Thermadyne Holdings Corporation Announces 2011 Second-Quarter Results

ST. LOUIS, Aug. 12, 2011 (GLOBE NEWSWIRE) -- Thermadyne Holdings Corporation today reported results for the three and six months ended June 30, 2011.

Basis of Presentation

On December 3, 2010, Thermadyne Holdings Corporation (Company) was acquired by affiliates of Irving Place Capital. Although the Company continued as the same legal entity, the assets acquired and liabilities assumed were adjusted to fair value as of December 3, 2010, except for deferred income tax liabilities, in accordance with the accounting guidance for business combinations. For accounting purposes, the old reporting entity was terminated and a new reporting entity was created. Accordingly, the consolidated financial statements are presented for the entity succeeding the acquisition ("Successor") and the entity preceding the acquisition, ("Predecessor") for the period ending June 30, 2011 and 2010, respectively.

Financial Review for the Second Quarter Ended June 30, 2011

Net sales in the second quarter of 2011 were $129.3 million, an increase of 19.0% as compared to the second quarter of 2010. Stated in local currencies, net sales increased 13.9% with U.S. sales increasing 21.2% and international sales increasing 5.4%.

Gross margin in the second quarter of 2011 was 37.0% of net sales as compared to 34.0% of net sales in the prior year second quarter. During the second quarter of 2011, the Company recorded in cost of goods sold $1.1 million of additional depreciation which relates to the fair value purchase accounting adjustment to equipment and facilities. In addition, the second quarter of 2011 includes $0.5 million of LIFO inventory accounting method expense. Excluding these non-cash expenses, gross margin, as adjusted, was 38.3% in the second quarter of 2011. Excluding LIFO inventory accounting method expense, the gross margin, as adjusted, was 34.0% in the second quarter of 2010.

Selling, general and administrative (SG&A) expenses were $27.7 million, or 21.4% of net sales, in the second quarter of 2011 compared to $24.7 million, or 22.8% of net sales, in last year's second quarter.  Approximately one-third of the increase in the SG&A expenses is attributable to each of foreign currency translation; increased consulting and management fees; and increased salary and benefit costs.

On June 14, 2011, the Company announced it will be relocating its plasma cutting and welding equipment manufacturing operations based in West Lebanon, New Hampshire, to its facilities in Denton, Texas and Hermosillo, Mexico. The Company expects to have substantially completed its relocation activities by December 31, 2011. The Company's action is expected to eliminate approximately 100 positions at the West Lebanon location. The Company recorded pre-tax charges of $0.6 million in the second quarter of 2011 and expects ultimately to record aggregate pre-tax charges of approximately $7.5 million as a result of the plan to relocate its New Hampshire manufacturing operations. This will include approximately $3.3 million for employee termination and retention benefits and approximately $4.2 million in equipment and employee relocation costs, lease termination and employee training costs. The Company expects to incur the cash expenditures for substantially all the charges by the middle of 2012.

Interest expense was $6.1 million in the second quarter of 2011 and $5.9 million in the second quarter of 2010. The average outstanding indebtedness in the 2011 second quarter of $265 million was approximately $73 million higher than the average indebtedness outstanding during the prior year second quarter. The effective interest rate in the second quarter of 2011 of 9.0% was approximately 275 basis points less than in the second quarter of 2010.

For the 2011 second quarter, the income tax expense represented an effective income tax rate of 47.1% as compared to 24.6% in the prior year second quarter. The current year effective tax rate exceeds the federal statutory rate primarily due to the deemed U.S. taxation of foreign earnings without an offsetting benefit for foreign tax credits. For 2010, the effective tax rate of the Predecessor reflects the benefit of net operating loss carryovers to offset U.S. taxable income.

For the second quarter of 2011, the Successor earned net income of $6.0 million and the Predecessor earned net income of $2.6 million during the second quarter of 2010. The second quarter of 2011 reflects $2.7 million of pre-tax depreciation and amortization expenses related to the values assigned to assets in connection with the acquisition.

Financial Review of Continuing Operations for Six Months Ended June 30, 2011

Net sales for the six months ended June 30, 2011 were $245.8 million, an increase of 19.8% as compared with the net sales of $205.2 million in first six months of 2010. Stated in local currencies, net sales increased 15.7% with the U.S. sales increasing 23.3% and international sales increasing of 6.7%.

Gross margin in the six months ending June 30, 2011 was 33.0% of net sales as compared to 33.6% of net sales in the prior year's first six month period. During the first half of 2011, cost of goods sold reflects $5.6 million of manufacturing costs associated with fair value purchase accounting adjustments for inventory and equipment and facilities. In addition, the first half of 2011 includes $1.5 million of LIFO inventory accounting method expense. Excluding these non-cash expenses, gross margin, as adjusted, was 35.9% in the first six months of 2011. The gross margin was 33.6% in the first six months of 2010, as adjusted to exclude the LIFO inventory accounting method expense.

SG&A expenses were $52.6 million, or 21.4% of net sales, and $46.1 million, or 22.5% of net sales, for the six months ended June 30, 2011 and 2010, respectively.  Approximately one-third of the increase in the SG&A costs is attributable each to foreign currency translation; consulting and management fees; and increased incentive compensation, salary and benefit costs.

Interest expense was $12.4 million during the six-month period ended June 30, 2011, as compared to $12.3 million in the first six months of 2010. Average outstanding indebtedness was $68 million greater in 2011 and the effective interest rate of 9.2% in 2011 was approximately 270 basis points less than during the first six months of 2010.

