**Securitiesand Exchange Commission**

**Washington, D.C.  20549**

** **

**FORM 10-Q**

 

**(Mark One)**

 

**ý****                                ****QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

**For the quarterly period ended**         **June 30, 2005**

 

**OR**

 

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

 

**For thetransition periodfrom                                     to                                     **

 

**Commissionfile number   0-23378**

 

**Thermadyne Holdings Corporation**

(Exact Name of Registrant asSpecified in Its Charter)

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

 

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

 

Indicate by ýwhether the registrant (1) has filed all reports required to be filed by Section 13or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

Yes   ý   No   o

 

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

Yes   ý   No   o

 

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

Yes   ý   No   o

 

The number of shares outstanding of the issuer’s common stock, parvalue $0.01 per share, as of August 1, 2005 was 13,313,973.

 

 

----

 

## **THERMADYNE HOLDINGS CORPORATION**

## ** **

## **INDEX**

## ** **

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

 

----

 

**PART I. FINANCIAL INFORMATION**

**Item 1.**

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

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

 
| ** **                                                                                                 | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                 | ** ** | **(Unaudited)**         | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                 |       |                    |       |                        |       |
|                                                                                                       |       |                    |       |                        |       |
| Current Assets:                                                                                            |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                  |       | $                       | 10,191     |                        | $          | 6,650 |   |
| Accounts receivable, less allowance for  doubtful accounts of $4,976 and $6,109, respectively              |       | 97,794                  |       | 93,555                      |       |
| Inventories                                                                                                |       | 121,249                 |       | 118,707                     |       |
| Prepaid expenses and other                                                                                 |       | 7,213                   |       | 8,299                       |       |
| Current deferred tax assets                                                                                |       | 2,690                   |       | 3,129                       |       |
| Total current assets                                                                                       |       | 239,137                 |       | 230,340                     |       |
| Property, plant and equipment, net                                                                         |       | 74,202                  |       | 79,014                      |       |
| Goodwill                                                                                                   |       | 209,430                 |       | 208,403                     |       |
| Intangibles, net                                                                                           |       | 74,568                  |       | 76,614                      |       |
| Other assets                                                                                               |       | 8,529                   |       | 7,533                       |       |
| Total assets                                                                                               |       | $                       | 605,866    |                        | $          | 601,904 |   |
|                                                                                                       |       |                    |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                              |       |                    |       |                        |       |
|                                                                                                       |       |                    |       |                        |       |
| Current Liabilities:                                                                                       |       |                    |       |                        |       |
| Accounts payable                                                                                           |       | $                       | 44,243     |                        | $          | 39,458 |   |
| Accrued and other liabilities                                                                              |       | 35,334                  |       | 35,715                      |       |
| Accrued interest                                                                                           |       | 6,763                   |       | 7,129                       |       |
| Income taxes payable                                                                                       |       | 1,844                   |       | 2,664                       |       |
| Working capital and second-lien facilities                                                                 |       | 45,960                  |       | 30,824                      |       |
| Current maturities of long-term obligations                                                                |       | 7,384                   |       | 11,255                      |       |
| Total current liabilities                                                                                  |       | 141,528                 |       | 127,045                     |       |
| Long-term obligations, less current  maturities                                                            |       | 204,240                 |       | 203,668                     |       |
| Deferred tax liabilities                                                                                   |       | 66,647                  |       | 71,445                      |       |
| Other long-term liabilities                                                                                |       | 45,553                  |       | 44,110                      |       |
| Shareholders’ equity:                                                                                 |       |                    |       |                        |       |
| Common stock, $0.01 par value, 25,000,000  shares authorized, and 13,313,973 shares issued and outstanding |       | 133                     |       | 133                         |       |
| Additional paid-in capital                                                                                 |       | 183,460                 |       | 183,460                     |       |
| Accumulated deficit                                                                                        |       | (42,234                 | )          | (41,528                     | )          |
| Accumulated other comprehensive income                                                                     |       | 6,539                   |       | 13,571                      |       |
| Total shareholders’ equity                                                                            |       | 147,898                 |       | 155,636                     |       |
| Total liabilities and shareholders’ equity                                                            |       | $                       | 605,866    |                        | $          | 601,904 |   |

 

See accompanying notes to condensed consolidated financial statements

 

3

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

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

**(Unaudited)**

 
| ** **                                    | ** ** | **Three Months  Ended  June 30,  2005** | ** ** | **Three Months  Ended  June 30,  2004** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
|                                          |       |                                         |       |                                         |       |
| Net sales                                     |       | $                                            | 135,072    |                                         | $          | 123,210 |   |
| Cost of goods sold                            |       | 100,932                                      |       | 86,473                                       |       |
| Gross Margin                                  |       | 34,140                                       |       | 36,737                                       |       |
|                                          |       |                                         |       |                                         |       |
| Selling, general and administrative  expenses |       | 28,693                                       |       | 28,615                                       |       |
| Amortization of intangibles                   |       | 828                                          |       | 826                                          |       |
| Net periodic postretirement benefits          |       | 719                                          |       | 624                                          |       |
| Restructuring costs                           |       | —                                       |       | 2,128                                        |       |
| Operating income                              |       | 3,900                                        |       | 4,544                                        |       |
| Other income (expense):                       |       |                                         |       |                                         |       |
| Interest, net                                 |       | (6,055                                       | )          | (5,165                                       | )          |
| Amortization of deferred financing costs      |       | (384                                         | )          | (311                                         | )          |
| Other, net                                    |       | (853                                         | )          | (1,207                                       | )          |
| Minority interest                             |       | (655                                         | )          | —                                       |       |
| Loss before income tax provision (benefit)    |       | (4,047                                       | )          | (2,139                                       | )          |
| Income tax provision (benefit)                |       | (2,351                                       | )          | 3,150                                        |       |
| Net loss                                      |       | $                                            | (1,696     | )                                            | $          | (5,289 | ) |
|                                          |       |                                         |       |                                         |       |
| Basic and diluted net loss per share          |       | $                                            | (0.13      | )                                            | $          | (0.40 | ) |

 

See accompanying notes tocondensed consolidated financial statements

 

4

----

 
| ** **                                   | ** ** | **Six Months  Ended  June 30,  2005** | ** ** | **Six Months  Ended  June 30,  2004** | ** ** |
|----------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
|                                         |       |                                       |       |                                       |       |
| Net sales                                    |       | $                                          | 261,113    |                                       | $          | 239,898 |   |
| Cost of goods sold                           |       | 188,955                                    |       | 168,464                                    |       |
| Gross Margin                                 |       | 72,158                                     |       | 71,434                                     |       |
|                                         |       |                                       |       |                                       |       |
| Selling, general and administrative expenses |       | 56,725                                     |       | 54,928                                     |       |
| Amortization of intangibles                  |       | 1,730                                      |       | 1,861                                      |       |
| Net periodic postretirement benefits         |       | 1,334                                      |       | 1,311                                      |       |
| Restructuring costs                          |       | 136                                        |       | 4,269                                      |       |
| Operating income                             |       | 12,233                                     |       | 9,065                                      |       |
| Other income (expense):                      |       |                                       |       |                                       |       |
| Interest, net                                |       | (11,619                                    | )          | (9,936                                     | )          |
| Amortization of deferred financing costs     |       | (814                                       | )          | (531                                       | )          |
| Other, net                                   |       | (1,251                                     | )          | (839                                       | )          |
| Minority interest                            |       | (655                                       | )          | —                                     |       |
| Loss before income tax provision (benefit)   |       | (2,106                                     | )          | (2,241                                     | )          |
| Income tax provision (benefit)               |       | (1,400                                     | )          | 4,077                                      |       |
| Net loss                                     |       | $                                          | (706       | )                                          | $          | (6,318 | ) |
|                                         |       |                                       |       |                                       |       |
| Basic and diluted net loss per share         |       | $                                          | (0.05      | )                                          | $          | (0.47 | ) |

 

See accompanying notes to condensed consolidated financial statements

 

5

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** **

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

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

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Six Months  Ended  June 30, 2005** | ** ** | **Six Months  Ended  June 30, 2004** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
|                                                                         |       |                                      |       |                                      |       |
| Cash flows from operating activities:                                        |       |                                      |       |                                      |       |
| Net loss                                                                     |       | $                                         | (706       | )                                         | $          | (6,318 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                                      |       |                                      |       |
| Minority interest                                                            |       | 655                                       |       | —                                    |       |
| Net periodic postretirement benefits                                         |       | 1,334                                     |       | 1,311                                     |       |
| Depreciation                                                                 |       | 9,644                                     |       | 10,338                                    |       |
| Amortization of intangibles                                                  |       | 1,730                                     |       | 1,861                                     |       |
| Amortization of deferred financing costs                                     |       | 814                                       |       | 531                                       |       |
| Changes in operating assets and  liabilities:                                |       |                                      |       |                                      |       |
| Accounts receivable                                                          |       | (8,666                                    | )          | (9,615                                    | )          |
| Inventories                                                                  |       | (5,704                                    | )          | (28,014                                   | )          |
| Prepaid expenses and other                                                   |       | (566                                      | )          | 245                                       |       |
| Accounts payable                                                             |       | 6,535                                     |       | 5,741                                     |       |
| Accrued and other liabilities                                                |       | (470                                      | )          | (2,663                                    | )          |
| Accrued interest                                                             |       | (366                                      | )          | 5,848                                     |       |
| Income taxes                                                                 |       | (5,688                                    | )          | 2,065                                     |       |
| Other long-term liabilities                                                  |       | 1,640                                     |       | (2,114                                    | )          |
| Total adjustments                                                            |       | 892                                       |       | (14,466                                   | )          |
| Net cash provided by (used in) operating  activities                         |       | 186                                       |       | (20,784                                   | )          |
| Cash flows from investing activities:                                        |       |                                      |       |                                      |       |
| Capital expenditures                                                         |       | (5,588                                    | )          | (8,893                                    | )          |
| Investment in joint venture                                                  |       | (850                                      | )          | —                                    |       |
| Net cash used in investing activities                                        |       | (6,438                                    | )          | (8,893                                    | )          |
| Cash flows from financing activities:                                        |       |                                      |       |                                      |       |
| Net borrowings under revolving credit facility                               |       | 15,137                                    |       | 11,798                                    |       |
| Repayment of long-term obligations                                           |       | (3,273                                    | )          | (180,000                                  | )          |
| Borrowing of long-term obligations                                           |       | —                                    |       | 197,059                                   |       |
| Financing fees                                                               |       | (529                                      | )          | (5,505                                    | )          |
| Exercise of warrants                                                         |       | —                                    |       | 193                                       |       |
| Other                                                                        |       | (1,215                                    | )          | (845                                      | )          |
| Net cash provided by financing activities                                    |       | 10,120                                    |       | 22,700                                    |       |
| Effect of exchange rate changes on cash and  cash equivalents                |       | (327                                      | )          | (109                                      | )          |
| Net increase (decrease) in cash and cash  equivalents                        |       | 3,541                                     |       | (7,086                                    | )          |
| Cash and cash equivalents at beginning of  period                            |       | 6,650                                     |       | 16,784                                    |       |
| Cash and cash equivalents at end of period                                   |       | $                                         | 10,191     |                                      | $          | 9,698 |   |
|                                                                         |       |                                      |       |                                      |       |
| Supplemental disclosure of cash flow  information                            |       |                                      |       |                                      |       |
| Cash paid during the period for:                                             |       |                                      |       |                                      |       |
| Interest                                                                     |       | $                                         | 11,985     |                                      | $          | 4,088 |   |
| Income taxes                                                                 |       | 3,787                                     |       | 2,011                                     |       |

 

See accompanying notes to condensed consolidated financial statements

 

6

----

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Inthousands, except per share data)**

 

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

 

Thermadyne HoldingsCorporation (“Thermadyne” or the “Company”), a Delaware corporation, is aleading global designer and manufacturer of cutting and welding products,including equipment, accessories and consumables.

 

The accompanying unaudited condensed consolidatedfinancial statements of Thermadyne have been prepared in accordance with U.S.generally accepted accounting principles for interim financial information andwith the instructions to Form 10-Q and Article 10 of RegulationS-X.  Accordingly, they do not includeall of the information and footnotes required by U.S. generally acceptedaccounting principles for complete financial statements.  In the opinion of management, all adjustments(consisting of normal recurring adjustments) considered necessary for a fairpresentation have been included.  Thecombined results of operations of the Company for the three months and sixmonths ended June 30, 2005 are not necessarily indicative of the resultsthat may be expected for the year ended December 31, 2005.  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, 2004.

