** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

** **

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** **

**FORM 10-Q**

** **

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

 

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| **x**                                                  | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
|                                                   |       |                                                                                                    |
| **For the  quarterly period ended September 29, 2007** |
|                                                   |       |                                                                                                    |
| **OR**                                                 |
|                                                   |       |                                                                                                    |
| **o**                                                  | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from            to              **

** **

**Commission File Number: 333-110531**

 

**NORCROSS SAFETY PRODUCTSL.L.C.**

(Exact name ofregistrant 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’stelephone 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

 

Indicate by check mark whether the Registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o  Accelerated filer  o  Non-accelerated filer  x

 

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

 

On November 8, 2007Norcross Safety Products L.L.C. had 100 units outstanding, all of which wereowned by a holding company.

 

 

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

**FORM 10-Q QUARTERLY REPORT**

**For the Quarterly Period Ended September 29, 2007**

 

**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 | 20         |
|                                                                                                 |       |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  | 28         |
|                                                                                                 |       |
| Item 4. Controls  and Procedures                                                                     | 29         |
|                                                                                                 |       |
| **PART II Other Information**                                                                        | 30         |
|                                                                                                 |       |
| Item 1. Legal  Proceedings                                                                           | 30         |
|                                                                                                 |       |
| Item 1A. Risk Factors                                                                                | 33         |
|                                                                                                 |       |
| Item 6. Exhibits                                                                                     | 34         |
|                                                                                                 |       |
| **Signatures**                                                                                       | 35         |
|                                                                                                 |       |
| **Form 10-Q Listing of  Exhibits**                                                                   | 36         |

 

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**PART I**

**FINANCIALINFORMATION**

 

**Item 1. Financial Statements**

 

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

**CONSOLIDATED BALANCE SHEETS**

**(Amountsin Thousands)**

 
| ** **                                                                               | ** ** | **December 31,  2006 (1)** | ** **    | **September 29,  2007** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------------|---------------|------------------------------|------------|
| ** **                                                                               | ** ** | ** **                           | ** **    | **(Unaudited)**              | ** ** |
| **Assets**                                                                               | ** ** | ** **                           | ** **    | ** **                   | ** ** |
| Current assets:                                                                          |       |                                 |          |                         |       |
| Cash and cash equivalents                                                                |       | $                                    |  26,096  |                         | $          |  39,849 |   |
| Accounts receivable, less allowance of  $2,323 and $2,484 in 2006 and 2007, respectively |       | 73,306                               |          | 92,762                       |       |
| Inventories                                                                              |       | 108,270                              |          | 111,316                      |       |
| Deferred income taxes                                                                    |       | 2,143                                |          | 1,946                        |       |
| Prepaid expenses and other current assets                                                |       | 3,555                                |          | 3,791                        |       |
| Total current assets                                                                     |       | 213,370                              |          | 249,664                      |       |
| Property, plant and equipment, net                                                       |       | 69,627                               |          | 68,414                       |       |
| Deferred financing costs, net                                                            |       | 6,387                                |          | 5,380                        |       |
| Goodwill                                                                                 |       | 158,011                              |          | 163,842                      |       |
| Other intangible assets, net                                                             |       | 281,438                              |          | 276,998                      |       |
| Other noncurrent assets                                                                  |       | 5,119                                |          | 6,224                        |       |
| Total assets                                                                             |       | $                                    |  733,952 |                         | $          |  770,522 |   |
|                                                                                     |       |                                 |          |                         |       |
| **Liabilities and member’s equity**                                                 | ** ** | ** **                           | ** **    | ** **                   | ** ** |
| Current liabilities:                                                                     |       |                                 |          |                         |       |
| Accounts payable                                                                         |       | $                                    |  21,891  |                         | $          |  22,215 |   |
| Accrued expenses                                                                         |       | 41,882                               |          | 44,448                       |       |
| Current maturities of long-term obligations                                              |       | 5,830                                |          | 3,414                        |       |
| Total current liabilities                                                                |       | 69,603                               |          | 70,077                       |       |
| Long-term liabilities:                                                                   |       |                                 |          |                         |       |
| Pension, post-retirement and deferred  compensation                                      |       | 17,082                               |          | 13,553                       |       |
| Long-term obligations                                                                    |       | 320,666                              |          | 317,784                      |       |
| Other noncurrent liabilities                                                             |       | 7,008                                |          | 8,122                        |       |
| Deferred income taxes                                                                    |       | 64,602                               |          | 65,794                       |       |
| Total long-term liabilities                                                              |       | 409,358                              |          | 405,253                      |       |
|                                                                                     |       |                                 |          |                         |       |
| Minority interest                                                                        |       | 199                                  |          | 222                          |       |
|                                                                                     |       |                                 |          |                         |       |
| Member’s equity:                                                                    |       |                                 |          |                         |       |
| Contributed capital                                                                      |       | 222,828                              |          | 223,952                      |       |
| Retained earnings                                                                        |       | 21,169                               |          | 41,743                       |       |
| Accumulated other comprehensive income                                                   |       | 10,795                               |          | 29,275                       |       |
| Total member’s equity                                                               |       | 254,792                              |          | 294,970                      |       |
| Total liabilities and member’s equity                                               |       | $                                    |  733,952 |                         | $          |  770,522 |   |

 

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(1)          December 31, 2006balances were obtained from audited financial statements.

 

*See notes to unaudited consolidated financialstatements.*

 

1

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

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Amountsin Thousands) (Unaudited)**

 
| ** **                                                                                                                                                                 | ** ** | **Three months ended** | ** **    | **Nine months ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|---------------|---------------------------------|------------|
| ** **                                                                                                                                                                 | ** ** | **September 30,  2006**          | ** **    | **September 29,  2007**         | ** ** | **September 30,  2006** | ** ** | **September 29,  2007** | ** ** |
| Net sales                                                                                                                                                                  |       | $                                |  136,777 |                            | $          |  151,406 |   | $ |  404,411 |   | $ |  455,963 |   |
| Cost of goods sold                                                                                                                                                         |       | 87,161                           |          | 93,161                          |       | 250,420 |   | 278,249 |   |
| Gross profit                                                                                                                                                               |       | 49,616                           |          | 58,245                          |       | 153,991 |   | 177,714 |   |
| Operating expenses:                                                                                                                                                        |       |                             |          |                            |       |   |   |   |   |
| Selling                                                                                                                                                                    |       | 12,342                           |          | 13,790                          |       | 37,470 |   | 40,944 |   |
| Distribution                                                                                                                                                               |       | 8,028                            |          | 9,491                           |       | 23,428 |   | 28,173 |   |
| General and administrative (1)                                                                                                                                             |       | 12,520                           |          | 15,297                          |       | 38,479 |   | 43,051 |   |
| Amortization of intangibles                                                                                                                                                |       | 3,073                            |          | 2,869                           |       | 8,540 |   | 8,746 |   |
| Total operating expenses                                                                                                                                                   |       | 35,963                           |          | 41,447                          |       | 107,917 |   | 120,914 |   |
| Income from operations                                                                                                                                                     |       | 13,653                           |          | 16,798                          |       | 46,074 |   | 56,800 |   |
| Other expense (income):                                                                                                                                                    |       |                             |          |                            |       |   |   |   |   |
| Interest expense                                                                                                                                                           |       | 7,011                            |          | 6,920                           |       | 20,079 |   | 20,885 |   |
| Interest income                                                                                                                                                            |       | (105                             | )             | (435                            | )          | (419 | ) | (888 | ) |
| Other, net                                                                                                                                                                 |       | (85                              | )             | 115                             |       | (610 | ) | 514 |   |
| Income from continuing operations before  income taxes and minority interest                                                                                               |       | 6,832                            |          | 10,198                          |       | 27,024 |   | 36,289 |   |
| Income tax expense                                                                                                                                                         |       | 2,572                            |          | 2,080                           |       | 9,585 |   | 12,147 |   |
| Minority interest                                                                                                                                                          |       | 8                                |          | 10                              |       | 23 |   | 24 |   |
| Income from continuing operations                                                                                                                                          |       | 4,252                            |          | 8,108                           |       | 17,416 |   | 24,118 |   |
| Loss (income) from discontinued operations  (including loss on disposal of subsidiary of $3,022 for the nine months ended  September 29, 2007), net of income tax (Note 2) |       | 26                               |          | —                          |       | (67 | ) | 2,813 |   |
| Net income                                                                                                                                                                 |       | $                                |  4,226   |                            | $          |  8,108 |   | $ |  17,483 |   | $ |  21,305 |   |

 

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(1)        Generaland administrative expenses exclude amortization of intangibles and include$265 and $459 of management incentive compensation for the three months endedSeptember 30, 2006 and September 29, 2007, respectively and $1,345 and $1,159of management incentive compensation for the nine months ended September 30,2006 and September 29, 2007, respectively.

 

*Seenotes to unaudited consolidated financial statements.*

 

2

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

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

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

 
| ** **                                                                         | ** ** | **Nine months ended** | ** **   |
|------------------------------------------------------------------------------------|------------|---------------------------------|--------------|
| ** **                                                                         | ** ** | **September 30,  2006**         | ** **   | **September 29,  2007** | ** ** |
| **Operating activities**                                                           | ** ** | ** **                      | ** **   | ** ** | ** ** |
| Net income                                                                         |       | $                               |  17,483 |   | $ |  21,305 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                            |         |   |   |
| Depreciation (1)                                                                   |       | 10,008                          |         | 11,008 |   |
| Amortization of intangibles                                                        |       | 8,540                           |         | 8,746 |   |
| Amortization of deferred financing costs                                           |       | 993                             |         | 1,007 |   |
| Amortization of original issue premium                                             |       | (770                            | )            | (838 | ) |
| Deferred income taxes                                                              |       | (205                            | )            | (446 | ) |
| Minority interest                                                                  |       | 23                              |         | 24 |   |
| Management incentive compensation                                                  |       | 1,345                           |         | 1,124 |   |
| Loss on sale of property, plant and  equipment                                     |       | 54                              |         | 153 |   |
| Loss on sale of subsidiary                                                         |       | —                          |         | 3,022 |   |
| Changes in operating assets and  liabilities:                                      |       |                            |         |   |   |
| Accounts receivable                                                                |       | (10,433                         | )            | (19,064 | ) |
| Inventories                                                                        |       | (16,055                         | )            | (1,535 | ) |
| Prepaid expenses and other current assets                                          |       | 436                             |         | 372 |   |
| Other noncurrent assets                                                            |       | (265                            | )            | (644 | ) |
| Accounts payable                                                                   |       | 2,409                           |         | 1,534 |   |
| Accrued expenses                                                                   |       | 2,741                           |         | 1,196 |   |
| Pension, postretirement and deferred compensation                                  |       | (1,466                          | )            | (3,549 | ) |
| Other noncurrent liabilities                                                       |       | (225                            | )            | (84 | ) |
| Net cash provided by operating activities                                          |       | 14,613                          |         | 23,331 |   |
|                                                                               |       |                            |         |   |   |
| **Investing activities**                                                           | ** ** | ** **                      | ** **   | ** ** | ** ** |
| Purchase of businesses, net of cash  acquired                                      |       | (30,952                         | )            | (1,247 | ) |
| Proceeds from sale of subsidiary, net of  cash disposed                            |       | —                          |         | 3,223 |   |
| Purchases of property, plant and equipment                                         |       | (7,681                          | )            | (8,130 | ) |
| Proceeds from sale of property, plant and  equipment                               |       | 113                             |         | 377 |   |
| Net cash used in investing activities                                              |       | (38,520                         | )            | (5,777 | ) |
|                                                                               |       |                            |         |   |   |
| **Financing activities**                                                           | ** ** | ** **                      | ** **   | ** ** | ** ** |
| Payments for deferred financing costs                                              |       | (201                            | )            | — |   |
| Proceeds from borrowings                                                           |       | 15,000                          |         | — |   |
| Payments of debt                                                                   |       | (1,399                          | )            | (4,286 | ) |
| Net borrowings under revolving credit  facility                                    |       | 2,000                           |         | — |   |
| Capital contribution                                                               |       | 150                             |         | — |   |
| Dividends to Safety Product Holdings, Inc.                                         |       | (758                            | )            | (355 | ) |
| Net cash provided by (used in) financing  activities                               |       | 14,792                          |         | (4,641 | ) |
| Effect of exchange rate changes on cash and  cash equivalents                      |       | 356                             |         | 840 |   |
| Net (decrease) increase in cash and cash  equivalents                              |       | (8,759                          | )            | 13,753 |   |
| Cash and cash equivalents at beginning of  period                                  |       | 20,683                          |         | 26,096 |   |
| Cash and cash equivalents at end of period                                         |       | $                               |  11,924 |   | $ |  39,849 |   |

 

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(1)         Depreciationincludes depreciation expense of $86 and $71 for the nine months endedSeptember 30, 2006 and September 29, 2007, respectively, related todiscontinued operations (Note 2).

 

*See notes to unaudited consolidated financialstatements*

 

3

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

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Amountsin Thousands) (Unaudited)**

 

**1.**                 Transactions

** **

On February 2, 2006, Norcross Safety Products L.L.C. (the “Company”)completed the acquisition of all of the issued and outstanding capital stock ofAmerican Firewear, Inc. (“American Firewear”). The purchase price consisted of$4,453 in cash (including acquisition costs of $203 and net of cash acquired of$183) and a $1,000 subordinated seller note. In addition, the purchase pricemay be increased by $750 over a four year period based on American Firewearachieving certain financial and operating objectives. The Company financed theacquisition through cash on the balance sheet and the issuance of the $1,000subordinated seller note. The Company believes the acquisition of AmericanFirewear will strengthen its hand protection product line in the fire servicesegment. The results of operations of American Firewear are included in theCompany’s consolidated statement of operations from the date of acquisition.

 

On June 9, 2006, the Company completed the acquisition of all of theissued and outstanding capital stock of The White Rubber Corporation (“WhiteRubber”). The purchase price was $22,182 (including acquisition costs of $636and gross of outstanding checks of $773). The Company financed the acquisitionthrough additional term borrowings under the senior credit facility and cash onthe balance sheet. The Company believes the acquisition of White Rubber willstrengthen its hand protection product line in the electrical safety segment.The results of operations of White Rubber are included in the Company’sconsolidated statement of operations from the date of acquisition.

 

On September 19, 2006, the Company completed the acquisition of all ofthe issued and outstanding capital stock of The New England Overshoe Company,Inc. (“NEOS”). The purchase price consisted of $3,639 in cash (includingacquisition costs of $139 and net of cash acquired of $6) and a $750subordinated seller note. In addition, the purchase price may be increased overa five year period based on NEOS achieving certain net sales targets. TheCompany financed the acquisition through cash on the balance sheet and theissuance of the $750 subordinated seller note. The Company believes theacquisition of NEOS will broaden its footwear product portfolio in the generalsafety and preparedness segment. The results of operations of NEOS are includedin the Company’s consolidated statement of operations from the date ofacquisition.

