** **

**Securities and Exchange Commission**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 
| **(Mark One)**                                                                                                                                                                                                                                                                                     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                                                                                                                                                                         |   | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.** |
|                                                                                                                                                                                                                                                                                               |   |   |
| **For the quarterly period ended June 30, 2004**                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                               |
| **OR**                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                               |   |   |
| **o**                                                                                                                                                                                                                                                                                              |   | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                               |   |   |
| **For  the transition period  from                     to                     ** |

 

**Commission file number  0-23378**

 

| **Thermadyne Holdings Corporation**                                                          |
|----------------------------------------------------------------------------------------------|
| (Exact Name of Registrant as Specified in Its Charter)                                       |
|                                                                                         |   |   |
| **Delaware**                                                                                 |   | **74-2482571** |
| (State or Other Jurisdiction of Incorporation or Organization)                               |   | (I.R.S. Employer Identification No.) |
|                                                                                         |   |   |
| **16052 Swingley Ridge Road, Suite 300,  Chesterfield, MO**                                  |   | **63017** |
| (Address of Principal Executive Offices)                                                     |   | (Zip Code) |
|                                                                                         |   |   |
| Registrant’s Telephone Number, Including Area Code    **(636) 728-3000** |

 

Indicate by ýwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 
|   |   | Yes  ý |   | No  o |
|--------|--------|------------------|--------|------------|

 

Indicate by ýwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

 
|   |   | Yes  ý |   | No  o |
|--------|--------|------------------|--------|------------|

 

Indicate by ýwhether the registrant has filed all documents and reports required to be filedby Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequentto the distribution of securities under a plan confirmed by a court.

 
|   |   | Yes  ý |   | No  o |
|--------|--------|------------------|--------|------------|

 

The number of sharesoutstanding of the issuer’s common stock, par value $0.01 per share, as ofAugust 2, 2004 was 13,313,973.

 

 

----

 

## **THERMADYNE HOLDINGS CORPORATION**

 

## **INDEX**

 
| **PART I – FINANCIAL  INFORMATION** |                                                                                        |   |
|------------------------------------------|---------------------------------------------------------------------------------------------|--------|
| Item 1.                                  | Condensed Consolidated Financial Statements of  Thermadyne Holdings Corporation (Unaudited) |   |   |
|                                     |                                                                                        |   |   |
|                                     | Condensed  Consolidated Balance Sheets                                                      |   |   |
|                                     | Condensed Consolidated Statements of  Operations                                            |   |   |
|                                     | Condensed Consolidated Statements of Cash  Flows                                            |   |   |
|                                     | Notes  to Condensed Consolidated Financial Statements                                       |   |   |
|                                     |                                                                                        |   |   |
| Item 2.                                  | Management’s Discussion and Analysis  of Financial Condition and Results of Operations |   |   |
|                                     |                                                                                        |   |   |
| Item 3.                                  | Market Risk                                                                                 |   |   |
|                                     |                                                                                        |   |   |
| Item 4.                                  | Controls and Procedures                                                                     |   |   |
|                                     |                                                                                        |   |   |
| **PART II – OTHER INFORMATION**     |                                                                                        |   |
|                                     |                                                                                        |   |   |
| Item 2.                             | Changes in  Securities, Use of Proceeds and Issuer Purchases of Equity Securities           |   |   |
|                                     |                                                                                        |   |   |
| Item 6.                                  | Exhibits and Reports on  Form 8-K                                                           |   |   |
|                                     |                                                                                        |   |   |
| **SIGNATURES**                           |                                                                                        |   |

 

2

----

 

**PARTI.  FINANCIAL INFORMATION**

**Item 1.**

** **

**THERMADYNE HOLDINGSCORPORATIONCONDENSED CONSOLIDATED BALANCESHEETS(In thousands, except share data)**

 
|                                                                                                                                                                                                                     |   | **Reorganized**    |    | **Reorganized**         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|-------------------------|--------|
|                                                                                                                                                                                                                     |   | **Company**        |    | **Company**             |   |
|                                                                                                                                                                                                                     |   | **June 30,  2004** |    | **December  31,  2003** |   |
|                                                                                                                                                                                                                     |   | **(Unaudited)**    |    |                    |   |
| **ASSETS**                                                                                                                                                                                                               |   |               |    |                    |   |
|                                                                                                                                                                                                                     |   |               |    |                    |   |
| Current Assets:                                                                                                                                                                                                          |   |               |    |                    |   |
| Cash and cash equivalents                                                                                                                                                                                                |   | $                  | 9,698   |                    | $      | 16,784 |   |
| Accounts receivable, less allowance for  doubtful accounts of $6,158 and $6,443, respectively                                                                                                                            |   | 93,014             |    | 84,079                  |   |
| Inventories                                                                                                                                                                                                              |   | 127,637            |    | 100,070                 |   |
| Prepaid expenses and other                                                                                                                                                                                               |   | 9,678              |    | 10,846                  |   |
| Total current assets                                                                                                                                                                                                     |   | 240,027            |    | 211,779                 |   |
| Property, plant and equipment, net                                                                                                                                                                                       |   | 79,938             |    | 82,520                  |   |
| Goodwill                                                                                                                                                                                                                 |   | 135,868            |    | 135,868                 |   |
| Intangibles, net                                                                                                                                                                                                         |   | 76,558             |    | 77,904                  |   |
| Other assets                                                                                                                                                                                                             |   | 6,354              |    | 1,406                   |   |
| Total assets                                                                                                                                                                                                             |   | $                  | 538,745 |                    | $      | 509,477 |   |
|                                                                                                                                                                                                                     |   |               |    |                    |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                            |   |               |    |                    |   |
|                                                                                                                                                                                                                     |   |               |    |                    |   |
| Current Liabilities:                                                                                                                                                                                                     |   |               |    |                    |   |
| Accounts payable                                                                                                                                                                                                         |   | $                  | 41,285  |                    | $      | 36,182 |   |
| Accrued and other liabilities                                                                                                                                                                                            |   | 33,498             |    | 36,465                  |   |
| Accrued interest                                                                                                                                                                                                         |   | 6,155              |    | 307                     |   |
| Income taxes payable                                                                                                                                                                                                     |   | 5,791              |    | 3,623                   |   |
| Working capital facility                                                                                                                                                                                                 |   | 24,658             |    | 12,860                  |   |
| Current maturities of long-term obligations                                                                                                                                                                              |   | 9,847              |    | 15,114                  |   |
| Total current liabilities                                                                                                                                                                                                |   | 121,234            |    | 104,551                 |   |
| Long-term obligations, less current  maturities                                                                                                                                                                          |   | 210,309            |    | 190,404                 |   |
| Other long-term liabilities                                                                                                                                                                                              |   | 43,269             |    | 42,287                  |   |
| Shareholders’ equity:                                                                                                                                                                                               |   |               |    |                    |   |
| Common stock, $0.01 par value: Authorized -  25,000,000 shares as of June 30, 2004 and December 31, 2003; Issued and  Outstanding - 13,313,973 shares as of June 30, 2004 and 13,300,000 shares as  of December 31, 2003 |   | 133                |    | 133                     |   |
| Additional paid-in capital                                                                                                                                                                                               |   | 183,460            |    | 183,267                 |   |
| Accumulated deficit                                                                                                                                                                                                      |   | (23,869            | )       | (17,551                 | )      |
| Accumulated other comprehensive income                                                                                                                                                                                   |   | 4,209              |    | 6,386                   |   |
| Total shareholders’ equity                                                                                                                                                                                          |   | 163,933            |    | 172,235                 |   |
| Total liabilities and shareholders’ equity                                                                                                                                                                          |   | $                  | 538,745 |                    | $      | 509,477 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

3

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**(In thousands, except share data)**

**(Unaudited)**

 
|                                                                              |   | **Reorganized**    |    | **Reorganized**    |   | **Predecessor**   |   |
|-----------------------------------------------------------------------------------|--------|--------------------|---------|--------------------|--------|-------------------|--------|
|                                                                              |   | **Company**        |    | **Company**        |   | **Company**       |   |
|                                                                              |   | **Three  Months**  |    | **One Month**      |   | **Two Months**    |   |
|                                                                              |   | **Ended**          |    | **Ended**          |   | **Ended**         |   |
|                                                                              |   | **June 30,  2004** |    | **June 30,  2003** |   | **May 31,  2003** |   |
|                                                                              |   |               |    |               |   |              |   |
| Net sales                                                                         |   | $                  | 127,172 |               | $      | 36,238            |   | $ | 71,556 |   |
| Operating expenses:                                                               |   |               |    |               |   |              |   |
| Cost of goods sold                                                                |   | 86,426             |    | 24,358             |   | 46,781            |   |
| Selling, general and administrative  expenses                                     |   | 32,063             |    | 8,687              |   | 18,001            |   |
| Amortization of intangibles                                                       |   | 955                |    | 342                |   | 158               |   |
| Net periodic postretirement benefits                                              |   | 624                |    | 114                |   | 228               |   |
| Restructuring costs                                                               |   | 2,464              |    | 113                |   | 417               |   |
| Operating income                                                                  |   | 4,640              |    | 2,624              |   | 5,971             |   |
| Other income (expense):                                                           |   |               |    |               |   |              |   |
| Interest (contractual interest of $12,045  for the two months ended May 31, 2003) |   | (5,165             | )       | (1,455             | )      | (3,556            | )      |
| Amortization of deferred financing costs                                          |   | (311               | )       | (38                | )      | —            |   |
| Other, net                                                                        |   | (1,303             | )       | (7                 | )      | (1,264            | )      |
| Income (loss) before reorganization items  and income tax provision               |   | (2,139             | )       | 1,124              |   | 1,151             |   |
| Reorganization items                                                              |   | —             |    | —             |   | (13,486           | )      |
| Gain on reorganization and adoption of  fresh-start accounting                    |   | —             |    | —             |   | 582,109           |   |
| Income (loss) before income tax provision                                         |   | (2,139             | )       | 1,124              |   | 569,774           |   |
| Income tax provision                                                              |   | 3,150              |    | 318                |   | 2,001             |   |
| Net income (loss)                                                                 |   | $                  | (5,289  | )                  | $      | 806               |   | $ | 567,773 |   |
|                                                                              |   |               |    |               |   |              |   |
| Basic and diluted income (loss) per share  applicable to common shares:           |   | $                  | (0.40   | )                  | $      | 0.06              |   | $ | 158.14 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

4

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except share data)**

**(Unaudited)**

 
|                                                                               |   | **Reorganized**    |    | **Reorganized**    |   | **Predecessor**   |   |
|------------------------------------------------------------------------------------|--------|--------------------|---------|--------------------|--------|-------------------|--------|
|                                                                               |   | **Company**        |    | **Company**        |   | **Company**       |   |
|                                                                               |   | **Six Months**     |    | **One Month**      |   | **Five  Months**  |   |
|                                                                               |   | **Ended**          |    | **Ended**          |   | **Ended**         |   |
|                                                                               |   | **June 30,  2004** |    | **June 30,  2003** |   | **May 31,  2003** |   |
|                                                                               |   |               |    |               |   |              |   |
| Net sales                                                                          |   | $                  | 245,903 |               | $      | 36,238            |   | $ | 172,010 |   |
| Operating expenses:                                                                |   |               |    |               |   |              |   |
| Cost of goods sold                                                                 |   | 166,551            |    | 24,358             |   | 111,334           |   |
| Selling, general and administrative  expenses                                      |   | 61,688             |    | 8,687              |   | 43,824            |   |
| Amortization of intangibles                                                        |   | 2,067              |    | 342                |   | 363               |   |
| Net periodic postretirement benefits                                               |   | 1,311              |    | 114                |   | 516               |   |
| Restructuring costs                                                                |   | 5,021              |    | 113                |   | 516               |   |
| Operating income                                                                   |   | 9,265              |    | 2,624              |   | 15,457            |   |
| Other income (expense):                                                            |   |               |    |               |   |              |   |
| Interest (contractual interest of $29,962  for the five months ended May 31, 2003) |   | (9,936             | )       | (1,455             | )      | (8,798            | )      |
| Amortization of deferred financing costs                                           |   | (531               | )       | (38                | )      | —            |   |
| Other, net                                                                         |   | (1,039             | )       | (7                 | )      | (1,174            | )      |
| Income (loss) before reorganization items  and income tax provision                |   | (2,241             | )       | 1,124              |   | 5,485             |   |
| Reorganization items                                                               |   | —             |    | —             |   | (15,692           | )      |
| Gain on reorganization and adoption of  fresh-start accounting                     |   | —             |    | —             |   | 582,109           |   |
| Income (loss) before income tax provision                                          |   | (2,241             | )       | 1,124              |   | 571,902           |   |
| Income tax provision                                                               |   | 4,077              |    | 318                |   | 2,939             |   |
| Net income (loss)                                                                  |   | $                  | (6,318  | )                  | $      | 806               |   | $ | 568,963 |   |
|                                                                               |   |               |    |               |   |              |   |
| Basic and diluted income (loss) per share  applicable to common shares:            |   | $                  | (0.47   | )                  | $      | 0.06              |   | $ | 158.47 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

