**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

----

 

**FORM 10-Q**

** **

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

** **

----

 

| **x**      |       | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                   |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                     |
| ** ** | ** ** | **For the quarterly period ended March 29,  2008**                                                                                                                                  |
|       |       |                                                                                                                                                                                     |
|       |       | **OR**                                                                                                                                                                                   |
|       |       |                                                                                                                                                                                     |
| **o**      |       | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                  |
| ** ** | ** ** | ** **                                                                                                                                                                               |
|       |       | **For the transition period from                to            ** |

 

**Commission File Number: 333-110531**

 

**NORCROSSSAFETY PRODUCTS L.L.C.**

(Exact name of registrant as 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**                                             |

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x   No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x                        |   | Smaller reporting company o |
|---------------------------|--------|---------------------|--------|------------------------------------------------|--------|-----------------------------|
|                      |   |                |   | (Do not check if a smaller  reporting company) |   |                        |

 

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

 

On May 12,2008 Norcross Safety Products L.L.C. had 100 units outstanding, all of whichwere owned by a holding company.

 

 

----

 

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

**For the Quarterly Period Ended March 29,2008**

 

**TABLE OF CONTENTS**

 
| **PART I  Financial Information**                                                              |   |
|-----------------------------------------------------------------------------------------------------|--------|
|                                                                                                |   |
| 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 | 14     |
|                                                                                                |   |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 | 19     |
|                                                                                                |   |
| Item 4. Controls and Procedures                                                                     | 19     |
|                                                                                                |   |
| **PART II Other Information**                                                                  | 20     |
|                                                                                                |   |
| Item  1. Legal Proceedings                                                                          | 20     |
|                                                                                                |   |
| Item  1A. Risk Factors                                                                              | 20     |
|                                                                                                |   |
| Item 6.  Exhibits                                                                                   | 20     |
|                                                                                                |   |
| **Signatures**                                                                                      | 21     |
|                                                                                                |   |
| **Form 10-Q Listing of Exhibits**                                                              | 22     |

 

----

 

**PART I**

**FINANCIALINFORMATION**

** **

**Item 1. Financial Statements**

 

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

**CONSOLIDATED BALANCE SHEETS**

**(Amountsin Thousands)**

 
| ** **                                                                                | ** ** | **December 31,  2007 (1)** | ** ** | **March 29,  2008** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------|------------|
| ** **                                                                                | ** ** | ** **                           | ** ** | **(Unaudited)**          | ** ** |
| **Assets**                                                                                | ** ** | ** **                           | ** ** | ** **               | ** ** |
| Current assets:                                                                           |       |                                 |       |                     |       |
| Cash and cash  equivalents                                                                |       | $                                    | 70,093     |                     | $          | 51,410 |   |
| Accounts  receivable, less allowance of $2,332 and $2,477 in 2007 and 2008,  respectively |       | 76,359                               |       | 93,510                   |       |
| Inventories                                                                               |       | 108,415                              |       | 110,214                  |       |
| Deferred income  taxes                                                                    |       | 1,762                                |       | 1,762                    |       |
| Prepaid expenses  and other current assets                                                |       | 3,602                                |       | 3,608                    |       |
| Total current  assets                                                                     |       | 260,231                              |       | 260,504                  |       |
| Property, plant  and equipment, net                                                       |       | 68,676                               |       | 68,228                   |       |
| Deferred  financing costs, net                                                            |       | 5,045                                |       | 4,709                    |       |
| Goodwill                                                                                  |       | 165,023                              |       | 165,506                  |       |
| Other intangible  assets, net                                                             |       | 275,325                              |       | 273,202                  |       |
| Other noncurrent  assets                                                                  |       | 7,234                                |       | 7,348                    |       |
| Total assets                                                                              |       | $                                    | 781,534    |                     | $          | 779,497 |   |
|                                                                                      |       |                                 |       |                     |       |
| **Liabilities  and member’s equity**                                                 | ** ** | ** **                           | ** ** | ** **               | ** ** |
| Current  liabilities:                                                                     |       |                                 |       |                     |       |
| Accounts payable                                                                          |       | $                                    | 20,283     |                     | $          | 24,871 |   |
| Accrued expenses                                                                          |       | 40,823                               |       | 30,380                   |       |
| Current  maturities of long-term obligations                                              |       | 12,802                               |       | 3,369                    |       |
| Total current  liabilities                                                                |       | 73,908                               |       | 58,620                   |       |
| Long-term  liabilities:                                                                   |       |                                 |       |                     |       |
| Pension,  post-retirement and deferred compensation                                       |       | 13,792                               |       | 13,373                   |       |
| Long-term  obligations                                                                    |       | 307,677                              |       | 307,201                  |       |
| Due to Safety  Products Holdings, Inc.                                               |       | 4,484                                |       | 6,723                    |       |
| Other noncurrent  liabilities                                                             |       | 12,163                               |       | 12,112                   |       |
| Deferred income  taxes                                                                    |       | 64,142                               |       | 64,881                   |       |
| Total long-term  liabilities                                                              |       | 402,258                              |       | 404,290                  |       |
|                                                                                      |       |                                 |       |                     |       |
| Minority  interest                                                                        |       | 221                                  |       | 224                      |       |
|                                                                                      |       |                                 |       |                     |       |
| Member’s equity:                                                                     |       |                                 |       |                     |       |
| Contributed  capital                                                                      |       | 224,472                              |       | 224,857                  |       |
| Retained  earnings                                                                        |       | 47,510                               |       | 55,914                   |       |
| Accumulated  other comprehensive income                                                   |       | 33,165                               |       | 35,592                   |       |
| Total member’s  equity                                                               |       | 305,147                              |       | 316,363                  |       |
| Total  liabilities and member’s equity                                               |       | $                                    | 781,534    |                     | $          | 779,497 |   |

 

----

(1)          December 31,2007 balances were obtained from audited financial statements.

 

*See notes to unaudited consolidated financialstatements.*

 

1

----

 

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

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Amountsin Thousands) (Unaudited)**

 
| ** **                                                                   | ** ** | **Three months ended** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **March 31,  2007**         | ** ** | **March 29,  2008** | ** ** |
| Net sales                                                                    |       | $                                | 148,151    |   | $ | 166,102 |   |
| Cost of goods  sold                                                          |       | 90,709                           |       | 101,354 |   |
| Gross profit                                                                 |       | 57,442                           |       | 64,748 |   |
| Operating  expenses:                                                         |       |                             |       |   |   |
| Selling                                                                      |       | 13,489                           |       | 15,846 |   |
| Distribution                                                                 |       | 9,059                            |       | 9,866 |   |
| General and  administrative (1)                                              |       | 13,606                           |       | 14,947 |   |
| Amortization of  intangibles                                                 |       | 2,965                            |       | 2,830 |   |
| Seller  transaction expenses                                                 |       | —                           |       | 2,410 |   |
| Total operating  expenses                                                    |       | 39,119                           |       | 45,899 |   |
| Income from  operations                                                      |       | 18,323                           |       | 18,849 |   |
| Other expense  (income):                                                     |       |                             |       |   |   |
| Interest expense                                                             |       | 7,034                            |       | 6,220 |   |
| Interest income                                                              |       | (225                             | )          | (578 | ) |
| Other, net                                                                   |       | (96                              | )          | (492 | ) |
| Income from  continuing operations before income taxes and minority interest |       | 11,610                           |       | 13,699 |   |
| Income tax  expense                                                          |       | 4,610                            |       | 4,939 |   |
| Minority  interest                                                           |       | 6                                |       | 3 |   |
| Income from  continuing operations                                           |       | 6,994                            |       | 8,757 |   |
| Income from  discontinued operations, net of income tax (Note 1)             |       | (161                             | )          | — |   |
| Net income                                                                   |       | $                                | 7,155      |   | $ | 8,757 |   |

 

----

(1)          General andadministrative expenses exclude amortization of intangibles and sellertransaction expenses and include $340 and $427 of management incentivecompensation for the three months ended March 31, 2007 and March 29,2008, respectively.

