**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**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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| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                       |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                     |
|       |       | **For the quarterly period ended October 2,  2004**                                                                                                                                 |
|       |       |                                                                                                                                                                                     |
| **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 PRODUCTS L.L.C.**

**(Exact name of Registrant as Specified in itsCharter)**

 

| **Delaware**                                                    | ** ** | **61-1283304**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or Other Jurisdiction of Incorporation or  Organization) |       | (I.R.S. Employer Identification No.) |
| ** **                                                      | ** ** | ** **                           |
| **2211 York Road, Suite 215 Oak  Brook, Illinois 60523**        | ** ** | **60523**                            |
| (Address of Principal Executive Offices)                        |       | (Zip Code)                           |
| ** **                                                      | ** ** | ** **                           |
| Registrant’s telephone number, including area code:        |
| **(630) 572-5715**                                              |

 

Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ý  No o 

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inExchange Act Rule 12b-2).   Yes o  No ý

 

On November 10,2004 Norcross Safety Products L.L.C. had 100 units outstanding, all of whichwere owned by a holding company.

 

 

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**NORCROSS SAFETY PRODUCTSL.L.C.**FORM 10-QQUARTERLY REPORTFor the Quarterly Period Ended October 2, 2004

 

**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 | 17 |
|                              |                                                                                                |   |
|                              | Item 3. Quantitative and Qualitative  Disclosures About Market Risk                                 | 25 |
|                              |                                                                                                |   |
|                              | Item 4. Controls and Procedures                                                                     | 26 |
|                              |                                                                                                |   |
| **PART II Other Information**     | 27                                                                                                  |
|                              |                                                                                                |   |
|                              | Item 1. Legal Proceedings                                                                           | 27 |
|                              |                                                                                                |   |
|                              | Item 6. Exhibits                                                                                    | 29 |
|                              |                                                                                                |   |
| **Signatures**                    | 30                                                                                                  |
|                              |                                                                                                |   |
| **Form 10-Q Listing of Exhibits** | 31                                                                                                  |

 

i

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**PART I**FINANCIAL INFORMATION

** **

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

 

**NORCROSS SAFETY PRODUCTS L.L.C.CONSOLIDATED BALANCE SHEETS**(Amounts in Thousands) (Unaudited)

 
| ** **                                                                                | ** ** | **December 31,  2003(1)** | ** ** | **October 2,  2004** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------|------------|---------------------------|------------|
| **Assets**                                                                                | ** ** | ** **                     | ** ** | ** **                | ** ** |
| Current  assets:                                                                          |       |                           |       |                      |       |
| Cash and  cash equivalents                                                                |       | $                              | 16,341     |                      | $          | 16,363 |   |
| Accounts  receivable, less allowance of $2,493 and $2,234 in 2003 and 2004,  respectively |       | 53,291                         |       | 69,991                    |       |
| Inventories                                                                               |       | 80,828                         |       | 82,997                    |       |
| Deferred  income taxes                                                                    |       | 30                             |       | 30                        |       |
| Prepaid  expenses and other current assets                                                |       | 3,833                          |       | 3,050                     |       |
| Total  current assets                                                                     |       | 154,323                        |       | 172,431                   |       |
| Property,  plant, and equipment, net                                                      |       | 56,213                         |       | 51,547                    |       |
| Deferred  financing costs, net                                                            |       | 10,832                         |       | 9,508                     |       |
| Goodwill,  net                                                                            |       | 130,032                        |       | 129,539                   |       |
| Other  intangible assets, net                                                             |       | 5,641                          |       | 5,950                     |       |
| Due from NSP  Holdings L.L.C.                                                             |       | 16,113                         |       | —                    |       |
| Other  noncurrent assets                                                                  |       | 5,535                          |       | 5,519                     |       |
| Total assets                                                                              |       | $                              | 378,689    |                      | $          | 374,494 |   |
|                                                                                      |       |                           |       |                      |       |
| **Liabilities  and member’s equity**                                                 |       |                           |       |                      |       |
| Current  liabilities:                                                                     |       |                           |       |                      |       |
| Accounts  payable                                                                         |       | $                              | 18,157     |                      | $          | 18,506 |   |
| Accrued  expenses                                                                         |       | 27,837                         |       | 23,473                    |       |
| Current  maturities of long-term obligations                                              |       | 3,378                          |       | 3,187                     |       |
| Total  current liabilities                                                                |       | 49,372                         |       | 45,166                    |       |
| Pension,  post-retirement, and deferred compensation                                      |       | 24,318                         |       | 25,024                    |       |
| Long-term  obligations                                                                    |       | 253,814                        |       | 251,848                   |       |
| Other  noncurrent liabilities                                                             |       | 430                            |       | 397                       |       |
| Deferred  income taxes                                                                    |       | 1,937                          |       | 2,668                     |       |
| Minority  interest                                                                        |       | 124                            |       | 139                       |       |
|                                                                                      |       | 280,623                        |       | 280,076                   |       |
| Member’s equity:                                                                     |       |                           |       |                      |       |
| Contributed  capital                                                                      |       | 116,060                        |       | 116,060                   |       |
| Accumulated  deficit                                                                      |       | (64,791                        | )          | (47,432                   | )          |
| Due from NSP  Holdings L.L.C.                                                             |       | —                         |       | (17,688                   | )          |
| Accumulated  other comprehensive loss                                                     |       | (2,575                         | )          | (1,688                    | )          |
| Total member’s  equity                                                               |       | 48,694                         |       | 49,252                    |       |
| Total  liabilities and member’s equity                                               |       | $                              | 378,689    |                      | $          | 374,494 |   |

 

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(1)   December 31,2003 balances were obtained from audited financial statements.

 

*See notes to unaudited consolidated financialstatements.*

 

1

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**NORCROSS SAFETYPRODUCTS L.L.C.CONSOLIDATED STATEMENTS OFOPERATIONS(Amounts in Thousands) (Unaudited)**

 
| ** **                                               | ** ** | **Three months ended**       | ** ** | **Nine months ended**     | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|---------------------------|------------|
| ** **                                               | ** ** | **September 27,  2003** | ** ** | **October 2,  2004** | ** ** | **September 27,  2003** | ** ** | **October 2,  2004** | ** ** |
| Net sales                                                |       | $                            | 93,022     |                      | $          | 114,508 |   | $ | 269,834 |   | $ | 330,586 |   |
| Cost of  goods sold                                      |       | 59,573                       |       | 74,963                    |       | 172,505 |   | 212,663 |   |
| Gross profit                                             |       | 33,449                       |       | 39,545                    |       | 97,329 |   | 117,923 |   |
| Operating  expenses:                                     |       |                         |       |                      |       |   |   |   |   |
| Selling                                                  |       | 9,708                        |       | 10,688                    |       | 26,944 |   | 31,514 |   |
| Distribution                                             |       | 4,519                        |       | 5,546                     |       | 12,796 |   | 16,073 |   |
| General and  administrative                              |       | 9,398                        |       | 10,170                    |       | 25,817 |   | 29,644 |   |
| Amortization  of intangibles                             |       | 807                          |       | 130                       |       | 2,427 |   | 380 |   |
| Strategic  alternatives                                  |       | —                       |       | 3                         |       | — |   | 616 |   |
| Total  operating expenses                                |       | 24,432                       |       | 26,537                    |       | 67,984 |   | 78,227 |   |
| Income from  operations                                  |       | 9,017                        |       | 13,008                    |       | 29,345 |   | 39,696 |   |
| Other  expense (income):                                 |       |                         |       |                      |       |   |   |   |   |
| Interest  expense                                        |       | 14,900                       |       | 5,573                     |       | 27,609 |   | 16,869 |   |
| Interest  income                                         |       | (38                          | )          | (64                       | )          | (92 | ) | (128 | ) |
| Other, net                                               |       | 399                          |       | 233                       |       | 40 |   | 826 |   |
| (Loss)  income before income taxes and minority interest |       | (6,244                       | )          | 7,266                     |       | 1,788 |   | 22,129 |   |
| Income tax  expense                                      |       | 428                          |       | 545                       |       | 1,972 |   | 2,821 |   |
| Minority  interest                                       |       | (1                           | )          | 6                         |       | (1 | ) | 22 |   |
| Net (loss)  income                                       |       | $                            | (6,671     | )                         | $          | 6,715 |   | $ | (183 | ) | $ | 19,286 |   |

 

*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 27,  2003** | ** ** | **October 2,  2004** | ** ** |
| **Operating  activities**                                                                 |       |                         |       |   |   |
| Net (loss)  income                                                                        |       | $                            | (183       | ) | $ | 19,286 |   |
| Adjustments  to reconcile net (loss) income to net cash provided by operating activities: |       |                         |       |   |   |
| Depreciation                                                                              |       | 7,656                        |       | 8,527 |   |
| Amortization  of intangibles                                                              |       | 2,427                        |       | 380 |   |
| Amortization  of deferred financing costs                                                 |       | 1,749                        |       | 1,324 |   |
| Amortization  of original issue discount                                                  |       | 641                          |       | 68 |   |
| Write-off of  deferred financing costs                                                    |       | 7,284                        |       | — |   |
| Loss on sale  of property, plant and equipment                                            |       | —                       |       | 384 |   |
| Deferred  income taxes                                                                    |       | 143                          |       | 731 |   |
| Minority  interest                                                                        |       | (1                           | )          | 15 |   |
| Changes in  operating assets and liabilities:                                             |       |                         |       |   |   |
| Accounts  receivable                                                                      |       | (6,265                       | )          | (16,700 | ) |
| Inventories                                                                               |       | (11,551                      | )          | (2,170 | ) |
| Prepaid  expenses and other current assets                                                |       | 886                          |       | 789 |   |
| Other  noncurrent assets                                                                  |       | 44                           |       | 15 |   |
| Accounts  payable                                                                         |       | 3,884                        |       | 347 |   |
| Accrued  expenses                                                                         |       | 2,390                        |       | (4,365 | ) |
| Pension,  postretirement, and deferred compensation                                       |       | 1,335                        |       | 706 |   |
| Other  noncurrent liabilities                                                             |       | (248                         | )          | (31 | ) |
| Other                                                                                     |       | 3                            |       | 2 |   |
| Net cash  provided by operating activities                                                |       | 10,194                       |       | 9,308 |   |
|                                                                                      |       |                         |       |   |   |
| **Investing  activities**                                                                 |       |                         |       |   |   |
| Purchase of  businesses, net of cash acquired                                             |       | (18,328                      | )          | (490 | ) |
| Purchases of  property, plant, and equipment                                              |       | (4,571                       | )          | (4,284 | ) |
| Proceeds  from sale of property, plant and equipment                                      |       | —                       |       | 480 |   |
| Due from NSP  Holdings L.L.C.                                                             |       | (7,827                       | )          | (459 | ) |
| Net cash  used in investing activities                                                    |       | (30,726                      | )          | (4,753 | ) |
|                                                                                      |       |                         |       |   |   |
| **Financing  activities**                                                                 |       |                         |       |   |   |
| Payments for  deferred financing costs                                                    |       | (13,711                      | )          | — |   |
| Proceeds  from borrowings                                                                 |       | 286,539                      |       | — |   |
| Payments of  debt                                                                         |       | (217,235                     | )          | (2,228 | ) |
| Net  repayments under revolving credit facility                                           |       | (30,960                      | )          | — |   |
| Dividends to  NSP Holdings L.L.C.                                                         |       | —                       |       | (1,927 | ) |
| Due from NSP  Holdings L.L.C.                                                             |       | —                       |       | (1,116 | ) |
| Net cash  provided by (used in) financing activities                                      |       | 24,633                       |       | (5,271 | ) |
| Effect of  exchange rate changes on cash                                                  |       | 3,192                        |       | 738 |   |
| Net increase  in cash and cash equivalents                                                |       | 7,293                        |       | 22 |   |
| Cash and  cash equivalents at beginning of period                                         |       | 1,762                        |       | 16,341 |   |
| Cash and  cash equivalents at end of period                                               |       | $                            | 9,055      |   | $ | 16,363 |   |

 

*See notes to unaudited consolidated financialstatements*

 

3

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

 

# **1.****                      Basis ofPresentation**

#  

The accompanyingunaudited consolidated financial statements of Norcross Safety Products L.L.C.(the Company) have been prepared in accordance with accounting principlesgenerally accepted in the United States for interim financial information.Accordingly, they do not include all of the information and notes required byaccounting principles generally accepted in the United States for completefinancial statements.

