** **

**Securities and Exchange Commission**

**Washington, D.C.  20549**

** **

**FORM 10-Q**

** **

**(Mark One)**

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

** **

**For the quarterly period ended March 31, 2006**

** **

**OR**

 

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

** **

**For thetransition period from                                       to                                       **

 

**Commission file number 0-23378**

 

**ThermadyneHoldings 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**

Indicate by checkmarkwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.
|  |   | Yes o | No x |   |
|--|--------|-------|------|--------|

 

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 checkmarkwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act.
|  |   | Yes o | No x |   |
|--|--------|-------|------|--------|

 

Indicate by checkmarkwhether the registrant has filed all documents and reports required to be filedby Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent tothe distribution of securities under a plan confirmed by a court.
|  |   | Yes x | No o |   |
|--|--------|-------|------|--------|

 

The number of shares outstanding of the issuer’scommon stock, par value $0.01 per share, as of August 1, 2006 was 13,329,702.

 

----

 

**THERMADYNE HOLDINGS 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 6.                                  |   | Exhibits |
|                                     |
| **SIGNATURES**                           |
|                                          |  |  |  |

 

----

####  

#### **PART I. FINANCIAL INFORMATION**

**Item 1.**

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(In thousands, except per sharedata)**

 
| ** **                                                                                                                               | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| ** **                                                                                                                               | ** ** | **(Unaudited)**     | ** ** | ** **             | ** ** |
| **ASSETS**                                                                                                                               |       |                |       |                   |       |
|                                                                                                                                     |       |                |       |                   |       |
| Current Assets:                                                                                                                          |       |                |       |                   |       |
| Cash and cash  equivalents                                                                                                               |       | $                   | 7,206      |                   | $          | 12,439 |   |
| Accounts receivable,  less allowance for doubtful accounts of $2,757 and $2,746, respectively                                            |       | 84,499              |       | 76,449                 |       |
| Inventories                                                                                                                              |       | 116,661             |       | 116,671                |       |
| Prepaid expenses and  other                                                                                                              |       | 7,049               |       | 7,708                  |       |
| Deferred tax assets                                                                                                                      |       | 1,861               |       | 1,861                  |       |
| Assets held for sale                                                                                                                     |       | 11,787              |       | 28,323                 |       |
| Total current assets                                                                                                                     |       | 229,063             |       | 243,451                |       |
| Property, plant and  equipment, net                                                                                                      |       | 52,962              |       | 55,442                 |       |
| Goodwill                                                                                                                                 |       | 205,542             |       | 203,643                |       |
| Intangibles, net                                                                                                                         |       | 65,581              |       | 66,049                 |       |
| Other assets                                                                                                                             |       | 7,718               |       | 7,883                  |       |
| Total assets                                                                                                                             |       | $                   | 560,866    |                   | $          | 576,468 |   |
|                                                                                                                                     |       |                |       |                   |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                           | ** ** | ** **          | ** ** | ** **             | ** ** |
|                                                                                                                                     |       |                |       |                   |       |
| Current Liabilities:                                                                                                                     |       |                |       |                   |       |
| Accounts payable                                                                                                                         |       | $                   | 38,334     |                   | $          | 41,740 |   |
| Accrued and other liabilities                                                                                                            |       | 27,474              |       | 32,867                 |       |
| Accrued interest                                                                                                                         |       | 3,142               |       | 7,317                  |       |
| Income taxes payable                                                                                                                     |       | 1,629               |       | 2,499                  |       |
| Liabilities applicable  to assets held for sale                                                                                          |       | 4,186               |       | 7,968                  |       |
| Working capital  facility                                                                                                                |       | 36,865              |       | 31,796                 |       |
| Current maturities of  long-term obligations                                                                                             |       | 12,944              |       | 11,883                 |       |
| Total current  liabilities                                                                                                               |       | 124,574             |       | 136,070                |       |
| Long-term obligations,  less current maturities                                                                                          |       | 215,347             |       | 216,211                |       |
| Deferred tax  liabilities                                                                                                                |       | 55,757              |       | 56,028                 |       |
| Other long-term  liabilities                                                                                                             |       | 42,679              |       | 41,992                 |       |
| Minority interest                                                                                                                        |       | 302                 |       | 2,214                  |       |
| Shareholders’ equity:                                                                                                               |       |                |       |                   |       |
| Common stock, $0.01 par  value:                                                                                                          |       |                |       |                   |       |
| Authorized - 25,000,000  shares issued and outstanding - 13,322,609 shares at March 31, 2006 and 13,318,158  shares at December 31, 2005 |       | 133                 |       | 133                    |       |
| Additional paid-in  capital                                                                                                              |       | 183,713             |       | 183,541                |       |
| Accumulated deficit                                                                                                                      |       | (66,949             | )          | (65,571                | )          |
| Accumulated other  comprehensive income                                                                                                  |       | 5,310               |       | 5,850                  |       |
| Total shareholders’  equity                                                                                                         |       | 122,207             |       | 123,953                |       |
| Total liabilities and  shareholders’ equity                                                                                         |       | $                   | 560,866    |                   | $          | 576,468 |   |

 

See accompanying notes to condensed consolidated financial statements.

3

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except per sharedata)**

**(Unaudited)**

 
| ** **                                                                               | ** ** | **Three Months  Ended  March 31,  2006** | ** ** | **Three Months  Ended  March 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                               | ** ** | ** **                                         | ** ** | **(Restated)**                                     | ** ** |
| Net sales                                                                                |       | $                                                  | 122,859    |                                               | $          | 110,384 |   |
| Cost of goods sold                                                                       |       | 87,889                                             |       | 76,361                                             |       |
| Gross Margin                                                                             |       | 34,970                                             | ** ** | 34,023                                             |       |
|                                                                                     |       |                                               |       |                                               |       |
| Selling, general and  administrative expenses                                            |       | 26,841                                             |       | 27,259                                             |       |
| Amortization of  intangibles                                                             |       | 731                                                |       | 881                                                |       |
| Net periodic  postretirement benefits                                                    |       | 528                                                |       | 541                                                |       |
| Operating income                                                                         |       | 6,870                                              |       | 5,342                                              |       |
| Other expenses:                                                                          |       |                                               |       |                                               |       |
| Interest                                                                                 |       | (6,517                                             | )          | (5,440                                             | )          |
| Amortization of  deferred financing costs                                                |       | (332                                               | )          | (430                                               | )          |
| Minority interest                                                                        |       | (61                                                | )          | (53                                                | )          |
| Loss from continuing  operations before income tax provision and discontinued operations |       | (40                                                | )          | (581                                               | )          |
| Income tax provision                                                                     |       | 1,048                                              |       | 717                                                |       |
| Loss from continuing  operations                                                         |       | (1,088                                             | )          | (1,298                                             | )          |
| Income (loss) from  discontinued operations, net of tax                                  |       | (290                                               | )          | 562                                                |       |
| Net loss applicable to  common shares                                                    |       | $                                                  | (1,378     | )                                                  | $          | (736 | ) |
|                                                                                     |       |                                               |       |                                               |       |
| Basic and diluted  income (loss) per share applicable to common shares:                  |       |                                               |       |                                               |       |
| Continuing operations                                                                    |       | $                                                  | (0.08      | )                                                  | $          | (0.10 | ) |
| Discontinued operations                                                                  |       | (0.02                                              | )          | 0.04                                               |       |
| Net loss                                                                                 |       | $                                                  | (0.10      | )                                                  | $          | (0.06 | ) |

 

See accompanying notes to condensed consolidated financial statements

4

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands, except per sharedata)**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Three Months**        | ** ** | **Three Months**        | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                   | ** ** | **Ended**                    | ** ** | **Ended**                    | ** ** |
| ** **                                                                   | ** ** | **March 31, 2006** | ** ** | **March 31, 2005** | ** ** |
| **Cash flows from continuing  operations**                                   |       |                         |       |                         |       |
| Cash flows from  operating activities:                                       |       |                         |       |                         |       |
| Net loss                                                                     |       | $                            | (1,378     | )                            | $          | (736 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                         |       |                         |       |
| (Income) loss  from discontinued operations                                  |       | 290                          |       | (562                         | )          |
| Minority  interest                                                           |       | 61                           |       | 53                           |       |
| Depreciation and  amortization                                               |       | 5,056                        |       | 5,301                        |       |
| Deferred taxes                                                               |       | (271                         | )          | 602                          |       |
| Changes in  operating assets and liabilities:                                |       |                         |       |                         |       |
| Accounts  receivable                                                         |       | (7,907                       | )          | (8,378                       | )          |
| Inventories                                                                  |       | 238                          |       | (4,341                       | )          |
| Prepaid expenses  and other                                                  |       | 707                          |       | (80                          | )          |
| Accounts payable                                                             |       | (4,224                       | )          | 6,498                        |       |
| Accrued and  other liabilities                                               |       | (5,286                       | )          | (3,021                       | )          |
| Accrued interest                                                             |       | (4,175                       | )          | (4,320                       | )          |
| Income taxes                                                                 |       | (897                         | )          | (1,321                       | )          |
| Other long-term  liabilities                                                 |       | (216                         | )          | (1,126                       | )          |
| Net cash used in  operating activities                                       |       | (18,002                      | )          | (11,431                      | )          |
| Cash flows from  investing activities:                                       |       |                         |       |                         |       |
| Capital  expenditures                                                        |       | (1,075                       | )          | (1,504                       | )          |
| Proceeds from  sales of assets                                               |       | 8,915                        |       | —                       |       |
| Purchase of  minority interest                                               |       | (3,954                       | )          | —                       |       |
| Net cash  provided by (used in) investing activities                         |       | 3,886                        |       | (1,504                       | )          |
| Cash flows from  financing activities:                                       |       |                         |       |                         |       |
| Net borrowings  under revolving credit facility                              |       | 5,399                        |       | 15,934                       |       |
| Net repayments  under other credit facilities                                |       | (330                         | )          | (2,015                       | )          |
| Proceeds from  exercise of warrants                                          |       | 172                          |       | —                       |       |
| Financing fees                                                               |       | —                       |       | (460                         | )          |
| Advances (to)  from discontinued operations                                  |       | 2,679                        |       | —                       |       |
| Net cash  provided by financing activities                                   |       | 7,920                        |       | 13,459                       |       |
| Effect of  exchange rate changes on cash and cash equivalents                |       | 963                          |       | 987                          |       |
| Net cash  provided by (used in) continuing operations                        |       | $                            | (5,233     | )                            | $          | 1,511 |   |
| **Cash flows from discontinued  operations**                                 |       |                         |       |                         |       |
| Net cash  provided by operating activities                                   |       | $                            | 594        |                         | $          | 2,675 |   |
| Net cash used in  investing activities                                       |       | (151                         | )          | (352                         | )          |
| Net cash used in  financing activities                                       |       | (2,799                       | )          | (1,832                       | )          |
| Effect of  exchange rates on cash and cash equivalents                       |       | (69                          | )          | 593                          |       |
| Net cash  provided by (used in) discontinued operation                       |       | $                            | (2,425     | )                            | $          | 1,084 |   |
| Total increase  (decrease) in cash and cash equivalents                      |       | $                            | (7,658     | )                            | $          | 2,595 |   |
| Total cash and cash  equivalents beginning of period                         |       | 15,562                       |       | 7,061                        |       |
| Total cash and cash  equivalents end of period                               |       | $                            | 7,904      |                         | $          | 9,656 |   |
| **Continuing operations**                                                    |       |                         |       |                         |       |
| Cash and cash  equivalents beginning of period                               |       | $                            | 12,439     |                         | $          | 6,033 |   |
| Net cash  provided by continuing operations                                  |       | (5,233                       | )          | 1,511                        |       |
| Cash and cash  equivalents end of period                                     |       | $                            | 7,206      |                         | $          | 7,544 |   |
| **Discontinued operations**                                                  |       |                         |       |                         |       |
| Cash and cash  equivalents beginning of period                               |       | $                            | 3,123      |                         | $          | 1,028 |   |
| Net cash  provided by discontinued operations                                |       | (2,425                       | )          | 1,084                        |       |
| Cash and cash  equivalents end of period                                     |       | $                            | 698        |                         | $          | 2,112 |   |
|                                                                         |       |                         |       |                         |       |
| Income taxes paid                                                            |       | $                            | 2,435      |                         | $          | 3,162 |   |
|                                                                         |       |                         |       |                         |       |
| Interest paid                                                                |       | $                            | 9,980      |                         | $          | 9,884 |   |

