** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

**FORM 10-Q**
| **(Mark One)** |
|----------------|
| **x**          | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934.** |
| ** **     | ** ** |
| ** **     | **For the quarterly period ended September 30,  2006** |
| ** **     | ** ** |
| **OR**         |
|           |   |
| **o**          | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.** |
| ** **     | ** ** |
| ** **     | **For the transition period  from                                       to                                       ** |

 

**Commissionfile number 0-23378**

**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 x    No o

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

Large acceleratedfiler o      Accelerated filer x     Non-acceleratedfiler o

Indicate by 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 sharesoutstanding of the issuer’s common stock, par value $0.01 per share, as of November13, 2006 was 13,329,702.

 

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**THERMADYNEHOLDINGS CORPORATION**

**INDEX**
| **PART I – FINANCIAL  INFORMATION** |                                                                                        |
|------------------------------------------|---------------------------------------------------------------------------------------------|
|                                     |                                                                                        |   |
| Item 1.                                  | Financial  Statements                                                                       |   |
|                                     | Condensed Consolidated Financial Statements of  Thermadyne Holdings Corporation (Unaudited) |   |
|                                     | Condensed Consolidated Balance Sheets                                                       |   |
|                                     | Condensed Consolidated Statements of Operations                                             |   |
|                                     | Condensed Consolidated Statements of Cash Flows                                             |   |
|                                     | Notes to Condensed Consolidated Financial Statements                                        |   |
|                                     |                                                                                        |   |
| Item 2.                                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                                     |                                                                                        |   |
| Item 3.                                  | Quantitative  and Qualitative Disclosures About Market Risk                                 |   |
|                                     |                                                                                        |   |
| Item 4.                                  | Controls and  Procedures                                                                    |   |
|                                     |                                                                                        |   |
| **PART II – OTHER  INFORMATION**    |                                                                                        |
|                                     |                                                                                        |   |
| Item 1.                                  | Legal Proceedings                                                                           |   |
|                                     |                                                                                        |   |
| Item 6.                                  | Exhibits                                                                                    |   |
|                                     |                                                                                        |   |
| **SIGNATURES**                           |                                                                                        |

 

2

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**PART I. FINANCIAL INFORMATION**

**Item 1.**

**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except per share data)**
| ** **                                                                                                    | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                    | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                    | ** ** | ** **                   | ** ** | ** **                  | ** ** |
|                                                                                                          |       |                         |       |                        |       |
| Current Assets:                                                                                               |       |                         |       |                        |       |
| Cash and cash  equivalents                                                                                    |       | $                            | 11,258     |                        | $          | 12,439 |   |
| Accounts receivable,  less allowance for doubtful accounts of $2,924 and $2,746, respectively                 |       | 91,015                       |       | 76,449                      |       |
| Inventories                                                                                                   |       | 115,466                      |       | 116,671                     |       |
| Prepaid expenses and  other                                                                                   |       | 6,714                        |       | 7,708                       |       |
| Deferred tax assets                                                                                           |       | 1,861                        |       | 1,861                       |       |
| Assets held for sale                                                                                          |       | —                       |       | 28,323                      |       |
| Total current  assets                                                                                         |       | 226,314                      |       | 243,451                     |       |
| Property, plant and  equipment, net                                                                           |       | 51,497                       |       | 55,442                      |       |
| Goodwill                                                                                                      |       | 205,542                      |       | 203,643                     |       |
| Intangibles, net                                                                                              |       | 64,632                       |       | 66,049                      |       |
| Other assets                                                                                                  |       | 7,238                        |       | 7,883                       |       |
| Total assets                                                                                                  |       | $                            | 555,223    |                        | $          | 576,468 |   |
|                                                                                                          |       |                         |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                | ** ** | ** **                   | ** ** | ** **                  | ** ** |
|                                                                                                          |       |                         |       |                        |       |
| Current Liabilities:                                                                                          |       |                         |       |                        |       |
| Working capital  facility                                                                                     |       | $                            | 25,155     |                        | $          | 31,796 |   |
| Current  maturities of long-term obligations                                                                  |       | 11,354                       |       | 11,883                      |       |
| Accounts payable                                                                                              |       | 36,396                       |       | 41,740                      |       |
| Accrued and  other liabilities                                                                                |       | 35,490                       |       | 32,867                      |       |
| Accrued interest                                                                                              |       | 3,487                        |       | 7,317                       |       |
| Income taxes  payable                                                                                         |       | 4,326                        |       | 2,499                       |       |
| Liabilities  applicable to assets held for sale                                                               |       | —                       |       | 7,968                       |       |
| Total current  liabilities                                                                                    |       | 116,208                      |       | 136,070                     |       |
| Long-term obligations,  less current maturities                                                               |       | 230,090                      |       | 216,211                     |       |
| Deferred tax  liabilities                                                                                     |       | 53,913                       |       | 56,028                      |       |
| Other long-term  liabilities                                                                                  |       | 42,245                       |       | 41,992                      |       |
| Minority interest                                                                                             |       | 367                          |       | 2,214                       |       |
| Shareholders’ equity:                                                                                    |       |                         |       |                        |       |
| Common stock,  $0.01 par value:                                                                               |       |                         |       |                        |       |
| Authorized -  25,000,000 shares                                                                               |       |                         |       |                        |       |
| Issued and  Outstanding - 13,329,702 shares at September 30, 2006 and 13,318,158 shares  at December 31, 2005 |       | 133                          |       | 133                         |       |
| Additional  paid-in capital                                                                                   |       | 185,089                      |       | 183,541                     |       |
| Accumulated  deficit                                                                                          |       | (77,980                      | )          | (65,571                     | )          |
| Accumulated  other comprehensive income                                                                       |       | 5,158                        |       | 5,850                       |       |
| Total shareholders’  equity                                                                              |       | 112,400                      |       | 123,953                     |       |
| Total liabilities and  shareholders’ equity                                                              |       | $                            | 555,223    |                        | $          | 576,468 |   |

 

See accompanying notes to condensed consolidated financial statements.

3

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**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)(Unaudited)**
| ** **                                                                               | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **2006**                                                 | ** ** | **2005**                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                               | ** ** | ** **                                               | ** ** | **(Restated)**                                          | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
|                                                                                     |       |                                                     |       |                                                    |       |   |   |   |   |
| Net sales                                                                                |       | $                                                        | 127,287    |                                                    | $          | 117,936 |   | $ | 377,661 |   | $ | 347,092 |   |
| Cost of goods  sold                                                                      |       | 90,291                                                   |       | 83,923                                                  |       | 269,912 |   | 247,249 |   |
| Gross margin                                                                             |       | 36,996                                                   |       | 34,013                                                  |       | 107,749 |   | 99,843 |   |
|                                                                                     |       |                                                     |       |                                                    |       |   |   |   |   |
| Selling, general  and administrative expenses                                            |       | 32,016                                                   |       | 26,943                                                  |       | 90,545 |   | 81,033 |   |
| Amortization of  intangibles                                                             |       | 733                                                      |       | 794                                                     |       | 2,197 |   | 2,482 |   |
| Net periodic  postretirement benefits                                                    |       | 528                                                      |       | 592                                                     |       | 1,584 |   | 1,778 |   |
| Operating income                                                                         |       | 3,719                                                    |       | 5,684                                                   |       | 13,423 |   | 14,550 |   |
| Other expenses:                                                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Interest                                                                                 |       | (7,085                                                   | )          | (6,318                                                  | )          | (20,129 | ) | (17,698 | ) |
| Amortization of deferred financing costs                                                 |       | (329                                                     | )          | (327                                                    | )          | (993 | ) | (1,141 | ) |
| Minority interest                                                                        |       | (21                                                      | )          | (207                                                    | )          | (96 | ) | (544 | ) |
| Loss from  continuing operations before income tax provision and discontinued operations |       | (3,716                                                   | )          | (1,168                                                  | )          | (7,795 | ) | (4,833 | ) |
| Income tax  provision                                                                    |       | 2,024                                                    |       | 3,914                                                   |       | 4,324 |   | 3,130 |   |
| Loss from  continuing operations                                                         |       | (5,740                                                   | )          | (5,082                                                  | )          | (12,119 | ) | (7,963 | ) |
| Income (loss)  from discontinued operations, net of tax                                  |       | —                                                   |       | 176                                                     |       | (290 | ) | 1,385 |   |
| Net loss                                                                                 |       | $                                                        | (5,740     | )                                                       | $          | (4,906 | ) | $ | (12,409 | ) | $ | (6,578 | ) |
|                                                                                     |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic and  diluted income (loss) per share:                                              |       |                                                     |       |                                                    |       |   |   |   |   |
| Continuing operations                                                                    |       | $                                                        | (0.43      | )                                                       | $          | (0.38 | ) | $ | (0.91 | ) | $ | (0.60 | ) |
| Discontinued operations                                                                  |       | —                                                   |       | 0.01                                                    |       | (0.02 | ) | $ | 0.10 |   |
| Net loss                                                                                 |       | $                                                        | (0.43      | )                                                       | $          | (0.37 | ) | $ | (0.93 | ) | $ | (0.50 | ) |

 

See accompanying notes to condensed consolidated financial statements.

4

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**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands, except per share data)(Unaudited)**
| ** **                                                                            | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **2006**                                                | ** ** | **2005** | ** ** |
| ** **                                                                            | ** ** | ** **                                              | ** ** | **(Restated)** | ** ** |
| **Cash  flows from continuing operations**                                            |       |                                                    |       |   |   |
| Cash flows from operating activities:                                                 |       |                                                    |       |   |   |
| Net loss                                                                              |       | $                                                       | (12,409    | ) | $ | (6,578 | ) |
| Adjustments to reconcile net income (loss) to net  cash used in operating activities: |       |                                                    |       |   |   |
| Income (loss) from discontinued operations                                            |       | 290                                                     |       | (1,385 | ) |
| Minority interest                                                                     |       | 96                                                      |       | 544 |   |
| Depreciation and amortization                                                         |       | 13,244                                                  |       | 15,487 |   |
| Deferred taxes                                                                        |       | (2,115                                                  | )          | (493 | ) |
| Loss on disposal of assets                                                            |       |                                                    |       | 934 |   |
| Changes in operating assets and liabilities                                           |       | (18,757                                                 | )          | (21,528 | ) |
| Net cash used in operating activities                                                 |       | (19,651                                                 | )          | (13,019 | ) |
| Cash flows from investing activities:                                                 |       |                                                    |       |   |   |
| Capital expenditures                                                                  |       | (4,731                                                  | )          | (6,123 | ) |
| Proceeds from sales of assets                                                         |       | 16,455                                                  |       | — |   |
| Purchase of miniority interest                                                        |       | (3,954                                                  | )          | — |   |
| Investment in joint venture                                                           |       | —                                                  |       | (700 | ) |
| Net cash provided by (used in) investing activities                                   |       | 7,770                                                   |       | (6,823 | ) |
| Cash flows from financing activities:                                                 |       |                                                    |       |   |   |
| Net borrowings (repayments) under revolving credit  facility                          |       | (8,467                                                  | )          | 24,045 |   |
| Net borrowings (repayments) under other credit  facilities                            |       | 15,074                                                  |       | (1,668 | ) |
| Advances from (to) from discontinued operations                                       |       | 2,679                                                   |       | (2,662 | ) |
| Other, net                                                                            |       | 1,112                                                   |       | (1,185 | ) |
| Net cash provided by financing activities                                             |       | 10,398                                                  |       | 18,530 |   |
| Effect of exchange rate changes on cash and cash  equivalents                         |       | 302                                                     |       | 964 |   |
| Net cash used in continuing operations                                                |       | $                                                       | (1,181     | ) | $ | (348 | ) |
| **Cash  flows from discontinued operations**                                          |       |                                                    |       |   |   |
| Net cash provided by (used in) operating activities                                   |       | $                                                       | 594        |   | $ | 839 |   |
| Net cash used in investing activities                                                 |       | (849                                                    | )          | (2,308 | ) |
| Net cash provided by (used in) financing activities                                   |       | (2,799                                                  | )          | 1,886 |   |
| Effect of exchange rates on cash and cash  equivalents                                |       | (69                                                     | )          | 786 |   |
| Net cash provided by (used in) discontinued  operation                                |       | $                                                       | (3,123     | ) | $ | 1,203 |   |
|                                                                                  |       |                                                    |       |   |   |
| Total increase  (decrease) in cash and cash equivalents                               |       | $                                                       | (4,304     | ) | $ | 855 |   |
| Total cash and  cash equivalents beginning of period                                  |       | 15,562                                                  |       | 7,061 |   |
| Total cash and  cash equivalents end of period                                        |       | $                                                       | 11,258     |   | $ | 7,916 |   |
| **Continuing  operations**                                                            |       |                                                    |       |   |   |
| Cash and cash equivalents beginning of period                                         |       | $                                                       | 12,439     |   | $ | 6,033 |   |
| Net cash used in. continuing operations                                               |       | (1,181                                                  | )          | (348 | ) |
| Cash and cash equivalents end of period                                               |       | $                                                       | 11,258     |   | $ | 5,685 |   |
| **Discontinued  operations**                                                          |       |                                                    |       |   |   |
| Cash and cash equivalents beginning of period                                         |       | $                                                       | 3,123      |   | $ | 1,028 |   |
| Net cash provided by (used in) discontinued  operations                               |       | (3,123                                                  | )          | 1,203 |   |
| Cash and cash equivalents end of period                                               |       | $                                                       | —     |   | $ | 2,231 |   |
|                                                                                  |       |                                                    |       |   |   |
| Income taxes  paid                                                                    |       | $                                                       | 4,481      |   | $ | 6,070 |   |
| Interest paid                                                                         |       | $                                                       | 22,880     |   | $ | 22,278 |   |

