**Securities and ExchangeCommission**

**Washington, D.C. 20549**

 

**FORM 10-Q**

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

 

**Commissionfile number 0-23378**

 

**Thermadyne Holdings Corporation**

(Exact Name ofRegistrant 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 TelephoneNumber, 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 thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 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 ofshares outstanding of the issuer’s common stock, par value $0.01 per share, asof November 1, 2004 was 13,313,973.

 

 

----

 

## **THERMADYNEHOLDINGS 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 5     | Other Information |   |
|                                     |       |   |   |
|                                     | Item  6.   | Exhibits |   |
|                                     |       |   |   |
| **SIGNATURES**                           | ** ** |

 

----

 

**PARTI.  FINANCIALINFORMATION**

**Item 1****.**

 

**THERMADYNEHOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Inthousands, except share data)**

 
| ** **                                                                                                                 | ** ** | **Reorganized**         | ** ** | **Reorganized**        | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                 | ** ** | **Company**             | ** ** | **Company**            | ** ** |
| ** **                                                                                                                 | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
| ** **                                                                                                                 | ** ** | **(Unaudited)**         | ** ** | ** **             | ** ** |
| **ASSETS**                                                                                                                 |       |                    |       |                   |       |
|                                                                                                                       |       |                    |       |                   |       |
| Current  Assets:                                                                                                           |       |                    |       |                   |       |
| Cash  and cash equivalents                                                                                                 |       | $                       | 8,515      |                   | $          | 16,784 |   |
| Accounts  receivable, less allowance for doubtful accounts of $6,557 and $6,443,  respectively                             |       | 89,133                  |       | 84,079                 |       |
| Inventories,  net                                                                                                          |       | 129,199                 |       | 100,070                |       |
| Prepaid  expenses and other                                                                                                |       | 10,471                  |       | 10,846                 |       |
| Total  current assets                                                                                                      |       | 237,318                 |       | 211,779                |       |
| Property,  plant and equipment, net                                                                                        |       | 79,964                  |       | 82,520                 |       |
| Goodwill                                                                                                                   |       | 205,560                 |       | 135,868                |       |
| Intangibles,  net                                                                                                          |       | 76,477                  |       | 77,904                 |       |
| Other  assets                                                                                                              |       | 6,504                   |       | 1,406                  |       |
| Total  assets                                                                                                              |       | $                       | 605,823    |                   | $          | 509,477 |   |
|                                                                                                                       |       |                    |       |                   |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                    |       |                    |       |                   |       |
|                                                                                                                       |       |                    |       |                   |       |
| Current  Liabilities:                                                                                                      |       |                    |       |                   |       |
| Accounts  payable                                                                                                          |       | $                       | 37,801     |                   | $          | 36,182 |   |
| Accrued  and other liabilities                                                                                             |       | 32,384                  |       | 36,465                 |       |
| Accrued  interest                                                                                                          |       | 2,979                   |       | 307                    |       |
| Income  taxes payable                                                                                                      |       | 5,353                   |       | 3,623                  |       |
| Working  capital facility                                                                                                  |       | 17,399                  |       | 12,860                 |       |
| Current  maturities of long-term obligations                                                                               |       | 31,919                  |       | 15,114                 |       |
| Total  current liabilities                                                                                                 |       | 127,835                 |       | 104,551                |       |
| Long-term  obligations, less current maturities                                                                            |       | 210,854                 |       | 190,404                |       |
| Deferred  tax liabilities                                                                                                  |       | 69,692                  |       | —                 |       |
| Other  long-term liabilities                                                                                               |       | 41,524                  |       | 42,287                 |       |
| Shareholders’  equity:                                                                                                |       |                    |       |                   |       |
| Common  stock, $0.01 par value; Authorized - 25,000,000 shares as of September 30,  2004 and December 31, 2003; Issued and |       |                    |       |                   |       |
| Outstanding  - 13,313,973 shares as of September 30, 2004 and 13,300,000 shares as of  December 31, 2003                   |       | 133                     |       | 133                    |       |
| Additional  paid-in capital                                                                                                |       | 183,460                 |       | 183,267                |       |
| Accumulated  deficit                                                                                                       |       | (32,342                 | )          | (17,551                | )          |
| Accumulated  other comprehensive income                                                                                    |       | 4,667                   |       | 6,386                  |       |
| Total  shareholders’ equity                                                                                           |       | 155,918                 |       | 172,235                |       |
| Total  liabilities and shareholders’ equity                                                                           |       | $                       | 605,823    |                   | $          | 509,477 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

3

----

 

**THERMADYNEHOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Inthousands, except share data)**

**(Unaudited)**

 
| ** **                                    | ** ** | **Reorganized**         | ** ** | **Reorganized**         | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                    | ** ** | **Company**             | ** ** | **Company**             | ** ** |
| ** **                                    | ** ** | **Three Months**        | ** ** | **Three Months**        | ** ** |
| ** **                                    | ** ** | **Ended**               | ** ** | **Ended**               | ** ** |
| ** **                                    | ** ** | **September 30,  2004** | ** ** | **September 30,  2003** | ** ** |
|                                          |       |                    |       |                    |       |
| Net  sales                                    |       | $                       | 124,474    |                    | $          | 106,688 |   |
| Operating  expenses:                          |       |                    |       |                    |       |
| Cost  of goods sold                           |       | 87,773                  |       | 73,230                  |       |
| Selling,  general and administrative expenses |       | 30,434                  |       | 27,802                  |       |
| Amortization  of intangibles                  |       | 1,010                   |       | 1,150                   |       |
| Net  periodic postretirement benefits         |       | 515                     |       | 687                     |       |
| Restructuring  costs                          |       | 4,794                   |       | 458                     |       |
| Operating  income (loss)                      |       | (52                     | )          | 3,361                   |       |
| Other  income (expense):                      |       |                    |       |                    |       |
| Interest                                      |       | (5,752                  | )          | (4,324                  | )          |
| Amortization  of deferred financing costs     |       | (375                    | )          | (114                    | )          |
| Other,  net                                   |       | 32                      |       | (671                    | )          |
| Income  (loss) before income tax provision    |       | (6,147                  | )          | (1,748                  | )          |
| Income  tax provision                         |       | 2,326                   |       | 1,608                   |       |
| Net  income (loss)                            |       | $                       | (8,473     | )                       | $          | (3,356 | ) |
|                                          |       |                    |       |                    |       |
| Basic  and diluted net loss per common share  |       | $                       | (0.64      | )                       | $          | (0.25 | ) |

 

See accompanyingnotes to condensed consolidated financial statements.

 

4

----

 
| ** **                                                                         | ** ** | **Reorganized**         | ** ** | **Reorganized**         | ** ** | **Predecessor**   | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------|------------|
| ** **                                                                         | ** ** | **Company**             | ** ** | **Company**             | ** ** | **Company**       | ** ** |
| ** **                                                                         | ** ** | **Nine Months**         | ** ** | **Four Months**         | ** ** | **Five Months**   | ** ** |
| ** **                                                                         | ** ** | **Ended**               | ** ** | **Ended**               | ** ** | **Ended**         | ** ** |
| ** **                                                                         | ** ** | **September 30,  2004** | ** ** | **September 30,  2003** | ** ** | **May 31,  2003** | ** ** |
|                                                                               |       |                    |       |                    |       |              |       |
| Net  sales                                                                         |       | $                       | 370,377    |                    | $          | 142,926           |       | $ | 172,010 |   |
| Operating  expenses:                                                               |       |                    |       |                    |       |              |       |
| Cost  of goods sold                                                                |       | 254,332                 |       | 97,589                  |       | 111,334           |       |
| Selling,  general and administrative expenses                                      |       | 92,114                  |       | 36,488                  |       | 43,824            |       |
| Amortization  of intangibles                                                       |       | 3,077                   |       | 1,492                   |       | 363               |       |
| Net  periodic postretirement benefits                                              |       | 1,826                   |       | 801                     |       | 516               |       |
| Restructuring  costs                                                               |       | 9,815                   |       | 571                     |       | 516               |       |
| Operating  income                                                                  |       | 9,213                   |       | 5,985                   |       | 15,457            |       |
| Other  income (expense):                                                           |       |                    |       |                    |       |              |       |
| Interest  (contractual interest of $29,962 for the five months ended May 31, 2003) |       | (15,688                 | )          | (5,779                  | )          | (8,798            | )          |
| Amortization  of deferred financing costs                                          |       | (906                    | )          | (152                    | )          | —            |       |
| Other,  net                                                                        |       | (1,007                  | )          | (678                    | )          | (1,174            | )          |
| Income  (loss) before reorganization items and income tax provision                |       | (8,388                  | )          | (624                    | )          | 5,485             |       |
| Reorganization  items                                                              |       | —                  |       | —                  |       | (15,692           | )          |
| Gain  on reorganization and adoption of fresh-start accounting                     |       | —                  |       | —                  |       | 582,109           |       |
| Income  (loss) before income tax provision                                         |       | (8,388                  | )          | (624                    | )          | 571,902           |       |
| Income  tax provision                                                              |       | 6,403                   |       | 1,926                   |       | 2,939             |       |
| Net  income (loss)                                                                 |       | $                       | (14,791    | )                       | $          | (2,550            | )          | $ | 568,963 |   |
|                                                                               |       |                    |       |                    |       |              |       |
| Basic  and diluted net income (loss) per common share                              |       | $                       | (1.11      | )                       | $          | (0.19             | )          | $ | 158.47 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

5

----

 

**THERMADYNEHOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Inthousands, except share data)**

**(Unaudited)**

 
| ** **                                                                            | ** ** | **Reorganized**         | ** ** | **Reorganized**         | ** ** | **Predecessor**   | ** ** |
|---------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------|------------|
| ** **                                                                            | ** ** | **Company**             | ** ** | **Company**             | ** ** | **Company**       | ** ** |
| ** **                                                                            | ** ** | **Nine Months**         | ** ** | **Four Months**         | ** ** | **Five Months**   | ** ** |
| ** **                                                                            | ** ** | **Ended**               | ** ** | **Ended**               | ** ** | **Ended**         | ** ** |
| ** **                                                                            | ** ** | **September 30,  2004** | ** ** | **September 30,  2003** | ** ** | **May 31,  2003** | ** ** |
|                                                                                  |       |                    |       |                    |       |              |       |
| Cash  flows from operating activities:                                                |       |                    |       |                    |       |              |       |
| Net  income (loss)                                                                    |       | $                       | (14,791    | )                       | $          | (2,550            | )          | $ | 568,963 |   |
| Adjustments  to reconcile net income (loss) to net cash used in operating activities: |       |                    |       |                    |       |              |       |
| Net  periodic postretirement benefits                                                 |       | 1,826                   |       | 801                     |       | 516               |       |
| Depreciation                                                                          |       | 15,290                  |       | 6,676                   |       | 6,071             |       |
| Amortization  of intangibles                                                          |       | 3,077                   |       | 1,492                   |       | 363               |       |
| Amortization  of deferred financing costs                                             |       | 906                     |       | 152                     |       | —            |       |
| Gain  on reorganization and adoption of fresh-start accounting                        |       | —                  |       | —                  |       | (582,109          | )          |
| Non-cash  cost of sales                                                               |       | —                  |       | 2,195                   |       | —            |       |
| Changes  in operating assets and liabilities:                                         |       |                    |       |                    |       |              |       |
| Accounts  receivable                                                                  |       | (5,320                  | )          | 5,058                   |       | (1,521            | )          |
| Inventories                                                                           |       | (28,848                 | )          | 506                     |       | (5,703            | )          |
| Prepaid  expenses and other                                                           |       | (1,272                  | )          | (590                    | )          | 640               |       |
| Accounts  payable                                                                     |       | 1,827                   |       | (3,658                  | )          | 3,326             |       |
| Accrued  and other liabilities                                                        |       | (3,926                  | )          | (9,740                  | )          | 5,059             |       |
| Accrued  interest                                                                     |       | 2,672                   |       | 196                     |       | 11                |       |
| Income  taxes payable                                                                 |       | 1,649                   |       | (535                    | )          | 2,028             |       |
| Other  long-term liabilities                                                          |       | (2,908                  | )          | (820                    | )          | (1,035            | )          |
| Total  adjustments                                                                    |       | (15,027                 | )          | 1,733                   |       | (572,354          | )          |
| Net  cash used in operating activities                                                |       | (29,818                 | )          | (817                    | )          | (3,391            | )          |
| Cash  flows from investing activities:                                                |       |                    |       |                    |       |              |       |
| Capital  expenditures                                                                 |       | (14,456                 | )          | (3,209                  | )          | (4,114            | )          |
| Proceeds  from sales of assets                                                        |       | 1,324                   |       | —                  |       | —            |       |
| Net  cash used in investing activities                                                |       | (13,132                 | )          | (3,209                  | )          | (4,114            | )          |
| Cash  flows from financing activities:                                                |       |                    |       |                    |       |              |       |
| Net  borrowings under revolving credit facility                                       |       | 4,539                   |       | 4,222                   |       | 12,963            |       |
| Repayment  of long-term obligations                                                   |       | (180,000                | )          | (719                    | )          | (12,780           | )          |
| Borrowing  of long-term obligations                                                   |       | 217,408                 |       | —                  |       | 3,075             |       |
| Financing  fees                                                                       |       | (5,935                  | )          | —                  |       | (1,352            | )          |
| Exercise  of warrants                                                                 |       | 193                     |       | —                  |       | —            |       |
| Other                                                                                 |       | (1,524                  | )          | (1,192                  | )          | 979               |       |
| Net  cash provided by financing activities                                            |       | 34,681                  |       | 2,311                   |       | 2,885             |       |
| Net  decrease in cash and cash equivalents                                            |       | (8,269                  | )          | (1,715                  | )          | (4,620            | )          |
| Cash  and cash equivalents at beginning of period                                     |       | 16,784                  |       | 12,793                  |       | 17,413            |       |
| Cash  and cash equivalents at end of period                                           |       | $                       | 8,515      |                    | $          | 11,078            |       | $ | 12,793 |   |
|                                                                                  |       |                    |       |                    |       |              |       |
| Supplemental  disclosure of cash flow information Cash paid during the period for:    |       |                    |       |                    |       |              |       |
| Interest                                                                              |       | $                       | 13,016     |                    | $          | 5,583             |       | $ | 8,787 |   |
| Income  taxes                                                                         |       | $                       | 4,916      |                    | $          | 2,540             |       | $ | 640 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

6

----

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**(in thousands, except for sharedata)**

 

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

 

Thermadyne Holdings Corporation (“Thermadyne” or the “Company”),a Delaware corporation, is a leading global designer and manufacturer ofcutting and welding products, including equipment, accessories and consumables.On May 23, 2003 (the “Effective Date”), Thermadyne consummated its plan ofreorganization under Chapter 11 of the United States Bankruptcy Code (the “BankruptcyCode”) and completed a comprehensive financial restructuring (the “Restructuring”).For the purposes of these unaudited condensed consolidated financialstatements, references to the “Predecessor Company” are references to theCompany for periods prior to June 1, 2003 (the first day of the calendar monthfollowing the month in which the Company emerged from bankruptcy) and referencesto the “Reorganized Company” are references to the Company for the periodssubsequent to May 31, 2003. The principal elements of the Restructuring and theprincipal effects of its consummation pursuant to the plan of reorganizationare described in “Plan of Reorganization” and in the Company’s annual report onForm 10-K for the year ended December 31, 2003.

 

The accompanyingunaudited condensed consolidated financial statements of Thermadyne have beenprepared in accordance with accounting principles generally accepted in theUnited States for interim financial information and with the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by accounting principles generally accepted in the United States forcomplete financial statements.  In theopinion of management, all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been included.  The combined results of operations of theCompany for the three-month and nine-month periods ended September 30, 2004 arenot necessarily indicative of the results that may be expected for the yearended December 31, 2004.  For furtherinformation, refer to the consolidated financial statements and footnotesthereto included in the Company’s annual report on Form 10-K for the year endedDecember 31, 2003.

 

**2.****                                      RecentEvents**

#  

# ***Planof Reorganization***

 

The Company’s emergencefrom Chapter 11 bankruptcy proceedings on May 23, 2003 resulted in a newreporting entity and adoption of “fresh-start” accounting as required by theAmerican Institute of Certified Public Accountants Statement of Position No.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 of the application of SOP 90-7, theCompany’s financial results for the periods ending prior to June 1, 2003 andending after May 31, 2003 include two different bases of accounting and accordingly,the Reorganized Company’s financial statements are not comparable to thePredecessor Company’s financial statements.

 

7

----

 

Reorganization costs forthe five months ended May 31, 2003 were $15,692 consisting of $14,959 ofprofessional fees, $285 paid under the key employee retention plan, and $448 ofother reorganization costs.

 

***Reclassifications***

 

Certainprior period 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.

 

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

 

***Product Warranty Programs****.*Various products are sold with product warranty programs. Provisions forwarranty programs are made as the products are sold and adjusted periodicallybased on current estimates of anticipated warranty costs. During the threemonths ended September 30, 2004 and the three months ended September 30, 2003,the Company recorded $765 and $685 of warranty expense, respectively, throughcost of goods sold and paid $793 and $675, respectively. For the nine monthsended September 30, 2004, the four months ended September 30, 2003, and thefive months ended May 31, 2003, the Company recorded $1,733, $911, and $1,151 ofwarranty expense, respectively, through cost of goods sold and paid $2,377, $894,and $1,158 respectively.  As of September30, 2004, the warranty accrual totaled $3,361.

 

8

----

 

***Earnings Per Share****.* The following table sets forth the information usedin the computation of basic and diluted income (loss) per share for the periodsindicated.  Certain options are notincluded as they are anti-dilutive.

 
| ** **                                    | ** ** | **Reorganized**   | ** ** | **Reorganized**   | ** ** |
|-----------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                    | ** ** | **Company**       | ** ** | **Company**       | ** ** |
| ** **                                    | ** ** | **Three Months**  | ** ** | **Three Months**  | ** ** |
| ** **                                    | ** ** | **Ended**         | ** ** | **Ended**         | ** ** |
| ** **                                    | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                    | ** ** | **2004**          | ** ** | **2003**          | ** ** |
| Numerator:                                    |       |              |       |              |       |
| Net  loss applicable to common shares         |       | $                 | (8,473     | )                 | $          | (3,356 | ) |
|                                          |       |              |       |              |       |
| Denominator:                                  |       |              |       |              |       |
| Weighted  average shares-basic and diluted    |       | 13,313,973        |       | 13,300,000        |       |
|                                          |       |              |       |              |       |
| Basic  and diluted net loss per common share: |       |              |       |              |       |
| Net  loss applicable to common shares         |       | $                 | (0.64      | )                 | $          | (0.25 | ) |

 

 
| ** **                                             | ** ** | **Reorganized**   | ** ** | **Reorganized**   | ** ** | **Predecessor** | ** ** |
|--------------------------------------------------------|------------|-------------------|------------|-------------------|------------|-----------------|------------|
| ** **                                             | ** ** | **Company**       | ** ** | **Company**       | ** ** | **Company**     | ** ** |
| ** **                                             | ** ** | **Nine Months**   | ** ** | **Four Months**   | ** ** | **Five Months** | ** ** |
| ** **                                             | ** ** | **Ended**         | ** ** | **Ended**         | ** ** | **Ended**       | ** ** |
| ** **                                             | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **May 31,**     | ** ** |
| ** **                                             | ** ** | **2004**          | ** ** | **2003**          | ** ** | **2003**        | ** ** |
| Numerator:                                             |       |              |       |              |       |            |       |
| Net  income (loss) applicable to common shares         |       | $                 | (14,791    | )                 | $          | (2,550          | )          | $ | 568,963 |   |
|                                                   |       |              |       |              |       |            |       |
| Denominator:                                           |       |              |       |              |       |            |       |
| Weighted  average shares-basic and diluted             |       | 13,306,783        |       | 13,300,000        |       | 3,590,286       |       |
|                                                   |       |              |       |              |       |            |       |
| Basic  and diluted net income (loss) per common share: |       |              |       |              |       |            |       |
| Net  income (loss) applicable to common shares         |       | $                 | (1.11      | )                 | $          | (0.19           | )          | $ | 158.47 |   |

 

***Derivative Instruments****.* 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.

TheCompany formally documents all relationships between hedging instruments andhedged items, as well as its risk management objectives and strategies forundertaking hedge transactions. The Company also assesses, both at theinception of the hedge and on an on-going basis, whether the hedge iseffective.

 

9

----

 

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

 

Comprehensive losstotaled $(8,014), and $(3,650) for the three months ended September 30, 2004and September 30, 2003, respectively.  Forthe nine months ended September 30, 2004, the four months ended September 30,2003, and the five months ended May 31, 2003, comprehensive income (loss)was $(16,510), $(2,687) and $613,569, respectively.