 

*Seenotes to unaudited consolidated financial statements.*

 

2

----

 

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

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Amounts in Thousands) (Unaudited)**

 
| ** **                                                                     | ** ** | **Three months ended** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                     | ** ** | **March 31,  2007**         | ** ** | **March 29,  2008** | ** ** |
| **Operating  activities**                                                      |       |                             |       |   |   |
| Net income                                                                     |       | $                                | 7,155      |   | $ | 8,757 |   |
| Adjustments to  reconcile net income to net cash used in operating activities: |       |                             |       |   |   |
| Depreciation (1)                                                               |       | 3,601                            |       | 4,031 |   |
| Amortization of  intangibles                                                   |       | 2,965                            |       | 2,830 |   |
| Amortization of  deferred financing costs                                      |       | 336                              |       | 336 |   |
| Amortization of  original issue premium                                        |       | (274                             | )          | (298 | ) |
| Deferred income taxes                                                          |       | 384                              |       | 369 |   |
| Minority  interest                                                             |       | 6                                |       | 3 |   |
| Noncash  management incentive compensation                                     |       | 340                              |       | 385 |   |
| Loss (gain) on  sale of property, plant and equipment                          |       | 108                              |       | (104 | ) |
| Changes in  operating assets and liabilities:                                  |       |                             |       |   |   |
| Accounts  receivable                                                           |       | (15,455                          | )          | (16,693 | ) |
| Inventories                                                                    |       | 492                              |       | (1,037 | ) |
| Prepaid expenses  and other current assets                                     |       | 47                               |       | 14 |   |
| Other noncurrent  assets                                                       |       | (152                             | )          | (167 | ) |
| Accounts payable                                                               |       | 3,761                            |       | 4,508 |   |
| Accrued expenses                                                               |       | (10,189                          | )          | (10,885 | ) |
| Pension,  postretirement and deferred compensation                             |       | (746                             | )          | (451 | ) |
| Due to Safety  Products Holdings, Inc.                                    |       | 2,072                            |       | 2,239 |   |
| Other noncurrent  liabilities                                                  |       | (9                               | )          | (120 | ) |
| Net cash used in  operating activities                                         |       | (5,558                           | )          | (6,283 | ) |
|                                                                           |       |                             |       |   |   |
| **Investing  activities**                                                      |       |                             |       |   |   |
| Purchase of  businesses, net of cash acquired                                  |       | (159                             | )          | (118 | ) |
| Purchases of  property, plant and equipment                                    |       | (3,298                           | )          | (2,801 | ) |
| Proceeds from  sale of property, plant and equipment                           |       | 29                               |       | 494 |   |
| Net cash used in  investing activities                                         |       | (3,428                           | )          | (2,425 | ) |
|                                                                           |       |                             |       |   |   |
| **Financing  activities**                                                      |       |                             |       |   |   |
| Payments of debt                                                               |       | (710                             | )          | (9,611 | ) |
| Dividends to  Safety Products Holdings, Inc.                              |       | (153                             | )          | (353 | ) |
| Net cash used in  financing activities                                         |       | (863                             | )          | (9,964 | ) |
| Effect of  exchange rate changes on cash                                       |       | (24                              | )          | (11 | ) |
| Net decrease in  cash and cash equivalents                                     |       | (9,873                           | )          | (18,683 | ) |
| Cash and cash equivalents  at beginning of period                              |       | 26,096                           |       | 70,093 |   |
| Cash and cash  equivalents at end of period                                    |       | $                                | 16,223     |   | $ | 51,410 |   |

 

----

(1)          Depreciationincludes depreciation expense of $42 for the three months ended March 31,2007, related to discontinued operations (Note 1).

 

*Seenotes to unaudited consolidated financial statements*

 

3

----

 

**NORCROSS SAFETY PRODUCTSL.L.C.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Amounts in Thousands) (Unaudited)**

** **

**1.**                 Discontinued Operations

** **

On June 29, 2007, Norcross Safety Products L.L.C.(the “Company”) completed the sale of all of the issued and outstanding capitalstock of North Safety Products (Africa) (Proprietary) Limited (“South Africa”),a subsidiary of the Company. The Company received net cash proceeds of $3,223and recorded a net loss on disposal related to the transaction of $3,022($3,022 net of income tax). In accordance with Financial Accounting StandardsBoard (“FASB”) Statement of Accounting Standards (“SFAS”) No. 144, *Accounting for the Impairment or Disposal of Long-Lived**Assets*, the Company has reflected South Africa’s results ofoperations through the date of the sale as discontinued operations for allperiods presented. The cash flows from discontinued operations have beencombined with cash flows from continuing operations within each cash flowstatement category as the cash flows from discontinued operations are notmaterial to the Company’s consolidated results.

 

For the three months ended March 31, 2007, SouthAfrica had net sales of $5,049, income tax expense of $66 and net income of$161.

 

**2.**                 Basis of Presentation

** **

The accompanying unaudited consolidated financialstatements of the Company have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation. Accordingly, they do not include all of the information and notesrequired by accounting principles generally accepted in the United States forcomplete 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 indicative ofthe results that might be expected for any other interim period or for thefiscal year ending December 31, 2008. The financial statements presentedshould be read in conjunction with the consolidated financial statements andfootnotes thereto included in our 2007 consolidated financial statements,included in the Company’s annual report on Form 10-K.

 

**3.**                 Reclassifications

** **

Certain priorperiod amounts have been reclassified to conform to current year presentation,including reclassifying results and amounts from South Africa to discontinuedoperations. The reclassifications did not have an impact on net income for theperiods presented within the statement of operations.

 

**4.**                 Recent Accounting Pronouncements

** **

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*,which defines fair value, establishes a framework for measuring fair value andexpands disclosures about fair value measurements. The provisions of SFAS No. 157are effective for the Company as of the beginning of its fiscal year ending December 31,2008. In February 2008, the FASB issued FASB Staff Position FAS 157-2, *Effective Date of FASB Statement No. *157, which delayedthe effective date of SFAS No. 157 for certain non-financial assets andliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis, until January 1, 2009. TheCompany adopted SFAS No. 157 with regards to all financial assets andliabilities on January 1, 2008, which resulted in an immaterial impact to itsfinancials statements. The Company has not yet determined the impact on itsfinancial statements from adoption of SFAS No. 157 as it pertains tonon-financial assets and liabilities as of January 1, 2009.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities — Including an amendment of FASBStatement No. 115*. This statement is intended to improvefinancial reporting by providing entities with the opportunity to mitigatevolatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. It also establishes presentation and disclosure requirementsdesigned to facilitate comparisons between entities that choose differentmeasurement attributes for similar types of assets and liabilities. Thestatement does not affect any existing accounting literature that requirescertain 

 

4

----

 

assetsand liabilities to be carried at fair value and it does not establishrequirements for recognizing dividend income, interest income or interestexpense. It also does not eliminate disclosure requirements included in otheraccounting standards. The provisions of SFAS No. 159 are effective for theCompany as of the beginning of its fiscal year ending December 31, 2008.The Company adopted SFAS No. 159 on January 1, 2008; however, theCompany has not elected to change the measurement attribute for any of thepermitted items to fair value upon adoption.

 

In December 2007,the FASB issued SFAS No. 141(R), *Business Combinations*.SFAS No. 141(R) requires the acquiring entity in a businesscombination to recognize the full fair value of the assets acquired andliabilities assumed in the transaction at the acquisition date; the immediateexpense recognition of transaction costs; and accounting for restructuringplans separately from the business combination among others. SFAS No. 141(R) iseffective for the Company’s fiscal year beginning 2009 and the majority of theadoption is prospective only. SFAS No. 141(R) fundamentally changesmany aspects of existing accounting requirements for business combinations. Assuch, if the Company enters into any business combinations after the adoptionof SFAS No. 141(R), a transaction may significantly impact the Company’sfinancial position and earnings, but not cash flows, compared to the Company’srecent acquisitions, accounted for under existing GAAP requirements, due to thereasons described above.

 

SFAS No. 141(R) amendsSFAS No. 109 such that adjustments made to valuation allowances ondeferred taxes and acquired tax contingencies associated with acquisitions thatclosed prior to the effective date of SFAS No. 141(R) would alsoapply the provisions of SFAS No. 141(R), and therefore changes in deferredtax asset valuation allowances and income tax uncertainties after theacquisition date that relate to acquisitions that close prior to the effectivedate of SFAS No. 141(R) generally will affect income tax expense. TheCompany is in the process of determining the effects, if any, the adoption ofSFAS No. 141(R) will have on its financial statements.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements – an amendment of ARB No. 51*.SFAS No. 160 requires entities to report noncontrolling (minority)interests as a component of member’s equity on the balance sheet; include allearnings of a consolidated subsidiary in consolidated results of operations;and treat all transactions between an entity and noncontrolling interest asequity transactions between the parties. SFAS No. 160 is effective for theCompany’s fiscal year beginning 2009 and adoption is prospective only; however,presentation and disclosure requirements described above must be appliedretrospectively. The Company does not expect a material impact to its financialstatements upon the adoption of SFAS No. 160.

 

**5.**                 Management Incentive Compensation

** **

Management incentivecompensation related to stock based compensation was $340 and $427 for thethree months ended March 31, 2007 and March 29, 2008, respectively.

