** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

----

** **

**FORM 10-Q**

**(Mark One)**

**x**                                 QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934.

**For the quarterly periodended June 30, 2006**

** **

**OR**

** **

**o**                                   TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

**For the transition periodfrom                                       to**

** **

**Commissionfile number 0-23378**

**Thermadyne Holdings Corporation**

(Exact Name of Registrant as Specified in Its Charter)

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

 

Registrant’sTelephone Number, Including Area Code **(636) 728-3000**

Indicateby checkmark whether the registrant (1) has filed all reports required to befiled by Section 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  x        No  o

 

Indicate bycheckmark whether the registrant is a large accelerated filer, an acceleratedfiler or a non-accelerated filer.  Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act.

Large acceleratedfiler o      Accelerated filer x     Non-acceleratedfiler o

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

                                                                                                                                                                         Yeso                No x

 

Indicateby checkmark whether the registrant has filed all documents and reportsrequired to be filed by Section 12, 13 or 15(d) of the Securities Exchange Actof 1934 subsequent to the distribution of securities under a plan confirmed bya court.

 

                                                                                                                                                                         Yesx               No o

 

The number of sharesoutstanding of the issuer’s common stock, par value $0.01 per share, as of November 6,2006 was 13,329,702.

 

 

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**THERMADYNEHOLDINGS CORPORATION**

 
| **INDEX**                                |
|------------------------------------------|
|                                     |
| **PART  I — FINANCIAL INFORMATION** |
|                                     |   |   |
| Item 1.                                  |   | Financial  Statements |
|                                     |   | 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.                                  |   | Quantitative and Qualitative Disclosures About Market  Risk |
|                                     |   |   |
| Item 4.                                  |   | Controls and Procedures |
|                                     |
| **PART  II — OTHER INFORMATION**    |
|                                     |   |   |
| Item  1.                                 |   | Legal  Proceedings |
|                                     |   |   |
| Item 5.                                  |   | Other Information |
|                                     |   |   |
| Item 6.                                  |   | Exhibits |
|                                     |
| **SIGNATURES**                           |
|                                          |  |  |  |

 

----

 

#### **PARTI.  FINANCIAL INFORMATION**

**Item 1.**

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED BALANCESHEETS**

**(In thousands, except per sharedata)**
| ** **                                                                                                | ** ** | **June 30,**

**2006** | ** ** | **December 31,**

**2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                                                | ** ** | **(Unaudited)**             | ** ** | ** **                      | ** ** |
| **ASSETS**                                                                                                | ** ** | ** **                  | ** ** | ** **                      | ** ** |
|                                                                                                      |       |                        |       |                            |       |
| Current Assets:                                                                                           |       |                        |       |                            |       |
| Cash and cash  equivalents                                                                                |       | $                           | 9,641      |                            | $          | 12,439 |   |
| Accounts receivable,  less allowance for doubtful accounts of $2,956 and $2,746, respectively             |       | 86,556                      |       | 76,449                          |       |
| Inventories                                                                                               |       | 116,782                     |       | 116,671                         |       |
| Prepaid expenses and  other                                                                               |       | 5,774                       |       | 7,708                           |       |
| Deferred tax assets                                                                                       |       | 1,861                       |       | 1,861                           |       |
| Assets held for sale                                                                                      |       | —                      |       | 28,323                          |       |
| Total current  assets                                                                                     |       | 220,614                     |       | 243,451                         |       |
| Property, plant and  equipment, net                                                                       |       | 51,412                      |       | 55,442                          |       |
| Goodwill                                                                                                  |       | 205,542                     |       | 203,643                         |       |
| Intangibles, net                                                                                          |       | 65,542                      |       | 66,049                          |       |
| Other assets                                                                                              |       | 6,886                       |       | 7,883                           |       |
| Total assets                                                                                              |       | $                           | 549,996    |                            | $          | 576,468 |   |
|                                                                                                      |       |                        |       |                            |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                            | ** ** | ** **                  | ** ** | ** **                      | ** ** |
|                                                                                                      |       |                        |       |                            |       |
| Current Liabilities:                                                                                      |       |                        |       |                            |       |
| Working capital  facility                                                                                 |       | $                           | 28,747     |                            | $          | 31,796 |   |
| Current maturities of  long-term obligations                                                              |       | 11,528                      |       | 11,883                          |       |
| Accounts payable                                                                                          |       | 36,372                      |       | 41,740                          |       |
| Accrued and other  liabilities                                                                            |       | 31,706                      |       | 32,867                          |       |
| Accrued interest                                                                                          |       | 7,535                       |       | 7,317                           |       |
| Income taxes payable                                                                                      |       | 2,383                       |       | 2,499                           |       |
| Liabilities applicable  to assets held for sale                                                           |       | —                      |       | 7,968                           |       |
| Total current  liabilities                                                                                |       | 118,271                     |       | 136,070                         |       |
| Long-term obligations,  less current maturities                                                           |       | 215,170                     |       | 216,211                         |       |
| Deferred tax  liabilities                                                                                 |       | 54,869                      |       | 56,028                          |       |
| Other long-term  liabilities                                                                              |       | 44,794                      |       | 41,992                          |       |
| Minority interest                                                                                         |       | 331                         |       | 2,214                           |       |
| Shareholders’ equity:                                                                                |       |                        |       |                            |       |
| Common stock, $0.01 par  value:                                                                           |       |                        |       |                            |       |
| Authorized - 25,000,000  shares                                                                           |       |                        |       |                            |       |
| Issued and Outstanding  - 13,329,702 shares at June 30, 2006 and

13,318,158 shares at  December 31, 2005 |       | 133                         |       | 133                             |       |
| Additional paid-in  capital                                                                               |       | 184,038                     |       | 183,541                         |       |
| Accumulated deficit                                                                                       |       | (72,240                     | )          | (65,571                         | )          |
| Accumulated other  comprehensive income                                                                   |       | 4,630                       |       | 5,850                           |       |
| Total shareholders’  equity                                                                          |       | 116,561                     |       | 123,953                         |       |
| Total liabilities and  shareholders’ equity                                                          |       | $                           | 549,996    |                            | $          | 576,468 |   |

 

See accompanying notes to condensed consolidated financial statements.

3

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**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS**

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

**(Unaudited)**
| ** **                                                                                 | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                 | ** ** | ** **                                          | ** ** | **(Restated)**                                    | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
|                                                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Net sales                                                                                  |       | $                                                   | 127,515    |                                              | $          | 118,772 |   | $ | 250,374 |   | $ | 229,156 |   |
| Cost of goods  sold                                                                        |       | 91,732                                              |       | 86,965                                            |       | 179,621 |   | 163,326 |   |
| Gross margin                                                                               |       | 35,783                                              |       | 31,807                                            |       | 70,753 |   | 65,830 |   |
|                                                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Selling, general  and administrative expenses                                              |       | 31,688                                              |       | 26,831                                            |       | 58,529 |   | 54,090 |   |
| Amortization of  intangibles                                                               |       | 733                                                 |       | 807                                               |       | 1,464 |   | 1,688 |   |
| Net periodic  postretirement benefits                                                      |       | 528                                                 |       | 645                                               |       | 1,056 |   | 1,186 |   |
| Operating income                                                                           |       | 2,834                                               |       | 3,524                                             |       | 9,704 |   | 8,866 |   |
| Other expenses:                                                                            |       |                                                |       |                                              |       |   |   |   |   |
| Interest                                                                                   |       | (6,527                                              | )          | (5,940                                            | )          | (13,044 | ) | (11,380 | ) |
| Amortization of deferred financing costs                                                   |       | (332                                                | )          | (384                                              | )          | (664 | ) | (814 | ) |
| Minority interest                                                                          |       | (14                                                 | )          | (284                                              | )          | (75 | ) | (337 | ) |
| Income from  continuing operations before income tax provision and discontinued operations |       | (4,039                                              | )          | (3,084                                            | )          | (4,079 | ) | (3,665 | ) |
| Income tax  provision (benefit)                                                            |       | 1,252                                               |       | (1,501                                            | )          | 2,300 |   | (784 | ) |
| Loss from  continuing operations                                                           |       | (5,291                                              | )          | (1,583                                            | )          | (6,379 | ) | (2,881 | ) |
| Income (loss)  from discontinued operations, net of tax                                    |       | —                                              |       | 647                                               |       | (290 | ) | 1,209 |   |
| Net loss                                                                                   |       | $                                                   | (5,291     | )                                                 | $          | (936 | ) | $ | (6,669 | ) | $ | (1,672 | ) |
|                                                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Basic and  diluted income (loss) per share:                                                |       |                                                |       |                                              |       |   |   |   |   |
| Continuing operations                                                                      |       | $                                                   | (0.40      | )                                                 | $          | (0.12 | ) | $ | (0.48 | ) | $ | (0.22 | ) |
| Discontinued operations                                                                    |       | —                                              |       | 0.05                                              |       | (0.02 | ) | 0.09 |   |
| Net loss                                                                                   |       | $                                                   | (0.40      | )                                                 | $          | (0.07 | ) | $ | (0.50 | ) | $ | (0.13 | ) |

 

See accompanying notes to condensed consolidated financial statements.

4

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**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

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

**(Unaudited)**
| ** **                                                                            | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                            | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| ** **                                                                            | ** ** | ** **                                        | ** ** | **(Restated)** | ** ** |
| **Cash flows from continuing operations**                         |       |                                              |       |   |   |
| Cash flows from operating activities:                                                 |       |                                              |       |   |   |
| Net loss                                                                              |       | $                                                 | (6,669     | ) | $ | (1,672 | ) |
| Adjustments to reconcile net income (loss) to net  cash used in operating activities: |       |                                              |       |   |   |
| (Income) loss from discontinued operations                                            |       | 290                                               |       | (1,209 | ) |
| Minority interest                                                                     |       | 75                                                |       | 337 |   |
| Depreciation and amortization                                                         |       | 9,572                                             |       | 10,477 |   |
| Deferred taxes                                                                        |       | (1,159                                            | )          | 1,227 |   |
| Changes in operating assets and liabilities                                           |       | (13,308                                           | )          | (14,571 | ) |
| Net cash used in operating activities                                                 |       | (11,199                                           | )          | (5,411 | ) |
| Cash flows from investing activities:                                                 |       |                                              |       |   |   |
| Capital expenditures                                                                  |       | (2,515                                            | )          | (4,370 | ) |
| Proceeds from sales of assets                                                         |       | 16,455                                            |       | — |   |
| Purchase of miniority interest                                                        |       | (3,954                                            | )          | — |   |
| Investment in joint venture                                                           |       | —                                            |       | (850 | ) |
| Net cash provided by (used in) investing activities                                   |       | 9,986                                             |       | (5,220 | ) |
| Cash flows from financing activities:                                                 |       |                                              |       |   |   |
| Net borrowings (repayments) under revolving credit  facility                          |       | (4,139                                            | )          | 15,137 |   |
| Net repayments under other credit facilities                                          |       | (330                                              | )          | (279 | ) |
| Advances from (to) from discontinued operations                                       |       | 2,679                                             |       | (2,123 | ) |
| Other, net                                                                            |       | 61                                                |       | (1,708 | ) |
| Net cash provided by (used in) financing activities                                   |       | (1,729                                            | )          | 11,027 |   |
| Effect of exchange rate changes on cash and cash  equivalents                         |       | 144                                               |       | 456 |   |
| Net cash provided by (used in) continuing operations                                  |       | $                                                 | (2,798     | ) | $ | 852 |   |
| **Cash  flows from discontinued operations**                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net cash provided by (used in) operating activities                                   |       | $                                                 | 594        |   | $ | 3,928 |   |
| Net cash used in investing activities                                                 |       | (849                                              | )          | (1,218 | ) |
| Net cash used in financing activities                                                 |       | (2,799                                            | )          | (1,089 | ) |
| Effect of exchange rates on cash and cash  equivalents                                |       | (69                                               | )          | 860 |   |
| Net cash provided by (used in) discontinued  operation                                |       | $                                                 | (3,123     | ) | $ | 2,481 |   |
|                                                                                  |       |                                              |       |   |   |
| Total increase  (decrease) in cash and cash equivalents                               |       | $                                                 | (5,921     | ) | $ | 3,333 |   |
| Total cash and  cash equivalents beginning of period                                  |       | 15,562                                            |       | 7,061 |   |
| Total cash and  cash equivalents end of period                                        |       | $                                                 | 9,641      |   | $ | 10,394 |   |
| **Continuing  operations**                                                            | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Cash and cash equivalents beginning of period                                         |       | $                                                 | 12,439     |   | $ | 6,033 |   |
| Net cash provided by (used in) continuing operations                                  |       | (2,798                                            | )          | 852 |   |
| Cash and cash equivalents end of period                                               |       | $                                                 | 9,641      |   | $ | 6,885 |   |
| **Discontinued  operations**                                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Cash and cash equivalents beginning of period                                         |       | $                                                 | 3,123      |   | $ | 1,028 |   |
| Net cash provided by (used in) discontinued  operations                               |       | (3,123                                            | )          | 2,481 |   |
| Cash and cash equivalents end of period                                               |       | $                                                 | —     |   | $ | 3,509 |   |
|                                                                                  |       |                                              |       |   |   |
| Income taxes  paid                                                                    |       | $                                                 | 3,821      |   | $ | 3,787 |   |
| Interest paid                                                                         |       | $                                                 | 12,018     |   | $ | 11,985 |   |

 

See accompanying notes to condensed consolidated financial statements.

5

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**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except per share data)**

**1.****                                     ****Basis of Presentation**

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

The accompanying unaudited condensed consolidated financial statementsof Thermadyne have been prepared in accordance with U.S. generally acceptedaccounting principles for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by U.S. generally accepted accountingprinciples for complete financial statements. The combined results of operations of the Company for the three monthsand six months ended June 30, 2006 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2006.  For further information, refer to theconsolidated financial statements and footnotes thereto included in the Company’sannual report on Form 10-K for the year ended December 31, 2005.

Certain information for 2005, primarily accounts related todiscontinued operations, has been reclassified to conform with the 2006 presentation.

**2.****                                     ****Significant Accounting Policies**

***Intangibles.*** Goodwill and trademarks have an indefinite life.  Patents and customer relationships areamortized on a straight-line basis over their estimated useful lives, whichgenerally range from 10 to 15 years.

Goodwill and trademarks aretested for impairment annually or more frequently if events occur orcircumstances change that would more likely than not reduce the fair value ofthe reporting unit below its carrying value.

The Company’s trademarks aregenerally associated with its well-established product brands, and cash flowsassociated with these products are expected to continue indefinitely.  The Company has placed no limit on the end ofits trademarks’ useful lives and as result utilized indefinite life treatmentfor the intangibles.

***Product Warranty Programs****.* Various products are sold with productwarranty programs. Provisions for warranty programs are made based onhistorical experience as the products are sold and adjusted periodically basedon current estimates of anticipated warranty costs.