 

Assumingall acquisitions had occurred on January 1, 2006, the pro forma net sales,income from operations and net income for the Company would have been $414,277,$47,020 and $16,817, respectively, for the nine months ended September 30,2006.

 

**2.**                 DiscontinuedOperations

** **

On June 29, 2007, the Company completed the sale of all of the issuedand outstanding capital stock of North Safety Products (Africa) (Proprietary)Limited (“South Africa”), a subsidiary of the Company. The Company received netcash proceeds of $3,223 and recorded a net loss on disposal related to thetransaction of $3,022 ($3,022 net of income tax). In accordance with FinancialAccounting Standards Board (“FASB”) Statement of Accounting Standards (“SFAS”)No. 144, *Accounting for the Impairment or Disposal ofLong-Lived**Assets*, theCompany has reflected South Africa’s results of operations through the date ofthe sale and transaction loss as discontinued operations for all periodspresented. Assets and liabilities of South Africa were not material and as aresult have not been reclassified as discontinued operations in the Company’sconsolidated statement of financial position as of December 31, 2006. The cashflows from discontinued operations have been combined with cash flows fromcontinuing operations within each cash flow statement category as the cashflows from discontinued operations are not material to the Company’sconsolidated results.

 

The following table sets forth the net sales, net (loss) income fromdiscontinued operations and net loss on disposal of subsidiary for South Africafor the periods presented:

 
| ** **                                      | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **September 30,  2006**          | ** ** | **September 29,  2007**         | ** ** | **September 30,  2006** | ** ** | **September 29,  2007** | ** ** |
| Net sales                                       |       | $                                | 5,101      |                            | $          | — |   | $ | 15,589 |   | $ | 8,152 |   |
| Net (loss) income from discontinued  operations |       | (26                              | )          | —                          |       | 67 |   | 209 |   |
| Net loss on disposal of subsidiary              |       | —                           |       | —                          |       | — |   | (3,022 | ) |
|                                                 |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

4

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**3.**                 Basis ofPresentation

 

The accompanying unaudited consolidated financial statements of theCompany have been prepared in accordance with accounting principles generallyaccepted in the United States for interim financial information. Accordingly,they do not include all of the information and notes required by accountingprinciples generally accepted in the United States for complete financialstatements.

 

In the opinion ofmanagement, all adjustments (consisting only of adjustments of a normal andrecurring nature) considered necessary for a fair presentation of the financialposition and results of operations have been included. Interim results are notnecessarily indicative of the results that might be expected for any otherinterim period or for the fiscal year ending December 31, 2007. The financialstatements presented should be read in conjunction with the consolidated financialstatements and footnotes thereto included in our 2006 consolidated financialstatements, included in the Company’s annual report on Form 10-K.

 

**4.**                 Recent AccountingPronouncements

** **

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*, which definesfair value, establishes a framework for measuring fair value and expandsdisclosures about fair value measurements. The provisions of SFAS No. 157 areeffective for the Company as of the beginning of its fiscal year endingDecember 31, 2008. The Company is in the process of determining the effects, ifany, that adoption of SFAS No. 157 will have on its financial statements.

 

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities — Including an amendment of FASB Statement No. 115.*Thisstatement is intended to improve financial reporting by providing entities withthe opportunity to mitigate volatility in reported earnings caused by measuringrelated assets and liabilities differently without having to apply complexhedge accounting provisions. It also establishes presentation and disclosurerequirements designed to facilitate comparisons between entities that choosedifferent measurement attributes for similar types of assets and liabilities.The statement does not affect any existing accounting literature that requirescertain assets and liabilities to be carried at fair value and it does notestablish requirements for recognizing dividend income, interest income orinterest expense. It also does not eliminate disclosure requirements includedin other accounting standards. The provisions of SFAS No. 159 are effective forthe Company as of the beginning of its fiscal year ending December 31, 2008.The Company is in the process of determining the effects, if any, that adoptionof SFAS No. 159 will have on its financial statements.

 

**5.**                 ManagementIncentive Compensation

 

Managementincentive compensation related to stock based compensation was $265 and $459for the three months ended September 30, 2006 and September 29, 2007,respectively and $1,345 and $1,159 for the nine months ended September 30, 2006and September 29, 2007, respectively.

 

**6.**                 Inventories

 

Inventories consist of the following:

 
| ** **              | ** ** | **December 31,  2006** | ** **    | **September 29,  2007** | ** ** |
|-------------------------|------------|-----------------------------|---------------|-------------------------|------------|
| At FIFO cost:           |       |                        |          |                    |       |
| Raw materials           |       | $                           |  24,823  |                    | $          |  30,148 |   |
| Work in process         |       | 13,756                      |          | 11,965                  |       |
| Finished goods          |       | 70,799                      |          | 70,311                  |       |
|                    |       | 109,378                     |          | 112,424                 |       |
| Adjustment to LIFO cost |       | (1,108                      | )             | (1,108                  | )          |
| Total inventory         |       | $                           |  108,270 |                    | $          |  111,316 |   |

 

5

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# **7.****              Long-TermObligations**

 

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

 
| ** **                                         | ** ** | **December 31,  2006** | ** **    | **September 29,  2007** | ** ** |
|----------------------------------------------------|------------|-----------------------------|---------------|-------------------------|------------|
| Revolving credit facilities                        |       | $                           |  —  |                    | $          |  — |   |
| Term loan                                          |       | 165,720                     |          | 162,138                 |       |
| Senior subordinated notes                          |       | 152,500                     |          | 152,500                 |       |
| European term loans                                |       | 173                         |          | —                  |       |
| Subordinated seller notes                          |       | 1,750                       |          | 1,250                   |       |
| Capital lease obligations                          |       | 205                         |          | —                  |       |
| Unamortized premium on senior subordinated  notes  |       | 6,148                       |          | 5,310                   |       |
|                                               |       | 326,496                     |          | 321,198                 |       |
| Less: Current maturities of long-term  obligations |       | 5,830                       |          | 3,414                   |       |
|                                               |       | $                           |  320,666 |                    | $          |  317,784 |   |

 

Aggregatematurities of long-term obligations as of September 29, 2007, are as follows:

 
| 2008       |   | $       | 3,414         |   |
|------------|--------|---------|---------------|--------|
| 2009       |   | 3,773   |          |
| 2010       |   | 3,141   |          |
| 2011       |   | 194,645 |          |
| 2012       |   | 116,225 |          |
| Thereafter |   | —  |          |
|       |   | $       |  321,198 |   |

 

**8.**                 Income Taxes

 

EffectiveJanuary 1, 2007, the Company adopted FASB Interpretation No. 48, *Accounting for Uncertainty in Income Taxes* (“FIN 48”), which  requires that the Company recognize in thefinancial statements, the impact of a tax position, if that position is morelikely than not of being sustained on audit, based on the technical merits ofthe position. In addition, FIN 48 provides guidance on the derecognition,classification, accounting in interim periods and disclosure requirements foruncertain tax positions.

 

As aresult of the implementation of FIN 48, the Company recorded at the date ofadoption an additional liability of $5,961 for unrecognized tax benefitsrelating to uncertain tax positions. Of this amount, approximately $376 wasaccounted for as a reduction to the January 1, 2007 balance of retainedearnings. During the three and nine months ended September 29, 2007, theunrecognized tax benefits decreased by $404 due to a foreign income tax auditsettlement.

 

AtJanuary 1, 2007, the Company had $7,024 in unrecognized tax benefits, therecognition of which would have an effect of $776 on the effective tax rate. Inaddition, $4,261 of unrecognized tax benefits would, if realized, reducegoodwill.

 

Includedin the balance of unrecognized tax benefits at January 1, 2007, is $1,525related to tax positions for which it is reasonably possible that the totalamounts could significantly change during the next twelve months. This amountrepresents the maximum potential decrease in unrecognized tax benefitscomprised of items related to foreign income tax filings and audit settlementnegotiations. During the three and nine months ended September 29, 2007, thisamount has decreased by $404 due to a foreign income tax audit settlement.

 

TheCompany recognizes interest and penalties related to unrecognized tax benefitsas a component of income tax expense. At January 1, 2007, the Company hadaccrued $219 and $279 for the potential payment of interest and penaltiesrelated to unrecognized tax benefits, respectively. There have been nosignificant changes to these amounts during the three and nine months endedSeptember 29, 2007.

 

TheCompany and its subsidiaries are subject to U.S. federal income tax as well asincome tax of multiple state and international jurisdictions. As of September29, 2007, the Company is subject to U.S. Federal income tax examinations forthe tax years 1998 through 2000 and 2002 through 2006 and to non-U.S. incometax examinations for the tax years of 2003 through 2006. In addition, theCompany is subject to state and local income tax examinations for the tax years1998 through 2006.

 

6

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Theincome tax expense for the Company differs from the amount of income taxexpense computed by applying the U.S. federal income tax rate to income beforeincome taxes primarily due to: 1) state taxes and 2) the impact of variedforeign statutory rates on the Company’s foreign earnings. In addition, theincome tax expense for the three and nine months ended September 29, 2007 wasimpacted by a reduction in the German statutory tax rate. Further, the ninemonths ended September 29, 2007 was impacted by the recording of a valuationallowance against capital losses associated with the sale of South Africa.  

 

**9.**                 Employee BenefitPlans

 

The followingtable sets forth the components of net periodic benefit expense (income) forthe Company’s pension benefits:

 
| ** **                     | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|--------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                     | ** ** | **September 30,  2006**     | ** ** | **September 29,  2007**         | ** ** | **September 30,  2006** | ** ** | **September 29,  2007** | ** ** |
| Service cost                   |       | $                                |  594  |                            | $          |  24 |   | $ |  1,576 |   | $ |  78 |   |
| Interest cost                  |       | 998                              |       | 1,014                           |       | 2,886 |   | 2,976 |   |
| Expected return on plan assets |       | (755                             | )          | (1,069                          | )          | (2,567 | ) | (3,206 | ) |
|                           |       | $                                |  837  |                            | $          |  (31 | ) | $ |  1,895 |   | $ |  (152 | ) |

 

The followingtable sets forth the components of net periodic benefit expense for the Company’spost-retirement benefits:

 
| ** **    | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|---------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **    | ** ** | **September 30,  2006**     | ** ** | **September 29,  2007**         | ** ** | **September 30,  2006** | ** ** | **September 29,  2007** | ** ** |
| Service cost  |       | $                                |  7    |                            | $          |  3 |   | $ |  19 |   | $ |  8 |   |
| Interest cost |       | 18                               |       | 13                              |       | 54 |   | 45 |   |
|          |       | $                                |  25   |                            | $          |  16 |   | $ |  73 |   | $ |  53 |   |

 

**10.          Restructuring and Merger-RelatedCharges**

 

Inconjunction with the Fibre-Metal Transaction, the Company initiated arestructuring plan to close the Fibre-Metal manufacturing facility located inConcordville, Pennsylvania and move production to its Cranston, Rhode Islandand Mexicali, Mexico facilities. In addition, the Company closed certainFibre-Metal distribution centers and integrated Fibre-Metal distribution intoits existing distribution facilities. The Company implemented this plan inorder to increase profitability through utilizing excess capacity at itsexisting plants and moving manufacturing to locations with favorable labor costs.The restructuring was substantially completed in the second quarter of 2007. Asof the date of the Fibre-Metal Transaction, the Company recorded an accrual forcosts associated with the plan of $1,716, comprised of $1,383 in severancecosts and $333 in facility closure and other exit costs. The restructuringliability was classified within the accrued expenses caption on theconsolidated balance sheet.

 

In conjunction with the White Rubber Transaction, the Company initiateda restructuring plan to move certain production and distribution functionslocated in Ohio and Washington to its Charleston, South Carolina, Skokie,Illinois and Chicago, Illinois facilities. The Company initiated this plan inorder to increase profitability by utilizing excess capacity and consolidatingdistribution functions. The restructuring was substantially completed in thesecond quarter of 2007. As of the date of the White Rubber Transaction, theCompany recorded an accrual for costs associated with the plan of $1,018,comprised of severance and severance related costs. The restructuring liabilityis classified within the accrued expenses caption on the consolidated balancesheet.

 

A rollforward of the restructuring liabilityis as follows:

 
| ** **                             | ** ** | **Severance  and  severance  related  costs** | ** **  | **Facility  closure and  other exit  costs** | ** ** | **Total**    | ** ** |
|----------------------------------------|------------|-----------------------------------------------|-------------|--------------------------------------------------------|------------|--------------|------------|
| Balance as of January 1, 2007          |       | $                                             |  1,880 |                                                   | $          |  173    |       | $ |  2,053 |   |
| Payments                               |       | (1,753                                        | )           | (174                                                   | )          | (1,927       | )          |
| Effect of foreign currency translation |       | —                                        |        | 1                                                      |       | 1            |       |
| Balance as of September 29, 2007       |       | $                                             |  127   |                                                   | $          |  — |       | $ |  127 |   |

 

7

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**11.**          LegalProceedings

 

TheCompany is subject to various claims arising in the ordinary course ofbusiness. Most of these lawsuits and claims are product liability matters thatarise out of the use of respiratory product lines manufactured by the Company’sNorth Safety Products subsidiary. As of September 29, 2007, the Company’s NorthSafety Products subsidiary, along with its predecessors and/or the formerowners of such business were named as defendants in approximately 649 lawsuitsinvolving respirators allegedly manufactured and sold by it or itspredecessors. The Company is also monitoring an additional two lawsuits inwhich it feels that North Safety Products, its predecessors and/or the former ownersof such businesses may be named as defendants. Collectively, these 651 lawsuitsrepresent a total of approximately 8,451 plaintiffs. Approximately 85% of theselawsuits involve plaintiffs alleging injury resulting from exposure to silicadust, with the remainder alleging injury resulting from exposure to other dustparticles, including asbestos. These lawsuits typically allege that thepurported injuries resulted in part from respirators that were negligentlydesigned or manufactured. Invensys plc (“Invensys”), formerly Siebe plc, iscontractually obligated to indemnify the Company for any losses, includingcosts of defending claims, resulting from respiratory products manufactured orsold prior to the acquisition of North Safety Products in October 1998.