5

----

 

**THERMADYNE HOLDINGSCORPORATIONCONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS(In thousands, except share data)**

**(Unaudited)**

 
|                                                                                  |   | **Reorganized**    |   | **Reorganized**    |   | **Predecessor**   |   |
|---------------------------------------------------------------------------------------|--------|--------------------|--------|--------------------|--------|-------------------|--------|
|                                                                                  |   | **Company**        |   | **Company**        |   | **Company**       |   |
|                                                                                  |   | **Six Months**     |   | **One Month**      |   | **Five  Months**  |   |
|                                                                                  |   | **Ended**          |   | **Ended**          |   | **Ended**         |   |
|                                                                                  |   | **June 30,  2004** |   | **June 30,  2003** |   | **May 31,  2003** |   |
|                                                                                  |   |               |   |               |   |              |   |
| Cash flows from operating activities:                                                 |   |               |   |               |   |              |   |
| Net income (loss)                                                                     |   | $                  | (6,318 | )                  | $      | 806               |   | $ | 568,963 |   |
| Adjustments to reconcile net income (loss)  to net cash used in operating activities: |   |               |   |               |   |              |   |
| Net periodic postretirement benefits                                                  |   | 1,311              |   | 114                |   | 516               |   |
| Depreciation                                                                          |   | 10,338             |   | 1,801              |   | 6,071             |   |
| Amortization of intangibles                                                           |   | 2,067              |   | 342                |   | 363               |   |
| Amortization of deferred financing costs                                              |   | 531                |   | 38                 |   | —            |   |
| Gain on reorganization and adoption of  fresh-start accounting                        |   | —             |   | —             |   | (582,109          | )      |
| Changes in operating assets and  liabilities:                                         |   |               |   |               |   |              |   |
| Accounts receivable                                                                   |   | (9,615             | )      | 1,375              |   | (1,521            | )      |
| Inventories                                                                           |   | (28,014            | )      | (628               | )      | (5,703            | )      |
| Prepaid expenses and other                                                            |   | 245                |   | (1,037             | )      | 640               |   |
| Accounts payable                                                                      |   | 5,741              |   | 161                |   | 3,326             |   |
| Accrued and other liabilities                                                         |   | (2,663             | )      | (3,788             | )      | 5,059             |   |
| Accrued interest                                                                      |   | 5,848              |   | 105                |   | 11                |   |
| Income taxes payable                                                                  |   | 2,065              |   | 280                |   | 2,028             |   |
| Other long-term liabilities                                                           |   | (2,320             | )      | (85                | )      | (1,035            | )      |
| Total adjustments                                                                     |   | (14,466            | )      | (1,322             | )      | (572,354          | )      |
| Net cash used in operating activities                                                 |   | (20,784            | )      | (516               | )      | (3,391            | )      |
| Cash flows from investing activities:                                                 |   |               |   |               |   |              |   |
| Capital expenditures                                                                  |   | (8,893             | )      | (683               | )      | (4,114            | )      |
| Net cash used in investing activities                                                 |   | (8,893             | )      | (683               | )      | (4,114            | )      |
| Cash flows from financing activities:                                                 |   |               |   |               |   |              |   |
| Net borrowings under revolving credit  facility                                       |   | 11,798             |   | —             |   | —            |   |
| Repayment of long-term obligations                                                    |   | (180,000           | )      | —             |   | (12,780           | )      |
| Borrowing of long-term obligations                                                    |   | 197,059            |   | 2,495              |   | 16,038            |   |
| Financing fees                                                                        |   | (5,505             | )      | —             |   | (1,352            | )      |
| Exercise of warrants                                                                  |   | 193                |   | —             |   | —            |   |
| Other                                                                                 |   | (954               | )      | (778               | )      | 979               |   |
| Net cash provided by financing activities                                             |   | 22,591             |   | 1,717              |   | 2,885             |   |
| Net increase (decrease) in cash and cash  equivalents                                 |   | (7,086             | )      | 518                |   | (4,620            | )      |
| Cash and cash equivalents at beginning of  period                                     |   | 16,784             |   | 12,793             |   | 17,413            |   |
| Cash and cash equivalents at end of period                                            |   | $                  | 9,698  |               | $      | 13,311            |   | $ | 12,793 |   |
|                                                                                  |   |               |   |               |   |              |   |
| Supplemental disclosure of cash flow  information                                     |   |               |   |               |   |              |   |
| Cash paid during the period for:                                                      |   |               |   |               |   |              |   |
| Interest                                                                              |   | $                  | 4,088  |               | $      | 1,350             |   | $ | 8,787 |   |
| Income taxes                                                                          |   | $                  | 2,011  |               | $      | 191               |   | $ | 640 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

6

----

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**(in thousands, except for share data)**

 

**1.****                                      Basisof Presentation**

 

Thermadyne HoldingsCorporation (“Thermadyne” or the “Company”), a Delaware corporation, is aleading global designer and manufacturer of cutting and welding products,including equipment, accessories and consumables. On May 23, 2003 (the“Effective Date”), Thermadyne consummated its plan of reorganization underChapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) andcompleted a comprehensive financial restructuring (the “Restructuring”). Forthe purposes of these unaudited condensed consolidated financial statements,references to the “Predecessor Company” are references to the Company forperiods prior to June 1, 2003 (the first day of the calendar month followingthe month in which the Company emerged from bankruptcy) and references to the“Reorganized Company” are references to the Company for the periods subsequentto May 31, 2003. The principal elements of the Restructuring and the principaleffects of its consummation pursuant to the plan of reorganization aredescribed in “Plan of Reorganization” and in the Company’s annual report onForm 10-K for the year ended December 31, 2003.

 

Theaccompanying unaudited condensed consolidated financial statements ofThermadyne have been prepared in accordance with accounting principlesgenerally accepted in the United States for interim financial information andwith the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.  In the opinion of management, alladjustments (consisting of normal recurring adjustments) considered necessaryfor a fair presentation have been included. The combined results of operations of the Company for the three-monthand six-month periods ended June 30, 2004 are not necessarily indicative of theresults that may be expected for the year ended December 31, 2004.  For further information, refer to theconsolidated financial statements and footnotes thereto included in theCompany’s annual report on Form 10-K for the year ended December 31, 2003.

 

**2.****                                      RecentEvents**

#  

# ***Plan ofReorganization***

 

The Company’semergence from Chapter 11 bankruptcy proceedings on May 23, 2003 resulted in anew reporting entity and adoption of “fresh-start” accounting as required bythe American Institute of Certified Public Accountants Statement of PositionNo. 90-7, entitled “Financial Reporting by Entities in Reorganization under theBankruptcy Code” (“SOP 90-7”). Pursuant to such principles, the Company’sassets and liabilities were revalued as of June 1, 2003.  The assets were stated at theirreorganization value (the “Reorganization Value”), which is defined as the fairvalue.

 

As a result ofthe application of SOP 90-7, the Company’s financial results for the periodsending prior to June 1, 2003 and ending after May 31, 2003 include twodifferent bases of accounting and accordingly, the Reorganized Company’s financialstatements are not comparable to the Predecessor Company’s financialstatements.

 

7

----

 

Reorganizationcosts for the five months ended May 31, 2003 were $15,692 consisting of $14,959of professional fees, $285 paid under the key employee retention plan, and $448of other reorganization costs.

 

***Reclassifications***

 

Certain priorperiod amounts have been reclassified to conform to current periodpresentation.  These reclassificationsdid not affect net income (loss).

 

In the second quarter of 2004, the expenses incurred related to the relocation and consolidation of certain U.S. manufacturingfacilities were reclassified from Selling, general and administrative expenses to Restructuring costs.  Prior period amounts have been reclassified to conform to the current year presentation.

 

Certainintercompany sales transactions, which were inadvertently misclassified astrade sales, have been reclassified. This reclassification of sales was offset by a corresponding change inthe cost of goods sold and had no effect on the Company’s financial condition,operating income, net income or net income per common share.  A summary of these sales reclassificationsfor the three months ended March 31, 2003, the two months ended May 31, 2003,and the one month ended June 30, 2003 is as follows:

 
|                           |   | **Predecessor**   |    | **Predecessor** |   | **Reorganized** |   |
|--------------------------------|--------|-------------------|---------|-----------------|--------|-----------------|--------|
|                           |   | **Company**       |    | **Company**     |   | **Company**     |   |
|                           |   | **Three  Months** |    | **Two Months**  |   | **One Month**   |   |
|                           |   | **Ended**         |    | **Ended**       |   | **Ended**       |   |
|                           |   | **March 31,**     |    | **May 31,**     |   | **June 30,**    |   |
|                           |   | **2003**          |    | **2003**        |   | **2003**        |   |
| Net sales as reported          |   | $                 | 100,991 |            | $      | 71,918          |   | $ | 36,299 |   |
| Reclassification               |   | (537              | )       | (362            | )      | (61             | )      |
| Net sales as adjusted          |   | $                 | 100,454 |            | $      | 71,556          |   | $ | 36,238 |   |
|                           |   |              |    |            |   |            |   |
| Cost of goods sold as reported |   | $                 | 65,090  |            | $      | 47,143          |   | $ | 24,419 |   |
| Reclassification               |   | (537              | )       | (362            | )      | (61             | )      |
| Cost of goods sold as adjusted |   | $                 | 64,553  |            | $      | 46,781          |   | $ | 24,358 |   |
|                           |   |              |    |            |   |            |   |
| Operating income as reported   |   | $                 | 9,486   |            | $      | 5,971           |   | $ | 2,624 |   |

 

**3.****                                      SignificantAccounting Policies**

 

***Product WarrantyPrograms****.* Various products are sold with productwarranty programs. Provisions for warranty programs are made as the productsare sold and adjusted periodically based on current estimates of anticipatedwarranty costs. During the three months ended June 30, 2004, the two monthsended May 31, 2003, and the one month ended June 30, 2003, the Company recorded$365, $376, and $400 of warranty expense, respectively, through cost of goodssold and paid $797, $376, and $400, respectively. For the six months ended June30, 2004 and the five months ended May 31, 2003, the Company recorded $968 and$1,151 of warranty expense, respectively, through cost of goods sold and paid$1,584 and $1,158 respectively.  As ofJune 30, 2004, the warranty accrual totaled $3,389.

 

8

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***Earnings Per Share****.* The following table sets forth theinformation used in the computation of basic and diluted income (loss) pershare for the periods indicated.

 
|                                                |   | **Reorganized**  |   | **Reorganized** |   | **Predecessor** |   |
|-----------------------------------------------------|--------|------------------|--------|-----------------|--------|-----------------|--------|
|                                                |   | **Company**      |   | **Company**     |   | **Company**     |   |
|                                                |   | **Three Months** |   | **One Month**   |   | **Two Months**  |   |
|                                                |   | **Ended**        |   | **Ended**       |   | **Ended**       |   |
|                                                |   | **June 30,**     |   | **June 30,**    |   | **May 31,**     |   |
|                                                |   | **2004**         |   | **2003**        |   | **2003**        |   |
| Numerator:                                          |   |             |   |            |   |            |   |
| Net income (loss) applicable to common  shares      |   | $                | (5,289 | )               | $      | 806             |   | $ | 567,773 |   |
|                                                |   |             |   |            |   |            |   |
| Denominator:                                        |   |             |   |            |   |            |   |
| Weighted average shares-basic and diluted           |   | 13,306,296       |   | 13,300,000      |   | 3,590,286       |   |
|                                                |   |             |   |            |   |            |   |
| Basic and diluted income (loss) per share  amounts: |   |             |   |            |   |            |   |
| Net income (loss) applicable to common  shares      |   | $                | (0.40  | )               | $      | 0.06            |   | $ | 158.14 |   |

 
|                                                |   | **Reorganized** |   | **Reorganized** |   | **Predecessor**  |   |
|-----------------------------------------------------|--------|-----------------|--------|-----------------|--------|------------------|--------|
|                                                |   | **Company**     |   | **Company**     |   | **Company**      |   |
|                                                |   | **Six Months**  |   | **One Month**   |   | **Five  Months** |   |
|                                                |   | **Ended**       |   | **Ended**       |   | **Ended**        |   |
|                                                |   | **June 30,**    |   | **June 30,**    |   | **May 31,**      |   |
|                                                |   | **2004**        |   | **2003**        |   | **2003**         |   |
| Numerator:                                          |   |            |   |            |   |             |   |
| Net income (loss) applicable to common  shares      |   | $               | (6,318 | )               | $      | 806              |   | $ | 568,963 |   |
|                                                |   |            |   |            |   |             |   |
| Denominator:                                        |   |            |   |            |   |             |   |
| Weighted average shares-basic and diluted           |   | 13,303,148      |   | 13,300,000      |   | 3,590,286        |   |
|                                                |   |            |   |            |   |             |   |
| Basic and diluted income (loss) per share  amounts: |   |            |   |            |   |             |   |
| Net income (loss) applicable to common  shares      |   | $               | (0.47  | )               | $      | 0.06             |   | $ | 158.47 |   |

 

***DerivativeInstruments****.* The Company accounts for derivatives andhedging activities in accordance with Statement of Financial AccountingStandards No. 133, “Accounting for Derivative Instruments and Certain HedgingActivities,” as amended, (“SFAS No. 133”) which requires that all derivativeinstruments be recorded on the balance sheet at their respective fair values.The Company does not use derivative instruments for trading or speculativepurposes.