 

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, 2004. Thefinancial statements presented should be read in conjunction with theconsolidated financial statements and footnotes thereto included in our 2003consolidated financial statements.

 

# **2.****                      Acquisitionof KCL**

#  

On July 29,2003, the Company acquired 100% of the common stock of Kächele-Cama Latex GmbH(KCL), a German-based manufacturer and marketer of liquid-proof andcut-resistant gloves for a variety of industries, for $20,127, including netdebt assumed of $171 and acquisition costs of $1,121. The sellers of KCL willalso be eligible to receive royalty payments of up to €250 per year over thenext three years based upon the achievement of certain cumulative net salestargets. The Company financed this acquisition with $9,882 of cash on hand,$5,000 of borrowings under the Senior Credit Facility and the issuance of$5,074 of junior subordinated notes. The Company believes the acquisition of KCLwill increase its penetration of the European personal protection equipmentmarket.

 

The allocation ofthe purchase price is summarized below:

 
| Trade receivables                                                           | ** ** | $      | 3,292  | ** ** |
|-----------------------------------------------------------------------------|------------|--------|--------|------------|
| Inventory                                                                   |       | 5,842  |   |
| Property,  plant and equipment                                              |       | 10,378 |   |
| Customer  relationships (8 year life)                                       |       | 1,812  |   |
| Trade names  and trademarks (indefinite life)                               |       | 616    |   |
| Other assets  and liabilities, net                                          |       | 566    |   |
| Accounts  payable and accrued expenses                                      |       | (4,329 | )      |
| Fair value  of net assets acquired                                          |       | 18,177 |   |
| Excess of  purchase price over fair value of net assets acquired (goodwill) |       | 1,950  |   |
| Total  consideration                                                        |       | $      | 20,127 |       |

 

The acquisition ofKCL was accounted for by the purchase method of accounting, and accordingly,the results of operations of KCL have been included in the Company’s consolidatedfinancial statements since the date of acquisition.

 

The following table presents the pro formanet sales and net income of the Company for the nine months ended September 27,2003 assuming the acquisition of KCL had occurred on January 1, 2003:

 
| Pro forma net sales   |   | $     | 286,996 |   |
|-----------------------|--------|-------|---------|--------|
| Pro forma  net income |   | 1,029 |    |

 

4

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# **3.****                      Inventories**

#  

Inventories consist of the following:

 
| ** **               | ** ** | **December 31,  2003** | ** ** | **October 2,  2004** | ** ** |
|--------------------------|------------|-----------------------------|------------|---------------------------|------------|
| At FIFO  cost:           | ** ** | ** **                  | ** ** | ** **                | ** ** |
| Raw  materials           |       | $                           | 21,187     |                      | $          | 21,695 |   |
| Work in  process         |       | 9,010                       |       | 9,861                     |       |
| Finished  goods          |       | 52,512                      |       | 53,322                    |       |
|                     |       | 82,709                      |       | 84,878                    |       |
| Adjustment  to LIFO cost |       | (1,881                      | )          | (1,881                    | )          |
|                     |       | $                           | 80,828     |                      | $          | 82,997 |   |

 

5

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# **4.****                      Debt**

#  

The Company’s debt consists of the following:

 
| ** **                                         | ** ** | **December 31,  2003** | ** ** | **October 2,  2004** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| Revolving  credit facilities                       |       | $                           | —     |                      | $          | — |   |
| Term loan                                          |       | 99,025                      |       | 98,050                    |       |
| Senior  subordinated notes                         |       | 152,500                     |       | 152,500                   |       |
| European  term loans                               |       | 1,215                       |       | 476                       |       |
| Arbin Seller  Notes                                |       | 837                         |       | 827                       |       |
| Subordinated  seller notes                         |       | 4,278                       |       | 3,879                     |       |
| Capital  lease obligations                         |       | 339                         |       | 237                       |       |
| Unamortized  discount on senior subordinated notes |       | (1,002                      | )          | (934                      | )          |
|                                               |       | 257,192                     |       | 255,035                   |       |
| Less:  Current maturities of long-term obligations |       | 3,378                       |       | 3,187                     |       |
|                                               |       | $                           | 253,814    |                      | $          | 251,848 |   |

 

On March 21,2003, the Company entered into a new Senior Credit Facility with a group ofbanks and financial institutions. Under the terms of this agreement, theCompany can borrow up to $160,000 in the United States and approximately $7,600in Canada ($10,000 Canadian). The Senior Credit Facility consisted of a $30,000revolving credit facility and a $130,000 term loan in the United States, and aCanadian $10,000 revolving credit facility. These borrowings replaced the previoussenior credit facility of the Company. The Company recorded a $1,270 charge tointerest expense for the write-off of deferred financing fees associated withthe previous senior credit facility financing during the three months ended March 29,2003.

 

On August 13,2003, the Company issued $152,500 of 9.875% Senior Subordinated Notes due 2011(the Senior Subordinated Notes) and received gross proceeds of $151,465. Theproceeds were primarily used to: (i) repay principal and interest andrepurchase warrants related to the Company’s previously outstanding SeniorSubordinated Notes, (ii) repay $30,000 of principal related to the termloan, (iii) repay principal on the junior subordinated notes used tofinance the KCL acquisition, (iv) purchase preferred units of NSP HoldingsL.L.C. from certain members of management and (v) pay fees and expenses.The Company recorded a $8,914 charge to interest expense for the write-off ofdeferred financing fees and original issue discount and a prepayment penaltyassociated with the Senior Subordinated Notes financing for the three and ninemonths ended September 27, 2003.

 

Aggregatematurities of long-term debt as of October 2, 2004, were as follows:

 
| 2005       |       | $       | 3,187   |       |
|------------|------------|---------|---------|------------|
| 2006       |       | 2,453   |    |
| 2007       |       | 3,253   |    |
| 2008       |       | 1,213   |    |
| 2009       |       | 92,751  |    |
| Thereafter |       | 152,178 |    |
|       | ** ** | $       | 255,035 | ** ** |

 

6

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# **5.****                      EmployeeBenefit Plans**

#  

The following table sets forth the components of netperiodic benefit cost:

 
| ** **                          | ** ** | **Nine months ended September 27,  2003** | ** ** | **Nine months ended October 2,  2004** | ** ** |
|-------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                          | ** ** | **Pension  Benefits**                          | ** ** | **Post-retirement  Benefits**               | ** ** | **Pension  Benefits** | ** ** | **Post-retirement  Benefits** | ** ** |
|                                |       |                                           |       |                                        |       |   |   |   |   |
| Service cost                        |       | $                                              | 1,024      |                                        | $          | 20 |   | $ | 1,175 |   | $ | 19 |   |
| Interest  cost                      |       | 2,546                                          |       | 63                                          |       | 2,633 |   | 62 |   |
| Expected  return on plan assets     |       | (1,727                                         | )          | —                                      |       | (2,012 | ) | — |   |
| Amortization  of prior service cost |       | 4                                              |       | 14                                          |       | 4 |   | 13 |   |
| Amortization  of actuarial loss     |       | 644                                            |       | 45                                          |       | 664 |   | 64 |   |
|                                |       | $                                              | 2,491      |                                        | $          | 142 |   | $ | 2,464 |   | $ | 158 |   |
|                                     |            |                                                |            |                                             |            |  |  |  |  |  |  |  |  |  |

 

# **6.****                      Restructuringand Other Charges**

#  

During 2002, theCompany initiated a restructuring plan to exit the medical products businesslocated in Cranston, Rhode Island and close certain hand protection plantslocated in Tijuana, Mexico, Tallmadge, Ohio and Charleston, South Carolina andmove production to China. The Company decided to exit the medical productsbusiness at that time, because the medical products business primarily servedone customer, who decided to manufacture the product in-house. The Companyclosed its hand protection plants to increase profitability of certain lowmargin product lines. This restructuring resulted in the termination ofapproximately 105 employees who worked at these operations. The Companyincurred restructuring and merger-related charges associated with the plan of$9,297, comprised of $6,345 in non-cash expense relating to accelerated depreciationcharges on long-lived assets to be abandoned; $1,242 in severance costs; and$1,710 in facility closure and other exit costs. The exit of the medicalbusiness was completed in 2002. The shut-down of the Tallmadge facility wascompleted in 2003 and the Company successfully completed the closure of theCharleston and Tijuana plants in the first and second quarter of 2004,respectively.  The December 31, 2003accrued restructuring liability of $1,295 consists of facility closure andother exit costs of $937 and severance costs of $358. The October 2, 2004accrued restructuring liability of $229 consists of facility closure and otherexit costs of $139 and severance costs of $90. The change in the restructuring liability during the nine months ended October 2,2004 was attributable to cash payments being applied to the liability. Therestructuring liability is classified within the accrued expenses caption onthe consolidated balance sheets.

 

7

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# **7.****                      Legal Proceedings**

#  

The Company issubject to various claims arising in the ordinary course of business. Most ofthese lawsuits and claims are product liability matters that arise out of theuse of respiratory product lines manufactured by the Company’s North Safety Productssubsidiary. In particular, the Company’s North Safety Products subsidiary, itspredecessors and/or the former owners of such business are presently named as adefendant in approximately 781 lawsuits involving respirators manufactured andsold by it or its predecessors. The Company is also monitoring an additional 15lawsuits in which it feels that North Safety Products, its predecessors and/orthe former owners of such businesses may be named as defendants. Collectively,these 796 lawsuits represent a total of approximately 26,000 (excluding spousalclaims) plaintiffs. Approximately 90% of these lawsuits involve plaintiffsalleging they suffer from silicosis, with the remainder alleging they sufferfrom other or combined injuries, including asbestosis. These lawsuits typicallyallege that these conditions resulted in part from respirators that werenegligently designed or manufactured. Invensys plc (“Invensys”), formerly Siebeplc, is contractually obligated to indemnify the Company for any losses, includingcosts of defending claims, resulting from respiratory products manufacturedprior to the acquisition of North Safety Products in October 1998.

 

In addition, ourNorth Safety Products subsidiary is contractually entitled to indemnificationfrom Norton Company, an affiliate of Saint-Gobain, which owned the North SafetyProducts business prior to Invensys. Pursuant to a December 14, 1982 assetpurchase agreement, Siebe Norton, Inc., a newly formed wholly-owned subsidiaryof Norton Company, acquired the assets of Norton’s Safety Products Division andthe stock of this company was in turn acquired by Siebe Gorman Holdings PLC.Under the terms of the Agreement, Siebe Norton, Inc. did not assume anyliability for claims relating to products shipped by Norton Company prior tothe closing date. Moreover, Norton Company covenanted in the Agreement toindemnify Siebe Norton and its successors and assigns against any liabilityresulting from or arising out of any state of facts, omissions or eventsexisting or occurring on or before the closing date, including, withoutlimitation, any claims arising in respect of products shipped by Norton Companyor any of its affiliates prior to the closing date. Siebe Norton, whose namewas subsequently changed to Siebe North Inc., was subsequently acquired by theCompany as part of the 1998 acquisition of the North Safety Products businessfrom Invensys.

