**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

**QUARTERLYREPORT UNDERSECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

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| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**          |
|------------|------------|-----------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                            |
|       | ** ** | **For the quarterly period ended April 1,  2006**                                                          |
|       |       |                                                                                                            |
| **OR**     |
|       |       |                                                                                                            |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**         |
| ** ** | ** ** | ** **                                                                                                      |
| ** ** | ** ** | **For the transition period from               to** |

 

**CommissionFile Number: 333-110531**

**NORCROSS SAFETY PRODUCTS L.L.C.**

(Exact name of registrantas specified in its charter)
| **Delaware**                                                    | **61-1283304**                        |
|-----------------------------------------------------------------|---------------------------------------|
| (State or other jurisdiction of incorporation or  organization) | (I.R.S. Employer  Identification No.) |
| ** **                                                      | ** **                            |
| **2001 Spring Road, Suite 425 Oak Brook,  Illinois**       | **60523**                             |
| (Address of Principal Executive Offices)                        | (Zip Code)                            |
| ** **                                                      | ** **                            |
| Registrant’s  telephone number, including area code:       |
| **(630)  572-5715**                                             |

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x   No o

Indicateby check mark whether the Registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated. See definition of “accelerated filerand large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large acceleratedfiler  o  Accelerated filer  o  Non-accelerated filer  x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o  No x

On May 12, 2006 Norcross Safety Products L.L.C. had 100 units outstanding,all of which were owned by a holding company.

 

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**NORCROSS SAFETY PRODUCTS L.L.C.FORM 10-Q QUARTERLY REPORT**

**For the Quarterly Period Ended April 1,2006**

**TABLEOF CONTENTS**
| **PART I Financial  Information**  | 1      |
|-----------------------------------------|--------|
|                                    |   |   |   |   |   |
|                                    |   | Item 1. |   | Financial  Statements (Unaudited) | 1 |
|                                    |   |   |   |   |   |
|                                    |   |   |   | Consolidated Balance  Sheets | 1 |
|                                    |   |   |   |   |   |
|                                    |   |   |   | Consolidated  Statements of Operations | 2 |
|                                    |   |   |   |   |   |
|                                    |   |   |   | Consolidated  Statements of Cash Flows | 3 |
|                                    |   |   |   |   |   |
|                                    |   | Item 2. |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 18 |
|                                    |   |   |   |   |   |
|                                    |   | Item 3. |   | Quantitative  and Qualitative Disclosures About Market Risk | 26 |
|                                    |   |   |   |   |   |
|                                    |   | Item 4. |   | Controls and  Procedures | 27 |
|                                    |   |   |   |   |   |
| **PART II  Other Information**     | 28     |
|                                    |   |   |   |   |   |
|                                    |   | Item  1. |   | Legal  Proceedings | 28 |
|                                    |   |   |   |   |   |
|                                    |   | Item  6. |   | Exhibits | 30 |
|                                    |   |   |   |   |   |
| **Signatures**                          | 31     |
|                                    |   |
| **Form 10-Q  Listing of Exhibits** | 32     |

 

i

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**PART IFINANCIAL INFORMATION**

**Item 1. Financial Statements(Unaudited)**

**NORCROSS SAFETY PRODUCTS L.L.C.**

**CONSOLIDATED BALANCE SHEETS**

(Amounts in Thousands) (Unaudited)
| ** **                                                                                | ** ** | **Successor**         | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                | ** ** | **December 31,** | ** ** | **April 1,** | ** ** |
| ** **                                                                                | ** ** | **2005 (1)**     | ** ** | **2006** | ** ** |
| **Assets**                                                                                |       |                  |       |   |   |
| Current assets:                                                                           |       |                  |       |   |   |
| Cash and cash  equivalents                                                                |       | $                     | 20,683     |   | $ | 11,346 |   |
| Accounts  receivable, less allowance of $2,317 and $2,267 in 2005 and 2006,  respectively |       | 68,286                |       | 79,288 |   |
| Inventories                                                                               |       | 93,462                |       | 97,523 |   |
| Deferred income  taxes                                                                    |       | 3,230                 |       | 3,230 |   |
| Prepaid expenses  and other current assets                                                |       | 3,135                 |       | 2,753 |   |
| Total current assets                                                                      |       | 188,796               |       | 194,140 |   |
| Property, plant, and  equipment, net                                                      |       | 67,315                |       | 66,973 |   |
| Deferred financing  costs, net                                                            |       | 7,513                 |       | 7,186 |   |
| Goodwill, net                                                                             |       | 136,487               |       | 141,010 |   |
| Other intangible  assets, net                                                             |       | 276,842               |       | 274,981 |   |
| Other noncurrent assets                                                                   |       | 5,109                 |       | 4,902 |   |
| Total assets                                                                              |       | $                     | 682,062    |   | $ | 689,192 |   |
|                                                                                      |       |                  |       |   |   |
| **Liabilities and member’s equity**                                                  |       |                  |       |   |   |
| Current liabilities:                                                                      |       |                  |       |   |   |
| Accounts payable                                                                          |       | $                     | 21,229     |   | $ | 25,234 |   |
| Accrued expenses                                                                          |       | 34,683                |       | 28,703 |   |
| Current  maturities of long-term obligations                                              |       | 2,735                 |       | 3,016 |   |
| Total current  liabilities                                                                |       | 58,647                |       | 56,953 |   |
| Pension,  post-retirement, and deferred compensation                                      |       | 32,340                |       | 32,071 |   |
| Long-term obligations                                                                     |       | 309,664               |       | 309,638 |   |
| Other noncurrent  liabilities                                                             |       | 5,376                 |       | 5,360 |   |
| Deferred income taxes                                                                     |       | 52,496                |       | 52,345 |   |
| Minority interest                                                                         |       | 176                   |       | 187 |   |
|                                                                                      |       | 400,052               |       | 399,601 |   |
| Member’s equity:                                                                     |       |                  |       |   |   |
| Contributed  capital                                                                      |       | 221,068               |       | 222,018 |   |
| Retained  earnings                                                                        |       | 308                   |       | 6,929 |   |
| Accumulated  other comprehensive income                                                   |       | 1,987                 |       | 3,691 |   |
| Total member’s equity                                                                |       | 223,363               |       | 232,638 |   |
| Total liabilities and member’s equity                                                |       | $                     | 682,062    |   | $ | 689,192 |   |

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(1)          December 31, 2005balances were obtained from audited financial statements.

*See notes to unaudited consolidated financialstatements.*

1

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**NORCROSS SAFETY PRODUCTS L.L.C.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Amounts in Thousands) (Unaudited)**
| ** **                                        | ** ** | **Predecessor**                  | ** ** | **Successor**     | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|-------------------|------------|
| ** **                                        | ** ** | **Three months ended** | ** ** |
| ** **                                        | ** ** | **April 2,**                | ** ** | **April 1,** | ** ** |
| ** **                                        | ** ** | **2005**                         | ** ** | **2006**          | ** ** |
| Net sales                                         |       | $                                | 119,944    |              | $          | 141,876 |   |
| Cost of goods  sold                               |       | 75,602                           |       | 88,145            |       |
| Gross profit                                      |       | 44,342                           |       | 53,731            |       |
| Operating  expenses:                              |       |                             |       |              |       |
| Selling                                           |       | 11,378                           |       | 12,875            |       |
| Distribution                                      |       | 6,274                            |       | 7,926             |       |
| General and administrative                        |       | 10,943                           |       | 13,917            |       |
| Amortization of intangibles                       |       | 142                              |       | 2,726             |       |
| Total operating  expenses                         |       | 28,737                           |       | 37,444            |       |
| Income from  operations                           |       | 15,605                           |       | 16,287            |       |
| Other expense  (income):                          |       |                             |       |              |       |
| Interest expense                                  |       | 5,599                            |       | 6,462             |       |
| Interest income                                   |       | (250                             | )          | (163              | )          |
| Other, net                                        |       | 386                              |       | (371              | )          |
| Income before  income taxes and minority interest |       | 9,870                            |       | 10,359            |       |
| Income tax  expense                               |       | 1,574                            |       | 3,554             |       |
| Minority  interest                                |       | 4                                |       | 11                |       |
| Net income                                        |       | $                                | 8,292      |              | $          | 6,794 |   |

 

*See notes to unaudited consolidatedfinancial statements.*

2

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**NORCROSS SAFETY PRODUCTS L.L.C.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Amounts in Thousands) (Unaudited)**
| ** **                                                                     | ** ** | **Predecessor**        | ** ** | **Successor**     | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                                                                     | ** ** | **Three months ended** | ** ** |
| ** **                                                                     | ** ** | **April 2,**      | ** ** | **April 1,** | ** ** |
| ** **                                                                     | ** ** | **2005**               | ** ** | **2006**          | ** ** |
| **Operating  activities**                                                      |       |                   |       |              |       |
| Net income                                                                     |       | $                      | 8,292      |              | $          | 6,794 |   |
| Adjustments to  reconcile net income to net cash used in operating activities: |       |                   |       |              |       |
| Depreciation                                                                   |       | 2,705                  |       | 3,139             |       |
| Amortization of intangibles                                                    |       | 142                    |       | 2,726             |       |
| Amortization of deferred financing costs                                       |       | 461                    |       | 327               |       |
| Amortization of original issue discount (premium)                              |       | 25                     |       | (251              | )          |
| Deferred income taxes                                                          |       | 237                    |       | (151              | )          |
| Minority interest                                                              |       | 4                      |       | 11                |       |
| Management incentive compensation                                              |       | —                 |       | 800               |       |
| Gain on sale of property, plant, and equipment                                 |       | —                 |       | (79               | )          |
| Changes in operating assets and liabilities:                                   |       |                   |       |              |       |
| Accounts receivable                                                            |       | (8,540                 | )          | (10,337           | )          |
| Inventories                                                                    |       | (969                   | )          | (3,104            | )          |
| Prepaid expenses and other current assets                                      |       | 220                    |       | 382               |       |
| Other noncurrent assets                                                        |       | 73                     |       | 73                |       |
| Accounts payable                                                               |       | 2,445                  |       | 3,768             |       |
| Accrued expenses                                                               |       | (7,533                 | )          | (6,092            | )          |
| Pension, postretirement, and deferred compensation                             |       | 14                     |       | (269              | )          |
| Other noncurrent liabilities                                                   |       | (6                     | )          | (15               | )          |
| Other                                                                          |       | (6                     | )          | (7                | )          |
| Net cash used in  operating activities                                         |       | (2,436                 | )          | (2,285            | )          |
|                                                                           |       |                   |       |              |       |
| **Investing  activities**                                                      |       |                   |       |              |       |
| Purchase of  businesses, net of cash acquired                                  |       | (431                   | )          | (5,636            | )          |
| Purchases of  property, plant, and equipment                                   |       | (1,327                 | )          | (2,291            | )          |
| Proceeds from  sale of property, plant, and equipment                          |       | —                 |       | 113               |       |
| Net cash used in  investing activities                                         |       | (1,758                 | )          | (7,814            | )          |
|                                                                           |       |                   |       |              |       |
| **Financing  activities**                                                      |       |                   |       |              |       |
| Proceeds from  borrowings                                                      |       | —                 |       | 1,000             |       |
| Payments of debt                                                               |       | (13,013                | )          | (494              | )          |
| Capital  contribution                                                          |       | —                 |       | 150               |       |
| Due from NSP  Holdings L.L.C.                                                  |       | (178                   | )          | —            |       |
| Dividends to  Safety Products Holdings, Inc.                              |       | —                 |       | (173              | )          |
| Net cash (used  in) provided by financing activities                           |       | (13,191                | )          | 483               |       |
| Effect of  exchange rate changes on cash                                       |       | (1,424                 | )          | 279               |       |
| Net decrease in  cash and cash equivalents                                     |       | (18,809                | )          | (9,337            | )          |
| Cash and cash  equivalents at beginning of period                              |       | 35,731                 |       | 20,683            |       |
| Cash and cash  equivalents at end of period                                    |       | $                      | 16,922     |              | $          | 11,346 |   |

