UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-13023

Thermadyne Holdings Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		74-2482571 (I.R.S. Employer Identification No.)
16052 Swingley Ridge Road, Suite 300, Chesterfield, MO (Address of Principal Executive Offices)		63017 (Zip Code)

Registrant’s Telephone Number, Including Area Code (636) 728-3000

Indicate by checkmark 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 checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o   No þ

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No þ

The number of shares outstanding of the issuer’s common stock, par value $0.01 per share, on October 26, 2010 was 13,556,563.

 

 

THERMADYNE HOLDINGS CORPORATION

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statements of Cash Flows			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			30
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 6. Exhibits			32
SIGNATURES			33
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1.

THERMADYNE HOLDINGS CORPORATION

		September 30,				December 31,
		2010				2009
Current Assets:
Cash and cash equivalents		$	11,345			$	14,886
Accounts receivable, less allowance for doubtful accounts of $500 and $400, respectively			71,330				56,589
Inventories			86,139				74,381
Prepaid expenses and other			9,702				9,255
Deferred tax assets			3,008				3,008
Total current assets			181,524				158,119
Property, plant and equipment, net of accumulated depreciation of $62,374 and $55,082, respectively			46,644				46,687
Goodwill			188,782				187,818
Intangibles, net			56,741				58,451
Other assets			2,835				3,870
Total assets		$	476,526			$	454,945
Current Liabilities:
Working capital facility		$	12,556			$	9,643
Current maturities of long-term obligations			2,905				8,915
Accounts payable			28,995				9,598
Accrued and other liabilities			37,317				23,119
Accrued interest			3,133				7,608
Income taxes payable			3,726				705
Deferred tax liabilities			2,793				2,793
Total current liabilities			91,425				62,381
Long-term obligations, less current maturities			179,505				198,466
Deferred tax liabilities			52,805				52,835
Other long-term liabilities			12,289				13,471
Stockholders’ equity:
Common stock, $0.01 par value:
Authorized — 25,000,000 shares Issued and outstanding — 13,552,073 shares at September 30, 2010 and 13,539,998 shares at December 31, 2009			136				135
Additional paid-in capital			189,414				188,791
Accumulated deficit			(55,375	)			(65,063	)
Accumulated other comprehensive income			6,327				3,929
Total shareholders’ equity			140,502				127,792
Total liabilities and shareholders’ equity		$	476,526			$	454,945

See accompanying notes to condensed consolidated financial statements.

THERMADYNE HOLDINGS CORPORATION

		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Net sales		$	106,483			$	89,501			$	311,696			$	257,617
Cost of goods sold			69,439				60,706				205,036				182,517
Gross margin			37,044				28,795				106,660				75,100
Selling, general and administrative expenses			23,936				21,767				70,785				59,477
Amortization of intangibles			681				673				2,038				2,016
Operating income			12,427				6,355				33,837				13,607
Other income (expenses):
Interest, net			(4,995	)			(5,577	)			(17,270	)			(15,121	)
Amortization of deferred financing costs			(238	)			(276	)			(753	)			(749	)
Settlement of retiree medical obligations			—				5,863				—				5,863
Loss on debt extinguishment			—				—				(1,867	)			—
Income from continuing operations before income tax provision and discontinued operations			7,194				6,365				13,947				3,600
Income tax provision			2,373				2,639				4,259				1,788
Net income from continuing operations		$	4,821			$	3,726			$	9,688			$	1,812
Income from discontinued operations, net of tax			—				1,118				—				3,051
Net income		$	4,821			$	4,844			$	9,688			$	4,863
Basic income per share
Continuing operations		$	0.36			$	0.27			$	0.72			$	0.13
Discontinued operations			—				0.09				—				0.23
Net income		$	0.36			$	0.36			$	0.72			$	0.36
Diluted income per share:
Continuing operations		$	0.35			$	0.27			$	0.71			$	0.13
Discontinued operations			—				0.08				—				0.22
Net income		$	0.35			$	0.35			$	0.71			$	0.35

See accompanying notes to condensed consolidated financial statements.