The following table providesthe activity in the warranty accrual for the six months ended June 30, 2006 and2005:
| **Product warranty accrual:** | ** ** | **Balance at**

**Beginning of**

**Period** | ** ** | **Provision** | ** ** | **Payments** | ** ** | **Balance at**

**End of**

**Period** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------------|------------|---------------|------------|--------------|------------|--------------------------------------------------|------------|
| Six months ended  June 30, 2006         |       | $                                                      | 3,007      |          | $          | 1,347        |       | $                                                | (1,416     | ) | $ | 2,938 |   |
| Six months ended June  30, 2005         |       | $                                                      | 3,048      |          | $          | 1,567        |       | $                                                | (1,481     | ) | $ | 3,134 |   |

 

6

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***Derivative Instruments****.* The Company accounts for derivatives andhedging activities in accordance with Statement of Financial AccountingStandards No. 133, *Accounting for DerivativeInstruments and Certain Hedging Activities*, as amended (“SFAS No.133”), which requires that all derivative instruments be recorded on thebalance sheet at their respective fair values. The Company does not usederivative instruments for trading or speculative purposes.  Statement of Financial Accounting StandardsNo. 155, *Accounting for Certain Hybrid Financial Instruments*,will amend SFAS No. 133 for instruments acquired by the Company afterDecember 31, 2006.  See Note 4 - *Recent Accounting Pronouncements*.

The Company designates anddocuments all relationships between hedging instruments and hedged items, aswell as its risk management objectives and strategies for undertaking hedgetransactions. The Company also assesses, both at the inception of the hedge andon an on-going basis, whether the hedge is effective.

***Revenue Recognition. ***The Company sells a majority of its products through distributors withstandard terms of sale of FOB shipping point or FOB destination.  The Company has certain consignmentarrangements, representing a minor portion of inventories and related sales,whereby revenue is recognized when products are used by the customer fromconsigned stock.  Under allcircumstances, revenue is recognized when persuasive evidence of an arrangementexists, delivery has occurred, the seller’s price is fixed and determinable andcollectibility is reasonably assured.

The Company sponsors a number of incentiveprograms to augment distributor sales efforts. Included in the Company’s incentive programs are certain rebate programsand sales and market share growth incentive programs.  The costs associated with these salesprograms are recorded as a reduction of revenue.

Terms of sale generally require 30-60 daypayment terms and provide standard warranties. For a product that is returned due to issues outside the scope of theCompany’s warranty agreements, restocking charges are generally assessed.

***Earnings (Loss)Per Share.***  The calculation of net income (loss) pershare follows:
| ** **                                                        | ** ** | **Three Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                        | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| ** **                                                        | ** ** | ** **                                          | ** ** | **(Restated)** | ** ** |
| Numerator:                                                        |       |                                                |       |   |   |
| Income (loss) :                                                   |       |                                                |       |   |   |
| Continuing  operations                                            |       | $                                                   | (5,291     | ) | $ | (1,583 | ) |
| Discontinued  operations                                          |       | —                                              |       | 647 |   |
| Net loss                                                          |       | $                                                   | (5,291     | ) | $ | (936 | ) |
|                                                              |       |                                                |       |   |   |
| Denominator:                                                      |       |                                                |       |   |   |
| Weighted average  shares for basic and diluted earnings per share |       | 13,328                                              |       | 13,314 |   |
|                                                              |       |                                                |       |   |   |
| Basic and  diluted income (loss) per share amounts:               |       |                                                |       |   |   |
| Continuing  operations                                            |       | $                                                   | (0.40      | ) | $ | (0.12 | ) |
| Discontinued  operations                                          |       | —                                              |       | 0.05 |   |
| Net loss                                                          |       | $                                                   | (0.40      | ) | $ | (0.07 | ) |

 

7

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| ** **                                                        | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                        | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| ** **                                                        | ** ** | ** **                                        | ** ** | **(Restated)** | ** ** |
| Numerator:                                                        |       |                                              |       |   |   |
| Income (loss) :                                                   |       |                                              |       |   |   |
| Continuing  operations                                            |       | $                                                 | (6,379     | ) | $ | (2,881 | ) |
| Discontinued  operations                                          |       | (290                                              | )          | 1,209 |   |
| Net loss                                                          |       | $                                                 | (6,669     | ) | $ | (1,672 | ) |
|                                                              |       |                                              |       |   |   |
| Denominator:                                                      |       |                                              |       |   |   |
| Weighted average  shares for basic and diluted earnings per share |       | 13,327                                            |       | 13,314 |   |
|                                                              |       |                                              |       |   |   |
| Basic and  diluted income (loss) per share amounts:               |       |                                              |       |   |   |
| Continuing  operations                                            |       | $                                                 | (0.48      | ) | $ | (0.22 | ) |
| Discontinued  operations                                          |       | (0.02                                             | )          | 0.09 |   |
| Net loss                                                          |       | $                                                 | (0.50      | ) | $ | (0.13 | ) |

 

The effects of options and warrants have not been considered in thedetermination of net income (loss) per share for the three months and sixmonths ended June 30, 2006 and 2005, because the result would beantidilutive.  Options and warrants notincluded in the calculation for the three months and six months ended June 30,2006 and 2005 were as follows:
| ** **       | ** ** | **Three Months Ended**

**June 30,** | ** ** | **Six Months Ended**

**June 30,** | ** ** |
|------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **       | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
|             |       |                                                |       |                                              |       |   |   |   |   |
| Stock Options    |       | 1,215,613                                           |       | 1,021,775                                         |       | 1,215,613 |   | 1,021,775 |   |
| Class B Warrants |       | —                                              |       | 700,000                                           |       | — |   | 700,000 |   |
| Class C Warrants |       | —                                              |       | 271,429                                           |       | — |   | 271,429 |   |

 

There were no warrants exercised during the three-month and six-month periodsended June 30, 2006 and June 30, 2005. All Class B andClass C warrants expired on May 23, 2006.

**3.****                                     ****Restatement of ConsolidatedFinancial Statements**

As discussed in the Company’s2005 Form 10-K, the Company identified a series of adjustments that haveresulted in the restatement of previously announced quarterly results for thefirst three quarters of 2005.  Insummary, the adjustments are grouped in the following categories: a) the incometax provision and related current and deferred income tax liabilities primarilyassociated with tax implications of the Company’s fresh-start accounting andreassessment of state income tax liabilities, b) the recognition of foreigncurrency gains and losses in connection with transactions with ourinternational subsidiaries and c) various items relating to accountingperformed by our international business units including accounting for minorityinterest in certain international subsidiaries and the accurate and timelyrecognition of costs, inventory valuations and customer discounts.

These adjustments have beenreflected in the accompanying consolidated interim financial statements for theprior year. The Company’s previously reported consolidated net income for thethree months ended June 30, 2005 increased by $0.8 million to a loss of $0.9million and the previously reported consolidated net income for the six monthsended June 30, 2005 decreased by $1.0 million to a loss of $1.7 million.  The changes were primarily as a result of theadjustment to the tax provision associated with the change in deferred taxliabilities related to book-tax differences recorded in connection withfresh-start accounting and other accounting adjustments referred to above. Inaddition, as a result of certain of these adjustments, the Company’s statementof cash flows for the six months ended June 30, 2005 has been restated.  The following tables summarize the effects ofthe adjustments on the consolidated statements of operations for the threemonth and six month periods ended June 30, 2005.

8

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ConsolidatedStatement of Operations:
| ** **                                          | ** ** | **Three Months Ended June 30, 2005** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                          | ** ** | **As Originally**

**Reported (1)**                 | ** ** | **Adjustments**

**Increase**

**(Decrease)** | ** ** | **As Restated** | ** ** |
| **Continuing  Operations**                          | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                           |       | $                                                             | 118,680    |   | $ | 92 |   | $ | 118,772 |   |
| Gross margin                                        |       | 30,706                                                        |       | 1,101 |   | 31,807 |   |
| Operating income                                    |       | 2,337                                                         |       | 1,187 |   | 3,524 |   |
|                                                |       |                                                          |       |   |   |   |   |
| **Income  (loss) :**                                | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Continuing operations                               |       | $                                                             | (2,343     | ) | $ | 760 |   | $ | (1,583 | ) |
| Discontinued operations                             |       | 647                                                           |       | — |   | 647 |   |
| Net income                                          |       | $                                                             | (1,696     | ) | $ | 760 |   | $ | (936 | ) |
|                                                |       |                                                          |       |   |   |   |   |
| **Basic  and diluted income (loss) per share (1):** | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Continuing operations                               |       | $                                                             | (0.18      | ) | $ | 0.06 |   | $ | (0.12 | ) |
| Discontinued operations                             |       | 0.05                                                          |       | — |   | 0.05 |   |
| Net income  (loss)                                  |       | $                                                             | (0.13      | ) | $ | 0.06 |   | $ | (0.07 | ) |

 
| ** **                                          | ** ** | **Six Months Ended June 30, 2005** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                          | ** ** | **As Originally**

**Reported (1)**               | ** ** | **Adjustments**

**Increase**

**(Decrease)** | ** ** | **As Restated** | ** ** |
| **Continuing  Operations**                          | ** ** | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                           |       | $                                                           | 228,971    |   | $ | 185 |   | $ | 229,156 |   |
| Gross margin                                        |       | 64,502                                                      |       | 1,328 |   | 65,830 |   |
| Operating income                                    |       | 8,848                                                       |       | 18 |   | 8,866 |   |
|                                                |       |                                                        |       |   |   |   |   |
| **Income  (loss) :**                                | ** ** | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Continuing operations                               |       | $                                                           | (1,915     | ) | $ | (966 | ) | $ | (2,881 | ) |
| Discontinued operations                             |       | 1,209                                                       |       | — |   | 1,209 |   |
| Net income                                          |       | $                                                           | (706       | ) | $ | (966 | ) | $ | (1,672 | ) |
|                                                |       |                                                        |       |   |   |   |   |
| **Basic  and diluted income (loss) per share (1):** | ** ** | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Continuing operations                               |       | $                                                           | (0.14      | ) | $ | (0.07 | ) | $ | (0.22 | ) |
| Discontinued operations                             |       | 0.09                                                        |       | — |   | 0.09 |   |
| Net loss                                            |       | $                                                           | (0.05      | ) | $ | (0.07 | ) | $ | (0.13 | ) |

----

(1)             Amountsfor “As Originally Reported” have been adjusted for the Company’s discontinuedoperations as described in Note 5 — *Discontinued Operations*tothe condensed consolidated financial statements.

9

----

 

The following tablesummarizes the effects of the adjustments on the consolidated statements ofcash flows for the six month period ended June 30, 2005.

Consolidated Statement of Cash Flows from Continuing Operations:
| ** **                                            | ** ** | **Six Months Ended June 30, 2005** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| **Continuing Operations:**                       | ** ** | **As Originally Reported**

**(1)**               | ** ** | **Adjustments Increase**

**(Decrease)** | ** ** | **As Restated** | ** ** |
| Net cash flows  used in operating activities          |       | $                                                           | 3,742      |   | $ | 1,669 |   | $ | 5,411 |   |
|                                                  |       |                                                        |       |   |   |   |   |
| Net cash flows  used in investing activities          |       | $                                                           | 5,220      |   | $ | — |   | $ | 5,220 |   |
|                                                  |       |                                                        |       |   |   |   |   |
| Net cash flows  provided by financing activities      |       | $                                                           | 11,209     |   | $ | (182 | ) | $ | 11,027 |   |
|                                                  |       |                                                        |       |   |   |   |   |
| Effect of  exchange rate on cash and cash equivalents |       | $                                                           | (1,187     | ) | $ | 1,643 |   | $ | 456 |   |
|                                                  |       |                                                        |       |   |   |   |   |
| Cash and cash  equivalents December 31, 2004          |       | $                                                           | 6,650      |   | $ | 411 |   | $ | 7,061 |   |
|                                                  |       |                                                        |       |   |   |   |   |
| Cash and cash  equivalents June 30, 2005              |       | $                                                           | 10,191     |   | $ | 203 |   | $ | 10,394 |   |

----

(1)             Amountsfor “As Originally Reported” have been adjusted for the Company’s discontinuedoperations as described in Note 5 — *Discontinued Operations*tothe condensed consolidated financial statements.

**4.****                                     ****Recent Accounting Pronouncements**

***Sales Taxes***.  In June 2006, the Financial AccountingStandards Board (“FASB”) ratified the consensus reached on Emerging Issues TaskForce (“EITF”) Issue No. 06-03, “How Sales Taxes Collected from Customersand Remitted to Governmental Authorities Should Be Presented in the IncomeStatement (That is, Gross Versus Net Presentation).” The EITF reached aconsensus that the presentation of taxes on either a gross or net basis is anaccounting policy decision that requires disclosure. Companies reportingon a gross basis should report the amount of those taxes recognized in itsinterim and annual financial statements if significant.  EITF 06-3 is effective for the first interimor annual reporting period beginning after December 15, 2006. The adoptionof EITF 06-3 will not have a material effect on the Company’s financialstatement presentation which currently reflects sales taxes collected on a netbasis.

***Income Taxes***.  InJune 2006, the Financial Accounting Standards Board issued FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes” (“Interpretation”).  The Interpretation requires that realizationof an uncertain income tax position must be “more likely than not” (i.e.,greater than 50% likelihood of receiving a benefit) before it can be recognizedin the financial statements. Further, the Interpretation prescribes the benefitto be recorded in the financial statements as the amount most likely to berealized assuming a review by tax authorities having all relevant informationand applying current conventions. The Interpretation also clarifies thefinancial statement classification of potential tax-related penalties andinterest and sets forth new disclosures regarding unrecognized taxbenefits.  The Interpretation iseffective for the first interim or annual reporting period beginning afterDecember 15, 2006. The Company plans to adopt the Interpretation when required.The Interpretation is currently being evaluated by the Company to assess itsimpact, if any.

***Derivatives****.*  InFebruary 2006, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. 155 (“SFAS No. 155”),“Accounting for Certain Hybrid Financial Instruments” which amends SFASNo. 133, “Accounting for Derivative Instruments and Hedging Activities”and SFAS No. 140, “Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities.” SFAS No. 155 simplifies theaccounting for certain derivatives embedded in other financial instruments byallowing them to be accounted for as a whole if the holder elects to accountfor the whole instrument on a fair value basis. SFAS No. 155 alsoclarifies and amends certain other provisions of SFAS No. 133 and SFASNo. 140. SFAS No. 155 is effective for the Company for all financialinstruments acquired, issued or subject to a remeasurement event occurringafter December 31, 2006. The Company plans to adopt SFAS No. 155effective January 1, 2007 and does not expect the adoption to have amaterial impact on our financial statements.

10

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*** ***

***Stock-Based Compensation****.* The Companyadopted SFAS No. 123(R), “Share-Based Payment,” on January 1, 2006.  SFAS No. 123(R) requires all share-basedpayments to employees, including grants of employee stock options, to berecognized in the income statement based on their fair values.  The Company utilizes the modified prospectivemethod in which compensation cost is recognized beginning with the effectivedate, (a) based on the requirements of SFAS No. 123(R) for all share-basedpayments granted after the effective date and (b) based on the requirements ofSFAS No. 123 for all awards granted to employees prior to the effective date ofSFAS No. 123(R) that remain unvested on the effective date. The Companyrecorded compensation cost of $284 and $400 as selling, general andadministrative expense for the three month and six month periods ended June 30,2006.

As of June 30, 2006, 1,215,613 options to purchase shares were issuedand outstanding under the Directors Plan, the Stock Incentive Plan and otherspecific agreements.

