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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
 For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 For the transition period from          to
 Commission file number 0-23378
 Thermadyne Holdings Corporation
  Delaware
    
    74-2482571(State or Other Jurisdiction of Incorporation or
    
    (I.R.S. Employer Identification No.)Organization)16052 Swingley Ridge Road, Suite 300, Chesterfield,MO
    
    63017(Address of Principal Executive Offices)
    
    (Zip Code)
 (636) 728-3000
 þ o
  o þ o
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THERMADYNE HOLDINGS CORPORATION
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6-24Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25-29Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    30PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    31Item 6.
    
    Exhibits
    
    
    31SIGNATURES
    
    
    32Section 302 CEO CertificationSection 302 CFO CertificationSection 906 CEO CertificationSection 906 CFO Certification
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PART I. FINANCIAL INFORMATION
 
 Item 1.
 THERMADYNE HOLDINGS CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share data)
 March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)Current Assets:Cash and cash equivalents
    
    $
    5,830
    
    
    $
    11,310Accounts receivable, less allowance for doubtful accounts of
$2,242 and $2,483, respectively
    
    
    85,108
    
    
    
    79,249Inventories
    
    
    102,357
    
    
    
    98,364Prepaid expenses and other
    
    
    7,161
    
    
    
    6,425Assets held for sale
    
    
    16,285
    
    
    
    16,493Deferred tax assets
    
    
    1,104
    
    
    
    1,104Total current assets
    
    
    217,845
    
    
    
    212,945Property, plant and equipment, net of accumulated depreciation
of $39,759 and $37,206, respectively
    
    
    42,809
    
    
    
    43,334Goodwill
    
    
    188,332
    
    
    
    189,282Intangibles, net
    
    
    65,273
    
    
    
    65,931Other assets
    
    
    6,332
    
    
    
    6,633Total assets
    
    $
    520,591
    
    
    $
    518,125Current LiabilitiesWorking capital facility
    
    $
    34,029
    
    
    $
    17,606Current maturities of long-term obligations
    
    
    1,419
    
    
    
    1,378Accounts payable
    
    
    29,973
    
    
    
    32,298Accrued and other liabilities
    
    
    25,268
    
    
    
    34,519Accrued interest
    
    
    3,446
    
    
    
    8,252Income taxes payable
    
    
    1,309
    
    
    
    1,248Liabilities related to assets held for sale
    
    
    11,430
    
    
    
    11,279Total current liabilities
    
    
    106,874
    
    
    
    106,580Long-term obligations, less current maturities
    
    
    238,245
    
    
    
    238,012Deferred tax liabilities
    
    
    46,554
    
    
    
    46,456Other long-term liabilities
    
    
    23,125
    
    
    
    23,266Minority interest
    
    
    326
    
    
    
    307Stockholders equity:Common stock, $0.01 par value:Authorized  25,000,000 sharesIssued and outstanding  13,338,592 shares at March 31, 2007 and
13,335,517 shares at December 31, 2006
    
    
    134
    
    
    
    133Additional paid-in capital
    
    
    185,138
    
    
    
    184,804Accumulated deficit
    
    
    (87,214
    )
    
    
    (88,618
    )Accumulated other comprehensive income
    
    
    7,409
    
    
    
    7,185Total shareholders equity
    
    
    105,467
    
    
    
    103,504Total liabilities and shareholders equity
    
    $
    520,591
    
    
    $
    518,125
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THERMADYNE HOLDINGS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Net sales
    
    $
    117,215
    
    
    $
    111,900Cost of goods sold
    
    
    79,131
    
    
    
    79,803Gross margin
    
    
    38,084
    
    
    
    32,097Selling, general and administrative expenses
    
    
    26,283
    
    
    
    24,203Amortization of intangibles
    
    
    726
    
    
    
    721Net periodic postretirement benefits
    
    
    138
    
    
    
    528Operating income
    
    
    10,937
    
    
    
    6,645Other expenses:Interest
    
    
    (7,062
    )
    
    
    (6,145
    )Amortization of deferred financing costs
    
    
    (353
    )
    
    
    (332
    )Minority interest
    
    
    (22
    )
    
    
    (61
    )Income from continuing operations before income
tax provision and discontinued operations
    
    
    3,500
    
    
    
    107Income tax provision
    
    
    2,283
    
    
    
    817Income (loss) from continuing operations
    
    
    1,217
    
    
    
    (710
    )Income (loss) from discontinued operations, net of tax
    
    
    187
    
    
    
    (668
    )Net income (loss)
    
    $
    1,404
    
    
    $
    (1,378
    )Basic income (loss) per share:Continuing operations
    
    $
    0.09
    
    
    $
    (0.05
    )Discontinued operations
    
    
    0.02
    
    
    
    (0.05
    )Net income (loss)
    
    $
    0.11
    
    
    $
    (0.10
    )Diluted income (loss) per share:Continuing operations
    
    $
    0.09
    
    
    $
    (0.05
    )Discontinued operations
    
    
    0.02
    
    
    
    (0.05
    )Net income (loss)
    
    $
    0.11
    
    
    $
    (0.10
    )
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THERMADYNE HOLDINGS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Cash flows from continuing operationsCash flows from operating activities:Net income (loss)
    
    $
    1,404
    
    
    $
    (1,378
    )Adjustments to reconcile net income (loss) to net cash used in operating activities:(Income) loss from discontinued operations
    
    
    (187
    )
    
    
    668Minority interest
    
    
    22
    
    
    
    61Depreciation and amortization
    
    
    3,299
    
    
    
    4,671Deferred taxes
    
    
    1,239
    
    
    
    (271
    )Changes in operating assets and liabilities
    
    
    (26,229
    )
    
    
    (22,394
    )Other, net
    
    
    (176
    )
    
    
    286Net cash used in operating activities
    
    
    (20,628
    )
    
    
    (18,357
    )Cash flows from investing activities:Capital expenditures
    
    
    (1,307
    )
    
    
    (1,017
    )Proceeds from sales of assets
    
    
    
    
    
    
    8,915Purchase of minority interest
    
    
    
    
    
    
    (3,954
    )Other
    
    
    (84
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    (1,391
    )
    
    
    3,944Cash flows from financing activities:Net borrowings under revolving credit facility
    
    
    16,423
    
    
    
    5,399Net repayments under other credit facilities
    
    
    (88
    )
    
    
    (574
    )Advances from (to) from discontinued operations
    
    
    (270
    )
    
    
    1,869Other, net
    
    
    335
    
    
    
    173Net cash provided by financing activities
    
    
    16,400
    
    
    
    6,867Effect of exchange rate changes on cash and cash equivalents
    
    
    139
    
    
    
    978Net cash used in continuing operations
    
    
    (5,480
    )
    
    
    (6,568
    )Cash flows from discontinued operationsNet cash provided by operating activities
    
    
    911
    
    
    
    949Net cash used in investing activities
    
    
    (90
    )
    
    
    (209
    )Net cash used in financing activities
    
    
    (229
    )
    
    
    (1,746
    )Effect of exchange rates on cash and cash equivalents
    
    
    (4
    )
    
    
    (84
    )Net cash provided by (used in) discontinued operation
    
    
    588
    
    
    
    (1,090
    )Total decrease in cash and cash equivalents
    
    
    (4,892
    )
    
    
    (7,658
    )Total cash and cash equivalents beginning of period
    
    
    11,310
    
    
    
    15,562Total cash and cash equivalents end of period
    
    $
    6,418
    
    
    $
    7,904Continuing operationsCash and cash equivalents beginning of period
    
    $
    11,310
    
    
    $
    13,187Net cash used in continuing operations
    
    
    (5,480
    )
    
    
    (6,568
    )Cash and cash equivalents end of period
    
    $
    5,830
    
    
    $
    6,619Discontinued operationsCash and cash equivalents beginning of period
    
    $
    
    
    
    $
    2,375Net cash provided by (used in) discontinued operations
    
    
    588
    
    
    
    (1,090
    )Cash and cash equivalents end of period
    
    $
    588
    
    
    $
    1,285Income taxes paid
    
    $
    965
    
    
    $
    2,435Interest paid
    
    $
    9,759
    
    
    $
    9,980
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THERMADYNE HOLDINGS CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (Dollars in thousands, except per share data)
 1.
    
