**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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

 

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**ý****    ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the quarterly period ended July 2, 2005**

 

**OR**

 

**o****    ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the transition period from             to             **

 

**Commission File Number: 333-110531**

 

**NORCROSS SAFETYPRODUCTS L.L.C.**

**(Exactname of Registrant as Specified in its Charter)**

 
| **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**                                              |

 

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes ý  No o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange ActRule 12b-2).   Yes o  No ý

 

On August 10, 2005Norcross Safety Products L.L.C. had 100 units outstanding, all of which wereowned by a holding company.

 

 

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** **

**NORCROSS SAFETY PRODUCTS L.L.C.**FORM 10-QQUARTERLY REPORT

**For the Quarterly Period Ended July 2, 2005**

** **

**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                                 | 26 |
|                              |                                                                                                |   |
|                              | Item 4. Controls  and Procedures                                                                    | 27 |
|                              |                                                                                                |   |
| **PART II Other  Information**    | 28                                                                                                  |
|                              |                                                                                                |   |
|                              | Item  1. Legal Proceedings                                                                          | 28 |
|                              |                                                                                                |   |
|                              | Item 6.  Exhibits                                                                                   | 30 |
|                              |                                                                                                |   |
| **Signatures**                    | 31                                                                                                  |
|                              |                                                                                                |
| **Form 10-Q Listing of Exhibits** | 32                                                                                                  |

 

i

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**PART I**FINANCIAL INFORMATION

 

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

 

**NORCROSS SAFETYPRODUCTS L.L.C.**

**CONSOLIDATEDBALANCE SHEETS**

**(Amountsin Thousands) (Unaudited)**

 
| ** **                                                                               | ** ** | **December 31,  2004(1)** | ** ** | **July 2,  2005** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------|------------|-------------------|------------|
| **Assets**                                                                               |       |                           |       | ** **        |       |
| Current assets:                                                                          |       |                           |       |              |       |
| Cash and cash equivalents                                                                |       | $                              | 35,731     |              | $          | 29,344 |   |
| Accounts receivable, less allowance of  $2,063 and $2,212 in 2004 and 2005, respectively |       | 61,167                         |       | 67,754            |       |
| Inventories                                                                              |       | 82,532                         |       | 84,263            |       |
| Deferred income taxes                                                                    |       | 60                             |       | 61                |       |
| Prepaid expenses and other current assets                                                |       | 3,183                          |       | 2,978             |       |
| Total current assets                                                                     |       | 182,673                        |       | 184,400           |       |
| Property, plant, and equipment, net                                                      |       | 51,809                         |       | 48,078            |       |
| Deferred financing costs, net                                                            |       | 9,394                          |       | 8,472             |       |
| Goodwill, net                                                                            |       | 132,662                        |       | 131,842           |       |
| Other intangible assets, net                                                             |       | 6,256                          |       | 5,895             |       |
| Other noncurrent assets                                                                  |       | 5,689                          |       | 5,657             |       |
| Total assets                                                                             |       | $                              | 388,483    |              | $          | 384,344 |   |
|                                                                                     |       |                           |       |              |       |
| **Liabilities and  member’s equity**                                                |       |                           |       |              |       |
| Current liabilities:                                                                     |       |                           |       |              |       |
| Accounts payable                                                                         |       | $                              | 17,871     |              | $          | 19,036 |   |
| Accrued expenses                                                                         |       | 28,127                         |       | 27,989            |       |
| Current maturities of long-term obligations                                              |       | 15,252                         |       | 2,443             |       |
| Total current liabilities                                                                |       | 61,250                         |       | 49,468            |       |
| Pension, post-retirement, and deferred  compensation                                     |       | 22,923                         |       | 22,822            |       |
| Long-term obligations                                                                    |       | 238,314                        |       | 237,536           |       |
| Other noncurrent liabilities                                                             |       | 1,653                          |       | 1,625             |       |
| Deferred income taxes                                                                    |       | 4,799                          |       | 4,647             |       |
| Minority interest                                                                        |       | 142                            |       | 146               |       |
|                                                                                     |       | 267,831                        |       | 266,776           |       |
| Member’s equity:                                                                    |       |                           |       |              |       |
| Contributed capital                                                                      |       | 116,060                        |       | 116,060           |       |
| Accumulated deficit                                                                      |       | (42,447                        | )          | (26,263           | )          |
| Due from NSP Holdings L.L.C.                                                             |       | (17,740                        | )     | (18,162           | )     |
| Accumulated other comprehensive income  (loss)                                           |       | 3,529                          |       | (3,535            | )          |
| Total member’s equity                                                               |       | 59,402                         |       | 68,100            |       |
| Total liabilities and member’s equity                                               |       | $                              | 388,483    |              | $          | 384,344 |   |

 

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(1)   December31, 2004 balances were obtained from audited financial statements.

 

*See notesto unaudited consolidated financial statements.*

 

1

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

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Amountsin Thousands) (Unaudited)**

 
| ** **                                        | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                        | ** ** | **July 3,  2004**      | ** ** | **July 2,  2005**    | ** ** | **July 3,  2004** | ** ** | **July 2,  2005** | ** ** |
| Net sales                                         |       | $                      | 107,005    |                 | $          | 118,845 |   | $ | 216,078 |   | $ | 239,268 |   |
| Cost of goods sold                                |       | 68,625                 |       | 73,457               |       | 137,332 |   | 149,059 |   |
| Gross profit                                      |       | 38,380                 |       | 45,388               |       | 78,746 |   | 90,209 |   |
| Operating expenses:                               |       |                   |       |                 |       |   |   |   |   |
| Selling                                           |       | 10,422                 |       | 11,697               |       | 20,826 |   | 23,554 |   |
| Distribution                                      |       | 5,527                  |       | 6,346                |       | 10,895 |   | 12,620 |   |
| General and administrative                        |       | 9,506                  |       | 11,250               |       | 19,474 |   | 22,193 |   |
| Amortization of intangibles                       |       | 124                    |       | 141                  |       | 250 |   | 283 |   |
| Strategic alternatives                            |       | 613                    |       | —               |       | 613 |   | — |   |
| Total operating expenses                          |       | 26,192                 |       | 29,434               |       | 52,058 |   | 58,650 |   |
| Income from operations                            |       | 12,188                 |       | 15,954               |       | 26,688 |   | 31,559 |   |
| Other expense (income):                           |       |                   |       |                 |       |   |   |   |   |
| Interest expense                                  |       | 5,660                  |       | 5,682                |       | 11,296 |   | 11,281 |   |
| Interest income                                   |       | (29                    | )          | (165                 | )          | (64 | ) | (415 | ) |
| Other, net                                        |       | 59                     |       | 436                  |       | 593 |   | 822 |   |
| Income before income taxes and minority  interest |       | 6,498                  |       | 10,001               |       | 14,863 |   | 19,871 |   |
| Income tax expense                                |       | 1,243                  |       | 2,093                |       | 2,276 |   | 3,667 |   |
| Minority interest                                 |       | 11                     |       | 7                    |       | 16 |   | 11 |   |
| Net income                                        |       | $                      | 5,244      |                 | $          | 7,901 |   | $ | 12,571 |   | $ | 16,193 |   |

 

