UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

Commission file number 001-13023

Thermadyne Holdings Corporation

(Exact Name of Registrant as Specified in Its Charter)

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 x    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 x 

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 x          Smaller reporting company o  

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No x 

The number of shares outstanding of the issuer’s common stock, par value $0.01 per share, on August 15, 2011 was 1,000.

THERMADYNE HOLDINGS CORPORATION

INDEX

PART I. FINANCIAL INFORMATION  

Item 1.

THERMADYNE HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

THERMADYNE HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

THERMADYNE HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

THERMADYNE HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except share data)

1.   Organization 

Thermadyne Holdings Corporation (“Thermadyne” or the “Company”), a Delaware corporation, is a designer and manufacturer of cutting and welding products used in various fabrication, construction and manufacturing operations around the world.  We market our products under a portfolio of brands including Victor ®, Tweco®, Thermal Dynamics®, Arcair®, Cigweld®, Thermal Arc®, Turbo Torch® and Stoody®.

 On December 3, 2010 (“Acquisition Date”), pursuant to an Agreement and Plan of Merger dated as of October 5, 2010 (the “Merger Agreement”), Razor Merger Sub Inc. (“Merger Sub”), a newly formed Delaware corporation, merged with and into Thermadyne, with Thermadyne surviving as a direct, wholly-owned subsidiary of Razor Holdco Inc., a Delaware corporation (“Acquisition”). (Razor Holdco Inc. was renamed Thermadyne Technologies Holdings, Inc. (“Technologies”).) Technologies’ sole asset is its 100% ownership of the stock of Thermadyne.  Affiliates of Irving Place Capital (“IPC”), a private equity firm based in New York, along with its co-investors, hold approximately 99% of the outstanding equity of Technologies, and certain members of Thermadyne management hold the remaining equity capital.

2. Summary of Significant Accounting Policies

 Basis of Presentation

The Acquisition resulted in a 100% change in ownership of Thermadyne and is accounted for in accordance with United States accounting guidance for business combinations. Accordingly, the assets acquired and liabilities assumed, excluding deferred income taxes, were recorded at fair value as of December 3, 2010. The purchase price paid and related costs and transaction fees incurred by IPC have been accounted for in Successor Company’s period ending December 31, 2010 consolidated financial statements. The provisional amounts recognized for assets acquired and liabilities assumed as of December 3, 2010 have been determined by management with the assistance of an externally prepared valuation study of inventories, property, plant and equipment, intangible assets, goodwill, and capital and operating leases.  These provisional amounts are subject to change based on the completion of such study and the determination of other facts impacting fair value estimates.  The evaluation of the assets acquired and liabilities assumed is ongoing with the assistance of the third party asset appraisal firm and will be finalized prior to the end of calendar year 2011.  The evaluation of the adjustments, if any, arising out of the finalization of the value of the assets acquired and liabilities assumed will not impact cash flow.  However, such adjustments could result in material increases or decreases to depreciation and amortization, earnings before interest expense, income taxes and net income. 

Although Thermadyne continued as the same legal entity after the Acquisition, the application of push down accounting represents the termination of the old reporting entity and the creation of a new one.  In addition, the basis of presentation is not consistent between the successor and predecessor entities and the financial statements are not presented on a comparable basis.  As a result, the accompanying condensed consolidated statements of operations and cash flows are presented for two different reporting entities:  Predecessor and Successor, which related to the periods and balance sheets preceding the Acquisition (prior to December 3, 2010), and the periods and balance sheets succeeding the Acquisition, respectively.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. These unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The results of operations of the Company for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2011.  The quarterly financial data should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s annual report for the period ended December 31, 2010.

The financial statements include the Company’s accounts and those of its subsidiaries, after the elimination of all significant intercompany balances and transactions. All dollar amounts are presented in thousands, unless otherwise noted, except share amounts.

Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the use of estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ from these 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.