 

Despite theseindemnification arrangements, the Company could potentially be liable for theselosses 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 these losses and claimsrelating to products sold prior to January 10, 1983 if both Invensys andNorton fail to meet their obligations to indemnify the Company. The Companycould also be liable if the alleged exposure involved the use of a productmanufactured by the Company after our October 1998 acquisition of theNorth Safety Products business. Invensys is currently handling the defense ofall of the cases, and to date the Company has not incurred any material costswith respect to these lawsuits. As of October 2, 2004, Invensys has sentus requests for reimbursement totaling $97, relating to settled cases in whichInvensys claims that the period of alleged exposure included periods after October 1998.To date, the Company has not reimbursed Invensys for these claims, as theCompany is currently pursuing negotiations on the allocation of costs and thedetermination of the alleged exposure periods. Based on information provided tothe Company by Invensys, the Company believes that Invensys has made paymentswith respect to settlement of these claims of $929 for the nine months ended October 2,2004. The Company believes that Invensys has the ability to pay these claimsbased on its current financial position, as publicly disclosed by Invensys.Separately, the Company and Invensys settled on an unusual case for $65 inwhich the Company’s settlement share was $45 (the Company’s net contributionafter insurance proceeds was $25).

 

Consistent withthe current environment being experienced by companies involved in silica andasbestos-related litigation, there has been an increase in the number ofasserted claims that could potentially involve the Company. Based uponinformation

 

8

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provided to the Companyby Invensys, the Company believes activity related to these lawsuits was asfollows for the nine months ended October 2, 2004:

 
| Beginning lawsuits    |   | 680  | ** ** |
|-----------------------|--------|------|------------|
| New lawsuits          |   | 268  |       |
| Settlements           |   | (40  | )          |
| Dismissals  and other |   | (112 | )          |
| Ending  lawsuits      |   | 796  |       |

 

Plaintiffs haveasserted specific dollar claims in less than a quarter of the approximately 781cases pending as of October 2, 2004 in which North Safety Products, itspredecessors and/or the former owners of such businesses have been named asdefendants. A majority of jurisdictions prohibit specifying damages in tortcases such as these, and most of the remaining jurisdictions do not requiresuch specification. In those cases in which plaintiffs chose to assert specificdollar amounts in their complaints, brought in states that permit suchpleading, the amounts claimed are typically not meaningful as an indicator of acompany’s potential liability. This is because (1) the amounts claimedtypically bear no relation to the level of the plaintiff’s injury, (2) thecomplaints typically assert claims against numerous defendants, and (3) manycases are brought on behalf of plaintiffs who have not suffered any medicalinjury, and, ultimately, are resolved without any payment or payment of a smallfraction of the damages initially claimed. Of the 781 complaints, 607 do notspecify the amount of damages sought, 31 generally allege damages in excess of$50, 72 allege compensatory damages and punitive damages, each in excess of$25, 3 generally allege damages in excess of $100, 21 allege compensatorydamages and punitive damages, each in excess of $50, 31 generally allegedamages of $15,000, 2 allege compensatory damages and punitive damages, each inthe amount of $15,000, 1 alleges compensatory damages and punitive damages,each in excess of $10, 1 alleges compensatory damages and punitive damages,each in excess of $15, 3 allege compensatory damages in excess of $50, 1alleges punitive damages in excess of $50, 1 generally alleges damages inexcess of $250, 3 generally allege damages in excess of $25, 2 generally allegedamages in excess of $15, 1 generally alleges damages in excess of $4 and 1generally alleges damages not to exceed $290,000.  The Company currently does not have access tothe complaints with respect to the previously mentioned additional 15 monitoredcases, and therefore do not know whether these cases allege specific damages, orif so, the amount of such damages, but are in the process of seeking to obtainsuch information. Due to the reasons noted above and to the indemnificationarrangements benefiting the Company, it does not believe that the damageamounts specified in these complaints are a meaningful factor in any assessmentof the Company’s potential liability.

 

The Company is nototherwise involved in any material lawsuits. The Company historically has notbeen required to pay any material liability claims. The Company maintainsinsurance against product liability claims (with the exception of asbestosisand silicosis cases, for which coverage is not commercially available), but itis possible that its insurance coverage will not continue to be available onterms acceptable to the Company or that such coverage will not be adequate forliabilities actually incurred. The Company has a reserve of $2,300 againstpotential uninsured product liability claims of North Safety Products forperiods prior to October 1998. The reserve was established at the date ofacquisition and relates to potential claims primarily associated with fallprotection products sold in Canada. The Company has not recorded any lossesagainst this reserve to date. This reserve is re-evaluated periodically, andadditional charges or credits to operations may result as additionalinformation becomes available. It is possible that the Company may incurliabilities in an amount in excess of amounts currently reserved. However, takinginto account currently available information, historical experience, and theCompany’s indemnification from Invensys, but recognizing the inherentuncertainties in the projection of any future events, the Company believes thatthese suits or claims should not result in

 

9

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final judgments orsettlements in excess of its reserve. The Company does not have a reserve forproduct liability claims for use of products manufactured after the 1998acquisition of North Safety Products as it is not involved in any materiallawsuits relating exclusively to product usage in the period after October 1998.In addition, the Company is not a party to any lawsuits involving asbestosis orsilicosis relating exclusively to product usage in the period after October 1998.

 

# **8.****                      Segment Data**

#  

The followingtable presents information about the Company by segment:

 
| ** **                                      | ** ** | **General  Industrial** | ** ** | **Fire Service** | ** ** | **Utility/  High  Voltage** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|------------------|------------|-----------------------------|------------|---------------|------------|------------------|------------|-----------|------------|
| **Three  Months Ended September 27, 2003** |       |                    |       |             |       |                        |       |          |       |             |       |      |       |
| Net sales—third  parties                   |       | $                       | 65,073     |             | $          | 17,176                      |       | $             | 10,773     |             | $          | —    |       | $ | — |   | $ | 93,022 |   |
| Net sales—intersegment                     |       | 2,439                   |       | —           |       | 17                          |       | —        |       | (2,456           | )          | —    |       |
| Income  (loss) from operations                  |       | 4,665                   |       | 2,932            |       | 2,345                       |       | (925          | )          | —           |       | 9,017     |       |
| **Three  Months Ended October 2, 2004**    |       |                    |       |             |       |                        |       |          |       |             |       |      |       |
| Net sales—third  parties                   |       | 80,432                  |       | 20,267           |       | 13,809                      |       | —        |       | —           |       | 114,508   |       |
| Net sales—intersegment                     |       | 2,378                   |       | —           |       | —                      |       | —        |       | (2,378           | )          | —    |       |
| Income  (loss) from operations                  |       | 6,968                   |       | 4,114            |       | 3,191                       |       | (1,265        | )          | —           |       | 13,008    |       |
|                                            |       |                    |       |             |       |                        |       |          |       |             |       |      |       |
| **Nine  Months Ended September 27, 2003**  |       |                    |       |             |       |                        |       |          |       |             |       |      |       |
| Net sales—third  parties                   |       | 186,674                 |       | 51,562           |       | 31,598                      |       | —        |       | —           |       | 269,834   |       |
| Net sales—intersegment                     |       | 6,970                   |       | —           |       | 19                          |       | —        |       | (6,989           | )          | —    |       |
| Income  (loss) from operations                  |       | 15,465                  |       | 9,576            |       | 6,899                       |       | (2,595        | )          | —           |       | 29,345    |       |
|                                            |       |                    |       |             |       |                        |       |          |       |             |       |      |       |
| **Nine  Months Ended October 2, 2004**     |       |                    |       |             |       |                        |       |          |       |             |       |      |       |
| Net sales—third  parties                   |       | 232,324                 |       | 59,905           |       | 38,357                      |       | —        |       | —           |       | 330,586   |       |
| Net sales—intersegment                     |       | 7,267                   |       | —           |       | —                      |       | —        |       | (7,267           | )          | —    |       |
| Income  (loss) from operations                  |       | 24,040                  |       | 11,360           |       | 8,335                       |       | (4,039        | )          | —           |       | 39,696    |       |
|                                                 |            |                         |            |                  |            |                             |            |               |            |                  |            |           |            |  |  |  |  |  |  |

 

10

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# **9.****                      SubsidiaryGuarantors**

#  

All of the Company’sdirect or indirect 100% owned active domestic subsidiaries, fully,unconditionally, jointly and severally guarantee the Senior Credit Facility andthe Senior Subordinated Notes. Separate financial statements of the guarantorsubsidiaries are not separately presented because, in the opinion ofmanagement, such financial statements are not material to investors. Thenon-guarantor subsidiaries include wholly owned subsidiaries of the Companyorganized under the laws of foreign jurisdictions and inactive subsidiaries,all of which are included in the consolidated financial statements. Thefollowing is summarized combining financial information for Norcross SafetyProducts L.L.C. on a stand-alone basis (NSP), Norcross Capital Corp. (NCC), theguarantor subsidiaries of the Company and the non-guarantor subsidiaries of theCompany:

 
| ** **                                           | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **October 2,  2004**                            |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Current  assets:                                     |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Cash and  cash equivalents                           |       | $       | 15 ,980    |    | $          | —                      |       | $                               | (2,320     | )                | $          | 2,703     |       | $ | — |   | $ | 16,363 |   |
| Accounts  receivable, net                            |       | 14,376  |       | —  |       | 31,058                      |       | 24,557                          |       | —           |       | 69,991    |       |
| Inventories                                          |       | 11,092  |       | —  |       | 33,507                      |       | 38,398                          |       | —           |       | 82,997    |       |
| Deferred  income taxes                               |       | —  |       | —  |       | —                      |       | 30                              |       | —           |       | 30        |       |
| Prepaid  expenses and other current assets           |       | 959     |       | —  |       | 1,238                       |       | 853                             |       | —           |       | 3,050     |       |
| Total  current assets                                |       | 42,407  |       | —  |       | 63,483                      |       | 66,541                          |       | —           |       | 172,431   |       |
| Property,  plant, and equipment, net                 |       | 4,840   |       | —  |       | 27,016                      |       | 19,691                          |       | —           |       | 51,547    |       |
| Deferred  financing costs, net                       |       | 9,508   |       | —  |       | —                      |       | —                          |       | —           |       | 9,508     |       |
| Goodwill,  net                                       |       | 426     |       | —  |       | 104,834                     |       | 24,279                          |       | —           |       | 129,539   |       |
| Other  intangible assets, net                        |       | 3,613   |       | —  |       | —                      |       | 2,337                           |       | —           |       | 5,950     |       |
| Investment  in subsidiaries                          |       | 155,909 |       | —  |       | 40,803                      |       | —                          |       | (196,712         | )          | —    |       |
| Other  noncurrent assets                             |       | —  |       | —  |       | 3,676                       |       | 1,843                           |       | —           |       | 5,519     |       |
| Total assets                                         |       | $       | 216,703    |    | $          | —                      |       | $                               | 239,812    |             | $          | 114,691   |       | $ | (196,712 | ) | $ | 374,494 |   |
| Current  liabilities:                                |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Accounts  payable                                    |       | $       | 2,816      |    | $          | —                      |       | $                               | 9,460      |             | $          | 6,230     |       | $ | — |   | $ | 18,506 |   |
| Accrued  expenses                                    |       | 6,694   |       | —  |       | 9,397                       |       | 7,382                           |       | —           |       | 23,473    |       |
| Current  maturities of long-term obligations         |       | 1,210   |       | —  |       | 703                         |       | 1,274                           |       | —           |       | 3,187     |       |
| Total  current liabilities                           |       | 10,720  |       | —  |       | 19,560                      |       | 14,886                          |       | —           |       | 45,166    |       |
| Pension,  post-retirement, and deferred compensation |       | 332     |       | —  |       | 24,045                      |       | 647                             |       | —           |       | 25,024    |       |
| Long-term  obligations                               |       | 250,406 |       | —  |       | 108                         |       | 1,334                           |       | —           |       | 251,848   |       |
| Intercompany  balances                               |       | (94,007 | )          | —  |       | 44,638                      |       | 49,369                          |       | —           |       | —    |       |
| Other  noncurrent liabilities                        |       | —  |       | —  |       | 370                         |       | 27                              |       | —           |       | 397       |       |
| Deferred  income taxes                               |       | —  |       | —  |       | —                      |       | 2,668                           |       | —           |       | 2,668     |       |
| Minority  interest                                   |       | —  |       | —  |       | —                      |       | 139                             |       | —           |       | 139       |       |
|                                                 |       | 156,731 |       | —  |       | 69,161                      |       | 54,184                          |       | —           |       | 280,076   |       |
| Member’s  equity:                               |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Contributed  capital                                 |       | 116,060 |       | —  |       | 148,417                     |       | 49,280                          |       | (197,697         | )          | 116,060   |       |
| Accumulated  deficit                                 |       | (47,432 | )          | —  |       | 2,674                       |       | (3,659                          | )          | 985              |       | (47,432   | )          |
| Due from NSP  Holdings L.L.C.                        |       | (17,688 | )          | —  |       | —                      |       | —                          |       | —           |       | (17,688   | )          |
| Accumulated  other comprehensive loss                |       | (1,688  | )          | —  |       | —                      |       | —                          |       | —           |       | (1,688    | )          |
| Total member’s  equity                          |       | 49,252  |       | —  |       | 151,091                     |       | 45,621                          |       | (196,712         | )          | 49,252    |       |
| Total  liabilities and member’s equity          |       | $       | 216,703    |    | $          | —                      |       | $                               | 239,812    |             | $          | 114,691   |       | $ | (196,712 | ) | $ | 374,494 |   |