*See notes to unaudited consolidatedfinancial statements.*

 

2

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**NORCROSS SAFETYPRODUCTS L.L.C.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

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

 
| ** **                                                                         | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **July 3,  2004**    | ** ** | **July 2,  2005** | ** ** |
| **Operating  activities**                                                          |       |                 |       |   |   |
| Net income                                                                         |       | $                    | 12,571     |   | $ | 16,193 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                 |       |   |   |
| Depreciation                                                                       |       | 5,682                |       | 5,311 |   |
| Amortization of intangibles                                                        |       | 250                  |       | 283 |   |
| Amortization of deferred financing costs                                           |       | 883                  |       | 922 |   |
| Amortization of original issue discount                                            |       | 45                   |       | 50 |   |
| Loss on sale of property, plant and  equipment                                     |       | 384                  |       | — |   |
| Deferred income taxes                                                              |       | (40                  | )          | (153 | ) |
| Minority interest                                                                  |       | 16                   |       | 11 |   |
| Changes in operating assets and  liabilities:                                      |       |                 |       |   |   |
| Accounts receivable                                                                |       | (10,866              | )          | (6,587 | ) |
| Inventories                                                                        |       | (3,808               | )          | (1,731 | ) |
| Prepaid expenses and other current assets                                          |       | (29                  | )          | 222 |   |
| Other noncurrent assets                                                            |       | 103                  |       | (219 | ) |
| Accounts payable                                                                   |       | 1,968                |       | 1,165 |   |
| Accrued expenses                                                                   |       | (1,299               | )          | (138 | ) |
| Pension, postretirement, and deferred  compensation                                |       | 1,288                |       | (101 | )  |
| Other noncurrent liabilities                                                       |       | (26                  | )          | (28 | ) |
| Other                                                                              |       | 13                   |       | 12 |   |
| Net cash provided by operating activities                                          |       | 7,135                |       | 15,212 |   |
|                                                                               |       |                 |       |   |   |
| **Investing  activities**                                                          |       |                 |       |   |   |
| Purchase of businesses, net of cash  acquired                                      |       | (235                 | )          | (605 | ) |
| Purchases of property, plant, and equipment                                        |       | (2,614               | )          | (3,478 | ) |
| Proceeds from sale of property, plant and  equipment                               |       | 480                  |       | — |   |
| Due from NSP Holdings L.L.C.                                                       |       | (459                 | )          | — |   |
| Net cash used in investing activities                                              |       | (2,828               | )          | (4,083 | ) |
|                                                                               |       |                 |       |   |   |
| **Financing  activities**                                                          |       |                 |       |   |   |
| Payments of debt                                                                   |       | (1,307               | )          | (13,637 | ) |
| Due from NSP Holdings L.L.C.                                                       |       | —               |       | (422 | ) |
| Dividends to NSP Holdings L.L.C.                                                   |       | (1,192               | )     | (9 | )  |
| Net cash used in financing activities                                              |       | (2,499               | )          | (14,068 | ) |
| Effect of exchange rate changes on cash                                            |       | (436                 | )          | (3,448 | ) |
| Net increase (decrease) in cash and cash  equivalents                              |       | 1,372                |       | (6,387 | ) |
| Cash and cash equivalents at beginning of  period                                  |       | 16,341               |       | 35,731 |   |
| Cash and cash equivalents at end of period                                         |       | $                    | 17,713     |   | $ | 29,344 |   |

 

*See notes to unaudited consolidated financialstatements*

 

3

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

 

# **1.****     Basis of Presentation**

 

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, 2005. Thefinancial statements presented should be read in conjunction with theconsolidated financial statements and footnotes thereto included in our 2004 consolidatedfinancial statements, included in the Company’s annual report on Form 10-K.

 

# **2.****     Inventories**

#  

Inventories consist of the following:

 
| ** **              | ** ** | **December 31,  2004** | ** ** | **July 2,  2005** | ** ** |
|-------------------------|------------|------------------------|------------|-------------------|------------|
| At FIFO cost:           | ** ** | ** **             | ** ** | ** **        | ** ** |
| Raw materials           |       | $                      | 21,726     |              | $          | 21,927 |   |
| Work in process         |       | 10,419                 |       | 11,879            |       |
| Finished goods          |       | 52,045                 |       | 52,115            |       |
|                    |       | 84,190                 |       | 85,921            |       |
| Adjustment to LIFO cost |       | (1,658                 | )          | (1,658            | )          |
|                    |       | $                      | 82,532     |              | $          | 84,263 |   |

 

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# **3.****     Debt**

 

The Company’s debt consists of the following:

 
| ** **                                         | ** ** | **December 31,  2004** | ** ** | **July 2,  2005** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|-------------------|------------|
| Revolving credit facilities                        |       | $                      | —     |              | $          | — |   |
| Term loan                                          |       | 97,725                 |       | 84,875            |       |
| Senior subordinated notes                          |       | 152,500                |       | 152,500           |       |
| European term loans                                |       | 469                    |       | 307               |       |
| Arbin seller notes                                 |       | 454                    |       | 398               |       |
| Subordinated seller notes                          |       | 3,121                  |       | 2,616             |       |
| Capital lease obligations                          |       | 207                    |       | 143               |       |
| Unamortized discount on senior subordinated  notes |       | (910                   | )          | (860              | )          |
|                                               |       | 253,566                |       | 239,979           |       |
| Less: Current maturities of long-term  obligations |       | 15,252                 |       | 2,443             |       |
|                                               |       | $                      | 238,314    |              | $          | 237,536 |   |

 

Aggregate maturities oflong-term debt as of July 2, 2005, are as follows:

 
| 2006       | ** ** | $       | 2,443      | ** ** |
|------------|------------|---------|------------|------------|
| 2007       | ** ** | 3,244   | ** ** |
| 2008       | ** ** | 1,214   | ** ** |
| 2009       | ** ** | 80,704  | ** ** |
| 2010       | ** ** | 31      | ** ** |
| Thereafter | ** ** | 152,343 | ** ** |
| ** ** | ** ** | $       | 239,979    | ** ** |

 

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# **4.****     Employee Benefit Plans**

 

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

 
| ** **                         | ** ** | **Six months ended July 3, 2004** | ** ** | **Six months ended July 2, 2005** | ** ** |
|------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                         | ** ** | **Pension  Benefits**             | ** ** | **Post-retirement  Benefits**     | ** ** | **Pension  Benefits** | ** ** | **Post-retirement  Benefits** | ** ** |
|                               |       |                              |       |                              |       |   |   |   |   |
| Service cost                       |       | $                                 | 746        |                              | $          | 14 |   | $ | 834 |   | $ | 12 |   |
| Interest cost                      |       | 1,744                             |       | 40                                |       | 1,810 |   | 40 |   |
| Expected return on plan assets     |       | (1,336                            | )          | —                            |       | (1,554 | ) | — |   |
| Amortization of prior service cost |       | 2                                 |       | 8                                 |       | 2 |   | 8 |   |
| Amortization of actuarial loss     |       | 424                               |       | 42                                |       | 568 |   | 44 |   |
|                               |       | $                                 | 1,580      |                              | $          | 104 |   | $ | 1,660 |   | $ | 104 |   |

 

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# **5.****     Legal Proceedings**