    Organization and Basis of PresentationThermadyne Holdings Corporation (Thermadyne or the Company), a Delaware corporation, is
a global designer and manufacturer of cutting and welding products, including equipment,
accessories and consumables.The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by U.S.
generally accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included in these condensed consolidated
financial statements. The combined results of operations of the Company for the three months
ended March 31, 2007 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2007. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Companys annual report on Form
10-K for the year ended December 31, 2006.The preparation of financial statements requires use of estimates and assumptions that
affect the amounts reported in Thermadynes condensed consolidated financial statements and
accompanying notes. Actual results could differ from these estimates.Certain information for 2006, primarily accounts related to discontinued operations, has
been reclassified to conform to the 2007 presentation.2.
    
    Significant Accounting PoliciesProduct Warranty ProgramsVarious products are sold with product warranty programs. Provisions for warranty programs
are made based on historical experience as the products are sold and adjusted periodically
based on current estimates of anticipated warranty costs. The following table provides the
activity in the warranty accrual for the three months ended March 31, 2007 and 2006:
 Balance at
    
    
    
    
    
    
    
    
    
    Balance atBeginning of
    
    
    
    
    
    
    
    
    
    End ofProduct warranty accrual:
    
    Period
    
    Provision
    
    Payments
    
    PeriodThree months ended March 31, 2007
    
    $
    2,978
    
    
    $
    1,161
    
    
    $
    (977
    )
    
    $
    3,162Three months ended March 31, 2006
    
    $
    3,007
    
    
    $
    418
    
    
    $
    (559
    )
    
    $
    2,866
 Fair ValueThe carrying values of the obligations outstanding under the Working Capital Facility, the
Second-Lien Facility and other long-term obligations, excluding the Senior Subordinated
Notes, approximate fair values since these obligations are fully secured and have varying
interest charges based on current market rates. The estimated fair value of the Companys
Senior Subordinated Notes of $172,375 and $162,750 at March 31, 2007 and December 31, 2006,
respectively, is based on available market information.
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Income TaxesIn accordance with Statement of Position 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code(SOP 90-7), the deferred tax benefit from the
reduction in the valuation allowance related to pre-emergence bankruptcy deferred tax assets
must be recognized as a reduction in goodwill associated with fresh start accounting.
Therefore, any reduction in valuation allowances associated with pre-emergence items will not
reduce the Companys provision for taxes. A further discussion of the Companys accounting
for income taxes is provided in Note 9 to the condensed consolidated financial statements.Recent Accounting PronouncementsFair Value Measurements.In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements, (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those fiscal
years. The impact of SFAS No. 157 is not expected to have a significant impact on the
financial condition, results of operations, cash flows or disclosures of the Company.Fair Value Option. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits
entities to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. SFAS No. 159 also
establishes presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types of assets and
liabilities. SFAS No. 159 does not affect any existing accounting literature that requires
certain assets and liabilities to be carried at fair value. Upon adoption of SFAS No. 159,
entities are permitted to choose, at specified election dates, to measure eligible items at
fair value (the fair value option). Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings at each reporting date. The decision
about whether to elect the fair value option is applied instrument by instrument with few
exceptions. The decision is also irrevocable (unless a new election date occurs) and must be
applied to entire instruments and not to portions of instruments. SFAS No. 159 requires that
cash flows related to items measured at fair value be classified in the statement of cash
flows according to their nature and purpose as required by SFAS No. 95, Statement of Cash
Flows (as amended). SFAS No. 159 is effective for the Company as of the beginning of fiscal
year 2009. The Company is currently evaluating the provisions of this Statement.3.
    
    Discontinued OperationsOn December 30, 2006, the Company committed to a plan to sell its South Africa
operations. On February 5, 2007, the Company entered into an agreement to sell the
South African subsidiaries. The selling price is stated in South African Rand which
converts to approximately $18 million, with $14 million payable at closing and the
balance due no later than three years from the closing date. The transaction is
expected to close in May 2007. Based on the expected sales price, net of estimated
disposal costs, a loss of approximately $9.2 million (net of $6.3 million of tax) was
recorded in 2006 as a component of discontinued operations, including $0.5 million
related to previously unrecognized foreign currency translation. The assets and
liabilities are classified as held for sale at both March 31, 2007 and December 31,
2006. There were no significant change since December 31, 2006 that would require
adjustment to estimates made in determining the loss.
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Three Months Ended March 31, 2007SouthAfrica
    
    Brazil
    
    TotalNet sales
    
    $
    12,186
    
    
    $
    2,813
    
    
    $
    14,999Operating expenses
    
    
    (10,933
    )
    
    
    (3,276
    )
    
    
    (14,209
    )Other expenses
    
    
    (222
    )
    
    
    (94
    )
    
    
    (316
    )Income tax provision
    
    
    (287
    )
    
    
    
    
    
    
    (287
    )Net income (loss) from discontinued operations
    
    $
    744
    
    
    $
    (557
    )
    
    $
    187
 Three Months Ended March 31, 2006SouthAfrica
    
    Brazil
    
    TecMo
    
    TotalNet sales
    
    $
    7,806
    
    
    $
    3,153
    
    
    $
    2,774
    
    
    $
    13,733Operating expenses
    
    
    (6,993
    )
    
    
    (3,741
    )
    
    
    (2,789
    )
    
    
    (13,523
    )Other expenses
    
    
    (23
    )
    
    
    (349
    )
    
    
    (7
    )
    
    
    (379
    )Income tax (provision) benefit
    
    
    (233
    )
    
    
    2
    
    
    
    (268
    )
    
    
    (499
    )Net income (loss) from discontinued operations
    
    $
    557
    
    
    $
    (935
    )
    
    $
    (290
    )
    
    $
    (668
    )
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Selected balance sheet items for the discontinued operations classified as held for
sale as of March 31, 2007 and December 31, 2006 are as follows:
 At March 31, 2007SouthAfrica
    
    Brazil
    
    TotalCash
    
    $
    588
    
    
    $
    
    
    
    $
    588Accounts receivable
    
    
    5,870
    
    
    
    466
    
    
    
    6,336Inventories
    
    
    6,117
    
    
    
    1,297
    
    
    
    7,414Property and equipment, net
    
    
    
    
    
    
    1,397
    
    
    
    1,397Goodwill and other intangible assets
    
    
    
    
    
    
    
    
    
    
    Other assets
    
    
    49
    
    
    
    501
    
    
    
    550$
    12,624
    
    
    $
    3,661
    
    
    $
    16,285Accounts payable and other liabilities
    
    $
    4,789
    
    
    $
    6,641
    
    
    $
    11,430
 At December 31, 2006SouthAfrica
    
    Brazil
    
    TotalCash
    
    $
    
    
    
    $
    
    
    
    $
    Accounts receivable
    
    
    4,984
    
    
    
    569
    
    
    
    5,553Inventories
    
    
    7,273
    
    
    
    2,252
    
    
    
    9,525Property and equipment, net
    
    
    
    
    
    
    1,109
    
    
    
    1,109Goodwill and other intangible assets
    
    
    
    
    
    
    
    
    
    
    Other assets
    
    
    
    
    
    
    306
    
    
    
    306$
    12,257
    
    
    $
    4,236
    
    
    $
    16,493Accounts payable and other liabilities
    
    $
    4,372
    
    
    $
    6,907
    
    
    $
    11,279
 4.
    