Theestimated fair value of stock option grants is computed using theBlack-Scholes-Merton option-pricing model. Expected volatility is based onhistorical periods generally commensurate with the expected life of options andexpected life is based on historical experience. Stock option expense isrecognized in the consolidated condensed statements of operations ratably overthe vesting period based on the number of options that are expected toultimately vest. The following table presents the assumptions used in valuingoptions granted during the three months ended June 30, 2006:
| Weighted average  fair value |   | $       | 6.46   |   |
|------------------------------|--------|---------|--------|--------|
|                         |   |    |   |
| Assumptions  used:           |   |    |   |
| Expected dividend yield      |   | 0.00    | %      |
| Expected volatility          |   | 40.72   | %      |
| Risk-free interest rate      |   | 4.97    | %      |
| Expected life                |   | 6 years |   |

 

Changes in stock options during the sixmonths ended June 30, 2006, are as follows:
| ** **                                | ** ** | **Shares Under**

**Options** | ** ** | **Weighted**

**Average**

**Exercise Price** | ** ** |
|-------------------------------------------|------------|------------------------------------|------------|----------------------------------------------------|------------|
| Options  outstanding at December 31, 2005 |       | 923,266                            |       | $                                                  | 12.84      |   |
| Granted                                   |       | 341,575                            |       | $                                                  | 15.51      |   |
| Exercised                                 |       | (4,412                             | )          | $                                                  | 16.06      |   |
| Cancelled or  expired                     |       | (44,816                            | )          | $                                                  | 12.18      |   |
| Options  outstanding at June 30, 2006     |       | 1,215,613                          |       | $                                                  | 13.61      |   |
|                                      |       |                               |       |                                               |       |
| Options exercisable at  June 30, 2006     |       | 677,788                            |       | $                                                  | 12.80      |   |

 

For the three month and sixmonth periods ended June 30, 2005, in accordance with the modified prospectivetransition method, our condensed consolidated financial statements do notinclude the impact of SFAS No. 123(R). Accordingly, no compensation expenserelated to stock option awards was recognized for the three month and six monthperiods ended June 30, 2005, because all stock options granted had an exerciseprice equal to the fair market value of the underlying common stock on the dateof grant. The following table shows the effect on net loss and loss per shareas if the fair-value-based method of accounting had been applied to alloutstanding and unvested stock option awards prior to adoption of SFAS No.123(R). For purposes of this pro forma disclosure, the estimated fair value ofthe stock option award is assumed to be expensed over the award’s vestingperiods.

11

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| ** **                                                                                                  | ** ** | **Three Months**

**Ended**

**June 30, 2005** | ** ** | **Six Months**

**Ended**

**June 30, 2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **(Restated)**                                                | ** ** | **(Restated)**                                              | ** ** |
| Loss from  continuing operations                                                                            |       | $                                                             | (1,583     | )                                                           | $          | (2,881 | ) |
| Add: Stock-based  compensation costs, net of tax,included in income from continuing operations  as reported |       | —                                                        |       | —                                                      |       |
| Deduct: Total  stock-based compensation expense determined under fair value-based method for  all awards    |       | (375                                                          | )          | (632                                                        | )          |
| Pro forma loss  from continuing operations                                                                  |       | $                                                             | (1,958     | )                                                           | $          | (3,513 | ) |
|                                                                                                        |       |                                                          |       |                                                        |       |
| Basic and  diluted loss from continuing operations per share                                                |       |                                                          |       |                                                        |       |
| As reported                                                                                                 |       | $                                                             | (0.12      | )                                                           | $          | (0.22 | ) |
| Pro forma                                                                                                   |       | $                                                             | (0.15      | )                                                           | $          | (0.26 | ) |

 

At June 30, 2006, the totalcompensation cost related to non-vested awards not yet recognized wasapproximately $3,232 to be recognized through June 30, 2009 with a weightedaverage expense period of approximately 2.7 years.

**5.****                                     ****Discontinued Operations**

On December 29, 2005, the Company completedthe disposition of GenSet S.P.A. (“GenSet”). The net cash proceeds from the sale of GenSet of $4,797 were used torepay a portion of the Company’s working capital facility during the firstquarter of 2006.  In addition, the buyerassumed approximately $7,571 of debt owed to local Italian lenders.

On January 2, 2006, the Company completed thedisposition of Soldaduras Soltec Limitada (“Soltec”) and ComercializadoraMetalservice Limitada (“Metalservice”). At December 31, 2005, Soltec and Metalservice met the criteria of heldfor sale and as such the assets and liabilities of Soltec and Metalservice wereclassified as held for sale and the results of operations were presented asdiscontinued operations.  Net cashproceeds of approximately $6,420, less $1,536 held by the government of Chile,from the sale of the Soltec and Metalservice interests were used to repay aportion of the Company’s working capital facility during the first quarter of2006.  Income from operations for Soltecand Metalservice for the period January 1, 2006 through the date of the sale onJanuary 2, 2006 was not material and has not been separately presented.

On March 9, 2006, the Company completed thedisposition of Unique Welding Alloys Rustenburg (Proprietary) Ltd., d/b/aThermadyne Plant Rental South Africa (“Plant Rental”), to the former minorityshareholder.  This transaction waseffective January 1, 2006.  At December 31, 2005, the aforementionedPlant Rental operations met the criteria of held for sale and as such theassets and liabilities were classified as held for sale and the results ofoperations were presented as discontinued operations.  TheCompany realized net cash proceeds of approximately $4,031 from the transactionin the first quarter of 2006 and used $3,954 to purchase all shares held by theminority shareholder of Thermadyne South Africa (Proprietary) Ltd., d/b/aUnique Welding Alloys, and all shares held by the minority shareholder ofMaxweld & Braze (Proprietary) Ltd. The minority interest purchases were effective March 9, 2006.

On April 11, 2006, the Company completed thedisposition of Tec.Mo Srl (“TecMo”), an indirect wholly-owned subsidiary whichmanufactures generic cutting and welding torches and consumables, to Siparex,an investment fund in France and the general manager of TecMo.  Net cash proceeds from this transaction ofapproximately $7,540 were used to repay a portion of the Company’s outstandingworking capital facility.

12

----

 

The tables below sets forth certain information related to GenSet,Soltec and Metalservice, Plant Rental, and TecMo operations included indiscontinued operations for the three month and six month periods ended June30, 2005 and the six month period ended June 30, 2006:
| ** **                                      | ** ** | **Three Months Ended June 30, 2005** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                      | ** ** | **GenSet**                                                    | ** ** | **Soltec &**

**Metalservice** | ** ** | **Plant Rental** | ** ** | **TecMo** | ** ** |
| Net Sales                                       |       | $                                                             | 10,160     |   | $ | 1,878 |   | $ | 1,744 |   | $ | 2,610 |   |
| Operating  expenses                             |       | 10,645                                                        |       | 1,569 |   | 1,391 |   | 2,077 |   |
| Other expenses                                  |       | 79                                                            |       | — |   | 22 |   | 6 |   |
| Income tax  provision (benefit)                 |       | (392                                                          | )          | 50 |   | 99 |   | 199 |   |
| Net income (loss) from  discontinued operations |       | $                                                             | (172       | ) | $ | 259 |   | $ | 232 |   | $ | 328 |   |

** **
| ** **                                      | ** ** | **Six Months Ended June 30, 2005** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                      | ** ** | **GenSet**                                                  | ** ** | **Soltec &**

**Metalservice** | ** ** | **Plant Rental** | ** ** | **TecMo** | ** ** |
| Net sales                                       |       | $                                                           | 19,266     |   | $ | 3,612 |   | $ | 4,214 |   | $ | 5,050 |   |
| Operating  expenses                             |       | 19,343                                                      |       | 3,009 |   | 3,641 |   | 4,015 |   |
| Other expenses                                  |       | 170                                                         |       | — |   | 39 |   | 14 |   |
| Income tax  provision                           |       | 20                                                          |       | 103 |   | 159 |   | 420 |   |
| Net income (loss) from  discontinued operations |       | $                                                           | (267       | ) | $ | 500 |   | $ | 375 |   | $ | 601 |   |

** **
| ** **                             | ** ** | **Six Months Ended June 30, 2006** | ** ** |
|----------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                             | ** ** | **GenSet**                                                  | ** ** | **Soltec &**

**Metalservice** | ** ** | **Plant Rental** | ** ** | **TexMo** | ** ** |
| Net sale                               |       | $                                                           | —     |   | $ | — |   | — |   | $ | 2,774 |   |
| Operating  expenses                    |       | —                                                      |       | — |   | — |   | 2,135 |   |
| Other income                           |       | —                                                      |       | — |   | — |   | 2 |   |
| Impairment loss                        |       | —                                                      |       | — |   | — |   | 663 |   |
| Income tax  provision                  |       | —                                                      |       | — |   | — |   | 268 |   |
| Net loss from  discontinued operations |       | $                                                           | —     |   | $ | — |   | — |   | $ | (290 | ) |

** **

Selected balance sheet itemsfor the discontinued operations classified as held for sale as of December 31,2005 are as follows:
| ** **                              | ** ** | **December 31, 2005**         | ** ** |
|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                              | ** ** | **Soltec &**

**Metalservice** | ** ** | **Plant Rental** | ** ** | **TecMo** | ** ** |
| Cash                                    |       | $                                       | 1,206      |   | $ | 1,532 |   | $ | 385 |   |
| Accounts receivable                     |       | 2,887                                   |       | 2,862 |   | 3,379 |   |
| Inventories                             |       | 2,244                                   |       | — |   | 2,188 |   |
| Property and  equipment, net            |       | 671                                     |       | 2,122 |   | 1,188 |   |
| Goodwill and  other intangible assets   |       | 2,183                                   |       | 688 |   | 4,158 |   |
| Other assets                            |       | 282                                     |       | — |   | 348 |   |
|                                    |       | $                                       | 9,473      |   | $ | 7,204 |   | $ | 11,646 |   |
|                                    |       |                                    |       |   |   |   |   |
| Accounts payable and other  liabilities |       | $                                       | 1,441      |   | $ | 2,714 |   | $ | 3,813 |   |

 

The Company iscurrently in discussions with buyers for the potential sale of two of itsnon-core business units in South Africa. No definitive agreement is in place at this time nor has the Companycommitted to a plan to dispose of these business units.  At this time, the Company is unable todetermine if an impairment provision will be required pending a final decisionby the Company on the disposal of these business units.

13

----

 

**6.****                                     ****Inventories**

The composition ofinventories was as follows:
| ** **      | ** ** | **June 30,**

**2006** | ** ** | **December 31,**

**2005** | ** ** |
|-----------------|------------|-----------------------------|------------|---------------------------------|------------|
|            |       |                        |       |                            |       |
| Raw materials   |       | $                           | 23,402     |                            | $          | 19,524 |   |
| Work-in-process |       | 31,718                      |       | 32,788                          |       |
| Finished goods  |       | 68,229                      |       | 69,542                          |       |
|            |       | 123,349                     |       | 121,854                         |       |
| LIFO reserve    |       | (6,567                      | )          | (5,183                          | )          |
|            |       | $                           | 116,782    |                            | $          | 116,671 |   |

 

**7.****                                     ****Intangible Assets**

The composition ofintangibles was as follows:
| ** **                          | ** ** | **June 30,**

**2006** | ** ** | **December 31,**

**2005** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                |       |                        |       |                            |       |
| Goodwill                            |       | $                           | 205,542    |                            | $          | 203,643 |   |
| Patents and customer  relationships |       | 39,106                      |       | 37,984                          |       |
| Trademarks                          |       | 33,403                      |       | 33,403                          |       |
|                                |       | 278,051                     |       | 275,030                         |       |
| Accumulated  amortization           |       | (6,967                      | )          | (5,338                          | )          |
|                                |       | $                           | 271,084    |                            | $          | 269,692 |   |

 

Goodwill and trademarks aretested for impairment annually or more frequently if events occur orcircumstances change that would more likely than not reduce the fair value ofthe reporting unit below its carrying value. The impairment analysis is completed on a consolidated enterpriselevel.  Comparable market value, marketcapitalization and the present value of expected future cash flows are used toestimate fair value.  Significantjudgments and estimates about future conditions are used to estimate futurecash flows.  Unforeseen events andchanges in circumstances and market conditions including general economic andcompetitive conditions could result in significant changes in those estimates.   As discussed in Note 5 — DiscontinuedOperations to the consolidated financial statements, other adjustments havebeen made to the June 30, 2006 and December 31, 2005 carrying value of goodwillas it relates to the Company’s discontinued operations.

The changes in the carrying amount of goodwill were asfollows:
| ** **                       | ** ** | **Carrying Amount**

**of Goodwill** | ** ** |
|----------------------------------|------------|------------------------------------------------|------------|
| Balance as of December  31, 2005 |       | $                                              | 203,643    |   |
| Minority interest  purchase      |       | 1,899                                          |       |
| Balance as of June 30, 2006      |       | $                                              | 205,542    |   |

 

14

----

 

Amortization of intangibleswith identifiable lives amounted to $733 and $1,464 of expense for the threeand six month periods ended June 30, 2006 and to $807 and $1,688 of expense forthe three and six month periods ended June 30, 2005, respectively.

**8.****                                     ****Comprehensive Loss**

Comprehensive loss totaled $5,971 and $7,889 for thethree and six month periods ended June 30, 2006 and $3,411 and $7,061 for thethree and six month periods ended June 30, 2005, respectively, and wasdetermined as follows:
| ** **                    | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                    | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                    | ** ** | ** **                                          | ** ** | **(Restated)**                                    | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Net loss                      |       | $                                                   | (5,291     | )                                                 | $          | (936 | ) | $ | (6,669 | ) | $ | (1,672 | ) |
| Foreign currency  translation |       | (680                                                | )          | (2,475                                            | )          | (1,220 | ) | (5,389 | ) |
| Comprehensive loss            |       | $                                                   | (5,971     | )                                                 | $          | (3,411 | ) | $ | (7,889 | ) | $ | (7,061 | ) |

 

**9.****                                     ****Debt and Capital LeaseObligations**

The composition of debt and capital leaseobligations was as follows:
| ** **                                                                                                         | ** ** | **June 30,**

**2006** | ** ** | **December 31,**

**2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Working Capital  Facility                                                                                          |       | $                           | 28,747     |                            | $          | 31,796 |   |
| Second-Lien Facility                                                                                               |       | 30,000                      |       | 30,000                          |       |
| Term Loan                                                                                                          |       | 6,938                       |       | 7,598                           |       |
| Senior Subordinated  Notes, due February 1, 2014, 9 1/4% interest payable semiannually on February  1 and August 1 |       | 175,000                     |       | 175,000                         |       |
| Capital leases                                                                                                     |       | 14,760                      |       | 15,495                          |       |
|                                                                                                               |       | 255,445                     |       | 259,889                         |       |
| Current maturities and  working capital facility                                                                   |       | (40,275                     | )          | (43,678                         | )          |
|                                                                                                               |       | $                           | 215,170    |                            | $          | 216,211 |   |

 

***Credit Agreement***

TheCompany and its U.S. subsidiaries are borrowers under a Second Amended andRestated Credit Agreement, as amended (the “Credit Agreement”). The CreditAgreement consists of a $9,250 term loan which was repaid in July 2006 (the “TermLoan”) and a $70,000 revolving loan commitment (the “Revolver”).  Up to $25,000 of the Revolver is availablefor letters of credit and $14,152 of letters of credit were outstanding as ofJune 30, 2006. Borrowing under the Revolver may not exceed 85% of eligiblereceivables plus the lesser of (i) 85% of the net orderly liquidation value ofeligible inventories or (ii) 65% of the book value of inventories lesscustomary reserves.  Unused availabilitywas $25,364 as of June 30, 2006.  TheRevolver terminates on November 22, 2009.

