Message #24 From:
NewsBot Date: November 14, 2006 09:05:00 PM
THMD News Thermadyne Holdings Corporation Announces Third-Quarter and Nine-Month Results for 2006
ST. LOUIS--(BUSINESS WIRE)--Thermadyne Holdings Corporation (Pink Sheets: THMD) today reported
results for the third quarter and nine months ended September 30, 2006.
HIGHLIGHTS
For the three- and nine-month periods ended September 30, 2006, net
sales increased 7.9% and 8.8%, respectively, in comparison to prior
year three- and nine-month periods.
For the three and nine months ended September 30, 2006, net losses
were $5.7 million and $12.4 million, respectively, as compared to net
losses of $4.9 million and $6.6 million in the 2005 comparable three-
and nine-month periods.
Operating EBITDA, as adjusted, increased to $12.8 million for the
third quarter of 2006 and $38.1 million for the 2006 nine-month period
as compared to $11.1 million for the 2005 third quarter and $33.2
million for the 2005 nine-month period.
Gross margin improved to 29.1% for the three months ending September
30, 2006 from the 28.2% gross margin realized during the first six
months of 2006 and from the 28.8% reported in the third quarter of
2005.
Financial and Operating Review for
Third Quarter and Nine Months September 2006
In the third quarter of 2006, net sales rose to $127.3 million, an
increase of 7.9% from the same quarter of 2005. For the nine months
ended September 30, 2006, net sales of $377.7 million increased 8.8%
over the same period of 2005. Approximately two-thirds of this sales
growth in 2006 results from new product introductions and volume growth.
Gross profit increased to $37.0 million, or 29.1% of net sales, in the
third quarter of 2006 as compared to $34.0 million, or 28.8% of net
sales, in the 2005 third-quarter period. For the nine months ended
September 30, 2006, gross profit was $107.7 million, or 28.5% of net
sales, which compared to $99.8 million, or 28.8% of net sales, for the
same period of 2005.
“We are encouraged by the improvement of gross
profit during the quarter and we believe further improvements will be
achieved during the remainder of the year. This improvement reflects the
impact of a combination of initiatives which we view as positive signs
for our future. Even with the commodity prices escalating materially in
both 2005 and 2006, the Company has sustained its margins primarily
through the beneficial impacts on productivity and procurement costs
from our continuous improvement program entitled Total Cost
Productivity, 'TCP,' and new product introductions. In addition, the
August 1, 2006 price increase is significant as it is the first
meaningful increase the Company has implemented in almost two years
despite the significantly higher copper, brass and other commodity costs
impacting the industrial sector. We had delayed a price increase until
we had made substantial strides to correct production and delivery
problems, which we viewed as unacceptable for our customers.
Fortunately, through the hard work of many in our organization, we are
making excellent progress toward the performance levels the marketplace
demands and starting to improve our own economics as well,”
commented Paul D. Melnuk, the Company’s
Chairman and CEO.
In 2006, the year-over-year inflation impact for the commodities and
components purchased by the Company was an estimated $16 million, led by
copper and brass costs, which rose 45% and 85%, respectively. During the
year 2005, the inflation impact was approximately $30 million of
increased production costs. The August 1 price increase is estimated to
provide a 4%-6% overall increase in average selling prices.
Selling, general and administrative costs increased to $32.0 million in
the third quarter of 2006 from $26.9 million in the same period of 2005.
Over one-half of this increase arises from the additional costs incurred
for the consents obtained from bondholders during the third quarter, for
additional audit and accounting costs incurred to issue prior year
restated financial statements and for ongoing incremental accounting and
system related fees incurred for recordkeeping and to correct weaknesses
in the Company’s internal financial controls
and stock-based compensation expense. These additional costs were $3.3
million and $7.0 million in the three- and nine-month periods ended
September 30, 2006, respectively. For the nine months ended September
30, 2006 and 2005, selling, general and administrative expenses were
$90.5 million and $81.0 million, respectively. For the third-quarter
periods of 2006 and 2005, selling, general and administrative costs
amounted to 25.2% and 22.8% of net sales, respectively. Excluding the
$3.3 million of incremental costs, selling, general and administrative
expenses were 22.6% of net sales for the third quarter, as compared to
22.8% in the prior year. Similarly, excluding the $7.0 million of these
additional costs, selling, general and administrative expenses were
22.1% of net sales for the nine months ended September 30, 2006, as
compared to 23.3% in the prior year.
Interest costs increased $0.8 million and $2.4 million for the three-
and nine-month periods ended September 30, 2006, respectively, primarily
as a result of higher interest rates. Income tax expenses decreased by
$1.9 million over the three-month period and increased $1.2 million over
the nine-month comparable period of last year due to changes in deferred
income taxes and estimated tax rates. The income tax provision includes
$1.7 million in the third quarter of 2006 and $1.2 million in the third
quarter of 2005 relating to currently payable international taxes with
$5.5 million and $4.3 million for the nine months ended September 2006
and 2005, respectively. The Company anticipates significant foreign tax
reductions will be realized in the future as a result of an
international tax study currently in process.