 

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. In the opinion of management, all adjustments (consisting of normalrecurring adjustments) considered necessary for a fair presentation have beenincluded.  The combined results ofoperations of the Company for the three months ended March 31, 2006 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2006.  For furtherinformation, refer to the consolidated financial statements and footnotesthereto included in the Company’s annual report on Form 10-K for the year endedDecember 31, 2005.

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

**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 significant and well-established product brands,and cash flows associated with these products are expected to continueindefinitely.  The Company has placed nolimit on the end of its trademarks’ useful lives and as result utilizedindefinite life treatment for 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 three months ended March 31, 2006and 2005:
|                                         | ** ** | **Balance at**   | ** ** | ** **    | ** ** | ** **   | ** ** | **Balance at** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|---------------|------------|--------------|------------|---------------------|------------|
| ** **                              | ** ** | **Beginning of** | ** ** | ** **    | ** ** | ** **   | ** ** | **End of**     | ** ** |
| ** **                              | ** ** | **Period**            | ** ** | **Provision** | ** ** | **Payments** | ** ** | **Period**          | ** ** |
| **Product warranty accrual:** | ** ** | ** **            | ** ** | ** **    | ** ** | ** **   |       |                |       |
|                                    |       |                  |       |          |       |         |       |                |       |
| Three months  ended March 31, 2006      |       | $                     | 3,007      |          | $          | 559          |       | $                   | (703       | ) | $ | 2,863 |   |
| Three months  ended March 31, 2005      |       | 3,048                 |       | 849           |       | (879         | )          | 3,018               |       |
|                                         |            |                       |            |               |            |              |            |                     |            |  |  |  |  |

 

6

----

 

***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 whereby revenue is recognized when products are used by thecustomer from consigned 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 include 60-daypayment terms and standard warranties for which reserves, based upon historicalexperiences, have been recorded.  For aproduct that is returned due to issues outside the scope of the Company’swarranty agreements, restocking charges are generally assessed.

***Earnings (Loss)Per Share.***  The calculation of net income (loss) pershare follows:

|                                                                   | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| ** **                                                        | ** ** | ** **                                           | ** ** | **(Restated)** | ** ** |
| Numerator:                                                        |       |                                                 |       |   |   |
| Income (loss) applicable to common shares:                        |       |                                                 |       |   |   |
| Continuing operations                                             |       | $                                                    | (1,088     | ) | $ | (1,298 | ) |
| Discontinued operations                                           |       | (290                                                 | )          | 562 |   |
| Net loss                                                          |       | $                                                    | (1,378     | ) | $ | (736 | ) |
|                                                              |       |                                                 |       |   |   |
| Denominator:                                                      |       |                                                 |       |   |   |
| Weighted average shares for basic and diluted  earnings per share |       | 13,323                                               |       | 13,314 |   |
|                                                              |       |                                                 |       |   |   |
| Basic and  diluted net income (loss) per share amounts:           |       |                                                 |       |   |   |
| Continuing operations                                             |       | $                                                    | (0.08      | ) | $ | (0.10 | ) |
| Discontinued operations                                           |       | (0.02                                                | )          | 0.04 |   |
| Net loss                                                          |       | $                                                    | (0.10      | ) | $ | (0.06 | ) |

 

The effects of options and warrants have not been considered in thedetermination of net income (loss) per share for the three months ended March31, 2006 and 2005, because the result would be antidilutive.  Options and warrants not included in thecalculation for the three months ended March 31, 2006 and 2005 were as follows:

7

----

 

|                  | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
|             |       |                                                 |       |   |   |
| Stock Options    |       | 1,206,725                                            |       | 150,000 |   |
| Class B Warrants |       | 700,000                                              |       | 700,000 |   |
| Class C Warrants |       | 271,429                                              |       | 271,429 |   |

 

**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 March 31, 2005 decreased by $1.7 million to a loss of$736 primarily as a result of the adjustment to the tax provision associatedwith the change in deferred tax liabilities related to book-tax differencesrecorded in connection with fresh-start accounting and other accountingadjustments referred to above. In addition, as a result of certain of theseadjustments, the Company’s statement of cash flows for the three months endedMarch 31, 2005 has been restated.  Cashflows used in operating activities from continuing operations for the threemonths ended March 31, 2005 increased by $1,850.

The following tables summarizethe effects of the adjustments on the consolidated statements of operations andcash flows for the three month period ended March 31, 2005.

ConsolidatedStatement of Operations:

|                                                                               | ** ** | **Three Months Ended March 31, 2005** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **As Originally  Reported (1)**                      | ** ** | **Adjustments  Increase   (Decrease)** | ** ** | **As Restated** | ** ** |
| **Continuing  Operations**                                                    | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                                     |       | $                                                              | 110,291    |   | $ | 93 |   | $ | 110,384 |   |
| Gross profit                                                                  |       | 33,796                                                         |       | 227 |   | 34,023 |   |
| Operating income                                                              |       | 6,511                                                          |       | (1,169 | ) | 5,342 |   |
|                                                                          |       |                                                           |       |   |   |   |   |
| **Income (loss)  applicable to common shares:**                               | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Continuing operations                                                         |       | $                                                              | 428        |   | $ | (1,726 | ) | $ | (1,298 | ) |
| Discontinued operations                                                       |       | 562                                                            |       | — |   | 562 |   |
| Net income  (loss)                                                            |       | $                                                              | 990        |   | $ | (1,726 | ) | $ | (736 | ) |
|                                                                          |       |                                                           |       |   |   |   |   |
| **Basic  and diluted income loss per share applicable to common shares (1):** | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Continuing operations                                                         |       | $                                                              | 0.03       |   | $ | (0.13 | ) | $ | (0.10 | ) |
| Discontinued operations                                                       |       | 0.04                                                           |       | — |   | 0.04 |   |
| Net income                                                                    |       | $                                                              | 0.07       |   | $ | (0.13 | ) | $ | (0.06 | ) |

 

8

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Consolidated Statement of Cash Flows from Continuing Operations:
|                                                       | ** ** | **Three Months Ended March 31, 2005** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                            | ** ** | **As Originally Reported  (1)**                      | ** ** | **Adjustments Increase   (Decrease)** | ** ** | **As Restated** | ** ** |
| **Continuing  Operations:**                           |       |                                                           |       |   |   |   |   |
| Net cash flows  used in operating activities          |       | $                                                              | 9,581      |   | $ | 1,850 |   | $ | 11,431 |   |
| Net cash flows  used in investing activities          |       | $                                                              | 1,504      |   | $ | — |   | $ | 1,504 |   |
| Net cash flows  provided by financing activities      |       | $                                                              | 13,276     |   | $ | 183 |   | $ | 13,459 |   |
| Effect of  exchange rate on cash and cash equivalents |       | $                                                              | (576       | ) | $ | 1,563 |   | $ | 987 |   |
| Cash and cash  equivalents December 31, 2004          |       | $                                                              | 5,622      |   | $ | 411 |   | $ | 6,033 |   |
| Cash and cash  equivalents March 31, 2005             |       | $                                                              | 7,237      |   | $ | (307 | ) | $ | 7,544 |   |

----

(1) Amounts for “AsOriginally Reported” have been adjusted for the Company’s discontinuedoperations as described in Note 5 – *Discontinued Operations*tothe consolidated financial statements.

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

***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 occurring afterDecember 31, 2006. Earlier adoption is permitted at the beginning of afiscal year, provided the Company has not yet issued financial statements,including for interim periods, for that fiscal year. We plan to adopt SFASNo. 155 effective January 1, 2007 and do not expect the adoption tohave a material impact on our financial statements.