Reclassifications

The costs of certain purchasing functions previously included in Selling, General, and Administrative expenses have been reclassified to Cost of Goods Sold in the amounts and $360 and $705 for the three and six months ended June 30, 2010, respectively, to conform with the current year presentation.

Miscellaneous receivables as of December 31, 2010 have been reclassified from Accounts Receivable to Prepaid Expenses and Other in the amount of $2,729 to conform with the current year presentation.

Deferred Financing Costs

Loan origination fees and other costs incurred arranging long-term financing are capitalized as deferred financing costs and amortized on an effective interest method over the term of the credit agreement.  Deferred financing costs totaled $14,998 and $14,723, less related accumulated amortization of $959 and $170, at June 30, 2011 and December 31, 2010, respectively.

Product Warranty Programs

Various products are sold with product warranty programs. Provisions for warranty programs are made as the products are sold and such provisions are adjusted periodically based on current estimates of anticipated warranty costs and charged to cost of sales. The following table provides the activity in the warranty accrual:

Fair Value

The Company estimated the fair value of the Senior Secured Notes due 2017 at $270,725 and $265,200 at June 30, 2011 and December 31, 2010, respectively, based on available market information. The Company’s Senior Subordinated Notes due 2014 were redeemed February 1, 2011. The carrying values of the other long-term obligations are estimated to approximate fair value since these obligations are fully secured and have varying interest charges based on current market rates.

Recent Accounting Pronouncements

Comprehensive Income  

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220) — Presentation of Comprehensive Income (ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity.  The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they

5. Debt and Capital Lease Obligations

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

Senior Secured Notes due 2017

On December 3, 2010, Merger Sub issued $260,000 in aggregate principal of 9% Senior Secured Notes due 2017 (the “Senior Secured Notes”). The net proceeds from this issuance, together with funds received from the equity investments made by affiliates of IPC, its co-investors and certain members of Thermadyne management, were used to finance the acquisition of Thermadyne, to redeem the Senior Subordinated Notes due 2014, and to pay the transaction related expenses. 

The Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, by each of Thermadyne’s existing and future domestic subsidiaries and by its Australian subsidiaries Thermadyne Australia Pty Ltd. and Cigweld Pty Ltd.  The Senior Secured Notes and guarantees are secured, subject to permitted liens and except for certain excluded assets, on a first priority basis by substantially all of Thermadyne’s and the guarantors’ current and future property and assets (other than accounts receivable, inventory and certain other related assets that secure, on a first priority basis, Thermadyne’s and the guarantors’ obligations under Thermadyne’s Working Capital Facility (as defined below)), including the capital stock of each subsidiary of Thermadyne (other than immaterial subsidiaries), which, in the case of non-guarantor foreign subsidiaries, is limited to 65% of the voting stock and 100% of the non-voting stock of each first-tier foreign subsidiary, and on a second priority basis by substantially all the collateral that secures the Working Capital Facility on a first priority basis.

The Senior Secured Notes contain customary covenants and events of default, including covenants that, among other things, limit the Company’s and its restricted subsidiaries’ ability to incur additional indebtedness, pay dividends on, repurchase or make distributions in respect of its capital stock or make other restricted payments, make certain investments, loans or advances, sell, transfer or otherwise convey certain assets, and create liens.

Upon a change of control, as defined in the Indenture, each holder of the Senior Secured Notes has the right to require the Company to purchase the Senior Secured Notes at a purchase price in cash equal to 101% of the principal, plus accrued and unpaid interest. 

On August 2, 2011, the Company completed its offer to exchange $260,000 of its 9% Senior Secured Notes due 2017, which have been registered under the Securities Act of 1933 (the "Exchange Notes"), for $260,000 of its outstanding Senior Secured Notes The Company accepted for exchange all Senior Secured Notes validly tendered and not withdrawn prior to the expiration of the exchange offer.  The terms of the Exchange Notes are substantially identical to the terms of the Senior Secured Notes, including subsidiary guarantees, except that provisions relating to transfer restrictions, registration rights and related additional interest will not apply to the Exchange Notes.