 

**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 are tested for impairmentannually and whenever events occur or circumstances change that would morelikely than not reduce the fair value of the reporting unit below its carryingvalue.

 

***Product Warranty Programs****.* Various products are sold with productwarranty programs. Provisions for warranty programs are made as the productsare sold and are adjusted periodically based on current estimates ofanticipated warranty costs.

 

The following table provides the activity in thewarranty accrual for the six months ended June 30, 2005 and 2004:

 
| **Product warranty accrual:**       | ** ** | **Balance at  Beginning of  Period** | ** ** | **Provision** | ** ** | **Payments** | ** ** | **Balance at  End of  Period** | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|---------------|------------|--------------|------------|--------------------------------|------------|
| ** **                          | ** ** | ** **                           | ** ** | ** **    | ** ** | ** **   | ** ** | ** **                     | ** ** |
| Six months ended June 30, 2005 |       | $                                    | 3,048      |          | $          | 1,481        |       | $                              | (1,395     | ) | $ | 3,134 |   |
| Six months ended June 30, 2004 |       | 4,005                                |       | 968           |       | (1,584       | )          | 3,389                          |       |
|                                     |            |                                      |            |               |            |              |            |                                |            |  |  |  |  |

 

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

 

The Company designates and documents allrelationships between hedging instruments and hedged items, as well as its riskmanagement objectives and strategies for undertaking hedge transactions. TheCompany also assesses, both at the inception of the hedge and on an on-goingbasis, whether the hedge is effective.

 

7

----

 

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

 
| ** **                                | ** ** | **Three Months Ended June 30,** | ** ** |
|-------------------------------------------|------------|--------------------------------------|------------|
| ** **                                | ** ** | **2005**                             | ** ** | **2004** | ** ** |
| Numerator:                                |       |                                 |       |   |   |
| Net loss applicable to common shares      |       | $                                    | (1,696     | ) | $ | (5,289 | ) |
|                                      |       |                                 |       |   |   |
| Denominator:                              |       |                                 |       |   |   |
| Weighted average shares-basic and diluted |       | 13,314                               |       | 13,306 |   |
|                                      |       |                                 |       |   |   |
| Basic and diluted net loss per share:     |       |                                 |       |   |   |
| Net loss applicable to common shares      |       | $                                    | (0.13      | ) | $ | (0.40 | ) |
|                                      |       |                                 |       |   |   |
| ** **                                | ** ** | **Six Months Ended June 30,**   | ** ** |
| ** **                                | ** ** | **2005**                             | ** ** | **2004** | ** ** |
| Numerator:                                |       |                                 |       |   |   |
| Net loss applicable to common shares      |       | $                                    | (706       | ) | $ | (6,318 | ) |
|                                      |       |                                 |       |   |   |
| Denominator:                              |       |                                 |       |   |   |
| Weighted average shares-basic and diluted |       | 13,314                               |       | 13,303 |   |
|                                      |       |                                 |       |   |   |
| Basic and diluted net loss per share:     |       |                                 |       |   |   |
| Net loss applicable to common shares      |       | $                                    | (0.05      | ) | $ | (0.47 | ) |

 

The effects of certain options and warrantshave not been considered in the determination of net loss per share for thethree months and six months ended June 30, 2005 and 2004, because theresult would be antidilutive.  Optionsand warrants not included in the calculation for the three months and sixmonths ended June 30, 2005 and 2004 were as follows:

 
| ** **            | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **            | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                  |       |                                 |       |                               |       |   |   |   |   |
| Stock Options         |       | 1,021,775                            |       | 675,000                            |       | 1,021,775 |   | 675,000 |   |
| Class A Warrants |       | —                               |       | 1,157,000                          |       | — |   | 1,157,000 |   |
| Class B Warrants |       | 700,000                              |       | 700,000                            |       | 700,000 |   | 700,000 |   |
| Class C Warrants |       | 271,429                              |       | 271,429                            |       | 271,429 |   | 271,429 |   |

 

***Stock-Based Compensation***. Stock options are granted for a fixed number of shares to employees anddirectors with an exercise price equal to or greater than the fair value of theshares at the date of grant. Stock option grants are recorded under therecognition and measurement principles of Accounting Principles Board Opinion No. 25,*Accounting for Stock Issued to Employees*(“APB 25”), and related interpretations. Accordingly, no stock-based employeecompensation cost is reflected in operating results. Pro forma informationregarding net operating results and per share results is required by SFAS No. 123,

 

8

----

 

*Accounting for Stock-BasedCompensation*(“SFAS No. 123”),which also requires that the information be determined as if employee stockoptions were granted under the fair value method of that statement.

 

In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 123 (revised 2004), *Share-Based Payment*, (“SFAS No. 123(R)”), which is arevision of SFAS No. 123. SFAS No. 123(R) supersedes APB 25 andamends SFAS No. 95, *Statement of CashFlows*. Generally, the approach described in SFAS No. 123(R) issimilar to the approach described in SFAS No. 123. However, SFAS No. 123(R)requires all share-based payments to employees, including grants of employeestock options, to be recognized in the income statement based on their fairvalues. Pro forma disclosure is no longer an alternative.

 

In April 2005, the Securities and ExchangeCommission delayed the effective date of SFAS No. 123(R) to January 1,2006.  Accordingly, the Company plans toadopt SFAS No. 123(R) on January 1, 2006 using the “modifiedprospective” method in which compensation cost is recognized beginning with theeffective date (i) based on the requirements of SFAS No. 123(R) forall share-based payments granted after the effective date and (ii) basedon the requirements of SFAS No. 123 for all awards granted to employeesprior to the effective date of SFAS No. 123(R) that remain unvested on theeffective date.

 

The impact of SFAS No. 123(R) cannot be predicted at this time because it willdepend on levels of share-based payments granted in the future. However, hadthe Company adopted SFAS No. 123(R) in prior periods, the impact of thatstandard would have approximated the impact of SFAS No. 123 as describedin the disclosure of pro forma net income (loss) per share in Note 2 includedin the Company’s Annual Report on Form 10-K for the year ended December 31,2004.

 

The following table illustrates the effect on loss per share if thefair value expense recognition requirements of SFAS No. 123 had been applied toall stock options granted under the plans for the three and six month periodsended June 30, 2005 and 2004:

 
| ** **                                                                                        | ** ** | **Three Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                        | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| Net loss, as reported                                                                             |       | $                               | (1,696     | ) | $ | (5,289 | ) |
| Deduct: Total stock-based compensation  expense determined under fair value method for all awards |       | (375                            | )          | (199 | ) |
| Pro forma net loss                                                                                |       | $                               | (2,071     | ) | $ | (5,488 | ) |
|                                                                                              |       |                            |       |   |   |
| Basic and diluted net loss per share:                                                             |       |                            |       |   |   |
| As reported                                                                                       |       | $                               | (0.13      | ) | $ | (0.40 | ) |
| Pro forma                                                                                         |       | $                               | (0.16      | ) | $ | (0.41 | ) |

 
| ** **                                                                                              | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                              | ** ** | **2005**                      | ** ** | **2004** | ** ** |
| Net loss, as reported                                                                                   |       | $                             | (706       | ) | $ | (6,318 | ) |
| Deduct: Total stock-based compensation  expense determined under fair value based method for all awards |       | (632                          | )          | (354 | ) |
| Pro forma net loss                                                                                      |       | $                             | (1,338     | ) | $ | (6,672 | ) |
|                                                                                                    |       |                          |       |   |   |
| Basic and diluted net loss per share:                                                                   |       |                          |       |   |   |
| As reported                                                                                             |       | $                             | (0.05      | ) | $ | (0.47 | ) |
| Pro forma                                                                                               |       | $                             | (0.10      | ) | $ | (0.50 | ) |

 

**3.****                                     ****Reclassifications**

 

During the fourth quarter of 2004, the Company madeseveral reclassifications. Certain prior period amounts have been reclassifiedto conform to current period presentation. The more significant categories of reclassifications are outlined below.

 

***Rebates.*** Rebate costs, which the Company had included in cost of goods sold, havebeen reclassified as a reduction in sales. These reclassifications decreased both net sales and cost of goods soldapproximately $3,954 and $6,005 for the three months and six months ended June 30,2004, respectively.

 

***Brazilian Period Costs.*** Certain period costs previously classified as amortization ofintangibles by the Company’s Brazilian operations were reclassified as cost ofgoods sold.  These reclassificationsincreased cost of goods sold and decreased amortization of intangiblesapproximately $129 and $206 for the three months and six months ended June 30,2004, respectively.

 

***Restructuring Costs.*** Certain period costs previously classified as restructuring costs werereclassified to cost of goods sold. These reclassifications increased cost ofgoods sold and decreased restructuring costs approximately $336 and $752 forthe three months and six months ended June 30, 2004, respectively.

 

***Warranty Costs.*** Warranty costs incurred at one of the Company’s distribution operationswere previously classified as other expenses. To conform to currentpresentation of other similar costs, these warranty costs were reclassified ascost of goods sold.  Thesereclassifications increased cost of goods sold and decreased other expensesapproximately $96 and $200 for the three months and six months ended June 30,2004, respectively.

 

***Shipping and Other AdministrativeCosts.***  Certain shipping and other administrativecosts incurred to manufacture the Company’s products previously classified asselling, general and administrative expenses have been reclassified to cost ofgoods sold.  These reclassificationsincreased cost of goods sold and decreased selling, general and administrativeexpenses approximately $3,440 and $6,760 or the three and six months ended June 30,2004, respectively.

 

9

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These reclassifications had no effect on the Company’sfinancial position, cash flows or results of operations. The following tablesets forth a summary of these reclassifications showing previously reported andadjusted amounts for the three months and six months ended June 30, 2004,respectively:

 
| ** **                                    | ** ** | **Three Months Ended  June 30, 2004** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                    | ** ** | **As Previously Reported**                 | ** ** | **As Adjusted** | ** ** |
|                                          |       |                                       |       |   |   |
| Net Sales                                     |       | $                                          | 127,172    |   | $ | 123,210 |   |
| Cost of goods sold                            |       | 86,426                                     |       | 86,473 |   |
| Selling, general and administrative  expenses |       | 32,063                                     |       | 28,615 |   |
| Amortization of intangibles                   |       | 955                                        |       | 826 |   |
| Restructuring costs                           |       | 2,464                                      |       | 2,128 |   |
| Other expense                                 |       | 1,303                                      |       | 1,207 |   |
|                                               |            |                                            |            |  |  |  |  |

 
| ** **                                    | ** ** | **Six Months Ended  June 30, 2004** | ** ** |
|-----------------------------------------------|------------|------------------------------------------|------------|
| ** **                                    | ** ** | **As Previously Reported**               | ** ** | **As Adjusted** | ** ** |
|                                          |       |                                     |       |   |   |
| Net Sales                                     |       | $                                        | 245,903    |   | $ | 239,898 |   |
| Cost of goods sold                            |       | 166,551                                  |       | 168,464 |   |
| Selling, general and administrative  expenses |       | 61,688                                   |       | 54,928 |   |
| Amortization of intangibles                   |       | 2,067                                    |       | 1,861 |   |
| Restructuring costs                           |       | 5,021                                    |       | 4,269 |   |
| Other expense                                 |       | 1,039                                    |       | 839 |   |
|                                               |            |                                          |            |  |  |  |  |

 

**4.****                                     ****Comprehensive Loss**

 

Comprehensive loss totaled $4,251 and $5,878 for thethree months ended June 30, 2005 and 2004, respectively.  For the six months ended June 30, 2005and 2004, comprehensive loss was $7,738 and $8,495, respectively.

 
| ** **                   | ** ** | **Three Months Ended June 30,** | ** ** |
|------------------------------|------------|---------------------------------|------------|
| ** **                   | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| Net loss                     |       | $                               | (1,696     | ) | $ | (5,289 | ) |
| Foreign currency translation |       | (2,555                          | )          | (589 | ) |
| Comprehensive loss           |       | $                               | (4,251     | ) | $ | (5,878 | ) |

 
| ** **                   | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------|------------|-------------------------------|------------|
| ** **                   | ** ** | **2005**                      | ** ** | **2004** | ** ** |
| Net loss                     |       | $                             | (706       | ) | $ | (6,318 | ) |
| Foreign currency translation |       | (7,032                        | )          | (2,177 | ) |
| Comprehensive loss           |       | $                             | (7,738     | ) | $ | (8,495 | ) |

 

**5.****                                     ****Inventories**

 

The composition of inventories was as follows:

 
| ** **      | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------|------------|-------------------------|------------|-----------------------------|------------|
|            |       |                    |       |                        |       |
| Raw materials   |       | $                       | 29,847     |                        | $          | 25,311 |   |
| Work-in-process |       | 33,663                  |       | 33,095                      |       |
| Finished goods  |       | 62,477                  |       | 64,057                      |       |
|            |       | 125,987                 |       | 122,463                     |       |
| LIFO reserve    |       | (4,738                  | )          | (3,756                      | )          |
|            |       | $                       | 121,249    |                        | $          | 118,707 |   |

 

10

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**6.****                                     ****Intangible Assets**

 

Thecomposition of intangibles was as follows:

 
| ** **                         | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                               |       |                    |       |                        |       |
| Goodwill                           |       | $                       | 209,430    |                        | $          | 208,403 |   |
| Patents and customer relationships |       | 49,202                  |       | 49,517                      |       |
| Trademarks                         |       | 33,403                  |       | 33,403                      |       |
|                               |       | 292,035                 |       | 291,323                     |       |
| Accumulated amortization           |       | (8,037                  | )          | (6,306                      | )          |
|                               |       | $                       | 283,998    |                        | $          | 285,017 |   |

 

Amortization expense amounted to $828 and $826 forthe three months ended June 30, 2005 and 2004, respectively.  For the six months ended June 30, 2005and 2004, amortization expense was $1,730 and $1,861, respectively.  Estimated amortization expense for each ofthe next five fiscal years has not changed significantly from the amountsdisclosed in the Company’s Annual Report on Form 10-K for the year ended December 31,2004.