 

11

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| ** **                                           | ** ** | **NSP**  | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------|------------|----------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **December 31,  2003**                          |       |     |       |    |       |                        |       |                            |       |             |       |      |       |
| Current  assets:                                     |       |     |       |    |       |                        |       |                            |       |             |       |      |       |
| Cash and  cash equivalents                           |       | $        | 15,863     |    | $          | —                      |       | $                               | (1,995     | )                | $          | 2,473     |       | $ | — |   | $ | 16,341 |   |
| Accounts  receivable, net                            |       | 7,839    |       | —  |       | 25,269                      |       | 20,183                          |       | —           |       | 53,291    |       |
| Inventories                                          |       | 8,932    |       | —  |       | 32,641                      |       | 39,255                          |       | —           |       | 80,828    |       |
| Deferred  income taxes                               |       | —   |       | —  |       | —                      |       | 30                              |       | —           |       | 30        |       |
| Prepaid  expenses and other current assets           |       | 1,916    |       | —  |       | 1,149                       |       | 768                             |       | —           |       | 3,833     |       |
| Total  current assets                                |       | 34,550   |       | —  |       | 57,064                      |       | 62,709                          |       | —           |       | 154,323   |       |
| Property,  plant, and equipment, net                 |       | 5,979    |       | —  |       | 29,310                      |       | 20,924                          |       | —           |       | 56,213    |       |
| Deferred  financing costs, net                       |       | 10,832   |       | —  |       | —                      |       | —                          |       | —           |       | 10,832    |       |
| Goodwill,  net                                       |       | 426      |       | —  |       | 104,833                     |       | 24,773                          |       | —           |       | 130,032   |       |
| Other  intangible assets, net                        |       | 3,352    |       | —  |       | —                      |       | 2,289                           |       | —           |       | 5,641     |       |
| Due from NSP  Holdings L.L.C.                        |       | 16,113   |       | —  |       | —                      |       | —                          |       | —           |       | 16,113    |       |
| Investment  in subsidiaries                          |       | 132,626  |       | —  |       | 45,044                      |       | —                          |       | (177,670         | )          | —    |       |
| Other  noncurrent assets                             |       | —   |       | —  |       | 3,610                       |       | 1,925                           |       | —           |       | 5,535     |       |
| Total assets                                         |       | $        | 203,878    |    | $          | —                      |       | $                               | 239,861    |             | $          | 112,620   |       | $ | (177,670 | ) | $ | 378,689 |   |
| Current  liabilities:                                |       |     |       |    |       |                        |       |                            |       |             |       |      |       |
| Accounts  payable                                    |       | $        | 4,082      |    | $          | —                      |       | $                               | 7,205      |             | $          | 6,870     |       | $ | — |   | $ | 18,157 |   |
| Accrued  expenses                                    |       | 11,276   |       | —  |       | 10,044                      |       | 6,517                           |       | —           |       | 27,837    |       |
| Current  maturities of long-term obligations         |       | 1,210    |       | —  |       | 701                         |       | 1,467                           |       | —           |       | 3,378     |       |
| Total  current liabilities                           |       | 16,568   |       | —  |       | 17,950                      |       | 14,854                          |       | —           |       | 49,372    |       |
| Pension,  post-retirement, and deferred compensation |       | —   |       | —  |       | 23,664                      |       | 654                             |       | —           |       | 24,318    |       |
| Long-term  obligations                               |       | 251,313  |       | —  |       | 634                         |       | 1,867                           |       | —           |       | 253,814   |       |
| Intercompany  balances                               |       | (112,697 | )          | —  |       | 57,122                      |       | 55,575                          |       | —           |       | —    |       |
| Other  noncurrent liabilities                        |       | —   |       | —  |       | 407                         |       | 23                              |       | —           |       | 430       |       |
| Deferred  income taxes                               |       | —   |       | —  |       | —                      |       | 1,937                           |       | —           |       | 1,937     |       |
| Minority  interest                                   |       | —   |       | —  |       | —                      |       | 124                             |       | —           |       | 124       |       |
|                                                 |       | 138,616  |       | —  |       | 81,827                      |       | 60,180                          |       | —           |       | 280,623   |       |
| Member’s  equity:                               |       |     |       |    |       |                        |       |                            |       |             |       |      |       |
| Contributed  capital                                 |       | 116,060  |       | —  |       | 159,509                     |       | 47,073                          |       | (206,582         | )          | 116,060   |       |
| Accumulated  deficit                                 |       | (64,791  | )          | —  |       | (19,425                     | )          | (9,487                          | )          | 28,912           |       | (64,791   | )          |
| Accumulated  other comprehensive loss                |       | (2,575   | )          | —  |       | —                      |       | —                          |       | —           |       | (2,575    | )          |
| Total member’s  equity                          |       | 48,694   |       | —  |       | 140,084                     |       | 37,586                          |       | (177,670         | )          | 48,694    |       |
| Total  liabilities and member’s equity          |       | $        | 203,878    |    | $          | —                      |       | $                               | 239,861    |             | $          | 112,620   |       | $ | (177,670 | ) | $ | 378,689 |   |

 

12

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| ** **                                        | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|---------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Nine  months ended October 2, 2004**       |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Third party                                       |       | $       | 54,526     |    | $          | —                      |       | $                               | 167,412    |             | $          | 108,648   |       | $ | — |   | $ | 330,586 |   |
| Intercompany                                      |       | 6,133   |       | —  |       | 5,008                       |       | 7,414                           |       | (18,555          | )          | —    |       |
| Net sales                                         |       | 60,659  |       | —  |       | 172,420                     |       | 116,062                         |       | (18,555          | )          | 330,586   |       |
| Cost of  goods sold                               |       | 41,409  |       | —  |       | 112,638                     |       | 77,171                          |       | (18,555          | )          | 212,663   |       |
| Gross profit                                      |       | 19,250  |       | —  |       | 59,782                      |       | 38,891                          |       | —           |       | 117,923   |       |
| Operating  expenses:                              |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Selling                                           |       | 2,416   |       | —  |       | 16,525                      |       | 12,573                          |       | —           |       | 31,514    |       |
| Distribution                                      |       | 2,732   |       | —  |       | 6,231                       |       | 7,110                           |       | —           |       | 16,073    |       |
| General and  administrative                       |       | 5,574   |       | —  |       | 15,483                      |       | 8,587                           |       | —           |       | 29,644    |       |
| Amortization  of intangibles                      |       | 204     |       | —  |       | —                      |       | 176                             |       | —           |       | 380       |       |
| Strategic  alternatives                           |       | 616     |       | —  |       | —                      |       | —                          |       | —           |       | 616       |       |
| Total  operating expenses                         |       | 11,542  |       | —  |       | 38,239                      |       | 28,446                          |       | —           |       | 78,227    |       |
| Income from  operations                           |       | 7,708   |       | —  |       | 21,543                      |       | 10,445                          |       | —           |       | 39,696    |       |
| Other  expense (income):                          |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Interest  expense                                 |       | 16,659  |       | —  |       | 30                          |       | 180                             |       | —           |       | 16,869    |       |
| Interest  income                                  |       | (88     | )          | —  |       | (4                          | )          | (36                             | )          | —           |       | (128      | )          |
| Intercompany  charges                             |       | (28,134 | )          | —  |       | (287                        | )          | 2,434                           |       | 25,987           |       | —    |       |
| Other, net                                        |       | (1      | )          | —  |       | 380                         |       | 447                             |       | —           |       | 826       |       |
| Income  before income taxes and minority interest |       | 19,272  |       | —  |       | 21,424                      |       | 7,420                           |       | (25,987          | )          | 22,129    |       |
| Income tax  (benefit) expense                     |       | (14     | )          | —  |       | 103                         |       | 2,732                           |       | —           |       | 2,821     |       |
| Minority  interest                                |       | —  |       | —  |       | —                      |       | 22                              |       | —           |       | 22        |       |
| Net income                                        |       | $       | 19,286     |    | $          | —                      |       | $                               | 21,321     |             | $          | 4,666     |       | $ | (25,987 | ) | $ | 19,286 |   |

 

13

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| ** **                                               | ** ** | **NSP** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Nine  Months Ended September 27, 2003**           |       |    |       |                        |       |                            |       |             |       |      |       |
| Third party                                              |       | $       | 48,269     |                        | $          | 143,544                         |       | $                | 78,021     |      | $          | — |   | $ | 269,834 |   |
| Intercompany                                             |       | 5,747   |       | 8,149                       |       | 7,370                           |       | (21,266          | )          | —    |       |
| Net sales                                                |       | 54,016  |       | 151,693                     |       | 85,391                          |       | (21,266          | )          | 269,834   |       |
| Cost of  goods sold                                      |       | 35,495  |       | 100,400                     |       | 57,876                          |       | (21,266          | )          | 172,505   |       |
| Gross profit                                             |       | 18,521  |       | 51,293                      |       | 27,515                          |       | —           |       | 97,329    |       |
| Operating  expenses:                                     |       |    |       |                        |       |                            |       |             |       |      |       |
| Selling                                                  |       | 2,297   |       | 15,206                      |       | 9,441                           |       | —           |       | 26,944    |       |
| Distribution                                             |       | 2,493   |       | 5,781                       |       | 4,522                           |       | —           |       | 12,796    |       |
| General and  administrative                              |       | 4,810   |       | 14,769                      |       | 6,238                           |       | —           |       | 25,817    |       |
| Amortization  of intangibles                             |       | 168     |       | 2,259                       |       | —                          |       | —           |       | 2,427     |       |
| Total  operating expenses                                |       | 9,768   |       | 38,015                      |       | 20,201                          |       | —           |       | 67,984    |       |
| Income from  operations                                  |       | 8,753   |       | 13,278                      |       | 7,314                           |       | —           |       | 29,345    |       |
| Other  expense (income):                                 |       |    |       |                        |       |                            |       |             |       |      |       |
| Interest  expense                                        |       | 22,812  |       | 4,602                       |       | 195                             |       | —           |       | 27,609    |       |
| Interest  income                                         |       | (53     | )          | —                      |       | (39                             | )          | —           |       | (92       | )          |
| Intercompany  charges                                    |       | (13,766 | )          | 3,803                       |       | 1,671                           |       | 8,292            |       | —    |       |
| Other, net                                               |       | (30     | )          | 35                          |       | 35                              |       | —           |       | 40        |       |
| (Loss)  income before income taxes and minority interest |       | (210    | )          | 4,838                       |       | 5,452                           |       | (8,292           | )          | 1,788     |       |
| Income tax  (benefit) expense                            |       | (27     | )          | 183                         |       | 1,816                           |       | —           |       | 1,972     |       |
| Minority  interest                                       |       | —  |       | —                      |       | (1                              | )          | —           |       | (1        | )          |
| Net (loss)  income                                       |       | $       | (183       | )                           | $          | 4,655                           |       | $                | 3,637      |      | $          | (8,292 | ) | $ | (183 | ) |