 

**6.**                 Inventories

** **

Inventories consist of the following:

 
| ** **               | ** ** | **December 31,  2007** | ** ** | **March 29,  2008** | ** ** |
|--------------------------|------------|-----------------------------|------------|--------------------------|------------|
| At FIFO cost:            |       |                        |       |                     |       |
| Raw materials            |       | $                           | 26,967     |                     | $          | 30,030 |   |
| Work in process          |       | 10,527                      |       | 12,067                   |       |
| Finished goods           |       | 72,542                      |       | 69,738                   |       |
|                     |       | 110,036                     |       | 111,835                  |       |
| Adjustment to  LIFO cost |       | (1,621                      | )          | (1,621                   | )          |
|                     |       | $                           | 108,415    |                     | $          | 110,214 |   |

 

5

----

 

**7.**                 Long-Term Obligations

** **

The Company’s long-term obligations consist of thefollowing:

 
| ** **                                         | ** ** | **December 31,  2007** | ** ** | **March 29,  2008** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Revolving credit  facilities                       |       | $                           | —     |                     | $          | — |   |
| Term loan                                          |       | 161,711                     |       | 152,350                  |       |
| Senior  subordinated notes                         |       | 152,500                     |       | 152,500                  |       |
| Subordinated  seller notes                         |       | 1,250                       |       | 1,000                    |       |
| Unamortized  premium on senior subordinated notes  |       | 5,018                       |       | 4,720                    |       |
|                                               |       | 320,479                     |       | 310,570                  |       |
| Less: Current  maturities of long-term obligations |       | 12,802                      |       | 3,369                    |       |
|                                               |       | $                           | 307,677    |                     | $          | 307,201 |   |

 

Aggregate maturities of long-term obligations as of March 29,2008, are as follows:

 
| 2009   |   | $       | 3,369   |   |
|--------|--------|---------|---------|--------|
| 2010   |   | 3,481   |    |
| 2011   |   | 3,105   |    |
| 2012   |   | 228,340 |    |
| 2013   |   | 72,275  |    |
|   |   | $       | 310,570 |   |

 

**8.**                 Income Taxes

** **

The income taxexpense for the Company differs from the amount of income tax expense computedby applying the U.S. federal income tax rate to income before income taxesprimarily due to: 1) state taxes and 2) the impact of varied foreign statutoryrates on the Company’s foreign earnings.

 

**9.**                 Employee Benefit Plans

** **

The following table sets forth the components of netperiodic benefit (income) expense for the Company’s pension and post-retirementbenefits:

 
| ** **                      | ** ** | **Pension benefits**        | ** ** | **Post-retirement benefits** | ** ** |
|---------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|
| ** **                      | ** ** | **Three months ended** | ** ** | **Three months ended**  | ** ** |
| ** **                      | ** ** | **March 31,  2007**         | ** ** | **March 29,  2008**          | ** ** | **March 31,  2007** | ** ** | **March 29,  2008** | ** ** |
|                            |       |                             |       |                              |       |   |   |   |   |
| Service cost                    |       | $                                | 27         |                              | $          | — |   | $ | 3 |   | $ | 2 |   |
| Interest cost                   |       | 981                              |       | 1,064                             |       | 16 |   | 16 |   |
| Expected return  on plan assets |       | (1,069                           | )          | (1,035                            | )          | — |   | — |   |
|                            |       | $                                | (61        | )                                 | $          | 29 |   | $ | 19 |   | $ | 18 |   |

 

**10.**          Restructuring and Merger-Related Charges

** **

Periodically, the Company records restructuring andmerger-related charges related to plant relocations, personnel reorganizationand acquisition integration activities. As of March 29, 2008, therestructuring liability associated with these restructuring and merger-relatedcharges was $2,326 and is classified within the accrued expense caption on theconsolidated balance sheet. The majority of this balance relates to severanceand severance related costs which will be paid during the next twelve monthperiod.

 

**11.**          Legal Proceedings

** **

The Company isparty to various claims and routine litigation arising in the ordinary courseof business. Historically, the Company has not been required to pay anymaterial liability claims. The Company maintains insurance against productliability claims (with the exception of respiratory claims relating toasbestosis and silicosis cases, for which coverage is not commerciallyavailable), but it is possible that its insurance coverage will not continue tobe available on terms acceptable to the Company or that such coverage will notbe adequate for liabilities actually incurred.

 

6

----

 

As of March 29,2008, the Company has recorded a $5,000 reserve for respiratory claims. Therehas been no significant changes to these claims as reported in the Company’s2007 annual report on Form 10-K.

 

**12.**          Segment Data

** **

The following table presents information about theCompany by segment:

 
| ** **                                  | ** ** | **General  Safety &  Preparedness** | ** ** | **Fire  Service** | ** ** | **Electrical  Safety** | ** ** | **Corporate  (1)** | ** ** | **Eliminations  (2)** | ** ** | **Total**  | ** ** |
|---------------------------------------------|------------|----------------------------------------------|------------|-------------------|------------|------------------------|------------|--------------------|------------|-----------------------|------------|------------|------------|
| **Three  Months Ended March 31, 2007** | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| Net sales—third  parties               |       | $                                            | 99,450     |              | $          | 23,847                 |       | $                  | 24,854     |                  | —     |       | —     |   | $ | 148,151 |   |
| Net  sales—intersegment                |       | 2,334                                        |       | —            |       | 105                    |       | —             |       | (2,439                | )          | —     |       |
| Income (loss)  from operations              |       | 12,248                                       |       | 2,958             |       | 5,647                  |       | (2,530             | )          | —                |       | 18,323     |       |
| ** **                                  | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| **Three  Months Ended March 29, 2008** | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| Net sales—third  parties               |       | $                                            | 112,325    |              | $          | 27,173                 |       | $                  | 26,604     |                  | —     |       | —     |   | $ | 166,102 |   |
| Net  sales—intersegment                |       | 2,002                                        |       | —            |       | 67                     |       | —             |       | (2,069                | )          | —     |       |
| Income (loss)  from operations              |       | 15,214                                       |       | 3,932             |       | 5,485                  |       | (5,782             | )          | —                |       | 18,849     |       |

 

----

(1)          Corporateexpenses include general and administrative expenses such as administrative,finance, human resources and legal, which are not directly associated with oneof the reporting segments.

 

(2)          Theeliminations column includes the elimination of intersegment net sales amongthe three reporting segments.

 

**13.**          Subsidiary Guarantors

** **

All of the Company’s direct or indirect 100% ownedactive domestic subsidiaries, fully, unconditionally, jointly and severallyguarantee the senior subordinated notes (the “Opco Notes”). Separate financialstatements of the guarantor subsidiaries are not separately presented because,in the opinion of management, such financial statements are not material toinvestors. The non-guarantor subsidiaries include wholly owned subsidiaries ofthe Company organized under the laws of foreign jurisdictions and inactivesubsidiaries, all of which are included in the consolidated financialstatements. The following is summarized combining financial information forNorcross Safety Products L.L.C. on a stand-alone basis (“NSP”), NorcrossCapital Corp. (“NCC”) (a wholly-owned subsidiary of the Company and co-issuerof the senior subordinated notes), the guarantor subsidiaries of the Companyand the non-guarantor subsidiaries of the Company:

 