 

**7.****                                     ****Debt and Capital LeaseObligations**

 

The composition of long-term obligations was asfollows:

 
| ** **                                                             | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                                                                   |       |                    |       |                        |       |
| Working Capital Facility                                               |       | $                       | 25,960     |                        | $          | 10,824 |   |
| Second-Lien Facility                                                   |       | 20,000                  |       | 20,000                      |       |
| Term A Loan                                                            |       | 8,259                   |       | 9,250                       |       |
| Senior Subordinated Notes                                              |       | 175,000                 |       | 175,000                     |       |
| Captial Leases                                                         |       | 18,341                  |       | 19,160                      |       |
| Other                                                                  |       | 10,024                  |       | 11,513                      |       |
|                                                                   |       | $                       | 257,584    |                        | $          | 245,747 |   |
| Current maturities, working capital  facility and second-lien facility |       | (53,344                 | )          | (42,079                     | )          |
|                                                                   |       | $                       | 204,240    |                        | $          | 203,668 |   |

 

***Senior Subordinated Notes***

 

On February 5, 2004, the Company completed aprivate placement of $175,000 in aggregate principal of 91⁄4% Senior SubordinatedNotes due 2014 (the “Senior Subordinated Notes”). The net proceeds from theoffering, together with approximately $20,000 of borrowings under a new termloan (the “Term Loan”) added through an amendment and restatement to theGeneral Electric Capital Corporation (“GECC”) credit agreement (the “AmendedCredit Agreement”), were used to repay all outstanding borrowings under the$180,000 senior term note facility and to reduce amounts outstanding under theCompany’s revolving credit facility. In May 2004, for the purpose of anexchange offer, the Company registered notes with terms identical to the SeniorSubordinated Notes under the Securities Act of 1933.  The Company completed the exchange offer inthe second quarter of 2004, and more than 99% of the original notes wereexchanged for the registered notes.

 

11

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The Senior Subordinated Notes are unsecured seniorsubordinated obligations and are subordinated in right of payment to allexisting and future Senior Indebtedness (as defined in the indenture). Interestaccrues at the rate of 91⁄4% per annum and is payable semiannually in arrears on February 1and August 1.

 

***Amended Credit Agreement***

 

On November 22, 2004,the Company entered into the Amended Credit Agreement. The Amended CreditAgreement that matures on November 22, 2009 added the Company’s foreignsubsidiaries in Australia, the United Kingdom and Canada as credit collateralparties, and changed the determination of the borrowing base from a cashflow-based formula to an asset-based formula. Under the Amended Credit Agreement, the total loan commitment wasincreased from $70,000 to $91,300 (subject to the limitation described below),with a revolving loan commitment of $80,000 (the “Working Capital Facility”)and term loan commitments of $11,300 (subject to the limitation describedbelow). The term loan commitments consist of a $9,250 Term A Loan and a maximum$2,050 Delayed Draw Term Loan dependent upon the final evaluation of certainreal property located in Australia, which was not complete as of June 30, 2005.Up to $25,000 of the Working Capital Facility is available for letters ofcredit. The Amended Credit Agreement is secured by substantially all of theassets of the Company’s domestic subsidiaries and the Company’s foreignsubsidiaries in Australia, the United Kingdom and Canada, including a pledge ofthe capital stock of substantially all of the Company’s subsidiaries, subjectto certain limitations with respect to foreign subsidiaries. Borrowings underthe revolving loan commitment may not exceed 85% of eligible receivables plusthe lesser of (i) 85% of the net orderly liquidation value of eligibleinventories or (ii) 65% of the book value of inventories less customaryreserves. The Amended Credit Agreement contains financial covenants, includingminimum levels of EBITDA (as defined in the Amended Credit Agreement anddetermined on a consolidated basis) and other customary provisions and requiresthe Second-Lien Facility, as described below, to be paid or refinanced 60 daysprior to its maturity.  In connectionwith the Amended Credit Agreement, the Company’s foreign subsidiaries inAustralia, the United Kingdom and Canada granted second security interests intheir assets to the lenders under the Company’s $20,000 Second-Lien Facilityand guaranteed the Company’s $175,000 91/4% Senior SubordinatedNotes.  Interest rates on the AmendedCredit Agreement are, at the Company’s option, LIBOR plus 2.25% or the primerate plus 0.5% on the revolving facility, and LIBOR plus 2.50% or the primerate plus 0.75% on the term loan facilities. All of these percentages aresubject to an interest rate grid and will decline if certain conditions aremet. Principal payments on the term loan facilities are equal quarterlypayments based on a seven year amortization schedule, with the remaining amountpaid at maturity. Unused portions of the Working Capital Facility bear interestat the rate of 0.5% per annum.  TheAmended Credit Agreement limits total borrowings under the facility to $75,000until the Second-Lien Facility is paid or refinanced with long-term debt. TheAmended Credit Agreement does under certain conditions allow for the use of theWorking Capital Facility to repay the Second-Lien Facility.  As of June 30, 2005, the Company hadoutstanding borrowings of $25,960 and issued letters of credit totaling $11,382under the Working Capital Facility.  TheCompany had availability of $21,075 under the Working Capital Facility at June 30,2005. The Working Capital Facility terminates on November 22, 2009.  The Term A Loan requires equal quarterlyprincipal payments of $330 per quarter, which began December 31, 2004 andcontinues through October 31, 2009, with the balance of the outstandingprincipal being payable on November 22, 2009.  As of June 30, 2005, the Company did nothave access to the Delayed Draw Term Loan.

 

The Working Capital Facility requires lockboxagreements which provide for all receipts to be swept daily to reduceborrowings outstanding under the revolving line of credit. These agreements,combined with the existence of a subjective Material Adverse Effect (“MAE”)clause, cause the Working Capital Facility to be classified as a currentliability. However, the Company does not expect to repay, or be required torepay, within one year, the balance of the Working Capital Facility classifiedas a current liability. The Company’s intent is to continually use the WorkingCapital Facility throughout the life of the agreement to fund working capitalneeds. The MAE clause, which is a typical requirement in commercial creditagreements, allows the lender to require the loan to become due if itdetermines there has been a material adverse effect on the Company’soperations, business, assets or prospects.

 

12

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On March 16, 2005 and March 30, 2005, theCompany amended the Amended Credit Agreement to modify certain financialcovenants and enable the Company to extend its Second-Lien Facility.  On July 27, 2005 and August 5, 2005the Company further amended the Amended Credit Agreement to modify certainfinancial covenants.

 

***Second-Lien Facility***

 

On July 29, 2004 the Company enteredinto a new $20,000 second-lien term loan facility (the “Second-Lien Facility”).Borrowings under the facility were used to repay a portion of the amountoutstanding under the Working Capital Facility. On November 5, 2004 theCompany entered into an amendment to the Second-Lien Facility to extend itsmaturity to July 22, 2005 and modified a financial covenant.  The Second-Lien Facility is secured by asecond lien on substantially all of the assets of the Company. The Second-LienFacility accrues interest at the Company’s option, at LIBOR plus 6.0%, or analternative base rate of the greater of (i) the Prime Rate or (ii) thefederal funds rate plus one half of 1.0% plus 5.0%. The Second-Lien Facilityrestricts how much long-term debt the Company may have and has other customaryprovisions including financial and non-financial covenants. On March 16,2005 and March 30, 2005, the Second-Lien Facility was amended to modify afinancial covenant and extend its maturity until April 30, 2006.  On August 8, 2005 the Company amendedthe Second-Lien Facility to modify a financial covenant.

 

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

 

In February 2004, the Company entered into aninterest rate swap arrangement to convert a portion of the fixed rate exposureon its Senior Subordinated Notes to variable rates. Under the terms of theinterest rate swap contract, which has a notional amount of $50,000, theCompany receives interest at a fixed rate of 91⁄4% and pays interest at avariable rate equal to LIBOR plus a spread of 442 basis points. The six-monthLIBOR rate on each semi-annual reset date determines the variable portion ofthe interest rate swap.  The six-monthLIBOR rate for each semi-annual reset date is determined in arrears.

 

TheCompany has designated the interest rate swap as a fair value hedge of itsfixed rate debt. The terms of the interest rate swap contract and hedged itemmeet the criteria to be measured using the short-cut method defined inSFAS No. 133 and therefore perfect effectiveness is assumed over theterm of the swap.

 

Inaccordance with SFAS No. 133, as of June 30, 2005, the Companyrecorded a fair value adjustment to the portion of its fixed rate long-termdebt that is hedged. This fair value adjustment of $523 was recorded as anincrease to long-term obligations, with the related value for the interest rateswap’s non-current portion recorded in other assets. Interest ratedifferentials associated with the interest rate swap are recorded as anadjustment to a current asset or liability, with the offset to interest expenseover the life of the interest rate swap. For the three months and six months ended June 30, 2005, theCompany realized a reduction in its expense as a result of the interest rateswap of $113 and $254, respectively.

 

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

 

In connection with the Company’s emergence fromChapter 11 bankruptcy protection on May 23, 2003, three classes ofwarrants were issued that allow the holders to purchase the Company’s commonstock in the future at stated exercise prices. The key financial elements ofthe warrants are as follows:

 

13

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| ** **            | ** ** | ** **      | ** ** | ** **    | ** ** | ** **     | ** **        | **Warrants**      | ** ** |
|-----------------------|------------|-----------------|------------|---------------|------------|----------------|-------------------|-------------------|------------|
| ** **            | ** ** | **Warrants**    | ** ** | ** **    | ** ** | ** **     | ** **        | **Issued and**    | ** ** |
| ** **            | ** ** | **Issued**      | ** ** | ** **    | ** ** | ** **     | ** **        | **Outstanding**   | ** ** |
| ** **            | ** ** | **to Purchase** | ** ** | **Exercise**  | ** ** | ** **     | ** **        | **as of**         | ** ** |
| ** **            | ** ** | **Common**      | ** ** | **Price**     | ** ** | **Expiration** | ** **        | **June 30,** | ** ** |
| ** **            | ** ** | **Stock**       | ** ** | **Per Share** | ** ** | **Date**       | ** **        | **2005**          | ** ** |
|                  |       |            |       |          |       |           |              |              |       |
| Class A Warrants |       | 1,157,000       |       | $             | 13.85      |           | May 23, 2004 |              | —     |   |
| Class B Warrants |       | 700,000         |       | $             | 20.78      |           | May 23, 2006 |              | 700,000    |   |
| Class C Warrants |       | 271,429         |       | $             | 27.70      |           | May 23, 2006 |              | 271,429    |   |

 

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

 

The Class C Warrants were issued to the formermajority equity holders of the Company. The former equity holders received noother significant disbursements or consideration upon emergence fromChapter 11. These warrants have been treated as an exchange of old equitysecurities for new equity securities in connection with recording thereorganization entries and establishing the opening fresh-start balancesheet.  As of the opening fresh-startbalance sheet date, the fair value of the Class A, Class B and Class CWarrants was $2,500, $1,500 and $0, respectively.

 

There were no warrants exercised during the threemonths and six months ended June 30, 2005 and 2004.