 

Inaddition, the Company’s North Safety Products subsidiary is contractuallyentitled to indemnification from Norton Company, an affiliate of Saint-Gobain,which owned the North Safety Products business prior to Invensys. Pursuant to aDecember 14, 1982 asset purchase agreement, Siebe Norton, Inc., a newly formedwholly-owned subsidiary of Norton Company, acquired the assets of Norton’sSafety Products Division and the stock of this company was in turn acquired bySiebe Gorman Holdings plc. Under the terms of the agreement, Siebe Norton, Inc.did not assume any liability for claims relating to products shipped by NortonCompany prior to the closing date. Moreover, Norton Company covenanted in theagreement to indemnify Siebe Norton, Inc. and its successors and assignsagainst any liability resulting from or arising out of any state of facts,omissions or events existing or occurring on or before the closing date,including, without limitation, any claims arising from products shipped byNorton Company or any of its affiliates prior to the closing date. SiebeNorton, Inc., whose name was subsequently changed to Siebe North Inc., wassubsequently acquired by the Company as part of the 1998 acquisition of theNorth Safety Products business from Invensys.

 

Despitethese indemnification arrangements, the Company could potentially be liable forlosses or claims relating to products manufactured prior to the October 1998acquisition date if Invensys fails to meet its obligations to indemnify theCompany and the Company could potentially be liable for losses and claimsrelating to products sold prior to January 10, 1983 if both Invensys and Nortonfail to meet their obligations to indemnify the Company.  The Company believes that Invensys has theability to pay these claims based on its current financial position, aspublicly disclosed by Invensys. The Company could also be liable if the allegedexposure involved the use of a product manufactured by the Company after theOctober 1998 acquisition of the North Safety Products business.

 

EffectiveJuly 1, 2006, the Company entered into a joint defense agreement throughDecember 31, 2008 with the former owners of the North Safety Products business(the “Joint Defense Agreement” or “JDA”). Under the terms of the Joint DefenseAgreement, the Company agreed to pay a weighted average percentage of defensecosts (including legal fees, expert witnesses and out of pocket expenses)associated with defending the Company and the prior owners of the North SafetyProducts business subject to a cap of $525, $960 and $1,000 for the period fromJuly 1, 2006 through December 31, 2006, the year ended December 31, 2007 andthe year ended December 31, 2008, respectively. The cap excludes settlementcosts and other costs incurred exclusively by the Company (including trialcosts and special requests of counsel), which it will be required to pay underthe JDA. Separately, the Company agreed to pay Invensys $200 related to settledcases through June 30, 2006 in which Invensys claimed that the period ofalleged exposure included periods after October 1998.

 

Although the JDA expires on December 31, 2008, the Company expects toincur additional defense and settlement costs beyond this date. The Companywill consider its alternatives for defending the claims as the JDA nearsexpiration and determine the appropriate course of action, which could includean extension of the JDA.

 

Basedupon information provided to the Company by Invensys, the Company believesactivity related to these lawsuits was as follows for the nine months endedSeptember 29, 2007:

 

8

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| ** **                               | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
|------------------------------------------|------------|----------------|------------|-----------|------------|
| Beginning lawsuits as of January 1, 2007 |       | 8,746          |       | 644       |       |
| New lawsuits                             |       | 19             |       | 16        |       |
| Settlements                              |       | —         |       | —    |       |
| Dismissals and other                     |       | (314           | )          | (9        | )          |
| Ending lawsuits as of September 29, 2007 |       | 8,451          |       | 651       |       |

 

Boththe rate of new filings and the number of existing claimants have declineddramatically since 2003 as courts and legislatures have tightened the rules onwhen and where the silica claims can be pursued in an effort to reduce thelarge number of unmeritorious claims. The new rules make bringing silica caseson a mass level much less attractive to the plaintiffs’ bar. Plaintiffs’attorneys in many jurisdictions can no longer (1) find a worker with somestated exposure to silica, (2) take an X-ray of his chest, (3) have itinterpreted as demonstrating lung shadows by a radiologist, (4) then file asingle lawsuit in a dangerous venue with hundreds of other plaintiffs againsthundreds of defendants with the pleading containing little more than theparties’ names and some standard pleading language. More specifically, thelegislatures of at least seven states — including former hotbeds of silicalitigation such as Texas, Florida and Ohio — passed impairment-criterialegislation that redefined injury. These acts force plaintiffs to proveimpairment as a result of their exposure to qualify for judicial treatment. Thesame legislation requires that each silica claimant be tried individually, and notin the multiple plaintiff format in which the potential for large verdictsresulted from increased plaintiffs and where a few meritorious claims couldincrease the value of unmeritorious ones. Further tort reform in Texas createda state-wide multi-district litigation (“MDL”) wherein one judge presides overthe pretrial of all Texas-silica cases. In Mississippi, the Supreme Courtchanged the venue rules making it much more difficult to file out-of-stateplaintiffs there. The Mississippi court also changed the pleading requirementsmaking the plaintiffs’ attorneys include plaintiff-specific allegations againsteach defendant sued, instead of the vague allegations against hundreds ofdefendants.

 

Plaintiffs have asserted specific dollar claims in approximately 30% ofthe approximately 649 cases pending as of September 29, 2007 in which NorthSafety Products, its predecessors and/or the former owners of such businesseshave been named as defendants. A majority of jurisdictions prohibit specifyingdamages in tort cases such as these, and most of the remaining jurisdictions donot require such specification. In those cases in which plaintiffs choose toassert specific dollar amounts in their complaints, the amounts claimed aretypically not meaningful as an indicator of a company’s potential liability.This is because (1) the amounts claimed typically bear no relation to the levelof the plaintiff’s injury, (2) the complaints typically assert claims againstnumerous defendants and (3) many cases are brought on behalf of plaintiffs whohave not suffered any medical injury, and ultimately are resolved without anypayment or payment of a small fraction of the damages initially claimed. Of the649 complaints maintained in the Company’s records, 459 do not specify the amountof damages sought, 25 generally allege damages in excess of $50, one allegescompensatory damages in excess of $50 and an unspecified amount of punitivedamages, 103 allege compensatory damages and punitive damages, each in excessof $25, two generally allege damages in excess of $100, two allege compensatorydamages and punitive damages, each in excess of $50, 20 generally allegedamages in excess of $15,000, one generally alleges damages of $23,000, onealleges compensatory damages and punitive damages, each in excess of $10, fourallege general damages of $18,000 and punitive damages of $10,000, two allegegeneral damages of $13,000 and punitive damages of $10,000, one allegescompensatory and punitive damages, each in excess of $15, one alleges punitivedamages in excess of $50, one generally alleges damages in excess of $15, 12generally allege damages in excess of $25, one alleges compensatory damages of$18,000 and punitive damages of $10,000, one alleges punitive damages of$13,500 and compensatory damages of $10,000, one alleges punitive damages of$13,000 and compensatory damages of $10,000, eight allege compensatory damagesof $13,000 and punitive damages of $10,000, one alleges compensatory andpunitive damages, each of $15 and two allege compensatory and punitive damages,each in excess of $15,000. The Company currently does not have access to thecomplaints with respect to the previously mentioned additional two monitoredcases, and therefore it does not know whether these cases allege specificdamages, or if so, the amount of such damages, but is in the process of seekingto obtain such information. Due to the reasons noted above and to theindemnification arrangements benefiting the Company, it does not believe thatthe damage amounts specified in these complaints are a meaningful factor in anyassessment of the Company’s potential liability.

 

The Company recorded a $1,250 reserve forrespiratory claims during the year ended December 31, 2004.  The Company re-evaluated this reserve in itsfirst and second quarter 2005 financial statements and concluded the $1,250recorded reserve continued to be its best estimate of the probable loss for therespiratory contingency.

 

In the July 2005 acquisition purchaseaccounting (as first reported in the Form 10-Q for the third quarter of 2005),the Company carried forward the $1,250 liability for this pre-acquisitioncontingency.  Although managementconcluded that it was likely their estimate of this pre-acquisition contingentliability would be increased during the purchase accounting 

 

9

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allocation period as the new ownership finalized their strategy foraddressing the liability and gathered information (primarily related to caseinformation and the working relationship among the prior owners of North), itwas unlikely the amount would be lower than the $1,250. Thus, the $1,250 amountrepresented the low end of a probable loss range, subject to further adjustmentduring the allocation period.

 

In December 2005, the Company begannegotiations with the former owners of the North business to enter into theJDA. The Company determined that the liability should be increased to $5,000 asof December 31, 2005 as part of the purchase price allocation process. The $5,000reserve as of December 31, 2005 represented management’s best estimate of theliability based on the current status of negotiations. As of December 31, 2005,the estimate was still preliminary as the Company was awaiting finalization ofthe JDA negotiation process.

 

As discussed above, the Company entered intothe JDA effective July 1, 2006 and completed its evaluation of the reserve.After all information was obtained, the Company adjusted the reserve to $7,000as part of the purchase price allocation process during the permittedallocation period. As of September 29, 2007, the reserve balance was $6,800.

 

The final estimated amount recorded inpurchase accounting related entirely to losses incurred before the July 2005acquisition. The Company’s final estimate of the probable loss for therespiratory contingency incorporated the new ownerships’ decision to enter intothe JDA. The decision represented a significantly different plan as newownership agreed to assume losses related to claims with unknown years ofexposure. In addition, the decision to enter into the JDA was being consideredfrom the date of the acquisition and the ultimate decision was made during theallocation period.

 

The Company believes that this reserverepresents a reasonable estimate of its probable and estimable liabilities forproduct claims alleging injury resulting from exposure to silica dust and otherparticles, including asbestos. The Company believes that a five-year projectionof claims and related defense costs is the most reasonable approach. Thisreserve will be re-evaluated periodically and additional charges or creditswill be recorded to operating expenses as additional information becomesavailable.

 

It ispossible that the Company may incur liabilities in an amount in excess ofamounts currently reserved. However, taking into account currently availableinformation, historical experience, and the Company’s indemnification fromInvensys, but recognizing the inherent uncertainties in the projection of anyfuture events, the Company believes that these suits or claims should notresult in final judgments or settlements in excess of its reserve.

 

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

 

10

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**12.**                               SegmentData

** **

The following tablepresents information about the Company by segment:

 
| ** **                                | ** ** | **General  Safety &  Preparedness** | ** **   | **Fire  Service** | ** ** | **Electrical  Safety** | ** ** | **Corporate  (1)** | ** **   | **Eliminations  (2)** | ** ** | **Total**    | ** ** |
|-------------------------------------------|------------|----------------------------------------------|--------------|-------------------|------------|------------------------|------------|--------------------|--------------|-----------------------|------------|--------------|------------|
| **Three Months Ended September 30, 2006** | ** ** | ** **                                   | ** **   | ** **        | ** ** | ** **             | ** ** | ** **         | ** **   | ** **            | ** ** | ** **   | ** ** |
| Net sales—third parties              |       | $                                            |  93,624 |              | $          |  21,817           |       | $                  |  21,336 |                  | $          |  — |       | $ |  — |   | $ |  136,777 |   |
| Net sales—intersegment               |       | 2,243                                        |         | —            |       | —                 |       | —             |         | (2,243                | )          | —       |       |
| Income (loss) from operations             |       | 10,487                                       |         | 1,430             |       | 3,597                  |       | (1,861             | )            | —                |       | 13,653       |       |
|                                      |       |                                         |         |              |       |                   |       |               |         |                  |       |         |       |
| **Three Months Ended September 29, 2007** | ** ** | ** **                                   | ** **   | ** **        | ** ** | ** **             | ** ** | ** **         | ** **   | ** **            | ** ** | ** **   | ** ** |
| Net sales—third parties              |       | 102,310                                      |         | 25,674            |       | 23,422                 |       | —             |         | —                |       | 151,406      |       |
| Net sales—intersegment               |       | 1,823                                        |         | —            |       | 90                     |       | —             |         | (1,913                | )          | —       |       |
| Income (loss) from operations             |       | 12,423                                       |         | 3,238             |       | 4,486                  |       | (3,349             | )            | —                |       | 16,798       |       |
|                                      |       |                                         |         |              |       |                   |       |               |         |                  |       |         |       |
| **Nine Months Ended September 30, 2006**  | ** ** | ** **                                   | ** **   | ** **        | ** ** | ** **             | ** ** | ** **         | ** **   | ** **            | ** ** | ** **   | ** ** |
| Net sales—third parties              |       | 277,531                                      |         | 68,073            |       | 58,807                 |       | —             |         | —                |       | 404,411      |       |
| Net sales—intersegment               |       | 7,146                                        |         | —            |       | —                 |       | —             |         | (7,146                | )          | —       |       |
| Income (loss) from operations             |       | 33,220                                       |         | 6,118             |       | 12,745                 |       | (6,009             | )            | —                |       | 46,074       |       |
|                                      |       |                                         |         |              |       |                   |       |               |         |                  |       |         |       |
| **Nine Months Ended September 29, 2007**  | ** ** | ** **                                   | ** **   | ** **        | ** ** | ** **             | ** ** | ** **         | ** **   | ** **            | ** ** | ** **   | ** ** |
| Net sales—third parties              |       | 307,918                                      |         | 75,213            |       | 72,832                 |       | —             |         | —                |       | 455,963      |       |
| Net sales—intersegment               |       | 6,508                                        |         | —            |       | 305                    |       | —             |         | (6,813                | )          | —       |       |
| Income (loss) from operations             |       | 40,181                                       |         | 9,612             |       | 15,190                 |       | (8,183             | )            | —                |       | 56,800       |       |
|                                           |            |                                              |              |                   |            |                        |            |                    |              |                       |            |              |            |  |  |  |  |  |  |

 

----

(1)        Corporate expenses includegeneral and administrative expenses such as administrative, finance, humanresources and legal, which are not directly associated with one of thereporting segments.

 

(2)        The eliminations columnincludes the elimination of intersegment net sales among the three reportingsegments.