    InventoriesThe composition of inventories was as follows:
 March 31,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    19,527
    
    
    $
    19,347Work-in-process
    
    
    23,134
    
    
    
    30,166Finished goods
    
    
    70,070
    
    
    
    58,531112,731
    
    
    
    108,044LIFO reserve
    
    
    (10,374
    )
    
    
    (9,680
    )$
    102,357
    
    
    $
    98,364
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5.
    
    Intangible AssetsThe composition of intangibles was as follows:
 March 31,
    
    
    December 31,2007
    
    
    2006Goodwill
    
    $
    188,332
    
    
    $
    189,282Patents and customer relationships
    
    
    42,087
    
    
    
    42,019Trademarks
    
    
    33,403
    
    
    
    33,403263,822
    
    
    
    264,704Accumulated amortization
    
    
    (10,217
    )
    
    
    (9,491
    )$
    253,605
    
    
    $
    255,213
 Goodwill and trademarks are tested for impairment annually or more frequently if events
occur or circumstances change that would more likely than not reduce the fair value of the
reporting unit below its carrying value. The impairment analysis is completed on a
consolidated enterprise level. Comparable market value, market capitalization and the
present value of expected future cash flows are used to estimate fair value. Significant
judgments and estimates about future conditions are used to estimate future cash flows.
Unforeseen events and changes in circumstances and market conditions, including general
economic and competitive conditions could result in significant changes in those estimates.
The most recent test was performed as of October 1, 2006 at which time no impairment was
found. The utilization of pre-emergence bankruptcy loss carryforwards are treated as a
reduction in goodwill rather than a reduction of the provision for taxes on the statement of
operations. The Company currently anticipates utilizing a portion of these loss
carryforwards and accordingly has reduced goodwill. Prior to this period, there was no
utilization of loss carryforwards.The change in the carrying amount of goodwill was as follows:
 Carrying Amountof GoodwillBalance as of December 31, 2006
    
    $
    189,282Foreign currency translation
    
    
    63Reduction in balance due to utilization of
pre-emergence bankruptcy deferred tax assets
    
    
    (1,013
    )Balance as of March 31, 2007
    
    $
    188,332
 Amortization of intangibles with identifiable lives amounted to $726 of expense for the
three month period ended March 31, 2007, and to $721 of expense for the three month period
ended March 31, 2006.
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6.
    
    Debt and Capital Lease ObligationsThe composition of debt and capital lease obligations was as follows:
 March 31,
    
    
    December 31,2007
    
    
    2006Working Capital Facility
    
    $
    34,029
    
    
    $
    17,606Second-Lien Facility
    
    
    50,000
    
    
    
    50,000Senior Subordinated Notes, due February 1, 2014, 9 1/4% interest
payable semiannually on February 1 and August 1
    
    
    175,000
    
    
    
    175,000Capital leases
    
    
    14,428
    
    
    
    14,761Other
    
    
    236
    
    
    
    (371
    )273,693
    
    
    
    256,996Current maturities and working capital facility
    
    
    (35,448
    )
    
    
    (18,984
    )$
    238,245
    
    
    $
    238,012
 Credit AgreementThe Company and its U.S. subsidiaries are borrowers under a Second Amended and Restated
Credit Agreement, as amended (the Credit Agreement). The Credit Agreement consists of a
$9.25 million term loan which was repaid in July 2006 (the Term Loan) and a $70 million
revolving loan commitment (the Revolver). Up to $25 million of the Revolver is available
for letters of credit of which $13.2 million of letters of credit were outstanding as of
March 31, 2007. Borrowing under the Revolver may not exceed 85% of eligible receivables plus
the lesser of (i) 85% of the net orderly liquidation value of eligible inventories or (ii)
65% of the book value of inventories less customary reserves. Unused availability was $17.7
million as of March 31, 2007. The Revolver terminates on November 22, 2009.Borrowings under the Revolver accrue interest, at the Companys option, at LIBOR (5.32% as
of March 31, 2007) plus 2.25% or the prime rate (8.25% as of March 31, 2007) plus 0.5% on
the Revolver. All of these percentages are subject to an interest rate grid and will
decline if certain conditions are met. Unused portions of the Revolver are charged 50 basis
points. The Credit Agreement is secured by substantially all of the assets of the Companys
subsidiaries in the U.S., Canada, the United Kingdom, and Australia, together with a pledge
of the capital stock of substantially all of the Companys subsidiaries, subject to certain
limitations with respect to non-U.S. subsidiaries. The Credit Agreement contains financial
covenants for maintenance of minimum fixed charge and maximum leverage ratios relative to
EBITDA, as defined by the Credit Agreement.In July 2006, the Credit Agreement was amended to (i) modify the maximum leverage ratio to
5.75 through June 30, 2007, with a .25 point reduction per quarter thereafter until the
coverage ratio reaches 4.00, and (ii) modify the minimum fixed charge ratio to 1.0 through
June 30, 2007, 1.10 at September 30, 2007 and thereafter and (iii) establish a minimum
availability requirement of $5 million. In October 2006 and March 2007, the Credit
Agreement was further amended to modify the maximum leverage ratios as of September 30, 2006
and December 31, 2006 and established the leverage ratio at 6.00 for March 2007 through June
2007 declining by 25 basis points quarterly thereafter to 4.50 in December 2008.Second-Lien FacilityThe Company and its U.S. subsidiaries became borrowers under a Second-Lien Term Loan
facility (the Second-Lien Facility) which was entered into on July 29, 2004. The
Second-Lien Facility is secured by a second lien on substantially all of the assets of the
Company. The Second-Lien Facility accrues interest at the Companys option, at LIBOR (5.32%
as of March 31, 2007) plus 4.50%, or an alternative base rate of 3.50% plus the greater of
(a) the Prime Rate or (b) the federal funds rate plus one half of 1.00%. The Second-Lien
Facility, which matures on November 7, 2008, restricts the amount of long-term debt the
Company may incur and has other customary provisions including financial and non-financial
covenants. The Second-Lien Facility includes a prepayment penalty provision equal to 1% of
the outstanding balance if repaid prior to October 31, 2007. On July 21, 2006, the
 11




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Covenant Compliance
  Senior Subordinated Notes
 1 4 1 4
   Parent Company Financial Information
  12




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##### Table of Contents



7.
    
