 31, 2001, have been classified as
liabilities subject to compromise.
F-14
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2001 the schedule of principal payments on long-term debt,
excluding capital lease obligations and amounts subject to compromise, is as
follows:
<Table>
2002...................................................... $10,362
2003...................................................... 401
2004...................................................... 354
2005...................................................... 148
2006...................................................... 131
Thereafter................................................ 103
</Table>
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 December 31, 2001, the Company's eligible
accounts receivable, inventories and fixed assets supported access to $58.0
million of the DIP Facility. Interest on the DIP Facility accrues at the
administrative agent's adjusted base rate plus 2.25% in the case of alternate
base rates 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 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, 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) and other customary provisions. The DIP Facility expires
on the earlier of the consummation of a Plan of Reorganization or November 21,
2002. At December 31, 2001, the Company had borrowed approximately $8.7 million
and issued $0.1 million of letters of credit under the DIP Facility, resulting
in availability of approximately $49.2 million.
Thermadyne LLC pays a commitment fee calculated at a rate of 0.75% per
annum on the daily average unused commitment under the DIP Facility. Such fee is
payable monthly in arrears and upon termination of the DIP Facility. Thermadyne
LLC also pays a fee calculated at 3.5% per annum based on the average letters of
credit outstanding. Such fee is payable monthly in arrears and upon termination
of the DIP Facility.
Old Credit Facility
The Old Credit Facility includes a $330 million term loan facility (the
"Term Loan Facility") and a $100 million revolving credit facility (subject to
adjustment as provided below), which provides for revolving loans and up to $50
million of letters of credit (the "Revolving Credit Facility"). The Term Loan
Facility is comprised of a term A facility of $100 million (the "Term A
Facility"), which has a maturity of six years, a term B facility of $115 million
(the "Term B Facility"), which has a maturity of seven years, and a term C
facility of $115 million (the "Term C Facility"), which has a maturity of eight
years. The Revolving Credit Facility terminates six years after the date of
initial funding of the 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 Facility. At December 31, 2000, the
Company had $8.1 million of standby letters of credit outstanding under the
Revolving Credit Facility.
F-15
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 10, 1999, the Company amended the Old Credit Facility to allow
the restructuring of certain of its manufacturing operations and to adjust its
financial covenants. In accordance with the amendment, the rate at which the Old
Credit Facility bears interest was adjusted to, at Thermadyne LLC's option, the
administrative agent's alternative base rate or the reserve-adjusted LIBOR plus,
in each case, applicable margins of (i) in the case of alternative base rate
loans, (x) 1.50% for revolving and Term A loans, (y) 1.75% for Term B loans and
(z) 2.00% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.75% for
revolving and Term A loans, (y) 3.00% for Term B loans and (z) 3.25% for Term C
loans. The applicable margin may vary based on Thermadyne LLC's ratio of
consolidated indebtedness to Adjusted EBITDA. In addition, the amendment
required the issuance of $25.0 million of Junior Subordinated Notes with
detachable warrants for the purchase of the Company's common stock.
Prior to the amendment of the Old Credit Facility applicable margins were
(i) in the case of alternative base rate loans, (x) 1.00% for revolving and Term
A loans, (y) 1.25% for Term B loans and (z) 1.50% for Term C loans and (ii) in
the case of LIBOR loans (x) 2.25% for revolving and Term A loans, (y) 2.50% for
Term B loans and (z) 2.75% for Term C loans.
Thermadyne LLC pays a letter of credit fee calculated (i) in the case of
standby letters of credit, at a rate per annum equal to the then applicable
margin for LIBOR loans under the Revolving Credit Facility minus 0.125% and (ii)
in the case of documentary letters of credit, at a rate per annum equal to 1.25%
plus, in each case, a fronting fee on the stated amount of each letter of
credit. Such fees are payable quarterly in arrears. In addition, Thermadyne LLC
pays customary transaction charges in connection with any letters of credit.
Senior Subordinated Notes
The Senior Subordinated Notes are general unsecured obligations of
Thermadyne LLC and Thermadyne Capital and will be subordinated in right of
payment to all senior indebtedness of Thermadyne LLC and Thermadyne Capital
(including borrowings under the DIP Facility and the Old Credit Facility). The
Senior Subordinated Notes are unconditionally guaranteed on a senior
subordinated basis by certain of Thermadyne LLC's existing domestic subsidiaries
(the "Guarantor Subsidiaries"). The note guarantees will be general unsecured
obligations of the Guarantor Subsidiaries, are subordinated in right of payment
to all existing and future senior indebtedness of the Guarantor Subsidiaries,
including indebtedness under the DIP Facility and the Old Credit Facility, and
will rank senior in right of payment to any future subordinated indebtedness of
the Guarantor Subsidiaries.
Debentures
The Debentures initially are limited in aggregate principal amount at
maturity to $174 million. The Debentures were issued at $94.6 million, a
substantial discount from their principal amount at maturity. Until June 1,
2003, no interest will accrue on the Debentures, but the accreted value will
increase (representing amortization of original issue discount) between the date
of original issuance and June 1, 2003, on a semiannual bond equivalent basis
using a 360-day year comprised of twelve 30-day months, such that the accreted
value shall be equal to the full principal amount at maturity of the Debentures
on June 1, 2003. Beginning on June 1, 2003, interest on the Debentures will
accrue at the rate of 12 1/2% per annum and will be payable in cash semiannually
in arrears on June 1 and December 1, commencing on December 1, 2003, to holders
of record on the immediately preceding May 15 and November 15. Interest on the
Debentures will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from June 1, 2003. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months. Subject to
certain covenants, additional notes may be issued under the Indenture having the
same terms in all respects as the Debentures.
The indentures governing the Senior Subordinated Notes, the Debentures and
the subordinated notes restrict, subject to certain exceptions, the Company and
its subsidiaries from incurring additional debt, paying
F-16
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividends or making other distributions on or redeeming or repurchasing capital
stock, making investments, loans or advances, disposing of assets, creating
liens on assets and engaging in transactions with affiliates.
Junior Subordinated Notes
The Junior Notes, which have detachable warrants for the purchase of the
Company's common stock, are general unsecured obligations of Thermadyne LLC and
will be subordinated in right of payment to all existing and future senior
subordinated indebtedness of Thermadyne LLC. Thermadyne LLC, at its option, may
pay interest in additional Junior Notes between the date of original issuance
and December 15, 2004 on each March 15, June 15, September 15 and December 15 at
the rate of 15%. Beginning December 15, 2004, interest will accrue at the rate
of 15% per annum on each interest payment date, provided that if and for so long
as payment of interest on the Junior Notes is prohibited under the terms of the
Old Credit Facility, interest shall be paid by the issuance of additional Junior
Notes.
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 year ended
December 31, 2001, was $20.4 million, $4.0 million, $16.7 million and $4.7
million, respectively. Interest recorded for the Senior Subordinated Notes, the
Subordinated Notes, the Debentures and the Junior Notes was $18.7 million, $3.7
million, $15.2 million and $4.3 million, respectively. 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.
9. REDEEMABLE PREFERRED STOCK
The Company has outstanding 2,000,000 shares of preferred stock, par value
$0.01 per share, with an initial liquidation preference of $25.00 per share
("Holdings Preferred Stock"). Holdings Preferred Stock accrues dividends at a
rate equal to 13% per annum, computed on the basis of a 360-day year. Such
dividends are payable quarterly on March 31, June 30, September 30, and December
31 of each year. Prior to the fifth anniversary of the issuance of the Holdings
Preferred Stock, dividends are payable through increases in the liquidation
preference of the Holdings Preferred Stock or, at the election of the holders,
dividends may be payable by the issuance of additional shares. Following the
fifth anniversary of the issuance, dividends shall be payable in cash. The
Holdings Preferred Stock is mandatorily redeemable on May 15, 2010 at a
redemption price of 100% of the liquidation preference plus accrued and unpaid
dividends. In the event of a change in control, the Holdings Preferred Stock is
mandatorily redeemable at a redemption price of 101% of the liquidation
preference plus accrued and unpaid dividends. The Holdings Preferred Stock may
be redeemed by Holdings prior to May 15, 2001, in whole, at a redemption price
per share equal to 113% of the liquidation preference per share plus accrued and
unpaid dividends with the proceeds of a public equity offering. In addition, the
Holdings Preferred Stock may be redeemed at any time on or after May 15, 2003,
in whole, at certain established redemption prices. Holders of a majority of the
outstanding shares of Holdings Preferred Stock will have the right to elect two
members to the board of directors of Holdings upon the failure of Holdings to
pay cash dividends for more than four consecutive quarters or six quarters,
satisfy mandatory redemption obligations, provide required notices or comply
with certain other specified provisions relating to the Holdings Preferred
Stock. This right terminates and the term of the additional directors ceases
upon cure. In addition, Holdings cannot amend, alter or repeal any provision
that would adversely affect the preferences, rights or powers of the Holdings
Preferred Stock or create, authorize or issue any class of stock ranking prior
to or on a parity with the Holdings Preferred Stock without the written consent
of a majority of the holders.
As of December 1, 2001, the Company ceased accruing dividends on the
Holdings Preferred Stock. Contractual dividends for the Holdings Preferred Stock
was $9.5 million for the year ended December 31, 2001, which compares to
recorded dividends of $8.7 million. The Bankruptcy Code generally prohibits the
F-17
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company from making payments on unsecured, pre-petition obligations, including
the Holdings Preferred Stock, except pursuant to a confirmed Plan of
Reorganization. Under Chapter 11, the interests of existing preferred
shareholders could be substantially diluted or even eliminated.
10. STOCK OPTIONS
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as described below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("FASB 123"), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals or exceeds the market price of the underlying stock on the
date of grant, no compensation expense is recognized. In December 2000, the
Company repriced certain stock options previously granted. This repricing did
not require the recording of compensation expense as the Company's stock price
was less than the repriced amount at December 31, 2000.
Pro forma information regarding net income and earnings per share is
required by FASB 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 2001,
2000 and 1999, respectively: risk-free interest rates of 5.2%, 4.3%, and 5.3%, a
dividend yield of 0.0% for each year presented; volatility factors of the
expected market price of the Company's common stock of 0.83, 0.63, and 0.65, and
a weighted-average expected life of the options of six years for each year
presented.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
Pro forma net loss applicable to common
shares........................................ $(60,809) $(115,613) $(42,476)
Pro forma basic and diluted net loss per
share......................................... (16.94) (32.20) (11.91)
</Table>
The Company has two option plans for the grant of options to its employees
and directors. The 1998 Management Incentive Plan (the "1998 Management Plan")
provides for the grant of options to acquire up to 500,000 shares of common
stock to key officers and employees of the Company or its affiliates. Grants
under the 1998 Management Plan vest either a) immediately on the date of grant,
b) ratably over five years from the date of grant, c) upon the attainment of
yearly targeted implied common equity values of the Company or, d) if yearly
targeted implied common equity values are not attained, after an eight year
period. The Non-Employee Directors Stock Option Plan (the "1998 Directors Plan")
provides for the grant of options to acquire up to 20,000 shares of common stock
to non-employee directors of the Company. Grants under the 1998 Directors Plan
vest immediately on the date of grant. All options granted under the two plans
described above are non-qualified stock options granted at 100% of the fair
market value on the grant dates. In connection with the Merger, the 1993
Management Option Plan (the "1993 Management Plan"), the Non-Employee Directors
Plan (the "1995 Directors Plan") and the 1996 Employee Stock Option Plan (the
"1996
F-18
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Plan") were terminated. At that time, the option holders received a
cash payment with respect to each option and the underlying options were
canceled.
Information regarding stock options is summarized as follows:
<Table>
<Caption>
2001 2000 1999
---------------------------- ---------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- ---------------- --------- ---------------- -------- ----------------
Outstanding -- beginning of
year........................... 243,384 $ 9.00 343,356 $34.50 326,566 $34.50
Granted.......................... 236,000 4.00 21,100 34.50 20,700 34.50
Exercised........................ -- -- -- -- -- --
Canceled or forfeited............ (16,303) 4.00 (121,072) 34.50 (3,910) 34.50
--------- --------- --------
Outstanding-end of year.......... 463,081 6.72 243,384 9.00 343,356 34.50
========= ========= ========
Exercisable at end of year:
1998 Management Plan........... 126,297 88,024 57,354
1998 Directors Plan............ 9,000 8,000 7,000
Reserved for future grants:
1998 Management Plan........... 45,919 264,616 163,644
1998 Directors Plan............ 11,000 12,000 13,000
Weighted-average fair value of
options granted during the
year........................... $ 2.92 $ 14.00 $ 11.83
Weighted-average remaining
contractual life of options
(years)........................ 7.8 7.7 8.50
</Table>
In December 2000, stock options from the 1998 Management Plan and stock
options from the 1998 Directors Plan were repriced to the fair value at that
time of $4.00. This repricing did not require the recording of compensation
expense as the Company's stock price was less than the repriced amount at
December 31, 2000. Following is a summary of stock options outstanding as of
December 31, 2001:
<Table>
<Caption>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS REMAINING LIFE
--------- ----------------
Options Outstanding:
Exercise Price of $4..................................... 421,754 7.9
Exercise Price of $34.50................................. 41,327 6.5
-------
463,081
=======
Options Exercisable:
Exercise Price of $4..................................... 94,030 7.9
Exercise Price of $34.50................................. 41,267 6.5
-------
135,297
=======
</Table>
F-19
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. LEASES
Future minimum lease payments under leases with initial or remaining
noncancelable lease terms in excess of one year at December 31, 2001 are as
follows:
<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
2002........................................................ $ 3,455 $3,905
2003........................................................ 3,525 3,152
2004........................................................ 3,683 2,683
2005........................................................ 3,410 2,239
2006........................................................ 2,830 1,791
Thereafter.................................................. 20,988 6,471
--------
Total minimum lease payments...................... 37,891
Amount representing interest................................ (16,696)
--------
Present value of net minimum lease payments, including
current obligations of $1,244............................. $ 21,191
========
</Table>
Rent expense under operating leases from continuing operations amounted to
$5,636, $6,602, and $7,347 for the years ended December 31, 2001, 2000, and
1999, respectively.