9

Senior Subordinated Notes due 2014

On December 3, 2010, Thermadyne called for redemption of the $172,327 aggregate outstanding 9¼% Senior Subordinated Notes due 2014 on February 1, 2011 at a price of 101.542% plus accrued and unpaid interest. Thermadyne irrevocably deposited, with the Trustee, funds sufficient to pay the Redemption Price of the Senior Subordinated Notes.  Thermadyne remained the primary obligor of the Senior Subordinated Notes through February 1, 2011.  Accordingly, the Senior Subordinated Notes and related assets placed with the Trustee remained on Thermadyne’s balance sheet through the redemption date, and were classified as current at December 31, 2010.  Successor’s opening balance sheet at December 3, 2010 includes the fair value of the Senior Subordinated Notes due 2014 at that date of $177,066.

The Trustee acknowledged the satisfaction and discharge of the indenture as of December 3, 2010 and informed the Company the Senior Subordinated Notes were paid on February 1, 2011.

The Senior Subordinated Notes accrued interest at the rate of 9 1/4% per annum payable semi-annually in arrears on February 1 and August 1 of each year.  The indenture provided for the payment of an additional Special Interest Adjustment based on the Company’s consolidated leverage ratio.  During the period from January 1, 2011 until the debt’s redemption on February 1, 2011, interest expense on the Senior Subordinated Notes due 2014 including Special Interest Adjustment was $1,364 and $1,110 of the fair value premium recorded for the Senior Subordinated Notes was amortized as a reduction of interest expense.  Interest on the Senior Subordinated Notes due 2014 including the Special Interest Adjustment totaled $4,954 and $9,972 for the three and six months ended June 30, 2010.  

Working Capital Facility

At June 30, 2011 and December 31, 2010, respectively, $2,122 and $2,347 of letters of credit and no borrowings were outstanding under the Fourth Amended and Restated Credit Agreement (the “GE Agreement”).  Unused availability, net of these letters of credit, was $55,917 under the Working Capital Facility at June 30, 2011.

All obligations under the Working Capital Facility are unconditionally guaranteed by Technologies and substantially all of the Company’s existing and future, direct and indirect, wholly-owned domestic subsidiaries and its Australian subsidiaries Thermadyne Australia Pty Ltd. and Cigweld Pty Ltd.  The Working Capital Facility is secured, subject to certain exceptions, by substantially all of the assets of the guarantors and Technologies, including a first priority security interest in substantially all accounts receivable and other rights to payment, inventory, deposit accounts, cash and cash equivalents and a second priority security interest in all assets other than the Working Capital Facility collateral.

The Working Capital Facility has a minimum fixed charge coverage ratio test of 1.1 if the excess availability under the Facility is less than $9,000 (which minimum amount will be increased or decreased proportionally with any increase or decrease in the commitments thereunder). In addition, the Working Capital Facility  includes negative covenants that limit the Company’s ability and the ability of Technologies and certain subsidiaries to, among other things: incur, assume or permit to exist additional indebtedness or guarantees; grant liens; consolidate, merge or sell all or substantially all of the Company’s assets; transfer or sell assets and enter into sale and leaseback transactions; make certain loans and investments; pay dividends, make other distributions or repurchase or redeem the Company’s or Technologies’ capital stock; and prepay or redeem certain indebtedness.

Second Lien Facility

In June 2010, Predecessor voluntarily repaid all of the second lien indebtedness due November 30, 2012 and terminated the related credit agreement. The prepayment was funded primarily with borrowings under the Company’s Working Capital Facility.

6. Restructuring

In the second quarter of 2011, the Company committed to a restructuring plan that includes exit activities at a manufacturing site in West Lebanon, New Hampshire.  The Company expects to complete these activities in the first half of 2012.  These exit activities impact approximately 100 employees and are intended to reduce the Company’s fixed cost structure and better align its global manufacturing and distribution footprint. 

