UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31,
2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number
001-13023
Thermadyne Holdings
Corporation
(Exact name of Registrant as
Specified in its Charter)
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Delaware
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74-2482571
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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16052 Swingley Ridge Road, Suite 300
Chesterfield, Missouri
(Address of Principal
Executive Offices)
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63017
(ZIP Code)
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Registrants telephone number, including area code:
(636) 728-3000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.01 per share
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The NASDAQ Stock Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Date File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(Section 229.405 of this chapter) 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 this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company þ
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the
last business day of the registrants most recently
completed second fiscal quarter: approximately $13,513,918 based
on the closing sales price of the Common Stock on June 30,
2009.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date: 13,543,068 shares of common stock,
outstanding at March 3, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain portions of the registrants Proxy Statement for
the 2010 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Annual Report on
Form 10-K.
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 within the meaning of
Section 27A of the Securities Act, Section 21E of the
Securities Exchange Act of 1934, or the Exchange Act, and the
Private Securities Litigation Reform Act of 1995, including
statements regarding our future prospects. These statements may
be identified by terms and phrases such as
anticipate, believe, intend,
estimate, expect, continue,
should, could, may,
plan, project, predict,
will and similar expressions and relate to future
events and occurrences. Actual results could differ materially
due to a variety of factors and the other risks described in
this Annual Report and the other documents we file from time to
time with the Securities and Exchange Commission. Factors that
could cause actual results to differ materially from those
expressed or implied in such statements include, but are not
limited to, the following and those discussed under the
Risk Factors section of this annual report on
Form 10-K:
a) the impact of uncertain global economic conditions on
our business and those of our customers,
b) the cost and availability of raw materials,
c) operational and financial developments and restrictions
affecting our international sales and operations,
d) the impact of currency fluctuations, exchange controls,
and devaluations,
e) the impact of a change of control under our debt
instruments and potential limits on our ability to use net
operating loss carryforwards,
f) consolidation within our customer base and the resulting
increased concentration of our sales,
g) actions taken by our competitors that affect our ability
to retain our customers,
h) the effectiveness of our cost reduction initiatives in
our continuous improvement program,
i) our ability to meet customer needs by introducing new
and enhanced products,
j) our ability to adequately enforce or protect our
intellectual property rights,
k) the detrimental cash flow impact of increasing interest
rates and our ability to comply with financial covenants in our
debt instruments,
l) disruptions in the credit markets,
m) the impact of the sale of a large number of shares of
our common stock on the market price of our stock,
n) our relationships with our employees and our ability to
retain and attract qualified personnel,
o) liabilities arising from litigation, including product
liability risks, and
p) the costs of compliance with and liabilities arising
under environmental laws and regulations.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date
hereof and are not guarantees of performance or results. There
can be no assurance that forward looking statements will prove
to be accurate. We undertake 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.
2
PART I
Introduction
We are a leading global designer and manufacturer of gas and arc
cutting and welding products, including equipment, accessories
and consumables. Our products are used by manufacturing,
construction, fabrication and foundry operations to cut, join
and reinforce steel, aluminum and other metals. Common
applications for our products include shipbuilding,
manufacturing of transportation, mining and agricultural
equipment, many types of construction such as offshore oil and
gas rigs, fabrication of metal structures, and repair and
maintenance of processing and manufacturing equipment and
facilities as well as demolition. Welding and cutting products
are critical to the operations of most businesses that fabricate
metal. We have very well established and widely recognized
brands. We were incorporated in Delaware in 1987. Our shares are
currently quoted on the NASDAQ Capital Market, and as of
March 3, 2010, we had an equity market capitalization of
approximately $105.6 million (based on a closing sale price
of $7.80 and 13.5 million shares outstanding).
As used in this Annual Report on
Form 10-K,
the terms Thermadyne Holdings Corporation,
Thermadyne, the Company, we,
our, or us, mean Thermadyne Holdings
Corporation and its subsidiaries.
Principal
Products
Although we operate our business in one reportable segment, we
have organized our business into five major product categories
within the cutting and welding industry: (1) gas equipment;
(2) arc accessories, including torches, guns, related
consumable parts and accessories; (3) plasma power
supplies, torches and related consumable parts; (4) welding
equipment; and (5) filler materials, including hardfacing.
The following shows the percent of total sales for each of the
major product categories for each of the previous three years:
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2009
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2008
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2007
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Gas equipment
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35
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%
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37
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%
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37
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Filler metals
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23
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19
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%
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18
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Arc accessories
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17
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%
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19
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%
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21
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%
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Plasma power supplies, torches and related consumable parts
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15
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%
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15
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%
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14
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%
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Welding equipment
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10
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10
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%
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10
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Gas
Equipment
Our gas equipment products include oxy-fuel torches, air fuel
torches, consumables (tips and nozzles), regulators, flow meters
and safety accessories that are used for cutting, heating and
welding applications. We also have gas flow and pressure
regulation equipment and manifold capabilities used for a
variety of gas management applications across an extensive range
of industries. These products are primarily sold under the
Victor®,
Cigweld®
and
TurboTorch®
brands and typically range in price from $100 to more than
$1,000 for more complex gas management systems. Oxy-fuel torches
use a mixture of oxygen and fuel gas (predominantly acetylene)
to produce a high-temperature flame that is used to cut, heat or
weld steel. Gas torches are typically used in all the
applications noted above, as well as for welding, heating,
brazing and cutting in connection with maintenance of machinery,
equipment and facilities. Air fuel torches are used by the
plumbing, refrigeration and heating, ventilation and air
conditioning industries using similar principles with
MAP//Pro®
or propane as the fuel gas. Gas flow and pressure regulation
equipment is used to control the pressure and flow of most
industrial, medical and specialty gases, including gases used in
many industrial process control applications as well as the
analytical laboratory and electronic industries. We believe we
are among the largest suppliers of gas equipment products in the
world, based on annual sales.
Filler
Metals
Filler metals, including hardfacing metals, are consumed in the
welding process as the material that is melted to join the
materials to be welded together and are sold under our Stoody,
Cigweld and Firepower brands.
4
Hardfacing metals are sold under the
Stoody®
brand, as well as other brands, and are used to overlay
equipment with abrasion-resistant alloys by the welding process.
There are three basic types of filler metals used: stick
electrodes, solid wire and flux cored wire. Stick electrodes are
fixed length metal wires coated with a flux to enhance weld
properties. This is used in conjunction with a power source and
an electrode holder to weld the base material. The main
advantage of this process is simplicity, portability and ease of
use as it can be used to access most areas and no gas is
required. Solid wire is sold on spools or in drums and is used
in the semi-automated process with a MIG welding gun, power
source and shielding gas. The main advantage of this process is
ease of use and very high deposition rates making for higher
productivity. Flux cored wires are similar to solid wires;
however, they are tubular wires that allow the use of flux and
other alloys to improve deposition rates and weld quality.
Arc
Accessories
Our arc accessories include automatic and semiautomatic welding
guns and related consumable parts, ground clamps, electrode
holders, cable connectors and assemblies all sold under our
Tweco®
brand. We also have a line of carbon arc gouging and exothermic
cutting products. These products include torches and consumable
rods that are sold under our
Arcair®
brand. Our arc welding accessory products are designed to be
used with our arc welding power supplies, as well as those of
our competitors. Our arc welding metal inert gas
(MIG) guns typically range in price from $90 to
$600. Arc welding MIG guns are used to apply a current to the
filler metal used in welding. MIG guns are typically handheld
and require regular replacement of consumable parts as a result
of wear and tear, as well as their proximity to intense heat.
Our connectors, clamps and electrode holders attach to the
welding cable to connect the power source to the metal to be
welded. Our gouging products are used to cut or gouge material
to remove unwanted base or welded material as well as in
demolition. We believe we are among the largest manufacturers of
arc welding accessory products in the United States based on our
annual sales.
Plasma
Cutting Equipment
Our plasma power supplies, torches and consumable parts are sold
under the Thermal
Dynamics®
brand. Manual plasma systems typically range in price from $900
to $5,000 with manual torch prices ranging from $300 to $800.
Our automated cutting systems range in price from $2,500 to
$50,000 with torches ranging in price from $1,000 to $2,500.
Both manual and automated plasma systems use front end torch
parts that are consumed during the cutting process and range in
price from $5 to $50. Plasma cutting uses electricity and gases
(typically air or oxygen) to create a high-temperature plasma
arc capable of cutting any type of metal. Electricity is
converted by a power supply and supplied to a torch where the
gas and electricity form a plasma arc. The plasma arc is then
applied to the metal being cut. Plasma cutting is a growing
technology for cutting metal. Advantages of the plasma cutting
process over other methods include faster cutting speeds,
cleaner cuts and the ability to cut ferrous and nonferrous
alloys with minimum heat distortion to the metal being cut.
Plasma cutting systems are used in the construction, fabrication
and repair of both steel and nonferrous metal products,
including automobiles and related assemblies, appliances, ships,
railcars and heating, ventilation and air-conditioning products,
as well as for general maintenance. We believe we are among the
largest suppliers of plasma power supplies, torches and
consumable parts in the United States and worldwide, based on
our annual sales.
Welding
Equipment
Our welding equipment line includes inverter and
transformer-based power sources used for all the main welding
processes as well as plasma welding power sources. These
products are primarily sold under the Thermal
Arc®,
Firepower®
and
Cigweld®
brands. These products typically range in price from $200 to
$12,000. Arc welding uses an electric current to melt together
either wire or electrodes (referred to as filler metals) and the
base materials. The power source converts the electrical line
power into the appropriate voltage to weld. This electricity is
applied to the filler metal using an arc welding accessory, such
as a welding gun for wire welding or an electrode holder for
stick electrode welding. Arc welding is the most common method
of welding and is used for a wide variety of manufacturing and
construction applications, including the production of ships,
railcars, farm and mining equipment and offshore oil and gas
rigs.
5
Customers
We sell most of our products through a network of national and
multinational industrial gas distributors including Airgas, Inc.
and Praxair, Inc., as well as a large number of other
independent cutting and welding distributors, wholesalers and
dealers. In 2009, our sales to customers in the
U.S. represented 56% of our sales. In 2009 and 2008, we had
one customer that comprised 11% and 11%, respectively, of our
global net sales. Furthermore, our top five distributors
comprised 27% of our global net sales in 2009 and 2008.
We manage our operations by geographic location and by product
category. See Note 18 Segment Information
to the consolidated financial statements for geographic and
product line information.
Our distributors carry one or more of our product lines from
approximately 2,400 locations. We maintain relationships with
these distributors through our sales force. We distribute our
products internationally through our sales force, independent
distributors and wholesalers.
International
Business
We had international sales of $154.2 million,
$231.7 million, and $201.4 million for the years ended
December 31, 2009, 2008, and 2007, respectively, or
approximately 44%, 45%, and 41%, respectively, of our net sales
in each such period. Our international sales are influenced by
fluctuations in exchange rates of foreign currencies, foreign
economic conditions and other risks associated with foreign
trade. See Managements Discussion and Analysis of
Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market
Risk. Our international sales consist of approximately 50%
from export sales of our products manufactured at
U.S. manufacturing facilities and, to a limited extent,
products manufactured by third parties, sold through our
overseas field representatives, and approximately 50% from sales
of our products manufactured at our international manufacturing
facilities and sold by our foreign subsidiaries.
Sales and
Marketing
The sales and marketing organization oversees all sales and
marketing activities, including strategic product pricing,
promotion, and marketing communications. It is the
responsibility of sales and marketing to profitably grow the
Companys sales, market share, and margins in each region.
The organization pursues these objectives through new product
introductions, programs and promotions, price management, and
the implementation of distribution strategies to penetrate new
markets.
Sales and marketing is organized into three regions: Americas,
Asia Pacific, and Europe including other regions. The Americas
is comprised of the U.S., Canada, Mexico, and Latin and South
America; Asia Pacific includes South Pacific (Australia and New
Zealand) and South and North Asia. Our third region is comprised
of the U.K., Europe, Middle East, and the remaining countries
not included in the other two regions. In 2009, the Americas
contributed approximately 68% of the Companys revenues;
Asia Pacific contributed approximately 25%; and Europe and the
remaining countries contributed approximately 7%. All product
lines are sold throughout these regions, although there is some
variance in the mix among the regions.
The sales and marketing organization consists of sales,
marketing, technical support, and customer care in each region.
Sales and marketing manages the Companys relationship with
our customers and channel partners who include distributors,
wholesalers and retail customers. They provide feedback from the
customers on product and service needs of the end-user
customers, take our product lines to market, and provide
technical and after sales service support. A national accounts
team manages our largest accounts globally.
Raw
Materials
Our principal raw materials, which include copper, brass, steel
and plastic, are widely available and need not be specially
manufactured for our use. Certain of the raw materials used in
the hardfacing products of our filler metals product line, 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 that could affect pricing and disrupt supply.
Although we have historically been able to obtain adequate
supplies of these materials at acceptable prices, restrictions
in supply or significant increases in the prices of copper and
other raw materials could adversely
6
affect our business. During 2008 and 2007, we experienced
significantly higher than historical average inflation on
materials such as copper, steel, and brass which detrimentally
impacted our gross margins. For 2009, the cost of these
materials fluctuated significantly in the marketplace with
minimal impact on our gross margins, as the cost of previously
purchased amounts and purchase commitments were reflected in the
cost of goods sold.
We also purchase certain manufactured products that we either
use in our manufacturing processes or resell. These products
include electronic components, circuit boards, semiconductors,
motors, engines, pressure gauges, springs, switches, lenses,
forgings, filler metals and chemicals. Some of these products
are purchased from international sources and thus our cost can
be affected by foreign currency fluctuations. We believe our
sources of such products are adequate to meet foreseeable demand
at acceptable prices.
Research,
Development and Technical Support
We have development and sustaining engineering groups for each
of our product lines. The development engineering group
primarily performs process and product development work to
develop new products to meet our customer needs. The sustaining
engineering group provides technical support to the operations
and sales groups, and the quality department supports
established products. As of December 31, 2009, we employed
approximately 100 people in our development and sustaining
engineering groups, split among engineers, designers,
technicians and graphic service support. Our engineering costs
consist primarily of salaries, benefits for engineering
personnel and project expenses with approximately
$3 million related to research for new product development.
Competition
We view the market as split into three types of competitors:
(1) three full-line welding equipment and filler metal
manufacturers (Lincoln Electric Company, ESAB, a subsidiary of
Charter PLC, and several divisions of Illinois Tool Works, Inc.,
including the ITW Miller and ITW Hobart Brothers divisions);
(2) many single-line brand-specific competitors; and
(3) a number of low-priced small niche competitors. Our
large competitors offer a wide portfolio of product lines with
an emphasis on filler metals and welding power supplies and
lines of niche products. Their position as full-line suppliers
and their ability to offer complete product solutions, filler
metal volume, sales force relationships and fast delivery are
their primary competitive strengths. Our single-line,
brand-specific competitors emphasize product expertise, a
specialized focused sales force, quick customer response time
and flexibility to special needs as their primary competitive
strengths. The low-priced manufacturers primarily use low
overhead, low market prices and direct selling to capture a
portion of price-sensitive customers discretionary
purchases. International competitors have been less effective in
penetrating the U.S. domestic markets due to product
specifications, lack of brand recognition and their relative
inability to access the welding distribution market channel.
We expect to continue to see price pressure in the segments of
the market where little product differentiation exists. The
trends of improved performance at lower prices in the power
source market and further penetration of the automated market
are also expected to continue. Internationally, the competitive
profile is similar, with overall lower market prices, more
fragmented competition and a weaker presence of larger
U.S. manufacturers.
We compete on the performance, functionality, price, brand
recognition, customer service and support and availability of
our products. We believe we compete successfully through the
strength of our brands, by focusing on technology development
and offering innovative industry-leading products in our niche
product areas.
Employees
As of December 31, 2009, we employed approximately
1,800 people, 500 of whom were engaged in sales, marketing
and administrative activities, and 1,300 of whom were engaged in
manufacturing or other operating activities. During 2009, we
reduced our workforce in response to the decline in global
economic conditions. By contrast, at December 31, 2008 our
workforce was approximately 2,600 people, 600 of whom were
engaged in sales, marketing and administrative activities, and
2,000 of whom were engaged in manufacturing or other operating
activities. None of our U.S. workforce is represented by
labor unions, while most of the manufacturing employees in our
foreign operations are represented by labor unions. We believe
that our employee relations are satisfactory. We have not
experienced any significant work stoppages.
7
Patents,
Licenses and Trademarks
Our products are sold under a variety of trademarks and trade
names. We own trademark registrations or have filed trademark
applications for of all our trade names that we believe are
material to the operation of our businesses. We also own various
patents and from time to time acquire licenses from owners of
patents to apply such patents to our operations. We do not
believe any single patent or license is material to the
operation of our businesses taken as a whole.
Recent
Developments
On February 23, 2010, Thermadyne Holdings Corporation (the
Company), its domestic subsidiaries and certain of
its foreign subsidiaries amended its working capital facility
and second lien facility credit agreements. The amendments are
intended to facilitate the purchase of equipment and building
improvements in existing manufacturing facilities during 2010
through the use of existing funds and financing arrangements. In
addition, the amendments provide added flexibility for the
repatriation of funds from foreign subsidiaries and the
reinvestment of funds in foreign locations.
On February 23, 2010, the Company, Thermadyne Industries,
Inc., their domestic subsidiaries and certain of their foreign
subsidiaries (together with the Company, the Thermadyne
Parties) entered into the Third Amendment to Third Amended
and Restated Credit Agreement with General Electric Capital
Corporation as agent and lender (the Third
Amendment) to, among other things: (i) increase the
permitted amount of foreign investments from $5,000,000 to
$10,000,000, subject to certain restrictions, including a
$3,000,000 limitation on investment in non-affiliated foreign
persons; and (ii) adjust the minimum quarterly Fixed Charge
Coverage Ratio requirements so as to compute the Ratio as of
December 31, 2009 and March 31, 2010 and June 30,
2010 based on the results for the three months, six months, and
nine months then ended. For September 30, 2010 and for each
calendar quarter thereafter, the computation is based on the
twelve month period then ending. The minimum Fixed Charge
Coverage Ratio required for December 31, 2009 is 1.00 and
for all calendar quarters thereafter is 1.10.
Also on February 23, 2010 the Thermadyne Parties entered
into Amendment Number One to 2009 Amended and Restated Second
Lien Credit Agreement with Regions Bank, as administrative
agent, collateral agent and funding agent, and the lenders party
thereto (the Second Lien Facility Amendment) to,
among other things, increase the permitted amount of foreign
investments from $5,000,000 to $10,000,000, subject to certain
restrictions, including a $3,000,000 limitation on investment in
non-affiliated foreign persons.
Executive
Officers of the Registrant
Set forth below is the name, age, position and a brief account
of the business experience of each of our executive officers.
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Name
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Age
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Position(s)
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Martin Quinn
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53
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President
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Terry Downes
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42
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Executive Vice President Chief Operating Officer
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Terry A. Moody
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47
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Executive Vice President Global Operations
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Steven A. Schumm
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57
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Executive Vice President Chief Financial and
Administrative Officer
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Martin Quinn
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Mr. Quinn was elected President in August 2009. From April 2005
to August 2009, he served as Executive Vice President of Global
Sales. From 1999 to March 2005, Mr. Quinn served as Vice
President Marketing and Sales Asia Pacific. Prior to
that, he was Managing Director Asia. He has over
25 years experience with Thermadyne.
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Terry Downes
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Mr. Downes joined Thermadyne in June 2003 as Director of Market
Integration and in April 2004 was promoted to Executive Vice
President Global Corporate Development. He was elected Executive
Vice President Chief Operating Officer in August
2009. He has over 16 years of international business
development experience with primary focus in the manufacturing
sector. He was previously employed by Novar PLC and Redland PLC.
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8
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Terry A. Moody
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Mr. Moody joined Thermadyne in August 2007 as Executive Vice
President of Global Operations. He was formerly employed for
21/2
years, by Videocon Industries, a privately held manufacturer of
high end digital products, where he served as the Chief
Operating Officer and Senior Vice President of Americas and
Europe. Prior to Videocon, he was employed for 11 years
with Thomson S.A., the French Consumer Electronics Company,
where he served the last 3 years of his employment as
General Manager and Vice President of Americas Displays.
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Steven A. Schumm
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Mr. Schumm, CPA, joined Thermadyne in August 2006 as the
Executive Vice President, Chief Financial Officer and Chief
Administrative Officer, after serving as a consultant for the
Company since April 2006. He has over 30 years of
accounting and financial experience. He was previously employed
for one year as Chief Financial Officer of LaQuinta Corporation,
a publicly traded limited service hotel owner and operator,
prior to its purchase by Blackstone Group. He served for seven
years as Chief Administrative Officer and interim Chief
Financial Officer of Charter Communications, a publicly traded
cable service provider, and for 25 years, including
15 years as a partner, with the independent public
accounting firm, Ernst & Young LLP.
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Internet
Information
Copies of our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available free of charge through our web site
(www.thermadyne.com) as soon as reasonably practicable
after we electronically file the materials with or furnish them
to the Securities and Exchange Commission.
The statements in this Annual Report on
Form 10-K
that relate to future plans, events or performance are
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, Section 21E
of the Securities Exchange Act of 1934, and the Private
Securities Litigation Reform Act of 1995, including statements
regarding our future prospects. These statements may be
identified by terms and phrases such as anticipate,
believe, intend, estimate,
expect, continue, should,
could, may, plan,
project, predict, will and
similar expressions and relate to future events and occurrences.
Actual results could differ materially due to a variety of
factors and the other risks described in this Annual Report and
the other documents we file from time to time with the
Securities and Exchange Commission. Factors that could cause
actual results to differ materially from those expressed or
implied in such statements include, but are not limited to, the
following items discussed below. We undertake no duty to revise
or update the items discussed below.
You should carefully consider each of the risks and
uncertainties we describe below and all of the other information
in this report. The risks and uncertainties we describe below
are not the only ones we face. Additional risks and
uncertainties of which we are currently unaware or that we
currently believe to be immaterial may also adversely affect our
business.
Our
business is cyclical and is affected by global economic
conditions, particularly those affecting steel construction and
fabrication-related activities, as well as other factors that
are outside of our control, any of which may have a material
adverse effect on our business, results of operations and
financial condition.
The success of our business is directly affected by general
economic conditions and other factors beyond our control. In the
fourth quarter of 2008, global economic conditions, including
steel production, began to deteriorate and severely deteriorated
throughout much of 2009, with global steel production declining
50% to 60% during 2009 from the 2008 levels. Our business has
been and continues to be adversely impacted by such conditions.
The end users of our products are engaged in commercial
construction, steel shipbuilding, oil and gas industry related
construction and maintenance, and general manufacturing. The
demand for our products, and therefore the results of our
operations, are related to the level of production in these
end-user industries. Specifically, our sales
9
volumes are closely tied to the levels of steel related
construction and fabrication activities. Global steel production
and shipments declined precipitously in late 2008 and in 2009,
which caused the Company to suffer dramatic decreases in sales
volumes in late 2008 and throughout 2009. The duration and
extent of this reduced demand, along with further potential
declines in demand for our products is uncertain.
We believe the volatility in these global economic factors could
have further adverse impacts on our operating results and
financial condition.
Our
future operating results may be adversely affected by
fluctuations in the prices and availability of raw
materials.
We purchase a large amount of commodity raw materials,
particularly copper, brass and steel. At times, pricing and
supply can be volatile due to a number of factors beyond our
control, including global demand, general economic and political
conditions, mine closures and labor unrest in various countries,
activities in the financial commodity markets, labor costs,
competition, import duties and tariffs and currency exchange
rates. This volatility can significantly affect our raw material
costs. For example, as of July 2008, the cost of copper and
steel was $4.25 per pound and $0.40 per pound, respectively,
declined to $1.35 per pound and $0.24 per pound, respectively,
in December 2008, and increased to $3.15 per pound and $0.30 per
pound, respectively, by December 2009. An environment of
volatile raw material prices, competitive conditions and
declining economic conditions can adversely affect our
profitability if we fail to adjust our sales prices
appropriately to recover the change in the costs of materials.
The timing of and the extent to which we will realize changes in
material costs and the impact on our profits are uncertain.
Fixed price purchase commitments typically exist with respect to
a portion of our material purchases for purchase volumes of
three to six months. To the extent that our arrangements to lock
in supplier costs do not adequately keep in check cost increases
and we are unable to pass on any price increases to our
customers, our profitability could be adversely affected.
Certain of the raw materials used in our hardfacing products
within our filler metal product line, such as cobalt and
chromium, are available primarily from sources outside the
United States. Restrictions in the supply of cobalt, chromium
and other raw materials could adversely affect our operating
results. In addition, certain of our customers rely heavily on
raw materials, and fluctuations in prices of raw materials for
these customers could negatively affect their operations and
orders for our products and, as a result, our financial
performance. Further dramatic declines in global economic
conditions may also create hardships for our suppliers and
potentially disrupt their supply of raw materials to us.
Our
international sales and operations face special risks and are
subject to various operational and financial developments and
restrictions that may adversely impact our sales and
earnings.
Approximately one-half of our consolidated net sales are derived
from exports from the U.S. and from our international
operations located in Australia, Canada, China, England, Italy,
Malaysia and Mexico. International operations are subject to a
number of special risks including:
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currency exchange rate fluctuations;
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differing protections of intellectual property;
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trade barriers; regional economic uncertainty;
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labor unrest;
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governmental currency exchange controls;
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differing (and possibly more stringent) labor regulation;
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governmental expropriation;
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domestic and foreign customs, tariffs and taxes;
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current and changing regulatory environments;
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difficulty in obtaining distribution support;
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difficulty in staffing and managing widespread operations;
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differences in the availability and terms of financing; and
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political instability and unrest.
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Our products are used primarily in metal fabrication operations
to cut and join metal parts. Certain metal fabrication
operations, as well as manufacturing operations generally, are
moving from the United States to international locations where
labor costs are lower. Selling products into international
markets and maintaining and expanding international operations
require significant coordination, capital and resources. If we
fail to address these developments, we may be unable to grow or
maintain our sales and profitability.
Also, in some foreign jurisdictions, we may be subject to laws
that limit the right and ability of entities organized or
operating in those jurisdictions to pay dividends or remit
earnings to affiliated companies unless specified conditions are
met. These factors may adversely affect our financial condition.
The Company has initiated a comprehensive review of its
compliance with foreign and U.S. duties requirements in
light of the assessments by a foreign jurisdiction in the third
quarter of 2009. It is premature to assess the findings of this
review but management believes the ultimate resolution of the
compliance review will not have a material effect on the
Companys business or financial condition.
We are
subject to currency fluctuations and face risks arising from the
imposition of exchange controls and currency
devaluations.
We sell our products to distributors located in approximately
100 countries. During both years ended December 31, 2008
and 2009, approximately 44% of our consolidated sales were
derived from markets outside the U.S. Approximately
one-half of these sales are U.S. dollar denominated sales
of products manufactured in the U.S. and exported to
foreign customers. Strengthening of the U.S. dollar
exchange rate serves to increase the cost for foreign purchasers
and may adversely affect our sales.
For our operations conducted in foreign countries, transactions
are typically denominated in various foreign currencies. The
Australian dollar represents approximately 20% of our
international sales. The costs of our operations in these
foreign locations are also denominated in those local
currencies. Because our financial statements are stated in
U.S. dollars, changes in currency exchange rates between
the U.S. dollar and other currencies have had, and will
continue to have, an impact on our reported financial results.
In addition, some sale transactions pose foreign currency
exchange settlement risks. Our Australian operations currently
maintain 60 to 90 day forward purchase commitments for
U.S. dollars in place to reduce the risk of an adverse
currency exchange movement in connection with
U.S. denominated materials purchases. Currency fluctuations
have affected our reported financial performance in the past and
will affect our reported financial performance in the future.
We also face risks arising from the imposition of currency
exchange controls and currency devaluations. Exchange controls
may limit our ability to convert foreign currencies into
U.S. dollars or to remit dividends and other payments by
our foreign subsidiaries or operations located or doing business
in a country imposing controls. Currency devaluations result in
a diminished value of funds denominated in the currency of the
country instituting the devaluation. Actions of this nature, if
they occur or continue for significant periods of time, could
have an adverse effect on our financial condition.
Sales
of our common stock may result in a change of
control under the Indenture, in which case, we may be
required to repurchase the Senior Subordinated Notes, which
would have a material adverse effect on the
Company.
Upon a change of control, as defined in the Indenture for the
Senior Subordinated Notes, each holder of our Senior
Subordinated Notes has the right to require us to purchase the
Senior Subordinated Notes at a purchase price in cash equal to
101% of the principal, plus accrued and unpaid interest. Under
the Indenture, a change of control occurs if:
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any person, as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, other than Angelo,
Gordon & Co., L.P. and its affiliates, is or becomes
the direct or indirect beneficial owner of
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more than 35% of the total voting power of our capital stock
then outstanding and entitled to vote in the election of our
directors, and Angelo, Gordon & Co., L.P. beneficially
owns a lesser percentage of the total voting power of our voting
capital stock than the acquiring person and does not have the
right or ability by voting power, contract or otherwise, to
elect or designate for election a majority of our board of
directors;
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individuals who constitute our Board of Directors cease for any
reason to constitute a majority of the Board of Directors then
in office;
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the Company adopts a plan of liquidation or dissolution; or
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the Company merges or consolidates with or into another person
or sells all or substantially all its assets, except
(A) where the survivor or transferee is controlled by
Angelo, Gordon & Co., L.P. or (B) for a
transaction following which (i) in the case of a merger or
consolidation, holders of securities that represented 100% of
the Companys voting capital stock immediately prior to the
transaction (or other securities into which such securities are
converted as part of the transaction) own directly or indirectly
at least a majority of the voting power of the voting capital
stock of the surviving person immediately after such transaction
and (ii) in the case of a sale of assets transaction, each
transferee becomes an obligor in respect of the Senior
Subordinated Notes and a subsidiary of the transferor of such
assets.