 

*See notes to unaudited consolidated financial statements*

3

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**NORCROSSSAFETY PRODUCTS L.L.C.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Amounts in Thousands) (Unaudited)**

**1.**                 Transactions

On July 19, 2005, Norcross Safety Products L.L.C. (the “Company” or “Norcross”)announced the closing of the transaction under which it was acquired by SafetyProducts Holdings, Inc. (“Safety Products”), a new holding company formed byOdyssey Investment Partners, LLC (“Odyssey”) for the purpose of completing theacquisition. Pursuant to the terms of the purchase agreement, Safety Productspurchased all of the outstanding membership units of the Company and all of theoutstanding common stock of NSP Holdings Capital Corp. (“NSP Capital”), awholly-owned subsidiary of NSP Holdings L.L.C. (“NSP Holdings”), and pursuantto which Safety Products assumed all of the outstanding indebtedness of theCompany and NSP Holdings, in exchange for a base purchase price to NSP Holdingsof $472,000, plus the cash in the Company as of April 2, 2005 in the amount ofapproximately $16,900, less (1) the indebtedness of the Company and itssubsidiaries as of April 2, 2005 and (2) certain transaction fees and expenses.The cash purchase price was $204,488 including direct costs of acquisition of$2,346, and excluding assumed debt of $260,523.

On November 1, 2005, the Company completed the acquisition of all ofthe issued and outstanding capital stock of The Fibre-Metal Products Company (“Fibre-Metal”).The purchase price was $68,723, including acquisition costs of $723. TheCompany financed the acquisition through additional term borrowings under thesenior credit facility and cash on the balance sheet. The results of operationsof Fibre-Metal are included in the Company’s consolidated statement ofoperations from the date of acquisition.

On February2, 2006, the Company completed the acquisition of all of the issued andoutstanding capital stock of American Firewear, Inc. (“American Firewear”). Thepurchase price consisted of $4,453 in cash (including acquisition costs of $203and net of cash acquired of $183) and a $1,000 subordinated seller note. Inaddition, the purchase price may be increased by $750 over the next four yearsbased on American Firewear achieving certain financial and operatingobjectives. The Company financed the acquisition through cash on the balancesheet and the issuance of the $1,000 subordinated seller note. The results ofoperations of American Firewear are included in the Company’s consolidatedstatement of operations from the date of acquisition. The Company has notfinalized the allocation of purchase price as of April 1, 2006.

The acquisition of Norcross is referred to as the “Norcross Transaction”,the acquisition of Fibre-Metal is referred to as the “Fibre-Metal Transaction”,and the acquisition of American Firewear is referred to as the “AmericanFirewear Transaction”. Collectively, the Norcross Transaction, the Fibre-MetalTransaction and the American Firewear Transaction are referred to as the “Transactions.”

**2.**                 Basis ofPresentation

The accompanyingunaudited consolidated financial statements of the Company have been preparedin accordance with accounting principles generally accepted in the UnitedStates for interim financial information. Accordingly, they do not include allof the information and notes required by accounting principles generallyaccepted in the United States for complete financial statements.

In the opinion of management, all adjustments(consisting only of adjustments of a normal and recurring nature) considerednecessary for a fair presentation of the financial position and results ofoperations have been included. Interim results are not necessarily indicativeof the results that might be expected for any other interim period or for thefiscal year ending December 31, 2006. The financial statements presented shouldbe read in conjunction with the consolidated financial statements and footnotesthereto included in our 2005 consolidated financial statements, included in theCompany’s annual report on Form 10-K.

Predecessor — The consolidated financial statements of the Predecessorrepresent the consolidated results of operations of Norcross Safety ProductsL.L.C. prior to the Norcross Transaction.

Successor — The consolidated financial statements of the Successorrepresent the consolidated results of operations of Norcross Safety ProductsL.L.C. subsequent to the Norcross Transaction.

The consolidated financial statements of the Successor reflect theTransactions under the purchase method of accounting, in accordance with theFinancial Accounting Standards Board (FASB) Statement of Accounting Standards(SFAS) No. 141, *Business Combinations*.

4

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The following table presents the pro forma net sales,income from operations, and net income of the Company assuming the Transactionshad occurred on January 1, 2005:
| ** **              | ** ** | **Predecessor**                                   | ** ** | **Successor**                                     | ** ** |
|-------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **              | ** ** | **Three months  ended  April 2,  2005** | ** ** | **Three months  ended  April 1,  2006** | ** ** |
| Net sales               |       | $                                                 | 130,368    |                                              | $          | 142,467 |   |
| Income from  operations |       | 11,549                                            |       | 17,125                                            |       |
| Net income              |       | 3,134                                             |       | 7,627                                             |       |
|                         |            |                                                   |            |                                                   |            |  |  |

 

**3.**                 Reclassifications

Certain account balances have been reclassified from the prior year toconform with current year presentation. Specifically, discounts and rebateexpenses were reclassified from selling expenses to net sales. The impact ofthis reclassification resulted in a reduction of selling expenses and net salesof $479 for the three months ended April 2, 2005.

**4.**                 ManagementIncentive Compensation

Safety Products’ Option Plan (the “Plan”) was adoptedand approved by the Board of Directors in December 2005, and provides for theissuance of up to 1,286,631 shares of common stock of Safety Products inconnection with the granting of non-qualified or incentive stock options. Theprincipal purposes of the Plan are: 1) to further the growth, development andfinancial success of Safety Products and its subsidiaries, by providingadditional incentives to employees, consultants and independent directors (asdefined) of Safety Products and its subsidiaries and 2) to enable SafetyProducts and its subsidiaries to obtain and retain the services of the type ofprofessional, technical and managerial employees, consultants and independentdirectors considered essential to the long-range success of Safety Products.

Prior to December 31,2005, the Company accounted for stock-based compensation programs according tothe provisions of Accounting Principles Board Opinion (“ABP”) No. 25, *Accounting for Stock Issued to**Employees*(“APB No. 25”), as permitted by Statement ofFinancial Accounting Standards (“SFAS”) No. 123, *Accounting for Stock-Based**Compensation*.Effective January 1, 2006, the Company adopted the fair value recognitionprovisions of SFAS 123 (R), *Share-BasedPayments*(“SFAS No. 123(R)”).As a result of adopting SFAS No. 123(R) on January 1, 2006, income beforeincome taxes and net income for the three months ended April 1, 2006, are $800 and$500 lower, respectively, than if the Company had continued to account forshare-based compensation under APB No. 25. The application of the fair valueprovisions of SFAS No. 123(R) would not have had an impact on the Company’sresults for the three months ended April 2, 2005. The $800 of managementincentive compensation is recorded in general and administrative expenses forthe three months ended April 1, 2006.

In January 2006, Safety Products granted of a total of1,201,059 non-qualified options in connection with the Plan. Outstandingnon-qualified stock options have an expiration date ten years from the date ofgrant. All non-qualified stock options were granted with an exercise priceequal to the fair market value on the date of grant. During the three monthsended April 1, 2006, no options were forfeited or exercised.

The non-qualified stock options are scheduled to vestover an approximate eight year period. In addition, a portion of thenon-qualified stock options are subject to accelerated vesting provisions whencertain performance targets are met. The first performance target was met, andtherefore the first installment was vested as of April 1, 2006. If certainadditional performance targets are met, the remaining four installments willvest on, or within 120 days following, December 31 of each calendar year 2006through 2009. The non-qualified stock options are subject to furtheracceleration clauses based on change in control provisions. As of April 1,2006, 203,689 shares of non-qualified stock options were vested. As of April 1,2006, there was approximately $3,944 of unrecognized management incentivecompensation related to nonvested non-qualified stock options. The Companyexpects to recognize this management incentive compensation over a weightedaverage period of 4.0 years.

5

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The Company used the Black-Scholes option-pricingmodel to estimate the fair value of each option grant as of the date of grant. Expectedvolatilities are based on historical volatility of the common stock ofcomparable public companies. The Company estimated the expected life of theoptions based on the likelihood of the achievement of performance targets,change in control provisions, and historic employee termination data. Therisk-free interest rate is based on U.S. Treasury yields in effect at the timeof grant. The estimated weighted-average fair values of and related assumptionsfor options granted were as follows:
| Weighted-average  fair value of options granted: |   |   |   |
|--------------------------------------------------|--------|--------|--------|
|                                             |   |   |   |
| At fair value                                    |   | $      | 3.95   |   |
|                                             |   |   |   |
| Assumptions:                                     |   |   |   |
| Dividend yield                                   |   | 0.0    | %      |
| Expected volatility                              |   | 40.0   | %      |
| Risk-free interest rate                          |   | 5.0    | %      |
| Expected life of  option (years)                 |   | 5.00   |   |
|                                                  |        |        |        |  |

 

**5.**                 Inventories

Inventories consist of the following:
| ** **              | ** ** | **Successor**               | ** ** |
|-------------------------|------------|-----------------------------|------------|
| ** **              | ** ** | **December 31,  2005** | ** ** | **April 1,  2006** | ** ** |
| At FIFO cost:           |       |                        |       |   |   |
| Raw materials           |       | $                           | 23,755     |   | $ | 25,685 |   |
| Work in process         |       | 12,745                      |       | 12,505 |   |
| Finished goods          |       | 57,126                      |       | 59,497 |   |
|                    |       | 93,626                      |       | 97,687 |   |
| Adjustment to LIFO cost |       | (164                        | )          | (164 | ) |
|                    |       | $                           | 93,462     |   | $ | 97,523 |   |

 

6

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# **6.****              Debt**

The Company’s debt consists of the following:
| ** **                                         | ** ** | **Successor**               | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|
| ** **                                         | ** ** | **December 31,  2005** | ** ** | **April 1,  2006** | ** ** |
| Revolving credit  facilities                       |       | $                           | —     |   | $ | — |   |
| Term loan                                          |       | 152,390                     |       | 152,001 |   |
| Senior  subordinated notes                         |       | 152,500                     |       | 152,500 |   |
| European term  loans                               |       | 248                         |       | 177 |   |
| Subordinated  seller note                          |       | —                      |       | 1,000 |   |
| Capital lease  obligations                         |       | 75                          |       | 41 |   |
| Unamortized  premium on senior subordinated notes  |       | 7,186                       |       | 6,935 |   |
|                                               |       | 312,399                     |       | 312,654 |   |
| Less: Current  maturities of long-term obligations |       | 2,735                       |       | 3,016 |   |
|                                               |       | $                           | 309,664    |   | $ | 309,638 |   |

 