THERMADYNE HOLDINGS CORPORATION

		Nine Months Ended September 30,
		2010				2009
Cash flows from continuing operations:
Cash flows from operating activities:
Net income		$	9,688			$	4,863
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Income from discontinued operations			—				(3,051	)
Depreciation and amortization			10,067				9,601
Deferred income taxes			(1,266	)			(270	)
Stock compensation expense (gain)			522				(616	)
Net periodic post-retirement benefits			608				(6,055	)
Loss on debt extinguishment			1,867				—
Changes in operating assets and liabilities:
Accounts receivable			(13,231	)			18,598
Inventories			(10,062	)			28,774
Prepaids			(28	)			887
Accounts payable			18,066				(9,872	)
Accrued and other liabilities			13,059				(6,350	)
Accrued interest			(4,475	)			(3,416	)
Accrued taxes			2,814				(1,936	)
Other long-term liabilities			(1,607	)			(796	)
Other, net			(544	)			—
Net cash provided by operating activities			25,478				30,361
Cash flows from investing activities:
Capital expenditures			(5,921	)			(4,626	)
Other			(328	)			(245	)
Net cash used in investing activities			(6,249	)			(4,871	)
Cash flows from financing activities:
Borrowings under Working Capital Facility			15,927				8,923
Repayments of Working Capital Facility			(13,014	)			(41,454	)
Borrowings under Second-Lien Facility and other			—				25,075
Repayments of Second-Lien Facility and other			(26,305	)			(16,630	)
Exercise of employee stock purchases and stock options			102				95
Advances from (to) discontinued operations			—				2,398
Termination payment from derivative counterparty			—				2,313
Other, net			—				(818	)
Net cash used in financing activities			(23,291	)			(20,098	)
Effect of exchange rate changes on cash and cash equivalents			521				1,552
Net cash provided by (used in) continuing operations			(3,541	)			6,944
Cash flows from discontinued operations
Loss from discontinued operations			—				(585	)
Total increase (decrease) in cash and cash equivalents			(3,541	)			6,359
Total cash and cash equivalents beginning of period			14,886				12,501
Total cash and cash equivalents end of period		$	11,345			$	18,860
Income taxes paid		$	3,697			$	3,928
Interest paid		$	21,761			$	19,531

See accompanying notes to condensed consolidated financial statements.

Stock compensation expense was reclassified from financing activities to operating activities for both periods shown.

THERMADYNE HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except share data)

1. Organization and Basis of Presentation

Thermadyne Holdings Corporation (“Thermadyne” or the “Company”), a Delaware corporation, is a global designer and manufacturer of cutting and welding products, including equipment, accessories and consumables.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included in these condensed consolidated financial statements. The combined results of operations of the Company for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2009.

The preparation of financial statements requires the use of estimates and assumptions that affect the amounts reported in Thermadyne’s condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

2. Significant Accounting Policies

Product Warranty Programs

Various products are sold with product warranty programs. Provisions for warranty programs are made based on historical experience as the products are sold and such provisions are adjusted periodically based on current estimates of anticipated warranty costs. The following table provides the activity in the warranty accrual for the three and nine months ended September 30, 2010 and 2009:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Balance at beginning of period		$	2,620			$	2,659			$	2,300			$	2,961
Charged to expenses			1,100				950				3,190				2,354
Warranty payments			(920	)			(1,109	)			(2,690	)			(2,815	)
Balance at end of period		$	2,800			$	2,500			$	2,800			$	2,500

Fair Value

The carrying values of the obligation outstanding under the Working Capital Facility approximates fair value because the obligation has varying interest charges based on current market rates and was recently renegotiated. The Company’s Senior Subordinated Notes traded at 103% and 95% at September 30, 2010, and December 31, 2009, respectively, based on available market information.

Recent Accounting Pronouncements

The Company has determined that all 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 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. This reflected the estimated net realizable value of the assets and the estimated remaining liabilities of 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. A gain, net of tax, of $1,118 was recorded in the third quarter of 2009 related to Brazil 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.

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 the 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 $13,800 net cash received at closing along with a note due in May 2010 in the amount of 30,000 South African Rand and bearing 14% interest payable. In April 2009, the note was settled and the Company recorded a gain of $1,933 in discontinued operations. The Company also recorded $522 of interest income in continuing operations related to this transaction.