#  

The Company is subject to various claims arising in the ordinary courseof business. Most of these lawsuits and claims are product liability mattersthat arise out of the use of respiratory product lines manufactured by theCompany’s North Safety Products subsidiary. As of July 2, 2005, theCompany’s North Safety Products subsidiary, along with its predecessors and/orthe former owners of such business were named as defendants in approximately928 lawsuits involving respirators manufactured and sold by it or itspredecessors . The Company is also monitoring an additional 11 lawsuits inwhich it feels that North Safety Products, its predecessors and/or the formerowners of such businesses may be named as defendants. Collectively, these 939lawsuits represent a total of approximately 25,000 plaintiffs. Approximately 92%of these lawsuits involve plaintiffs alleging injury resulting from exposure tosilica dust, with the remainder alleging injury resulting from exposure toother particles, including asbestos. These lawsuits typically allege that thepurported injuries resulted in part from respirators that were negligentlydesigned or manufactured. Invensys plc (“Invensys”), formerly Siebe plc, iscontractually obligated to indemnify the Company for any losses, includingcosts of defending claims, resulting from respiratory products manufactured orsold prior to the acquisition of North Safety Products in October 1998.

 

In addition, the Company’s North Safety Products subsidiary iscontractually entitled to indemnification from Norton Company, an affiliate ofSaint-Gobain, which owned the North Safety Products business prior to Invensys.Pursuant to a December 14, 1982 asset purchase agreement, SiebeNorton, Inc., a newly formed wholly-owned subsidiary of Norton Company,acquired the assets of Norton’s Safety Products Division and the stock of thiscompany was in turn acquired by Siebe Gorman Holdings PLC. Under the termsof the Agreement, Siebe Norton, Inc. did not assume any liability forclaims relating to products shipped by Norton Company prior to the closingdate. Moreover, Norton Company covenanted in the Agreement to indemnify SiebeNorton and its successors and assigns against any liability resulting from orarising out of any state of facts, omissions or events existing or occurring onor before the closing date, including, without limitation, any claims arisingfrom products shipped by Norton Company or any of its affiliates prior to theclosing date. Siebe Norton, whose name was subsequently changed to SiebeNorth Inc., was subsequently acquired by the Company as part of the 1998acquisition of the North Safety Products business from Invensys.

 

Despite these indemnification arrangements, the Company couldpotentially be liable for losses or claims relating to products manufacturedprior to the October 1998 acquisition date if Invensys fails to meet itsobligations to indemnify the Company and the Company could potentially beliable for losses and claims relating to products sold prior toJanuary 10, 1983 if both Invensys and Norton fail to meet theirobligations to indemnify the Company. The Company could also be liable if thealleged exposure involved the use of a product manufactured by the Companyafter its October 1998 acquisition of the North Safety Products business.Invensys is currently handling the defense of all of the cases prior toOctober 1998 in which North Safety Products, its predecessors and/or formerowners of such business have been named as defendants. The Company is jointlywith Invensys handling the defense of all of the cases which allege exposure,including periods pre and post October 1998.  The Company will individually handle thedefense of all cases with exclusive post October 1998 exposure, however,it has not been involved in a case with exclusive post October 1998exposure to date.  As of July 2,2005, Invensys has sent us requests for reimbursement totaling $178, relatingto settled cases in which Invensys claims that the period of alleged exposureincluded periods after October 1998. Based on information provided to theCompany by Invensys, the Company believes that Invensys has made payments withrespect to settlement of these claims of $40 for the six months ended July 2,2005 . The Company believes that Invensys has the ability to pay these claimsbased on its current financial position, as publicly disclosed by Invensys.

 

Consistent with thecurrent environment being experienced by companies involved in silica andasbestos-related litigation, there has been an increase in the number ofasserted claims that could

 

7

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potentially involve the Company. Based uponinformation provided to the Company by Invensys, the Company believes activityrelated to these lawsuits was as follows for the six months ended July 2,2005:

 
| Beginning lawsuits   |   | 858  |   |
|----------------------|--------|------|--------|
| New lawsuits         |   | 192  |   |
| Settlements          |   | (10  | )      |
| Dismissals and other |   | (101 | )      |
| Ending lawsuits      |   | 939  |   |

 

Plaintiffs have asserted specific dollar claims in approximately a quarterof the approximately 928 cases pending as of July 2, 2005 in whichNorth Safety Products, its predecessors and/or the former owners of suchbusinesses have been named as defendants. A majority of jurisdictions prohibitspecifying damages in tort cases such as these, and most of the remainingjurisdictions do not require such specification. In those cases in whichplaintiffs choose to assert specific dollar amounts in their complaints,brought in states that permit such pleading, the amounts claimed are typicallynot meaningful as an indicator of a company’s potential liability. This isbecause (1) the amounts claimed typically bear no relation to the level ofthe plaintiff’s injury, (2) the complaints typically assert claims againstnumerous defendants, and (3) many cases are brought on behalf ofplaintiffs who have not suffered any medical injury, and, ultimately, areresolved without any payment or payment of a small fraction of the damagesinitially claimed. Of the 928 complaints maintained in the Company’s records,700 do not specify the amount of damages sought, 36 generally allege damages inexcess of $50, three allege compensatory damages in excess of $50 and anunspecified amount of punitive damages, 92 allege compensatory damages andpunitive damages, each in excess of $25, three generally allege damages inexcess of $100, 18 allege compensatory damages and punitive damages, each inexcess of $50, 28 generally allege damages of $15,000, one generally allegesdamages not to exceed $290,000, one alleges compensatory damages and punitivedamages, each in excess of $10, one alleges compensatory and punitive damages,each in excess of $15, seven allege punitive damages in excess of $25, onealleges punitive damages in excess of $50, 28 generally allege damages inexcess of $15, six generally allege damages in excess of $25, one alleges compensatorydamages in excess of $25, and two allege compensatory and punitive damages,each in excess of $15,000. The Company currently does not have access to thecomplaints with respect to the previously mentioned additional 11 monitoredcases, and therefore do not know whether these cases allege specific damages,or if so, the amount of such damages, but are in the process of seeking toobtain such information.  Due to thereasons noted above and to the indemnification arrangements benefiting theCompany, it does not believe that the damage amounts specified in thesecomplaints are a meaningful factor in any assessment of the Company’s potentialliability.

 

The Company recorded a $1,250 liability and charge to operatingexpenses to establish a reserve for respiratory claims during the year endedDecember 31, 2004, which remains outstanding as of July 2, 2005.  The Company believes that this reserverepresents a reasonable estimate of the Company’s probable and estimableliabilities for claims alleging injury resulting from exposure to silica dustand other particles, including asbestos, as determined by the Company inconsultation with an independent consultant. The Company believes that a five-year projection of claims and defensecosts is the most reasonable approach. However, it is possible that the Company may incur liabilities in excessof the amounts currently reserved.  Thisreserve will be re-evaluated periodically and additional charges or creditswill be recorded to operating expenses as additional information becomesavailable.