7

----

 
| ** **                                          | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **March 29,  2008**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Current assets:                                     |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Cash and cash  equivalents                          |       | $          | 34,117     |       | $          | —                      |       | $                                 | (4,041     | )                | $          | 21,334     |       | $ | — |   | $ | 51,410 |   |
| Accounts  receivable, net                           |       | 11,229     |       | —     |       | 46,001                      |       | 36,280                            |       | —           |       | 93,510     |       |
| Inventories                                         |       | 12,952     |       | —     |       | 47,346                      |       | 49,916                            |       | —           |       | 110,214    |       |
| Deferred income  taxes                              |       | 1,163      |       | —     |       | 599                         |       | —                            |       | —           |       | 1,762      |       |
| Prepaid expenses  and other current assets          |       | 929        |       | —     |       | 1,484                       |       | 1,195                             |       | —           |       | 3,608      |       |
| Total current  assets                               |       | 60,390     |       | —     |       | 91,389                      |       | 108,725                           |       | —           |       | 260,504    |       |
| Property, plant  and equipment, net                 |       | 6,881      |       | —     |       | 36,579                      |       | 24,768                            |       | —           |       | 68,228     |       |
| Deferred  financing costs, net                      |       | 4,709      |       | —     |       | —                      |       | —                            |       | —           |       | 4,709      |       |
| Goodwill                                            |       | 22,345     |       | —     |       | 89,796                      |       | 53,365                            |       | —           |       | 165,506    |       |
| Other intangible  assets, net                       |       | 23,565     |       | —     |       | 209,341                     |       | 40,296                            |       | —           |       | 273,202    |       |
| Investment in subsidiaries                          |       | 329,307    |       | —     |       | 137,997                     |       | —                            |       | (467,304         | )          | —     |       |
| Other noncurrent  assets                            |       | —     |       | —     |       | 5,359                       |       | 1,989                             |       | —           |       | 7,348      |       |
| Total assets                                        |       | $          | 447,197    |       | $          | —                      |       | $                                 | 570,461    |             | $          | 229,143    |       | $ | (467,304 | ) | $ | 779,497 |   |
| Current  liabilities:                               |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Accounts payable                                    |       | $          | 5,005      |       | $          | —                      |       | $                                 | 11,047     |             | $          | 8,819      |       | $ | — |   | $ | 24,871 |   |
| Accrued expenses                                    |       | 10,287     |       | —     |       | 8,810                       |       | 11,283                            |       | —           |       | 30,380     |       |
| Current  maturities of long-term obligations        |       | 3,119      |       | —     |       | 250                         |       | —                            |       | —           |       | 3,369      |       |
| Total current  liabilities                          |       | 18,411     |       | —     |       | 20,107                      |       | 20,102                            |       | —           |       | 58,620     |       |
| Pension,  post-retirement and deferred compensation |       | —     |       | —     |       | 12,874                      |       | 499                               |       | —           |       | 13,373     |       |
| Long-term  obligations                              |       | 306,951    |       | —     |       | 250                         |       | —                            |       | —           |       | 307,201    |       |
| Intercompany  balances                              |       | (195,796   | )          | —     |       | 144,075                     |       | 51,721                            |       |             |       | —     |       |
| Due to Safety  Products Holdings, Inc.         |       | —     |       | —     |       | 6,723                       |       | —                            |       | —           |       | 6,723      |       |
| Other noncurrent  liabilities                       |       | —     |       | —     |       | 9,447                       |       | 2,665                             |       | —           |       | 12,112     |       |
| Deferred income  taxes                              |       | 1,268      |       | —     |       | 48,725                      |       | 14,888                            |       | —           |       | 64,881     |       |
|                                                |       | 112,423    |       | —     |       | 222,094                     |       | 69,773                            |       | —           |       | 404,290    |       |
|                                                |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Minority  interest                                  |       | —     |       | —     |       | —                      |       | 224                               |       | —           |       | 224        |       |
|                                                |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Member’s equity:                               |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Contributed  capital                                |       | 224,857    |       | —     |       | 211,312                     |       | 86,705                            |       | (298,017         | )          | 224,857    |       |
| Retained  earnings                                  |       | 55,914     |       | —     |       | 81,353                      |       | 27,153                            |       | (108,506         | )          | 55,914     |       |
| Accumulated  other comprehensive income             |       | 35,592     |       | —     |       | 35,595                      |       | 25,186                            |       | (60,781          | )          | 35,592     |       |
| Total member’s  equity                         |       | 316,363    |       | —     |       | 328,260                     |       | 139,044                           |       | (467,304         | )          | 316,363    |       |
| Total  liabilities and member’s equity         |       | $          | 447,197    |       | $          | —                      |       | $                                 | 570,461    |             | $          | 229,143    |       | $ | (467,304 | ) | $ | 779,497 |   |

 

8

----

 
| ** **                                          | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **December 31,  2007**                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Current assets:                                     |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Cash and cash  equivalents                          |       | $          | 51,245     |       | $          | —                      |       | $                                 | (4,039     | )                | $          | 22,887     |       | $ | — |   | $ | 70,093 |   |
| Accounts  receivable, net                           |       | 9,926      |       | —     |       | 37,107                      |       | 29,326                            |       | —           |       | 76,359     |       |
| Inventories                                         |       | 12,410     |       | —     |       | 47,342                      |       | 48,663                            |       | —           |       | 108,415    |       |
| Deferred income  taxes                              |       | 1,163      |       | —     |       | 599                         |       | —                            |       | —           |       | 1,762      |       |
| Prepaid expenses  and other current assets          |       | 873        |       | —     |       | 1,468                       |       | 1,261                             |       | —           |       | 3,602      |       |
| Total current  assets                               |       | 75,617     |       | —     |       | 82,477                      |       | 102,137                           |       | —           |       | 260,231    |       |
| Property, plant  and equipment, net                 |       | 7,265      |       | —     |       | 37,552                      |       | 23,859                            |       | —           |       | 68,676     |       |
| Deferred  financing costs, net                      |       | 5,045      |       | —     |       | —                      |       | —                            |       | —           |       | 5,045      |       |
| Goodwill                                            |       | 22,345     |       | —     |       | 89,796                      |       | 52,882                            |       | —           |       | 165,023    |       |
| Other intangible  assets, net                       |       | 23,841     |       | —     |       | 211,383                     |       | 40,101                            |       | —           |       | 275,325    |       |
| Investment in  subsidiaries                         |       | 316,349    |       | —     |       | 130,818                     |       | —                            |       | (447,167         | )          | —     |       |
| Other noncurrent  assets                            |       | —     |       | —     |       | 5,419                       |       | 1,815                             |       | —           |       | 7,234      |       |
| Total assets                                        |       | $          | 450,462    |       | $          | —                      |       | $                                 | 557,445    |             | $          | 220,794    |       | $ | (447,167 | ) | $ | 781,534 |   |
| Current  liabilities:                               |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Accounts payable                                    |       | $          | 3,650      |       | $          | —                      |       | $                                 | 8,287      |             | $          | 8,346      |       | $ | — |   | $ | 20,283 |   |
| Accrued expenses                                    |       | 14,643     |       | —     |       | 13,128                      |       | 13,052                            |       | —           |       | 40,823     |       |
| Current  maturities of long-term obligations        |       | 12,552     |       | —     |       | 250                         |       | —                            |       | —           |       | 12,802     |       |
| Total current  liabilities                          |       | 30,845     |       | —     |       | 21,665                      |       | 21,398                            |       | —           |       | 73,908     |       |
| Pension,  post-retirement and deferred compensation |       | —     |       | —     |       | 13,318                      |       | 474                               |       | —           |       | 13,792     |       |
| Long-term  obligations                              |       | 307,177    |       | —     |       | 500                         |       | —                            |       | —           |       | 307,677    |       |
| Intercompany  balances                              |       | (193,975   | )          | —     |       | 144,476                     |       | 49,499                            |       | —           |       | —     |       |
| Due to Safety  Products Holdings, Inc.         |       | —     |       | —     |       | 4,484                       |       | —                            |       | —           |       | 4,484      |       |
| Other noncurrent  liabilities                       |       | —     |       | —     |       | 9,580                       |       | 2,583                             |       | —           |       | 12,163     |       |
| Deferred income  taxes                              |       | 1,268      |       | —     |       | 48,120                      |       | 14,754                            |       | —           |       | 64,142     |       |
|                                                |       | 114,470    |       | —     |       | 220,478                     |       | 67,310                            |       | —           |       | 402,258    |       |
|                                                |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Minority  interest                                  |       | —     |       | —     |       | —                      |       | 221                               |       | —           |       | 221        |       |
|                                                |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Member’s equity:                               |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Contributed  capital                                |       | 224,472    |       | —     |       | 211,312                     |       | 86,705                            |       | (298,017         | )          | 224,472    |       |
| Retained  earnings                                  |       | 47,510     |       | —     |       | 70,825                      |       | 22,573                            |       | (93,398          | )          | 47,510     |       |
| Accumulated  other comprehensive income             |       | 33,165     |       | —     |       | 33,165                      |       | 22,587                            |       | (55,752          | )          | 33,165     |       |
| Total member’s  equity                         |       | 305,147    |       | —     |       | 315,302                     |       | 131,865                           |       | (447,167         | )          | 305,147    |       |
| Total  liabilities and member’s equity         |       | $          | 450,462    |       | $          | —                      |       | $                                 | 557,445    |             | $          | 220,794    |       | $ | (447,167 | ) | $ | 781,534 |   |

 