The table below sets forth the net income of each of the discontinued operations in 2009:

		Brazil				South Africa				Total
Three Months Ended September 30, 2009		$	1,118				—			$	1,118
Nine Months Ended September 30, 2009			1,118			$	1,933				3,051

4. Inventories

The composition of inventories was as follows:

		September 30,				December 31,
		2010				2009
Raw materials and component parts		$	28,935			$	25,410
Work-in-process			3,578				4,216
Finished goods			62,258				53,272
			94,771				82,898
LIFO reserve			(8,632	)			(8,517	)
		$	86,139			$	74,381

5. Intangible Assets

The composition of intangibles was as follows:

		September 30,				December 31,
		2010				2009
Goodwill		$	188,782			$	187,818
Patents and customer relationships			43,068				42,741
Trademarks			33,403				33,403
			265,253				263,962
Accumulated amortization of patents and customer relationships			(19,730	)			(17,693	)
		$	245,523			$	246,269

Amortization of patents and customer relationships amounted to $681 and $2,038 for the three and nine month periods ended September 30, 2010, respectively, and to $673 and $2,016 for the three and nine month periods ended September 30, 2009, respectively.

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 annual impairment analysis was completed in the fourth quarter of 2009, and no adjustment to the carrying value of goodwill was deemed necessary as of October 1, 2009. As of September 30, 2010, the Company considered possible impairment triggering events since the impairment test date, including its market capitalization relative to the carrying value of its net assets, as well as other relevant factors, and concluded that no triggering events or goodwill impairment were indicated at that date. As noted in Footnote 16, “Subsequent Events,” the Company announced the execution of a definitive merger agreement under which an affiliate of Irving Place Capital will acquire all of the outstanding common shares of the company in a transaction valued at approximately $422,000. This transaction value substantially exceeds the reporting unit’s carrying value of as of September 30, 2010.

The change in the carrying amount of goodwill during the nine-month period was as follows:

		Carrying Amount
		of Goodwill
Balance as of January 1, 2010		$	187,818
Foreign currency translation			964
Balance as of September 30, 2010		$	188,782

6. Debt and Capital Lease Obligations

The composition of debt and capital lease obligations was as follows:

		September 30,				December 31,
		2010				2009
Working Capital Facility		$	12,556			$	9,643
Second Lien Facility			—				25,000
Issuance discount on Second Lien Facility			—				(1,703	)
Senior Subordinated Notes, due February 1, 2014, 9 1/4% interest payable semiannually on February 1 and August 1			172,327				172,327
Capital leases			8,542				9,869
Other			1,542				1,888
			194,966				217,024
Current maturities and working capital facility			(15,461	)			(18,558	)
		$	179,505			$	198,466

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 $70,000 (the “Working Capital Facility”), which includes (a) an asset based facility and (b) an amortizing $10,000 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 1% if the Facility is terminated; and (vii) includes a minimum fixed charge coverage ratio of 1.10 measured quarterly. With respect to the quarters ending March 31, 2010 and June 30, 2010, the calculation is based on the results for the 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 $10,000.

At September 30, 2010, $3,878 of letters of credit were outstanding under the Credit Agreement. Unused availability, net of these letters of credit, was $42,584 under the Working Capital Facility.

Second Lien Agreement

Under the 2009 Amended and Restated Second Lien Credit Agreement, as amended (the “Second Lien Agreement”), the Company borrowed $25,000 with a maturity date of November 30, 2012. During the nine months ended September 30, 2010, the Company voluntarily prepaid the $25,000 principal balance outstanding, plus accrued and unpaid interest on such amount. The outstanding principal amount bore interest at 12% per annum and would have been due November 30, 2012. As a result of the prepayment, the Second Lien Agreement has terminated and liens on the property and assets of the Company and its subsidiaries thereunder have been released. The Company recorded a loss on debt extinguishment related to these prepayments in the amount of $1,867 as of June 30, 2010, consisting of a $1,494 write off of unamortized original issue discount, $284 write off of unamortized deferred financing fees, and prepayment fees of $89.