12. INCOME TAXES
Pre-tax loss was taxed under the following jurisdictions:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- ----------------- -----------------
Domestic............................ $(47,323) $(50,227) $ (7,228)
Foreign............................. (1,521) (24,566) (18,264)
-------- -------- --------
Loss before income taxes.......... $(48,844) $(74,793) $(25,492)
======== ======== ========
</Table>
The provision for income taxes is as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- ----------------- -----------------
Current:
Federal........................... $ -- $ -- $ 240
Foreign........................... 2,000 3,393 2,206
State and local................... 150 150 400
------ ------- ------
Total current............. 2,150 3,543 2,846
------ ------- ------
Deferred............................ 547 28,312 5,961
------ ------- ------
$2,697 $31,855 $8,807
====== ======= ======
</Table>
F-20
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The composition of deferred tax assets and liabilities attributable to
continuing operations at December 31 is as follows:
<Table>
<Caption>
2001 2000
--------- --------
Deferred tax assets:
Post-employment benefits.................................. $ 9,143 $ 9,303
Accrued liabilities....................................... 5,832 6,758
Intangibles............................................... 8,145 8,329
Deferred interest......................................... 18,646 12,674
Other..................................................... 4,626 5,392
Fixed assets.............................................. 2,819 9,967
Net operating loss carryforwards.......................... 59,592 43,589
--------- --------
Total deferred tax assets......................... 108,803 96,012
Valuation allowance for deferred tax assets............... (105,372) (90,382)
--------- --------
Net deferred tax assets........................... 3,431 5,630
--------- --------
Deferred tax liabilities:
Inventories............................................... 3,183 4,838
--------- --------
Total deferred tax liabilities.................... 3,183 4,838
--------- --------
Net deferred tax assets........................... $ 248 $ 792
========= ========
</Table>
The income tax provision for the years ended December 31, 2001 and 2000,
includes a charge of $15.5 million and $43.0 million, respectively, to increase
the valuation allowance on the net deferred tax amount as management does not
believe this asset will be fully realized based on projections of income in
future periods.
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
to pretax income from continuing operations as a result of the following
differences:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- ----------------- -----------------
Tax at U.S. statutory rates......... $(17,095) $(26,178) $(8,922)
Nondeductible goodwill amortization
and other nondeductible
expenses.......................... 1,632 8,474 1,032
Change in valuation allowance....... 15,469 42,987 5,000
Foreign tax rate differences and
nonrecognition of foreign tax loss
benefits.......................... 2,593 6,422 8,225
Issuance of warrants................ -- -- 3,212
State income taxes, net of federal
tax benefits...................... 98 150 260
-------- -------- -------
$ 2,697 $ 31,855 $ 8,807
======== ======== =======
</Table>
At December 31, 2001, the Company had net operating loss carryforwards of
approximately $151,000 available for U.S. federal income tax purposes which
expire between 2002 and 2021. Utilization of the majority of these net operating
loss carryforwards is subject to various limitations due to previous changes in
control of ownership (as defined in the Internal Revenue Code) of the Company.
Pursuant to the requirements of the American Institute of Certified Public
Accountants Statement of Position No. 90-7, "Financial Entities in
Reorganization Under the Bankruptcy Code," the tax benefit resulting from the
F-21
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
utilization of net operating loss carryforwards that existed on the effective
date of the Company's financial reorganization will be reported as a direct
addition to paid-in capital.
The Company's foreign subsidiaries have undistributed earnings at December
31, 2001. Those earnings are considered to be indefinitely reinvested and,
accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable because of the complexities
associated with its hypothetical calculation.
13. EMPLOYEE BENEFIT PLANS
401(k) Retirement Plan. The 401(k) Retirement Plan covers the majority of
the Company's domestic employees. The Company, at its discretion, can make a
base contribution of 1% of each employee's compensation and an additional
contribution equal to as much as 4% of the employee's compensation. At the
employee's discretion, an additional 1% to 15% voluntary employee contribution
can be made. The plan requires the Company to make matching contributions of 50%
for the first 6% of the voluntary employee contribution. Total expense for this
plan was approximately $2,038, $2,115, and $2,223 for the years ended December
31, 2001, 2000, and 1999, respectively.
Pension Plans. The Company's subsidiaries have had various noncontributory
defined benefit pension plans which covered substantially all U.S. employees.
The Company froze and combined its three noncontributory defined benefit pension
plans through amendments to such plans effective December 31, 1989. All former
participants of these plans became eligible to participate in the 401(k)
Retirement Plan effective January 1, 1990. Prepaid benefit cost at December 31,
2001 was $358 and $163 at December 31, 2000. There were no accrued benefit
liabilities at December 31, 2001 or 2000. In addition, the Company's Australian
subsidiary has a Superannuation Fund established by a Trust Deed which operates
on a lump sum scheme to provide benefits for its employees. Prepaid benefit cost
at December 31, 2001 and 2000, was $6,204 and $5,630, respectively. There were
no accrued benefit liabilities at December 31, 2001 or 2000. The prepaid benefit
cost is not included in the table below or in the Company's balance sheet, as
the Company has no legal right to amounts included in this fund.
Other Postretirement Benefits. The Company has a retirement plan covering
both salaried and non-salaried retired employees, which provides postretirement
health care benefits (medical and dental) and life insurance benefits. The
postretirement health care portion is contributory, with retiree contributions
adjusted annually as determined by the Company based on claim costs. The
postretirement life insurance portion is noncontributory. The Company recognizes
the cost of postretirement benefits on the accrual basis as employees render
service to earn the benefit. The Company continues to fund the cost of health
care and life insurance benefits in the year incurred.
F-22
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides a reconciliation of benefit obligations, plan
assets and status of the pension and other postretirement benefit plans as
recognized in the Company's consolidated balance sheets for the years ended
December 31, 2001 and 2000:
<Table>
<Caption>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------ -----------------------
2001 2000 2001 2000
------- -------- ---------- ----------
Change in Benefit Obligation:
Benefit obligation at beginning of year... $14,088 $ 13,414 $ 13,431 $ 13,005
Service cost.............................. -- -- 877 791
Interest cost............................. 1,022 1,001 992 1,022
Actuarial loss............................ 351 361 371 523
Plan amendments........................... -- -- -- (1,216)
Benefits paid............................. (797) (688) (862) (694)
------- -------- -------- --------
Benefit obligation at end of year......... $14,664 $ 14,088 $ 14,809 $ 13,431
======= ======== ======== ========
Change in plan assets:
Fair value of plan assets at beginning of
year................................... $15,809 $ 15,690
Actual return on plan assets.............. (604) 932
Benefits paid............................. (797) (688)
Administrative expenses................... (124) (125)
------- --------
Fair value of plan assets at end of
year................................... $14,284 $ 15,809
======= ========
Funded status of the plan (underfunded)..... $ (380) $ 1,721 $(14,809) $(13,431)
Unrecognized net actuarial loss (gain).... 708 (1,611) (8,770) (9,692)
Unrecognized prior service cost........... 30 53 (2,195) (2,388)
------- -------- -------- --------
Prepaid (accrued) benefit cost............ $ 358 $ 163 $(25,774) $(25,511)
======= ======== ======== ========
Weighted-average assumptions as of December
31:
Discount rate............................. 7.25% 7.5% 7.25% 7.5%
Expected return on plan assets............ 8% 8% N/A N/A
Rate of compensation increase............. N/A N/A N/A N/A
</Table>
Net periodic pension and other postretirement benefit costs include the
following components:
<Table>
<Caption>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
--------------------------- ------------------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- -------- -------- --------
Components of the net periodic
benefit cost:
Service cost................. $ -- $ -- $ -- $ 877 $ 791 $ 761
Interest cost................ 1,022 1,001 1,012 992 1,022 842
Expected return on plan
assets.................... (1,232) (1,226) (1,179) -- -- --
Recognized (gain) loss....... (8) (153) -- (551) (591) 1,698
Prior service cost
recognized................ 23 23 23 (193) (101) (101)
------- ------- ------- ------ ------ ------
Benefit cost (credit).......... $ (195) $ (355) $ (144) $1,125 $1,121 $3,200
======= ======= ======= ====== ====== ======
</Table>
F-23
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.0% in 2001, declining gradually to 6.0%
in 2012. The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 8.5% in 2000 and 9.5% in 1999.
A one percentage point change in the assumed health care cost trend rate would
have the following effects:
<Table>
<Caption>
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
Effect on total of service and interest cost components in
2001.................................................... $ 354 $ (300)
Effect on postretirement benefit obligation as of December
31, 2001................................................ $2,396 $(1,929)
</Table>
14. SEGMENT INFORMATION
The Company reports its segment information by geographic region. Although
the Company's domestic operation is comprised of several individual business
units, similarity of products, paths to market, end users, and production
processes results in performance evaluation and decisions regarding allocation
of resources being made on a combined basis. The Company's reportable geographic
regions are the United States, Europe and Australia/Asia.
The Company evaluates performance and allocates resources based principally
on operating income net of any special charges or significant one-time charges.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Intersegment sales
are based on market prices.
F-24
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes the
elimination of intersegment sales and profits, corporate related items and other
costs not allocated to the reportable segments.
<Table>
<Caption>
ALL OTHER
UNITED GEOGRAPHIC
STATES EUROPE AUSTRALIA/ASIA REGIONS OTHER CONSOLIDATED
-------- ------- -------------- ---------- -------- ------------
2001
Revenue from external
customers................ $293,837 $45,874 $ 44,468 $54,045 $ -- $438,224
Intersegment revenues...... 25,652 8,303 435 3,970 (38,360) --
Depreciation and
amortization of
intangibles.............. 10,248 967 4,022 1,715 2,278 19,230
Operating income (loss).... 46,600 3,557 (3,784) 2,612 (22,606) 26,379
Identifiable assets........ 130,197 50,505 37,660 43,409 46,662 308,433
Capital expenditures....... 10,099 1,648 437 2,334 806 15,324
2000
Revenue from external
customers................ $342,392 $56,434 $ 54,062 $57,258 $ -- $510,146
Intersegment revenues...... 37,996 15,674 1,985 -- (55,655) --
Depreciation and
amortization of
intangibles.............. 9,104 2,546 20,259 1,923 8,386 42,218
Operating income (loss).... 65,969 4,469 (27,616) (903) (32,291) 9,628
Identifiable assets........ 135,758 59,319 48,548 46,615 27,705 317,945
Capital expenditures....... 6,144 5,172 3,697 1,859 1,819 18,691
1999
Revenue from external
customers................ $343,521 $56,449 $ 76,763 $44,382 $ -- $521,115
Intersegment revenues...... 34,290 15,678 2,819 414 (53,201) --
Depreciation and
amortization of
intangibles.............. 11,164 2,737 4,603 590 4,388 23,482
Operating income (loss).... 71,941 3,109 (5,576) (1,460) (18,008) 50,006
Identifiable assets........ 146,860 54,756 91,949 32,213 74,618 400,396
Capital expenditures....... 5,047 644 2,623 1,317 537 10,168
</Table>
Product Line Information
The Company manufactures a variety of products, substantially all of which
are used in the cutting, welding or fabrication of metal. End users of the
Company's products are engaged in various applications including construction,
automobile manufacturing, repair and maintenance and shipbuilding. The following
table shows sales for each of the Company's key product lines:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- ----------------- -----------------
Gas apparatus....................... $170,634 $190,996 $186,279
Arc welding equipment............... 73,615 87,860 104,857
Arc welding consumables............. 124,446 146,494 149,693
Plasma and automated cutting
equipment......................... 64,081 79,995 71,083
All other........................... 5,448 4,801 9,203
-------- -------- --------
$438,224 $510,146 $521,115
======== ======== ========
</Table>
F-25
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. CONTINGENCIES
The Chapter 11 filing introduces numerous uncertainties which may affect
the Company's business, results of operations and prospects. Additional
discussion on the Chapter 11 proceedings can be found in Note 2 to the financial
statements.