Borrowingsunder the Term Loan and the Revolver accrue interest, at the Company’s option,at LIBOR (5.64% as of June 30, 2006) plus 2.25% or the prime rate (8.25% as ofJune 30, 2006) plus 0.5% on the Revolver, and LIBOR plus 2.50% or the primerate plus 0.75% on the Term Loan.  All ofthese percentages are subject to an interest rate grid and will decline if certainconditions are met.  Unused portions ofthe Revolver are charged 50 basis points as of June 30, 2006.  The Credit Agreement is secured bysubstantially all of the assets of the Company’s subsidiaries in the U.S.,Canada, the United Kingdom, and Australia, together with a pledge of the capitalstock of substantially all of the Company’s subsidiaries, subject to certainlimitations with respect to non-U.S. subsidiaries.  The Credit Agreement contains financialcovenants for maintenance of minimum fixed charge and maximum leverage ratiosrelative to (“EBITDA”), as defined by the Credit Agreement.

15

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The Revolver is referred to as the Working CapitalFacility and includes a lockbox agreement which requires all receipts to beswept daily to reduce borrowings outstanding under the revolving line ofcredit.  These agreements, combined withthe existence of a subjective Material Adverse Effect (“MAE”) clause, cause theWorking Capital Facility and Term Loan to be classified as a currentliability.  However, the Company does notexpect to repay, or be required to repay, within one year, the balance of theWorking Capital Facility classified as a current liability. The Company’sintent is to continually use the Working Capital Facility throughout the lifeof the agreement to fund working capital needs.  The MAE clause, which is a typical requirementin commercial credit agreements, allows the lender to require the loan tobecome due if it determines there has been a material adverse effect on theCompany’s operations, business, assets or prospects. In March 2005, we enteredinto amendments which modified a financial covenant and enabled us to extendour Second-Lien Facility.  In July 2005,August 2005, October 2005 and November 2005, the Credit Agreement was amendedto modify certain financial and non-financial covenants. On December 29, 2005,the Company further amended the Credit Agreement to permit the sale of thestock of GenSet and Soltec, and to decrease the revolving loan commitment to$70,000.  The amendment furtherstipulated that the net proceeds of each of the GenSet sale and Soltec sale beapplied to the principal balance of the Revolver. Both the GenSet and theSoltec sales have been completed and the net proceeds applied to the Revolverin the first quarter of 2006.  See Note 5of the Notes to the Condensed Consolidated Financial Statements.  In May 2006, the Credit Agreement was amendedto (i) delete the minimum EBITDA covenant from the agreement, (ii) modify theminimum fixed charge coverage ratio and (iii) modify the maximum leverage ratiocovenants. In July 2006, the Credit Agreement was further amended to (i) modifythe maximum leverage ratio to 5.75 through June 30, 2007, with a .25 pointreduction per quarter thereafter until the coverage ratio reaches 4.00, and(ii) modify the minimum fixed charge ratio to 1.0 through June 30, 2007, 1.10at September 30, 2007 and thereafter and (iii) establish a minimum availabilityrequirement of $5 million. In October 2006, the Company amended its CreditAgreement to modify the maximum leverage ratio to 5.95 for the third quarter of2006.

***Second-LienFacility***

The Company and its U.S. subsidiaries became borrowersunder a $20,000 Second-Lien Term Loan facility (the “Second-Lien Facility”)which was entered into on July 29, 2004. The Second-Lien Facility is secured by a second lien on substantiallyall of the assets of the Company.  TheSecond-Lien Facility accrues interest at the Company’s option, at LIBOR (5.64%as of June 30, 2006) plus 4.50%, or an alternative base rate of the greater of(a) the Prime Rate or (b) the federal funds rate plus one half of 1.00% plus3.50%.  The Second-Lien Facility, whichmatures on November 7, 2008, restricts the amount of long-term debt the Companymay incur and has other customary provisions including financial and non-financialcovenants.  On November 5, 2005, theSecond-Lien Facility was amended to increase the borrowings to $30,000.  Proceeds were used to repay a portion of theRevolver. In March 2005, August 2005, October 2005, and in June 2006, theSecond-Lien Facility was amended to modify certain financial and non-financialcovenants.  On July 21, 2006, the Companyamended the Second-Lien Facility to (i) remove the financial covenantcompliance until the third quarter of 2007, (ii) extend the pre-payment penaltydate to October 31, 2007, and (iii) increase the amount of borrowings from $30,000to $50,000.  The proceeds were used torepay the Term Loan in full, with the balance of the proceeds being used to paya portion of the Revolver.

***Covenant Compliance***

The Company expects to remain in compliance with thefinancial covenants by achieving its financial plan, which includes realizingsales of new products to be introduced, price increases for existing products,and successfully implementing certain cost reduction initiatives including itsglobal continuous improvement program referred to as TCP and its program forforeign sourcing of manufacturing.  TheCompany also is actively exploring the sale of one additional non-core businessunit which would also generate additional liquidity.  If the Company is not successful in achievingits financial plan, the Company may not be in compliance with the financialcovenants and would seek an amendment to the Credit Agreement and theSecond-Lien Facility.  There can be noassurance that the Company could obtain such amendments, failure to obtain anamendment would result in a default under the Credit Agreement and the Second-LienFacility which could result in a material adverse impact on the Company’sfinancial condition.

16

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***Senior SubordinatedNotes***

The Company is the issuer of $175,000 in aggregateprincipal of 91⁄4% Senior Subordinated Notes due in 2014, of which more than 99%were exchanged for registered notes (the “Senior Subordinated Notes”).  The Senior Subordinated Notes are unsecuredsenior subordinated obligations and are subordinated in right of payment to allexisting and future Senior Indebtedness (as defined in the indenture).  Interest accrues at the rate of 91⁄4% per annumand is payable semi-annually in arrears on February 1 and August 1 of eachyear. In an amendment dated May 9, 2006, the Company is now required, subjectto certain conditions in the Credit Agreement and Second Lien Facility, to usethe amount of “Excess Cash Flow,” as defined in the indenture, to eitherpermanently repay senior debt within 105 days after year end or purchase theSenior Subordinated Notes through an offer of 101% of the principal amountthereof.

In July 2006, the Company obtained consent to amendthe indenture governing Notes and waiving existing defaults under thatindenture related to the late filing of the Company’s 2005 Form 10-K and firstquarter 2006 Form 10-Q with the Securities and Exchange Commission.  The amendments extended the time for filingthese reports to August 21, 2006 and would also allow the Company to elect toextend the time within which the Company must file its second quarter 2006 Form10-Q to no later than December 17, 2006, for additional fees that couldaggregate to $2.2 million.  The indenturewas amended to provide for the payment of additional Special Interest on theNotes, initially at a rate of 1.25% per annum. The Special Interest is subject to adjustment increasing to 1.75% if theconsolidated leverage ratio exceeds 6.00 with incremental interest increases toa maximum of 2.75% if the consolidated leverage ratio increases to 7.0.  The Special Interest declines to .75% if theconsolidated leverage ratio declines below 4.0 and declines incrementally to 0%if leverage is less than 3.0 with the payment of contingent cash consent feesto consenting holders of the Notes.

TheNotes are redeemable at the Company’s option during the 12 month periodsbeginning on February 1, 2009 at 104.625%, February 1, 2010 at 103.083%,February 1, 2011 at 101.542%, and after February 1, 2012 at 100% of theprincipal amount thereof.

***Parent Company Financial Information***

Borrowingsunder the Company’s Credit Agreement are the obligations of ThermadyneIndustries, Inc. (“Industries”), the Company’s principal operating subsidiary,certain of Industries’ other domestic subsidiaries and the Company’s foreignsubsidiaries in Australia, the United Kingdom and Canada.  The Credit Agreement contains restrictionsthat limit Industries’ ability to dividend cash and other assets to its parentcompany, Thermadyne Holdings Corporation. At June 30, 2006 and December 31, 2005, the only asset carried on theparent-company books of Thermadyne Holdings Corporation was its investment inIndustries and the only liabilities were the $175,000 of Senior SubordinatedNotes.  As a result of the limited assetsand liabilities recorded at the parent company level, separate financialstatements have not been presented for Thermadyne Holdings Corporation.

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

In February 2004, the Company entered into an interestrate swap arrangement to convert a portion of the fixed rate exposure on itsSenior Subordinated Notes to variable rates. Under the terms of the interest rate swap contract, which has a notionalamount of $50,000, the Company receives interest at a fixed rate of 91⁄4% andpays interest at a variable rate equal to LIBOR (5.64% as of June 30, 2006), plus a spread of 442 basispoints.  The six-month LIBOR rate on eachsemi-annual reset date determines the variable portion of the interest rateswap.  The six-month LIBOR, rate for each semi-annual reset date isdetermined in arrears.

The Company has designated the interest rate swap as afair value hedge of its fixed rate debt. The terms of the interest rate swap contract and hedged item meet thecriteria to be measured using the short-cut method defined in SFAS No. 133and therefore perfect effectiveness is assumed over the term of the swap.

In accordance with SFAS No. 133, as of June 30,2006, the Company recorded a fair value adjustment to the portion of its fixedrate long-term debt that is hedged.  Afair value adjustment of $923 and $2,021 was recorded for the three month and sixmonth periods ended June 30, 2006, respectively, as a decrease to long-termobligations, with the related value for the interest rate swap’s non-currentportion recorded in other long-term liabilities.  At June 30, 2006 the fair value of theinterest rate swap of $3,438 has been recorded as a component of otherlong-term liabilities.  Interest ratedifferentials associated with the interest rate swap are recorded as anadjustment to a current asset or liability, with the offset to interest expenseover the life of the interest rate swap. For the three months and six months ended June 30, 2006, the Companyrealized an increase in its interest expense as a result of the interest rateswap of $149 and $192, respectively. For the three months and six months endedJune 30, 2005, the Company realized a reduction in its interest expense as aresult of the interest rate swap of $113 and $254, respectively.

17

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**11.****                              ****Warrants**

Inconnection with the Company’s emergence from Chapter 11 bankruptcy protectionon May 23, 2003, three classes of warrants were issued that allowed the holdersto purchase the Company’s common stock in the future at stated exercise prices.The key financial elements of the warrants are as follows:
| ** **       | ** ** | **Warrants**

**Issued**

**to Purchase**

**Common**

**Stock** | ** ** | **Exercise**

**Price**

**Per Share** | ** ** | **Expiration**

**Date** | ** **   | **Warrants**

**Issued and**

**Outstanding**

**as of**

**June 30,**

**2006** | ** ** |
|------------------|------------|-----------------------------------------------------------------------|------------|---------------------------------------------|------------|--------------------------|--------------|-------------------------------------------------------------------------------------------------|------------|
| Class A Warrants |       | 1,157,000                                                             |       | $                                           | 13.85      |                     | May 23, 2004 |                                                                                            | —     |   |
| Class B Warrants |       | 700,000                                                               |       | $                                           | 20.78      |                     | May 23, 2006 |                                                                                            | —     |   |
| Class C Warrants |       | 271,429                                                               |       | $                                           | 27.70      |                     | May 23, 2006 |                                                                                            | —     |   |

 

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.

Therewere no warrants exercised during the three-month and six-month periods endedJune 30, 2006 and June 30, 2005.  AllClass B and Class C warrants expired on May 23, 2006.

**12.          Income Taxes**

The Company accounts for income taxes in accordancewith SFAS No. 109, “*Accounting forIncome Taxes*” which requires that deferred tax assets andliabilities be recognized using enacted tax rates for the effect of temporarydifferences between the financial reporting and tax bases of recorded assetsand liabilities. SFAS No. 109 also requires that deferred tax assets bereduced by a valuation allowance if it is more likely than not that someportion of or all of the deferred tax asset will not be realized.

The Company’s 2006 incometax expense provision reflects the offsetting effects of income tax expensesincurred by its foreign subsidiaries. For the three-months and six-months endedJune 30, 2006, the tax benefits of losses incurred in the U.S. are fullyreserved with a valuation allowance due to the uncertainties of future taxableincome consistent with management’s estimate at December 31, 2005.For the three-months and six-months ended June 30, 2005, the Company recorded atax benefit related to its losses incurred. The recording of this benefit was based on internal estimates ofprofitability for the year ended December 31, 2005, and accordingly, valuationallowances were not deemed necessary at that time.

18

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In June 2006, the FinancialAccounting Standards Board issued FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes” (“Interpretation”).  This Interpretation prescribes the taxbenefit to be recorded in the financial statements as the amount most likely tobe realized assuming a review by tax authorities having all relevantinformation and applying current conventions. The Interpretation also clarifiesthe financial statement classification of potential tax-related penalties andinterest and sets forth new disclosures regarding unrecognized taxbenefits.  The Interpretation iseffective for the first interim or annual reporting period beginning afterDecember 15, 2006.  The Company plans toadopt the Interpretation when required. The Interpretation is currently beingevaluated by the Company to assess its impact, if any.

**13.          Employee Benefit Plans**

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

***Pension Plans.*****The Company’s subsidiaries have had variousnoncontributory defined benefit pension plans which covered substantially allU.S. employees. The Company froze and combined three noncontributory definedbenefit pension plans through amendments to such plans effective December 31,1989 into one plan (the “Retirement Plan”). All former participants of theseplans became eligible to participate in the 401(k) Retirement Plan effectiveJanuary 1, 1990.

The Company’s Australian subsidiary has a Superannuation Fund (the “Fund”)established by a Trust Deed. Pension benefits are actuarially determined andare funded through mandatory participant contributions and the Company’sactuarially determined contributions. The prepaid benefit cost is not included in the table below or in thebalance sheet, as the Company has no legal right to amounts included in thisfund. In addition, upon dissolution of the Fund, any excess funds are requiredto be allocated to the participants as determined by the actuary. Accordingly,the Company accounts for this fund as a defined contribution plan. Theactuarial assumptions used to determine the Company’s contribution, the fundedstatus, and the retirement benefits are consistent with previous years.

***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 funds the cost ofhealth care and life insurance benefits in the year incurred.