 

**10.****                              ****Stock Options**

 

The2004 Non-Employee Directors Stock Option Plan (the “Directors Plan”) wasadopted in May 2004 for the Company’s board of directors. Up to 200,000shares of the Company’s common stock may be issued pursuant to awards granted bythe Compensation Committee under the Directors Plan.

 

The2004 Stock Incentive Plan (the “Stock Incentive Plan”) was adopted in May 2004for the Company’s employees. Up to 1,477,778 shares of the Company’s commonstock may be issued pursuant to awards granted by the Compensation Committeeunder the Stock Incentive Plan. The Stock Incentive Plan provides for the grantof (i) incentive stock options intended to qualify under Section 422of the Internal Revenue Code of 1986, (ii) non-statutory stock options, (iii) stockappreciation rights (“SARs”), (iv) restricted stock, (v) stock unitsand (vi) performance awards.

 

As of June 30, 2005, 1,021,775 options forshares were issued and outstanding under the Directors Plan, the StockIncentive Plan and other specific agreements.

 

 

14

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**11.****                              ****Income Taxes**

 

The Company’s tax provision relates primarily to itsforeign subsidiaries.  The tax benefitsof losses incurred in the U.S. are fully reserved with a valuation allowancebased on the Company’s current tax position and estimates of taxable income forthe foreseeable future.

 

In the second quarter of 2005, the Companyrevised its estimated annual effective tax rate to reflect a change in its 2005estimated consolidated effective tax rate, retroactive to January 1, 2005, from49.0% to 96.5%, as applied against year-to-date loss excluding minorityinterest. 

 

**12.****                              ****Employee Benefit Plans**

 

***401(k) Retirement Plan****.*The 401(k) Retirement Plan covers themajority of the Company’s domestic employees. At its discretion, the Companycan make a base contribution of 1% of each employee’s compensation and anadditional contribution equal to as much as 4% of the employee’s compensation.At the employee’s discretion, an additional 1% to 15% voluntary employeecontribution can be made. The plan requires the Company to make matchingcontributions of 50% for the first 6% of the voluntary employee contribution.

 

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

 

The Company’s Australian subsidiary has aSuperannuation Fund (the “Fund”) established by a Trust Deed. Pension benefitsare actuarially determined and are funded through mandatory participantcontributions and the Company’s actuarially determined contributions.  The prepaid benefit cost is not included inthe table below or in the balance sheet, as the Company has no legal right to amountsincluded in this fund. In addition, upon dissolution of the Fund, any excessfunds are required to be allocated to the participants as determined by theactuary. Accordingly, the Company accounts for this fund as a definedcontribution plan. The actuarial assumptions used to determine the Company’scontribution, the funded status, and the retirement benefits are consistentwith previous years.

 

15

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***Other Postretirement Benefits****.*The Company has a retirement plan coveringboth salaried and non-salaried retired employees, which provides postretirementhealth care benefits (medical and dental) and life insurance benefits. Thepostretirement health care portion is contributory, with retiree contributionsadjusted annually as determined based on claim costs. The postretirement lifeinsurance portion is noncontributory. The Company recognizes the cost ofpostretirement benefits on the accrual basis as employees render service toearn the benefit. The Company continues to fund the cost of health care andlife insurance benefits in the year incurred.

 

Netperiodic pension and other postretirement benefit costs include the followingcomponents:

 
| ** **                                    | ** ** | **Pension Benefits**                 | ** ** |
|-----------------------------------------------|------------|--------------------------------------|------------|
| ** **                                    | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **                                    | ** ** | **2005**                             | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Components of the net periodic benefit  cost: |       |                                 |       |   |   |   |   |   |   |
| Service Cost                                  |       | $                                    | —     |   | $ | — |   | $ | — |   | $ | — |   |
| Interest Cost                                 |       | 570                                  |       | 299 |   | 855 |   | 598 |   |
| Expected return on plan assets                |       | (604                                 | )          | (274 | ) | (889 | ) | (548 | ) |
| Recognized loss                               |       | —                               |       | — |   | — |   | — |   |
| Net periodic benefit cost                     |       | $                                    | (34        | ) | $ | 25 |   | $ | (34 | ) | $ | 50 |   |
|                                          |       |                                 |       |   |   |   |   |   |   |
| ** **                                    | ** ** | **Other Postretirement Benefits**    | ** ** |
| ** **                                    | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **                                    | ** ** | **2005**                             | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Components of the net periodic benefit cost:  |       |                                 |       |   |   |   |   |   |   |
| Service Cost                                  |       | $                                    | 308        |   | $ | 296 |   | $ | 616 |   | $ | 593 |   |
| Interest Cost                                 |       | 400                                  |       | 312 |   | 696 |   | 686 |   |
| Expected return on plan assets                |       | —                               |       | — |   | — |   | — |   |
| Recognized loss                               |       | 11                                   |       | 16 |   | 22 |   | 32 |   |
| Net periodic benefit cost                     |       | $                                    | 719        |   | $ | 624 |   | $ | 1,334 |   | $ | 1,311 |   |

 

TheCompany previously disclosed in its financial statements for the year ended December 31,2004 that it expected to contribute $1,172 to its Retirement Plan in 2005. Asof June 30, 2005, $487 has been contributed.  The Company presently anticipates contributingan additional $685 to fund its pension plan in 2005.

 

***Stock Purchase Plan*****.**The Company adoptedan employee stock purchase plan during the second quarter of 2005 that allowsany eligible employee to purchase from the Company shares of the Company’s commonstock at the end of each quarter at 92.5% of the market price at the end of thequarter.  Because the employee stockpurchase plan was effective July 1, 2005, no shares were purchased under thisplan in the quarter ended June 30, 2005.

 

**13.****                              ****Segment Information**

 

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

 

Summarized financial information concerning the Company’sgeographic regions is shown in the following table:

 

16

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| ** **              | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------|------------|------------------------------------|------------|
| ** **              | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| Net Sales               |       |                               |       |   |   |
| United States           |       | $                                  | 146,247    |   | $ | 142,652 |   |
| Europe                  |       | 37,582                             |       | 32,551 |   |
| Australia / Asia        |       | 37,104                             |       | 33,262 |   |
| All other international |       | 40,180                             |       | 31,433 |   |
|                    |       | $                                  | 261,113    |   | $ | 239,898 |   |

 
| ** **              | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Identifiable assets     |       |                    |       |                        |       |
| United States           |       | $                       | 32,451     |                        | $          | 35,915 |   |
| Europe                  |       | 12,404                  |       | 14,472                      |       |
| Australia / Asia        |       | 9,939                   |       | 10,769                      |       |
| All other international |       | 15,007                  |       | 13,025                      |       |
| Corporate               |       | 12,930                  |       | 12,366                      |       |
|                    |       | $                       | 82,731     |                        | $          | 86,547 |   |

 

***Product Line Information***

 

The Company manufactures a variety of products,substantially all of which are used in the cutting, welding or fabrication ofmetal. End users of the Company’s products are engaged in various applicationsincluding construction, automobile manufacturing, repair and maintenance andshipbuilding. The following table shows sales for each of the Company’s keyproduct lines:

 
| ** **                             | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------|------------|------------------------------------|------------|
| ** **                             | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| ** **                             | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Gas apparatus                          |       | $                                  | 88,793     |   | $ | 88,220 |   |
| Arc welding equipment                  |       | 47,769                             |       | 39,504 |   |
| Arc welding consumables                |       | 82,320                             |       | 73,021 |   |
| Plasma and automated cutting equipment |       | 37,682                             |       | 37,085 |   |
| All other                              |       | 4,549                              |       | 2,068 |   |
|                                   |       | $                                  | 261,113    |   | $ | 239,898 |   |

 

**14.          CondensedConsolidating Financial Statements**

 

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 and the Company’s foreign subsidiaries in Australia, the United Kingdom and Canada (“Guarantor Subsidiaries”) fully and unconditionally guarantee the Senior Subordinated Notes and are jointly and severally liable for all payments under the Senior Subordinated Notes. Each of the Guarantor Subsidiaries is wholly owned by the Company.

 

The following 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 periods indicated.Separate financial statements of each of the Guarantor Subsidiaries are notpresented because management has determined such information is not material inassessing the financial condition, cash flows or results of operations of

 

17

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the Company and its subsidiaries.  This information was prepared on the samebasis as the consolidated financial statements:

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING BALANCE SHEET**

**JUNE 30, 2005**

 
| ** **                                                 | ** ** | **Parent  Thermadyne  Holdings  Corporation** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------|------------|
| **ASSETS**                                                 |       |                                          |       |           |       |                 |       |             |       |             |       |
| Current Assets:                                            |       |                                          |       |           |       |                 |       |             |       |             |       |
| Cash and cash equivalents                                  |       | $                                             | —     |           | $          | 5,568                |       | $                | 4,623      |             | $          | — |   | $ | 10,191 |   |
| Accounts receivable, net                                   |       | —                                        |       | 62,744         |       | 35,050               |       | —           |       | 97,794           |       |
| Inventories                                                |       | —                                        |       | 83,301         |       | 37,948               |       | —           |       | 121,249          |       |
| Prepaid expenses and other                                 |       | —                                        |       | 4,089          |       | 3,124                |       | —           |       | 7,213            |       |
| Current deferred tax assets                                |       | —                                        |       | 2,690          |       | —               |       | —           |       | 2,690            |       |
| Total current assets                                       |       | —                                        |       | 158,392        |       | 80,745               |       | —           |       | 239,137          |       |
| Property, plant and equipment, net                         |       | —                                        |       | 45,146         |       | 29,056               |       | —           |       | 74,202           |       |
| Goodwill                                                   |       | —                                        |       | 209,430        |       | —               |       | —           |       | 209,430          |       |
| Intangibles, net                                           |       | —                                        |       | 62,391         |       | 12,177               |       | —           |       | 74,568           |       |
| Other assets                                               |       | 4,300                                         |       | 3,833          |       | 396                  |       | —           |       | 8,529            |       |
| Investment in and advances to subsidiaries                 |       | 177,772                                       |       | —         |       | —               |       | (177,772         | )          | —           |       |
| Total assets                                               |       | $                                             | 182,072    |           | $          | 479,192              |       | $                | 122,374    |             | $          | (177,772 | ) | $ | 605,866 |   |
|                                                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY  (DEFICIT)**   |       |                                          |       |           |       |                 |       |             |       |             |       |
| Current Liabilities:                                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| Accounts payable                                           |       | $                                             | —     |           | $          | 26,749               |       | $                | 17,494     |             | $          | — |   | $ | 44,243 |   |
| Accrued and other liabilities                              |       | —                                        |       | 29,198         |       | 6,136                |       | —           |       | 35,334           |       |
| Accrued interest                                           |       | 6,535                                         |       | 228            |       | —               |       | —           |       | 6,763            |       |
| Income taxes payable                                       |       | —                                        |       | (1,224         | )          | 3,068                |       | —           |       | 1,844            |       |
| Working capital and second-lien facility                   |       | —                                        |       | 45,960         |       | —               |       | —           |       | 45,960           |       |
| Current maturities of long-term obligations                |       | —                                        |       | 2,196          |       | 5,188                |       | —           |       | 7,384            |       |
| Total current liabilities                                  |       | 6,535                                         |       | 103,107        |       | 31,886               |       | —           |       | 141,528          |       |
| Long-term obligations, less current  maturities            |       | 175,523                                       |       | 21,865         |       | 6,852                |       | —           |       | 204,240          |       |
| Deferred tax liabilities                                   |       | —                                        |       | 66,647         |       | —               |       | —           |       | 66,647           |       |
| Other long-term liabilities                                |       | —                                        |       | 39,704         |       | 5,849                |       | —           |       | 45,553           |       |
| Shareholders’ equity (deficit):                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| Common stock                                               |       | 133                                           |       | —         |       | —               |       | —           |       | 133              |       |
| Additional paid-in-capital                                 |       | 183,460                                       |       | —         |       | —               |       | —           |       | 183,460          |       |
| Retained earnings (accumulated deficit)                    |       | (42,234                                       | )          | 1,541          |       | (13,552              | )          | 12,011           |       | (42,234          | )          |
| Accumulated other comprehensive income  (loss)             |       | 6,539                                         |       | (3,551         | )          | 10,095               |       | (6,544           | )          | 6,539            |       |
| Total shareholders’ equity (deficit)                  |       | 147,898                                       |       | (2,010         | )          | (3,457               | )          | 5,467            |       | 147,898          |       |
| Net equity and advances to / from  subsidiaries            |       | (147,884                                      | )          | 249,879        |       | 81,244               |       | (183,239         | )          | —           |       |
|                                                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| Total liabilities and shareholders’ equity  (deficit) |       | $                                             | 182,072    |           | $          | 479,192              |       | $                | 122,374    |             | $          | (177,772 | ) | $ | 605,866 |   |