Thermadyne and certain of its wholly owned subsidiaries are defendants in
various legal actions, primarily in the product liability area. While there is
uncertainty relating to any litigation, management is of the opinion that the
outcome of such litigation will not have a material adverse effect on the
Company's financial condition or results of operations.
16. FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company only uses derivatives for hedging purposes. The following is a
summary of the Company's risk management strategies and the effect of these
strategies on the Company's consolidated financial statements.
Interest Rate Swap
At December 31, 2001, the Company had an interest rate swap agreement
outstanding with a notional amount of $61.5 million, which matured on January 4,
2002, under which the Company paid a fixed rate of interest and received a
floating rate of interest over the term of the interest rate swap agreement
without the exchange of the underlying notional amount. The interest rate swap
agreement converted a portion of the Old Credit Facility from a floating rate
obligation to a fixed rate obligation. Interest differentials to be paid or
received because of the swap agreement are reflected as an adjustment to
interest expense over the related debt provided. This agreement was accounted
for on the accrual basis.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, trade accounts
receivable, and derivatives.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located in different parts of the
country and the Company's policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative credit
standing of these financial institutions. The Company does not require
collateral on these financial instruments.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base. The Company does not require collateral for trade accounts receivable.
The Company is exposed to credit risk in the event of non-performance by
the counterparty to its interest rate swap. The Company believes this exposure
is limited due to the high credit rating of the counterparty.
Fair Value
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
F-26
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts receivable and accounts payable: The carrying amounts
reported in the balance sheet for accounts receivable and accounts payable
approximate their fair value.
Interest rate swap: Fair value is estimated based on current interest
rates and was $19 at December 31, 2001. The carrying value of the swap
agreement was zero at December 31, 2001.
Long-term debt: The estimated fair value amounts of the Company's
long-term obligations have been determined by the Company using available
market information. The fair values of the Old Credit Facility and the
Senior Subordinated Notes were based on the most recent market information
available, and are estimated to be 85% and 37% of their current carrying
values at December 31, 2001, or $300,421 and $76,590, respectively. No
market information was available with respect to the Debentures, the
Subordinated Notes or the Junior Notes, but, as a result of the Chapter 11
filing, management believes these obligations have little or no value. As a
result of the Chapter 11 filing, the ultimate values of the Old Credit
Facility, the Senior Subordinated Notes, the Debentures, the Subordinated
Notes and the Junior Notes are uncertain and may be materially different
than the amounts in the financial statements. The fair values of the
obligations outstanding under the DIP Facility and the Company's other
long-term obligations are estimated at their current carrying values since
these obligations are fully secured and have varying interest charges based
on current market rates.
17. 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 December 31, 2001 condensed combined balance sheet exclude the portion of
the Term A Facility carried on the books of two foreign subsidiaries, which
totals $19,824.
F-27
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED COMBINED DEBTOR BALANCE SHEET
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 7,332 $ 4,536
Accounts receivable....................................... 41,516 22,993
Inventories............................................... 51,505 65,303
Prepaid expenses and other................................ 11,360 1,877
--------- ---------
Total current assets................................... 111,713 94,709
Property, plant and equipment, at cost, net............... 42,033 41,184
Deferred financing costs, net............................. 13,825 18,186
Intangibles, at cost, net................................. 6,461 6,233
Other assets.............................................. 2,827 3,148
--------- ---------
Total assets........................................... $ 176,859 $ 163,460
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 4,960 $ 21,479
Accrued and other liabilities............................. 18,392 25,871
Accrued interest.......................................... 465 2,631
Income taxes payable...................................... 11 11,153
Current maturities of long-term obligations............... 8,962 12,773
--------- ---------
Total current liabilities.............................. 32,790 73,907
Liabilities subject to compromise........................... 814,654 --
Long-term obligations, less current maturities.............. 15,483 710,021
Other long-term liabilities................................. 34,471 50,074
Redeemable preferred stock.................................. 78,509 69,814
Shareholders' equity (deficit):
Common stock.............................................. 36 36
Additional paid-in-capital................................ (129,867) (121,331)
Foreign currency translation.............................. (26,914) (18,508)
Accumulated deficit....................................... (491,447) (445,793)
--------- ---------
Total shareholders' deficit............................ (648,192) (585,596)
Net equity and advances to/from subsidiaries................ (150,856) (154,760)
--------- ---------
Total liabilities and shareholders' deficit............... $ 176,859 $ 163,460
========= =========
</Table>
F-28
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED COMBINED STATEMENT OF OPERATIONS
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
Net sales............................................... $347,981 $414,318 $408,406
Operating expenses:
Cost of goods sold.................................... 238,308 266,939 262,185
Selling, general and administrative expenses.......... 68,361 71,660 66,766
Amortization of goodwill.............................. 32 1,769 97
Amortization of other intangibles..................... 1,386 6,843 1,931
Net periodic postretirement benefits.................. 1,125 1,121 3,200
Special charges....................................... 14,252 33,132 12,524
-------- -------- --------
Operating income........................................ 24,517 32,854 61,703
Other income (expense):
Interest expense...................................... (73,728) (78,446) (69,548)
Amortization of deferred financing costs.............. (4,360) (3,307) (3,349)
Other, net............................................ 3,416 7,176 12,502
-------- -------- --------
Loss before reorganization items and income tax
provision............................................. (50,155) (41,723) 1,308
Reorganization items.................................... (6,723) -- --
-------- -------- --------
Loss before income tax provision........................ (43,432) (41,723) 1,308
Income tax provision.................................... 579 28,723 4,322
-------- -------- --------
Net loss................................................ (44,011) (70,446) (3,014)
Preferred stock dividends (paid in kind)................ 8,695 8,384 7,377
-------- -------- --------
Net loss applicable to common shares.................... $(52,706) $(78,830) $(10,391)
======== ======== ========
</Table>
F-29
THERMADYNE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED COMBINED STATEMENT OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
Net cash provided by operating activities............... $ 2,355 $ 2,105 $ 51,677
Cash flows provided by (used in) investing activities:
Capital expenditures, net............................. (11,957) (9,660) (7,003)
Change in other assets................................ 1,260 1,548 (488)
Acquisitions, net of cash............................. -- -- (3,000)
-------- -------- --------
Net cash used in investing activities.............. (10,697) (8,112) (10,491)
Cash flows provided by (used in) financing activities:
Change in long-term receivables....................... -- 24 (530)
Borrowing under debtor-in-possession credit
facility........................................... 8,650 -- --
Repayment of long-term obligations.................... (5,338) (14,848) (4,049)
Borrowing of long-term obligations.................... 35,029 23,500 11,797
Change in accounts receivable securitization.......... (20,999) 20,999 (23,843)
Financing fees........................................ -- (1,125) (901)
Changes in net equity and advances to/from
subsidiaries....................................... (6,205) (12,075) (16,786)
Other................................................. 1 (8,498) (3,257)
-------- -------- --------
Net cash provided by (used in) financing activities..... 11,138 7,977 (37,569)
-------- -------- --------
Net increase in cash and cash equivalents............... 2,796 1,970 3,617
Cash and cash equivalents at beginning of year.......... 4,536 2,566 (1,051)
-------- -------- --------
Cash and cash equivalents at end of year................ $ 7,332 $ 4,536 $ 2,566
======== ======== ========
</Table>
F-30
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Thermadyne Mfg. LLC
We have audited the accompanying consolidated balance sheets of Thermadyne
Mfg. LLC and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, shareholder's deficit, and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Thermadyne Mfg.
LLC and subsidiaries at December 31, 2001 and 2000, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that
Thermadyne Mfg. LLC will continue as a going concern. As more fully described in
Note 2 to the financial statements, on November 19, 2001, the Company filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code in the Eastern District of Missouri. The filing was necessary due to events
of default on the Company's debt covenants. In addition, the Company has
incurred recurring net losses applicable to common shares and has a shareholder
deficiency. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The accompanying financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri
February 28, 2002
F-31
THERMADYNE MFG. LLC
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
Current assets:
Cash and cash equivalents................................. $ 14,800 $ 10,362
Accounts receivable, less allowance for doubtful accounts
of $3,376 and $3,509 respectively...................... 75,816 67,011
Inventories............................................... 89,748 112,451
Prepaid expenses and other................................ 14,600 4,597
--------- ---------
Total current assets.............................. 194,964 194,421
Property, plant and equipment, at cost, net................. 81,012 84,725
Deferred financing costs, net............................... 11,409 15,445
Intangibles, at cost, net................................... 13,422 14,206
Deferred income taxes....................................... 248 792
Other assets................................................ 3,834 2,874
--------- ---------
Total assets...................................... $ 304,889 $ 312,463
========= =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable.......................................... $ 19,520 $ 43,268
Accrued and other liabilities............................. 25,410 35,290
Accrued interest.......................................... 471 1,982
Income taxes payable...................................... 508 10,119
Current maturities of long-term obligations............... 11,606 19,737
--------- ---------
Total current liabilities......................... 57,515 110,396
Liabilities subject to compromise........................... 648,036 --
Long-term obligations, less current maturities.............. 21,084 567,285
Other long-term liabilities................................. 43,868 61,244
Shareholder's deficit:
Accumulated deficit....................................... (502,366) (469,843)
Accumulated other comprehensive loss...................... (42,222) (35,595)
--------- ---------
Total shareholder's deficit....................... (544,588) (505,438)
Net equity and advances to/from parent.................... 78,974 78,976
--------- ---------
Total liabilities and shareholder's deficit....... $ 304,889 $ 312,463
========= =========
</Table>
See accompanying notes to consolidated financial statements.
F-32
THERMADYNE MFG. LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
Net sales............................................... $438,224 $510,146 $521,115
Operating expenses:
Cost of goods sold.................................... 296,538 327,480 342,250
Selling, general and administrative expenses.......... 97,152 102,578 99,151
Amortization of goodwill.............................. 371 19,176 1,575
Amortization of other intangibles..................... 1,804 7,707 3,047
Net periodic postretirement benefits.................. 1,125 1,121 3,200
Special charges....................................... 14,855 42,456 21,886
-------- -------- --------
Operating income........................................ 26,379 9,628 50,006
Other income (expense):
Interest expense (contractual interest expense of
$59,611 in 2001)................................... (57,480) (62,545) (55,321)
Amortization of deferred financing costs.............. (3,987) (2,941) (3,214)
Other................................................. (1,461) 28 319
-------- -------- --------
Loss before reorganization items and income tax
provision............................................. (36,549) (55,830) (8,210)
Reorganization items.................................... (6,723) -- --
-------- -------- --------
Loss before income tax provision........................ (29,826) (55,830) (8,210)
Income tax provision.................................... 2,697 28,588 8,807
-------- -------- --------
Net loss................................................ $(32,523) $(84,418) $(17,017)
======== ======== ========
</Table>
See accompanying notes to consolidated financial statements.
F-33
THERMADYNE MFG. LLC
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(IN THOUSANDS)
<Table>
<Caption>
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT LOSS TOTAL
----------- ------------- ---------
January 1, 1999......................................... $(368,408) $(15,534) $(383,942)
Comprehensive loss:
Net loss.............................................. (17,017) -- (17,017)
Other comprehensive loss -- foreign currency
translation........................................ -- (8,361) (8,361)
---------
Comprehensive loss...................................... (25,378)
---------
December 31, 1999....................................... (385,425) (23,895) (409,320)
Comprehensive loss:
Net loss.............................................. (84,418) -- (84,418)
Other comprehensive loss -- foreign currency
translation........................................ -- (11,700) (11,700)
---------
Comprehensive loss...................................... (96,118)
--------- -------- ---------
December 31, 2000....................................... (469,843) (35,595) (505,438)
Comprehensive loss:
Net loss.............................................. (32,523) -- (32,523)
Other comprehensive income (loss):
Foreign currency translation....................... -- (7,335) (7,335)
Pension............................................ -- 708 708
---------
Comprehensive loss.................................... (39,150)
--------- -------- ---------
December 31, 2001....................................... $(502,366) $(42,222) $(544,588)
========= ======== =========
</Table>
See accompanying notes to consolidated financial statements.