The Companyformally documents all relationships between hedging instruments and hedgeditems, as well as its risk management objectives and strategies for undertakinghedge transactions. The Company also assesses, both at the inception of thehedge and on an on-going basis, whether the hedge is effective.

 

9

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**4.****                                      ComprehensiveIncome (Loss)**

 

Comprehensiveincome (loss) totaled $(5,878), $963 and $610,508 for the three months endedJune 30, 2004, the one month ended June 30, 2003, and the two months ended May31, 2003, respectively.  For thesix-month period ended June 30, 2004 and the five-month period endedMay 31, 2003, comprehensive income (loss) was $(8,495) and $613,569,respectively.

 

**5.****                                      Inventories**

 

Thecomposition of inventories was as follows:

 
|            |   | **June 30,  2004** |    | **December  31,  2003** |   |
|-----------------|--------|--------------------|---------|-------------------------|--------|
|            |   |               |    |                    |   |
| Raw materials   |   | $                  | 24,458  |                    | $      | 21,218 |   |
| Work-in-process |   | 35,738             |    | 28,906                  |   |
| Finished Goods  |   | 68,710             |    | 50,228                  |   |
|            |   | 128,906            |    | 100,352                 |   |
| LIFO reserve    |   | (1,269             | )       | (282                    | )      |
|            |   | $                  | 127,637 |                    | $      | 100,070 |   |

 

The Companyuses the last-in, first-out (LIFO) method of valuing its domesticinventory.  An actual valuation ofinventory under the LIFO method can be made only at the end of each year basedon the inventory levels and costs at that time.  Accordingly, interim LIFO calculations are based on management’sestimates of expected inventory levels and costs and are subject to the finalyear-end LIFO inventory valuation.

 

**6.****                                      IntangibleAssets**

 

Thecomposition of intangibles was as follows:

 
|                               |   | **June 30,  2004** |    | **December  31,  2003** |   |
|------------------------------------|--------|--------------------|---------|-------------------------|--------|
|                               |   |               |    |                    |   |
| Goodwill                           |   | $                  | 135,868 |                    | $      | 135,868 |   |
| Patents and Customer Relationships |   | 48,125             |    | 47,404                  |   |
| Trademarks                         |   | 33,353             |    | 33,353                  |   |
|                               |   | 217,346            |    | 216,625                 |   |
| Accumulated amortization           |   | (4,920             | )       | (2,853                  | )      |
|                               |   | $                  | 212,426 |                    | $      | 213,772 |   |

 

Patents andcustomer relationships are amortized on a straight-line basis over theirestimated useful lives, which generally range from 10 to 15 years.  Trademarks are not amortized, but areperiodically evaluated for impairment. Amortization expense amounted to $955, $342 and $158 for the threemonths ended June 30, 2004, the one month ended June 30, 2003, and the twomonths ended May 31, 2003, respectively. Amortization expense amounted to $2,067 and $363 for the six monthsended June 30, 2004 and the five months ended May 31, 2003, respectively.

 

10

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Estimatedamortization expense for each of the next five fiscal years has not changedsignificantly from the amounts disclosed in the Company’s annual report on Form10-K for the year ended December 31, 2003.

 

**7.****                                     ****Long-Term Obligations**

 

The composition of long-term obligations was as follows: 

 
|                                             |   | **June 30,  2004** |    | **December  31,  2003** |   |
|--------------------------------------------------|--------|--------------------|---------|-------------------------|--------|
|                                             |   |               |    |                    |   |
| Working Capital Facility                         |   | $                  | 24,658  |                    | $      | 12,860 |   |
| Term Loan                                        |   | 20,000             |    | —                  |   |
| Senior Subordinated Notes                        |   | 175,000            |    | —                  |   |
| Senior Notes Facility                            |   | —             |    | 180,000                 |   |
| Capital Leases                                   |   | 19,881             |    | 20,435                  |   |
| Other                                            |   | 5,275              |    | 5,083                   |   |
|                                             |   | 244,814            |    | 218,378                 |   |
| Current maturities and working capital  facility |   | (34,505            | )       | (27,974                 | )      |
|                                             |   | $                  | 210,309 |                    | $      | 190,404 |   |

 

***Senior SubordinatedNotes***

 

On February 5,2004, the Company completed a private placement of $175,000 in aggregateprincipal of 91⁄4% Senior Subordinated Notes due 2014 (the “Senior SubordinatedNotes”). The net proceeds from the offering, together with approximately$20,000 of borrowings under a new term loan (the “Term Loan”) added through anamendment and restatement to the Company’s GECC credit agreement (the “CreditAgreement”), were used to repay all outstanding borrowings under the existing$180,000 senior term note facility and to reduce amounts outstanding under theCompany’s revolving credit facility. In May 2004, for the purpose of anexchange offer, the Company registered notes with terms identical to the SeniorSubordinated Notes under the Securities Act of 1933.  The Company completed the exchange offer in the second quarterand more than 99% of the original notes were exchanged for the registerednotes.

 

The Senior Subordinated Notes are unsecuredsenior subordinated obligations and are subordinated in right of payment to allexisting and future Senior Indebtedness (as defined in the indenture). Interestwill accrue at the rate of 91⁄4% per annum and will be payable semiannually inarrears on February 1 and August 1, commencing on August 1,2004.

 

***Credit Agreement***

 

The Credit Agreement consists of the Term Loan and a $50,000 revolvingcredit facility (the “Working Capital Facility”).  Up to $20,000 of the Working Capital Facility may be used forletters of credit.  Actual borrowingavailability is subject to a borrowing base calculation, which is equal to 1.5times Adjusted EBITDA.  The CreditAgreement defines Adjusted EBITDA as 100% of the EBITDA for the Company and itsdomestic subsidiaries plus 65% of the EBITDA of the Company’s Canadian subsidiaries.  EBITDA is defined in the Credit Agreement asnet income less income tax credits, interest income, gains from extraordinaryitems, any aggregate net gain on the sale of tangible assets, and any othernon-cash gains added in determining net income; plus, provision for incometaxes, interest expense, depreciation, amortization of intangibles,

 

11

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amortization of deferred financing costs, any amount deducted from netincome as a result of stock or stock option grants, the accrual net of anypayments in cash related to net periodic post-retirement benefit costs, lossesfrom extraordinary items, reorganization costs related to the Chapter 11 cases,and any non-recurring employee severance expenses and non-recurring cashexpenses related to plant reorganizations, not to exceed $10,000 in theaggregate, the non-cash portion of any expense or lossattributable to any interest rate agreement or arrangement permitted under the Credit Agreement prior to the terminationor expiration of such agreement or arrangement, and $8,900 of non-cash reservesrecorded at December 31, 2003 related to the implementation of a revisedreserve methodology for inventory and accounts receivable and recognition of anadditional accrual for warranty obligations. Availability under the WorkingCapital Facility may also be limited if the Company fails to meet certainlevels of Adjusted EBITDA. Borrowings under the Term Loan and the WorkingCapital Facility accrue interest, at the Company’s option, at the prime lendingrate plus 2.25%, in the case of index rate loans, or at the London Interbank Offered Rate (“LIBOR”) plus 3.25%, in thecase of LIBOR loans. Unused portions of theWorking Capital Facility are charged 75 basis points as of June 30, 2004. TheCredit Agreement is secured by substantially all of the assets of the Company’sdomestic subsidiaries, including a pledge of the capital stock of substantiallyall of the Company’s subsidiaries, subject to certain limitations with respectto foreign subsidiaries.  The CreditAgreement contains financial covenants, including minimum levels of EBITDA(determined on a consolidated basis) and other customary provisions.  As of June 30, 2004, the Company hadoutstanding borrowings of $24,658 and issued letters of credit totaling $12,414under the Working Capital Facility.  TheCompany had availability of $12,928 under the Working Capital Facility at June30, 2004. The Working Capital Facility terminates on May 23, 2006.  The Term Loan matures on December 31,2008 and requires quarterly principal payments totaling $4,000 in 2005, $5,000in 2006, $5,000 in 2007 and $6,000 in 2008.

 

***Senior Term Notes***

 

The SeniorTerm Notes accrued interest, in the case of Eurodollar loans at LIBOR plus amargin ranging from 3.0% to 7.5%, and in the case of base rate loans at theprime rate plus a margin ranging from 2.0% to 6.5%.  The interest margin applicable to the Eurodollar and base rateloans varied depending on the level of indebtedness and the time elapsed fromthe Effective Date. The Senior Term Notes were repaid in February 2004.

 

***Subsequent Event***

 

On July 29,2004 the Company entered into a new $20,000 second-lien term loan facility (the“Second-Lien Facility”.) Borrowings under the facility were used to repay aportion of the amount outstanding under the Working Capital Facility. TheSecond-Lien Facility is secured by a second lien on substantially all of theassets of the Company. The Second-Lien Facility is due in full on January 24,2005, and accrues interest at the Company’s option, at LIBOR plus 5.50% or analternative base rate (the greater of a) the Prime Rate or b) the federal fundsrate plus one half of 1.00%) plus 4.50% for any day on or prior to October 26,2004, and LIBOR plus 6.00%, and an alternative base rate plus 5.00%, for anyday thereafter. The Second-Lien Facility restricts how much long-term debt theCompany may have and has other customary provisions including financial andnon-financial covenants.

 

12

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**8.****                                     ****Derivative Instrument**

 

In February2004, the Company entered into an interest rate swap arrangement to convert aportion of the fixed rate exposure on its Senior Subordinated Notes to variablerates. Under the terms of the interest rate swap contract, which has a notionalamount of $50,000, the Company receives interest at a fixed rate of 91⁄4% andpays interest at a variable rate equal to LIBOR plus a spread of 442 basispoints. The six-month LIBOR rate on each semi-annual reset date determines thevariable portion of the interest rate swap. The six-month LIBOR rate for each semi-annual reset date is determinedin arrears.

 

The Company has designatedthe swap as a fair value hedge of its fixed rate debt. The terms of theinterest rate swap contract and hedged item are such that effectiveness can bemeasured using the short-cut method defined in SFAS No. 133. Hedgeineffectiveness, as determined in accordance with SFAS No. 133, had noimpact on results of operations for the six months ended June 30, 2004.

 

In accordance with SFAS No.133, as of June 30, 2004 the Company recorded a fair value adjustment to theportion of its fixed rate long-term debt that is hedged. This fair valueadjustment was recorded as a decrease to Long-term obligations, with therelated value for the interest rate swap’s non-current portion recorded inOther long-term liabilities. Interest rate differentials associated with theinterest rate swap are recorded as an adjustment to a current asset orliability, with the offset to interest expense over the life of the interestrate swap.