 

18

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**DECEMBER 31, 2004**

 
| ** **                                                       | ** ** | **Parent  Thermadyne  Holdings  Corporation** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------|------------|
|                                                             |       |                                          |       |           |       |                 |       |             |       |             |       |
| **ASSETS**                                                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| Current Assets:                                                  |       |                                          |       |           |       |                 |       |             |       |             |       |
| Cash and cash equivalents                                        |       | $                                             | —     |           | $          | 5,558                |       | $                | 1,092      |             | $          | — |   | $ | 6,650 |   |
| Accounts receivable, net                                         |       | —                                        |       | 54,544         |       | 39,011               |       | —           |       | 93,555           |       |
| Inventories                                                      |       | —                                        |       | 78,914         |       | 39,793               |       | —           |       | 118,707          |       |
| Prepaid expenses and other                                       |       | —                                        |       | 5,302          |       | 2,997                |       | —           |       | 8,299            |       |
| Current deferred tax assets                                      |       | —                                        |       | 3,129          |       | —               |       | —           |       | 3,129            |       |
| Total current assets                                             |       | —                                        |       | 147,447        |       | 82,893               |       | —           |       | 230,340          |       |
| Property, plant and equipment, net                               |       | —                                        |       | 48,791         |       | 30,223               |       | —           |       | 79,014           |       |
| Goodwill                                                         |       | —                                        |       | 208,403        |       | —               |       | —           |       | 208,403          |       |
| Intangibles, net                                                 |       | —                                        |       | 63,714         |       | 12,900               |       | —           |       | 76,614           |       |
| Other assets                                                     |       | 4,551                                         |       | 2,594          |       | 388                  |       | —           |       | 7,533            |       |
| Investment in and advances to subsidiaries                       |       | 177,630                                       |       | —         |       | —               |       | (177,630         | )          | —           |       |
| Total assets                                                     |       | $                                             | 182,181    |           | $          | 470,949              |       | $                | 126,404    |             | $          | (177,630 | ) | $ | 601,904 |   |
|                                                             |       |                                          |       |           |       |                 |       |             |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIT**                   |       |                                          |       |           |       |                 |       |             |       |             |       |
| Current Liabilities:                                             |       |                                          |       |           |       |                 |       |             |       |             |       |
| Accounts payable                                                 |       | $                                             | —     |           | $          | 19,386               |       | $                | 20,072     |             | $          | — |   | $ | 39,458 |   |
| Accrued and other liabilities                                    |       | —                                        |       | 31,288         |       | 4,427                |       | —           |       | 35,715           |       |
| Accrued interest                                                 |       | 6,487                                         |       | 642            |       | —               |       | —           |       | 7,129            |       |
| Income taxes payable                                             |       | —                                        |       | (676           | )          | 3,340                |       | —           |       | 2,664            |       |
| Working capital and second-lien facilities                       |       | —                                        |       | 30,824         |       | —               |       | —           |       | 30,824           |       |
| Current maturities of long-term obligations                      |       | —                                        |       | 4,631          |       | 6,624                |       | —           |       | 11,255           |       |
| Total current liabilities                                        |       | 6,487                                         |       | 86,095         |       | 34,463               |       | —           |       | 127,045          |       |
| Long-term obligations, less current  maturities                  |       | 174,787                                       |       | 20,978         |       | 7,903                |       | —           |       | 203,668          |       |
| Deferred tax liabilities                                         |       | —                                        |       | 71,445         |       | —               |       | —           |       | 71,445           |       |
| Other long-term liabilities                                      |       | 213                                           |       | 37,278         |       | 6,619                |       | —           |       | 44,110           |       |
| Shareholders’ equity (deficit):                             |       |                                          |       |           |       |                 |       |             |       |             |       |
| Common stock                                                     |       | 133                                           |       | —         |       | —               |       | —           |       | 133              |       |
| Additional paid-in-capital                                       |       | 183,460                                       |       | —         |       | —               |       | —           |       | 183,460          |       |
| Retained earnings (accumulated deficit)                          |       | (41,528                                       | )          | (11,055        | )          | (8,221               | )          | 19,276           |       | (41,528          | )          |
| Accumulated other comprehensive income  (loss)                   |       | 13,571                                        |       | 5,758          |       | 7,707                |       | (13,465          | )          | 13,571           |       |
| Total shareholders’ equity (deficit)                        |       | 155,636                                       |       | (5,297         | )          | (514                 | )          | 5,811            |       | 155,636          |       |
| Net equity and advances to / from  subsidiaries                  |       | (154,942                                      | )          | 260,450        |       | 77,933               |       | (183,441         | )          | —           |       |
|                                                             |       |                                          |       |           |       |                 |       |             |       |             |       |
|  Total  liabilities and shareholders’ equity (deficit) |       | $                                             | 182,181    |           | $          | 470,949              |       | $                | 126,404    |             | $          | (177,630 | ) | $ | 601,904 |   |

 

19

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**THREE MONTHS ENDED JUNE 30, 2005**

 
| ** **                                    | ** ** | **Parent  Thermadyne  Holdings  Corporation** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------|------------|
|                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net sales                                     |       | $                                             | —     |           | $          | 121,900              |       | $                | 35,202     |             | $          | (22,030 | ) | $ | 135,072 |   |
| Cost of goods sold                            |       | —                                        |       | 93,610         |       | 29,516               |       | (22,194          | )          | 100,932          |       |
| Gross Margin                                  |       | —                                        |       | 28,290         |       | 5,686                |       | 164              |       | 34,140           |       |
|                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Selling, general and administrative  expenses |       | —                                        |       | 22,847         |       | 5,846                |       | —           |       | 28,693           |       |
| Amortization of intangibles                   |       | —                                        |       | 786            |       | 42                   |       | —           |       | 828              |       |
| Net periodic postretirement benefits          |       | —                                        |       | 719            |       | —               |       | —           |       | 719              |       |
| Restructuring costs                           |       | —                                        |       | —         |       | —               |       | —           |       | —           |       |
| Operating income (loss)                       |       | —                                        |       | 3,938          |       | (202                 | )          | 164              |       | 3,900            |       |
| Other income (expense):                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| Interest, net                                 |       | (3,934                                        | )          | (1,639         | )          | (482                 | )          | —           |       | (6,055           | )          |
| Amortization of deferred financing costs      |       | (125                                          | )          | (259           | )          | —               |       | —           |       | (384             | )          |
| Equity in net income (loss) of subsidiaries   |       | 2,288                                         |       | —         |       | —               |       | (2,288           | )          | —           |       |
| Other, net                                    |       | 75                                            |       | 1,985          |       | (2,913               | )          | —           |       | (853             | )          |
| Minority interest                             |       | —                                        |       | (655           | )          |                 |       |             |       | (655             | )          |
| Income (loss) before income tax provision     |       | (1,696                                        | )          | 3,370          |       | (3,597               | )          | (2,124           | )          | (4,047           | )          |
| Income tax provision                          |       | —                                        |       | (2,706         | )          | 355                  |       | —           |       | (2,351           | )          |
| Net income (loss)                             |       | $                                             | (1,696     | )              | $          | 6,076                |       | $                | (3,952     | )                | $          | (2,124 | ) | $ | (1,696 | ) |

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**THREE MONTHS ENDED JUNE 30, 2004**

 
| ** **                                    | ** ** | **Parent  Thermadyne  Holdings  Corporation** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------|------------|
|                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net sales                                     |       | $                                             | —     |           | $          | 119,091              |       | $                | 29,348     |             | $          | (25,229 | ) | $ | 123,210 |   |
| Cost of goods sold                            |       | —                                        |       | 88,071         |       | 23,420               |       | (25,018          | )          | 86,473           |       |
| Gross Margin                                  |       | —                                        |       | 31,020         |       | 5,928                |       | (211             | )          | 36,737           |       |
|                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Selling, general and administrative  expenses |       | —                                        |       | 23,723         |       | 4,892                |       | —           |       | 28,615           |       |
| Amortization of intangibles                   |       | —                                        |       | 794            |       | 32                   |       | —           |       | 826              |       |
| Net periodic postretirement benefits          |       | —                                        |       | 624            |       | —               |       | —           |       | 624              |       |
| Restructuring costs                           |       | —                                        |       | 2,128          |       | —               |       | —           |       | 2,128            |       |
| Operating income (loss)                       |       | —                                        |       | 3,751          |       | 1,004                |       | (211             | )          | 4,544            |       |
| Other income (expense):                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| Interest, net                                 |       | (3,625                                        | )          | (1,232         | )          | (308                 | )          | —           |       | (5,165           | )          |
| Amortization of deferred financing costs      |       | (114                                          | )          | (197           | )          | —               |       | —           |       | (311             | )          |
| Equity in net income (loss) of subsidiaries   |       | (1,550                                        | )          | —         |       | —               |       | 1,550            |       | —           |       |
| Other, net                                    |       | —                                        |       | (597           | )          | (610                 | )          | —           |       | (1,207           | )          |
| Income (loss) before income tax provision     |       | (5,289                                        | )          | 1,725          |       | 86                   |       | 1,339            |       | (2,139           | )          |
| Income tax provision                          |       | —                                        |       | 2,225          |       | 925                  |       | —           |       | 3,150            |       |
| Net income (loss)                             |       | $                                             | (5,289     | )              | $          | (500                 | )          | $                | (839       | )                | $          | 1,339 |   | $ | (5,289 | ) |

 

20

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**SIX MONTHS ENDED JUNE 30, 2005**

 
| ** **                                    | ** ** | **Parent  Thermadyne  Holdings  Corporation** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------|------------|
|                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net sales                                     |       | $                                             | —     |           | $          | 235,158              |       | $                | 67,845     |             | $          | (41,890 | ) | $ | 261,113 |   |
| Cost of goods sold                            |       | —                                        |       | 175,282        |       | 55,472               |       | (41,799          | )          | 188,955          |       |
| Gross Margin                                  |       | —                                        |       | 59,876         |       | 12,373               |       | (91              | )          | 72,158           |       |
|                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Selling, general and administrative  expenses |       | —                                        |       | 44,867         |       | 11,858               |       | —           |       | 56,725           |       |
| Amortization of intangibles                   |       | —                                        |       | 1,569          |       | 161                  |       | —           |       | 1,730            |       |
| Net periodic postretirement benefits          |       | —                                        |       | 1,334          |       | —               |       | —           |       | 1,334            |       |
| Restructuring costs                           |       | —                                        |       | 136            |       | —               |       | —           |       | 136              |       |
| Operating income (loss)                       |       | —                                        |       | 11,970         |       | 354                  |       | (91              | )          | 12,233           |       |
| Other income (expense):                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| Interest, net                                 |       | (7,705                                        | )          | (3,086         | )          | (828                 | )          | —           |       | (11,619          | )          |
| Amortization of deferred financing costs      |       | (250                                          | )          | (564           | )          | —               |       | —           |       | (814             | )          |
| Equity in net income (loss) of subsidiaries   |       | 7,174                                         |       | —         |       | —               |       | (7,174           | )          | —           |       |
| Other, net                                    |       | 75                                            |       | 2,062          |       | (3,388               | )          | —           |       | (1,251           | )          |
| Minority interest                             |       |                                          |       | (655           | )          |                 |       |             |       | (655             | )          |
| Income (loss) before income tax provision     |       | (706                                          | )          | 9,727          |       | (3,862               | )          | (7,265           | )          | (2,106           | )          |
| Income tax provision (benefit)                |       | —                                        |       | (2,782         | )          | 1,382                |       | —           |       | (1,400           | )          |
| Net income (loss)                             |       | $                                             | (706       | )              | $          | 12,509               |       | $                | (5,244     | )                | $          | (7,265 | ) | $ | (706 | ) |