9

----

 
| ** **                                             | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Three  months ended March 29, 2008**            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Third party                                            |       | $          | 21,976     |       | $          | —                      |       | $                                 | 84,381     |             | $          | 59,745     |       | $ | — |   | $ | 166,102 |   |
| Intercompany                                           |       | 2,004      |       | —     |       | 3,474                       |       | 4,124                             |       | (9,602           | )          | —     |       |
| Net sales                                              |       | 23,980     |       | —     |       | 87,855                      |       | 63,869                            |       | (9,602           | )          | 166,102    |       |
| Cost of goods  sold                                    |       | 16,700     |       | —     |       | 55,474                      |       | 38,782                            |       | (9,602           | )          | 101,354    |       |
| Gross profit                                           |       | 7,280      |       | —     |       | 32,381                      |       | 25,087                            |       | —           |       | 64,748     |       |
| Operating  expenses:                                   |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Selling                                                |       | 1,219      |       | —     |       | 7,973                       |       | 6,654                             |       | —           |       | 15,846     |       |
| Distribution                                           |       | 1,568      |       | —     |       | 4,219                       |       | 4,079                             |       | —           |       | 9,866      |       |
| General and  administrative                            |       | 4,694      |       | —     |       | 6,394                       |       | 3,859                             |       | —           |       | 14,947     |       |
| Amortization of  intangibles                           |       | 276        |       | —     |       | 2,043                       |       | 511                               |       | —           |       | 2,830      |       |
| Seller  transaction expenses                           |       | 2,410      |       | —     |       | —                      |       | —                            |       | —           |       | 2,410      |       |
| Total operating  expenses                              |       | 10,167     |       | —     |       | 20,629                      |       | 15,103                            |       | —           |       | 45,899     |       |
| (Loss) income  from operations                         |       | (2,887     | )          | —     |       | 11,752                      |       | 9,984                             |       | —           |       | 18,849     |       |
| Other expense  (income):                               |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Interest expense                                       |       | 6,210      |       | —     |       | 10                          |       | —                            |       | —           |       | 6,220      |       |
| Interest income                                        |       | (402       | )          | —     |       | (1                          | )          | (175                              | )          | —           |       | (578       | )          |
| Intercompany  charges                                  |       | (16,502    | )          | —     |       | (2,873                      | )          | 4,267                             |       | 15,108           |       | —     |       |
| Other, net                                             |       | (10        | )          | —     |       | 61                          |       | (543                              | )          | —           |       | (492       | )          |
| Income from  before income taxes and minority interest |       | 7,817      |       | —     |       | 14,555                      |       | 6,435                             |       | (15,108          | )          | 13,699     |       |
| Income tax  (benefit) expense                          |       | (940       | )          | —     |       | 4,027                       |       | 1,852                             |       | —           |       | 4,939      |       |
| Minority  interest                                     |       | —     |       | —     |       | —                      |       | 3                                 |       | —           |       | 3          |       |
| Net income                                             |       | $          | 8,757      |       | $          | —                      |       | $                                 | 10,528     |             | $          | 4,580      |       | $ | (15,108 | ) | $ | 8,757 |   |

 

10

----

 
| ** **                                                                   | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Three  months ended March 31, 2007**                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Third party                                                                  |       | $          | 18,125     |       | $          | —                      |       | $                                 | 81,743     |             | $          | 48,283     |       | $ | — |   | $ | 148,151 |   |
| Intercompany                                                                 |       | 1,974      |       | —     |       | 2,569                       |       | 5,203                             |       | (9,746           | )          | —     |       |
| Net sales                                                                    |       | 20,099     |       | —     |       | 84,312                      |       | 53,486                            |       | (9,746           | )          | 148,151    |       |
| Cost of goods  sold                                                          |       | 13,763     |       | —     |       | 53,369                      |       | 33,323                            |       | (9,746           | )          | 90,709     |       |
| Gross profit                                                                 |       | 6,336      |       | —     |       | 30,943                      |       | 20,163                            |       | —           |       | 57,442     |       |
| Operating  expenses:                                                         |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Selling                                                                      |       | 1,184      |       | —     |       | 7,163                       |       | 5,142                             |       | —           |       | 13,489     |       |
| Distribution                                                                 |       | 1,291      |       | —     |       | 4,322                       |       | 3,446                             |       | —           |       | 9,059      |       |
| General and  administrative                                                  |       | 3,496      |       | —     |       | 6,720                       |       | 3,390                             |       | —           |       | 13,606     |       |
| Amortization of  intangibles                                                 |       | 276        |       | —     |       | 2,228                       |       | 461                               |       | —           |       | 2,965      |       |
| Total operating  expenses                                                    |       | 6,247      |       | —     |       | 20,433                      |       | 12,439                            |       | —           |       | 39,119     |       |
| Income from  operations                                                      |       | 89         |       | —     |       | 10,510                      |       | 7,724                             |       | —           |       | 18,323     |       |
| Other expense  (income):                                                     |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Interest expense                                                             |       | 7,015      |       | —     |       | 16                          |       | 3                                 |       | —           |       | 7,034      |       |
| Interest income                                                              |       | (202       | )          | —     |       | —                      |       | (23                               | )          | —           |       | (225       | )          |
| Intercompany  charges                                                        |       | (13,682    | )          | —     |       | (403                        | )          | 3,563                             |       | 10,522           |       | —     |       |
| Other, net                                                                   |       | 105        |       | —     |       | (90                         | )          | (111                              | )          | —           |       | (96        | )          |
| Income from  continuing operations before income taxes and minority interest |       | 6,853      |       | —     |       | 10,987                      |       | 4,292                             |       | (10,522          | )          | 11,610     |       |
| Income tax  (benefit) expense                                                |       | (302       | )          | —     |       | 3,371                       |       | 1,541                             |       | —           |       | 4,610      |       |
| Minority  interest                                                           |       | —     |       | —     |       | —                      |       | 6                                 |       | —           |       | 6          |       |
| Income from  continuing operations                                           |       | 7,155      |       | —     |       | 7,616                       |       | 2,745                             |       | (10,522          | )          | 6,994      |       |
| Income from  discontinued operations                                         |       | —     |       | —     |       | —                      |       | (161                              | )          | —           |       | (161       | )          |
| Net income                                                                   |       | $          | 7,155      |       | $          | —                      |       | $                                 | 7,616      |             | $          | 2,906      |       | $ | (10,522 | ) | $ | 7,155 |   |

 

11

----

 
| ** **                                           | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Three  months ended March 29, 2008**          | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Operating  activities**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net cash (used  in) provided by operating activities |       | $          | (5,436     | )          | $          | —                      |       | $                                 | 1,833      |             | $          | (2,680     | )          | $ | — |   | $ | (6,283 | ) |
| **Investing  activities**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Purchase of  businesses, net of cash acquired        |       | —     |       | —     |       | —                      |       | (118                              | )          | —           |       | (118       | )          |
| Purchase of  property, plant and equipment           |       | (156       | )          | —     |       | (1,427                      | )          | (1,218                            | )          | —           |       | (2,801     | )          |
| Proceeds from  sale of property, plant and equipment |       | —     |       | —     |       | 478                         |       | 16                                |       | —           |       | 494        |       |
| Net cash used in  investing activities               |       | (156       | )          | —     |       | (949                        | )          | (1,320                            | )          | —           |       | (2,425     | )          |
| **Financing  activities**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Payments of debt                                     |       | (9,361     | )          | —     |       | (250                        | )          | —                            |       | —           |       | (9,611     | )          |
| Intercompany                                         |       | (1,822     | )          | —     |       | (466                        | )          | 2,288                             |       | —           |       | —     |       |
| Dividends to  Safety Products Holdings, Inc.    |       | (353       | )          | —     |       | —                      |       | —                            |       | —           |       | (353       | )          |
| Net cash (used  in) provided by financing activities |       | (11,536    | )          | —     |       | (716                        | )          | 2,288                             |       | —           |       | (9,964     | )          |
| Effect of  exchange rate changes on cash             |       | —     |       | —     |       | (170                        | )          | 159                               |       | —           |       | (11        | )          |
| Net decrease in  cash and cash equivalents           |       | (17,128    | )          | —     |       | (2                          | )          | (1,553                            | )          | —           |       | (18,683    | )          |
| Cash and cash  equivalents at beginning of period    |       | 51,245     |       | —     |       | (4,039                      | )          | 22,887                            |       | —           |       | 70,093     |       |
| Cash and cash  equivalents at end of period          |       | $          | 34,117     |       | $          | —                      |       | $                                 | (4,041     | )                | $          | 21,334     |       | $ | — |   | $ | 51,410 |   |

 