Senior Subordinated Notes

The Company is the issuer of 9.25% Senior Subordinated Notes due in 2014 (the “Senior Subordinated Notes”) with an aggregate principal outstanding of $172,327. 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 9.25% per annum and is payable semi-annually in arrears on February 1 and August 1 of each year. An additional Special Interest is payable semi-annually and accrues at a rate subject to adjustment based on the consolidated leverage ratio which is calculated each calendar quarter. The Special Interest accrual rate through June 30, 2010 was 2.25% with 1.25% effective for the calendar quarter beginning July 1, 2010 and 0.75% effective for the calendar quarter beginning October 1, 2010.

The Senior Subordinated Notes contain customary covenants and events of default, including covenants that limit the Company’s ability 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 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 debt repayment obligation from the “Excess Cash Flow” amount for 2009 was $6,000 and was paid on April 1, 2010 through a repayment of Second Lien borrowings.

Parent Company Financial Information

Borrowings under the Company’s financing agreements are the obligations of Thermadyne Industries, Inc. (“Industries”), the Company’s principal operating subsidiary, and certain of Industries’ subsidiaries. Certain borrowing agreements contain restrictions on the ability of the subsidiaries to dividend cash and other assets to the parent company, Thermadyne Holdings Corporation. At September 30, 2010 and December 31, 2009, the primary asset carried on the parent company books of Thermadyne Holdings Corporation was its investment in its operating subsidiaries and the primary liability was 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 17, “Condensed Consolidating Financial Statements.”

Covenant Compliance

At September 30, 2010, the Company was in compliance with its financial covenants. 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 in the Credit Agreement, to be at least 1.10 of Fixed Charges, as defined. A default of the financial covenants under the Working Capital Facility would constitute a default under the Senior Subordinated Notes.

7. Derivative Instruments

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 and is being amortized as a reduction of interest expense over the remaining term of the Notes.

8. Comprehensive Income

Comprehensive income for the three and nine months ended September 30, 2010 and 2009 was as follows:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Net income		$	4,821			$	4,844			$	9,688			$	4,863
Cumulative foreign currency translation gains (losses), net of tax			4,528				2,323				2,151				6,568
Pension and post-retirement liabilities			77				(1,483	)			247				(1,352	)
Comprehensive income (loss)		$	9,426			$	5,684			$	12,086			$	10,079

9. Income Taxes

The Company accounts for income taxes by recognizing deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between the financial reporting and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion of or all of the deferred tax asset will not be realized.

At the beginning of 2010, the Company had approximately $150,000 in U.S. net operating losses (NOL). The benefit of net operating loss carryovers reduce current year income tax expense as the carryovers are utilized. For 2010, the Company’s management estimates that actual cash income tax payments will, as in prior years, primarily relate to state and foreign taxes due to the use of net operating loss carryovers to offset U.S. taxable income.

On October 7, 2010, the Company may have experienced a Section 382 annual limitation on future utilization of its NOL carryovers as explained at Note 16, “Subsequent Events.” The potential section 382 annual limitation arose independently of the Agreement to be Acquired by Irving Place Capital noted at “Note 16, Subsequent Events.” This potential limitation does not impact the financial statements as of September 30, 2010, nor does management expect this limitation to materially impact the Company’s 2010 financial statements.

10. Contingencies

The Company and certain of its wholly owned subsidiaries are defendants in various legal actions, primarily related to welding fumes and other product liability claims. While there is uncertainty relating to any litigation, management is of the opinion that the outcome of this litigation will not have a material adverse effect on the Company’s financial condition or results of operations.

The Company is party to certain environmental matters. Any related obligations are not expected to have a material adverse effect on the Company’s financial condition or results of operations.

During the third quarter of 2010, the Company substantially completed a comprehensive review of its compliance with foreign and U.S. duties requirements that it initiated in light of the assessments by a foreign jurisdiction in the third quarter of 2009. Based on this review, the Company has concluded that additional liabilities for duties, if any, are not material. In conjunction with this review, the Company recorded duties liabilities related to prior periods and associated legal costs of approximately $700 as of June 30, 2010. In addition, the Company incurred legal costs during the three months ended September 30, 2010 of approximately $600. The Company also accrued $110 of related interest expense payable on prior settlement obligations in the three months ended June 30, 2010.