 

**5.****                                      Inventories**

 

The composition ofinventories was as follows:

 
| ** **      | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-----------------|------------|-------------------------|------------|------------------------|------------|
|            |       |                    |       |                   |       |
| Raw  materials  |       | $                       | 25,917     |                   | $          | 21,218 |   |
| Work-in-process |       | 29,358                  |       | 28,906                 |       |
| Finished  goods |       | 75,193                  |       | 50,228                 |       |
|            |       | 130,468                 |       | 100,352                |       |
| LIFO  reserve   |       | (1,269                  | )          | (282                   | )          |
|            |       | $                       | 129,199    |                   | $          | 100,070 |   |

 

TheCompany uses 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**

 

The composition of intangibles was as follows:

 
| ** **                          | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-------------------------------------|------------|-------------------------|------------|------------------------|------------|
|                                |       |                    |       |                   |       |
| Goodwill                            |       | $                       | 205,560    |                   | $          | 135,868 |   |
| Patents  and customer relationships |       | 49,054                  |       | 47,404                 |       |
| Trademarks                          |       | 33,353                  |       | 33,353                 |       |
|                                |       | 287,967                 |       | 216,625                |       |
| Accumulated  amortization           |       | (5,930                  | )          | (2,853                 | )          |
|                                |       | $                       | 282,037    |                   | $          | 213,772 |   |

 

In the third quarter of2004 the Company increased its goodwill by $69,692 as a result of a change inestimate related to finalizing certain tax attributes the Company holds.  See Note 11 for further discussion.

 

Patents and customerrelationships are amortized on a straight-line basis over their estimateduseful lives, which generally range from 10 to 15 years.  Trademarks are not amortized, but are

 

10

----

 

periodically evaluatedfor impairment.  Amortization expenseamounted to $1,010, and $1,150 for the three months ended September 30, 2004 andSeptember 30, 2003, respectively.  Amortizationexpense amounted to $3,077, $1,492 and $363 for the nine months ended September30, 2004, the four months ended September 30, 2003 and the five months endedMay 31, 2003, respectively.  Estimated amortizationexpense for each of the next five fiscal years has not changed significantlyfrom the amounts disclosed in the Company’s annual report on Form 10-K for theyear ended December 31, 2003.

 

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

 

Thecomposition of long-term obligations was as follows:

 
| ** **                                       | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
|                                             |       |                    |       |                   |       |
| Working  Capital Facility                        |       | $                       | 17,399     |                   | $          | 12,860 |   |
| Second-Lien  Facility                            |       | 20,000                  |       | —                 |       |
| Term  Loan                                       |       | 20,000                  |       | —                 |       |
| Senior  Subordinated Notes                       |       | 175,000                 |       | —                 |       |
| Senior  Notes Facility                           |       | —                  |       | 180,000                |       |
| Capital  Leases                                  |       | 19,582                  |       | 20,435                 |       |
| Other                                            |       | 8,191                   |       | 5,083                  |       |
|                                             |       | 260,172                 |       | 218,378                |       |
| Current  maturities and working capital facility |       | (49,318                 | )          | (27,974                | )          |
|                                             |       | $                       | 210,854    |                   | $          | 190,404 |   |

 

***SeniorSubordinated Notes***

 

On February 5, 2004, theCompany completed a private placement of $175,000 in aggregate principal of 91⁄4%Senior Subordinated Notes due 2014 (the “Senior Subordinated Notes”). The netproceeds from the offering, together with approximately $20,000 of borrowingsunder a new term loan (the “Term Loan”) added through an amendment andrestatement to the Company’s GECC credit agreement (the “Credit Agreement”),were used to repay all outstanding borrowings under the existing $180,000senior term note facility and to reduce amounts outstanding under the Company’srevolving credit facility. In May 2004, for the purpose of an exchange offer, theCompany registered notes with terms identical to the Senior Subordinated Notes underthe Securities Act of 1933.  The Companycompleted the exchange offer in the second quarter and more than 99% of theoriginal notes were exchanged for the registered notes.

 

TheSenior Subordinated Notes are unsecured senior subordinated obligations and aresubordinated in right of payment to all existing and future Senior Indebtedness(as defined in the indenture). Interest accrues at the rate of 91⁄4% per annum and is payable semiannually inarrears on February 1 and August 1.

 

***Credit Agreement***

 

The Credit Agreement consists of the Term Loan and a$50,000 revolving credit facility (the “Working Capital Facility”).  Up to $20,000 of the Working Capital Facilitymay be used for letters of credit. Actual borrowing availability is subject to a borrowing basecalculation, which is equal to 1.5 times Adjusted EBITDA.  The Credit Agreement defines Adjusted EBITDAas 100% of the EBITDA for the Company and its domestic subsidiaries plus 65% ofthe EBITDA of the Company’s Canadian subsidiaries.  EBITDA is defined in the Credit Agreement asnet income

 

11

----

 

less income tax credits, interest income, gains fromextraordinary items, any aggregate net gain on the sale of tangible assets, andany other non-cash gains added in determining net income; plus, provision forincome taxes, interest expense, depreciation, amortization of intangibles,amortization of deferred financing costs, any amount deducted from net incomeas a result of stock or stock option grants, the accrual net of any payments incash related to net periodic post-retirement benefit costs, losses fromextraordinary items, reorganization costs related to the Chapter 11 cases, andany non-recurring employee severance expenses and non-recurring cash expensesrelated to plant reorganizations, not to exceed $10,000 in the aggregate, thenon-cash portion of anyexpense or loss attributable to any interest rate agreement or arrangementpermitted under the Credit Agreement priorto the termination or expiration of such agreement or arrangement, and $8,900of non-cash reserves recorded at December 31, 2003 related to theimplementation of a revised reserve methodology for inventory and accountsreceivable and recognition of an additional accrual for warranty obligations.Availability under the Working Capital Facility may also be limited if theCompany fails to meet certain levels of Adjusted EBITDA. Borrowings under the TermLoan and the Working Capital Facility accrue interest, at the Company’s option,at the prime lending rate plus 2.25%, in the case of index rate loans, or at the London Interbank Offered Rate (“LIBOR”) plus3.25%, in the case of LIBOR loans. Unusedportions of the Working Capital Facility are charged 75 basis points as of September30, 2004. The Credit Agreement is secured by substantially all of the assets ofthe Company’s domestic subsidiaries, including a pledge of the capital stock ofsubstantially all of the Company’s subsidiaries, subject to certain limitationswith respect to foreign subsidiaries. The Credit Agreement contains financial covenants, including minimumlevels of EBITDA (determined on a consolidated basis) and other customaryprovisions.  As of September 30, 2004,the Company had outstanding borrowings of $17,399 and issued letters of credittotaling $11,164 under the Working Capital Facility.  The Company had availability of $17,897 underthe Working Capital Facility at September 30, 2004. The Working CapitalFacility 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.

 

OnNovember 5, 2004,  the Company entered into an amendment to the CreditAgreement which modified certain financial covenants and reduced permissiblefunded indebtedness of the Company’s foreign subsidiaries.

 

***Second-LienFacility***

 

On July 29, 2004 the Company entered into a new $20,000 second-lienterm loan facility (the “Second-Lien Facility”). Borrowings under the facilitywere used to repay a portion of the amount outstanding under the WorkingCapital Facility. On November 5, 2004 the Company entered into an amendment tothe Second-Lien Facility to extend its maturity to July 22, 2005 and modified afinancial covenant.  The Second-LienFacility is secured by a second lien on substantially all of the assets of theCompany. The Second-Lien Facility accrues interest at the Company’s option, atLIBOR plus 6.00% or an alternative base rate (the greater of a) the Prime Rateor b) the federal funds rate plus one half of 1.00%) plus 5.00%. TheSecond-Lien Facility restricts how much long-term debt the Company may have andhas other customary provisions including financial and non-financial covenants.

 

12

----

 

***Senior Term Notes***

 

The Senior Term Notesaccrued interest, in the case of Eurodollar loans at LIBOR plus a marginranging from 3.0% to 7.5%, and in the case of base rate loans at the prime rateplus a margin ranging from 2.0% to 6.5%. The interest margin applicable to the Eurodollar and base rate loansvaried depending on the level of indebtedness and the time elapsed from theEffective Date. The Senior Term Notes were repaid in February 2004.

 

**8.****                                     ****DerivativeInstrument**

 

InFebruary 2004, the Company entered into an interest rate swap arrangement toconvert a portion of the fixed rate exposure on its Senior Subordinated Notesto variable rates. Under the terms of the interest rate swap contract, whichhas a notional amount of $50,000, the Company receives interest at a fixed rateof 91⁄4% and pays interestat a variable rate equal to LIBOR plus a spread of 442 basis points. Thesix-month LIBOR rate on each semi-annual reset date determines the variableportion of the interest rate swap.  Thesix-month LIBOR rate for each semi-annual reset date is determined in 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.

 

In accordance withSFAS No. 133, as of September 30, 2004 the Company recorded a fair valueadjustment to the portion of its fixed rate long-term debt that is hedged. Thisfair value adjustment was recorded as a decrease to Long-term obligations, withthe related 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.  For the three and nine-monthperiods ended September 30, 2004 the Company realized a reduction in itsinterest expense as a result of the interest rate swap of $325 and $983,respectively.

 

**9.****                                     ****Warrants**

 

Inconnection with the Restructuring and the settlement of the various creditorclasses in the Chapter 11 bankruptcy proceeding, three classes of warrants wereissued that allow the holders to purchase the Company’s common stock in thefuture at stated exercise prices. The key financial elements of the warrantsare as follows:

 
| ** **        | ** ** | ** **      | ** ** | ** **    | ** ** | ** **     | ** **   | **Warrants**      | ** ** |
|-------------------|------------|-----------------|------------|---------------|------------|----------------|--------------|-------------------|------------|
| ** **        | ** ** | **Warrants**    | ** ** | ** **    | ** ** | ** **     | ** **   | **Issued and**    | ** ** |
| ** **        | ** ** | **Issued**      | ** ** | ** **    | ** ** | ** **     | ** **   | **Outstanding**   | ** ** |
| ** **        | ** ** | **to Purchase** | ** ** | **Exercise**  | ** ** | ** **     | ** **   | **as of**         | ** ** |
| ** **        | ** ** | **Common**      | ** ** | **Price**     | ** ** | **Expiration** | ** **   | **September 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    |   |

 

13

----

 

TheClass A and B Warrants were issued, pro rata, to participants in theformer 9 7/8% senior subordinated notes. These former bondholders receivedapproximately 5% of the Company’s common stock upon emergence fromChapter 11, plus the Class A and B warrants. These warrants have beeneffectively valued and recorded within shareholders’ equity (additional paid-incapital) in connection with establishing the opening fresh-start balance sheet.

 

TheClass C Warrants were issued to the former majority equity holders of theCompany. The former equity holders received no other significant disbursementsor consideration upon emergence from Chapter 11. These warrants have beentreated as an exchange of old equity securities for new equity securities inconnection with recording the reorganization entries and establishing theopening fresh-start balance sheet.

 

Duringthe nine months ended September 30, 2004, 13,973 Class A Warrants wereexercised, the proceeds of which were $193. The remaining Class A Warrantsexpired on May 23, 2004. There were no Class B Warrants or Class C Warrantsexercised during the three and nine months ended September 30, 2004.