 

See accompanying notes to condensed consolidated financial statements.

5

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

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

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

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

Certain information for 2005, primarily accounts related todiscontinued operations, has been reclassified to conform with the 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 well-established product brands, and cash flowsassociated with these products are expected to continue indefinitely.  The Company has placed no limit on the end ofits trademarks’ useful lives and as result utilized indefinite life treatmentfor the intangibles.

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

The following table providesthe activity in the warranty accrual for the nine months ended September 30,2006 and 2005:
|                                         | ** ** | **Balance at**   | ** ** | ** **    | ** ** | ** **   | ** ** | **Balance at** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|---------------|------------|--------------|------------|---------------------|------------|
| ** **                              | ** ** | **Beginning of** | ** ** | ** **    | ** ** | ** **   | ** ** | **End of**     | ** ** |
| **Product warranty accrual:** | ** ** | **Period**            | ** ** | **Provision** | ** ** | **Payments** | ** ** | **Period**          | ** ** |
| ** **                              | ** ** | ** **            | ** ** | ** **    | ** ** | ** **   | ** ** | ** **          | ** ** |
| Nine months  ended September 30, 2006   |       | $                     | 3,007      |          | $          | 2,203        |       | $                   | (2,212     | ) | $ | 2,998 |   |
| Nine months ended  September 30, 2005   |       | $                     | 3,048      |          | $          | 1,689        |       | $                   | (1,899     | ) | $ | 2,838 |   |

 

6

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***Derivative Instruments****.* The Company accounts for derivatives andhedging activities in accordance with Statement of Financial Accounting Standards(“SFAS”) No. 133, *Accounting for Derivative Instruments andCertain Hedging Activities*, as amended (“SFAS No. 133”), whichrequires that all derivative instruments be recorded on the balance sheet attheir respective fair values. The Company does not use derivative instrumentsfor trading or speculative purposes. SFAS No. 155, *Accounting for CertainHybrid Financial Instruments*, will amend SFAS No. 133 forinstruments acquired by the Company after December 31, 2006.  See Note 6 - *RecentAccounting Pronouncements*.

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

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

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

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

**3.****                                     ****Earnings(Loss) Per Share**

The calculation of net income (loss) per sharefollows:
|                                                                   | ** ** | **Three Months Ended September 30,** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2006**                                                 | ** ** | **2005** | ** ** |
| ** **                                                        | ** ** | ** **                                               | ** ** | **(Restated)** | ** ** |
| Numerator:                                                        |       |                                                     |       |   |   |
| Income (loss) :                                                   |       |                                                     |       |   |   |
| Continuing operations                                             |       | $                                                        | (5,740     | ) | $ | (5,082 | ) |
| Discontinued operations                                           |       | —                                                   |       | 176 |   |
| Net loss                                                          |       | $                                                        | (5,740     | ) | $ | (4,906 | ) |
|                                                              |       |                                                     |       |   |   |
| Denominator:                                                      |       |                                                     |       |   |   |
| Weighted average shares for basic and diluted earnings  per share |       | 13,330                                                   |       | 13,314 |   |
|                                                              |       |                                                     |       |   |   |
| Basic and  diluted income (loss) per share amounts:               |       |                                                     |       |   |   |
| Continuing operations                                             |       | $                                                        | (0.43      | ) | $ | (0.38 | ) |
| Discontinued operations                                           |       | —                                                   |       | 0.01 |   |
| Net loss                                                          |       | $                                                        | (0.43      | ) | $ | (0.37 | ) |

 

7

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|                                                                   | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2006**                                                | ** ** | **2005** | ** ** |
| ** **                                                        | ** ** | ** **                                              | ** ** | **(Restated)** | ** ** |
| Numerator:                                                        |       |                                                    |       |   |   |
| Income (loss) :                                                   |       |                                                    |       |   |   |
| Continuing operations                                             |       | $                                                       | (12,119    | ) | $ | (7,963 | ) |
| Discontinued operations                                           |       | (290                                                    | )          | 1,385 |   |
| Net loss                                                          |       | $                                                       | (12,409    | ) | $ | (6,578 | ) |
|                                                              |       |                                                    |       |   |   |
| Denominator:                                                      |       |                                                    |       |   |   |
| Weighted average shares for basic and diluted earnings  per share |       | 13,328                                                  |       | 13,314 |   |
|                                                              |       |                                                    |       |   |   |
| Basic and  diluted income (loss) per share amounts:               |       |                                                    |       |   |   |
| Continuing operations                                             |       | $                                                       | (0.91      | ) | $ | (0.60 | ) |
| Discontinued operations                                           |       | (0.02                                                   | )          | $ | 0.10 |   |
| Net loss                                                          |       | $                                                       | (0.93      | ) | $ | (0.50 | ) |

 

The effects of options and warrants have not been considered in thedetermination of net income (loss) per share for the three months and ninemonths ended September 30, 2006 and 2005, because the result would be antidilutive.  Options not included in the calculation forthe three months and nine months ended September 30, 2006 and 2005 were asfollows:
|               | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **    | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **    | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|          |       |                             |       |                            |       |   |   |   |   |
| Stock Options |       | 1,310,313                        |       | 1,045,725                       |       | 1,310,313 |   | 1,045,725 |   |

 

All Class B and Class C warrants that were outstanding at December 31,2005 expired on May 23, 2006.   Therewere no warrants exercised during the three months or nine months endedSeptember 30, 2006 and September 30, 2005. 

**4.****            ****Stock-Based Compensation.**

The Company adopted SFAS No. 123(R), *Share-Based Payment*, on January 1, 2006.  SFAS No. 123(R) requires all share-basedpayments to employees, including grants of employee stock options, to berecognized in the income statement based on their fair values.  The Company utilizes the modified prospectivemethod in which compensation cost is recognized beginning with the effectivedate, (a) based on the requirements of SFAS No. 123(R) for all share-basedpayments granted after the effective date and (b) based on the requirements ofSFAS No. 123 for all awards granted to employees prior to the effective date ofSFAS No. 123(R) that remain unvested on the effective date. The Company recordedcompensation cost of $303 and $703 as selling, general and administrativeexpense for the three month and nine month periods ended September 30, 2006.

As of September 30, 2006, 1,310,313 options to purchase shares wereissued and outstanding under the Directors’ Plan, the Stock Incentive Plan andother specific agreements.

8

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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 September 30, 2006:
| Weighted average fair value |   | $       | 4.96   |   |
|-----------------------------|--------|---------|--------|--------|
|                        |   |    |   |
| Assumptions  used:          |   |    |   |
| Expected dividend yield     |   | 0.00    | %      |
| Expected volatility         |   | 41.50   | %      |
| Risk-free interest rate     |   | 4.53    | %      |
| Expected life               |   | 6 years |   |

 

Changes in stock options during the ninemonths ended September 30, 2006, are as follows:
|                                            | ** ** | **Shares Under  Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|--------------------------------------------|------------|
| Options  outstanding at December 31, 2005  |       | 923,266                        |       | $                                          | 12.84      |   |
| Granted                                    |       | 467,575                        |       | $                                          | 14.16      |   |
| Exercised                                  |       | (4,412                         | )          | $                                          | 16.06      |   |
| Cancelled or expired                       |       | (76,116                        | )          | $                                          | 13.07      |   |
| Options  outstanding at September 30, 2006 |       | 1,310,313                      |       | $                                          | 13.30      |   |
|                                       |       |                           |       |                                       |       |
| Options exercisable at  September 30, 2006 |       | 664,488                        |       | $                                          | 12.79      |   |

 

For the three month and ninemonth periods ended September 30, 2005, in accordance with the modifiedprospective transition method, our condensed consolidated financial statementsdo not include the impact of SFAS No. 123(R). Accordingly, no compensationexpense related to stock option awards was recognized for the three month andnine month periods ended September 30, 2005, because all stock options grantedhad an exercise price equal to the fair market value of the underlying commonstock on the date of grant. The following table shows the effect on net lossand loss per share as if the fair-value-based method of accounting had beenapplied to all outstanding and unvested stock option awards prior to adoptionof SFAS No. 123(R). For purposes of this pro forma disclosure, the estimatedfair value of the stock option award is assumed to be expensed over the award’svesting periods.

|                                                                                                              | ** ** | **Three Months  Ended  September 30,  2005** | ** ** | **Nine Months  Ended  September 30,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                                   | ** ** | **(Restated)**                                         | ** ** | **(Restated)**                                        | ** ** |
| Loss from  continuing operations                                                                             |       | $                                                      | (5,082     | )                                                     | $          | (7,963 | ) |
| 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     |       | (441                                                   | )          | (1,072                                                | )          |
| Pro forma loss  from continuing operations                                                                   |       | $                                                      | (5,523     | )                                                     | $          | (9,035 | ) |
|                                                                                                         |       |                                                   |       |                                                  |       |
| Basic and  diluted loss from continuing operations per share                                                 |       |                                                   |       |                                                  |       |
| As reported                                                                                                  |       | $                                                      | (0.38      | )                                                     | $          | (0.60 | ) |
| Pro forma                                                                                                    |       | $                                                      | (0.41      | )                                                     | $          | (0.68 | ) |

 

9

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At September 30, 2006, thetotal compensation cost related to non-vested awards not yet recognized wasapproximately $3,491 to be recognized through September 30, 2009 with aweighted average expense period of approximately 2.7 years.

**5.****                                     ****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 September 30, 2005 increased by $2.5 million to a loss of$4.9 million and the previously reported consolidated net income for the ninemonths ended September 30, 2005 increased by $1.5 million to a loss of $6.6million.  The changes were primarily as aresult of the adjustment to the tax provision associated with the change indeferred tax liabilities related to book-tax differences recorded in connectionwith fresh-start accounting and other accounting adjustments referred to above.In addition, as a result of certain of these adjustments, the Company’sstatement of cash flows for the nine months ended September 30, 2005 has beenrestated.  

The following tablessummarize the effects of the adjustments on the consolidated statements ofoperations for the three month and nine month periods ended September 30, 2005.