 

14

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| ** **                                            | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|-------------------------------------------------------|------------|---------|------------|---------|------------|----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Nine  months ended October 2, 2004**           |       |    |       |    |       |                       |       |                            |       |             |       |      |       |
| **Operating  activities**                             |       |    |       |    |       |                       |       |                            |       |             |       |      |       |
| Net cash  (used in) provided by operating activities  |       | $       | (13,021    | )       | $          | —                     |       | $                               | 17,747     |             | $          | 4,582     |       | $ | — |   | $ | 9,308 |   |
| **Investing  activities**                             |       |    |       |    |       |                       |       |                            |       |             |       |      |       |
| Purchase of  businesses, net of cash acquired         |       | (465    | )          | —  |       | —                     |       | (25                             | )          | —           |       | (490      | )          |
| Purchase of  property, plant, and equipment           |       | (610    | )          | —  |       | (2,668                     | )          | (1,006                          | )          | —           |       | (4,284    | )          |
| Proceeds  from sale of property, plant and equipment  |       | —  |       | —  |       | 480                        |       | —                          |       | —           |       | 480       |       |
| Due from NSP  Holdings L.L.C.                         |       | (459    | )          | —  |       | —                     |       | —                          |       | —           |       | (459      | )          |
| Net cash  used in investing activities                |       | (1,534  | )          | —  |       | (2,188                     | )          | (1,031                          | )          | —           |       | (4,753    | )          |
| **Financing  activities**                             |       |    |       |    |       |                       |       |                            |       |             |       |      |       |
| Payments for  deferred financing costs                |       | —  |       | —  |       | —                     |       | —                          |       | —           |       | —    |       |
| Proceeds  from borrowings                             |       | —  |       | —  |       | —                     |       | —                          |       | —           |       | —    |       |
| Payments of  debt                                     |       | (975    | )          | —  |       | (525                       | )          | (728                            | )          | —           |       | (2,228    | )          |
| Net  repayments under revolving credit facility       |       | —  |       | —  |       | —                     |       | —                          |       | —           |       | —    |       |
| Dividends to  NSP Holdings L.L.C.                     |       | (1,927  | )          | —  |       | —                     |       | —                          |       | —           |       | (1,927    | )          |
| Due from NSP  Holdings L.L.C.                         |       | (1,116  | )          | —  |       | —                     |       | —                          |       | —           |       | (1,116    | )          |
| Intercompany                                          |       | 18,690  |       | —  |       | (15,781                    | )          | (2,909                          | )          | —           |       | —    |       |
| Net cash  provided by (used in) financing activities  |       | 14,672  |       | —  |       | (16,306                    | )          | (3,637                          | )          | —           |       | (5,271    | )          |
| Effect of  exchange rate changes on cash              |       | —  |       | —  |       | 422                        |       | 316                             |       | —           |       | 738       |       |
| Net increase  (decrease) in cash and cash equivalents |       | 117     |       | —  |       | (325                       | )          | 230                             |       | —           |       | 22        |       |
| Cash and  cash equivalents at beginning of period     |       | 15,863  |       | —  |       | (1,995                     | )          | 2,473                           |       | —           |       | 16,341    |       |
| Cash and  cash equivalents at end of period           |       | $       | 15,980     |    | —     |                       | $          | (2,320                          | )          | $                | 2,703      |      | $          | — |   | $ | 16,363 |   |
|                                                       |            |         |            |         |            |                            |            |                                 |            |                  |            |           |            |  |  |  |  |  |  |

 

15

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| ** **                                           | ** ** | **NSP**  | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------|------------|----------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Nine  months ended September 27, 2003**       |       |     |       |                        |       |                            |       |             |       |      |       |
| **Operating  activities**                            |       |     |       |                        |       |                            |       |             |       |      |       |
| Net cash  provided by (used in) operating activities |       | $        | 2,121      |                        | $          | 8,293                           |       | $                | (220       | )         | $          | — |   | $ | 10,194 |   |
| **Investing  activities**                            |       |     |       |                        |       |                            |       |             |       |      |       |
| Purchase of  businesses, net of cash acquired        |       | (324     | )          | —                      |       | (18,004                         | )          | —           |       | (18,328   | )          |
| Purchase of  property, plant, and equipment          |       | (812     | )          | (2,448                      | )          | (1,311                          | )          | —           |       | (4,571    | )          |
| Due from NSP  Holdings L.L.C.                        |       | (7,827   | )          | —                      |       | —                          |       | —           |       | (7,827    | )          |
| Net cash  used in investing activities               |       | (8,963   | )          | (2,448                      | )          | (19,315                         | )          | —           |       | (30,726   | )          |
| **Financing  activities**                            |       |     |       |                        |       |                            |       |             |       |      |       |
| Payments for  deferred financing costs               |       | (13,711  | )          | —                      |       | —                          |       | —           |       | (13,711   | )          |
| Proceeds  from borrowings                            |       | 286,539  |       | —                      |       | —                          |       | —           |       | 286,539   |       |
| Payments of  debt                                    |       | (216,573 | )          | (263                        | )          | (399                            | )          | —           |       | (217,235  | )          |
| Net  repayments under revolving credit facility      |       | (29,262  | )          | —                      |       | (1,698                          | )          | —           |       | (30,960   | )          |
| Intercompany                                         |       | (15,007  | )          | (8,406                      | )          | 23,413                          |       | —           |       | —    |       |
| Net cash  provided by (used in) financing activities |       | 11,986   |       | (8,669                      | )          | 21,316                          |       | —           |       | 24,633    |       |
| Effect of  exchange rate changes on cash             |       | —   |       | 3,179                       |       | 13                              |       | —           |       | 3,192     |       |
| Net increase  in cash and cash equivalents           |       | 5,144    |       | 355                         |       | 1,794                           |       | —           |       | 7,293     |       |
| Cash and  cash equivalents at beginning of period    |       | 3,306    |       | (2,375                      | )          | 831                             |       | —           |       | 1,762     |       |
| Cash and  cash equivalents at end of period          |       | $        | 8,450      |                        | $          | (2,020                          | )          | $                | 2,625      |      | $          | — |   | $ | 9,055 |   |

 

**10. Comprehensive (Loss) Income**

 

Total comprehensive (loss) income for thethree months ended September 27, 2003 and October 2, 2004 amounted to$(6,804) and $8,977, respectively. Total comprehensive income for the ninemonths ended September 27, 2003 and October 2, 2004 amounted to$7,124 and $20,173, respectively.

 

**11. Strategic Alternatives**

 

The Company had previously announced that itwas in the process of exploring strategic alternatives, including a possiblesale of the Company.  A decision was madeby the Company in the second quarter of 2004 to terminate this process andtherefore it has expensed $3 and $616 in associated costs (primarily consistingof professional service fees) for the three and nine months ended October 2,2004, respectively.  These costs arereflected in operating expenses as strategic alternatives.

 

**12. Due from NSP Holdings L.L.C.**

 

During the three months ended October 2,2004, the Company determined that the Due from NSP Holdings L.L.C. balance of$19,615 would not likely be funded by NSP Holding L.L.C.  Therefore, the Company reclassified the Duefrom NSP Holdings L.L.C. balance to member’s equity. Accordingly, payments toNSP Holdings L.L.C. beginning in the three months ended October 2, 2004are classified under financing activities in the statements of cash flows.

 

16

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

 

**Overview**

** **

We are a leadingdesigner, manufacturer and marketer of branded products in the fragmentedpersonal protection equipment industry. We manufacture and market a full lineof personal protection equipment for workers in the general industrial, fireservice and utility/high voltage industries. We sell our products undertrusted, long-standing and well-recognized brand names, including *North*, *MorningPride*, *Ranger*, *Servus*, *Pro-Warrington*and *Salisbury*. Our broad productoffering includes, among other things, respiratory protection, protectivefootwear, hand protection, bunker gear and linemen equipment.

 

We classify our diverse product offeringsinto three primary operating segments:

 

General Industrial. We offer a diverseportfolio of leading products for a wide variety of industries, including themanufacturing, agriculture, automotive, food processing and pharmaceuticalindustries and the military, under the *North*,*Ranger* and *Servus* brand names. Our product offeringis one of the broadest in the personal protection equipment industry andincludes respiratory protection, protective footwear, hand protection, eye,head and face protection, first aid, hearing protection and fall protection. Wesell our general industrial products primarily through industrial distributors.

 

Fire Service. We manufacture and market oneof the broadest lines of personal protection equipment for the fire servicesegment, offering firefighters head-to-toe protection. Our products includebunker gear, fire boots, helmets, gloves and other accessories. We market ourproducts under our *Total Fire Group*umbrella, using the brand names of *MorningPride*, *Ranger*, *Servus* and *Pro-Warrington*. We are the vendor of choice for many of thelargest fire departments in North America, including those of New York City,Chicago and Toronto. We sell our fire service products primarily throughspecialized fire service distributors.

 

Utility/High Voltage. We manufacture andmarket one of the broadest lines of personal protection equipment for theutility/high voltage service segment under the *Salisbury*and *Servus* brands. Our products,including linemen equipment, gloves, sleeves and footwear, are designed toprotect workers from up to 40,000 volts of electricity. All of our productseither meet or exceed the applicable standards of ANSI and ASTM. We distributeour utility/high voltage products through specialized distributors and directto utilities and electrical contractors.

 

**KCL Acquisition**

** **

In July 2003,we acquired the stock of KCL for $20.1 million, including the assumptionof $0.2 million of KCL’s net indebtedness and acquisition costs of $1.1million. The sellers of KCL will also be eligible to receive royalty paymentsof up to €0.3 million per year over the next three years based upon theachievement of certain cumulative net sales targets.