 

**10.****                               StockOptions**

 

The 2004 Non-EmployeeDirectors Stock Option Plan (the “Directors Plan”) was adopted in May 2004 for theCompany’s board of directors. Up to 200,000 shares of the Company’s commonstock may be issued pursuant to awards granted by the Compensation Committee underthe 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 agreement fora fixed number of shares with an exercise price equal to or greater than thefair value of the shares at the date of grant. Stock option grants are recordedunder the recognition and measurement principles of Accounting Principles BoardOpinion No. 25—”Accounting for Stock Issued to Employees” (“APB 25”), andrelated interpretations. Accordingly, no stock-based compensation cost isreflected in operating results. Pro forma information regarding net operatingresults and per share results is required by SFAS No. 123—”Accounting forStock-Based Compensation”, which also requires that the information bedetermined as if stock options were granted under the fair value method of thatstatement. The fair value of options granted was estimated at the date of grantusing a Black-Scholes option pricing model with the following weighted-averageassumptions: risk-free interest rate of 2.7%, a dividend yield of 0.0%,volatility factors of the expected market price of the Company’s common stockof 0.54, and a weighted-average expected life of the options of four years. Asof September 30, 2004, options for 675,000 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

 

14

----

 

valuationmodels require the input of highly subjective assumptions including theexpected stock price volatility. Because the Company’s stock options havecharacteristics significantly different from those of traded options, andbecause changes in the subjective input assumptions can materially affect thefair value estimate, the existing models do not necessarily provide a reliablesingle measure of the fair value of the Company’s stock options.

 

15

----

 

Thefollowing table illustrates the effect on net loss and loss per share if thefair value expense recognition requirements of SFAS No. 123 had beenapplied to all stock options granted under the plans.

 
| ** **                                                                                                                           | ** ** | **Reorganized**   | ** ** | **Reorganized**   | ** ** | **Reorganized**   | ** ** | **Reorganized**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                                                                                           | ** ** | **Company**       | ** ** | **Company**       | ** ** | **Company**       | ** ** | **Company**       | ** ** |
| ** **                                                                                                                           | ** ** | **Nine Months**   | ** ** | **Three Months**  | ** ** | **Four Months**   | ** ** | **Three Months**  | ** ** |
| ** **                                                                                                                           | ** ** | **Ended**         | ** ** | **Ended**         | ** ** | **Ended**         | ** ** | **Ended**         | ** ** |
| ** **                                                                                                                           | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                                           | ** ** | **2004**          | ** ** | **2004**          | ** ** | **2003**          | ** ** | **2003**          | ** ** |
| Net  loss, as reported                                                                                                               |       | $                 | (14,791    | )                 | $          | (8,473            | )          | $                 | (2,550     | ) | $ | (3,356 | ) |
| Deduct:  Total stock-based compensation expense determined under fair value based method  for all awards, net of related tax effects |       | (579              | )          | (222              | )          | (40               | )          | (40               | )          |
| Pro  forma net loss                                                                                                                  |       | $                 | (15,370    | )                 | $          | (8,695            | )          | $                 | (2,590     | ) | $ | (3,396 | ) |
|                                                                                                                                 |       |              |       |              |       |              |       |              |       |
| Basic  and diluted net loss per common share:                                                                                        |       |              |       |              |       |              |       |              |       |
| As  reported                                                                                                                         |       | $                 | (1.11      | )                 | $          | (0.64             | )          | $                 | (0.19      | ) | $ | (0.25 | ) |
|                                                                                                                                 |       |              |       |              |       |              |       |              |       |
| Pro  forma                                                                                                                           |       | $                 | (1.16      | )                 | $          | (0.65             | )          | $                 | (0.19      | ) | $ | (0.26 | ) |
|                                                                                                                                      |            |                   |            |                   |            |                   |            |                   |            |  |  |  |  |  |

 

**11.****                               IncomeTaxes**

 

The Company’s taxprovision 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.

 

As a result of thebankruptcy restructuring in 2003, the Company recognized cancellation ofindebtedness income, which is not subject to tax provided the Company reducescertain tax attributes it holds.  The final determination of the reductionin tax attributes is made in the year following the bankruptcy restructuring,and was finalized with the filing of the Company’s federal income tax return,which was prepared and filed during the third quarter.  At that time,final decisions were made as to certain elections and positions taken withrespect to the manner in which the Company would reduce its tax attributes.  As a result, the Company has made a change in estimate and recorded adeferred tax liability of $69,692 with an offsetting increase in goodwill torecord the final attribute reduction amounts.

 

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

 

***401(k)Retirement Plan****.*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.

 

16

----

 

***PensionPlans.*****TheCompany’s subsidiaries have had various noncontributory defined benefit pensionplans which covered substantially all U.S. employees. The Company froze andcombined three noncontributory defined benefit pension plans through amendmentsto such plans effective December 31, 1989. All former participants of theseplans became eligible to participate in the 401(k) Retirement Plan effectiveJanuary 1, 1990.

 

The Company’s Australiansubsidiary has a Superannuation Fund established by a Trust Deed which operateson a lump sum scheme to provide benefits for its employees. The prepaid benefitcost is not included in the balance sheet, as the Company has no legal right toamounts included in this fund.

 

***OtherPostretirement Benefits****.*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 periodic pension andother postretirement benefit costs include the following components:

 
| ** **                                    | ** ** | **Pension Benefits** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|
| ** **                                    | ** ** | **Reorganized**      | ** ** | **Reorganized** | ** ** | **Reorganized** | ** ** | **Reorganized** | ** ** | **Predecessor** | ** ** |
| ** **                                    | ** ** | **Company**          | ** ** | **Company** | ** ** | **Company** | ** ** | **Company** | ** ** | **Company** | ** ** |
| ** **                                    | ** ** | **Three Months**     | ** ** | **Three Months** | ** ** | **Nine Months** | ** ** | **Four Months** | ** ** | **Five Months** | ** ** |
| ** **                                    | ** ** | **Ended**            | ** ** | **Ended** | ** ** | **Ended** | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                                    | ** ** | **September 30,**    | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **May 31,** | ** ** |
| ** **                                    | ** ** | **2004**             | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** | **2003** | ** ** |
| Components  of the net periodic benefit cost: |       |                 |       |   |   |   |   |   |   |   |   |
| Service  cost                                 |       | $                    | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Interest  cost                                |       | 286                  |       | 285 |   | 858 |   | 380 |   | 437 |   |
| Expected  return on plan assets               |       | (273                 | )          | (227 | ) | (807 | ) | (302 | ) | (366 | ) |
| Recognized  (gain) loss                       |       | —               |       | — |   | — |   | — |   | 116 |   |
| Prior  service cost recognized                |       | —               |       | — |   | — |   | — |   | 7 |   |
| Net  periodic benefit cost                    |       | $                    | 13         |   | $ | 58 |   | $ | 51 |   | $ | 78 |   | $ | 194 |   |

 

 
| ** **                                    | ** ** | **Other Postretirement Benefits** | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|
| ** **                                    | ** ** | **Reorganized**                   | ** ** | **Reorganized** | ** ** | **Reorganized** | ** ** | **Reorganized** | ** ** | **Predecessor** | ** ** |
| ** **                                    | ** ** | **Company**                       | ** ** | **Company** | ** ** | **Company** | ** ** | **Company** | ** ** | **Company** | ** ** |
| ** **                                    | ** ** | **Three Months**                  | ** ** | **Three Months** | ** ** | **Nine Months** | ** ** | **Four Months** | ** ** | **Five Months** | ** ** |
| ** **                                    | ** ** | **Ended**                         | ** ** | **Ended** | ** ** | **Ended** | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                                    | ** ** | **September 30,**                 | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **May 31,** | ** ** |
| ** **                                    | ** ** | **2004**                          | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** | **2003** | ** ** |
| Components  of the net periodic benefit cost: |       |                              |       |   |   |   |   |   |   |   |   |
| Service  cost                                 |       | $                                 | 283        |   | $ | 256 |   | $ | 876 |   | $ | 341 |   | $ | 370 |   |
| Interest  cost                                |       | 232                               |       | 431 |   | 950 |   | 460 |   | 421 |   |
| Expected  return on plan assets               |       | —                            |       | — |   | — |   | — |   | — |   |
| Recognized  (gain) loss                       |       | —                            |       | — |   | — |   | — |   | (195 | ) |
| Prior  service cost recognized                |       | —                            |       | — |   | — |   | — |   | (80 | ) |
| Net  periodic benefit cost                    |       | $                                 | 515        |   | $ | 687 |   | $ | 1,826 |   | $ | 801 |   | $ | 516 |   |

 

17

----

 

The Company previouslydisclosed in its financial statements for the year ended December 31, 2003 thatit expected to contribute $1,300 to its pension plan in 2004. As of September30, 2004, $875 has been contributed.  TheCompany presently anticipates contributing an additional $123 to fund itspension plan in 2004.  The expectedcontribution for 2004 has been revised to reflect the provisions of the PensionFunding Equity Act of 2004.

 

InDecember 2003, the Medicare Prescription Drug, Improvement and ModernizationAct of 2003, (the “Act”) was enacted. The Act introduced a prescription drugbenefit under Medicare Part D as well as a federal subsidy to sponsors ofretiree health care benefit plans that provide a benefit that is at leastactuarially equivalent to Medicare Part D. Under FASB Financial StaffPosition (“FSP”) 106-1, issued in January 2004, related to the Act, the Companyelected to defer recognizing the 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.

 

InMay 2004, the FASB issued FSP No. FAS 106-2, which provides guidance on theaccounting for the effects of the Act and also requires employers to providecertain disclosures provided by the Act. The provisions of FSP No. FAS 106-2 are effective for the first interimor annual period beginning after June 15, 2004. If the Company’s plans areactuarially equivalent to Medicare Part D, the Company must reflect the valueof the subsidy in the APBO, service cost and amortization of gains and losses,retroactive to January 1, 2004.  TheCompany has determined that the benefits provided under the plan areactuarially equivalent to Medicare Part D under the Act.  The reduction inthe APBO for the subsidy related to benefits attributed to past service is$1,600.  The effect of the subsidy on the measurement of net periodic postretirement benefit cost for the 2004 fiscal year is to reduce the service costby $21, reduce the interest cost by $99, and eliminate the $67 amortization ofthe unrecognized loss, for a total reduction in 2004 benefit cost of $187.

 

**13.****                               SegmentInformation**

 

Although the Company’soperations are comprised of several product lines and operating locations,similarity of products, paths to market, end users, and production processesresults in performance evaluation and decisions regarding allocation ofresources 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.