12

----

 
| ** **                                           | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Three  months ended March 31, 2007**          | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Operating  activities**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net cash used in  operating activities               |       | $          | (5,043     | )          | $          | —                      |       | $                                 | (297       | )                | $          | (218       | )          | $ | — |   | $ | (5,558 | ) |
| **Investing  activities**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Purchase of  businesses, net of cash acquired        |       | —     |       | —     |       | —                      |       | (159                              | )          | —           |       | (159       | )          |
| Purchase of  property, plant and equipment           |       | (280       | )          | —     |       | (2,034                      | )          | (984                              | )          | —           |       | (3,298     | )          |
| Proceeds from  sale of property, plant and equipment |       | —     |       | —     |       | —                      |       | 29                                |       | —           |       | 29         |       |
| Net cash used in  investing activities               |       | (280       | )          | —     |       | (2,034                      | )          | (1,114                            | )          | —           |       | (3,428     | )          |
| **Financing  activities**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Payments of debt                                     |       | (427       | )          | —     |       | (250                        | )          | (33                               | )          | —           |       | (710       | )          |
| Intercompany                                         |       | (1,005     | )          | —     |       | (51                         | )          | 1,056                             |       | —           |       | —     |       |
| Dividends to  Safety Products Holdings, Inc.    |       | (153       | )          | —     |       | —                      |       | —                            |       | —           |       | (153       | )          |
| Net cash (used  in) provided by financing activities |       | (1,585     | )          | —     |       | (301                        | )          | 1,023                             |       | —           |       | (863       | )          |
| Effect of  exchange rate changes on cash             |       | 17         |       | —     |       | 256                         |       | (297                              | )          | —           |       | (24        | )          |
| Net decrease in  cash and cash equivalents           |       | (6,891     | )          | —     |       | (2,376                      | )          | (606                              | )          | —           |       | (9,873     | )          |
| Cash and cash  equivalents at beginning of period    |       | 19,271     |       | —     |       | (1,283                      | )          | 8,108                             |       | —           |       | 26,096     |       |
| Cash and cash  equivalents at end of period          |       | $          | 12,380     |       | $          | —                      |       | $                                 | (3,659     | )                | $          | 7,502      |       | $ | — |   | $ | 16,223 |   |

 

**14.**          Comprehensive Income

** **

Total comprehensive income (which includes the impactof foreign currency translation) amounted to $8,309 and $11,184 for the threemonths ended March 31, 2007 and March 29, 2008, respectively.

 

**15.**          Seller Transaction Expenses

** **

The Company incurred $2,410 in transaction expensesrelated primarily to professional services during the three months ended March 29,2008 associated with the exploration of strategic alternatives, including apossible sale of the Company (See Note 16). These costs are reflected withinoperating expenses as seller transaction expenses.

 

**16.**          Subsequent Events

 

In April 2008, Safety Products Holdings, Inc. (“SafetyProducts”), the parent company of Norcross Safety Products L.L.C. (“Norcross”),entered into a Stock Purchase Agreement (the "Purchase Agreement") byand among Safety Products, the selling shareholders party thereto, HoneywellInternational Inc., a Delaware corporation ("Honeywell"), and OdysseyInvestment Services, L.L.C., a Delaware limited liability company, solely in itscapacity as representative. Pursuant to the Purchase Agreement, Honeywell willpurchase all of the issued and outstanding equity securities of Safety Productsfor an aggregate cash purchase price of approximately $1.2 billion. The portionof such purchase price to be paid to the holders of Safety Products' equitysecurities will be reduced by the net indebtedness of Safety Products, whichwill include fees and expenses incurred by it in connection with thetransactions contemplated by the Purchase Agreement.

 

In April 2008, Norcross commenced a cash tender offerand consent solicitation relating to all of the outstanding Opco Notes. Inconjunction with the tender offer, Norcross also solicited consents to adoptproposed amendments to the indenture under which the Opco Notes were issued (asamended and supplemented from time to time, the “Indenture”) that, among otherthings, would eliminate substantially all restrictive covenants and certainevents of default provisions.  

 

The total consideration offered by Norcross (whichincluded a consent payment of $30.00) for each $1,000 principal amount of OpcoNotes validly tendered and accepted for payment and consents validly deliveredand not withdrawn on or prior to the consent date was $1,051.88. Norcross receivedtenders and consents from over 99% of its respective holders. 

 

As a result of obtaining the required consents, thesupplemental indenture effecting the amendments to the Indenture governing theOpco Notes contemplated by the tender offer and consent solicitation wasexecuted and withdrawal rights were terminated. The amendments to the Indentureset forth in the supplemental indenture will not become operative untilimmediately prior to the consummation of the sale to Honeywell and will ceaseto be operative unless the sale to Honeywell is consummated and Norcrosspurchases all of the applicable Opco Notes tendered pursuant to the tenderoffer.

 

In April 2008,North Safety Products L.L.C., a subsidiary of the Company, acquiredsubstantially all of the assets and certain liabilities of the first aidbusiness of Swift First Aid, Inc. and certain assets used in such businessowned by Medic Plus, Inc. for approximately $11,000 in cash.

 

13

----

 

**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

**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*,*NEOS*,**Morning Pride**,*Ranger*, *Servus*, *Pro-Warrington**,* American Firewear*,* Salisbury*and*SafetyLine. Our broad productoffering includes, among other things, respiratory protection, protectivefootwear, hand protection, turnout gear and linemen 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 the manufacturing,agriculture, automotive, construction, food processing and pharmaceuticalindustries and the military, under the *North*, *KCL*,*Fibre-Metal*,*NEOS*,*Ranger*and *Servus* brand names. Our product offering is one of thebroadest in the personal protection equipment industry and includes respiratoryprotection, protective footwear, hand protection, eye, head and faceprotection, first aid, hearing protection and fall protection. We sell ourgeneral safety and preparedness products primarily through industrialdistributors.

 

*Fire Service*.We manufacture and market one of the broadest lines of personal protectionequipment for the fire service market, offering firefighters head-to-toeprotection. Our products include turnout gear, fireboots, helmets, gloves andother accessories. We market our products under our Total Fire Group umbrella,using the brand names of *MorningPride*, *Ranger*, *Servus*,*Pro-Warrington*and*AmericanFirewear*. We are the vendor of choice for many of the largest firedepartments in North America. We sell our fire service products primarilythrough specialized fire service distributors.

 

*Electrical Safety*.We manufacture and market a broad line of personal protection equipment for theutility market under the *Salisbury*,*SafetyLine*and *Servus* brands.Our products include linemen equipment, gloves, sleeves, footwear and arc flashprotection. Our products either meet or exceed the applicable standards of theAmerican National Standards Institute (“ANSI”), the American Society forTesting of Materials (“ASTM”) and the International Electrotechinal Commission(“IEC”). We sell our electrical safety products through specializeddistributors, test labs, utilities and electrical contractors.

 

**Discontinued Operations**

** **

In June 2007, we completed the sale of all of theissued and outstanding capital stock of South Africa. We received net cashproceeds of $3.2 million and recorded a net loss related to the transaction of$3.0 million. In accordance with SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived**Assets*,we have reflected South Africa’s results of operations through the date of thesale and transaction loss as discontinued operations for all periods presented.We have combined cash flows from discontinued operations with cash flows fromcontinuing operations within each cash flow statement category as the cashflows from discontinued operations are not material to our consolidatedresults.

 

**GrossProfit**

 

Wecalculate gross profit as the difference between our net sales and cost ofgoods sold. We do not include certain purchasing and distribution costs as acomponent of cost of goods sold. As a result, our gross profit may not becomparable to other entities who may present all of purchasing and distributioncosts as a component of cost of goods sold.

 

**ExpenseClassifications**

 

Weinclude the following in each of the major expense categories:

 

*Cost of Goods Sold*.Primarily includes all direct and indirect costs related to our productsincluding the following: raw materials, direct and indirect labor, includingrelated benefits, overhead costs, inbound freight charges, receiving costs,inspection costs, purchasing costs, other internal transfer costs and cost ofresale products.

 

*Selling.*Primarily includes all payroll and related benefits associated with sales andmarketing employees, internal and external sales commission payments, marketingcosts, advertising expenses and other miscellaneous selling expenses.

 

14

----

 

*Distribution.*Primarily includesall direct and indirect labor associated with distribution and relatedbenefits, warehousing and freight-out costs and other miscellaneousdistribution expenses.

 

*General and Administrative.*Primarilyincludes the following: finance and accounting, certain purchasing costs,information systems, human resources, legal, corporate overhead expenses andother miscellaneous administrative expenses.