ConsolidatedStatement of Operations:
|                                                     | ** ** | **Three Months Ended September 30, 2005** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **As Originally  Reported (1)**                          | ** ** | **Adjustments  Increase  (Decrease)** | ** ** | **As Restated** | ** ** |
| **Continuing  Operations**                          |       |                                                               |       |   |   |   |   |
| Net sales                                           |       | $                                                                  | 117,843    |   | $ | 93 |   | $ | 117,936 |   |
| Gross margin                                        |       | 34,180                                                             |       | (167 | ) | 34,013 |   |
| Operating income                                    |       | 4,549                                                              |       | 1,135 |   | 5,684 |   |
|                                                |       |                                                               |       |   |   |   |   |
| **Income  (loss) :**                                |       |                                                               |       |   |   |   |   |
| Continuing operations                               |       | $                                                                  | (7,551     | ) | $ | 2,469 |   | $ | (5,082 | ) |
| Discontinued operations                             |       | 176                                                                |       | — |   | 176 |   |
| Net income                                          |       | $                                                                  | (7,375     | ) | $ | 2,469 |   | $ | (4,906 | ) |
|                                                |       |                                                               |       |   |   |   |   |
| **Basic  and diluted income (loss) per share (1):** |       |                                                               |       |   |   |   |   |
| Continuing operations                               |       | $                                                                  | (0.57      | ) | $ | 0.19 |   | $ | (0.38 | ) |
| Discontinued operations                             |       | 0.02                                                               |       | (0.01 | ) | 0.01 |   |
| Net income (loss)                                   |       | $                                                                  | (0.55      | ) | $ | 0.18 |   | $ | (0.37 | ) |

 

10

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|                                                     | ** ** | **Nine Months Ended September 30, 2005** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **As Originally  Reported (1)**                         | ** ** | **Adjustments  Increase  (Decrease)** | ** ** | **As Restated** | ** ** |
| **Continuing  Operations**                          |       |                                                              |       |   |   |   |   |
| Net sales                                           |       | $                                                                 | 346,814    |   | $ | 278 |   | $ | 347,092 |   |
| Gross margin                                        |       | 98,278                                                            |       | 1,115 |   | 99,393 |   |
| Operating income                                    |       | 13,398                                                            |       | 1,152 |   | 14,550 |   |
|                                                |       |                                                              |       |   |   |   |   |
| **Income  (loss):**                                 |       |                                                              |       |   |   |   |   |
| Continuing operations                               |       | $                                                                 | (9,465     | ) | $ | 1,502 |   | $ | (7,963 | ) |
| Discontinued operations                             |       | 1,384                                                             |       | 1 |   | 1,385 |   |
| Net income                                          |       | $                                                                 | (8,081     | ) | $ | 1,503 |   | $ | (6,578 | ) |
|                                                |       |                                                              |       |   |   |   |   |
| **Basic  and diluted income (loss) per share (1):** |       |                                                              |       |   |   |   |   |
| Continuing operations                               |       | $                                                                 | (0.71      | ) | $ | 0.11 |   | $ | (0.60 | ) |
| Discontinued operations                             |       | 0.10                                                              |       | 0.00 |   | 0.11 |   |
| Net loss                                            |       | $                                                                 | (0.61      | ) | $ | 0.11 |   | $ | (0.49 | ) |

 

----

(1) Amounts for “AsOriginally Reported” have been adjusted for the Company’s discontinuedoperations as described in Note 7 – *Discontinued Operations*tothe condensed consolidated financial statements.

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

Consolidated Statement of Cash Flows from Continuing Operations:
|                                                      | ** ** | **Nine Months Ended September 30, 2005** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                           | ** ** | **As Originally Reported  (1)**                         | ** ** | **Adjustments Increase  (Decrease)** | ** ** | **As Restated** | ** ** |
| **Continuing  Operations:**                          |       |                                                              |       |   |   |   |   |
| Net cash flows used in operating activities          |       | $                                                                 | 12,063     |   | $ | 956 |   | $ | 13,019 |   |
| Net cash flows used in investing activities          |       | $                                                                 | 6,823      |   | $ | — |   | $ | 6,823 |   |
| Net cash flows provided by financing activities      |       | $                                                                 | 19,745     |   | $ | (1,215 | ) | $ | 18,530 |   |
| Effect of exchange rate on cash and cash equivalents |       | $                                                                 | (895       | ) | $ | 1,859 |   | $ | 964 |   |
| Cash and cash equivalents December 31, 2004          |       | $                                                                 | 6,650      |   | $ | 411 |   | $ | 7,061 |   |
| Cash and cash  equivalents September 30, 2005        |       | $                                                                 | 7,817      |   | $ | 99 |   | $ | 7,916 |   |

 

----

(1) Amounts for “AsOriginally Reported” have been adjusted for the Company’s discontinuedoperations as described in Note 7 – *Discontinued Operations*tothe condensed consolidated financial statements.

**6.****                                     ****Recent Accounting Pronouncements**

***Effects of Prior Year Misstatements***.  In September 2006, the Securities andExchange Commission (the “SEC”) staff issued Staff Accounting Bulletin (“SAB”)No. 108, *Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements*.  This guidanceindicates that the materiality of a misstatement must be evaluated using boththe rollover and iron curtain approaches. The iron curtain approach quantifiesa misstatement based on the effects of correcting the misstatement existing inthe balance sheet at the end of the current year, while the rollover approachquantifies a misstatement based on the amount of the error originating in thecurrent year income statement. SAB No. 108 is effective for our 2007annual consolidated financial statements. The impact of SAB No. 108 on thefinancial condition, results of operations, cash flows or disclosures has notbeen determined.

11

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***Fair Value Measurements****.* In September 2006, the FinancialAccounting Standards Board issued SFAS No. 157, *Fair Value Measurements*, (“SFAS No. 157”). SFAS No. 157defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles and expands disclosures about fairvalue measurements. SFAS No. 157 is effective for financial statements issuedfor fiscal years beginning after November 15, 2007 and interim periodswithin those fiscal years. The impact of SFAS No. 157 on the financialcondition, results of operations, cash flows or disclosures has not beendetermined.

***Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans****. *TheFASB also issued in September 2006 SFAS No. 158, *Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans — an amendment of FASB Statement No. 87, 88,106 and 132(R),*(“SFAS 158”)*.*ThisStandard requires recognition of the funded status of a benefit plan in thestatement of financial position. The Standard also requires recognition inother comprehensive income certain gains and losses that arise during theperiod but are deferred under pension accounting rules, as well as modifies thetiming of reporting and adds certain disclosures. SFAS No.158 providesrecognition and disclosure elements to be effective as of the end of the fiscalyear after December 15, 2006 and measurement elements to be effective forfiscal years ending after December 15, 2008.  The impact of SFAS No.158 on the financialcondition, results of operations, cash flows or disclosures has not beendetermined.

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

***Income Taxes***.  InJune 2006, the FASB issued FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes* (“the Interpretation”).  The Interpretation requires that realizationof an uncertain income tax position must be “more likely than not” (i.e.,greater than 50% likelihood of receiving a benefit) before it can be recognizedin the financial statements. Further, the Interpretation prescribes the benefitto be recorded in the financial statements as the amount most likely to berealized assuming a review by tax authorities having all relevant informationand applying current conventions. The Interpretation also clarifies thefinancial statement classification of potential tax-related penalties andinterest and sets forth new disclosures regarding unrecognized taxbenefits.  The Interpretation iseffective for the first interim or annual reporting period beginning afterDecember 15, 2006. The Company plans to adopt the Interpretation when required.The Interpretation is currently being evaluated by the Company to assess itsimpact, if any.

***Derivatives****.*  InFebruary 2006, the FASB issued SFAS No. 155 which amends SFASNo. 133, and SFAS No. 140, *Accounting for Transfersand Servicing of Financial Assets and Extinguishments of Liabilities*.SFAS No. 155 simplifies the accounting for certain derivatives embedded inother financial instruments by allowing them to be accounted for as a whole ifthe holder elects to account for the whole instrument on a fair value basis.SFAS No. 155 also clarifies and amends certain other provisions of SFASNo. 133 and SFAS No. 140. SFAS No. 155 is effective for theCompany for all financial instruments acquired, issued or subject to aremeasurement event occurring after December 31, 2006. The Company plansto adopt SFAS No. 155 effective January 1, 2007 and does not expectthe adoption to have a material impact on our financial statements.

12

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**7.****                                     ****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 Metalservicewere classified as held for sale, and the results of operations were presentedas discontinued 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 beginning January 1, 2006 through the date ofthe sale on January 2, 2006 was not material and has not been separately presented.

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

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

The tables below sets forth certain information related to GenSet,Soltec and Metalservice, Plant Rental, and TecMo operations included indiscontinued operations for the three month and nine month periods endedSeptember 30, 2005 and the nine month period ended September 30, 2006: 

13

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|                                                 | ** ** | **Three Months Ended September 30, 2005** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **GenSet**                                                         | ** ** | **Soltec &  Metalservice** | ** ** | **Plant Rental** | ** ** | **TecMo** | ** ** |
| Net sales                                       |       | $                                                                  | 6,525      |   | $ | 2,262 |   | $ | 2,211 |   | $ | 2,427 |   |
| Operating  expenses                             |       | 7,531                                                              |       | 2,011 |   | 1,373 |   | 1,931 |   |
| Other expenses                                  |       | 67                                                                 |       | — |   | 15 |   | 8 |   |
| Income tax  provision (benefit)                 |       | (199                                                               | )          | 45 |   | 248 |   | 219 |   |
| Net income  (loss) from discontinued operations |       | $                                                                  | (874       | ) | $ | 206 |   | $ | 575 |   | $ | 269 |   |

 
|                                                 | ** ** | **Nine Months Ended September 30, 2005** | ** ** |
|-------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                      | ** ** | **GenSet**                               | ** ** | **Soltec &  Metalservice** | ** ** | **Plant Rental** | ** ** | **TecMo** | ** ** |
| Net sales                                       |       | $                                        | 25,791     |   | $ | 5,874 |   | $ | 6,425 |   | $ | 7,477 |   |
| Operating  expenses                             |       | 26,875                                   |       | 5,020 |   | 5,014 |   | 5,946 |   |
| Other expenses                                  |       | 237                                      |       | — |   | 54 |   | 22 |   |
| Income tax  provision                           |       | (179                                     | )          | 148 |   | 407 |   | 639 |   |
| Net income (loss) from  discontinued operations |       | $                                        | (1,142     | ) | $ | 706 |   | $ | 950 |   | $ | 870 |   |

 
|                                        | ** ** | **Nine Months Ended September 30, 2006** | ** ** |
|----------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                             | ** ** | **GenSet**                                                        | ** ** | **Soltec &  Metalservice** | ** ** | **Plant Rental** | ** ** | **TecMo** | ** ** |
| Net sales                              |       | $                                                                 | —     |   | $ | — |   | $ | — |   | $ | 2,774 |   |
| Operating  expenses                    |       | —                                                            |       | — |   | — |   | 2,135 |   |
| Other income                           |       | —                                                            |       | — |   | — |   | 2 |   |
| Impairment loss                        |       | —                                                            |       | — |   | — |   | 663 |   |
| Income tax  provision                  |       | —                                                            |       | — |   | — |   | 268 |   |
| Net loss from  discontinued operations |       | $                                                                 | —     |   | $ | — |   | $ | — |   | $ | (290 | ) |

 

Selected balance sheet itemsfor the discontinued operations classified as held for sale as of December 31,2005 are as follows:  
|                                         | ** ** | **December 31, 2005**     | ** ** |
|-----------------------------------------|------------|-------------------------------------|------------|
| ** **                              | ** ** | **Soltec &  Metalservice** | ** ** | **Plant Rental** | ** ** | **TecMo** | ** ** |
| Cash                                    |       | $                                   | 1,206      |   | $ | 1,532 |   | $ | 385 |   |
| Accounts  receivable                    |       | 2,887                               |       | 2,862 |   | 3,379 |   |
| Inventories                             |       | 2,244                               |       | — |   | 2,188 |   |
| Property and  equipment, net            |       | 671                                 |       | 2,122 |   | 1,188 |   |
| Goodwill and  other intangible assets   |       | 2,183                               |       | 688 |   | 4,158 |   |
| Other assets                            |       | 282                                 |       | — |   | 348 |   |
|                                    |       | $                                   | 9,473      |   | $ | 7,204 |   | $ | 11,646 |   |
|                                    |       |                                |       |   |   |   |   |
| Accounts payable and  other liabilities |       | $                                   | 1,441      |   | $ | 2,714 |   | $ | 3,813 |   |

 

The Company is currentlyin discussions with buyers for the potential sale of its business units inSouth Africa.  No definitive agreement isin place at this time nor has the Company committed to a plan to dispose ofthese business units.  At this time, theCompany is unable to determine if an impairment provision will be requiredpending a final decision by the Company on the disposal of these businessunits.