 

**9.****                                      Warrants**

 

In connection with the Restructuring and thesettlement of the various creditor classes in the Chapter 11 bankruptcyproceeding, three classes of warrants were issued that allow the holders topurchase the Company’s common stock in the future at stated exercise prices.The key financial elements of the warrants are as follows:

 
|             |   |             |   |          |   |           |         | **Warrants**    |    |
|------------------|--------|------------------|--------|---------------|--------|----------------|--------------|-----------------|---------|
|             |   | **Warrants**     |   |          |   |           |         | **Issued and**  |    |
|             |   | **Issued**       |   |          |   |           |         | **Outstanding** |    |
|             |   | **to  Purchase** |   | **Exercise**  |   |           |         | **as of**       |    |
|             |   | **Common**       |   | **Price**     |   | **Expiration** |         | **June 30,**    |    |
|             |   | **Stock**        |   | **Per Share** |   | **Date**       |         | **2004**        |    |
|             |   |             |   |          |   |           |         |            |    |
| Class A Warrants |   | 1,157,000        |   | $             | 13.85  |           | May 23, 2004 |            | —  |   |
| Class B Warrants |   | 700,000          |   | $             | 20.78  |           | May 23, 2006 |            | 700,000 |   |
| Class C Warrants |   | 271,429          |   | $             | 27.70  |           | May 23, 2006 |            | 271,429 |   |

 

The Class A and B Warrants were issued,pro rata, to participants in the former 9 7/8%senior subordinated notes. These former bondholders received approximately 5%of the Company’s common stock upon emergence from Chapter 11, plus theClass A and B warrants. These warrants have been effectively valued andrecorded within the new equity section (additional paid-in capital) inconnection with establishing the opening fresh-start balance sheet.

 

The Class C Warrants were issued to theformer majority equity holders of the Company. The former equity holdersreceived no other significant disbursements or consideration upon emergencefrom Chapter 11. These warrants have been treated as an exchange of oldequity securities for new equity securities in connection with recording thereorganization entries and establishing the opening fresh-start balance sheet.

 

13

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During the three and six months ended June30, 2004, 13,973 Class A Warrants were exercised, the proceeds of which were$0.2 million. The remaining Class A Warrants expired on May 23, 2004. Therewere no Class B Warrants or Class C Warrants exercised during the three and sixmonths ended June 30, 2004.

 

 

**10.****                               StockOptions**

 

The 2004 Non-EmployeeDirectors Stock Option Plan (the “Directors Plan”) was adopted in May 2004 forthe Company’s board of directors. Up to 200,000 shares of the Company’s commonstock may be issued pursuant to awards granted by the Compensation Committeeunder the Directors Plan.

 

The 2004 Stock IncentivePlan (the “Stock Incentive Plan”) was adopted in May 2004 for the Company’semployees. Up to 1,477,778 shares of the Company’s common stock may be issuedpursuant to awards granted by the Compensation Committee under the StockIncentive Plan. The Stock Incentive Plan provides for the grant of(a) incentive stock options intended to qualify under Section 422 ofthe 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.

 

Stock options are grantedfrom time to time under the DirectorsPlan, the Stock Incentive Plan or with the execution of a specific agreementand are granted for a fixed number of shares with an exercise priceequal to or greater than the fair value of the shares at the date of grant.Stock option grants are recorded under the recognition and measurementprinciples of Accounting Principles Board Opinion No. 25—”Accounting forStock Issued to Employees” (“APB 25”), and related interpretations.Accordingly, no stock-based compensation cost is reflected in operatingresults. Pro forma information regarding net operating results and per shareresults is required by SFAS No. 123—”Accounting for Stock-Based Compensation”,which also requires that the information be determined as if stock options weregranted under the fair value method of that statement. The fair value foroptions granted was estimated at the date of grant using a Black-Scholes optionpricing model with the following weighted-average assumptions: risk-freeinterest rate of 2.7%, a dividend yield of 0.0%, volatility factors of theexpected market price of the Company’s common stock of 0.54, and aweighted-average expected life of the options of four years. As of June 30,2004, options for 650,000 shares had been granted.

 

TheBlack-Scholes option valuation model was developed for use in estimating thefair value of traded options which have no vesting restrictions and are fullytransferable. In addition, option valuation models require the input of highlysubjective assumptions including the expected stock price volatility. Becausethe Company’s stock options have characteristics significantly different fromthose of traded options, and because changes in the subjective inputassumptions can materially affect the fair value estimate, the existing modelsdo not necessarily provide a reliable single measure of the fair value of theCompany’s stock options.

 

14

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The following table illustrates the effect onnet loss and loss per share if the fair value expense recognition requirementsof SFAS No. 123 had been applied to all stock options granted under theplans.

 
|                                                                                                                                |   | **Reorganized** |   | **Reorganized**   |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|--------|-------------------|--------|
|                                                                                                                                |   | **Company**     |   | **Company**       |   |
|                                                                                                                                |   | **Six Months**  |   | **Three  Months** |   |
|                                                                                                                                |   | **Ended**       |   | **Ended**         |   |
|                                                                                                                                |   | **June 30,**    |   | **June 30,**      |   |
|                                                                                                                                |   | **2004**        |   | **2004**          |   |
| Net loss, as reported                                                                                                               |   | $               | (6,318 | )                 | (5,289 | ) |
| Deduct: Total stock-based compensation  expense determined under fair value based method for allawards, net of  related tax effects |   | (354            | )      | (199              | )      |
| Pro forma net loss                                                                                                                  |   | $               | (6,672 | )                 | $      | (5,488 | ) |
|                                                                                                                                |   |            |   |              |   |
| Basic and diluted loss per share                                                                                                    |   |            |   |              |   |
| As reported                                                                                                                         |   | $               | (0.47  | )                 | $      | (0.40 | ) |
|                                                                                                                                |   |            |   |              |   |
| Pro forma                                                                                                                           |   | $               | (0.50  | )                 | $      | (0.41 | ) |

 

**11.****                               IncomeTaxes**

 

The Company’stax provision relates primarily to its foreign subsidiaries.  The tax benefits of losses incurred in theU.S. are fully reserved with a valuation allowance based on the Company’scurrent tax position and estimates of taxable income for the foreseeablefuture.

 

**12.****                               EmployeeBenefit Plans**

 

***401(k) RetirementPlan****.*The401(k) Retirement Plan covers the majority of the Company’s domestic employees.At the employee’s discretion, a 1% to 15% voluntary employee contribution canbe made. The plan requires the Company to make matching contributions of 50%for the first 6% of the voluntary employee contribution. At its discretion theCompany can make a base contribution of 1% of each employee’s compensation andan additional contribution equal to as much as 4% of the employee’scompensation.

 

***Pension Plans.*****The Company’s subsidiaries have hadvarious noncontributory defined benefit pension plans which coveredsubstantially all U.S. employees. The Company froze and combined threenoncontributory defined benefit pension plans through amendments to such planseffective December 31, 1989. All former participants of these plans becameeligible to participate in the 401(k) Retirement Plan effective January 1,1990.

 

The Company’sAustralian subsidiary has a Superannuation Fund established by a Trust Deedwhich operates on a lump sum scheme to provide benefits for its employees. Theprepaid benefit cost is not included in the balance sheet, as the Company hasno legal right to amounts included in this fund.

 

15

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***Other PostretirementBenefits****.*TheCompany has a retirement plan covering both salaried and non-salaried retiredemployees, which provides postretirement health care benefits (medical anddental) and life insurance benefits. The postretirement health care portion iscontributory, with retiree contributions adjusted annually as determined basedon claim costs. The postretirement life insurance portion is noncontributory.The Company recognizes the cost of postretirement benefits on the accrual basisas employees render service to earn the benefit. The Company continues to fundthe cost of health care and life insurance benefits in the year incurred.

 

Net periodicpension and other postretirement benefit costs include the followingcomponents:

 
|                                          |   | **Pension  Benefits** |   |
|-----------------------------------------------|--------|-----------------------|--------|
|                                          |   | **Reorganized**       |   | **Reorganized** |   | **Predecessor** |   | **Reorganized** |   | **Predecessor** |   |
|                                          |   | **Company**           |   | **Company** |   | **Company** |   | **Company** |   | **Company** |   |
|                                          |   | **Three  Months**     |   | **One Month** |   | **Two Months** |   | **Six Months** |   | **Five  Months** |   |
|                                          |   | **Ended**             |   | **Ended** |   | **Ended** |   | **Ended** |   | **Ended** |   |
|                                          |   | **June 30,**          |   | **June 30,** |   | **May 31,** |   | **June 30,** |   | **May 31,** |   |
|                                          |   | **2004**              |   | **2003** |   | **2003** |   | **2004** |   | **2003** |   |
| Components of the net periodic benefit  cost: |   |                  |   |   |   |   |   |   |   |   |   |
| Service Cost                                  |   | $                     | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Interest Cost                                 |   | 299                   |   | 87 |   | 174 |   | 598 |   | 437 |   |
| Expected return on plan assets                |   | (274                  | )      | (73 | ) | (146 | ) | (548 | ) | (366 | ) |
| Recognized (gain) loss                        |   | —                |   | 24 |   | 48 |   | — |   | 116 |   |
| Prior service cost recognized                 |   | —                |   | 1 |   | 2 |   | — |   | 7 |   |
| Net periodic benefit cost                     |   | $                     | 25     |   | $ | 39 |   | $ | 78 |   | $ | 50 |   | $ | 194 |   |

 

 
|                                          |   | **Other  Postretirement Benefits** |   |
|-----------------------------------------------|--------|------------------------------------|--------|
|                                          |   | **Reorganized**                    |   | **Reorganized** |   | **Predecessor** |   | **Reorganized** |   | **Predecessor** |   |
|                                          |   | **Company**                        |   | **Company** |   | **Company** |   | **Company** |   | **Company** |   |
|                                          |   | **Three  Months**                  |   | **One Month** |   | **Two Months** |   | **Six Months** |   | **Five  Months** |   |
|                                          |   | **Ended**                          |   | **Ended** |   | **Ended** |   | **Ended** |   | **Ended** |   |
|                                          |   | **June 30,**                       |   | **June 30,** |   | **May 31,** |   | **June 30,** |   | **May 31,** |   |
|                                          |   | **2004**                           |   | **2003** |   | **2003** |   | **2004** |   | **2003** |   |
| Components of the net periodic benefit  cost: |   |                               |   |   |   |   |   |   |   |   |   |
| Service Cost                                  |   | $                                  | 296    |   | $ | 85 |   | $ | 170 |   | $ | 593 |   | $ | 370 |   |
| Interest Cost                                 |   | 312                                |   | 84 |   | 168 |   | 686 |   | 421 |   |
| Expected return on plan assets                |   | —                             |   | — |   | — |   | — |   | — |   |
| Recognized (gain) loss                        |   | 16                                 |   | (39 | ) | (78 | ) | 32 |   | (195 | ) |
| Prior service cost recognized                 |   | —                             |   | (16 | ) | (32 | ) | — |   | (80 | ) |
| Net periodic benefit cost                     |   | $                                  | 624    |   | $ | 114 |   | $ | 228 |   | $ | 1,311 |   | $ | 516 |   |

 

The Companypreviously disclosed in its financial statements for the year ended December31, 2003 that it expected to contribute $1,300 to its pension plan in 2004. Asof June 30, 2004, $504 has been contributed. The Company presently anticipates contributing an additional $639 tofund its pension plan in 2004.  Theexpected contribution for 2004 has been revised to reflect the provisions ofthe Pension Funding Equity Act of 2004.

 

In December 2003, the Medicare PrescriptionDrug, Improvement and Modernization Act of 2003, (the “Act”) was enacted. TheAct introduced a prescription drug benefit under Medicare Part D as wellas a federal subsidy to sponsors of retiree health care benefit plans thatprovide a benefit that is at least actuarially equivalent to MedicarePart D. Under FASB Financial Staff Position (“FSP”) 106-1, issued inJanuary 2004, related to the Act, the Company elected to defer recognizing the

 

16

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effects of the Act on its accumulatedpostretirement benefit obligation (“APBO”) and net periodic postretirementbenefit costs until pending authoritative guidance on the accounting for thefederal subsidy is issued.

 

In May 2004, the FASB issued FSP No. FAS106-2, which provides guidance on the accounting for the effects of the Act andalso requires employers to provide certain disclosures provided by theAct.  The provisions of FSP No. FAS106-2 are effective for the first interim or annual period beginning after June15, 2004. If the Company’s plans are actuarially equivalent to Medicare Part D,the Company must reflect the value of the subsidy in the APBO, service cost andamortization of gains and losses, retroactive to January 1, 2004. The Companyhas not included any amounts associated with the subsidy in its accumulatedpostretirement benefit obligation and net periodic postretirement benefit costssince the Company at present has not been able to conclude whether the benefitsprovided by the plan are actuarially equivalent to Medicare Part D under theAct.

 

**13.****                               SegmentInformation**

 

Although theCompany’s operations are comprised of several product lines and operatinglocations, similarity of products, paths to market, end users, and productionprocesses results in performance evaluation and decisions regarding allocationof resources being made on a combined basis and accordingly, management hasconcluded the Company operates in one segment. Reportable geographic regionsare the United States, Europe and Australia/Asia.