 

Summarized financialinformation concerning the Company’s geographic segments is shown in thefollowing table.

 
| ** **               | ** ** | **Reorganized**   | ** ** | **Reorganized**   | ** ** | **Predecessor** | ** ** |
|--------------------------|------------|-------------------|------------|-------------------|------------|-----------------|------------|
| ** **               | ** ** | **Company**       | ** ** | **Company**       | ** ** | **Company**     | ** ** |
| ** **               | ** ** | **Nine Months**   | ** ** | **Four Months**   | ** ** | **Five Months** | ** ** |
| ** **               | ** ** | **Ended**         | ** ** | **Ended**         | ** ** | **Ended**       | ** ** |
| ** **               | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **May 31,**     | ** ** |
| ** **               | ** ** | **2004**          | ** ** | **2003**          | ** ** | **2003**        | ** ** |
| Net  Sales               |       |              |       |              |       |            |       |
| United  States           |       | $                 | 219,466    |              | $          | 82,656          |       | $ | 101,025 |   |
| Europe                   |       | 46,294            |       | 19,066            |       | 26,235          |       |
| Australia  / Asia        |       | 53,754            |       | 20,837            |       | 21,243          |       |
| All  other international |       | 50,863            |       | 20,367            |       | 23,507          |       |
|                     |       | $                 | 370,377    |              | $          | 142,926         |       | $ | 172,010 |   |

 

18

----

 
| ** **               | ** ** | **Reorganized**   | ** ** | **Reorganized**  | ** ** |
|--------------------------|------------|-------------------|------------|------------------|------------|
| ** **               | ** ** | **Company**       | ** ** | **Company**      | ** ** |
| ** **               | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **               | ** ** | **2004**          | ** ** | **2003**         | ** ** |
| Identifiable  assets     |       |              |       |             |       |
| United  States           |       | $                 | 332,252    |             | $          | 258,402 |   |
| Europe                   |       | 13,543            |       | 16,159           |       |
| Australia  / Asia        |       | 10,653            |       | 11,837           |       |
| All  other international |       | 12,057            |       | 11,300           |       |
|                     |       | $                 | 368,505    |             | $          | 297,698 |   |

 

***Product LineInformation***

 

TheCompany manufactures a variety of products, substantially all of which are usedin the cutting, welding or fabrication of metal. End users of the Company’sproducts are 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**     | ** ** |
| ** **                              | ** ** | **Nine Months**   | ** ** | **Four Months**   | ** ** | **Five Months** | ** ** |
| ** **                              | ** ** | **Ended**         | ** ** | **Ended**         | ** ** | **Ended**       | ** ** |
| ** **                              | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **May 31,**     | ** ** |
| ** **                              | ** ** | **2004**          | ** ** | **2003**          | ** ** | **2003**        | ** ** |
| ** **                              | ** ** | ** **        | ** ** | ** **        | ** ** | ** **      | ** ** |
| Gas  apparatus                          |       | $                 | 136,911    |              | $          | 53,178          |       | $ | 62,713 |   |
| Arc  welding equipment                  |       | 60,787            |       | 25,017            |       | 30,361          |       |
| Arc  welding consumables                |       | 113,459           |       | 42,793            |       | 51,552          |       |
| Plasma  and automated cutting equipment |       | 55,378            |       | 19,959            |       | 25,296          |       |
| All  other                              |       | 3,842             |       | 1,979             |       | 2,088           |       |
|                                    |       | $                 | 370,377    |              | $          | 142,926         |       | $ | 172,010 |   |

 

**14.****         ****Condensed Consolidating FinancialStatements**

 

On February 5, 2004, the Company completed a private placement of $175,000 in aggregate principal of 91⁄4% Senior Subordinated Notes due 2014. The 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.

 

Thefollowing condensed consolidating financial information includes the accountsof the Company, which has no independent assets or operations, the combinedaccounts of the Guarantor Subsidiaries and the combined accounts of thenon-guarantor subsidiaries for the periods indicated. Separate financialstatements of each of the Guarantor Subsidiaries are not presented becausemanagement has determined such information is not material in assessing thefinancial condition, cash flows or results of operations of the Company and itssubsidiaries. Additionally, consolidating financial statement information priorto the reorganization date was omitted because

 

19

----

 

managementhas determined such information is not comparable to the Reorganized Company.This information was prepared on the same basis as the consolidated financialstatements.

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING BALANCE SHEET**

**SEPTEMBER 30, 2004**

 
| ** **                                                 | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                 | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                 | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                                 |       |            |       |           |       |           |       |             |       |             |       |
| Current  Assets:                                           |       |            |       |           |       |           |       |             |       |             |       |
| Cash  and cash equivalents                                 |       | $               | —     |           | $          | (68            | )          | $                | 8,583      |             | $          | — |   | $ | 8,515 |   |
| Accounts  receivable, net                                  |       | —          |       | 37,965         |       | 51,168         |       | —           |       | 89,133           |       |
| Inventories                                                |       | —          |       | 71,214         |       | 57,985         |       | —           |       | 129,199          |       |
| Prepaid  expenses and other                                |       | —          |       | 5,561          |       | 4,910          |       | —           |       | 10,471           |       |
| Total  current assets                                      |       | —          |       | 114,672        |       | 122,646        |       | —           |       | 237,318          |       |
| Property,  plant and equipment, net                        |       | —          |       | 43,948         |       | 36,016         |       | —           |       | 79,964           |       |
| Goodwill                                                   |       | —          |       | 205,560        |       | —         |       | —           |       | 205,560          |       |
| Intangibles,  net                                          |       | —          |       | 64,395         |       | 12,082         |       | —           |       | 76,477           |       |
| Other  assets                                              |       | 4,677           |       | 1,590          |       | 237            |       | —           |       | 6,504            |       |
| Investment  in and advances to subsidiaries                |       | 173,797         |       | —         |       | —         |       | (173,797         | )          | —           |       |
| Total  assets                                              |       | $               | 178,474    |           | $          | 430,165        |       | $                | 170,981    |             | $          | (173,797 | ) | $ | 605,823 |   |
|                                                       |       |            |       |           |       |           |       |             |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)**    |       |            |       |           |       |           |       |             |       |             |       |
| Current  Liabilities:                                      |       |            |       |           |       |           |       |             |       |             |       |
| Accounts  payable                                          |       | $               | —     |           | $          | 12,690         |       | $                | 25,111     |             | $          | — |   | $ | 37,801 |   |
| Accrued  and other liabilities                             |       | —          |       | 22,732         |       | 9,652          |       | —           |       | 32,384           |       |
| Accrued  interest                                          |       | 2,495           |       | 484            |       | —         |       | —           |       | 2,979            |       |
| Income  taxes payable                                      |       | —          |       | 508            |       | 4,845          |       | —           |       | 5,353            |       |
| Working  capital facility                                  |       | —          |       | 17,399         |       | —         |       | —           |       | 17,399           |       |
| Current  maturities of long-term obligations               |       | —          |       | 24,026         |       | 7,893          |       | —           |       | 31,919           |       |
| Total  current liabilities                                 |       | 2,495           |       | 77,839         |       | 47,501         |       | —           |       | 127,835          |       |
| Long-term  obligations, less current maturities            |       | 174,639         |       | 29,504         |       | 6,711          |       | —           |       | 210,854          |       |
| Deferred  tax liabilities                                  |       | —          |       | 69,692         |       | —         |       | —           |       | 69,692           |       |
| Other  long-term liabilities                               |       | 361             |       | 34,432         |       | 6,731          |       | —           |       | 41,524           |       |
| Shareholders’  equity (deficit):                      |       |            |       |           |       |           |       |             |       |             |       |
| Common  stock                                              |       | 133             |       | —         |       | —         |       | —           |       | 133              |       |
| Additional  paid-in-capital                                |       | 183,460         |       | —         |       | —         |       | —           |       | 183,460          |       |
| Retained  earnings (deficit)                               |       | (32,342         | )          | (17,902        | )          | 3,466          |       | 14,436           |       | (32,342          | )          |
| Accumulated  other comprehensive income (loss)             |       | 4,667           |       | 10,445         |       | (5,694         | )          | (4,751           | )          | 4,667            |       |
| Total  shareholders’ equity (deficit)                 |       | 155,918         |       | (7,457         | )          | (2,228         | )          | 9,685            |       | 155,918          |       |
| Net  equity and advances to / from subsidiaries            |       | (154,939        | )          | 226,155        |       | 112,266        |       | (183,482         | )          | —           |       |
|                                                       |       |            |       |           |       |           |       |             |       |             |       |
| Total  liabilities and shareholders’ equity (deficit) |       | $               | 178,474    |           | $          | 430,165        |       | $                | 170,981    |             | $          | (173,797 | ) | $ | 605,823 |   |

 

 

20

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING BALANCE SHEET**

**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 |   |

 

21

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**THREE MONTHS ENDED SEPTEMBER 30, 2004**

 
| ** **                                    | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                    | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                    | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                    | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                          |       |            |       |           |       |           |       |             |       |             |       |
| Net  sales                                    |       | $               | —     |           | $          | 88,426         |       | $                | 61,259     |             | $          | (25,211 | ) | $ | 124,474 |   |
| Operating  expenses:                          |       |            |       |           |       |           |       |             |       |             |       |
| Cost  of goods sold                           |       | —          |       | 66,043         |       | 47,042         |       | (25,312          | )          | 87,773           |       |
| Selling,  general and administrative expenses |       | —          |       | 20,395         |       | 10,039         |       | —           |       | 30,434           |       |
| Amortization  of intangibles                  |       | —          |       | 779            |       | 231            |       | —           |       | 1,010            |       |
| Net  periodic postretirement benefits         |       | —          |       | 515            |       | —         |       | —           |       | 515              |       |
| Restructuring  costs                          |       | —          |       | 4,794          |       | —         |       | —           |       | 4,794            |       |
| Operating  income (loss)                      |       | —          |       | (4,100         | )          | 3,947          |       | 101              |       | (52              | )          |
| Other  income (expense):                      |       |            |       |           |       |           |       |             |       |             |       |
| Interest                                      |       | (3,845          | )          | (1,401         | )          | (506           | )          | —           |       | (5,752           | )          |
| Amortization  of deferred financing costs     |       | (114            | )          | (261           | )          | —         |       | —           |       | (375             | )          |
| Equity  in net income (loss) of subsidiaries  |       | (4,514          | )          | —         |       | —         |       | 4,514            |       | —           |       |
| Other,  net                                   |       | —          |       | (155           | )          | 187            |       | —           |       | 32               |       |
| Income  (loss) before income tax provision    |       | (8,473          | )          | (5,917         | )          | 3,628          |       | 4,615            |       | (6,147           | )          |
| Income  tax provision                         |       | —          |       | 7              |       | 2,319          |       | —           |       | 2,326            |       |
| Net income  (loss)                            |       | $               | (8,473     | )              | $          | (5,924         | )          | $                | 1,309      |             | $          | 4,615 |   | $ | (8,473 | ) |