14

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**8.****                                     ****Inventories**

The composition ofinventories was as follows:
|                 | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------|------------|------------------------------|------------|-----------------------------|------------|
|            |       |                         |       |                        |       |
| Raw materials   |       | $                            | 25,348     |                        | $          | 19,524 |   |
| Work-in-process |       | 30,717                       |       | 32,788                      |       |
| Finished goods  |       | 68,425                       |       | 69,542                      |       |
|            |       | 124,490                      |       | 121,854                     |       |
| LIFO reserve    |       | (9,024                       | )          | (5,183                      | )          |
|            |       | $                            | 115,466    |                        | $          | 116,671 |   |

 

**9.****                                     ****Intangible Assets**

The composition ofintangibles was as follows:
|                                     | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                |       |                         |       |                        |       |
| Goodwill                            |       | $                            | 205,542    |                        | $          | 203,643 |   |
| Patents and  customer relationships |       | 38,929                       |       | 37,984                      |       |
| Trademarks                          |       | 33,403                       |       | 33,403                      |       |
|                                |       | 277,874                      |       | 275,030                     |       |
| Accumulated  amortization           |       | (7,700                       | )          | (5,338                      | )          |
|                                |       | $                            | 270,174    |                        | $          | 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.   As discussed in Note 7 – *Discontinued Operations* to the consolidated financialstatements, other adjustments have been made to the September 30, 2006 andDecember 31, 2005 carrying value of goodwill as it relates to the Company’sdiscontinued operations.

The changes in the carrying amount of goodwill were asfollows:
|                                   | ** ** | **Carrying Amount** | ** ** |
|-----------------------------------|------------|--------------------------|------------|
| ** **                        | ** ** | **of Goodwill**     | ** ** |
|                              |       |                     |       |
| Balance as of  December 31, 2005  |       | $                        | 203,643    |   |
| Minority  interest purchase       |       | 1,899                    |       |
| Balance as of September  30, 2006 |       | $                        | 205,542    |   |

 

Amortization of intangibleswith identifiable lives amounted to $733 and $2,197 of expense for the threeand nine month periods ended September 30, 2006, respectively, and to $794 and$2,482 of expense for the three and nine month periods ended September 30,2005, respectively.

15

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**10.****                              ****Comprehensive Loss**

Comprehensive loss for the three and nine monthperiods ended September 30, 2006 and September 30, 2005, was as follows:

|                               | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                    | ** ** | **2006**                                                 | ** ** | **2005**                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                    | ** ** | ** **                                               | ** ** | **(Restated)**                                          | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
|                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Net loss                      |       | $                                                        | (5,740     | )                                                       | $          | (4,906 | ) | $ | (12,409 | ) | $ | (6,578 | ) |
| Foreign currency  translation |       | 528                                                      |       | 1,909                                                   |       | (692 | ) | (3,480 | ) |
| Comprehensive loss            |       | $                                                        | (5,212     | )                                                       | $          | (2,997 | ) | $ | (13,101 | ) | $ | (10,058 | ) |

 

**11.****                              ****Debt and Capital LeaseObligations**

The composition of debt and capital lease obligationswas as follows:
|                                                                                                                    | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                         | ** ** | **2006**               | ** ** | **2005**              | ** ** |
|                                                                                                               |       |                   |       |                  |       |
| Working Capital  Facility                                                                                          |       | $                      | 25,155     |                  | $          | 31,796 |   |
| Second-Lien  Facility                                                                                              |       | 50,000                 |       | 30,000                |       |
| Term Loan                                                                                                          |       | —                 |       | 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                                                                                                     |       | 16,444                 |       | 15,495                |       |
|                                                                                                               |       | 266,599                |       | 259,889               |       |
| Current  maturities and working capital facility                                                                   |       | (36,509                | )          | (43,678               | )          |
|                                                                                                               |       | $                      | 230,090    |                  | $          | 216,211 |   |

 

***Credit Agreement***

TheCompany and its U.S. subsidiaries are borrowers under a Second Amended andRestated Credit Agreement, as amended (the “Credit Agreement”). The CreditAgreement consists of a $9,250 term loan which was repaid in July 2006 (the “termLoan”) and a $70,000 revolving loan commitment (the “Revolver”).  Up to $25,000 of the Revolver is availablefor letters of credit and $14,089 of letters of credit were outstanding as ofSeptember 30, 2006. Borrowing under the Revolver may not exceed 85% of eligiblereceivables plus the lesser of (i) 85% of the net orderly liquidation value ofeligible inventories or (ii) 65% of the book value of inventories lesscustomary reserves.  Unused availabilitywas $24,496 as of September 30, 2006. The Revolver terminates on November 22, 2009.

Borrowingsunder the Revolver accrue interest, at the Company’s option, at LIBOR (5.37% asof September 30, 2006) plus 2.25% or the prime rate (8.25% as of September 30,2006) plus 0.5% on the Revolver, and LIBOR plus 2.50% or the prime rate plus0.75% on the Term Loan.  All of thesepercentages are subject to an interest rate grid and will decline if certainconditions are met.  Unused portions ofthe Revolver are charged 50 basis points. The Credit Agreement is secured by substantially all of the assets ofthe Company’s subsidiaries in the U.S., Canada, the United Kingdom, andAustralia, together with a pledge of the capital stock of substantially all ofthe Company’s subsidiaries, subject to certain limitations with respect tonon-U.S. subsidiaries.  The CreditAgreement contains financial covenants for maintenance of minimum fixed chargeand maximum leverage ratios relative to (“EBITDA”), as defined by the CreditAgreement.

In July 2006, the Credit Agreement was amended to (i)modify the maximum leverage ratio to 5.75 through June 30, 2007, with a .25point reduction per quarter thereafter until the coverage ratio reaches 4.00,and (ii) modify the minimum fixed charge ratio to 1.0 through June 30, 2007,1.10 at September 30, 2007 and thereafter and (iii) establish a minimumavailability requirement of $5 million. In October 2006, the Company amended its Credit Agreement to modify the maximumleverage ratio to 5.95 for the third quarter of 2006.

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***Second-LienFacility***

The Company and its U.S. subsidiaries became borrowersunder a Second-Lien Term Loan facility (the “Second-Lien Facility”) which wasentered into on July 29, 2004.  TheSecond-Lien Facility is secured by a second lien on substantially all of theassets of the Company.  The Second-LienFacility accrues interest at the Company’s option, at LIBOR (5.37% as ofSeptember 30, 2006) plus 4.50%, or an alternative base rate of the greater of(a) the Prime Rate or (b) the federal funds rate plus one half of 1.00% plus3.50%.  The Second-Lien Facility, whichmatures on November 7, 2008, restricts the amount of long-term debt the Companymay incur and has other customary provisions including financial andnon-financial covenants.  On July 21,2006, the Company amended the Second-Lien Facility to (i) remove the financialcovenant compliance until the third quarter of 2007, (ii) extend thepre-payment penalty date to October 31, 2007, and (iii) increase the amount ofborrowings to $50,000.  The proceeds wereused to repay the Term Loan in full, with the balance of the proceeds beingused to pay a portion of the Revolver.

***Covenant Compliance***

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

***Senior SubordinatedNotes***

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

In August 2006, the Company obtained consent to amendthe indenture governing Senior Subordinated Notes and waiving existing defaultsunder that indenture related to the late filing of the Company’s 2005 Form 10-Kand first quarter 2006 Form 10-Q with the SEC. The amendments extended the time for filing these reports to August 21,2006 and permitted the Company to extend the time to file its second quarter 2006Form 10-Q to no later than December 17, 2006, for additional fees that couldaggregate to $2.2 million, of which $1.4 million was paid.  The indenture was amended to provide for thepayment of additional Special Interest on the Senior Subordinated Notes,initially at a rate of 1.25% per annum. The Special Interest is subject to adjustment increasing to 1.75% if theconsolidated leverage ratio exceeds 6.00 with incremental interest increases toa maximum of 2.75% if the consolidated leverage ratio increases to 7.0.  The Special Interest declines to .75% if theconsolidated leverage ratio declines below 4.0 and declines incrementally to 0%if leverage is less than 3.0.

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

17

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***Parent Company Financial Information***

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

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

In February 2004, the Company entered into an interestrate swap arrangement to convert a portion of the fixed rate exposure on itsSenior Subordinated Notes to variable rates. Under the terms of the interest rate swap contract, which has a notionalamount of $50,000, the Company receives interest at a fixed rate of 91⁄4% andpays interest at a variable rate equal to LIBOR (5.37% as of September 30, 2006), plus a spread of 442 basispoints.  The six-month LIBOR rate on eachsemi-annual reset date determines the variable portion of the interest rateswap.  The six-month LIBOR, rate for each semi-annual reset date isdetermined in arrears.

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

In accordance with SFAS No. 133, as of September30, 2006, the Company recorded a fair value adjustment to the portion of itsfixed rate long-term debt that is hedged. A fair value adjustment of $(1,768) and $253 was recorded for the threemonth and nine month periods ended September 30, 2006, respectively, as adecrease to long-term obligations, with the related value for the interest rateswap’s non-current portion recorded in other long-term liabilities.  At September 30, 2006 the fair value of theinterest rate swap of $1,671 has been recorded as a component of otherlong-term liabilities.  Interest ratedifferentials associated with the interest rate swap are recorded as anadjustment to a current asset or liability, with the offset to interest expenseover the life of the interest rate swap. For the three months and nine months ended September 30, 2006, the Companyrealized an increase in its interest expense as a result of the interest rateswap of $77 and $269, respectively. For the three months and nine months endedSeptember 30, 2005, the Company realized a reduction in its interest expense asa result of the interest rate swap of $15 and $269, respectively.

**13.          Income Taxes**

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

The Company’s 2006 incometax expense provision reflects the offsetting effects of income tax expensesincurred by its foreign subsidiaries. For the three months and nine monthsended September 30, 2006, the tax benefits of losses incurred in the U.S. arefully reserved with a valuation allowance due to the uncertainties of futuretaxable income consistent with management’s estimate at December 31, 2005.For the three months and nine months ended September 30, 2005, the Companyrecorded a tax provision related to its foreign subsidiaries.  For the third quarter of 2005, the net incometax provision resulted primarily from the reversal of estimated tax benefitsrecorded in the prior 2005 quarters.

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In June 2006, the FASBissued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(“Interpretation”).  This Interpretationprescribes the tax benefit to be recorded in the financial statements as theamount most likely to be realized assuming a review by tax authorities havingall relevant information and applying current conventions. The Interpretationalso clarifies the financial statement classification of potential tax-relatedpenalties and interest and sets forth new disclosures regarding unrecognizedtax benefits.  The Interpretation iseffective for the first interim or annual reporting period beginning afterDecember 15, 2006.  The Company plans toadopt the Interpretation when required. The Interpretation is currently beingevaluated by the Company to assess its impact, if any.