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The Indenture defines beneficial ownership to
include all shares that a person has the right to acquire either
immediately or with the passage of time.
As of December 31, 2009, Angelo, Gordon & Co.,
L.P. beneficially owned 33.2% of our common stock, which it
holds for the account of its investment advisory clients. If
some or all of the shares owned by our principal stockholder are
sold to one of our existing stockholders, it is possible that,
following the sale, the purchaser would own more than 35% of our
common stock. If any of the holders of our Senior Subordinated
Notes exercises its redemption rights, we may have insufficient
working capital for operations or capital expenditures. In
addition, we may not have sufficient financial resources to
purchase all of the Senior Subordinated Notes. If we are unable
to satisfy our payment obligations under the Senior Subordinated
Notes, we may be in default under our Indenture, which, if not
waived, would result in the acceleration of our debt obligations
and the exercise of remedies under the Working Capital Facility
and the Second Lien Facility, which would have a material
adverse impact on our ability to operate our business and to
make payments under our debt instruments.
Sales
of our common stock may result in a change of
control under our credit facility agreements, which
constitutes an event of default under the agreements, could
result in the acceleration of our debt obligations under those
agreements and, absent a waiver of this default, would have a
material adverse effect on the Company.
Under the terms of our credit facility agreements, any of the
following events is a change of control:
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any person or group of persons, within the meaning of the
Securities Exchange Act of 1934, other than Angelo,
Gordon & Co., L.P. or the holders of our Senior
Subordinated Notes acquires beneficial ownership of 30% or more
of our issued and outstanding shares of stock;
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during any period of 12 consecutive calendar months, individuals
who at the beginning of the period constituted our board of
directors, together with any new directors elected or nominated
for election by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning
of the period or whose election or nomination for election was
previously so approved, cease for any reason other than death or
disability to constitute a majority of the directors then in
office; or
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a change of control as defined in the Indenture for
our Senior Subordinated Notes.
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If some or all of the shares beneficially owned by Angelo
Gordon & Co., L.P. are sold to one or more of our
existing or new stockholders, it is possible that, following the
sale, the purchaser would own more than 30% of our common stock.
This would constitute an event of default under our credit
facility agreements, which, if not waived, would result in the
exercise of remedies under these facilities, including the
acceleration of our debt obligations. This acceleration, in
turn, would also constitute an event of default under the
Indenture for the Senior Subordinated
12
Notes. An event of default under our credit facility agreements,
if not waived, would have a material adverse impact on our
ability to operate our business and to make payments under our
debt instruments.
The
sale of shares by our principal stockholder or a combination of
other stockholders may limit our ability to use net operating
loss carryforwards to offset future taxable income for federal
and state income tax purposes, which could have a material
adverse effect on our cash flow and results of
operations.
As of December 31, 2009, we had net operating loss
carryforwards of approximately $152 million from the years
1998 through 2009 available to offset future federal and state
taxable income. Our net operating loss carryforwards will expire
between the years 2018 and 2029. Under Section 382 of the
U.S. Internal Revenue Code of 1986, as amended, a
corporation that undergoes an ownership change is
subject to limitations on its ability to utilize its net
operating losses to offset future taxable income. In general, an
ownership change occurs if the aggregate stock ownership of
holders of five percent or more of the corporations stock
increases by more than fifty (50) percentage points over an
applicable three-year period. The amount of the annual
limitation generally is equal to the value of the stock of the
corporation immediately prior to the ownership change multiplied
by the adjusted federal long-term tax-exempt rate. Our net
operating loss carryforwards are not currently limited under
Section 382.
We expect that sales of our common stock by our principal
stockholder will result in an ownership change or will
significantly increase the likelihood that an ownership change
will occur that will limit our ability to use net operating loss
carryforwards under Section 382. It is also possible that
an ownership change may result from sales of our common stock by
other owners of five percent or more of the shares of our common
stock, or the acquisition of five percent or more of the shares
of our common stock by other persons (or groups of persons).
We have no control over our stockholders ability to buy or
sell their shares and therefore cannot prevent an ownership
change from occurring. We also cannot predict the extent to
which our net operating loss carryforwards will be limited or
the ultimate impact of these limitations, which will depend on,
among other things: the identity of any stockholders who buy or
sell our common stock, the timing of these transactions, the
number of shares they buy or sell, and our future taxable income.
Limitations on our ability to use net operating loss
carryforwards to offset future taxable income under
Section 382 could reduce the benefit of our net operating
loss carryforwards by requiring us to pay federal and state
income taxes earlier than we otherwise would have had such a
change not occurred, and causing part of our net operating loss
carryforwards to expire without our having fully utilized them.
Limitations under Section 382 could also limit our use of
other credits, such as foreign tax credits, in future years.
Limitations resulting from an ownership change under
Section 382 could have a material adverse effect on our
cash flow and results of operations.
We
rely in large part on independent distributors for sales of our
products and the continued consolidation of distributors and
loss of key distributors could materially harm our
business.
We depend on more than 2,000 independent distributors to sell
our products and provide service and after-market support to our
ultimate customers. Distributors play a significant role in
determining which of our products are stocked at their branch
locations and the prices at which they are sold, which impacts
how accessible our products are to end users of our products.
Almost all of the distributors with whom we do business offer
competing products and services to end users. There is a trend
toward consolidation of these distributors, which has been
escalating in recent years. In 2009, one distributor represented
11% of our 2009 sales and our top five distributors comprised
27% of our global net sales in 2009 and 2008. Recent economic
events could undermine the economic viability of some of our
customers. These events could also cause our competitors to
introduce new economic inducements and pricing arrangements that
may cause our distributors to increase purchases from our
competitors and reduce purchases from us. The continued
consolidation of these distributors, the loss of certain key
distributors, or an increase in the distributors sales of
our competitors products to end users could materially
reduce our sales and earnings.
13
Our
business is highly competitive, and increased competition could
reduce our sales, earnings and profitability.
We offer products in highly competitive markets. We compete on
the performance, functionality, price, brand recognition,
customer service, and support and availability of our products.
We compete with companies of various sizes, some of which have
greater financial and other resources than we do. Increased
competition could force us to lower our prices or to offer
additional product features or services at a higher cost to us,
which could reduce our sales and net earnings.
The greater financial resources of certain of our competitors
may enable them to commit larger amounts of capital in response
to changing market conditions. Certain competitors may also have
the ability to develop product innovations that could put us at
a disadvantage. In addition, some of our competitors have
achieved substantially more market penetration in certain
segments of those markets in which we operate. If we are unable
to compete successfully against other manufacturers in our
marketplace, we could lose customers, and our sales may decline.
There can also be no assurance that customers will continue to
regard our products favorably, that we will be able to develop
new products that appeal to customers, that we will be able to
improve or maintain our profit margins or that we will be able
to continue to compete successfully in maintaining or increasing
our market share.
We may
not be able to successfully implement our cost-reduction
initiatives, which may limit our competitiveness and
profitability.
We have undertaken and will continue to undertake cost-reduction
initiatives in response to global competitive conditions. These
include our ongoing continuous improvement initiatives,
redesigning products and manufacturing processes, re-evaluating
the location of certain manufacturing operations and the
sourcing of vendor purchased components. There can be no
assurance that these initiatives will be beneficial to us in
providing the anticipated cost savings from such activities. The
failure of our cost-reduction efforts to yield sufficient cost
reductions may have a material adverse effect on our business.
Failure
to enhance existing products and develop new products may
adversely impact our financial results.
Our financial and strategic performance depends partially on
providing new and enhanced products to the global marketplace.
We may not be able to develop or acquire innovative products or
otherwise obtain intellectual property in a timely and effective
manner in order to maintain and grow our position in global
markets. Furthermore, we cannot be sure that new products or
product improvements will be met with customer acceptance or
contribute positively to our financial results. We may not be
able to continue to support the levels of research and
development activities and expenditures necessary to improve and
expand our products. Competitors may be able to direct more
capital and other resources to new or emerging technologies to
respond to changes in customer requirements.
If we
cannot adequately enforce or protect our intellectual property
rights, our competitive position will suffer and we may incur
significant additional costs.
We own a number of patents, trademarks and licenses related to
our products and rights under patents owned by others. While no
single patent, trademark or license is material to the operation
of our business as a whole, our ability to enforce our
intellectual property rights in the U.S. and in foreign
countries is critical to our competitive position and our
ability to continue to bring new and enhanced products to the
marketplace. We rely upon patent, trademark and trade secret
laws in the United States and similar laws in foreign countries,
as well as agreements with our employees, customers, suppliers
and other third parties, to establish and maintain our
intellectual property rights. Third parties may challenge,
infringe upon or otherwise circumvent our intellectual property
rights, which could adversely impact our competitive position.
Further, the enforceability of our intellectual property rights
in various foreign countries is uncertain. Accordingly, in
certain countries, we may be unable to protect our intellectual
property rights against unauthorized third-party copying or use,
which could harm our competitive position.
Third parties also may claim that we or our customers are
infringing upon their intellectual property rights. Defending
those claims and contesting the validity of third parties
asserted intellectual property rights can be time-consuming and
costly. Claims of intellectual property infringement also might
require us to redesign affected
14
products, enter into costly settlement or license agreements or
pay costly damage awards, or face a temporary or permanent
injunction prohibiting us from manufacturing, marketing or
selling certain of our products.
If our
consolidated indebtedness increases or EBITDA decreases, our
interest cost under our Senior Subordinated Notes may increase,
which would negatively impact our results.
The interest cost for our Senior Subordinated Notes is subject
to change quarterly based upon our consolidated leverage ratio
determined on the relationship of debt to the trailing four
quarters EBITDA, as defined. Under the terms of the Indenture
for the Senior Subordinated Notes, we are required to pay
additional Special Interest. The rate of Special Interest
increases to a maximum of 2.75% if our consolidated leverage
ratio increases to 7.0. The rate of Special Interest declines
incrementally to 0% if our consolidated leverage ratio is less
than 3.0. The rate of Special Interest increases to 2.25%
effective beginning January 1, 2010, based on our
consolidated leverage ratio that is above 6.5 as of
September 30, 2009. The rate will continue at this level
through June 30, 2010 based on the consolidated leverage
ratio as of December 31, 2009. We can give no assurance
that rate of special interest will not increase after
June 30, 2010.
We are
subject to risks caused by changes in interest
rates.
Changes in benchmark interest rates (i.e. LIBOR) will impact the
interest cost associated with our variable interest rate debt.
Our variable rate debt includes the borrowings under our Working
Capital Facility and our Second Lien Facility. Changes in
interest rates would affect our cost of future borrowings.
Significant increases in interest rates would adversely affect
our financial condition and results of operations.
If we
fail to comply with the financial covenants in our debt
instruments, our ability to obtain financing and make payments
under our debt instruments may be adversely
impacted.
Our credit facility agreements require compliance with certain
financial covenants. These financial covenants have been amended
on several occasions and most recently in February 2010. While
we believe that we will be able to comply with our financial
covenants in future periods, failure to do so would, unless the
covenants were further amended or waived, result in defaults
under our credit agreements. An event of default under our
credit agreements, if not waived, could result in the
acceleration of these debt obligations and, consequently, our
debt obligations under our Senior Subordinated Notes. Such
acceleration could result in exercise of remedies by our
creditors, which could have a material adverse impact on our
ability to operate our business and to make payments under our
debt instruments. In addition, an event of default under the
credit facilities, such as the failure to maintain the
applicable required financial ratios, would prevent additional
borrowing under our credit agreements, which could have a
material adverse effect on our ability to operate our business
and to make payments under our debt instruments.
The
Company is subject to risks caused by disruptions in the credit
markets.
Our Working Capital Facility is provided under an agreement with
G.E. Capital Corporation, which matures in June 2012. Our
operations are funded through daily borrowings and repayments
from and to our lender under the Working Capital Facility. The
temporary or permanent loss of the use of the Working Capital
Facility or the inability to replace this facility when it
expires would have a material adverse effect on our business and
results of operations.
Credit availability for our suppliers and customers has been
reduced due to the disruptions in the credit markets. This
decreased availability for our customers and suppliers may have
an adverse effect on the demand for our products, the collection
of our accounts receivable and our ability to timely fulfill our
commitments.
The
actual or anticipated sale of shares of our common stock may
cause the market price of our common stock to decline. During
2008, the Company registered 4,496,555 shares of our common
stock on behalf of our principal stockholder, and
1,500,000 shares of our common stock for future offer and
sale by the Company.
During 2008, the Securities and Exchange Commission declared
effective the Companys shelf registration statement
covering 5,996,555 shares of our common stock. Of the
5,996,555 shares, 4,496,555 were registered by the Company
on behalf of Angelo, Gordon & Co., L.P., and
1,500,000 shares were registered for future offer and
15
sale by the Company. As of December 31, 2009, Angelo,
Gordon & Co., L.P. beneficially owned 33.2% of our
common stock, which it holds for the account of investment
advisory clients of Angelo, Gordon & Co., L.P. Other
investment advisory clients of Angelo, Gordon & Co.,
L.P. are the sole lenders under our Second Lien Facility, and
also own a total of $24.2 million principal amount of our
Senior Subordinated Notes. The Company and Angelo,
Gordon & Co., L.P. may offer for sale any or all of
their respective registered shares from time to time prior to
the expiration of the shelf registration statement.
The sale of these or other shares of our common stock through
open market transactions or other means may, depending upon the
timing of the sales, depress the market price of our common
stock. Moreover, actual or anticipated downward pressure on the
market price of our common stock due to actual or anticipated
sales of our common stock could cause some institutions or
individuals to engage in short sales of our common stock, which
may itself cause the market price of our common stock to decline.
If our
relationships with our employees were to deteriorate, we could
be adversely affected.
Currently, in our U.S. operations (where none of our
employees is represented by a labor union) and in our foreign
operations (where the majority of our employees are represented
by labor unions), we have maintained a positive working
environment. Although we focus on maintaining a productive
relationship with our employees, we cannot ensure that unions,
particularly in the United States, will not attempt to organize
our employees or that we will not be subject to work stoppages,
strikes or other types of conflicts with our employees or
organized labor in the future. Any such event could have a
material adverse effect on our ability to operate our business
and serve our customers and could materially impair our
relationships with key customers and suppliers, which could
damage our business, results of operations and financial
condition.
If we
are unable to retain and hire key employees, we could be
adversely affected.
Our ability to provide high-quality products and services for
our customers and to manage the complexity of our business is
dependent on our ability to retain and to attract skilled
personnel in the areas of product engineering, manufacturing,
sales and finance. Our businesses rely heavily on key personnel
in the engineering, design, formulation and manufacturing of our
products. Our success is also dependent on the management and
leadership skills of our senior management team. As with all of
our employees, we focus on maintaining a productive relationship
with our key personnel. However, we cannot ensure that our
employees will remain with us indefinitely. The loss of a key
employee and the inability to find an adequate replacement could
materially impair our relationship with key customers and
suppliers, which could damage our business, results of
operations and financial condition.
Liabilities
relating to litigation alleging manganese induced illness could
reduce our profitability and impair our financial
condition.
We are a defendant in many cases alleging manganese induced
illness. Manganese is an essential element of steel and
contained in all welding filler metals. We are one of a large
number of defendants in lawsuits filed in the U.S. The
claimants allege that exposure to manganese contained in the
welding filler metals caused them to develop adverse
neurological conditions, including a condition known as
manganism.
The aggregate long-term impact of the manganese loss
contingencies on operating cash flows and financial condition is
difficult to assess, particularly because claims are in many
different stages of development. While we have contested and
intend to continue to contest these lawsuits vigorously, there
are several risks and uncertainties that may affect our
liability for personal claims relating to exposure to manganese,
including the possibility that our litigation experience changes
overall. An adverse change from our litigation experience to
date could materially diminish our profitability and impair our
financial condition.
Our
products involve risks of personal injury and property damage,
which expose us to potential liability.
Our business exposes us to possible claims for personal injury
or death and property damage resulting from the products that we
sell. We maintain insurance for loss (excluding attorneys
fees and expenses) through a combination of self-insurance
retentions and excess insurance coverage. We are not insured
against punitive
16
damage awards and we are not currently insured for liability
from manganese-induced illness. We monitor claims and potential
claims of which we become aware and establish reserves for the
self- insurance amounts based on our liability estimates for
such claims. We cannot give any assurance that existing or
future claims will not exceed our estimates for self-insurance
or the amount of our excess insurance coverage. In addition, we
cannot give any assurance that insurance will continue to be
available to us on economically reasonable terms or that our
insurers would not require us to increase our self-insurance
amounts. Claims brought against us that are not covered by
insurance or that result in recoveries in excess of insurance
coverage could have a material adverse effect on our results of
operations and financial condition. Moreover, despite any
insurance coverage, any accident or incident involving our
products could negatively affect our reputation among customers,
suppliers, lenders, investors and the public. This may make it
more difficult for us to operate our business and compete
effectively.
We are
subject to various environmental laws and regulations and may
incur costs that have a material adverse effect on our financial
condition as a result of violations of or liabilities under
environmental laws and regulations.
Our operations are subject to federal, state, local and foreign
laws and regulations relating to the protection of the
environment, including those governing the discharge of
pollutants into the air and water, the use, management and
disposal of hazardous materials resulting from the manufacturing
process, and employee health and safety. As an owner and
operator of real property and a generator of hazardous waste, we
may also be subject to liability for the remediation of
contaminated sites. While we are not currently aware of any
outstanding material claims or obligations, we could incur
substantial costs, including cleanup costs, fines and civil or
criminal sanctions, and third-party property damage or personal
injury claims, as a result of violations of or liabilities under
environmental laws or noncompliance with environmental permits
required at our facilities.
Contaminants have been detected at some of our present and
former sites. In addition, we have been named as a potentially
responsible party at certain Superfund sites. While we are not
currently aware of any contaminated or Superfund sites as to
which material outstanding claims or obligations exist, the
discovery of additional contaminants or the imposition of
additional cleanup obligations at these or other sites could
result in significant liability. In addition, the ultimate costs
under environmental laws and the timing of these costs are
difficult to predict. Liability under some environmental laws
relating to contaminated sites, including the Comprehensive
Environmental Response, Compensation, and Liability Act and
analogous state laws, can be imposed retroactively and without
regard to fault. Further, one responsible party could be held
liable for all costs at a site. Thus, we may incur material
liabilities under existing environmental laws and regulations or
environmental laws and regulations that may be adopted in the
future.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
We operate manufacturing facilities in the United States, Italy,
Malaysia, Australia, the Peoples Republic of China and
Mexico and lease distribution facilities in the U.S., England,
and Canada. All U.S facilities, leases and leasehold interests
are encumbered by first priority liens securing our obligations
under our Working Capital Facility and Second Lien Facility. We
consider our plants and equipment to be modern and well
maintained and believe our plants have sufficient capacity to
meet future anticipated expansion needs.
We lease a 19,500 square-foot facility located in St.
Louis, Missouri, that houses our executive offices, as well as
some of our centralized services.
17
The following table describes the location and general character
of our principal properties of our continuing operations as of
December 31, 2009:
|
|
|
Location of Facility
|
|
Building Space/Number of Buildings
|
|
West Lebanon, New Hampshire
|
|
153,000 sq. ft./5 buildings (office, manufacturing,
sales training)
|
Denton, Texas
|
|
238,960 sq. ft./4 buildings (office, manufacturing,
storage, sales training center)
|
Roanoke, Texas
|
|
278,543 sq. ft. / 1 building (manufacturing, warehouse)
|
Hermosillo, Sonora, Mexico
|
|
178,013 sq. ft. / 1 building (office, manufacturing)
|
Oakville, Ontario, Canada
|
|
48,710 sq. ft./1 building (office, warehouse)
|
Cigweld Malaysia/Selangor, Malaysia
|
|
127,575 sq. ft./1 building (office, warehouse)
|
Melbourne, Australia
|
|
273,425 sq. ft./2 buildings (office, manufacturing,
warehouse)
|
Kuala Lumpur, Malaysia
|
|
60,000 sq. ft./1 building (office, manufacturing)
|
Bowling Green, Kentucky
|
|
188,000 sq. ft./1 building (office, manufacturing,
warehouse)
|
Milan, Italy
|
|
32,000 sq. ft./3 buildings (office, manufacturing,
warehouse)
|
Chino, California
|
|
30,880 sq. ft./1 building (warehouse)
|
Ningbo, China
|
|
44,187 sq. ft. /1 buildings (office, manufacturing,
warehouse)
|
All of the above facilities are leased, except for the
manufacturing facilities located in Australia, which facilities
are owned. We also have additional assembly and warehouse
facilities in the United Kingdom and Australia.
|
|
Item 3.
|
Legal
Proceedings
|
Our operations are subject to federal, state, local and foreign
laws and regulations relating to the protection of the
environment, including those governing the discharge of
pollutants into the air and water, the use, management and
disposal of hazardous materials and employee health and safety.
We are currently not aware of any citations or claims filed
against us by any local, state, federal and foreign governmental
agencies, which, if successful, would have a material adverse
effect on our financial condition or results of operations.
As an owner or operator of real property, we may be required to
incur costs relating to remediation of properties, including
properties at which we dispose waste, and environmental
conditions could lead to claims for personal injury, property
damage or damages to natural resources. We are aware of
environmental conditions at certain properties which we now own
or lease or previously owned or leased, which are undergoing
remediation. We do not believe the cost of such remediation will
have a material adverse effect on our business, financial
condition or results of operations.
Certain environmental laws, including, but not limited to, the
Comprehensive Environmental Response, Compensation, and
Liability Act and analogous state laws, provide for liability
without regard to fault for investigation and remediation of
spills or other releases of hazardous materials. Under such
laws, liability for the entire cleanup can be imposed upon any
of a number of responsible parties. Such laws may apply to
conditions at properties presently or formerly owned or operated
by us or our subsidiaries or by their predecessors or previously
owned or operated by unaffiliated business entities. We have in
the past and may in the future be named a potentially
responsible party at off-site disposal sites to which we have
sent waste. We do not believe the ultimate cost relating to such
properties or sites will have a material adverse effect on our
financial condition or results of operations.
At December 31, 2009, we were a co-defendant in 347 cases
alleging manganese induced illness. Manganese is an essential
element of steel and contained in all welding filler metals. We
are one of a large number of defendants. The claimants allege
that exposure to manganese contained in the welding filler
metals caused the plaintiffs to
18
develop adverse neurological conditions, including a condition
known as manganism. As of December 31, 2009, 144 of these
cases had been filed in, or transferred to, federal court where
the Judicial Panel on Multidistrict Litigation has consolidated
these cases for pretrial proceedings in the Northern District of
Ohio. Between June 1, 2003 and December 31, 2009, we
were dismissed from 1,135 other cases with similar allegations.
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 Companys
financial condition or results of operations.
All other legal proceedings and actions involving us are of an
ordinary and routine nature and are incidental to the operations
of the Company. Management believes that such proceedings should
not, individually or in the aggregate, have a material adverse
effect on the Companys business or financial condition or
on the results of operations.
|
|
Item 4.
|
(Removed
and Reserved).
|
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
The Companys common stock is listed on The NASDAQ Capital
Market under the symbol THMD. The following table
shows, for the periods indicated, the high and low sales or bid
prices, as the case may be, of a share of Common Stock for 2008
and 2009, as reported by published financial sources. For each
quarter in 2008 and 2009, the prices shown below reflect the
high and low sales prices.
|
|
|
|
|
|
|
|
|
|
|
Sales Prices ($)
|
|
|
High
|
|
Low
|
|
2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.50
|
|
|
$
|
7.75
|
|
Second Quarter
|
|
|
18.20
|
|
|
|
8.63
|
|
Third Quarter
|
|
|
22.74
|
|
|
|
14.00
|
|
Fourth Quarter
|
|
|
17.21
|
|
|
|
5.40
|
|
2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
8.16
|
|
|
$
|
1.25
|
|
Second Quarter
|
|
|
4.81
|
|
|
|
2.04
|
|
Third Quarter
|
|
|
6.98
|
|
|
|
3.22
|
|
Fourth Quarter
|
|
|
7.47
|
|
|
|
5.88
|
|
On March 3, 2010, the last reported sale price for our
Common Stock as quoted on NASDAQ was $7.80 per share. As of
March 3, 2010 there were approximately 520 beneficial
owners of our Common Stock including the number of individual
participants in security position listings.
We have historically not paid any cash dividends on our Common
Stock, and we do not have any present intention to commence
payment of any cash dividends. We intend to retain earnings to
provide funds for the operation and expansion of our business
and to repay outstanding indebtedness. Our debt agreements
contain certain covenants restricting the payment of dividends
on or repurchases of Common Stock. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
19
Performance
Graph
The following graph shows a comparison of our cumulative total
returns, the Russell 2000 Stock Index (the Russell
2000) and the Standard & Poors Composite
500 Stock Index (the S&P 500) for the period
from December 31, 2004 to December 31, 2009. A
compatible peer-group index for the welding industry, in
general, was not readily available since the industry is
comprised of a relatively few competitors. The Russell 2000
represents an index based on a concentration of companies having
relatively small market capitalization, similar to the Company.
The comparison assumes $100 was invested on December 31,
2004 in each of our common stock, the Russell 2000, and the
S&P 500, and assumes compounded daily returns with
reinvestment of dividends.
Value of
$100 Invested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2004
|
|
12/31/2005
|
|
12/31/2006
|
|
12/31/2007
|
|
12/31/2008
|
|
12/31/2009
|
|
Russell 2000
|
|
|
100.00
|
|
|
|
103.32
|
|
|
|
120.89
|
|
|
|
117.57
|
|
|
|
76.65
|
|
|
|
95.98
|
|
S&P 500
|
|
|
100.00
|
|
|
|
103.00
|
|
|
|
117.03
|
|
|
|
121.16
|
|
|
|
74.53
|
|
|
|
92.01
|
|
Thermadyne Holdings Corporation
|
|
|
100.00
|
|
|
|
101.14
|
|
|
|
75.29
|
|
|
|
87.45
|
|
|
|
52.24
|
|
|
|
55.29
|
|
20
|
|
Item 6.
|
Selected
Financial Data
|
The selected financial data for the years ended
December 31, 2009, 2008, 2007, 2006 and 2005, set forth
below has been derived from our audited consolidated financial
statements for such years. The selected financial data should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and the notes thereto,
in each case included elsewhere herein. Previously reported
amounts have been reclassified as a result of the discontinued
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating Results Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
347.7
|
|
|
$
|
516.9
|
|
|
$
|
494.0
|
|
|
$
|
445.7
|
|
|
$
|
409.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
19.7
|
|
|
|
43.9
|
|
|
|
44.3
|
|
|
|
30.0
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
1.1
|
|
|
|
10.5
|
|
|
|
10.6
|
|
|
|
2.5
|
|
|
|
(15.8
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
|
3.1
|
|
|
|
0.2
|
|
|
|
(1.9
|
)
|
|
|
(25.5
|
)
|
|
|
(15.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4.2
|
|
|
$
|
10.7
|
|
|
$
|
8.7
|
|
|
$
|
(23.0
|
)
|
|
$
|
(31.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share applicable to common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.08
|
|
|
$
|
0.78
|
|
|
$
|
0.79
|
|
|
$
|
0.18
|
|
|
$
|
(1.19
|
)
|
Discontinued operations
|
|
|
0.22
|
|
|
|
0.01
|
|
|
|
(0.15
|
)
|
|
|
(1.91
|
)
|
|
|
(1.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.30
|
|
|
$
|
0.79
|
|
|
$
|
0.64
|
|
|
$
|
(1.73
|
)
|
|
$
|
(2.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data (Period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
95.7
|
|
|
$
|
83.4
|
|
|
$
|
97.2
|
|
|
$
|
104.8
|
|
|
$
|
128.7
|
|
Total assets
|
|
|
454.9
|
|
|
|
494.4
|
|
|
|
497.4
|
|
|
|
518.9
|
|
|
|
577.2
|
|
Total debt
|
|
|
217.0
|
|
|
|
234.0
|
|
|
|
234.6
|
|
|
|
257.0
|
|
|
|
258.7
|
|
Total shareholders equity
|
|
|
127.8
|
|
|
|
118.3
|
|
|
|
122.1
|
|
|
|
103.5
|
|
|
|
124.0
|
|
Consolidated Cash Flow Data Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
22.1
|
|
|
$
|
17.0
|
|
|
$
|
23.0
|
|
|
$
|
(15.5
|
)
|
|
$
|
(13.3
|
)
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
13.0
|
|
|
$
|
12.4
|
|
|
$
|
13.1
|
|
|
$
|
15.7
|
|
|
$
|
19.1
|
|
Capital expenditures
|
|
|
(7.7
|
)
|
|
|
(12.8
|
)
|
|
|
(11.4
|
)
|
|
|
(8.5
|
)
|
|
|
(7.9
|
)
|
21
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We are a leading global designer and manufacturer of gas and arc
cutting and welding products, including equipment, accessories
and consumables. Our products are used by manufacturing,
construction, fabrication and foundry operations to cut, join
and reinforce steel, aluminum and other metals. We design,
manufacture and sell products in five principal categories:
(1) gas equipment; (2) plasma power supplies, torches
and consumable parts; (3) welding equipment; (4) arc
accessories, including torches, guns, consumable parts and
accessories; and (5) filler metals. We operate our business
in one reportable segment.