Except as discussed in Note 16, “Subsequent Events,” 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 Company’s financial condition or on the results of operations.

11. Stock Options and Stock-Based Compensation

The Company utilizes the modified prospective method of accounting for stock compensation, and accordingly recognizes compensation cost for all share-based payments, which consist of stock options and restricted stock, granted after January 1, 2006. Stock compensation cost included in selling, general and administrative expense was $274 of expense for the three months ended September 30, 2010. For the three months ended September 30, 2009, net stock compensation charges were $52 resulting from $78 of charges partially offset by the reversal of prior performance-based accruals of $26. Stock compensation cost included in selling, general and administrative expense was $523 of expense for the nine months ended September 30, 2010. For the nine months ended September 30, 2009, stock compensation expense was a net credit of $616 reflecting the reversal of prior performance-based accruals of $933 offset by stock compensation charges of $317.

The estimated fair value of the restricted stock awards is estimated as the closing price of the stock on the date of the awards. The estimated fair value of stock option grants is computed using the Black-Scholes-Merton option-pricing model. Expected volatility is based on historical periods generally commensurate with the expected life of options. The expected life is based on historical experience. Stock option expense is recognized in the condensed consolidated condensed statements of operations ratably over the vesting period based on the number of options that are expected to ultimately vest.

Under the 2004 Non-Employee Directors Stock Option Plan, the Amended and Restated 2004 Stock Incentive Plan, and other specific agreements, 1,102,539 options to purchase shares were issued and outstanding as of September 30, 2010. In addition, as of September 30, 2010, 430,050 restricted shares were outstanding, of which 333,188 shares have vesting determined in 2010, 2011, 2012 and 2013 based on performance targets related to return on invested operating capital with the remaining 96,862 shares vesting ratably over the three years ending June 2013.

Non-qualified options for 3,330 shares were exercised in the nine month period ended September 30, 2010. The fair value of options vested during the nine month period ended September 30, 2010 was $2.79 per unit.

At September 30, 2010, the total stock-based compensation cost related to non-vested awards not yet recognized is approximately $1,707 and the weighted average period over which this amount is expected to be recognized is approximately 2.0 years.

In summary, changes in stock options during the nine months ended September 30, 2010 were as follows:

										Weighted-
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
Total Employee and Director Stock Options		Shares				Price				Term				Value
Options outstanding at January 1, 2010			1,190,578			$	12.72				5.5			$	239
Granted			203,373			$	7.79
Exercised			(3,330	)		$	6.69
Forfeited or expired			(288,082	)		$	14.48
Options outstanding at September 30, 2010			1,102,539			$	11.37				4.9			$	3,285
Vested options exercisable at September 30, 2010			634,704			$	12.67				4.2			$	1,138
Non-Vested Stock Options
Non-vested options outstanding at January 1, 2010			538,604
Granted			203,373
Vested			(39,524	)
Forfeited or expired			(234,618	)
Non-vested options outstanding at September 30, 2010			467,835			$	9.59				6.3			$	2,147

The Company granted 203,373 stock options and 117,278 restricted shares in the nine month period ended September 30, 2010 to various salaried employees. All of the stock options and 96,862 restricted shares are time-based and, subject to acceleration of vesting in the event of a change of control, will vest ratably over three years beginning on the first anniversary of the grant date. See Note 16, “Subsequent Events.” The remaining 20,416 restricted shares will vest if established performance targets related to return on invested operating capital are achieved for the 5 year periods ending December 31, 2013, subject to acceleration in the event of a change in control as noted above.

Restricted Shares
Restricted shares outstanding at January 1, 2010		$	383,628
Granted during 2010			117,278
Forfeited or expired			(70,856	)
Restricted shares outstanding at September 30, 2010		$	430,050

At the effective time of the merger noted at Footnote 16, “Subsequent Events,” each option to acquire shares of our common stock that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will vest (if unvested) and will be cancelled in exchange for the right to receive a cash payment equal to the number of shares of our common stock subject to the option, multiplied by the excess, if any, by which $15.00 exceeds the exercise price of the option. As of the effective time, each option for which the exercise price per share of our common stock equals or exceeds $15.00 will be cancelled and have no further force or effect without any right to receive any consideration therefore. At September 30, 2010, there were options to purchase 965,925 shares outstanding with an exercise price less than $15.00 per share. At or immediately prior to the effective time, each outstanding restricted share will vest and become free of any restrictions and, as of the effective time of the merger, will be cancelled and converted into the right to receive $15.00 per restricted share, without interest.