F-34
THERMADYNE MFG. LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
Cash flows provided by (used in) operating activities:
Net loss................................................ $(32,523) $(84,418) $(17,017)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Net periodic postretirement benefits............... 1,125 1,121 3,200
Depreciation....................................... 17,055 15,335 18,860
Amortization of goodwill........................... 371 19,176 1,575
Amortization of other intangibles.................. 1,804 7,707 3,047
Non-cash portion of interest expense............... 4,249 4,148 --
Amortization of deferred financing costs........... 3,987 2,941 3,214
Benefit from rejection of executory contracts...... (12,228) -- --
Recognition of net operating loss carryforwards.... -- -- 3,313
Deferred income taxes.............................. 527 25,043 3,468
Loss on asset disposal............................. -- 9,990 2,739
Changes in operating assets and liabilities:
Accounts receivable................................ 9,874 6,996 19,239
Inventories........................................ 10,814 (16,273) 25,425
Prepaid expenses and other......................... (9,437) 1,082 1,638
Accounts payable................................... (5,416) 992 (3,751)
Accrued and other liabilities...................... (240) 8,361 (10,453)
Accrued interest................................... 19,000 (445) 1,921
Income taxes payable............................... (324) 424 (1,818)
Other long-term liabilities........................ (2,508) (3,291) (4,126)
-------- -------- --------
Total adjustments............................. 38,653 83,307 67,491
-------- -------- --------
Net cash provided by (used in) operating
activities.................................. 6,130 (1,111) 50,474
-------- -------- --------
Cash flows used in investing activities:
Capital expenditures, net............................. (15,323) (18,691) (10,168)
Proceeds from sale of assets.......................... -- 6,961 --
Change in other assets................................ (826) (1,051) (1,046)
Acquisitions, net of cash............................. -- (3,767) (5,886)
-------- -------- --------
Net cash used in investing activities......... (16,149) (16,548) (17,100)
-------- -------- --------
Cash flows provided by (used in) financing activities:
Change in long-term receivables....................... (153) 384 (353)
Borrowing under debtor-in-possession credit
facility........................................... 8,650 -- --
Repayment of long-term obligations.................... (12,283) (26,477) (23,166)
Borrowing of long-term obligations.................... 40,049 34,216 26,535
Change in accounts receivable securitization.......... (20,999) 20,999 (23,843)
Financing fees........................................ -- (1,125) (901)
Change in net equity of parent........................ (2) (3,988) 3,198
Other................................................. (805) (9,309) (2,842)
-------- -------- --------
Net cash provided by (used in) financing
activities.................................. 14,457 14,700 (21,372)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.... 4,438 (2,959) 12,002
Cash and cash equivalents at beginning of year.......... 10,362 13,321 1,319
-------- -------- --------
Cash and cash equivalents at end of year................ $ 14,800 $ 10,362 $ 13,321
======== ======== ========
</Table>
See accompanying notes to consolidated financial statements.
F-35
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
As used in this 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.
Thermadyne Capital, a wholly owned subsidiary of Thermadyne LLC, was formed
solely for the purpose of serving as co-issuer of the 9 7/8% Senior Subordinated
Notes due 2008. Thermadyne Capital has no substantial assets or liabilities and
no operations of any kind and the Indenture pursuant to which the Senior
Subordinated Notes were issued limits Thermadyne Capital's ability to acquire or
hold any significant assets, incur any liabilities or engage in any business
activities, other than in connection with the issuance of the Senior
Subordinated Notes.
2. RECENT EVENTS
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 "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. 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 December 31, 2001, the Company's eligible accounts receivable, inventories
and fixed assets supported access to $58.0 million of the DIP Facility. As of
December 31, 2001, the Company had borrowed $8.7 million and issued letters of
credit of $0.1 million under the DIP Facility. The DIP Facility contains
financial covenants, including minimum levels of EBITDA (defined as net income
or loss plus depreciation,
F-36
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortization of goodwill, amortization of intangibles, net periodic
postretirement benefits 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), 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 year ended December 31, 2001,
was $20.4 million, and $4.7 million, respectively. Interest recorded for the
Senior Subordinated Notes, and the Junior Notes was $18.7 million, and $4.3
million, respectively. 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 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. In total, contractual interest on Thermadyne LLC's
obligations was $59.6 million for the year ended December 31, 2001, which was
$2.1 million in excess of reported interest.
Pursuant to the provisions of the Bankruptcy Code, substantially 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 against the Debtors may be filed with
the Court through April 19, 2002. As debtor-in-possession, the Debtors have 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 second 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. The Company has moved the Court to extend the period during which
the Debtors may file a Plan of Reorganization through July 1, 2002. On April 2,
2001, the Court will consider the Company's motion for such extension. There can
be no assurance that the Court will grant such extension. 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.
Although the Chapter 11 filing raises substantial doubt 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 right of, and ultimate payment by
the Company to pre-petition creditors may be substantially altered. This could
result in
F-37
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
claims being paid in the Chapter 11 proceedings at less (and possibly
substantially less) than 100 percent 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 sheet. 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 December 31, 2001, balance sheet 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 at December
31, 2001, consisted of the following:
<Table>
Trade accounts payable...................................... $ 17,334
Accrued and other liabilities............................... 3,500
Accrued interest............................................ 20,493
Accrued income taxes........................................ 11,290
Old Credit Facility......................................... 353,437
Senior Subordinated Notes................................... 207,000
Junior Notes................................................ 33,427
Other long-term liabilities................................. 1,555
--------
Total............................................. $648,036
========
</Table>
Reorganization Items
Reorganization items in 2001, include $4.8 million of professional fees and
expenses, a benefit of the $12.2 million resulting from the Court's approval of
a Company motion to reject a non-cancelable lease obligation on a substantially
idle facility, and $0.7 million of other reorganization costs.
Special Charges
Special charges incurred during the year ended December 31, 2001, were
$14.9 million and were comprised primarily of $7.0 million related to business
reengineering initiatives, $3.2 million related to an information technology
transformation project, and $2.4 million to logistics initiatives. The remainder
resulted mostly from the relocation of production to Mexico. Special charges of
$42.5 million were incurred during the year ended December 31, 2000, and are
comprised primarily of $19.4 million of costs related to the relocation of
production to Mexico and Asia, $11.0 million resulting from the Company's
reorganization of its domestic gas management business, $5.0 million related to
changes in senior management, and $4.7 million related to an information
technology and business process reengineering project the Company initiated in
the third quarter of 2000. In 1999, special charges of $21.9 million were
recorded related to the reorganization of the Company's Australian and Asian
operations, the consolidation of two domestic facilities and detachable warrants
issued in conjunction with junior subordinated notes.
F-38
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisitions
In 2000, the Company made the following two acquisitions. On April 13, the
Company, through a 90% owned subsidiary, acquired all the assets of Unique
Welding Alloys ("Unique"), a business that sells industrial gases, welding
equipment and accessories to the retail end-user trade, and on November 9, the
Company, through a 90% owned subsidiary, acquired all the assets of Maxweld &
Braze (Pty) Ltd., a wholesale business that sells welding equipment and
accessories to distributors and the retail end-user trade. Both of these
businesses are located in Boksburg, South Africa. The aggregate consideration
paid for these two acquisitions was approximately $4.4 million and was financed
through existing bank facilities. These transactions were accounted for as
purchases.
In 1999, the Company made the following two acquisitions. On March 11, the
Company acquired all the issued and outstanding capital stock of Soltec S.A., a
manufacturer of manual electrodes and tubular wires for hardfacing and special
applications, located in Santiago, Chile. On April 14, the Company acquired all
the issued and outstanding capital stock of Tecmo Srl, a manufacturer of torches
and plasma and laser consumables located in Rastignano, Italy. The aggregate
consideration paid for these two acquisitions was approximately $6 million and
was financed through existing bank facilities. These transactions were accounted
for as purchases.
The operating results of the acquired companies have been included in the
Consolidated Statements of Operations from their respective dates of
acquisition. Pro forma unaudited results of operations for the twelve months
ended December 31, 2000 and 1999 have not been presented since they would not
have differed materially from actual results.
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Thermadyne
and its majority owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Bankruptcy Accounting. Since the Chapter 11 bankruptcy filing, the Company
has applied the provisions in Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7.") SOP 90-7
does not change the application of generally accepted accounting principles in
the preparation of financial statements, but it does require that the financial
statements for periods including and subsequent to filing the Chapter 11
petition distinguish transactions and events that are directly associated with
the reorganization from the ongoing operations of the business.
Estimates. Preparation of financial statements in conformity with generally
accepted accounting principles requires certain estimates and assumptions be
made that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Inventories. Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out ("LIFO") method for domestic
subsidiaries and the first-in, first-out ("FIFO") method for foreign
subsidiaries. Inventories at foreign subsidiaries amounted to approximately
$37,986 and $47,698 at December 31, 2001 and 2000, respectively.
Property, Plant and Equipment. Property, plant and equipment are carried at
cost and are depreciated using the straight-line method. The average estimated
lives utilized in calculating depreciation are as follows: buildings -- 25
years; and machinery and equipment -- two to ten years. Property, plant and
equipment recorded under capital leases is depreciated using the lower of either
the lease term or the underlying asset's useful life.
F-39
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Financing Costs. The Company capitalizes loan origination fees and
other costs incurred arranging long-term financing. These costs are amortized
over the respective lives of the obligations using the effective interest
method.
Intangibles. The excess of costs over the net tangible assets of businesses
acquired consists of patented technology and goodwill. Identified intangible
assets are amortized on a straight-line basis over the various estimated useful
lives of such assets, which generally range from three to 25 years. Goodwill
related to acquisitions is amortized over 40 years. The Company records
impairment losses on long-lived assets including goodwill or related intangibles
when events and circumstances indicate the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
their carrying amounts.
Income Taxes. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to temporary differences between
the carrying value of assets and liabilities for financial reporting purposes
and their tax basis. The measurement of current and deferred tax assets and
liabilities is based on provisions of the enacted tax law; the effects of future
changes in tax laws or rates are not anticipated. The measurement of deferred
tax assets is reduced, if necessary, by the amount of any tax benefits that,
based on available evidence, are not expected to be realized.
Revenue Recognition. Revenue from the sale of cutting and welding products
is recognized upon shipment to the customer. Costs and related expenses to
manufacture cutting and welding products are recorded as cost of sales when the
related revenue is recognized.
Comprehensive Loss. At December 31, 2001, 2000, and 1999, accumulated
comprehensive loss amounted to $42,930, $35,595, and $23,895, respectively, for
foreign currency translation. Accumulated comprehensive income for pensions was
$708 at December 31, 2001.
Statements of Cash Flows. For purposes of the statements of cash flows,
Thermadyne considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
The following table shows the interest and taxes paid during the periods
presented in the accompanying consolidated statements of cash flows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- ----------------- -----------------
Interest............................ $34,220 $58,842 $53,400
Taxes............................... 2,353 3,129 2,663
</Table>
Operating cash disbursements resulting from the reorganization include $6.0
million related to professional fees and expenses, $1.9 million of fees related
to the DIP Facility and Old Credit Facility, and $0.1 million of other
reorganization costs. Included in the amount for professional fees and expenses
was approximately $2.0 million of retainers, which were included in prepaid
assets at December 31, 2001.
Foreign Currency Translation. Local currencies have been designated as the
functional currencies for all subsidiaries. Accordingly, assets and liabilities
of foreign subsidiaries are translated at the rates of exchange at the balance
sheet date. Income and expense items of these subsidiaries are translated at
average monthly rates of exchange. The resultant translation gains or losses are
included in other comprehensive income in the component of shareholder's deficit
designated "Foreign currency translation." The effect on the consolidated
statements of operations of transaction gains and losses is insignificant for
all years presented. The Company's foreign operations are described in Note 12.
Derivatives. Effective January 1, 2001, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 133, as
amended, requires the Company to recognize all derivatives on the balance sheet
at fair value.
F-40
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in fair
value of the hedged asset, liability, or firm or forecasted commitment through
earnings, or recognized in other comprehensive income until the hedged item is
recognized in earnings. Any ineffective portion of the derivative's change in
fair value will be immediately recognized in earnings. The adoption of this
statement did not have a material impact on the Company's results of operations
or financial position.
During 2001, 2000 and 1999, the Company used an interest rate swap to
manage its cost of borrowing on a portion of its floating rate debt, as required
by the Old Credit Facility. On January 4, 2002, the swap expired and was not
replaced.
Recent Accounting Pronouncements. In June, 2001, the Financial Accounting
Standards Board issued SFAS No. 141, "Business Combinations", and No. 142,
"Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. SFAS 142 prohibits the amortization
of goodwill and intangible assets with indefinite useful lives. SFAS 142
requires that these assets be reviewed for impairment at least annually.
Intangible assets with finite lives will continue to be amortized over their
estimated useful lives. Additionally, SFAS 142 requires that goodwill included
in the carrying value of equity method investments no longer be amortized.
The Company will apply SFAS 142 beginning in the first quarter of 2002.
Application of the nonamortization provisions of SFAS 142 is expected to
increase operating income by approximately $0.5 million in 2002. The Company
will test goodwill for impairment using the two-step process prescribed in SFAS
142. The first step is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. The Company does not believe
these tests will have a material effect on its results of operations or its
financial position.
4. ACCOUNTS RECEIVABLE
On January 31, 2000, the Company entered into a trade accounts receivable
securitization agreement whereby it sold on an ongoing basis participation
interests in up to $45,000 of designated accounts receivable. The Company
retained servicing responsibilities for accounts receivable collections, but
received no servicing fee. Effective with the Chapter 11 filing this program
began to liquidate and at December 31, 2001, all participation interests had
been fully funded. On January 4, 2002, the program was terminated and final
distributions made to investors. The amount of participation interests sold
under this financing arrangement was approximately $20,999 at December 31, 2000.