**14.****         ****Employee Benefit Plans**

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

 
|                                               | ** ** | **Pension Benefits**                | ** ** | **Other Postretirement Benefits**   | ** ** |
|-----------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| ** **                                    | ** ** | **Nine Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
| ** **                                    | ** ** | **2006**                            | ** ** | **2005**                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Components of  the net periodic benefit cost: |       |                                |       |                                |       |   |   |   |   |
| Service Cost                                  |       | $                                   | —     |                                | $          | — |   | $ | 867 |   | $ | 616 |   |
| Interest Cost                                 |       | 858                                 |       | 855                                 |       | 780 |   | 696 |   |
| Expected return  on plan assets               |       | (858                                | )          | (889                                | )          | — |   | — |   |
| Recognized  (gain) loss                       |       | —                              |       | —                              |       | (63 | ) | 22 |   |
| Net periodic benefit cost                     |       | $                                   | —     |                                | $          | (34 | ) | $ | 1,584 |   | $ | 1,334 |   |

 

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

**15.****         ****Segment Information**

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

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

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|                         | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **              | ** ** | **2006**                                                 | ** ** | **2005**                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **              | ** ** | ** **                                               | ** ** | **(Restated)**                                          | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Net Sales               |       |                                                     |       |                                                    |       |   |   |   |   |
| North America           |       | $                                                        | 79,917     |                                                    | $          | 74,927 |   | $ | 240,495 |   | $ | 221,174 |   |
| Europe                  |       | 6,844                                                    |       | 5,288                                                   |       | 21,381 |   | 18,554 |   |
| Australia / Asia        |       | 21,460                                                   |       | 20,372                                                  |       | 59,767 |   | 57,476 |   |
| All other international |       | 19,066                                                   |       | 17,349                                                  |       | 56,018 |   | 49,888 |   |
|                    |       | $                                                        | 127,287    |                                                    | $          | 117,936 |   | $ | 377,661 |   | $ | 347,092 |   |

 
|                         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **              | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Identifiable  Assets    |       |                   |       |                  |       |
| North America           |       | $                      | 37,170     |                  | $          | 37,190 |   |
| Europe                  |       | 1,395                  |       | 1,347                 |       |
| Australia / Asia        |       | 8,290                  |       | 8,714                 |       |
| All other international |       | 11,880                 |       | 16,074                |       |
|                    |       | $                      | 58,735     |                  | $          | 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, automobile manufacturing,repair and maintenance and shipbuilding. The following table shows sales fromcontinuing operations for each of the Company’s key product lines:

|                                                      | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                                 | ** ** | **2005**                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                           | ** ** | ** **                                               | ** ** | **(Restated)**                                          | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
|                                                 |       |                                                     |       |                                                    |       |   |   |   |   |
| Gas equipment                                        |       | $                                                        | 51,644     |                                                    | $          | 45,836 |   | $ | 150,687 |   | $ | 133,870 |   |
| Welding  equipment                                   |       | 15,176                                                   |       | 15,401                                                  |       | 42,968 |   | 42,549 |   |
| Arc accessories                                      |       | 36,289                                                   |       | 34,401                                                  |       | 105,846 |   | 98,859 |   |
| Plasma power  supplies, torches and consumable parts |       | 15,340                                                   |       | 14,933                                                  |       | 49,801 |   | 47,339 |   |
| Filler metal                                         |       | 8,838                                                    |       | 7,365                                                   |       | 28,359 |   | 24,475 |   |
|                                                 |       | $                                                        | 127,287    |                                                    | $          | 117,936 |   | $ | 377,661 |   | $ | 347,092 |   |

 

**16.****         ****Minority Interests**

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

The shareholderagreements for a certain Italian subsidiary includes provisions that allow theminority shareholder to put its ownership in the entity back to the Company or,conversely, provide the Company a call option to purchase the outstandingminority interest.  The exercise periodfor the put and call options associated with the minority interest in theItalian subsidiary expires on December 31, 2010.  The purchase price of the option isdetermined based on a specific formula outlined in the shareholderagreement.  As of September 30, 2006, themaximum payment to satisfy the put option is $689 based on the formula in theagreement.

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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 toany litigation, management is of the opinion that the outcome of suchlitigation will not have a material adverse effect on the Company’s financialcondition or results of operations. At September 30, 2006, the Company was aco-defendant in approximately 1,052 cases alleging manganese induced illness.Manganese is an essential element of steel and contained in all welding fillermetals. The Company is one of a large number of defendants. The claimantsallege that exposure to manganese contained in the welding filler metals causedthe plaintiffs to develop adverse neurological conditions, including acondition known as manganism. As of September 30, 2006, the Judicial Panel onMultidistrict Litigation has consolidated 720 of these cases for pretrialproceedings in the Northern District of Ohio. Between June 1, 2003 andSeptember 30, 2006, the Company was dismissed from approximately 400 othercases with similar allegations. Through September 30, 2006, the Company hasmade no payments or settlements to plaintiffs for these allegations.

The Company is party tocertain environmental matters, although no claims are currently pending. Anyrelated obligations 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 believesthat such proceedings should not, individually or in the aggregate, have amaterial adverse effect on the Company’s business or financial condition or onthe results of operations.

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

**18.          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 financial information presents the guarantors andnon-guarantors of the 91⁄4%Senior Subordinated Notes, in accordance with Rule 3-10 of Regulation S-X. The condensed consolidating financialinformation includes the accounts of the Company, which has no independentassets or operations, the combined accounts of the Guarantor Subsidiaries andthe combined accounts of the non-guarantor subsidiaries for the periodsindicated. Separate financial statements of each of the Guarantor Subsidiariesare not presented because management has determined such information is notmaterial in assessing the financial condition, cash flows or results ofoperations of the Company and its subsidiaries. This information was preparedon the same basis as the consolidated financial statements:

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**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATING BALANCE SHEETSEPTEMBER 30, 2006**
| ** **                                                 | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                 | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                 | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                 | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                                 |       |            |       |           |       |           |       |             |       |             |       |
| Current Assets:                                            |       |            |       |           |       |           |       |             |       |             |       |
| Cash and cash equivalents                                  |       | $               | —     |           | $          | 7,512          |       | $                | 3,746      |             | $          | — |   | $ | 11,258 |   |
| Accounts receivable, net                                   |       | —          |       | 78,849         |       | 12,166         |       | —           |       | 91,015           |       |
| Inventories                                                |       | —          |       | 93,379         |       | 22,087         |       | —           |       | 115,466          |       |
| Prepaid expenses and other                                 |       | —          |       | 5,383          |       | 1,331          |       | —           |       | 6,714            |       |
| Assets held for sale                                       |       | —          |       | —         |       | —         |       | —           |       | —           |       |
| Current deferred tax assets                                |       | —          |       | 1,861          |       | —         |       | —           |       | 1,861            |       |
| Total current assets                                       |       | —          |       | 186,984        |       | 39,330         |       | —           |       | 226,314          |       |
| Property, plant and equipment, net                         |       | —          |       | 36,696         |       | 14,801         |       | —           |       | 51,497           |       |
| Goodwill                                                   |       | —          |       | 205,542        |       | —         |       | —           |       | 205,542          |       |
| Intangibles, net                                           |       | —          |       | 59,713         |       | 4,919          |       | —           |       | 64,632           |       |
| Other assets                                               |       | 3,533           |       | 3,387          |       | 318            |       | —           |       | 7,238            |       |
| Investment in and advances to subsidiaries                 |       | 173,843         |       | —         |       | —         |       | (173,843         | )          | —           |       |
| Total assets                                               |       | $               | 177,376    |           | $          | 492,322        |       | $                | 59,368     |             | $          | (173,843 | ) | $ | 555,223 |   |
|                                                       |       |            |       |           |       |           |       |             |       |             |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**   |       |            |       |           |       |           |       |             |       |             |       |
| Current  Liabilities:                                      |       |            |       |           |       |           |       |             |       |             |       |
| Accounts payable                                           |       | $               | —     |           | $          | 28,666         |       | $                | 7,730      |             | $          | — |   | $ | 36,396 |   |
| Accrued and other liabilities                              |       | 49              |       | 31,288         |       | 4,153          |       | —           |       | 35,490           |       |
| Accrued interest                                           |       | 3,102           |       | 362            |       | 23             |       | —           |       | 3,487            |       |
| Income taxes payable                                       |       | —          |       | 3,559          |       | 767            |       | —           |       | 4,326            |       |
| Liabilities applicable to assets held for sale             |       |            |       | —         |       | —         |       |             |       | —           |       |
| Working capital and second-lien facility                   |       | —          |       | 25,155         |       | —         |       | —           |       | 25,155           |       |
| Current maturities of long-term obligations                |       | —          |       | 9,542          |       | 1,812          |       | —           |       | 11,354           |       |
| Total current liabilities                                  |       | 3,151           |       | 98,572         |       | 14,485         |       | —           |       | 116,208          |       |
| Long-term  obligations, less current maturities            |       | 175,000         |       | 54,484         |       | 606            |       | —           |       | 230,090          |       |
| Deferred tax  liabilities                                  |       | —          |       | 53,913         |       | —         |       | —           |       | 53,913           |       |
| Other long-term  liabilities                               |       |            |       | 40,590         |       | 1,655          |       | —           |       | 42,245           |       |
| Minority  Interest                                         |       | —          |       | —         |       | 367            |       | —           |       | 367              |       |
| Shareholders’  equity (deficit):                      |       |            |       |           |       |           |       |             |       |             |       |
| Common stock                                               |       | 133             |       | —         |       | —         |       | —           |       | 133              |       |
| Additional paid-in-capital                                 |       | 185,089         |       | —         |       | —         |       | —           |       | 185,089          |       |
| Retained earnings (accumulated deficit)                    |       | (77,980         | )          | 258            |       | (35,720        | )          | 35,462           |       | (77,980          | )          |
| Accumulated other comprehensive income (loss)              |       | 5,158           |       | (42,722        | )          | 4,557          |       | 38,165           |       | 5,158            |       |
| Total shareholders’ equity (deficit)                  |       | 112,400         |       | (42,464        | )          | (31,163        | )          | 73,627           |       | 112,400          |       |
| Net equity and  advances to / from subsidiaries            |       | (113,175        | )          | 287,227        |       | 73,418         |       | (247,470         | )          | —           |       |
|                                                       |       |            |       |           |       |           |       |             |       |             |       |
| Total  liabilities and shareholders’ equity (deficit) |       | $               | 177,376    |           | $          | 492,322        |       | $                | 59,368     |             | $          | (173,843 | ) | $ | 555,223 |   |

 

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**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATING BALANCE SHEETDECEMBER 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 |   |

 

23

----

**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATING STATEMENT OF OPERATIONSTHREE MONTHS ENDED SEPTEMBER 30, 2006**
| ** **                                                                                         | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                         | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Net sales                                                                                          |       | $               | —     |           | $          | 128,566        |       | $                | 21,924     |             | $          | (23,203 | ) | $ | 127,287 |   |
| Cost of goods  sold                                                                                |       | —          |       | 92,694         |       | 20,556         |       | (22,959          | )          | 90,291           |       |
| Gross margin                                                                                       |       | —          |       | 35,872         |       | 1,368          |       | (244             | )          | 36,996           |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Selling, general  and administrative expenses                                                      |       | 963             |       | 27,394         |       | 3,659          |       | —           |       | 32,016           |       |
| Amortization of  intangibles                                                                       |       | —          |       | 724            |       | 9              |       | —           |       | 733              |       |
| Net periodic  postretirement benefits                                                              |       | —          |       | 528            |       | —         |       | —           |       | 528              |       |
| Operating income (loss)                                                                            |       | (963            | )          | 7,226          |       | (2,300         | )          | (244             | )          | 3,719            |       |
| Other income  (expense):                                                                           |       |            |       |           |       |           |       |             |       |             |       |
| Interest, net                                                                                      |       | (4,484          | )          | (2,422         | )          | (179           | )          | —           |       | (7,085           | )          |
| Amortization of deferred financing costs                                                           |       | (124            | )          | (205           | )          | —         |       | —           |       | (329             | )          |
| Equity in net income (loss) of subsidiaries                                                        |       | (169            | )          | —         |       | —         |       | 169              |       | —           |       |
| Minority interest                                                                                  |       | —          |       | (21            | )          | —         |       | —           |       | (21              | )          |
| Income (loss)  from continuing operations before income tax provision and discontinued  operations |       | (5,740          | )          | 4,578          |       | (2,479         | )          | (75              | )          | (3,716           | )          |
| Income tax provision                                                                               |       | —          |       | 1,465          |       | 559            |       | —           |       | 2,024            |       |
| Income (loss)  from continuing operations                                                          |       | (5,740          | )          | 3,113          |       | (3,038         | )          | (75              | )          | (5,740           | )          |
| Discontinued  Operations:                                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Loss on  disposition of discontinued operations, net of tax                                        |       | —          |       | —         |       | —         |       | —           |       | —           |       |
| Net income (loss)  applicable to common shares                                                     |       | $               | (5,740     | )              | $          | 3,113          |       | $                | (3,038     | )                | $          | (75 | ) | $ | (5,740 | ) |