12. Earnings Per Share

The calculation of net income per share follows:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Numerator:
Income applicable to common shares
Continuing operations		$	4,821			$	3,726			$	9,688			$	1,812
Discontinued operations		$	—			$	1,118			$	—			$	3,051
Net income		$	4,821			$	4,844			$	9,688			$	4,863
Denominator:
Weighted average shares for basic earnings per share			13,550,244				13,537,019				13,546,488				13,525,386
Dilutive effect of stock options and restrictive shares			260,101				111,640				170,311				76,134
Weighted average shares for diluted earnings per share			13,810,345				13,648,659				13,716,799				13,601,520
Basic income per share amounts:
Continuing operations		$	0.36			$	0.27			$	0.72			$	0.13
Discontinued operations		$	—			$	0.09			$	—			$	0.23
Net income per share		$	0.36			$	0.36			$	0.72			$	0.36
Diluted income per share amounts:
Continuing operations		$	0.35			$	0.27			$	0.71			$	0.13
Discontinued operations		$	—			$	0.08			$	—			$	0.22
Net income per share		$	0.35			$	0.35			$	0.71			$	0.35

The calculation of basic weighted average shares for the three and nine months ended September 30, 2010 excludes 1.3 million and 1.4 million of stock options and restricted stock, respectively, because their effect was considered to be antidilutive or performance conditions had not been satisfied. The calculation of basic weighted average shares for the

three and nine months ended September 30, 2009 excludes common shares of 1.5 million and 1.5 million stock options and restricted stock, respectively, for reasons noted above.

13. Employee Benefit Plans

Net periodic pension and other postretirement benefit costs include the following components:

		Pension Benefits								Other Postretirement Benefits
		Three Months Ended September 30,								Three Months Ended September 30,
		2010				2009				2010				2009
Components of the net periodic benefit cost:
Interest cost		$	318			$	321			$	—			$	—
Expected return on plan assets			(279	)			(235	)			—				—
Recognized (gain) loss			146				161				(36	)			(201	)
Settlement gain			—				—				—				(5,863	)
Net periodic benefit cost		$	185			$	247			$	(36	)		$	(6,064	)

		Pension Benefits								Other Postretirement Benefits
		Nine Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Components of the net periodic benefit cost:
Interest cost		$	954			$	963			$	—			$	9
Expected return on plan assets			(837	)			(705	)			—				—
Recognized (gain) loss			439				483				(108	)			(201	)
Settlement gain			—				—				—				(5,863	)
Net periodic benefit cost		$	556			$	741			$	(108	)		$	(6,055	)

Settlement of retiree medical obligations for the three and nine months ended September 30, 2009 was adjusted from $7,150 to $5,863 subsequent to the issuance of the September 30, 2009 10-Q. The financial statements herein reflect the corrected gain as shown in the Company’s 2009 10-K. Management views this error as immaterial to the financial statements.

14. Segment Information

The Company’s 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

The reportable geographic regions are the Americas (United States, Canada, Mexico, Latin America and South America), Europe/Middle East and Asia-Pacific. The following tables provide summarized financial information concerning the Company’s geographic segments:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Net Sales:
Americas		$	70,568			$	60,319			$	211,753			$	179,376
Asia-Pacific			29,812				23,956				81,598				61,528
Europe/ Middle East			6,103				5,226				18,345				16,713
Total		$	106,483			$	89,501			$	311,696			$	257,617

For all periods shown, U.S. sales comprised approximately 80% of Americas sales, while Australia sales comprised approximately 80% of Asia-Pacific sales.