***InventoryCosts.***  During the year ended December 31, 2004,the Company adopted SFAS No. 151, “Inventory Costs,” which clarifies thatabnormal amounts of idle facility expense, freight, handling costs, and wastedmaterial (i.e., spoilage) should be recognized as current-period charges andrequires the allocation of fixed production overheads to inventory based on thenormal capacity of the production facilities. Adoption of SFAS No. 151 hasnot materially impacted our financial statements.

***Stock-Based Compensation****.***In December 2004, theFASB issued SFAS No. 123 (revised 2004) “Share-Based Payment,” (“SFAS No.123(R)”), which is a revision of SFAS No. 123, *Accountingfor Stock-Based Compensation* (“SFAS No. 123”). SFAS No. 123(R)supersedes APB Opinion No. 25, *Accounting for StockIssued to Employees* (“Opinion 25”), and amends SFAS No. 95, *Statement of Cash Flows*. Generally, the approach in SFAS No.123(R) is similar to the approach described in SFAS No. 123. However, SFAS No.123(R) requires all share-based payments to employees, including grants ofemployee stock options, to be recognized in the income statement based on theirfair values. The Company adopted SFAS No. 123(R) on January 1, 2006 utilizingthe modified prospective method in which compensation cost is recognizedbeginning with the effective date, (a) based on the requirements of SFAS No.123(R) for all share-based payments granted after the effective date and (b)based on the requirements of SFAS No. 123 for all awards granted to employeesprior to the effective date of SFAS No. 123(R) that remain unvested on theeffective date. The Company recorded compensation cost of $116 as selling,general and administrative expense for the three months ended March 31, 2006.

9

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As of March 31, 2006, 1,206,725 options to purchase shares were issuedand outstanding under the Directors Plan, the Stock Incentive Plan and other specificagreements.

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 March 31, 2006:
| Weighted average fair value |   | $       | 7.41   |   |
|-----------------------------|--------|---------|--------|--------|
|                        |   |    |   |
| Assumptions  used:          |   |    |   |
| Expected  dividend yield    |   | 0.00    | %      |
| Expected  volatility        |   | 40.92   | %      |
| Risk-free  interest rate    |   | 4.65    | %      |
| Expected life               |   | 6 years |   |

 

Changes in stock options during the threemonths ended March 31, 2006, are as follows:

|                                           | ** ** | **Shares Under   Options** | ** ** | **Weighted   Average   Exercise Price** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|
| Options  outstanding at December 31, 2005 |       | 923,266                    |       | $                                       | 12.84      |   |
| Granted                                   |       | 302,825                    |       | $                                       | 15.75      |   |
| Exercised                                 |       | —                     |       | $                                       | —     |   |
| Cancelled or expired                      |       | (19,366                    | )          | $                                       | 12.97      |   |
| Options  outstanding at March 31, 2006    |       | 1,206,725                  |       | $                                       | 13.57      |   |
|                                      |       |                       |       |                                    |       |
| Options exercisable at  March 31, 2006    |       | 707,650                    |       | $                                       | 12.77      |   |

 

For the three months endedMarch 31, 2005, in accordance with the modified prospective transitionmethod, our condensed consolidated financial statements do not include theimpact of SFAS No. 123(R). Accordingly, no compensation expense related tostock option awards was recognized for the three months ended March 31,2005, because all stock options granted had an exercise price equal to the fairmarket value of the underlying common stock on the date of grant. The followingtable shows the effect on net earnings and earnings per share as if thefair-value-based method of accounting had been applied to all outstanding andunvested stock option awards prior to adoption of SFAS No. 123(R). For purposesof this pro forma disclosure, the estimated fair value of the stock optionaward is assumed to be expensed over the award’s vesting periods.
|                                                                                                              | ** ** | **Three Months   Ended  March 31, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                                                   | ** ** | **(Restated)**                                               | ** ** |
| ** **                                                                                                   | ** ** | ** **                                                   | ** ** |
| Loss from  continuing operations                                                                             |       | $                                                            | (1,298     | ) |
| 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     |       | (256                                                         | )          |
| Pro forma loss  from continuing operations                                                                   |       | $                                                            | (1,554     | ) |
| Basic and  diluted loss from continuing operations per share                                                 |       |                                                         |       |
| As reported                                                                                                  |       | $                                                            | (0.10      | ) |
| Pro forma                                                                                                    |       | $                                                            | (0.12      | ) |

 

At March 31, 2006, the totalcompensation cost related to non-vested awards not yet recognized wasapproximately $3,293 to be recognized through March 31, 2009 with a weightedaverage expense period of approximately 2.7 years.

10

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

As discussed in the Company’s annual reporton Form 10-K for the year ended December 31, 2005, three operations wereaccounted for at December 31, 2005 as 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.

The schedule below sets forth certain information related to GenSet,Soltec and Metalservice and Plant Rental’s operations included in discontinuedoperations for the three months ended March 31, 2005:

11

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|                                                 | ** ** | **Three Months Ended March 31, 2005** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                      | ** ** | **GenSet**                                                     | ** ** | **Soltec &   Metalservice** | ** ** | **Plant Rental** | ** ** |
| Net sales                                       |       | $                                                              | 9,106      |   | $ | 1,734 |   | $ | 2,470 |   |
| Operating  expenses                             |       | 8,741                                                          |       | 1,459 |   | 2,250 |   |
| Other income  (expenses)                        |       | (48                                                            | )          | 19 |   | (17 | ) |
| Income tax  provision                           |       | 412                                                            |       | 53 |   | 60 |   |
| Net income (loss) from  discontinued operations |       | $                                                              | (95        | ) | $ | 241 |   | $ | 143 |   |

 

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** | ** ** |
| Cash                                    |       | $                                         | 1,206      |   | $ | 1,532 |   |
| Accounts  receivable                    |       | 2,887                                     |       | 2,862 |   |
| Inventories                             |       | 2,244                                     |       | — |   |
| Property and  equipment, net            |       | 671                                       |       | 2,122 |   |
| Goodwill and  other intangible assets   |       | 2,183                                     |       | 688 |   |
| Other assets                            |       | 282                                       |       | — |   |
|                                    |       | $                                         | 9,473      |   | $ | 7,204 |   |
|                                    |       |                                      |       |   |   |
| Accounts payable and  other liabilities |       | $                                         | 1,441      |   | $ | 2,714 |   |

 

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, aninvestment 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 in the second quarter of 2006.

AtMarch 31, 2006, the TecMo operations met the criteria of assets held for saleand as such the assets and liabilities have been classified as held for saleand the results of operations have been presented as discontinued operations.  As a result, the Company recorded animpairment loss of $663 during the three months ended March 31, 2006.  The schedule below sets forth certaininformation related to TecMo’s operations included in discontinued operationsin the accompanying financial statements.
|                                             | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| Net sales                                   |       | $                                                    | 2,774      |   | $ | 2,440 |   |
| Operating  expenses                         |       | 2,135                                                |       | 1,956 |   |
| Other income                                |       | (2                                                   | )          | (11 | ) |
| Impairment loss                             |       | (663                                                 | )          | — |   |
| Income tax  provision                       |       | 268                                                  |       | 222 |   |
| Income (loss)  from discontinued operations |       | $                                                    | (290       | ) | $ | 273 |   |

 

12

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**Select balance sheet items of TecMo are as follows:**

 

|                                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| Cash                                    |       | $                  | 698        |                  | $          | 385 |   |
| Accounts  receivable                    |       | 3,478              |       | 3,379                 |       |
| Inventory                               |       | 2,511              |       | 2,188                 |       |
| Property and  equipment, net            |       | 586                |       | 1,188                 |       |
| Goodwill and  other intangible assets   |       | 4,158              |       | 4,158                 |       |
| Other assets                            |       | 356                |       | 348                   |       |
|                                    |       | $                  | 11,787     |                  | $          | 11,646 |   |
|                                    |       |               |       |                  |       |
| Accounts payable and  other liabilities |       | $                  | 4,186      |                  | $          | 3,813 |   |

 

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

The composition ofinventories was as follows:
|                 | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------|------------|--------------------------|------------|-----------------------------|------------|
|            |       |                     |       |                        |       |
| Raw materials   |       | $                        | 20,884     |                        | $          | 19,524 |   |
| Work-in-process |       | 34,350                   |       | 32,788                      |       |
| Finished goods  |       | 67,760                   |       | 69,542                      |       |
|            |       | 122,994                  |       | 121,854                     |       |
| LIFO reserve    |       | (6,333                   | )          | (5,183                      | )          |
|            |       | $                        | 116,661    |                        | $          | 116,671 |   |

 

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

The composition ofintangibles was as follows:
|                                     | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                |       |                     |       |                        |       |
| Goodwill                            |       | $                        | 205,542    |                        | $          | 203,643 |   |
| Patents and  customer relationships |       | 38,244                   |       | 37,984                      |       |
| Trademarks                          |       | 33,403                   |       | 33,403                      |       |
|                                |       | 277,189                  |       | 275,030                     |       |
| Accumulated  amortization           |       | (6,066                   | )          | (5,338                      | )          |
|                                |       | $                        | 271,123    |                        | $          | 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 thoseestimates.  Based on the annualimpairment analysis completed in the fourth quarter of 2005, no adjustment tothe carrying value of goodwill for the Company’s continuing operations was deemednecessary as of December 31, 2005.  Asdiscussed in Note 4 – Discontinued Operations to the consolidated financialstatements, other adjustments have been made to the March 31, 2006 and December31, 2005 carrying value of goodwill as it relates to the Company’s discontinuedoperations.

13

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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  March 31, 2006    |       | $                        | 205,542    |   |

 

Amortization expenseprincipally related to intangibles with identifiable lives and deferredfinancing costs amounted to $731 and $881 for the three months ended March 31,2006 and 2005, respectively.  Estimatedamortization expense for each of the next five fiscal years has not changedsignificantly from the amounts disclosed in the Company’s annual report on Form10-K for the year ended December 31, 2005.