 

24

----

**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATING STATEMENT OF OPERATIONSNINE MONTHS ENDED SEPTEMBER 30, 2006**
| ** **                                                                                         | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                         | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Net sales                                                                                          |       | $               | —     |           | $          | 382,370        |       | $                | 63,204     |             | $          | (67,913 | ) | $ | 377,661 |   |
| Cost of goods  sold                                                                                |       | —          |       | 279,157        |       | 57,282         |       | (66,527          | )          | 269,912          |       |
| Gross margin                                                                                       |       | —          |       | 103,213        |       | 5,922          |       | (1,386           | )          | 107,749          |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Selling, general  and administrative expenses                                                      |       | 1,716           |       | 77,278         |       | 11,551         |       | —           |       | 90,545           |       |
| Amortization of  intangibles                                                                       |       | —          |       | 2,166          |       | 31             |       | —           |       | 2,197            |       |
| Net periodic  postretirement benefits                                                              |       | —          |       | 1,584          |       | —         |       | —           |       | 1,584            |       |
| Operating income (loss)                                                                            |       | (1,716          | )          | 22,185         |       | (5,660         | )          | (1,386           | )          | 13,423           |       |
| Other income  (expense):                                                                           |       |            |       |           |       |           |       |             |       |             |       |
| Interest, net                                                                                      |       | (12,769         | )          | (6,597         | )          | (763           | )          | —           |       | (20,129          | )          |
| Amortization of deferred financing costs                                                           |       | (376            | )          | (617           | )          | —         |       | —           |       | (993             | )          |
| Equity in net income (loss) of subsidiaries                                                        |       | 2,452           |       | —         |       | —         |       | (2,452           | )          | —           |       |
| Minority interest                                                                                  |       | —          |       | (96            | )          | —         |       | —           |       | (96              | )          |
| Income (loss)  from continuing operations before income tax provision and discontinued  operations |       | (12,409         | )          | 14,875         |       | (6,423         | )          | (3,838           | )          | (7,795           | )          |
| Income tax  provision                                                                              |       | —          |       | 2,949          |       | 1,375          |       | —           |       | 4,324            |       |
| Income (loss)  from continuing operations                                                          |       | (12,409         | )          | 11,926         |       | (7,798         | )          | (3,838           | )          | (12,119          | )          |
| Discontinued  Operations:                                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Loss on  disposition of discontinued operations, net of tax                                        |       | —          |       | —         |       | (290           | )          | —           |       | (290             | )          |
| Net income (loss)  applicable to common shares                                                     |       | $               | (12,409    | )              | $          | 11,926         |       | $                | (8,088     | )                | $          | (3,838 | ) | $ | (12,409 | ) |

 

25

----

**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATING STATEMENT OF OPERATIONSTHREE MONTHS ENDED SEPTEMBER 30, 2005(Restated)**
| ** **                                                                                         | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                         | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Net sales                                                                                          |       | $               | —     |           | $          | 122,685        |       | $                | 19,769     |             | $          | (24,518 | ) | $ | 117,936 |   |
| Cost of goods  sold                                                                                |       | —          |       | 91,425         |       | 16,920         |       | (24,422          | )          | 83,923           |       |
| Gross margin                                                                                       |       | —          |       | 31,260         |       | 2,849          |       | (96              | )          | 34,013           |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Selling, general  and administrative expenses                                                      |       | (121            | )          | 23,220         |       | 3,844          |       | —           |       | 26,943           |       |
| Amortization of  intangibles                                                                       |       | —          |       | 788            |       | 6              |       | —           |       | 794              |       |
| Net periodic  postretirement benefits                                                              |       | —          |       | 592            |       | —         |       | —           |       | 592              |       |
| Operating income (loss)                                                                            |       | 121             |       | 6,660          |       | (1,001         | )          | (96              | )          | 5,684            |       |
| Other income  (expense):                                                                           |       |            |       |           |       |           |       |             |       |             |       |
| Interest, net                                                                                      |       | (4,032          | )          | (1,792         | )          | (494           | )          | —           |       | (6,318           | )          |
| Amortization of deferred financing costs                                                           |       | (125            | )          | (202           | )          | —         |       | —           |       | (327             | )          |
| Equity in net income (loss) of subsidiaries                                                        |       | (870            | )          | —         |       | —         |       | 870              |       | —           |       |
| Minority interest                                                                                  |       | —          |       | (207           | )          | —         |       | —           |       | (207             | )          |
| Income (loss)  from continuing operations before income tax provision and discontinued  operations |       | (4,906          | )          | 4,459          |       | (1,495         | )          | 774              |       | (1,168           | )          |
| Income tax  provision                                                                              |       | —          |       | 3,593          |       | 321            |       | —           |       | 3,914            |       |
| Income (loss)  from continuing operations                                                          |       | (4,906          | )          | 866            |       | (1,816         | )          | 774              |       | (5,082           | )          |
| Discontinued  Operations:                                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Loss on  disposition of discontinued operations, net of tax                                        |       | —          |       | —         |       | 176            |       | —           |       | 176              |       |
| Net income (loss)  applicable to common shares                                                     |       | $               | (4,906     | )              | $          | 866            |       | $                | (1,640     | )                | $          | 774 |   | $ | (4,906 | ) |

 

26

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**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATING STATEMENT OF OPERATIONSNINE MONTHS ENDED SEPTEMBER 30, 2005(Restated)**
| ** **                                                                                         | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                                                         | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                                                         | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Net sales                                                                                          |       | $               | —     |           | $          | 357,842        |       | $                | 53,069     |             | $          | (63,819 | ) | $ | 347,092 |   |
| Cost of goods  sold                                                                                |       | —          |       | 266,425        |       | 44,456         |       | (63,632          | )          | 247,249          |       |
| Gross margin                                                                                       |       | —          |       | 91,417         |       | 8,613          |       | (187             | )          | 99,843           |       |
|                                                                                               |       |            |       |           |       |           |       |             |       |             |       |
| Selling, general  and administrative expenses                                                      |       | (196            | )          | 66,295         |       | 14,934         |       | —           |       | 81,033           |       |
| Amortization of  intangibles                                                                       |       | —          |       | 2,358          |       | 124            |       | —           |       | 2,482            |       |
| Net periodic  postretirement benefits                                                              |       | —          |       | 1,778          |       | —         |       | —           |       | 1,778            |       |
| Operating income (loss)                                                                            |       | 196             |       | 20,986         |       | (6,445         | )          | (187             | )          | 14,550           |       |
| Other income  (expense):                                                                           |       |            |       |           |       |           |       |             |       |             |       |
| Interest, net                                                                                      |       | (11,737         | )          | (4,878         | )          | (1,083         | )          | —           |       | (17,698          | )          |
| Amortization of deferred financing costs                                                           |       | (375            | )          | (766           | )          | —         |       | —           |       | (1,141           | )          |
| Equity in net income (loss) of subsidiaries                                                        |       | 5,338           |       | —         |       | —         |       | (5,338           | )          | —           |       |
| Minority interest                                                                                  |       | —          |       | (491           | )          | (53            | )          | —           |       | (544             | )          |
| Income (loss)  from continuing operations before income tax provision and discontinued  operations |       | (6,578          | )          | 14,851         |       | (7,581         | )          | (5,525           | )          | (4,833           | )          |
| Income tax  provision                                                                              |       | —          |       | 2,038          |       | 1,092          |       | —           |       | 3,130            |       |
| Income (loss)  from continuing operations                                                          |       | (6,578          | )          | 12,813         |       | (8,673         | )          | (5,525           | )          | (7,963           | )          |
| Discontinued  Operations:                                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Loss on  disposition of discontinued operations, net of tax                                        |       | —          |       | —         |       | 1,385          |       | —           |       | 1,385            |       |
| Net income (loss)  applicable to common shares                                                     |       | $               | (6,578     | )              | $          | 12,813         |       | $                | (7,288     | )                | $          | (5,525 | ) | $ | (6,578 | ) |

 

27

----

**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSNINE MONTHS ENDED SEPTEMBER 30, 2006**
| ** **                                                    | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                    | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                    | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Cash flows from  continuing operations:                       |       |            |       |           |       |           |       |             |       |             |       |
| Net cash  provided by (used in) operating activities          |       | $               | (15,501    | )              | $          | (11,680        | )          | $                | (2,642     | )                | $          | 10,172 |   | $ | (19,651 | ) |
| Cash flows from  investing activities:                        |       |            |       |           |       |           |       |             |       |             |       |
| Capital expenditures                                          |       | $               | —     |           | $          | (4,731         | )          | $                | —     |             | $          | — |   | $ | (4,731 | ) |
| Proceeds from sales of assets                                 |       | —          |       | 16,455         |       | —         |       | —           |       | 16,455           |       |
| Acquisition of minority interest                              |       | —          |       | (3,954         | )          | —         |       | —           |       | (3,954           | )          |
| Net cash  provided by investing activities                    |       | $               | —     |           | $          | 7,770          |       | $                | —     |             | $          | — |   | $ | 7,770 |   |
| Cash flows from  financing activities:                        |       |            |       |           |       |           |       |             |       |             |       |
| Net borrowings (repayments) under revolving credit  facility  |       | $               | —     |           | $          | (9,609         | )          | $                | 1,142      |             | $          | — |   | $ | (8,467 | ) |
| Net repayments of other credit facilities                     |       | —          |       | 16,098         |       | (1,024         | )          | —           |       | 15,074           |       |
| Changes in net equity and advances to / from subsidiaries     |       | 14,125          |       | (2,636         | )          | 1,362          |       | (10,172          | )          | 2,679            |       |
| Other                                                         |       | 1,376           |       | (264           | )          | —         |       | —           |       | 1,112            |       |
| Net cash  provided by (used in) financing activities          |       | $               | 15,501     |           | $          | 3,589          |       | $                | 1,480      |             | $          | (10,172 | ) | $ | 10,398 |   |
| Effect of  exchange rate changes on cash and cash equivalents |       | $               | —     |           | $          | 1,242          |       | $                | (940       | )                | $          | — |   | $ | 302 |   |
| Net cash  provided by (used in) continuing operations         |       | $               | —     |           | $          | 921            |       | $                | (2,102     | )                | $          | — |   | $ | (1,181 | ) |
|                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Cash flows from  discontinued operations:                     |       |            |       |           |       |           |       |             |       |             |       |
| Net cash  provided by operating activities                    |       | $               | —     |           | $          | —         |       | $                | 594        |             | $          | — |   | $ | 594 |   |
| Net cash used in  investing activities                        |       | —          |       | —         |       | (849           | )          | —           |       | (849             | )          |
| Net cash used in  financing activities                        |       | —          |       | —         |       | (2,799         | )          | —           |       | (2,799           | )          |
| Effect of  exchange rate changes on cash and cash equivalents |       | —          |       | —         |       | (69            | )          | —           |       | (69              | )          |
| Net cash used in  discontinued operations                     |       | $               | —     |           | $          | —         |       | $                | (3,123     | )                | $          | — |   | $ | (3,123 | ) |
|                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Total increase  (decrease) in cash and cash equivalents       |       | $               | —     |           | $          | 921            |       | $                | (5,225     | )                | $          | — |   | $ | (4,304 | ) |
| Total cash and  cash equivalents beginning of period          |       | —          |       | 6,591          |       | 8,971          |       | —           |       | 15,562           |       |
| Total cash and cash equivalents end of period                 |       | $               | —     |           | $          | 7,512          |       | $                | 3,746      |             | $          | — |   | $ | 11,258 |   |