		September 30,				December 31,
		2010				2009
Identifiable Assets (excluding working capital and intangibles):
Americas		$	38,774			$	40,365
Asia-Pacific			8,881				8,043
Europe/Middle East			1,518				1,844
		$	49,173			$	50,252

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 for each of the product lines:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Net sales:
Gas equipment		$	38,519			$	31,718			$	113,534			$	90,218
Filler metals including hardfacing			21,877				20,738				65,018				59,259
Arc accessories including torches, related consumable parts and accessories			19,428				15,249				53,788				45,213
Plasma power supplies, torches and related consumable parts			16,459				12,873				48,599				38,705
Welding equipment			10,200				8,923				30,757				24,222
		$	106,483			$	89,501			$	311,696			$	257,617

15. Restructuring and Other Charges

In the first quarter of 2009, the Company offered a voluntary retirement program in which approximately 50 employees elected to participate, reducing annual compensation and benefit costs by approximately $3,100. The Company accrued restructuring charges of $1,300 in separation pay and COBRA benefits payable under the program. The amounts were substantially paid through August 2009.

16. Subsequent Events

Agreement to be Acquired by Irving Place Capital

On October 5, 2010, we announced the execution of a definitive merger agreement under which an affiliate of Irving Place Capital has agreed to acquire all of the outstanding shares of common stock of the Company for $15.00 per share in cash. We filed a preliminary proxy statement with the Securities and Exchange Commission on October 18, 2010, in connection with the proposed transaction.

The Company’s board of directors has unanimously approved the merger agreement and recommended that the Company’s stockholders adopt the agreement with Irving Place. A special meeting of the Company’s stockholders will be held as soon as practicable after the preparation and filing of a proxy statement with the Securities and Exchange Commission and subsequent mailing to stockholders. The transaction is targeted to close by December 31, 2010; however, the parties cannot predict the exact timing of the completion of the merger or whether the merger will be completed at a later time as agreed to by the parties or at all.

Completion of the transaction is subject to customary conditions, including without limitation, (i) adoption of the merger agreement by the Company’s stockholders, certain of whom have agreed to vote in favor of the merger pursuant to a voting agreement and (ii) expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In addition, the obligation of an affiliate of Irving Place Capital to consummate the merger is subject to the absence since the date of the merger agreement of any continuing event or development which would have a material adverse effect on the Company.

As contemplated in the merger agreement, at the effective time of the merger, each option to acquire shares of our common stock that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will vest (if unvested) and will be cancelled in exchange for the right to receive a cash payment equal to the number of shares of our common stock subject to the option, multiplied by the excess, if any, by which $15.00 exceeds the exercise price of the option. As of the effective time, each option for which the exercise price per share of our common stock equals or exceeds $15.00 will be cancelled and have no further force or effect without any right to receive any consideration therefore. At September 30, 2010, there were options to purchase 965,925 shares outstanding with an exercise price less than $15.00 per share. At or immediately prior to the effective time, each outstanding restricted share will vest and become free of any restrictions and, as of the effective time of the merger, will be cancelled and converted into the right to receive $15.00 per restricted share, without interest.

Limitation in Use of Net Operating Losses

On October 7, 2010, the Company may have experienced an “ownership change” under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, resulting from the possible acquisition of more than five percent of the outstanding shares of the Company’s common stock, as reported on a Schedule 13D filed with the SEC. An ownership change would limit the use of net operating losses to offset future taxable income. The Company is conducting further inquiries to determine if the owner qualifies as a five percent owner under the Code. This potential limitation does not impact the financial statements as of September 30, 2010, nor does management expect this limitation, if applicable, to materially impact the Company’s 2010 financial statements, it applicable.

Legal Proceeding

On October 19, 2010, Robert Israeli filed a class action complaint in the Circuit Court of St. Louis County, Missouri against the Company, the Company’s directors, and Irving Place Capital. The complaint alleges, among other things, that the Company’s directors breached their fiduciary duties to the Company’s stockholders, including their duties of loyalty, good faith and independence, and the Company and Irving Place Capital aided and abetted the Company’s directors’ alleged breaches of their fiduciary duties. The plaintiffs seek injunctive relief preventing the defendants from consummating the transactions contemplated by the merger agreement with IPC, or in the event the defendants consummate the transactions contemplated by the merger agreement, rescission of such transactions, and attorney’s fees and expenses. The Company and the other defendants have not yet responded to the complaint. The Company believes that this lawsuit is without merit and intends to defend it.