Demand for our products is highly cyclical because many of the
end users of our products are themselves in highly cyclical
industries, such as commercial construction, steel shipbuilding,
petrochemical construction and general manufacturing. The demand
for our products and, therefore, our results of operations are
directly related to the level of production in these end-user
industries. During the fourth quarter of 2008 and throughout
much of 2009, we experienced declining demand from our customers
as global economic conditions slowed and steel production, in
particular, declined substantially. We have entered into a
recessionary period within our sector of the economy that is of
an indeterminate depth and duration.
The availability and the cost of the components of our
manufacturing processes, and particularly raw materials, are key
determinants in achieving future success in the marketplace and
in achieving profitability. Principal raw materials used are
copper, brass, steel and plastic, which are widely available and
need not be specifically manufactured for use by us. Certain
other raw materials used in our hardfacing products, such as
cobalt and chromium, are available primarily from sources
outside the United States. Historically, we have been able to
obtain adequate supplies of raw materials at acceptable prices.
During 2008 and 2007, we experienced higher than historical
average inflation on materials such as copper, steel and brass,
which negatively affected margins. In 2009 most commodity costs
declined dramatically in the global marketplace during the first
six months, while in the second half of 2009, many commodity
costs increased but not to the levels seen prior to 2009. We
have reduced and continue to reduce our overhead and labor costs
by improving our operational efficiency, relocating jobs,
consolidating our manufacturing operations and outsourcing
production of certain components and products.
Our operating profit is affected by the mix of the products we
sell, as margins are generally higher on torches and guns and
their replacement parts, as compared to power supplies and
filler metals.
We sell our products domestically primarily through industrial
welding distributors, retailers and wholesalers.
Internationally, we sell our products through our sales force,
independent distributors and wholesalers.
For the year ended December 31, 2009, approximately 56% of
our sales were made to customers in the U.S. Approximately
one-half of our international sales are U.S. export sales
and are denominated in U.S. dollars. The U.S. dollar
exchange rate has been volatile but generally weakened relative
to foreign currencies during 2009. The weakening of the
U.S. dollar increases our international sales amounts as
translated into U.S. dollars and also may serve to increase
our export sales. This weakening of the U.S. dollar may
also decrease our cost of manufacturing materials in certain of
our foreign locations. Similarly, the strengthening of the
U.S. dollar against other currencies may have the opposite
effects on our international and export sales and the cost of
certain of our manufacturing materials.
Key
Indicators
Key economic measures relevant to our business include steel
consumption, industrial production trends and purchasing manager
indices. Industries that we believe provide a reasonable
indication of demand for our products include construction and
transportation, railcar manufacturing, oil and gas exploration,
metal fabrication and farm machinery, shipbuilding, and railcar
manufacturing. The trends in these industries provide important
data to us in forecasting our business. Indicators with a more
direct relationship to our business that might provide a
forward-looking view of market conditions and demand for our
products are not available.
22
Key performance measurements we use to manage the business
include orders, sales, commodity cost trends, operating expenses
and efficiencies, inventory levels and fill-rates. The timing of
these measurements varies but may be daily, weekly and monthly
depending on the need for management information and the
availability of data.
Key financial measurements we use to evaluate the results of our
business as well as the operations of our individual units
include customer order levels and mix, sales order
profitability, production volumes and variances, selling,
general and administrative expenses, earnings before interest,
taxes, depreciation and amortization, operating cash flows,
capital expenditures and controllable working capital. We define
controllable working capital as accounts receivable, inventory,
and accounts payable. We review these measurements monthly,
quarterly and annually and compare them over historical periods,
as well as with objectives that are established by management
and approved by our Board of Directors.
Discontinued
Operations
In the years 2005 through 2007, the Company committed to plans
to dispose of its non-core businesses which included C&G
Systems (C&G), its Brazilian manufacturing
operations, its South African operations, Soldaduras Soltec
Limitada (Soltec) and Comercializadora Metalservice
Limitada (Metalservice), and GenSet S.P.A. The
dispositions were completed during the period of 2005 through
2009. During 2009, the building and land associated with our
former Brazilian operations were sold and the liability amounts
recorded for tax matters, employee severance obligations and
other estimated liabilities were increased. A gain, net of tax,
of $1.1 million was recorded related to Brazil during 2009
including a gain of $2.9 million on the sale of the
facilities, a charge of $1.1 million to revise the
estimates of the remaining liabilities, and income tax expense
of $0.7 million. As of December 31, 2009 the Brazilian
operations show remaining liabilities, primarily associated with
tax matters, of $2.2 million for which the timing of
resolution is uncertain. The remaining liabilities have
classified within Accrued and Other Liabilities as of
December 31, 2009. Also in 2009, the note received in the
sale of our South African operations was settled and the Company
recorded a gain of $1.9 million in discontinued operations
and $0.5 million of interest income was recorded in
continuing operations related to this transaction. Further
details of the discontinued operations are provided in
Note 3 Discontinued Operations.
Results
of Operations
The results of operations set forth in the Income Statement on
page F-5
have been adjusted to reflect the impact of discontinued
operations. See Note 3 Discontinued
Operations in our consolidated financial statements.
The following description of results of operations is presented
for the years ended December 31, 2009, 2008, and 2007.
2009
Compared to 2008
Net sales from continuing operations for the year ended
December 31, 2009 were $347.7 million, which was a
32.7% decrease from net sales of $516.9 million in 2008.
U.S. sales were $193.4 million for 2009, compared to
$285.2 million for 2008, which is a decrease of 32.2%.
International sales were $154.2 million for 2009, compared
to $231.7 million for 2008, or a decrease of 33.5%. The
decrease in net sales for the year ended December 31, 2009
resulted from approximately $170 million in volume declines
and $10 million in foreign currency translation, offset by
an approximately $11 million increase due to price
increases.
Gross margin from continuing operations for the twelve months
ended December 31, 2009 was $103.8 million, or 29.9%
of net sales, compared to $159.1 million, or 30.8% of net
sales, for the same period in 2008. In 2009, the Company
experienced declines in raw material costs. Under its use of the
LIFO inventory accounting method, the Company recorded a
$4.3 million credit to cost of sales in the twelve months
ended December 31, 2009. During 2008, the Company
experienced increases in raw material costs and recorded a
$4.1 million charge to cost of sales under its use of the
LIFO inventory accounting method. In 2009, the Company reduced
inventories in 2009 resulting in a liquidation of LIFO inventory
costs, which reduced cost of sales by approximately
$1.0 million. Excluding the effects of LIFO, gross margin
for the twelve months ended December 31, 2009 was
$99.5 million, or 28.6% of net sales, decreasing from
$163.1 million, or 31.6%, for the same period in 2008. The
decrease in the 2009 gross margin percentage as compared to
2008, excluding LIFO effects, reflects the manufacturing cost
inefficiencies arising from
23
reduced production volumes throughout the year and the high raw
material costs, particularly during the first three months of
2009. During 2009, these cost increases were offset in part by
cost savings from productivity initiatives of an estimated
$12 million under the Companys Total Cost
Productivity (TCP) initiative.
Selling, general and administrative expenses
(SG&A) were $81.5 million, or 23.4% of net
sales, for the twelve months ended December 31, 2009, as
compared to $112.1 million, or 21.7% of net sales, for the
twelve months ended December 31, 2008. SG&A expenses
in 2009 include restructuring charges for severance expenses of
$3.8 million, payable to employees who elected to
participate in an early retirement program and amounts payable
to manufacturing personnel placed on permanent lay-off status
and to salaried employees whose positions eliminated in
connection with further organizational restructurings. The 2008
SG&A expenses reflect organizational restructuring charges
for severance expenses of $3.6 million payable to employees
whose positions were eliminated in connection with cost
reduction efforts in response to economic and market
uncertainties. SG&A expenses in 2009 also include a
$1.1 million charge from the write off of a
Venezuelan-based customer receivable judged uncollectible and a
$1.0 million charge for customs duties assessed by a
foreign jurisdiction relative to prior years.
Interest expense for the twelve months ended December 31,
2009 was $20.9 million, which compares to
$20.3 million for the twelve months ended December 31,
2008. The interest rate increased 80 basis points to an
average effective interest rate of 10% for 2009 compared to
2008, due to the higher interest rate under the Second Lien
Facility and the increase in the Special Interest adjustment to
the Senior Subordinated Notes. The increased average interest
rate was partially offset by the lower average debt in 2009 of
$210 million as compared to $220 million for 2008.
Other income for 2009 includes $5.9 million as a result of
a settlement gain relating to the termination of a majority of
the Companys health care plans for retired employees
effective July 31, 2009.
An income tax provision of $2.7 million was recorded on
pretax income from continuing operations of $3.8 million
for the twelve months ended December 31, 2009 versus an
income tax provision of $12.1 million on pretax income from
continuing operations of $22.6 million for 2008. For 2009,
the effective income tax rate was 70% versus 53% in 2008. For
2009 and 2008, the incremental effective tax rate arises from
the effect of deferred U.S. income tax expenses recorded on
certain foreign earnings in addition to the foreign taxes
payable currently on those earnings. The currently payable
income tax provision for 2009 and 2008 relates primarily to
earnings in foreign countries. Operating loss carryovers offset
substantially all U.S. currently payable income taxes.
Discontinued operations reported net income of $3.1 million
for the twelve months ended December 31, 2009 compared to
net income of $0.2 million for the twelve months ended
December 31, 2008. The change in results for discontinued
operations primarily relates to the gain recorded for Brazil on
the sale of building and land, net of charges to adjust the
remaining liabilities, and collection of a note receivable
associated with the sale of the South African business. The
South African sale closed on May 25, 2007 with
$13.8 million net cash received at closing along with a
note due in May 2010 in the amount of 30 million South
African Rand and bearing 14% interest payable. In April 2009,
the note was settled and the Company recorded a gain of
$1.9 million. The Company also recorded $0.5 million
of interest income in continuing operations related to this
transaction.
2008
Compared to 2007
Net sales from continuing operations for the year ended
December 31, 2008 were $516.9 million, which was a
4.6% increase over net sales of $494.0 million for the same
twelve months in 2007. U.S. sales were $285.2 million
for 2008, compared to $292.6 million for 2007, which is a
decrease of 2.5%. International sales were $231.7 million
for the twelve months ended December 31, 2008 compared to
$201.4 million for the same period of 2007, or an increase
of 15.0%. Net sales for the twelve months ended
December 31, 2008 increased approximately $23 million
with approximately $20 million from price increases,
$2 million due to foreign currency translation and
$1 million from volume. In the fourth quarter of 2008, the
Companys sales declined substantially from the trends in
the first three quarters as global economic conditions,
particularly in steel production, deteriorated. The fourth
quarter 2008 sales were 16% less than the comparable 2007
quarter with a $21 million sales decline of which
approximately $20 million was from volume.
24
Gross margin from continuing operations for the twelve months
ended December 31, 2008 was $159.1 million, or 30.8%
of net sales, compared to $154.4 million, or 31.2% of net
sales, for the same period in 2007. The gross margin decline is
due to increases in the costs of materials such as copper, brass
and steel partially offset by manufacturing cost savings and
improved pricing administration consisting of sales price
increases. The impact of increases in materials and production
supply cost reduced gross margin by an estimated
$26 million. These material cost increases were offset in
part by cost savings from productivity initiatives of an
estimated $18 million under the Companys Total Cost
Productivity (TCP) initiative.
Selling, general and administrative expenses
(SG&A) were $112.1 million, or 21.7% of
net sales, for the twelve months ended December 31, 2008 as
compared to $106.0 million, or 21.5% of net sales, for the
twelve months ended December 31, 2007. The increase in
SG&A includes severance cost charges of $3.6 million
arising from the fourth quarter 2008 decision to reduce salaried
personnel due to the decline in economic conditions. Foreign
currency transactional gains and losses reflected in SG&A
for the twelve months ended December 31, 2008 and 2007 were
losses of $0.7 million and gains of $0.4 million,
respectively. The remaining increase in SG&A expenses in
2008 compared to 2007 reflect increases of $1.4 million for
general cost increases including increases in new product
development activities and the addition of sales and operations
personnel throughout the Companys worldwide facilities.
Interest expense for the twelve months ended December 31,
2008 was $20.3 million, which compares to
$26.8 million for the twelve months ended December 31,
2007. The average indebtedness during 2008 was approximately 10%
less than in the prior year. In addition, the average effective
interest rate declined approximately 170 basis points
during 2008. This decline in the effective interest rate
reflects the combined benefit of the lower LIBOR rates and the
reduced interest rate for the Working Capital and the Second
Lien Facilities, as a result of the amendments to the agreements
in June 2007. During 2008, approximately 40% of the
Companys indebtedness was variable with changes in LIBOR.
The reduction of the Special Interest Adjustment on the Senior
Subordinated Notes also resulted in a reduction in interest rate
in 2008.
An income tax provision of $12.1 million from continuing
operations was recorded on pretax income of $22.6 million
for the year ended December 31, 2008. For 2008, the
effective income tax rate was 53% versus 34% in the comparable
prior year period. In its income tax expense, the Company
includes in U.S. taxable income a portion of the
Companys foreign earnings without the recognition of the
related benefit of foreign tax credits, which are carried
forward. In both years, certain collateral pledges pursuant to
the Working Capital Facility required inclusion of a portion of
the foreign earnings in U.S. taxable income. For the year
ended December 31, 2007, an income tax provision of
$5.5 million was recorded on a pretax income of
$16.2 million from continuing operations. An income tax
benefit of $4.0 million was recognized in 2007 due to the
reduction of previously recorded state income tax contingencies.
Discontinued operations reported net income of $0.2 million
for the twelve months ended December 31, 2008 compared to a
net loss of $2.0 million for the twelve months ended
December 31, 2007. During 2008, operational activities in
Brazil ceased early in the year and a contract for sale of the
Brazilian land and buildings was signed in late 2008. The
Company closed the sale in September 2009. The year 2007 loss
results primarily from operational activities of the
discontinued units. See Note 3 Discontinued
Operations to the consolidated financial statements.
Restructuring
and Other Charges
As of December 31, 2008, the company accrued restructuring
charges of $3.6 million for severance related expenses
payable to approximately 110 salaried employees whose positions
were eliminated in connection with cost reduction efforts in
response to economic and market uncertainties. At that time,
this initiative reduced the salaried work force approximately
13%. As a result, the Company reduced its annual compensation
and benefit costs by approximately $7.5 million. The
majority of the severance costs were paid in the first and
second quarters of 2009.
In the first quarter of 2009, the Company offered a voluntary
retirement program and accrued restructuring charges for
$1.3 million in separation pay and COBRA benefits payable
under the program. Approximately
25
50 employees elected to participate. As a result, the
Company reduced its annual compensation and benefit costs by
approximately $3.1 million. The amounts were substantially
paid through August 2009.
Subsequent to the first quarter of 2009, the Company recorded
additional restructuring charges of $2.4 million for
severance expenses. The charges relate to manufacturing
personnel placed on permanent lay-off status, salaried positions
eliminated in connection with further organizational
restructurings and additional personnel electing to participate
in the voluntary retirement program initiated in the first
quarter. These actions affected approximately
237 employees, 225 of whom were placed on permanent lay-off
or had their positions eliminated and 12 of whom participated in
the early retirement program. As a result, the Company reduced
its annual compensation and benefit costs by approximately
$5.5 million.
Liquidity
and Capital Resources
Liquidity. Our principal uses of cash are
capital expenditures, working capital and debt repayment
obligations, including repayment of debt pursuant to the
Excess Cash Flow provision of our Senior
Subordinated Notes Indenture. We expect to fund ongoing
requirements for working capital from operating cash flow and
borrowings under the Working Capital Facility. This Facility was
amended in June 2009 and February 2010 and matures in June 2012,
as discussed below.
In 2009, we generated $3.0 million net cash in conducting
continuing operations. Net debt repayments were
$16.3 million, which consisted of $22.9 million in
repayment of the Working Capital Facility and $2.6 million
of purchases of our Senior Subordinated Notes, offset by
increased borrowings under the Second Lien Facility of
$9.2 million.
In 2010, we anticipate capital expenditures will be
$15 million to $18 million including $10 million
to $12 million to expand existing manufacturing facilities.
Our existing debt service obligations in 2010 excluding interest
expense and repayments on the Working Capital Facility, will be
approximately $9 million. This includes $6 million in
repayments of borrowings under our Second Lien Facility and
$2 million related to our capital lease obligations. We
expect our operating cash flows and available borrowings under
the Working Capital Facility will be sufficient to meet our
anticipated capital expenditures and debt service requirements.
Additional debt repayments required, if any, by the Excess Cash
Flow provision of the Senior Subordinated Notes Indenture, which
would be payable by April 2011, and our other long-term
obligations for 2010 would also be funded through operating cash
flows and the Working Capital Facility.
At December 31, 2009, the Company was in compliance with
its financial covenants. The Company has sufficient funding to
fulfill its current debt repayment obligations. The Company has
funding for capital expenditure commitments and will not proceed
with other planned capital expenditures unless it is in
compliance with the fixed charge coverage covenant of the
Working Capital Facility. To reduce expenses, actions were
implemented early in 2009 which included layoffs of production
personnel, reduction of the global salaried work force, deferral
of salary increases, and broad based efforts to reduce
discretionary spending. The Company anticipates it will maintain
a level of expenses aligned with the current reduced sales
volumes.
Failure to comply with our financial covenants in future periods
would result in defaults under our credit agreements unless
covenants are amended or waived. We believe the most restrictive
financial covenant under our Working Capital Facility is the
fixed charge coverage covenant, which was amended on
February 23, 2010 in connection with an amendment to the
Credit Agreement. This covenant requires EBITDA (as defined in
the Amended Credit Agreement) to be at least 1.10 of Fixed
Charges (as defined in the Credit Agreement) on a trailing
twelve months basis except during 2009 and the first two
quarters of 2010, as described below. Under the Second Lien
Facility, we believe that the most restrictive financial
covenant is the senior leverage ratio covenant,
which requires that debt, including total debt less the Senior
Subordinated Notes and cash, not exceed 2.75 times EBITDA (as
defined in the Amended Second Lien Agreement). Compliance is
measured quarterly based on the trailing four quarters. A
default of the financial covenants under the Working Capital
Facility or Second Lien Facility would constitute a default
under the Senior Subordinated Notes. An event of default under
our credit agreements, if not waived, could result in the
acceleration of these debt obligations and, consequently, our
debt obligations under our Senior Subordinated Notes.
26
Our debt structure, terms, covenants, and a history of these
instruments are described below.
Working Capital Facility. Certain subsidiaries
of the Company are borrowers under the Third Amended and
Restated Credit Agreement, dated June 29, 2007 as amended
(the Credit Agreement), with General Electric
Capital Corporation as agent and lender. The Credit Agreement:
(i) matures on June 29, 2012; (ii) provides a
revolving credit commitment of up to $70 million (the
Working Capital Facility), which includes
(a) an asset based facility and (b) an amortizing
$10 million property, plant and equipment facility;
(iii) provides for interest rate percentages applicable to
the asset base; (iv) limits the senior leverage ratio to
2.75; (v) provides for an interest rate of
90-day LIBOR
plus 4.00%; (vi) includes a prepayment fee of 2% if the
Facility is terminated prior to June 27, 2010 or 1% prior
to June 27, 2011; and (vii) includes a minimum fixed
charge coverage ratio for the twelve-months ended June 30,
2009 and September 30, 2009 of 0.95 and 0.825,
respectively, 1.00 for the quarter ended December 31, 2009
and 1.10 thereafter. With respect to the quarters ending
December 31, 2009, March 31, 2010 and June 30,
2010, the calculation is based on the results for the three
months, six months, and nine months periods ending on such
dates, respectively. The calculation for quarters ending
September 30, 2010 and thereafter is based on the twelve
month periods then ending. Borrowings under the Working Capital
Facility may not exceed 85% of eligible receivables plus the
lesser of (i) 85% of the net orderly liquidation value of
eligible inventories or (ii) 65% of the book value of
eligible inventories less customary reserves, plus machinery at
appraised value not to exceed $10 million.
At December 31, 2009, $3.9 million of letters of
credit were outstanding under the Credit Agreement. Unused
availability was $35.9 million as of December 31,
2009. The Working Capital Facility includes a lockbox agreement
that requires all receipts to be swept daily to reduce
borrowings outstanding under the revolving line of credit.
Second Lien Facility. On August 14, 2009,
the Company entered into the 2009 Amended and Restated Second
Lien Credit Agreement with the agent and the lenders party
thereto (the Amended Second Lien Agreement). The
Amended Second Lien Agreement refinanced the loans outstanding
under the Second Lien Credit Agreement dated July 29, 2004.
Under the Amended Second Lien Agreement, the Company issued a
new $25 million Second Lien Facility at 92.346% of the face
amount, repaid the $14 million balance of the Second Lien
Facility and realized $9 million of net proceeds. The
maturity date was extended from November 7, 2010 to
November 30, 2012,and certain assets of the Companys
Australian subsidiaries were added as collateral for the loans.
The Amended Second Lien Agreement permits a single prepayment of
as much as $14 million beginning April 1, 2010 through
August 30, 2010 in lieu of repurchasing outstanding Senior
Subordinated Notes with excess cash flow, and prepayment of the
balance beginning August 30, 2010. The applicable interest
rate was changed to, at the Companys option, (a) the
greater of LIBOR or 6%, plus 6% or (b) the greater of the
prime rate, the federal funds rate plus one half of 1.00% or 6%,
plus 6%. At issuance and through December 31, 2009, the
interest rate payable is 12%, and the effective interest rate,
including amortization of the issuance discount, is 15%. The
lenders under the previous Second Lien Credit Agreement and
additional entities each became lenders under the Amended Second
Lien Agreement.
Senior Subordinated Notes. The Senior
Subordinated Notes (the Notes) accrue interest at
9.25% per annum, which is payable semiannually in cash. The
Notes are guaranteed by our domestic subsidiaries, which are
also borrowers or guarantors under the Working Capital Facility
and the Second Lien Facility, and certain of our foreign
subsidiaries. The Notes contain customary covenants and events
of default, including covenants that limit our ability and our
subsidiaries abilities to incur debt, pay dividends and
make certain investments. Subject to certain conditions, we must
annually use our Excess Cash Flow (as defined in the Indenture)
either to make permanent repayments of our senior debt or to
extend a repurchase offer to the holders of the Notes pursuant
to which we will offer to repurchase outstanding Notes at a
purchase price of 101% of their principal amount. The
Excess Cash Flow amount for 2009 was
$6.0 million, and we will repay this amount of Second Lien
borrowings on or before April 15, 2010 in satisfaction of
this obligation under the Indenture. The Indenture provides for
the payment of additional Special Interest on the Senior
Subordinated Notes, initially at a rate of 1.25% per annum. The
Special Interest is subject to adjustment increasing to 1.75% if
the consolidated leverage ratio exceeds 6.00 with incremental
interest increases to a maximum of 2.75% if the consolidated
leverage ratio increases to 7.0. The Special Interest declines
to 0.75% if the consolidated leverage ratio declines below 4.0
and declines incrementally to 0% when the consolidated leverage
ratio is less than 3.0.
27
Shelf Registration of Common Stock. During
2008, the Securities and Exchange Commission declared effective
the Companys shelf registration statement covering
5,996,555 shares of our common stock. Of the
5,996,555 shares, 4,496,555 were registered by the Company
on behalf of Angelo, Gordon & Co., L.P. (which
exercises voting and dispositive powers over certain shares of
Company common stock held by Angelo, Gordon & Co.,
L.P. affiliates and clients), and 1,500,000 shares were
registered for future offer and sale by the Company. The Company
and Angelo, Gordon & Co., L.P. may offer for sale any
or all of their respective registered shares from time to time
prior to the expiration of the shelf registration statement. The
Companys ability and willingness to issue securities under
the aforementioned registration statement will depend on market
conditions at the time of any desired offering.
Working Capital and Cash Flows. The operating
activities of our continuing operations provided
$22.1 million of cash during the year ended
December 31, 2009, compared to cash provided of
$17.6 million during the year ended December 31, 2008.
This includes the changes in operating assets and liabilities,
which provided $15.0 million of cash for the year ended
December 31, 2009, compared to $10.4 million of cash
used in the year ended December 31, 2008 and consisted of:
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Accounts receivable decreases provided $19.4 million of
cash in 2009, compared to $7.1 million of cash provided
during the year ended December 31, 2008. The decrease in
accounts receivable in 2009 resulted from the substantial
decrease in sales during the year.
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Inventory decreases provided $32.3 million of cash in 2009
compared to the $15.4 million used in the year ended
December 31, 2008. Inventories were decreased during 2009
in response to significant declines in customer orders.
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Prepaid expenses increased using $2.9 million of cash in
2009 compared to $0.8 provided in 2008. The increase arises
primarily from the asset associated with a U.S. dollar
currency hedge by our Australian subsidiary.
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Accounts payable reductions used $21.0 million of cash in
2009, which compares to the use of $1.9 million of cash in
the year ended December 31, 2008. Throughout 2009, our
volume of business was severely contracting as a result of the
global economic decline. Accordingly, during 2009, the Company
was paying vendors for previous materials purchases while
reducing new purchases in connection with reducing inventory
levels. In addition, in December 2009 we accelerated
approximately $16 million of payments to our vendors and
service providers.
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Accrued interest and other expense accrual decreases used
$9.7 million of cash in 2009 compared to $0.2 million
used in 2008. The accrued liabilities at year end 2009 for
severance payments, customer rebates and incentive compensation
were less than at year end 2008 due to declines in the volumes
of our business and early payment in 2009 of customer rebates
typically paid in the subsequent year. Accrued other expenses
also includes approximately $3.0 million for the liability
associated with a U.S. dollar currency hedge by our
Australian subsidiary.
|
Cash used for capital expenditures was $7.7 million during
the year ended December 31, 2009, compared to
$13.4 million used for capital expenditures in the year
ended December 31, 2008.
Financing activities used $12.8 million of cash during 2009
and used $3.2 million during 2008. Net debt repayments were
$16.3 million in 2009 and $2.9 million during 2008. In
2009, financing activities include a $0.5 million use of
cash associated with the reversal of prior year stock
compensation and $3.3 million of cash provided in 2008 for
stock options exercised and non-cash stock compensation charges.
The Company received a $2.5 million payment in 2009 upon
terminating an interest rate hedge agreement.
The purchase of the minority interest in our Italian
manufacturing operations and the purchase of our partners
interest in our Chinese manufacturing venture required an
aggregate use of $3.9 million of cash in 2008.
28
Contractual
Obligations and Commercial Commitments
In the normal course of business, we enter into contracts and
commitments that obligate us to make payments in the future. The
table below sets forth our significant future obligations by
time period.
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Payments Due by Period
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Less Than
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1-3
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3-5
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More Than
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Contractual Obligations
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Total
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1 Year
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Years
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Years
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5 Years
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(Dollars in thousands)
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Long-term debt
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$
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207,155
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|
$
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16,106
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|
|
$
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18,223
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|
|
$
|
172,826
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|
|
$
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|
|
Interest payments related to long-term debt
|
|
|
69,398
|
|
|
|
18,956
|
|
|
|
33,173
|
|
|
|
17,269
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|
|
|
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Capital leases
|
|
|
9,869
|
|
|
|
2,452
|
|
|
|
3,674
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|
|
|
3,052
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|
|
|
691
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Operating leases
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33,634
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|
|
|
6,832
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|
|
|
9,890
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|
|
|
8,518
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|
|
8,394
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
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$
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320,056
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|
|
$
|
44,346
|
|
|
$
|
64,960
|
|
|
$
|
201,665
|
|
|
$
|
9,085
|
|
|
|
|
|
|
|
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The amounts shown for capital leases exclude the effective
interest expense component. At December 31, 2009, we had
issued letters of credit totaling $3.9 million under the
Working Capital Facility. See Note 17 to the consolidated
financial statements for the Companys obligation with
respect to its pension and post-retirement benefit plans.
Market
Risk and Risk Management Policies
Our earnings and cash flows are subject to exposure to changes
in the prices of certain commodities, particularly copper, brass
and steel. Our earnings and cash flows are also impacted by
fluctuations in foreign currency exchange rates as well as
changes in the interest rates on our debt arrangements. Our
Working Capital Facility and Second Lien Facility related
interest costs are subject to change with changes in LIBOR, and
the interest rate on the Senior Subordinated Notes is subject to
change based on our debt to EBITDA leverage ratio. See
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk, for a further discussion.
Effect of
Inflation and Deflation; Seasonality
In an environment of decreasing raw material prices and
recessionary economic pressures, competitive conditions can
cause sales price discounting before we can recover the higher
costs of previously purchased materials. Conversely, in an
environment of increasing raw material costs wherein we are
increasing prices, we may not be able to increase prices quickly
enough. Our agreements with customers require 60 to 90 days
notice and various administrative procedures are necessary to
implement the changes. To the extent we are unable to maintain
our sales prices to our customers, or to react as quickly as the
market may change, our profitability could be adversely affected.