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

Comprehensive loss totaled $1,918 and $5,146 for thethree months ended March 31, 2006 and 2005, respectively, and was determined asfollows:
|                               | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------|------------|------------------------------------------------------|------------|
| ** **                    | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| ** **                    | ** ** | ** **                                           | ** ** | **(Restated)** | ** ** |
| Net loss                      |       | $                                                    | (1,378     | ) | $ | (736 | ) |
| Foreign currency  translation |       | (540                                                 | )          | (4,410 | ) |
| Comprehensive loss            |       | $                                                    | (1,918     | ) | $ | (5,146 | ) |

 

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

The composition of debt and capital leaseobligations was as follows:
|                                                                                                                    | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                         | ** ** | **2006**           | ** ** | **2005**              | ** ** |
|                                                                                                               |       |               |       |                  |       |
| Working Capital  Facility                                                                                          |       | $                  | 36,865     |                  | $          | 31,796 |   |
| Second-Lien  Facility                                                                                              |       | 30,000             |       | 30,000                |       |
| Term A Loan                                                                                                        |       | 7,357              |       | 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                                                                                                     |       | 15,425             |       | 15,496                |       |
| Other                                                                                                              |       | 509                |       | —                |       |
|                                                                                                               |       | 265,156            |       | 259,890               |       |
| Current  maturities and working capital facility                                                                   |       | (49,809            | )          | (43,679               | )          |
|                                                                                                               |       | $                  | 215,347    |                  | $          | 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”), a $2,050 delayed draw term loan (the “Delayed Draw Term Loan”) and a$70,000 revolving loan commitment (the “Revolver”).  Up to $25,000 of the Revolver is availablefor letters of credit and $12,715 of letters of credit were outstanding as ofMarch 31, 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 $20,421 as of March 31, 2006.  The Revolverterminates on November 22, 2009.  As ofMarch 31, 2006, we did not have access to the Delayed Draw Term Loan.

14

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Borrowingsunder the Term Loan and the Revolver accrue interest, at the Company’s option,at LIBOR (4.83% as of March 31, 2006) plus 2.25% or the prime rate (7.75% as ofMarch 31, 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 ifcertain conditions are met.  Unusedportions of the Revolver are charged 50 basis points as of March 31, 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 thecapital stock of substantially all of the Company’s subsidiaries, subject tocertain limitations 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.

The Revolveris referred to as the Working Capital Facility and includes a lockbox agreementwhich provides all receipts to be swept daily to reduce borrowings outstandingunder the revolving line of credit. These agreements, combined with the existence of a subjective MaterialAdverse Effect (“MAE”) clause, cause the Working Capital Facility and Term Loanto be classified as a current liability. However, the Company does not expect to repay, or be required to repay,within one year, the balance of the Working Capital Facility classified as acurrent liability. The Company’s intent is to continually use the WorkingCapital Facility throughout the life of the agreement to fund working capitalneeds.  The MAE clause, which is atypical requirement in commercial credit agreements, allows the lender torequire the loan to become due if it determines there has been a materialadverse effect on the Company’s operations, business, assets or prospects. InMarch 2005, we entered into amendments which modified a financial covenant andenabled us to extend our Second-Lien Facility.  In July 2005, August 2005, October 2005 andNovember 2005, the Credit Agreement was amended to modify certain financial andnon-financial covenants. On December 29, 2005, the Company further amended theCredit Agreement to permit the sale of the stock of GenSet and Soltec, and todecrease both the total loan commitment and 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 4of the Notes to Consolidated Financial Statements.  In May 2006, the Credit Agreement was amendedto (i) delete the EBITDA covenant from the agreement, (ii) modify the minimumfixed 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 whichoccurs during the quarter ending March 31, 2010, and (ii) modify the minimumfixed charge ratio to 1.0 through June 30, 2007, 1.10 at September 30, 2007 andthereafter and (iii) establish a minimum availability requirement of $5million.

***Second-LienFacility***

The Companyand its U.S. subsidiaries became borrowers under a $20,000 Second-Lien Term Loanfacility (the “Second-Lien Facility”) which was entered into on July 29, 2004.  The Second-Lien Facility is secured by asecond lien on substantially all of the assets of the Company.  The Second-Lien Facility accrues interest atthe Company’s option, at LIBOR (4.83% as of March 31, 2006) plus 4.50%, or analternative base rate of the greater of (a) the Prime Rate or (b) the federalfunds rate plus one half of 1.00% plus 3.50%.  The Second-Lien Facility, which matures onNovember 7, 2008, restricts the amount of long-term debt the Company may incurand has other customary provisions including financial and nonfinancialcovenants.  On November 5, 2005, theSecond-Lien Facility was amended to increase the borrowings to $30,000.  Proceeds were used to repay the Revolver. InMarch 2005, August 2005, October 2005, and in June 2006, the Second-LienFacility was amended to modify certain financial and non-financial covenants.  On July 21, 2006, the Company amended theSecond-Lien Facility to (i) remove the financial covenant compliance until thethird quarter of 2007, (ii) extend the pre-payment penalty date to October 31,2007, and (iii) increase the amount of borrowings from $30 million to $50million.  The proceeds were used to repaythe Term Loan in full, with the balance of the proceeds being used to pay aportion of the Revolver.

15

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***CovenantCompliance***

At March 31,2006, the Company was in compliance with the financial covenants, as relaxed inthe amended agreements. The Company expects to remain in compliance with thefinancial covenants during 2006 by achieving our 2006 financial plan, whichincludes realizing sales of new products to be introduced throughout 2006,price increases for existing products, and successfully implementing certaincost reduction initiatives including its global continuous improvement programreferred to as TCP and its program for foreign sourcing of manufacturing.  The Company also is actively exploring thesale of one additional non-core business unit to generate additional liquidity. If the Company is not successful inachieving the 2006 financial plan, the Company could also pursue otheralternatives to repay debt and improve liquidity. These alternatives includedeferral of certain capital expenditures and reduction of costs. If the Companyis not successful in achieving the 2006 financial plan, as well as theaforementioned alternatives, the Company may not be in compliance with therevised financial covenants and would seek an amendment to the Credit Agreementand the Second-Lien Facility.  There canbe no assurance that the Company could obtain such amendments, failure toobtain an amendment would result in a default under the Credit Agreement andthe Second-Lien Facility which could result in a material adverse impact on theCompany’s financial condition.

***SeniorSubordinated Notes***

The Companyis the issuer of $175,000 in aggregate principal of 91⁄4% Senior SubordinatedNotes due in 2014, of which more than 99% were exchanged for registered notes(the “Senior Subordinated Notes”).  TheSenior Subordinated Notes are unsecured senior subordinated obligations and aresubordinated in right of payment to all existing and future Senior Indebtedness(as defined in the indenture).  Interestaccrues at the rate of 91⁄4% per annum and is payable semi-annually in arrears onFebruary 1 and August 1 of each year. In an amendment dated May 9, 2006, theCompany is now required, subject to certain conditions in the Credit Agreementand Second Lien Facility, to use the amount of “Excess Cash Flow,” as definedin the Indenture, to either purchase notes through an offer of 101% orpermanently repay senior debt within 105 days after year end.  

On July 21,2006, the Company commenced a consent solicitation seeking amendments to theindenture governing Notes and waiving existing defaults under that indenturerelated to the late filing of the Company’s 2005 Form 10-K and first quarter2006 Form 10-Q with the Securities and Exchange Commission.  The amendments would extend the time forfiling these reports to August 21, 2006 and for additional fees that couldaggregate to $2 million would also allow the Company to elect to extend thetime within which the Company must file its second quarter 2006 Form 10-Q to nolater than December 17, 2006.  Under theconsent solicitation, the indenture would be amended to provide for the paymentof additional Special Interest on the Notes, initially at a rate of 1.25% perannum.  The Special Interest is subjectto adjustment increasing to 1.75% if the consolidated leverage ratio exceeds6.00 with incremental interest increases to a maximum of 2.75% if theconsolidated 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.  Asof July 31, 2006, holders of 100% of the outstanding Notes have consentedto the solicitation.

Until theexecution of the amendments to the indenture, the Company has the right to (i)terminate the solicitation for any reason, (ii) amend the terms of thesolicitation, (iii) modify the form or amount of the consideration to be paidpursuant to the solicitation or (iv) waive any of the conditions to theSolicitation, subject to applicable law.

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%.

***Parent Company Financial Information***

Borrowingsunder the Amended 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 Amended Credit Agreement containsrestrictions that limit Industries’ ability to dividend cash and other assetsto its parent company, Thermadyne Holdings Corporation.  At March 31, 2006 and December 31, 2005, theonly asset carried on the parent-company books of Thermadyne HoldingsCorporation was its investment in Industries, and the only liabilities were the$175,000 of Senior Subordinated Notes. As a result of the limited assets and liabilities recorded at the parentcompany level, separate financial statements have not been presented forThermadyne 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 (4.83% as of March 31, 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.

16

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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 March 31,2006, the Company recorded a fair value adjustment to the portion of its fixedrate long-term debt that is hedged.  Afair value adjustment of $1,098 was recorded for the three months ended March31, 2006 as a decrease to long-term obligations, with the related value for theinterest rate swap’s non-current portion recorded in other long-termliabilities.  At March 31, 2006 the fairvalue of the interest rate swap of $2,515 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 ended March 31, 2006, the Company realized anincrease in its interest expense as a result of the interest rate swap of $43.For the three months ended March 31, 2005, the Company realized a reductionin its interest expense as a result of the interest rate swap of $141.

