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 a wholly owned and the principal
operating subsidiary of the Company and Thermadyne Capital Corp. ("Thermadyne
Capital") is a wholly owned subsidiary of Thermadyne LLC.
BACKGROUND
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.
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.
PRINCIPAL PRODUCTS
The Company manufactures a broad range of both gas (oxy-fuel) and arc
cutting and welding equipment (including a line of advanced plasma arc cutting
systems and oxy-fuel apparatus), accessories and consumables, including repair
parts used in the cutting and welding industry. Gas cutting and welding torches
burn a mixture of oxygen and fuel gas, typically acetylene. Arc cutting and
welding systems are powered by electricity. The major arc cutting and welding
systems are plasma, stick, MIG and TIG. 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.
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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 1000 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 non-ferrous metals, automotive products, appliances, sheet
metal, 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 non-ferrous 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 semi-automatic 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 new
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. Arcair also manufactures a line of underwater welding and gouging
equipment.
In addition to gouging products, Arcair produces a patented exothermic
cutting system, SLICE(R). This system generates temperatures in excess of 70007
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. Arcair has developed an underwater version
of the SLICE(R) cutting system for use in the marine repair and salvage
industry.
Arcair also manufactures TIG torches and accessories. The TIG process can
be used to fuse metals of almost all alloys and in thicknesses down to foil
size. TIG welding is used for pressure vessels, such as tanks, valves and pipes
and is relied on heavily in welding nuclear components. Fabrications involving
aluminum, magnesium and other specialty metals for use in aircraft, ships and
weapon systems also utilize the TIG process.
Arcair 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.
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VICTOR -- OXY-FUEL GAS PRODUCTS. Victor Equipment Company ("Victor") has
plants in Abilene and Denton, Texas and Gallman, Mississippi 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, repair ability and performance utilizing patented built-in
reverse flow check valves and flash arresters in several models. Victor also
manufactures lighter-duty hand-held 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 makes 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, ship building, 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 semi-automatic 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 and TIG 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 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.
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Cigweld also manufactures a range of gas control equipment including
specialty regulators (for use with different gases, including oxygen, acetylene,
liquified 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, safety
helmets, faceshields, flashields (see-through welding curtains and screens) and
welding apparel.
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, 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. These products are
used both where main power is not available and for stand-by power where
continuous power supply is a key requirement.
VICTOR GAS SYSTEMS -- CRYOGENIC PUMPS, AMBIENT AND ELECTRIC VAPORIZERS AND
AUTOMATIC CYLINDER FILLING SYSTEMS. The operations of Victor Gas Systems, Inc.
("Victor Gas"), formerly known as Woodland
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Cryogenics Company, commenced in 1986, and were acquired by the Company in
November 1997. Victor Gas is a leading manufacturer, distributor and installer
of cryogenic and high pressure gas fill plants, vaporizers and pumps, and its
products are used to control, mix and package both cryogenic and high pressure
gases into containment vessels such as gas cylinders.
The principal uses of Victor Gas products are for the filling of cryogenic
and high pressure gases for applications in industrial, medical and specialty
gas markets served by gas distributors and producers. Victor Gas has developed
computerized filling equipment to maximize productivity while also offering
conventional or manual filling equipment.
VICTOR BRAZIL -- OXY-FUEL PRODUCTS AND CUTTING TABLES. 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 America 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 doctor's offices use the medical
oxy-fuel products.
The cutting table line of products use 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 America 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 from continuing operations of
approximately $199.4 million, $220.2 million and $171.6 million for the fiscal
years ended December 31, 1998, 1997 and 1996, respectively, or approximately
37%, 42% and 39%, respectively, of 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. Additionally, as a result of the current downturn in the Asian and
certain South American economies, there may be a decrease in infrastructure
development in these regions or an overall worldwide contraction of industrial
development. The impact of decreased development could have a material adverse
effect on the Company's business, financial condition or results of operations.
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 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 sales people 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 that 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
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competition in its U.S. markets due to the relatively limited size of such
markets, the inability of foreign 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 welding products
distributors with over 2,800 locations who 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, semi-conductors, 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, 1998, the Company employed approximately 125 persons
in its research and development groups, most of which are engineers.
EMPLOYEES
As of December 31, 1998, the Company employed 3,506 people, of which
approximately 618 were engaged in sales and marketing activities, 205 were
engaged in administrative activities, 2,572 were engaged in manufacturing
activities and 111 were engaged in engineering activities. Labor unions
represent none of the Company's work force 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.
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