Net periodic pension andother postretirement benefit costs include the following components:
| ** **                                    | ** ** | **Pension Benefits**                           | ** ** | **Other Postretirement Benefits**         | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **Three Months Ended June 30,** | ** ** | **Three Months Ended June 30,** | ** ** |
| ** **                                    | ** ** | **2006**                                            | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Components of the net  periodic benefit cost: |       |                                                |       |                                                |       |   |   |   |   |
| Service Cost                                  |       | —                                              |       | $                                                   | —     |   | $ | 289 |   | $ | 308 |   |
| Interest Cost                                 |       | 286                                                 |       | 570                                                 |       | 260 |   | 400 |   |
| Expected return on plan  assets               |       | (286                                                | )          | (604                                                | )          | — |   | — |   |
| Recognized (gain) loss                        |       | —                                              |       | —                                              |       | (21 | ) | 11 |   |
| Net periodic benefit  cost                    |       | $                                                   | —     |                                                | $          | (34 | ) | $ | 528 |   | $ | 719 |   |
|                                               |            |                                                     |            |                                                     |            |  |  |  |  |  |  |  |  |

 

19

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| ** **                                    | ** ** | **Pension Benefits**                         | ** ** | **Other Postretirement Benefits**       | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                    | ** ** | **Six Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **                                    | ** ** | **2006**                                          | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Components of the net  periodic benefit cost: |       |                                              |       |                                              |       |   |   |   |   |
| Service Cost                                  |       | —                                            |       | $                                                 | —     |   | $ | 578 |   | $ | 616 |   |
| Interest Cost                                 |       | 572                                               |       | 855                                               |       | 520 |   | 696 |   |
| Expected return on plan  assets               |       | (572                                              | )          | (889                                              | )          | — |   | — |   |
| Recognized (gain) loss                        |       | —                                            |       | —                                            |       | (42 | ) | 22 |   |
| Net periodic benefit  cost                    |       | $                                                 | —     |                                              | $          | (34 | ) | $ | 1,056 |   | $ | 1,334 |   |
|                                               |            |                                                   |            |                                                   |            |  |  |  |  |  |  |  |  |

 

***StockPurchase Plan***.  In 2005, the Company adopted an employee stockpurchase plan that allows any eligible employee to purchase from the Companyshares of the Company’s common stock at the end of each quarter at a discountedprice, based on the then-current market price of the Company’s commonstock.  Effective January 1, 2006,eligible employees could purchase the Company’s common stock through the planat a purchase price equal to 95% of the market price at the end of thequarter.  Employees were precluded frompurchasing shares due to the delays in filing financial statements with theSecurities and Exchange Commission and, therefore, no shares were purchasedunder this plan during the quarter ended June 30, 2006.

**14.          Segment Information**

The Company’s continuing operations are comprised ofseveral product lines and operating locations. The similarity of products, paths to market, end users, and productionprocesses results in performance evaluation and decisions regarding allocationof resources being made on a combined basis. Accordingly, management has concluded the Company operates in onesegment. Reportable geographic regions are North America, Europe andAustralia/Asia.

Summarizedfinancial information concerning the Company’s geographic regions for itscontinuing operations is shown in the following table:
| ** **              | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **              | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **              | ** ** | ** **                                          | ** ** | **(Restated)**                                    | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Net Sales               |       |                                                |       |                                              |       |   |   |   |   |
| North America           |       | $                                                   | 79,275     |                                              | $          | 74,475 |   | $ | 160,578 |   | $ | 146,247 |   |
| Europe                  |       | 7,277                                               |       | 6,572                                             |       | 14,537 |   | 13,266 |   |
| Australia / Asia        |       | 20,798                                              |       | 20,317                                            |       | 38,307 |   | 37,104 |   |
| All other international |       | 20,165                                              |       | 17,408                                            |       | 36,952 |   | 32,539 |   |
|                    |       | $                                                   | 127,515    |                                              | $          | 118,772 |   | $ | 250,374 |   | $ | 229,156 |   |

 
| ** **              | ** ** | **June 30,**

**2006** | ** ** | **December 31,**

**2005** | ** ** |
|-------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Identifiable Assets     |       |                        |       |                            |       |
| North America           |       | $                           | 37,539     |                            | $          | 37,190 |   |
| United States           |       | 1,437                       |       | 1,347                           |       |
| Europe                  |       | 8,375                       |       | 8,714                           |       |
| Australia / Asia        |       | 10,947                      |       | 16,074                          |       |
| All other international |       | $                           | 58,298     |                            | $          | 63,325 |   |

 

20

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***Product Line Information***

The Company manufactures avariety of products, substantially all of which are used in the cutting,welding or fabrication of metal. End users of the Company’s products areengaged in various applications including construction, automobilemanufacturing, repair and maintenance and shipbuilding. The following tableshows sales from continuing operations for each of the Company’s key productlines:
| ** **                                           | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                           | ** ** | ** **                                          | ** ** | **(Restated)**                                    | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Gas equipment                                        |       | $                                                   | 50,560     |                                              | $          | 45,569 |   | $ | 99,044 |   | $ | 88,034 |   |
| Welding equipment                                    |       | 14,524                                              |       | 14,864                                            |       | 27,792 |   | 27,148 |   |
| Arc accessories                                      |       | 35,747                                              |       | 34,041                                            |       | 69,557 |   | 64,458 |   |
| Plasma power supplies, torches  and consumable parts |       | 17,174                                              |       | 16,352                                            |       | 34,461 |   | 32,406 |   |
| Filler metal                                         |       | 9,510                                               |       | 7,946                                             |       | 19,520 |   | 17,110 |   |
|                                                 |       | $                                                   | 127,515    |                                              | $          | 118,772 |   | $ | 250,374 |   | $ | 229,156 |   |

 

**15.          Minority Interests**

Minority shareholdersheld 10% of certain of the Company’s South African and Italiansubsidiaries.   During the first quarterof 2006, the Company purchased the 10% minority interests in its two SouthAfrican subsidiaries for approximately $3,954. Goodwill of $1,899 was recorded in connection with applying purchaseaccounting to this transaction.

The shareholderagreements for a certain Italian subsidiary includes provisions that allow theminority shareholder to put its ownership in the entity back to the Company or,conversely, provide the Company a call option to purchase the outstandingminority interest.  The exercise periodfor the put and call options associated with the minority interest in theItalian subsidiary expires on December 31, 2010.  The purchase price of the option isdetermined based on a specific formula outlined in the shareholderagreement.  As of June 30, 2006, themaximum payment to satisfy the put option is $691 based on the formula in theagreement.

**16.          Contingencies**

The Company andcertain of its wholly owned subsidiaries are defendants in various legalactions, primarily related to product liability.  While there is uncertainty relating to anylitigation, management is of the opinion that the outcome of such litigationwill not have a material adverse effect on the Company’s financial condition orresults of operations. At June 30, 2006 the Company was a co-defendant in 1,186cases alleging manganese induced illness. Manganese is an essential element ofsteel and contained in all welding filler metals. The Company is one of a largenumber of defendants. The claimants allege that exposure to manganesecontained in the welding filler metals caused the plaintiffs to develop adverseneurological conditions, including a condition known as manganism. As of June30, 2006, 811 of these cases were pending in federal court where the JudicialPanel on Multidistrict Litigation has consolidated these cases for pretrialproceedings in the Northern District of Ohio. Between June 1, 2003 and June 30, 2006, the Company was dismissed fromapproximately 315 other cases with similar allegations.  Through June 30, 2006, the Company has madeno payments or settlements to plaintiffs for these allegations.

The Company isparty to certain environmental matters, although no claims are currentlypending.  Any related obligations are notexpected to have a material effect on the Company’s business or financialcondition or results of operations.

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All other legalproceedings and actions involving the Company are of an ordinary and routinenature and are incidental to the operations of the Company.  Management believes that such proceedingsshould not, individually or in the aggregate, have a material adverse effect onthe Company’s business or financial condition or on the results of operations.

The Company iscurrently in discussions with buyers for the potential sale of two of itsnon-core business units in South Africa. No definitive agreement is in place at this time nor has the Company committedto a plan to dispose of these business units. At this time, the Company is unable to determine if an impairmentprovision will be required pending a final decision by the Company on thedisposal of these business units.

**17.          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.

In connection with the Amended Credit Agreement, the Company’s foreign subsidiaries in Australia, the United Kingdom and Canada also guaranteed the Company’s $175,000 91⁄4 % Senior Subordinated Notes.

The following condensedconsolidating financial information includes the accounts of the Company, whichhas no independent assets or operations, the combined accounts of the GuarantorSubsidiaries and the combined accounts of the non-guarantor subsidiaries forthe periods indicated. Separate financial statements of each of the GuarantorSubsidiaries are not presented because management has determined suchinformation is not material in assessing the financial condition, cash flows orresults of operations of the Company and its subsidiaries.  This information was prepared on the samebasis as the consolidated financial statements:

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**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING BALANCE SHEET**

**JUNE 30, 2006**
| ** **                                                 | ** ** | **Parent**

**Thermadyne**

**Holdings**

**Corporation** | ** ** | **Guarantors** | ** ** | **Non-**

**Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|----------------|------------|--------------------------|------------|------------------|------------|------------------|------------|
| **ASSETS**                                                 | ** ** | ** **                                                | ** ** | ** **     | ** ** | ** **               | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current Assets:                                            |       |                                                      |       |           |       |                     |       |             |       |             |       |
| Cash and cash  equivalents                                 |       | $                                                         | —     |           | $          | 1,513                    |       | $                | 8,128      |             | $          | — |   | $ | 9,641 |   |
| Accounts  receivable, net                                  |       | —                                                    |       | 73,905         |       | 12,651                   |       | —           |       | 86,556           |       |
| Inventories                                                |       | —                                                    |       | 97,422         |       | 19,360                   |       | —           |       | 116,782          |       |
| Prepaid expenses  and other                                |       | —                                                    |       | 4,711          |       | 1,063                    |       | —           |       | 5,774            |       |
| Assets held for  sale                                      |       | —                                                    |       | —         |       | —                   |       | —           |       | —           |       |
| Current deferred  tax assets                               |       | —                                                    |       | 1,861          |       | —                   |       | —           |       | 1,861            |       |
| Total current  assets                                      |       | —                                                    |       | 179,412        |       | 41,202                   |       | —           |       | 220,614          |       |
| Property, plant  and equipment, net                        |       | —                                                    |       | 36,462         |       | 14,950                   |       | —           |       | 51,412           |       |
| Goodwill                                                   |       | —                                                    |       | 205,542        |       | —                   |       | —           |       | 205,542          |       |
| Intangibles, net                                           |       | —                                                    |       | 58,613         |       | 6,929                    |       | —           |       | 65,542           |       |
| Other assets                                               |       | 3,799                                                     |       | 2,748          |       | 339                      |       | —           |       | 6,886            |       |
| Investment in  and advances to subsidiaries                |       | 176,564                                                   |       | —         |       | —                   |       | (176,564         | )          | —           |       |
| Total assets                                               |       | $                                                         | 180,363    |           | $          | 482,777                  |       | $                | 63,420     |             | $          | (176,564 | ) | $ | 549,996 |   |
|                                                       |       |                                                      |       |           |       |                     |       |             |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY (DEFICIT)**   |       |                                                      |       |           |       |                     |       |             |       |             |       |
| Current Liabilities:                                       |       |                                                      |       |           |       |                     |       |             |       |             |       |
| Accounts payable                                           |       | $                                                         | —     |           | $          | 30,215                   |       | $                | 6,157      |             | $          | — |   | $ | 36,372 |   |
| Accrued and  other liabilities                             |       | 55                                                        |       | 27,231         |       | 4,420                    |       | —           |       | 31,706           |       |
| Accrued interest                                           |       | 6,905                                                     |       | 615            |       | 15                       |       | —           |       | 7,535            |       |
| Income taxes  payable                                      |       | —                                                    |       | 2,359          |       | 24                       |       | —           |       | 2,383            |       |
| Liabilities  applicable to assets held for sale            |       | —                                                    |       | —         |       | —                   |       |             |       |             |       |
| Working capital  and second-lien facility                  |       | —                                                    |       | 28,747         |       | —                   |       | —           |       | 28,747           |       |
| Current  maturities of long-term obligations               |       | —                                                    |       | 9,851          |       | 1,677                    |       | —           |       | 11,528           |       |
| Total current  liabilities                                 |       | 6,960                                                     |       | 99,018         |       | 12,293                   |       | —           |       | 118,271          |       |
| Long-term  obligations, less current maturities            |       | 175,000                                                   |       | 38,483         |       | 1,687                    |       | —           |       | 215,170          |       |
| Deferred tax  liabilities                                  |       | —                                                    |       | 55,013         |       | (144                     | )          | —           |       | 54,869           |       |
| Other long-term  liabilities                               |       |                                                      |       | 44,658         |       | 136                      |       | —           |       | 44,794           |       |
| Minority  Interest                                         |       | —                                                    |       | —         |       | 331                      |       | —           |       | 331              |       |
| Shareholders’  equity (deficit):                      |       |                                                      |       |           |       |                     |       |             |       |             |       |
| Common stock                                               |       | 133                                                       |       | —         |       | —                   |       | —           |       | 133              |       |
| Additional  paid-in-capital                                |       | 184,038                                                   |       | —         |       | —                   |       | —           |       | 184,038          |       |
| Retained  earnings (accumulated deficit)                   |       | (72,240                                                   | )          | 11,237         |       | (35,528                  | )          | 24,291           |       | (72,240          | )          |
| Accumulated  other comprehensive income (loss)             |       | 4,630                                                     |       | (45,095        | )          | 5,728                    |       | 39,367           |       | 4,630            |       |
| Total  shareholders’ equity (deficit)                 |       | 116,561                                                   |       | (33,858        | )          | (29,800                  | )          | 63,658           |       | 116,561          |       |
| Net equity and  advances to / from subsidiaries            |       | (118,158                                                  | )          | 279,463        |       | 78,917                   |       | (240,222         | )          | —           |       |
|                                                       |       |                                                      |       |           |       |                     |       |             |       |             |       |
| Total liabilities and  shareholders’ equity (deficit) |       | $                                                         | 180,363    |           | $          | 482,777                  |       | $                | 63,420     |             | $          | (176,564 | ) | $ | 549,996 |   |

 