Aggregate maturities of long-term debt as of April 1,2006, are as follows:
| 2007       |   | $       | 3,016   |   |
|------------|--------|---------|---------|--------|
| 2008       |   | 3,068   |    |
| 2009       |   | 3,171   |    |
| 2010       |   | 2,950   |    |
| 2011       |   | 155,572 |    |
| Thereafter |   | 144,877 |    |
|       |   | $       | 312,654 |   |

 

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**7.**                 Employee BenefitPlans

The following table sets forth the components of netperiodic benefit cost:
| ** **                          | ** ** | **Predecessor**                                               | ** ** | **Successor**                                                 | ** ** |
|-------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                          | ** ** | **Three months ended April 2, 2005** | ** ** | **Three months ended April 1, 2006** | ** ** |
| ** **                          | ** ** | **Pension  Benefits**                                         | ** ** | **Post-retirement  Benefits**                                 | ** ** | **Pension  Benefits** | ** ** | **Post-retirement  Benefits** | ** ** |
|                                |       |                                                          |       |                                                          |       |   |   |   |   |
| Service cost                        |       | $                                                             | 417        |                                                          | $          | 6 |   | $ | 491 |   | $ | 6 |   |
| Interest cost                       |       | 905                                                           |       | 20                                                            |       | 944 |   | 18 |   |
| Expected return  on plan assets     |       | (777                                                          | )          | —                                                        |       | (906 | ) | — |   |
| Amortization of  prior service cost |       | 1                                                             |       | 4                                                             |       | — |   | — |   |
| Amortization of  actuarial loss     |       | 284                                                           |       | 22                                                            |       | — |   | — |   |
|                                |       | $                                                             | 830        |                                                          | $          | 52 |   | $ | 529 |   | $ | 24 |   |

 

**8.**                 Restructuring andMerger-Related Charges

In conjunction with theFibre-Metal Transaction, the Company initiated a restructuring plan to closethe Fibre-Metal manufacturing facility located in Concordville, Pennsylvaniaand move production to its Cranston, Rhode Island and Mexicali, Mexicofacilities. In addition, the Company plans to close certain Fibre-Metaldistribution centers and integrate Fibre-Metal distribution into its existingdistribution facilities. The Company initiated this plan in order to increaseprofitability through utilizing excess capacity at its existing plants andmoving manufacturing to locations with favorable labor costs. As of the date ofthe Fibre-Metal Transaction, the Company recorded an accrual for costsassociated with the plan of $1,716, comprised of $1,383 in severance costs and$333 in facility closure and other exit costs. Since the Fibre-MetalTransaction there have been no payments or adjustments to the liability.

8

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**9.**                 Legal Proceedings

The Company is subject to various claims arising in the ordinary courseof business. Most of these lawsuits and claims are product liability mattersthat arise out of the use of respiratory product lines manufactured by theCompany’s North Safety Products subsidiary. As of April 1, 2006, the Company’sNorth Safety Products subsidiary, along with its predecessors and/or the formerowners of such business were named as defendants in approximately 1,424lawsuits involving respirators allegedly manufactured and sold by it or itspredecessors. The Company is also monitoring an additional 12 lawsuits in whichit feels that North Safety Products, its predecessors and/or the former ownersof such businesses may be named as defendants. Collectively, these 1,436lawsuits represent a total of approximately 13,107 plaintiffs. Approximately91% of these lawsuits involve plaintiffs alleging injury resulting fromexposure to silica dust, with the remainder alleging injury resulting fromexposure to other dust particles, including asbestos. These lawsuits typicallyallege that the purposed injuries resulted in part from respirators that werenegligently designed or manufactured. Invensys plc (“Invensys”), formerly Siebeplc, is contractually obligated to indemnify the Company for any losses,including costs of defending claims, resulting from respiratory productsmanufactured or sold prior to the acquisition of North Safety Products in October1998.

In addition, the Company’s North Safety Products subsidiary iscontractually entitled to indemnification from Norton Company, an affiliate ofSaint-Gobain, which owned the North Safety Products business prior to Invensys.Pursuant to a December 14, 1982 asset purchase agreement, Siebe Norton, Inc., anewly formed wholly-owned subsidiary of Norton Company, acquired the assets ofNorton’s Safety Products Division and the stock of this company was in turn acquiredby Siebe Gorman Holdings PLC. Under the terms of the agreement, Siebe Norton, Inc.did not assume any liability for claims relating to products shipped by NortonCompany prior to the closing date. Moreover, Norton Company covenanted in theagreement to indemnify Siebe Norton and its successors and assigns against anyliability resulting from or arising out of any state of facts, omissions orevents existing or occurring on or before the closing date, including, withoutlimitation, any claims arising from products shipped by Norton Company or anyof its affiliates prior to the closing date. Siebe Norton, whose name wassubsequently changed to Siebe North Inc., was subsequently acquired by theCompany as part of the 1998 acquisition of the North Safety Products businessfrom Invensys.

Despite these indemnification arrangements, the Company couldpotentially be liable for losses or claims relating to products manufacturedprior to the October 1998 acquisition date if Invensys fails to meet itsobligations to indemnify the Company and the Company could potentially beliable for losses and claims relating to products sold prior to January 10,1983 if both Invensys and Norton fail to meet their obligations to indemnifythe Company. The Company could also be liable if the alleged exposure involvedthe use of a product manufactured by the Company after the October 1998acquisition of the North Safety Products business. Invensys is currentlyhandling the defense of all of the cases prior to October 1998 in which NorthSafety Products, its predecessors and/or former owners of such business havebeen named as defendants. The Company is jointly with Invensys handling thedefense of all of the cases which allege exposure including periods pre andpost October 1998. The Company will individually handle the defense of allcases with exclusive post October 1998 exposure, however, it has not beeninvolved in a case with exclusive post October 1998 exposure to date. As of April1, 2006, Invensys has sent the Company requests for reimbursement totaling$301, relating to settled cases in which Invensys claims that the period ofalleged exposure included periods after October 1998. To date, the Company hasnot reimbursed Invensys for these claims, as its currently pursuing negotiationsregarding the allocation of costs and the determination of the alleged exposureperiods. Based on information provided to the Company by Invensys, the Companybelieves that Invensys has made payments with respect to settlement of theseclaims of $1 for the three months ended April 1, 2006. The Company believesthat Invensys has the ability to pay these claims based on its currentfinancial position, as publicly disclosed by Invensys.

Based upon information provided to the Company by Invensys, the Companybelieves activity related to these lawsuits was as follows for the three monthsended April 1, 2006:
| ** **            | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
|-----------------------|------------|----------------|------------|-----------|------------|
| Beginning  lawsuits   |       | 18,459         |       | 1,148     |       |
| New lawsuits          |       | 544            |       | 437       |       |
| Settlements           |       | (2             | )          | (2        | )          |
| Dismissals and  other |       | (5,894         | )          | (147      | )          |
| Ending lawsuits       |       | 13,107         |       | 1,436     |       |

 

9

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Plaintiffs have asserted specific dollar claims in approximately aquarter of the approximately 1,424 cases pending as of April 1, 2006 in whichNorth Safety Products, its predecessors and/or the former owners of suchbusinesses have been named as defendants. A majority of jurisdictions prohibitspecifying damages in tort cases such as these, and most of the remainingjurisdictions do not require such specification. In those cases in whichplaintiffs choose to assert specific dollar amounts in their complaints,brought in states that permit such pleading, the amounts claimed are typicallynot meaningful as an indicator of a company’s potential liability. This isbecause (1) the amounts claimed typically bear no relation to the level of theplaintiff’s injury, (2) the complaints typically assert claims against numerousdefendants, and (3) many cases are brought on behalf of plaintiffs who have notsuffered any medical injury, and, ultimately, are resolved without any paymentor payment of a small fraction of the damages initially claimed. Of the 1,424complaints maintained in the Company’s records, 1,150 do not specify the amountof damages sought, 26 generally allege damages in excess of $50, three allegecompensatory damages in excess of $50 and an unspecified amount of punitivedamages, 95 allege compensatory damages and punitive damages, each in excess of$25, two generally allege damages in excess of $100, 12 allege compensatorydamages and punitive damages, each in excess of $50, 21 generally allege damagesof $15,000, one generally alleges damages not to exceed $290,000, one generallyalleges damages of $23,000, one alleges compensatory damages and punitivedamages, each in excess of $10, four allege general damages of $18,000 andpunitive damages of $10,000, two allege general damages of $13,000 and punitivedamages of $10,000, one alleges compensatory and punitive damages, each inexcess of $15, six allege punitive damages in excess of $25, one allegespunitive damages in excess of $50, 88 generally allege damages in excess of$15, five generally allege damages in excess of $25, one alleges compensatorydamages of $18,000 and punitive damages of $10,000, one alleges compensatorydamages of $13,000 and punitive damages of $10,000, one alleges compensatory andpunitive damages, each of $15, and two allege compensatory and punitivedamages, each in excess of $15,000. The Company currently does not have accessto the complaints with respect to the previously mentioned additional 12monitored cases, and therefore it does not know whether these cases allegespecific damages, or if so, the amount of such damages, but is in the processof seeking to obtain such information. Due to the reasons noted above and tothe indemnification arrangements benefiting the Company, it does not believethat the damage amounts specified in these complaints are a meaningful factorin any assessment of the Company’s potential liability.

During the year ended December 31, 2004, the Company recorded a $1,250charge to operating expenses to establish a reserve for respiratory claims. TheCompany increased this reserve to $5,000 and recorded the increase as part ofthe purchase price allocation process associated with the Norcross Transaction.The increase represents a decision by new ownership to negotiate the Company’sparticipation in a joint defense group with the prior owners of North SafetyProducts. This reserve represents a reasonable estimate of the Company’sprobable and estimable liabilities for claims alleging injury resulting fromexposure to silica dust and other dust particles, including asbestos asdetermined by the Company in consultation with an independent consultant. TheCompany has determined that a five-year projection of claims and defense costsis the most reasonable approach. However, it is possible that the Company mayincur liabilities in excess of the amounts currently reserved. This reservewill be re-evaluated periodically and additional charges or credits will berecorded to operating expenses as additional information becomes available.

It is possible that the Company may incur liabilities in an amount inexcess of amounts currently reserved. However, taking into account currentlyavailable information, historical experience, and the Company’s indemnificationfrom Invensys, but recognizing the inherent uncertainties in the projection ofany future events, the Company believes that these suits or claims should notresult in final judgments or settlements in excess of its reserve.

In connection with an ongoing dispute, one of the Company’s competitorshas filed a complaint against it alleging that the Company has made a series ofmisrepresentations concerning this competitor and its products. The complaintseeks a retraction of all statements alleged to have been made by the Companyand unspecified damages, including legal fees. A bench trial on the issue ofliability was held in February 2006 and the matter is now awaiting ruling bythe court. The Company intends to vigorously defend against these claims.

The Company is not otherwise involved in any material lawsuits. TheCompany historically has not been required to pay any material liabilityclaims. The Company maintains insurance against product liability claims (withthe exception of asbestosis and silicosis cases, for which coverage is notcommercially available), but it is possible that its insurance coverage willnot continue to be available on terms acceptable to the Company or that suchcoverage will not be adequate for liabilities actually incurred.