    Derivative InstrumentsAs of March 31, 2007, the Company recorded a fair value adjustment to the portion of its
fixed rate long-term debt that is hedged. A fair value adjustment of $(386) was recorded
for the three month period ended March 31, 2007 as a decrease to long-term obligations, with
the related value for the interest rate swaps non-current portion recorded in other
long-term liabilities. At March 31, 2007 the fair value of the interest rate swap of $1,282
has been recorded as a component of other long-term liabilities. Interest rate
differentials associated with the interest rate swap are recorded as an adjustment to a
current asset or liability, with the offset to interest expense over the life of the
interest rate swap. For the three months ended March 31, 2007, the Company realized an
increase in its interest expense as a result of the interest rate swap of $59. For the three
months ended March 31, 2006, the Company realized an increase in its interest expense as a
result of the interest rate swap of $43.8.
    
    Comprehensive Income (Loss)Comprehensive income (loss) for the three month periods ended March 31, 2007 and March 31,
2006, was as follows:
 Three Months Ended March 31,2007
    
    
    2006Net income (loss)
    
    $
    1,404
    
    
    $
    (1,378
    )Foreign currency translation
    
    
    223
    
    
    
    (540
    )Comprehensive income (loss)
    
    $
    1,627
    
    
    $
    (1,918
    )
 9.
    
    Income TaxesThe Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income
Taxes(SFAS No. 109) which requires that deferred tax assets and liabilities be recognized
using enacted tax rates for the effect of temporary differences between the financial
reporting and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that
deferred tax assets be reduced by a valuation allowance if it is more likely than not that
some portion of or all of the deferred tax asset will not be realized.The deferred tax benefit from the reduction in the valuation allowance related to
pre-emergence bankruptcy deferred tax assets must be recognized as a reduction in goodwill
associated with fresh start accounting. Therefore, any reduction in the valuation allowance
will not reduce the Companys provision for taxes. For the period ended March 31, 2007, the
Company reduced its valuation allowance on the related deferred tax asset and made a
corresponding reduction in goodwill of $1.0 million. The Company has included the
utilization of a portion of its pre-emergence bankruptcy NOLs in the calculation of its
income taxes payable as utilization is currently anticipated in 2007. Income tax payments
in 2007 will primarily relate to state and foreign taxes. The Company currently has $70.3
million of pre-emergence NOL carry forwards which, if utilized, the related income tax
benefit will reduce goodwill, and $60.8 million post-emergence NOL carry forwards which, if
utilized, would not impact goodwill.In addition, the Companys 2007 income tax provision reflects the inclusion of the foreign
source income of certain foreign subsidiaries without a corresponding benefit for related
future foreign tax credits. These matters combined to create an unusually high effective
tax rate which the Company anticipates will continue for the foreseeable future.In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48). FIN 48 prescribes the income tax amounts to be recorded in the
financial statements as the amount most likely to be realized assuming a review by tax
authorities having all relevant information and applying current conventions. FIN 48 also
clarifies the financial statement classification of potential tax-related penalties and
interest and sets forth new disclosures regarding unrecognized tax benefits. The Company
adopted the Interpretation as of January 1, 2007.
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##### Table of Contents



The Company has $8.5 million of unrecognized tax benefits in the financial statements. The
adoption of FIN 48 did not have a significant impact on this amount. Included in the
Companys unrecognized tax benefits are $7.3 million of uncertain tax positions that would
affect our effective tax rate if recognized. The Company does not expect any significant
increases or decreases to its unrecognized tax benefits within 12 months of this reporting
date.The Companys policy is to include both interest and penalties on underpayments of income
taxes in its income tax provision. This policy was continued after the adoption of FIN 48.
At January 1, 2007, the total interest and penalties accrued was $1.0 million.The Companys U.S. federal income tax returns for tax years 2003 and beyond remain subject
to examination by the Internal Revenue Service. The Companys state income tax returns for
2002 through 2006 remain subject to examination by various state taxing authorities. The
Companys material foreign subsidiaries local country tax returns remain open to
examination as follows: Australia (2002-2006), Canada (2001-2006), United Kingdom
(2000-2006) and Italy (1999-2006). No extensions of the various statutes of limitations
have currently been granted.10.
    
    ContingenciesThe Company and certain of its wholly owned subsidiaries are defendants in various legal
actions, primarily related to product liability. While there is uncertainty relating to any
litigation, management is of the opinion that the outcome of such litigation will not have a
material adverse effect on the Companys financial condition or results of operations. At
March 31, 2007, the Company was a co-defendant in approximately 694 cases alleging manganese
induced illness. Manganese is an essential element of steel and contained in all welding
filler metals. The Company is one of a large number of defendants. The claimants allege that
exposure to manganese contained in the welding filler metals caused the plaintiffs to
develop adverse neurological conditions, including a condition known as manganism. The
Judicial Panel on Multidistrict Litigation has consolidated a large number of these cases
for pretrial proceedings in the Northern District of Ohio. As of March 31, 2007, 394 of the
694 cases naming the Company are pending in the multidistrict proceeding. Between June 1,
2003 and March 31, 2007, the Company was dismissed from approximately 770 other cases with
similar allegations. Through March 31, 2007, the Company has made no payments or settlements
to plaintiffs for these allegations.The Company is party to certain environmental matters, although no claims are currently
pending. Any related obligations are not expected to have a material effect on the Companys
business or financial condition or results of operations.All other legal proceedings and actions involving the Company are of an ordinary and routine
nature and are incidental to the operations of the Company. Management believes that such
proceedings should not, individually or in the aggregate, have a material adverse effect on
the Companys business or financial condition or on the results of operations.11.
    
    Stock Options and Stock-Based Compensation.The Company adopted SFAS No. 123(R), Share-Based Payment, on January 1, 2006. SFAS No.
123(R) requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. The Company
utilizes the modified prospective method in which compensation cost is recognized beginning
with the effective date, (a) based on the requirements of SFAS No. 123(R) for all
share-based payments granted after the effective date and (b) based on the requirements of
SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No.
123(R) that remain unvested on the effective date. The Company recorded compensation cost of
$300 and $116 as selling, general and administrative expense for the three month periods
ended March 31, 2007 and 2006, respectively.
 14




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##### Table of Contents



March 31,
    
    March 31,2007
    
    2006Weighted average fair value
    
    $
    5.22
    
    
    $
    7.41Assumptions used:Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    38.28
    %
    
    
    40.92
    %Risk-free interest rate
    
    
    4.53
    %
    
    
    4.65
    %Expected life
    
    6
    years
    
    6
    years
  Weighted-AverageWeighted
    
    RemainingAverage
    
    Contractual
    
    AggregateEmployee and Director Stock Options
    
    Shares
    
    Exercise Price
    
    Term
    
    Intrinsic Value(in years)Options outstanding at December 31, 2006
    
    
    1,313,063
    
    
    $
    13.28Granted
    
    
    5,000
    
    
    $
    11.64Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (26,334
    )
    
    $
    13.64Options outstanding at March 31, 2007
    
    
    1,291,729
    
    
    $
    13.26
    
    
    
    8.0
    
    
    $
    174Options exercisable at March 31, 2007
    
    
    733,346
    
    
    $
    13.16
    
    
    
    7.6
    
    
    $
    17
   15




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##### Table of Contents



12.
    