 

8

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The Company is not otherwise involved in any material lawsuits. TheCompany historically has not been required to pay any material liabilityclaims. The Company maintains insurance against product liability claims (withthe exception of asbestosis and silicosis cases, for which coverage is notcommercially available), but it is possible that insurance coverage will notcontinue to be available on terms acceptable to the Company or that suchcoverage will not be adequate for liabilities actually incurred.  In connection with the North Safety Productsacquisition, the Company recorded a $2,500 reserve for potential uninsuredproduct liability claims of North Safety Products for periods prior toOctober 1998. The reserve was established at the date of acquisition andrelates to potential claims primarily associated with fall protection productssold in Canada. Through December 31, 2003, the Company incurred charges of$200 against this reserve, which reduced the balance to $2,300.  During 2004, the Company reduced this reserveto $1,000 to reflect its current expectations of the liability based oninformation available and recorded a $1,300 credit to operating expenses. The$1,000 reserve remains outstanding as of July 2, 2005. This reserve isre-evaluated periodically, and additional charges or credits will be recordedto operating expenses as additional information becomes available.

 

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

 

# **6.****      Segment Data**

#  

The following tablepresents information about the Company by segment:

 
| ** **                           | ** ** | **General  Industrial** | ** ** | **Fire  Service** | ** ** | **Utility/  High  Voltage** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|-------------------------|------------|-------------------|------------|-----------------------------|------------|---------------|------------|------------------|------------|-----------|------------|
| **Three Months Ended  July 3, 2004** |       |                    |       |              |       |                        |       |          |       |             |       |      |       |
| Net sales—third parties         |       | $                       | 75,428     |              | $          | 19,345                      |       | $             | 12,232     |             | $          | —    |       | $ | — |   | $ | 107,005 |   |
| Net sales—intersegment          |       | 2,167                   |       | —            |       | —                      |       | —        |       | (2,167           | )          | —    |       |
| Income (loss) from operations        |       | 8,127                   |       | 3,304             |       | 2,427                       |       | (1,670        | )          | —           |       | 12,188    |       |
| **Three Months Ended  July 2, 2005** |       |                    |       |              |       |                        |       |          |       |             |       |      |       |
| Net sales—third parties         |       |                    | 81,859     |              |       | 22,086                      |       |          | 14,900     |             |       | —    |       |   | — |   | 118,845 |   |
| Net sales—intersegment          |       | 2,297                   |       | —            |       | —                      |       | —        |       | (2,297           | )          | —    |       |
| Income (loss) from operations        |       | 9,291                   |       | 3,763             |       | 4,142                       |       | (1,242        | )          | —           |       | 15,954    |       |
|                                 |       |                    |       |              |       |                        |       |          |       |             |       |      |       |
| **Six Months Ended  July 3, 2004**   |       |                    |       |              |       |                        |       |          |       |             |       |      |       |
| Net sales—third parties         |       | 151,892                 |       | 39,638            |       | 24,548                      |       | —        |       | —           |       | 216,078   |       |
| Net sales—intersegment          |       | 4,889                   |       | —            |       | —                      |       | —        |       | (4,889           | )          | —    |       |
| Income (loss) from operations        |       | 17,073                  |       | 7,245             |       | 5,144                       |       | (2,774        | )          | —           |       | 26,688    |       |
|                                 |       |                    |       |              |       |                        |       |          |       |             |       |      |       |
| **Six Months Ended  July 2, 2005**   |       |                    |       |              |       |                        |       |          |       |             |       |      |       |
| Net sales—third parties         |       | 165,079                 |       | 45,086            |       | 29,103                      |       | —        |       | —           |       | 239,268   |       |
| Net sales—intersegment          |       | 4,855                   |       | —            |       | —                      |       | —        |       | (4,855           | )          | —    |       |
| Income (loss) from operations        |       | 18,103                  |       | 8,144             |       | 7,827                       |       | (2,515        | )          | —           |       | 31,559    |       |
|                                      |            |                         |            |                   |            |                             |            |               |            |                  |            |           |            |  |  |  |  |  |  |  |

 

9

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# **7.****     Subsidiary Guarantors**

#  

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** | ** ** |
|------------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **July 2, 2005**                                     |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Current assets:                                      |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Cash and cash equivalents                            |       | $       | 29,251     |    | $          | —                      |       | $                               | (3,137     | )                | $          | 3,230     |       | $ | — |   | $ | 29,344 |   |
| Accounts receivable, net                             |       | 7,227   |       | —  |       | 32,400                      |       | 28,127                          |       | —           |       | 67,754    |       |
| Inventories                                          |       | 11,537  |       | —  |       | 36,057                      |       | 36,669                          |       | —           |       | 84,263    |       |
| Deferred income taxes                                |       | —  |       | —  |       | —                      |       | 61                              |       | —           |       | 61        |       |
| Prepaid expenses and other current assets            |       | 948     |       | —  |       | 1,206                       |       | 824                             |       | —           |       | 2,978     |       |
| Total current assets                                 |       | 48,963  |       | —  |       | 66,526                      |       | 68,911                          |       | —           |       | 184,400   |       |
| Property, plant, and equipment, net                  |       | 4,893   |       | —  |       | 25,106                      |       | 18,079                          |       | —           |       | 48,078    |       |
| Deferred financing costs, net                        |       | 8,472   |       | —  |       | —                      |       | —                          |       | —           |       | 8,472     |       |
| Goodwill, net                                        |       | 426     |       | —  |       | 105,091                     |       | 26,325                          |       | —           |       | 131,842   |       |
| Other intangible assets, net                         |       | 3,826   |       | —  |       | —                      |       | 2,069                           |       | —           |       | 5,895     |       |
| Investment in subsidiaries                           |       | 187,496 |       | —  |       | 41,410                      |       | —                          |       | (228,906         | )          | —    |       |
| Other noncurrent assets                              |       | —  |       | —  |       | 3,747                       |       | 1,910                           |       | —           |       | 5,657     |       |
| Total assets                                         |       | $       | 254,076    |    | $          | —                      |       | $                               | 241,880    |             | $          | 117,294   |       | $ | (228,906 | ) | $ | 384,344 |   |
| Current liabilities:                                 |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Accounts payable                                     |       | $       | 3,151      |    | $          | —                      |       | $                               | 9,508      |             | $          | 6,377     |       | $ | — |   | $ | 19,036 |   |
| Accrued expenses                                     |       | 10,117  |       | —  |       | 8,794                       |       | 9,078                           |       | —           |       | 27,989    |       |
| Current maturities of long-term obligations          |       | 1,193   |       | —  |       | 134                         |       | 1,116                           |       | —           |       | 2,443     |       |
| Total current liabilities                            |       | 14,461  |       | —  |       | 18,436                      |       | 16,571                          |       | —           |       | 49,468    |       |
| Pension, post-retirement, and deferred  compensation |       | 134     |       | —  |       | 22,058                      |       | 630                             |       | —           |       | 22,822    |       |
| Long-term obligations                                |       | 237,322 |       | —  |       | —                      |       | 214                             |       | —           |       | 237,536   |       |
| Intercompany balances                                |       | (65,941 | )          | —  |       | 17,653                      |       | 48,288                          |       | —           |       | —    |       |
| Other noncurrent liabilities                         |       | —  |       | —  |       | 1,613                       |       | 12                              |       | —           |       | 1,625     |       |
| Deferred income taxes                                |       | —  |       | —  |       | —                      |       | 4,647                           |       | —           |       | 4,647     |       |
| Minority interest                                    |       | —  |       | —  |       | —                      |       | 146                             |       | —           |       | 146       |       |
|                                                 |       | 171,515 |       | —  |       | 41,324                      |       | 53,937                          |       | —           |       | 266,776   |       |
| Member’s equity:                                |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Contributed capital                                  |       | 116,060 |       | —  |       | 155,982                     |       | 49,280                          |       | (205,262         | )          | 116,060   |       |
| Accumulated deficit                                  |       | (26,263 | )          | —  |       | 26,138                      |       | (2,494                          | )          | (23,644          | )          | (26,263   | )          |
| Due from NSP Holdings L.L.C.                         |       | (18,162 | )          | —  |       | —                      |       | —                          |       | —           |       | (18,162   | )          |
| Accumulated other comprehensive loss                 |       | (3,535  | )          | —  |       | —                      |       | —                          |       | —           |       | (3,535    | )          |
| Total member’s equity                           |       | 68,100  |       | —  |       | 182,120                     |       | 46,786                          |       | (228,906         | )          | 68,100    |       |
| Total liabilities and member’s equity           |       | $       | 254,076    |    | $          | —                      |       | $                               | 241,880    |             | $          | 117,294   |       | $ | (228,906 | ) | $ | 384,344 |   |