In an environment of increasing raw material prices, competitive
conditions can affect how much of the price increases we can
recover in the form of higher unit sales prices. To the extent
we are unable to pass on any price increases to our customers;
our profitability could be adversely affected. Furthermore,
restrictions in the supply of cobalt, chromium and other raw
materials could adversely affect our operating results. In
addition, certain of our customers rely heavily on raw
materials, and to the extent there are fluctuations in prices,
it could affect orders for our products and our financial
performance. Our general operating expenses, such as salaries,
employee benefits and facilities costs, are subject to normal
inflationary pressures. Our operations are generally subject to
mild seasonal increases in the second and third calendar
quarters.
Critical
Accounting Policies
Our consolidated financial statements are based on the selection
and application of significant accounting policies, some of
which require management to make estimates and assumptions. We
review these estimates and assumptions periodically to assess
their reasonableness. If necessary, these estimates and
assumptions may be changed and updated. No material adjustments
to our accounting policies have been made in 2009. We believe
the following are the more critical judgmental areas in the
application of our accounting policies that affect our financial
condition and results of operations.
29
Inventories
Inventories are a significant asset, representing 16% of total
assets at December 31, 2009. They are valued at the lower
of cost or market, with our U.S. subsidiaries using the
last in, first-out (LIFO) method, which represents 70% of
consolidated inventories, and our foreign subsidiaries using the
first-in,
first-out (FIFO) method, which represents 30% of consolidated
inventories.
We continually apply judgment in valuing our inventories by
assessing the net realizable value of our inventories based on
current expected selling prices, as well as factors such as
obsolescence and excess stock. We provide reserves as judged
necessary. If we do not achieve our expectations of the net
realizable value of our inventory, future losses may occur.
Accounts
Receivable and Allowances
We maintain an allowance for doubtful accounts for estimated
losses from the failure of our customers to make required
payments for amounts owed. We estimate this allowance based on
knowledge and review of historical receivables, write-off trends
and reserve trends, the financial condition of our customers and
other pertinent information. If the financial condition of our
customers deteriorates or an unfavorable trend in receivable
collections is experienced in the future, additional allowances
may be required.
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 three to ten years. Property, plant and
equipment recorded under capital leases are depreciated based on
the lesser of the lease term or the underlying assets
useful life. Impairment losses are recorded on long-lived assets
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.
During the fourth quarter of 2007, the Company recorded an
impairment loss related to the decision to dispose of its
cutting table business. During the fourth quarter of 2006, the
Company recorded an impairment loss related to the decision to
dispose of the South Africa and Brazil businesses. These
impairment losses were recorded as the fair value of the
businesses was determined to be below the carrying value of the
net assets. See Note 3 Discontinued
Operations. No such losses were incurred as of
December 31, 2008 or 2009.
Intangible
Assets
Patents and customer relationships are amortized on a
straight-line basis over their estimated useful lives, which
generally range from 10 to 20 years. We account for these
intangible assets in accordance with generally accepted
accounting principles, which require us to assess the
recoverability of these assets when events or changes in
circumstances indicate that the carrying amount of the
long-lived asset group might not be recoverable. If impairment
indicators exist, we determine whether the projected
undiscounted cash flows will be sufficient to recover the
carrying value of such assets. This requires us to make
significant judgments about the expected future cash flows of
the asset group. The future cash flows are dependent on general
and economic conditions and are subject to change.
Goodwill and trademarks are tested for impairment annually, as
of October 1st, or more frequently if events occur or
circumstances change that would, more likely than not, reduce
the fair value of the reporting unit below its carrying value.
The impairment analysis is performed on a consolidated
enterprise level based on one reporting unit. The impairment
test involves the comparison of our updated estimate of the
enterprise fair value to the carrying amount. An impairment
would be recorded if the carrying amount exceeded the estimated
enterprise fair value. To estimate enterprise fair value,
management relies primarily on its determination of the present
value of expected future cash flows. Significant judgments and
estimates about current and future conditions are used to
estimate the fair value. In estimating future cash flows,
management estimates future sales volumes, sales prices, changes
in commodity costs and the weighted cost of capital. Management
also considers market value comparables and the current market
capitalization of the Company in determining whether an
impairment exists. Due to the deterioration of global economic
conditions during 2009, we performed impairment testing
quarterly in 2009. An impairment
30
analysis was completed in the fourth quarter, and no adjustment
to the carrying value of goodwill was deemed necessary during
2009 based on estimates of future cash flows. Unforeseen events
and changes in circumstances and market conditions, including
general economic and competitive conditions could cause actual
results to vary significantly from the estimates. See
Note 7 Intangible Assets.
Trademarks are generally associated with the Companys
product brands, and cash flows associated with these products
are expected to continue indefinitely. The Company has placed no
limit on the end of the Companys trademarks useful
lives. As of December 31, 2009, there was no impairment of
trademarks.
Revenue
Recognition
The Company sells a majority of its products through
distributors with standard terms of sale of FOB shipping point
or FOB destination. Under all circumstances, revenue is
recognized when persuasive evidence of an arrangement exists,
the sellers price is fixed and determinable, and
collectibility is reasonably assured.
The Company sponsors a number of annual incentive programs to
augment distributor sales efforts including certain rebate
programs and sales and market share growth incentive programs.
Rebate programs established by the Company are communicated to
distributors at the beginning of the year and are earned by
qualifying distributors based on increases in purchases of
identified product categories and based on relative market share
of the Companys products in the distributors service
area. We accrue the estimated costs throughout the year and the
costs associated with these sales programs are recorded as a
reduction of revenue. Rebates are paid periodically during the
year.
Terms of sale to generally include
30-day
payment terms, return provisions and standard warranties for
which reserves, based upon estimated warranty liabilities from
historical experience, have been recorded. For a product that is
returned due to issues outside the scope of the Companys
warranty agreements, restocking charges will generally be
assessed.
Research
and Development Costs
Research and development is conducted in connection with new
product development with costs of approximately
$2.7 million and $4.3 million in 2009 and 2008,
respectively. The costs relate to materials used in the
development process and allocated engineering personnel costs
and are reflected in Selling, general &
administrative expenses as incurred.
Income
Taxes
We establish provisions for taxes to take into account the
effects of timing differences between financial and tax
reporting. These differences relate primarily to the excess of
the fresh-start accounting valuation over the tax basis of our
primary operating subsidiary, net operating loss carryforwards,
fixed assets, intangible assets and post-employment benefits.
We record a valuation allowance when, in our assessment, it is
more likely than not that a portion or all of our deferred tax
assets will not be realized. In making this assessment we
consider the scheduled reversal of deferred tax liabilities, tax
planning strategies and projected future taxable income. At
December 31, 2009, a valuation allowance has been recorded
against our deferred tax assets which consist primarily of
U.S. net operating loss carryovers. The amount of the
deferred tax assets considered realizable could change in the
future if our assessment of future taxable income or tax
planning strategies changes.
A substantial portion of the earnings of our foreign
subsidiaries are included in our U.S. income tax return
under I.R.C. Section 956. This requires the earnings of a
foreign subsidiary which guarantees the borrowings of its
U.S. parent to be included in U.S. income. Upon actual
distribution of those earnings previously taxed under I.R.C.
Section 956, we are not subject to U.S. income taxes
but may be subject to withholding taxes payable in the foreign
jurisdiction. See Note 13 Income Taxes
to the consolidated financial statements.
For the undistributed earnings of
non-U.S. subsidiaries
not subject to I.R.C. Section 956, no provision is made for
U.S. income taxes. These earnings are permanently invested
or otherwise indefinitely retained for continuing
31
international operations. Determination of the amount of taxes
that might be paid on these undistributed earnings is not
practicable.
We are periodically audited by U.S. 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 we 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 impacted.
As a result of the 2003 bankruptcy restructuring, the Company
recognized cancellation of indebtedness income. Under Internal
Revenue Code Section 108, this cancellation of indebtedness
income is not recognized for income tax purposes, but reduced
various tax attributes, primarily the tax basis in the stock of
a subsidiary, for which a deferred tax liability was recorded.
The final determination of the reduction in the tax attributes
was made following the bankruptcy restructuring with the filing
of the Companys federal tax return.
Factors
That May Affect Future Results
For a discussion of factors that may affect future results see
Risk Factors.
Recently
Issued Accounting Standards
Business Combinations. The Company adopted
Accounting Standards Codification (ASC) Topic 805,
Business Combinations, effective January 1,
2009. This establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. After adoption of this pronouncement, the benefit of
net operating loss carryovers reduces income tax expense as the
carryovers are utilized.
Subsequent Events. The Company adopted ASC
Subtopic
855-10,
Subsequent Events effective June 15, 2009. This
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
The adoption of this statement did not have a material effect on
the Companys financial statements.
The Company has determined that all other recently issued
accounting pronouncements will not have a material impact on its
consolidated financial position, results of operations and cash
flows, or do not apply to its operations.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our primary financial market risks relate to fluctuations in
commodity prices, currency exchange rates and interest rates.
Copper, brass and steel constitute a significant portion of our
raw material costs. These commodities are subject to price
fluctuations which we may not be able to recover and maintain
historical margins depending upon competitive pricing conditions
at the time. When feasible, we attempt to establish fixed price
purchase commitments with suppliers to provide stability in our
materials component costs for periods of three to six months. We
have not experienced and do not anticipate constraints on the
availability of these commodities.
Approximately one-half of our international sales are export
sales from the United States which are primarily denominated in
U.S. dollars. The balance of the international sales arises
from sales conducted primarily in Australia/Asia, Canada and
Europe. Our exposure to foreign currency transactions is
partially mitigated through our manufacturing locations in
Australia, China, Italy, Malaysia, and Mexico. Our Australian
operations execute 60 and 90 day forward purchase
commitments for U.S. dollars to help provide stability in
the cost of purchased materials and components. However, our
financial results could be significantly affected by changes in
foreign currency exchange rates in the foreign markets. We are
most susceptible to a strengthening U.S. dollar, which
would have a negative effect on our export sales and a negative
effect on the translation of local currency financial statements
into U.S. dollars, our reporting currency. We may also
incur transaction gains or losses resulting from changes in
foreign currency exchange rates primarily between our U.K.
distribution operations and continental Europe, but we do not
expect these to be material to our financial results.
32
We are exposed to changes in interest rates through our Working
Capital Facility which has LIBOR-based variable interest rates.
At December 31, 2009, borrowings under this agreement were
$9.6 million. With this amount of variable rate debt, a
hypothetical 100 basis point change in LIBOR would result
in a change in interest expense of approximately $100 thousand
annually. On February 1, 2009, the counterparty terminated
the $50 million notational
fixed-to-variable
swap agreement related to our Senior Subordinated Notes. Our
Second Lien Credit Agreement interest rate is also variable with
LIBOR but includes a 6% floor and we do not anticipate changes
in this rate resulting from changes in LIBOR for the foreseeable
future.
|
|
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.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None
|
|
Item 9A.
|
Controls
and Procedures
|
|
|
(a)
|
Evaluation
of Disclosure Controls and Procedures
|
The Companys management maintains disclosure controls and
procedures that are designed to provide reasonable assurances
that information required to be disclosed in the reports we file
or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods
specified in the Commissions rules and forms. These
controls and procedures are also designed to ensure that such
information is accumulated and communicated to our management,
including our principal executive and principal financial
officer, or persons performing similar functions as appropriate,
to allow timely decisions regarding required disclosure. In
designing and evaluating disclosure controls and procedures, we
have recognized that any controls and procedures, no matter how
well designed and operated, can provide only reasonable
assurance of achieving the desired control objective. Management
is required to apply judgment in evaluating its controls and
procedures.
Under the supervision of and with the participation of
management, including the President and the Chief Financial
Officer, the Company conducted an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined in
Rules 13a-15(e)
and
15d-15(e) of
the Securities Exchange Act of 1934, as of December 31,
2009. Based on this evaluation, the President and the Chief
Financial Officer concluded that the Companys disclosure
controls and procedures were effective as of December 31,
2009.
|
|
(b)
|
Managements
Assessment of Internal Control Over Financial
Reporting
|
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of the
Companys management, including the President and the Chief
Financial Officer, the Company conducted an evaluation of the
effectiveness of internal control over financial reporting as of
December 31, 2009 based on the framework in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on the Companys evaluation under such
framework, management concluded that the Companys internal
control over financial reporting was effective as of
December 31, 2009.
The Companys auditors KPMG LLP, an independent registered
public accounting firm, have issued an audit report on the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2009, which is
included below.
|
|
(c)
|
Changes
in Internal Control Over Financial Reporting
|
There have been no changes in the Companys internal
control over financial reporting that occurred during the fourth
quarter of 2009 that materially affected, or are reasonably
likely to materially affect, the Companys internal control
over financial reporting.
33
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Thermadyne Holdings Corporation:
We have audited Thermadyne Holdings Corporations internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Thermadyne
Holdings Corporations management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Assessment of Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Thermadyne Holdings Corporation maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Thermadyne Holdings Corporation
as of December 31, 2009 and 2008, and the related
consolidated statements of operations, shareholders
equity, and cash flows for each of the years in the three-year
period ended December 31, 2009, and our report dated
March 8, 2010 expressed an unqualified opinion on those
consolidated financial statements.
St. Louis, Missouri
March 8, 2010
34
|
|
Item 9B.
|
Other
Information
|
None
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The Company plans to file the 2010 Proxy Statement pursuant to
Regulation 14A of the Exchange Act prior to April 30,
2010. Except for the information set forth in this Item 10
and the information concerning our executive officers set forth
in Part I, Item 1, Business
Executive Officers of the Registrant, of this
annual report on
Form 10-K
for the fiscal year ended December 31, 2009, which
information is incorporated herein by reference, the information
required by this item is incorporated by reference from the 2010
Proxy Statement.
The Company has adopted a code of ethics applicable to certain
members of Company management, including its principal executive
officer, principal financial officer, principal accounting
officer and controller, or persons performing similar functions.
The code of ethics is available on the Companys website at
www.thermadyne.com. The Company will provide to any person
without charge, upon request, a copy of the code of ethics. A
request for the code of ethics should be made by writing to the
Companys Secretary,
c/o Thermadyne
Holdings Corporation, 16052 Swingley Ridge Road, Suite 300,
Chesterfield, Missouri 63017. The Company intends to satisfy the
disclosure requirement under Item 10 (now
item 5.05(c)) of
Form 8-K
regarding the amendment to, or a waiver from, a provision of
this code of ethics that applies to the Companys principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions and that relates to any element of the code of ethics
definition enumerated in Item 406(b) of
Regulation S-K
by posting such information on its website at www.thermadyne.com.
There have been no material changes to the procedures by which
security holders may recommend nominees to the Companys
board of directors since the filing of the Companys
quarterly report on
Form 10-Q
for the fiscal quarter ended September 30, 2009.
The board of directors has determined that Ms. Gordon is
(i) an audit committee financial expert, as such term is
defined in Item 407(d)(5)(ii) of
Regulation S-K,
and (ii) independent, as such term is defined
in the listing standards of the NASDAQ Stock Market.
|
|
Item 11.
|
Executive
Compensation
|
Information required by this item is set forth under the
captions Compensation Discussion and Analysis,
Compensation Committee Report, Compensation of
Directors, 2009 Summary Compensation Table,
2009 Grants of Plan-Based Awards, Outstanding
Equity Awards at 2009 Fiscal Year-End, Employment
Agreements, Potential Payments upon Termination or
Change in Control and Compensation Committee
Interlocks and Insider Participation in the 2010 Proxy
Statement and is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Certain information required by this item is set forth under the
caption Information about Stock Ownership in the
2010 Proxy Statement and is incorporated herein by reference.
35
Information concerning securities authorized for issuance under
the Companys equity compensation plans is set forth in the
table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
Remaining Available
|
|
|
Number of
|
|
|
|
for Future Issuance
|
|
|
Securities to be
|
|
|
|
Under Equity
|
|
|
Issued Upon
|
|
Weighted-Average
|
|
Compensation Plans
|
|
|
Exercise of
|
|
Exercise Price of
|
|
(Excluding
|
|
|
Outstanding
|
|
Outstanding
|
|
Securities
|
|
|
Options, Warrants
|
|
Options, Warrants
|
|
Reflected in Column
|
|
|
and Rights
|
|
and Rights
|
|
(a))
|
Plan Category
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity compensation plans approved by security holders
|
|
|
1,190,578
|
|
|
$
|
12.72
|
|
|
|
436,456
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,190,578
|
|
|
$
|
12.72
|
|
|
|
436,456
|
|
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is set forth under the
captions Certain Relationships and Related
Transactions and Board and Committee
Meetings-Independent Directors in the 2010 Proxy Statement
and is incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is set forth under the
caption Independent Registered Public Accountant Fees and
Other Matters in the 2010 Proxy Statement and is
incorporated herein by reference.
36
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
Financial
Statements and Schedules
The following documents are filed as part of this report:
All schedules for which provision is made in the applicable
accounting regulation of the Commission are not required under
the related instructions, are included in the financial
statements or are inapplicable and therefore have been omitted.
Exhibits
See Exhibit Index immediately following
Signatures, below, which is hereby incorporated by
reference thereto.
37
THERMADYNE
HOLDINGS CORPORATION
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
38
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Thermadyne Holdings Corporation:
We have audited the accompanying consolidated balance sheets of
Thermadyne Holdings Corporation (the Company) as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the years in the three-year period ended
December 31, 2009. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Thermadyne Holdings Corporation as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 8, 2010
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
As discussed in note 2 to the consolidated financial
statements, effective as of January 1, 2009 the Company
adopted Accounting Standards Codification (ASC)
Topic 805, Business Combinations.
St. Louis, Missouri
March 8, 2010
39
THERMADYNE
HOLDINGS CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands,
|
|
|
|
except share data)
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,886
|
|
|
$
|
11,916
|
|
Accounts receivable, less allowance for doubtful accounts of
$400 and $900, respectively
|
|
|
56,589
|
|
|
|
72,044
|
|
Inventories
|
|
|
74,381
|
|
|
|
102,479
|
|
Prepaid expenses and other
|
|
|
9,255
|
|
|
|
5,443
|
|
Assets held for sale
|
|
|
|
|
|
|
916
|
|
Deferred tax assets
|
|
|
3,008
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
158,119
|
|
|
|
195,075
|
|
Property, plant and equipment, net of accumulated depreciation
of $55,082 and $46,653, respectively
|
|
|
46,687
|
|
|
|
47,501
|
|
Goodwill
|
|
|
187,818
|
|
|
|
184,043
|
|
Intangibles, net
|
|
|
58,451
|
|
|
|
60,783
|
|
Other assets
|
|
|
3,870
|
|
|
|
6,967
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
454,945
|
|
|
$
|
494,369
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Working capital facility
|
|
$
|
9,643
|
|
|
$
|
32,531
|
|
Current maturities of long-term obligations
|
|
|
8,915
|
|
|
|
2,060
|
|
Accounts payable
|
|
|
9,598
|
|
|
|
30,823
|
|
Accrued and other liabilities
|
|
|
23,119
|
|
|
|
28,295
|
|
Accrued interest
|
|
|
7,608
|
|
|
|
6,558
|
|
Income taxes payable
|
|
|
705
|
|
|
|
2,849
|
|
Deferred tax liability
|
|
|
2,793
|
|
|
|
3,253
|
|
Liabilities related to assets held for sale
|
|
|
|
|
|
|
5,266
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
62,381
|
|
|
|
111,635
|
|
Long-term obligations, less current maturities
|
|
|
198,466
|
|
|
|
199,454
|
|
Deferred tax liabilities
|
|
|
52,835
|
|
|
|
47,292
|
|
Other long-term liabilities
|
|
|
13,471
|
|
|
|
17,685
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value:
|
|
|
|
|
|
|
|
|
Authorized 25,000,000 shares
|
|
|
|
|
|
|
|
|
Issued and outstanding 13,539,998 shares at
December 31, 2009 and 13,509,698 shares at
December 31, 2008
|
|
|
135
|
|
|
|
135
|
|
Additional paid-in capital
|
|
|
188,791
|
|
|
|
189,256
|
|
Accumulated deficit
|
|
|
(65,063
|
)
|
|
|
(69,245
|
)
|
Accumulated other comprehensive income/(loss)
|
|
|
3,929
|
|
|
|
(1,843
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
127,792
|
|
|
|
118,303
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
454,945
|
|
|
$
|
494,369
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
40
THERMADYNE
HOLDINGS CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Net sales
|
|
$
|
347,655
|
|
|
$
|
516,908
|
|
|
$
|
493,975
|
|
Cost of goods sold
|
|
|
243,861
|
|
|
|
357,855
|
|
|
|
339,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
103,794
|
|
|
|
159,053
|
|
|
|
154,353
|
|
Selling, general and administrative expenses
|
|
|
81,466
|
|
|
|
112,122
|
|
|
|
106,033
|
|
Amortization of intangibles
|
|
|
2,693
|
|
|
|
2,675
|
|
|
|
2,921
|
|
Net periodic postretirement benefits
|
|
|
(45
|
)
|
|
|
322
|
|
|
|
1,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
19,680
|
|
|
|
43,934
|
|
|
|
44,312
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(20,850
|
)
|
|
|
(20,304
|
)
|
|
|
(26,799
|
)
|
Amortization of deferred financing costs
|
|
|
(1,052
|
)
|
|
|
(938
|
)
|
|
|
(1,444
|
)
|
Settlement of retiree medical obligations
|
|
|
5,863
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
147
|
|
|
|
(80
|
)
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax provision
and discontinued operations
|
|
|
3,788
|
|
|
|
22,612
|
|
|
|
16,151
|
|
Income tax provision
|
|
|
2,657
|
|
|
|
12,089
|
|
|
|
5,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1,131
|
|
|
|
10,523
|
|
|
|
10,636
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
3,051
|
|
|
|
185
|
|
|
|
(1,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,182
|
|
|
$
|
10,708
|
|
|
$
|
8,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.08
|
|
|
$
|
0.79
|
|
|
$
|
0.80
|
|
Discontinued operations
|
|
|
0.23
|
|
|
|
0.01
|
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.31
|
|
|
$
|
0.80
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.08
|
|
|
$
|
0.78
|
|
|
$
|
0.79
|
|
Discontinued operations
|
|
|
0.22
|
|
|
|
0.01
|
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.30
|
|
|
$
|
0.79
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
41
THERMADYNE
HOLDINGS CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Number of
|
|
|
Par
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except share data)
|
|
|
|
|
|
December 31, 2006
|
|
|
13,336
|
|
|
$
|
133
|
|
|
$
|
184,804
|
|
|
$
|
(88,618
|
)
|
|
$
|
7,185
|
|
|
$
|
103,504
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,665
|
|
|
|
|
|
|
|
8,665
|
|
Foreign currency translation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,873
|
|
|
|
5,873
|
|
Minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(877
|
)
|
|
|
(877
|
)
|
Minimum post retirement liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,892
|
|
|
|
2,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,553
|
|
Common stock issuance-Employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase plan
|
|
|
10
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
Exercise of stock options
|
|
|
22
|
|
|
|
1
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
280
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
1,609
|
|
|
|
|
|
|
|
|
|
|
|
1,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
13,368
|
|
|
$
|
134
|
|
|
$
|
186,830
|
|
|
$
|
(79,953
|
)
|
|
$
|
15,073
|
|
|
$
|
122,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,708
|
|
|
|
|
|
|
|
10,708
|
|
Foreign currency translation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,990
|
)
|
|
|
(10,990
|
)
|
Minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,098
|
)
|
|
|
(7,098
|
)
|
Minimum post retirement liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,172
|
|
|
|
1,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,208
|
)
|
Common stock issuance-Employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase plan
|
|
|
11
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
130
|
|
Exercise of stock options
|
|
|
131
|
|
|
|
1
|
|
|
|
1,818
|
|
|
|
|
|
|
|
|
|
|
|
1,819
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
13,510
|
|
|
$
|
135
|
|
|
$
|
189,256
|
|
|
$
|
(69,245
|
)
|
|
$
|
(1,843
|
)
|
|
$
|
118,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,182
|
|
|
|
|
|
|
|
4,182
|
|
Foreign currency translation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,279
|
|
|
|
7,279
|
|
Minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
318
|
|
Minimum post retirement liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,825
|
)
|
|
|
(1,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,954
|
|
Common stock issuance-Employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase plan
|
|
|
30
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
(579
|
)
|
|
|
|
|
|
|
|
|
|
|
(579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
13,540
|
|
|
$
|
135
|
|
|
$
|
188,791
|
|
|
$
|
(65,063
|
)
|
|
$
|
3,929
|
|
|
$
|
127,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
42
THERMADYNE
HOLDINGS CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,182
|
|
|
$
|
10,708
|
|
|
$
|
8,665
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income)/loss from discontinued operations
|
|
|
(3,051
|
)
|
|
|
(185
|
)
|
|
|
1,971
|
|
Depreciation and amortization
|
|
|
12,962
|
|
|
|
12,365
|
|
|
|
13,117
|
|
Deferred income taxes
|
|
|
(1,069
|
)
|
|
|
4,850
|
|
|
|
(1,233
|
)
|
Net periodic post-retirement benefits
|
|
|
(5,908
|
)
|
|
|
322
|
|
|
|
1,087
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
19,351
|
|
|
|
7,052
|
|
|
|
(2,001
|
)
|
Inventories
|
|
|
32,264
|
|
|
|
(15,440
|
)
|
|
|
9,076
|
|
Prepaids
|
|
|
(2,935
|
)
|
|
|
762
|
|
|
|
540
|
|
Accounts payable
|
|
|
(20,998
|
)
|
|
|
(2,519
|
)
|
|
|
(1,268
|
)
|
Accrued and other liabilities
|
|
|
(10,835
|
)
|
|
|
1,242
|
|
|
|
(5,795
|
)
|
Accrued interest
|
|
|
1,156
|
|
|
|
(1,474
|
)
|
|
|
(225
|
)
|
Accrued taxes
|
|
|
(2,367
|
)
|
|
|
103
|
|
|
|
2,972
|
|
Other long-term liabilities
|
|
|
(669
|
)
|
|
|
(838
|
)
|
|
|
(3,453
|
)
|
Other, net
|
|
|
|
|
|
|
80
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
22,083
|
|
|
|
17,028
|
|
|
|
23,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(7,695
|
)
|
|
|
(12,776
|
)
|
|
|
(11,358
|
)
|
Proceeds from sales of discontinued operations
|
|
|
|
|
|
|
500
|
|
|
|
13,783
|
|
Purchase of minority interest
|
|
|
|
|
|
|
(838
|
)
|
|
|
|
|
Purchase of outside interest in joint venture
|
|
|
|
|
|
|
(3,055
|
)
|
|
|
|
|
Other
|
|
|
(361
|
)
|
|
|
(757
|
)
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(8,056
|
)
|
|
|
(16,926
|
)
|
|
|
1,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under Working Capital Facility
|
|
|
8,923
|
|
|
|
27,751
|
|
|
|
20,041
|
|
Repayments of Working Capital Facility
|
|
|
(31,811
|
)
|
|
|
(7,878
|
)
|
|
|
(24,989
|
)
|
Repurchase of Senior Subordinated Notes
|
|
|
(2,632
|
)
|
|
|
|
|
|
|
|
|
Borrowings under Second-Lien Facility and other
|
|
|
25,075
|
|
|
|
|
|
|
|
|
|
Repayments of Second-Lien Facility and other
|
|
|
(15,823
|
)
|
|
|
(22,789
|
)
|
|
|
(16,725
|
)
|
Stock compensation expense
|
|
|
(579
|
)
|
|
|
1,362
|
|
|
|
1,609
|
|
Exercise of employee stock purchases
|
|
|
114
|
|
|
|
1,949
|
|
|
|
417
|
|
Advances from (to) discontinued operations
|
|
|
2,539
|
|
|
|
(2,657
|
)
|
|
|
(837
|
)
|
Termination payment from derivative counterparty
|
|
|
2,313
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(925
|
)
|
|
|
(891
|
)
|
|
|
(362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(12,806
|
)
|
|
|
(3,153
|
)
|
|
|
(20,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1,749
|
|
|
|
(1,192
|
)
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
2,970
|
|
|
|
(4,243
|
)
|
|
|
4,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
337
|
|
|
|
(2,574
|
)
|
|
|
812
|
|
Net cash provided by sales of discontinued operations
|
|
|
1,783
|
|
|
|
500
|
|
|
|
5,084
|
|
Advances from (to) continuing operations
|
|
|
(2,933
|
)
|
|
|
2,538
|
|
|
|
(5,650
|
)
|
Effect of exchange rates on cash and cash equivalents
|
|
|
228
|
|
|
|
(155
|
)
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
(585
|
)
|
|
|
309
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in cash and cash equivalents
|
|
|
2,385
|
|
|
|
(3,934
|
)
|
|
|
5,125
|
|
Total cash and cash equivalents beginning of period
|
|
|
12,501
|
|
|
|
16,435
|
|
|
|
11,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents end of period
|
|
$
|
14,886
|
|
|
$
|
12,501
|
|
|
$
|
16,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
$
|
11,916
|
|
|
$
|
16,159
|
|
|
$
|
11,310
|
|
Net cash provided by (used in) continuing operations
|
|
|
2,970
|
|
|
|
(4,243
|
)
|
|
|
4,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
14,886
|
|
|
$
|
11,916
|
|
|
$
|
16,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
$
|
585
|
|
|
$
|
276
|
|
|
$
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
(585
|
)
|
|
|
309
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
|
|
|
$
|
585
|
|
|
$
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
43
THERMADYNE
HOLDINGS CORPORATION
(In
thousands, except share data)
Thermadyne Holdings Corporation (Thermadyne or the
Company), a Delaware corporation, is a global
designer and manufacturer of gas and arc cutting and welding
products, including equipment, accessories and consumables. Our
products are used by manufacturing, construction, fabrication
and foundry operations to cut, join and reinforce steel,
aluminum and other metals. Common applications for the
Companys products include shipbuilding, railcar
manufacturing, offshore oil and gas rig construction,
fabrication and the repair and maintenance of manufacturing
equipment and facilities. Welding and cutting products are
critical to the operations of most businesses that fabricate
metal, and the Company has well established and widely
recognized brands.
|
|
2.
|
Significant
Accounting Policies
|
Principles of consolidation. The consolidated
financial statements include the Companys accounts and
those of the majority-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in
consolidation. Unconsolidated subsidiaries and investments are
accounted for under the equity method.