The sold accounts receivable are reflected as a reduction of accounts receivable
on the Consolidated Balance Sheets. Interest expense is incurred on
participation interests at the rate of one-month LIBOR plus 65 basis points, per
annum. The Company records no gains or losses from the securitization
arrangement.
Previously, the Company was party to a similar accounts receivable
securitization agreement which expired on November 15, 1999, whereby it sold
participation interests in up to $50,000 of designated accounts receivable. The
terms, eligibility criteria and accounting treatment were substantially the same
as the current agreement. Interest expense accrued at the rate of one-month
LIBOR plus 50 basis points, per annum.
F-41
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
The composition of inventories at December 31, is as follows:
<Table>
<Caption>
2001 2000
-------- --------
Raw materials........................................... $ 18,142 $ 20,829
Work-in-process......................................... 25,517 26,853
Finished goods.......................................... 46,442 65,582
-------- --------
90,101 113,264
LIFO reserve............................................ (353) (813)
-------- --------
$ 89,748 $112,451
======== ========
</Table>
6. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at December 31, is as
follows:
<Table>
<Caption>
2001 2000
-------- --------
Land.................................................... $ 9,065 $ 10,016
Building................................................ 29,547 35,834
Machinery and equipment................................. 114,186 99,197
-------- --------
152,798 145,047
Accumulated depreciation................................ (71,786) (60,322)
-------- --------
$ 81,012 $ 84,725
======== ========
</Table>
Assets recorded under capitalized leases were $23,320 ($15,822 net of
accumulated depreciation) and $19,641 ($13,165 net of accumulated depreciation)
at December 31, 2001 and 2000, respectively.
7. INTANGIBLES
The composition of intangibles at December 31, is as follows:
<Table>
<Caption>
2001 2000
-------- --------
Goodwill................................................ $ 13,509 $ 13,489
Other................................................... 11,421 11,645
-------- --------
24,930 25,134
Accumulated amortization................................ (11,508) (10,928)
-------- --------
$ 13,422 $ 14,206
======== ========
</Table>
During the third quarter of 2000, the Company recorded impairment losses of
$18.5 million and $4.9 million related to goodwill and other intangible assets,
respectively, associated with its Australian business. These impairment losses
were recorded through increased amortization expense. The Company records
impairment losses on long-lived assets including goodwill or related intangibles
when events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the related carrying amounts. Prolonged weak economic conditions in Australia
led to the Company's reassessment and ultimate write-down of these assets.
F-42
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM OBLIGATIONS
The composition for long-term obligations at December 31, is as follows:
<Table>
<Caption>
2001 2000
--------- --------
Debtor-in-possession credit facility................... $ 8,650 $ --
Revolving Credit Facility(1)........................... 58,500 23,500
Term A Facility -- United States(1).................... 57,885 61,453
Term A Facility -- Australia(1)........................ 13,342 15,596
Term A Facility -- Italy(1)............................ 6,482 7,286
Term B Facility(1)..................................... 108,614 109,427
Term C Facility(1)..................................... 108,614 109,427
Senior subordinated notes, due June 1, 2008, 9 7/8%
interest payable semiannually on June 1 and December
1(1)................................................. 207,000 207,000
Junior subordinated notes, due December 15, 2009, 15%
interest payable quarterly on March 15, June 15,
September 15, and December 15(1)..................... 33,427 29,148
Capital leases......................................... 21,191 19,943
Other.................................................. 2,849 4,242
--------- --------
626,554 587,022
Amounts classified as liabilities subject to
compromise........................................... (593,864) --
--------- --------
32,690 587,022
Current maturities..................................... (11,606) (19,737)
--------- --------
$ 21,084 $567,285
========= ========
</Table>
- ---------------
(1) Amounts outstanding at December 31, 2001, have been classified as
liabilities subject to compromise.
At December 31, 2001, the schedule of principal payments on long-term debt,
excluding capital lease obligations and amounts subject to compromise, is as
follows:
<Table>
2002....................................................... $10,362
2003....................................................... 401
2004....................................................... 354
2005....................................................... 148
2006....................................................... 131
Thereafter................................................. 103
</Table>
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 December 31, 2001, the Company's eligible
accounts receivable, inventories and fixed assets supported access to $58.0 of
the DIP Facility. Interest on the DIP Facility accrues at the administrative
agent's adjusted base rate plus 2.25% in the case of alternate base rates 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 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,
F-43
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortization of goodwill, amortization of intangibles, net periodic
postretirement benefits 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) and other customary provisions. The DIP Facility expires
on the earlier of the consummation of a Plan of Reorganization or November 21,
2002. At December 31, 2001, the Company had borrowed $8.7 million and issued
$0.1 million of letters of credit under the DIP Facility, resulting in
availability of approximately $49.2 million.
Thermadyne LLC pays a commitment fee calculated at a rate of 0.75% per
annum on the daily average unused commitment under the DIP Facility. Such fee is
payable monthly in arrears and upon termination of the DIP Facility. Thermadyne
LLC also pays a fee calculated at 3.5% per annum based on the average letters of
credit outstanding. Such fee is payable monthly in arrears and upon termination
of the DIP Facility.
Old Credit Facility
The Old Credit Facility includes a $330 million term loan facility (the
"Term Loan Facility") and a $100 million revolving credit facility (subject to
adjustment as provided below), which provides for revolving loans and up to $50
million of letters of credit (the "Revolving Credit Facility"). The Term Loan
Facility is comprised of a term A facility of $100 million (the "Term A
Facility"), which has a maturity of six years, a term B facility of $115 million
(the "Term B Facility"), which has a maturity of seven years, and a term C
facility of $115 million (the "Term C Facility"), which has a maturity of eight
years. The Revolving Credit Facility terminates six years after the date of
initial funding of the 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 Facility. At December 31, 2001, the
Company had $8.1 million of standby letters of credit outstanding under the
Revolving Credit Facility.
On November 10, 1999, the Company amended the Old Credit Facility to allow
the restructuring of certain of its manufacturing operations and to adjust its
financial covenants. In accordance with the amendment, the rate at which the Old
Credit Facility bears interest was adjusted to, at Thermadyne LLC's option, the
administrative agent's alternative base rate or the reserve-adjusted LIBOR plus,
in each case, applicable margins of (i) in the case of alternative base rate
loans, (x) 1.50% for revolving and Term A loans, (y) 1.75% for Term B loans and
(z) 2.00% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.75% for
revolving and Term A loans, (y) 3.00% for Term B loans and (z) 3.25% for Term C
loans. The applicable margin may vary based on Thermadyne LLC's ratio of
consolidated indebtedness to Adjusted EBITDA. In addition, the amendment
required the issuance of $25.0 million of Junior Subordinated Notes with
detachable warrants for the purchase of the Company's common stock.
Prior to the amendment of the Old Credit Facility applicable margins were
(i) in the case of alternative base rate loans, (x) 1.00% for revolving and Term
A loans, (y) 1.25% for Term B loans and (z) 1.50% for Term C loans and (ii) in
the case of LIBOR loans, (x) 2.25% for revolving and Term A loans, (y) 2.50% for
Term B loans and (z) 2.75% for Term C loans.
Thermadyne LLC pays a letter of credit fee calculated (i) in the case of
standby letters of credit, at a rate per annum equal to the then applicable
margin for LIBOR loans under the Revolving Credit Facility minus 0.125% and (ii)
in the case of documentary letters of credit, at a rate per annum equal to 1.25%
plus, in each case, a fronting fee on the stated amount of each letter of
credit. Such fees are payable quarterly in arrears. In addition, Thermadyne LLC
pays customary transaction charges in connection with any letters of credit.
F-44
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Senior Subordinated Notes
The Senior Subordinated Notes are general unsecured obligations of
Thermadyne LLC and Thermadyne Capital and will be subordinated in right of
payment to all senior indebtedness of Thermadyne LLC and Thermadyne Capital
(including borrowings under the DIP Facility and the Old Credit Facility). The
Senior Subordinated Notes are unconditionally guaranteed on a senior
subordinated basis by certain of Thermadyne LLC's existing domestic subsidiaries
(the "Guarantor Subsidiaries"). The note guarantees will be general unsecured
obligations of the Guarantor Subsidiaries, are subordinated in right of payment
to all existing and future senior indebtedness of the Guarantor Subsidiaries,
including indebtedness under the DIP Facility and the Old Credit Facility, and
will rank senior in right of payment to any future subordinated indebtedness of
the Guarantor Subsidiaries.
Junior Subordinated Notes
The Junior Notes, which have detachable warrants for the purchase of the
Company's common stock, are general unsecured obligations of Thermadyne LLC and
will be subordinated in right of payment to all existing and future senior and
senior subordinated indebtedness of Thermadyne LLC. Thermadyne LLC, at its
option, may pay interest in additional Junior Notes between the date of original
issuance and December 15, 2004 on each March 15, June 15, September 15 and
December 15 at the rate of 15%. Beginning December 15, 2004, interest will
accrue at the rate of 15% per annum on each interest payment date, provided that
if and for so long as payment of interest on the Junior Notes is prohibited
under the terms of the Old Credit Facility, interest shall be paid by the
issuance of additional Junior Notes.
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 was $20.4 million and $4.7
million, respectively. Interest recorded for the Senior Subordinated Notes and
the Junior Notes was $18.7 million and $4.3 million, respectively. The
Bankruptcy Code generally prohibits the Company from making payments on
unsecured, pre-petition debt, including the Senior Subordinated Notes, except
pursuant to a confirmed Plan of Reorganization.
9. LEASES
Future minimum lease payments under leases with initial or remaining
noncancelable lease terms in excess of one year at December 31, 2001 are as
follows:
<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
2002........................................................ 3,455 3,905
2003........................................................ 3,525 3,152
2004........................................................ 3,683 2,683
2005........................................................ 3,410 2,239
2006........................................................ 2,830 1,791
Thereafter.................................................. 20,988 6,471
--------
Total minimum lease payments...................... 37,891
Amount representing interest................................ (16,696)
--------
Present value of net minimum lease payments, including
current obligations of $1,244............................. $ 21,191
========
</Table>
Rent expense under operating leases from continuing operations amounted to
$5,636, $6,602, and $7,347 for the years ended December 31, 2001, 2000, and
1999, respectively.
F-45
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
Pre-tax loss was taxed under the following jurisdictions:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- ----------------- -----------------
Domestic............................ $(28,305) $(31,264) $ 10,054
Foreign............................. (1,521) (24,566) (18,264)
-------- -------- --------
Loss before income taxes.......... $(29,826) $(55,830) $ (8,210)
======== ======== ========
</Table>
The provision for income taxes is as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- ----------------- -----------------
Current:
Federal........................... $ -- $ -- $ 240
Foreign........................... 2,000 3,393 2,206
State and local................... 150 150 400
------ ------- ------
Total current............. 2,150 3,543 2,846
------ ------- ------
Deferred............................ 547 25,045 5,961
------ ------- ------
$2,697 $28,588 $8,807
====== ======= ======
</Table>
The composition of deferred tax assets and liabilities attributable to
continuing operations at December 31 is as follows:
<Table>
<Caption>
2001 2000
-------- --------
Deferred tax assets:
Post-employment benefits.................................. $ 9,143 $ 9,303
Accrued liabilities....................................... 5,832 6,758
Intangibles............................................... 8,145 8,329
Other..................................................... 2,275 4,811
Fixed assets.............................................. 2,819 9,967
Net operating loss carryforwards.......................... 49,338 33,963
-------- --------
Total deferred tax assets......................... 77,552 73,131
Valuation allowance for deferred tax assets............... (74,121) (67,501)
-------- --------
Net deferred tax asset............................ 3,431 5,630
-------- --------
Deferred tax liabilities:
Inventories............................................... 3,183 4,838
-------- --------
Total deferred tax liabilities.................... 3,183 4,838
-------- --------
Net deferred tax asset............................ $ 248 $ 792
======== ========
</Table>
The income tax provision for the years ended December 31, 2001 and 2000,
includes a charge of $9.7 million and $33.8 million, respectively, to increase
the valuation allowance on the net deferred tax amount as management does not
believe this asset will be fully realized based on projections of income in
future periods.
F-46
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
to pretax income from continuing operations as a result of the following
differences:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31, DECEMBER 31,
2001 2000 1999
----------- ------------ ------------
Tax at U.S. statutory rates..................... $(10,439) $(19,542) $(2,874)
Nondeductible goodwill amortization and other
nondeductible expenses........................ 777 7,741 793
Change in valuation allowance................... 9,668 33,817 (809)
Foreign tax rate differences and nonrecognition
of foreign tax loss benefits.................. 2,593 6,422 8,225
Issuance of warrants............................ -- -- 3,212
State income taxes, net of federal tax
benefit....................................... 98 150 260
-------- -------- -------
$ 2,697 $ 28,588 $ 8,807
======== ======== =======
</Table>
At December 31, 2001, the Company had net operating loss carryforwards of
approximately $122,000 available for U.S. federal income tax purposes which
expire between 2002 and 2021. Utilization of the majority of these net operating
loss carryforwards is subject to various limitations due to previous changes in
control of ownership (as defined in the Internal Revenue Code) of the Company.