 

**13.**                               SubsidiaryGuarantors

** **

All of the Company’sdirect or indirect 100% owned active domestic subsidiaries, fully,unconditionally, jointly and severally guarantee the senior subordinated notes.Separate financial statements of the guarantor subsidiaries are not separatelypresented because, in the opinion of management, such financial statements arenot material to investors. The non-guarantor subsidiaries include wholly ownedsubsidiaries of the Company organized under the laws of foreign jurisdictionsand inactive subsidiaries, all of which are included in the consolidatedfinancial statements. The following is summarized combining financialinformation for Norcross Safety Products L.L.C. on a stand-alone basis (“NSP”),Norcross Capital Corp. (“NCC”) (a wholly-owned subsidiary of the Company andco-issuer of the senior subordinated notes), the guarantor subsidiaries of theCompany and the non-guarantor subsidiaries of the Company:

 

11

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| ** **                                          | ** ** | **NSP**    | ** **    | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** **    | **Eliminations** | ** ** | **Total**     | ** ** |
|-----------------------------------------------------|------------|------------|---------------|------------|------------|-----------------------------|------------|-----------------------------------|---------------|------------------|------------|---------------|------------|
| **September 29, 2007**                              | ** ** | ** ** | ** **    | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** **    | ** **       | ** ** | ** **    | ** ** |
| Current assets:                                     |       |       |          |       |       |                        |       |                              |          |             |       |          |       |
| Cash and cash equivalents                           |       | $          |  28,573  |       | $          |  —                |       | $                                 |  (4,312  | )                | $          |  15,588  |       | $ |  — |   | $ |  39,849 |   |
| Accounts receivable, net                            |       | 13,388     |          | —     |       | 44,327                      |       | 35,047                            |          | —           |       | 92,762        |       |
| Inventories                                         |       | 13,630     |          | —     |       | 51,302                      |       | 46,384                            |          | —           |       | 111,316       |       |
| Deferred income taxes                               |       | 588        |          | —     |       | 1,241                       |       | 117                               |          | —           |       | 1,946         |       |
| Prepaid expenses and other current assets           |       | 267        |          | —     |       | 1,689                       |       | 1,835                             |          | —           |       | 3,791         |       |
| Total current assets                                |       | 56,446     |          | —     |       | 94,247                      |       | 98,971                            |          | —           |       | 249,664       |       |
| Property, plant and equipment, net                  |       | 7,500      |          | —     |       | 37,970                      |       | 22,944                            |          | —           |       | 68,414        |       |
| Deferred financing costs, net                       |       | 5,380      |          | —     |       | —                      |       | —                            |          | —           |       | 5,380         |       |
| Goodwill                                            |       | 23,290     |          | —     |       | 89,058                      |       | 51,494                            |          | —           |       | 163,842       |       |
| Other intangible assets, net                        |       | 24,118     |          | —     |       | 213,473                     |       | 39,407                            |          | —           |       | 276,998       |       |
| Investment in subsidiaries                          |       | 307,105    |          | —     |       | 124,533                     |       | —                            |          | (431,638         | )          | —        |       |
| Other noncurrent assets                             |       | —     |          | —     |       | 4,989                       |       | 1,235                             |          | —           |       | 6,224         |       |
| Total assets                                        |       | $          |  423,839 |       | $          |  —                |       | $                                 |  564,270 |             | $          |  214,051 |       | $ |  (431,638 | ) | $ |  770,522 |   |
|                                                |       |       |          |       |       |                        |       |                              |          |             |       |          |       |
| Current liabilities:                                |       |       |          |       |       |                        |       |                              |          |             |       |          |       |
| Accounts payable                                    |       | $          |  2,976   |       | $          |  —                |       | $                                 |  10,399  |             | $          |  8,840   |       | $ |  — |   | $ |  22,215 |   |
| Accrued expenses                                    |       | 4,084      |          | —     |       | 24,171                      |       | 16,193                            |          | —           |       | 44,448        |       |
| Current maturities of long-term obligations         |       | 3,164      |          | —     |       | 250                         |       | —                            |          | —           |       | 3,414         |       |
| Total current liabilities                           |       | 10,224     |          | —     |       | 34,820                      |       | 25,033                            |          | —           |       | 70,077        |       |
| Long-term liabilities:                              |       |       |          |       |       |                        |       |                              |          |             |       |          |       |
| Pension, post-retirement and deferred  compensation |       | —     |          | —     |       | 13,259                      |       | 294                               |          | —           |       | 13,553        |       |
| Long-term obligations                               |       | 317,284    |          | —     |       | 500                         |       | —                            |          | —           |       | 317,784       |       |
| Intercompany balances                               |       | (201,385   | )             | —     |       | 153,640                     |       | 47,745                            |          | —           |       | —        |       |
| Other noncurrent liabilities                        |       | —     |          | —     |       | 8,079                       |       | 43                                |          | —           |       | 8,122         |       |
| Deferred income taxes                               |       | 2,746      |          | —     |       | 47,914                      |       | 15,134                            |          | —           |       | 65,794        |       |
| Total long-term liabilities                         |       | 118,645    |          | —     |       | 223,392                     |       | 63,216                            |          | —           |       | 405,253       |       |
|                                                |       |       |          |       |       |                        |       |                              |          |             |       |          |       |
| Minority interest                                   |       | —     |          | —     |       | —                      |       | 222                               |          | —           |       | 222           |       |
|                                                |       |       |          |       |       |                        |       |                              |          |             |       |          |       |
| Member’s equity:                               |       |       |          |       |       |                        |       |                              |          |             |       |          |       |
| Contributed capital                                 |       | 223,952    |          | —     |       | 211,312                     |       | 86,705                            |          | (298,017         | )          | 223,952       |       |
| Retained earnings                                   |       | 41,743     |          | —     |       | 65,468                      |       | 19,960                            |          | (85,428          | )          | 41,743        |       |
| Accumulated other comprehensive income              |       | 29,275     |          | —     |       | 29,278                      |       | 18,915                            |          | (48,193          | )          | 29,275        |       |
| Total member’s equity                          |       | 294,970    |          | —     |       | 306,058                     |       | 125,580                           |          | (431,638         | )          | 294,970       |       |
| Total liabilities and member’s equity          |       | $          |  423,839 |       | $          |  —                |       | $                                 |  564,270 |             | $          |  214,051 |       | $ |  (431,638 | ) | $ |  770,522 |   |

 

 

12

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| ** **                                          | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **December 31, 2006**                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Current assets:                                     |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Cash and cash equivalents                           |       | $          | 19,271     |       | $          | —                      |       | $                                 | (1,283     | )                | $          | 8,108      |       | $ | — |   | $ | 26,096 |   |
| Accounts receivable, net                            |       | 10,278     |       | —     |       | 34,377                      |       | 28,651                            |       | —           |       | 73,306     |       |
| Inventories                                         |       | 12,648     |       | —     |       | 50,781                      |       | 44,841                            |       | —           |       | 108,270    |       |
| Deferred income taxes                               |       | 588        |       | —     |       | 1,241                       |       | 314                               |       | —           |       | 2,143      |       |
| Prepaid expenses and other current assets           |       | 808        |       | —     |       | 1,627                       |       | 1,120                             |       | —           |       | 3,555      |       |
| Total current assets                                |       | 43,593     |       | —     |       | 86,743                      |       | 83,034                            |       | —           |       | 213,370    |       |
| Property, plant and equipment, net                  |       | 8,079      |       | —     |       | 39,367                      |       | 22,181                            |       | —           |       | 69,627     |       |
| Deferred financing costs, net                       |       | 6,387      |       | —     |       | —                      |       | —                            |       | —           |       | 6,387      |       |
| Goodwill                                            |       | 23,289     |       | —     |       | 89,058                      |       | 45,664                            |       | —           |       | 158,011    |       |
| Other intangible assets, net                        |       | 24,946     |       | —     |       | 219,940                     |       | 36,552                            |       | —           |       | 281,438    |       |
| Investment in subsidiaries                          |       | 456,360    |       | —     |       | 100,004                     |       | —                            |       | (556,364         | )          | —     |       |
| Other noncurrent assets                             |       | —     |       | —     |       | 3,520                       |       | 1,599                             |       | —           |       | 5,119      |       |
| Total assets                                        |       | $          | 562,654    |       | $          | —                      |       | $                                 | 538,632    |             | $          | 189,030    |       | $ | (556,364 | ) | $ | 733,952 |   |
|                                                |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Current liabilities:                                |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Accounts payable                                    |       | $          | 3,266      |       | $          | —                      |       | $                                 | 9,901      |             | $          | 8,724      |       | $ | — |   | $ | 21,891 |   |
| Accrued expenses                                    |       | 9,083      |       | —     |       | 21,210                      |       | 11,589                            |       | —           |       | 41,882     |       |
| Current maturities of long-term obligations         |       | 5,393      |       | —     |       | 334                         |       | 103                               |       | —           |       | 5,830      |       |
| Total current liabilities                           |       | 17,742     |       | —     |       | 31,445                      |       | 20,416                            |       | —           |       | 69,603     |       |
| Long-term liabilities:                              |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Pension, post-retirement and deferred  compensation |       | (96        | )          | —     |       | 16,902                      |       | 276                               |       | —           |       | 17,082     |       |
| Long-term obligations                               |       | 319,725    |       | —     |       | 666                         |       | 275                               |       | —           |       | 320,666    |       |
| Intercompany balances                               |       | (30,300    | )          | —     |       | (14,296                     | )          | 44,596                            |       | —           |       | —     |       |
| Other noncurrent liabilities                        |       | —     |       | —     |       | 6,961                       |       | 47                                |       | —           |       | 7,008      |       |
| Deferred income taxes                               |       | 791        |       | —     |       | 47,508                      |       | 16,303                            |       | —           |       | 64,602     |       |
| Total long-term liabilities                         |       | 290,120    |       | —     |       | 57,741                      |       | 61,497                            |       | —           |       | 409,358    |       |
|                                                |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Minority interest                                   |       | —     |       | —     |       | —                      |       | 199                               |       | —           |       | 199        |       |
|                                                |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Member’s equity:                               |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Contributed capital                                 |       | 222,828    |       | —     |       | 398,658                     |       | 92,819                            |       | (491,477         | )          | 222,828    |       |
| Retained earnings                                   |       | 21,169     |       | —     |       | 50,788                      |       | 14,099                            |       | (64,887          | )          | 21,169     |       |
| Accumulated other comprehensive income              |       | 10,795     |       | —     |       | —                      |       | —                            |       | —           |       | 10,795     |       |
| Total member’s equity                          |       | 254,792    |       | —     |       | 449,446                     |       | 106,918                           |       | (556,364         | )          | 254,792    |       |
| Total liabilities and member’s equity          |       | $          | 562,654    |       | $          | —                      |       | $                                 | 538,632    |             | $          | 189,030    |       | $ | (556,364 | ) | $ | 733,952 |   |

 

13

----

 
| ** **                                                                   | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Three months ended September 29, 2007**                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Third party                                                                  |       | $          | 21,277     |       | $          | —                      |       | $                                 | 78,727     |             | $          | 51,402     |       | $ | — |   | $ | 151,406 |   |
| Intercompany                                                                 |       | 2,014      |       | —     |       | 2,170                       |       | 4,354                             |       | (8,538           | )          | —     |       |
| Net sales                                                                    |       | 23,291     |       | —     |       | 80,897                      |       | 55,756                            |       | (8,538           | )          | 151,406    |       |
| Cost of goods sold                                                           |       | 16,646     |       | —     |       | 51,348                      |       | 33,705                            |       | (8,538           | )          | 93,161     |       |
| Gross profit                                                                 |       | 6,645      |       | —     |       | 29,549                      |       | 22,051                            |       | —           |       | 58,245     |       |
| Operating expenses:                                                          |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Selling                                                                      |       | 1,110      |       | —     |       | 7,267                       |       | 5,413                             |       | —           |       | 13,790     |       |
| Distribution                                                                 |       | 1,256      |       | —     |       | 4,639                       |       | 3,596                             |       | —           |       | 9,491      |       |
| General and administrative                                                   |       | 4,684      |       | —     |       | 7,183                       |       | 3,430                             |       | —           |       | 15,297     |       |
| Amortization of intangibles                                                  |       | 276        |       | —     |       | 2,090                       |       | 503                               |       | —           |       | 2,869      |       |
| Total operating expenses                                                     |       | 7,326      |       | —     |       | 21,179                      |       | 12,942                            |       | —           |       | 41,447     |       |
| (Loss) income from operations                                                |       | (681       | )          | —     |       | 8,370                       |       | 9,109                             |       | —           |       | 16,798     |       |
| Other expense (income):                                                      |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Interest expense                                                             |       | 6,902      |       | —     |       | 14                          |       | 4                                 |       | —           |       | 6,920      |       |
| Interest income                                                              |       | (324       | )          | —     |       | —                      |       | (111                              | )          | —           |       | (435       | )          |
| Intercompany charges                                                         |       | (14,830    | )          | —     |       | (3,037                      | )          | 3,668                             |       | 14,199           |       | —     |       |
| Other, net                                                                   |       | 24         |       | —     |       | (113                        | )          | 204                               |       | —           |       | 115        |       |
| Income from continuing operations before  income taxes and minority interest |       | 7,547      |       | —     |       | 11,506                      |       | 5,344                             |       | (14,199          | )          | 10,198     |       |
| Income tax (benefit) expense                                                 |       | (561       | )          | —     |       | 2,581                       |       | 60                                |       | —           |       | 2,080      |       |
| Minority interest                                                            |       | —     |       | —     |       | —                      |       | 10                                |       | —           |       | 10         |       |
| Income from continuing operations                                            |       | 8,108      |       | —     |       | 8,925                       |       | 5,274                             |       | (14,199          | )          | 8,108      |       |
| Income from discontinued operations, net of  income tax                      |       | —     |       | —     |       | —                      |       | —                            |       | —           |       | —     |       |
| Net income                                                                   |       | $          | 8,108      |       | $          | —                      |       | $                                 | 8,925      |             | $          | 5,274      |       | $ | (14,199 | ) | $ | 8,108 |   |

 

14

----

 
| ** **                                                                   | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Three months ended September 30, 2006**                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Third party                                                                  |       | $          | 19,359     |       | $          | —                      |       | $                                 | 73,034     |             | $          | 44,384     |       | $ | — |   | $ | 136,777 |   |
| Intercompany                                                                 |       | 1,832      |       | —     |       | 2,799                       |       | 4,185                             |       | (8,816           | )          | —     |       |
| Net sales                                                                    |       | 21,191     |       | —     |       | 75,833                      |       | 48,569                            |       | (8,816           | )          | 136,777    |       |
| Cost of goods sold                                                           |       | 15,766     |       | —     |       | 49,782                      |       | 30,429                            |       | (8,816           | )          | 87,161     |       |
| Gross profit                                                                 |       | 5,425      |       | —     |       | 26,051                      |       | 18,140                            |       | —           |       | 49,616     |       |
| Operating expenses:                                                          |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Selling                                                                      |       | 942        |       | —     |       | 6,697                       |       | 4,703                             |       | —           |       | 12,342     |       |
| Distribution                                                                 |       | 1,026      |       | —     |       | 3,897                       |       | 3,105                             |       | —           |       | 8,028      |       |
| General and administrative                                                   |       | 2,571      |       | —     |       | 6,539                       |       | 3,410                             |       | —           |       | 12,520     |       |
| Amortization of intangibles                                                  |       | 271        |       | —     |       | 2,334                       |       | 468                               |       | —           |       | 3,073      |       |
| Total operating expenses                                                     |       | 4,810      |       | —     |       | 19,467                      |       | 11,686                            |       | —           |       | 35,963     |       |
| Income from operations                                                       |       | 615        |       | —     |       | 6,584                       |       | 6,454                             |       | —           |       | 13,653     |       |
| Other expense (income):                                                      |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Interest expense                                                             |       | 6,989      |       | —     |       | 19                          |       | 3                                 |       | —           |       | 7,011      |       |
| Interest income                                                              |       | (83        | )          | —     |       | —                      |       | (22                               | )          | —           |       | (105       | )          |
| Intercompany charges                                                         |       | (8,839     | )          | —     |       | (4,532                      | )          | 5,508                             |       | 7,863            |       | —     |       |
| Other, net                                                                   |       | —     |       | —     |       | (96                         | )          | 11                                |       | —           |       | (85        | )          |
| Income from continuing operations before  income taxes and minority interest |       | 2,548      |       | —     |       | 11,193                      |       | 954                               |       | (7,863           | )          | 6,832      |       |
| Income tax (benefit) expense                                                 |       | (1,678     | )          | —     |       | 3,796                       |       | 454                               |       | —           |       | 2,572      |       |
| Minority interest                                                            |       | —     |       | —     |       | —                      |       | 8                                 |       | —           |       | 8          |       |
| Income from continuing operations                                            |       | 4,226      |       | —     |       | 7,397                       |       | 492                               |       | (7,863           | )          | 4,252      |       |
| Loss from discontinued operations, net of  income tax                        |       | —     |       | —     |       | —                      |       | 26                                |       | —           |       | 26         |       |
| Net income                                                                   |       | $          | 4,226      |       | $          | —                      |       | $                                 | 7,397      |             | $          | 466        |       | $ | (7,863 | ) | $ | 4,226 |   |