 

10

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| ** **                                          | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|-----------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
| **December 31,  2004**                         |       |    |       |    |       |                        |       |                              |       |             |       |      |       |
| Current assets:                                     |       |    |       |    |       |                        |       |                              |       |             |       |      |       |
| Cash and cash equivalents                           |       | $       | 32,859     |    | $          | —                      |       | $                                 | (2,780     | )                | $          | 5,652     |       | $ | — |   | $ | 35,731 |   |
| Accounts receivable, net                            |       | 10,940  |       | —  |       | 27,140                      |       | 23,087                            |       | —           |       | 61,167    |       |
| Inventories                                         |       | 9,572   |       | —  |       | 33,175                      |       | 39,785                            |       | —           |       | 82,532    |       |
| Deferred income taxes                               |       | —  |       | —  |       | —                      |       | 60                                |       | —           |       | 60        |       |
| Prepaid expenses and other current assets           |       | 947     |       | —  |       | 1,281                       |       | 955                               |       | —           |       | 3,183     |       |
| Total current assets                                |       | 54,318  |       | —  |       | 58,816                      |       | 69,539                            |       | —           |       | 182,673   |       |
| Property, plant and equipment, net                  |       | 4,722   |       | —  |       | 25,964                      |       | 21,123                            |       | —           |       | 51,809    |       |
| Deferred financing costs, net                       |       | 9,394   |       | —  |       | —                      |       | —                            |       | —           |       | 9,394     |       |
| Goodwill, net                                       |       | 426     |       | —  |       | 104,833                     |       | 27,403                            |       | —           |       | 132,662   |       |
| Other intangible assets, net                        |       | 3,730   |       | —  |       | —                      |       | 2,526                             |       | —           |       | 6,256     |       |
| Investment in subsidiaries                          |       | 167,009 |       | —  |       | 42,555                      |       | —                            |       | (209,564         | )          | —    |       |
| Other noncurrent assets                             |       | —  |       | —  |       | 3,689                       |       | 2,000                             |       | —           |       | 5,689     |       |
| Total assets                                        |       | $       | 239,599    |    | $          | —                      |       | $                                 | 235,857    |             | $          | 122,591   |       | $ | (209,564 | ) | $ | 388,483 |   |
| Current liabilities:                                |       |    |       |    |       |                        |       |                              |       |             |       |      |       |
| Accounts payable                                    |       | $       | 3,614      |    | $          | —                      |       | $                                 | 7,296      |             | $          | 6,961     |       | $ | — |   | $ | 17,871 |   |
| Accrued expenses                                    |       | 10,937  |       | —  |       | 9,349                       |       | 7,841                             |       | —           |       | 28,127    |       |
| Current maturities of long-term obligations         |       | 13,358  |       | —  |       | 567                         |       | 1,327                             |       | —           |       | 15,252    |       |
| Total current liabilities                           |       | 27,909  |       | —  |       | 17,212                      |       | 16,129                            |       | —           |       | 61,250    |       |
| Pension, post-retirement and deferred  compensation |       | 147     |       | —  |       | 22,042                      |       | 734                               |       | —           |       | 22,923    |       |
| Long-term obligations                               |       | 237,957 |       | —  |       | 68                          |       | 289                               |       | —           |       | 238,314   |       |
| Intercompany balances                               |       | (85,816 | )          | —  |       | 33,954                      |       | 51,862                            |       | —           |       | —    |       |
| Other noncurrent liabilities                        |       | —  |       | —  |       | 1,589                       |       | 64                                |       | —           |       | 1,653     |       |
| Deferred income taxes                               |       | —  |       | —  |       | —                      |       | 4,799                             |       | —           |       | 4,799     |       |
| Minority interest                                   |       | —  |       | —  |       | —                      |       | 142                               |       | —           |       | 142       |       |
|                                                |       | 152,288 |       | —  |       | 57,653                      |       | 57,890                            |       | —           |       | 267,831   |       |
| Member’s equity:                               |       |    |       |    |       |                        |       |                              |       |             |       |      |       |
| Contributed capital                                 |       | 116,060 |       | —  |       | 148,417                     |       | 49,280                            |       | (197,697         | )          | 116,060   |       |
| Accumulated deficit                                 |       | (42,447 | )          | —  |       | 12,575                      |       | (708                              | )          | (11,867          | )          | (42,447   | )          |
| Due from NSP Holdings L.L.C.                        |       | (17,740 | )          | —  |       | —                      |       | —                            |       | —           |       | (17,740   | )          |
| Accumulated other comprehensive income              |       | 3,529   |       | —  |       | —                      |       | —                            |       | —           |       | 3,529     |       |
| Total member’s equity                          |       | 59,402  |       | —  |       | 160,992                     |       | 48,572                            |       | (209,564         | )          | 59,402    |       |
| Total liabilities and member’s equity          |       | $       | 239,599    |    | $          | —                      |       | $                                 | 235,857    |             | $          | 122,591   |       | $ | (209,564 | ) | $ | 388,483 |   |

 