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS**

**SIX MONTHS ENDED JUNE 30, 2004**

 
| ** **                                    | ** ** | **Parent  Thermadyne  Holdings  Corporation** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------|------------|
|                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net sales                                     |       | $                                             | —     |           | $          | 228,000              |       | $                | 55,484     |             | $          | (43,586 | ) | $ | 239,898 |   |
| Cost of goods sold                            |       | —                                        |       | 167,013        |       | 44,783               |       | (43,332          | )          | 168,464          |       |
| Gross Margin                                  |       | —                                        |       | 60,987         |       | 10,701               |       | (254             | )          | 71,434           |       |
|                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Selling, general and administrative  expenses |       | —                                        |       | 45,332         |       | 9,596                |       | —           |       | 54,928           |       |
| Amortization of intangibles                   |       | —                                        |       | 1,789          |       | 72                   |       | —           |       | 1,861            |       |
| Net periodic postretirement benefits          |       | —                                        |       | 1,311          |       | —               |       | —           |       | 1,311            |       |
| Restructuring costs                           |       | —                                        |       | 4,269          |       | —               |       | —           |       | 4,269            |       |
| Operating income (loss)                       |       | —                                        |       | 8,286          |       | 1,033                |       | (254             | )          | 9,065            |       |
| Other income (expense):                       |       |                                          |       |           |       |                 |       |             |       |             |       |
| Interest, net                                 |       | (7,138                                        | )          | (2,215         | )          | (583                 | )          | —           |       | (9,936           | )          |
| Amortization of deferred financing costs      |       | (188                                          | )          | (343           | )          | —               |       | —           |       | (531             | )          |
| Equity in net income (loss) of subsidiaries   |       | 1,008                                         |       | —         |       | —               |       | (1,008           | )          | —           |       |
| Other, net                                    |       | —                                        |       | (268           | )          | (571                 | )          | —           |       | (839             | )          |
| Income (loss) before income tax provision     |       | (6,318                                        | )          | 5,460          |       | (121                 | )          | (1,262           | )          | (2,241           | )          |
| Income tax provision                          |       | —                                        |       | 2,470          |       | 1,607                |       | —           |       | 4,077            |       |
| Net income (loss)                             |       | $                                             | (6,318     | )              | $          | 2,990                |       | $                | (1,728     | )                | $          | (1,262 | ) | $ | (6,318 | ) |
|                                               |            |                                               |            |                |            |                      |            |                  |            |                  |            |  |  |  |  |  |  |

 

21

----

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**SIX MONTHS ENDED JUNE 30, 2005**

 
| ** **                                                    | ** ** | **Parent  Thermadyne  Holdings  Corporation** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------|------------|
|                                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net cash provided by (used in) operating  activities          |       | $                                             | 202        |           | $          | 10,217               |       | $                | (2,881     | )                | $          | (7,352 | ) | $ | 186 |   |
| Cash flows from investing activities:                         |       |                                          |       |           |       |                 |       |             |       |             |       |
| Capital expenditures                                          |       | —                                        |       | (3,100         | )          | (2,488               | )          | —           |       | (5,588           | )          |
| Investment in Subsidiary                                      |       | —                                        |       | (850           | )          | —               |       | —           |       | (850             | )          |
| Net cash used in investing activities                         |       | —                                        |       | (3,950         | )          | (2,488               | )          | —           |       | (6,438           | )          |
| Cash flows from financing activities:                         |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net borrowings under revolving credit  facility               |       | —                                        |       | 14,614         |       | 523                  |       | —           |       | 15,137           |       |
| Net (repayments) borrowings of long-term  obligations         |       | —                                        |       | (991           | )          | (2,282               | )          | —           |       | (3,273           | )          |
| Changes in net equity and advances to /  from subsidiaries    |       | (202                                          | )          | (19,522        | )          | 12,372               |       | 7,352            |       | —           |       |
| Financing fees and other                                      |       | —                                        |       | (142           | )          | (1,602               | )          | —           |       | (1,744           | )          |
| Net cash provided (used in) financing  activities             |       | (202                                          | )          | (6,041         | )          | 9,011                |       | 7,352            |       | 10,120           |       |
|                                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Effect of exchange rate changes on cash and  cash equivalents |       | —                                        |       | (216           | )          | (111                 | )          | —           |       | (327             | )          |
| Net increase in cash and cash equivalents                     |       | —                                        |       | 10             |       | 3,531                |       | —           |       | 3,541            |       |
| Cash and cash equivalents at beginning of  period             |       | —                                        |       | 5,558          |       | 1,092                |       | —           |       | 6,650            |       |
| Cash and cash equivalents at end of period                    |       | $                                             | —     |           | $          | 5,568                |       | $                | 4,623      |             | $          | — |   | $ | 10,191 |   |

 

**THERMADYNE HOLDINGS CORPORATION**

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**SIX MONTHS ENDED JUNE 30, 2004**

 
| ** **                                                    | ** ** | **Parent  Thermadyne  Holdings  Corporation** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------------|------------|
|                                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net cash provided by (used in) operating  activities          |       | $                                             | (6,130     | )              | $          | (10,098              | )          | $                | (3,294     | )                | $          | (1,262 | ) | $ | (20,784 | ) |
| Cash flows from investing activities:                         |       |                                          |       |           |       |                 |       |             |       |             |       |
| Capital expenditures                                          |       | —                                        |       | (6,359         | )          | (2,534               | )          | —           |       | (8,893           | )          |
| Net cash used in investing activities                         |       | —                                        |       | (6,359         | )          | (2,534               | )          | —           |       | (8,893           | )          |
| Cash flows from financing activities:                         |       |                                          |       |           |       |                 |       |             |       |             |       |
| Net borrowings under revolving credit facility                |       | —                                        |       | 11,798         |       | —               |       | —           |       | 11,798           |       |
| Net (repayments) borrowings of long-term  obligations         |       | (5,000                                        | )          | 20,026         |       | 2,033                |       | —           |       | 17,059           |       |
| Changes in net equity and advances to /  from subsidiaries    |       | 11,130                                        |       | (9,485         | )          | (2,907               | )          | 1,262            |       | —           |       |
| Financing fees and other                                      |       | —                                        |       | (5,320         | )          | (837                 | )          | —           |       | (6,157           | )          |
| Net cash provided (used in) financing  activities             |       | 6,130                                         |       | 17,019         |       | (1,711               | )          | 1,262            |       | 22,700           |       |
|                                                          |       |                                          |       |           |       |                 |       |             |       |             |       |
| Effect of exchange rate changes on cash and  cash equivalents |       | —                                        |       | (184           | )          | 75                   |       | —           |       | (109             | )          |
| Net increase (decrease) in cash and cash  equivalents         |       | —                                        |       | 378            |       | (7,464               | )          | —           |       | (7,086           | )          |
| Cash and cash equivalents at beginning of  period             |       | —                                        |       | 609            |       | 16,175               |       | —           |       | 16,784           |       |
| Cash and cash equivalents at end of period                    |       | $                                             | —     |           | $          | 987                  |       | $                | 8,711      |             | $          | — |   | $ | 9,698 |   |

 

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**15.  Restructuring Costs**

 

In 2003, the Company initiated a plan to relocate and consolidate certain U.S. manufacturing facilities.    These activities were completed in the first quarter of 2005, and the remaining payments will be made in the balance of the year.

 

The following table provides the activity in therestructuring accrual during the six months ended June 30, 2005:

 
| ** **                                                      | ** ** | **Six months ended June 30, 2005** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                      | ** ** | **December 31,**                   | ** ** | ** ** | ** ** | ** ** | ** ** | **June 30,** | ** ** |
| **Restructuring accrual:**                                      | ** ** | **2004**                                | ** ** | **Provision** | ** ** | **Payments** | ** ** | **2005** | ** ** |
|                                                            |       |                                    |       |   |   |   |   |   |   |
| Plant Consolidation - Employee Severance  and Incentive Bonuses |       | $                                       | 214        |   | $ | 136 |   | $ | (215 | ) | $ | 135 |   |
| Domestic Workforce Reorganization -  Employee Severance         |       | 1,093                                   |       | — |   | (938 | ) | 155 |   |
|                                                            |       | $                                       | 1,307      |   | $ | 136 |   | $ | (1,153 | ) | $ | 290 |   |

 

**16.  Minority Interests**

 

The Company has 10% minority shareholderinterests in certain of its South African and Italian subsidiaries notpreviously accounted for. For the last three months ended June 30, 2005,the Company has recorded as minority interest expense of approximately $655,including $505 related to the prior years’ minority interest in earnings since theCompany’s emergence from bankruptcy in May 2003. Total minority interest obligationsas of June 30, 2005, of approximately $1,850 have been recorded as acomponent of other long-term liabilities and approximately $1,027 was recordedas goodwill for the portion of minority interest that existed prior to theCompany’s emergence from bankruptcy. Management determined that, while theseadjustments primarily related to historical periods, the adjustments wereimmaterial to previously reported interim and annual financial information.

 

The purchase agreements for the South Africanand Italian subsidiaries include provisions that allow the minority shareholder’sto put their ownership in the entities back to the Company or, conversely, providethe Company a call option to purchase the outstanding minority interests. The exerciseperiod for the put and call options associated with the minority interests inthe South African subsidiaries is indefinite, while the put and call option forthe minority interest in the Italian subsidiary expires on December 31,2010. The purchase price of the options is determined based on a specificformula outlined in the respective purchase agreements. As of June 30,2005, the maximum payment to satisfy the put options is $3,360.

 

**17.  Contingencies**

 

At June 30, 2005, the Company was aco-defendant in cases alleging manganese-induced illness involving claims byapproximately 954 plaintiffs, which is a net increase of 84 claims from March31, 2005.  In each instance, the Companyis one of a large number of defendants. The claimants in cases alleging manganese-induced illness seekcompensatory and punitive damages, in most cases for unspecified sums.  The claimants allege that exposure tomanganese contained in welding consumables caused the plaintiffs to developadverse neurological conditions, including a condition known as manganism.  Many of the cases are single plaintiff casesbut some multi-claimant cases have been filed, including alleged class actionsin various states.  At June 30, 2005,cases involving 188 claimants were filed in or transferred to federal courtwhere the Judicial Panel on MultiDistrict Litigation has consolidated thesecases for pretrial proceedings in the Northern District of Ohio (the “MDLCourt”).

 

Since January 1, 2003, the Company has been aco-defendant in other similar cases that have been resolved as follows: 26 ofthose claims were dismissed.

 

Plaintiffs have filed class actions seekingmedical monitoring in five state courts, three of which have been removed tothe MDL Court.

 

In less than ten of the cases have plaintiffsproduced medical information showing claimed injuries.  In addition in only about 11% of these caseshas the plaintiff identified the Company as a manufacturer of the products theplaintiff used.  As such there isinadequate information available to estimate the liability and therefore nonehas been recorded as of June 30, 2005. 

 

The Company has notified its insurancecarriers of these claims.  The Companyexpects its insurers to respond and defend these claims.

 

The Company is party to certain environmentalmatters and has been named as a potentially responsible party (“PRP”) incertain of these matters, although no related claims have been filed.  Any losses recognized as of June 30, 2005 andexpected losses are not expected to have a material adverse effect on theCompany’s business or financial condition or results of operations.

 

All other legal proceedings and actionsinvolving the Company are of an ordinary and routine nature and are incidentalto the operations of the Company. Management believes that such proceedings should not, individually or inthe aggregate, have a material adverse effect on the Company’s business orfinancial condition or on the results of operations.

 

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**Item 2.**

**MANAGEMENT’S DISCUSSION ANDANALYSIS OF**

**FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

#### **Overview**

 

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

 

#### **Forward-lookingStatements**

#### ** **

Thestatements in this Quarterly Report on Form 10-Q that relate to futureplans, events or performance are forward-looking statements.  Actual results could differ materially due toa variety of factors and the other risks described in this Quarterly Report andthe other documents we file from time to time with the Securities and ExchangeCommission (“SEC”).  Readers arecautioned not to place undue reliance on these forward-looking statements,which speak only as of the date hereof. 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.

 

**Factors That Could Affect Future Results**

** **

Factors that could affectfuture results also include a potential risk related to compliance with therequirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404Rules”).  Beginning on December 31,2004, our system of internal control over financial reporting must comply withthe requirements of Section 404 Rules. We completed a comprehensive effortto document and test our internal controls to confirm that such controls aredesigned appropriately and operating effectively for the year ending December 31,2004. For our report on internal control over financial reporting, see Item 9A,*Controls and Procedures* in our AnnualReport on Form 10-K for the fiscal year ended December 31, 2004.Until we have fully remediated the material weaknesses in our internal controlover financial reporting summarized in our report, investor confidence in ourinternal controls over financial reporting could be damaged and cause our stockor publicly traded bond price to decline.

 

Additionalrisk factors are described in our Annual Report on Form 10-K for thefiscal year ended December 31, 2004.