Estimates. Preparation of financial statements
in conformity with U.S. generally accepted accounting
principles requires certain estimates and assumptions to 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. Any significant
unanticipated changes in business or market conditions that vary
from current expectations could have an impact on the fair
market value of assets and result in a potential impairment loss.
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 the Companys
foreign subsidiaries.
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 three to
ten years. Property, plant and equipment recorded under capital
leases are depreciated based on the lesser of the lease term or
the underlying assets useful life. Impairment losses are
recorded on long-lived assets 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.
Deferred Financing Costs. Loan origination
fees and other costs incurred arranging long-term financing are
capitalized as deferred financing costs and amortized on a
straight-line basis over the term of the credit agreement.
Deferred financing costs totaled $11,342 and $10,501, less
related accumulated amortization of $7,864 and $6,890, at
December 31, 2009 and 2008, respectively, and are
classified as other assets in the accompanying consolidated
balance sheets.
Intangibles. Goodwill and trademarks have
indefinite lives. Patents and customer relationships are
amortized on a straight-line basis over their estimated useful
lives, which generally range from 10 to 20 years.
Goodwill and trademarks are tested for impairment annually, as
of October 1st, or more frequently if events occur or
circumstances change that would, more likely than not, reduce
the fair value of the reporting unit below its carrying value.
The impairment analysis is performed on a consolidated
enterprise level based on one reporting unit. The impairment
test involves the comparison of our updated estimate of the
enterprise fair value to the carrying amount. An impairment
would be recorded if the carrying amount exceeded the estimated
enterprise fair value. To estimate enterprise fair value,
management relies primarily on its determination of the present
value of expected future cash flows. Significant judgments and
estimates about current and future conditions are used to
estimate the fair value. In estimating future cash flows,
management estimates future sales volumes, sales prices, changes
in
44
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
commodity costs and the weighted cost of capital. Management
also considers market value comparables and the current market
capitalization of the Company in determining whether an
impairment exists. The annual impairment analysis was completed
in the fourth quarter, and no adjustment to the carrying value
of goodwill was deemed necessary based on estimates of future
cash flows. Unforeseen events and changes in circumstances and
market conditions, including general economic and competitive
conditions could cause actual results to vary significantly from
the estimates.
Trademarks are generally associated with the Companys
product brands, and cash flows associated with these products
are expected to continue indefinitely. The Company has placed no
limit on the end of the Companys trademarks useful
lives. As of December 31, 2009, there was no impairment of
trademarks. Se Note 7 Intangible Assets.
Product Warranty Programs. Various products
are sold with product warranty programs. Provisions for warranty
programs are made as the products are sold and adjusted
periodically based on current estimates of anticipated warranty
costs. The following table provides the activity in the warranty
accrual:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of period
|
|
$
|
2,961
|
|
|
$
|
3,072
|
|
|
$
|
2,978
|
|
Charged to expenses
|
|
|
2,053
|
|
|
|
3,217
|
|
|
|
3,548
|
|
Warranty payments
|
|
|
(2,714
|
)
|
|
|
(3,328
|
)
|
|
|
(3,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
2,300
|
|
|
$
|
2,961
|
|
|
$
|
3,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments. The Company records
derivatives and hedging activities on the balance sheet at their
respective fair values. The Company does not use derivative
instruments for trading or speculative purposes. The Company
designates and documents all relationships between hedging
instruments and hedged items, as well as its risk management
objectives and strategies for undertaking hedge transactions.
The Company also assesses, both at the inception of the hedge
and on an on-going basis, whether the hedge is effective.
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. Based on available evidence, the
measurement of deferred tax assets is reduced, if necessary, by
the amount of any tax benefits that are not expected to be
realized. The Companys effective tax rate includes the
impact of certain of the undistributed foreign earnings for
which U.S. taxes have been provided because of the
applicability of I.R.C. Section 956 for earnings of foreign
entities which guarantee the indebtedness of a U.S. parent.
See Note 12 Income Tax to the
consolidated financial statements.
Stock Option Accounting. All share-based
payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their
fair values. The Company utilizes the modified prospective
method in which compensation cost is recognized beginning with
the effective date (a) based on the requirements for all
share-based payments granted after the effective date and
(b) based on the requirements for all awards granted to
employees prior to the effective date that remain unvested on
the effective date. See Note 14 Stock
Options and Stock-Based Compensation to the consolidated
financial statements.
Revenue Recognition. The Company sells a
majority of its products through distributors with standard
terms of sale of FOB shipping point or FOB destination. Under
all circumstances, revenue is recognized when persuasive
evidence of an arrangement exists, the sellers price is
fixed and determinable, and collectibility is reasonably assured.
45
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company sponsors a number of annual incentive programs to
augment distributor sales efforts including certain rebate
programs and sales and market share growth incentive programs.
Rebate programs established by the Company are communicated to
distributors at the beginning of the year and are earned by
qualifying distributors based on increases in purchases of
identified product categories and based on relative market share
of the Companys products in the distributors service
area. We accrue the estimated costs throughout the year and the
costs associated with these sales programs are recorded as a
reduction of revenue. Rebates are paid periodically during the
year.
In both 2009 and 2008, the Company had one customer that
comprised 11% of the Companys global net sales. Our top
five distributors comprised 27% of our global net sales in 2009
and 2008
Terms of sale generally include
30-day
payment terms, return provisions and standard warranties for
which reserves, based upon estimated warranty liabilities from
historical experience, have been recorded. For a product that is
returned due to issues outside the scope of the Companys
warranty agreements, restocking charges will generally be
assessed.
Research and development costs . Research and
development is conducted in connection with new product
development with costs of approximately $2,700 and $4,300 in
2009 and 2008, respectively. The costs relate to materials used
in the development process and allocated engineering personnel
costs and are reflected in Selling, general &
administrative expenses as incurred.
Cash Equivalents. All highly liquid
investments purchased with a maturity of three months or less
are considered to be cash equivalents.
Foreign Currency Translation. Local currencies
have been designated as the functional currencies for all
subsidiaries with the exception of the Companys
Hermosillo, Mexico operation whose functional currency has been
designated the U.S. dollar. Accordingly, assets and
liabilities of the other 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.
During the second quarter of 2008, the Company recorded an
adjustment related to foreign currency translation. The impact
of foreign currency in these items included an increase to
goodwill of $1,174 and an increase to accumulated other
comprehensive income of $920 net of $2,094 of deferred
taxes at June 30, 2008. The effect of this adjustment would
have increased goodwill by $4,558 and increased accumulated
other comprehensive income by $2,072 net of $6,630 of
deferred income taxes at December 31, 2007, a portion of
which related to prior periods. This adjustment did not impact
the Companys net income or cash flows from operating,
financing or investing activities for the periods.
Accumulated Other Comprehensive Income. Other
comprehensive income (loss) is recorded as a component of
stockholders equity. As of December 31, it consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
Increase
|
|
|
Balance at
|
|
|
Increase
|
|
|
Balance at
|
|
|
|
January 1
|
|
|
(Decrease)
|
|
|
December 31
|
|
|
(Decrease)
|
|
|
December 31
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative foreign currency translation gains (losses), net of
tax
|
|
$
|
12,889
|
|
|
$
|
(10,990
|
)
|
|
$
|
1,899
|
|
|
$
|
7,279
|
|
|
$
|
9,179
|
|
Minimum pension liability, net of tax
|
|
|
(1,152
|
)
|
|
|
(7,098
|
)
|
|
|
(8,250
|
)
|
|
|
318
|
|
|
|
(7,932
|
)
|
Minimum post-retirement liability, net of tax
|
|
|
3,336
|
|
|
|
1,172
|
|
|
|
4,508
|
|
|
|
(1,825
|
)
|
|
|
2,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
15,073
|
|
|
$
|
(16,916
|
)
|
|
$
|
(1,843
|
)
|
|
$
|
5,772
|
|
|
$
|
3,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair Value. The Company does apply the fair
value option to financial instruments which measures and reports
unrealized gains and losses in earnings. In December 2009, the
Companys Australian subsidiary entered into a forward
purchase agreement with Commonwealth Bank to purchase $3,000
U.S. dollars over a
3-month
period. At December 31, 2008 the Company had a
$50 million notional amount interest rate swap accounted
for and reported as a fair value hedge. This swap agreement was
terminated by the counter party on February 1, 2009
pursuant to the call provisions of the agreement with a
$3.0 million termination payment to Thermadyne.
The carrying values of the obligations outstanding under the
Working Capital Facility, the Second Lien Facility and other
long-term obligations, excluding the Senior Subordinated Notes,
are estimated to approximate fair values since these obligations
are fully secured and have varying interest charges based on
current market rates. The Companys Senior Subordinated
Notes traded at 95% and 56% at December 31, 2009, and 2008,
respectively, based on available market information.
Effect
of New Accounting Standards
Business Combinations. The Company adopted
Accounting Standards Codification (ASC) Topic 805,
Business Combinations, effective January 1,
2009. This establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. In addition, due to its previous application of Fresh
Start Accounting, the Company, after adoption of this
pronouncement, recognizes the benefit of net operating loss
carryovers to reduce income tax expense as the carryovers are
utilized.
Subsequent Events. The Company adopted ASC
Subtopic
855-10,
Subsequent Events effective June 15, 2009. This
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
The adoption of this statement did not have a material effect on
the Companys financial statements.
The Company has determined that all other recently issued
accounting pronouncements will not have a material impact on its
consolidated financial position, results of operations and cash
flows, or do not apply to its operations.
|
|
3.
|
Discontinued
Operations
|
On December 21, 2007, the Company committed to a plan to
dispose of its cutting table business, C&G Systems
(C&G). A definitive sales agreement was signed
with closing occurring on January 18, 2008. Based on the
sales price of $500, a loss of $570 (net of $350 of tax) was
recorded in 2007 as a component of discontinued operations.
On December 30, 2006, the Company committed to a plan to
sell its Brazilian manufacturing operations. A loss of
approximately $15,200 (net of $1,200 of tax) was recorded as a
component of discontinued operations in the fourth quarter of
2006 based on the estimated net realizable value of the assets
related to the operation. The Company closed the Brazilian
manufacturing operations in the fourth quarter of 2007,
disposing of its cutting table business and auctioning various
remaining inventory and equipment. Sale of the building and land
was completed in the quarter ended September 30, 2009. In
addition, remaining unresolved liabilities were revised to
adjust the estimates of liabilities from tax matters, employee
severance obligations and other estimated liabilities. As of
September 30, 2009 the Brazilian operations show remaining
liabilities, primarily associated with tax matters, of $4,232
for which the timing of resolution is uncertain. A gain, net of
tax, of $1,118 was recorded in the third quarter of 2009
including a gain of $2,876 on the sale of the facilities, a
charge of $1,072 to revise the estimates of the remaining
liabilities, and income tax expense of $686. The remaining
assets and liabilities have been classified within Accrued and
Other Liabilities as of December 31, 2009. As of
December 31, 2009, the Brazilian operations
47
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
show remaining liabilities, primarily associated with tax
matters, of $2.2 million for which the timing of resolution
is uncertain.
On December 30, 2006, the Company committed to a plan to
sell its South African operations. On February 5, 2007, the
Company entered into an agreement to sell its South African
subsidiaries. A loss of $9,200 (net of $6,300 of tax) was
recorded in 2006 as a component of discontinued operations. The
sale closed on May 25, 2007 with receipt of
$13,800 net cash received at closing and a note payable May
2010 in the amount of 30,000 South African Rand and bearing 14%
interest which was worth U.S. $3,200 at December 31,
2008. In April 2009, the note was settled and the Company
recorded a gain of $1,933. The Company also recorded $522 of
interest income in continuing operations related to this
transaction.
On January 2, 2006, the Company completed the disposition
of Soldaduras Soltec Limitada (Soltec) and
Comercializadora Metalservice Limitada
(Metalservice), both indirect wholly-owned
subsidiaries which distribute cutting and welding equipment, to
Soldaduras PCR Soltec Limitada, and Penta Capital de Riesgo S.A.
On December 29, 2005, the Company completed the disposition
of GenSet S.P.A. (GenSet), an indirect wholly-owned
subsidiary.
The tables below set forth the net income (loss) related to the
C&G, Brazil, South Africa, Soltec and Genset operations
included in discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
|
|
Soltec/
|
|
|
|
|
C&G
|
|
Brazil
|
|
Africa
|
|
Genset
|
|
Total
|
|
Twelve months ended December 31, 2009
|
|
$
|
|
|
|
$
|
1,118
|
|
|
$
|
1,933
|
|
|
$
|
|
|
|
$
|
3,051
|
|
Twelve months ended December 31, 2008
|
|
|
(127
|
)
|
|
|
349
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
185
|
|
Twelve months ended December 31, 2007
|
|
|
(1,258
|
)
|
|
|
(2,067
|
)
|
|
|
2,017
|
|
|
|
(663
|
)
|
|
|
(1,971
|
)
|
Selected balance sheet items for the discontinued operations
classified as held for sale are as follows:
|
|
|
|
|
|
|
December 31, 2008
|
|
|
Cash
|
|
$
|
585
|
|
Deposits on tax liabilities
|
|
|
331
|
|
|
|
|
|
|
|
|
$
|
916
|
|
|
|
|
|
|
Tax liabilities, severance payable, and accrued closing costs
|
|
$
|
5,266
|
|
|
|
|
|
|
48
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounts receivable are recorded at the amounts invoiced to
customers less an allowance for discounts and doubtful accounts.
Management estimates the allowance based on a review of the
portfolio taking into consideration historical collection
patterns, the economic climate and aging statistics based on
contractual due dates. Accounts are written off to the allowance
once collection efforts are exhausted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Net
|
|
|
|
|
Beginning
|
|
(Recovery)
|
|
Write-Offs &
|
|
Balance at End
|
|
|
of Year
|
|
Provision
|
|
Adjustments
|
|
of Year
|
|
Allowance for Discounts and Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
$
|
900
|
|
|
|
1,139
|
|
|
|
(1,639
|
)
|
|
|
400
|
|
Year ended December 31, 2008
|
|
|
1,000
|
|
|
|
284
|
|
|
|
(384
|
)
|
|
|
900
|
|
Year ended December 31, 2007
|
|
|
2,385
|
|
|
|
(341
|
)
|
|
|
(1,044
|
)
|
|
|
1,000
|
|
In the fourth quarter of 2009, the Company wrote off a
receivable from a Venezuelan-based customer in the amount of
$1,287.
The composition of inventories at December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials and component parts
|
|
$
|
25,410
|
|
|
$
|
41,185
|
|
Work-in-process
|
|
|
4,216
|
|
|
|
5,340
|
|
Finished goods
|
|
|
53,272
|
|
|
|
70,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,898
|
|
|
|
116,998
|
|
LIFO reserve
|
|
|
(8,517
|
)
|
|
|
(14,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
74,381
|
|
|
$
|
102,479
|
|
|
|
|
|
|
|
|
|
|
The carrying value of inventories accounted for by the LIFO
inventory method exclusive of the LIFO reserve was $61,395 at
December 31, 2009 and $86,129 at December 31, 2008.
The remaining inventory amounts are held in foreign locations
and accounted for using the
first-in
first-out method.
During 2009, inventory quantities were reduced below their
levels in prior periods. The resulting liquidation of LIFO
inventory costs computed based on lower prior years
acquisition costs reduced the LIFO reserve and cost of sales by
approximately $1,000. During 2009, the Company also experienced
deflation in material costs which contributed to the reduction
in the LIFO reserve. During 2008, the LIFO reserve increased
$4,100 as the Company experienced inflation in its costs as
contrasted with declines in costs during 2009.
The presentation of the composition of inventories has been
revised for 2008 to reclassify certain amounts from work-in
process to finished goods of approximately $6,900 to be
consistent with the 2009 presentation.
49
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Property,
Plant, and Equipment
|
The composition of property, plant and equipment at December 31
is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
5,426
|
|
|
$
|
4,608
|
|
Building
|
|
|
16,966
|
|
|
|
16,271
|
|
Machinery and equipment
|
|
|
79,377
|
|
|
|
73,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,769
|
|
|
|
94,154
|
|
Accumulated depreciation
|
|
|
(55,082
|
)
|
|
|
(46,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,687
|
|
|
$
|
47,501
|
|
|
|
|
|
|
|
|
|
|
In 2008, Leasehold improvements were incorrectly classified as
Land and these amounts have been revised in this report. As a
result, the prior year amount for Land has been reduced by $538
and the prior year amount for Building has been increased by the
same amount.
Assets recorded under capitalized leases were $14,578
($6,911 net of accumulated depreciation) and $12,780
($6,436 net of accumulated depreciation) at
December 31, 2009 and 2008, respectively.
The composition of intangible assets at December 31 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Goodwill
|
|
$
|
187,818
|
|
|
$
|
184,043
|
|
Patents and customer relationships
|
|
|
42,741
|
|
|
|
42,380
|
|
Trademarks
|
|
|
33,403
|
|
|
|
33,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263,962
|
|
|
|
259,826
|
|
Accumulated amortization of patents and customer relationships
|
|
|
(17,693
|
)
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
246,269
|
|
|
$
|
244,826
|
|
|
|
|
|
|
|
|
|
|
Amortization expense amounted to $2,693, $2,675, $2,921 for the
years ended December 31, 2009, 2008 and 2007, respectively.
Amortization expense for patents and customer relationships is
expected to be approximately $2,700 for each of the next five
fiscal years.
Goodwill and trademarks are tested for impairment annually, as
of October 1st, or more frequently if events occur or
circumstances change that would, more likely than not, reduce
the fair value of the reporting unit below its carrying value.
The impairment analysis is performed on a consolidated
enterprise level based on one reporting unit. The first step of
the impairment test involves the comparison of our updated
estimate of the enterprise fair value to the carrying amount. If
the carrying value exceeds the estimated fair value in the first
phase, the second phase is performed in which the Companys
goodwill is written down to its implied fair value. To estimate
enterprise fair value, management relies primarily on its
determination of the present value of expected future cash
flows. Significant judgments and estimates about current and
future conditions are used to estimate the fair value. In
estimating future cash flows, management estimates future sales
volumes, sales prices, changes in commodity costs and the
weighted cost of capital. Management also considers market value
comparables and the current market capitalization of the Company
in determining whether an impairment exists. Unforeseen events
and changes in circumstances and market conditions, including
general economic and competitive conditions could cause actual
results to vary significantly from the estimates. The annual
impairment analysis was completed in the fourth quarter, and no
adjustment to the carrying value of goodwill was deemed
necessary as of October 1, 2009 or December 31, 2009.
During the fourth quarter 2008, the stock price of Thermadyne
reported on NASDAQ declined from $16.48 per share as of
October 1, 2008 to $6.87 per share at December 31,
2008. During the nine months ended September 30,
50
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2009, the stock price closed as low as $1.71 per share on
March 11, 2009 and thereafter closed at $7.27 per share on
December 31, 2009. It averaged $6.79 per share in December
2009. Stock price is an important consideration in
managements impairment assessment. If this assessment were
based solely on the December 31, 2009 stock price of $7.27
per share and an assumed reasonable control premium, an
impairment would not exist. The stock price averaged $7.81 per
share in January 2010.
We believe the trading prices for our stock were abnormally
disrupted due to extraordinary selling pressures from certain
institutional investors who liquidated their operations late in
2008 and early in 2009 and the institutional investors who
liquidated their positions in June 2009 with the removal of
Thermadyne from the Russell 3000 Index. Consequently, in
performing the impairment assessment, management shifted its
relative weighting to rely primarily upon its determination of
the present value of expected future cash flows to estimate fair
value. In consideration of the recent declines in global
business conditions, the expected future cash flows were updated
quarterly during 2009 to reflect managements ongoing
re-assessment of the impact of these declines. The demand for
the Companys products has historically had a direct
correlation with the performance of the steel industry. In
developing our various assumptions, we utilized the findings of
a study in December 2008 of the impacts on prices, volumes and
the duration of the recessionary period for the steel industry
during the five major recessions which have occurred since 1958.
We also increased our assumed cost of capital in the revised
five year forecasts based on the uncertain financial market
conditions. For the purpose of this assessment, our assumed
scenario for economic recovery in the steel industry over the
future three year period was slower than any recession dating
back to 1958. Based on the analyses, no impairment charges were
recorded. If current global economic recessionary conditions or
our economic results deteriorate from the assumptions in
managements analysis, the Company may be required to
record an impairment.
The change in the carrying amount of goodwill was as follows:
|
|
|
|
|
|
|
Carrying Amount
|
|
|
|
of Goodwill
|
|
|
Balance as of December 31, 2007
|
|
$
|
182,163
|
|
Increase in balance due to acquisitions
|
|
|
2,500
|
|
Reduction in balance due to utilization of pre-emergence
bankruptcy deferred tax assets
|
|
|
(958
|
)
|
Foreign currency translation
|
|
|
338
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
184,043
|
|
Foreign currency translation
|
|
|
3,775
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
187,818
|
|
|
|
|
|
|
|
|
8.
|
Debt and
Capital Lease Obligations
|
The composition of debt and capital lease obligations at
December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Working Capital Facility
|
|
$
|
9,643
|
|
|
$
|
32,531
|
|
Second Lien Facility
|
|
|
25,000
|
|
|
|
14,000
|
|
Issuance discount on Second Lien Facility
|
|
|
(1,703
|
)
|
|
|
|
|
Senior Subordinated Notes, due February 1, 2014,
91/4%
interest payable semiannually on February 1 and August 1
|
|
|
172,327
|
|
|
|
175,000
|
|
Capital leases
|
|
|
9,869
|
|
|
|
9,524
|
|
Other
|
|
|
1,888
|
|
|
|
2,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,024
|
|
|
|
234,045
|
|
Current maturities and working capital facility
|
|
|
(18,558
|
)
|
|
|
(34,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
198,466
|
|
|
$
|
199,454
|
|
|
|
|
|
|
|
|
|
|
51
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2009, the schedule of principal payments of
debt is as follows:
|
|
|
|
|
2010
|
|
$
|
18,558
|
|
2011
|
|
|
2,536
|
|
2012
|
|
|
19,361
|
|
2013
|
|
|
2,063
|
|
2014
|
|
|
173,815
|
|
Thereafter
|
|
|
691
|
|
The 2010 principal payments include $6,000 payable with respect
to 2009 under the Excess Cash Flow provision of the Senior
Subordinated Notes as described below. This excludes additional
note repurchase obligations, if any, that may result subsequent
to 2010 from the Excess Cash Flow provision. The
2010 principal payments also include the outstanding balance of
the Working Capital Facility.
Interest paid for each of the years ended December 31,
2009, 2008, and 2007 was $19,957, $21,906, and $25,423,
respectively.
Working
Capital Facility
Certain subsidiaries of the Company are borrowers under the
Third Amended and Restated Credit Agreement dated June 29,
2007 as amended (the Credit Agreement), with General
Electric Capital Corporation as agent and lender. The Credit
Agreement: (i) matures on June 29, 2012;
(ii) provides a revolving credit commitment of up to
$70 million (the Working Capital Facility),
which includes (a) an asset based facility and (b) an
amortizing $10 million property, plant and equipment
facility; (iii) provides for interest rate percentages
applicable to the asset base; (iv) limits the senior
leverage ratio to 2.75; (v) provides for an interest rate
of 90-day
LIBOR plus 4.00%; (vi) includes a prepayment fee of 2% if
the Facility is terminated prior to June 27, 2010 or 1%
prior to June 27, 2011; and (vii) includes a minimum
fixed charge coverage ratio for the twelve-months ended
June 30, 2009 and September 30, 2009 of 0.95 and
0.825, respectively, 1.00 for the quarter ended
December 31, 2009 and 1.10 thereafter. With respect to the
quarters ending December 31, 2009, March 31, 2010 and
June 30, 2010, the calculation is based on the results for
the three months, six months, and nine months periods ending on
such dates, respectively. The calculation for quarters ending
September 30, 2010 and thereafter is based on the twelve
month periods then ending. Borrowings under the Working Capital
Facility may not exceed 85% of eligible receivables plus the
lesser of (i) 85% of the net orderly liquidation value of
eligible inventories or (ii) 65% of the book value of
eligible inventories less customary reserves, plus machinery at
appraised value not to exceed $10 million.
At December 31, 2009, $3,913 of letters of credit were
outstanding under the Credit Agreement. Unused availability, net
of these letters of credit, was $35,885 under the Working
Capital Facility.
The Working Capital Facility includes a lockbox agreement which
requires all receipts to be swept daily to reduce borrowings
outstanding under the revolving line of credit. These
agreements, combined with the existence of a subjective Material
Adverse Effect (MAE) clause, cause the Working
Capital Facility to be classified as a current liability.
However, the Company does not expect to repay, or be required to
repay, within one year, the balance of the Working Capital
Facility classified as a current liability. The Companys
intent is to continually use the Working Capital Facility
throughout the life of the agreement to fund working capital
needs. The MAE clause, which is a typical requirement in
commercial credit agreements, allows the lender to require the
loan to become due if it determines there has been a material
adverse effect on the Companys operations, business,
assets or prospects.
For the years ended December 31, 2009, 2008 and 2007, the
Companys weighted average interest rate on its short-term
borrowings was 6.45%, 5.79%, and 8.31%, respectively.
52
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Second
Lien Facility
Also on June 29, 2007, certain subsidiaries of the Company
entered into Amendment No. 19 and Waiver to the Second Lien
Credit Agreement between the Company and Credit Suisse, as
administrative agent and collateral agent, and the lenders party
thereto (the Second Lien Facility Amendment) to:
(i) extend the maturity date to November 7, 2010 and
(ii) lower the interest rates from LIBOR plus 4.50% to
LIBOR plus 2.75%. The lender for the Second Lien Facility
Amendment is an affiliate of the holder of approximately 33% of
the Companys outstanding shares of common stock. The
stockholder employs one of the Companys directors. The
terms of the Second Lien Credit Agreement, as amended, were
negotiated at arms-length, and the Company believes that the
terms of the Second Lien Facility are as favorable as could be
obtained from an unaffiliated lender.
On August 14, 2009, the Company entered into the 2009
Amended and Restated Second Lien Credit Agreement with the agent
and the lenders party thereto (the Amended Second Lien
Agreement). The Amended Second Lien Agreement refinanced
the loans outstanding under the Second Lien Credit Agreement
dated July 29, 2004. Under the Amended Second Lien
Agreement, the Company issued a new $25,000 Second Lien Facility
at 92.346% of the face amount, repaid the $14,000 balance of the
Second Lien Facility and realized $9,000 of net proceeds. The
maturity date was extended from November 7, 2010 to
November 30, 2012, and certain assets of the Companys
Australian subsidiaries were added as collateral for the loans.
The Agreement permits a single prepayment of as much as $14,000
beginning April 1, 2010 through August 30, 2010 in
lieu of repurchasing outstanding Senior Subordinated Notes with
excess cash flow, and prepayment of the balance beginning
August 30, 2010. The applicable interest rate was changed
to, at the Companys option, (a) the greater of LIBOR
or 6%, plus 6% or (b) the greater of the prime rate, the
federal funds rate plus one half of 1.00% or 6%, plus 6%. At
issuance and through December 31, 2009, the interest rate
payable is 12%, and the effective interest rate, including
amortization of the issuance discount, is 15%. The lenders under
the previous Second Lien Credit Agreement and additional
entities each became lenders under the Amended Second Lien
Agreement.
Covenant
Compliance
Failure to comply with our financial covenants in future periods
would result in defaults under our credit agreements unless
covenants are further amended or waived. The most restrictive
financial covenant is the fixed charge coverage
covenant under our Working Capital Facility which requires
EBITDA, as defined, to be at least 1.10 of Fixed Charges, as
defined, except in 2009, as described above. Under the Second
Lien Facility, the most restrictive financial covenant is the
senior leverage ratio covenant which requires that
debt, including total debt less the Senior Subordinated Notes
and cash, not exceed 2.75 of EBITDA, as defined. Compliance is
measured quarterly based on the trailing four quarters. A
default of the financial covenants under the Working Capital
Facility or Second Lien Facility would constitute a default
under the Senior Subordinated Notes.