23

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING BALANCE SHEET**

**DECEMBER 31, 2005**
| ** **                                                 | ** ** | **Parent  Thermadyne  Holdings  Corporation** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------|------------|
| **ASSETS**                                                 | ** ** | ** **                                    | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current Assets:                                            |       |                                          |       |           |       |                 |       |             |       |             |       |
| Cash and cash equivalents                                  |       | $                                             | —     |           | $          | 6,591                |       | $                | 5,848      |             | $          | — |   | $ | 12,439 |   |
| Accounts receivable, net                                   |       | —                                        |       | 64,123         |       | 12,326               |       | —           |       | 76,449           |       |
| Inventories                                                |       | —                                        |       | 95,003         |       | 21,668               |       | —           |       | 116,671          |       |
| Prepaid expenses and other                                 |       | —                                        |       | 6,533          |       | 1,175                |       | —           |       | 7,708            |       |
| Assets held for sale                                       |       | —                                        |       | —         |       | 28,323               |       | —           |       | 28,323           |       |
| Current deferred tax assets                                |       | —                                        |       | 1,861          |       | —               |       | —           |       | 1,861            |       |
| Total current assets                                       |       | —                                        |       | 174,111        |       | 69,340               |       | —           |       | 243,451          |       |
| Property, plant  and equipment, net                        |       | —                                        |       | 40,267         |       | 15,175               |       | —           |       | 55,442           |       |
| Goodwill                                                   |       | —                                        |       | 203,643        |       | —               |       | —           |       | 203,643          |       |
| Intangibles, net                                           |       | —                                        |       | 58,543         |       | 7,506                |       | —           |       | 66,049           |       |
| Other assets                                               |       | 4,050                                         |       | 2,928          |       | 905                  |       | —           |       | 7,883            |       |
| Investment in  and advances to subsidiaries                |       | 174,021                                       |       | —         |       | —               |       | (174,021         | )          | —           |       |
| Total assets                                               |       | $                                             | 178,071    |           | $          | 479,492              |       | $                | 92,926     |             | $          | (174,021 | ) | $ | 576,468 |   |
|                                                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**   | ** ** | ** **                                    | ** ** | ** **     | ** ** | ** **           | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current  Liabilities:                                      |       |                                          |       |           |       |                 |       |             |       |             |       |
| Accounts payable                                           |       | $                                             | —     |           | $          | 33,590               |       | $                | 8,150      |             | $          | — |   | $ | 41,740 |   |
| Accrued and other liabilities                              |       | —                                        |       | 28,653         |       | 4,214                |       | —           |       | 32,867           |       |
| Accrued interest                                           |       | 6,760                                         |       | 557            |       | —               |       | —           |       | 7,317            |       |
| Income taxes payable                                       |       | —                                        |       | 2,321          |       | 178                  |       | —           |       | 2,499            |       |
| Liabilities applicable to assets held for sale             |       | —                                        |       | —         |       | 7,968                |       | —           |       | 7,968            |       |
| Working capital facility                                   |       | —                                        |       | 31,796         |       | —               |       | —           |       | 31,796           |       |
| Current maturities of long-term obligations                |       | —                                        |       | 10,770         |       | 1,113                |       | —           |       | 11,883           |       |
| Total current liabilities                                  |       | 6,760                                         |       | 107,687        |       | 21,623               |       | —           |       | 136,070          |       |
| Long-term  obligations, less current maturities            |       | 175,000                                       |       | 40,623         |       | 588                  |       | —           |       | 216,211          |       |
| Deferred tax  liabilities                                  |       | —                                        |       | 56,172         |       | (144                 | )          | —           |       | 56,028           |       |
| Other long-term  liabilities                               |       |                                          |       | 40,514         |       | 1,478                |       | —           |       | 41,992           |       |
| Minority  Interest                                         |       | —                                        |       | 1,912          |       | 302                  |       | —           |       | 2,214            |       |
| Shareholders’  equity (deficit):                      |       |                                          |       |           |       |                 |       |             |       |             |       |
| Common stock                                               |       | 133                                           |       | —         |       | —               |       | —           |       | 133              |       |
| Additional paid-in-capital                                 |       | 183,541                                       |       | —         |       | —               |       | —           |       | 183,541          |       |
| Retained earnings (accumulated deficit)                    |       | (65,571                                       | )          | 5,460          |       | (32,759              | )          | 27,299           |       | (65,571          | )          |
| Accumulated other comprehensive income (loss)              |       | 5,850                                         |       | (54,344        | )          | 19,257               |       | 35,087           |       | 5,850            |       |
| Total shareholders’ equity (deficit)                  |       | 123,953                                       |       | (48,884        | )          | (13,502              | )          | 62,386           |       | 123,953          |       |
| Net equity and  advances to / from subsidiaries            |       | (127,642                                      | )          | $              | 281,468    |                 | 82,581     |             | (236,407   | )                | —     |   |
|                                                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| Total  liabilities and shareholders’ equity (deficit) |       | $                                             | 178,071    |           | $          | 479,492              |       | $                | 92,926     |             | $          | (174,021 | ) | $ | 576,468 |   |

 

24

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**THREE MONTHS ENDED JUNE 30, 2006**
| ** **                                                                                         | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                         | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                                                          |       | $               | —     |           | $          | 127,882        |       | $                | 20,939     |             | $          | (21,306 | ) | $ | 127,515 |   |
| Cost of goods  sold                                                                                |       | —          |       | 94,191         |       | 18,726         |       | (21,185          | )          | 91,732           |       |
| Gross margin                                                                                       |       | —          |       | 33,691         |       | 2,213          |       | (121             | )          | 35,783           |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Selling, general  and administrative expenses                                                      |       | 667             |       | 25,993         |       | 5,028          |       | —           |       | 31,688           |       |
| Amortization of  intangibles                                                                       |       | —          |       | 724            |       | 9              |       | —           |       | 733              |       |
| Net periodic postretirement  benefits                                                              |       | —          |       | 528            |       | —         |       | —           |       | 528              |       |
| Operating income (loss)                                                                            |       | (667            | )          | 6,446          |       | (2,824         | )          | (121             | )          | 2,834            |       |
| Other income  (expense):                                                                           |       |            |       |           |       |           |       |             |       |             |       |
| Interest, net                                                                                      |       | (4,195          | )          | (2,104         | )          | (228           | )          | —           |       | (6,527           | )          |
| Amortization of deferred financing costs                                                           |       | (127            | )          | (205           | )          | —         |       | —           |       | (332             | )          |
| Equity in net income (loss) of subsidiaries                                                        |       | (302            | )          | —         |       | —         |       | 302              |       | —           |       |
| Minority interest                                                                                  |       | —          |       | (14            | )          | —         |       | —           |       | (14              | )          |
| Income (loss)  from continuing operations before income tax provision and discontinued  operations |       | (5,291          | )          | 4,123          |       | (3,052         | )          | 181              |       | (4,039           | )          |
| Income tax  provision                                                                              |       | —          |       | 1,252          |       | —         |       | —           |       | 1,252            |       |
| Income (loss)  from continuing operations                                                          |       | (5,291          | )          | 2,871          |       | (3,052         | )          | 181              |       | (5,291           | )          |
| Discontinued  Operations:                                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Loss on  disposition of discontinued operations, net of tax                                        |       | —          |       | —         |       | —         |       | —           |       | —           |       |
| Net income  (loss) applicable to common shares                                                     |       | $               | (5,291     | )              | $          | 2,871          |       | $                | (3,052     | )                | $          | 181 |   | $ | (5,291 | ) |

 

25

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**SIX MONTHS ENDED JUNE 30, 2006**
| ** **                                                                                         | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                         | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                                                          |       | $               | —     |           | $          | 253,804        |       | $                | 41,280     |             | $          | (44,710 | ) | $ | 250,374 |   |
| Cost of goods  sold                                                                                |       | —          |       | 186,463        |       | 36,726         |       | (43,568          | )          | 179,621          |       |
| Gross margin                                                                                       |       | —          |       | 67,341         |       | 4,554          |       | (1,142           | )          | 70,753           |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Selling, general  and administrative expenses                                                      |       | 753             |       | 49,884         |       | 7,892          |       | —           |       | 58,529           |       |
| Amortization of  intangibles                                                                       |       | —          |       | 1,442          |       | 22             |       | —           |       | 1,464            |       |
| Net periodic  postretirement benefits                                                              |       | —          |       | 1,056          |       | —         |       | —           |       | 1,056            |       |
| Operating income (loss)                                                                            |       | (753            | )          | 14,959         |       | (3,360         | )          | (1,142           | )          | 9,704            |       |
| Other income  (expense):                                                                           |       |            |       |           |       |           |       |             |       |             |       |
| Interest, net                                                                                      |       | (8,285          | )          | (4,175         | )          | (584           | )          | —           |       | (13,044          | )          |
| Amortization of deferred financing costs                                                           |       | (252            | )          | (412           | )          | —         |       | —           |       | (664             | )          |
| Equity in net income (loss) of subsidiaries                                                        |       | 2,621           |       | —         |       | —         |       | (2,621           | )          | —           |       |
| Minority interest                                                                                  |       | —          |       | (75            | )          | —         |       | —           |       | (75              | )          |
| Income (loss)  from continuing operations before income tax provision and discontinued  operations |       | (6,669          | )          | 10,297         |       | (3,944         | )          | (3,763           | )          | (4,079           | )          |
| Income tax  provision                                                                              |       | —          |       | 1,484          |       | 816            |       | —           |       | 2,300            |       |
| Income (loss)  from continuing operations                                                          |       | (6,669          | )          | 8,813          |       | (4,760         | )          | (3,763           | )          | (6,379           | )          |
| Discontinued  Operations:                                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Loss on  disposition of discontinued operations, net of tax                                        |       | —          |       | —         |       | (290           | )          | —           |       | (290             | )          |
| Net income  (loss) applicable to common shares                                                     |       | $               | (6,669     | )              | $          | 8,813          |       | $                | (5,050     | )                | $          | (3,763 | ) | $ | (6,669 | ) |

 

26

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**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**THREE MONTHS ENDED JUNE 30, 2005**

**(Restated)**
| ** **                                                                                         | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                         | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                                                          |       | $               | —     |           | $          | 121,900        |       | $                | 18,902     |             | $          | (22,030 | ) | $ | 118,772 |   |
| Cost of goods  sold                                                                                |       | —          |       | 93,328         |       | 15,831         |       | (22,194          | )          | 86,965           |       |
| Gross margin                                                                                       |       | —          |       | 28,572         |       | 3,071          |       | 164              |       | 31,807           |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Selling, general  and administrative expenses                                                      |       | (75             | )          | 20,929         |       | 5,977          |       | —           |       | 26,831           |       |
| Amortization of  intangibles                                                                       |       | —          |       | 786            |       | 21             |       | —           |       | 807              |       |
| Net periodic  postretirement benefits                                                              |       | —          |       | 645            |       | —         |       | —           |       | 645              |       |
| Operating income (loss)                                                                            |       | 75              |       | 6,212          |       | (2,927         | )          | 164              |       | 3,524            |       |
| Other income  (expense):                                                                           |       |            |       |           |       |           |       |             |       |             |       |
| Interest, net                                                                                      |       | (3,934          | )          | (1,639         | )          | (367           | )          | —           |       | (5,940           | )          |
| Amortization of deferred financing costs                                                           |       | (125            | )          | (259           | )          | —         |       | —           |       | (384             | )          |
| Equity in net income (loss) of subsidiaries                                                        |       | 3,048           |       | —         |       | —         |       | (3,048           | )          | —           |       |
| Minority interest                                                                                  |       | —          |       | (284           | )          | —         |       | —           |       | (284             | )          |
| Income (loss)  from continuing operations before income tax provision and discontinued  operations |       | (936            | )          | 4,030          |       | (3,294         | )          | (2,884           | )          | (3,084           | )          |
| Income tax  provision                                                                              |       | —          |       | (2,081         | )          | 580            |       | —           |       | (1,501           | )          |
| Income (loss)  from continuing operations                                                          |       | (936            | )          | 6,111          |       | (3,874         | )          | (2,884           | )          | (1,583           | )          |
| Discontinued  Operations:                                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Loss on  disposition of discontinued operations, net of tax                                        |       | —          |       | —         |       | 647            |       | —           |       | 647              |       |
| Net income  (loss) applicable to common shares                                                     |       | $               | (936       | )              | $          | 6,111          |       | $                | (3,227     | )                | $          | (2,884 | ) | $ | (936 | ) |

 

27

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**SIX MONTHS ENDED JUNE 30, 2005**

**(Restated)**
| ** **                                                                                         | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                         | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                                                          |       | $               | —     |           | $          | 235,157        |       | $                | 33,300     |             | $          | (39,301 | ) | $ | 229,156 |   |
| Cost of goods  sold                                                                                |       | —          |       | 175,000        |       | 27,536         |       | (39,210          | )          | 163,326          |       |
| Gross margin                                                                                       |       | —          |       | 60,157         |       | 5,764          |       | (91              | )          | 65,830           |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Selling, general  and administrative expenses                                                      |       | (75             | )          | 43,075         |       | 11,090         |       | —           |       | 54,090           |       |
| Amortization of  intangibles                                                                       |       | —          |       | 1,570          |       | 118            |       | —           |       | 1,688            |       |
| Net periodic  postretirement benefits                                                              |       | —          |       | 1,186          |       | —         |       | —           |       | 1,186            |       |
| Operating income (loss)                                                                            |       | 75              |       | 14,326         |       | (5,444         | )          | (91              | )          | 8,866            |       |
| Other income  (expense):                                                                           |       |            |       |           |       |           |       |             |       |             |       |
| Interest, net                                                                                      |       | (7,705          | )          | (3,086         | )          | (589           | )          | —           |       | (11,380          | )          |
| Amortization of deferred financing costs                                                           |       | (250            | )          | (564           | )          | —         |       | —           |       | (814             | )          |
| Equity in net income (loss) of subsidiaries                                                        |       | 6,208           |       | —         |       | —         |       | (6,208           | )          | —           |       |
| Minority interest                                                                                  |       | —          |       | (284           | )          | (53            | )          | —           |       | (337             | )          |
| Income (loss)  from continuing operations before income tax provision and discontinued  operations |       | (1,672          | )          | 10,392         |       | (6,086         | )          | (6,299           | )          | (3,665           | )          |
| Income tax  provision                                                                              |       | —          |       | (1,555         | )          | 771            |       | —           |       | (784             | )          |
| Income (loss)  from continuing operations                                                          |       | (1,672          | )          | 11,947         |       | (6,857         | )          | (6,299           | )          | (2,881           | )          |
| Discontinued  Operations:                                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Loss on  disposition of discontinued operations, net of tax                                        |       | —          |       | —         |       | 1,209          |       | —           |       | 1,209            |       |
| Net income  (loss) applicable to common shares                                                     |       | $               | (1,672     | )              | $          | 11,947         |       | $                | (5,648     | )                | $          | (6,299 | ) | $ | (1,672 | ) |

 

28

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS**

**SIX MONTHS ENDED JUNE 30, 2006**
| ** **                                                    | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                    | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                    | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from  continuing operations:                       |       |            |       |           |       |           |       |             |       |             |       |
| Net cash used in  operating activities                        |       | $               | (6,218     | )              | $          | 2,342          |       | $                | (6,324     | )                | $          | (999 | ) | $ | (11,199 | ) |
| Cash flows from  investing activities:                        |       |            |       |           |       |           |       |             |       |             |       |
| Capital expenditures                                          |       | $               | —     |           | $          | (2,515         | )          | $                | —     |             | $          | — |   | $ | (2,515 | ) |
| Proceeds from sales of assets                                 |       | —          |       | 16,455         |       | —         |       | —           |       | 16,455           |       |
| Acquisition of minority interest                              |       | —          |       | (3,954         | )          | —         |       | —           |       | (3,954           | )          |
| Net cash  provided by (used in) investing activities          |       | $               | —     |           | $          | 9,986          |       | $                | —     |             | $          | — |   | $ | 9,986 |   |
| Cash flows from  financing activities:                        |       |            |       |           |       |           |       |             |       |             |       |
| Net borrowings (repayments) under revolving credit  facility  |       | $               | —     |           | $          | (5,281         | )          | $                | 1,142      |             | $          | — |   | $ | (4,139 | ) |
| Net repayments of other credit facilities                     |       | —          |       | (330           | )          | —         |       | —           |       | (330             | )          |
| Changes in net equity and advances to / from  subsidiaries    |       | 5,893           |       | (12,773        | )          | 8,560          |       | 999              |       | 2,679            |       |
| Financing fees and other                                      |       | 325             |       | (264           | )          | —         |       | —           |       | 61               |       |
| Net cash  provided by (used in) financing activities          |       | $               | 6,218      |           | $          | (18,648        | )          | $                | 9,702      |             | $          | 999 |   | $ | (1,729 | ) |
| Effect of  exchange rate changes on cash and cash equivalents |       | $               | —     |           | $          | 1,242          |       | $                | (1,098     | )                | $          | — |   | $ | 144 |   |
| Net cash  provided by (used in) continuing operations         |       | $               | —     |           | $          | (5,078         | )          | $                | 2,280      |             | $          | — |   | $ | (2,798 | ) |
|                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Cash flows from  discontinued operations:                     |       |            |       |           |       |           |       |             |       |             |       |
| Net cash  provided by operating activities                    |       | $               | —     |           | $          | —         |       | $                | 594        |             | $          | — |   | $ | 594 |   |
| Net cash used in  investing activities                        |       | —          |       | —         |       | (849           | )          | —           |       | (849             | )          |
| Net cash used in  financing activities                        |       | —          |       | —         |       | (2,799         | )          | —           |       | (2,799           | )          |
| Effect of  exchange rate changes on cash and cash equivalents |       | —          |       | —         |       | (69            | )          | —           |       | (69              | )          |
| Net cash  provided by discontinued operations                 |       | $               | —     |           | $          | —         |       | $                | (3,123     | )                | $          | — |   | $ | (3,123 | ) |
|                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Total increase  (decrease) in cash and cash equivalents       |       | $               | —     |           | $          | (5,078         | )          | $                | (843       | )                | $          | — |   | $ | (5,921 | ) |
| Total cash and  cash equivalents beginning of period          |       | —          |       | 6,591          |       | 8,971          |       | —           |       | 15,562           |       |
| Total cash and cash equivalents end of period                 |       | $               | —     |           | $          | 1,513          |       | $                | 8,128      |             | $          | — |   | $ | 9,641 |   |