Pursuant to the requirements of the American Institute of Certified Public
Accountants Statement of Position No. 90-7, "Financial Entities in
Reorganization Under the Bankruptcy Code," the tax benefit resulting from the
utilization of net operating loss carryforwards that existed on the effective
date of the Company's financial reorganization will be reported as a direct
addition to paid-in capital.
The Company's foreign subsidiaries have undistributed earnings at December
31, 2000. Those earnings are considered to be indefinitely reinvested and,
accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable because of the complexities
associated with its hypothetical calculation.
11. EMPLOYEE BENEFIT PLANS
401(k) Retirement Plan. The 401(k) Retirement Plan covers the majority of
the Company's domestic employees. The Company, at its discretion, can make a
base contribution of 1% of each employee's compensation and an additional
contribution equal to as much as 4% of the employee's compensation. At the
employee's discretion, an additional 1% to 15% voluntary employee contribution
can be made. The plan requires the Company to make matching contributions of 50%
for the first 6% of the voluntary employee contribution. Total expense for this
plan was approximately $2,038, $2,115, and $2,223 for the years ended December
31, 2001, 2000, and 1999, respectively.
Pension Plans. The Company's subsidiaries have had various noncontributory
defined benefit pension plans which covered substantially all U.S. employees.
The Company froze and combined its three noncontributory defined benefit pension
plans through amendments to such plans effective December 31, 1989. All former
participants of these plans became eligible to participate in the 401(k)
Retirement Plan effective January 1, 1990. Prepaid benefit cost at December 31,
2001 was $358, and $163 at December 31, 2000. There were no accrued benefit
liabilities at December 31, 2001 or 2000. In addition, the Company's Australian
subsidiary has a Superannuation Fund established by a Trust Deed which operates
on a lump sum scheme to
F-47
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provide benefits for its employees. Prepaid benefit cost at December 31, 2001
and 2000, was $6,204 and $5,630, respectively. There were no accrued benefit
liabilities at December 31, 2001 or 2000. The prepaid benefit cost is not
included in the table below or in the Company's balance sheet, as the Company
has no legal right to amounts included in this fund.
Other Postretirement Benefits. The Company has a retirement plan covering
both salaried and non-salaried retired employees, which provides postretirement
health care benefits (medical and dental) and life insurance benefits. The
postretirement health care portion is contributory, with retiree contributions
adjusted annually as determined by the Company based on claim costs. The
postretirement life insurance portion is noncontributory. The Company recognizes
the cost of postretirement benefits on the accrual basis as employees render
service to earn the benefit. The Company continues to fund the cost of health
care and life insurance benefits in the year incurred.
The following table provides a reconciliation of benefit obligations, plan
assets and status of the pension and other postretirement benefit plans as
recognized in the Company's consolidated balance sheets for the years ended
December 31, 2001 and 2000:
<Table>
<Caption>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------ -------------------
2001 2000 2001 2000
------- -------- -------- --------
Change in Benefit Obligation:
Benefit obligation at beginning of year... $14,088 $ 13,414 $ 13,431 $ 13,005
Service cost.............................. -- -- 877 791
Interest cost............................. 1,022 1,001 992 1,022
Actuarial loss............................ 351 361 371 523
Plan amendments........................... -- -- -- (1,216)
Benefits paid............................. (797) (688) (862) (694)
------- -------- -------- --------
Benefit obligation at end of year......... $14,664 $ 14,088 $ 14,809 $ 13,431
======= ======== ======== ========
Change in plan assets:
Fair value of plan assets at beginning of
year................................... $15,809 $ 15,690
Actual return on plan assets.............. (604) 932
Benefits paid............................. (797) (688)
Administrative expenses................... (124) (125)
------- --------
Fair value of plan assets at end of
year................................... $14,284 $ 15,809
======= ========
Funded status of the plan (underfunded)..... $ (380) $ 1,721 $(14,809) $(13,431)
Unrecognized net actuarial loss (gain).... 708 (1,611) (8,770) (9,692)
Unrecognized prior service cost........... 30 53 (2,195) (2,388)
------- -------- -------- --------
Prepaid (accrued) benefit cost............ $ 358 $ 163 $(25,774) $(25,511)
======= ======== ======== ========
Weighted-average assumptions as of December
31:
Discount rate............................. 7.25% 7.5% 7.25% 7.5%
Expected return on plan assets............ 8% 8% N/A N/A
Rate of compensation increase............. N/A N/A N/A N/A
</Table>
F-48
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension and other postretirement benefit costs include the
following components:
<Table>
<Caption>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
--------------------------- ------------------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- -------- -------- --------
Components of the net periodic
benefit cost:
Service cost................. $ -- $ -- $ -- $ 877 $ 791 $ 761
Interest cost................ 1,022 1,001 1,012 992 1,022 842
Expected return on plan
assets.................... (1,232) (1,226) (1,179) -- -- --
Recognized (gain) loss....... (8) (153) -- (551) (591) 1,698
Prior service cost
recognized................ 23 23 23 (193) (101) (101)
------- ------- ------- ------ ------ ------
Benefit cost (credit).......... $ (195) $ (355) $ (144) $1,125 $1,121 $3,200
======= ======= ======= ====== ====== ======
</Table>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.0% in 2001, declining gradually to 6.0%
in 2012. The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 8.5% in 2000 and 9.5% in 1999.
A one percentage point change in the assumed health care cost trend rate would
have the following effects:
<Table>
<Caption>
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
Effect on total of service and interest cost components in
2001.................................................... $ 354 $ (300)
Effect on postretirement benefit obligation as of December
31, 2001................................................ $2,396 $(1,929)
</Table>
12. SEGMENT INFORMATION
The Company reports its segment information by geographic region. Although
the Company's domestic operation is comprised of several individual business
units, similarity of products, paths to market, end users, and production
processes results in performance evaluation and decisions regarding allocation
of resources being made on a combined basis. The Company's reportable geographic
regions are the United States, Europe and Australia/Asia.
The Company evaluates performance and allocates resources based principally
on operating income net of any special charges or significant one-time charges.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Intersegment sales
are based on market prices.
F-49
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes the
elimination of intersegment sales and profits, corporate related items and other
costs not allocated to the reportable segments.
<Table>
<Caption>
ALL OTHER
UNITED GEOGRAPHIC
STATES EUROPE AUSTRALIA/ASIA REGIONS OTHER CONSOLIDATED
-------- ------- -------------- ---------- -------- ------------
2001
Revenue from external
customers................ $293,837 $45,874 $ 44,468 $54,045 $ -- $438,224
Intersegment revenues...... 25,652 8,303 435 3,970 (38,360) --
Depreciation and
amortization of
intangibles.............. 10,248 967 4,022 1,715 2,278 19,230
Operating income (loss).... 46,600 3,557 (3,784) 2,612 (22,606) 26,379
Identifiable assets........ 130,197 50,505 37,660 43,409 46,662 308,433
Capital expenditures....... 10,099 1,648 437 2,334 806 15,324
2000
Revenue from external
customers................ $342,392 $56,434 $ 54,062 $57,258 $ -- $510,146
Intersegment revenues...... 37,996 15,674 1,985 -- (55,655) --
Depreciation and
amortization of
intangibles.............. 9,104 2,546 20,259 1,923 8,386 42,218
Operating income (loss).... 65,969 4,469 (27,616) (903) (32,291) 9,628
Identifiable assets........ 135,758 59,319 48,548 46,615 22,223 312,463
Capital expenditures....... 6,144 5,172 3,697 1,859 1,819 18,691
1999
Revenue from external
customers................ $343,521 $56,449 $ 76,763 $44,382 $ -- $521,115
Intersegment revenues...... 34,290 15,678 2,819 414 (53,201) --
Depreciation and
amortization of
intangibles.............. 11,164 2,737 4,603 590 4,388 23,482
Operating income (loss).... 71,941 3,109 (5,576) (1,460) (18,008) 50,006
Identifiable assets........ 146,860 54,756 91,949 32,213 68,181 393,959
Capital expenditures....... 5,047 644 2,623 1,317 537 10,168
</Table>
Product Line Information
The Company manufactures a variety of products, substantially all of which
are used in the cutting, welding or fabrication of metal. End users of the
Company's products are engaged in various applications including construction,
automobile manufacturing, repair and maintenance and shipbuilding. The following
table shows sales for each of the Company's key product lines:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
Gas apparatus................................... $170,634 $190,996 $186,279
Arc welding equipment........................... 73,615 87,860 104,857
Arc welding consumables......................... 124,446 146,494 149,693
Plasma and automated cutting equipment.......... 64,081 79,995 71,083
All other....................................... 5,448 4,801 9,203
-------- -------- --------
$438,224 $510,146 $521,115
======== ======== ========
</Table>
F-50
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONTINGENCIES
The Chapter 11 filing introduces numerous uncertainties which may affect
the Company's business, results of operations and prospects. Additional
discussion on the Chapter 11 proceedings can be found in Note 2 to these
financial statements.
Thermadyne and certain of its wholly owned subsidiaries are defendants in
various legal actions, primarily in the product liability area. While there is
uncertainty relating to any litigation, management is of the opinion that the
outcome of such litigation will not have a material adverse effect on the
Company's financial condition or results of operations.
14. FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company only uses derivatives for hedging purposes. The following is a
summary of the Company's risk management strategies and the effect of these
strategies on the Company's consolidated financial statements.
Interest Rate Swap
At December 31, 2001, the Company had an interest rate swap agreement
outstanding with a notional amount of $61.5 million, which matured on January 4,
2002, under which the Company paid a fixed rate of interest and received a
floating rate of interest over the term of the interest rate swap agreement
without the exchange of the underlying notional amount. The interest rate swap
agreement converted a portion of the Old Credit Facility from a floating rate
obligation to a fixed rate obligation. Interest differentials to be paid or
received because of the swap agreement are reflected as an adjustment to
interest expense over the related debt provided. This agreement was accounted
for on the accrual basis.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, trade accounts
receivable, and derivatives.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located in different parts of the
country and the Company's policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative credit
standing of these financial institutions. The Company does not require
collateral on these financial instruments.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base. The Company does not require collateral for trade accounts receivable.
The Company is exposed to credit risk in the event of non-performance by
the counterparty to its interest rate swap. The Company believes this exposure
is limited due to the high credit rating of the counterparty.
Fair Value
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
F-51
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts receivable and accounts payable: The carrying amounts
reported in the balance sheet for accounts receivable and accounts payable
approximate their fair value.
Interest rate swap: Fair value is estimated based on current interest
rates and was $19 at December 31, 2001. The carrying value of the swap
agreement was zero at December 31, 2001.
Long-term Debt: The estimated fair value amounts of the Company's
long-term obligations have been determined by the Company using available
market information. The fair values of the Old Credit Facility and the
Senior Subordinated Notes were based on the most recent market information
available, and are estimated to be 85% and 37% of their current carrying
values at December 31, 2001, or $300,421 and $76,590, respectively. No
market information was available with respect to the Junior Notes, but, as
a result of the Chapter 11 filing, management believes this obligation has
little or no value. As a result of the Chapter 11 filing, the ultimate
values of the Old Credit Facility, the Senior Subordinated Notes and the
Junior Notes are uncertain and may be materially different than the amounts
in the financial statements. The fair values of the obligations outstanding
under the DIP Facility and the Company's other long-term obligations are
estimated at their current carrying values since these obligations are
fully secured and have varying interest charges based on current market
rates.
15. GUARANTOR SUBSIDIARIES AND DEBTOR FINANCIAL INFORMATION
Guarantor Subsidiaries. Thermadyne LLC and Thermadyne Capital, both wholly
owned subsidiaries of Holdings, issued $207 million of Senior Subordinated
Notes. Holdings received all of the net proceeds from the issuance of the Senior
Subordinated Notes and Thermadyne LLC and Thermadyne Capital are jointly and
severally liable for all payments under the Senior Subordinated Notes.
Additionally, the Senior Subordinated Notes are fully and unconditionally (as
well as jointly and severally) guaranteed on an unsecured senior subordinated
basis by certain subsidiaries of the Company (the "Guarantor Subsidiaries").
Each of the Guarantor Subsidiaries is wholly owned by Thermadyne LLC.
The following condensed consolidating financial information of Thermadyne
LLC includes the accounts of Thermadyne LLC, the combined accounts of the
Guarantor Subsidiaries and the combined accounts of the non-guarantor
subsidiaries for the periods indicated. Separate financial statements of each of
the Guarantor Subsidiaries are not presented because management has determined
such information is not material in assessing the Guarantor Subsidiaries.
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 December 31,
2001 and 2000, and the results of operations and cash flows for each of the
three years in the period ended December 31, 2001. This information was prepared
on the same basis as the consolidated financial statements.