    Earnings (Loss) Per ShareThe calculation of net income (loss) per share follows:
 Three Months Ended March 31,2007
    
    
    2006Numerator:Income (loss) :Continuing operations
    
    $
    1,217
    
    
    $
    (710
    )Discontinued operations
    
    
    187
    
    
    
    (668
    )Net income (loss)
    
    $
    1,404
    
    
    $
    (1,378
    )Denominator:Weighted average shares for basic earnings per share
    
    
    13,338
    
    
    
    13,323Dilutive effect of stock options
    
    
    6
    
    
    
    Weighted average shares for diluted earnings per share
    
    
    13,344
    
    
    
    13,323Basic income (loss) per share amounts:Continuing operations
    
    $
    0.09
    
    
    $
    (0.05
    )Discontinued operations
    
    
    0.02
    
    
    
    (0.05
    )Net income (loss)
    
    $
    0.11
    
    
    $
    (0.10
    )Diluted income (loss) per share amounts:Continuing operations
    
    $
    0.09
    
    
    $
    (0.05
    )Discontinued operations
    
    
    0.02
    
    
    
    (0.05
    )Net income (loss)
    
    $
    0.11
    
    
    $
    (0.10
    )
 The effects of options and warrants have not been considered in the determination of
net income (loss) per share for the three months ended March 31, 2006 because the result
would have been antidilutive. Options and warrants not included in the calculation for the
three months ended March 31, 2006 were 2,178,154.All Class B and Class C warrants that were outstanding at December 31, 2005 expired on May
23, 2006. There were no warrants exercised during the three months ended March 31, 2006.13.
    
    Employee Benefit PlansNet periodic pension and other postretirement benefit costs include the following
components:
 Pension Benefits
    
    
    Other Postretirement BenefitsThree Months Ended March 31,
    
    
    Three Months Ended March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Components of the net periodic benefit cost:Service Cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    289Interest Cost
    
    
    312
    
    
    
    286
    
    
    
    138
    
    
    
    260Expected return on plan assets
    
    
    (312
    )
    
    
    (286
    )
    
    
    
    
    
    
    Recognized (gain) loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Net periodic benefit cost
    
    $
    
    
    
    $
    
    
    
    $
    138
    
    
    $
    528
 16




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##### Table of Contents



14.
    
    Segment InformationThe Companys continuing operations are comprised of several product lines and operating
locations. The similarity of products, paths to market, end users, and production processes
result in performance evaluation and decisions regarding allocation of resources being made
on a combined basis. Accordingly, management has concluded the Company operates in one
segment. Reportable geographic regions are the Americas (United States, Canada and Mexico),
Europe and Australia/Asia.Summarized financial information concerning the Companys geographic regions for its
continuing operations is shown in the following table:
 Three Months Ended March 31,2007
    
    
    2006Net Sales:Americas
    
    $
    88,796
    
    
    $
    87,131Europe
    
    
    8,742
    
    
    
    7,260Australia / Asia
    
    
    19,677
    
    
    
    17,509$
    117,215
    
    
    $
    111,900
 March 31,2007
    
    
    December 31,2006Identifiable Assets:Americas
    
    $
    38,260
    
    
    $
    38,942Australia / Asia
    
    
    8,832
    
    
    
    8,936Europe
    
    
    2,048
    
    
    
    2,089$
    49,140
    
    
    $
    49,967
 Product Line InformationThe Company manufactures a variety of products, substantially all of which are used in
the cutting, welding or fabrication of metal. End users of the Companys products are engaged
in various applications including construction, automobile manufacturing, repair and
maintenance and shipbuilding. The following table shows sales from continuing operations for
each of the Companys key product lines:
 2007
    
    
    2006Gas equipment
    
    $
    44,243
    
    
    $
    43,544Welding equipment
    
    
    10,293
    
    
    
    10,653Arc accessories
    
    
    36,092
    
    
    
    30,943Plasma power supplies, torches
and consumable parts
    
    
    17,093
    
    
    
    17,070Filler metal
    
    
    9,494
    
    
    
    9,690$
    117,215
    
    
    $
    111,900
 17




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##### Table of Contents



15.
    
    Minority InterestsMinority shareholders hold 10% of one of the Companys Italian subsidiaries. The shareholder
agreement with this Italian subsidiary includes provisions that allow the minority
shareholder to put its ownership in the entity back to the Company or, conversely, provide
the Company a call option to purchase the outstanding minority interest. The exercise
period for the put and call options associated with the minority interest in the Italian
subsidiary expires on December 31, 2010. The purchase price of the option is determined
based on a specific formula outlined in the shareholder agreement. As of March 31, 2007,
the maximum payment to satisfy the put option is $724 based on the formula in the agreement.16.
    
    Condensed Consolidating Financial StatementsOn February 5, 2004, the Company completed a private placement of $175 million in aggregate
principal of 91/4% Senior Subordinated Notes due 2014. The Companys domestic, wholly owned
subsidiaries Guarantor Subsidiaries) fully and unconditionally guarantee the Senior
Subordinated Notes and are jointly and severally liable for all payments under the Senior
Subordinated Notes. Each of the Guarantor Subsidiaries is wholly owned by the Company.In connection with the Amended Credit Agreement, the Companys foreign subsidiaries in
Australia, the United Kingdom and Canada also guaranteed the Companys $175 million 91/4 %
Senior Subordinated Notes.The following financial information presents the guarantors and non-guarantors of the 91/4%
Senior Subordinated Notes, in accordance with Rule 3-10 of Regulation S-X. The condensed
consolidating financial information includes the accounts of the Company, which has no
independent assets or operations, the combined accounts of the Guarantor Subsidiaries and
the combined accounts of the non-guarantor subsidiaries for the periods indicated. Separate
financial statements of each of the Guarantor Subsidiaries are not presented because
management has determined such information is not material in assessing the financial
condition, cash flows or results of operations of the Company and its subsidiaries. This
information was prepared on the same basis as the consolidated financial statements:
 18




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##### Table of Contents



THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2007
(unaudited)
(In thousands)
 ParentThermadyneHoldings
    
    
    
    
    
    
    Non-Corporation
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    3,654
    
    
    $
    2,176
    
    
    $
    
    
    
    $
    5,830Accounts receivable, net
    
    
    
    
    
    
    78,482
    
    
    
    6,626
    
    
    
    
    
    
    
    85,108Inventories
    
    
    (121
    )
    
    
    90,978
    
    
    
    11,500
    
    
    
    
    
    
    
    102,357Prepaid expenses and other
    
    
    
    
    
    
    6,597
    
    
    
    564
    
    
    
    
    
    
    
    7,161Assets held for sale
    
    
    
    
    
    
    
    
    
    
    16,285
    
    
    
    
    
    
    
    16,285Current deferred tax assets
    
    
    
    
    
    
    1,104
    
    
    
    
    
    
    
    
    
    
    
    1,104Total current assets
    
    
    (121
    )
    
    
    180,815
    
    
    
    37,151
    
    
    
    
    
    
    
    217,845Property, plant and equipment, net
    
    
    
    
    
    
    35,275
    
    
    
    7,534
    
    
    
    
    
    
    
    42,809Goodwill
    
    
    
    
    
    
    188,332
    
    
    
    
    
    
    
    
    
    
    
    188,332Intangibles, net
    
    
    
    
    
    
    65,273
    
    
    
    
    
    
    
    
    
    
    
    65,273Other assets
    
    
    4,203
    
    
    
    1,850
    
    
    
    279
    
    
    
    
    
    
    