At December 31, 2009, the Company was in compliance with
its financial covenants and the Company expects to remain in
compliance. The Company has funding for its debt repayment
obligations and for its capital expenditure commitments and will
not proceed with other planned capital expenditures unless in
compliance with the fixed charge coverage covenant of the
Working Capital Facility. To reduce expenses to the current
levels, actions were implemented in 2009 which included layoffs
of production personnel, reduction of the global salaried work
force, deferral of salary increases, and broad based efforts to
reduce discretionary spending. The Company anticipates it will
maintain a level of expenses aligned with the current reduced
sales volumes.
Senior
Subordinated Notes
The Company is the issuer of $175,000 in aggregate principal of
9.25% Senior Subordinated Notes due in 2014 (the
Senior Subordinated Notes). The Senior Subordinated
Notes are unsecured senior subordinated obligations and are
subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the Indenture). Interest
accrues at the rate of
91/4%
per annum and is payable semi-annually in arrears on February 1
and August 1 of each year. The Senior Subordinated Notes contain
customary covenants and events of default, including covenants
53
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that limit the Companys ability to incur debt, pay
dividends and make certain investments. Upon a change of
control, as defined in the Indenture, each holder of our Senior
Subordinated Notes has the right to require us to purchase the
Senior Subordinated Notes at a purchase price in cash equal to
101% of the principal, plus accrued and unpaid interest. Under
the Indenture, a change of control occurs if any
person other than Angelo, Gordon & Co., L.P. and its
affiliates becomes the direct or indirect beneficial owner of
more than 35% of the total voting power of our capital stock
then outstanding and entitled to vote in the election of our
directors, and Angelo, Gordon & Co., L.P. beneficially
owns a lesser percentage of the total voting power of our voting
capital stock than the acquiring person and does not have the
right or ability by voting power, contract or otherwise, to
elect or designate for election a majority of our board of
directors. Subject to certain conditions we must annually use
our Excess Cash Flow (as defined in the Indenture)
either to make permanent repayments of our senior debt or to
extend a repurchase offer to the holders of the Senior
Subordinated Notes pursuant to which we will offer to repurchase
outstanding Senior Subordinated Notes at a purchase price of
101% of their principal amount. The Excess Cash Flow
amount for 2009 was $6,000, and we will repay this amount of
Second Lien borrowings on or before April 15, 2010 in
satisfaction of this obligation under the Indenture. The
Indenture provides for the payment of additional Special
Interest. The Special Interest is subject to adjustment based on
the consolidated leverage ratio. If the leverage ratio exceeds
6.5 the incremental interest is 2.25% and increases to 2.75% if
the consolidated leverage ratio increases to 7.0. The Special
Interest declines to 1.75 if the leverage ratio is less than
6.5, to 1.25% if the leverage ratio is less than 6.0, to .75% if
the leverage ratio is less than 4.0, to .25% if the leverage
ratio is less than 3.5 and declines to 0% if leverage ratio is
less than 3.0. The quarterly Special Interest Adjustment
calculated as of December 31, 2009, based on the leverage
ratio, as defined, was 2.25% and is effective as of
April 1, 2010.
The Notes are redeemable at the Companys option during the
12 month periods beginning on February 1, 2009 at
104.625%, February 1, 2010 at 103.083%, February 1,
2011 at 101.542%, and after February 1, 2012 at 100% of the
principal amount thereof.
In December 2009, the Company purchased $2,673 of Notes in open
market transactions at 95% of the face amount and retired such
Senior Subordinated Notes.
Parent
Company Financial Information
Borrowings under the Companys financing agreements are the
obligations of Thermadyne Industries, Inc.
(Industries), the Companys principal operating
subsidiary and certain of Industries subsidiaries. Certain
borrowing agreements contain restrictions on the ability for the
subsidiaries to dividend cash and other assets to the parent
company, Thermadyne Holdings Corporation. At December 31,
2009 and December 31, 2008, the only asset carried on the
parent company books of Thermadyne Holdings Corporation was its
investment in its operating subsidiaries and the only
liabilities were the $172,327 of Senior Subordinated Notes. As a
result of the limited assets and liabilities at the parent
company level, separate financial statements have not been
presented for Thermadyne Holdings Corporation except as shown in
Note 20, Condensed Consolidating Financial Statements.
In February 2004, the Company entered into an interest rate swap
arrangement to convert a portion of the fixed rate exposure on
its Senior Subordinated Notes to variable rates. On
February 1, 2009, the swap arrangement was terminated by
the counterparty pursuant to terms of the arrangement and a
$3,000 payment was received by the Company in conjunction with
this termination. The Company recorded a fair value adjustment
to the portion of its Senior Subordinated Notes that was hedged
and this effect is amortized as a reduction of interest expense
over the remaining term of the Senior Subordinated Notes.
54
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Financial
Instruments
|
Concentrations
of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash and trade accounts receivable.
The Company maintains cash and cash equivalents with various
financial institutions. These financial institutions are located
in different parts of the world, and the Companys 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 Companys customer base. The Company does
not require collateral for trade accounts receivable.
Fair
Value
The following methods and assumptions were used in estimating
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount
reported in the balance sheets for cash and cash equivalents
approximates fair value.
Accounts receivable and accounts payable: The
carrying amounts reported in the balance sheets for accounts
receivable and accounts payable approximate their fair value.
Debt: The carrying values of the obligations
outstanding under the Working Capital Facility, the Second Lien
Facility and other long-term obligations, excluding the Senior
Subordinated Notes, approximate fair values since these
obligations are fully secured and have varying interest charges
based on current market rates. The Companys Senior
Subordinated Notes traded at 95% and 56% at December 31,
2009, and 2008, respectively, based on available market
information.
Future minimum lease payments under leases with initial or
remaining non-cancelable lease terms in excess of one year at
December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2010
|
|
$
|
3,374
|
|
|
$
|
6,832
|
|
2011
|
|
|
2,737
|
|
|
|
5,262
|
|
2012
|
|
|
2,076
|
|
|
|
4,628
|
|
2013
|
|
|
1,908
|
|
|
|
4,389
|
|
2014
|
|
|
1,593
|
|
|
|
4,129
|
|
Thereafter
|
|
|
702
|
|
|
|
8,394
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
12,390
|
|
|
$
|
33,634
|
|
|
|
|
|
|
|
|
|
|
Amount representing interest
|
|
|
(2,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments, including current
obligations of $2,452
|
|
$
|
9,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense under operating leases amounted to $8,937, $8,712,
and $8,638 for each of the years ended December 31, 2009,
2008, and 2007, respectively.
55
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pretax income (loss) from continuing operations was allocated
under the following jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Domestic loss
|
|
$
|
(5,272
|
)
|
|
$
|
(1,351
|
)
|
|
$
|
(3,076
|
)
|
Foreign income
|
|
|
9,060
|
|
|
|
23,963
|
|
|
|
19,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
3,788
|
|
|
$
|
22,612
|
|
|
$
|
16,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes for continuing
operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(242
|
)
|
|
$
|
583
|
|
|
$
|
160
|
|
Foreign
|
|
|
3,976
|
|
|
|
6,451
|
|
|
|
6,220
|
|
State and local
|
|
|
17
|
|
|
|
219
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
3,751
|
|
|
|
7,253
|
|
|
|
6,256
|
|
Deferred
|
|
|
(1,094
|
)
|
|
|
4,836
|
|
|
|
(741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) continuing operations
|
|
$
|
2,657
|
|
|
$
|
12,089
|
|
|
$
|
5,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The composition of deferred tax assets and liabilities at
December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Post-employment benefits
|
|
$
|
461
|
|
|
$
|
2,571
|
|
Accrued liabilities
|
|
|
3,291
|
|
|
|
5,139
|
|
Other
|
|
|
1,230
|
|
|
|
597
|
|
Fixed assets
|
|
|
319
|
|
|
|
740
|
|
Net operating loss carryforwards-foreign and U.S.
|
|
|
60,431
|
|
|
|
57,640
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
65,732
|
|
|
|
66,687
|
|
Valuation allowance for deferred tax assets
|
|
|
(43,141
|
)
|
|
|
(42,965
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
22,591
|
|
|
|
23,722
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
(16,343
|
)
|
|
|
(16,916
|
)
|
Inventories
|
|
|
(3,047
|
)
|
|
|
(4,072
|
)
|
Other
|
|
|
(5,819
|
)
|
|
|
(1,191
|
)
|
Investment in subsidiary
|
|
|
(49,696
|
)
|
|
|
(49,526
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(74,905
|
)
|
|
|
(71,705
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
(52,314
|
)
|
|
$
|
(47,983
|
)
|
|
|
|
|
|
|
|
|
|
Income taxes paid during each of the years ended
December 31, 2009, 2008 and 2007 were $5,924, $7,270, and
$4,507, respectively.
56
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for income tax differs from the amount of income
taxes determined by applying the applicable U.S. statutory
federal income tax rate to pretax income excluding the gain on
reorganization and adoption of fresh-start accounting as a
result of the following differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Tax at U.S. statutory rates
|
|
$
|
1,326
|
|
|
$
|
7,914
|
|
|
$
|
5,653
|
|
Foreign deemed dividends (Section 956)
|
|
|
2,101
|
|
|
|
2,366
|
|
|
|
3,998
|
|
Nondeductible expenses and other exclusions
|
|
|
(599
|
)
|
|
|
(26
|
)
|
|
|
351
|
|
Valuation allowance for deferred tax benefits
|
|
|
|
|
|
|
21
|
|
|
|
|
|
Foreign Currency on Gain on Previously Taxed Income Distribution
|
|
|
|
|
|
|
572
|
|
|
|
|
|
Foreign tax rate differences and nonrecognition of foreign tax
loss benefits
|
|
|
300
|
|
|
|
(950
|
)
|
|
|
(1,608
|
)
|
State income taxes
|
|
|
(24
|
)
|
|
|
201
|
|
|
|
(3,646
|
)
|
Change in basis difference in investment of subsidiary
|
|
|
(447
|
)
|
|
|
1,991
|
|
|
|
767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
2,657
|
|
|
$
|
12,089
|
|
|
$
|
5,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the Company has net operating loss
carryforwards from the years 1998 through 2009 available to
offset future U.S. taxable income of approximately
$152,000. The Company has recorded a related deferred tax asset
of approximately $60,000 with a $43,000 valuation allowance,
given the uncertainties regarding utilization of these net
operating loss carryforwards. The net operating losses in the
U.S. will expire between the years 2018 and 2029. Assumed
tax planning strategies related to inventories and intangible
assets reduce the valuation allowance by $17,000 as of
December 31, 2009. The Company adopted Accounting Standards
Codification (ASC) Topic 805, Business
Combinations, effective January 1, 2009. This
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. After adoption of this pronouncement, the benefit of
net operating loss carryovers reduces income tax expense as the
carryovers are utilized.
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 prescribes the income tax
amounts to be recorded in the financial statements as the amount
most likely to be realized assuming a review by tax authorities
having all relevant information and applying current
conventions. FIN 48 also clarifies the financial statement
classification of potential tax-related penalties and interest
and sets forth new disclosures regarding unrecognized tax
benefits. The Company adopted the Interpretation as of
January 1, 2007.
The Companys policy is to include both interest and
penalties on underpayments of income taxes in its income tax
provision. This policy was continued after the adoption of
FIN 48. At January 1, 2009, the total interest accrued
was $265. At December 31, 2009 the total interest accrued
was $245. No penalties were accrued for either date by the
Company.
The adoption of FIN 48 in 2007 did not result in a
significant adjustment to the opening balance in the
Companys Reserve for Uncertain Tax Positions. A
reconciliation of the reserve for 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at January 1
|
|
$
|
1,731
|
|
|
$
|
2,099
|
|
|
$
|
7,520
|
|
Additions based on tax positions related to the current year
|
|
|
100
|
|
|
|
186
|
|
|
|
290
|
|
Reductions for tax positions of prior years
|
|
|
(361
|
)
|
|
|
(554
|
)
|
|
|
(5,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
1,470
|
|
|
$
|
1,731
|
|
|
$
|
2,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The $361 of reductions for 2009 reduced the 2009 income tax
provision expense. The Company does not expect to make payments
related to the Reserve for Uncertain Tax Positions in the next
twelve months.
The Companys U.S. federal income tax returns for tax
years 2006 and beyond remain subject to examination by the
Internal Revenue Service. The Companys state income tax
returns for 2005 through 2009 remain subject to examination by
various state taxing authorities. The Companys significant
foreign subsidiaries local country tax filings remain open
to examination as follows: Australia
(2005-2009),
Canada
(2004-2009),
United Kingdom
(2003-2009)
and Italy
(2002-2009).
No extensions of the various statutes of limitations have
currently been granted.
The Companys foreign subsidiaries have undistributed
earnings at December 31, 2009 of approximately $36,000. The
Company has recognized the estimated U.S. income tax
liability associated with approximately $27,000 of these foreign
earnings because of the applicability of I.R.C. Section 956
for earnings of foreign entities which guarantee the
indebtedness of a U.S. parent. Upon distribution of those
earnings in the form of dividends or otherwise, the Company may
be subject to withholding taxes payable to the various foreign
countries estimated as $1,500.
The Company and certain of its wholly-owned subsidiaries are
defendants in various legal actions, primarily related to
product liability. At December 31, 2009, the Company was
co-defendant in 347 cases alleging manganese-induced illness.
Manganese is an essential element of steel and is contained in
all welding filler metals. The Company is one of a large number
of defendants. The claimants allege that exposure to manganese
contained in welding filler metals cause the plaintiffs to
develop adverse neurological conditions, including a condition
known as manganism. As of December 31, 2009, 144 of these
cases had been filed in, or transferred to, federal court where
the Judicial Panel on Multidistrict Litigation has consolidated
these cases for pretrial proceedings in the North District of
Ohio. Between June 1, 2003 and December 31, 2009, the
Company was dismissed from 1,135 similar cases. To date the
Company has made no payments or settlements to plaintiffs for
these allegations. 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
Companys financial condition or results of operations.
The Company is party to certain environmental matters, although
no claims are currently pending. Any related obligations are not
expected to have a material effect on the Companys
business or financial condition or results of operations.
The Company has initiated a comprehensive review of its
compliance with foreign and U.S. duties requirements in
light of the assessments by a foreign jurisdiction in the third
quarter of 2009. It is premature to assess the ultimate
resolution of the compliance review but management believes it
will not have a material adverse effect on the Companys
business or financial condition.
All other legal proceedings and actions involving the Company
are of an ordinary and routine nature and are incidental to the
operations of the Company. Management believes that such
proceedings should not, individually or in the aggregate, have a
material adverse effect on the Companys business or
financial condition or on the results of operations.
|
|
14.
|
Stock
Options and Stock-Based Compensation
|
The Company utilizes the modified prospective method of
accounting for stock compensation, and accordingly recognized
compensation cost for all share-based payments, which consist of
stock options and restricted stock, granted after
January 1, 2006. For the year ended December 31, 2009,
stock compensation cost included in selling, general and
administrative expense was a net credit of $579 due to the
failure to achieve required performance targets and the
resulting reversals of prior performance-based accruals. This
compares to expense of $1,362 and $1,586 for the years ended
December 31, 2008 and 2007, respectively. The compensation
cost was
58
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
calculated using fair market value of the Companys stock
on the grant date. Options granted are valued using the
Black-Scholes valuation model. Restricted stock grants are
valued at the closing price on the grant date.
As of December 31, 2009, total stock-based compensation
cost related to nonvested awards not yet recognized was
approximately $445 and the weighted average period over which
this amount is expected to be recognized was approximately
2.1 years.
No significant modifications to equity awards occurred during
the fiscal year ending December 31, 2009.
Stock
Options and Restricted Stock
The Company has available various equity-based compensation
programs to provide long-term performance incentives for its
global workforce. Currently, these incentives consist of stock
options and performance-based restricted stock awards.
Additionally, Company awarded stock options to its outside
directors. These awards are administered through several plans,
as described within this Note.
The 2004 Non-Employee Directors Stock Option Plan (the
Directors Plan) was adopted in May 2004 for the
Companys Board of Directors. Up to 200,000 shares of
the Companys common stock with a maximum contractual term
of 10 years may be issued pursuant to awards granted by the
Compensation Committee under the Directors Plan.
The 2004 Stock Incentive Plan (the Stock Incentive
Plan) was adopted in May 2004 for the Companys
employees. Up to 1.478 million shares of the Companys
common stock with a maximum contractual term of 10 years
may be issued pursuant to awards granted by the Compensation
Committee under the Stock Incentive Plan. The Stock Incentive
Plan provides for the grant of (a) incentive stock options
intended to qualify under Section 422 of the Internal
Revenue Code of 1986, (b) non-statutory stock options,
(c) stock appreciation rights (SARs),
(d) restricted stock, (e) stock units and
(f) performance awards. Under the grants awarded pursuant
to the Companys 2004 Stock Incentive Plan, unvested
options terminate immediately upon the employees
resignation or retirement. In May 2008, the Plan was amended and
the number of shares authorized for issuance was increased from
1.478 million shares to 1.978 million shares.
The Company awarded 40,000 options under the Directors Plan
during 2009. The weighted-average grant-date fair value was
$2.71. One-third of these grants vested at December 31,
2009 and the remaining will vest equally on the first and second
anniversaries of the grant date. In addition during 2009, the
Company awarded 69,653 options under the Stock Incentive
Plan with weighted-average grant-date fair value of $1.21 and
which generally vest ratably over three years.
As of December 31, 2009, 1,190,578 options to purchase
shares were issued and outstanding under the Directors
Plan, the Stock Incentive Plan and other specific agreements. In
addition, restricted stock grants to employees totaling
383,628 shares were outstanding at December 31, 2009
with vesting determined in 2010, 2011, 2012, and 2013 based on
performance goals related to return on invested operating
capital.
During the periods presented, stock options were granted to
eligible employees under the 2004 Stock Incentive Plan with
exercise prices equal to the fair market value of the
Companys stock on the grant date. For the years presented,
management estimated the fair value of each annual stock option
award on the date of grant using Black-Scholes stock option
valuation model. Composite assumptions are presented in the
following table. Weighted-average values are disclosed for
certain inputs which incorporate a range of assumptions.
Expected volatilities are based principally on historical
volatility of the Companys stock and correspond to the
expected term. The Company generally uses historical data to
estimate option exercise and employee termination within the
valuation model. The expected term of options granted represents
the period of time that options granted are expected to be
outstanding; the weighted-average expected term for all employee
groups is presented in the following table. The risk-free rate
for periods within the contractual life of the options is based
on the U.S. Treasury yield curve in effect
59
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
at the time of grant. Stock option expense is recognized in the
consolidated condensed statements of operations ratably over the
three-year vesting period based on the number of options that
are expected to ultimately vest.
The following table presents the assumptions used in valuing
options granted during the twelve months ended December 31,
2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Weighted average fair value
|
|
$
|
1.75
|
|
|
$
|
6.75
|
|
|
$
|
6.02
|
|
Assumptions used:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
57.48
|
%
|
|
|
41.12
|
%
|
|
|
38.22
|
%
|
Risk-free interest rate
|
|
|
2.81
|
%
|
|
|
3.44
|
%
|
|
|
4.51
|
%
|
Expected life
|
|
|
6.5 years
|
|
|
|
6.5 years
|
|
|
|
6 years
|
|
A summary of option activity for the year ended
December 31, 2009 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
Non-Vested Stock Options
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Non-vested options outstanding at January 1, 2009
|
|
|
611,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
109,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(89,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(93,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested options outstanding at December 31, 2009
|
|
|
538,604
|
|
|
$
|
12.19
|
|
|
|
6.4
|
|
|
$
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Employee and Director Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at January 1, 2009
|
|
|
1,249,497
|
|
|
$
|
13.61
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
109,653
|
|
|
$
|
4.99
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(168,572
|
)
|
|
$
|
14.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009
|
|
|
1,190,578
|
|
|
$
|
12.72
|
|
|
|
5.5
|
|
|
$
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested options exercisable at December 31, 2009
|
|
|
651,974
|
|
|
$
|
13.15
|
|
|
|
4.9
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the years
ended December 31, 2009, 2008 and 2007 was approximately
$0, $1,702 and $279, respectively. The total grant date fair
value of stock options vested during the year ended
December 31, 2009 was $537.
60
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Following is a summary of stock options outstanding as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Shares
|
|
|
|
Options
|
|
|
(In Years)
|
|
|
Exercisable
|
|
|
Options outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price below $10.00
|
|
|
107,353
|
|
|
|
9.3
|
|
|
|
15,833.0
|
|
Exercise Price between $10.00 and $12.99
|
|
|
312,267
|
|
|
|
5.6
|
|
|
|
223,011.0
|
|
Exercise Price between $13.00 and $14.99
|
|
|
425,610
|
|
|
|
4.4
|
|
|
|
262,084.0
|
|
Exercise Price between $15.00 and $17.00
|
|
|
345,348
|
|
|
|
6.8
|
|
|
|
151,046.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,190,578
|
|
|
|
|
|
|
|
651,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Earnings
(Loss) Per Share
|
The calculation of income (loss) per share follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) applicable to common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1,131
|
|
|
$
|
10,523
|
|
|
$
|
10,636
|
|
Discontinued operations
|
|
|
3,051
|
|
|
|
185
|
|
|
|
(1,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,182
|
|
|
$
|
10,708
|
|
|
$
|
8,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic earnings per share
|
|
|
13,528,996
|
|
|
|
13,434,609
|
|
|
|
13,353,742
|
|
Dilutive effect of stock options
|
|
|
6,124
|
|
|
|
126,245
|
|
|
|
77,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted earnings per share
|
|
|
13,535,120
|
|
|
|
13,560,854
|
|
|
|
13,431,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.08
|
|
|
$
|
0.79
|
|
|
$
|
0.80
|
|
Discontinued operations
|
|
|
0.23
|
|
|
|
0.01
|
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
0.31
|
|
|
$
|
0.80
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.08
|
|
|
$
|
0.78
|
|
|
$
|
0.79
|
|
Discontinued operations
|
|
|
0.22
|
|
|
|
0.01
|
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
0.30
|
|
|
$
|
0.79
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The calculation of weighted average shares for the years ended
December 31, 2009, 2008, and 2007 excludes common shares of
1.5 million, 1.4 million, and 1.5 million stock
options and restricted stock, respectively, because their effect
was considered to be antidilutive or performance conditions had
not been satisfied.
61
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Employee
Benefit Plans
|
401(k) Retirement Plan. The 401(k) Retirement
Plan covers the majority of the Companys domestic
employees. At its discretion, the Company can make a base
contribution of 1% of each employees compensation and an
additional contribution equal to as much as 4% of the
employees compensation. At the employees discretion,
an additional 1% to 15% voluntary employee contribution can be
made. The Plan was revised effective April 1, 2009 such
that the Company matching contributions are discretionary and
determined as of year end based on Company financial
performance. Total expense for this plan was approximately $388,
$1,231, and $1,459 for the years ended December 31, 2009,
2008, and 2007, respectively.
Deferred Compensation Plan. Each director,
other than the Companys Chairman and Chief Executive
Officer, is entitled to receive a $75 annual fee. Forty percent
of this annual fee is deposited into the Companys Non
Employee Director Deferred Compensation Plan (the Deferred
Compensation Plan). Under the Deferred Compensation Plan,
deferral amounts are credited to an account and converted into
an amount of units equal to the amount deferred divided by the
fair market value of our common stock on the deferral date. A
directors account is distributed pursuant to the terms of
the Deferred Compensation Plan upon his or her termination or a
change in control; otherwise, the account is distributed as soon
as administratively feasible after the date specified by the
director. Directors may elect to receive the units in their
accounts at the then current stock price in either a lump sum or
substantially equal installments over a period not to exceed
five years.
Pension Plans. The Companys 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 (the Retirement Plan). All
former participants of these plans became eligible to
participate in the 401(k) Retirement Plan effective
January 1, 1990.
Other Postretirement Benefits. The Company has
a retirement plan covering certain 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 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 in the year incurred.
The Companys postretirement health care plan provided
coverage for retirees and active employees who had attained
age 62 and completed 15 years of service as of
December 31, 2005. During the quarter ended
September 30, 2009, the Company terminated its commitments
to provide future supplemental medical benefits for certain
retirees. As a result, the Company recorded a settlement gain
totaling $5,863 in 2009 that reduced previously recorded
liabilities by $4,523 and related amounts recorded in Other
Comprehensive Income by $1,340.
62
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net periodic costs include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Components of the net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
1,283
|
|
|
$
|
1,245
|
|
|
$
|
273
|
|
|
$
|
433
|
|
Expected return on plan assets
|
|
|
(938
|
)
|
|
|
(1,461
|
)
|
|
|
|
|
|
|
|
|
Amortization of net (gain) or loss
|
|
|
644
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
(226
|
)
|
Settlement gain
|
|
|
|
|
|
|
|
|
|
|
(5,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit cost (credit)
|
|
$
|
989
|
|
|
$
|
(216
|
)
|
|
$
|
(5,902
|
)
|
|
$
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations recognized
in other comprehensive income (OCI):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) or loss
|
|
$
|
(675
|
)
|
|
$
|
6,978
|
|
|
$
|
1,825
|
|
|
$
|
(1,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
$
|
(675
|
)
|
|
$
|
6,978
|
|
|
$
|
1,825
|
|
|
$
|
(1,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic postretirement cost and OCI
|
|
$
|
313
|
|
|
$
|
6,762
|
|
|
$
|
(4,077
|
)
|
|
$
|
(965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortizations from the AOCI into net periodic
postretirement benefit cost over the next fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net (gain) or loss
|
|
$
|
587
|
|
|
$
|
644
|
|
|
$
|
(254
|
)
|
|
$
|
(367
|
)
|
A one-percentage-point change in the assumed health care cost
trend rate would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, 2009
|
|
Dec. 31, 2008
|
|
1-Percentage point increase
|
|
|
|
|
|
|
|
|
Effect on total service and interest cost
|
|
$
|
30
|
|
|
$
|
37
|
|
Effect on postretirement benefit obligation
|
|
$
|
74
|
|
|
$
|
473
|
|
1-Percentage point decrease
|
|
|
|
|
|
|
|
|
Effect on total service and interest cost
|
|
$
|
(26
|
)
|
|
$
|
(32
|
)
|
Effect on postretirement benefit obligation
|
|
$
|
(68
|
)
|
|
$
|
(418
|
)
|
The measurement date used to determine pension and other
postretirement measurements for the plan assets and benefit
obligations is December 31. The following table provides a
reconciliation of benefit obligations, plan assets and status of
the pension and other post-retirement benefit plans as
recognized in the consolidated balance sheets for the years
ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
21,147
|
|
|
$
|
21,327
|
|
|
$
|
6,488
|
|
|
$
|
7,557
|
|
Interest Cost
|
|
|
1,283
|
|
|
|
1,245
|
|
|
|
273
|
|
|
|
433
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
474
|
|
Settlement gain
|
|
|
|
|
|
|
|
|
|
|
(4,523
|
)
|
|
|
|
|
Actuarial (gain) loss
|
|
|
1,685
|
|
|
|
(280
|
)
|
|
|
173
|
|
|
|
(1,399
|
)
|
Benefits paid
|
|
|
(1,189
|
)
|
|
|
(1,145
|
)
|
|
|
(472
|
)
|
|
|
(577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
22,926
|
|
|
$
|
21,147
|
|
|
$
|
2,083
|
|
|
$
|
6,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
12,180
|
|
|
$
|
18,248
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
2,655
|
|
|
|
(5,797
|
)
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
316
|
|
|
|
874
|
|
|
|
328
|
|
|
|
103
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
474
|
|
Benefits paid
|
|
|
(1,189
|
)
|
|
|
(1,145
|
)
|
|
|
(472
|
)
|
|
|
(577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
13,962
|
|
|
$
|
12,180
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plan (underfunded)
|
|
$
|
(8,964
|
)
|
|
$
|
(8,967
|
)
|
|
$
|
(2,083
|
)
|
|
$
|
(6,488
|
)
|
Amounts recognized in the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(273
|
)
|
|
$
|
(645
|
)
|
Noncurrent liabilities
|
|
|
(8,964
|
)
|
|
|
(8,967
|
)
|
|
|
(1,810
|
)
|
|
|
(5,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(8,964
|
)
|
|
$
|
(8,967
|
)
|
|
$
|
(2,083
|
)
|
|
$
|
(6,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss
|
|
$
|
7,455
|
|
|
$
|
8,130
|
|
|
$
|
(2,683
|
)
|
|
$
|
(4,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
7,455
|
|
|
$
|
8,130
|
|
|
$
|
(2,683
|
)
|
|
$
|
(4,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation
|
|
$
|
22,926
|
|
|
$
|
21,147
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine benefit
obligations:
|
|
|
|
|
|
|
|
|
Measurement date
|
|
Dec. 31, 2009
|
|
Dec. 31, 2008
|
|
Dec. 31, 2009
|
|
Dec. 31, 2008
|
Discount rate
|
|
5.70%
|
|
6.25%
|
|
5.70%
|
|
6.25%
|
Rate of compensation increase
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Health care cost trend rate assumed for next year
|
|
N/A
|
|
N/A
|
|
7.00%
|
|
8.00%
|
Ultimate health care cost trend rate
|
|
N/A
|
|
N/A
|
|
5.00%
|
|
5.00%
|
Year that the rate reaches the ultimate trend rate
|
|
N/A
|
|
N/A
|
|
2012
|
|
2012
|
Weighted-average assumptions used to determine net periodic
postretirement benefit cost:
|
|
|
|
|
|
|
|
|
Measurement date
|
|
Dec. 31, 2008
|
|
Dec. 31, 2007
|
|
Dec. 31, 2008
|
|
Dec. 31, 2007
|
Discount rate
|
|
6.25%
|
|
6.00%
|
|
6.25%/5.75%*
|
|
6.00%
|
Expected long-term rate of return on plan assets
|
|
8.00%
|
|
8.00%
|
|
0.00%
|
|
0.00%
|
Rate of compensation increase
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Health care cost trend rate assumed for next year
|
|
N/A
|
|
N/A
|
|
8.00%
|
|
9.00%
|
Ultimate health care cost trend rate
|
|
N/A
|
|
N/A
|
|
5.00%
|
|
5.00%
|
Year that the rate reaches the ultimate trend rate
|
|
N/A
|
|
N/A
|
|
2012
|
|
2012
|
|
|
|
* |
|
As of July 31, 2009, a discount rate of 5.75% was used for
the settlement gain/loss. |
64
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The defined benefit pension plans weighted average asset
allocations by asset category at December 31, 2009 and 2008
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Equity securities
|
|
|
60
|
%
|
|
|
57
|
%
|
|
|
51
|
%
|
Debt securities
|
|
|
30
|
%
|
|
|
33
|
%
|
|
|
40
|
%
|
Real Estate
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assets of the defined benefit pension plan are invested in a
manner consistent with the fiduciary standards of the Employee
Retirement Income Security Act of 1974 (ERISA); namely,
(a) the safeguards and diversity to which a prudent
investor would adhere must be present and (b) all
transactions undertaken on behalf of the Fund must be for the
sole benefit of plan participants and their beneficiaries.