10

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**10.**          Segment Data

The following table presents information about theCompany by segment:
| ** **                            | ** ** | **General  Safety &  Preparedness** | ** ** | **Fire  Service** | ** ** | **Electrical  Safety** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|---------------------------------------|------------|----------------------------------------------|------------|-------------------|------------|------------------------|------------|---------------|------------|------------------|------------|------------|------------|
| **Predecessor**                       | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Three Months Ended April 2,  2005** | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net sales—third parties          |       | $                                            | 82,741     |              | $          | 23,000                 |       | $             | 14,203     |             | $          | —     |       | $ | — |   | $ | 119,944 |   |
| Net sales—intersegment           |       | 2,558                                        |       | —            |       | —                 |       | —        |       | (2,558           | )          | —     |       |
| Income (loss) from  operations        |       | 8,812                                        |       | 4,381             |       | 3,685                  |       | (1,273        | )          | —           |       | 15,605     |       |
| ** **                            | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Successor**                         | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Three Months Ended April 1,  2006** | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net sales—third parties          |       | 99,183                                       |       | 24,072            |       | 18,621                 |       | —        |       | —           |       | 141,876    |       |
| Net sales—intersegment           |       | 2,665                                        |       | —            |       | —                 |       | —        |       | (2,665           | )          | —     |       |
| Income (loss) from operations         |       | 11,276                                       |       | 2,662             |       | 4,877                  |       | (2,528        | )          | —           |       | 16,287     |       |
|                                       |            |                                              |            |                   |            |                        |            |               |            |                  |            |            |            |  |  |  |  |  |  |

 

11

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**11.**          Subsidiary Guarantors

All of the Company’s direct or indirect 100% ownedactive domestic subsidiaries, fully, unconditionally, jointly and severallyguarantee the senior subordinated notes. Separate financial statements of theguarantor subsidiaries are not separately presented because, in the opinion ofmanagement, such financial statements are not material to investors. Thenon-guarantor subsidiaries include wholly owned subsidiaries of the Companyorganized under the laws of foreign jurisdictions and inactive subsidiaries,all of which are included in the consolidated financial statements. Thefollowing is summarized combining financial information for Norcross SafetyProducts L.L.C. on a stand-alone basis (NSP), Norcross Capital Corp. (NCC), theguarantor subsidiaries of the Company and the non-guarantor subsidiaries of theCompany:
| ** **                                           | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------|------------|
| **Successor  Company**                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| **April  1, 2006**                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Current assets:                                      |       |       |       |       |       |                        |       |                            |       |             |       |       |       |
| Cash and cash equivalents                            |       | $          | 11,444     |       | $          | —                      |       | $                               | (1,808     | )                | $          | 1,710      |       | $ | — |   | $ | 11,346 |   |
| Accounts receivable, net                             |       | 8,677      |       | —     |       | 40,128                      |       | 30,483                          |       | —           |       | 79,288     |       |
| Inventories                                          |       | 11,989     |       | —     |       | 43,004                      |       | 42,530                          |       | —           |       | 97,523     |       |
| Deferred income taxes                                |       | 434        |       | —     |       | 2,796                       |       | —                          |       | —           |       | 3,230      |       |
| Prepaid expenses and other current assets            |       | 780        |       | —     |       | 1,195                       |       | 778                             |       | —           |       | 2,753      |       |
| Total current  assets                                |       | 33,324     |       | —     |       | 85,315                      |       | 75,501                          |       | —           |       | 194,140    |       |
| Property, plant,  and equipment, net                 |       | 6,862      |       | —     |       | 38,370                      |       | 21,741                          |       | —           |       | 66,973     |       |
| Deferred  financing costs, net                       |       | 7,186      |       | —     |       | —                      |       | —                          |       | —           |       | 7,186      |       |
| Goodwill, net                                        |       | 19,266     |       | —     |       | 78,225                      |       | 43,519                          |       | —           |       | 141,010    |       |
| Other intangible  assets, net                        |       | 24,869     |       | —     |       | 213,623                     |       | 36,489                          |       | —           |       | 274,981    |       |
| Investment in  subsidiaries                          |       | 403,250    |       | —     |       | 90,910                      |       | —                          |       | (494,160         | )          | —     |       |
| Other noncurrent  assets                             |       | —     |       | —     |       | 3,515                       |       | 1,387                           |       | —           |       | 4,902      |       |
| Total assets                                         |       | $          | 494,757    |       | $          | —                      |       | $                               | 509,958    |             | $          | 178,637    |       | $ | (494,160 | ) | $ | 689,192 |   |
| Current  liabilities:                                |       |       |       |       |       |                        |       |                            |       |             |       |       |       |
| Accounts payable                                     |       | $          | 3,707      |       | $          | —                      |       | $                               | 12,463     |             | $          | 9,064      |       | $ | — |   | $ | 25,234 |   |
| Accrued expenses                                     |       | 7,103      |       | —     |       | 14,674                      |       | 6,926                           |       | —           |       | 28,703     |       |
| Current maturities of long-term obligations          |       | 2,609      |       | —     |       | 369                         |       | 38                              |       | —           |       | 3,016      |       |
| Total current  liabilities                           |       | 13,419     |       | —     |       | 27,506                      |       | 16,028                          |       | —           |       | 56,953     |       |
| Pension,  post-retirement, and deferred compensation |       | 64         |       | —     |       | 31,735                      |       | 272                             |       | —           |       | 32,071     |       |
| Long-term  obligations                               |       | 308,827    |       | —     |       | 666                         |       | 145                             |       | —           |       | 309,638    |       |
| Intercompany  balances                               |       | (61,500    | )          | —     |       | 15,486                      |       | 46,014                          |       | —           |       | —     |       |
| Other noncurrent  liabilities                        |       | —     |       | —     |       | 5,300                       |       | 60                              |       | —           |       | 5,360      |       |
| Deferred income  taxes                               |       | 1,309      |       | —     |       | 33,584                      |       | 17,452                          |       | —           |       | 52,345     |       |
| Minority  interest                                   |       | —     |       | —     |       | —                      |       | 187                             |       | —           |       | 187        |       |
|                                                 |       | 248,700    |       | —     |       | 86,771                      |       | 64,130                          |       | —           |       | 399,601    |       |
| Member’s equity:                                |       |       |       |       |       |                        |       |                            |       |             |       |       |       |
| Contributed capital                                  |       | 222,018    |       | —     |       | 377,517                     |       | 92,551                          |       | (470,068         | )          | 222,018    |       |
| Retained earnings                                    |       | 6,929      |       | —     |       | 18,164                      |       | 5,928                           |       | (24,092          | )          | 6,929      |       |
| Accumulated other comprehensive income               |       | 3,691      |       | —     |       | —                      |       | —                          |       | —           |       | 3,691      |       |
| Total member’s  equity                          |       | 232,638    |       | —     |       | 395,681                     |       | 98,479                          |       | (494,160         | )          | 232,638    |       |
| Total liabilities and  member’s equity          |       | $          | 494,757    |       | $          | —                      |       | $                               | 509,958    |             | $          | 178,637    |       | $ | (494,160 | ) | $ | 689,192 |   |

 

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| ** **                                          | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Successor  Company**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **December  31, 2005**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Current assets:                                     |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Cash and cash equivalents                           |       | $          | 17,885     |       | $          | —                      |       | $                                 | (265       | )                | $          | 3,063      |       | $ | — |   | $ | 20,683 |   |
| Accounts receivable, net                            |       | 10,812     |       | —     |       | 31,134                      |       | 26,340                            |       | —           |       | 68,286     |       |
| Inventories                                         |       | 10,228     |       | —     |       | 41,720                      |       | 41,514                            |       | —           |       | 93,462     |       |
| Deferred income taxes                               |       | 434        |       | —     |       | 2,791                       |       | 5                                 |       | —           |       | 3,230      |       |
| Prepaid expenses and other current assets           |       | 809        |       | —     |       | 1,432                       |       | 894                               |       | —           |       | 3,135      |       |
| Total current  assets                               |       | 40,168     |       | —     |       | 76,812                      |       | 71,816                            |       | —           |       | 188,796    |       |
| Property, plant  and equipment, net                 |       | 6,606      |       | —     |       | 38,776                      |       | 21,933                            |       | —           |       | 67,315     |       |
| Deferred  financing costs, net                      |       | 7,513      |       | —     |       | —                      |       | —                            |       | —           |       | 7,513      |       |
| Goodwill, net                                       |       | 19,266     |       | —     |       | 74,099                      |       | 43,122                            |       | —           |       | 136,487    |       |
| Other intangible  assets, net                       |       | 25,007     |       | —     |       | 215,630                     |       | 36,205                            |       | —           |       | 276,842    |       |
| Investment in  subsidiaries                         |       | 387,606    |       | —     |       | 86,614                      |       | —                            |       | (474,220         | )          | —     |       |
| Other noncurrent  assets                            |       | —     |       | —     |       | 3,555                       |       | 1,554                             |       | —           |       | 5,109      |       |
| Total assets                                        |       | $          | 486,166    |       | $          | —                      |       | $                                 | 495,486    |             | $          | 174,630    |       | $ | (474,220 | ) | $ | 682,062 |   |
| Current  liabilities:                               |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Accounts payable                                    |       | $          | 3,492      |       | $          | —                      |       | $                                 | 9,266      |             | $          | 8,471      |       | $ | — |   | $ | 21,229 |   |
| Accrued expenses                                    |       | 13,568     |       | —     |       | 14,180                      |       | 6,935                             |       | —           |       | 34,683     |       |
| Current maturities of long-term obligations         |       | 2,598      |       | —     |       | 68                          |       | 69                                |       | —           |       | 2,735      |       |
| Total current  liabilities                          |       | 19,658     |       | —     |       | 23,514                      |       | 15,475                            |       | —           |       | 58,647     |       |
| Pension,  post-retirement and deferred compensation |       | 70         |       | —     |       | 32,000                      |       | 270                               |       | —           |       | 32,340     |       |
| Long-term  obligations                              |       | 309,478    |       | —     |       | —                      |       | 186                               |       | —           |       | 309,664    |       |
| Intercompany  balances                              |       | (67,712    | )          | —     |       | 20,135                      |       | 47,577                            |       | —           |       | —     |       |
| Other noncurrent  liabilities                       |       | —     |       | —     |       | 5,318                       |       | 58                                |       | —           |       | 5,376      |       |
| Deferred income  taxes                              |       | 1,309      |       | —     |       | 33,579                      |       | 17,608                            |       | —           |       | 52,496     |       |
| Minority  interest                                  |       | —     |       | —     |       | —                      |       | 176                               |       | —           |       | 176        |       |
|                                                |       | 243,145    |       | —     |       | 91,032                      |       | 65,875                            |       | —           |       | 400,052    |       |
| Member’s equity:                               |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Contributed capital                                 |       | 221,068    |       | —     |       | 373,312                     |       | 92,117                            |       | (465,429         | )          | 221,068    |       |
| Retaining earning                                   |       | 308        |       | —     |       | 7,628                       |       | 1,163                             |       | (8,791           | )          | 308        |       |
| Accumulated other comprehensive income              |       | 1,987      |       | —     |       | —                      |       | —                            |       | —           |       | 1,987      |       |
| Total member’s  equity                         |       | 223,363    |       | —     |       | 380,940                     |       | 93,280                            |       | (474,220         | )          | 223,363    |       |
| Total liabilities and  member’s equity         |       | $          | 486,166    |       | $          | —                      |       | $                                 | 495,486    |             | $          | 174,630    |       | $ | (474,220 | ) | $ | 682,062 |   |