 

15

----

 
| ****                                                                         | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Nine months ended September 29, 2007**                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Third party                                                                  |       | $          | 57,284     |       | $          | —                      |       | $                                 | 244,230    |             | $          | 154,449    |       | $ | — |   | $ | 455,963 |   |
| Intercompany                                                                 |       | 5,986      |       | —     |       | 7,279                       |       | 13,704                            |       | (26,969          | )          | —     |       |
| Net sales                                                                    |       | 63,270     |       | —     |       | 251,509                     |       | 168,153                           |       | (26,969          | )          | 455,963    |       |
| Cost of goods sold                                                           |       | 44,323     |       | —     |       | 158,784                     |       | 102,111                           |       | (26,969          | )          | 278,249    |       |
| Gross profit                                                                 |       | 18,947     |       | —     |       | 92,725                      |       | 66,042                            |       | —           |       | 177,714    |       |
| Operating expenses:                                                          |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Selling                                                                      |       | 3,248      |       | —     |       | 21,703                      |       | 15,993                            |       | —           |       | 40,944     |       |
| Distribution                                                                 |       | 3,863      |       | —     |       | 13,558                      |       | 10,752                            |       | —           |       | 28,173     |       |
| General and administrative                                                   |       | 11,539     |       | —     |       | 20,906                      |       | 10,606                            |       | —           |       | 43,051     |       |
| Amortization of intangibles                                                  |       | 829        |       | —     |       | 6,467                       |       | 1,450                             |       | —           |       | 8,746      |       |
| Total operating expenses                                                     |       | 19,479     |       | —     |       | 62,634                      |       | 38,801                            |       | —           |       | 120,914    |       |
| (Loss) income from operations                                                |       | (532       | )          | —     |       | 30,091                      |       | 27,241                            |       | —           |       | 56,800     |       |
| Other expense (income):                                                      |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Interest expense                                                             |       | 20,833     |       | —     |       | 44                          |       | 8                                 |       | —           |       | 20,885     |       |
| Interest income                                                              |       | (710       | )          | —     |       | —                      |       | (178                              | )          | —           |       | (888       | )          |
| Intercompany charges                                                         |       | (44,059    | )          | —     |       | (5,594                      | )          | 11,607                            |       | 38,046           |       | —     |       |
| Other, net                                                                   |       | 23         |       | —     |       | (446                        | )          | 937                               |       | —           |       | 514        |       |
| Income from continuing operations before  income taxes and minority interest |       | 23,381     |       | —     |       | 36,087                      |       | 14,867                            |       | (38,046          | )          | 36,289     |       |
| Income tax (benefit) expense                                                 |       | (946       | )          | —     |       | 9,951                       |       | 3,142                             |       | —           |       | 12,147     |       |
| Minority interest                                                            |       | —     |       | —     |       | —                      |       | 24                                |       | —           |       | 24         |       |
| Income from continuing operations                                            |       | 24,327     |       | —     |       | 26,136                      |       | 11,701                            |       | (38,046          | )          | 24,118     |       |
| Loss (income) from discontinued operations,  net of income tax               |       | 3,022      |       | —     |       | —                      |       | (209                              | )          | —           |       | 2,813      |       |
| Net income                                                                   |       | $          | 21,305     |       | $          | —                      |       | $                                 | 26,136     |             | $          | 11,910     |       | $ | (38,046 | ) | $ | 21,305 |   |
|                                                                              |            |            |            |            |            |                             |            |                                   |            |                  |            |            |            |  |  |  |  |  |  |  |  |  |

 

16

----

 
| ** **                                              | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Nine months ended September 30, 2006**                | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Third party                                             |       | $          | 50,223     |       | $          | —                      |       | $                                 | 218,725    |             | $          | 135,463    |       | $ | — |   | $ | 404,411 |   |
| Intercompany                                            |       | 5,868      |       | —     |       | 8,839                       |       | 11,930                            |       | (26,637          | )          | —     |       |
| Net sales                                               |       | 56,091     |       | —     |       | 227,564                     |       | 147,393                           |       | (26,637          | )          | 404,411    |       |
| Cost of goods sold                                      |       | 38,731     |       | —     |       | 146,136                     |       | 92,190                            |       | (26,637          | )          | 250,420    |       |
| Gross profit                                            |       | 17,360     |       | —     |       | 81,428                      |       | 55,203                            |       | —           |       | 153,991    |       |
| Operating expenses:                                     |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Selling                                                 |       | 2,683      |       | —     |       | 20,159                      |       | 14,628                            |       | —           |       | 37,470     |       |
| Distribution                                            |       | 3,136      |       | —     |       | 10,983                      |       | 9,309                             |       | —           |       | 23,428     |       |
| General and administrative                              |       | 8,397      |       | —     |       | 20,315                      |       | 9,767                             |       | —           |       | 38,479     |       |
| Amortization of intangibles                             |       | 806        |       | —     |       | 6,348                       |       | 1,386                             |       | —           |       | 8,540      |       |
| Total operating expenses                                |       | 15,022     |       | —     |       | 57,805                      |       | 35,090                            |       | —           |       | 107,917    |       |
| Income from operations                                  |       | 2,338      |       | —     |       | 23,623                      |       | 20,113                            |       | —           |       | 46,074     |       |
| Other expense (income):                                 |       |       |       |       |       |                        |       |                              |       |             |       |       |       |
| Interest expense                                        |       | 20,007     |       | —     |       | 56                          |       | 16                                |       | —           |       | 20,079     |       |
| Interest income                                         |       | (359       | )          | —     |       | —                      |       | (60                               | )          | —           |       | (419       | )          |
| Intercompany charges                                    |       | (30,228    | )          | —     |       | (13,672                     | )          | 11,192                            |       | 32,708           |       | —     |       |
| Other, net                                              |       | 6          |       | —     |       | (348                        | )          | (268                              | )          | —           |       | (610       | )          |
| Income before income taxes and minority  interest       |       | 12,912     |       | —     |       | 37,587                      |       | 9,233                             |       | (32,708          | )          | 27,024     |       |
| Income tax (benefit) expense                            |       | (4,571     | )          | —     |       | 11,576                      |       | 2,580                             |       | —           |       | 9,585      |       |
| Minority interest                                       |       | —     |       | —     |       | —                      |       | 23                                |       | —           |       | 23         |       |
| Income from continuing operations                       |       | 17,483     |       | —     |       | 26,011                      |       | 6,630                             |       | (32,708          | )          | 17,416     |       |
| Income from discontinued operations, net of  income tax |       | —     |       | —     |       | —                      |       | (67                               | )          | —           |       | (67        | )          |
| Net income                                              |       | $          | 17,483     |       | $          | —                      |       | $                                 | 26,011     |             | $          | 6,697      |       | $ | (32,708 | ) | $ | 17,483 |   |
|                                                         |            |            |            |            |            |                             |            |                                   |            |                  |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

17

----

 
| ** **                                              | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Nine months ended September 29, 2007**                | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Operating activities**                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net cash (used in) provided by operating  activities    |       | $          | (5,025     | )          | $          | —                      |       | $                                 | 16,269     |             | $          | 12,087     |       | $ | — |   | $ | 23,331 |   |
| ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Investing activities**                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Purchase of businesses, net of cash  acquired           |       | —     |       | —     |       | —                      |       | (1,247                            | )          | —           |       | (1,247     | )          |
| Proceeds from sale of subsidiary, net of  cash disposed |       | 3,856      |       | —     |       | —                      |       | (633                              | )          | —           |       | 3,223      |       |
| Purchase of property, plant and equipment               |       | (1,085     | )          | —     |       | (4,580                      | )          | (2,465                            | )          | —           |       | (8,130     | )          |
| Proceeds from sale of property, plant and  equipment    |       | —     |       | —     |       | 276                         |       | 101                               |       | —           |       | 377        |       |
| Net cash provided by (used in) investing  activities    |       | 2,771      |       | —     |       | (4,304                      | )          | (4,244                            | )          | —           |       | (5,777     | )          |
| ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Financing activities**                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Payments of debt                                        |       | (3,832     | )          | —     |       | (250                        | )          | (204                              | )          | —           |       | (4,286     | )          |
| Intercompany                                            |       | 15,723     |       | —     |       | (19,285                     | )          | 3,562                             |       | —           |       | —     |       |
| Dividends to Safety Products Holdings, Inc.             |       | (355       | )          | —     |       | —                      |       | —                            |       | —           |       | (355       | )          |
| Net cash provided by (used in) financing activities     |       | 11,536     |       | —     |       | (19,535                     | )          | 3,358                             |       | —           |       | (4,641     | )          |
| Effect of exchange rate changes on cash                 |       | 20         |       | —     |       | 4,541                       |       | (3,721                            | )          | —           |       | 840        |       |
| Net increase (decrease) in cash and cash  equivalents   |       | 9,302      |       | —     |       | (3,029                      | )          | 7,480                             |       | —           |       | 13,753     |       |
| Cash and cash equivalents at beginning of  period       |       | 19,271     |       | —     |       | (1,283                      | )          | 8,108                             |       | —           |       | 26,096     |       |
| Cash and cash equivalents at end of period              |       | $          | 28,573     |       | $          | —                      |       | $                                 | (4,312     | )                | $          | 15,588     |       | $ | — |   | $ | 39,849 |   |

 

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| ** **                                            | ** ** | **NSP**    | ** ** | **NCC**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------|------------|
| **Nine months ended September 30, 2006**              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Operating activities**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net cash (used in) provided by operating  activities  |       | $          | (15,277    | )          | $          | —                      |       | $                                 | 24,093     |             | $          | 5,797      |       | $ | — |   | $ | 14,613 |   |
| ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Investing activities**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Purchase of businesses, net of cash  acquired         |       | (4,116     | )          | —     |       | (26,635                     | )          | (201                              | )          | —           |       | (30,952    | )          |
| Purchase of property, plant and equipment             |       | (2,346     | )          | —     |       | (3,764                      | )          | (1,571                            | )          | —           |       | (7,681     | )          |
| Proceeds from sale of property, plant and  equipment  |       | —     |       | —     |       | —                      |       | 113                               |       | —           |       | 113        |       |
| Net cash used in investing activities                 |       | (6,462     | )          | —     |       | (30,399                     | )          | (1,659                            | )          | —           |       | (38,520    | )          |
| ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Financing activities**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** ** | ** ** |
| Payments for deferred financing costs                 |       | (201       | )          | —     |       | —                      |       | —                            |       | —           |       | (201       | )          |
| Proceeds from borrowings                              |       | 15,000     |       | —     |       | —                      |       | —                            |       | —           |       | 15,000     |       |
| Payments of debt                                      |       | (1,243     | )          | —     |       | (68                         | )          | (88                               | )          | —           |       | (1,399     | )          |
| Net borrowings under revolving credit  facility       |       | 2,000      |       | —     |       | —                      |       | —                            |       | —           |       | 2,000      |       |
| Intercompany                                          |       | (3,331     | )          | —     |       | 3,485                       |       | (154                              | )          | —           |       | —     |       |
| Capital contribution                                  |       | 150        |       | —     |       | —                      |       | —                            |       | —           |       | 150        |       |
| Dividends to Safety Products Holdings, Inc.           |       | (758       | )          | —     |       | —                      |       | —                            |       | —           |       | (758       | )          |
| Net cash provided by (used in) financing  activities  |       | 11,617     |       | —     |       | 3,417                       |       | (242                              | )          | —           |       | 14,792     |       |
| Effect of exchange rate changes on cash               |       | —     |       | —     |       | 1,702                       |       | (1,346                            | )          | —           |       | 356        |       |
| Net (decrease) increase in cash and cash  equivalents |       | (10,122    | )          | —     |       | (1,187                      | )          | 2,550                             |       | —           |       | (8,759     | )          |
| Cash and cash equivalents at beginning of  period     |       | 17,885     |       | —     |       | (265                        | )          | 3,063                             |       | —           |       | 20,683     |       |
| Cash and cash equivalents at end of period            |       | $          | 7,763      |       | $          | —                      |       | $                                 | (1,452     | )                | $          | 5,613      |       | $ | — |   | $ | 11,924 |   |
|                                                       |            |            |            |            |            |                             |            |                                   |            |                  |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

**14.          Comprehensive Income**

 

Total comprehensive income (which includes the impact of foreigncurrency translation) was $3,337 and $17,130 for the three months endedSeptember 30, 2006 and September 29, 2007, respectively. Total comprehensiveincome was $23,534 and $39,785 for the nine months ended September 30, 2006 andSeptember 29, 2007, respectively.

 

19

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**Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

** **

**Overview**

 

We are a leading designer, manufacturer andmarketer of branded products in the fragmented personal protection equipmentindustry. We manufacture and market a full line of personal protectionequipment for workers in the general safety and preparedness, fire service andelectrical safety industries. We sell our products under trusted, long-standingand well-recognized brand names, including *North*, *KCL**,Fibre-Metal, NEOS, *MorningPride**, *Ranger*, *Servus*,*Pro-Warrington, AmericanFirewear, Salisbury**and*SafetyLine. Our broad product offering includes, among other things,respiratory protection, protective footwear, hand protection, turnout gear andlinemen equipment.