 

Summarizedfinancial information concerning the Company’s geographic segments is shown inthe following table.

 
|                    |   | **Reorganized** |    | **Reorganized** |   | **Predecessor**  |   |
|-------------------------|--------|-----------------|---------|-----------------|--------|------------------|--------|
|                    |   | **Company**     |    | **Company**     |   | **Company**      |   |
|                    |   | **Six Months**  |    | **One Month**   |   | **Five  Months** |   |
|                    |   | **Ended**       |    | **Ended**       |   | **Ended**        |   |
|                    |   | **June 30,**    |    | **June 30,**    |   | **May 31,**      |   |
|                    |   | **2004**        |    | **2003**        |   | **2003**         |   |
| Net Sales               |   |            |    |            |   |             |   |
| United States           |   | $               | 147,387 |            | $      | 20,835           |   | $ | 101,025 |   |
| Europe                  |   | 32,605          |    | 5,194           |   | 26,235           |   |
| Australia / Asia        |   | 34,378          |    | 5,080           |   | 21,243           |   |
| All other international |   | 31,533          |    | 5,129           |   | 23,507           |   |
|                    |   | $               | 245,903 |            | $      | 36,238           |   | $ | 172,010 |   |

 

17

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|                    |   | **Reorganized** |    | **Reorganized**   |   |
|-------------------------|--------|-----------------|---------|-------------------|--------|
|                    |   | **Company**     |    | **Company**       |   |
|                    |   | **June 30,**    |    | **December  31,** |   |
|                    |   | **2004**        |    | **2003**          |   |
| Indentifiable assets    |   |            |    |              |   |
| United States           |   | $               | 261,623 |              | $      | 258,402 |   |
| Europe                  |   | 15,007          |    | 16,159            |   |
| Australia / Asia        |   | 10,853          |    | 11,837            |   |
| All other international |   | 11,235          |    | 11,300            |   |
|                    |   | $               | 298,718 |              | $      | 297,698 |   |

 

***Product Line Information***

 

The Companymanufactures a variety of products, substantially all of which are used in thecutting, welding or fabrication of metal. End users of the Company’s productsare engaged in various applications including construction, automobilemanufacturing, repair and maintenance and shipbuilding. The following tableshows sales for each of the Company’s key product lines:

** **
|                                   |   | **Reorganized** |       | **Reorganized** |       | **Predecessor**  |       |
|----------------------------------------|--------|-----------------|------------|-----------------|------------|------------------|------------|
|                                   |   | **Company**     |       | **Company**     |       | **Company**      |       |
|                                   |   | **Six Months**  |       | **One Month**   |       | **Five  Months** |       |
|                                   |   | **Ended**       |       | **Ended**       |       | **Ended**        |       |
|                                   |   | **June 30,**    |       | **June 30,**    |       | **May 31,**      |       |
|                                   |   | **2004**        |       | **2003**        |       | **2003**         |       |
|                                   |   |            | ** ** |            | ** ** |             | ** ** |
| Gas apparatus                          |   | $               | 91,563     |            | $          | 12,986           |       | $ | 62,713 |   |
| Arc welding equipment                  |   | 40,029          |       | 6,549           |       | 30,361           |       |
| Arc welding consumables                |   | 74,540          |       | 10,882          |       | 51,552           |       |
| Plasma and automated cutting equipment |   | 37,645          |       | 5,093           |       | 25,296           |       |
| All other                              |   | 2,126           |       | 728             |       | 2,088            |       |
|                                   |   | $               | 245,903    |            | $          | 36,238           |       | $ | 172,010 |   |

 

**14.****          CondensedConsolidating Financial Statements**

 

On February 5, 2004, the Company completed a private placement of $175,000 in aggregate principal of 9 1/4%Senior Subordinated Notes due 2014. The Company’s 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.

 

The followingcondensed consolidating financial information includes the accounts of theCompany, which has no independent assets or operations, the combined accountsof the Guarantor Subsidiaries and the combined accounts of the non-guarantorsubsidiaries for the periods indicated. Separate financial statements of eachof the Guarantor Subsidiaries are not presented because management hasdetermined such information is not material in assessing the financialcondition, cash flows or results of operations of the Company and itssubsidiaries. Additionally, consolidating financial statement information priorto the reorganization date was omitted because

 

18

----

 

management hasdetermined such information is not comparable to the Reorganized Company. Thisinformation was prepared on the same basis as the consolidated financialstatements.

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING BALANCESHEET**

**JUNE 30, 2004**

 
|                                                       |   | **Parent**      |    |           |   |           |   |             |    |             |   |
|------------------------------------------------------------|--------|-----------------|---------|----------------|--------|----------------|--------|------------------|---------|------------------|--------|
|                                                       |   | **Thermadyne**  |    |           |   |           |   |             |    |             |   |
|                                                       |   | **Holdings**    |    |           |   | **Non-**       |   |             |    |             |   |
|                                                       |   | **Corporation** |    | **Guarantors** |   | **Guarantors** |   | **Eliminations** |    | **Consolidated** |   |
| **ASSETS**                                                 |   |            |    |           |   |           |   |             |    |             |   |
| Current Assets:                                            |   |            |    |           |   |           |   |             |    |             |   |
| Cash and cash equivalents                                  |   | $               | —  |           | $      | 987            |   | $                | 8,711   |             | $      | — |   | $ | 9,698 |   |
| Accounts receivable, net                                   |   | —          |    | 41,150         |   | 51,864         |   | —           |    | 93,014           |   |
| Inventories                                                |   | —          |    | 71,683         |   | 55,954         |   | —           |    | 127,637          |   |
| Prepaid expenses and other                                 |   | —          |    | 5,120          |   | 4,558          |   | —           |    | 9,678            |   |
| Total current assets                                       |   | —          |    | 118,940        |   | 121,087        |   | —           |    | 240,027          |   |
| Property, plant and equipment, net                         |   | —          |    | 43,010         |   | 36,928         |   | —           |    | 79,938           |   |
| Goodwill                                                   |   | —          |    | 135,868        |   | —         |   | —           |    | 135,868          |   |
| Intangibles, net                                           |   | —          |    | 64,889         |   | 11,669         |   | —           |    | 76,558           |   |
| Other assets                                               |   | 4,529           |    | 1,658          |   | 167            |   | —           |    | 6,354            |   |
| Investment in and advances to subsidiaries                 |   | 177,853         |    | —         |   | —         |   | (177,853         | )       | —           |   |
| Total assets                                               |   | $               | 182,382 |           | $      | 364,365        |   | $                | 169,851 |             | $      | (177,853 | ) | $ | 538,745 |   |
|                                                       |   |            |    |           |   |           |   |             |    |             |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY  (DEFICIT)**   |   |            |    |           |   |           |   |             |    |             |   |
| Current Liabilities:                                       |   |            |    |           |   |           |   |             |    |             |   |
| Accounts payable                                           |   | $               | —  |           | $      | 15,461         |   | $                | 25,824  |             | $      | — |   | $ | 41,285 |   |
| Accrued and other liabilities                              |   | —          |    | 24,774         |   | 8,724          |   | —           |    | 33,498           |   |
| Accrued interest                                           |   | 5,954           |    | 201            |   | —         |   | —           |    | 6,155            |   |
| Income taxes payable                                       |   | —          |    | 584            |   | 5,207          |   | —           |    | 5,791            |   |
| Working capital facility                                   |   | —          |    | 24,658         |   | —         |   | —           |    | 24,658           |   |
| Current maturities of long-term obligations                |   | —          |    | 3,293          |   | 6,554          |   | —           |    | 9,847            |   |
| Total current liabilities                                  |   | 5,954           |    | 68,971         |   | 46,309         |   | —           |    | 121,234          |   |
| Long-term obligations, less current  maturities            |   | 172,839         |    | 30,244         |   | 7,226          |   | —           |    | 210,309          |   |
| Other long-term liabilities                                |   | 2,161           |    | 34,546         |   | 6,562          |   | —           |    | 43,269           |   |
| Shareholders’ equity (deficit):                       |   |            |    |           |   |           |   |             |    |             |   |
| Common stock                                               |   | 133             |    | —         |   | —         |   | —           |    | 133              |   |
| Additional paid-in-capital                                 |   | 183,460         |    | —         |   | —         |   | —           |    | 183,460          |   |
| Retained earnings (deficit)                                |   | (23,869         | )       | (11,986        | )      | 2,165          |   | 9,821            |    | (23,869          | )      |
| Accumulated other comprehensive income  (loss)             |   | 4,209           |    | 10,726         |   | (7,001         | )      | (3,725           | )       | 4,209            |   |
| Total shareholders’ equity (deficit)                  |   | 163,933         |    | (1,260         | )      | (4,836         | )      | 6,096            |    | 163,933          |   |
| Net equity and advances to / from  subsidiaries            |   | (162,505        | )       | 231,864        |   | 114,590        |   | (183,949         | )       | —           |   |
| Total liabilities and shareholders’ equity  (deficit) |   | $               | 182,382 |           | $      | 364,365        |   | $                | 169,851 |             | $      | (177,853 | ) | $ | 538,745 |   |

 

19

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**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING BALANCESHEET**

**DECEMBER 31, 2003**

 
|                                                       |   | **Parent**      |    |           |   |           |   |             |    |             |   |
|------------------------------------------------------------|--------|-----------------|---------|----------------|--------|----------------|--------|------------------|---------|------------------|--------|
|                                                       |   | **Thermadyne**  |    |           |   |           |   |             |    |             |   |
|                                                       |   | **Holdings**    |    |           |   | **Non-**       |   |             |    |             |   |
|                                                       |   | **Corporation** |    | **Guarantors** |   | **Guarantors** |   | **Eliminations** |    | **Consolidated** |   |
|                                                       |   |            |    |           |   |           |   |             |    |             |   |
| **ASSETS**                                                 |   |            |    |           |   |           |   |             |    |             |   |
| Current Assets:                                            |   |            |    |           |   |           |   |             |    |             |   |
| Cash and cash equivalents                                  |   | $               | —  |           | $      | 609            |   | $                | 16,175  |             | $      | — |   | $ | 16,784 |   |
| Accounts receivable, net                                   |   | —          |    | 31,947         |   | 52,132         |   | —           |    | 84,079           |   |
| Inventories                                                |   | —          |    | 53,162         |   | 46,908         |   | —           |    | 100,070          |   |
| Prepaid expenses and other                                 |   | —          |    | 5,941          |   | 4,905          |   | —           |    | 10,846           |   |
| Total current assets                                       |   | —          |    | 91,659         |   | 120,120        |   | —           |    | 211,779          |   |
| Property, plant and equipment, net                         |   | —          |    | 43,222         |   | 39,298         |   | —           |    | 82,520           |   |
| Goodwill                                                   |   | —          |    | 135,868        |   | —         |   | —           |    | 135,868          |   |
| Intangibles, net                                           |   | —          |    | 66,593         |   | 11,311         |   | —           |    | 77,904           |   |
| Other assets                                               |   | —          |    | 1,205          |   | 201            |   | —           |    | 1,406            |   |
| Investment in and advances to subsidiaries                 |   | 179,019         |    | —         |   | —         |   | (179,019         | )       | —           |   |
| Total assets                                               |   | $               | 179,019 |           | $      | 338,547        |   | $                | 170,930 |             | $      | (179,019 | ) | $ | 509,477 |   |
|                                                       |   |            |    |           |   |           |   |             |    |             |   |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIT**             |   |            |    |           |   |           |   |             |    |             |   |
| Current Liabilities:                                       |   |            |    |           |   |           |   |             |    |             |   |
| Accounts payable                                           |   | $               | —  |           | $      | 10,799         |   | $                | 25,383  |             | $      | — |   | $ | 36,182 |   |
| Accrued and other liabilities                              |   | —          |    | 27,751         |   | 8,714          |   | —           |    | 36,465           |   |
| Accrued interest                                           |   | —          |    | 307            |   | —         |   | —           |    | 307              |   |
| Income taxes payable                                       |   | —          |    | 1,030          |   | 2,593          |   | —           |    | 3,623            |   |
| Working capital facility                                   |   | —          |    | 12,860         |   | —         |   | —           |    | 12,860           |   |
| Current maturities of long-term obligations                |   | 7,500           |    | 944            |   | 6,670          |   | —           |    | 15,114           |   |
| Total current liabilities                                  |   | 7,500           |    | 53,691         |   | 43,360         |   | —           |    | 104,551          |   |
| Long-term obligations, less current maturities             |   | 172,500         |    | 12,567         |   | 5,337          |   | —           |    | 190,404          |   |
| Other long-term liabilities                                |   | —          |    | 34,332         |   | 7,955          |   | —           |    | 42,287           |   |
|                                                       |   |            |    |           |   |           |   |             |    |             |   |
| Shareholders’ equity (deficit):                       |   |            |    |           |   |           |   |             |    |             |   |
| Common stock                                               |   | 133             |    | —         |   | —         |   | —           |    | 133              |   |
| Additional paid-in-capital                                 |   | 183,267         |    | —         |   | —         |   | —           |    | 183,267          |   |
| Retained earnings (deficit)                                |   | (17,551         | )       | (12,873        | )      | 1,790          |   | 11,083           |    | (17,551          | )      |
| Accumulated other comprehensive income  (loss)             |   | 6,386           |    | 11,406         |   | (5,020         | )      | (6,386           | )       | 6,386            |   |
| Total shareholders’ equity (deficit)                  |   | 172,235         |    | (1,467         | )      | (3,230         | )      | 4,697            |    | 172,235          |   |
| Net equity and advances to / from  subsidiaries            |   | (173,216        | )       | 239,424        |   | 117,508        |   | (183,716         | )       | —           |   |
|                                                       |   |            |    |           |   |           |   |             |    |             |   |
| Total liabilities and shareholders’ equity  (deficit) |   | $               | 179,019 |           | $      | 338,547        |   | $                | 170,930 |             | $      | (179,019 | ) | $ | 509,477 |   |