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

In connection with the Company’s emergence fromChapter 11 bankruptcy protection on May 23, 2003, three classes of warrantswere issued that allow the holders to purchase the Company’s common stock inthe future at stated exercise prices. The key financial elements of thewarrants are as follows:

|                  | ** ** | ** **           | ** ** | ** **         | ** ** | ** **     | ** **   | **Warrants**        | ** ** |
|------------------|------------|----------------------|------------|--------------------|------------|----------------|--------------|---------------------|------------|
| ** **       | ** ** | **Warrants**         | ** ** | ** **         | ** ** | ** **     | ** **   | **Issued and** | ** ** |
| ** **       | ** ** | **Issued**           | ** ** | ** **         | ** ** | ** **     | ** **   | **Outstanding**     | ** ** |
| ** **       | ** ** | **to Purchase** | ** ** | **Exercise**       | ** ** | ** **     | ** **   | **as of**      | ** ** |
| ** **       | ** ** | **Common**           | ** ** | **Price**          | ** ** | **Expiration** | ** **   | **March 31,**  | ** ** |
| ** **       | ** ** | **Stock**            | ** ** | **Per Share** | ** ** | **Date**       | ** **   | **2006**            | ** ** |
|             |       |                 |       |               |       |           |         |                |       |
| Class A Warrants |       | 1,157,000            |       | $                  | 13.85      |           | May 23, 2004 |                | —     |   |
| Class B Warrants |       | 700,000              |       | $                  | 20.78      |           | May 23, 2006 |                | 700,000    |   |
| Class C Warrants |       | 271,429              |       | $                  | 27.70      |           | May 23, 2006 |                | 271,429    |   |

 

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 in connectionwith recording the reorganization entries and establishing the openingfresh-start balance sheet.

Therewere no warrants exercised during the three-month periods ended March 31, 2006and March 31, 2005.  All Class B andClass C warrants expired on May 23, 2006.

**12.          Income Taxes**

The Company’s tax provisionrelates primarily to its foreign subsidiaries, less reductions in deferred taxliabilities related to the decrease in the excess of book-tax basis establishedas part of fresh-start accounting because of the book loss in the three monthsended March 31, 2006.  The tax benefitsof losses incurred in the U.S. are fully reserved with a valuation allowancebased on the Company’s current tax position and estimates of taxable income forthe foreseeable future.

17

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**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 effective January1, 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 continues to fundthe cost of health care and life insurance benefits in the year incurred.

Net periodic pension andother postretirement benefit costs include the following components:

|                                               | ** ** | **Pension Benefits**                            | ** ** | **Other Postretirement Benefits**          | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                    | ** ** | **Three Months Ended March 31,** | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **                                    | ** ** | **2006**                                             | ** ** | **2005**                                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| Components of  the net periodic benefit cost: |       |                                                 |       |                                                 |       |   |   |   |   |
| Service Cost                                  |       | —                                               |       | $                                                    | —     |   | $ | 289 |   | $ | 308 |   |
| Interest Cost                                 |       | 286                                                  |       | 285                                                  |       | 260 |   | 296 |   |
| Expected return  on plan assets               |       | (286                                                 | )          | (285                                                 | )          | — |   | — |   |
| Recognized  (gain) loss                       |       | —                                               |       | —                                               |       | (21 | ) | 11 |   |
| Net periodic benefit  cost                    |       | $                                                    | —     |                                                 | $          | — |   | $ | 528 |   | $ | 615 |   |
|                                               |            |                                                      |            |                                                      |            |  |  |  |  |  |  |  |  |

 

***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.  Approximately 2.7 thousandshares were purchased under this plan during the quarter ended March 31, 2006.

18

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**14.          Segment Information**

Although the Company’s continuing operations arecomprised of several product lines and operating locations, similarity ofproducts, paths to market, end users, and production processes results inperformance evaluation and decisions regarding allocation of resources beingmade on a combined basis, and accordingly, management has concluded the Companyoperates in one segment. Reportable geographic regions are the United States,Europe and Australia/Asia.

Summarizedfinancial information concerning the Company’s geographic regions for itscontinuing operations is shown in the following table:

|                         | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------|------------|------------------------------------------------------|------------|
| ** **              | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| ** **              | ** ** | ** **                                           | ** ** | **(Restated)** | ** ** |
| Net Sales               |       |                                                 |       |   |   |
| North America           |       | $                                                    | 81,303     |   | $ | 71,772 |   |
| Europe                  |       | 7,260                                                |       | 6,694 |   |
| Australia / Asia        |       | 17,509                                               |       | 16,787 |   |
| All other international |       | 16,787                                               |       | 15,131 |   |
|                    |       | $                                                    | 122,859    |   | $ | 110,384 |   |

 

|                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **              | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| Indentifiable  assets   |       |               |       |                  |       |
| North America           |       | $                  | 39,110     |                  | $          | 37,190 |   |
| Europe                  |       | 1,265              |       | 1,347                 |       |
| Australia / Asia        |       | 8,393              |       | 8,714                 |       |
| All other international |       | 11,912             |       | 16,074                |       |
|                    |       | $                  | 60,680     |                  | $          | 63,325 |   |

 

***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 March 31,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| ** **                                           | ** ** | ** **                                           | ** ** | **(Restated)** | ** ** |
| ** **                                           | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Gas equipment                                        |       | $                                                    | 48,484     |   | $ | 42,465 |   |
| Welding  equipment                                   |       | 13,268                                               |       | 12,284 |   |
| Arc accessories                                      |       | 33,810                                               |       | 30,417 |   |
| Plasma power  supplies, torches and consumable parts |       | 17,287                                               |       | 16,054 |   |
| Filler metals                                        |       | 10,010                                               |       | 9,164 |   |
|                                                 |       | $                                                    | 122,859    |   | $ | 110,384 |   |

 

19

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**15.          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:

 

20

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**THERMADYNEHOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**March 31, 2006**
| ** **                                                 | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                 | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                 | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                                 |       |            |       |           |       |           |       |             |       |             |       |
| Current Assets:                                            |       |            |       |           |       |           |       |             |       |             |       |
| Cash and cash  equivalents                                 |       | $               | —     |           | $          | 1,072          |       | $                | 6,134      |             | $          | — |   | $ | 7,206 |   |
| Accounts  receivable, net                                  |       | —          |       | 71,569         |       | 12,930         |       | —           |       | 84,499           |       |
| Inventories                                                |       | —          |       | 97,390         |       | 19,271         |       | —           |       | 116,661          |       |
| Prepaid expenses  and other                                |       | —          |       | 5,841          |       | 1,208          |       | —           |       | 7,049            |       |
| Assets held for  sale                                      |       | —          |       | —         |       | 11,787         |       | —           |       | 11,787           |       |
| Current deferred  tax assets                               |       | —          |       | 1,861          |       | —         |       | —           |       | 1,861            |       |
| Total current  assets                                      |       | —          |       | 177,733        |       | 51,330         |       | —           |       | 229,063          |       |
| Property, plant  and equipment, net                        |       | —          |       | 37,789         |       | 15,173         |       | —           |       | 52,962           |       |
| Goodwill                                                   |       | —          |       | 205,542        |       | —         |       | —           |       | 205,542          |       |
| Intangibles, net                                           |       | —          |       | 59,090         |       | 6,491          |       | —           |       | 65,581           |       |
| Other assets                                               |       | 3,926           |       | 2,888          |       | 904            |       | —           |       | 7,718            |       |
| Investment in  and advances to subsidiaries                |       | 172,820         |       | —         |       | —         |       | (172,820         | )          | —           |       |
| Total assets                                               |       | $               | 176,746    |           | $          | 483,042        |       | $                | 73,898     |             | $          | (172,820 | ) | $ | 560,866 |   |
|                                                       |       |            |       |           |       |           |       |             |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY (DEFICIT)**   |       |            |       |           |       |           |       |             |       |             |       |
| Current Liabilities:                                       |       |            |       |           |       |           |       |             |       |             |       |
| Accounts payable                                           |       | $               | —     |           | $          | 32,701         |       | $                | 5,633      |             | $          | — |   | $ | 38,334 |   |
| Accrued and  other liabilities                             |       | —          |       | 25,223         |       | 2,252          |       | —           |       | 27,475           |       |
| Accrued interest                                           |       | 2,710           |       | 432            |       | —         |       | —           |       | 3,142            |       |
| Income taxes  payable                                      |       | —          |       | 1,959          |       | (330           | )          | —           |       | 1,629            |       |
| Liabilities  applicable to assets held for sale            |       |            |       | —         |       | 4,185          |       |             |       | 4,185            |       |
| Working capital                                            |       | —          |       | 36,865         |       | —         |       | —           |       | 36,865           |       |
| Current  maturities of long-term obligations               |       | —          |       | 11,162         |       | 1,782          |       | —           |       | 12,944           |       |
| Total current liabilities                                  |       | 2,710           |       | 108,342        |       | 13,522         |       | —           |       | 124,574          |       |
| Long-term  obligations, less current maturities            |       | 175,000         |       | 38,825         |       | 1,522          |       | —           |       | 215,347          |       |
| Deferred  tax liabilities                                  |       | —          |       | 55,901         |       | (144           | )          | —           |       | 55,757           |       |
| Other  long-term liabilities                               |       |            |       | 42,081         |       | 598            |       | —           |       | 42,679           |       |
| Minority  Interest                                         |       | —          |       | —         |       | 302            |       | —           |       | 302              |       |
| Shareholders’  equity (deficit):                      |       |            |       |           |       |           |       |             |       |             |       |
| Common stock                                               |       | 133             |       | —         |       | —         |       | —           |       | 133              |       |
| Additional  paid-in-capital                                |       | 183,713         |       | —         |       | —         |       | —           |       | 183,713          |       |
| Retained  earnings (accumulated deficit)                   |       | (66,949         | )          | 11,298         |       | (37,421        | )          | 26,123           |       | (66,949          | )          |
| Accumulated  other comprehensive income (loss)             |       | 5,310           |       | (45,095        | )          | 6,851          |       | 38,244           |       | 5,310            |       |
| Total  shareholders’ equity (deficit)                 |       | 122,207         |       | (33,797        | )          | (30,570        | )          | 64,367           |       | 122,207          |       |
| Net  equity and advances to / from subsidiaries            |       | (123,171        | )          | 271,690        |       | 88,668         |       | (237,187         | )          | —           |       |
|                                                       |       |            |       |           |       |           |       |             |       |             |       |
| Total liabilities and  shareholders’ equity (deficit) |       | $               | 176,746    |           | $          | 483,042        |       | $                | 73,898     |             | $          | (172,820 | ) | $ | 560,866 |   |

 

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** **

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING BALANCE SHEET**

**DECEMBER 31, 2005**

 
| ** **                                                | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **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 |   |

 