 

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**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS**

**SIX MONTHS ENDED JUNE 30, 2005**

**(Restated)**
| ** **                                                    | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                    | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                    | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from  continuing operations:                       |       |            |       |           |       |           |       |             |       |             |       |
| Net cash  provided by (used in) operating activities          |       | $               | 202        |           | $          | 9,935          |       | $                | (8,196     | )                | $          | (7,352 | ) | $ | (5,411 | ) |
| Cash flows from  investing activities:                        |       |            |       |           |       |           |       |             |       |             |       |
| Capital expenditures                                          |       | $               | —     |           | $          | (3,100         | )          | $                | (1,270     | )                | $          | — |   | $ | (4,370 | ) |
| Proceeds from sales of assets                                 |       | —          |       | —         |       | —         |       | —           |       | —           |       |
| Investment in joint venture                                   |       | —          |       | (850           | )          | —         |       | —           |       | (850             | )          |
| Net cash used in  investing activities                        |       | $               | —     |           | $          | (3,950         | )          | $                | (1,270     | )                | $          | — |   | $ | (5,220 | ) |
| Cash flows from  financing activities:                        |       |            |       |           |       |           |       |             |       |             |       |
| Net borrowings under revolving credit facility                |       | $               | —     |           | $          | 14,614         |       | $                | 523        |             | $          | — |   | $ | 15,137 |   |
| Net borrowings (repayments) of other credit  facilities       |       | —          |       | (991           | )          | 712            |       | —           |       | (279             | )          |
| Changes in net equity and advances to / from  subsidiaries    |       | (202            | )          | (19,522        | )          | 10,249         |       | 7,352            |       | (2,123           | )          |
| Financing fees and other                                      |       | —          |       | (106           | )          | (1,602         | )          | —           |       | (1,708           | )          |
| Net cash  provided by (used in) financing activities          |       | $               | (202       | )              | $          | (6,005         | )          | $                | 9,882      |             | $          | 7,352 |   | $ | 11,027 |   |
| Effect of  exchange rate changes on cash and cash equivalents |       | $               | —     |           | $          | (72            | )          | $                | 528        |             | $          | — |   | $ | 456 |   |
| Net cash  provided by (used in) continuing operations         |       | $               | —     |           | $          | (92            | )          | $                | 944        |             | $          | — |   | $ | 852 |   |
|                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Cash flows from  discontinued operations:                     |       |            |       |           |       |           |       |             |       |             |       |
| Net cash  provided by operating activities                    |       | $               | —     |           | $          | —         |       | $                | 3,928      |             | $          | — |   | $ | 3,928 |   |
| Net cash used in  investing activities                        |       | —          |       | —         |       | (1,218         | )          | —           |       | (1,218           | )          |
| Net cash used in  financing activities                        |       | —          |       | —         |       | (1,089         | )          | —           |       | (1,089           | )          |
| Effect of  exchange rate changes on cash and cash equivalents |       | —          |       | —         |       | 860            |       | —           |       | 860              |       |
| Net cash  provided by discontinued operations                 |       | $               | —     |           | $          | —         |       | $                | 2,481      |             | $          | — |   | $ | 2,481 |   |
|                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Total increase  (decrease) in cash and cash equivalents       |       | $               | —     |           | $          | (92            | )          | $                | 3,425      |             | $          | — |   | $ | 3,333 |   |
| Total cash and  cash equivalents beginning of period          |       | —          |       | 5,969          |       | 1,092          |       | —           |       | 7,061            |       |
| Total cash and cash equivalents end of period                 |       | $               | —     |           | $          | 5,877          |       | $                | 4,517      |             | $          | — |   | $ | 10,394 |   |

 

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**Item 2.**

**MANAGEMENT’S DISCUSSION ANDANALYSIS OF****FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

#### **Overview**

Wedesign, manufacture, market, sell and distribute welding and cutting powersources, torches, consumables and accessories globally.  We are a leading global supplier of thesecutting and welding products. 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.

**Restatement of Consolidated Financial Statements**

As more fully discussed in the Company’s 2005 Annual Report on Form10-K and as set forth in Note 3 — *Restatement ofConsolidated Financial Statements*to this Form 10-Q, the Company, in2005, identified a series of adjustments that have resulted in the restatementof previously reported quarterly results for the first three quarters of2005.   The information set forth in thisItem 2 has been adjusted to present management’s discussion and analysis offinancial condition and results of operations based on this restatedinformation.

**Factors That Could AffectFuture Results**

The statements in this Quarterly Report on Form 10-Qthat relate to future plans, events or performance are forward-lookingstatements within the meaning of Section 27A of the Securities Act, Section 21Eof the Securities Exchange Act of 1934, or the Exchange Act, and the PrivateSecurities Litigation Reform Act of 1995, including statements regarding ourfuture prospects. These statements may be identified by terms and phrases suchas “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,”“could,” “may,” “plan,” “project,” “predict,” “will” and similar expressionsand relate to future events and occurrences. Actual results could differmaterially due to a variety of factors and the other risks described in thisQuarterly Report and the other documents we file from time to time with theSecurities and Exchange Commission. Factors that could cause actual results todiffer materially from those expressed or implied in such statements include,but are not limited to, the following and those discussed under the RiskFactors section of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2005:

(a)                                  general economic and capital marketconditions, including political and economic uncertainty in various areas ofthe world where we do business;

(b)                                 the cyclicality and maturity of the cuttingand welding market;

(c)                                  the effects to our business of economicconditions, such as fluctuations in the cost of raw materials and energy, thesubstitution of plastic and other materials in place of fabricated metals andthe trend towards offshore production of fabricated metal products;

(d)                                 consolidation within our customer base andthe resulting increased concentration of our sales;

(e)                                  actions taken by our competitors that affectour ability to retain our customers;

(f)                                    customers’ perceptions of our financialcondition relative to that of our competitors, particularly in light of ouremergence from Chapter 11 bankruptcy proceedings in May 2003 and delays infiling SEC reports;

(g)                                 risks associated with reconfiguration andrelocation of manufacturing operations;

(h)                                 the effectiveness of our cost reductioninitiatives;

(i)                                     foreign currency exchange rates;

(j)                                     changes in U.S. or foreign tax laws orregulations;

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(k)                                  our ability to meet customer needs byintroducing new products;

(l)                                     unforeseen liabilities arising fromlitigation, including risks associated with product liability;

(m)                               the effectiveness of our information systemsand internal controls;

(n)                                 our ability to attract and retain qualifiedmanagement personnel; and

(o)                                 consistent application of U.S. generallyaccepted accounting principles at our smaller international locations.

Readers are cautioned not toplace undue reliance on these forward-looking statements, which speak only asof the date hereof and are not guarantees of performance or results. Weundertake no obligation to publicly release the result of any revisions tothese forward-looking statements that may be made to reflect events orcircumstances after the date hereof or that reflect the occurrence ofunanticipated events.

For a more completediscussion of factors that may affect future results, see the Risk Factorssection in our Annual Report on Form 10-K for the year ended December 31, 2005.

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

###### ***Three Months Ended June 30, 2006 Compared toThree Months Ended June 30, 2005***

Net sales from continuing operations for the three months ended June30, 2006 were $127.5 million, which was a 7.3% increase over net sales of$118.8 million for the same three months in 2005.  North American sales were $79.3 million forthe second quarter of 2006, compared to $74.5 million for the same period lastyear, which is an increase of 6.4%. International sales were $48.2 million for the three months ended June30, 2006 compared to $44.3 million for the second quarter of 2005, or anincrease of 8.8%.  Net sales for thethree months ended June 30, 2006 increased approximately $6 million as a resultof new product introductions, $3 million as a result of price increases andproduct growth particularly in the Americas. These increases were offset by a decrease in net sales of approximately$1 million from the impact of foreign currency translation.  Net sales in the second quarter of 2006 werereduced by $4.9 million for rebates paid to customers compared to $3.5 millionin the second quarter of 2005.  The increasein rebates result from increased sales volume to customers achieving volumelevels providing higher rebate percentages.

Gross margin from continuing operations for the second quarter of 2006was $35.8 million, or 28.1% of net sales, compared to $31.8 million, or 26.8%of net sales, for the same period in 2005. Gross margin dollars increased approximately $6 million as a result ofnew product introductions, volume expansion, and price increases.  The gross margin increase was reduced with$1.4 million increased rebate costs.  Theimpact of cost increases from inflation of material costs and production supplycost increases were largely offset by cost savings from productivityinitiatives of approximately $5 million. The increase in material cost was attributable to higher prices for keyraw materials such as copper and brass. In addition, the effect of translating the local currency results of theCompany’s international business units into U.S. dollars resulted in a decreaseto gross margin of approximately $0.4 million.

Selling, general and administrative expenses (“SG&A”) were $31.7million, or 24.9% of net sales, for the three months ended June 30, 2006 ascompared to $26.8 million, or 22.6% of net sales, for the three months endedJune 30, 2005.  The increase in SG&Ais principally related to incremental costs associated with completion of the2005 restated financial statements and first quarter 2006 financial statements,the consents obtained from bondholders in May 2006, and fees associated withstrategic assessment of certain non-core operations.  The impact of inflation and increasedmarketing costs to promote new product introductions also contributed to theincrease between years.

Interest expense for the three months ended June 30, 2006 was $6.5million, which compares to $5.9 million for the three months ended June 30,2005.  The difference results from anincrease in our average borrowing rate.

An income tax provisionof $1.3 million for continuing operations was recorded on pretax loss of $4.0million for the three months ended June 30, 2006. An income tax benefit of $1.5million for continuing operations was recorded on a pretax loss of $3.1 millionfor the quarter ended June 30, 2005. The income tax provision for 2006 reflects$2.8 million of current tax expense primarily related to income generated incertain foreign jurisdictions and an offsetting benefit of approximately $1.5million for deferred tax reductions. For the three months ended June 30, 2005,the overall net income tax benefit resulted primarily from the estimated U.S. taxbenefit related to the use of U.S. net operating losses to offset estimated2005 net income. Due to the uncertainties of 2006 operating results, valuationallowances offset the benefit of U.S. net operating losses in the secondquarter of 2006. The Company has engaged international tax planning specialistsand anticipates that the estimated foreign tax expenses recognized in 2006 willultimately be significantly reduced.

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Alllocations reported as discontinued operations in prior periods were divestedduring the first quarter of 2006 and no results were reported for the secondquarter of 2006. Income from discontinued operations was $0.6 million duringthe second quarter of 2005 for the operations that we divested in late 2005 andthe first quarter of 2006.

###### ***Six Months Ended June 30, 2006 Compared toSix Months Ended June 30, 2005***

Net sales from continuing operations for the six months ended June 30,2006 were $250.4 million, which was a 9.3% increase over net sales of $229.2million for the same six months in 2005. North American sales were $160.6 million for the first half of 2006,compared to $146.2 million for the same period last year, which is an increaseof 9.8%.  International sales were $89.8million for the six months ended June 30, 2006 compared to $83.0 million forthe first half of 2005, or an increase of 8.2%. Net sales for the six months ended June 30, 2006 increased approximately$19 million as a result of increased demand and new product initiatives, $5million as a result of price increases and was partially offset by a decreasein net sales of approximately $3 million as a result of the impact of foreigncurrency translation.  Net sales in thefirst six months of 2006 were reduced by $9.5 million for rebates paid tocustomers compared to $6.6 million in the second quarter of 2005.

Gross margin from continuing operations for the six months ended June30, 2006 was $70.8 million, or 28.3% of net sales, compared to $65.8 million,or 28.7% of net sales, for the same period in 2005.  Gross margin dollars increased approximately$10 million through new product introductions, volume expansion, and priceincreases.  These increases to grossmargin were partially offset by approximately $3 million increase in rebatecosts. The impact of cost increases from inflation of material costs and productionsupply cost increases were largely offset by cost savings from productivityinitiatives of approximately $8 million.   The overall increase in material cost was attributable to higher pricesfor key raw materials such as copper, brass and steel.  In addition, the effect of translating thelocal currency results of the Company’s international business units into U.S.dollars resulted in a decrease to gross margin of approximately $1 million.

Selling, general and administrative expenses (“SG&A”) were $58.5million, or 23.3% of net sales, for the six months ended June 30, 2006 ascompared to $54.1 million, or 23.6% of net sales, for the six months ended June30, 2005.  The increase in SG&A isprincipally related to incremental costs incurred in the second quarterassociated with completion of the 2005 restated and first quarter 2006financial statements, the consents obtained from bondholders in May 2006, andfees associated with strategic assessment of certain non-core operations.  The impact of inflation and increasedmarketing costs to promote new product introductions also contributed to theincrease between years.

Interest expense for the six months ended June 30, 2006 was $13.0million, which compares to $11.4 million for the six months ended June 30,2005.  The difference results from anoverall increase in our average borrowing rate.

Anincome tax provision of $2.3 million was recorded on the pretax loss of $4.1million from continuing operations for the six months ended June 30, 2006.  An income tax benefit of $0.8 million wasrecorded on a pretax loss of $3.7 million from continuing operations for thesame period in 2005.  The income taxprovision for 2006 primarily relates to income generated in certain foreignjurisdictions offset by a benefit for deferred tax reductions.  Valuationallowances offset the tax benefit of U.S. net operating losses in 2006.  The income tax benefit recorded in 2005relates primarily to the estimated tax benefit related to net operatinglosses based on estimates of 2005 net income, which did not recur in 2006.  As noted previously, international taxplanning work currently in process is expected to significantly reduce the 2006foreign tax expenses.

Discontinued operationsreported a loss of $0.3 million for the six months ended June 30, 2006 comparedto net income of $1.2 million for the six months ended June 30, 2005.  These operations were divested during thefirst quarter of 2006 which reduced their financial statement impact incomparison to the six months ended June 30, 2005.