 

20

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**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING  STATEMENT OF OPERATIONS**

**THREE MONTHS ENDED JUNE 30, 2004**

 
|                                          |   | **Parent**      |   |           |   |           |   |             |   |             |   |
|-----------------------------------------------|--------|-----------------|--------|----------------|--------|----------------|--------|------------------|--------|------------------|--------|
|                                          |   | **Thermadyne**  |   |           |   |           |   |             |   |             |   |
|                                          |   | **Holdings**    |   |           |   | **Non-**       |   |             |   |             |   |
|                                          |   | **Corporation** |   | **Guarantors** |   | **Guarantors** |   | **Eliminations** |   | **Consolidated** |   |
|                                          |   |            |   |           |   |           |   |             |   |             |   |
| Net sales                                     |   | $               | — |           | $      | 94,171         |   | $                | 58,230 |             | $      | (25,229 | ) | $ | 127,172 |   |
| Operating expenses:                           |   |            |   |           |   |           |   |             |   |             |   |
| Cost of goods sold                            |   | —          |   | 67,455         |   | 43,989         |   | (25,018          | )      | 86,426           |   |
| Selling, general and administrative  expenses |   | —          |   | 21,809         |   | 10,254         |   | —           |   | 32,063           |   |
| Amortization of intangibles                   |   | —          |   | 777            |   | 178            |   | —           |   | 955              |   |
| Net periodic postretirement benefits          |   | —          |   | 624            |   | —         |   | —           |   | 624              |   |
| Restructuring costs                           |   | —          |   | 2,464          |   | —         |   | —           |   | 2,464            |   |
| Operating income (loss)                       |   | —          |   | 1,042          |   | 3,809          |   | (211             | )      | 4,640            |   |
| Other income (expense):                       |   |            |   |           |   |           |   |             |   |             |   |
| Interest                                      |   | (3,625          | )      | (1,099         | )      | (441           | )      | —           |   | (5,165           | )      |
| Amortization of deferred financing costs      |   | (114            | )      | (197           | )      | —         |   | —           |   | (311             | )      |
| Equity in net income (loss) of subsidiaries   |   | (1,550          | )      | —         |   | —         |   | 1,550            |   | —           |   |
| Other , net                                   |   | —          |   | (439           | )      | (864           | )      | —           |   | (1,303           | )      |
| Income (loss) before income tax provision     |   | (5,289          | )      | (693           | )      | 2,504          |   | 1,339            |   | (2,139           | )      |
| Income tax provision (benefit)                |   | —          |   | (216           | )      | 3,366          |   | —           |   | 3,150            |   |
| Net income (loss)                             |   | $               | (5,289 | )              | $      | (477           | )      | $                | (862   | )                | $      | 1,339 |   | $ | (5,289 | ) |

** **

**THERMADYNE HOLDINGSCORPORATION**

**CONDENSEDCONSOLIDATING  STATEMENT OF OPERATIONS**

**SIX MONTHS ENDED JUNE30, 2004**

** **
|                                          |   | **Parent**      |   |           |   |           |   |             |    |             |   |
|-----------------------------------------------|--------|-----------------|--------|----------------|--------|----------------|--------|------------------|---------|------------------|--------|
|                                          |   | **Thermadyne**  |   |           |   |           |   |             |    |             |   |
|                                          |   | **Holdings**    |   |           |   | **Non-**       |   |             |    |             |   |
|                                          |   | **Corporation** |   | **Guarantors** |   | **Guarantors** |   | **Eliminations** |    | **Consolidated** |   |
|                                          |   |            |   |           |   |           |   |             |    |             |   |
| Net sales                                     |   | $               | — |           | $      | 178,286        |   | $                | 111,203 |             | $      | (43,586 | ) | $ | 245,903 |   |
| Operating expenses:                           |   |            |   |           |   |           |   |             |    |             |   |
| Cost of goods sold                            |   | —          |   | 124,812        |   | 85,071         |   | (43,332          | )       | 166,551          |   |
| Selling, general and administrative  expenses |   | —          |   | 41,693         |   | 19,995         |   | —           |    | 61,688           |   |
| Amortization of intangibles                   |   | —          |   | 1,703          |   | 364            |   | —           |    | 2,067            |   |
| Net periodic postretirement benefits          |   | —          |   | 1,311          |   | —         |   | —           |    | 1,311            |   |
| Restructuring costs                           |   | —          |   | 5,021          |   | —         |   | —           |    | 5,021            |   |
| Operating income (loss)                       |   | —          |   | 3,746          |   | 5,773          |   | (254             | )       | 9,265            |   |
| Other income (expense):                       |   |            |   |           |   |           |   |             |    |             |   |
| Interest                                      |   | (7,138          | )      | (2,014         | )      | (784           | )      | —           |    | (9,936           | )      |
| Amortization of deferred financing costs      |   | (188            | )      | (343           | )      | —         |   | —           |    | (531             | )      |
| Equity in net income (loss) of subsidiaries   |   | 1,008           |   | —         |   | —         |   | (1,008           | )       | —           |   |
| Other , net                                   |   | —          |   | (708           | )      | (331           | )      | —           |    | (1,039           | )      |
| Income (loss) before income tax provision     |   | (6,318          | )      | 681            |   | 4,658          |   | (1,262           | )       | (2,241           | )      |
| Income tax provision  (benefit)          |   | —          |   | (206           | )      | 4,283          |   | —           |    | 4,077            |   |
| Net income (loss)                             |   | $               | (6,318 | )              | $      | 887            |   | $                | 375     |             | $      | (1,262 | ) | $ | (6,318 | ) |

** **

21

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**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENTOF CASH FLOWS**

**SIX MONTHS ENDED JUNE 30, 2004**

 
|                                                       |   | **Parent**      |   |           |   |           |   |             |   |             |   |
|------------------------------------------------------------|--------|-----------------|--------|----------------|--------|----------------|--------|------------------|--------|------------------|--------|
|                                                       |   | **Thermadyne**  |   |           |   |           |   |             |   |             |   |
|                                                       |   | **Holdings**    |   |           |   | **Non-**       |   |             |   |             |   |
|                                                       |   | **Corporation** |   | **Guarantors** |   | **Guarantors** |   | **Eliminations** |   | **Consolidated** |   |
|                                                       |   |            |   |           |   |           |   |             |   |             |   |
| Net cash used in operating activities                      |   | $               | (6,130 | )              | $      | (10,098        | )      | $                | (3,294 | )                | $      | (1,262 | ) | $ | (20,784 | ) |
| Cash flows from investing activities:                      |   |            |   |           |   |           |   |             |   |             |   |
| Capital expenditures                                       |   | —          |   | (6,359         | )      | (2,534         | )      | —           |   | (8,893           | )      |
| Net cash used in investing activities                      |   | —          |   | (6,359         | )      | (2,534         | )      | —           |   | (8,893           | )      |
| Cash flows from financing activities:                      |   |            |   |           |   |           |   |             |   |             |   |
| Net borrowings under revolving credit  facility            |   | —          |   | 11,798         |   | —         |   | —           |   | 11,798           |   |
| Net (repayments) borrowings of long-term  obligations      |   | (5,000          | )      | 20,026         |   | 2,033          |   | —           |   | 17,059           |   |
| Changes in net equity and advances to /  from subsidiaries |   | 11,130          |   | (9,485         | )      | (2,907         | )      | 1,262            |   | —           |   |
| Financing fees and other                                   |   | —          |   | (5,504         | )      | (762           | )      | —           |   | (6,266           | )      |
| Net cash provided (used in) financing  activities          |   | 6,130           |   | 16,835         |   | (1,636         | )      | 1,262            |   | 22,591           |   |
|                                                       |   |            |   |           |   |           |   |             |   |             |   |
| Net increase (decrease) in cash and cash  equivalents      |   | —          |   | 378            |   | (7,464         | )      | —           |   | (7,086           | )      |
| Cash and cash equivalents at beginning of  period          |   | —          |   | 609            |   | 16,175         |   | —           |   | 16,784           |   |
| Cash and cash equivalents at  end of period           |   | $               | — |           | $      | 987            |   | $                | 8,711  |             | $      | — |   | $ | 9,698 |   |

 

**15.****          Selling,General and Administrative Expenses**

 

Selling, general andadministrative expenses for the one month ended June 30, 2003 and the twomonths ended May 31, 2003 includes $23 and $556, respectively of costs incurredrelated to an information technology project. For the five months ended May 31, 2003, selling, general andadministrative expenses related to the information technology project totaled$833.

 

**16.****          RestructuringCosts**

 

In 2003, the Companyinitiated a plan to relocate and consolidate certain U.S. manufacturingfacilities.  During the three monthsended June 30, 2004, the one month ended June 30, 2003, and the two monthsended May 31, 2003 the Company incurred costs of $2,464, $113 and $417,respectively, which were included in Restructuring costs on the accompanyingcondensed consolidated statements of operations.  During the six months ended June 30, 2004 and the five monthsended May 31, 2003, the Company incurred costs of $5,021 and $516respectively.  Of the amount recorded inthe first six months of 2004, $358 related to severance costs for approximately50 employees.  The Company also recorded$4,663 related to incentive bonuses, employee relocation costs, costs to relocateequipment, and other expenses associated with the relocation and consolidationof these facilities.  As of June 30,2004, a liability of approximately $2,237 was recorded on the accompanyingcondensed consolidated balance sheet for severance costs and incentive bonusesearned but not paid. Through June 30, 2004, the Company has incurred cumulativecosts of approximately $7,624 in connection with these activities. Currently,the Company expects to complete these activities in the third quarter of 2004 withadditional costs of approximately $2,700 to be incurred.  This estimate could change if the completionof the move does not meet expectations.

 

22

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**Item2.**

 

**MANAGEMENT’SDISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

#### **Overview**

 

We are a leading globaldesigner and manufacturer of cutting and welding products, including equipment,accessories and consumables. Our products are used by manufacturing,construction and foundry operations to cut, join and reinforce steel, aluminumand other metals. Common applications for our products include shipbuilding,railcar manufacturing, offshore oil and gas rig construction, fabrication, andthe repair and maintenance of manufacturing equipment and facilities. Weldingand cutting products are critical to the operations of most businesses thatfabricate metal, and we have well established and widely recognized brands.

 

On January 17, 2003, our Predecessor Companyand certain of its subsidiaries filed with the United States Bankruptcy Courtfor the Eastern District of Missouri (the “Court”) the First Amended andRestated Joint Plan of Reorganization (the “Plan”) and the First Amended andRestated Disclosure Statement describing the Plan (the “DisclosureStatement”).  The Plan and theDisclosure Statement were filed with the SEC on Form 8-K on February 7,2003.  On April 3, 2003, the Courtconfirmed the Plan.  The Plan wasconsummated on May 23, 2003 (the “Effective Date”) as all conditions necessaryfor the Plan to become effective were satisfied or waived, and we emerged fromChapter 11 bankruptcy protection.

 

EffectiveJune 1, 2003, we adopted the principles of “fresh-start” accounting pursuant towhich our assets were recorded at their reorganization value, which is definedas the fair value.  As part of ourfresh-start revaluation, we also recorded significant goodwill (reorganizationvalue in excess of identifiable assets). In addition, as part of the reorganization, we significantly reduced ourlong-term debt and eliminated our preferred stock.  As a result of the foregoing, our financial data from June 1,2003, as presented in the condensed consolidated financial statements, is notcomparable to prior periods.