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** **

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**THREE MONTHS ENDED MARCH 31, 2006**

 
| ** **                                                                                         | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                         | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Net sales                                                                                          |       | $               | —     |           | $          | 125,922        |       | $                | 20,341     |             | $          | (23,404 | ) | $ | 122,859 |   |
| Cost of goods  sold                                                                                |       | —          |       | 92,272         |       | 18,000         |       | (22,383          | )          | 87,889           |       |
| Gross Margin                                                                                       |       | —          |       | 33,650         |       | 2,341          |       | (1,021           | )          | 34,970           |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Selling, general  and administrative expenses                                                      |       | 86              |       | 23,891         |       | 2,864          |       | —           |       | 26,841           |       |
| Amortization of  intangibles                                                                       |       | —          |       | 718            |       | 13             |       | —           |       | 731              |       |
| Net periodic  postretirement benefits                                                              |       | —          |       | 528            |       | —         |       | —           |       | 528              |       |
| Operating income (loss)                                                                            |       | (86             | )          | 8,513          |       | (536           | )          | (1,021           | )          | 6,870            |       |
| Other income  (expense):                                                                           |       |            |       |           |       |           |       |             |       |             |       |
| Interest, net                                                                                      |       | (4,090          | )          | (2,071         | )          | (356           | )          | —           |       | (6,517           | )          |
| Amortization of deferred financing costs                                                           |       | (125            | )          | (207           | )          | —         |       | —           |       | (332             | )          |
| Equity in net income (loss) of subsidiaries                                                        |       | 2,923           |       | —         |       | —         |       | (2,923           | )          | —           |       |
| Minority interest                                                                                  |       | —          |       | (61            | )          | —         |       | —           |       | (61              | )          |
| Income (loss)  from continuing operations before income tax provision and discontinued  operations |       | (1,378          | )          | 6,174          |       | (892           | )          | (3,944           | )          | (40              | )          |
| Income tax  provision                                                                              |       | —          |       | 694            |       | 354            |       | —           |       | 1,048            |       |
| Income (loss)  from continuing operations                                                          |       | (1,378          | )          | 5,480          |       | (1,246         | )          | (3,944           | )          | (1,088           | )          |
| Discontinued  Operations:                                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Loss on disposition  of discontinued operations, net of tax                                        |       | —          |       | —         |       | (290           | )          | —           |       | (290             | )          |
| Net income (loss)  applicable to common shares                                                     |       | $               | (1,378     | )              | $          | 5,480          |       | $                | (1,536     | )                | $          | (3,944 | ) | $ | (1,378 | ) |

 

23

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**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**THREE MONTHS ENDED MARCH 31, 2005**

**(Restated)**

 
| ** **                                                                                         | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                         | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Net sales                                                                                          |       | $               | —     |           | $          | 113,257        |       | $                | 14,398     |             | $          | (17,271 | ) | $ | 110,384 |   |
| Cost of goods  sold                                                                                |       | —          |       | 81,672         |       | 11,705         |       | (17,016          | )          | 76,361           |       |
| Gross Margin                                                                                       |       | —          |       | 31,585         |       | 2,693          |       | (255             | )          | 34,023           |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Selling, general  and administrative expenses                                                      |       | —          |       | 22,146         |       | 5,113          |       | —           |       | 27,259           |       |
| Amortization of  intangibles                                                                       |       | —          |       | 784            |       | 97             |       | —           |       | 881              |       |
| Net periodic  postretirement benefits                                                              |       | —          |       | 541            |       | —         |       | —           |       | 541              |       |
| Operating income (loss)                                                                            |       | —          |       | 8,114          |       | (2,517         | )          | (255             | )          | 5,342            |       |
| Other income  (expense):                                                                           |       |            |       |           |       |           |       |             |       |             |       |
| Interest, net                                                                                      |       | (3,771          | )          | (1,447         | )          | (222           | )          | —           |       | (5,440           | )          |
| Amortization of deferred financing costs                                                           |       | (125            | )          | (305           | )          | —         |       | —           |       | (430             | )          |
| Equity in net income (loss) of subsidiaries                                                        |       | 3,160           |       | —         |       | —         |       | (3,160           | )          | —           |       |
| Other, net                                                                                         |       | —          |       |           |       | (53            | )          | —           |       | (53              | )          |
| Income (loss)  from continuing operations before income tax provision and discontinued  operations |       | (736            | )          | 6,362          |       | (2,792         | )          | (3,415           | )          | (581             | )          |
| Income tax  provision                                                                              |       | —          |       | 526            |       | 191            |       | —           |       | 717              |       |
| Income (loss)  from continuing operations                                                          |       | (736            | )          | 5,836          |       | 2,983          |       | (3,415           | )          | 1,298            |       |
| Discontinued  Operations:                                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Loss on  disposition of discontinued operations, net of tax                                        |       | —          |       | —         |       | 562            |       | —           |       | 562              |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Net income (loss)  applicable to common shares                                                     |       | $               | (736       | )              | $          | 5,836          |       | $                | (2,421     | )                | $          | (3,415 | ) | $ | (736 | ) |

** **

24

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** **

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS**

**THREE MONTHS ENDED MARCH 31, 2006**

 
| ** **                                                                             | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                             | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                             | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                             | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                   |       |            |       |           |       |           |       |             |       |             |       |
| Cash flows from  continuing operations:                                                |       |            |       |           |       |           |       |             |       |             |       |
| Net cash used in  operating activities                                                 |       | $               | (5,304     | )              | $          | (4,931         | )          | $                | (4,114     | )                | $          | (3,653 | ) | $ | (18,002 | ) |
| Cash flows from  investing activities:                                                 |       |            |       |           |       |           |       |             |       |             |       |
| Capital expenditures                                                                   |       | —          |       | (1,075         | )          | —         |       | —           |       | (1,075           | )          |
| Purchase of minority interest                                                          |       | —          |       | (3,954         | )          | —         |       | —           |       | (3,954           | )          |
| Proceeds from sales of assets                                                          |       | —          |       | 8,915          |       | —         |       | —           |       | 8,915            |       |
| Net cash  provided by investing activities                                             |       | —          |       | 3,886          |       | —         |       | —           |       | 3,886            |       |
| Cash flows from  financing activities:                                                 |       |            |       |           |       |           |       |             |       |             |       |
| Net borrowings under revolving credit facility                                         |       | —          |       | 3,993          |       | 1,406          |       | —           |       | 5,399            |       |
| Net repayments of long-term obligations                                                |       | —          |       | (330           | )          | —         |       | —           |       | (330             | )          |
| Proceeds from exercise of warrants                                                     |       | —          |       | 172            |       | —         |       | —           |       | 172              |       |
| Changes in net equity and advances to / from  subsidiaries and discontinued operations |       | 5,304           |       | (9,551         | )          | 3,273          |       | 3,653            |       | 2,679            |       |
| Net cash  provided by (used in) financing activities                                   |       | 5,304           |       | (5,716         | )          | 4,679          |       | 3,653            |       | 7,920            |       |
| Effect of  exchange rate changes on cash and cash equivalents                          |       | —          |       | 1,242          |       | (279           | )          | —           |       | 963              |       |
| Net cash  provided by (used in) continuing operations                                  |       | $               | —     |           | $          | (5,519         | )          | $                | 286        |             | $          | — |   | $ | (5,233 | ) |
|                                                                                   |       |            |       |           |       |           |       |             |       |             |       |
| Cash flows from  discontinued operations:                                              |       |            |       |           |       |           |       |             |       |             |       |
| Net cash  provided by operating activities                                             |       | $               | —     |           | $          | —         |       | $                | 594        |             | $          | — |   | $ | 594 |   |
| Net cash used in  investing activities                                                 |       | —          |       | —         |       | (151           | )          | —           |       | (151             | )          |
| Net cash used in  financing activities                                                 |       | —          |       | —         |       | (2,799         | )          | —           |       | (2,799           | )          |
| Effect of  exchange rate changes on cash and cash equivalents                          |       | —          |       | —         |       | (69            | )          | —           |       | (69              | )          |
| Net cash used in  discontinued operations                                              |       | $               | —     |           | $          | —         |       | $                | (2,425     | )                | $          | — |   | $ | (2,425 | ) |
|                                                                                   |       |            |       |           |       |           |       |             |       |             |       |
| Total decrease  in cash and cash equivalents                                           |       | $               | —     |           | $          | (5,519         | )          | $                | (2,139     | )                | $          | — |   | $ | (7,658 | ) |
| Total cash and  cash equivalents beginning of period                                   |       | —          |       | 6,591          |       | 8,971          |       | —           |       | 15,562           |       |
| Total cash and  cash equivalents end of period                                         |       | $               | —     |           | $          | 1,072          |       | $                | 6,832      |             | $          | — |   | $ | 7,904 |   |

 

25

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**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS**