For the six months ended June 30, 2011, the Company recorded income tax expense at an effective income tax rate of 47.7%, as compared to a 27.9% effective rate for the comparable 2010 period. The income taxes currently payable approximate 35% and are primarily related to foreign jurisdictions.

For the first six months of 2011, the Successor earned net income of $5.9 million and the Predecessor earned net income of $4.9 million during the first six months of 2010. The first six months of 2011 reflects pre-tax depreciation and amortization expense and cost of goods sold of $8.6 million related to the values assigned to assets in connection with the acquisition.

Cash Flows From Operating Activities and Liquidity

Cash flow from operating activities used $10.0 million of cash in the first six months of 2011 while the first six months of 2010 provided $28.8 million of cash. Cash used in operating activities in 2011, primarily reflects increases in customer receivables, payments of liabilities for customer rebates and payments of incentive compensation obligations. Cash provided from operating activities in 2010 included the benefit of the early payments of supplier invoices and customer rebates during the fourth quarter of 2009. These early payments reduced cash usage requirements by approximately $14 million in the first six months of 2010.  

As of June 30, 2011, combined cash and availability under the Company's Working Capital Facility was $67 million.  

Adjusted EBITDA

In the second quarter of 2011, Adjusted EBITDA was $25.8 million, or 19.9% of net sales, compared to $15.1 million of Adjusted EBITDA, or 13.9% of net sales, in the second quarter of 2010 for the Predecessor. For the six months ended June 30, 2011, Adjusted EBITDA was $43.2 million, or 17.6% of net sales, compared to $28.6 million of Adjusted EBITDA, or 14.0% of net sales, in the first six months of 2010 for the Predecessor.

Outlook for 2011

Martin Quinn, Thermadyne's Chief Executive Officer commented, "The strong U.S. market demand we experienced in the first quarter has continued through the second quarter along with solid demand in our international markets. We are encouraged by the strength of demand in the U.S., as well as in our Asia Pacific Region, and particularly for our plasma cutting products. However, we remain cautious in our production commitments for the remainder of this year due to the uncertainties in the global financial and market conditions."

"In the second half of 2011, we will be focused on successfully completing the restructuring of our manufacturing operations to provide exceptional service for our customers and to maximize the efficiency of our operating assets," concluded Mr. Quinn.

Use of Non-GAAP Measures

EBITDA, Adjusted EBITDA, and Gross Margin, as adjusted ("our Non-GAAP Measures"), as presented in this discussion, are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States ("GAAP"). They are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from continuing operations or any other performance measures derived in accordance with GAAP or as alternatives to cash flow from operating activities as measures of our liquidity.

The Company defines "Adjusted EBITDA," as earnings before interest, taxes, depreciation, amortization, LIFO adjustments, cost of sales charges for values in excess of manufactured costs assigned to inventory acquired December 3, 2010, stock-based compensation expense, severance accruals and restructuring costs and losses on debt extinguishments. Our Non-GAAP Measures may not be comparable to similarly titled measures of other companies. However, we believe these measures are meaningful to our investors to enhance their understanding of our operating performance across reporting periods on a consistent basis, as well as our ability to comply with the financial covenants of our existing material debt agreements and service our indebtedness. Although EBITDA and Adjusted EBITDA are not necessarily measures of our ability to fund our cash needs, we understand that they are frequently used by securities analysts, investors and other interested parties as measures of financial performance and to compare our performance with the performance of other companies that report EBITDA and Adjusted EBITDA. Adjusted EBITDA facilitates the reader's ability to compare current period results to other periods by isolating certain noteworthy items of income or expense, such as those detailed in an attached schedule. Adjusted EBITDA is reflective of management measurements which focus on operating spending levels and efficiencies and less on the non-cash and noteworthy items. 

Our Non-GAAP Measures have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, our Non-GAAP Measures should not be considered as measures of discretionary cash available to use to invest in the growth of our business or as measures of cash that will be available to use to meet our obligations. Investors should compensate for these limitations by relying primarily on our GAAP results and using our Non-GAAP Measures as supplemental. We provide a presentation of net income (loss) as calculated under GAAP, which we believe is the most directly comparable GAAP measure, reconciled to our EBITDA and Adjusted EBITDA in the schedule below. We also provide a reconciliation of gross margin as reported within the Condensed Consolidated Statements of Operations to Gross Margin, as adjusted.

The financial statement information presented in accordance with GAAP and the Non-GAAP Measures have not been reviewed by an independent, registered public accounting firm.

Conference Call

Thermadyne will hold a teleconference on August 15, 2011 at 11:00 a.m. Eastern.

To participate via telephone, please dial:

• U.S. and Canada: 1-888-989-7543
• International: 1-630-395-0287
  (Conference ID 3444448 / Passcode: THERMADYNE)

Those wishing to participate are asked to dial in ten minutes before the conference begins.  For those unable to participate in the live conference call, a transcript of the call will be posted to the Thermadyne website at www.Thermadyne.com within 24 hours following the call.

About Thermadyne

Thermadyne, headquartered in St. Louis, Missouri, is a leading global manufacturer and marketer of metal cutting and welding products and accessories under a variety of leading premium brand names including Victor®, Tweco® / Arcair®, Thermal Dynamics®, Thermal Arc®, Stoody®, TurboTorch®, Firepower® and Cigweld®.  For more information about Thermadyne, its products and services, visit the Company's web site at www.Thermadyne.com.

The Thermadyne Holdings Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4937

Cautionary Statement Regarding Forward-Looking Statements:

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management's current expectations and involve a number of risks and uncertainties. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company's operating results. These risks and factors are set forth in documents the Company files with the Securities and Exchange Commission, specifically in the Company's most recent Annual Report on Form S-4 and other reports it files from time to time.