 

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| ** **                                               | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|----------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------|------------|
| **Successor  Company**                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Three  Months Ended April 1, 2006**                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Third party                                              |       | $          | 18,647     |       | $          | —                      |       | $                               | 74,257     |             | $          | 48,972     |       | $ | — |   | $ | 141,876 |   |
| Intercompany                                             |       | 2,273      |       | —     |       | 2,535                       |       | 3,706                           |       | (8,514           | )          | —     |       |
| Net sales                                                |       | 20,920     |       | —     |       | 76,792                      |       | 52,678                          |       | (8,514           | )          | 141,876    |       |
| Cost of goods  sold                                      |       | 13,865     |       | —     |       | 48,957                      |       | 33,837                          |       | (8,514           | )          | 88,145     |       |
| Gross profit                                             |       | 7,055      |       | —     |       | 27,835                      |       | 18,841                          |       | —           |       | 53,731     |       |
| Operating  expenses:                                     |       |       |       |       |       |                        |       |                            |       |             |       |       |       |
| Selling                                                  |       | 1,025      |       | —     |       | 6,445                       |       | 5,405                           |       | —           |       | 12,875     |       |
| Distribution                                             |       | 1,140      |       | —     |       | 3,496                       |       | 3,290                           |       | —           |       | 7,926      |       |
| General and  administrative                              |       | 3,441      |       | —     |       | 7,063                       |       | 3,413                           |       | —           |       | 13,917     |       |
| Amortization of  intangibles                             |       | 267        |       | —     |       | 2,007                       |       | 452                             |       | —           |       | 2,726      |       |
| Total operating  expenses                                |       | 5,873      |       | —     |       | 19,011                      |       | 12,560                          |       | —           |       | 37,444     |       |
| Income from  operations                                  |       | 1,182      |       | —     |       | 8,824                       |       | 6,281                           |       | —           |       | 16,287     |       |
| Other expense  (income):                                 |       |       |       |       |       |                        |       |                            |       |             |       |       |       |
| Interest expense                                         |       | 6,443      |       | —     |       | 15                          |       | 4                               |       | —           |       | 6,462      |       |
| Interest income                                          |       | (145       | )          | —     |       | —                      |       | (18                             | )          | —           |       | (163       | )          |
| Intercompany  charges                                    |       | (10,643    | )          | —     |       | (3,925                      | )          | 2,359                           |       | 12,209           |       | —     |       |
| Other, net                                               |       | 4          |       | —     |       | (35                         | )          | (340                            | )          | —           |       | (371       | )          |
| Income (loss)  before income taxes and minority interest |       | 5,523      |       | —     |       | 12,769                      |       | 4,276                           |       | (12,209          | )          | 10,359     |       |
| Income tax  (benefit) expense                            |       | (1,271     | )          | —     |       | 3,765                       |       | 1,060                           |       | —           |       | 3,554      |       |
| Minority  interest                                       |       | —     |       | —     |       | —                      |       | 11                              |       | —           |       | 11         |       |
| Net income (loss)                                        |       | $          | 6,794      |       | $          | —                      |       | $                               | 9,004      |             | $          | 3,205      |       | $ | (12,209 | ) | $ | 6,794 |   |

 

14

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| ** **                                               | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|----------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------|------------|
| **Predecessor Company**                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Three months ended April 2,  2005**                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Third party                                              |       | $          | 17,941     |       | $          | —                      |       | $                               | 60,734     |             | $          | 41,269     |       | $ | — |   | $ | 119,944 |   |
| Intercompany                                             |       | 2,201      |       | —     |       | 2,148                       |       | 2,340                           |       | (6,689           | )          | —     |       |
| Net sales                                                |       | 20,142     |       | —     |       | 62,882                      |       | 43,609                          |       | (6,689           | )          | 119,944    |       |
| Cost of goods sold                                       |       | 13,213     |       | —     |       | 40,527                      |       | 28,551                          |       | (6,689           | )          | 75,602     |       |
| Gross profit                                             |       | 6,929      |       | —     |       | 22,355                      |       | 15,058                          |       | —           |       | 44,342     |       |
| Operating expenses:                                      |       |       |       |       |       |                        |       |                            |       |             |       |       |       |
| Selling                                                  |       | 963        |       | —     |       | 5,411                       |       | 5,004                           |       | —           |       | 11,378     |       |
| Distribution                                             |       | 1,105      |       | —     |       | 2,382                       |       | 2,787                           |       | —           |       | 6,274      |       |
| General and  administrative                              |       | 1,931      |       | —     |       | 5,944                       |       | 3,068                           |       | —           |       | 10,943     |       |
| Amortization of  intangibles                             |       | 79         |       | —     |       | —                      |       | 63                              |       | —           |       | 142        |       |
| Total operating  expenses                                |       | 4,078      |       | —     |       | 13,737                      |       | 10,922                          |       | —           |       | 28,737     |       |
| Income from operations                                   |       | 2,851      |       | —     |       | 8,618                       |       | 4,136                           |       | —           |       | 15,605     |       |
| Other expense (income):                                  |       |       |       |       |       |                        |       |                            |       |             |       |       |       |
| Interest expense                                         |       | 5,551      |       | —     |       | 11                          |       | 37                              |       | —           |       | 5,599      |       |
| Interest income                                          |       | (226       | )          | —     |       | —                      |       | (24                             | )          | —           |       | (250       | )          |
| Intercompany charges                                     |       | (10,761    | )          | —     |       | (495                        | )          | 1,697                           |       | 9,559            |       | —     |       |
| Other, net                                               |       | (5         | )          | —     |       | (3                          | )          | 394                             |       | —           |       | 386        |       |
| Income (loss) before  income taxes and minority interest |       | 8,292      |       | —     |       | 9,105                       |       | 2,032                           |       | (9,559           | )          | 9,870      |       |
| Income tax expense                                       |       | —     |       | —     |       | 94                          |       | 1,480                           |       | —           |       | 1,574      |       |
| Minority interest                                        |       | —     |       | —     |       | —                      |       | 4                               |       | —           |       | 4          |       |
| Net income (loss)                                        |       | $          | 8,292      |       | $          | —                      |       | $                               | 9,011      |             | $          | 548        |       | $ | (9,559 | ) | $ | 8,292 |   |

 

15

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| ** **                                            | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------|------------|
| **Successor Company**                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Three months ended April 1,  2006**                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Operating activities**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net cash (used in)  provided by operating activities  |       | $          | (6,873     | )          | $          | —                      |       | $                               | 3,776      |             | $          | 812        |       | $ | — |   | $ | (2,285 | ) |
| **Investing activities**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Purchase of businesses,  net of cash acquired         |       | (129       | )          | —     |       | (5,453                      | )          | (54                             | )          | —           |       | (5,636     | )          |
| Purchase of property,  plant, and equipment           |       | (602       | )          | —     |       | (1,174                      | )          | (515                            | )          | —           |       | (2,291     | )          |
| Proceeds from sale of  property, plant, and equipment |       | —     |       | —     |       | —                      |       | 113                             |       | —           |       | 113        |       |
| Net cash used in  investing activities                |       | (731       | )          | —     |       | (6,627                      | )          | (456                            | )          | —           |       | (7,814     | )          |
| **Financing activities**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Proceeds from  borrowings                             |       | —     |       | —     |       | 1,000                       |       | —                          |       | —           |       | 1,000      |       |
| Payments of debt                                      |       | (389       | )          | —     |       | (33                         | )          | (72                             | )          | —           |       | (494       | )          |
| Intercompany                                          |       | 1,575      |       | —     |       | (60                         | )          | (1,515                          | )          | —           |       | —     |       |
| Contributed capital                                   |       | 150        |       | —     |       | —                      |       | —                          |       | —           |       | 150        |       |
| Dividends to Safety  Products Holdings, Inc           |       | (173       | )          | —     |       | —                      |       | —                          |       | —           |       | (173       | )          |
| Net cash provided by  (used in) financing activities  |       | 1,163      |       | —     |       | 907                         |       | (1,587                          | )          | —           |       | 483        |       |
| Effect of exchange rate  changes on cash              |       | —     |       | —     |       | 401                         |       | (122                            | )          | —           |       | 279        |       |
| Net decrease in cash  and cash equivalents            |       | (6,441     | )          | —     |       | (1,543                      | )          | (1,353                          | )          | —           |       | (9,337     | )          |
| Cash and cash  equivalents at beginning of period     |       | 17,885     |       | —     |       | (265                        | )          | 3,063                           |       | —           |       | 20,683     |       |
| Cash and cash equivalents at end of period            |       | $          | 11,444     |       | $          | —                      |       | $                               | (1,808     | )                | $          | 1,710      |       | $ | — |   | $ | 11,346 |   |

 

16

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| ** **                                           | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------|------------|
| **Predecessor  Company**                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Three  months ended April 2, 2005**                | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Operating  activities**                            |       |       |       |       |       |                        |       |                            |       |             |       |       |       |
| Net cash (used  in) provided by operating activities |       | $          | (5,525     | )          | $          | —                      |       | $                               | 3,605      |             | $          | (516       | )          | $ | — |   | $ | (2,436 | ) |
| **Investing  activities**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Purchase of  businesses, net of cash acquired        |       | (126       | )          | —     |       | (275                        | )          | (30                             | )          | —           |       | (431       | )          |
| Purchase of  property, plant, and equipment          |       | (169       | )          | —     |       | (811                        | )          | (347                            | )          | —           |       | (1,327     | )          |
| Net cash used in  investing activities               |       | (295       | )          | —     |       | (1,086                      | )          | (377                            | )          | —           |       | (1,758     | )          |
| **Financing  activities**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Payments of debt                                     |       | (12,525    | )          | —     |       | (324                        | )          | (164                            | )          | —           |       | (13,013    | )          |
| Intercompany                                         |       | 3,213      |       | —     |       | (1,460                      | )          | (1,753                          | )          | —           |       | —     |       |
| Due from NSP  Holdings L.L.C.                        |       | (178       | )          | —     |       | —                      |       | —                          |       | —           |       | (178       | )          |
| Net cash used in  financing activities               |       | (9,490     | )          | —     |       | (1,784                      | )          | (1,917                          | )          | —           |       | (13,191    | )          |
| Effect of  exchange rate changes on cash             |       | —     |       | —     |       | (975                        | )          | (449                            | )          | —           |       | (1,424     | )          |
| Net decrease in  cash and cash equivalents           |       | (15,310    | )          | —     |       | (240                        | )          | (3,259                          | )          | —           |       | (18,809    | )          |
| Cash and cash  equivalents at beginning of period    |       | 32,859     |       | —     |       | (2,780                      | )          | 5,652                           |       | —           |       | 35,731     |       |
| Cash and cash  equivalents at end of period          |       | $          | 17,549     |       | $          | —                      |       | $                               | (3,020     | )                | $          | 2,393      |       | $ | — |   | $ | 16,922 |   |

 

**8.**                 ComprehensiveIncome

Total comprehensive income for the three months ended April2, 2005 and April 1, 2006 amounted to $5,772 and $8,498, respectively.