**THREE MONTHS ENDED MARCH 31, 2005**

**(Restated)**

 
| ** **                                                    | ** ** | **Parent  Thermadyne  Holdings  Corporation** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------|------------|
| Cash flows from  continuing operations:                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net cash  provided by (used in) operating activities          |       | $                                             | (2,770     | )              | $          | 1,866                |       | $                | (5,386     | )                | $          | (5,141 | ) | $ | (11,431 | ) |
| Cash flows from  investing activities:                        |       |                                          |       |           |       |                 |       |             |       |             |       |
| Capital expenditures                                          |       | —                                        |       | (1,052         | )          | (452                 | )          | —           |       | (1,504           | )          |
| Proceeds from sales of assets                                 |       | —                                        |       | —         |       | —               |       | —           |       | —           |       |
| Net cash used in  investing activities                        |       | —                                        |       | (1,052         | )          | (452                 | )          | —           |       | (1,504           | )          |
| Cash flows from  financing activities:                        |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net repayments under revolving credit facility                |       | —                                        |       | 14,102         |       | 1,832                |       | —           |       | 15,934           |       |
| Net repayments under other credit facilities                  |       | —                                        |       | (948           | )          | (1,067               | )          | —           |       | (2,015           | )          |
| Financing fees                                                |       | —                                        |       | (365           | )          | (95                  | )          | —           |       | (460             | )          |
| Changes in net equity and advances to / from  subsidiaries    |       | 2,770                                         |       | (12,844        | )          | 4,933                |       | 5,141            |       | —           |       |
| Net cash  provided by (used in) financing activities          |       | 2,770                                         |       | (55            | )          | 5,603                |       | 5,141            |       | 13,459           |       |
| Effect of  exchange rate changes on cash and cash equivalents |       |                                          |       | (13            | )          | 1,000                |       |             |       | 987              |       |
| Net cash  provided by continuing operations                   |       | $                                             | —     |           | $          | 746                  |       | $                | 765        |             | $          | — |   | $ | 1,511 |   |
| Cash flows from  discontinued operations:                     |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net cash provided  by operating activities                    |       | $                                             | —     |           | $          | —               |       | $                | 2,675      |             | $          | — |   | $ | 2,675 |   |
| Net cash used in  investing activities                        |       | —                                        |       | —         |       | (352                 | )          | —           |       | (352             | )          |
| Net cash used in  financing activities                        |       | —                                        |       | —         |       | (1,832               | )          | —           |       | (1,832           | )          |
| Effect of  exchange rate changes on cash and cash equivalents |       | —                                        |       | —         |       | 593                  |       | —           |       | 593              |       |
| Net cash provided  by discontinued operations                 |       | $                                             | —     |           | $          | —               |       | $                | 1,084      |             | $          | — |   | $ | 1,084 |   |
|                                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Total decrease  in cash and cash equivalents                  |       | $                                             | —     |           | $          | 746                  |       | $                | 1,849      |             | $          | — |   | $ | 2,595 |   |
| Total cash and  cash equivalents beginning of period          |       | —                                        |       | 5,969          |       | 1,092                |       | —           |       | 7,061            |       |
| Total cash and  cash equivalents end of period                |       | $                                             | —     |           | $          | 6,715                |       | $                | 2,941      |             | $          | — |   | $ | 9,656 |   |

 

 

**16.          Minority Interests**

Minority shareholders held 10% of certain of theCompany’s South African and Italian subsidiaries.   During the first quarter of 2006, theCompany purchased the 10% minority interests in its two South Africansubsidiaries for approximately $3,954. Goodwill of approximately $1,899 was recorded in connection withapplying purchase accounting 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 shareholder agreement.  As of March 31, 2006, the maximum payment tosatisfy the put option is $364 based on the formula in the agreement.

26

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** **

**17.          Contingencies**

The Company and certainof its wholly owned subsidiaries are defendants in various legal actions,primarily related to product liability. While there is uncertainty relating to any litigation, management is ofthe opinion that the outcome of such litigation will not have a materialadverse effect on the Company’s financial condition or results of operations.

At May 31, 2006 theCompany was a co-defendant in 1,163 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 weldingconsumables caused the plaintiffs to develop adverse neurological conditions,including a condition known as manganism. As of December 31, 2005, 707 of thesecases were pending in federal court where the Judicial Panel on MultidistrictLitigation has consolidated these cases for pretrial proceedings in theNorthern District of Ohio.  Between June1, 2003 and May 31, 2006, the Company was dismissed from 300 other cases withsimilar allegations.

The Company is party tocertain environmental matters, although no claims are currently pending.  Any related obligations are not expected tohave a material effect on the Company’s business or financial condition orresults of operations.

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.

27

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** **

**Item 2.**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

#### **Overview**

We design, manufacture, market, sell and distribute welding and cuttingpower sources, torches, consumables and accessories globally.  We are a leading global supplier of cuttingand welding products. Our products are used by manufacturing, construction andfoundry operations to cut, join and reinforce steel, aluminum and other metals.Common applications for our products include shipbuilding, railcarmanufacturing, offshore oil and gas rig construction, fabrication, and therepair and maintenance of manufacturing equipment and facilities. Welding andcutting products are critical to the operations of most businesses thatfabricate metal, and we have well established and widely recognized brands.

**Restatementof Consolidated Financial Statements**

Asmore fully discussed in the Company’s 2005 Annual Report on Form 10-K and asset 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**

Thestatements in this Quarterly Report on Form 10-Q that relate to future plans,events or performance are forward-looking statements within the meaning ofSection 27A of the Securities Act, Section 21E of the Securities Exchange Actof 1934, or the Exchange Act, and the Private Securities Litigation Reform Actof 1995, including statements regarding our future prospects. These statementsmay be identified by terms and phrases such as “anticipate,” “believe,” “intend,”“estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,”“will” and similar expressions and relate to future events and occurrences.Actual results could differ materially due to a variety of factors and theother risks described in this Quarterly Report and the other documents we filefrom time to time with the Securities and Exchange Commission. Factors thatcould cause actual results to differ materially from those expressed or impliedin such statements include, but are not limited to, the following and thosediscussed under the Risk Factors section of our Annual Report on Form 10-K forthe fiscal year ended December 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 affectsour ability to retain our customers;

(f)                                    customers’ perceptions of our financial conditionrelative to that of our competitors, particularly in light of our emergencefrom Chapter 11 bankruptcy proceedings in May 2003;

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

(h)                                 the effectiveness of our cost reductioninitiatives;

28

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(i)                                     foreign currency exchange rates;

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

(k)                                  our ability to meet customer needs byintroducing new products that will contribute positively to our operatingresults; risks associated with product liability;

(l)                                     unforeseen liabilities arising fromlitigation;

(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.

Actual results could differ materially due toa variety of factors and the other risks described in this Quarterly Report andthose described in the “Risk Factors” section of our Annual Report, and theother documents we file from time to time with the Securities and ExchangeCommission. Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof and are not guaranteesof performance or results. We undertake no obligation to publicly release theresult of any revisions to these forward-looking statements that may be made toreflect events or circumstances after the date hereof or that reflect theoccurrence of unanticipated events.

For a discussion of factors that may affect futureresults, see the Risk Factors section in our Annual Report on Form 10-K for theyear ended December 31, 2005.

###### **RESULTSOF OPERATIONS**

###### ***Three Months Ended March 31, 2006 Compared to Three Months Ended March31, 2005***

Netsales from continuing operations for the three months ended March 31, 2006 were$122.9 million, which was an 11.3% increase over net sales of $110.4 millionfor the same three months in 2005. Domestic sales were $81.3 million for the first quarter of 2006,compared to $71.8 million for the same period last year, which is an increaseof 13.2%.  International sales were $41.6million for the three months ended March 31, 2006 compared to $38.5million for the first quarter of 2005, or an increase of 8.1%.  Net sales for the three months ended March31, 2006 increased approximately $12.5 million as a result of increased demandand new product initiatives, $2 million as a result of price increases and werepartially offset by a decrease in net sales of approximately $2 million as aresult of the impact of foreign currency translation.

Grossmargin from continuing operations for the first quarter of 2006 was $35.0million, or 28.5% of net sales, compared to $ 34.0 million, or 30.8% ofnet sales, for the same period in 2005. Gross margin dollars increased approximately $6.1 million through newproduct introductions, volume expansion, and the price increases previouslynoted.  These increases to gross marginwere largely offset by material cost increases of approximately $3.1 millionand production supply cost increases, net of productivity initiatives, of $1.4million.  The overall increase inmaterial cost was attributable to higher prices for key raw materials such ascopper, brass and steel.  In addition,the effect of translating the local currency results of the Company’sinternational business units into U.S. dollars, which did not affect grossmargin expressed as a percentage of sales, resulted in a decrease to grossmargin of approximately $0.6 million.

Selling,general and administrative expenses (“SG&A”) were $26.8 million, or 21.8%of net sales, for the three months ended March 31, 2006 as compared to $27.3million, or 24.7% of net sales, for the three months ended March 31, 2005.  The increase in SG&A is principallyrelated to increased professional fees associated with financial reportingcompliance costs.

Interestexpense for the three months ended March 31, 2006 was $6.5 million, whichcompares to $5.4 million for the three months ended March 31, 2005.  The difference results from an overallincrease in debt obligations as well as an increase in our average borrowingrate.

29

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An income tax provision of $1.0 million for continuing operations wasrecorded on pretax loss of $0.1 million for the three months ended March 31,2006.  An income tax provision of $.7million for continuing operations was recorded on a pretax loss of $.6 million forthe quarter ended March 31, 2005.  Theincome tax provision for 2006 and 2005 primarily relates to income generated incertain foreign jurisdictions and the ongoing effect on the provision ofdeferred tax liabilities established as part of fresh start accounting anddiffers from that determined by applying the U.S. federal statutory rateprimarily due to nondeductible expenses and the disallowance of losses.

**LIQUIDITYAND CAPITAL RESOURCES**

***Working Capital and Cash Flows***

Operatingactivities from continuing operations used $18.0 million of cash during thefirst three months of 2006, compared to $11.4 million of cash used during thesame time period in 2005. Operating assets and liabilities used $21.8 millionof cash during the three months ended March 31, 2006, compared to $16.1 millionof cash used in the first quarter of 2005.

·                  Accounts receivable used $7.9 million duringthe three months ended March 31, 2006, compared to $8.4 million used during thesame period in 2005. The slight decrease reflects the net effect of increasedsales more than offset by improved collection efforts.

·                  Inventory provided $.2 million of cashthrough the first three months of 2006, as compared to a $4.3 million use ofcash in the same three month period last year. Inventory used less cash in 2006 as a result of improved inventorymanagement offsetting the impact of additional inventory required to supportthe higher sales volumes for 2006.

·                  Accounts payable used $4.2 million of cash inthe first quarter of 2006, which compares to cash provided of $6.5 million inthe first quarter of 2005.  The increase in payables for 2005 results inpart from efforts to obtain more favorable payment terms from vendors.  During 2006, the decrease in accounts payableresulted from normal payment activities and timing differences.

·                  Accrued liabilitiesused $5.3 million of cash in the first quarter of 2006 compared to $3.0 millionuse of cash used in the first quarter of 2005. Cash used in the first quarter of 2006 related principally to rebate andincentive compensation payments  whilecash used by accruals in the first quarter of 2005 principally resulted fromrebate payments.

·                  Accrued interest used $4.2 million in the first quarterof 2006 and relates primarily to our senior subordinated notes.