11

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| ** **                                               | ** ** | **NSP** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Six Months Ended  July 2, 2005**                       |       |    |       |                        |       |                            |       |             |       |      |       |
| Third party                                              |       | $       | 32,309     |                        | $          | 121,207                         |       | $                | 85,752     |      | $          | — |   | $ | 239,268 |   |
| Intercompany                                             |       | 4,064   |       | 4,775                       |       | 5,024                           |       | (13,863          | )          | —    |       |
| Net sales                                                |       | 36,373  |       | 125,982                     |       | 90,776                          |       | (13,863          | )          | 239,268   |       |
| Cost of goods sold                                       |       | 24,474  |       | 79,939                      |       | 58,509                          |       | (13,863          | )          | 149,059   |       |
| Gross profit                                             |       | 11,899  |       | 46,043                      |       | 32,267                          |       | —           |       | 90,209    |       |
| Operating expenses:                                      |       |    |       |                        |       |                            |       |             |       |      |       |
| Selling                                                  |       | 1,726   |       | 11,565                      |       | 10,263                          |       | —           |       | 23,554    |       |
| Distribution                                             |       | 2,125   |       | 4,935                       |       | 5,560                           |       | —           |       | 12,620    |       |
| General and administrative                               |       | 3,956   |       | 12,187                      |       | 6,050                           |       | —           |       | 22,193    |       |
| Amortization of intangibles                              |       | 160     |       | —                      |       | 123                             |       | —           |       | 283       |       |
| Total operating expenses                                 |       | 7,967   |       | 28,687                      |       | 21,996                          |       | —           |       | 58,650    |       |
| Income from operations                                   |       | 3,932   |       | 17,356                      |       | 10,271                          |       | —           |       | 31,559    |       |
| Other expense (income):                                  |       |    |       |                        |       |                            |       |             |       |      |       |
| Interest expense                                         |       | 11,191  |       | 14                          |       | 76                              |       | —           |       | 11,281    |       |
| Interest income                                          |       | (376    | )          | —                      |       | (39                             | )          | —           |       | (415      | )          |
| Intercompany charges                                     |       | (23,079 | )          | (2,737                      | )     | 3,436                           |       | 22,380           |       | —    |       |
| Other, net                                               |       | (10     | )          | (4                          | )          | 836                             |       | —           |       | 822       |       |
| Income (loss) before income taxes and  minority interest |       | 16,206  |       | 20,083                      |       | 5,962                           |       | (22,380          | )          | 19,871    |       |
| Income tax expense                                       |       | 13      |       | 537                         |       | 3,117                           |       | —           |       | 3,667     |       |
| Minority interest                                        |       | —  |       | —                      |       | 11                              |       | —           |       | 11        |       |
| Net income (loss)                                        |       | $       | 16,193     |                        | $          | 19,546                          |       | $                | 2,834      |      | $          | (22,380 | ) | $ | 16,193 |   |

 

12

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| ** **                                               | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Six months ended  July 3, 2004**                       |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Third party                                              |       | $       | 33,150     |    | $          | —                      |       | $                               | 110,823    |             | $          | 72,105    |       | $ | — |   | $ | 216,078 |   |
| Intercompany                                             |       | 4,215   |       | —  |       | 3,310                       |       | 4,832                           |       | (12,357          | )          | —    |       |
| Net sales                                                |       | 37,365  |       | —  |       | 114,133                     |       | 76,937                          |       | (12,357          | )          | 216,078   |       |
| Cost of goods sold                                       |       | 24,941  |       | —  |       | 73,951                      |       | 50,797                          |       | (12,357          | )          | 137,332   |       |
| Gross profit                                             |       | 12,424  |       | —  |       | 40,182                      |       | 26,140                          |       | —           |       | 78,746    |       |
| Operating expenses:                                      |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Selling                                                  |       | 1,534   |       | —  |       | 11,039                      |       | 8,253                           |       | —           |       | 20,826    |       |
| Distribution                                             |       | 1,787   |       | —  |       | 4,475                       |       | 4,633                           |       | —           |       | 10,895    |       |
| General and administrative                               |       | 3,514   |       | —  |       | 10,253                      |       | 5,707                           |       | —           |       | 19,474    |       |
| Amortization of intangibles                              |       | 132     |       | —  |       | —                      |       | 118                             |       | —           |       | 250       |       |
| Strategic alternatives                                   |       | 613     |       | —  |       | —                      |       | —                          |       | —           |       | 613       |       |
| Total operating expenses                                 |       | 7,580   |       | —  |       | 25,767                      |       | 18,711                          |       | —           |       | 52,058    |       |
| Income from operations                                   |       | 4,844   |       | —  |       | 14,415                      |       | 7,429                           |       | —           |       | 26,688    |       |
| Other expense (income):                                  |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Interest expense                                         |       | 11,156  |       | —  |       | 19                          |       | 121                             |       | —           |       | 11,296    |       |
| Interest income                                          |       | (50     | )          | —  |       | —                      |       | (14                             | )          | —           |       | (64       | )          |
| Intercompany charges                                     |       | (18,819 | )          | —  |       | (405                        | )          | 1,639                           |       | 17,585           |       | —    |       |
| Other, net                                               |       | (1      | )          | —  |       | 381                         |       | 213                             |       | —           |       | 593       |       |
| Income (loss) before income taxes and  minority interest |       | 12,558  |       | —  |       | 14,420                      |       | 5,470                           |       | (17,585          | )          | 14,863    |       |
| Income tax (benefit) expense                             |       | (13     | )          | —  |       | 79                          |       | 2,210                           |       | —           |       | 2,276     |       |
| Minority interest                                        |       | —  |       | —  |       | —                      |       | 16                              |       | —           |       | 16        |       |
| Net income (loss)                                        |       | $       | 12,571     |    | $          | —                      |       | $                               | 14,341     |             | $          | 3,244     |       | $ | (17,585 | ) | $ | 12,571 |   |

 

13

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| ** **                                           | ** ** | **NSP** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Six months ended  July 2, 2005**                   |       |    |       |                        |       |                            |       |             |       |      |       |
| **Operating  activities**                            |       |    |       |                        |       |                            |       |             |       |      |       |
| Net cash (used in) provided by operating  activities |       | $       | (1,593     | )                      | $          | 13,501                          |       | $                | 3,304      |      | $          | — |   | $ | 15,212 |   |
| **Investing  activities**                            |       |    |       |                        |       |                            |       |             |       |      |       |
| Purchase of businesses, net of cash  acquired        |       | (256    | )          | (275                        | )     | (74                             | )          | —           |       | (605      | )          |
| Purchase of property, plant, and equipment           |       | (788    | )          | (1,899                      | )          | (791                            | )          | —           |       | (3,478    | )          |
| Net cash used in investing activities                |       | (1,044  | )          | (2,174                      | )          | (865                            | )          | —           |       | (4,083    | )          |
| **Financing  activities**                            |       |    |       |                        |       |                            |       |             |       |      |       |
| Payments of debt                                     |       | (12,850 | )          | (501                        | )          | (286                            | )     | —           |       | (13,637   | )          |
| Intercompany                                         |       | 12,310  |       | (8,734                      | )          | (3,576                          | )     | —           |       | —    |       |
| Due from NSP Holdings L.L.C.                         |       | (422    | )          | —                      |       | —                          |       | —           |       | (422      | )          |
| Dividends to NSP Holdings L.L.C.                     |       | (9      | )     | —                      |       | —                          |       | —           |       | (9        | )     |
| Net cash used in financing activities                |       | (971    | )     | (9,235                      | )          | (3,862                          | )     | —           |       | (14,068   | )     |
| Effect of exchange rate changes on cash              |       | —  |       | (2,449                      | )     | (999                            | )     | —           |       | (3,448    | )     |
| Net decrease in cash and cash equivalents            |       | (3,608  | )     | (357                        | )     | (2,422                          | )     | —           |       | (6,387    | )     |
| Cash and cash equivalents at beginning of  period    |       | 32,859  |       | (2,780                      | )          | 5,652                           |       | —           |       | 35,731    |       |
| Cash and cash equivalents at end of period           |       | $       | 29,251     |                        | $          | (3,137                          | )          | $                | 3,230      |      | $          | — |   | $ | 29,344 |   |