The following table sets forth the pension plans assets by
level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penison Plans Assets at Fair Value as of
December 31, 2009
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
1,565
|
|
|
|
|
|
|
$
|
965
|
|
Mutual Funds
|
|
|
7,321
|
|
|
|
|
|
|
|
7,921
|
|
Trust Funds
|
|
|
|
|
|
|
5,076
|
|
|
|
5,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,886
|
|
|
$
|
5,076
|
|
|
$
|
13,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting literature classifies the inputs used to measure fair
value into the following hierarchy:
Level 1 Unadjusted quoted prices in active
markets for identical assets or liabilities.
Level 2 Unadjusted quoted prices in active
markets for similar assets or liabilities, or unadjusted quoted
prices for identical or similar assets or liabilities in markets
that are not active, or inputs other than quoted prices that are
observable for the asset or liability.
The expected long-term rate of return on plan assets is 8%. In
setting this rate, the Company considered the historical returns
of the plans fund, anticipated future market conditions
including inflation and the target asset allocation of the
plans portfolio.
The required funding to the Retirement Plan for the year ending
December 31, 2010 is approximately $1,500.
The following table presents the benefits expected to be paid in
the next ten fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Pension
|
|
Postretirement
|
Year
|
|
Benefits
|
|
Benefits
|
|
2010
|
|
$
|
1,299
|
|
|
$
|
273
|
|
2011
|
|
$
|
1,344
|
|
|
$
|
260
|
|
2012
|
|
$
|
1,390
|
|
|
$
|
245
|
|
2013
|
|
$
|
1,454
|
|
|
$
|
230
|
|
2014
|
|
$
|
1,544
|
|
|
$
|
214
|
|
Next 5 years
|
|
$
|
8,392
|
|
|
$
|
855
|
|
65
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other Plans. The Companys Australian
subsidiary has a Superannuation Fund (the Fund)
established by a Trust Deed. Pension benefits are
actuarially determined and are funded through mandatory
participant contributions and the Companys actuarially
determined contributions. The Company made contributions to the
Fund of $385, $191 and $226 for the years ended
December 31, 2009, 2008, and 2007, respectively. The assets
at December 31, 2009 were $3,307 and the liabilities at
December 31, 2008 were $1,863. The assets or liabilities
are not included in the table above or in the balance sheet, as
the Company has no legal right to amounts included in this fund.
In addition, upon dissolution of the Fund, any excess funds are
required to be allocated to the participants as determined by
the actuary. Accordingly, the Company accounts for this fund as
a defined contribution plan. The actuarial assumptions used to
determine the Companys contribution, the funded status,
and the retirement benefits are consistent with previous years.
The Companys Canadian subsidiary has a defined benefit
pension plan for which the Company recognized $109 and $133 of
pension expense in 2009 and 2008, respectively. The Company made
contributions to the plan of $487 and $237 for the years ended
December 31, 2009 and 2008, respectively. The plan assumes
future earnings on assets of 7.5% and benefit obligations are
discounted at 5.5% in 2009 and 7.0% in 2008. In summary, the
plan consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Projected Benefit Obligation
|
|
$
|
3,334
|
|
|
$
|
2,304
|
|
Plan Assets
|
|
|
3,110
|
|
|
|
2,051
|
|
|
|
|
|
|
|
|
|
|
Unfunded Projected Benefit Obligation
|
|
$
|
224
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income
|
|
$
|
477
|
|
|
$
|
120
|
|
|
|
|
|
|
|
|
|
|
Stock Purchase Plan. The Company adopted an
employee stock purchase plan effective during the third quarter
of 2005 that allows any eligible employee to purchase from the
Company shares of the Companys common stock at the end of
each quarter at 95% of the market price at the end of the
quarter. For the year ended December 31, 2009 and 2008,
30,300 and 10,700 shares, respectively, were purchased
under this plan.
The Companys continuing operations are comprised of
several product lines manufactured and sold in various
geographic locations. The market channels and end users for
products are similar. The production processes are shared across
the majority of the products. Management evaluates performance
and allocates resources on a combined basis and not as separate
business units or profit centers. Accordingly, management has
concluded the Company operates in one reportable segment.
Geographic
Information
Reportable geographic regions are the Americas (United States,
Canada, Mexico, Latin America and South America), Europe/Middle
East and Australia/Asia. Summarized financial information
concerning the Companys geographic segments for its
continuing operations is shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
193,435
|
|
|
$
|
285,167
|
|
|
$
|
292,560
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
70,420
|
|
|
|
90,888
|
|
|
|
81,633
|
|
Other
|
|
|
83,800
|
|
|
|
140,853
|
|
|
|
119,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,220
|
|
|
|
231,741
|
|
|
|
201,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
347,655
|
|
|
$
|
516,908
|
|
|
$
|
493,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Identifiable Assets (excluding working capital and intangibles):
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
40,365
|
|
|
$
|
44,992
|
|
Asia-Pacific
|
|
|
8,043
|
|
|
|
6,958
|
|
Europe/Middle East
|
|
|
1,844
|
|
|
|
2,182
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,252
|
|
|
$
|
54,132
|
|
|
|
|
|
|
|
|
|
|
Product
Line Information
The Company sells a variety of products, substantially all of
which are used by manufacturing, construction and foundry
operations to cut, join and reinforce steel, aluminum and other
metals in various applications including construction, oil, gas
rig and pipeline construction, repair and maintenance of
manufacturing equipment, and shipbuilding. The following table
shows sales from continuing operations for each of the
Companys key product lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Gas equipment
|
|
$
|
122,370
|
|
|
$
|
191,256
|
|
|
$
|
182,771
|
|
Filler metals including hardfacing
|
|
|
78,952
|
|
|
|
98,213
|
|
|
|
88,915
|
|
Arc accessories including torches, related consumable parts and
accessories
|
|
|
60,332
|
|
|
|
98,212
|
|
|
|
103,735
|
|
Plasma power supplies, torches and related consumable parts
|
|
|
52,872
|
|
|
|
77,536
|
|
|
|
69,157
|
|
Welding equipment
|
|
|
33,129
|
|
|
|
51,691
|
|
|
|
49,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
347,655
|
|
|
$
|
516,908
|
|
|
$
|
493,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.
|
Quarterly
Results of Operations (Unaudited)
|
The following is a summary of the quarterly results of
operations for the years ended December 31, 2009 and 2008.
All amounts presented below have been adjusted for the
Companys discontinued operations as described in
Note 3 Discontinued Operations.
In the third quarter of 2009, the Company terminated commitments
to provide future supplemental medical benefits for certain
retirees. The Company reduced recorded liabilities and
accumulated other comprehensive income by a combined $7,150 and
recorded a settlement gain of $7,150. Subsequent to the third
quarter management has determined that $1,287 of the gain should
not be recognized in income but reflected in shareholders
equity as accumulated other comprehensive income to be
recognized over an estimated six to seven year period.
Accordingly, the gain previously recognized in the third quarter
of 2009 has been revised from $7,150 to $5,863 with a
corresponding increase in the accumulated other comprehensive
income account. The adjustment of the settlement gain did not
impact the amount of the reduction in the benefits payable or
the consolidated statements of cash flows as previously
reported. Management believes the revision of the third quarter
presentation is appropriate and immaterial.
The quarters of 2009 reflect several unusual adjustments.
Expenses related to severance and reorganization costs of
$1,309, $1,377, and $832 were recorded in the first, third, and
fourth quarters of 2009, respectively. The third quarter of 2009
included a $1,000 charge for customs duties assessed by a
foreign jurisdiction relative to prior years. The fourth quarter
of 2009 included $1,100 charge for the write off of bad debts
from an uncollectible receivable from a Venezuelan-based
customer.
67
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
83,311
|
|
|
$
|
84,805
|
|
|
$
|
89,501
|
|
|
$
|
90,038
|
|
Gross profit
|
|
|
21,360
|
|
|
|
24,945
|
|
|
|
28,795
|
|
|
|
28,694
|
|
Operating income
|
|
|
1,247
|
|
|
|
6,005
|
|
|
|
6,355
|
|
|
|
6,073
|
|
Settlement of retiree medical obligations
|
|
|
|
|
|
|
|
|
|
|
5,863
|
|
|
|
|
|
Income (loss) applicable to common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(2,496
|
)
|
|
|
582
|
|
|
|
3,726
|
|
|
|
(681
|
)
|
Discontinued operations
|
|
|
|
|
|
|
1,933
|
|
|
|
1,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(2,496
|
)
|
|
$
|
2,515
|
|
|
$
|
4,844
|
|
|
$
|
(681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share applicable to common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.18
|
)
|
|
$
|
0.04
|
|
|
$
|
0.27
|
|
|
$
|
(0.05
|
)
|
Discontinued operations
|
|
|
|
|
|
|
0.14
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(0.18
|
)
|
|
$
|
0.18
|
|
|
$
|
0.36
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share applicable to common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.18
|
)
|
|
$
|
0.04
|
|
|
$
|
0.27
|
|
|
$
|
(0.05
|
)
|
Discontinued operations
|
|
|
|
|
|
|
0.14
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(0.18
|
)
|
|
$
|
0.18
|
|
|
$
|
0.35
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
130,767
|
|
|
$
|
142,135
|
|
|
$
|
139,373
|
|
|
$
|
104,633
|
|
Gross profit
|
|
|
42,279
|
|
|
|
47,167
|
|
|
|
43,896
|
|
|
|
25,711
|
|
Operating income
|
|
|
14,109
|
|
|
|
16,772
|
|
|
|
12,881
|
|
|
|
172
|
|
Income (loss) applicable to common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
4,717
|
|
|
|
6,245
|
|
|
|
3,038
|
|
|
|
(3,477
|
)
|
Discontinued operations
|
|
|
(192
|
)
|
|
|
(283
|
)
|
|
|
(320
|
)
|
|
|
980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
4,525
|
|
|
$
|
5,962
|
|
|
$
|
2,718
|
|
|
$
|
(2,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share applicable to common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.35
|
|
|
$
|
0.47
|
|
|
$
|
0.22
|
|
|
$
|
(0.25
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
(0.02
|
)
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
0.34
|
|
|
$
|
0.44
|
|
|
$
|
0.20
|
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share applicable to common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.35
|
|
|
$
|
0.47
|
|
|
$
|
0.22
|
|
|
$
|
(0.26
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
(0.02
|
)
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
0.34
|
|
|
$
|
0.44
|
|
|
$
|
0.20
|
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
THERMADYNE
HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Restructuring
and Other Charges
|
As of December 31, 2008, the company accrued restructuring
charges of $3,600 for severance related expenses payable to
approximately 110 salaried employees whose positions were
eliminated in connection with cost reduction efforts in response
to economic and market uncertainties. At that time, this
initiative reduced the salaried work force approximately 13%. As
a result, the Company reduced annual compensation and benefit
costs by approximately $7,500. The majority of the severance
costs were paid in the first and second quarters of 2009.
In the first quarter of 2009, the Company offered a voluntary
retirement program and accrued restructuring charges for $1,300
in separation pay and COBRA benefits payable under the program.
Approximately 50 employees elected to participate. As a
result, the Company reduced annual compensation and benefit
costs by approximately $3,100. The amounts have been
substantially paid through August 2009.
Subsequent to the first quarter, the Company recorded additional
restructuring charges of $2,400 for severance expenses. The
charges relate to manufacturing personnel placed on permanent
lay-off status, salaried positions eliminated in connection with
further organizational restructurings and additional personnel
electing to participate in the voluntary retirement program
initiated in the first quarter. These actions affected
approximately 240 employees, and the Company expects to
reduce annual compensation and benefit costs by approximately
$5,500.
On February 23, 2010, Thermadyne Holdings Corporation (the
Company), its domestic subsidiaries and certain of
its foreign subsidiaries amended its Working Capital Facility
and Second Lien Credit Agreements. The amendments are intended
to facilitate the purchase of equipment and building
improvements in existing manufacturing facilities during 2010
through the use of existing funds and financing arrangements. In
addition, the amendments provide added flexibility for the
repatriation of funds from foreign subsidiaries and the
reinvestment of funds in foreign locations. The changes to the
agreements have been reflected in the description of the working
capital facility and second lien facility credit agreements
presented in Note 8 Debt and Capital Lease
Obligations.
Subsequent events were evaluated through March 9, 2010, the
date these financial statements were issued.
|
|
21.
|
Condensed
Consolidating Financial Statements
|
On February 5, 2004, the Company completed a private
placement of $175,000 in aggregate principal of
91/4% Senior
Subordinated Notes due 2014. The Companys domestic, wholly
owned subsidiaries (Guarantor Subsidiaries) fully
and unconditionally guarantee the Senior Subordinated Notes and
are jointly and severally liable for all payments under the
Senior Subordinated Notes. Each of the Guarantor Subsidiaries is
wholly owned by the Company.
In connection with the Amended Credit Agreement, the
Companys foreign subsidiaries in Australia and Canada also
guaranteed the Companys $175,000 9.25% Senior
Subordinated Notes.
The following financial information presents the guarantors and
non-guarantors of the 9.25% Senior Subordinated Notes, in
accordance with
Rule 3-10
of
Regulation S-X.
The condensed consolidating financial information includes the
accounts of the Company, which has no independent assets or
operations, 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
financial condition, cash flows or results of operations of the
Company and its subsidiaries. This information was prepared on
the same basis as the consolidated financial statements.
69
THERMADYNE
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATING BALANCE SHEET
DECEMBER
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thermadyne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
11,740
|
|
|
$
|
3,146
|
|
|
$
|
|
|
|
$
|
14,886
|
|
Accounts receivable, net
|
|
|
|
|
|
|
50,422
|
|
|
|
6,167
|
|
|
|
|
|
|
|
56,589
|
|
Inventories
|
|
|
|
|
|
|
66,205
|
|
|
|
8,176
|
|
|
|
|
|
|
|
74,381
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
7,714
|
|
|
|
1,541
|
|
|
|
|
|
|
|
9,255
|
|
Deferred tax assets
|
|
|
|
|
|
|
3,008
|
|
|
|
|
|
|
|
|
|
|
|
3,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
139,089
|
|
|
|
19,030
|
|
|
|
|
|
|
|
158,119
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
43,233
|
|
|
|
3,454
|
|
|
|
|
|
|
|
46,687
|
|
Goodwill
|
|
|
|
|
|
|
187,818
|
|
|
|
|
|
|
|
|
|
|
|
187,818
|
|
Intangibles, net
|
|
|
|
|
|
|
50,737
|
|
|
|
7,714
|
|
|
|
|
|
|
|
58,451
|
|
Other assets
|
|
|
2,019
|
|
|
|
1,851
|
|
|
|
|
|
|
|
|
|
|
|
3,870
|
|
Investment in and advances to subsidiaries
|
|
|
225,881
|
|
|
|
|
|
|
|
|
|
|
|
(225,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
227,900
|
|
|
$
|
422,728
|
|
|
$
|
30,198
|
|
|
$
|
(225,881
|
)
|
|
$
|
454,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital facility
|
|
$
|
|
|
|
$
|
9,643
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,643
|
|
Current maturities of long-term obligations
|
|
|
463
|
|
|
|
8,239
|
|
|
|
213
|
|
|
|
|
|
|
|
8,915
|
|
Accounts payable
|
|
|
|
|
|
|
6,953
|
|
|
|
2,645
|
|
|
|
|
|
|
|
9,598
|
|
Accrued and other liabilities
|
|
|
|
|
|
|
19,275
|
|
|
|
3,844
|
|
|
|
|
|
|
|
23,119
|
|
Accrued interest
|
|
|
7,527
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
7,608
|
|
Income taxes payable
|
|
|
|
|
|
|
896
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
705
|
|
Deferred tax liability
|
|
|
|
|
|
|
2,793
|
|
|
|
|
|
|
|
|
|
|
|
2,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,990
|
|
|
|
47,880
|
|
|
|
6,511
|
|
|
|
|
|
|
|
62,381
|
|
Long-term obligations, less current maturities
|
|
|
172,327
|
|
|
|
25,569
|
|
|
|
570
|
|
|
|
|
|
|
|
198,466
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
52,835
|
|
|
|
|
|
|
|
|
|
|
|
52,835
|
|
Other long-term liabilities
|
|
|
1,426
|
|
|
|
11,430
|
|
|
|
615
|
|
|
|
|
|
|
|
13,471
|
|
Shareholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
Additional
paid-in-capital
|
|
|
188,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,791
|
|
Accumulated deficit
|
|
|
(65,062
|
)
|
|
|
54,870
|
|
|
|
(67,783
|
)
|
|
|
12,912
|
|
|
|
(65,063
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
3,929
|
|
|
|
(22,636
|
)
|
|
|
(6,312
|
)
|
|
|
28,948
|
|
|
|
3,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity (deficit)
|
|
|
127,793
|
|
|
|
32,234
|
|
|
|
(74,095
|
)
|
|
|
41,860
|
|
|
|
127,792
|
|
Net equity (deficit) and advances to / from subsidiaries
|
|
|
(81,636
|
)
|
|
|
252,780
|
|
|
|
96,597
|
|
|
|
(267,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity (deficit)
|
|
$
|
227,900
|
|
|
$
|
422,728
|
|
|
$
|
30,198
|
|
|
$
|
(225,881
|
)
|
|
$
|
454,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
THERMADYNE
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATING BALANCE SHEET
DECEMBER
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thermadyne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
6,301
|
|
|
$
|
5,615
|
|
|
$
|
|
|
|
$
|
11,916
|
|
Accounts receivable, net
|
|
|
|
|
|
|
63,760
|
|
|
|
8,284
|
|
|
|
|
|
|
|
72,044
|
|
Inventories
|
|
|
|
|
|
|
90,220
|
|
|
|
12,259
|
|
|
|
|
|
|
|
102,479
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
4,653
|
|
|
|
790
|
|
|
|
|
|
|
|
5,443
|
|
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
916
|
|
|
|
|
|
|
|
916
|
|
Deferred tax assets
|
|
|
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
167,211
|
|
|
|
27,864
|
|
|
|
|
|
|
|
195,075
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
43,295
|
|
|
|
4,206
|
|
|
|
|
|
|
|
47,501
|
|
Goodwill
|
|
|
|
|
|
|
184,043
|
|
|
|
|
|
|
|
|
|
|
|
184,043
|
|
Intangibles, net
|
|
|
|
|
|
|
53,166
|
|
|
|
7,617
|
|
|
|
|
|
|
|
60,783
|
|
Other assets
|
|
|
5,541
|
|
|
|
1,426
|
|
|
|
|
|
|
|
|
|
|
|
6,967
|
|
Investment in and advances to subsidiaries
|
|
|
191,869
|
|
|
|
|
|
|
|
|
|
|
|
(191,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
197,410
|
|
|
$
|
449,141
|
|
|
$
|
39,687
|
|
|
$
|
(191,869
|
)
|
|
$
|
494,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital facility
|
|
$
|
|
|
|
$
|
32,531
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
32,531
|
|
Current maturities of long-term obligations
|
|
|
|
|
|
|
1,702
|
|
|
|
358
|
|
|
|
|
|
|
|
2,060
|
|
Accounts payable
|
|
|
|
|
|
|
26,132
|
|
|
|
4,691
|
|
|
|
|
|
|
|
30,823
|
|
Accrued and other liabilities
|
|
|
|
|
|
|
26,673
|
|
|
|
1,622
|
|
|
|
|
|
|
|
28,295
|
|
Accrued interest
|
|
|
6,412
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
6,558
|
|
Income taxes payable
|
|
|
|
|
|
|
2,798
|
|
|
|
51
|
|
|
|
|
|
|
|
2,849
|
|
Deferred tax liability
|
|
|
|
|
|
|
3,253
|
|
|
|
|
|
|
|
|
|
|
|
3,253
|
|
Liabilities related to assets held for sale
|
|
|
|
|
|
|
|
|
|
|
5,266
|
|
|
|
|
|
|
|
5,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,412
|
|
|
|
93,235
|
|
|
|
11,988
|
|
|
|
|
|
|
|
111,635
|
|
Long-term obligations, less current maturities
|
|
|
175,000
|
|
|
|
23,761
|
|
|
|
693
|
|
|
|
|
|
|
|
199,454
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
47,292
|
|
|
|
|
|
|
|
|
|
|
|
47,292
|
|
Other long-term liabilities
|
|
|
2,991
|
|
|
|
14,155
|
|
|
|
539
|
|
|
|
|
|
|
|
17,685
|
|
Shareholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
Additional
paid-in-capital
|
|
|
189,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,256
|
|
Accumulated deficit
|
|
|
(69,244
|
)
|
|
|
34,540
|
|
|
|
(67,892
|
)
|
|
|
33,351
|
|
|
|
(69,245
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(1,844
|
)
|
|
|
(16,065
|
)
|
|
|
(4,060
|
)
|
|
|
20,126
|
|
|
|
(1,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity (deficit)
|
|
|
118,303
|
|
|
|
18,475
|
|
|
|
(71,952
|
)
|
|
|
53,477
|
|
|
|
118,303
|
|
Net equity (deficit) and advances to / from subsidiaries
|
|
|
(105,296
|
)
|
|
|
252,223
|
|
|
|
98,419
|
|
|
|
(245,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity (deficit)
|
|
$
|
197,410
|
|
|
$
|
449,141
|
|
|
$
|
39,687
|
|
|
$
|
(191,869
|
)
|
|
$
|
494,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
THERMADYNE
HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thermadyne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
355,864
|
|
|
$
|
29,111
|
|
|
$
|
(37,320
|
)
|
|
$
|
347,655
|
|
Cost of goods sold
|
|
|
|
|
|
|
259,473
|
|
|
|
22,433
|
|
|
|
(38,045
|
)
|
|
|
243,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
96,391
|
|
|
|
6,678
|
|
|
|
725
|
|
|
|
103,794
|
|
Selling, general and administrative expenses
|
|
|
(578
|
)
|
|
|
74,870
|
|
|
|
7,174
|
|
|
|
|
|
|
|
81,466
|
|
Amortization of intangibles
|
|
|
|
|
|
|
2,693
|
|
|
|
|
|
|
|
|
|
|
|
2,693
|
|
Net periodic postretirement benefits
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
578
|
|
|
|
18,873
|
|
|
|
(496
|
)
|
|
|
725
|
|
|
|
19,680
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(17,176
|
)
|
|
|
(3,750
|
)
|
|
|
76
|
|
|
|
|
|
|
|
(20,850
|
)
|
Amortization of deferred financing costs
|
|
|
(531
|
)
|
|
|
(521
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,052
|
)
|
Equity in net income (loss) of subsidiaries
|
|
|
21,164
|
|
|
|
|
|
|
|
|
|
|
|
(21,164
|
)
|
|
|
|
|
Settlement of retiree medical obligations
|
|
|
|
|
|
|
5,863
|
|
|
|
|
|
|
|
|
|
|
|
5,863
|
|
Other
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax
provision and discontinued operations
|
|
|
4,182
|
|
|
|
20,465
|
|
|
|
(420
|
)
|
|
|
(20,439
|
)
|
|
|
3,788
|
|
Income tax provision
|
|
|
|
|
|
|
2,089
|
|
|
|
568
|
|
|
|
|
|
|
|
2,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
4,182
|
|
|
|
18,376
|
|
|
|
(988
|
)
|
|
|
(20,439
|
)
|
|
|
1,131
|
|
Gain from discontinued operations, net of tax
|
|
|
|
|
|
|
1,954
|
|
|
|
1,097
|
|
|
|
|
|
|
|
3,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,182
|
|
|
$
|
20,330
|
|
|
$
|
109
|
|
|
$
|
(20,439
|
)
|
|
$
|
4,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
THERMADYNE
HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS (Continued)
YEAR ENDED DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thermadyne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
589,422
|
|
|
$
|
49,774
|
|
|
$
|
(122,288
|
)
|
|
$
|
516,908
|
|
Cost of goods sold
|
|
|
|
|
|
|
443,662
|
|
|
|
36,792
|
|
|
|
(122,599
|
)
|
|
|
357,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
145,760
|
|
|
|
12,982
|
|
|
|
311
|
|
|
|
159,053
|
|
Selling, general and administrative expenses
|
|
|
180
|
|
|
|
104,364
|
|
|
|
7,578
|
|
|
|
|
|
|
|
112,122
|
|
Amortization of intangibles
|
|
|
|
|
|
|
2,675
|
|
|
|
|
|
|
|
|
|
|
|
2,675
|
|
Net periodic postretirement benefits
|
|
|
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(180
|
)
|
|
|
38,399
|
|
|
|
5,404
|
|
|
|
311
|
|
|
|
43,934
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(16,125
|
)
|
|
|
(4,121
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
(20,304
|
)
|
Amortization of deferred financing costs
|
|
|
(500
|
)
|
|
|
(438
|
)
|
|
|
|
|
|
|
|
|
|
|
(938
|
)
|
Equity in net income (loss) of subsidiaries
|
|
|
27,513
|
|
|
|
|
|
|
|
|
|
|
|
(27,513
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
(37
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax
provision and discontinued operations
|
|
|
10,708
|
|
|
|
33,803
|
|
|
|
5,303
|
|
|
|
(27,202
|
)
|
|
|
22,612
|
|
Income tax provision
|
|
|
|
|
|
|
10,569
|
|
|
|
1,520
|
|
|
|
|
|
|
|
12,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
10,708
|
|
|
|
23,234
|
|
|
|
3,783
|
|
|
|
(27,202
|
)
|
|
|
10,523
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,708
|
|
|
$
|
23,234
|
|
|
$
|
3,968
|
|
|
$
|
(27,202
|
)
|
|
$
|
10,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
THERMADYNE
HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thermadyne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
557,801
|
|
|
$
|
29,338
|
|
|
$
|
(93,164
|
)
|
|
$
|
493,975
|
|
Cost of goods sold
|
|
|
|
|
|
|
411,673
|
|
|
|
21,225
|
|
|
|
(93,276
|
)
|
|
|
339,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
146,128
|
|
|
|
8,113
|
|
|
|
112
|
|
|
|
154,353
|
|
Selling, general and administrative expenses
|
|
|
1,609
|
|
|
|
99,527
|
|
|
|
4,897
|
|
|
|
|
|
|
|
106,033
|
|
Amortization of intangibles
|
|
|
|
|
|
|
2,921
|
|
|
|
|
|
|
|
|
|
|
|
2,921
|
|
Net periodic postretirement benefits
|
|
|
|
|
|
|
1,087
|
|
|
|
|
|
|
|
|
|
|
|
1,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,609
|
)
|
|
|
42,593
|
|
|
|
3,216
|
|
|
|
112
|
|
|
|
44,312
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(18,731
|
)
|
|
|
(8,146
|
)
|
|
|
78
|
|
|
|
|
|
|
|
(26,799
|
)
|
Amortization of deferred financing costs
|
|
|
(500
|
)
|
|
|
(944
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,444
|
)
|
Equity in net income (loss) of subsidiaries
|
|
|
29,505
|
|
|
|
|
|
|
|
|
|
|
|
(29,505
|
)
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax
provision and discontinued operations
|
|
|
8,665
|
|
|
|
33,585
|
|
|
|
3,294
|
|
|
|
(29,393
|
)
|
|
|
16,151
|
|
Income tax provision (benefit)
|
|
|
|
|
|
|
3,646
|
|
|
|
1,869
|
|
|
|
|
|
|
|
5,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
8,665
|
|
|
|
29,939
|
|
|
|
1,425
|
|
|
|
(29,393
|
)
|
|
|
10,636
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
(1,971
|
)
|
|
|
|
|
|
|
(1,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,665
|
|
|
$
|
29,939
|
|
|
$
|
(546
|
)
|
|
$
|
(29,393
|
)
|
|
$
|
8,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
THERMADYNE
HOLDINGS CORPORATION
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thermadyne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
4,369
|
|
|
$
|
36,640
|
|
|
$
|
1,513
|
|
|
$
|
(20,439
|
)
|
|
$
|
22,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(7,669
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
(7,695
|
)
|
Proceeds from sales of assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(264
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(7,933
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
(8,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under Working Capital Facility
|
|
|
|
|
|
|
8,923
|
|
|
|
|
|
|
|
|
|
|
|
8,923
|
|
Repayments under Working Capital Facility
|
|
|
|
|
|
|
(31,811
|
)
|
|
|
|
|
|
|
|
|
|
|
(31,811
|
)
|
Repurchase of Notes
|
|
|
(2,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,632
|
)
|
Borrowings of Second-Lien Facility and other
|
|
|
|
|
|
|
25,075
|
|
|
|
|
|
|
|
|
|
|
|
25,075
|
|
Repayments of Second-Lien Facility and other
|
|
|
1,565
|
|
|
|
(17,111
|
)
|
|
|
(277
|
)
|
|
|
|
|
|
|
(15,823
|
)
|
Stock compensation expense
|
|
|
(579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(579
|
)
|
Exercise of employee stock purchases
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
Changes in net equity and advances to / from discontinued
operations
|
|
|
(5,150
|
)
|
|
|
(9,031
|
)
|
|
|
(3,719
|
)
|
|
|
20,439
|
|
|
|
2,539
|
|
Termination payment from derivative counterparty
|
|
|
2,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,313
|
|
Other
|
|
|
|
|
|
|
(925
|
)
|
|
|
|
|
|
|
|
|
|
|
(925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(4,369
|
)
|
|
|
(24,880
|
)
|
|
|
(3,996
|
)
|
|
|
20,439
|
|
|
|
(12,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
1,612
|
|
|
|
137
|
|
|
|
|
|
|
|
1,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
|
|
|
|
5,439
|
|
|
|
(2,469
|
)
|
|
|
|
|
|
|
2,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
337
|
|
|
|
|
|
|
|
337
|
|
Net cash provided by sales of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
1,783
|
|
|
|
|
|
|
|
1,783
|
|
Advances from (to) continuing operations
|
|
|
|
|
|
|
|
|
|
|
(2,933
|
)
|
|
|
|
|
|
|
(2,933
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
228
|
|
|
|
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(585
|
)
|
|
|
|
|
|
|
(585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
5,439
|
|
|
|
(3,054
|
)
|
|
|
|
|
|
|
2,385
|
|
Total cash and cash equivalents beginning of period
|
|
|
|
|
|
|
6,301
|
|
|
|
6,200
|
|
|
|
|
|
|
|
12,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents end of period
|
|
$
|
|
|
|
$
|
11,740
|
|
|
$
|
3,146
|
|
|
$
|
|
|
|
$
|
14,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
THERMADYNE
HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thermadyne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
9,765
|
|
|
$
|
29,800
|
|
|
$
|
4,666
|
|
|
$
|
(27,203
|
)
|
|
$
|
17,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(15,071
|
)
|
|
|
2,295
|
|
|
|
|
|
|
|
(12,776
|
)
|
Proceeds from sales of assets
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
500
|
|
Purchase of minority interest
|
|
|
|
|
|
|
|
|
|
|
(838
|
)
|
|
|
|
|
|
|
(838
|
)
|
Purchase of outside interest in joint venture
|
|
|
|
|
|
|
|
|
|
|
(3,055
|
)
|
|
|
|
|
|
|
(3,055
|
)
|
Other
|
|
|
(253
|
)
|
|
|
(67
|
)
|
|
|
(437
|
)
|
|
|
|
|
|
|
(757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(253
|
)
|
|
|
(15,138
|
)
|
|
|
(1,535
|
)
|
|
|
|
|
|
|
(16,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under Working Capital Facility
|
|
|
|
|
|
|
27,751
|
|
|
|
|
|
|
|
|
|
|
|
27,751
|
|
Repayments under Working Capital Facility
|
|
|
|
|
|
|
(7,878
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,878
|
)
|
Repayments of other debt
|
|
|
|
|
|
|
(23,185
|
)
|
|
|
396
|
|
|
|
|
|
|
|
(22,789
|
)
|
Changes in net equity and advances to / from discontinued
operations
|
|
|
(11,939
|
)
|
|
|
(18,691
|
)
|
|
|
770
|
|
|
|
27,203
|
|
|
|
(2,657
|
)
|
Other
|
|
|
2,427
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
2,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(9,512
|
)
|
|
|
(22,010
|
)
|
|
|
1,166
|
|
|
|
27,203
|
|
|
|
(3,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(988
|
)
|
|
|
(204
|
)
|
|
|
|
|
|
|
(1,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
|
|
|
|
(8,336
|
)
|
|
|
4,093
|
|
|
|
|
|
|
|
(4,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
(2,574
|
)
|
|
|
|
|
|
|
(2,574
|
)
|
Net cash provided by sales of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
500
|
|
Advances from (to) continuing operations
|
|
|
|
|
|
|
|
|
|
|
2,538
|
|
|
|
|
|
|
|
2,538
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
309
|
|
|
|
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
(8,336
|
)
|
|
|
4,402
|
|
|
|
|
|
|
|
(3,934
|
)
|
Total cash and cash equivalents beginning of period
|
|
|
|
|
|
|
14,637
|
|
|
|
1,798
|
|
|
|
|
|
|
|
16,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents end of period
|
|
$
|
|
|
|
$
|
6,301
|
|
|
$
|
6,200
|
|
|
$
|
|
|
|
$
|
12,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
THERMADYNE
HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thermadyne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
9,140
|
|
|
$
|
52,190
|
|
|
$
|
(28,083
|
)
|
|
$
|
(10,234
|
)
|
|
$
|
23,013
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(10,013
|
)
|
|
|
(1,345
|
)
|
|
|
|
|
|
|
(11,358
|
)
|
Proceeds from sales of assets
|
|
|
|
|
|
|
13,783
|
|
|
|
|
|
|
|
|
|
|
|
13,783
|
|
Acquisition of minority interest
|
|
|
|
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
3,283
|
|
|
|
(1,345
|
)
|
|
|
|
|
|
|
1,938
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility
|
|
|
|
|
|
|
20,041
|
|
|
|
|
|
|
|
|
|
|
|
20,041
|
|
Repayments under revolving credit facility
|
|
|
|
|
|
|
(24,989
|
)
|
|
|
|
|
|
|
|
|
|
|
(24,989
|
)
|
Repayments of other credit facilities
|
|
|
|
|
|
|
(15,415
|
)
|
|
|
(1,310
|
)
|
|
|
|
|
|
|
(16,725
|
)
|
Changes in net equity and advances to/from subsidiaries
|
|
|
(11,166
|
)
|
|
|
(29,343
|
)
|
|
|
29,438
|
|
|
|
10,234
|
|
|
|
(837
|
)
|
Other
|
|
|
2,026
|
|
|
|
(362
|
)
|
|
|
|
|
|
|
|
|
|
|
1,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(9,140
|
)
|
|
|
(50,068
|
)
|
|
|
28,128
|
|
|
|
10,234
|
|
|
|
(20,846
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
25
|
|
|
|
719
|
|
|
|
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
|
|
|
|
5,430
|
|
|
|
(581
|
)
|
|
|
|
|
|
|
4,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
812
|
|
|
|
|
|
|
|
812
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
5,084
|
|
|
|
|
|
|
|
5,084
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
|
|
|
|
(5,650
|
)
|
|
|
|
|
|
|
(5,650
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
276
|
|
|
|
|
|
|
|
276
|
|
Total increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
5,430
|
|
|
|
(305
|
)
|
|
|
|
|
|
|
5,125
|
|
Total cash and cash equivalents beginning of period
|
|
|
|
|
|
|
9,207
|
|
|
|
2,103
|
|
|
|
|
|
|
|
11,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents end of period
|
|
$
|
|
|
|
$
|
14,637
|
|
|
$
|
1,798
|
|
|
$
|
|
|
|
$
|
16,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
SIGNATURES
Pursuant to the requirements 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
Steven A. Schumm
Executive Vice President, Chief Financial and
Administrative Officer
Date: March 9, 2010
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.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ MARTIN
QUINN
Martin
Quinn
|
|
President (Principal Executive Officer)
|
|
March 9, 2010
|
|
|
|
|
|
/s/ STEVEN
A. SCHUMM
Steven
A. Schumm
|
|
Executive Vice President, Chief Financial and Administrative
Officer (Principal Financial and Accounting Officer)
|
|
March 9, 2010
|
|
|
|
|
|
/s/ PAUL
D. MELNUK
Paul
D. Melnuk
|
|
Director and Chairman of the Board
|
|
March 9, 2010
|
|
|
|
|
|
/s/ J.