Cashprovided by investing activities from continuing operations provided $3.9million of cash for the first quarter of 2006 compared to a net cash usage of $1.5million for the first quarter of 2005. The change in cash flow primarily resulted from the sale of certaindiscontinued operations less the Company’s purchase of certain minorityinterests.

Financingactivities from continuing operations provided $7.9 million of cash during thefirst quarter of 2006 compared to cash provided of $13.5 million during thesame period last year.  Net borrowingswere $5.1 million for the three months ended March 31, 2006 compared to $13.9million for the same quarter last year. The net borrowing during the firstquarter of 2006 was used to fund ongoing business operations.  The net borrowings in first quarter of 2005were used primarily to fund working capital requirements and to fund thesemi-annual payment on the Senior Subordinated Notes made in February 2005.

# ***Liquidity***

Considering the impact ofvarious amendments to our credit agreements, we expect our operating cash flow,together with borrowings under our revolving credit facility, will besufficient to meet our anticipated future operating expenses, capitalexpenditures and the debt service requirements of the Credit Agreement,Second-Lien Facility and the Senior Subordinated Notes for 2006.  However, our ability to generate sufficientcash flow to meet our operating needs will be affected by general economic,financial, competitive, legislative, regulatory, business and other factorsbeyond our control.  Also, see Note 9- *Debt and Capital Lease Obligations*to the consolidatedfinancial statements.

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* *

TheCompany and its U.S. Subsidiaries are borrowers under a Second Amended andRestated Credit Agreement, as amended (the “Credit Agreement”) which consistsof a Term Loan and a revolving credit facility (the “Revolver”) as described inNote 9 – *Debt and Capital Lease Obligations*to the consolidated financial statements. In connection with an amendment inJuly 2006, the Term Loan was repaid.

On July 29, 2004 we enteredinto the $20.0 million Second-Lien Facility, which matures on November 7,2008.  We amended the Second-LienFacility to increase the borrowings by $10.0 million on November 7, 2005 andincreased the obligations borrowings by an additional $20.0 million in July2006.  The Second-Lien Facility isdescribed in Note 9 – *Debt and Capital Lease Obligations*to the consolidatedfinancial statements.

In February 2004, we issued$175.0 principal amount of 9 1⁄4% Senior Subordinated Notes (the “Notes”).  Interest is payable semiannually in cash. InMay 2006, we amended the indenture for the Senior Subordinated Notes to, amongother things, extend the date by which we must file with the Securities andExchange Commission our Annual Report Form 10-K for the year ended December 31,2005 and any other reports then due, and obtain a waiver for the defaultresulting from our failure to timely file the 2005 Annual Report. In considerationfor the amendment, we paid noteholders who consented to the amendment a consentfee of $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.  These Notes are described more fully in Note 9– *Debt and Capital Lease Obligations*tothe consolidated financial statements

On July 21, 2006, the Company obtained a limitedwaiver and amended its Credit Agreement to (1) modify the maximum leverageratio to 5.75 through June 30, 2007, and other scheduled decreasesthereafter, (ii) modify the minimum fixed charge coverage ratio to 1.0through June 30, 2007 and 1.10 thereafter, and (iii) establish aminimum availability requirement of $5 million.

On July 21, 2006, the Company amended the Second-LienFacility to (i) remove the financial covenant compliance until the thirdquarter of 2007, (ii) extend the pre-payment penalty date toOctober 31, 2007, and (iii) increase the amount of borrowings from$30 million to $50 million. The proceeds were used to repay the TermLoan in full, with the balance of the proceeds being used to pay a portion ofthe Revolvers.

On July 21, 2006, the Company commenced a consentsolicitation seeking amendments to the indenture governing Notes and waivingexisting defaults under that indenture related to the late filing of theCompany’s 2005 Form 10-K and first quarter 2006 Form 10-Q with theSecurities and Exchange Commission. The amendments would extend the time forfiling these reports to August 21, 2006 and would extend the time within whichthe Company must file its second quarter 2006 Form 10-Q toDecember 17, 2006. Under the consent solicitation, the indenture wouldalso be amended to provide for the payment of additional special interest onthe Notes, initially at a rate of 1.25% per annum, subject to adjustment, andfor the payment of contingent cash consent fees to consenting holders of theNotes. As of July 31, 2006, holders of 100% of the outstanding Notes haveconsented to the solicitation.

Until the execution of the amendments to theindenture, the Company has the right to (i) terminate the solicitation forany reason, (ii) amend the terms of the solicitation, (iii) modifythe form or amount of the consideration to be paid pursuant to the solicitationor (iv) waive any of the conditions to the Solicitation, subject toapplicable law.

In 2006, we anticipate ourcapital expenditures will be approximately $10.0 to $13.0 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, financial, competitive, legislative, regulatory,business and other factors beyond our control.

At March 31, 2006, we were in compliance with therevised financial covenants required by the amended agreements.  We expect to remain in compliance with the amendedfinancial covenants during 2006 by achieving our 2006 financial plan, whichincludes realizing sales of new products to be introduced throughout 2006,price increases for existing products, and successfully implementing certaincost reduction initiatives including our global continuous improvement programreferred to as TCP and our program for foreign sourcing of manufacturing.  We also are actively exploring the sale ofone additional non-core business unit to generate additional liquidity.  If we are not successful in achieving the2006 financial plan, we could also pursue other alternatives to repay debt andimprove liquidity.  These alternativesinclude further deferral of certain capital expenditures and reduction ofcosts.  If we are not successful inachieving the 2006 financial plan, as well as the aforementioned alternatives,we may not be in compliance with the revised financial covenants and would seekan amendment to the Credit Agreement and the Second-Lien Facility.  Although we believe that we could obtain suchan amendment, failure to obtain an amendment would result in a default underthe Credit Agreement and the Second-Lien Facility which could result in amaterial adverse impact on our financial condition.

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

Our primary financial market risk relates tofluctuations in currency exchange rates, commodity price risk and interestrates.

We do not believe our exposure to transaction gainsor losses resulting from changes in foreign currency exchange rates arematerial to our financial results. As a result, we do not actively try tomanage our exposure through foreign currency forward or option contracts.

In order to manage interest costs, we enter into an interest rate swaparrangements from time to time.  Interestrate risk management agreements are not held or issued for speculative ortrading purposes.

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

We maintain disclosure controls and procedures that 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.  Our internal control over financial reportingis designed 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 reporting includes policies andprocedures that (i) pertain to the maintenance of records that in reasonabledetail, accurately and fairly reflect the transactions and dispositions of theassets of the Company; (ii) provide reasonable assurance that transactions arerecorded as necessary to permit the preparation of the consolidated financialstatements in accordance with U.S. generally accepted accounting principles,and that receipts and expenditures of the Company are being made only inaccordance with authorizations of management and directors of the Company; and(iii) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use or disposition of the Company’s assets that couldhave a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financialreporting 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 ofcompliance with the policies or procedures may deteriorate.

As of March 31, 2006, management evaluated theeffectiveness of our disclosure controls and procedures and concluded thosedisclosure controls and procedures were not effective because of the materialweaknesses described in Management’sReport on Internal Control Over Financial Reporting in Item 9A. *Controls and Procedures* in our Annual Report onForm 10-K for the year ended December 31, 2005 (“Management’s Report”).

To ensure that our condensed consolidatedfinancial statements for the three month period ended March 31, 2006 are fairlypresented and were prepared in accordance with U.S. generally acceptedaccounting principles, we delayed the issuance of the financial statements toprovide time for expanded procedures to be performed. We also engaged severalfinancial and accounting consulting firms to assist us in completing ourfinancial closing process for the March 31, 2006 financial statements anddisclosures and in addressing the implications of the other material weaknessesdescribed in our Annual Report on Form 10-K for the year ended December 31,2005.  Consequently, management believesthat the financial statements included in this report fairly represent, in allmaterial respects, our financial condition, results of operations and cashflows for the periods presented.

**Remediation of Material Weaknesses**

As discussed above, as of March 31, 2006 and December 31, 2005, theCompany identified material weaknesses in our internal control over financialreporting. We are currently addressing these material weaknesses identified inthe Management Report in our Annual Report on Form 10-K for the year endedDecember 31, 2005.  We expect to havethese material weaknesses remediated by December 31, 2006.

**Changes inInternal Control Over Financial Reporting**

Except as otherwise discussed above, therehave been no changes in the Company’s internal control over financial reportingduring the three months ended March 31, 2006 that have materially affected, orare reasonably likely to materially affect, the Company’s internal control overfinancial reporting.

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####  

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

**Item 1.  Legal Proceedings**

TheCompany and certain of its wholly owned subsidiaries are defendants in variouslegal actions, 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.

AtMay 31, 2006 the Company was a co-defendant in 1,163 cases alleging manganeseinduced illness. Manganese is an essential element of steel and contained inall welding consumables.  The Company is one of a large number ofdefendants.  The claimants allege that exposure to manganese contained inthe welding consumables caused the plaintiffs to develop adverse neurologicalconditions, including a condition known as manganism.  As of December 31,2005, 707 of these cases were pending in federal court where the Judicial Panelon Multidistrict Litigation has consolidated these cases for pretrialproceedings in the Northern District of Ohio.  Between June 1, 2003 andMay 31, 2006, the Company was dismissed from 300 other cases with similarallegations.

TheCompany is party to certain environmental matters, although no claims arecurrently pending.  Any relatedobligations are not expected to have a material effect on the Company’sbusiness or financial condition or results of operations.

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.

**Item 6.  Exhibits**

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**

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                                 | **THERMADYNE HOLDINGS CORPORATION** |
|---------------------------------|-------------------------------------|
| ** **                      | ** **                          |
| ** **                      | ** **                          |
|                            | By:                                 |   | /s/ Steven W.  Fray |   |
|                            |                                |   |   |   |
|                            |                                |   | Steven W. Fray |   |
|                            |                                |   | Vice President |   |
|                            |                                |   | Global  Controller |   |
|                            |                                |   | Principal  Accounting Officer |   |
|                            |                                |   |   |   |
| Date: August 3,  2006 |                                |   |   |
|                                 |                                     |  |  |  |  |

 

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