 

14

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

 
| ** **                                            | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|-------------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Six months ended  July 3, 2004**                    |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| **Operating  activities**                             |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Net cash (used in) provided by operating  activities  |       | $       | (7,507     | )       | $          | —                      |       | $                               | 11,619     |             | $          | 3,023     |       | $ | — |   | $ | 7,135 |   |
| **Investing  activities**                             |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Purchase of businesses, net of cash  acquired         |       | (205    | )          | —  |       | —                      |       | (30                             | )          | —           |       | (235      | )          |
| Purchase of property, plant, and equipment            |       | (292    | )          | —  |       | (1,645                      | )          | (677                            | )          | —           |       | (2,614    | )          |
| 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                 |       | (956    | )          | —  |       | (1,165                      | )          | (707                            | )          | —           |       | (2,828    | )          |
| **Financing  activities**                             |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Payments of debt                                      |       | (650    | )          | —  |       | (349                        | )          | (308                            | )          | —           |       | (1,307    | )          |
| Intercompany                                          |       | 10,844  |       | —  |       | (9,771                      | )          | (1,073                          | )          | —           |       | —    |       |
| Due from NSP Holdings L.L.C.                          |       | (1,192  | )          | —  |       | —                      |       | —                          |       | —           |       | (1,192    | )          |
| Net cash provided by (used in) financing  activities  |       | 9,002   |       | —  |       | (10,120                     | )          | (1,381                          | )          | —           |       | (2,499    | )          |
| Effect of exchange rate changes on cash               |       | —  |       | —  |       | (872                        | )          | 436                             |       | —           |       | (436      | )          |
| Net increase (decrease) in cash and cash  equivalents |       | 539     |       | —  |       | (538                        | )          | 1,371                           |       | —           |       | 1,372     |       |
| Cash and cash equivalents at beginning of  period     |       | 15,863  |       | —  |       | (1,995                      | )          | 2,473                           |       | —           |       | 16,341    |       |
| Cash and cash equivalents at end of period            |       | $       | 16,402     |    | —     |                        | $          | (2,533                          | )          | $                | 3,844      |      | $          | — |   | $ | 17,713 |   |
|                                                       |            |         |            |         |            |                             |            |                                 |            |                  |            |           |            |  |  |  |  |  |  |

 

**8. Comprehensive Income**

 

Total comprehensive income (which includes the impact of foreigncurrency translation) for the three months ended July 3, 2004 and July 2, 2005amounted to $5,268 and $3,357, respectively. Total comprehensive income for thesix months ended July 3, 2004 and July 2, 2005 amounted to $11,196 and $9,129, respectively.

 

**9. Strategic Alternatives**

 

The Company had previously announced that it was in the process ofexploring strategic alternatives, including a possible sale of theCompany.  A decision was made by the Companyin the second quarter of 2004 to terminate this process and therefore it hasexpensed $613 in associated costs.  Thesecosts are reflected in operating expenses as strategic alternatives.

 

15

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**10. Subsequent Events**

 

OnJuly 19, 2005, the Company announced the closing of the transaction underwhich it was acquired by Safety Products' Holdings, Inc. (“Safety Products”),a new holding company formed by Odyssey Investment Partners, LLC for the purposeof completing the acquisition (the “Acquisition”).  Pursuant to the termsof the Acquisition, Safety Products purchased all of the outstanding membershipunits of the Company and and all of the outstanding Common Stock of NSPHoldings Capital Corp., a wholly-owned subsidiary of NSP Holdings L.L.C. (“Holdings”),and pursuant to which Safety Products assumed all of the outstandingindebtedness of the Company and Holdings, in exchange for a base purchase priceto Holdings of $472,000, plus the cash in the Company as of April 2, 2005 in theamount of approximately $16,900, less (1) the indebtedness of the Company andits subsidiaries as of April 2, 2005 and (2) certain transaction fees andexpenses. The transaction willbe accounted for using the purchase method of accounting and accordingly, theCompany’s financial statements will reflect the allocation of the totalpurchase price to the tangible and intangible assets acquired and liabilitiesassumed, based on their respective fair values.

 

On July 19,2005, the Company entered into a new Senior Credit Facility (the “New CreditFacility”) which provides for aggregate borrowings of $138,000, consisting of(a) a term loan in the amount of $88,000, payable in twenty-eight consecutivequarterly installments commencing on September 30, 2005 and (b) a revolvingcredit facility in an aggregate principal amount of $50,000.  The revolving credit facility is comprised ofa U.S. revolving facility and a Canadian subfacility.  The amount of the total U.S. revolving facilityis an amount equal to $50,000 less the amount at such time outstanding underthe Canadian subfacility.  The amount ofthe total Canadian subfacility is an amount denominated in Canadian dollarshaving a U.S. dollar equivalent of $25,000 less the amount at such timeoutstanding under the U.S. revolving facility. At any time upon the request of the Company or the U.S. SubsidiaryBorrowers (as defined), one or more new term loan facilities may be added inany aggregate amount of up to $100,000 (and not less than $10,000 for any suchadditional term loan), subject to certain conditions, the proceeds of whichshall be used to finance permitted acquisitions, pay fees and related expensesthereto and to refinance indebtedness of the entity or associated with theassets to be so acquired.  The New CreditFacility is subject to certain mandatory prepayments upon the occurrence ofcertain events, subject to certain exceptions set forth in the creditagreement.  The proceeds of the New CreditFacility were used primarily to refinance the Company's existing senior creditfacility.

 

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 offerings into three primary operatingsegments:

 

General Industrial. We offer a diverse portfolio of leading productsfor a wide variety of industries, including the manufacturing, agriculture,automotive, construction, food processing and pharmaceutical industries and themilitary, under the *North*, *Ranger* and *Servus* brand names. Our product offering is one of thebroadest in the personal protection equipment industry and includes respiratoryprotection, protective footwear, hand protection, eye, head and faceprotection, first aid, hearing protection and fall protection. We sell ourgeneral industrial products primarily through industrial distributors.

 

Fire Service. We manufacture and market one of the broadest lines ofpersonal protection equipment for the fire service segment, offeringfirefighters head-to-toe protection. Our products include bunker gear, fireboots, helmets, gloves and other accessories. We market our products under our *Total Fire Group* umbrella, using the brandnames of *Morning Pride*, *Ranger*, *Servus*and *Pro-Warrington*. We are thevendor of choice for many of the largest fire departments in North America. Wesell our fire service products primarily through specialized fire servicedistributors.

 

Utility/High Voltage. We manufacture and market one of the broadestlines of personal protection equipment for the utility/high voltage servicesegment under the *Salisbury* and *Servus* brands. Our products, includinglinemen equipment, gloves, sleeves and footwear, are designed to protectworkers from up to 40,000 volts of electricity. All of our products either meetor exceed the applicable standards of ANSI and ASTM. We distribute ourutility/high voltage products through specialized distributors and direct toutilities and electrical contractors.