F-52
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001
ASSETS
<Table>
<Caption>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
---------- ---------- -------------- ------------ ---------
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' equity (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
========= ========= ========= ========= =========
</Table>
F-53
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
ASSETS
<Table>
<Caption>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
---------- ---------- -------------- ------------ ---------
Current Assets:
Cash and cash equivalents..... $ -- $ 4,536 $ 5,826 $ -- $ 10,362
Restricted cash............... -- -- 24,779 (24,779) --
Accounts receivable........... -- (312) 90,254 (22,931) 67,011
Inventories................... -- 65,303 47,148 -- 112,451
Prepaid expenses and other.... -- 1,877 3,297 (577) 4,597
--------- --------- --------- --------- ---------
Total current
assets.............. -- 71,404 171,304 (48,287) 194,421
Property, plant and equipment,
at cost, net............... -- 41,184 43,541 -- 84,725
Deferred financing costs,
net........................ 15,393 -- 52 -- 15,445
Intangibles, at cost, net..... -- 6,233 7,973 -- 14,206
Deferred income taxes......... -- (2) 794 -- 792
Investment in and advances
to/from subsidiaries....... 135,656 13,911 -- (149,567) --
Other assets.................. -- 461 2,413 -- 2,874
--------- --------- --------- --------- ---------
Total assets.......... $ 151,049 $ 133,191 $ 226,077 $(197,854) $ 312,463
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.............. $ -- $ 21,479 $ 21,789 $ -- $ 43,268
Accrued and other
liabilities................ -- 25,871 9,419 -- 35,290
Accrued interest.............. 1,961 6 15 -- 1,982
Income taxes payable.......... -- 11,153 (1,034) -- 10,119
Current maturities of
long-term obligations...... 12,487 286 6,964 -- 19,737
--------- --------- --------- --------- ---------
Total current
liabilities......... 14,448 58,795 37,153 -- 110,396
Long-term obligations, less
current maturities............ 527,468 15,654 69,163 (45,000) 567,285
Other long-term liabilities..... -- 50,074 11,170 -- 61,244
Shareholders' equity (deficit):
Accumulated deficit........... (469,843) (326,380) (83,651) 410,031 (469,843)
Accumulated other
comprehensive loss......... -- (18,508) (17,087) -- (35,595)
--------- --------- --------- --------- ---------
Total shareholders'
deficit............. (469,843) (344,888) (100,738) 410,031 (505,438)
Net equity and advances to/from
subsidiaries.................. 78,976 353,556 209,329 (562,885) 78,976
--------- --------- --------- --------- ---------
Total liabilities and
shareholders'
deficit............. $ 151,049 $ 133,191 $ 226,077 $(197,854) $ 312,463
========= ========= ========= ========= =========
</Table>
F-54
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
---------- ---------- -------------- ------------ --------
Net sales....................... $ -- $347,981 $165,586 $(75,343)(a) $438,224
Operating expenses:
Cost of goods sold............ -- 238,308 132,534 (74,304)(a) 296,538
Selling, general and
administrative expenses.... -- 68,361 28,791 -- 97,152
Amortization of goodwill...... -- 32 339 -- 371
Amortization of other
intangibles................ -- 1,386 418 -- 1,804
Net periodic postretirement
benefits................... -- 1,125 -- -- 1,125
Special charges............... -- 14,252 603 -- 14,855
-------- -------- -------- -------- --------
Operating income (loss)......... -- 24,517 2,901 (1,039) 26,379
Other income (expense):
Interest expense.............. -- (52,628) (6,841) 1,989 (57,480)
Amortization of deferred
financing costs............ -- (3,987) -- -- (3,987)
Equity in net loss of
subsidiaries............... (32,523) -- -- 32,523 --
Other......................... -- 2,186 (725) (2,922) (1,461)
-------- -------- -------- -------- --------
Loss before reorganization items
and income tax provision...... (32,523) (29,912) (4,665) 30,551 (36,549)
Reorganization items............ -- (6,723) -- -- (6,723)
-------- -------- -------- -------- --------
Loss before income tax
provision..................... (32,523) (23,189) (4,665) 30,551 (29,826)
Income tax provision............ -- 579 2,118 -- 2,697
-------- -------- -------- -------- --------
Net loss........................ $(32,523) $(23,768) $ (6,783) $ 30,551 $(32,523)
======== ======== ======== ======== ========
</Table>
- ---------------
(a) Reflects the elimination of intercompany sales among all of the Company's
subsidiaries.
F-55
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
---------- ---------- -------------- ------------ --------
Net sales....................... $ -- $414,318 $192,511 $(96,683)(a) $510,146
Operating expenses:
Cost of goods sold............ -- 266,939 158,043 (97,502)(a) 327,480
Selling, general and
administrative expenses.... -- 71,660 30,918 -- 102,578
Amortization of goodwill...... -- 1,769 17,407 -- 19,176
Amortization of other
intangibles................ -- 6,843 864 -- 7,707
Net periodic postretirement
benefits................... -- 1,121 -- -- 1,121
Special charges............... -- 33,132 9,324 -- 42,456
-------- -------- -------- -------- --------
Operating income (loss)......... -- 32,854 (24,045) 819 9,628
Other income (expense):
Interest expense.............. -- (56,835) (9,006) 3,296 (62,545)
Amortization of deferred
financing costs............ -- (2,934) (7) -- (2,941)
Equity in net loss of
subsidiaries............... (84,418) -- -- 84,418 --
Other......................... -- 5,816 (745) (5,043) 28
-------- -------- -------- -------- --------
Loss before income tax
provision..................... (84,418) (21,099) (33,803) 83,490 (55,830)
Income tax provision............ -- 25,456 3,132 -- 28,588
-------- -------- -------- -------- --------
Net loss........................ $(84,418) $(46,555) $(36,935) $ 83,490 $(84,418)
======== ======== ======== ======== ========
</Table>
- ---------------
(a) Reflects the elimination of intercompany sales among all of the Company's
subsidiaries.
F-56
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
---------- ---------- -------------- ------------ --------
Net sales....................... $ -- $408,406 $200,827 $(88,118)(a) $521,115
Operating expenses:
Cost of goods sold............ -- 262,185 169,780 (89,715)(a) 342,250
Selling, general and
administrative expenses.... -- 66,766 32,385 99,151
Amortization of goodwill...... -- 97 1,478 -- 1,575
Amortization of other
intangibles................ -- 1,931 1,116 -- 3,047
Net periodic postretirement
benefits................... -- 3,200 -- -- 3,200
Special charges............... -- 12,524 9,362 -- 21,886
-------- -------- -------- -------- --------
Operating income (loss)......... -- 61,703 (13,294) 1,597 50,006
Other income (expense):
Interest expense.............. -- (49,808) (8,243) 2,730 (55,321)
Amortization of deferred
financing costs............ -- (2,973) (241) -- (3,214)
Equity in net loss of
subsidiaries............... (17,017) -- -- 17,017 --
Other......................... -- 11,277 (4,252) (6,706) 319
-------- -------- -------- -------- --------
Loss before income tax
provision..................... (17,017) 20,199 (26,030) 14,638 (8,210)
Income tax provision............ -- 4,322 4,485 -- 8,807
-------- -------- -------- -------- --------
Net Loss........................ $(17,017) $ 15,877 $(30,515) $ 14,638 $(17,017)
======== ======== ======== ======== ========
</Table>
- ---------------
(a) Reflects the elimination of intercompany sales among all of the Company's
subsidiaries.
F-57
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
---------- ---------- -------------- ------------ --------
Net cash provided by (used in)
operating activities................. $(13,534) $(13,685) $ 2,798 $ 30,551 $ 6,130
Cash flows used in investing
activities:
Capital expenditures, net............ -- (11,957) (3,366) -- (15,323)
Change in other assets............... -- (842) 16 -- (826)
-------- -------- ------- -------- --------
Net cash used in investing
activities........................... -- (12,799) (3,350) -- (16,149)
Cash flows provided by (used in)
financing activities:
Change in long-term receivables...... -- 543 (696) -- (153)
Borrowings under debtor-in-possession
credit facility................... 8,650 -- -- -- 8,650
Repayment of long-term obligations... (5,193) (145) (6,945) -- (12,283)
Borrowing of long-term obligations... 35,029 -- 5,020 -- 40,049
Change in accounts receivable
securitization.................... -- (20,999) -- -- (20,999)
Financing fees....................... -- -- -- -- --
Changes in net equity and advances
to/from subsidiaries.............. (24,952) 49,395 6,106 (30,551) (2)
Other................................ -- 486 (1,291) -- (805)
-------- -------- ------- -------- --------
Net cash provided by (used in)
financing activities................. 13,534 20,280 2,194 (30,551) 14,457
-------- -------- ------- -------- --------
Net increase (decrease) in cash and
cash equivalents..................... -- 2,796 1,642 -- 4,438
Cash and cash equivalents at beginning
of year.............................. -- 4,536 5,826 -- 10,362
-------- -------- ------- -------- --------
Cash and cash equivalents at end of
year................................. $ -- $ 7,332 $ 7,468 $ -- $ 14,800
======== ======== ======= ======== ========
</Table>
F-58
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
---------- ---------- -------------- ------------ --------
Net cash provided by (used in)
operating activities.......... $(84,857) $ 11,238 $(10,982) $ 83,490 $ (1,111)
Cash flows used in investing
activities:
Capital expenditures, net..... -- (9,660) (9,031) -- (18,691)
Proceeds from sale of
assets..................... -- -- 6,961 -- 6,961
Change in other assets........ -- 970 (2,021) -- (1,051)
Acquisitions, net of cash..... -- -- (3,767) -- (3,767)
-------- -------- -------- -------- --------
Net cash used in investing
activities.................... -- (8,690) (7,858) -- (16,548)
Cash flows provided by (used in)
financing activities:
Change in long-term
receivables................ -- 24 360 -- 384
Repayment of long-term
obligations................ (14,493) (355) (11,629) -- (26,477)
Borrowing of long-term
obligations................ 23,500 -- 10,716 -- 34,216
Change in accounts receivable
securitization............. -- 20,999 -- -- 20,999
Financing fees................ -- (1,125) -- -- (1,125)
Changes in net equity and
advances to/from
subsidiaries............... 75,850 (11,623) 15,275 (83,490) (3,988)
Other......................... -- (8,498) (811) -- (9,309)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities.......... 84,857 (578) 13,911 (83,490) 14,700
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents.......... -- 1,970 (4,929) -- (2,959)
Cash and cash equivalents at
beginning of year............. -- 2,566 10,755 -- 13,321
-------- -------- -------- -------- --------
Cash and cash equivalents at end
of year....................... $ -- $ 4,536 $ 5,826 $ -- $ 10,362
======== ======== ======== ======== ========
</Table>
F-59
THERMADYNE MFG. LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
THERMADYNE TOTAL TOTAL
LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL
---------- ---------- -------------- ------------ --------
Net cash provided by (used in)
operating activities................. $(14,892) $ 47,751 $ 2,977 $ 14,638 $ 50,474
Cash flows used in investing
activities:
Capital expenditures, net............ -- (7,003) (3,165) -- (10,168)
Change in other assets............... -- (488) (558) -- (1,046)
Acquisitions, net of cash............ -- (3,000) (2,886) -- (5,886)
-------- -------- -------- -------- --------
Net cash used in investing
activities........................... -- (10,491) (6,609) -- (17,100)
Cash flows provided by (used in)
financing activities:
Change in long-term receivables...... -- (530) 177 -- (353)
Repayment of long-term obligations... (4,049) -- (19,117) -- (23,166)
Borrowing of long-term obligations... 10,799 998 14,738 -- 26,535
Change in accounts receivable
securitization.................... -- (23,843) -- -- (23,843)
Financing fees....................... -- (901) -- -- (901)
Changes in net equity and advances
to/from subsidiaries.............. 8,142 (6,110) 15,804 (14,638) 3,198
Other................................ -- (3,257) 415 -- (2,842)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities................. 14,892 (33,643) 12,017 (14,638) (21,372)
-------- -------- -------- -------- --------
Net increase in cash and cash
equivalents.......................... -- 3,617 8,385 -- 12,002
Cash and cash equivalents at beginning
of year.............................. -- (1,051) 2,370 -- 1,319
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
year................................. $ -- $ 2,566 $ 10,755 $ -- $ 13,321
======== ======== ======== ======== ========
</Table>
F-60
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Thermadyne Holdings Corporation
We have audited the consolidated financial statements of Thermadyne
Holdings Corporation and Thermadyne Mfg. LLC as of December 31, 2001 and 2000,
and for each of the three years in the period ended December 31, 2001 and have
issued our reports thereon dated February 28, 2002. Our audits also included the
financial statement schedule, Schedule II, "Valuation and Qualifying Accounts."