 

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

 

***Three Months Ended June 30,2005 Compared to Three Months Ended June 30, 2004***

 

Netsales for the three months ended June 30, 2005 were $135.1 million, whichwas a 9.6% increase over net sales of $123.2 million for the same three monthsin 2004.  Domestic sales were $66.2million for the second quarter of 2005, compared to $65.4 million for the sameperiod last year, which is an increase of 1.2%. International sales were $68.9 million for the three months ended June 30,2005 compared to $57.8 million for the second quarter of 2004, or an increaseof 19.2%.  A weaker U.S. dollar was acontributing factor to the sales increase for the quarter.  Excluding the impact of favorable currencytranslation, international sales increased 12.6% compared to the second quarterof 2004. The increase in international sales was attributable mainly to solidgrowth in Asia-Pacific, Canada and South Africa.

 

Grossmargin for the second quarter of 2005 was $34.1 million, or 25.3% of sales,compared to $36.7 million, or 29.8% of sales, for the same period in 2004,which is a decrease of 7.1%.  Incomparing these periods, favorable pricing and volume, including new productintroductions contributed $5.7 million and improvements in cost

 

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reductioninitiatives contributed $4.2 million. These contributions were offset primarilyby $4.9 million of higher inflation, $1.2 million related to unfavorable salesmix and competitive market conditions in our higher margin products, $0.5million from inefficiencies in and expedited charges for addressing TexMexdeliveries, $0.8 million in higher credits related to delivery, warranty andinventory trade-outs, $0.4 million related to our Brazilian operation, LIFO andother inventory adjustments of $2.0 million, and $2.7 million of all otheritems including currency translation impacts. 

 

Selling, general and administrative expenses were$28.7 million for the three months ended June 30, 2005, as compared to$28.6 million for the same three months in 2004.  As a percentage of sales, selling, generaland administrative expenses were 21.2% for the quarter ended June 30,2005, versus 23.2% for the three months ended June 30, 2004.  Included in the second quarter of 2005 are$0.6 million of unfavorable currency translation and $0.1 million ofseverance related to changes in senior management.

 

Duringthe three months ended June 30, 2004, we incurred restructuring costs of$2.1 million related to the relocation and consolidation of certain U.S.manufacturing facilities.  We did notincur any restructuring costs during the three months ended June 30, 2005.

 

Interestexpense for the second quarter of 2005 was $6.1 million, which compares to $5.2million for the second quarter of 2004. The difference results primarily from an increase in our averageborrowing rate on our LIBOR based floating rate debt as well as an increase inour debt obligations.

 

Minority interest expense was $0.7 million for the three months endedJune 30, 2005 as compared to $0 for the same three months in 2004. The increaseis a result of recording the minority interest shareholder portion of earningsat certain of our South African and Italian subsidiaries.

 

An income tax benefit of $2.4 million wasrecorded on a pretax loss of $4.0 million for the three months ended June 30,2005.  An income tax provision of $3.2million was recorded on a pretax loss of $2.1 million for the three monthsended June 30, 2004.  The income taxprovision for both periods primarily relates to income generated in certainforeign jurisdictions and differs from that determined by applying the U.S.federal statutory rate primarily due to nondeductible expenses and thedisallowance of losses.

 

***Six Months Ended June 30,2005 Compared to Six Months Ended June 30, 2004***

 

Netsales for the six months ended June 30, 2005 were $261.1 million, whichwas an 8.8% increase over net sales of $239.9 million for the same six monthsin 2004.  Domestic sales were $132.2million for the six months ended June 30, 2005, compared to $130.7 millionfor the same period last year, which is an increase of 1.1%.  International sales were $128.9 million forthe six months ended June 30, 2005 compared to $109.2 million for thefirst six months of 2004, or an increase of 18.0%.  A weaker U.S. dollar was a contributingfactor to the sales increase for the quarter. Excluding the impact of favorable currency translation, internationalsales increased 12.0% compared to the first six months of 2004. The increase ininternational sales was attributable mainly to solid growth in Asia-Pacific,Canada and South Africa.

 

Grossmargin for the six months ended June 30, 2005 was $72.2 million, or 27.6%of sales, compared to $71.4 million, or 29.8% of sales, for the sameperiod in 2004.  In comparing theseperiods, favorable pricing and volume, including new product introductionscontributed $10.3 million and improvements in cost reduction initiativescontributed $7.6 million. These contributions were more than offset by $9.7 millionof higher inflation, $3.2 million related to unfavorable sales mix, competitivemarket conditions and delivery issues in our higher margin products, $0.5million from inefficiencies in and expedited charges for addressing TexMexdeliveries, $0.8 million in higher credits related to delivery, warranty andinventory trade-outs, $0.7 million related to our Brazilian operation, LIFO andother inventory adjustments of $2.0 million, and $0.2 million of all otheritems including currency translation impacts.

 

Selling, general and administrative expenses were$56.7 million for the six months ended June 30, 2005, a 3.3% increase over$54.9 million for the same six months in 2004. As a percentage of sales, selling, general and administrative expenseswere 21.7% for the six- month period ended June 30, 2005, versus 22.9% forthe six month

 

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period in 2004. Included in the six months of 2005 are $1.1 million of unfavorablecurrency translation and $0.8 million of severance related to changes in seniormanagement.

 

Duringthe six months ended June 30, 2005 we incurred restructuring costs of$0.1 million related to the relocation and consolidation of certain U.S.manufacturing facilities, compared to $4.3 million for the same period in2004.

 

Interestexpense for the six months ended June 30, 2005 was $11.6 million, whichcompares to $9.9 million for the same six-month period of 2004.  The difference results primarily from anoverall increase in debt obligations as well as an increase in our averageborrowing rate.

 

Minority interest expense was $0.7 million for the six months endedJune 30, 2005 as compared to $0 for the same period in 2004. The increase is aresult of recording the minority interest shareholder portion of earnings atcertain of our South African and Italian subsidiaries.

 

An income tax benefit of $1.4 million wasrecorded on a pretax loss of $2.1 million for the six months ended June 30,2005.  An income tax provision of $4.1million was recorded on a pretax loss of $2.2 million for the six months ended June 30,2004.  The income tax provision for bothperiods primarily relates to income generated in certain foreign jurisdictions,and differs from that determined by applying the U.S. federal statutory rateprimarily due to nondeductible expenses and the disallowance of losses.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

***Working Capital and Cash Flows***

 

Operatingactivities provided $0.2 million of cash during the first six months of 2005,compared to $20.8 million of cash used during the same time period in 2004.Operating assets and liabilities used $13.3 million of cash during the sixmonths ended June 30, 2005, compared to $28.7 million of cash used in thesame period last year.

 

•                  Accountsreceivable used $8.7 million during the six months ended June 30, 2005,compared to $9.6 million used during the same period in 2004.

•                  Inventoryused $5.7 million of cash through the first six months of 2005, as compared toa $28.0 million use of cash in the same six month period last year.  Inventory used less cash in 2005 as a resultof an  increase in safety stock levelsduring the first six months of 2004 at two of our U.S. production facilities thatwere in the process of consolidating, and a temporary increase in stock levelsas part of an initiative to improve fill-rates.

•                  Accountspayable provided $6.5 million of cash in the first six months of 2005, whichcompares to cash provided of $5.7 million in the first six months of 2004.  Theincrease in payables results in part from efforts to obtain more favorablepayment terms from vendors.

•                  Accrued liabilities used $0.5 million of cash in thefirst six months of 2005 compared to $2.7 million of cash used in the first sixmonths of 2004.  Cash used by accruals inthe first six months of 2005 included $0.3 million of payments made to ourunsecured creditors under the terms of our plan of reorganization, compared to$2.2 million of payments made in the same period last year.

•                  Accrued interest used $0.4 million in the six monthsended June 30, 2005 and relates primarily to our senior subordinatednotes.

 

Cashused for capital expenditures was $5.6 million during the six months ended June 30,2005, compared to $8.9 million in the same period in 2004. Our spendingplan for 2005 will be focused towards growth and cost reduction initiatives.

 

Financingactivities provided $10.1 million of cash during the first six months of 2005compared to cash provided of $22.7 million during the same period in 2004. Netborrowings were $11.9 million for the six months ended June 30, 2005compared to $28.9 million for the same period in 2004. The current yearborrowings were used primarily to fund working capital requirements and to fundthe semi-annual interest payment on the Senior Subordinated Notes made in February ofapproximately $8.1 million.

 

26

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# ***Liquidity***

 

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

 

*Senior Subordinated Notes*

 

OnFebruary 5, 2004, we completed a private placement of $175.0 million inaggregate principal of 91⁄4% Senior Subordinated Notes due 2014. The net proceedsfrom the offering, together with approximately $20.0 million of borrowingsunder a new term loan (the “Term Loan”) added through an amendment andrestatement to our GECC credit agreement (the “Amended Credit Agreement”), wereused to repay all outstanding borrowings under the $180.0 million Senior Term NoteFacility and to reduce amounts outstanding under our revolving credit facility.In May 2004, for the purpose of an exchange offer, we registered noteswith terms identical to the Senior Subordinated Notes under the Securities Actof 1933.  We completed the exchange offerin the second quarter of 2004 and more than 99% of the original notes wereexchanged for the registered notes.

 

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

 

*Amended Credit Agreement*

 

On November 22, 2004, we entered intothe Amended Credit Agreement. The Amended Credit Agreement, which matures on November 22,2009 added our foreign subsidiaries in Australia, the United Kingdom and Canadaas credit collateral parties, and changed the determination of the borrowingbase from a cash flow-based formula to an asset-based formula.  Under the Amended Credit Agreement, the totalloan commitment was increased from $70.0 million to $91.3 million (subject tothe limitation described below), with a revolving loan commitment of $80.0million (the “Working Capital Facility”) and term loan commitments of$11.3 million (subject to the limitation described below). The term loancommitments consist of a $9.3 million Term A Loan and a maximum $2.0 millionDelayed Draw Term Loan dependent upon the final evaluation of certain realproperty located in Australia, which was not complete as of June 30, 2005. Upto $25.0 million of the Working Capital Facility is available for letters ofcredit. The Amended Credit Agreement is secured by substantially all of theassets of our domestic subsidiaries and our foreign subsidiaries in Australia,the United Kingdom and Canada, including a pledge of the capital stock ofsubstantially all of our subsidiaries, subject to certain limitations withrespect to foreign subsidiaries. Borrowings under the revolving loan commitmentmay not exceed 85% of eligible receivables plus the lesser of (i) 85% ofthe net orderly liquidation value of eligible inventories or (ii) 65% ofthe book value of inventories less customary reserves. The Amended CreditAgreement contains financial covenants, including minimum levels of EBITDA (asdefined in the Amended Credit Agreement and determined on a consolidated basis)and other customary provisions and requires the Second-Lien Facility to be paidor refinanced 60 days prior to its maturity. In connection with the Amended Credit Agreement, our foreignsubsidiaries in Australia, the United Kingdom and Canada granted secondsecurity interests in their assets to the lenders under our $20.0 millionSecond-Lien Facility and guaranteed our $175.0 million 91/4% Senior Subordinated Notes. Interest rates on the Amended Credit Agreement are, at our option, LIBORplus 2.25% or the prime rate plus 0.5% on the revolving facility, and LIBORplus 2.50% or the prime rate plus 0.75% on the term loan facility. All of thesepercentages are subject to an interest rate grid and will decline if certain conditionsare met. Principal payments on the term loan facilities are equal quarterlypayments based on a seven year amortization schedule, with the remaining amountpaid at maturity. Unused portions of the Working Capital Facility bear interestat the rate of 0.5% per annum.  TheAmended Credit Agreement limits total borrowings under the facility to$75.0 million until the Second-Lien Facility is paid or refinanced withlong-term debt. The Amended Credit Agreement does under certain conditionsallow for the use of the Working Capital Facility to repay the Second-LienFacility.  As of June 30, 2005, wehad outstanding borrowings of $26.0 million and issued letters of credittotaling $11.4 million under the Working Capital Facility.  We had availability of $21.1 million underthe Working Capital Facility at June 30, 2005. The Working CapitalFacility terminates on November 22, 2009. The Term A Loan requires equal quarterly principal payments of $0.3million per quarter, which began December 31, 2004 and continues through October 31,

 

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2009, with the balance of the outstandingprincipal being payable on November 22, 2009.  As of June 30, 2005, we did not haveaccess to the Delayed Term Loan.

 

OnMarch 16, 2005 and March 30, 2005, we amended the Amended CreditAgreement to modify certain financial covenants and enable us to extend ourSecond-Lien Facility.  On July 27,2005 and August 5, 2005 we further amended the Amended Credit Agreement tomodify certain financial covenants.