17. Condensed Consolidating Financial Statements

Certain of the Company’s wholly owned subsidiaries (“Guarantor Subsidiaries”) fully and unconditionally provided guarantees under the Company’s various borrowing arrangements and are jointly and severally liable for certain payments under these agreements. Each of the Guarantor Subsidiaries is wholly owned by the Company.

The following financial information as of September 30, 2010, December 31, 2009, and September 30, 2009 presents guarantors and non-guarantors, 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.

THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2010
(unaudited)
(In thousands)

		Parent
		Thermadyne
		Holdings								Non-
		Corporation				Guarantors				Guarantors				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents		$	—			$	7,252			$	4,093			$	—			$	11,345
Accounts receivable, net			—				60,054				11,276				—				71,330
Inventories			—				74,452				11,687				—				86,139
Prepaid expenses and other			—				7,610				2,092				—				9,702
Deferred tax assets			—				3,008				—				—				3,008
Total current assets			—				152,376				29,148				—				181,524
Property, plant and equipment, net			—				43,292				3,352				—				46,644
Goodwill			—				188,782				—				—				188,782
Intangibles, net			—				49,282				7,459				—				56,741
Other assets			1,648				5,526				—				(4,339	)			2,835
Investment in and advances to subsidiaries			252,742				—				—				(252,742	)			—
Total assets		$	254,390			$	439,258			$	39,959			$	(257,081	)		$	476,526
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Working capital facility		$	—			$	12,556			$	—			$	—			$	12,556
Current maturities of long-term obligations			463				2,227				215				—				2,905
Accounts payable			—				23,708				5,287				—				28,995
Accrued and other liabilities			—				33,125				4,192				—				37,317
Accrued interest			3,016				117				—				—				3,133
Income taxes payable			—				2,934				792				—				3,726
Deferred tax liabilities			—				2,793				—				—				2,793
Total current liabilities			3,479				77,460				10,486				—				91,425
Long-term obligations, less current maturities			172,327				6,789				389				—				179,505
Deferred tax liabilities			—				52,805				—				—				52,805
Other long-term liabilities			1,079				10,575				635				—				12,289
Shareholders’ equity (deficit):
Common stock			136				—				—				—				136
Additional paid-in-capital			189,414				—				—				—				189,414
Accumulated deficit			(55,374	)			75,940				(64,539	)			(11,402	)			(55,375	)
Accumulated other comprehensive income (loss)			6,327				(32,238	)			(12,152	)			44,390				6,327
Total shareholders’ equity (deficit)			140,503				43,702				(76,691	)			32,988				140,502
Net equity (deficit) and advances to / from subsidiaries			(62,998	)			247,927				105,140				(290,069	)			—
Total liabilities and shareholders’ equity (deficit)		$	254,390			$	439,258			$	39,959			$	(257,081	)		$	476,526

THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2009
(In thousands)

		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 liabilities			—				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

THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2010
(unaudited)
(In thousands)

		Parent
		Thermadyne
		Holdings								Non-
		Corporation				Guarantors				Guarantors				Eliminations				Consolidated
Net sales		$	—			$	114,425			$	10,564			$	(18,506	)		$	106,483
Cost of goods sold			—				80,392				7,423				(18,376	)			69,439
Gross margin			—				34,033				3,141				(130	)			37,044
Selling, general and administrative expenses			275				23,842				728				(909	)			23,936
Amortization of intangibles			—				681				—				—				681
Operating income (loss)			(275	)			9,510				2,413				779				12,427
Other income (expenses):
Interest, net			(4,408	)			(616	)			29				—				(4,995	)
Amortization of deferred financing costs			(124	)			(114	)			—				—				(238	)
Equity in net income (loss) of subsidiaries			9,628				—				—				(9,628	)			—
Loss on debt extinguishment			—				—				—				—				—
Income (loss) from continuing operations before income tax provision			4,821				8,780				2,442				(8,849	)			7,194
Income tax provision			—				1,608				765				—				2,373
Net income (loss)		$	4,821			$	7,172			$	1,677			$	(8,849	)		$	4,821