For the third quarter ended September 30, 2006, the Company reported a
net loss of $5.7 million ($0.43 per share). This compares with a net
loss of $5.1 million ($0.38 per share) from continuing operations for
the same period ended September 30, 2005, and income of $0.2 million
($0.01 per share) from discontinued operations in the comparable
prior-year period. For the nine-month period ended September 30, 2006,
the Company reported a net loss of $12.4 million ($0.93 per share)
consisting of a loss of $12.1 million ($0.91 per share) from continuing
operations and a loss of $0.3 million from discontinued operations as
compared with the nine-month period ended September 30, 2005, net loss
of $6.6 million ($0.60 per share) consisting of a loss of $8.0 million
($0.60 per share) from continuing operations and income of $1.4 million
from discontinued operations for the period in 2005.
In the third quarter of 2006, Operating EBITDA, as adjusted, was $12.8
million compared to $11.1 million in the third quarter of 2005. In the
nine months ended September 30, 2006, Operating EBITDA, as adjusted, was
$38.1 million as compared to $33.2 million for the same period in 2005.
The improvement in both the quarter and nine-month results arise from
improved margins and increased sales.
Non-Core Businesses
During the first half of 2006, the Company completed three sales of
non-core businesses which generated proceeds of almost $16.5 million,
with $4 million used to purchase the minority interest in the Company’s
remaining South African businesses. The remainder of the proceeds
increased liquidity through repayments of the working capital facility.
One of these businesses, TecMo, was sold in April 2006 and reported as a
discontinued operation in the first quarter of 2006 and the prior
quarters’ financial statements have been
reclassified accordingly. The other two businesses were treated as
discontinued operations in 2005.
As previously announced, the Company is evaluating its South African
businesses. This effort is ongoing.
Outlook for 2006 and Beyond
Mr. Melnuk commented, “We have made good
progress in 2006 executing the initiatives in our turnaround plan
despite the challenges of significant material cost inflation and the
substantial burden related to the delayed financial reporting. The
recent price increase, continuing productivity improvements, additional
gains in quality and delivery performance, as well as solid sales
results in our core product lines are providing increased confidence
that the transformation is beginning to be reflected in our financial
results.”
Cash Flow and Liquidity
In July 2006, the Company changed the profile of its debt structure
increasing its borrowings under its Second-Lien Facility by $20 million,
repaying the $6.9 million balance of the Term Loan under the Credit
Agreement and repaying amounts outstanding under the Revolver. In
addition, on August 1, 2006 the Senior Subordinated Debt Indenture was
modified to add a Special Interest Adjustment increasing the interest
rate by 125 basis points which is subject to periodic adjustment based
on the leverage ratio.
As of September 30, 2006, the Company had combined cash and availability
under its Revolver of $36 million.
The Company’s initiative to improve working
capital efficiency is showing some results, particularly with regard to
inventory. In the quarter, inventory levels declined even though
material cost inflation increased inventory cost levels. Inventory turns
also improved in the quarter to more than 3.1 times compared to 2.9
times at the same time last year. This improvement represents a
reduction of more than $10 million of inventory quantities.
Improving Financial Controls and
Financial Management
Since the beginning of the third quarter, the Company has hired a new
team of financial management including a Chief Financial Officer,
Controller, Director of Accounting, Director of Taxes, and Director of
Financial Reporting to fill vacant positions described in the Company’s
2005 Annual Report on Form 10-K discussion of material weaknesses. The
Company has announced the appointment of KPMG as its independent
registered accountants and recently filed its second quarter and third
quarter Form 10-Qs with the SEC.
“We are focused on correcting the problems in
our financial controls system to ensure we provide timely and accurate
information to our shareholders and lenders. We have hired experienced
and highly qualified individuals and we have supplemented them with
contract accounting specialists until the new team is fully assembled.
Through this combination of efforts, we are making the necessary
improvements,” said Mr. Melnuk.
Use of Non-GAAP Measures
Our discussions of operations include reference to “Operating
EBITDA, as adjusted.” While a non-GAAP
measure, management believes this measure enhances the reader’s
understanding of underlying and continuing operating results in the
periods presented. The Company defines “Operating
EBITDA” as earnings before interest, taxes,
depreciation, amortization, LIFO adjustments, stock-based compensation
expense, minority interest, the non-recurring items of severance
accruals, restructuring costs and post retirement benefit expense in
excess of cash payments. The presentation of “Operating
EBITDA, as adjusted” facilitates the reader’s
ability to compare current period results to other periods by isolating
certain unusual items of income or expense, such as those detailed in an
attached schedule. Operating EBITDA, as adjusted, for certain unusual
items is reflective of management measurements which focus on operating
spending levels and efficiencies and less on the non-cash and unusual
items believed to be non-recurring. Additionally, non-GAAP measures such
as Operating EBITDA and Operating EBITDA, as adjusted, are commonly used
to value the business by investors and lenders.