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**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

**Overview**

We are a leading designer, manufacturer and marketerof branded products in the fragmented personal protection equipment industry.We manufacture and market a full line of personal protection equipment forworkers in the general safety and preparedness, fire service and electricalsafety industries. We sell our products under trusted, long-standing andwell-recognized brand names, including *North*, *KCL**, Fibre-Metal, *MorningPride**, *Ranger*, *Servus*,*Pro-Warrington, AmericanFirewear*and*Salisbury*. Our broad product offering includes, among other things,respiratory protection, protective footwear, hand protection, bunker gear andlinemen equipment.

We classify our diverse product offerings into threeoperating segments:

*General Safety andPreparedness*. We offer a diverse portfolio of leadingproducts for a wide variety of industries, including manufacturing,agriculture, automotive, construction, food processing and pharmaceuticalindustries and the military, under the *North*, *KCL, Fibre-Metal, Ranger and Servus* brand names. Our productoffering is one of the broadest in the personal protection equipment industryand includes respiratory protection, protective footwear, hand protection, eye,head and face protection, first aid, hearing protection and fall protection. Wesell our general safety and preparedness products primarily through industrialdistributors.

*Fire Service*.We manufacture and market one of the broadest lines of personal protection equipmentfor the fire service market, offering firefighters head-to-toe protection. Ourproducts include bunker gear, fireboots, helmets, gloves and other accessories.We market our products under our Total Fire Group umbrella, using the brandnames of *Morning Pride*,*Ranger*, *Servus*,*Pro-Warrington and American Firewear*. Weare the vendor of choice for many of the largest fire departments in NorthAmerica. We sell our fire service products primarily through specialized fireservice distributors.

*Electrical Safety*.We manufacture and market a broad line of personal protection equipment for theutility market under the *Salisbury* and *Servus* brands. Our products, including linemen equipment,gloves, sleeves and footwear, are designed to protect workers from up to 36,000volts of electricity. All of our products either meet or exceed the applicablestandards of the American National Standards Institute (“ANSI”) and theAmerican Society for Testing of Materials (“ASTM”). We distribute ourelectrical safety products through specialized distributors, test labs,utilities and electrical contractors.

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**Predecessorand Successor**

In May 2005, Safety Products entered into a purchaseand sale agreement with NSP Holdings and Norcross to purchase from NSP Holdingsall of the outstanding equity interests of Norcross and NSP Capital for anaggregate purchase price of approximately $481.0 million, which included theassumption or repayment of indebtedness but excluded payment of fees andexpenses. The acquisition closed on July 19, 2005 and was funded with proceedsto Safety Products from the issuance and sale of senior pay in kind notes aswell as an equity investment from affiliates of Odyssey and General ElectricPension Trust (“GEPT”) and certain members of management of Norcross.Concurrently with the acquisition, Norcross entered into a new senior creditfacility, consisting of a revolving credit facility that provides for up to$50.0 million of borrowings and a $88.0 million term loan. As a result of theacquisition, Safety Products became the sole unit holder of Norcross. Norcross,following the Norcross Transaction, is referred to as the “Successor.” Norcross,prior to the Norcross Transaction, is referred to as the “Predecessor.”

In accordance with GAAP, our historical financialresults for the Predecessor and the Successor are presented separately. Theseparate presentation is required under GAAP in situations when there is achange in accounting basis, which occurred when purchase accounting was appliedto the Norcross Transaction. Purchase accounting requires that the historicalcarrying value of assets acquired and liabilities assumed be adjusted to fairvalue, which may yield results that are not comparable on a period-to-periodbasis due to the different, and sometimes higher, cost basis associated withthe allocation of the purchase price. There have been no material changes tothe operations or customer relationships of our business as a result of theNorcross Transaction.

**Acquisitions**

In November 2005, we completed the acquisition of allof the issued and outstanding capital stock of Fibre-Metal. The purchase priceof $68.7 million (including $0.7 million of acquisition costs) was financedthrough $65.0 million of additional term borrowings under the senior creditfacility and cash on the balance sheet.

In February2006, we completed the acquisition of all of the issued and outstanding capitalstock of American Firewear. The purchase price consisted of $4.5 million incash (including acquisition costs of $0.2 million and net of cash acquired of$0.2 million) and a $1.0 million subordinated seller note. In addition, thepurchase price may be increased by $0.8 million over the next four years basedon American Firewear achieving certain financial and operating objectives. Wefinanced the acquisition through cash on the balance sheet and the issuance ofthe $1.0 million subordinated seller note.

19

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**Results ofOperations**

The following tables set forth our results ofoperations in dollars and as a percentage of net sales for the three monthsended April 2, 2005 and April 1, 2006. The data for the three months ended April2, 2005 and April 1, 2006 have been derived from our historical unauditedfinancial statements.
| ** **                                        | ** ** | **Predecessor**                      | ** ** | **Successor**           | ** ** |
|---------------------------------------------------|------------|--------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | ** **                           | ** ** | ** **              | ** ** |
| ** **                                        | ** ** | **Three Months Ended**     | ** ** |
| ** **                                        | ** ** | **April 2,  2005**              | ** ** | **April 1,  2006** | ** ** |
| ** **                                        | ** ** | **(dollars in thousands)** | ** ** |
| Net sales:                                        |       |                                 |       |                    |       |
| General safety and preparedness                   |       | $                                    | 82,741     |                    | $          | 99,183 |   |
| Fire service                                      |       | 23,000                               |       | 24,072                  |       |
| Electrical safety                                 |       | 14,203                               |       | 18,621                  |       |
| Total net sales                                   |       | 119,944                              |       | 141,876                 |       |
| Cost of goods  sold                               |       | 75,602                               |       | 88,145                  |       |
| Gross profit                                      |       | 44,342                               |       | 53,731                  |       |
| Operating  expenses                               |       | 28,737                               |       | 37,444                  |       |
| Income (loss)  from operations:                   |       |                                 |       |                    |       |
| General safety and preparedness                   |       | 8,812                                |       | 11,276                  |       |
| Fire service                                      |       | 4,381                                |       | 2,662                   |       |
| Electrical safety                                 |       | 3,685                                |       | 4,877                   |       |
| Corporate                                         |       | (1,273                               | )          | (2,528                  | )          |
| Total income from operations                      |       | 15,605                               |       | 16,287                  |       |
| Other expense  (income):                          |       |                                 |       |                    |       |
| Interest expense                                  |       | 5,599                                |       | 6,462                   |       |
| Interest income                                   |       | (250                                 | )          | (163                    | )          |
| Other, net                                        |       | 386                                  |       | (371                    | )          |
| Income before  income taxes and minority interest |       | 9,870                                |       | 10,359                  |       |
| Income tax  expense                               |       | 1,574                                |       | 3,554                   |       |
| Minority  interest                                |       | 4                                    |       | 11                      |       |
| Net income                                        |       | $                                    | 8,292      |                    | $          | 6,794 |   |

 

20

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| ** **                                        | ** ** | **Predecessor**                                             | ** ** | **Successor**           | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | ** **                                                  | ** ** | ** **              | ** ** |
| ** **                                        | ** ** | **Three Months Ended**                            | ** ** |
| ** **                                        | ** ** | **April 2,  2005**                                     | ** ** | **April 1,  2006** | ** ** |
| ** **                                        | ** ** | **(as a percentage of net sales)** | ** ** |
| Net sales:                                        |       |                                                        |       |                    |       |
| General safety and preparedness                   |       | 69.0                                                        | %          | 69.9                    | %          |
| Fire service                                      |       | 19.2                                                        | %          | 17.0                    | %          |
| Electrical safety                                 |       | 11.8                                                        | %          | 13.1                    | %          |
| Total net sales                                   |       | 100.0                                                       | %          | 100.0                   | %          |
| Cost of goods  sold                               |       | 63.0                                                        | %          | 62.1                    | %          |
| Gross profit                                      |       | 37.0                                                        | %          | 37.9                    | %          |
| Operating  expenses                               |       | 24.0                                                        | %          | 26.4                    | %          |
| Income (loss)  from operations:                   |       |                                                        |       |                    |       |
| General safety and preparedness                   |       | 7.3                                                         | %          | 7.9                     | %          |
| Fire service                                      |       | 3.7                                                         | %          | 1.9                     | %          |
| Electrical safety                                 |       | 3.1                                                         | %          | 3.4                     | %          |
| Corporate                                         |       | (1.1                                                        | )%         | (1.7                    | )%         |
| Total income from operations                      |       | 13.0                                                        | %          | 11.5                    | %          |
| Other expense  (income):                          |       |                                                        |       |                    |       |
| Interest expense                                  |       | 4.7                                                         | %          | 4.6                     | %          |
| Interest income                                   |       | (0.2                                                        | )%         | (0.1                    | )%         |
| Other, net                                        |       | 0.3                                                         | %          | (0.3                    | )%         |
| Income before  income taxes and minority interest |       | 8.2                                                         | %          | 7.3                     | %          |
| Income tax  expense                               |       | 1.3                                                         | %          | 2.5                     | %          |
| Minority  interest                                |       | 0.0                                                         | %          | 0.0                     | %          |
| Net income                                        |       | 6.9                                                         | %          | 4.8                     | %          |

 

***Three Months Ended April 1, 2006 asCompared to Three Months Ended April 2, 2005***

*Net sales.*Net sales increased by $22.0 million, or18.3%, from $119.9 million for the three months ended April 2, 2005 to $141.9 millionfor the three months ended April 1, 2006. In our general safety andpreparedness segment, net sales increased by $16.5 million, or 19.9%, from$82.7 million for the three months ended April 2, 2005 to $99.2 million for thethree months ended April 1, 2006. The increase reflects a combination of thefollowing: incremental Fibre-Metal net sales of $10.5 million, overall organicgrowth in North America of $2.6 million, combined organic growth in ourEuropean and South African operations of $4.4 million, and unfavorable exchangerates, which had a negative impact of $1.0 million. In our fire servicesegment, net sales increased by $1.1 million, or 4.7%, from $23.0 million forthe three months ended April 2, 2005 to $24.1 million for the three monthsended April 1, 2006 due primarily to incremental American Firewear net sales of$1.2 million. In our electrical safety segment, net sales increased by $4.4 million,or 31.1%, from $14.2 million for the three months ended April 2, 2005 to $18.6 millionfor the three months ended April 1, 2006 primarily driven by strong marketdemand and new product penetration.

*Gross profit.*Gross profit increased by $9.4 million,or 21.2%, from $44.3 million for the three months ended April 2, 2005 to $53.7 millionfor the three months ended April 1, 2006, primarily due to the $22.0 million,or 18.3%, increase in net sales. Excluding the impact of inventory purchaseaccounting adjustments in our general safety and preparedness segment of $0.7million, gross profit increased by $10.1 million, or 22.8%. After adjusting forthe inventory purchase accounting adjustments, our gross profit margin of 38.4%for the three months ended April 1, 2006 was favorable to the 37.0% grossprofit margin for the three months ended April 2, 2005. In our general safetyand preparedness segment (after adjusting for charges related to purchaseaccounting of $0.7 million), gross profit increased by $7.9 million, or 25.4%,from $31.0 million for the three months ended April 2, 2005 to $38.9 millionfor the three months ended April 1, 2006. This increase was primarily due tothe overall net sales increase of $16.5 million, or 19.9% and improved marginrealization in our North American (in part due to the favorable contribution ofFibre-Metal) and European operations.