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**LIQUIDITY AND CAPITAL RESOURCES**

***Working Capital and Cash Flows***

Operating activities from continuing operations used $11.2 million ofcash during the first six months of 2006, compared to the $5.4 million of cashused during the same time period in 2005. This includes the change in operatingassets and liabilities which used $13.3 million of cash during the six monthsended June 30, 2006, compared to the $14.6 million of cash used in the sixmonths ended June 30, 2005.  The changesin operating assets and liabilities included an accounts receivable increase of$9.6 million during the six months ended June 30, 2006, compared to the $9.4million increase during the same period in 2005. The increases in receivablesprimarily arise from the effect of increased sales.  Inventory provided $0.1 million of cashthrough the first six months of 2006, as compared to a $7.3 million use of cashin the same six month period last year. As a result of improved inventory management, inventory used less cashin 2006 despite the higher sales volumes for 2006.    Accounts payable declined, using $6.6million of cash in the first six months of 2006, which compares to the cashprovided from an increase in payables of $8.0 million in the first six monthsof 2005.  During 2006, the decrease in accounts payableresulted from normal payment activities and timing differences.  Accrued liabilities declined, using $0.9million of cash in the first six months of 2006 compared to a $2.2 million useof cash in the first six months of 2005. Cash used in the first half of 2006 and 2005 related to accruedliabilities for rebate and incentive compensation payments.

Investing activities of continuing operations provided $10.0 million ofcash for the first six months of 2006 compared to a net cash usage of $5.2million for the first six months of 2005. The 2006 cash flow primarily resulted from the sale of certaindiscontinued operations as partially reduced for the Company’s purchase ofcertain minority interests and capital expenditures.  Capital expenditures were $2.5 million duringthe first six months of 2006 represented a decrease of $1.9 million from lastyear primarily due to the timing of capital expenditures.

Financing activities of continuing operations used $1.8 million of cashduring the first six months of 2006 compared to the $11.0 million of cashprovided during the same period last year. For the six months ended June 30, 2006, there was $4.1 million of netrepayments of indebtedness and $2.7 million received from discontinued operations.  For the same period in 2005, the Company hadnet borrowings of $15.1 million with $2.1 million of advances to discontinuedoperations.  The net repayments in 2006resulted from proceeds from the sale of certain subsidiaries.  The net borrowings in first half of 2005 wereused primarily to fund working capital requirements and to fund the semi-annualpayment on the Senior Subordinated Notes made in February 2005.

# ***Liquidity***

Weexpect that our operating cash flow, together with borrowings under ourrevolving credit facility, will be sufficient to meet our anticipated futureoperating expenses, capital expenditures and our debt servicerequirements.  However, our ability togenerate sufficient cash flow to meet our operating needs will be affected bygeneral economic and competitive factors. Also, see Note 9- *Debt and Capital LeaseObligations*to the condensed consolidated financial statements.

TheCompany borrows under the CreditAgreement which consists of a Term Loan anda revolving credit facility (the “Revolver”) as described in Note 9 — *Debt and Capital Lease Obligations* to the condensedconsolidated financial statements.  TheTerm Loan was repaid in July 2006.  OnJuly 21, 2006, the Company obtained a limited waiver and amended its CreditAgreement to (1) modify the maximum leverage ratio to 5.75 throughJune 30, 2007, with scheduled decreases thereafter, (ii) modify theminimum fixed charge coverage ratio to 1.0 through June 30, 2007 and 1.10thereafter, and (iii) establish a minimum availability requirement of$5 million. In October 2006, the Company amended its Credit Agreement tomodify the maximum leverage ratio to 5.95 for the third quarter of 2006.

We increased theborrowings under the Second Lien Facility by an additional $20.0 million inJuly 2006. Approximately $7 million was used to repay the Term Loan and theremainder is available for general corporate purposes.  The Company also amended the Second-LienFacility to (i) remove the financial covenant compliance until the thirdquarter of 2007, and (ii) extend the pre-payment penalty date toOctober 31, 2007. The Second-Lien Facility is described in Note 9 — *Debt and Capital Lease Obligations*to the condensed consolidated financial statements.

In May 2006, we amendedthe Indenture for the $175,000 Senior Subordinated Notes to, among otherthings, extend the date by which we must file with the Securities and ExchangeCommission our Annual Report on Form 10-K for the year ended December 31, 2005and any other reports then due, and obtain a waiver for the default resultingfrom our failure to timely file the 2005 Annual Report. In consideration forthe amendment, we paid noteholders who consented to the amendment a consent feeof $2.50 for each $1,000 in principal amount of notes. The amendment alsorequires us, subject to certain conditions, to annually use our excess cashflow (as defined in the Indenture) either to make permanent repayments of oursenior debt or to extend a repurchase offer to the holders of the notespursuant to which we will offer to repurchase outstanding notes at a purchaseprice of 101% of their principal amount. As of July 31, 2006, the Company obtained from holders consent to amendthe Indenture governing the Notes and waiving existing defaults under thatIndenture related to the late filing of the Company’s 2005 Form 10-K andfirst quarter 2006 Form 10-Q with the Securities and Exchange Commission.The amendments also allow the Company to extend the time within which theCompany must file its second quarter 2006 Form 10-Q to no later than December17, 2006. The amendment provided for cash consent fees of $3.75 for each $1,000in principal amount of notes if the Company fails to file its second quarter2006 Form 10-Q by September 16, 2006, an additional fee of $3.75 foreach $1,000 in principal amount of notes if the report is not filed by October16, 2006, and an additional fee of $5.00 for each $1,000 in principal amount ofnotes if the form is not filed by November 16, 2006.  The payments for both September 2006 andOctober 2006 were made. The Indenture was also amended to provide for thepayment of additional special interest on the Notes, initially at a rate of1.25% per annum, subject to adjustment. These Notes are described more fully inNote 9 — *Debt and Capital Lease Obligations*tothe condensed consolidated financial statements.

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In 2006, we anticipate ourcapital expenditures will be approximately $10 million.  In addition, we expect that our debt serviceobligations related to capital leases and foreign credit lines, excludinginterest expense, will be approximately $1.6 million and $1.7 million,respectively. We expect our operating cash flow, together with availableborrowings under the revolving credit facility, will be sufficient to meet ouranticipated operating expenses, capital expenditures and the debt servicerequirements of the Credit Agreement and Second-Lien Facility, the SeniorSubordinated Notes and our other long-term obligations for 2006. However, ourability to generate sufficient cash flow to meet our operating needs will beaffected by general economic, competitive and other business factors.

We expect to remain incompliance with the financial covenants by achieving our financial plan, whichincludes realizing sales of new products to be introduced, price increases forexisting products, and successfully implementing certain cost reductioninitiatives including our global continuous improvement program referred to asTCP and our program for foreign sourcing of manufacturing.  If we are not successful in achieving ourfinancial plan, we may not be in compliance with the revised financialcovenants and we would seek an amendment to the Credit Agreement and theSecond-Lien Facility. Although we believe that we could obtain such anamendment, failure to obtain an amendment would result in a default under theCredit Agreement and the Second-Lien Facility which could result in a materialadverse impact on our financial condition. While not necessary for achievingcompliance during 2006, we are also pursuing the sale of one non-core businessunit to generate additional liquidity.

**Item 3.  Quantitative andQualitative Disclosures About Market Risk**

Our primary financial marketrisk relates to fluctuations in currency exchange rates, commodity price riskand interest rates.

We do not believe ourexposure to transaction gains or losses resulting from changes in foreigncurrency exchange rates are material to our financial results. As a result, wedo not actively try to manage our exposure through foreign currency forward oroption contracts.

Copper, brass and steelconstitute a significant portion of our raw material costs.  These commodities are subject to pricefluctuations which we may not be able to pass onto our customers.  We continually monitor the trends in suchprice fluctuations and adjust our prices, where possible, based on the currentmarket conditions.

In order to manage interest costs, we enter into aninterest rate swap arrangements from time to time.  Interest rate risk management agreements arenot held or issued for speculative or trading purposes.

We believe therehas been no material change in our exposure to risks associated withfluctuations in interest, commodity price risk, and foreign currency exchangerates discussed in our 2005 Annual Report on Form 10-K.

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

Disclosure controls and procedures are designed toensure that information required to be disclosed in reports that we file orsubmit under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified by the SEC.  Internal control over financial reporting isdesigned to provide reasonable assurance to our management and board ofdirectors regarding the reliability of financial reporting and preparation ofpublished financial statements.

Our internal control over financial reportingincludes policies and procedures that (i) pertain to the maintenance of recordsthat in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the Company; (ii) provide reasonable assurancethat transactions are recorded as necessary to permit the preparation of theconsolidated financial statements in accordance with U.S. generally acceptedaccounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directorsof the Company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of the Company’sassets that could have a material effect on the consolidated financialstatements.

Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.

As of June 30, 2006,management evaluated the effectiveness of our disclosure controls andprocedures and concluded those disclosure controls and procedures were noteffective because of the continued existence of material weaknesses describedin Management’s Report on InternalControl Over Financial Reporting in Item 9A. *Controls andProcedures* in our Annual Report on Form 10-K for the year endedDecember 31, 2005 (“Management’s Report”). In summary, the Management Report as of December 31, 2005 describedmaterial weaknesses in the financial statement close process, foreign currencyaccounting, income tax accounting, oversight and monitoring of certaininternational locations, and the reconciliation of intercompany accountbalances.

Given that we had materialweaknesses, we performed additional procedures to reasonably insure that thecondensed consolidated financial statements are fairly presented. In completingour June 30, 2006 financial statements and related disclosures, we engaged severalaccounting firms and systems contractors to assist us in addressing theimplications of the material weaknesses described in our Annual Report on Form10-K for the year ended December 31, 2005. Weperformed additional analyses of the reasonableness of recorded amounts,particularly allowances, accruals and fresh start accounting eliminations as ofJune 30, 2006 in recognition of the weaknesses in our financial statement closeprocess. With the assistance of the accounting firms and contractors, we haveconducted additional reviews of our foreign currency accounting and relatedinter-company accounting as a result of the foreign currency accountingweaknesses described as of December 31, 2005. To assist in addressing theweakness in income tax accounting, we utilized tax and accounting specialistsfrom a major international accounting firm to assist us in determining theincome tax provision and liability accounts as of June 30, 2006. In ouroversight and monitoring of the two international locations which have givenrise to accounting adjustments in the past, we have placed new financialmanagement at one location during 2005 and for the other in early 2006, whichexpanded our financial monitoring and review procedures. In addition, four ofour international locations have been sold since December 2005 which hasreduced the number of locations which must be monitored. In recognition of the weaknesses in inter-companyaccount balances, we have assigned additional personnel to ensure inter-companyaccount balances were properly reconciled relative at June 30, 2006. Consequently,management believes that the financial statements included in this reportfairly represent, in all material respects, our financial condition, results ofoperations and cash flows for the periods presented.

**Remediationof Material Weaknesses**

As discussed above, the Company identified materialweaknesses in our internal control over financial reporting at December 31,2005.  These material weaknesses aredescribed more fully in the Management Report in our Annual Report on Form 10-Kfor the year ended December 31, 2005. The Company is in the process of making numerous process changes in theareas noted above to establish effective internal controls and eliminate thematerialweaknesses.   These process changes include a combinationof expanded use of computer system capabilities, improved timeliness andaccuracy of account reconciliation and review procedures, and staffing changes.  Since August 1, 2006, the Company has hired anew Chief Financial Officer, Controller, Director of Accounting, and Directorof Tax who are guiding the design and implementation of new procedures andstaffing assignments.  We expect to havemade all process improvements necessary to remediate the material weaknessesand have them operational during 2006. It is unclear whether there will be a sufficient period of time toadequately test remediation of these material weaknesses pursuant to thestandards established in section 404 of the Sarbanes-Oxley Act of 2002 byDecember 31, 2006.  For a more completediscussion of our remediation activities, see the Management Report in ourAnnual Report on form 10-K for the year ended December 31, 2005.

**Changes in Internal Control Over Financial Reporting**

Except as otherwise discussed above, there have been no changes in theCompany’s internal control over financial reporting during the three monthsended June 30, 2006 that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

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#### **PARTII.  OTHER INFORMATION**

**Item 1.  Legal Proceedings**

The Company and certain of its wholly ownedsubsidiaries are defendants in various legal actions, primarily related toproduct liability.  While there isuncertainty relating to any litigation, management is of the opinion that theoutcome of such litigation will not have a material adverse effect on theCompany’s financial condition or results of operations. At June 30, 2006 theCompany was a co-defendant in 1,186 cases alleging manganese induced illness.Manganese is an essential element of steel and contained in all weldingconsumables. The Company is one of a large number of defendants. Theclaimants allege that exposure to manganese contained in the welding consumablescaused the plaintiffs to develop adverse neurological conditions, including acondition known as manganism. As of June 30, 2006, 811 of these cases werepending in federal court where the Judicial Panel on Multidistrict Litigationhas consolidated these cases for pretrial proceedings in the Northern Districtof Ohio.  Between June 1, 2003 and June30, 2006, the Company was dismissed from approximately 315 other cases withsimilar allegations. Through June 30, 2006, the Company has made no payments orsettlements to plaintiffs for these allegations.

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

Allother legal proceedings and actions involving the Company are of an ordinaryand routine nature and are incidental to the operations of the Company.  Management believes that such proceedingsshould not, individually or in the aggregate, have a material adverse effect onthe Company’s business or financial condition or on the results of operations.

**Item 5.  Other Information**

The Company’s Board of Directors have approved the amendedand restated Company Bylaws to be effective November 15, 2006.  A copy of the Amended and Restated Bylaws isincluded as Exhibit 3.1 hereto and incorporated herein.  The amendments clarify certain ambiguities,remove references to the Company’s 2003 reorganization under Chapter 11 of theBankruptcy Code, and provide for electronic notice of meetings of stockholdersand directors who consent to such form of notice.  The amendments also provide for advancenotice and other procedures that must be followed by stockholders in order toproperly bring business before an annual meeting of stockholders and limiteligibility for election as directors of the Company to persons who have beennominated by or at the direction of the Board of Directors or by a stockholder whoprovides advance notice of the nomination to the Company and follows theprocedures set forth in the Bylaws.  Theamendments also provide that special meetings of stockholders may be calledonly by the Board of Directors.

**Item 6.  Exhibits**

3.1                                 Amended and Restated Bylaws of the Companydated as of November 15, 2006

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

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

32.1                           Certification Pursuant to Section 906 of theSarbanes-Oxley Act of 2002

32.2                           Certification Pursuant to Section 906 of theSarbanes-Oxley Act of 2002

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                                  | ** ** | **THERMADYNE HOLDINGS CORPORATION** |
|----------------------------------|------------|-------------------------------------|
| ** **                       | ** ** | ** **                          | ** ** | ** ** |
| ** **                       | ** ** | ** **                          | ** ** | ** ** |
|                             |       | By:                                 |   | /s/ Steven A. Schumm |
|                             |       |                                |   | Steven A. Schumm |
|                             |       |                                |   | Executive Vice President

Chief Financial Officer |
|                             |       |                                |   | Principal Financial Officer |
|                             |       |                                |   |   |
|                             |       |                                |   |   |
| Date: November 8, 2006 |       |                                |   |   |

 

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