 

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**THERMADYNE HOLDINGS CORPORATIONCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSNINE MONTHS ENDED SEPTEMBER 30, 2005(Restated)**
| ** **                                                    | ** ** | **Parent**      | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Thermadyne**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                    | ** ** | **Holdings**    | ** ** | ** **     | ** ** | **Non-**       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                    | ** ** | **Corporation** | ** ** | **Guarantors** | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Cash flows from  continuing operations:                       |       |            |       |           |       |           |       |             |       |             |       |
| Net cash  provided by (used in) operating activities          |       | $               | (11,504    | )              | $          | 11,754         |       | $                | (9,247     | )                | $          | (4,022 | ) | $ | (13,019 | ) |
| Cash flows from  investing activities:                        |       |            |       |           |       |           |       |             |       |             |       |
| Capital expenditures                                          |       | $               | —     |           | $          | (4,194         | )          | $                | (1,929     | )                | $          | — |   | $ | (6,123 | ) |
| Proceeds from sales of assets                                 |       | —          |       | —         |       | —         |       | —           |       | —           |       |
| Investment in joint venture                                   |       | —          |       | (700           | )          | —         |       | —           |       | (700             | )          |
| Net cash used in  investing activities                        |       | $               | —     |           | $          | (4,894         | )          | $                | (1,929     | )                | $          | — |   | $ | (6,823 | ) |
| Cash flows from  financing activities:                        |       |            |       |           |       |           |       |             |       |             |       |
| Net borrowings under revolving credit facility                |       | $               | —     |           | $          | 23,077         |       | $                | 968        |             | $          | — |   | $ | 24,045 |   |
| Net repayments of other credit facilities                     |       | —          |       | (1,321         | )          | (347           | )          | —           |       | (1,668           | )          |
| Changes in net equity and advances to / from  subsidiaries    |       | 11,504          |       | (27,766        | )          | 9,578          |       | 4,022            |       | (2,662           | )          |
| Financing fees and other                                      |       | —          |       | (1,754         | )          | 569            |       | —           |       | (1,185           | )          |
| Net cash  provided by (used in) financing activities          |       | $               | 11,504     |           | $          | (7,764         | )          | $                | 10,768     |             | $          | 4,022 |   | $ | 18,530 |   |
| Effect of  exchange rate changes on cash and cash equivalents |       | $               | —     |           | $          | (168           | )          | $                | 1,132      |             | $          | — |   | $ | 964 |   |
| Net cash  provided by (used in) continuing operations         |       | $               | —     |           | $          | (1,072         | )          | $                | 724        |             | $          | — |   | $ | (348 | ) |
|                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Cash flows from  discontinued operations:                     |       |            |       |           |       |           |       |             |       |             |       |
| Net cash  provided by operating activities                    |       | $               | —     |           | $          | —         |       | $                | 1,108      |             | $          | — |   | $ | 1,108 |   |
| Net cash used in  investing activities                        |       | —          |       | —         |       | (2,308         | )          | —           |       | (2,308           | )          |
| Net cash  provided by financing activities                    |       | —          |       | —         |       | 1,886          |       | —           |       | 1,886            |       |
| Effect of  exchange rate changes on cash and cash equivalents |       | —          |       | —         |       | 517            |       | —           |       | 517              |       |
| Net cash  provided by discontinued operations                 |       | $               | —     |           | $          | —         |       | $                | 1,203      |             | $          | — |   | $ | 1,203 |   |
|                                                          |       |            |       |           |       |           |       |             |       |             |       |
| Total increase  (decrease) in cash and cash equivalents       |       | $               | —     |           | $          | (1,072         | )          | $                | 1,927      |             | $          | — |   | $ | 855 |   |
| Total cash and  cash equivalents beginning of period          |       | —          |       | 5,969          |       | 1,092          |       | —           |       | 7,061            |       |
| Total cash and  cash equivalents end of period                |       | $               | —     |           | $          | 4,897          |       | $                | 3,019      |             | $          | — |   | $ | 7,916 |   |

 

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**Item 2.**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

#### **Overview**

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

**Restatement of Consolidated Financial Statements**

As more fully discussed in the Company’s 2005 Annual Report on Form10-K and as set forth in Note 5 — *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.

**Recent Developments**

On November 14,2006, the Board of Directors appointed Mark F. Jolly, VicePresident & Global Controller, to the position of Principal AccountingOfficer.

**Cautionary Statement Concerning Forward-looking Statements**

The statements in thisQuarterly Report on Form 10-Q that relate to future plans, events orperformance are forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, Section 21E of the Securities Exchange Act of1934,and the Private Securities Litigation Reform Act of 1995, includingstatements regarding our future prospects. These statements may be identifiedby terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,”“continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” andsimilar expressions and relate to future events and occurrences. Actual resultscould differ materially due to a variety of factors and the other risksdescribed in this Quarterly Report and the other documents we file from time totime with the Securities and Exchange Commission. Factors that could causeactual results to differ materially from those expressed or implied in suchstatements include, but are not limited to, the following and those discussedunder the Risk Factors section of our Annual Report on Form 10-K for the fiscalyear ended December 31, 2005:

(a)                                  general economic and capital market conditions,including political and economic uncertainty in various areas of the worldwhere we do business;

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

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

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

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

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

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

(h)                                 the effectiveness of our cost reductioninitiatives;

(i)                                     foreign currency exchange rates;

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

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

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

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

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

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

Readersare cautioned not to place undue reliance on these forward-looking statements,which speak only as of the date hereof and are not guarantees of performance orresults. We undertake no obligation to publicly release the result of anyrevisions to these forward-looking statements that may be made to reflectevents or circumstances after the date hereof or that reflect the occurrence ofunanticipated events.

Fora more complete discussion of factors that may affect future results, see theRisk Factors section in our Annual Report on Form 10-K for the year endedDecember 31, 2005.

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

###### ***Three Months Ended September30, 2006 Compared to Three Months Ended September 30, 2005***

Net sales from continuing operations for the three months endedSeptember 30, 2006 were $127.3 million, which was a 7.9% increase over netsales of $117.9 million for the same three months in 2005.  North American sales were $79.9 million forthe third quarter of 2006, compared to $74.9 million for the same period lastyear, which is an increase of 6.7%. International sales were $47.4 million for the three months endedSeptember 30, 2006 compared to $43.0 million for the third quarter of 2005, oran increase of 10.2%.  Net sales for thethree months ended September 30, 2006 increased approximately $8 million as aresult of price increases, and $2 million of new product introductions andproduct growth.  These increases wereoffset by a decrease in net sales of approximately $1 million from the impactof foreign currency translation.  Net salesin the third quarter of 2006 were reduced by $5.4 million for rebates paid tocustomers compared to $4.5 million in the third quarter of 2005.  The increase in rebates result from increasedsales volume to customers achieving volume levels providing higher rebatepercentages.

Gross margin from continuing operations for the third quarter of 2006was $37.0 million, or 29.1% of net sales, compared to $34.0 million, or 28.8%of net sales, for the same period in 2005. Gross margin increased approximately $9 million as a result of newproduct introductions, volume expansion and price increases.  The gross margin increase was reduced with $1million increased rebate costs.  The impactof cost increases from inflation of both material costs and production supplycost resulted in increases of $10 million. These increases were partiallyoffset by cost savings from productivity initiatives of approximately $5million.  The increase in material costwas attributable to higher prices for key raw materials such as copper andbrass.  In addition, the effect oftranslating the local currency results of the Company’s international businessunits into U.S. dollars resulted in a decrease to gross margin of approximately$0.4 million.

Selling, general and administrative expenses (“SG&A”) were $32.0million, or 25.2% of net sales, for the three months ended September 30, 2006as compared to $26.9 million, or 22.8% of net sales, for the three months endedSeptember 30, 2005.  The increase inSG&A is principally related to incremental costs associated with completionof the 2005 restated financial statements and the 2006 quarterly financialstatements, the consents obtained from bondholders and fees associated withstrategic assessment of certain non-core operations.  The balance of the change is associated withthe impact of inflation and increased marketing costs to promote new productintroductions.

Interest expense for the three months ended September 30, 2006 was $7.1million, which compares to $6.3 million for the three months ended September30, 2005.  The difference results from anincrease in our average borrowing rate and higher levels of debt for theserespective periods.

An income tax provision of $2.0 million for continuingoperations was recorded on pretax loss of $3.7 million for the three monthsended September 30, 2006.  An income taxprovision of $3.9 million for continuing operations was recorded on a pretaxloss of $1.2 million for the quarter ended September 30, 2005.  The income tax provision for 2006 and 2005includes $1.7 million and $1.2 million, respectively, of current tax expenseprimarily related to income generated in certain foreign jurisdictions and anoffsetting benefit for deferred tax reductions.   For the three months ended September 30,2005, the income tax provision resulted primarily from the reversal ofestimated tax benefits recorded in the prior 2005 quarters.  Due to the uncertainties of 2006 operating results,valuation allowances offset the benefit of U.S. net operating losses in thethird quarter of 2006.  The Company hasengaged international tax planning specialists and anticipates that theestimated foreign tax expenses recognized in 2006 will ultimately besignificantly reduced.

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All locations reported as discontinued operations inprior periods were divested during the first quarter of 2006 and no resultswere reported for the third quarter of 2006. Income from discontinuedoperations was $0.2 million during the third quarter of 2005 for the operationsthat we divested in late 2005 and the first quarter of 2006.

***Nine Months Ended September 30,2006 Compared to Nine Months Ended September 30, 2005***

Net sales from continuing operations for the ninemonths ended September 30, 2006 were $377.7 million, which was a 8.8% increaseover net sales of $347.1 million for the same nine months in 2005.  North American sales were $240.5 million forthe first nine months of 2006, compared to $221.2 million for the same periodlast year, which is an increase of 8.7%. International sales were $137.2 million for the nine months endedSeptember 30, 2006 compared to $125.9 million for the same period of 2005, oran increase of 9.0%.  Net sales for thenine months ended September 30, 2006 increased approximately $18 million as aresult of increased demand and new product initiatives, $17 million as a resultof price increases and was partially offset by a decrease in net sales ofapproximately $4 million as a result of the impact of foreign currencytranslation.  Net sales in the first ninemonths of 2006 were reduced by $15.6 million for rebates paid to customerscompared to $11.6 million in the same period of 2005.

Gross margin from continuing operations for the nine months endedSeptember 30, 2006 was $107.7 million, or 28.5% of net sales, compared to $99.8million, or 28.8% of net sales, for the same period in 2005.  Gross margin dollars increased approximately$20 million through new product introductions, volume expansion and priceincreases.  These increases to grossmargin were partially offset by approximately $4 million increase in rebatecosts. The impact of cost increases from inflation of material costs andproduction supply cost increases of $21 million were partially offset by costsavings from productivity initiatives of approximately $13 million.  The overall increase in material cost wasattributable to higher prices for key raw materials such as copper, brass andsteel.  In addition, the effect oftranslating the local currency results of the Company’s international businessunits into U.S. dollars resulted in a decrease to gross margin of approximately$1 million.

Selling, general and administrative expenses (“SG&A”) were $90.5million, or 24.0% of net sales, for the nine months ended September 30, 2006 ascompared to $81.0 million, or 23.3% of net sales, for the nine months endedSeptember 30, 2005.  The increase inSG&A is principally related to incremental costs incurred in the second andthird quarters associated with completion of the 2005 restated financialstatements and the issuance of the first and second 2006 quarterly financialstatements, the consents obtained from bondholders in May and August 2006 andfees associated with strategic assessment of certain non-core operations.  The impact of inflation and increasedmarketing costs to promote new product introductions also contributed to theincrease between years.

Interest expense for the nine months ended September 30, 2006 was $20.1million, which compares to $17.7 million for the nine months ended September30, 2005.  The difference results from anoverall increase in our average borrowing rate.