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein. The
financial statement schedule does not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of the uncertainly regarding the Company's ability to continue as a going
concern.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri
February 28, 2002
S-1
SCHEDULE II
THERMADYNE HOLDINGS CORPORATION
THERMADYNE MFG. LLC
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<Table>
<Caption>
COLLECTION OF
BALANCE AT PREVIOUSLY BALANCE AT
BEGINNING OF WRITTEN OFF END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS PERIOD PROVISION WRITEOFFS ACCOUNTS PERIOD
- ------------------------------- ------------ ---------- --------- ------------- ----------
Year ended December 31, 2001.......... $3,509 $1,186 $1,302 $ 17 $3,376
Year ended December 31, 2000.......... 3,275 947 713 -- 3,509
Year ended December 31, 1999.......... 2,852 916 916 423 3,275
</Table>
S-2
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THERMADYNE HOLDINGS CORPORATION
By: /s/ JAMES H. TATE
------------------------------------
James H. Tate
Senior Vice President and
Chief Financial Officer
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
/s/ KARL R. WYSS Director, Chairman of the March 29, 2002
- ----------------------------------------------------- Board, and Chief Executive
Karl R. Wyss Officer
/s/ JAMES H. TATE Director, Senior Vice March 29, 2002
- ----------------------------------------------------- President, Chief Financial
James H. Tate Officer, and Office of the
Chairman
/s/ HAROLD A. POLING Director March 29, 2002
- -----------------------------------------------------
Harold A. Poling
/s/ KIRK B. WORTMAN Director March 29, 2002
- -----------------------------------------------------
Kirk B. Wortman
</Table>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THERMADYNE MFG. LLC
By: /s/ JAMES H. TATE
----------------------------------
James H. Tate
Senior Vice President and
Chief Financial Officer
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
/s/ KARL R. WYSS Director, Chairman of the March 29, 2002
- ----------------------------------------------------- Board, and Chief Executive
Karl R. Wyss Officer
/s/ JAMES H. TATE Director, Senior Vice March 29, 2002
- ----------------------------------------------------- President, Chief Financial
James H. Tate Officer, and Office of the
Chairman
</Table>
SIGNATURES
Pursuant to the requirement of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THERMADYNE CAPITAL CORP.
By: /s/ JAMES H. TATE
----------------------------------
James H. Tate
Senior Vice President and
Chief Financial Officer
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
/s/ KARL R. WYSS Director, Chairman of the March 29, 2002
- ----------------------------------------------------- Board, and Chief Executive
Karl R. Wyss Officer
/s/ JAMES H. TATE Director, Senior Vice March 29, 2002
- ----------------------------------------------------- President, Chief Financial
James H. Tate Officer, and Office of the
Chairman
</Table>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. EXHIBIT
------- -------
2.1 -- Agreement Plan of Merger, dated as of January 20, 1998,
between Thermadyne Holdings Corporation and Mercury
Acquisition Corporation.(2)
2.2 -- Amendment No. 1 to Agreement and Plan of Merger between
Thermadyne Holdings Corporation and Mercury Acquisition
Corporation.(3)
2.3 -- Certificate of Merger of Mercury Acquisition Corporation
with and into Thermadyne Holdings Corporation.(3)
3.1 -- Certificate of Incorporation of Thermadyne Holdings
Corporation (included in Exhibit 2.4).
3.2 -- Bylaws of Thermadyne Holdings Corporation.(3)
3.3 -- Certificate of Incorporation of Thermadyne Capital
Corp.(4)
3.4 -- Bylaws of Thermadyne Capital Corp.(4)
3.5 -- Limited Liability Company agreement of Thermadyne Mfg.
LLC.(4)
4.1 -- Indenture, dated as of May 22, 1998, between Mercury
Acquisition Corporation and IBJ Schroder Bank & Trust
Company, as Trustee.(3)
4.2 -- First Supplemental Indenture, dated as of May 22, 1998,
between Thermadyne Holding Corporation and IBJ Schroder
Bank & Trust Company, as Trustee.(3)
4.3 -- Form of 12 1/2% Senior Discount Debentures.(3)
4.4 -- A/B Exchange Registration Rights Agreement dated as of
May 22, 1998, among Mercury Acquisition Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.(3)
4.5 -- Amendment to Registration Rights Agreement dated May 22,
1998, among Thermadyne Holdings Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation.(3)
4.6 -- Indenture, dated as of February 1, 1994, between
Thermadyne Holdings Corporation and Chemical Bank, as
Trustee, with respect to $179,321,000 principal amount of
the Senior Subordinated Notes due November 1, 2003.(1)
4.7 -- Form of Senior Subordinated Note (included in Exhibit
4.3).(1)
4.8 -- Indenture, dated May 22, 1998, among Thermadyne Mfg. LLC,
Thermadyne Capital Corp., the guarantors named therein
and State Street Bank and Trust Company, as Trustee.(3)
4.9 -- Form of 9 7/8% Senior Subordinated Notes.(3)
4.10 -- A/B exchange Registration Rights Agreement dated as of
May 22, 1998, among Thermadyne Mfg. LLC, Thermadyne
Capital Corp., the guarantors named therein and
Donaldson, Lufkin & Jenrette Securities Corporation.(3)
4.11 -- Subscription agreement dated December 22, 1999, among
Thermadyne Mfg. LLC, Thermadyne Holdings Corporation, and
the buyers named therein.(9)
4.12 -- Registration Rights Agreement dated December 22, 1999,
among Thermadyne Mfg. LLC, Thermadyne Holdings
Corporation, and the buyers named therein.(9)
4.13 -- Form of indenture relating to Junior Subordinated
Notes.(9)
4.14 -- Form of Warrants (included in Exhibit 4.11).(9)
4.15 -- Form of Junior Subordinated Notes (included in Exhibit
4.11).(9)
10.1 -- Omnibus Agreement, dated as of June 3, 1988, among Palco
Acquisition Company (now Thermadyne Holdings Corporation)
and its subsidiaries and National Warehouse Investment
Company.(5)
</Table>
<Table>
<Caption>
EXHIBIT
NO. EXHIBIT
------- -------
10.2 -- Escrow Agreement, dated as of August 11, 1988, among
National Warehouse Investment Company, Palco Acquisition
Company (now Thermadyne Holdings Corporation) and Title
Guaranty Escrow Services, Inc.(5)
10.3 -- Amended and Restated Industrial Real Property Lease dated
as of August 11, 1988, between National Warehouse
Investment Company and Tweco Products, Inc., as amended
by First Amendment to Amended and Restated Industrial
Real Property Lease dated as of January 20, 1989.(5)
10.4 -- Schedule of substantially identical lease agreements.(5)
10.5 -- Amended and Restated Continuing Lease Guaranty, made as
of August 11, 1988, by Palco Acquisition Company (now
Thermadyne Holdings Corporation) for the benefit of
National Warehouse Investment Company.(5)
10.6 -- Schedule of substantially identical lease guaranties(5)
10.7 -- Lease Agreement, dated as of October 10, 1990, between
Stoody Deloro Stellite and Bowling Green-Warren County
Industrial Park Authority, Inc.(5)
10.8 -- Lease Agreement, dated as of February 15, 1985, as
amended, between Stoody Deloro Stellite, Inc. and
Corporate Property Associates 6.(5)
10.9 -- Purchase Agreement, dated as of August 2, 1994, between
Coyne Cylinder Company and BA Credit Corporation.(6)
10.10 -- Sublease Agreement, dated as of April 7, 1994, between
Stoody Deloro Stellite, Inc., and Swat, Inc.(6)
10.11 -- Share Sale Agreement dated as of November 18, 1995, among
certain scheduled persons and companies, Rosny Pty
Limited, Byron Holdings Limited, Thermadyne Holdings
Corporation, and Thermadyne Australia Pty Limited
relating to the sale of the Cigweld Business.(7)
10.12 -- Rights Agreement dated as of May 1, 1997, between
Thermadyne Holdings Corporation and BankBoston, N.A., as
Rights Agent.(8)
10.13 -- First Amendment to Rights Agreement, dated January 20,
1998, between Thermadyne Holdings Corporation and
BankBoston, N.A.(2)
10.14+ -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Randall E.
Curran.(3)
10.15+ -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and James H.
Tate.(3)
10.16+ -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Stephanie N.
Josephson.(3)
10.17+ -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Thomas C.
Drury.(3)
10.18+ -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Robert D.
Maddox.(3)
10.19+ -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Randall E. Curran.(3)
10.20+ -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and James H. Tate.(3)
10.21+ -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Stephanie N. Josephson.(3)
10.22+ -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Thomas C. Drury.(3)
</Table>
<Table>
<Caption>
EXHIBIT
NO. EXHIBIT
------- -------
10.23+ -- Award Agreement dated May 22, 1998, between Thermadyne
Holdings Corporation and Robert D. Maddox.(3)
10.24+ -- Thermadyne Holdings Corporation Management Incentive
Plan.(3)
10.25+ -- Thermadyne Holdings Corporation Direct Investment
Plan.(3)
10.26 -- Investors' Agreement dated as of May 22, 1998, between
Thermadyne Holdings Corporation, the DLJ Entities (as
defined therein) and the Management Stockholders (as
defined therein).(3)
10.27 -- Credit Agreement dated as of May 22, 1998, between
Thermadyne Mfg. LLC, Comweld Group Pty. Ltd., GenSet
S.P.A. and Thermadyne Welding Products Canada Limited, as
Borrowers, Various Financial Institutions, as Lenders,
DLJ Capital Funding, Inc., as Syndication Agent, Societe
Generale, as Documentation Agent, and ABN Amro Bank N.V.,
as Administrative Agent.(3)
10.28 -- First Amendment to Credit Agreement, dated as of November
10, 1999, among Thermadyne Mfg. LLC., Comweld Group Pty.
Ltd., GenSet S.P.A. and Thermadyne Welding Products
Canada Limited, as Borrowers, Various Financial
Institutions, as Lenders, DLJ Capital Funding, Inc., as
Syndication Agent, Societe Generale, as Documentation
Agent, and ABN Amro Bank N.V., as Administrative Agent.
10.29 -- Letter Agreement dated as of January 16, 1998, between
Donaldson, Lufkin & Jenrette Securities Corporation and
DLJ Merchant Banking II, Inc.(3)
10.30 -- Assignment and Assumption Agreement dated as of May 22,
1998, between DLJ Merchant Banking II, Inc. and
Thermadyne Holdings Corporation.(3)
10.31 -- Receivables Participation Agreement, dated as of January
31, 2000, between Thermadyne Receivables, Inc. as the
Transferor, and Bankers Trust Company, as Trustee.*
10.32 -- Executive Employment Agreement dated May 22, 1998,
between Thermadyne Holdings Corporation and Michael E.
Mahoney.*
10.36 -- Revolving Credit and Guaranty Agreement dated as of
November 26, 2001, among Thermadyne Mfg. LLC., as the
Borrower, Thermadyne Holdings Corporation, Thermadyne
Capital Corp., Thermadyne Industries, Inc., Victor
Equipment Company, Thermadyne International Corp.,
Thermadyne Cylinder Co., Thermal Dynamics Corp., C&G
Systems Holding, Inc., MECO Holding Co., Tweco Products,
Inc., Tag Realty, Inc., Victor-Coyne International, Inc.,
Victor Gas Systems, Inc., Stoody Company, Thermal Arc,
Inc., C&G Systems, Inc., Marison Cylinder Company,
Wichita Warehouse Corp., Coyne Natural Gas Systems, Inc.,
Modern Engineering Company, Inc., as the U.S. Guarantors
and ABN AMRO Bank N.V. as the Agent.
10.37 -- First Amendment to Credit and Guaranty Agreement dated as
of January 3, 2002 among Thermadyne Mfg. LLC., Thermadyne
Holdings Corporation, Thermadyne Capital Corp.,
Thermadyne Industries, Inc., Victor Equipment Company,
Thermadyne International Corp., Thermadyne Cylinder Co.,
Thermal Dynamics Corp., C&G Systems Holding, Inc., MECO
Holding Co., Tweco Products, Inc., Tag Realty, Inc.,
Victor-Coyne International, Inc., Victor Gas Systems,
Inc., Stoody Company, Thermal Arc, Inc., C&G Systems,
Inc., Marison Cylinder Company, Wichita Warehouse Corp.,
Coyne Natural Gas Systems, Inc., Modern Engineering
Company, Inc., as the U.S. Guarantors and ABN AMRO Bank
N.V. as the Agent.
21.1 -- Subsidiaries of Thermadyne Holdings Corporation.*
23.1 -- Consent of Independent Auditors.*
</Table>
- ---------------
+ Indicates a management contract or compensatory plan or arrangement.
* Filed herewith.
(1) Incorporated by reference to the Company's Registration Statement of Form 10
(File No. 0-23378) filed under Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), on February 7, 1994.
(2) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on January 21,
1998.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-1, (File No. 333-57455) filed on June 23, 1998.
(4) Incorporated by reference to Thermadyne LLC and Thermadyne Capital's
Registration Statement on Form S-1, (File No. 333-57457) filed on June 23,
1998.
(5) Incorporated by reference to the Company's Registration Statement on Form
10/A, Amendment No. 2 (File No. 0-23378) filed under Section 12(g) of the
Exchange Act, on April 28, 1994.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(7) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on January 18,
1996.
(8) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23378) filed under Section 12(g) of the Exchange Act on May 12, 1997.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.