    6,332Investment in and advances to subsidiaries
    
    
    183,399
    
    
    
    
    
    
    
    
    
    
    
    (183,399
    )
    
    
    Total assets
    
    $
    187,481
    
    
    $
    471,545
    
    
    $
    44,964
    
    
    $
    (183,399
    )
    
    $
    520,591LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current Liabilities:Working capital and second-lien facility
    
    $
    
    
    
    $
    34,029
    
    
    $
    
    
    
    $
    
    
    
    $
    34,029Current maturities of long-term obligations
    
    
    
    
    
    
    1,278
    
    
    
    141
    
    
    
    
    
    
    
    1,419Accounts payable
    
    
    
    
    
    
    25,558
    
    
    
    4,415
    
    
    
    
    
    
    
    29,973Accrued and other liabilities
    
    
    
    
    
    
    23,238
    
    
    
    2,030
    
    
    
    
    
    
    
    25,268Accrued interest
    
    
    3,049
    
    
    
    375
    
    
    
    22
    
    
    
    
    
    
    
    3,446Income taxes payable
    
    
    
    
    
    
    469
    
    
    
    840
    
    
    
    
    
    
    
    1,309Liabilities applicable to assets held for sale
    
    
    
    
    
    
    
    
    
    
    11,430
    
    
    
    
    
    
    
    11,430Total current liabilities
    
    
    3,049
    
    
    
    84,947
    
    
    
    18,878
    
    
    
    
    
    
    
    106,874Long-term obligations, less current maturities
    
    
    175,000
    
    
    
    61,430
    
    
    
    1,815
    
    
    
    
    
    
    
    238,245Deferred tax liabilities
    
    
    
    
    
    
    46,554
    
    
    
    
    
    
    
    
    
    
    
    46,554Other long-term liabilities
    
    
    
    
    
    
    22,339
    
    
    
    786
    
    
    
    
    
    
    
    23,125Minority Interest
    
    
    
    
    
    
    
    
    
    
    326
    
    
    
    
    
    
    
    326Shareholders equity (deficit):Common stock
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134Additional paid-in-capital
    
    
    185,138
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,138Retained earnings (accumulated deficit)
    
    
    (87,214
    )
    
    
    (20,933
    )
    
    
    (45,490
    )
    
    
    66,423
    
    
    
    (87,214
    )Accumulated other comprehensive income (loss)
    
    
    7,409
    
    
    
    71,850
    
    
    
    22,593
    
    
    
    (94,443
    )
    
    
    7,409Total shareholders equity (deficit)
    
    
    105,467
    
    
    
    50,917
    
    
    
    (22,897
    )
    
    
    (28,020
    )
    
    
    105,467Net equity and advances to / from subsidiaries
    
    
    (96,035
    )
    
    
    205,358
    
    
    
    46,056
    
    
    
    (155,379
    )
    
    
    Total liabilities and shareholders equity (deficit)
    
    $
    187,481
    
    
    $
    471,545
    
    
    $
    44,964
    
    
    $
    (183,399
    )
    
    $
    520,591
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THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2006
(In thousands)
 ParentThermadyneHoldings
    
    
    
    
    
    
    Non-Corporation
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    9,206
    
    
    $
    2,104
    
    
    $
    
    
    
    $
    11,310Accounts receivable, net
    
    
    
    
    
    
    73,300
    
    
    
    5,949
    
    
    
    
    
    
    
    79,249Inventories
    
    
    
    
    
    
    87,060
    
    
    
    11,304
    
    
    
    
    
    
    
    98,364Prepaid expenses and other
    
    
    
    
    
    
    5,894
    
    
    
    531
    
    
    
    
    
    
    
    6,425Assets held for sale
    
    
    
    
    
    
    
    
    
    
    16,493
    
    
    
    
    
    
    
    16,493Current deferred tax assets
    
    
    
    
    
    
    1,104
    
    
    
    
    
    
    
    
    
    
    
    1,104Total current assets
    
    
    
    
    
    
    176,564
    
    
    
    36,381
    
    
    
    
    
    
    
    212,945Property, plant and equipment, net
    
    
    
    
    
    
    35,560
    
    
    
    7,774
    
    
    
    
    
    
    
    43,334Goodwill
    
    
    
    
    
    
    189,282
    
    
    
    
    
    
    
    
    
    
    
    189,282Intangibles, net
    
    
    
    
    
    
    65,931
    
    
    
    
    
    
    
    
    
    
    
    65,931Other assets
    
    
    4,284
    
    
    
    2,075
    
    
    
    274
    
    
    
    
    
    
    
    6,633Investment in and advances to subsidiaries
    
    
    183,400
    
    
    
    
    
    
    
    
    
    
    
    (183,400
    )
    
    
    Total assets
    
    $
    187,684
    
    
    $
    469,412
    
    
    $
    44,429
    
    
    $
    (183,400
    )
    
    $
    518,125LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current Liabilities:Working capital and second-lien facility
    
    $
    
    
    
    $
    17,606
    
    
    $
    
    
    
    $
    
    
    
    $
    17,606Current maturities of long-term obligations
    
    
    
    
    
    
    1,009
    
    
    
    369
    
    
    
    
    
    
    
    1,378Accounts payable
    
    
    
    
    
    
    27,775
    
    
    
    4,523
    
    
    
    
    
    
    
    32,298Accrued and other liabilities
    
    
    
    
    
    
    32,396
    
    
    
    2,123
    
    
    
    
    
    
    
    34,519Accrued interest
    
    
    7,791
    
    
    
    338
    
    
    
    123
    
    
    
    
    
    
    
    8,252Income taxes payable
    
    
    
    
    
    
    369
    
    
    
    879
    
    
    
    
    
    
    
    1,248Liabilities applicable to assets held for sale
    
    
    
    
    
    
    
    
    
    
    11,279
    
    
    
    
    
    
    
    11,279Total current liabilities
    
    
    7,791
    
    
    
    79,493
    
    
    
    19,296
    
    
    
    
    
    
    
    106,580Long-term obligations, less current maturities
    
    
    175,000
    
    
    
    61,611
    
    
    
    1,401
    
    
    
    
    
    
    
    238,012Deferred tax liabilities
    
    
    
    
    
    
    46,456
    
    
    
    
    
    
    
    
    
    
    
    46,456Other long-term liabilities
    
    
    
    
    
    
    22,526
    
    
    
    740
    
    
    
    
    
    
    
    23,266Minority Interest
    
    
    
    
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    307Shareholders equity (deficit):Common stock
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133Additional paid-in-capital
    
    
    184,804
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,804Retained earnings (accumulated deficit)
    
    
    (88,618
    )
    
    
    (28,278
    )
    
    
    (44,481
    )
    
    
    72,759
    
    
    
    (88,618
    )Accumulated other comprehensive income (loss)
    
    
    7,185
    
    
    
    93,188
    
    
    
    21,254
    
    
    
    (114,442
    )
    
    
    7,185Total shareholders equity (deficit)
    
    
    103,504
    
    
    
    64,910
    
    
    
    (23,227
    )
    
    
    (41,683
    )
    
    
    103,504Net equity and advances to / from subsidiaries
    
    
    (98,611
    )
    
    
    194,416
    
    
    
    45,912
    
    
    
    (141,717
    )
    
    
    Total liabilities and shareholders equity (deficit)
    
    $
    187,684
    
    
    $
    469,412
    
    
    $
    44,429
    
    
    $
    (183,400
    )
    