21

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In our fire service segment, gross profit increased by $0.1 million, or2.0%, from $7.4 million for the three months ended April 2, 2005 to $7.5 millionfor the three months ended April 1, 2006 as the $1.1 million, or 4.7% increasein net sales was partially offset by lower margin realization (in part due tothe inherent lower margin of American Firewear products and product lineintegration costs). In our electrical safety segment, gross profit increased by$2.1 million, or 35.2%, from $6.0 million for the three months ended April 2,2005 to $8.1 million for the three months ended April 1, 2006, primarily due tothe $4.4 million, or 31.1% increase in net sales and favorable product mix andplant performance.

*Operating expenses.*Operating expenses increased by $8.7million, or 30.3%, from $28.7 million for the three months ended April 2, 2005to $37.4 million for the three months ended April 1, 2006. In our generalsafety and preparedness segment, operating expenses increased by $4.7 million,or 21.1%, from $22.2 million for the three months ended April 2, 2005 to $26.9 millionfor the three months ended April 1, 2006, primarily due to higher amortizationexpense of $1.2 million associated with intangible assets recorded as part ofpurchase accounting, incremental Fibre-Metal operating expenses of $2.3 millionand increased variable selling and distribution expenses associated with the$16.5 million, or 19.9% increase in net sales. In our fire service segment,operating expenses increased $1.9 million, or 62.2%, from $3.0 million for thethree months ended April 2, 2005 to $4.9 million for the three months ended April1, 2006, primarily due to higher amortization expense of $1.0 millionassociated with intangible assets recorded as part of purchase accounting, incrementalAmerican Firewear operating expenses of $0.1 million, and additional generaland administrative expenses, including legal costs related to litigation with acompetitor. In our electrical safety segment, operating expenses increased by$0.9 million, or 40.0%, from $2.3 million for the three months ended April 2,2005 to $3.2 million for the three months ended April 1, 2006, primarily due tohigher amortization expense of $0.4 million associated with intangible assetsrecorded as part of purchase accounting and increased variable selling anddistribution expenses related to the $4.4 million, or 31.1%, increase in netsales. Our corporate expenses increased $1.2 million, primarily due to non-cashmanagement incentive compensation charges of $0.8 million related to our equityoption plan and increased payroll costs during the three month period ended April1, 2006.

*Income from operations.*Income from operations increased by $0.7 million,or 4.4%, from $15.6 million for the three months ended April 2, 2005 to $16.3 millionfor the three months ended April 1, 2006. Included in income from operationsfor the three months ended April 1, 2006 were: (1) inventory purchaseaccounting charges of $0.7 million, (2) incremental amortization expense of$2.6 million related to purchase accounting and (3) non-cash managementincentive compensation charges of $0.8 million. Excluding these charges, incomefrom operations increased by $4.8 million, or 30.8%. Excluding these samecharges, as a percentage of net sales, income from operations increased from13.0% for the three months ended April 2, 2005 to 14.4% for the three monthsended April 1, 2006. In our general safety and preparedness segment (afteradjusting for incremental charges related to purchase accounting of $1.9million), income from operations increased by $4.4 million, or 50.1%, from $8.8million for the three months ended April 2, 2005 to $13.2 million for the threemonths ended April 1, 2006, primarily due to higher net sales of $16.5 million,or 19.9% and favorable margin realization. In our fire service segment (afteradjusting for incremental charges related to purchase accounting of $1.0million), income from operations decreased by $0.7 million, or 16.3%, from $4.4million for the three months ended April 2, 2005 to $3.7 million for the threemonths ended April 1, 2006, as higher net sales of $1.1 million, or 4.7%, wereoffset by lower margin realization and higher general and administrativeexpenses, including legal costs related to litigation with a competitor. In ourelectrical safety segment (after adjusting for incremental charges related topurchase accounting of $0.4 million), income from operations increased by $1.6 million,or 42.4%, from $3.7 million for the three months ended April 2, 2005 to $5.3 millionfor the three months ended April 1, 2006, primarily due to higher net sales of$4.4 million, or 31.1% and favorable product mix and plant performance. Ourcorporate expenses increased $1.2 million, primarily due to managementincentive compensation charges of $0.8 million related to our equity optionplan and higher payroll costs during the three month period ended April 1,2006.

Included in income from operations for the threemonths ended April 1, 2006 and April 2, 2005 were depreciation and amortizationexpenses of $5.9 million and $2.8 million, respectively. Of these amounts, $3.9million, $1.1 million, and $0.9 million were attributable to the general safetyand preparedness, fire service, and electrical safety segments, respectively,for the three months ended April 1, 2006 and $2.3 million, $0.1 million, and$0.4 million were attributable to these segments for the three months ended April2, 2005.

*Interest expense.*Interestexpense increased by $0.9 million, or 15.4%, from $5.6 million for the threemonths ended April 2, 2005 to $6.5 million for the three months ended April 1,2006 primarily due to higher outstanding debt balances related to theFibre-Metal Transaction. Interest expense incurred by Norcross and thesubsidiary guarantors totaled $6.5 million for the three months ended April 1,2006 and $5.6 million for the three months ended April 2, 2005.

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*Other, net.*Other, net decreased by $0.8 million from$0.4 million for the three months ended April 2, 2005 to $(0.4) million for thethree months ended April 1, 2006, primarily due to unrealized foreign exchangerate gains.

*Income tax expense.*Income tax expense increased by $2.0 million,from $1.6 million for the three months ended April 2, 2005 to $3.6 million forthe three months ended April 1, 2006, primarily as a result of higher foreignincome tax expense.

*Net income.*Net income decreased by $1.5 million, or18.1%, from $8.3 million for the three months ended April 2, 2005 to $6.8 millionfor the three months ended April 1, 2006. This was the result of the reasonsdiscussed above.

**Liquidity andCapital Resources**

We have historically used internal cash flow fromoperations, commercial borrowings on our lines of credit, seller notes,investments from our equityholders and capital markets transactions to fund ouroperations, acquisitions, capital expenditures and working capitalrequirements. For the three months ended April 1, 2006 and April 2, 2005, netcash used in operating activities was $2.3 million and $2.4 million,respectively. The $0.1 million improvement was primarily attributable to higherincome from operations of $4.8 million (after adjusting for expenses related topurchase accounting and management incentive compensation), which was partiallyoffset by increased inventory and accounts receivable balances due to the $22.0million, or 18.3%, increase in net sales.

Historically, our principal uses of cash have beencapital expenditures, acquisitions and working capital. Our capitalexpenditures were $2.3 million for the three months ended April 1, 2006 and$1.3 million for the three months ended April 2, 2005. Investing activities forthe three months ended April 1, 2006 include $5.5 million of purchase pricerelated to the American Firewear Transaction and $0.2 million of royaltypayments made to the sellers of Muck Boot and Arbin. During the three monthsended April 1, 2006, we received cash proceeds of $0.1 million related to thesale of property, plant, and equipment. For the three months ended April 2,2005, investing activities included $0.4 million in acquisition and royaltypayments.

As of April 1, 2006, we had working capital of $137.2 millionand cash of $11.3 million. We maintain inventory levels sufficient to satisfycustomer orders on demand, with generally a three month supply on hand. Bunkergear is an exception and is generally made to order. Our accounts receivableterms are generally 30 days, net.

For the three months ended April 1, 2006, net cashprovided by financing activities was $0.5 million, consisting of proceeds fromthe issuance of the American Firewear subordinated seller note of $1.0 million,$0.5 million of payments on long-term obligations, $0.2 million of capitalcontributions, and $0.2 million of dividends to Safety Products Holdings, Inc. Forthe three months ended April 2, 2005, net cash used in financing activities was$13.2 million, representing $13.0 million of payments on long-term obligations,including an excess cash flow sweep payment under the terms of the thenexisting senior credit facility of $12.2 million and cash funded to NSP HoldingsL.L.C. of $0.2 million.

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As of April 1, 2006, borrowings under the senior credit facility boreinterest at a weighted average rate of 6.8%. As of April 1, 2006, there wasapproximately $152.0 million of outstanding indebtedness under the seniorcredit facility and approximately $47.4 million of available borrowings underthe revolving credit facility.

We believe that our internal cash flows and borrowingsunder the revolving portions of our senior credit facility will provide us withsufficient liquidity and capital resources to meet our current and futurefinancial obligations for the foreseeable future, including funding ouroperations, debt service and capital expenditures. Our future operatingperformance will be subject to future economic conditions and to financial,business and other factors, many of which are beyond our control. If our futurecash flow from operations and other capital resources are insufficient to payour obligations as they mature or to fund our liquidity needs, we may be forcedto reduce or delay our business activities and capital expenditures, sellassets, obtain additional debt or equity capital or restructure or refinanceall or a portion of our debt, including the notes, on or before maturity. Wecannot assure you that we would be able to accomplish any of these alternativeson a timely basis or on satisfactory terms, if at all. In addition, the termsof our existing and future indebtedness, including our senior subordinated notesand our senior credit facility, may limit our ability to pursue any of thesealternatives.

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**Forward-Looking Statements**

This Management’s Discussion and Analysis of FinancialCondition and Results of Operations contains forward-looking information. Thesestatements reflect management’s expectations, estimates, and assumptions basedon information available at the time of the statement. Forward-lookingstatements include, but are not limited to, statements regarding future events,plans, goals, objectives, and expectations. The words ‘‘anticipate,’’ ‘‘believe,’’‘‘estimate,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘intent,’’ ‘‘likely,’’ ‘‘will,’’ ‘‘should,’’and similar expressions are intended to identify forward-looking statements.Forward-looking statements are not guarantees of future performance and involverisks, uncertainties, and other factors, including those set forth below, whichmay cause our actual results, performance, or achievements to be materiallydifferent from any future results, performance, or achievements expressed orimplied by those statements. Important factors that could cause our actualresults, performance, or achievements to be materially different from anyfuture results, performance, or achievements expressed or implied by thosestatements include, but are not limited to: (i) our high degree of leverage andsignificant debt service obligations; (ii) the impact of current and futurelaws and governmental regulations affecting us or our product offerings; (iii) theimpact of governmental spending; (iv) our ability to retain existing customers,maintain key supplier status with those customers with which we have achievedsuch status, and obtain new customers; (v) the highly competitive nature of thepersonal protection equipment industry; (vi) any future changes in management; (vii)acceptance by consumers of new products we develop or acquire; (viii) theimportance and costs of product innovation; (ix) unforeseen problems associatedwith international sales, including gains and losses from foreign currencyexchange and restrictions on the efficient repatriation of earnings; (x) theunpredictability of patent protection and other intellectual property issues;(xi) cancellation of current orders; (xii) the outcome of pending productliability claims and the availability of indemnification for those claims;(xiii) general risks associated with the personal protection equipmentindustry; and (xiv) the successful integration of acquired companies oneconomically acceptable terms. We undertake no obligation to publicly update orrevise any forward-looking statements to reflect changed assumptions, theoccurrence of anticipated or unanticipated events, or changes to future resultsover time.

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**Item 3. Quantitative and QualitativeDisclosures About Market Risk**

There have been no material changes to our exposure tomarket risk since December 31, 2005.