 

**Results of Operations**

** **

The following tables setforth our results of operations in dollars and as a percentage of net sales forthe three months ended March 31, 2007 and March 29, 2008 and havebeen derived from the unaudited statements of operations.

 
| ** **                                                                   | ** ** | **Three months ended**     | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                   | ** ** | **March 31,  2007**             | ** ** | **March 29,  2008** | ** ** |
| ** **                                                                   | ** ** | **(dollars in thousands)** | ** ** |
| Net sales:                                                                   |       |                                 |       |   |   |
| General safety  and preparedness                                             |       | $                                    | 99,450     |   | $ | 112,325 |   |
| Fire service                                                                 |       | 23,847                               |       | 27,173 |   |
| Electrical  safety                                                           |       | 24,854                               |       | 26,604 |   |
| Total net sales                                                              |       | 148,151                              |       | 166,102 |   |
| Cost of goods  sold                                                          |       | 90,709                               |       | 101,354 |   |
| Gross profit                                                                 |       | 57,442                               |       | 64,748 |   |
| Operating  expenses                                                          |       | 39,119                               |       | 45,899 |   |
| Income (loss)  from operations:                                              |       |                                 |       |   |   |
| General safety  and preparedness                                             |       | 12,248                               |       | 15,214 |   |
| Fire service                                                                 |       | 2,958                                |       | 3,932 |   |
| Electrical  safety                                                           |       | 5,647                                |       | 5,485 |   |
| Corporate                                                                    |       | (2,530                               | )          | (5,782 | ) |
| Total income  from operations                                                |       | 18,323                               |       | 18,849 |   |
| Other expense  (income):                                                     |       |                                 |       |   |   |
| Interest expense                                                             |       | 7,034                                |       | 6,220 |   |
| Interest income                                                              |       | (225                                 | )          | (578 | ) |
| Other, net                                                                   |       | (96                                  | )          | (492 | ) |
| Income from  continuing operations before income taxes and minority interest |       | 11,610                               |       | 13,699 |   |
| Income tax  expense                                                          |       | 4,610                                |       | 4,939 |   |
| Minority  interest                                                           |       | 6                                    |       | 3 |   |
| Income from  continuing operations                                           |       | 6,994                                |       | 8,757 |   |
| Income from  discontinued operations                                         |       | (161                                 | )          | — |   |
| Net income                                                                   |       | $                                    | 7,155      |   | $ | 8,757 |   |

 

15

----

 
| ** **                                                                   | ** ** | **Three months ended**                            | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **March 31,  2007**                                    | ** ** | **March 29,  2008** | ** ** |
| ** **                                                                   | ** ** | **(as a percentage of net sales)** | ** ** |
| Net sales:                                                                   |       |                                                        |       |   |   |
| General safety  and preparedness                                             |       | 67.1                                                        | %          | 67.6 | % |
| Fire service                                                                 |       | 16.1                                                        | %          | 16.4 | % |
| Electrical  safety                                                           |       | 16.8                                                        | %          | 16.0 | % |
| Total net sales                                                              |       | 100.0                                                       | %          | 100.0 | % |
| Cost of goods  sold                                                          |       | 61.2                                                        | %          | 61.0 | % |
| Gross profit                                                                 |       | 38.8                                                        | %          | 39.0 | % |
| Operating  expenses                                                          |       | 26.4                                                        | %          | 27.6 | % |
| Income (loss)  from operations:                                              |       |                                                        |       |   |   |
| General safety  and preparedness                                             |       | 8.3                                                         | %          | 9.2 | % |
| Fire service                                                                 |       | 2.0                                                         | %          | 2.4 | % |
| Electrical  safety                                                           |       | 3.8                                                         | %          | 3.3 | % |
| Corporate                                                                    |       | (1.7                                                        | )%         | (3.5 | )% |
| Total income  from operations                                                |       | 12.4                                                        | %          | 11.4 | % |
| Other expense  (income):                                                     |       |                                                        |       |   |   |
| Interest expense                                                             |       | 4.7                                                         | %          | 3.7 | % |
| Interest income                                                              |       | (0.1                                                        | )%         | (0.3 | )% |
| Other, net                                                                   |       | (0.0                                                        | )%         | (0.3 | )% |
| Income from  continuing operations before income taxes and minority interest |       | 7.8                                                         | %          | 8.3 | % |
| Income tax  expense                                                          |       | 3.1                                                         | %          | 3.0 | % |
| Minority  interest                                                           |       | 0.0                                                         | %          | 0.0 | % |
| Income from  continuing operations                                           |       | 4.7                                                         | %          | 5.3 | % |
| Income from  discontinued operations                                         |       | (0.1                                                        | )%         | 0.0 | % |
| Net income                                                                   |       | 4.8                                                         | %          | 5.3 | % |

 

***Three Months Ended March 29,2008 as Compared to Three Months Ended March 31, 2007***

 

*Net sales.*Net sales increased by $17.9 million, or12.1%, from $148.2 million for the three months ended March 31, 2007 to$166.1 million for the three months ended March 29, 2008. In our generalsafety and preparedness segment, net sales increased by $12.8 million, or12.9%, from $99.5 million for the three months ended March 31, 2007 to$112.3 million for the three months ended March 29, 2008. This increasereflects a combination of the following: favorable exchange rates, which had animpact of $7.8 million, overall organic growth in our North Americannon-government business of $2.2 million, organic growth in our internationaloperations of $1.7 million and growth in our North American government contractshipments of $1.1 million. In our fire service segment, net sales increased by$3.4 million, or 13.9%, from $23.8 million for the three months ended March 31,2007 to $27.2 million for the three months ended March 29, 2008 due tocontinued demand for our patented products. In our electrical safety segment,net sales increased by $1.7 million, or 7.0%, from $24.9 million for the threemonths ended March 31, 2007 to $26.6 million for the three months ended March 29,2008 in part due to increased international shipments.

 

*Grossprofit.*Grossprofit increased by $7.3 million, or 12.7%, from $57.4 million for the threemonths ended March 31, 2007 to $64.7 million for the three months ended March 29,2008, primarily due to the $17.9 million, or 12.1%, increase in net sales. Ourgross profit margin was 39.0% for the three months ended March 29, 2008 ascompared to 38.8% for the three months ended March 31, 2007. In ourgeneral safety and preparedness segment, gross profit increased by $5.4million, or 13.3%, from $40.5 million for the three months ended March 31,2007 to $45.9 million for the three months ended March 29, 2008. Thisincrease was primarily due to the overall net sales increase of $12.8 million,or 12.9%, and improved margin realization. In our fire service segment, grossprofit increased by $1.7 million, or 23.8%, from $7.4 million for the threemonths ended March 31, 2007 to $9.1 million for the three months ended March 29,2008, primarily due to the increase in net sales of $3.4 million, or 13.9% andproduction efficiencies. In our electrical safety segment, gross profitincreased by $0.2 million, or 1.8%, from $9.6 million for the three monthsended March 31, 2007 to $9.8 million for the three months ended March 29,2008 as the $1.7 million, or 7.0%, increase in net sales was partially offsetby inefficiencies within our Charleston, South Carolina facility.

 

*Operatingexpenses. *Operating expenses increased by $6.8million, or 17.3%, from $39.1 million for the three months ended March 31,2007 to $45.9 million for the three months ended March 29, 2008. In ourgeneral safety and 

 

16

----

 

preparedness segment, operating expenses increased by $2.4 million, or8.6%, from $28.3 million for the three months ended March 31, 2007 to$30.7 million for the three months ended March 29, 2008, driven byincreased variable selling and distribution expenses associated with the $12.8million, or 12.9%, increase in net sales and the impact of unfavorable exchangerates. In our fire service segment, operating expenses increased by $0.8million, or 17.7%, from $4.4 million for the three months ended March 31,2007 to $5.2 million for the three months ended March 29, 2008, primarilydue increased variable selling and distribution expenses associated within the$3.4 million, or 13.9%, increase in net sales and higher general andadministrative expenses. In our electrical safety segment, operating expensesincreased by $0.3 million, or 8.5%, from $4.0 million for the three monthsended March 31, 2007 to $4.3 million for the three months ended March 29,2008 due to increased variable selling and distribution expenses related to the$1.7 million, or 7.0%, increase in net sales. Corporate expenses for the threemonths ended March 31, 2007 consisted of $2.2 million of general andadministrative expenses and $0.3 million of management incentive compensationexpense. Corporate expenses for the three months ended March 29, 2008consisted of $3.0 million of general and administrative expenses, $0.4 millionof management incentive compensation expense and $2.4 million of sellertransaction expenses. The increase in corporate general and administrativeexpenses of $0.8 million was primarily related to increased professionalfees associated with the engagement of a supply-chain improvement consultingfirm.

 

*Income from operations.*Income from operations increased by $0.5million, or 2.9%, from $18.3 million for the three months ended March 31,2007 to $18.8 million for the three months ended March 29, 2008. In ourgeneral safety and preparedness segment, income from operations increased by$3.0 million, or 24.2%, from $12.2 million for the three months ended March 31,2007 to $15.2 million for the three months ended March 29, 2008. In ourfire service segment, income from operations increased by $0.9 million, or32.9%, from $3.0 million for the three months ended March 31, 2007 to $3.9million for the three months ended March 29, 2008. In our electricalsafety segment, income from operations decreased by $0.1 million, or 2.9%, from$5.6 million for the three months ended March 31, 2007 to $5.5 million forthe three months ended March 29, 2008. Corporate expenses for the threemonths ended March 31, 2007 consisted of $2.2 million of general andadministrative expenses and $0.3 million of management incentive compensationexpense. Corporate expenses for the three months ended March 29, 2008consisted of $3.0 million of general and administrative expenses, $0.4 millionof management incentive compensation expense and $2.4 million of sellertransaction expenses. These segment variances were the result of the reasonsdiscussed above.