 

#### **Forward-looking Statements**

 

The statements in thisQuarterly Report on Form 10-Q that relate to future plans, events orperformance are forward-looking statements. Actual results could differ materially due to a variety of factors andthe other risks described in this Quarterly Report and the other documents wefile from time to time with the Securities and Exchange Commission.  Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as of the datehereof.  We undertake no obligation topublicly release the result of any revisions to these forward-lookingstatements that may be made to reflect events or circumstances after the datehereof or that reflect the occurrence of unanticipated events.

 

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###### **RESULTS OFOPERATIONS**

 

###### ***Three Months Ended June 30, 2004 Compared to Three Months Ended June 30,2003***

 

Net sales for the three monthsended June 30, 2004 were $127.2 million, which compares to net sales of $71.6million and $36.2 million for the two months ended May 31, 2003 and the onemonth ended June 30, 2003, respectively, which is an increase of 18.0%.Domestic sales were $68.7 million for the second quarter of 2004, compared to$38.0 million and $18.6 million for the two months ended May 31, 2003and the one month ended June 30, 2003, respectively, which is an increase of21.3%.  The increase in the domesticsales was driven by a stronger industrial economy in the U.S. and market sharegains.  International sales were $58.5million for the three months ended June 30, 2004 compared to $33.6 millionand $17.6 million for the two months ended May 31, 2003 and the one month endedJune 30, 2003, respectively, an increase of 14.3%.  A weaker U.S. dollar was a key contributingfactor to the sales increase for the quarter. Excluding the increase in sales resulting from changes in foreigncurrency, our international sales would have been up 6.1% compared to thesecond quarter of 2003, due primarily to increases in volume in Australia andLatin America, but were partially offset by weaker demand in Europe and Canada.

 

Cost of goods sold as apercentage of sales for the second quarter of 2004 was 68.0%, which compares to65.4% and 67.2% for the two months ended May 31, 2003 and the one month endedJune 30, 2003, respectively.  As apercentage of sales, cost of goods sold increased 2.0 percentage pointscompared to the same period in 2003. This increase relates to increased: 1)material costs of 0.3 percentage points related to price increases for basemetals such as copper, brass, and steel used in many of our products as well ashigher prices for purchased components and finished goods; 2) distributorrebate allowances of 1.5 percentage points; 3) overhead spending of 0.7percentage points for supplies, repairs and maintenance, overtime and utilitiesrelated to the increase in production; and 4) freight costs of 0.3 percentagepoints due in large part to additional costs incurred to ensure timelydeliveries and to a lesser extent fuel surcharges. Cost of goods sold wasfavorably impacted by a 0.4 percentage point reduction in the cost of quality,and a 0.4 percentage point reduction in costs related to excess and obsoleteinventory.  The effect of translatingthe local currency results of our international business units into U.S.dollars, which does not affect cost of goods sold expressed as a percentage ofsales, resulted in an increase in cost of goods sold of approximately$2.9 million for the three months ended June 30, 2004 compared to the sameperiod in 2003.  The costs ofinefficiencies in meeting our delivery and service level goals is estimated atapproximately $3.3 million for the second quarter and offset the benefits ofoperating leverage on the increased volumes.

 

Selling, general andadministrative expenses were $32.1 million for the three-month period endedJune 30, 2004, which compares to $18.0 million and $8.7 million for thetwo-month period ended May 31, 2003 and the one-month period ended June 30,2003, respectively, which is an increase of 20.1%.  As a percentage of sales, selling, general and administrativeexpenses were 25.2% for the quarter ended June 30, 2004, versus 25.2% and 24.0%for the two months ended May 31, 2003 and the one month ended June 30, 2003,respectively.  Selling, general andadministrative expenses increased in the second quarter of 2004 as compared tothe same period in 2003 by $0.8 million as a result of changes in foreigncurrency.  Selling, general andadministrative expenses also increased as a result of costs associated withenhancements made to our domestic information system capabilities of $0.4million, additional costs of $0.4 million related to compliance with theSarbanes-Oxley Act of 2002 and other new corporate governance practices, and$2.4 million of additional sales and marketing resources related to new productdevelopment, growing

 

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international markets, andother initiatives. Selling, general and administrative expenses for the secondquarter of 2003 includes $0.6 million of non-recurring costs related to aninformation technology project.  Theremaining increase relates primarily to expenses that fluctuate with sales suchas commissions.

 

During the three-month periodended June 30, 2004 we incurred restructuring costs of $2.5 millionrelated to the relocation and consolidation of certain U.S. manufacturingfacilities, compared to $0.4 million for the two months ended May 31, 2003 and$0.1 million for the one month ended June 30, 2003.

 

Reorganization items for thetwo-month period ended May 31, 2003 were $13.5 million, consisting of $13.0million of professional fees, $0.3 million paid under the key employeeretention program, and $0.2 million of other reorganization costs.

 

Interest expense for the secondquarter of 2004 was $5.2 million, which compares to $3.6 million for the twomonths ended May 31, 2003 and $1.5 million for the one month ended June 30,2003.

 

An income tax provisionof $3.2 million was recorded on a pretax loss of $2.1 million for the threemonths ended June 30, 2004.  An incometax provision of $2.0 million was recorded on pretax income of$569.8 million for the two months ended May 31, 2003 and an income taxprovision of $0.3 million was recorded on pretax income of $1.1 million for theone month ended June 30, 2003. The income tax provision for these periodsprimarily relates to income generated in certain foreign jurisdictions. Theincome tax provision for the three months ended June 30, 2004 and the one monthended June 30, 2003 differs from that determined by applying the U.S. federalstatutory rate primarily due to nondeductible expenses and the disallowance oflosses. The income tax provision for the two months ended May 31, 2003 differsfrom that determined by applying the U.S. federal statutory rate primarily dueto the non-taxable gain recognized on the reorganization and adoption offresh-start accounting, nondeductible expenses and the disallowance of losses.

 

 

###### ***Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003***

 

Net sales for the six monthsended June 30, 2004 were $245.9 million, which compares to net sales of $172.0million and $36.2 million for the five months ended May 31, 2003 and the onemonth ended June 30, 2003, respectively, which is an increase of 18.1%.  Domestic sales were $135.4 million for thefirst six months of 2004, compared to $93.6 million and $18.6 million for thefive months ended May 31, 2003 and the one month ended June 30, 2003,respectively, which is an increase of 20.6%. The increase in the domestic sales was seen across all brands and wasdriven primarily by a stronger industrial economy in the U.S.  International sales were $110.5 million forthe six months ended June 30, 2004 compared to $78.4 million and $17.6 millionfor the five months ended May 31, 2003 and the one month ended June 30, 2003,respectively, an increase of 15.1%.  Aweaker U.S. dollar was the primary reason for the international sales increasefor the first half of 2004.  Excludingthe increase in sales resulting from changes in foreign currency, ourinternational sales would have been up 2.1% compared to the first six months of2003, which is attributed primarily to increases in volume in certainregions.  Strong sales growth in LatinAmerica and Australia was partially offset by declining demand in Europe andCanada.

 

Cost of goods sold as apercentage of sales for the six months ended June 30, 2004 was 67.7%, whichcompares to 64.7% and 67.2% for the five months ended May 31, 2003 and the onemonth ended June 30,

 

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2003, respectively.  As a percentage of sales, cost of goods soldincreased 2.5 percentage points compared to the same period in 2003. Theincrease can be attributed to increased: 1) depreciation expense resulting fromfresh-start accounting of 0.2 percentage points; 2) material costs of 0.7percentage points related to price increases for base metals such as copper,brass, and steel used in many of our products as well as higher prices forpurchased components and finished goods; 3) distributor rebate allowances of0.9 percentage points; 4) overhead spending of 0.5 percentage points forsupplies, repairs and maintenance, overtime and utilities related to theincrease in production 5) freight costs of 0.3 percentage points relatedprimarily to additional costs incurred to ensure timely deliveries and to alesser extent fuel surcharges; and  6)labor costs of 0.3 percentage points as a result of adding temporary workersand new hires to meet the increase in demand. Cost of sales was favorably impacted by a 0.2 percentage point reductionin the cost of quality and a 0.2 percentage point decline in costs related toexcess and obsolete inventory.  Theeffect of translating the local currency results of our international businessunits into U.S. dollars, which does not affect cost of goods sold expressed asa percentage of sales, resulted in an increase in cost of goods sold ofapproximately $8.4 million for the six months ended June 30, 2004 comparedto the first six months of 2003.  Thecosts of inefficiency in meeting our delivery and service goals is estimated at$4.6 million for the first half of the year and offset the benefits ofoperating leverage on the increased volumes.

 

Selling, general and administrativeexpenses were $61.7 million for the six-month period endedJune 30, 2004, which compares to $43.8 million and $8.7 million forthe five months ended May 31, 2003 and the one month ended June 30, 2003,respectively, which is an increase of 17.5%. As a percentage of sales, selling, general and administrative expenseswere 25.1% for the six months ended June 30, 2004, versus 25.5% and 24.0% forthe five months ended May 31, 2003 and the one month ended June 30, 2003,respectively.  Expenses in the six-monthperiod ended June 30, 2004 included an increase in selling, general andadministrative expenses of $2.4 million as a result of changes in foreigncurrency rates.  Expenses also increasedas a result of additional sales and marketing resources of $3.8 million relatedto developing international markets, new product development, and other salesand marketing initiatives. Our selling, general and administrative expensesalso increased over 2003 by $0.9 million related to compliance with theSarbanes-Oxley Act of 2002 and other new corporate governance practices, and$0.5 million associated with improvements made to our domestic informationsystem and organization. Selling, general and administrative expenses for thesix-month period ended June 30, 2003 includes $0.9 million of non-recurringcosts related to an information technology project.  The remaining increase relates primarily to expenses thatfluctuate with sales such as commissions.

 

During the six-month periodended June 30, 2004 we incurred restructuring costs of $5.0 millionrelated to the relocation and consolidation of certain U.S. manufacturingfacilities, compared to $0.5 million and $0.1 million for the five months endedMay 31, 2003 and the one month ended June 30, 2003, respectively.

 

Reorganization items for thefive-month period ended May 31, 2003 were $15.7 million, consisting of $15.0million of professional fees, $0.3 million paid under the key employeeretention program, and $0.4 million of other reorganization costs.

 

Interest expense for the firstsix months of 2004 was $9.9 million, which compares to $8.8 million and $1.5million for the five months ended May 31, 2003 and the one month ended June 30,2003, respectively.  The differenceresults primarily from a reduction in long-term debt as a result of ourreorganization in May 2003.

 

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An income tax provisionof $4.1 million was recorded on a pretax loss of $2.2 million for the sixmonths ended June 30, 2004.  An incometax provision of $2.9 million was recorded on pretax income of$571.9 million for the five months ended May 31, 2003 and an income taxprovision of $0.3 million was recorded on pretax income of $1.1 million for theone month ended June 30, 2003. The income tax provision for these periodsprimarily relates to income generated in certain foreign jurisdictions. Theincome tax provision for the six months ended June 30, 2004 and the one monthended June 30, 2003 differs from that determined by applying the U.S. federal statutoryrate primarily due to nondeductible expenses and the disallowance of losses.The income tax provision for the two months ended May 31, 2003 differs fromthat determined by applying the U.S. federal statutory rate primarily due tothe gain recognized on the reorganization and adoption of fresh-startaccounting, nondeductible expenses and the disallowance of losses.

 

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

***WorkingCapital and Cash Flows***

 

Primarily as a result of theincrease in sales, operating activities used $20.8 million of cash during thefirst six months of 2004, compared to $3.4 million and $0.5 million ofcash used during the five months ended May 31, 2003 and the one month endedJune 30, 2003, respectively. Operating assets and liabilities used $28.7million of cash during the six-month period ended June 30, 2004, compared to$2.8 million provided in the five months ended May 31, 2003 and $3.6 millionused in the one month ended June 30, 2003.

 

•                  Accountsreceivable used $9.6 million of cash during the six months ended June 30, 2004,compared to $1.5 million used during the five months ended May 31, 2003 and$1.4 million provided in the one month ended June 30, 2003. The increase inaccounts receivable during the six months ended June 30, 2004 results fromhigher sales.

•                  Inventoriesused $28.0 million of cash through the first half of 2004, as compared to a$5.7 million use of cash in the five months ended May 31, 2003 and a $0.6million use of cash in the one month ended June 30, 2003.  The increase in inventory during the firstsix months of 2004 results primarily from an increase in demand, requiredsafety stock levels at two of our U.S. production facilities that we are in theprocess of consolidating, and a temporary increase in stock levels as part ofour initiative to improve delivery performance.