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**Item 4. Controls and Procedures**

Based on their evaluation as of the end of the period covered by thisquarterly report on Form 10-Q, our Chief Executive Officer and ChiefFinancial Officer have concluded that our disclosure controls and procedures(as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)) are effective. There wasno change in our internal control over financial reporting (as defined in Rules13a-15(f) and 15d-15(f) under the Exchange Act) identified inconnection with the evaluation required by Rule 13a-15(d) of the ExchangeAct that occurred during the period covered by this quarterly report on Form 10-Qthat has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

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**PART IIOTHER INFORMATION**

**Item 1. LegalProceedings**

As of April 1, 2006, our North Safety Productssubsidiary, along with its predecessors and/or the former owners of suchbusiness were named as defendants in approximately 1,424 lawsuits involvingrespirators allegedly manufactured and sold by it or its predecessors. We arealso monitoring an additional 12 lawsuits in which we feel that North SafetyProducts, its predecessors and /or the former owners of such businessesmay be named as defendants. Collectively, these 1,436 lawsuits representapproximately 13,107 (excluding spousal claims) plaintiffs. Approximately 91%of these lawsuits involve plaintiffs alleging injury resulting from exposure tosilica dust, with the remainder alleging injury from exposure to otherparticles, including asbestos. These lawsuits typically allege that thepurported injuries resulted in part from respirators that were negligentlydesigned and/or manufactured. The defendants in these lawsuits are oftennumerous, and include, in addition to respirator manufacturers, employers ofthe plaintiffs and manufacturers of sand (used in sand blasting) and asbestos.We acquired our North Safety Products subsidiary on October 2, 1998 fromSiebe plc. In connection with the acquisition, Siebe, which was subsequentlymerged with BTR plc (now known as “Invensys plc”), contractually agreed toindemnify us for any losses, including costs of defending claims, resultingfrom respiratory products manufactured or sold prior to our acquisition ofNorth Safety Products in October 1998.

In addition, our North Safety Products subsidiary iscontractually entitled to indemnification from Norton Company, an affiliate ofSaint-Gobain, which owned the North Safety Products business prior to Invensys.Pursuant to a December 14, 1982 asset purchase agreement, Siebe Norton, Inc.,a newly formed wholly-owned subsidiary of Norton Company, acquired the assetsof Norton’s Safety Products Division and the stock of this company was in turnacquired by Siebe Gorman Holdings PLC. Under the terms of the agreement, SiebeNorton, Inc. did not assume any liability for claims relating to productsshipped by Norton Company prior to the closing date. Moreover, Norton Companycovenanted in the agreement to indemnify Siebe Norton and its successors andassigns against any liability resulting from or arising out of any state offacts, omissions or events existing or occurring on or before the closing date,including, without limitation, any claims arising from products shipped by NortonCompany or any of its affiliates prior to the closing date. Siebe Norton, whosename was subsequently changed to Siebe North Inc., was subsequently acquired byus as part of the 1998 acquisition of the North Safety Products businessfrom Invensys.

Despite these indemnification arrangements, we couldpotentially be liable for losses or claims relating to products manufacturedprior to the October 1998 acquisition date if Invensys fails to meet itsobligations to indemnify us and we could potentially be liable for losses andclaims relating to products sold prior to January 10, 1983 if bothInvensys and Norton fail to meet their obligations to indemnify us. We couldalso be liable if the alleged exposure involved the use of a productmanufactured by us after our October 1998 acquisition of the North SafetyProducts business. Invensys is currently handling the defense of all of thecases prior to October 1998 in which North Safety Products, itspredecessors and/or the former owners of such businesses have been named asdefendants. We are jointly with Invensys handling the defense of all of thecases which allege exposure including periods pre and post October 1998.We will individually handle the defense of all cases with exclusive post October 1998exposure; however, we have not been involved in a case with exclusive post October 1998exposure to date. As of April 1, 2006, Invensys has sent us requests forreimbursement totaling $301,092 relating to settled cases in which Invensysclaims that the period of alleged exposure included periods after October 1998.To date, we have not reimbursed Invensys for these claims, as we are currentlypursuing negotiations regarding the allocation of costs and the determinationof the alleged exposure periods. Based on information provided to us byInvensys, we believe that Invensys has made payments with respect to settlementof these claims of $1,000 in the three months ended April 1, 2006.

Based upon informationprovided to us by Invensys, we believe activity related to these lawsuits wasas follows for the three months ended April 1, 2006:
| ** **            | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
|-----------------------|------------|----------------|------------|-----------|------------|
| Beginning  lawsuits   |       | 18,459         |       | 1,148     |       |
| New lawsuits          |       | 544            |       | 437       |       |
| Settlements           |       | (2             | )          | (2        | )          |
| Dismissals and  other |       | (5,894         | )          | (147      | )          |
| Ending lawsuits       |       | 13,107         |       | 1,436     |       |

 

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Plaintiffs have asserted specific dollar claims inapproximately a quarter of the approximately 1,424 cases pending as of April 1,2006, in which North Safety Products, its predecessors and/or the former ownersof such businesses have been named as defendants. A majority of jurisdictionsprohibit specifying damages in tort cases such as these, and most of theremaining jurisdictions do not require such specification. In those cases inwhich plaintiffs choose to assert specific dollar amounts in their complaints,brought in states that permit such pleading, the amounts claimed are typicallynot meaningful as an indicator of a company’s potential liability. This isbecause (1) the amounts claimed typically bear no relation to the level ofthe plaintiff’s injury, (2) the complaints typically assert claims againstnumerous defendants, and (3) many cases are brought on behalf ofplaintiffs who have not suffered any medical injury, and, ultimately, areresolved without any payment or payment of a small fraction of the damagesinitially claimed. Of the 1,424 complaints maintained in our records, 1,150 donot specify the amount of damages sought, 26 generally allege damages in excessof $50,000, three allege compensatory damages in excess of $50,000 and anunspecified amount of punitive damages, 95 allege compensatory damages andpunitive damages, each in excess of $25,000, two generally allege damages inexcess of $100,000, 12 allege compensatory damages and punitive damages, eachin excess of $50,000, 21 generally allege damages of $15.0 million, onegenerally alleges damages not to exceed $290.0 million, one generally allegesdamages of $23.0 million, one alleges compensatory damages and punitivedamages, each in excess of $10,000, four allege general damages of $18.0 millionand punitive damages of $10.0 million, two allege general damages of $13.0million and punitive damages $10.0 million, one alleges compensatory andpunitive damages, each in excess of $15,000, six allege punitive damages inexcess of $25,000, one alleges punitive damages in excess of $50,000, 88generally allege damages in excess of $15,000, five generally allege damages inexcess of $25,000, one alleges compensatory damages of $18.0 million andpunitive damages of $10.0 million, one allege compensatory damages of $13.0million and punitive damages of $10.0 million, one alleges compensatory andpunitive damages, each of $15,000, and two allege compensatory and punitivedamages, each in excess of $15.0 million. We currently do not have access tothe complaints with respect to the previously mentioned additional 12 monitoredcases, and therefore do not know whether these cases allege specific damages,and if so, the amount of such damages, but are in the process of seeking toobtain such information. Due to the reasons noted above and to theindemnification arrangements benefiting us, we do not believe that the damageamounts specified in these complaints are a meaningful factor in any assessmentof our potential liability.

Bankruptcy filings of companies with asbestos andsilica-related litigation could increase our cost over time. If we were foundliable in these cases and either Invensys or Norton Company failed to meet itsindemnification obligations to us or the suit involved products manufactured byus after our October 1998 acquisition of North Safety Products, it wouldhave a material adverse effect on our business.

During the year ended December 31, 2004, werecorded a $1.25 million charge to operating expenses to establish a reservefor respiratory claims. We increased this reserve to $5.0 million and recordedthe increase as part of our purchase price allocation process associatedwith the Norcross Transaction. The increase represents a decision by newownership to negotiate our participation in a joint defense group with theprior owners of North Safety Products. We believe that this reserve representsa reasonable estimate of our probable and estimable liabilities for productclaims alleging injury resulting from exposure to silica dust and otherparticles, including asbestos, as determined by us in consultation with anindependent consultant. We believe that a five-year projection of claims anddefense costs is the most reasonable approach. However, it is possible that wemay incur liabilities in excess of the amounts currently reserved. Thisreserve will be re-evaluated periodically and additional charges or creditswill be recorded to operating expenses as additional information becomesavailable.

It is possible that we may incur liabilities in anamount in excess of amounts currently reserved. However, taking into accountcurrently available information, historical experience, and our indemnificationfrom Invensys, but recognizing the inherent uncertainties in the projection ofany future events, we believe that these suits or claims should not result infinal judgments or settlements in excess of our reserve.

In connection with an ongoing dispute, one of ourcompetitors has filed a complaint against us alleging that we have made aseries of misrepresentations concerning this competitor and its products.The complaint seeks a retraction of all statements alleged to have been made byus and unspecified damages, including legal fees. A bench trial on the issue ofliability was held in February 2006 and the matter is now awaiting rulingby the court. We intend to vigorously defend against these claims.

We are not otherwise involved in any materiallawsuits. We historically have not been required to pay any material liabilityclaims. We maintain insurance against product liability claims (with theexception of asbestosis and silicosis cases, for which coverage is notcommercially available), but it is possible that insurance coverage will notcontinue to be available on terms acceptable to us or that such coverage willnot be adequate for liabilities actually incurred.

We are subject to legal proceedings and claims thatarise in the ordinary course of our business. In our opinion, the outcome ofthese actions will not have a material adverse effect on our financial positionor results of operations.

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**Item6. Exhibits**

Exhibits
| Exhibit No. | ** ** | **Description**                                                                                          |
|------------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **       | ** ** | ** **                                                                                               |
| 31.1             |       | Certification of Chief Executive Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|             |       |                                                                                                     |
| 31.2             |       | Certification of Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|             |       |                                                                                                     |
| 32.1             |       | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|             |       |                                                                                                     |
| 32.2             |       | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, Norcross Safety ProductsL.L.C. has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|                    | NORCROSS SAFETY PRODUCTS L.L.C. |
|--------------------|---------------------------------|
|               |                            |   |
|               |                            |   |
|               |                            |   |
| May 12,  2006 | By:                             | /s/ ROBERT A. PETERSON |
|               |                            | Robert A. Peterson |
|               |                            | President, Chief Executive Officer and Manager |
|               |                            | (Principal Executive Officer) |
|               |                            |   |
|               |                            |   |
| May 12,  2006 | By:                             | /s/ DAVID F. MYERS, JR. |
|               |                            | David F. Myers, Jr. |
|               |                            | Executive Vice President, Chief Financial Officer, |
|               |                            | Secretary and Manager |
|               |                            | (Principal Financial and Accounting Officer) |

 

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**NORCROSS SAFETY PRODUCTS L.L.C.FORM 10-Q LISTING OF EXHIBITS**
| Exhibit No. | ** ** | **Description**                                                                                          |
|------------------|------------|----------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                     |
| 31.1             |       | Certification of Chief Executive Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|             |       |                                                                                                     |
| 31.2             |       | Certification of Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|             |       |                                                                                                     |
| 32.1             |       | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|             |       |                                                                                                     |
| 32.2             |       | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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