The following provides a summary of restructuring costs incurred during 2011 to date and total expected restructuring costs associated with these activities by major type of cost:

Employee termination benefits primarily include severance and retention payments to employees impacted by exit activities.  Other restructuring costs include changes to the lease terms of the impacted facility, expense to relocate certain individuals and equipment to other manufacturing locations and employee training costs.

The following is a rollforward of the liabilities associated with the restructuring activities since the inception of the plan.  The liabilities are reported as a component of accrued and other liabilities in the accompanying consolidated balance sheet as of June 30, 2011.

All payments related to these exit activities are expected to be made in the second half of 2011 and throughout 2012.

7. Comprehensive Income

Comprehensive income for the three and six months ended June 30, 2011 and 2010 was as follows:

8. Income Taxes

At the beginning of 2011, the Company had approximately $151,700 in U.S. net operating loss carry forwards from the years 1998 through 2010.  The net operating loss carry forwards in the U.S. will expire between the years 2019 and 2030 at June 30, 2011.  Given the uncertainties regarding utilization of a portion of these net operating loss carry forwards, the Company has recorded a $14,100 valuation allowance related to the deferred tax asset of approximately $60,000 associated with the carry forwards.  For 2011, the Company’s management estimates that 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.

The Company’s projected 2011 income tax effective rate of approximately 48% exceeds the federal statutory rate primarily because foreign earnings are currently taxable as “deemed dividends” in the U.S.  These deemed dividends are not offset by the foreign tax credits due to uncertainty of their utilization.

9. 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.

In October 2010, two identical purported class action lawsuits were filed in connection with the Acquisition against the Company, the Company’s directors, and Irving Place Capital.  On November 25, 2010, the Company, the Company’s directors and Irving Place Capital entered into a memorandum of understanding with the plaintiffs regarding the settlement of these actions.  On June 30, 2011, the Circuit Court issued an order approving the settlement and resolving and releasing all claims in all actions that were or could have been brought. The Circuit Court further awarded attorneys’ fees and expenses to plaintiffs’ counsel in the amount of $399, which were paid on July 21, 2011.

The Company is party to certain environmental matters, although no claims are currently pending. Any related obligations are not expected to have a material adverse effect on the Company’s financial condition, cash flows or operating results.  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 Company’s business or financial condition or on the results of operations.

On December 30, 2006, the Company committed to dispose of its Brazilian manufacturing operations.  Remaining Brazilian accrued liabilities are still held by the Company and are primarily associated with tax matters for which the timing of resolution is uncertain, and are classified within Accrued and Other Liabilities in the amounts of $1,100 and $1,600 as of June 30, 2011 and December 31, 2010, respectively.

10. Employee Benefit Plans

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

11. 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, Europe/Middle East and Asia-Pacific. Sales have been attributed to geographic regions based on the country of our end customer.  The following tables provide summarized financial information concerning the Company’s geographic segments:

Prior year sales have been reclassified to conform to the current year presentation which attributes sales to the geographic location of the customer.

U.S. sales as a portion of Americas’ sales comprised approximately 86% for the three and six months ended June 30, 2011, respectively, and approximately 84% for the three and six months ended June 30, 2010, respectively.  Australia sales as a portion of Asia-Pacific sales comprised approximately 74% for the three and six months ended June 30, 2011, respectively, and approximately 76% for the three and six months ended June 30, 2010, respectively.

Identifiable Assets (excluding working capital and intangibles):

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:

12. Relationships and Transactions

Relationship with Irving Place Capital

Thermadyne Holdings Corporation is a wholly-owned subsidiary of Thermadyne Technologies Holdings, Inc.  Affiliates of Irving Place Capital, along with its co-investors, hold approximately 99% Technologies’ common stock at June 30, 2011 and December 31, 2010.  The board of directors of the Company and Technologies includes two IPC members.