 

Included in incomefrom operations for the three months ended March 31, 2007 and March 29,2008 were depreciation and amortization expenses of $6.5 million and $6.9million, respectively. Of these amounts, $4.0 million, $1.2 million and $1.3million were attributable to the general safety and preparedness, fire service,and electrical safety segments, respectively, for the three months ended March 31,2007 and $4.4 million, $1.2 million and $1.3 million were attributable to thesesegments for the three months ended March 29, 2008.

 

*Interest expense.*Interest expense decreased by $0.8 million, or 11.6%,from $7.0 million for the three months ended March 31, 2007 to $6.2million for the three months ended March 29, 2008, primarily due a lowerweighted average interest rate associated with borrowings under the seniorcredit facility and lower overall debt balances. Interest expense incurred byNorcross Safety Products L.L.C. and the subsidiary guarantors totaled $7.0million for the three months ended March 31, 2007 and $6.2 million for thethree months ended March 29, 2008.

 

*Interest income.*Interest income increased by $0.4 million from $0.2million for the three months ended March 31, 2007 to $0.6 million for thethree months ended March 29, 2008, primarily due to interest earned onhigher cash balances during the three months ended March 29, 2008.

 

*Other, net.*Other, net increased by $0.4 million from ($0.1)million for the three months ended March 31, 2007 to $(0.5) million forthe three months ended March 29, 2008, primarily due to unrealized foreignexchange rate gains.

 

*Incometax expense.*Incometax expense increased by $0.3 million, from $4.6 million for the three monthsended March 31, 2007 to $4.9 million for the three months ended March 29,2008, primarily as a result of improved operating performance.

 

*Incomefrom discontinued operations.*Income from discontinued operations for the threemonths ended March 31, 2007 included $0.2 million associated with SouthAfrica discontinued operations.

 

*Netincome.*Netincome increased by $1.6 million, or 22.4%, from $7.2 million for the threemonths ended March 31, 2007 to $8.8 million for the three months ended March 29,2008 as a result of the reasons discussed above.

 

17

----

 

**Liquidity and Capital 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 threemonths ended March 31, 2007 and March 29, 2008, net cash used inoperating activities was $5.6 million and $6.3 million, respectively. Theseamounts were driven by increased accounts receivables and decreased accruedexpenses, partially offset by higher income from operations.

 

Historically,our principal uses of cash have been capital expenditures, acquisitions andworking capital. Our capital expenditures were $3.3 million for the threemonths ended March 31, 2007 and $2.8 million for the three months ended March 29,2008. Investing activities for the three months ended March 31, 2007included $0.2 million of royalty payments made to the sellers of Arbin. For thethree months ended March 29, 2008, investing activities included $0.1million of royalty payments made to the sellers of Arbin. In addition, wereceived cash proceeds of $0.5 million related to the sale of property, plantand equipment.

 

As of March 29,2008, we had working capital of $201.9 million and cash of $51.4 million. Wemaintain inventory levels sufficient to satisfy customer orders on demand, withgenerally a three month supply on hand. Turnout gear is an exception and isgenerally made to order. Our accounts receivable terms are generally 30 days,net.

 

Forthe three months ended March 31, 2007, net cash used in financingactivities was $0.9 million, consisting of $0.7 million of payments onlong-term obligations and $0.2 million of dividends to Safety Products Holdings, Inc.For the three months ended March 29, 2008, net cash used in financingactivities was $10.0 million comprised of $9.6 million of payments on long-termobligations (including an excess cash flow sweep payment of $9.3 million underthe terms of the senior credit facility) and $0.4 million of dividends toSafety Products Holdings, Inc.

 

As of March 29,2008, borrowings under the senior credit facility bore interest at a weightedaverage rate of 5.1%. As of March 29, 2008, there was approximately $152.4million of outstanding indebtedness under the senior credit facility andapproximately $47.2 million of available borrowings under the revolving creditfacility.

 

We believe thatour internal cash flows and borrowings under our new senior credit facilitywill provide us with sufficient liquidity and capital resources to meet ourcurrent and future financial obligations for the foreseeable future, includingfunding our operations, debt service and capital expenditures. Our futureoperating performance will be subject to future economic conditions and tofinancial, business and other factors, many of which are beyond our control. Ifour future cash flow from operations and other capital resources areinsufficient to pay our obligations as they mature or to fund our liquidityneeds, we may be forced to reduce or delay our business activities and capitalexpenditures, sell assets, obtain additional debt or equity capital orrestructure or refinance all or a portion of our debt, including the seniorsubordinated notes, on or before maturity. We cannot assure you that we wouldbe able to accomplish any of these alternatives on a timely basis or onsatisfactory terms, if at all. In addition, the terms of our existing andfuture indebtedness, including our senior subordinated notes and our seniorcredit facility, may limit our ability to pursue any of these alternatives.

 

**Forward-Looking Statements**

 

ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations contains forward-looking information. These statements reflectmanagement’s expectations, estimates, and assumptions based on informationavailable at the time of the statement. Forward-looking statements include, butare 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 areintended to identify forward-looking statements. Forward-looking statements arenot guarantees of future performance and involve risks, uncertainties, andother factors, including those set forth below, which may cause our actualresults, performance, or achievements to be materially different from anyfuture results, performance, or achievements expressed or implied by thosestatements. Important factors that could cause our actual results, performance,or achievements to be materially different from any future results,performance, or achievements expressed or implied by those statements include,but are not limited to: (i) our high degree of leverage and significantdebt service obligations; (ii) the impact of current and future laws andgovernmental regulations affecting us or our product offerings; (iii) theimpact of governmental spending; (iv) our ability to retain existingcustomers, maintain key supplier status with those customers with which we haveachieved such status, and obtain new customers; (v) the highly competitivenature 

 

18

----

 

of thepersonal protection equipment industry; (vi) any future changes inmanagement; (vii) acceptance by consumers of new products we develop oracquire; (viii) the importance and costs of product innovation; (ix) unforeseenproblems associated with international sales, including gains and losses fromforeign currency exchange and restrictions on the efficient repatriation of earnings;(x) the unpredictability of patent protection and other intellectualproperty issues; (xi) cancellation of current orders; (xii) the outcome ofpending product liability claims and the availability of indemnification forthose claims; (xiii) general risks associated with the personal protectionequipment industry; and (xiv) the successful integration of acquired companieson economically acceptable terms.  Weundertake no obligation to publicly update or revise any forward-lookingstatements to reflect changed assumptions, the occurrence of anticipated orunanticipated events, or changes to future results over time.

 

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

 

There have been no material changes to our exposure tomarket risk since December 31, 2007.

 

**Item 4. Controls and Procedures**

 

Based on theirevaluation as of the end of the period covered by this quarterly report on Form 10-Q,our Chief Executive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) are effective. There was no change in our internal control overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) ofthe Exchange Act that occurred during the period covered by this quarterlyreport on Form 10-Q that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

 

19

----

 

**PART II**

**OTHER INFORMATION**

** **

**Item 1. LegalProceedings**

** **

We are party tovarious claims and routine litigation arising in the ordinary course ofbusiness. Historically, we have not been required to pay any material liabilityclaims. We maintain insurance against product liability claims (with theexception of respiratory claims relating to asbestosis and silicosis cases, forwhich coverage is not commercially available), but it is possible that itsinsurance coverage will not continue to be available on terms acceptable to usor that such coverage will not be adequate for liabilities actually incurred.

 

As of March 29,2008, we have recorded a $5.0 million reserve for respiratory claims. There hasbeen no significant changes to these claims as reported in our 2007 annualreport on Form 10-K.

 

**Item 1A. Risk Factors**

** **

There have been nomaterial changes to the risks impacting our business since December 31,2007.

 

**Item 6. Exhibits**

 

See attached Exhibit Index.

 

20

----

 

**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,Norcross Safety Products L.L.C. has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

 
|              | NORCROSS SAFETY PRODUCTS L.L.C. |
|-------------------|---------------------------------|
|              |                            |   |
|              |                            |   |
| May 12, 2008 | By:                             | /s/ ROBERT A. PETERSON |
|              |                            | Robert A. Peterson |
|              |                            | President, Chief Executive Officer and Manager |
|              |                            | (Principal Executive Officer) |
|              |                            |   |
|              |                            |   |
| May 12, 2008 | By:                             | /s/ DAVID F. MYERS, JR. |
|              |                            | David F. Myers, Jr. |
|              |                            | Executive Vice President, Chief Financial Officer, |
|              |                            | Secretary and Manager |
|              |                            | (Principal Financial and Accounting Officer) |

 

21

----

 

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

**FORM 10-Q LISTING OFEXHIBITS**

 
| **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 |

 

22

----