 

17

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**Results of Operations**

** **

The followingtables set forth our results of operations in dollars and as a percentage ofnet sales for the three and nine months ended September 27, 2003 and October 2,2004. The data for the three and nine months ended September 27, 2003 and October 2,2004 have been derived from our historical unaudited financial statements.

 
| ** **                                               | ** ** | **Three Months Ended**       | ** ** | **Nine Months Ended**     | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|---------------------------|------------|
| ** **                                               | ** ** | **September 27,  2003** | ** ** | **October 2,  2004** | ** ** | **September 27,  2003** | ** ** | **October 2,  2004** | ** ** |
| ** **                                               | ** ** | **(dollars in thousands)**   |
| Net sales:                                               |       |                         |       |                      |       |   |   |   |   |
| General  industrial                                      |       | $                            | 65,073     |                      | $          | 80,432 |   | $ | 186,674 |   | $ | 232,324 |   |
| Fire service                                             |       | 17,176                       |       | 20,267                    |       | 51,562 |   | 59,905 |   |
| Utility/high  voltage                                    |       | 10,773                       |       | 13,809                    |       | 31,598 |   | 38,357 |   |
| Total net  sales                                         |       | 93,022                       |       | 114,508                   |       | 269,834 |   | 330,586 |   |
| Cost of goods  sold                                      |       | 59,573                       |       | 74,963                    |       | 172,505 |   | 212,663 |   |
| Gross profit                                             |       | 33,449                       |       | 39,545                    |       | 97,329 |   | 117,923 |   |
| Operating  expenses                                      |       | 24,432                       |       | 26,537                    |       | 67,984 |   | 78,227 |   |
| Income from  operations:                                 |       |                         |       |                      |       |   |   |   |   |
| General  industrial                                      |       | 4,665                        |       | 6,968                     |       | 15,465 |   | 24,040 |   |
| Fire service                                             |       | 2,932                        |       | 4,114                     |       | 9,576 |   | 11,360 |   |
| Utility/high  voltage                                    |       | 2,345                        |       | 3,191                     |       | 6,899 |   | 8,335 |   |
| Corporate                                                |       | (925                         | )          | (1,265                    | )          | (2,595 | ) | (4,039 | ) |
| Total income  from operations                            |       | 9,017                        |       | 13,008                    |       | 29,345 |   | 39,696 |   |
| Other  expense (income):                                 |       |                         |       |                      |       |   |   |   |   |
| Interest expense                                         |       | 14,900                       |       | 5,573                     |       | 27,609 |   | 16,869 |   |
| Interest  income                                         |       | (38                          | )          | (64                       | )          | (92 | ) | (128 | ) |
| Other, net                                               |       | 399                          |       | 233                       |       | 40 |   | 826 |   |
| Loss  (income) before income taxes and minority interest |       | (6,244                       | )          | 7,266                     |       | 1,788 |   | 22,129 |   |
| Income tax  expense                                      |       | 428                          |       | 545                       |       | 1,972 |   | 2,821 |   |
| Minority  interest                                       |       | (1                           | )          | 6                         |       | (1 | ) | 22 |   |
| Net (loss)  income                                       |       | $                            | (6,671     | )                         | $          | 6,715 |   | $ | (183 | ) | $ | 19,286 |   |

 

18

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| ** **                                               | ** ** | **Three Months Ended**             | ** ** | **Nine Months Ended**     | ** ** |
|----------------------------------------------------------|------------|------------------------------------|------------|---------------------------|------------|
| ** **                                               | ** ** | **September 27,  2003**       | ** ** | **October 2,  2004** | ** ** | **September 27,  2003** | ** ** | **October 2,  2004** | ** ** |
| ** **                                               | ** ** | **(as a percentage of net sales)** | ** ** |
| Net sales:                                               |       |                               |       |                      |       |   |   |   |   |
| General  industrial                                      |       | 70.0                               | %          | 70.2                      | %          | 69.2 | % | 70.3 | % |
| Fire service                                             |       | 18.4                               | %          | 17.7                      | %          | 19.1 | % | 18.1 | % |
| Utility/high  voltage                                    |       | 11.6                               | %          | 12.1                      | %          | 11.7 | % | 11.6 | % |
| Total net  sales                                         |       | 100.0                              | %          | 100.0                     | %          | 100.0 | % | 100.0 | % |
| Cost of  goods sold                                      |       | 64.0                               | %          | 65.5                      | %          | 63.9 | % | 64.3 | % |
| Gross profit                                             |       | 36.0                               | %          | 34.5                      | %          | 36.1 | % | 35.7 | % |
| Operating  expenses                                      |       | 26.3                               | %          | 23.1                      | %          | 25.2 | % | 23.7 | % |
| Income from  operations:                                 |       |                               |       |                      |       |   |   |   |   |
| General  industrial                                      |       | 5.0                                | %          | 6.1                       | %          | 5.7 | % | 7.3 | % |
| Fire service                                             |       | 3.2                                | %          | 3.6                       | %          | 3.5 | % | 3.4 | % |
| Utility/high  voltage                                    |       | 2.5                                | %          | 2.8                       | %          | 2.7 | % | 2.5 | % |
| Corporate                                                |       | (1.0                               | )%         | (1.1                      | )%         | (1.0 | )% | (1.2 | )% |
| Total income  from operations                            |       | 9.7                                | %          | 11.4                      | %          | 10.9 | % | 12.0 | % |
| Other  expense (income):                                 |       |                               |       |                      |       |   |   |   |   |
| Interest  expense                                        |       | 16.0                               | %          | 4.9                       | %          | 10.2 | % | 5.1 | % |
| Interest  income                                         |       | (0.0                               | )%         | (0.1                      | )%         | (0.0 | )% | (0.0 | )% |
| Other, net                                               |       | 0.4                                | %          | 0.2                       | %          | 0.0 | % | 0.2 | % |
| Loss  (income) before income taxes and minority interest |       | (6.7                               | )%         | 6.4                       | %          | 0.7 | % | 6.7 | % |
| Income tax  expense                                      |       | 0.5                                | %          | 0.5                       | %          | 0.8 | % | 0.9 | % |
| Minority  interest                                       |       | (0.0                               | )%         | 0.0                       | %          | (0.0 | )% | 0.0 | % |
| Net (loss)  income                                       |       | (7.2                               | )%         | 5.9                       | %          | (0.1 | )% | 5.8 | % |

 

***Three Months Ended October 2, 2004 asCompared to Three Months Ended September 27, 2003***

 

*Netsales.*Net salesincreased by $21.5 million, or 23.1%, from $93.0 million for thethree months ended September 27, 2003 to $114.5 million for the threemonths ended October 2, 2004. In our general industrial segment, net salesincreased by $15.4 million, or 23.6%, from $65.0 million for thethree months ended September 27, 2003 to $80.4 million for the threemonths ended October 2, 2004. This increase was primarily due to: higheroverall net sales in the United States of $6.9 million, reflecting higherfootwear shipments of $3.3 million, increased government contract shipments of$1.6 million and strong overall market demand; favorable exchange rates, whichhad an impact of $2.6 million; the impact of the acquisition of KCL in July 2003,which contributed incremental net sales of $2.4 million; and increased growthof our foreign operations. In our fire service segment, net sales increased by$3.1 million, or 18.0%, from $17.2 million for the three months endedSeptember 27, 2003 to $20.3 million for the three months ended October 2,2004 reflecting strong market demand. In our utility/high voltage segment, netsales increased by $3.0 million, or 28.2%, from $10.8 million for thethree months ended September 27, 2003 to $13.8 million for the threemonths ended October 2, 2004 primarily driven by new product introductionsand shipments related to the recent hurricane activity in the southeasternUnited States.

 

*Gross profit.*Grossprofit increased by $6.1 million, or 18.2%, from $33.4 million forthe three months ended September 27, 2003 to $39.5 million for thethree months ended October 2, 2004, primarily due to the$21.5 million, or 23.1%, increase in net sales. Our gross profit margin of34.5% for the three months ended October 2, 2004 was unfavorable to the36.0% gross profit margin for the three months ended September 27, 2003,due to a shortfall in our general industrial segment as a result of anincreased provision for excess and obsolete inventory. In our generalindustrial segment, gross profit increased by $3.6 million, or 15.3%, from$23.8 million for the three months ended September 27, 2003 to $27.4 millionfor the three months ended October 2, 2004. This increase was primarilydue to: the impact of the acquisition of KCL, which contributed$0.8 million of incremental gross profit; favorable exchange rates whichhad an impact of $0.9 million; and higher gross profit in the UnitedStates of $1.2 million, as a result of the $6.9 million increase in net sales,which was partially offset by an increased provision for excess and obsoleteinventory. In our fire service segment, gross profit increased by $1.3 million,or 23.4%, from $5.4 million for the three months ended September 27, 2003to $6.7 million for the three months ended October 2, 2004, primarilydue to the $3.1 million, or 18.0% increase in net sales. In ourutility/high voltage segment, gross profit increased by $1.2 million, or 28.3%,from $4.2 million for the three months ended September 27, 2003 to $5.4million for the three months ended October 2, 2004, primarily due to the$3.0 million, or 28.2% increase in net sales.

 

19

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*Operatingexpenses.*Operatingexpenses increased by $2.1 million, or 8.6%, from $24.4 million forthe three months ended September 27, 2003 to $26.5 million for thethree months ended October 2, 2004. In our general industrial segment,operating expenses increased by $1.4 million, or 6.9%, from$19.1 million for the three months ended September 27, 2003 to$20.5 million for the three months ended October 2, 2004, as loweramortization of intangibles of $0.7 million was more than offset by higherother operating expenses due to: incremental KCL operating expenses of$0.7 million; higher exchange rates, which had an impact of$0.7 million; higher payroll and other administrative costs; and increasedvariable distribution and selling expenses associated with the $15.4 million or23.6% increase in net sales. In our fire service segment, operating expensesincreased $0.1 million, or 3.5%, from $2.5 million for the threemonths ended September 27, 2003 to $2.6 million for the three monthsended October 2, 2004, primarily due to additional payroll and variableselling expenses. In our utility/high voltage segment, operating expensesincreased by $0.3 million, or 18.5%, from $1.9 million for the threemonths ended September 27, 2003 to $2.2 million for the three monthsended October 2, 2004, primarily due to higher variable distribution andselling expenses associated with the $3.0 million, or $28.2%, increase in netsales. Our corporate expense increased $0.3 million, or 36.8%, primarilydue to higher payroll and administrative expenses including costs associatedwith public reporting and Sarbanes-Oxley Act related compliance requirements.

 

*Incomefrom operations.*Incomefrom operations increased by $4.0 million, or 44.3%, from $9.0 millionfor the three months ended September 27, 2003 to $13.0 million forthe three months ended October 2, 2004. As a percentage of net sales,income from operations increased from 9.7% for the three months ended September 27,2003 to 11.4% for the three months ended October 2, 2004. In our generalindustrial segment, income from operations increased by $2.3 million, or49.4%, from $4.7 million for the three months ended September 27,2003 to $7.0 million for the three months ended October 2, 2004,primarily due to higher net sales of $15.4 million, or 23.6%. In our fireservice segment, income from operations increased by $1.2 million, or40.3%, from $2.9 million for the three months ended September 27,2003 to $4.1 million for the three months ended October 2, 2004,primarily due to the $3.1 million, or 18.0%, increase in net sales. In ourutility/high voltage segment, income from operations increased by$0.8 million, or 36.1%, from $2.4 million for the three months ended September 27,2003 to $3.2 million for the three months ended October 2, 2004,primarily due to higher net sales of $3.0 million, or 28.2%. Our corporateexpense increased $0.3 million, or 36.8%, primarily due to higher payrolland administrative expenses including costs associated with public reportingand Sarbanes-Oxley Act related compliance requirements.

 

Included in incomefrom operations for the three months ended October 2, 2004 and September 27,2003 were depreciation and amortization expenses of $3.0 million and$3.4 million, respectively. Of these amounts, $2.4 million,$0.1 million, $0.3 million and $0.2 million were attributable tothe general industrial, fire service, utility/high voltage segments andcorporate, respectively, for the three months ended October 2, 2004 and$2.8 million, $0.1 million, $0.3 million and $0.2 millionwere attributable to these segments and corporate for the three months ended September 27,2003.