IPC has the power to designate all of the members of the board of directors of the Company and the right to remove any directors that it appoints.

Management Services Agreement

The Company has entered a management services agreement with IPC.  For advisory and management services, IPC will receive annual advisory fees equal to the greater of (i) $1,500 or (ii) 2.5% of EBITDA (as defined under the management services agreement), payable monthly.  In the event of a sale of all or substantially all of the Company’s assets to a third party, a change of control, whether by merger, consolidation, sale or otherwise, or, under certain circumstances, a public offering of the Company’s or any of its subsidiaries’ equity securities, the Company will be obligated to pay IPC an amount equal to the sum of the advisory fee that would be payable for the following four fiscal quarters.  Such fees were $705 and $1,197 for the three and six months ended June 30, 2011.

In connection with any subsequent material corporate transactions, such as an equity or debt offering, acquisition, asset sale, recapitalization, merger, joint venture formation or other business combination, IPC will receive a fee of 1% of the transaction value.  IPC will also receive fees in connection with certain strategic services, as determined by IPC, provided such fees will reduce the annual advisory fee on a dollar-for-dollar basis.

Thermadyne Technologies Holdings Inc. (Technologies)

The capital stock of Technologies in the aggregate of $176,470 was outstanding as of June 30, 2011, with 141,176 shares of 8% cumulative preferred stock in the amount of $141,176 and 3,529,400 shares of common stock in the amount of $35,294.  No dividends have been declared on either the preferred stock or common stock at June 30, 2011 or December 31, 2010.

Technologies’ stock based compensation costs relate to Thermadyne employees and were incurred for Thermadyne’s benefit, and accordingly recognized in Thermadyne’s consolidated selling, general & administrative expenses.

13. Condensed Consolidating Financial Statements and Thermadyne Holdings Corporation (Parent) Financial Information

The 9% Senior Secured Notes due 2017 are obligations of, and were issued by, Thermadyne Holdings Corporation. Thermadyne Holdings Corporation’s (parent only) assets at June 30, 2011 are its investments in its subsidiaries and its liabilities are the Senior Secured Notes due 2017. Each guarantor is wholly owned by Thermadyne Holdings Corporation. Successor’s management has determined the most appropriate presentation is to “push down” the Senior Secured Notes due 2017 to the guarantors in the accompanying condensed financial information, as such entities fully and unconditionally guarantee the Senior Secured Notes due 2017, and these subsidiaries are jointly and severally liable for all payments under these notes.  The Senior Secured Notes due 2017 were issued to finance the acquisition of the Company along with new stockholder’s equity.  The guarantor subsidiaries’ cash flow will service the debt.

The following financial information presents the guarantors and non-guarantors of the 9% Senior Secured Notes due 2017 and, prior to February 1, 2011, the 9 ¼ % Senior Subordinated Notes due 2014, in accordance with Rule 3-10 of Regulation S-X. The condensed consolidating financial information includes the accounts of Thermadyne Holding Corporation (parent only), and the combined accounts of guarantor subsidiaries and combined accounts of the non-guarantor subsidiaries for the periods indicated. Separate financial statements of the parent and 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. The Company’s Australian subsidiary is included as guarantors for all years presented.   With respect to the non-guarantor subsidiaries, approximately 70% of the assets and the sales have been pledged by the guarantor subsidiaries to the holders of the Senior Secured Notes.

THERMADYNE HOLDINGS CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

JUNE 30, 2011

(unaudited)

(Dollars in thousands)

THERMADYNE HOLDINGS CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2010

(Dollars in thousands)

THERMADYNE HOLDINGS CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2011

(unaudited)

(Dollars in thousands)

THERMADYNE HOLDINGS CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2010

(unaudited)

(Dollars in thousands)

THERMADYNE HOLDINGS CORPORATION

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2011

(unaudited)

(Dollars in thousands)