 

We classify our diverse product offeringsinto three reporting segments:

 

*General Safety and Preparedness*. Weoffer a diverse portfolio of leading products for a wide variety of industries,including manufacturing, agriculture, automotive, construction, food processingand pharmaceutical industries 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 marketone of the broadest lines of personal protection equipment for the fire servicemarket, offering firefighters head-to-toe protection. Our products includeturnout gear, fireboots, helmets, gloves and other accessories. We market ourproducts under our Total Fire Group umbrella, using the brand names of *Morning Pride*, *Ranger*, *Servus*, *Pro-Warrington*and*American Firewear*.We are the vendor of choice for many of the largest fire departments in NorthAmerica. We sell our fire service products primarily through specialized fireservice distributors.

 

*Electrical Safety*. We manufacture andmarket a broad line of personal protection equipment for the utility marketunder the *Salisbury, SafetyLine*and *Servus* brands. Our products include linemen equipment,gloves, sleeves and footwear. All our products either meet or exceed theapplicable standards of the American National Standards Institute (“ANSI”) andthe American Society for Testing of Materials (“ASTM”). We distribute ourelectrical safety products through specialized distributors, test labs,utilities and electrical contractors.

 

**Acquisitions**

 

In February 2006, we completed the acquisition of all of the issued andoutstanding capital stock of American Firewear. The purchase price consisted of$4.5 million in cash (including acquisition costs of $0.2 million and net ofcash acquired of $0.2 million) and a $1.0 million subordinated seller note. Inaddition, the purchase price may be increased by $0.8 million over a four yearperiod based on American Firewear achieving certain financial and operatingobjectives. We financed the acquisition through cash on the balance sheet and theissuance of the $1.0 million subordinated seller note.

 

In June 2006, we completed the acquisition of all of the issued andoutstanding capital stock of White Rubber. The purchase price of $22.2 million(including $0.6 million of acquisition costs and gross of outstanding checks of$0.8 million) was financed through $15.0 million of additional term borrowingsunder the senior credit facility and cash on the balance sheet.

 

In September 2006, we completed the acquisition of all of the issuedand outstanding capital stock of NEOS. The purchase price consisted of $3.6 million in cash (includingacquisition costs of $0.1 million and net of cash acquired) and a $0.8 millionsubordinated seller note. In addition, the purchase price may be increased overa five year period based on NEOS achieving certain net sales targets. Wefinanced the acquisition through cash on the balance sheet and the issuance ofthe $0.8 million subordinated seller note.

 

**Discontinued Operations**

 

In June 2007, we completed the sale of all of the issued andoutstanding capital stock of South Africa. We received net cash proceeds of$3.2 million and recorded a net loss related to the transaction of $3.0million. In accordance with SFAS No. 144, *Accounting for theImpairment 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.Assets and 

 

20

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liabilities of South Africa were not material and as a result have notbeen reclassified as discontinued operations in our consolidated statement offinancial position as of December 31, 2006. We have combined cash flows fromdiscontinued operations with cash flows from continuing operations within eachcash flow statement category as the cash flows from discontinued operations arenot material to our consolidated results.

 

**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. 

 

**Expense Classifications**

 

We include the following in each of the major expense categories:

 

*Cost of Goods Sold*. Primarily includesall direct and indirect costs related to our products including the following:raw materials, direct and indirect labor, including related benefits, overheadcosts, inbound freight charges, receiving costs, inspection costs, purchasingcosts, other internal transfer costs and cost of resale 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.

 

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

 

*General and Administrative.*Primarily includes the following: finance and accounting, certainpurchasing costs, information systems, human resources, legal, corporateoverhead expenses and other miscellaneous administrative expenses.

 

**Resultsof Operations**

** **

The following tables setforth our results of operations in dollars and as a percentage of net sales forthe three and nine months ended September 30, 2006 and the three and ninemonths ended September 29, 2007 and have been derived from the unauditedstatements of operations.

 

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| ** **                                                                   | ** ** | **Three months ended** | ** ** | **Nine months ended**      | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| ** **                                                                   | ** ** | **September 30,  2006**          | ** ** | **September 29,  2007**              | ** ** | **September 30,  2006** | ** ** | **September 29,  2007** | ** ** |
| ** **                                                                   | ** ** | ** **                       | ** ** | **(dollars in thousands)** | ** ** | ** ** | ** ** |
| Net sales:                                                                   |       |                             |       |                                 |       |   |   |   |   |
| General Safety & Preparedness                                            |       | $                                | 93,624     |                                 | $          | 102,310 |   | $ | 277,531 |   | $ | 307,918 |   |
| Fire Service                                                                 |       | 21,817                           |       | 25,674                               |       | 68,073 |   | 75,213 |   |
| Electrical Safety                                                            |       | 21,336                           |       | 23,422                               |       | 58,807 |   | 72,832 |   |
| Total net sales                                                              |       | 136,777                          |       | 151,406                              |       | 404,411 |   | 455,963 |   |
| Cost of goods sold                                                           |       | 87,161                           |       | 93,161                               |       | 250,420 |   | 278,249 |   |
| Gross profit                                                                 |       | 49,616                           |       | 58,245                               |       | 153,991 |   | 177,714 |   |
| Operating expenses                                                           |       | 35,963                           |       | 41,447                               |       | 107,917 |   | 120,914 |   |
| Income from operations:                                                      |       |                             |       |                                 |       |   |   |   |   |
| General Safety & Preparedness                                            |       | 10,487                           |       | 12,423                               |       | 33,220 |   | 40,181 |   |
| Fire Service                                                                 |       | 1,430                            |       | 3,238                                |       | 6,118 |   | 9,612 |   |
| Electrical Safety                                                            |       | 3,597                            |       | 4,486                                |       | 12,745 |   | 15,190 |   |
| Corporate                                                                    |       | (1,861                           | )          | (3,349                               | )          | (6,009 | ) | (8,183 | ) |
| Total income from operations                                                 |       | 13,653                           |       | 16,798                               |       | 46,074 |   | 56,800 |   |
| Other expense (income):                                                      |       |                             |       |                                 |       |   |   |   |   |
| Interest expense                                                             |       | 7,011                            |       | 6,920                                |       | 20,079 |   | 20,885 |   |
| Interest income                                                              |       | (105                             | )          | (435                                 | )          | (419 | ) | (888 | ) |
| Other, net                                                                   |       | (85                              | )          | 115                                  |       | (610 | ) | 514 |   |
| Income from continuing operations before  income taxes and minority interest |       | 6,832                            |       | 10,198                               |       | 27,024 |   | 36,289 |   |
| Income tax expense                                                           |       | 2,572                            |       | 2,080                                |       | 9,585 |   | 12,147 |   |
| Minority interest                                                            |       | 8                                |       | 10                                   |       | 23 |   | 24 |   |
| Income from continuing operations                                            |       | 4,252                            |       | 8,108                                |       | 17,416 |   | 24,118 |   |
| Loss (income) from discontinued operations,  net of income tax               |       | 26                               |       | —                               |       | (67 | ) | 2,813 |   |
| Net income                                                                   |       | $                                | 4,226      |                                 | $          | 8,108 |   | $ | 17,483 |   | $ | 21,305 |   |

 

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| ** **                                                                   | ** ** | **Three months ended** | ** ** | **Nine months ended**                                  | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **September 30,  2006**          | ** ** | **September 29,  2007**                                     | ** ** | **September 30,  2006** | ** ** | **September 29,  2007** | ** ** |
| ** **                                                                   | ** ** | ** **                       | ** ** | **(as a percentage of net sales)** | ** ** | ** ** | ** ** |
| Net sales:                                                                   |       |                             |       |                                                        |       |   |   |   |   |
| General Safety & Preparedness                                            |       | 68.5                             | %          | 67.6                                                        | %          | 68.6 | % | 67.5 | % |
| Fire Service                                                                 |       | 16.0                             | %          | 17.0                                                        | %          | 16.8 | % | 16.5 | % |
| Electrical Safety                                                            |       | 15.5                             | %          | 15.4                                                        | %          | 14.6 | % | 16.0 | % |
| Total net sales                                                              |       | 100.0                            | %          | 100.0                                                       | %          | 100.0 | % | 100.0 | % |
| Cost of goods sold                                                           |       | 63.7                             | %          | 61.5                                                        | %          | 61.9 | % | 61.0 | % |
| Gross profit                                                                 |       | 36.3                             | %          | 38.5                                                        | %          | 38.1 | % | 39.0 | % |
| Operating expenses                                                           |       | 26.3                             | %          | 27.4                                                        | %          | 26.7 | % | 26.5 | % |
| Income from operations:                                                      |       |                             |       |                                                        |       |   |   |   |   |
| General Safety & Preparedness                                            |       | 7.7                              | %          | 8.2                                                         | %          | 8.2 | % | 8.8 | % |
| Fire Service                                                                 |       | 1.0                              | %          | 2.1                                                         | %          | 1.5 | % | 2.1 | % |
| Electrical Safety                                                            |       | 2.6                              | %          | 3.0                                                         | %          | 3.2 | % | 3.3 | % |
| Corporate                                                                    |       | (1.3                             | )%         | (2.2                                                        | )%         | (1.5 | )% | (1.7 | )% |
| Total income from operations                                                 |       | 10.0                             | %          | 11.1                                                        | %          | 11.4 | % | 12.5 | % |
| Other expense (income):                                                      |       |                             |       |                                                        |       |   |   |   |   |
| Interest expense                                                             |       | 5.1                              | %          | 4.6                                                         | %          | 5.0 | % | 4.6 | % |
| Interest income                                                              |       | (0.1                             | )%         | (0.3                                                        | )%         | (0.1 | )% | (0.2 | )% |
| Other, net                                                                   |       | (0.0                             | )%         | 0.1                                                         | %          | (0.2 | )% | 0.1 | % |
| Income from continuing operations before  income taxes and minority interest |       | 5.0                              | %          | 6.7                                                         | %          | 6.7 | % | 8.0 | % |
| Income tax expense                                                           |       | 1.9                              | %          | 1.3                                                         | %          | 2.4 | % | 2.7 | % |
| Minority interest                                                            |       | 0.0                              | %          | 0.0                                                         | %          | 0.0 | % | 0.0 | % |
| Income from continuing operations                                            |       | 3.1                              | %          | 5.4                                                         | %          | 4.3 | % | 5.3 | % |
| Loss (income) from discontinued operations,  net of income tax               |       | 0.0                              | %          | 0.0                                                         | %          | (0.0 | )% | 0.6 | % |
| Net income                                                                   |       | 3.1                              | %          | 5.4                                                         | %          | 4.3 | % | 4.7 | % |

 

***ThreeMonths Ended September 29, 2007 as Compared to Three Months Ended September 30,2006***

 

*Netsales.*Net salesincreased by $14.6 million, or 10.7%, from $136.8 million for the three monthsended September 30, 2006 to $151.4 million for the three months ended September29, 2007. In our general safety and preparedness segment, net sales increasedby $8.7 million, or 9.3%, from $93.6 million for the three months endedSeptember 30, 2006 to $102.3 million for the three months ended September 29,2007. The increase reflects a combination of the following: combined organicgrowth in our international operations of $2.7 million, favorable exchangerates, which had an impact of $3.5 million and overall organic growth in ourNorth American non-government business of $3.6 million, partially offset by adecrease in government contract shipments of $1.1 million. In our fire servicesegment, net sales increased by $3.9 million, or 17.7%, from $21.8 million forthe three months ended September 30, 2006 to $25.7 million for the three monthsended September 29, 2007, due in part to a more normalized pattern of fire actgrants when compared to 2006. In addition, the issuance of the new NationalFire Protection Association (“NFPA”) standard is creating increase demand forour patented products. In our electrical safety segment, net sales increased by$2.0 million, or 9.8%, from $21.4 million for the three months ended September30, 2006 to $23.4 million for the three months ended September 29, 2007,primarily driven by strong market demand and new product penetration.

 

*Grossprofit.*Grossprofit increased by $8.6 million, or 17.4%, from $49.6 million for the threemonths ended September 30, 2006 to $58.2 million for the three months endedSeptember 29, 2007, primarily due to the $14.6 million, or 10.7%, increase innet sales. Our gross profit margin increased from 36.3% for the three monthsended September 30, 2006 to 38.5% for the three months ended September 29,2007. In our general safety and preparedness segment, gross profit increased by$4.9 million, or 13.5%, from $36.0 million for the three months ended September30, 2006 to $40.9 million for the three months ended September 29, 2007. Thisincrease was primarily due to the overall net sales increase of $8.7 million,or 9.3%, and improved margin performance. In our fire service segment, grossprofit increased by $2.5 million, or 45.5%, from $5.7 million for the threemonths ended September 30, 2006 to $8.2 million for the three months endedSeptember 29, 2007, primarily due to the increase in net sales of $3.9 million,or 17.7%, and favorable margin realization. In our electrical safety segment,gross profit increased by $1.2 million, or 15.2%, from $7.9 million for thethree months ended September 30, 2006 to $9.1 million for the three monthsended September 29, 2007, primarily due to the increase in net sales of $2.0 

 

23

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million, or 9.8%, and thefavorable impact of $0.3 million of lower inventory purchase accountingadjustments in the three months ended September 29, 2007 relative to the threemonths ended September 30, 2006.

 

*Operatingexpenses. *Operating expenses increased by $5.4million, or 15.2%, from $36.0 million for the three months ended September 30,2006 to $41.4 million for the three months ended September 29, 2007. In ourgeneral safety and preparedness segment, operating expenses increased by $2.9million, or 11.4%, from $25.5 million for the three months ended September 30,2006 to $28.4 million for the three months ended September 29, 2007, driven byincreased variable selling and distribution expenses associated with the $8.7million, or 9.3%, increase in net sales and higher payroll expenses. In ourfire service segment, operating expenses increased by $0.7 million, or 18.1%,from $4.3 million for the three months ended September 30, 2006 to $5.0 millionfor the three months ended September 29, 2007, primarily due to increasedvariable selling and distribution expenses related to the $3.9 million, or17.7%, increase in net sales and higher administrative expenses. In ourelectrical safety segment, operating expenses increased by $0.4 million, or7.3%, from $4.3 million for the three months ended September 30, 2006 to $4.7million for the three months ended September 29, 2007, primarily due toincremental administrative expenses. Corporate expenses for the three monthsended September 30, 2006 consisted of $1.6 million of general andadministrative expenses and $0.3 million of management incentive compensationexpense. Corporate expenses for the three months ended September 29, 2007consisted of $2.8 million of general and administrative expenses and $0.5million of management incentive compensation expense. The increase in corporategeneral and administrative expenses of $1.2 million was primarily due tohigher payroll, administrative expenses and professional fees. The increase inprofessional fees was partially due to $0.7 million of fees associated with theengagement of a supply-chain improvement consulting firm.    