 

*Interestexpense.*Interestexpense decreased by $9.3 million, or 62.6%, from $14.9 million forthe three months ended September 27, 2003 to $5.6 million for thethree months ended October 2, 2004. Included in interest expense for thethree months ended September 27, 2003 is $8.9 million attributable to the$3.9 million write-off of deferred financing fees, the $2.1 million write-offof original issue discount, and the $2.9 million prepayment penalty associatedwith the senior subordinated debt financing. Excluding these write-offs,interest expense decreased by $0.4 million as lower weighted average interestrates were partially offset by higher debt levels associated with our seniorsubordinated notes financing. Interest expense incurred by NSP and thesubsidiary guarantors totaled $14.8 million for the three months ended September 27,2003 and $5.5 million for the three months ended October 2, 2004.

 

*Other,net.*Other, netdecreased by $0.2 million from $0.4 million for the three months ended September 27,2003 to $0.2 million for the three months ended October 2, 2004.

 

*Incometax expense.*Incometax expense increased by $0.1 million, from $0.4 million for thethree months ended September 27, 2003 to $0.5 million for the threemonths ended October 2, 2004.

 

*Netincome (loss).*Netincome (loss) increased by $13.4 million, from $(6.7) million for thethree months ended September 27, 2003 to $6.7 million for the three monthsended October 2, 2004. This was the result of the reasons discussed above.

 

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***Nine Months Ended October 2, 2004 asCompared to Nine Months Ended September 27, 2003***

 

*Netsales.*Net salesincreased by $60.8 million, or 22.5%, from $269.8 million for thenine months ended September 27, 2003 to $330.6 million for the ninemonths ended October 2, 2004. In our general industrial segment, net salesincreased by $45.6 million, or 24.5%, from $186.7 million for thenine months ended September 27, 2003 to $232.3 million for the ninemonths ended October 2, 2004. This increase was primarily due to: higheroverall net sales in the United States of $15.0 million, reflecting higherfootwear shipments of $6.2 million, increased government contract shipments of$5.9 million and strong overall market demand in addition to an increase inactivity of products sold through the domestic preparedness channel; favorable exchangerates, which had an impact of $8.2 million; and the impact of theacquisition of KCL in July 2003, which contributed incremental net salesof $19.0 million. In our fire service segment, net sales increased by$8.3 million, or 16.2%, from $51.6 million for the nine months ended September 27,2003 to $59.9 million for the nine months ended October 2, 2004reflecting strong market demand in part due to comprehensive marketing efforts.In our utility/high voltage segment, net sales increased by $6.9 million,or 21.4%, from $31.5 million for the nine months ended September 27,2003 to $38.4 million for the nine months ended October 2, 2004primarily driven by strong overall market demand, new product introductions,and shipments related to the recent hurricane activity in the southeasternUnited States.

 

*Grossprofit.*Grossprofit increased by $20.6 million, or 21.2%, from $97.3 million for thenine months ended September 27, 2003 to $117.9 million for the ninemonths ended October 2, 2004, primarily due to the $60.8 million, or22.5%, increase in net sales. Our gross profit margin of 35.7% for the ninemonths ended October 2, 2004 was unfavorable to the 36.1% gross profitmargin for the nine months ended September 27, 2003, due to a shortfall inour utility/high voltage segment reflecting unfavorable product mix and highermanufacturing expenses. In our general industrial segment, gross profitincreased by $15.6 million, or 22.8%, from $68.4 million for the ninemonths ended September 27, 2003 to $84.0 million for the nine monthsended October 2, 2004. This increase was primarily due to: the impact ofthe acquisition of KCL, which contributed $7.4 million of incrementalgross profit; favorable exchange rates which had an impact of$2.8 million; and higher gross profit in the United States of $4.2million, reflecting the $15.0 million increase in net sales. In our fireservice segment, gross profit increased by $2.8 million, or 17.0%, from$16.4 million for the nine months ended September 27, 2003 to$19.2 million for the nine months ended October 2, 2004, primarilydue to the $8.3 million, or 16.2% increase in net sales. In ourutility/high voltage segment, gross profit increased by $2.2 million, or17.6%, from $12.6 million for the nine months ended September 27,2003 to $14.8 million for the nine months ended October 2, 2004,primarily due to the $6.9 million, or 21.4% increase in net sales, which waspartially offset by unfavorable product mix and higher manufacturing expenses.

 

*Operatingexpenses.*Operatingexpenses increased by $10.2 million, or 15.1%, from $68.0 million forthe nine months ended September 27, 2003 to $78.2 million for thenine months ended October 2, 2004. In our general industrial segment,operating expenses increased by $7.0 million, or 13.3%, from$52.9 million for the nine months ended September 27, 2003 to$59.9 million for the nine months ended October 2, 2004, as loweramortization of intangibles of $2.0 million was more than offset by higherother operating expenses due to: incremental KCL operating expenses of$4.8 million; higher exchange rates, which had an impact of$2.1 million; higher payroll and other administrative costs; and increasedvariable distribution and selling expenses associated with the $45.6 million or24.5% increase in net sales. In our fire service segment, operating expensesincreased $1.0 million, or 14.8%, from $6.9 million for the ninemonths ended September 27, 2003 to $7.9 million for the nine monthsended October 2, 2004, primarily due to additional payroll and variableselling expenses associated with the $8.3 million, or 16.2%, increase innet sales. In our utility/high voltage segment, operating expenses increased by$0.8 million, or 13.8%, from $5.6 million for the nine months ended September 27,2003 to $6.4 million for the nine months ended October 2, 2004,primarily due to higher general and administrative and selling expenses. Ourcorporate expense increased $1.4 million, or 55.6%, primarily due to $0.6million of expenses associated with exploring strategic alternatives and higherpayroll and administrative expenses including costs associated with publicreporting and Sarbanes-Oxley Act related compliance requirements.

 

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*Incomefrom operations.*Incomefrom operations increased by $10.4 million, or 35.3%, from$29.3 million for the nine months ended September 27, 2003 to$39.7 million for the nine months ended October 2, 2004. As apercentage of net sales, income from operations increased from 10.9% for thenine months ended September 27, 2003 to 12.0% for the nine months ended October 2,2004. In our general industrial segment, income from operations increased by$8.6 million, or 55.4%, from $15.4 million for the nine months ended September 27,2003 to $24.0 million for the nine months ended October 2, 2004,primarily due to higher net sales of $45.6 million, or 24.5%. In our fireservice segment, income from operations increased by $1.8 million, or18.6%, from $9.6 million for the nine months ended September 27, 2003to $11.4 million for the nine months ended October 2, 2004, primarilydue to the $8.3 million, or 16.2%, increase in net sales. In ourutility/high voltage segment, income from operations increased by$1.4 million, or 20.8%, from $6.9 million for the nine months ended September 27,2003 to $8.3 million for the nine months ended October 2, 2004,primarily due to higher net sales of $6.9 million, or 21.4%. Our corporateexpenses increased $1.4 million, or 55.6%, primarily due to $0.6 millionof expenses associated with exploring strategic alternatives and higher payrolland administrative expenses including costs associated with public reportingand Sarbanes-Oxley Act related compliance requirements.

 

Included in incomefrom operations for the nine months ended October 2, 2004 and September 27,2003 were depreciation and amortization expenses of $8.9 million and$10.1 million, respectively. Of these amounts, $7.2 million,$0.3 million, $1.0 million and $0.4 million were attributable tothe general industrial, fire service, utility/high voltage segments andcorporate, respectively, for the nine months ended October 2, 2004 and$8.4 million, $0.3 million, $0.9 million and $0.5 millionwere attributable to these segments and corporate for the nine months ended September 27,2003.

 

*Interestexpense.*Interestexpense decreased by $10.7 million, or 38.9%, from $27.6 million forthe nine months ended September 27, 2003 to $16.9 million for thenine months ended October 2, 2004. Included in interest expense for thenine months ended September 27, 2003 is $10.2 million attributable to the$5.2 million write-off of deferred financing fees, the $2.1 million write-offof original issue discount, and the $2.9 million prepayment penalty associatedwith the senior credit facility and senior subordinated debt financings. Excludingthese write-offs, interest expense decreased by $0.5 million as lower weightedaverage interest rates were partially offset by higher debt levels associatedwith our senior subordinated notes financing. Interest expense incurred by NSPand the subsidiary guarantors totaled $27.4 million for the nine monthsended September 27, 2003 and $16.7 million for the nine months ended October 2,2004.

 

*Other,net.*Other, netincreased by $0.8 primarily due to a $0.4 million loss recorded on the sale ofproperty, plant and equipment and unrealized foreign exchange losses.

 

*Incometax expense.*Incometax expense increased by $0.8 million, from $2.0 million for the ninemonths ended September 27, 2003 to $2.8 million for the nine monthsended October 2, 2004, primarily due to incremental KCL income tax expenseof $0.6 million.

 

*Netincome (loss).*Netincome (loss) increased by $19.5 million, from $(0.2) million for thenine months ended September 27, 2003 to $19.3 million for the ninemonths ended October 2, 2004. This was the result of the reasons discussedabove.

 

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**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 ended October 2,2004 and September 27, 2003, cash provided by operating activities was$9.3 million and $10.2 million, respectively. The $0.9 milliondecrease was primarily attributable to the $10.4 increase in income fromoperations, which was more than offset by an increase in working capital inpart due to higher net sales of $60.8 million and higher foreign exchangerates.

 

Historically, our principal uses of cash havebeen capital expenditures, acquisitions and working capital. Our capitalexpenditures were $4.3 million for the nine months ended October 2,2004 and $4.6 million for the nine months ended September 27, 2003.During the three months ended October 2, 2004, we determined that the Duefrom NSP Holdings L.L.C. balance of $17.7 million would not likely be funded byNSP Holding L.L.C. Therefore, we reclassified the Due from NSP Holdings L.L.C.balance to member’s equity. Accordingly, payments to NSP Holdings L.L.C.beginning in the three months ended October 2, 2004 are classified underfinancing activities in the statements of cash flows. During the nine monthsended October 2, 2004 and September 27, 2003, cash funded toNSP Holdings L.L.C. classified under investing activities was $0.5 millionand $7.8 million, respectively. For the nine months ended September 27,2003, we funded $6.8 million to NSP Holding L.L.C. to purchase warrants andpreferred units from certain members of management associated with the seniorsubordinate debt financing. During the nine months ended September 27,2003, we acquired KCL for $17.9 million.

 

As of October 2, 2004, we had workingcapital of $127.3 million and cash of $16.4 million. We maintaininventory levels sufficient to satisfy customer orders on demand, withgenerally a three month supply on hand. Bunker gear is an exception and isgenerally made to order. Our accounts receivable terms are generally30 days, net.

 

For the nine months ended October 2,2004, net cash used in financing activities was $5.3 million, representingpayments on long-term debt obligations of $2.2 million, dividends to NSPHoldings L.L.C. of $1.9 million, and cash fundings to NSP Holdings L.L.C. of$1.2 million. For the nine months ended September 27, 2003, net cashprovided by financing activities was $24.6 million, representing payments ofdeferred financing fees of $13.7 million, retirement of our previous seniorcredit facility, junior subordinated notes, and previous senior subordinatednotes and other debt payments of $248.2 million, offset by borrowings under oursenior credit facility, junior subordinated notes, senior subordinated notes,and other borrowings of $286.5 million.