•                  Accountspayable provided $5.7 million of cash in the first six months of 2004, whichcompares to cash provided of $3.3 million during the five months ended May 31,2003 and $0.2 million provided in the one month ended June 30, 2003.  A generalimprovement in payment terms has contributed to the increase in payables.

•                  Accrued and other liabilities used $2.7 millionof cash in the first half of 2004, compared to cash provided of $5.1 million duringthe five months ended May 31, 2003 and $3.8 million used in the one month endedJune 30, 2003.  Included in the $2.7 million of cash used in the first six monthsof 2004 was approximately $2.2 million paid to our unsecured creditors.  Our reorganization plan called for a totalof $7.5 million to be paid to the unsecured creditors, of which $3.6 millionhas been paid as of June 30, 2004.  Weanticipate the remaining amount owed to the unsecured creditors will be paidover the next 18 months.

•                  Accrued interest increased $5.8 million in thefirst six months of 2004 and relates primarily to our senior subordinatednotes.

 

Capital expenditures were$8.9 million during the six months ended June 30, 2004, which is $4.1 millionmore than was spent during the same period last year partly as a result ofpurchasing certain assets that

 

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had been deferred.  Capital expenditures in the first half of2003 were lower due in part to our reorganization.

 

Financing activities provided$22.6 million of cash during the first six months of 2004 compared to cashprovided of $2.9 million during the five months ended May 31, 2003 and $1.7million in the one month ended June 30, 2003. Net borrowings were $28.9 million for the six months ended June 30, 2004compared to $3.3 million during the five months ended May 31, 2003 and $2.5million in the one month ended June 30, 2003. The increase in borrowings was used primarily to fund working capital requirements.

 

# ***Liquidity***

 

On July 29, 2004, we entered into a $20.0million second-lien term loan facility (the “Second-Lien Facility”.)  The proceeds of the Second-Lien Facilitywere used to repay a portion of the outstanding balance under our Working CapitalFacility, which increased our availability. This additional availability provides us with the flexibility to improveour overall working capital efficiency while remaining focused on key businesspriorities.  The terms of theSecond-Lien Facility are described more fully below.

 

Our principal uses of cash will be capitalexpenditures, working capital and debt service requirements.  We expect that ongoing requirements for debtservice, capital expenditures and working capital will be funded from operatingcash flow and borrowings under the Working Capital Facility (as describedbelow.)

 

*Senior Subordinated Notes*

 

On February 5, 2004, wecompleted a private placement of $175.0 million in aggregate principal of 91⁄4%Senior Subordinated Notes due 2014 (the “Senior Subordinated Notes”). The netproceeds from the offering, together with approximately $20.0 million ofborrowings under a new term loan (the “Term Loan”) added through an amendmentand restatement to the our GECC credit agreement (the “Credit Agreement”), wereused to repay all outstanding borrowings under the existing $180.0 millionsenior term loan facility and to reduce amounts outstanding under the CreditAgreement. In May, for the purpose of an exchange offer, we registered noteswith terms identical to the Senior Subordinated Notes under the Securities Actof 1933.  We completed the exchangeoffer in the second quarter and over 99% of the original notes were exchangedfor the registered notes.

 

The Senior Subordinated Notes are unsecured senior subordinatedobligations and are subordinated in right of payment to all existing and futureSenior Indebtedness (as defined in the indenture). Interest will accrue at therate of 9.25% per annum and will be payable semiannually in arrears onFebruary 1 and August 1, commencing on August 1, 2004.

 

*Credit Agreement*

 

The Credit Agreement consists ofthe Term Loan and a $50.0 million revolving credit facility (the “WorkingCapital Facility”).  Up to $20.0 millionof the Working Capital Facility may be used for letters of credit.  Actual borrowing availability is subject toa borrowing base calculation, which is equal to 1.5 times Adjusted EBITDA.  The Credit Agreement defines Adjusted EBITDAas 100% of the EBITDA for us and our domestic subsidiaries plus 65% of theEBITDA of our Canadian subsidiaries. EBITDA is defined in the Credit Agreement as net income less income taxcredits, interest income, gains from

 

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extraordinary items, anyaggregate net gain on the sale of tangible assets, and any other non-cash gainsadded in determining net income; plus, provision for income taxes, interestexpense, depreciation, amortization of intangibles, amortization of deferredfinancing costs, any amount deducted from net income as a result of stock orstock option grants, the accrual net of any payments in cash related to netperiodic post-retirement benefit costs, losses from extraordinary items,reorganization costs related to the Chapter 11 cases, and any non-recurringemployee severance expenses and non-recurring cash expenses related to plantreorganizations, not to exceed $10.0 million in the aggregate, the non-cash portionof any expense or loss attributable to any interest rate agreement orarrangement permitted under the CreditAgreement prior to the termination or expiration of such agreement orarrangement, and $8.9 million of non-cash reserves recorded atDecember 31, 2003 related to the implementation of a revised reservemethodology for inventory and accounts receivable and implementation of anadditional accrual for warranty obligations. Availability under the WorkingCapital Facility may also be limited if we fail to meet certain levels ofAdjusted EBITDA. Borrowings under the Term Loan and the Working CapitalFacility accrue interest, at our option, at the prime lending rate plus 2.25%,in the case of index rate loans, or at theLondon Interbank Offered Rate (“LIBOR”) plus 3.25%, in the case of LIBORloans. Unused portions of the WorkingCapital Facility are charged 75 basis points as of June 30, 2004. The CreditAgreement is secured by substantially all of the assets of our domesticsubsidiaries, including a pledge of the capital stock of substantially all ofour subsidiaries, subject to certain limitations with respect to foreignsubsidiaries.  The Credit Agreementcontains financial covenants, including minimum levels of EBITDA (determined ona consolidated basis) and other customary provisions.  As of June 30, 2004, we had borrowed $24.7 million and issued lettersof credit totaling $12.4 million under the Working Capital Facility.  We had availability of $12.9 million underthe Working Capital Facility at June 30, 2004. The Working Capital Facilityterminates on May 23, 2006.  TheTerm Loan matures on December 31, 2008 and requires quarterly amortizationpayments totaling $4.0 million in 2005, $5.0 million in 2006, $5.0 million in2007 and $6.0 million in 2008.

 

*Second-Lien Facility*

 

The Second-Lien Facility is secured by asecond lien on substantially all of our assets. The Second-Lien Facility is duein full on January 24, 2005, and accrues interest at the Company’s option, atLIBOR plus 5.50% or an alternative base rate (the greater of a) the Prime Rateor b) the federal funds rate plus one half of 1.00%) plus 4.50% for any day onor prior to October 26, 2004, and LIBOR plus 6.00%, and an alternative baserate plus 5.00%, for any day thereafter. The Second-Lien Facility restricts how much long-term debt we may haveand has other customary provisions including financial and non-financialcovenants.

 

We expect our operating cash flow, togetherwith borrowings under the Working Capital Facility, will be sufficient to meetour anticipated future operating expenses, capital expenditures and the debtservice requirements of the Credit Agreement, the Second-Lien Facility and theSenior Subordinated Notes.  However, ourability to generate sufficient cash flow to meet our operating needs will beaffected by general economic, financial, competitive, legislative, regulatory,business and other factors beyond our control.

 

### ***ContractualObligations and Commercial Commitments***

 

In the normal course ofbusiness, we enter into contracts and commitments that obligate us to makepayments in the future. The table below sets forth our significant futureobligations by time period.

 

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Payments Due by Period

(Amounts in thousands)

 
|                         |   |      |    | **Remaining** |   |     |   |     |   |     |   | **2008 and** |   |
|------------------------------|--------|-----------|---------|---------------|--------|----------|--------|----------|--------|----------|--------|--------------|--------|
| **Contractual  Obligations** |   | **Total** |    | **2004**      |   | **2005** |   | **2006** |   | **2007** |   | **Beyond**   |   |
|                         |   |      |    |          |   |     |   |     |   |     |   |         |   |
| Long-term debt               |   | $         | 224,933 |          | $      | 32,094   |   | $        | 4,000  |     | $      | 5,000        |   | $ | 5,000 |   | $ | 178,839 |   |
| Capital leases               |   | 31,403    |    | 2,451         |   | 4,187    |   | 3,327    |   | 2,869    |   | 18,569       |   |
| Operating leases             |   | 26,411    |    | 2,692         |   | 4,788    |   | 3,931    |   | 3,323    |   | 11,677       |   |
| Purchase obligations         |   | 25,374    |    | 7,799         |   | 9,152    |   | 4,206    |   | 4,200    |   | 17           |   |
| Total                        |   | $         | 308,121 |          | $      | 45,036   |   | $        | 22,127 |     | $      | 16,464       |   | $ | 15,392 |   | $ | 209,102 |   |

 

The amounts shown forcapital leases include the effective interest expense component which was$11.5 million at June 30, 2004. Our purchase obligations relate primarilyto inventory purchase commitments. At June 30, 2004, we had issued letters ofcredit totaling $12.4 million under our Working Capital Facility.

 

**Item3.****  Market Risk**

 

There have been no changes inour exposure to foreign currency risk. We are exposed to changes in interest rates related to our variable ratedebt.  We do not believe that changes ininterest rates will have a material effect on our financial condition orresults of operations.

 

In February 2004, we enteredinto an interest rate swap arrangement to convert a portion of the fixed rateexposure on our Senior Subordinated Notes to variable rates. Under the terms ofthe interest rate swap contract, which has a notional amount of $50.0 million,we receive interest at a fixed rate of 9.25% and pay interest at a variablerate equal to LIBOR plus a spread of 442 basis points. The six-month LIBOR rateon each semi-annual reset date determines the variable portion of the interestrate swap.  The six-month LIBOR rate foreach semi-annual reset date is determined in arrears.

 

#### **Item4.**  Controls and Procedures

 

Our chief executive officer and chief financial officer, with theparticipation of management, evaluated our disclosure controls and proceduresas of June 30, 2004. Based on that evaluation, our chief executive officerand chief financial officer concluded our disclosure controls and procedureswere, as of June 30, 2004, (i) designed to ensure that materialinformation relating to us and our consolidated subsidiaries is made known tothe chief executive officer and chief financial officer by others within thoseentities, particularly during the period in which this report was beingprepared, and (ii) effective, in that they provide reasonable assurancethat information required to be disclosed by us in the reports that we file orsubmit under the Securities Exchange Act are recorded, processed, summarizedand reported within the time periods specified in the SEC’s rules and forms.

 

There have not been changes inour internal control over financial reporting that occurred during our sixmonths ended June 30, 2004 that have materially affected or are reasonablylikely to materially affect our internal control over financial reporting.

 

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#### **PART II.  OTHERINFORMATION**

 

**Item 2.Changes in Securities****, Use ofProceeds and Issuer Purchases of Equity Securities.**

 

During the second quarter,Thermadyne issued 13,973 shares of its common stock upon the exercise of 13,973Class A Warrants at an exercise price of $13.85. The proceeds from thisexercise of $0.2 million were used to repay a portion of the amount outstandingunder the Working Capital Facility.

 

**Item 6. Exhibits and Reports****on Form 8-K**

 

a)                                      Exhibits

 

4.11         First Amendment toAmended and Restated Credit Agreement

4.12         Second Amendment toAmended and Restated Credit Agreement

4.13                           ThirdAmendment and Limited Waiver to Amended and Restated Credit Agreement

4.14         Second Lien CreditAgreement

31.1                           CertificationPursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2                           CertificationPursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1                           CertificationPursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2                           CertificationPursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

b)                                     Reports on Form8-K

 

On May 10, 2004, theregistrant filed a current report on Form 8-K dated May 10, 2004 toannounce that it issued a press release announcing its financial results forthe first quarter of fiscal 2004.

 

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**SIGNATURES**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 
|   |            | **THERMADYNE HOLDINGS CORPORATION** |
|--------|-----------------|-------------------------------------|
|   |            |                                |   |
|   |            |                                |   |
|   |            | By:                                 |   | /s/ Paul D.  Melnuk |   |
|   |            |                                |   |   |
|   |            |                                |   | Paul D.  Melnuk |
|   |            |                                |   | Chief  Executive Officer |
|   |            |                                |   | (Principal  Executive Officer) |
|   |            |                                |   |   |
|   |            |                                |   |   |
|   |            | By:                                 |   | /s/ James H.  Tate |   |
|   |            |                                |   |   |
|   |            |                                |   | James H.  Tate |
|   |            |                                |   | Senior Vice  President and |
|   |            |                                |   | Chief  Financial Officer |
|   |            |                                |   | (Principal  Financial and Accounting Officer) |
|   |            |                                |   |   |
| Date:  | August 9,  2004 |                                |   |   |

 

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