 

*Incomefrom operations.*Incomefrom operations increased by $3.1 million, or 23.0%, from $13.7 million for thethree months ended September 30, 2006 to $16.8 million for the three monthsended September 29, 2007. In our general safety and preparedness segment,income from operations increased by $1.9 million, or 18.5%, from $10.5 millionfor the three months ended September 30, 2006 to $12.4 million for the threemonths ended September 29, 2007. In our fire service segment, income fromoperations increased by $1.8 million, or 126.4%, from $1.4 million for thethree months ended September 30, 2006 to $3.2 million for the three monthsended September 29, 2007. In our electrical safety segment, income fromoperations increased by $0.8 million, or 24.7%, from $3.7 million for the threemonths ended September 30, 2006 to $4.5 million for the three months endedSeptember 29, 2007. Corporate expenses for the three months ended September 30,2006 consisted of $1.6 million of general and administrative expenses and $0.3million of management incentive compensation expense. Corporate expenses forthe three months ended September 29, 2007 consisted of $2.8 million of generaland administrative expenses and $0.5 million of management incentivecompensation expense. These segment variances were the result of the reasonsdiscussed above. 

 

Included in incomefrom operations for the three months ended September 30, 2006 and September 29,2007 were depreciation and amortization expenses of $6.6 million and $6.5million, respectively. Of these amounts, $4.0 million, $1.2 million, and $1.4million were attributable to the general safety and preparedness, fire service,and electrical safety segments, respectively, for the three months endedSeptember 30, 2006 and $4.1 million, $1.1 million, and $1.3 million wereattributable to these segments for the three months ended September 29, 2007.

 

*Interest expense.*Interestexpense decreased by $0.1 million, or 1.3%, from $7.0 million for the threemonths ended September 30, 2006 to $6.9 million for the three months endedSeptember 29, 2007. Interest expense incurred by Norcross and the subsidiaryguarantors totaled $7.0 million for the three months ended September 30, 2006and $6.9 million for the three months ended September 29, 2007.

 

*Other, net.*Other,net increased by $0.2 million from $(0.1) million for the three months endedSeptember 30, 2006 to $0.1 million for the three months ended September 29,2007.

 

*Incometax expense.*Incometax expense decreased by $0.5 million, from $2.6 million for the three monthsended September 30, 2006 to $2.1 million for the three months ended September29, 2007, as the benefit from a reduction in the German statutory tax rate waspartially offset by higher income taxes associated with improved operatingperformance.

 

*Netincome.*Netincome increased by $3.9 million, from $4.2 million for the three months endedSeptember 30, 2006 to $8.1 million for the three months ended September 29,2007 as a result of the reasons discussed above.

 

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***NineMonths Ended September 29, 2007 as Compared to Nine Months Ended September 30,2006***

 

*Netsales.*Net salesincreased by $51.6 million, or 12.7%, from $404.4 million for the nine monthsended September 30, 2006 to $456.0 million for the nine months ended September29, 2007. In our general safety and preparedness segment, net sales increasedby $30.4 million, or 10.9%, from $277.5 million for the nine months ended September30, 2006 to $307.9 million for the nine months ended September 29, 2007. Theincrease reflects a combination of the following: combined organic growth inour international operations of $9.2 million, favorable exchange rates, whichhad an impact of $7.9 million, and overall organic growth in our North Americannon-government business of $17.7 million, which offset a decrease in governmentcontract shipments of $4.4 million. In our fire service segment, net salesincreased by $7.1 million, or 10.5%, from $68.1 million for the nine monthsended September 30, 2006 to $75.2 million for the nine months ended September29, 2007, due in part to a more normalized pattern of fire act grants whencompared to 2006. In addition, the issuance of the new NFPA standard iscreating increase demand for our patented products. In our electrical safetysegment, net sales increased by $14.1 million, or 23.8%, from $58.7 million forthe nine months ended September 30, 2006 to $72.8 million for the nine monthsended September 29, 2007, primarily driven by strong market demand, new productpenetration and incremental White Rubber net sales.

 

*Grossprofit.*Grossprofit increased by $23.7 million, or 15.4%, from $154.0 million for the ninemonths ended September 30, 2006 to $177.7 million for the nine months endedSeptember 29, 2007, primarily due to the $51.6 million, or 12.7%, increase innet sales. Our gross profit margin was 39.0% for the nine months endedSeptember 29, 2007 as compared to 38.1% for the nine months ended September 30,2006. In our general safety and preparedness segment, gross profit increased by$15.4 million, or 14.0%, from $110.4 million for the nine months endedSeptember 30, 2006 to $125.8 million for the nine months ended September 29,2007. This increase was primarily due to the overall net sales increase of$30.4 million, or 10.9%, improved margin realization and the favorable impactof $0.8 million of lower inventory purchase accounting adjustments in the ninemonths ended September 29, 2007 relative to the nine months ended September 30,2006. In our fire service segment, gross profit increased by $4.1 million, or20.9%, from $19.9 million for the nine months ended September 30, 2006 to $24.0million for the nine months ended September 29, 2007, primarily due to theincrease in net sales of $7.1 million, or 10.5%, and favorable marginrealization. In our electrical safety segment, gross profit increased by $4.2million, or 17.5%, from $23.7 million for the nine months ended September 30,2006 to $27.9 million for the nine months ended September 29, 2007, as resultof the increase in net sales of $14.1 million, or 23.8%, and the favorableimpact of $0.3 million of lower inventory purchase accounting adjustments inthe three months ended September 29, 2007 relative to the three months endedSeptember 30, 2006, partially offset by lower margin realization primarily dueto White Rubber product line integration costs and the impact of product mix.

 

*Operatingexpenses. *Operating expenses increased by $13.0 million,or 12.0%, from $107.9 million for the nine months ended September 30, 2006 to$120.9 million for the nine months ended September 29, 2007. In our generalsafety and preparedness segment, operating expenses increased by $8.5 million,or 11.0%, from $77.1 million for the nine months ended September 30, 2006 to$85.6 million for the nine months ended September 29, 2007, driven by increasedvariable selling and distribution expenses associated with the $30.4 million,or 10.9%, increase in net sales, unfavorable exchange rates, which had animpact of $1.8 million, and higher payroll expenses. In our fire servicesegment, operating expenses increased by $0.6 million, or 4.8%, from $13.8million for the nine months ended September 30, 2006 to $14.4 million for thenine months ended September 29, 2007, primarily due to increased variableselling and distribution expenses related to the $7.1 million, or 10.5%,increase in net sales and higher administrative expenses. In our electricalsafety segment, operating expenses increased by $1.7 million, or 15.5%, from$11.0 million for the nine months ended September 30, 2006 to $12.7 million forthe nine months ended September 29, 2007, due to increased variable selling anddistribution expenses related to the $14.1 million, or 23.8%, increase in netsales, higher amortization expense of $0.3 million associated with intangibleassets recorded as part of purchase accounting and incremental White Rubberoperating expenses. Corporate expenses for the nine months ended September 30,2006 consisted of $4.7 million of general and administrative expenses and $1.3million of management incentive compensation expense. Corporate expenses forthe nine months ended September 29, 2007 consisted of $7.0 million of generaland administrative expenses and $1.2 million of management incentivecompensation expense. The increase in corporate general and administrativeexpenses of $2.3 million was primarily due to higher payroll,administrative expenses and professional fees. The increase in professionalfees was partially due to $0.7 million of fees associated with the engagementof a supply-chain improvement consulting firm.    

 

*Incomefrom operations.*Incomefrom operations increased by $10.7 million, or 23.3%, from $46.1 million forthe nine months ended September 30, 2006 to $56.8 million for the nine monthsended September 29, 2007. In our general safety and preparedness segment,income from operations increased by $6.9 million, or 21.0%, from $33.3 millionfor the nine months ended September 30, 2006 to $40.2 million for the ninemonths ended September 29, 2007. In our fire service segment, income fromoperations increased by $3.5 million, or 57.1%, from $6.1 million for the ninemonths ended September 30, 2006 to $9.6 million for the nine months endedSeptember 29, 2007. In our electrical safety segment, income

 

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from operations increasedby $2.5 million, or 19.2%, from $12.7 million for the nine months endedSeptember 30, 2006 to $15.2 million for the nine months ended September 29,2007. Corporate expenses for the nine months ended September 30, 2006 consistedof $4.7 million of general and administrative expenses and $1.3 million ofmanagement incentive compensation expense. Corporate expenses for the ninemonths ended September 29, 2007 consisted of $7.0 million of general andadministrative expenses and $1.2 million of management incentive compensationexpense. These segment variances were the result of the reasons discussedabove. 

 

Included in incomefrom operations for the nine months ended September 30, 2006 and September 29,2007 were depreciation and amortization expenses of $18.5 million and $19.7million, respectively. Of these amounts, $12.0 million, $3.4 million, and $3.1million were attributable to the general safety and preparedness, fire service,and electrical safety segments, respectively, for the nine months endedSeptember 30, 2006 and $12.3 million, $3.5 million, and $3.9 million wereattributable to these segments for the nine months ended September 29, 2007.

 

*Interest expense.*Interestexpense increased by $0.8 million, or 4.0%, from $20.1 million for the ninemonths ended September 30, 2006 to $20.9 million for the nine months endedSeptember 29, 2007, primarily due to higher outstanding debt balances relatedto the White Rubber Transaction. Interest expense incurred by Norcross and thesubsidiary guarantors totaled $20.1 million for the nine months ended September30, 2006 and $20.9 million for the nine months ended September 29, 2007.

 

*Other, net.*Other,net increased by $1.1 million from $(0.6) million for the nine months endedSeptember 30, 2006 to $0.5 million for the nine months ended September 29,2007, primarily due to unrealized foreign exchange rate losses.

 

*Incometax expense.*Incometax expense increased by $2.5 million, from $9.6 million for the nine monthsended September 30, 2006 to $12.1 million for the nine months ended September29, 2007, as higher income taxes associated with improved operating performancewere partially offset by the benefit from a reduction in the German statutorytax rate.

 

*Loss(income) from discontinued operations.*Loss from discontinued operations for the nine monthsended September 29, 2007 included a $3.0 million loss related to the sale ofSouth Africa and $(0.2) million of income associated with South Africadiscontinued operations. Income from discontinued operations for the ninemonths ended September 30, 2006 included $(0.1) million of income associatedwith South Africa discontinued operations.

 

*Netincome.*Netincome increased by $3.8 million, from $17.5 million for the nine months endedSeptember 30, 2006 to $21.3 million for the nine months ended September 29,2007 as a result of the reasons discussed above.

 

**Liquidity and Capital Resources**

** **

We havehistorically used internal cash flow from operations, commercial borrowings onour lines of credit, seller notes, investments from our equityholders andcapital markets transactions to fund our operations, acquisitions, capitalexpenditures and working capital requirements. For the nine months endedSeptember 29, 2007, net cash provided by operating activities was $23.3million, as income from operations of $56.8 million was partially offset by anincrease in accounts receivable due to higher net sales. For the nine monthsended September 30, 2006, net cash provided by operating activities was $14.6million, as income from operations of $46.1 million was partially offset by anincrease in accounts receivables due to higher net sales and higher inventoryin part due to pending plant consolidations.

 

Historically, our principal uses of cash havebeen capital expenditures, acquisitions and working capital. Our capitalexpenditures were $7.7 million for the nine months ended September 30, 2006 and$8.1 million for the nine months ended September 29, 2007. Investing activitiesfor the nine months ended September 29, 2007 included $0.7 million of royaltypayments made to the sellers of Arbin, $0.5 million for the purchase of Hungaryand $3.2 million of cash proceeds from the sale of South Africa. For the ninemonths ended September 30, 2006, investing activities included $22.2 millionfor the acquisition of White Rubber, $4.5 million for the acquisition ofAmerican Firewear, $3.6 million for the acquisition of NEOS and $0.7 million ofroyalty payments made to the sellers of Muck Boot and Arbin. We received cashproceeds of $0.4 million and $0.1 million related to the sale of property,plant and equipment during the nine months ended September 29, 2007 andSeptember 30, 2006, respectively.

 

As of September 29, 2007, we had workingcapital of $179.6 million and cash of $39.8 million. We maintain inventorylevels sufficient to satisfy customer orders on demand, with generally a threemonth supply on hand. Turnout gear is an exception and is generally made toorder. Our accounts receivable terms are generally 30 days, net.

 

For the nine months ended September 29, 2007,net cash used in financing activities was $4.6 million, consisting of 

 

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$4.3 million of payments on long-term obligations (including an excesscash flow sweep payment of $2.3 million under the terms of our senior creditfacility) and $0.3 million of dividends to Safety Products Holdings, Inc. Forthe nine months ended September 30, 2006, net cash provided by financingactivities was $14.8 million, consisting of the following: proceeds fromadditional term borrowings of $15.0 million under the senior credit facilityrelated to the White Rubber transaction, proceeds from borrowings under therevolving credit facility of $2.0 million, $1.4 million of payments onlong-term obligations, $0.8 million of dividends to Safety Products HoldingsInc., $0.2 million of capital contributions, and $0.2 million of payments fordeferred financing costs.

 

As of September 29, 2007, borrowings underthe new senior credit facility bore interest at a weighted average rate of7.3%. As of September 29, 2007, there was approximately $162.1 million of outstandingindebtedness under the senior credit facility and approximately $47.5 millionof available borrowings under the revolving credit facility.

 

We believe that our internal cash flows andborrowings under our new senior credit facility will provide us with sufficientliquidity and capital resources to meet our current and future financialobligations for the foreseeable future, including funding our operations, debtservice and capital expenditures. Our future operating performance will besubject to future economic conditions and to financial, business and otherfactors, many of which are beyond our control. If our future cash flow fromoperations and other capital resources are insufficient to pay our obligationsas they mature or to fund our liquidity needs, we may be forced to reduce ordelay our business activities and capital expenditures, sell assets, obtainadditional debt or equity capital or restructure or refinance all or a portionof our debt, including the senior subordinated notes, on or before maturity. Wecannot assure you that we would be able to accomplish any of these alternativeson a timely basis or on satisfactory terms, if at all. In addition, the termsof our existing and future indebtedness, including our senior subordinated notesand our senior credit facility, may limit our ability to pursue any of thesealternatives.

 

**Forward-Looking Statements**

 

ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations contains forward-looking information.  These statements reflect management’sexpectations, estimates, and assumptions based on information available at thetime of the statement.  Forward-lookingstatements include, but are not limited to, statements regarding future events,plans, goals, objectives, and expectations. The words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intent,”“likely,” “will,” “should,” and similar expressions are intended to identifyforward-looking statements. Forward-looking statements are not guarantees of future performance andinvolve risks, uncertainties, and other factors, including those set forthbelow, which may cause our actual results, performance, or achievements to bematerially different from any future results, performance, or achievementsexpressed or implied by those statements. Important factors that could cause our actual results, performance, orachievements to be materially different from any future results, performance,or achievements expressed or implied by those statements include, but are notlimited to: (i) our high degree of leverage and significant debt serviceobligations; (ii) the impact of current and future laws and governmentalregulations affecting us or our product offerings; (iii) the impact ofgovernmental spending; (iv) our ability to retain existing customers, maintainkey supplier status with those customers with which we have achieved suchstatus, and obtain new customers; (v) the highly competitive nature of thepersonal protection equipment industry; (vi) any future changes in management;(vii) acceptance by consumers of new products we develop or acquire; (viii) theimportance and costs of product innovation; (ix) unforeseen problems associatedwith international sales, including gains and losses from foreign currency exchangeand restrictions on the efficient repatriation of earnings; (x) theunpredictability of patent protection and other intellectual property issues;(xi) cancellation of current orders; (xii) the outcome of pending productliability claims and the availability of indemnification for those claims;(xiii) general risks associated with the personal protection equipmentindustry; and (xiv) the successful integration of acquired companies oneconomically acceptable terms.  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.