 

On March 21,2003, we entered into a senior credit facility which provides for aggregateborrowings by us of $160.0 million and C$10.0 million, consisting of(1) a $30.0 million United States revolving credit facility;(2) a C$10.0 million Canadian revolving credit facility; and(3) a $130.0 million term loan. As of October 2, 2004, there wasapproximately $98.1 million of outstanding indebtedness under the seniorcredit facility and approximately $36.2 million of available borrowings underthe revolving facilities. We used the proceeds of our senior credit facility torefinance our previous senior credit facility and for general corporatepurposes, including working capital, refinancings, acquisitions, investmentsand capital expenditures.

 

As of October 2,2004, borrowings under the senior credit facility bore interest at a weightedaverage rate of 5.90%. Prior to March 20, 2008, we may borrow, repay andre-borrow under the revolving facilities without payment of penalty or premium.The term loan is payable in quarterly installments totaling $1.3 millionper annum, with the remainder due on March 20, 2009. All of the domesticborrowers’ obligations under the senior credit facility are secured by a pledgeof all our equity securities and the equity securities of our direct andindirect domestic subsidiaries, substantially all of our tangible andintangible assets and 65% of the equity securities of, or equity interest in,each of our foreign subsidiaries. All of the obligations under the seniorcredit facility are guaranteed by all of our present and future domesticsubsidiaries, and all of the Canadian borrower’s obligations under the seniorcredit facility are guaranteed by all of our present and future Canadiansubsidiaries.

 

Our senior credit facility and the indenturegoverning the notes contain, numerous restrictive covenants, including, amongother things, covenants that limit our ability to incur indebtedness, use ourassets as security in other transactions, make fundamental changes to ourcapital structure, dispose of assets, pay dividends, make capital expenditures,enter into transactions with affiliates and enter into sale and leasebacktransactions. In addition, our senior credit facility requires us to meetspecified financial ratios and tests.

 

On August 13, 2003, the Company issued$152.5 million of 9.875% senior subordinated notes due 2011 and receivedgross proceeds of $151.5 million. The proceeds were primarily used to:(i) repay principal and interest and repurchase warrants related to ourprevious senior subordinated notes, (ii) repay $30.0 million ofprincipal related to the term loan, (iii) repay principal on the juniorsubordinated notes used to finance the KCL acquisition, (iv) purchasepreferred units of NSP Holdings L.L.C. from certain members of management and(v) pay fees and expenses.

 

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In connection withthe offering, we amended our senior credit facility to provide for theincurrence of the outstanding senior subordinated notes. The amendment alsomodified certain of the covenants under our senior credit facility.

 

We believe thatour internal cash flows and borrowings under the revolving portions of oursenior credit facility will provide us with sufficient liquidity and capitalresources to meet our current and future financial obligations for theforeseeable future, including funding our operations, debt service and capitalexpenditures. Our future operating performance will be subject to futureeconomic conditions and to financial, business and other factors, many of whichare beyond our control. If our future cash flow from operations and othercapital resources are insufficient to pay our obligations as they mature or tofund our liquidity needs, we may be forced to reduce or delay our businessactivities and capital expenditures, sell assets, obtain additional debt orequity capital or restructure or refinance all or a portion of our debt, on orbefore maturity. We cannot assure you that we would be able to accomplish anyof these alternatives on a timely basis or on satisfactory terms, if at all. Inaddition, the terms of our existing and future indebtedness, including oursenior subordinated notes and our senior credit facility, may limit our abilityto pursue any of these alternatives.

 

**Forward-Looking Statements**

 

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

 

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**Item 3.Quantitative and Qualitative Disclosures Abou****t Market Risk**

 

There have been nomaterial changes to our exposure to market risk since December 31, 2003.

 

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**Item 4.Controls and Procedures**

 

Based on their evaluationas of the end of the period covered by this quarterly report on Form 10-Q, ourChief Executive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) areeffective. There was no change in our internal control over financial reporting(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identifiedin connection with the evaluation required by Rule 13a-15(d) of the ExchangeAct that occurred during the period covered by this quarterly report on Form10-Q that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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** **

**PART IIOTHER INFORMATION**

** **

**Item 1. Legal Proceedings**

 

Our North Safety Products subsidiary, its predecessorsand/or the former owners of such business are presently named as a defendant inapproximately 781 lawsuits involving respirators manufactured and sold by it orits predecessors. We are also monitoring an additional 15 lawsuits in which wefeel that North Safety Products, its predecessors and/or the former owners ofsuch businesses may be named as defendants. Collectively, these 796 lawsuitsrepresent approximately 26,000 (excluding spousal claims) plaintiffs.Approximately 90% of these lawsuits involve plaintiffs alleging that theysuffer from silicosis, with the remainder alleging they suffer from other orcombined injuries, including asbestosis. These lawsuits typically allege thatthese conditions resulted in part from respirators that were negligentlydesigned or manufactured. The defendants in these lawsuits are often numerous,and include, in addition to respirator manufacturers, employers of theplaintiffs and manufacturers of sand (used in sand blasting) and asbestos. Weacquired our North Safety Products subsidiary on October 2, 1998 fromSiebe plc. In connection with the acquisition, Siebe, which was subsequentlymerged with BTR plc (now known as “Invensys plc”), contractually agreed toindemnify us for any losses, including costs of defending claims, resultingfrom respiratory products manufactured prior to our acquisition of North SafetyProducts in October 1998.

 

In addition, our North Safety Products subsidiary iscontractually entitled to indemnification from Norton Company, an affiliate ofSaint-Gobain, which owned the North Safety Products business prior to Invensys.Pursuant to a December 14, 1982 asset purchase agreement, Siebe Norton,Inc., a newly formed wholly-owned subsidiary of Norton Company, acquired theassets of Norton’s Safety Products Division and the stock of this company wasin turn acquired by Siebe Gorman Holdings PLC. Under the terms of theAgreement, Siebe Norton, Inc. did not assume any liability for claims relatingto products shipped by Norton Company prior to the closing date. Moreover,Norton Company covenanted in the Agreement to indemnify Siebe Norton and itssuccessors and assigns against any liability resulting from or arising out ofany state of facts, omissions or events existing or occurring on or before theclosing date, including, without limitation, any claims arising in respect ofproducts shipped by Norton Company or any of its affiliates prior to theclosing date. Siebe Norton, whose name was subsequently changed to Siebe NorthInc., was subsequently acquired by the Company as part of the 1998 acquisitionof the North Safety Products business from Invensys.

 

Despite these indemnification arrangements, we couldpotentially be liable for these 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 forthese losses and claims relating to products sold prior to January 10,1983 if both Invensys and Norton fail to meet their obligations to indemnifyus. We could also be liable if the alleged exposure involved the use of aproduct manufactured by us after our October 1998 acquisition of the NorthSafety Products business. Invensys is currently handling the defense of all ofthe cases in which North Safety Products, its predecessors and/or the formerowners of such businesses have been named as defendants, and to date we havenot incurred any material costs with respect to these lawsuits. As of October 2,2004, Invensys has sent us requests for reimbursement totaling $97,406,relating to settled cases in which Invensys claims that the period of allegedexposure included periods after October 1998. To date, we have notreimbursed Invensys for these claims, as we are currently pursuing negotiationsregarding the allocation of costs and the determination of the alleged exposureperiods. Based on information provided to us by Invensys, we believe thatInvensys has made payments with respect to settlement of these claims of $0.9million for the nine months ended October 2, 2004. Separately, we settledon an unusual case along with Invensys for $65,000 in which our settlementshare was $45,000 (our net contribution after insurance proceeds was $25,000).

 

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Consistent with the current environment beingexperienced by companies involved in silica and asbestos-related litigation,there has been an increase in the number of asserted claims that couldpotentially involve us. Based upon information provided to us by Invensys, webelieve activity related to these lawsuits was as follows for the nine months endedOctober 2, 2004:

 
| Beginning  lawsuits   |   | 680  |   |
|-----------------------|--------|------|--------|
| New lawsuits          |   | 268  |   |
| Settlements           |   | (40  | )      |
| Dismissals  and other |   | (112 | )      |
| Ending  lawsuits      |   | 796  |   |

 

Plaintiffs have asserted specific dollarclaims in less than a quarter of the approximately 781 cases pending as ofOctober 2, 2004 in which North Safety Products, its predecessors and/orthe former owners of such businesses have been named as defendants. A majorityof jurisdictions prohibit specifying damages in tort cases such as these, andmost of the remaining jurisdictions do not require such specification. In thosecases in which plaintiffs chose to assert specific dollar amounts in theircomplaints, brought in states that permit such pleading, the amounts claimedare typically not meaningful as an indicator of a company’s potentialliability. This is because (1) the amounts claimed typically bear norelation to the level of the plaintiff’s injury, (2) the complaintstypically assert claims against numerous defendants, and (3) many casesare brought on behalf of plaintiffs who have not suffered any medical injury,and, ultimately, are resolved without any payment or payment of a smallfraction of the damages initially claimed. Of the 781 complaints, 607 do notspecify the amount of damages sought, 31 generally allege damages in excess of$50,000, 72 allege compensatory damages and punitive damages, each in excess of$25,000, 3 generally allege damages in excess of $100,000, 21 allegecompensatory damages and punitive damages, each in excess of $50,000, 31 generallyallege damages of $15.0 million, 2 allege compensatory damages andpunitive damages, each in the amount of $15.0 million, 1 allegescompensatory damages and punitive damages, each in excess of $10,000, 1 allegescompensatory damages and punitive damages, each in excess of $15,000, 3 allegecompensatory damages in excess of $50,000, 1 alleges punitive damages in excessof $50,000, 1 generally alleges damages in excess of $250,000, 3 generallyallege damages in excess of $25,000, 2 generally allege damages in excess of$15,000, 1 generally alleges damages in excess of $4,000 and 1 generallyalleges damages not to exceed $290.0 million. We currently do not haveaccess to the complaints to the previously mentioned additional 15 caseswe are monitoring, and therefore do not know whether these cases allegespecific damages, or if so, the amount of such damages, but are in the processof seeking to obtain such information. Due to the reasons noted above and tothe indemnification arrangements benefiting the Company, we do not believe thatthe damage amounts specified in these complaints are a meaningful factor in anyassessment of the Company’s 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 failed to meet theirindemnification obligations to us or the suit involved products manufactured byus after our October 1998 acquisition of North Safety Products, it wouldhave a material adverse effect on our business.

 

We are not otherwise involved in any materiallawsuits. We historically have not been required to pay any material liabilityclaims. We maintain insurance against product liability claims (with theexception of asbestosis and silicosis cases, for which coverage is notcommercially available), but it is possible that our insurance coverage willnot continue to be available on terms acceptable to us or that such coveragewill not be adequate for liabilities actually incurred. We have a reserve of$2.3 million against potential uninsured product liability claims of NorthSafety Products for periods prior to October 1998. This reserve wasestablished at the date of acquisition and relates to potential claims primarilyassociated with fall protection products sold in Canada. We have not recordedany losses against this reserve to date. This reserve is re-evaluatedperiodically, and additional charges or credits to operations may result asadditional 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 do not have a reserve for product liability claims for use of products manufacturedafter the 1998 acquisition of North Safety Products as we are not involved inany material lawsuits relating exclusively to product usage in the periodsafter October 1998. In addition, we are not a party to any lawsuitsinvolving asbestosis or silicosis relating exclusively to product usage in theperiod after October 1998.

 

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

 
|                   | NORCROSS SAFETY  PRODUCTS L.L.C. |
|------------------------|----------------------------------|
|                   |                             |   |
|                   |                             |   |
| November 10, 2004 | By:                              | /s/ ROBERT  A. PETERSON |   |
|                   |                             | Robert A. Peterson |
|                   |                             | President, Chief Executive Officer and  Manager |
|                   |                             | (Principal Executive Officer) |
|                   |                             |   |
|                   |                             |   |
| November 10, 2004 | 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 PRODUCTSL.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 |

 

31

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