    $
    518,125
 20




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THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2007
(unaudited)
(In thousands)
 ParentThermadyneHoldings
    
    
    
    
    
    
    Non-Corporation
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    139,743
    
    
    $
    7,575
    
    
    $
    (30,103
    )
    
    $
    117,215Cost of goods sold
    
    
    
    
    
    
    103,466
    
    
    
    5,486
    
    
    
    (29,821
    )
    
    
    79,131Gross margin
    
    
    
    
    
    
    36,277
    
    
    
    2,089
    
    
    
    (282
    )
    
    
    38,084Selling, general and administrative expenses
    
    
    378
    
    
    
    25,434
    
    
    
    471
    
    
    
    
    
    
    
    26,283Amortization of intangibles
    
    
    
    
    
    
    726
    
    
    
    
    
    
    
    
    
    
    
    726Net periodic postretirement benefits
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    
    
    
    
    138Operating income (loss)
    
    
    (378
    )
    
    
    9,979
    
    
    
    1,618
    
    
    
    (282
    )
    
    
    10,937Other income (expense):Interest, net
    
    
    (4,645
    )
    
    
    (2,388
    )
    
    
    (29
    )
    
    
    
    
    
    
    (7,062
    )Amortization of deferred financing costs
    
    
    (125
    )
    
    
    (228
    )
    
    
    
    
    
    
    
    
    
    
    (353
    )Equity in net income (loss) of subsidiaries
    
    
    6,552
    
    
    
    
    
    
    
    
    
    
    
    (6,552
    )
    
    
    Minority interest
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    (22
    )Income (loss) from continuing operations before income
tax provision and discontinued operations
    
    
    1,404
    
    
    
    7,341
    
    
    
    1,589
    
    
    
    (6,834
    )
    
    
    3,500Income tax provision
    
    
    
    
    
    
    2,065
    
    
    
    218
    
    
    
    
    
    
    
    2,283Income (loss) from continuing operations
    
    
    1,404
    
    
    
    5,276
    
    
    
    1,371
    
    
    
    (6,834
    )
    
    
    1,217Discontinued Operations:Loss on disposition of discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    187Net income (loss)
    
    $
    1,404
    
    
    $
    5,276
    
    
    $
    1,558
    
    
    $
    (6,834
    )
    
    $
    1,404
 21




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##### Table of Contents



THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006
(unaudited)
(In thousands)
 ParentThermadyneHoldings
    
    
    
    
    
    
    Non-Corporation
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    125,922
    
    
    $
    9,382
    
    
    $
    (23,404
    )
    
    $
    111,900Cost of goods sold
    
    
    
    
    
    
    94,535
    
    
    
    7,651
    
    
    
    (22,383
    )
    
    
    79,803Gross margin
    
    
    
    
    
    
    31,387
    
    
    
    1,731
    
    
    
    (1,021
    )
    
    
    32,097Selling, general and administrative expenses
    
    
    86
    
    
    
    24,060
    
    
    
    57
    
    
    
    
    
    
    
    24,203Amortization of intangibles
    
    
    
    
    
    
    718
    
    
    
    3
    
    
    
    
    
    
    
    721Net periodic postretirement benefits
    
    
    
    
    
    
    528
    
    
    
    
    
    
    
    
    
    
    
    528Operating income (loss)
    
    
    (86
    )
    
    
    6,081
    
    
    
    1,671
    
    
    
    (1,021
    )
    
    
    6,645Other income (expense):Interest, net
    
    
    (4,090
    )
    
    
    (2,071
    )
    
    
    16
    
    
    
    
    
    
    
    (6,145
    )Amortization of deferred financing costs
    
    
    (125
    )
    
    
    (207
    )
    
    
    
    
    
    
    
    
    
    
    (332
    )Equity in net income (loss) of subsidiaries
    
    
    2,923
    
    
    
    
    
    
    
    
    
    
    
    (2,923
    )
    
    
    Minority interest
    
    
    
    
    
    
    (61
    )
    
    
    
    
    
    
    
    
    
    
    (61
    )Income (loss) from continuing operations
before income
tax provision and discontinued operations
    
    
    (1,378
    )
    
    
    3,742
    
    
    
    1,687
    
    
    
    (3,944
    )
    
    
    107Income tax provision
    
    
    
    
    
    
    715
    
    
    
    102
    
    
    
    
    
    
    
    817Income (loss) from continuing operations
    
    
    (1,378
    )
    
    
    3,027
    
    
    
    1,585
    
    
    
    (3,944
    )
    
    
    (710
    )Discontinued Operations:Loss on disposition of discontinued
operations, net of tax
    
    
    
    
    
    
    
    
    
    
    (668
    )
    
    
    
    
    
    
    (668
    )Net income (loss)
    
    $
    (1,378
    )
    
    $
    3,027
    
    
    $
    917
    
    
    $
    (3,944
    )
    
    $
    (1,378
    )
 22




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THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2007
(unaudited)
(In thousands)
 ParentThermadyneHoldings
    
    
    
    
    
    
    Non-Corporation
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from continuing operations:Net cash provided by (used in) operating activities
    
    $
    (3,136
    )
    
    $
    (24,063
    )
    
    $
    (1,596
    )
    
    $
    8,167
    
    
    $
    (20,628
    )Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (1,213
    )
    
    
    (94
    )
    
    
    
    
    
    
    (1,307
    )Proceeds from sales of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of minority interestOther
    
    
    
    
    
    
    (84
    )
    
    
    
    
    
    
    
    
    
    
    (84
    )Net cash provided by investing activities
    
    
    
    
    
    
    (1,297
    )
    
    
    (94
    )
    
    
    
    
    
    
    (1,391
    )Cash flows from financing activities:Net borrowings (repayments) under revolving credit facility
    
    
    
    
    
    
    16,266
    
    
    
    157
    
    
    
    
    
    
    
    16,423Net repayments of other credit facilities
    
    
    
    
    
    
    (88
    )
    
    
    
    
    
    
    
    
    
    
    (88
    )Changes in net equity and advances to / from discontinued
operations
    
    
    2,801
    
    
    
    3,566
    
    
    
    1,530
    
    
    
    (8,167
    )
    
    
    (270
    )Other
    
    
    335
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    335Net cash provided by (used in) financing activities
    
    
    3,136
    
    
    
    19,744
    
    
    
    1,687
    
    
    
    (8,167
    )
    
    
    16,400Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    63
    
    
    
    76
    
    
    
    
    
    
    
    139Net cash provided by (used in) continuing operations
    
    
    
    
    
    
    (5,553
    )
    
    
    73
    
    
    
    
    
    
    
    (5,480
    )Cash flows from discontinued operations:Net cash provided by operating activities
    
    
    
    
    
    
    
    
    
    
    911
    
    
    
    
    
    
    
    911Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    (90
    )
    
    
    
    
    
    
    (90
    )Net cash used in financing activities
    
    
    
    
    
    
    
    
    
    
    (229
    )
    
    
    
    
    
    
    (229
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    588
    
    
    
    
    
    
    
    588Total increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (5,553
    )
    
    
    661
    
    
    
    
    
    
    
    (4,892
    )Total cash and cash equivalents beginning of period
    
    
    
    
    
    
    9,207
    
    
    
    2,103
    
    
    
    
    
    
    