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**NINE MONTHS ENDED SEPTEMBER 30, 2004**

 
| ** **                                    | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                    | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                    | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                    | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                          |       |            |       |           |       |           |       |             |       |             |       |
| Net  sales                                    |       | $               | —     |           | $          | 266,712        |       | $                | 172,462    |             | $          | (68,797 | ) | $ | 370,377 |   |
| Operating  expenses:                          |       | —          |       |           |       |           |       |             |       |             |       |
| Cost  of goods sold                           |       | —          |       | 190,855        |       | 132,121        |       | (68,644          | )          | 254,332          |       |
| Selling,  general and administrative expenses |       | —          |       | 62,080         |       | 30,034         |       | —           |       | 92,114           |       |
| Amortization  of intangibles                  |       | —          |       | 2,482          |       | 595            |       | —           |       | 3,077            |       |
| Net  periodic postretirement benefits         |       | —          |       | 1,826          |       | —         |       | —           |       | 1,826            |       |
| Restructuring  costs                          |       | —          |       | 9,815          |       | —         |       | —           |       | 9,815            |       |
| Operating  income (loss)                      |       | —          |       | (346           | )          | 9,712          |       | (153             | )          | 9,213            |       |
| Other  income (expense):                      |       |            |       |           |       |           |       |             |       |             |       |
| Interest                                      |       | (10,983         | )          | (3,415         | )          | (1,290         | )          | —           |       | (15,688          | )          |
| Amortization  of deferred financing costs     |       | (302            | )          | (604           | )          | —         |       | —           |       | (906             | )          |
| Equity  in net income (loss) of subsidiaries  |       | (3,506          | )          | —         |       | —         |       | 3,506            |       | —           |       |
| Other,  net                                   |       | —          |       | (863           | )          | (144           | )          | —           |       | (1,007           | )          |
| Income  (loss) before income tax provision    |       | (14,791         | )          | (5,228         | )          | 8,278          |       | 3,353            |       | (8,388           | )          |
| Income  tax provision (benefit)               |       | —          |       | (199           | )          | 6,602          |       | —           |       | 6,403            |       |
| Net  income (loss)                            |       | $               | (14,791    | )              | $          | (5,029         | )          | $                | 1,676      |             | $          | 3,353 |   | $ | (14,791 | ) |

 

22

----

** **

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS**

**NINE MONTHS ENDED SEPTEMBER 30, 2004**

 
| ** **                                                 | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                 | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                 | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                       |       |            |       |           |       |           |       |             |       |             |       |
| Net  cash used in operating activities                     |       | $               | (14,489    | )              | $          | (17,169        | )          | $                | (1,513     | )                | $          | 3,353 |   | $ | (29,818 | ) |
| Cash  flows from investing activities:                     |       |            |       |           |       |           |       |             |       |             |       |
| Capital  expenditures                                      |       | —          |       | (10,353        | )          | (4,103         | )          | —           |       | (14,456          | )          |
| Proceeds  from sales of assets                             |       | —          |       | —         |       | 1,324          |       | —           |       | 1,324            |       |
| Net  cash used in investing activities                     |       | —          |       | (10,353        | )          | (2,779         | )          | —           |       | (13,132          | )          |
| Cash  flows from financing activities:                     |       |            |       |           |       |           |       |             |       |             |       |
| Net  borrowings under revolving credit facility            |       | —          |       | 4,539          |       | —         |       | —           |       | 4,539            |       |
| Net  (repayments) borrowings of long-term obligations      |       | (5,000          | )          | 40,019         |       | 2,389          |       | —           |       | 37,408           |       |
| Changes  in net equity and advances to / from subsidiaries |       | 19,489          |       | (11,779        | )          | (4,357         | )          | (3,353           | )          | —           |       |
| Financing  fees and other                                  |       | —          |       | (5,934         | )          | (1,332         | )          | —           |       | (7,266           | )          |
| Net  cash provided (used in) financing activities          |       | 14,489          |       | 26,845         |       | (3,300         | )          | (3,353           | )          | 34,681           |       |
|                                                       |       |            |       |           |       |           |       |             |       |             |       |
| Net  decrease in cash and cash equivalents                 |       | —          |       | (677           | )          | (7,592         | )          | —           |       | (8,269           | )          |
| Cash  and cash equivalents at beginning of period          |       | —          |       | 609            |       | 16,175         |       | —           |       | 16,784           |       |
| Cash  and cash equivalents at end of period                |       | $               | —     |           | $          | (68            | )          | $                | 8,583      |             | $          | — |   | $ | 8,515 |   |

 

**15.****         ****Selling, General andAdministrative Expenses**

 

Selling, general andadministrative expenses for the three months ended September 30, 2003 includes $4of costs incurred related to an information technology project.  For the four months ended September 30, 2003and the five months ended May 31, 2003, selling, general and administrativeexpenses related to the information technology project totaled $27 and $833,respectively.

 

**16.****         ****Restructuring Costs**

 

In 2003, the Companyinitiated a plan to relocate and consolidate certain U.S. manufacturingfacilities.  During the three monthsended September 30, 2004 and the three months ended September 30, 2003 theCompany incurred costs of $2,164 and $458, respectively, which were included inRestructuring costs on the accompanying condensed consolidated statements ofoperations.  During the nine months endedSeptember 30, 2004, the four months ended September 30, 2003, and the fivemonths ended May 31, 2003, the Company incurred costs of $7,185, $571 and $516,respectively.  Of the amount recorded inthe first nine months of 2004, $456 related to severance costs forapproximately 50 employees.  The Companyalso recorded $6,729 in the first nine months of 2004 related to incentivebonuses, employee relocation costs, costs to relocate equipment, and otherexpenses associated with the relocation and consolidation of thesefacilities.  Through September 30, 2004,the Company has incurred cumulative costs of approximately $9,788 in connectionwith these activities. As of September 30, 2004 these activities weresubstantially complete, and the Company expects to incur an additional $100 ofwind-down costs in the fourth quarter. The following table provides theactivity in the restructuring accrual during the three months ended September30, 2004 related to these plant restructurings.

 

23

----

 
| ** **                                 | ** ** | **Employee Severance** | ** ** |
|--------------------------------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **and Incentive**      | ** ** |
| ** **                                 | ** ** | **Bonuses Accrual**    | ** ** |
| ** **                                 | ** ** | **(In thousands)**     | ** ** |
|                                       |       |                   |       |
| Accrual  balance at June 30, 2004          |       | $                      | 2,237      |   |
| Costs  for severance and incentive bonuses |       | 561                    |       |
| Cash  payments                             |       | (2,393                 | )          |
| Accrual  balance at September 30, 2004     |       | $                      | 405        |   |

 

Also included inrestructuring charges for the three and nine-month periods ended September 30,2004 was approximately $2,631 of severance costs related to reorganizing thedomestic workforce to improve efficiency and productivity.  At September 30, 2004 the remaining accrualrelated to these severance costs was $1,857.

 

**Item 2.**

**MANAGEMENT’SDISCUSSION AND ANALYSIS OF**

**FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

#### **Overview**

 

We are a leadingglobal designer and manufacturer of cutting and welding products, includingequipment, 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 Company andcertain of its subsidiaries filed with the United States Bankruptcy Court forthe Eastern District of Missouri (the “Court”) the First Amended and RestatedJoint Plan of Reorganization (the “Plan”) and the First Amended and RestatedDisclosure Statement describing the Plan (the “Disclosure Statement”).  The Plan and the Disclosure Statement werefiled with the SEC on Form 8-K on February 7, 2003.  On April 3, 2003, the Court confirmed thePlan.  The Plan was consummated on May23, 2003 (the “Effective Date”) as all conditions necessary for the Plan tobecome effective were satisfied or waived, and we emerged from Chapter 11bankruptcy protection.

 

Effective June 1, 2003, we adopted the principles of “fresh-start” accountingpursuant to which our assets were recorded at their reorganization value, whichis defined as the fair value.  As part ofour fresh-start revaluation, we also recorded significant goodwill(reorganization value in excess of identifiable assets).  In addition, as part of the reorganization, wesignificantly reduced our long-term debt and eliminated our preferredstock.  As a result of the foregoing, ourfinancial data from June 1, 2003, as presented in the condensed consolidatedfinancial statements, is not comparable 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

 

24

----

 

Securities and ExchangeCommission.  Readers are cautioned not toplace undue reliance on these forward-looking statements, which speak only asof the date hereof.  We undertake noobligation to publicly release the result of any revisions to theseforward-looking statements that may be made to reflect events or circumstancesafter the date hereof or that reflect the occurrence of unanticipated events.

 

**FactorsThat Could Affect Future Results**

 

Factors that could affect future results alsoinclude a potential risk related to compliance with the requirements of Section404 of the Sarbanes-Oxley Act of 2002 (“Section 404 Rules”).  At December 31, 2004, our system of internal controls must comply withthe requirements of Section 404 Rules. We are currently undergoing acomprehensive effort to document and test our internal controls and confirmthat such controls are designed appropriately and operating effectively.Because of the proximity of the Section 404 Rules compliance date, if changesto our system of internal controls are initiated incident to either the reviewand testing by management or the attestation by our auditors, there may beinsufficient time to test the effectiveness of the revised internal controlsprior to reporting fiscal year 2004 financial results. If we are unable totimely conclude on the effectiveness of our system of internal controls underthe Section 404 Rules, or if we must disclose material weaknesses related toour system of internal controls, investor confidence in our internal controlsover financial reporting could be damaged and cause our stock price to decline.

 

Additionalrisk factors are described in our Annual Report on Form 10-K for thefiscal year ended December 31, 2003.

 

###### **RESULTS OF OPERATIONS**

 

***Three Months Ended September 30, 2004 Compared to Three Months Ended September30, 2003***

 

Net sales for the three monthsended September 30, 2004 were $124.5 million, which compares to net sales of $106.7million for the three months ended September 30, 2003, which is an increase of 16.7%.Domestic sales were $65.0 million for the third quarter of 2004, compared to $56.8million for the third quarter of 2003, which is an increase of 14.5%.  The increase in the domestic sales was drivenby a stronger industrial economy in the U.S. and market share gains.  International sales were $59.5 million for thethree months ended September 30, 2004 compared to $49.9 million for the threemonths ended September 30, 2003, an increase of 19.1%.  A weaker U.S. dollar was a key contributingfactor to the sales increase for the quarter.  Excluding the increase in sales resulting fromchanges in foreign currency, our international sales would have been up 10.9%compared to the third quarter of 2003, due primarily to increases in volume in Australia,Canada, South Africa,Latin America and the Middle East.