 

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

 

There have been nomaterial changes to our exposure to market risk since December 31, 2006.

 

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**Item 4.Controls and Procedures**

 

Based on theirevaluation as of the end of the period covered by this quarterly report on Form10-Q, our Chief Executive Officer and Chief Financial Officer have concludedthat our disclosure 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) under theExchange Act) identified in connection with the evaluation required by Rule 13a-15(d)of the Exchange Act that occurred during the period covered by this quarterlyreport on Form 10-Q that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

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** **

**PART II**

** **

**OTHER INFORMATION**

** **

**Item 1. LegalProceedings**

** **

We are subject to various claims arising inthe ordinary course of business. Most of these lawsuits and claims are productliability matters that arise out of the use of respiratory product linesmanufactured by our North Safety Products subsidiary. As of September 29, 2007,our North Safety Products subsidiary, along with its predecessors and/or theformer owners of such business were named as defendants in approximately 649lawsuits involving respirators allegedly manufactured and sold by it or itspredecessors. We are also monitoring an additional two lawsuits in which wefeel that North Safety Products, its predecessors and /or the former owners ofsuch businesses may be named as defendants. Collectively, these 651lawsuits represent approximately 8,451 (excluding spousal claims) plaintiffs.Approximately 85% of these lawsuits involve plaintiffs alleging injuryresulting from exposure to silica dust, with the remainder alleging injury fromexposure to other particles, including asbestos. These lawsuits typicallyallege that the purported injuries resulted in part from respirators thatwere negligently designed and/or manufactured. The defendants in these lawsuitsare often numerous, and include, in addition to respirator manufacturers,employers of the plaintiffs and manufacturers of sand (used in sand blasting)and asbestos. We acquired our North Safety Products subsidiary onOctober 2, 1998 from Siebe plc. In connection with the acquisition, Siebe,which was subsequently merged with BTR plc (now known as “Invensys plc”),contractually agreed to indemnify us for any losses, including costs ofdefending claims, resulting from respiratory products manufactured or soldprior to our acquisition of North Safety Products in October 1998.

 

In addition, our North Safety Productssubsidiary is contractually entitled to indemnification from Norton Company, anaffiliate of Saint-Gobain, which owned the North Safety Products business priorto Invensys. Pursuant to a December 14, 1982 asset purchase agreement,Siebe Norton, Inc., a newly formed wholly-owned subsidiary of NortonCompany, acquired the assets of Norton’s Safety Products Division and the stockof this company was in turn acquired by Siebe Gorman Holdings plc. Under theterms of the agreement, Siebe Norton, Inc. did not assume any liabilityfor claims relating to products shipped by Norton Company prior to the closingdate. Moreover, Norton Company covenanted in the agreement to indemnify SiebeNorton, Inc. and its successors and assigns against any liability resultingfrom or arising out of any state of facts, omissions or events existing oroccurring on or before the closing date, including, without limitation, anyclaims arising from products shipped by Norton Company or any of its affiliatesprior to the closing date.  Siebe Norton,Inc., whose name was subsequently changed to Siebe North Inc., was subsequentlyacquired by us as part of the 1998 acquisition of the North SafetyProducts business from Invensys.

 

Despite these indemnification arrangements,we could potentially be liable for losses or claims relating to productsmanufactured prior to the October 1998 acquisition date if Invensys failsto meet its obligations to indemnify us and we could potentially be liable forlosses and claims relating to products sold prior to January 10, 1983 ifboth Invensys and Norton fail to meet their obligations to indemnify us. Wecould also be liable if the alleged exposure involved the use of a productmanufactured by us after our October 1998 acquisition of the North SafetyProducts business.

 

Effective July 1, 2006, we entered into ajoint defense agreement through December 31, 2008 with the former owners of theNorth Safety Products business (the “Joint Defense Agreement” or “JDA”).  Under the terms of the Joint DefenseAgreement, we agreed to pay a weighted average percentage of defense costs(including legal fees, expert witnesses and out of pocket expenses) associatedwith defending ourselves and the prior owners of the North Safety Productsbusiness subject to a cap of $525,000, $960,000 and $1.0 million for the periodfrom July 1, 2006 through December 31, 2006, the year ended December 31, 2007and the year ended December 31, 2008, respectively.  The cap excludes settlement costs and othercosts incurred exclusively by us (including trial costs and special requests ofcounsel), which we will be required to pay under the JDA.  Separately, we agreed to pay Invensys$200,000 related to settled cases through June 30, 2006 in which Invensysclaims that the period of alleged exposure included periods after October 1998.

 

Although the JDA expires on December 31, 2008, we expect to incuradditional defense and settlement costs beyond this date. We will consider ouralternatives for defending the claims as the JDA nears expiration and determinethe appropriate course of action, which could include an extension of the JDA.

 

Based upon information provided to us by Invensys, webelieve activity related to these lawsuits was as follows for the three monthsended September 29, 2007:

 

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| ** **                               | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
|------------------------------------------|------------|----------------|------------|-----------|------------|
| Beginning lawsuits as of January 1, 2007 |       | 8,746          |       | 644       |       |
| New lawsuits                             |       | 19             |       | 16        |       |
| Settlements                              |       | —         |       | —    |       |
| Dismissals and other                     |       | (314           | )          | (9        | )          |
| Ending lawsuits as of September 29, 2007 |       | 8,451          |       | 651       |       |

 

Boththe rate of new filings and the number of existing claimants have declineddramatically since 2003 as courts and legislatures have tightened the rules onwhen and where the silica claims can be pursued in an effort to reduce thelarge number of unmeritorious claims. The new rules make bringing silica cases on a mass level much lessattractive to the plaintiffs’ bar. Plaintiffs’ attorneys in many jurisdictions can no longer (1) find aworker with some stated exposure to silica, (2) take an X-ray of his chest, (3)have it interpreted as demonstrating lung shadows by a radiologist, (4) thenfile a single lawsuit in a dangerous venue with hundreds of other plaintiffsagainst hundreds of defendants with the pleading containing little more thanthe parties’ names and some standard pleading language. More specifically, thelegislatures of at least seven states — including former hotbeds of silicalitigation such as Texas, Florida and Ohio — passed impairment-criterialegislation that redefined injury. These acts force plaintiffs to proveimpairment as a result of their exposure to qualify for judicialtreatment.  The same legislation requiresthat each silica claimant be tried individually, and not in the multipleplaintiff format in which the potential for large verdicts resulted fromincreased plaintiffs and where a few meritorious claims could increase thevalue of unmeritorious ones. Further tort reform in Texas created a state-widemulti-district litigation (“MDL”) wherein one judge presides over the pretrialof all Texas-silica cases. In Mississippi, the Supreme Court changed the venuerules making it much more difficult to file out-of-state plaintiffs there. TheMississippi court also changed the pleading requirements making the plaintiffs’attorneys include plaintiff-specific allegations against each defendant sued,instead of the vague allegations against hundreds of defendants.

 

Plaintiffs have asserted specific dollar claims in approximately 30% ofthe approximately 649 cases pending as of September 29, 2007 in which NorthSafety Products, its predecessors and/or the former owners of such businesseshave been named as defendants. A majority of jurisdictions prohibit specifyingdamages in tort cases such as these, and most of the remaining jurisdictions donot require such specification. In those cases in which plaintiffs choose toassert specific dollar amounts in their complaints, the amounts claimed aretypically not meaningful as an indicator of a company’s potential liability.This is because (1) the amounts claimed typically bear no relation to the levelof the plaintiff’s injury, (2) the complaints typically assert claims againstnumerous defendants, and (3) many cases are brought on behalf of plaintiffs whohave not suffered any medical injury, and ultimately are resolved without anypayment or payment of a small fraction of the damages initially claimed. Of the649 complaints maintained in our records, 459 do not specify the amount ofdamages sought, 25 generally allege damages in excess of $50,000, one allegescompensatory damages in excess of $50,000 and an unspecified amount of punitivedamages, 103 allege compensatory damages and punitive damages, each in excessof $25,000, two generally allege damages in excess of $100,000, two allegecompensatory damages and punitive damages, each in excess of $50,000, 20generally allege damages in excess of $15.0 million, one generally allegesdamages of $23.0 million, one alleges compensatory damages and punitivedamages, each in excess of $10,000, four allege general damages of $18.0million and punitive damages of $10.0 million, two allege general damages of$13.0 million and punitive damages of $10.0 million, one alleges compensatoryand punitive damages, each in excess of $15,000, one alleges punitive damagesin excess of $50,000, one generally alleges damages in excess of $15,000, 12generally allege damages in excess of $25,000, one alleges compensatory damagesof $18.0 million and punitive damages of $10.0 million, one alleges punitivedamages of $13.5 million and compensatory damages of $10.0 million, one allegespunitive damages of $13.0 million and compensatory damages of $10.0 million,eight allege compensatory damages of $13.0 million and punitive damages of$10.0 million, one alleges compensatory and punitive damages, each of $15,000and two allege compensatory and punitive damages, each in excess of $15.0million. We currently do not have access to the complaints with respect to thepreviously mentioned additional two monitored cases, and therefore we do notknow whether these cases allege specific damages, or if so, the amount of suchdamages, but are in the process of seeking to obtain such information. Due tothe reasons noted above and to the indemnification arrangements benefiting us,we do not believe that the damage amounts specified in these complaints are ameaningful factor in any assessment of our potential liability.

 

Bankruptcy filings of companies with asbestosand silica-related litigation could increase our cost over time. If we werefound liable in these cases and either Invensys or Norton Company failed tomeet its indemnification obligations to us or the suit involved products manufacturedby us after our October 1998 acquisition of North Safety Products, itwould have a material adverse effect on our business.

 

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We recorded a $1.25 million reserve forrespiratory claims during the year ended December 31, 2004.  We re-evaluated this reserve in its first andsecond quarter 2005 financial statements and concluded the $1.25 millionrecorded reserve continued to be its best estimate of the probable loss for therespiratory contingency.

 

In the July 2005 acquisition purchaseaccounting (as first reported in the Form 10-Q for the third quarter of 2005),we carried forward the $1.25 million liability for this pre-acquisitioncontingency.  Although managementconcluded that it was likely their estimate of this pre-acquisition contingentliability would be increased during the purchase accounting allocation periodas the new ownership finalized their strategy for addressing the liability andgathered information (primarily related to case information and the workingrelationship among the prior owners of North), it was unlikely the amount wouldbe lower than the $1.25 million. Thus, the $1.25 million amount represented thelow end of a probable loss range, subject to further adjustment during theallocation period.

 

In December 2005, we began negotiations withthe former owners of the North business to enter into the JDA. We determinedthat the liability should be increased to $5.0 million as of December 31, 2005as part of the purchase price allocation process. The $5.0 million reserve asof December 31, 2005 represented management’s best estimate of the liabilitybased on the current status of negotiations. As of December 31, 2005, theestimate was still preliminary as we were awaiting finalization of the JDAnegotiation process.

 

As discussed above, we entered into the JDAeffective July 1, 2006 and completed our evaluation of the reserve.  After all information was obtained, weadjusted the reserve to $7.0 million as part of the purchase price allocationprocess during the permitted “allocation period”.  As of September 29, 2007, the reserve balancewas $6.8 million.

 

The final estimated amount recorded inpurchase accounting related entirely to losses incurred before the July 2005acquisition. Our final estimate of the probable loss for the respiratorycontingency incorporated the new ownerships’ decision to enter into the JDA.The decision represented a significantly different plan as new ownership agreedto assume losses related to claims with unknown years of exposure. In addition,the decision to enter into the JDA was being considered from the date of theacquisition and the ultimate decision was made during the allocation period.

 

We believe that this reserve represents areasonable estimate of our probable and estimable liabilities for productclaims alleging injury resulting from exposure to silica dust and otherparticles, including asbestos. We believe that a five-year projection of claimsand related defense costs is the most reasonable approach. This reserve will bere-evaluated periodically and additional charges or credits will be recorded tooperating expenses as additional information becomes available.

 

It is possible that we may incurliabilities in an amount in excess of amounts currently reserved. However,taking into account currently available information, historical experience, andour indemnification from Invensys, but recognizing the inherent uncertaintiesin the projection of any future events, we believe that these suits or claimsshould not result in final judgments or settlements in excess of our reserve.

 

We historically have not been required to payany material liability claims. We maintain insurance against product liabilityclaims (with the exception of asbestosis and silicosis cases, for whichcoverage is not commercially available), but it is possible that insurancecoverage will not continue to be available on terms acceptable to us or thatsuch coverage will not be adequate for liabilities actually incurred.

 

We are subject to legal proceedings andclaims that arise in the ordinary course of our business. In our opinion, theoutcome of these actions will not have a material adverse effect on ourfinancial position or results of operations.

 

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**Item1A. Risk Factors**

** **

There have been nomaterial changes to the risks impacting our business since December 31, 2006.

 

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**Item 6.Exhibits**

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

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, Norcross Safety ProductsL.L.C. has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                  | NORCROSS SAFETY PRODUCTS  L.L.C. |                                                |   |
|------------------|----------------------------------|-----------------------------------------------------|--------|
|             |                             |                                                |   |   |
|             |                             |                                                |   |   |
| November 8, 2007 | By:                              | /s/ ROBERT A. PETERSON                              |   |   |
|             |                             | Robert A. Peterson                                  |   |   |
|             |                             | President, Chief  Executive Officer and Manager     |   |   |
|             |                             | (Principal Executive  Officer)                      |   |   |
|             |                             |                                                |   |   |
|             |                             |                                                |   |   |
| November 8, 2007 | By:                              | /s/ DAVID F. MYERS, JR.                             |   |   |
|             |                             | David F. Myers, Jr.                                 |   |   |
|             |                             | Executive Vice  President, Chief Financial Officer, |   |   |
|             |                             | Secretary and Manager                               |   |   |
|             |                             | (Principal Financial  and Accounting Officer)       |   |   |

 

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

 

**FORM 10-Q LISTING OF EXHIBITS**

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

 

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