An income tax provision of$4.3 million was recorded on the pretax loss of $7.8 million from continuingoperations for the nine months ended September 30, 2006.  An income tax provision of $3.1 million wasrecorded on a pretax loss of $4.8 million from continuing operations for thesame period in 2005.  The income tax provisionfor both 2006 and 2005 includes $5.5 million and $3.5 million, respectively, oftaxes currently payable primarily related to income generated in certainforeign jurisdictions offset by a benefit for deferred tax reductions.  Valuation allowances offset the tax benefitof U.S. net operating losses in both 2006 and 2005. As noted previously,international tax planning work currently in process is expected tosignificantly reduce the 2006 foreign tax expenses.

Discontinuedoperations reported a loss of $0.3 million for the nine months ended September30, 2006 compared to net income of $1.4 million for the nine months endedSeptember 30, 2005.  These operationswere divested during the first quarter of 2006 which reduced their financialstatement impact in comparison to the nine months ended September 30, 2005.

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**LIQUIDITYAND CAPITAL RESOURCES**

***Working Capital and Cash Flows***

Operatingactivities from continuing operations used $19.7 million of cash during thefirst nine months of 2006, compared to the $13.0 million of cash used duringthe same time period in 2005. This includes the change in operating assets andliabilities which used $18.8 million of cash during the nine months endedSeptember 30, 2006, compared to the $21.5 million of cash used in the ninemonths ended September 30, 2005.  Thechanges in operating assets and liabilities included an accounts receivableincrease of $13.7 million during the nine months ended September 30, 2006,compared to the $15.1 million increase during the same period in 2005. Theincreases in receivables primarily arise from the effect of increasedsales.  Inventory provided $1.4 millionof cash through the first nine months of 2006, as compared to a $12.8 millionuse of cash in the same nine month period last year.  Accounts payable increased, providing $2.4million of cash in the first nine months of 2006, which compares to the cashprovided from an increase in payables of $12.5 million in the first nine monthsof 2005.  During 2006, the increase in accounts payableresulted from normal payment activities and timing differences.  Accrued liabilities declined, using $3.86million of cash in the first nine months of 2006 compared to a $0.6 million useof cash in the first nine months of 2005. Cash used in the first nine months of 2006 and 2005 related to accruedliabilities for rebate and incentive compensation payments.

Investingactivities of continuing operations provided $7.8 million of cash for the firstnine months of 2006 compared to a net cash usage of $6.8 million for the firstnine months of 2005.  The 2006 cash flowprimarily resulted from the sale of certain discontinued operations aspartially reduced for the Company’s purchase of certain minority interests andcapital expenditures.  Capitalexpenditures were $4.7 million during the first nine months of 2006 which representeda decrease of $1.4 million from last year primarily due to the timing ofcapital expenditures.

Financingactivities of continuing operations provided $10.4 million of cash during thefirst nine months of 2006 compared to the $18.5 million of cash provided duringthe same period last year.  For the ninemonths ended September 30, 2006, there was $6.6 million of net borrowings ofindebtedness and $2.7 million received from discontinued operations.  For the same period in 2005, the Company hadnet borrowings of $22.4 million with $2.7 million of advances to discontinuedoperations.  The net borrowings in 2006and 2005 were used to fund working capital requirements and to fund thesemi-annual payments on the Senior Subordinated Notes made in February andAugust of both years.

# ***Liquidity***

We expect that our operatingcash flow, together with borrowings under our revolving credit facility, willbe sufficient to meet our anticipated future operating expenses, capitalexpenditures and our debt service requirements. However, our ability to generate sufficient cash flow to meet ouroperating needs will be affected by general economic and competitivefactors.  Also, see Note 11- *Debt and Capital Lease Obligations*to the condensedconsolidated financial statements.

TheCompany borrows under the CreditAgreement which consists of a Term Loan anda revolving credit facility (the “Revolver”) as described in Note 11 — *Debt and Capital Lease Obligations* to the condensedconsolidated financial statements.  TheTerm Loan was repaid in July 2006.  OnJuly 21, 2006, the Company obtained a limited waiver and amended its CreditAgreement to (1) modify the maximum leverage ratio to 5.75 throughJune 30, 2007, with scheduled decreases thereafter, (ii) modify theminimum fixed charge coverage ratio to 1.0 through June 30, 2007 and 1.10thereafter, and (iii) establish a minimum availability requirement of $5 million.  In October 2006, the Company amended itsCredit Agreement to modify the maximum leverage ratio to 5.95 for the thirdquarter of 2006.

We increased the borrowings under the Second LienFacility by an additional $20.0 million in July 2006. Approximately $7 millionwas used to repay the Term Loan and the remainder is available for generalcorporate purposes.  The Company alsoamended the Second-Lien Facility to (i) remove the financial covenantcompliance until the third quarter of 2007, and (ii) extend thepre-payment penalty date to October 31, 2007. The Second-Lien Facility isdescribed in Note 11 — *Debt and Capital Lease Obligations*to the condensedconsolidated financial statements.

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In May 2006, we amended the Indenture for the $175,000Senior Subordinated Notes to, among other things, extend the date by which wewere required to file with the SEC our Annual Report on Form 10-K for the yearended December 31, 2005 and any other reports then due, and obtain a waiver forthe default resulting from our failure to timely file the 2005 Annual Report.In consideration for the amendment, we paid noteholders who consented to theamendment a consent fee of $2.50 for each $1,000 in principal amount of notes.The amendment also requires us, subject to certain conditions, to annually useour excess cash flow (as defined in the Indenture) either to make permanentrepayments of our senior debt or to extend a repurchase offer to the holders ofthe notes pursuant to which we will offer to repurchase outstanding notes at apurchase price of 101% of their principal amount.  As of July 31, 2006, the Company obtainedfrom holders consent to amend the Indenture governing the Senior SubordinatedNotes and waiving existing defaults under that Indenture related to the latefiling of the Company’s 2005 Form 10-K and first quarter 2006Form 10-Q with the SEC. The amendments also allowed the Company to extendthe time within which the Company was required to file its second quarter 2006Form 10-Q to no later than December 17, 2006. The amendment provided for cashconsent fees of $3.75 for each $1,000 in principal amount of notes if theCompany failed to file its second quarter 2006 Form 10-Q bySeptember 16, 2006, an additional fee of $3.75 for each $1,000 in principalamount of notes if the report was not filed by October 16, 2006, and anadditional fee of $5.00 for each $1,000 in principal amount of notes if theform was not filed by November 16, 2006. The payments to the noteholders for both September 2006 and October 2006were made, and the Company filed the second quarter Form 10-Q on November 8,2006. The Indenture was also amended to provide for the payment of additionalspecial interest on the Senior Subordinated Notes, initially at a rate of 1.25%per annum, subject to adjustment. The Senior Subordinated Notes are describedmore fully in Note 11— *Debt and Capital LeaseObligations*to the condensed consolidated financial statements.

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

We expect to remain in compliance with the financialcovenants by achieving our financial plan, which includes realizing sales ofnew products to be introduced, price increases for existing products, andsuccessfully implementing certain cost reduction initiatives including ourglobal continuous improvement program referred to as TCP and our program forforeign sourcing of manufacturing.  If weare not successful in achieving our financial plan, we may not be in compliancewith the revised financial covenants and we would seek an amendment to theCredit Agreement and the Second-Lien Facility. Although we believe that wecould obtain such an amendment, failure to obtain an amendment would result ina default under the Credit Agreement and the Second-Lien Facility which couldresult in a material 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.

Copper, brass and steel constitute a significantportion of our raw material costs.  Thesecommodities are subject to price fluctuations which we may not be able to passonto our customers.  We continuallymonitor the trends in such price fluctuations and adjust our prices, wherepossible, based on the current market conditions.

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.

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

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

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

Our internal control over financial 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 September 30, 2006, management evaluated theeffectiveness of our disclosure controls and procedures and concluded thosedisclosure controls and procedures were not effective because of the continuedexistence of material weaknesses described in “Management’s Report on Internal Control Over Financial Reporting” inItem 9A. *Controls and Procedures* in our AnnualReport on Form 10-K for the year ended December 31, 2005 (“Management’sReport”).  In summary, the ManagementReport as of December 31, 2005 described material weaknesses in the financialstatement close process, foreign currency accounting, income tax accounting,oversight and monitoring of certain international locations and thereconciliation of intercompany account balances.

Given that we had materialweaknesses, we performed additional procedures to reasonably ensure that thecondensed consolidated financial statements are fairly presented. In completingour September 30, 2006 financial statements and related disclosures, we engagedseveral accounting firms and systems contractors to assist us in addressing theimplications of the material weaknesses described in our Annual Report on Form10-K for the year ended December 31, 2005. We performed additional analyses ofthe reasonableness of recorded amounts, particularly allowances, accruals andfresh start accounting eliminations as of September 30, 2006 in recognition ofthe weaknesses in our financial statement close process.   With the assistance of the accounting firmsand contractors, we have conducted additional reviews of our foreign currencyaccounting and related inter-company accounting as a result of the foreigncurrency accounting weaknesses described as of December 31, 2005.  To assist in addressing the weakness inincome tax accounting, we utilized tax and accounting specialists from a majorinternational accounting firm to assist us in determining the income taxprovision and liability accounts as of September 30, 2006.   In our oversight and monitoring of the twointernational locations which have given rise to accounting adjustments in thepast, we have placed new financial management at one location during 2005 andfor the other in early 2006, which expanded our financial monitoring and reviewprocedures.  In addition, four of ourinternational locations have been sold since December 2005, which has reducedthe number of locations which must be monitored.  In recognition of the weaknesses in inter-company account balances, wehave assigned additional personnel to ensure inter-company account balanceswere properly reconciled at September 30, 2006. Consequently, management believes that the financial statementsincluded in this report fairly represent, in all material respects, ourfinancial condition, results of operations and cash flows for the periodspresented.

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**Remediation of Material Weaknesses**

As discussed above, the Company identified material weaknesses in ourinternal control over financial reporting at December 31, 2005.  These material weaknesses are described morefully in the Management Report in our Annual Report on Form 10-K for the yearended December 31, 2005.  The Company hasmade and is in the process of making additional numerous process changes in theareas noted above to establish effective internal controls and eliminate thematerial weaknesses.   These processchanges include a combination of expanded use of computer system capabilities,improved timeliness and accuracy of account reconciliation and reviewprocedures and staffing changes.  SinceAugust 1, 2006, the Company has hired a new Chief Financial Officer,Controller, Director of Accounting, and Director of Tax,  who are guiding the design and implementationof new procedures and staffing assignments. We expect to have made all process improvements necessary to remediatethe material weaknesses and have them operational during 2006.  It is unclear whether there will be asufficient period of time to adequately test remediation of these materialweaknesses pursuant to the standards established in Section 404 of theSarbanes-Oxley Act of 2002 by December 31, 2006.  For a more complete discussion of ourremediation activities, see the Management Report in our Annual Report on form10-K for the year ended December 31, 2005.

**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 September 30, 2006 that have materially affected,or are reasonably likely to materially affect, the Company’s internal controlover financial 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.  At September 30,2006, the Company was a co-defendant in approximately 1,052 cases allegingmanganese-induced illness. Manganese is an essential element of steel andcontained in all 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 September 30, 2006,the Judicial Panel on Multidistrict Litigation has consolidated 720 of thesecases for pretrial proceedings in the Northern District of Ohio.  Between June 1, 2003 and September 30, 2006,the Company was dismissed from approximately 400 other cases with similarallegations. Through September 30, 2006, the Company has made no payments orsettlements to plaintiffs for these allegations.

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**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                               | **THERMADYNE HOLDINGS CORPORATION** |
|-------------------------------|-------------------------------------|
| ** **                    | ** **                          | ** ** |
| ** **                    | ** **                          |
|                          | By:                                 |   | /s/ Mark F. Jolly |
|                          |                                |
|                          |                                | Mark F. Jolly |
|                          |                                | Vice President — Global Controller |
|                          |                                | Principal Accounting Officer |
|                          |                                |   |
|                          |                                |   |
| Date: November  15, 2006 |                                |   |
|                               |                                     |  |  |  |  |

 

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