 

Gross margin for the third quarter of 2004 was $36.7 million, or 29.5%of sales, compared to $33.5 million, or 31.4% of sales, for the same period in2003, which is an increase of 9.6%. During the third quarter a comprehensive product price adjustment wasimplemented in the U.S. and the benefits of this increase reduced the adverseimpact of competitive pricing.  In theaggregate however, the benefit of higher sales volume, particularly in theU.S., was offset by a reduction in average realized unit prices, an increase inmaterial costs and other costs of goods sold, an increase in costs related todistributor incentive plans, and higher overhead spending.  The reduction in the average realized unitsales prices resulted in a margin decline of approximately $0.2 million for thequarter.  Lower prices resulted fromactions taken to address competitive market conditions and to capture newbusiness.  Material costs for productsproduced in the U.S. increased by approximately $5.0 million compared to thethird quarter last year.   This increasewas primarily due to the following:  1)higher prices for copper, brass and steel of approximately $1.6 million, 2)weaker U.S. dollar on imported materials of $0.4 million and 3) short-terminefficiency costs of approximately $3.0 million related to increasedoutsourcing of component production and higher freight costs.  Expenses related to the modified distributorincentive plan increased to $3.6 million during the third quarter compared to$1.7 million for the same period last year. During the third quarter, overhead spending for the U.S. operationsexceeded the higher absorption resulting from the increased production levels.  This inefficiency contributed $1.5 million tothe decline in margin dollars for the third quarter, and is attributable toapproximately $0.9 million of incremental costs related to establishingand operating the Roanoke, Texas facility, and $0.6 million related to higherspending on indirect workers, supplies, repairs and maintenance, and variousother costs. This increase in spending resulted from the sharp increase indemand and our focus to improve on-time delivery performance.  Gross margin for the third quarter of 2003includes a $2.2 million non-cash charge related to the required write-up offoreign inventory in connection with fresh-start accounting.  The effect of translating the local currencyresults of our international business units into U.S. dollars, which doesn’taffect gross margin expressed as a percentage of sales, resulted in an increasein gross margin of $1.2 million for the third quarter.

 

25

----

 

Selling,general and administrative expenses were $30.4 million for the three-monthperiod ended September 30, 2004, which compares to $27.8 million for the three-monthperiod ended September 30, 2003, which is an increase of 9.5%.  As a percentage of sales, selling, generaland administrative expenses were 24.4% for the quarter ended September 30, 2004,versus 26.1% for the same period in 2003. Selling, general and administrative expenses increased as a result ofcosts associated with improvements made to our domestic information systemcapabilities of $0.3 million, additional costs of $0.6 million related tocompliance with the Sarbanes-Oxley Act of 2002 and other new corporategovernance practices, and $1.1 million of additional sales and marketingresources related to new product development, growing international markets,and other initiatives.  Selling, generaland administrative expenses increased in the third quarter of 2004 as comparedto the same period in 2003 by $0.7 million as a result of changes in foreign currency.

 

Duringthe three-month period ended September 30, 2004 we incurred restructuring costsof $2.2 million related to the relocation and consolidation of certainU.S. manufacturing facilities, compared to $0.5 million for the three-monthperiod ended September 30, 2003.  Alsoincluded in restructuring costs for the quarter was approximately $2.6 millionof severance costs related to reorganizing the domestic workforce to improveefficiency and productivity.

 

Interest expense for the thirdquarter of 2004 was $5.8 million, which compares to $4.3 million for the thirdquarter of 2003.

 

An income taxprovision of $2.3 million was recorded on a pretax loss of $6.1 million for thethree months ended September 30, 2004.  Anincome tax provision of $1.6 million was recorded on a pretax loss of $1.7 millionfor the three months ended September 30, 2003. The income tax provision for theseperiods primarily relates to income generated in certain foreign jurisdictions.The income tax provision for the three months ended September 30, 2004 and the threemonths ended September 30, 2003 differs from that determined by applying theU.S. federal statutory rate primarily due to nondeductible expenses and thedisallowance of losses.

 

***Nine Months Ended September 30, 2004 Compared to Nine Months Ended September30, 2003***

 

Net sales for the ninemonths ended September 30, 2004 were $370.4 million, which compares to netsales of $142.9 million and $172.0 million for the four months ended September30, 2003 and the five months ended May 31, 2003, respectively, which is anincrease of 17.6%.  Domestic sales were $200.5 millionfor the first nine months of 2004, compared to $75.4 million and $93.6 millionfor the four months ended September 30, 2003 and the five months ended May 31,2003, respectively, which is an

 

26

----

 

increase of 18.6%.  The increase in the domestic sales was seenacross all brands and was driven primarily by a stronger industrial economy inthe U.S.  International sales were $169.9million for the nine months ended September 30, 2004 compared to $67.5 millionand $78.4 million for the four months ended September 30, 2003 and the fivemonths ended May 31, 2003, respectively, an increase of 16.5%.  A weaker U.S. dollar was the primary reasonfor the international sales increase for the first three quarters of 2004.  Excluding the increase in sales resultingfrom changes in foreign currency, our international sales would have increased 5.1%compared to the first nine months of 2003, which is attributed primarily toincreases in volume in certain regions.  Strongsales growth in Australia, Latin America and South Africa was partially offset bydeclining demand in Europe.

 

Gross margin for thefirst nine months of 2004 increased 9.5% to $116.0 million, or 31.3% of sales,from $45.3 million and $60.7 million for the four months ended September 30,2003 and the five months ended May 31, 2003 , respectively.  Through September, the benefit of highersales volume, particularly in the U.S., has been largely offset by loweraverage realized unit sales prices, increases in material costs and other costsof goods sold, higher costs related to distributor incentive plans, andincreased overhead spending.  Thereduction in the average realized unit sales prices resulted in a margindecline of approximately $1.6 million for the first three quarters of theyear.  Lower prices resulted from actionstaken to address competitive market conditions and to gain new business.  Material costs for products produced in theU.S. increased by approximately $10.8 million compared to the same period lastyear.   This increase was primarily dueto:  1) higher prices for copper, brassand steel of approximately $3.9 million, 2) the impact of a weaker U.S. dollaron imported materials of $1.2 million and 3) short-term inefficiency costs ofapproximately $5.7 million related to increased outsourcing of componentproduction and higher in-bound freight costs. Expenses related to the modified distributor incentive plan increased to$9.6 million during the first three quarters compared to $4.8 million for thesame period last year.  ThroughSeptember, overhead spending for the U.S. operations exceeded the higherabsorption resulting from the increased production levels by approximately $4.6million.  This inefficiency is largelyattributable to approximately $2.5 million of incremental costs related toestablishing and operating the Roanoke, Texas facility, and $2.1 millionrelated to higher spending on indirect workers, supplies, repairs andmaintenance, and various other costs. This increase in spending wasattributable to the sharp increase in demand and our focus to improve on-timedelivery performance.  Gross margin forthe first nine months of 2003 includes a $2.2 million non-cash charge relatedto the required write-up of foreign inventory in connection with fresh-startaccounting.  The effect of translatingthe local currency results of our international business units in to U.S.dollars, which doesn’t affect gross margin expressed as a percentage of sales,resulted in an increase in gross margin of $5.2 million for the nine monthsended September 30, 2004.

 

Selling,general and administrative expenses were $92.1 million for the nine-monthperiod ended September 30, 2004, which compares to $36.5 million and$43.8 million for the four months ended September 30, 2003 and the five monthsended May 31, 2003, respectively, which is an increase of 14.7%.  As a percentage of sales, selling, generaland administrative expenses were 24.9% for the nine months ended September 30,2004, versus 25.5% for both the four months ended September 30, 2003 and the fivemonths ended May 31, 2003.  Selling,general and administrative expenses increased as a result of additional salesand marketing resources of $4.7 million related to developing internationalmarkets, new product development, and other sales and marketing initiatives.Expenses also increased over 2003 by $2.0 million related to compliance withthe Sarbanes-Oxley Act of 2002 and other new corporate governance practices and$1.6 million associated with improvements made to our domestic informationsystem and organization.  Expenses in thenine-month period ended September 30, 2004 included an increase of$3.1 million as a result of changes in foreign currency rates. Selling,general and administrative expenses for the four-month period ended September30, 2003 and the five-month period ended May 31, 2003 includes $0.1 million and$0.8 million, respectively of non-recurring costs related to an informationtechnology project.  The remainingincrease relates primarily to expenses that fluctuate with sales such ascommissions.

 

27

----

 

Duringthe nine-month period ended September 30, 2004 we incurred restructuring costsof $7.2 million related to the relocation and consolidation of certainU.S. manufacturing facilities, compared to $0.6 million and $0.5 millionfor the four months ended September 30, 2003 and the five months ended May 31,2003, respectively.  Also included inrestructuring charges for the nine-month period was approximately $2.6 millionof severance costs related to reorganizing the domestic workforce to improveefficiency and productivity.

 

Reorganization items forthe five-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 thefirst nine months of 2004 was $15.7 million, which compares to $5.8 million and$8.8 million for the four months ended September 30, 2003 and the five monthsended May 31, 2003, respectively.  Thedifference results primarily from an increase in long-term debt since ourreorganization in May 2003.

 

An income taxprovision of $6.4 million was recorded on a pretax loss of $8.4 million for thenine months ended September 30, 2004.  Anincome tax provision of $1.9 million was recorded on a pretax loss of $0.6 millionfor the four months ended September 30, 2003 and an income tax provision of $2.9million was recorded on pretax income of $571.9 million for the five monthsended May 31, 2003. The income tax provision for these periods primarilyrelates to income generated in certain foreign jurisdictions. The income taxprovision for the nine months ended September 30, 2004 and the four monthsended September 30, 2003 differs from that determined by applying the U.S.federal statutory rate primarily due to nondeductible expenses and thedisallowance of losses. The income tax provision for the five months ended May31, 2003 differs from that determined by applying the U.S. federal statutoryrate primarily due to the gain recognized on the reorganization and adoption offresh-start accounting, nondeductible expenses and the disallowance of losses.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

***WorkingCapital and Cash Flows***

 

Primarily as a result ofthe increase in sales, operating activities used $29.8 million of cash duringthe first nine months of 2004, compared to $0.8 million and $3.4 million ofcash used during the four months ended September 30, 2003 and the five monthsended May 31, 2003, respectively. Operating assets and liabilities used $36.1 millionof cash during the nine-month period ended September 30, 2004, compared to $9.6million used in the four months ended September 30, 2003 and $2.8 million providedin the five months ended May 31, 2003.

 

•                  Accountsreceivable used $5.3 million of cash during the nine months ended September 30,2004, compared to $5.1 million provided during the four months ended September30, 2003 and $1.5 million used in the five months ended May 31, 2003. Theincrease in accounts receivable during the nine months ended September 30, 2004results from higher sales.

•                  Inventoriesused $28.8 million of cash through the first three quarters of 2004, ascompared to $0.5 million provided in the four months ended September 30, 2003and a $5.7 million use of cash in the five months ended May 31, 2003.  The increase in inventory during the first ninemonths of 2004 results primarily from an increase in demand, required safetystock levels at two of our U.S.

 

28

----

 

production facilitiesthat we consolidated, and a temporary increase in stock levels as part of our initiativeto improve delivery performance.