A schedule is attached which reconciles Net Loss from Continuing
Operations as shown in the Consolidated Statements of Operations to
Operating EBITDA and Operating EBITDA, as adjusted.
Non-GAAP measurements such as “Operating
EBITDA” and “Operating
EBITDA, as adjusted” are not recognized in
accordance with GAAP and should not be viewed as an alternative to GAAP
measures of performance. Use of Operating EBITDA and Operating EBITDA,
as adjusted, has material limitations, and therefore management provides
a reconciliation for the reader of Operating EBITDA and Operating
EBITDA, as adjusted, to Net Loss from Continuing Operations.
The financial statement information presented in accordance with
generally accepted accounting principles (GAAP) and the non-GAAP measure
have not been reviewed by an independent registered public accounting
firm.
Conference Call
Thermadyne will hold a teleconference on Wednesday, November 15, 2006 at
8:30 a.m. (Eastern).
To participate via telephone, please dial:
U.S. and Canada: 800-683-1525 (Conference ID 8092796)
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 recording of the conference will be available from
November 15 at 11:30 a.m. (Eastern) until November 22 at 11:30 p.m.
(Eastern) by dialing (877) 519-4471. Enter Conference ID No. 8092796
followed by the # to listen to the recording.
About Thermadyne
Thermadyne, headquartered in St. Louis, Missouri, is a leading global
marketer of cutting and welding products and accessories under a variety
of brand names including Victor®, Tweco®
/ Arcair®, Thermal Dynamics®,
Thermal Arc®, Stoody®,
and Cigweld®. Its common shares trade on the
pink sheets under the symbol THMD.PK. For more information about
Thermadyne, its products and services, visit the Company’s
web site at www.Thermadyne.com.
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 10-K and other reports it files from time to time.
THERMADYNE HOLDINGS CORPORATION
UNAUDITED FINANCIAL HIGHLIGHTS
(In thousands, except share data)
Schedule 1
Condensed Consolidated Statements of Operations
Three Months Ended September 30,
Nine Months Ended September 30,
2006
% of Sales
Restated
2005
% of Sales
2006
% of Sales
Restated
2005
% of Sales
Net sales
$ 127,287
100.0%
$ 117,936
100.0%
$ 377,661
100.0%
$ 347,092
100.0%
Cost of goods sold
90,291
70.9%
83,923
71.2%
269,912
71.5%
247,249
71.2%
Gross margin
36,996
29.1%
34,013
28.8%
107,749
28.5%
99,843
28.8%
Selling, general and administrative expenses
32,016
25.2%
26,943
22.8%
90,545
24.0%
81,033
23.3%
Amortization of intangibles
733
0.6%
794
0.7%
2,197
0.6%
2,482
0.7%
Net periodic postretirement benefits
528
0.4%
592
0.5%
1,584
0.4%
1,778
0.5%
Operating income
3,719
2.9%
5,684
4.8%
13,423
3.6%
14,550
4.2%
Other expenses:
Interest
(7,085)
(5.6)%
(6,318)
(5.4)%
(20,129)
(5.3)%
(17,698)
(5.1)%
Amortization of deferred financing costs
(329)
(0.3)%
(327)
(0.3)%
(993)
(0.3)%
(1,141)
(0.3)%
Minority interest
(21)
(0.0)%
(207)
(0.2)%
(96)
(0.0)%
(544)
(0.2)%
Loss from continuing operations before income tax provision
(benefit) and discontinued operations
(3,716)
(2.9)%
(1,168)
(1.0)%
(7,795)
(2.1)%
(4,833)
(1.4)%
Income tax provision (benefit)
2,024
1.6%
3,914
3.3%
4,324
1.1%
3,130
0.9%
Net loss from continuing operations
(5,740)
(4.5)%
(5,082)
(4.3)%
(12,119)
(3.2)%
(7,963)
(2.3)%
Income (loss) from discontinued operations, net of tax
-
-
176
0.1%
(290)
(0.1)%
1,385
0.4%
Net loss
$ (5,740)
(4.5)%
$ (4,906)
(4.2)%
$ (12,409)
(3.3)%
$ (6,578)
(1.9)%
Basic and diluted net income (loss) per share:
Continuing operations
$ (0.43)
$ (0.38)
$ (0.91)
$ (0.60)
Discontinued operations
-
0.01
(0.02)
0.10
Net loss
$ (0.43)
$ (0.37)
$ (0.93)
$ (0.50)
The financial statement presentations reflect the reclassification
of the Company's TecMo subsidiary business unit as a discontinued
operation as set forth in the Company's March 31, 2006 Form 10-Q.
The financial statement presentation also reflects the 2005 results
as presented in the Company's 2005 Annual Report on Form 10-K, which
included restatements and reclassifications of the first three
quarters of 2005, as well as prior periods.