JOE ADORJAN
J.
Joe Adorjan
|
|
Director
|
|
March 9, 2010
|
|
|
|
|
|
/s/ ANDREW
L. BERGER
Andrew
L. Berger
|
|
Director
|
|
March 9, 2010
|
|
|
|
|
|
/s/ JAMES
B. GAMACHE
James
B. Gamache
|
|
Director
|
|
March 9, 2010
|
|
|
|
|
|
/s/ MARNIE
S. GORDON
Marnie
S. Gordon
|
|
Director
|
|
March 9, 2010
|
|
|
|
|
|
/s/ CHRISTOPHER
P. HARTMANN
Christopher
P. Hartmann
|
|
Director
|
|
March 9, 2010
|
|
|
|
|
|
/s/ BRADLEY
G. PATTELLI
Bradley
G. Pattelli
|
|
Director
|
|
March 9, 2010
|
78
THERMADYNE
HOLDINGS CORPORATION
2009
10-K
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Exhibit
|
|
|
2
|
.1
|
|
|
|
First Amended and Restated Disclosure Statement, dated January
17, 2003, Solicitation of Votes on the Debtors First
Amended and Restated Joint Plan of Reorganization Under Chapter
11 of the Bankruptcy Code of Thermadyne Holdings Corporation
(the Company) and its wholly owned direct and
indirect subsidiaries, Thermadyne Mfg. LLC, Thermadyne Capital
Corp., Thermadyne Industries, Inc., Victor Equipment Company,
Thermadyne International Corp., Thermadyne Cylinder Co., Thermal
Dynamics Corporation, C&G Systems Holding, Inc., MECO
Holding Company, 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 Corporation, Coyne
Natural Gas Systems, Inc., and Modern Engineering Company, Inc.
(incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K (File No. 0-23378)
filed on February 7, 2003).
|
|
2
|
.2
|
|
|
|
First Amended and Restated Plan of Reorganization dated January
17, 2003 (incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K (File No. 0-23378)
filed on April 11, 2003).
|
|
2
|
.3
|
|
|
|
Confirmation Order dated April 3, 2003 and signed by the
Bankruptcy Court (incorporated by reference to Exhibit 2.2
to the Companys Current Report on Form 8-K (File No.
0-23378) filed on April 11, 2003).
|
|
3
|
.1
|
|
|
|
Amended and Restated Certificate of Incorporation of the Company
dated as of May 23, 2003 (incorporated by reference to
Exhibit 3.1 to the Companys Quarterly Report on Form
10-Q
(File No. 0-23378)
for the quarter ended June 30, 2003).
|
|
3
|
.2
|
|
|
|
Amended and Restated Bylaws of the Company dated as of March 29,
2007 (incorporated by reference to Exhibit 3.2 to the
Companys Annual Report on Form 10-K (File No. 0-23378) for
the year ended December 31, 2006).
|
|
4
|
.1
|
|
|
|
Indenture dated as of February 5, 2004 among the Company, as
issuer, the subsidiary guarantors named therein and U.S. Bank
National Association, as trustee (incorporated by reference to
Exhibit 4.10 to the Companys Annual Report on Form
10-K (File No. 0-23378) for the year ended December 31, 2003).
|
|
4
|
.2
|
|
|
|
Supplemental Indenture dated as of May 16, 2006 among the
Company, the subsidiary guarantors named therein and U.S. Bank
National Association as trustee (incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form
8-K (File No. 0-23378) filed on May 23, 2006).
|
|
4
|
.3
|
|
|
|
Second Supplemental Indenture dated as of August 2, 2006 among
the Company, the subsidiary guarantors named therein and U.S.
Bank National Association as trustee (incorporated by reference
to Exhibit 4.1 to the Companys Current Report on Form
8-K (File No. 0-23378) filed on August 3, 2006).
|
|
4
|
.4
|
|
|
|
Third Amended and Restated Credit Agreement dated as of June 29,
2007 by and among Thermadyne Industries, Inc., Thermal Dynamics
Corporation, Tweco Products, Inc., Victor Equipment Company,
C&G Systems, Inc., Stoody Company, ProTip Corporation, and
Thermadyne International Corp., as borrowers, the credit parties
signatory thereto, the lenders signatory thereto, and General
Electric Capital Corporation, as agent and lender, and GECC
Capital Markets Group, Inc., as lead arranger (incorporated by
reference to Exhibit 4.1 to the Companys Current Report on
Form 8-K (File No. 0-23378) filed on July 2, 2007).
|
|
4
|
.5
|
|
|
|
First Amendment to Third Amended and Restated Credit Agreement
dated as of October 7, 2008, by and among Thermadyne Industries,
Inc., Thermal Dynamics Corporation, Victor Equipment Company, C
& G Systems, Inc., Stoody Company, Thermadyne International
Corp., as borrowers, the Company and the other credit parties
signatory thereto, and General Electric Capital Corporation, as
agent and lender (incorporated by reference to Exhibit 4.1 to
the Companys Quarterly Report on Form 10-Q (File No.
001-13023) for the quarter ended September 30, 2008).
|
79
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Exhibit
|
|
|
4
|
.6
|
|
|
|
Second Amendment to Third Amended and Restated Credit Agreement
dated as of June 15, 2009 by and among Thermadyne Industries,
Inc., Thermal Dynamics Corporation, Victor Equipment Company, C
& G Systems, Inc., Stoody Company, Thermadyne International
Corp., as borrowers, the Company and the other credit parties
signatory thereto, and General Electric Capital Corporation, as
agent and lender (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K (File No.
001-13023) filed on June 18, 2009).
|
|
4
|
.7
|
|
|
|
Third Amendment to Third Amended and Restated Credit Agreement
dated as of February 23, 2010 by and among Thermadyne
Industries, Inc., Thermal Dynamics Corporation, Victor Equipment
Company, C & G Merger Co., Stoody Company, Thermadyne
International Corp., as borrowers, the credit parties signatory
thereto, and General Electric Capital Corporation, as agent and
lender (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K (File No.
001-13023) filed on February 26, 2010).
|
|
4
|
.8
|
|
|
|
2009 Amended and Restated Second Lien Credit Agreement dated as
of August 14, 2009, by and among Thermadyne Industries, Inc.,
Thermal Dynamics Corporation, Victor Equipment Company, C&G
Merger Co., Stoody Company, and Thermadyne International Corp.,
as borrowers, the guarantors party thereto, the lenders parties
thereto, and Regions Bank, as administrative agent, collateral
agent and funding agent.*
|
|
4
|
.9
|
|
|
|
Amendment Number One to 2009 Amended and Restated Second Lien
Credit Agreement dated as of February 23, 2010 by and among
Thermadyne Industries, Inc., Thermal Dynamics Corporation,
Victor Equipment Company, C & G Merger Co., Stoody Company,
and Thermadyne International Corp., as borrowers, the guarantors
signatory thereto, the lenders signatory thereto, and Regions
Bank as agent (incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K (File No. 001-13023)
filed on February 26, 2010).
|
|
10
|
.1
|
|
|
|
Registration Rights Agreement dated as of May 23, 2003 among the
Company, Angelo Gordon & Co., L.P., Sigler & Co.,
Silver Oak Capital, LLC, Credit Suisse First Boston and Goldman
Sachs Credit Partners, L.P. (incorporated by reference to
Exhibit 4.3 to the registrants Quarterly Report on
Form 10-Q (File No. 0-23378) for the quarter ended June 30,
2003).
|
|
10
|
.2
|
|
|
|
Omnibus Agreement dated as of June 3, 1988, among Palco
Acquisition Company (now Thermadyne Holdings Corporation) and
its subsidiaries and National Warehouse Investment Company
(incorporated by reference to Exhibit 10.39 to the
Companys 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).
|
|
10
|
.3
|
|
|
|
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. (incorporated by reference to Exhibit 10.40 to
the Companys 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).
|
|
10
|
.4
|
|
|
|
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 (incorporated by reference to Exhibit 10.43
to the Companys 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).
|
|
10
|
.5
|
|
|
|
Schedule of substantially identical lease guarantees
(incorporated by reference to Exhibit 10.44 to the
Companys 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).
|
80
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Exhibit
|
|
|
10
|
.6
|
|
|
|
Lease Agreement, dated as of October 10, 1990, between Stoody
Deloro Stellite and Bowling
Green-Warren
County Industrial Park Authority, Inc. (incorporated by
reference to Exhibit 10.46 to the Companys 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).
|
|
10
|
.7
|
|
|
|
Lease Modification and Extension Agreement effective October 1,
2009, by and among Bowling Green Area Economic Development
Authority, Inc., successor to Bowling Green-Warren County
Industrial Park Authority, Inc., Stoody Company, Themadyne
Industries, Inc. and Thermadyne Holdings Corporation
(incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K (File No. 1-13023) filed on October
8, 2009).
|
|
10
|
.8
|
|
|
|
Lease Agreement between Alliance Gateway No. 58 Ltd. and Victor
Equipment Company, dated September 22, 2003 (incorporated by
reference to Exhibit 10.7 to the Companys Annual
Report on Form 10-K (File No. 0-23378) for the year ended
December 31, 2004).
|
|
10
|
.9
|
|
|
|
First Amendment to Lease between Alliance Gateway No. 58 Ltd.
and Victor Equipment Company, dated May 1, 2004 (incorporated by
reference to Exhibit 10.8 to the Companys Annual
Report on Form 10-K (File No. 0-23378) for the year ended
December 31, 2004).
|
|
10
|
.10
|
|
|
|
Lease Agreement between Ningbo Longxing Group Co., Ltd. and
Ningbo Fulida Gas Equipment Co. Ltd., dated January 19, 2005
(incorporated by reference to Exhibit 10.9 to the
Companys Annual Report on Form 10-K (File No. 0-23378) for
the year ended December 31, 2004).
|
|
10
|
.11
|
|
|
|
Lease Agreement between Ningbo Longxing Group Co., Ltd. and
Thermadyne (Ningbo) Cutting and Welding Equipment Manufacturing
Company, Ltd., dated December 28, 2004 (incorporated by
reference to Exhibit 10.10 to the Companys Annual
Report on Form 10-K (File No. 0-23378) for the year ended
December 31, 2004).
|
|
10
|
.12
|
|
|
|
First Amended and Restated Industrial Real Property Lease
between 2800 Airport Road Limited Partnership and Victor
Equipment Company dated August 1, 2007 (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly
Report on Form 10-Q (File No. 0-23378) for the quarter ended
September 30, 2007).
|
|
10
|
.13
|
|
|
|
Second Amendment to Amended and Restated Industrial Real
Property Lease between Benning Street, LLC and Thermal Dynamics
Corporation dated August 1, 2007 (incorporated by reference to
Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q
(File No. 1-13023) for the quarter ended September 30, 2007).
|
|
10
|
.14
|
|
|
|
Lease Agreement between Holman/Shidler Investment Corporation,
Thermadyne Welding Products Canada, Ltd., and the Company dated
October 25, 2007 (incorporated by reference to Exhibit 10.13 to
the Companys Annual Report on Form 10-K (File No. 1-13023)
for the year ended December 31, 2007).
|
|
10
|
.15
|
|
|
|
Contract to Establish an Equity Joint Venture Enterprise by and
between Ningbo Longxing Group Corporation Limited and the
Company, dated December 28, 2004 (incorporated by reference to
the Companys Annual Report on Form 10-K (File No. 0-23378)
for the year ended December 31, 2004).
|
|
10
|
.16
|
|
|
|
Amended and Restated Employment Agreement by and among
Thermadyne Holdings Corporation, its subsidiaries and Paul
Melnuk, dated August 17, 2009 (incorporated by reference to
Exhibit 10.3 to the Companys Current Report on Form 8-K
(File No. 1-13023) filed on August 21, 2009).
|
|
10
|
.17
|
|
|
|
Amendment Regarding IRC Section 409A to Executive Employment
Agreement between the Company and Paul D. Melnuk, dated December
31, 2008 (incorporated by reference to Exhibit 10.26 to the
Companys Annual Report on Form 10-K (File No. 1-13023) for
the year ended December 31, 2008).
|
|
10
|
.19
|
|
|
|
Amended and Restated Employment Agreement by and among
Thermadyne Holdings Corporation, its subsidiaries and Martin
Quinn, dated August 17, 2009 (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K
(File No. 1-13023) filed on August 21, 2009).
|
|
10
|
.20
|
|
|
|
Amendment Regarding IRC Section 409A to Executive Employment
Agreement between the Company and Martin Quinn, dated December
31, 2008 (incorporated by reference to Exhibit 10.30 to the
Companys Annual Report on Form 10-K (File No. 1-13023) for
the year ended December 31, 2008).
|
81
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Exhibit
|
|
|
10
|
.21
|
|
|
|
Third Amended and Restated Employment Agreement by and among
Thermadyne Holdings Corporation, its subsidiaries and Terry
Downes, dated August 17, 2009 (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K
(File No. 1-13023) filed on August 21, 2009).
|
|
10
|
.22
|
|
|
|
Amendment Regarding IRC Section 409A to Executive Employment
Agreement between the Company and Terry Downes, dated December
31, 2008 (incorporated by reference to Exhibit 10.28 to the
Companys Annual Report on Form 10-K (File No. 1-13023) for
the year ended December 31, 2008).
|
|
10
|
.23
|
|
|
|
Executive Employment Agreement between the Company and Steven A.
Schumm, dated August 7, 2006 (incorporated by reference to
Exhibit 10.23 to the Companys Annual Report on Form 10-K
(File No. 1-13023) for the year ended December 31, 2008).
|
|
10
|
.24
|
|
|
|
Amendment Regarding IRC Section 409A to Executive Employment
Agreement between the Company and Steven A. Schumm, dated
December 31, 2008 (incorporated by reference to
Exhibit 10.31 to the Companys Annual Report on Form
10-K (File No. 1-13023) for the year ended December 31, 2008).
|
|
10
|
.25
|
|
|
|
Executive Employment Agreement between the Company and Terry A.
Moody, dated July 12, 2007 (incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q (File No. 0-23378) for the quarter ended September 30,
2007).
|
|
10
|
.26
|
|
|
|
Amendment Regarding IRC Section 409A to Executive Employment
Agreement between the Company and Terry A. Moody, dated December
31, 2008 (incorporated by reference to Exhibit 10.29 to the
Companys Annual Report on Form 10-K (File No. 1-13023) for
the year ended December 31, 2008).
|
|
10
|
.27
|
|
|
|
Second Amended and Restated Executive Employment Agreement
between the Company and John Boisvert, dated January 1, 2004
(incorporated by reference to Exhibit 10.16 to the
Companys Annual Report on Form 10-K (File No. 0-23378) for
the year ended December 31, 2004).
|
|
10
|
.28
|
|
|
|
Amendment Regarding IRC Section 409A to Executive Employment
Agreement between the Company and John Boisvert, dated December
31, 2008 (incorporated by reference to Exhibit 10.27 to the
Companys Annual Report on Form 10-K (File No. 1-13023) for
the year ended December 31, 2008).
|
|
10
|
.29
|
|
|
|
Amended and Restated Executive Employment Agreement between the
Company and Dennis Klanjscek, dated June 13, 2002 (incorporated
by reference to Exhibit 10.13 to the Companys Annual
Report on Form 10-K (File No. 0-23378) for the year ended
December 31, 2004).
|
|
10
|
.30
|
|
|
|
Thermadyne Holdings Corporation Non-Employee Directors
Stock Option Agreement (incorporated by reference to Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q (File
No. 0-23378) for the quarter ended September 30, 2003).
|
|
10
|
.31
|
|
|
|
Thermadyne Holdings Corporation Non-Employee Directors
Deferred Stock Compensation Plan (incorporated by reference to
Exhibit 10.15 to the Companys Annual Report on Form 10-K
(File No. 0-23378)
for the year ended December 31, 2003).
|
|
10
|
.32
|
|
|
|
Amended and Restated Thermadyne Holdings Corporation
Non-Employee Directors Deferred Fee Plan (incorporated by
reference to Exhibit 10.34 to the Companys Annual Report
on Form 10-K (File No. 1-13023) for the year ended December
31, 2008).
|
|
10
|
.33
|
|
|
|
2004 Non-Employee Directors Stock Option Plan (incorporated by
reference to the Companys Definitive Proxy Statement on
Schedule 14A (File No. 0-23378) filed on March 24, 2004).
|
|
10
|
.34
|
|
|
|
Form of 2004 Non-Employee Directors Stock Option Agreement
(incorporated by reference to Exhibit 10.27 to the
Companys Annual Report on Form 10-K (File No. 1-13023) for
the year ended December 31, 2008).
|
|
10
|
.35
|
|
|
|
Thermadyne Holdings Corporation 2004 Stock Incentive Plan
(incorporated by reference to the Companys Definitive
Proxy Statement on Schedule 14A (File No. 0-23378) filed on
March 24, 2004).
|
|
10
|
.36
|
|
|
|
Thermadyne Holdings Corporation Amended and Restated 2004 Stock
Incentive Plan (incorporated by reference to the Companys
Definitive Proxy Statement on Schedule 14A (File No. 1-13023)
filed on April 21, 2008).
|
82
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Exhibit
|
|
|
10
|
.37
|
|
|
|
Form of 2004 Stock Incentive Plan Option Agreement (incorporated
by reference to Exhibit 10.39 to the Companys Annual
Report on Form 10-K (File No. 0-23378) for the year ended
December 31, 2006).
|
|
10
|
.38
|
|
|
|
Form of 2004 Stock Incentive Plan Restricted Stock Agreement
(incorporated by reference to Exhibit 10.40 to the
Companys Annual Report on Form 10-K (File No. 1-13023) for
the year ended December 31, 2008).
|
|
10
|
.39
|
|
|
|
Form of Indemnification Agreement (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form
8-K (File No. 1-13023) filed on October 9, 2007).
|
|
10
|
.40
|
|
|
|
Acquisition Agreement dated as of December 22, 2005, by and
between Thermadyne Italia, S.R.L., as seller, and Mase
Generators S.P.A., as buyer (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form
8-K (File No. 0-23378) filed on December 28, 2005).
|
|
10
|
.41
|
|
|
|
Purchase Agreement dated as of December 22, 2005, by and among
Thermadyne Chile Holdings, Ltd. and Thermadyne South America
Holdings, Ltd., as sellers, and Soldaduras PCR Soltec Limitada
and Penta Capital de Riesgo S.A., as buyers (incorporated by
reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K (File No. 0-23378) filed on December 28,
2005).
|
|
10
|
.42
|
|
|
|
Sale Agreement dated March 9, 2006 between The HG A Van Zyl
Familie Trust and Hendrik Gert Van Zyl and Thermadyne South
Africa (Pty) Limited t/a Unique Welding Alloys and Renttech S.A.
(Pty) Limited and Unique Welding Alloys Rustenburg (Proprietary)
Limited t/a Thermadyne Plant Rental South Africa and Thermadyne
Industries Inc. and Pieter Malan (incorporated by reference to
Exhibit 10.27 to the Companys Annual Report on Form
10-K (File No. 0-23378) for the year ended December 31, 2006).
|
|
10
|
.43
|
|
|
|
Share Sale Agreement dated March 9, 2006 between Marthinus
Johannes Crous and Thermadyne Industries, Inc and Thermadyne
South Africa (Pty) Limited trading as Unique and Unique Welding
Alloys Rustenburg (Pty) Limited trading as Thermadyne Plant
Rental South Africa and Maxweld & Braze (Pty) Limited and
Selrod Welding (Pty) Limited (incorporated by reference to
Exhibit 10.28 to the Companys Annual Report on Form
10-K (File No. 0-23378) for the year ended December 31, 2006).
|
|
10
|
.44
|
|
|
|
Acquisition Agreement dated April 6, 2006 between Thermadyne
Italia S.r.l. and SIGEFI Societe para Actions Simplifiee, acting
on behalf of Siparex Italia, Fonds Commun de Placement a Risque
and Giorgio Bassi (incorporated by reference to
Exhibit 10.29 to the Companys Annual Report on Form
10-K (File No. 0-23378) for the year ended December 31, 2006).
|
|
10
|
.45
|
|
|
|
Sale of Shares and Claims Agreement dated February 5, 2007
between Thermadyne Industries, Inc. and Thermaweld Industries
(Proprietary) Limited (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form
8-K (File No. 0-23398) filed on June 1, 2007).
|
|
21
|
|
|
|
|
Subsidiaries of the Company.*
|
|
23
|
|
|
|
|
Consent of Independent Registered Public Accounting Firm.*
|
|
31
|
.1
|
|
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.*
|
|
31
|
.2
|
|
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.*
|
|
32
|
.1
|
|
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
32
|
.2
|
|
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted by Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
|
|
Indicates a management contract or compensatory plan or
arrangement. |
|
* |
|
Filed herewith. |
83