•                  Accountspayable provided $1.8 million of cash in the first nine months of 2004, whichcompares to cash used of $3.7 million during the four months ended September30, 2003 and $3.3 million provided in the five months ended May 31, 2003. A general improvement in payment terms hascontributed to the increase in payables.

•                  Accrued and other liabilities used $3.9 millionof cash in the first nine months of 2004, compared to cash used of $9.7 millionduring the four months ended September 30, 2003 and cash provided of $5.1million used in the five months ended May 31, 2003.  Included in the $3.9 million ofcash used in the first nine months of 2004 was approximately $3.5 million paidto our unsecured creditors.  Ourreorganization plan called for a total of $7.5 million to be paid to theunsecured creditors, of which $4.9 million has been paid from the EffectiveDate through September 30, 2004.  Weanticipate the remaining amount owed to the unsecured creditors will be paid overthe next 15 months.

•                  Accrued interest increased $2.7 million in thefirst nine months of 2004 and relates primarily to our senior subordinatednotes.

 

Capitalexpenditures were $14.5 million during the nine months ended September 30, 2004,which is $7.1 million more than was spent during the same period last yearpartly as a result of purchasing certain assets that had been deferred.  Capital expenditures in the first nine monthsof 2003 were lower due in part to our reorganization.

 

Financing activitiesprovided $34.7 million of cash during the first nine months of 2004 compared tocash provided of $2.3 million during the four months ended September 30, 2003and $2.9 million in the five month ended May 31, 2003.  Net borrowings were $41.9 million for the ninemonths ended September 30, 2004 compared to $3.5 million during the four monthsended September 30, 2003 and $3.3 million in the five months ended May 31, 2003.  The increase in borrowings was used primarilyto fund working capital requirements.

 

# ***Liquidity***

 

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 described below.)

 

*Senior Subordinated Notes*

 

On February 5, 2004, wecompleted a private placement of $175.0 million in aggregate principal of 91⁄4% SeniorSubordinated Notes due 2014 (the “Senior Subordinated Notes”). The net proceedsfrom the offering, together with approximately $20.0 million of borrowingsunder a new term loan (the “Term Loan”) added through an amendment andrestatement to our GECC credit agreement (the “Credit Agreement”), were used torepay all outstanding borrowings under the existing $180.0 million senior termloan facility and to reduce amounts outstanding under the Credit Agreement. InMay, for the purpose of an exchange offer, we registered notes with termsidentical to the Senior Subordinated Notes under the Securities Act of 1933.  We completed the exchange offer in the secondquarter and over 99% of the original notes were exchanged for the registerednotes.

 

29

----

 

TheSenior Subordinated Notes are unsecured senior subordinated obligations and aresubordinated in right of payment to all existing and future Senior Indebtedness(as defined in the indenture). Interest accrues at the rate of 91⁄4% per annum and is payable semiannually inarrears on February 1 and August 1.

 

*Credit Agreement*

 

TheCredit Agreement consists of the Term Loan and a $50.0 million revolving creditfacility (the “Working Capital Facility”). Up to $20.0 million of the Working Capital Facility may be used for lettersof credit.  Actual borrowing availabilityis subject to a borrowing base calculation, which is equal to 1.5 timesAdjusted EBITDA.  The Credit Agreementdefines Adjusted EBITDA as 100% of the EBITDA for us and our domesticsubsidiaries plus 65% of the EBITDA of our 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,amortization of deferred financing costs, any amount deducted from net incomeas a result of stock or stock option grants, the accrual net of any payments incash related to net periodic post-retirement benefit costs, losses fromextraordinary items, reorganization costs related to the Chapter 11 cases, andany non-recurring employee severance expenses and non-recurring cash expensesrelated to plant reorganizations, not to exceed $10.0 million in the aggregate,the non-cash portion ofany expense or loss attributable to any interest rate agreement or arrangementpermitted under the Credit Agreement priorto the termination or expiration of such agreement or arrangement, and$8.9 million of non-cash reserves recorded at December 31, 2003related to the implementation of a revised reserve methodology for inventoryand accounts receivable and implementation of an additional accrual for warrantyobligations. Availability under the Working Capital Facility may also belimited if we fail to meet certain levels of Adjusted EBITDA. Borrowings underthe Term Loan and the Working Capital Facility accrue interest, at our option,at the prime lending rate plus 2.25%, in the case of index rate loans, or at the London Interbank Offered Rate (“LIBOR”) plus3.25%, in the case of LIBOR loans. Unusedportions of the Working Capital Facility are charged 75 basis points as ofSeptember 30, 2004. The Credit Agreement is secured by substantially all of theassets of our domestic subsidiaries, including a pledge of the capital stock ofsubstantially all of our subsidiaries, subject to certain limitations withrespect to foreign subsidiaries.  TheCredit Agreement contains financial covenants, including minimum levels ofEBITDA (determined on a consolidated basis) and other customaryprovisions.  As of September 30, 2004, wehad borrowed $17.4 million and issued letters of credit totaling $11.2 millionunder the Working Capital Facility.  Wehad availability of $17.8 million under the Working Capital Facility atSeptember 30, 2004. The Working Capital Facility terminates on May 23,2006.  The Term Loan matures onDecember 31, 2008 and requires quarterly amortization payments totaling$4.0 million in 2005, $5.0 million in 2006, $5.0 million in 2007 and $6.0million in 2008.

 

On November 5, 2004, we entered into an amendment to the Credit Agreement which modified certain financialcovenants and reduced permissible funded indebtedness of our foreignsubsidiaries.

 

30

----

 

*Second-LienFacility*

 

The Second-Lien Facility issecured by a second lien on substantially all of our assets.  On November 5, 2004, the Second-Lien Facilitywas amended to extend its maturity to July 22, 2005 and modified a financialcovenant.  The Second-Lien Facilityaccrues interest at our option, at LIBOR plus 6.00% or an alternative base rate(the greater of a) the Prime Rate or b) the federal funds rate plus one half of1.00%) plus 5.00%.  The Second-LienFacility restricts how much long-term debt we may have and has other customaryprovisions including financial and non-financial covenants.

 

We expect our operating cashflow, together with borrowings under the Working Capital Facility, will besufficient to meet our anticipated future operating expenses, capitalexpenditures and the debt service requirements of the Credit Agreement, theSecond-Lien Facility and the Senior Subordinated Notes.  However, our ability to generate sufficientcash flow to meet our operating needs will be affected by general economic,financial, competitive, legislative, regulatory, business and other factorsbeyond our control.

 

### ***Contractual Obligations and Commercial Commitments***

 

In the normalcourse of business, we enter into contracts and commitments that obligate us tomake payments in the future. The table below sets forth our significant futureobligations by time period.

 

Payments Due byPeriod

(Amounts inthousands)

 
| ** **                  | ** ** | ** ** | ** ** | **Remaining** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2008 and** | ** ** |
|-----------------------------|------------|------------|------------|---------------|------------|------------|------------|------------|------------|------------|------------|--------------|------------|
| **Contractual Obligations** | ** ** | **Total**  | ** ** | **2004**      | ** ** | **2005**   | ** ** | **2006**   | ** ** | **2007**   | ** ** | **Beyond**   | ** ** |
|                        |       |       |       |          |       |       |       |       |       |       |       |         |       |
| Long-term  debt             |       | $          | 240,590    |          | $          | 25,951     |       | $          | 24,000     |       | $          | 5,000        |       | $ | 5,000 |   | $ | 180,639 |   |
| Capital  leases             |       | 30,449     |       | 1,335         |       | 4,187      |       | 3,327      |       | 2,869      |       | 18,731       |       |
| Operating  leases           |       | 25,107     |       | 1,346         |       | 4,830      |       | 3,931      |       | 3,322      |       | 11,678       |       |
| Purchase  obligations       |       | 24,062     |       | 5,125         |       | 10,479     |       | 4,223      |       | 4,217      |       | 18           |       |
| Total                       |       | $          | 320,208    |          | $          | 33,757     |       | $          | 43,496     |       | $          | 16,481       |       | $ | 15,408 |   | $ | 211,066 |   |

 

The amounts shownfor capital leases include the effective interest expense component which was$10.9 million at September 30, 2004. Our purchase obligations relateprimarily to inventory purchase commitments. At September 30, 2004, we hadissued letters of credit totaling $11.2 million under our Working CapitalFacility.

 

**Item3.  Market Risk**

 

There have been nochanges in our exposure to foreign currency risk.  We are exposed to changes in interest ratesrelated to our variable rate debt.  We donot believe that changes in interest rates will have a material effect on ourfinancial condition or results of operations.

 

31

----

 

InFebruary 2004, we entered into an interest rate swap arrangement to convert aportion of the fixed rate exposure on our Senior Subordinated Notes to variablerates. Under the terms of the interest rate swap contract, which has a notionalamount of $50.0 million, we receive interest at a fixed rate of 9.25% and pay interest at a variable rate equal toLIBOR plus a spread of 442 basis points. The six-month LIBOR rate on eachsemi-annual reset date determines the variable portion of the interest rateswap.  The six-month LIBOR rate for eachsemi-annual reset date is determined in arrears.

 

#### **Item 4.  Controls and Procedures**

 

Ourchief executive officer and chief financial officer, with the participation ofmanagement, evaluated our disclosure controls and procedures as ofSeptember 30, 2004. Based on that evaluation, our chief executive officerand chief financial officer concluded our disclosure controls and procedureswere, as of September 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.

 

Therehave not been changes in our internal control over financial reporting thatoccurred during our nine months ended September 30, 2004 that have materiallyaffected or are reasonably likely to materially affect our internal controlover financial reporting.

 

#### **PART II.  OTHER INFORMATION**

 

**Item5.  OtherInformation**

 

OnNovember 5, 2004, The Company and certain of its affiliates executed the FourthAmendment to its Amended and Restated Credit Agreement which increasedpermissible capital expenditures in 2005 and 2006 and modified certainfinancial covenants.  On the same date, the Company executed an amendmentto the Second Lien Facility to extend its maturity to July 22, 2005 and modifya financial covenant.   See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — Liquidity and CapitalResources.”

 

**Item6.  Exhibits**

 

4.1                                 Fourth Amendment dated as of September 30,2004 to Amended and Restated Credit Agreement among Thermadyne Industries,Inc., certain of its affiliates, General Electric Capital Corporation as agentand lender and the lenders party thereto.

 

4.2                                 Amendment No 1 and Agreement dated as ofSeptember 30, 2004 to the Second Lien Credit Agreement among ThermadyneIndustries, Inc., certain of its affiliates and Credit Suisse First Boston asadministrative and collateral agent and the lenders party thereto.

 

31.1                           Certification Pursuant to Section 302 of theSarbanes-Oxley Act of 2002

 

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

 

32

----

 

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

 

33

----

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                               | **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:  November  9, 2004 |                                |   |
|                                    |                                     |  |  |  |  |

 

34

----