    11,310Total cash and cash equivalents end of period
    
    $
    
    
    
    $
    3,654
    
    
    $
    2,764
    
    
    $
    
    
    
    $
    6,418
 23




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##### Table of Contents



THERMADYNE HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2006
(unaudited)
(In thousands)
 ParentThermadyneHoldings
    
    
    
    
    
    
    Non-Corporation
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from continuing operations:Net cash provided by (used in) operating activities
    
    $
    (5,304
    )
    
    $
    (4,931
    )
    
    $
    (4,469
    )
    
    $
    (3,653
    )
    
    $
    (18,357
    )Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (1,075
    )
    
    
    58
    
    
    
    
    
    
    
    (1,017
    )Proceeds from sales of assets
    
    
    
    
    
    
    8,915
    
    
    
    
    
    
    
    
    
    
    
    8,915Acquisition of minority interest
    
    
    
    
    
    
    (3,954
    )
    
    
    
    
    
    
    
    
    
    
    (3,954
    )Net cash provided by investing activities
    
    
    
    
    
    
    3,886
    
    
    
    58
    
    
    
    
    
    
    
    3,944Cash flows from financing activities:Net borrowings (repayments) under revolving credit facility
    
    
    
    
    
    
    3,993
    
    
    
    1,406
    
    
    
    
    
    
    
    5,399Net repayments of other credit facilities
    
    
    
    
    
    
    (330
    )
    
    
    (244
    )
    
    
    
    
    
    
    (574
    )Changes in net equity and advances to / from subsidiaries
    
    
    5,304
    
    
    
    (9,551
    )
    
    
    2,463
    
    
    
    3,653
    
    
    
    1,869Other
    
    
    
    
    
    
    172
    
    
    
    1
    
    
    
    
    
    
    
    173Net cash provided by (used in) financing activities
    
    
    5,304
    
    
    
    (5,716
    )
    
    
    3,626
    
    
    
    3,653
    
    
    
    6,867Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    1,242
    
    
    
    (264
    )
    
    
    
    
    
    
    978Net cash provided by (used in) continuing operations
    
    
    
    
    
    
    (5,519
    )
    
    
    (1,049
    )
    
    
    
    
    
    
    (6,568
    )Cash flows from discontinued operations:Net cash provided by operating activities
    
    
    
    
    
    
    
    
    
    
    949
    
    
    
    
    
    
    
    949Net cash used in investing activities
    
    
    
    
    
    
    
    
    
    
    (209
    )
    
    
    
    
    
    
    (209
    )Net cash used in financing activities
    
    
    
    
    
    
    
    
    
    
    (1,746
    )
    
    
    
    
    
    
    (1,746
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (84
    )
    
    
    
    
    
    
    (84
    )Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1,090
    )
    
    
    
    
    
    
    (1,090
    )Total increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (5,519
    )
    
    
    (2,139
    )
    
    
    
    
    
    
    (7,658
    )Total cash and cash equivalents beginning of period
    
    
    
    
    
    
    6,591
    
    
    
    8,971
    
    
    
    
    
    
    
    15,562Total cash and cash equivalents end of period
    
    $
    
    
    
    $
    1,072
    
    
    $
    6,832
    
    
    $
    
    
    
    $
    7,904
 24




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##### Table of Contents



Item 2.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
      Cautionary Statement Concerning Forward-looking Statements
  25




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##### Table of Contents



Key Indicators
    Discontinued Operations
 Discontinued Operations
 26




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##### Table of Contents



RESULTS OF OPERATIONS
 Discontinued Operations
 Three Months Ended March 31,2007
    
    
    2006
    
    
    Change
    
    
    % ChangeNet sales
    
    $
    117,215
    
    
    $
    111,900
    
    
    $
    5,315
    
    
    
    4.7
    %Cost of goods sold
    
    
    79,131
    
    
    
    79,803
    
    
    
    672
    
    
    
    0.8
    %Gross margin
    
    
    38,084
    
    
    
    32,097
    
    
    
    5,987
    
    
    
    18.7
    %Selling, general and administrative expenses
    
    
    26,283
    
    
    
    24,203
    
    
    
    (2,080
    )
    
    
    -8.6
    %Amortization of intangibles
    
    
    726
    
    
    
    721
    
    
    
    (5
    )
    
    
    -0.7
    %Net periodic postretirement benefits
    
    
    138
    
    
    
    528
    
    
    
    390
    
    
    
    73.9
    %Operating income
    
    
    10,937
    
    
    
    6,645
    
    
    
    4,292
    
    
    
    64.6
    %Other expenses:Interest
    
    
    (7,062
    )
    
    
    (6,145
    )
    
    
    (917
    )
    
    
    -14.9
    %Amortization of deferred financing costs
    
    
    (353
    )
    
    
    (332
    )
    
    
    (21
    )
    
    
    -6.3
    %Minority interest
    
    
    (22
    )
    
    
    (61
    )
    
    
    39
    
    
    
    63.9
    %Income from continuing operations before income
tax provision and discontinued operations
    
    
    3,500
    
    
    
    107
    
    
    
    3,393
    
    
    nmIncome tax provision
    
    
    2,283
    
    
    
    817
    
    
    
    (1,466
    )
    
    nmIncome (loss) from continuing operations
    
    
    1,217
    
    
    
    (710
    )
    
    
    1,927
    
    
    
    271.4
    %Income (loss) from discontinued operations, net of tax
    
    
    187
    
    
    
    (668
    )
    
    
    855
    
    
    nmNet income (loss)
    
    $
    1,404
    
    
    $
    (1,378
    )
    
    $
    2,782
    
    
    
    201.9
    %Net sales summary:Americas net sales
    
    $
    88,796
    
    
    $
    87,131
    
    
    $
    1,665
    
    
    
    1.9
    %International net sales
    
    
    28,419
    
    
    
    24,769
    
    
    
    3,650
    
    
    
    14.7
    %Consolidated net sales
    
    $
    117,215
    
    
    $
    111,900
    
    
    $
    5,315
    
    
    
    4.7
    %
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
    27




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##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements . Fair Value Measurements
 Fair Value Option
 LIQUIDITY AND CAPITAL RESOURCES
  28




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##### Table of Contents



Three months endedMarch 31,2007
    
    
    2006Net cash provided by (used in) continuing operations :Operating activities
    
    $
    (20,628
    )
    
    $
    (18,357
    )Investing activities
    
    
    (1,391
    )
    
    
    3,944Financing activities
    
    
    16,400
    
    
    
    6,867Effect of exchange rates
    
    
    139
    
    
    
    978Cash used in continuing operations
    
    $
    (5,480
    )
    
    $
    (6,568
    )
 Operating Activities
  Investing Activities
  Financing Activities
  Debt and Capital Lease Obligations
 29




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
    Derivative Instruments
  
 Item 4. Controls and Procedures
  30




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Contingencies
 
 Item 6. Exhibits
 31.1
    
    CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (Exchange Act Rule 13a-14(a))31.2
    
    CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (Exchange Act Rule 13a-14(a))32.1
    
    CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350 and Exchange Act Rule 13a-14(b))32.2
    
    CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350 and Exchange Act Rule 13a-14(b))
 31




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##### Table of Contents



SIGNATURES
  THERMADYNE HOLDINGS CORPORATIONBy:
    /s/ Mark F. JollyMark F. JollyVice President  Global Controller
       Principal Accounting Officer  32