 

*Second-Lien Facility*

 

OnJuly 29, 2004 we entered into a new $20.0 million second-lien term loanfacility (the “Second-Lien Facility”). Borrowings under the facility were usedto repay a portion of the amount outstanding under the Working CapitalFacility. On November 5, 2004, we entered into an amendment to theSecond-Lien Facility to extend its maturity to July 22, 2005 and modifieda financial covenant.  The Second-LienFacility is secured by a second lien on substantially all of our assets. TheSecond-Lien Facility accrues interest at our option, at LIBOR plus 6.00%, or analternative base rate of the greater of (i) the Prime Rate or (ii) thefederal funds rate plus one half of 1.00% plus 5.00%. The Second-Lien Facilityrestricts how much long-term debt we may have and has other customaryprovisions including financial and non-financial covenants. On March 16,2005 and March 30, 2005, the Second-Lien Facility was amended to modify afinancial covenant and extend its maturity until April 30, 2006.  On August 8, 2005 we amended theSecond-Lien Facility to modify a financial covenant.

 

*Minority Interests*

 

We have 10% minorityshareholder interests in certain of our South African and Italian subsidiariesnot previously accounted for. For the three months ended June 30, 2005, wehave recorded as minority interest expense approximately $0.7 million,including $0.5 million related to the prior years’ minority interest inearnings since our emergence from bankruptcy in May 2003. Total minority interestobligations as of June 30, 2005, of approximately $1.9 million havebeen recorded as a component of other long-term liabilities and approximately$1.0 million was recorded as goodwill for the portion of the minority interestthat existed prior to our emergence from bankruptcy. Management determinedthat, while these adjustments primarily related to historical periods, theadjustments were immaterial to previously reported interim and annual financialinformation.

 

The purchase agreementsfor the South African and Italian subsidiaries include provisions that allowthe minority shareholder’s to put their ownership in the entities back to usor, conversely, provide us a call option to purchase the outstanding minorityinterests. The exercise period for the put and call options associated with theminority interest in the South African subsidiaries is indefinite, while theput and call option for the minority interests in the Italian subsidiaryexpires on December 31, 2010. The purchase price of the options isdetermined based on a specific formula outlined in the respective agreements.As of June 30, 2005, the maximum payment to satisfy the put options is $3.4 million.

 

**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

 

Ourprimary financial market risk relates to fluctuations in currency exchangerates, commodity price risk and interest rates.

 

Wedo not believe our exposure to transaction gains or losses resulting fromchanges in foreign currency exchange rates are material to our financial results.As a result, we do not actively try to manage our exposure through foreigncurrency forward or option contracts.

 

Inorder to manage interest costs, we entered into an interest rate swaparrangement on February 24, 2004 to convert $50.0 million of the SeniorSubordinated Notes into variable rate debt. We pay interest on the swap at LIBOR plus a spread of 442 basispoints.  Interest rate risk managementagreements are not held or issued for speculative or trading purposes.

 

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

#### ** **

We maintain disclosure controls andprocedures that are designed to provide reasonable assurance to our managementand board of directors regarding the preparation and fair presentation ofpublished financial statements.

 

Asof December 31, 2004 and June 30, 2005, management evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures and concluded those controls and procedures were not effectivebecause of the 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 fiscal year ended December 31, 2004. Theidentified material weaknesses while currently being remediated by management,will remain as such until adequately tested by management and our independentregistered public accounting firm. We anticipate the testing as ofDecember 31, 2005 to begin during the third quarter of 2005 and becompleted by the first quarter of 2006.

 

To ensure that our condensed consolidatedfinancial statements for the six-month period ended June 30, 2005 arefairly presented and were prepared in accordance with U.S. generally acceptedaccounting principles, we conducted in-depth analyses of all our key operations,and obtained quarterly questionnaires from all of our functional business unitsand reporting locations, which requested information on significanttransactions, contracts and commitments, business trends, changes in internalcontrols and other items that should be considered for disclosure in ourfinancial statements.  In addition, asmore fully described below, new processes and procedures were

 

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implemented during the first six months toaddress our material weaknesses in internal controls over financialreporting.  Consequently, managementbelieves that the financial statements included in this report fairlyrepresent, in all material respects, our financial condition, results ofoperations and cash flows for the periods presented.

 

**Remediation of Material Weaknesses**

 

Asdiscussed above, as of December 31, 2004, we identified materialweaknesses in our internal control over financial reporting. We are currentlyaddressing these material weaknesses as described below and expect to have themremediated by the end of 2005.

 

Inorder to remediate our ineffective controls relating to the oversight andmonitoring of our smaller international locations, we are developing anextensive internal audit program for 2005 that we have initiated in both our SouthAfrica and Brazil operations. We have also performed our second quarterly seriesof off-site reviews to better identify significant variances, non-recurringtransactions, significant business trends and other items of importance thatcould require disclosure in our financial statements or impact the reportedfinancial condition and results of operations.

 

Withrespect to our ineffective controls over property, plant and equipment, weperformed a comprehensive analytical review of property, plant and equipmentand examined the accounting for all new or modified leases. Additionally, wehave initiated on-site financial reviews at our operating units which furtherenable us to identify and address certain other insufficient controls relatingto the accounting for property, plant, and equipment, such as depreciationexpense, and non-recurring transactions, such as significant leasingtransactions.

 

Toaddress our material weakness for insufficient controls relating to the timelyreview and capitalization of inventory variances for interim reporting, duringthe first quarter we began the process of analyzing our inventory variances ona monthly basis to determine the need for capitalization.

 

Regarding our insufficient controls relating to thedetermination and reporting of the provision for income taxes and relateddeferred income tax balances, we have begun performing a more comprehensiveanalysis of components of the income tax provision of certain foreign subsidiarieson a quarterly basis. This will include the quarterly off-site and periodicon-site reviews referred to above. Additionally, a more formal process is beingestablished to monitor the differences between the income tax basis and thefinancial reporting basis of assets and liabilities to effectively reconcilethe deferred income tax balances. Finally, we have also engaged the services of PricewaterhouseCoopers LLPto assist in reviewing our quarterly income tax provisions as well as providetax planning and consultative support.

 

**Changes inInternal Control Over Financial Reporting**

 

Except as otherwise discussed above, therehave been no changes in our internal control over financial reporting duringthe three months ended June 30, 2005 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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

 

**Item1.  Legal Proceedings**

 

At June 30,2005, the Company was a co-defendant in cases alleging manganese-inducedillness involving claims by approximately 954 plaintiffs, which is a netincrease of 84 claims from March 31, 2005. In each instance, the Company is one of a large number ofdefendants.  The claimants in cases allegingmanganese-induced illness seek compensatory and punitive damages, in most casesfor unspecified sums.  The claimantsallege that exposure to manganese contained in welding consumables caused theplaintiffs to develop adverse neurological conditions, including a conditionknown as manganism.  Many of the casesare single plaintiff cases but some multi-claimant cases have been filed,including alleged class actions in various states.  At June 30, 2005, cases involving 188claimants were filed in or transferred to federal court where the JudicialPanel on MultiDistrict Litigation has consolidated these cases for pretrialproceedings in the Northern District of Ohio (the “MDL Court”).

 

Since January1, 2003, the Company has been a co-defendant in other similar cases that havebeen resolved as follows: 26 of those claims were dismissed.

 

Plaintiffshave filed class actions seeking medical monitoring in five state courts, threeof which have been removed to the MDL Court.

 

In less thanten of the cases have plaintiffs produced medical information showing claimedinjuries.  In addition in only about 11%of these cases has the plaintiff identified the Company as a manufacturer ofthe products the plaintiff used.  As suchthere is inadequate information available to estimate the liability andtherefore none has been recorded as of June 30, 2005. 

 

The Companyhas notified its insurance carriers of these claims.  The Company expects its insurers to respondand defend these claims.

 

The Company isparty to certain environmental matters and has been named as a potentiallyresponsible party (“PRP”) in certain of these matters, although no relatedclaims have been filed.  Any lossesrecognized as of June 30, 2005 and expected losses are not expected to have amaterial adverse effect on the Company’s business or financial condition orresults of operations.

 

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

 

**Item 6.  Exhibits**

 

4.1                                 Fourth Amendment to Second Amended and RestatedCredit Agreement dated as of March 31, 2005 by and among ThermadyneIndustries, Inc., Thermal Dynamics Corporation, Tweco Products, Inc.,Victor Equipment Company, C&G Systems, Inc., Stoody Company, ThermalArc, Inc., ProTip Corporation, and Thermadyne International Corp., asborrowers, the credit parties signatory thereto, the lenders signatory thereto,and General Electric Capital Corporation as agent.

 

4.2                                 Amendment No. 6 to the Second LienCredit Agreement dated as of March 31, 2005 by and among ThermadyneIndustries, Inc., Thermal Dynamics Corporation, Tweco Products, Inc.,Victor Equipment Company, C&G Systems, Inc., Stoody Company, ThermalArc, Inc., ProTip Corporation, and Thermadyne International Corp., asborrowers, the guarantors signatory thereto, the lenders parties thereto, andCredit Suisse First Boston, as administrative agent and collateral agent.

 

4.3                                 Fifth Amendment to Second Amendment andRestated Credit Agreement dated as of July 1, 2005, by and amongThermadyne Industries, Inc., Thermal Dynamics Corporation, Tweco Products, Inc.,Victor Equipment Company, C&G Systems, Inc., Stoody Company, ThermalArc, Inc., ProTip Corporation, and Thermadyne International Corp., asborrowers, the credit parties signatory thereto, the lenders signatory thereto,and General Electric Capital Corporation as agent.

 

4.4                                 Amendment No. 7 to the Second LienCredit Agreement dated as of July 1, 2005 by and among ThermadyneIndustries, Inc., Thermal Dynamics Corporation, Tweco Products, Inc.,Victor Equipment Company, C&G Systems, Inc., Stoody Company, ThermalArc, Inc., ProTip Corporation, and Thermadyne International Corp., asborrowers, the guarantors signatory thereto, the lenders parties thereto, and “CreditSuisse”, as administrative agent and collateral agent.

 

4.5                                 Sixth Amendment to Second Amended andRestated Credit Agreement dated as of July 27, 2005, by and amongThermadyne Industries, Inc., Thermal Dynamics Corporation, Tweco Products, Inc.,Victor Equipment Company, C&G Systems, Inc., Stoody Company, ThermalArc, Inc., ProTip Corporation, and Thermadyne International Corp., asborrowers, the credit parties signatory thereto, the lenders signatory thereto,and General Electric Capital Corporation as agent.

 

4.6                                 Seventh Amendment to Second Amended andRestated Credit Agreement dated as of August 5, 2005, by and amongThermadyne Industries, Inc., Thermal Dynamics Corporation, Tweco Products, Inc.,Victor Equipment Company, C&G Systems, Inc., Stoody Company, ThermalArc, Inc., ProTip Corporation, and Thermadyne International Corp., asborrowers, the credit parties signatory thereto, the lenders signatory thereto,and General Electric Capital Corporation as agent.

 

4.7                                 Amendment No. 8 to the Second LienCredit Agreement dated as of August 8, 2005 by and among ThermadyneIndustries, Inc., Thermal Dynamics Corporation, Tweco Products, Inc.,Victor Equipment Company, C&G Systems, Inc., Stoody Company, ThermalArc, Inc., ProTip Corporation, and Thermadyne International Corp., asborrowers, the

 

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guarantors signatory thereto, the lenders partiesthereto, and “Credit Suisse”, as administrative agent and collateral agent.

 

31.1                           Certification Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002

 

31.2                           Certification Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002

 

32.1                           Certification Pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002

 

32.2                           Certification Pursuant to Section 906 ofthe Sarbanes-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/ Paul D. Melnuk |   |
|                                       |                                |   |   |
|                                       |                                | Paul D. Melnuk |
|                                       |                                | Chief Executive Officer |
|                                       |                                | (Principal Executive  Officer) |
|                                       |                                |   |
|                                       |                                |   |
|                                       | By:                                 | /s/ David L. Dyckman |   |
|                                       |                                |   |   |
|                                       |                                | David L. Dyckman |
|                                       |                                | Executive Vice President  and |
|                                       |                                | Chief Financial Officer |
|                                       |                                | (Principal Financial Officer) |
|                                       |                                |   |
|                                       |                                |   |
|                                       | By:                                 | /s/ Steven W. Fray |   |
|                                       |                                |   |   |
|                                       |                                | Steven W. Fray |
|                                       |                                | Vice President and |
|                                       |                                | Global Controller |
|                                       |                                | (Principal Accounting  Officer) |
|                                       |                                |   |
|                                       |                                |   |
| Date:   August 9, 2005 |                                |   |
|                                            |                                     |  |  |  |

 

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