 

17

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**Resultsof Operations**

 

The following tables setforth our results of operations in dollars and as a percentage of net sales forthe three and six months ended July 3, 2004 and July 2, 2005. The data for thethree and six months ended July 3, 2004 and July 2, 2005 have been derived fromour historical unaudited financial statements.

 
| ** **                                        | ** ** | **Three Months Ended**     | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------------|------------|----------------------|------------|
| ** **                                        | ** ** | **July 3,  2004**          | ** ** | **July 2,  2005**    | ** ** | **July 3,  2004** | ** ** | **July 2,  2005** | ** ** |
| ** **                                        | ** ** | **(dollars in thousands)** | ** ** |
| Net sales:                                        |       |                       |       |                 |       |   |   |   |   |
| General industrial                                |       | $                          | 75,428     |                 | $          | 81,859 |   | $ | 151,892 |   | $ | 165,079 |   |
| Fire service                                      |       | 19,345                     |       | 22,086               |       | 39,638 |   | 45,086 |   |
| Utility/high voltage                              |       | 12,232                     |       | 14,900               |       | 24,548 |   | 29,103 |   |
| Total net sales                                   |       | 107,005                    |       | 118,845              |       | 216,078 |   | 239,268 |   |
| Cost of goods sold                                |       | 68,625                     |       | 73,457               |       | 137,332 |   | 149,059 |   |
| Gross profit                                      |       | 38,380                     |       | 45,388               |       | 78,746 |   | 90,209 |   |
| Operating expenses                                |       | 26,192                     |       | 29,434               |       | 52,058 |   | 58,650 |   |
| Income from operations:                           |       |                       |       |                 |       |   |   |   |   |
| General industrial                                |       | 8,127                      |       | 9,291                |       | 17,073 |   | 18,103 |   |
| Fire service                                      |       | 3,304                      |       | 3,763                |       | 7,245 |   | 8,144 |   |
| Utility/high voltage                              |       | 2,427                      |       | 4,142                |       | 5,144 |   | 7,827 |   |
| Corporate                                         |       | (1,670                     | )          | (1,242               | )          | (2,774 | ) | (2,515 | ) |
| Total income from operations                      |       | 12,188                     |       | 15,954               |       | 26,688 |   | 31,559 |   |
| Other expense (income):                           |       |                       |       |                 |       |   |   |   |   |
| Interest expense                                  |       | 5,660                      |       | 5,682                |       | 11,296 |   | 11,281 |   |
| Interest income                                   |       | (29                        | )          | (165                 | )          | (64 | ) | (415 | ) |
| Other, net                                        |       | 59                         |       | 436                  |       | 593 |   | 822 |   |
| Income before income taxes and minority  interest |       | 6,498                      |       | 10,001               |       | 14,863 |   | 19,871 |   |
| Income tax expense                                |       | 1,243                      |       | 2,093                |       | 2,276 |   | 3,667 |   |
| Minority interest                                 |       | 11                         |       | 7                    |       | 16 |   | 11 |   |
| Net income                                        |       | $                          | 5,244      |                 | $          | 7,901 |   | $ | 12,571 |   | $ | 16,193 |   |

 

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|                                              |   | **Three  Months Ended**             |   | **Six  Months Ended** |   |
|---------------------------------------------------|--------|-------------------------------------|--------|-----------------------|--------|
|                                              |   | **July 3,  2004**                   |   | **July 2,  2005**     |   | **July 3,  2004** |   | **July 2,  2005** |   |
|                                              |   | **(as a  percentage of net sales)** |   |
| Net sales:                                        |   |                                |   |                  |   |   |   |   |   |
| General industrial                                |   | 70.5                                | %      | 68.9                  | %      | 70.3 | % | 69.0 | % |
| Fire service                                      |   | 18.1                                | %      | 18.6                  | %      | 18.3 | % | 18.8 | % |
| Utility/high voltage                              |   | 11.4                                | %      | 12.5                  | %      | 11.4 | % | 12.2 | % |
| Total net sales                                   |   | 100.0                               | %      | 100.0                 | %      | 100.0 | % | 100.0 | % |
| Cost of goods sold                                |   | 64.1                                | %      | 61.8                  | %      | 63.6 | % | 62.3 | % |
| Gross profit                                      |   | 35.9                                | %      | 38.2                  | %      | 36.4 | % | 37.7 | % |
| Operating expenses                                |   | 24.5                                | %      | 24.7                  | %      | 24.0 | % | 24.5 | % |
| Income from operations:                           |   |                                |   |                  |   |   |   |   |   |
| General industrial                                |   | 7.6                                 | %      | 7.8                   | %      | 7.9 | % | 7.6 | % |
| Fire service                                      |   | 3.1                                 | %      | 3.2                   | %      | 3.4 | % | 3.4 | % |
| Utility/high voltage                              |   | 2.3                                 | %      | 3.5                   | %      | 2.4 | % | 3.3 | % |
| Corporate                                         |   | (1.6                                | )%     | (1.0                  | )%     | (1.3 | )% | (1.1 | )% |
| Total income from operations                      |   | 11.4                                | %      | 13.5                  | %      | 12.4 | % | 13.2 | % |
| Other expense (income):                           |   |                                |   |                  |   |   |   |   |   |
| Interest expense                                  |   | 5.3                                 | %      | 4.8                   | %      | 5.2 | % | 4.7 | % |
| Interest income                                   |   | (0.0                                | )%     | (0.1                  | )%     | (0.0 | )% | (0.2 | )% |
| Other, net                                        |   | 0.1                                 | %      | 0.4                   | %      | 0.3 | % | 0.4 | % |
| Income before income taxes and minority  interest |   | 6.0                                 | %      | 8.4                   | %      | 6.9 | % | 8.3 | % |
| Income tax expense                                |   | 1.1                                 | %      | 1.8                   | %      | 1.1 | % | 1.5 | % |
| Minority interest                                 |   | 0.0                                 | %      | 0.0                   | %      | 0.0 | % | 0.0 | % |
| Net income                                        |   | 4.9                                 | %      | 6.6                   | %      | 5.8 | % | 6.8 | % |

 

***ThreeMonths Ended July 2, 2005 as Compared to Three Months Ended July 3, 2004***

 

*Netsales.*Net salesincreased by $11.8 million, or 11.1%, from $107.0 million for thethree months ended July 3, 2004 to $118.8 million for the three monthsended July 2, 2005. In our general industrial segment, net sales increased by $6.4million, or 8.5%, from $75.5 million for the three months ended July 3,2004 to $81.9 million for the three months ended July 2, 2005. Thisincrease reflects a combination of the following: overall organic growth in ourCanadian, European and South African operations of $5.3 million; favorableexchange rates, which had an impact of $2.5 million; and lower overall netsales in the United States of $1.5 million, as strong overall market demand wasoffset by a decrease in government contract shipments of $3.6 million. In ourfire service segment, net sales increased by $2.7 million, or 14.2%, from$19.4 million for the three months ended July 3, 2004 to $22.1 millionfor the three months ended July 2, 2005 reflecting strong market demand. In ourutility/high voltage segment, net sales increased by $2.7 million, or21.8%, from $12.2 million for the three months ended July 3, 2004 to $14.9 millionfor the three months ended July 2, 2005 primarily driven by strong marketdemand and new product penetration.

 

*Gross profit.*Grossprofit increased by $7.0 million, or 18.3%, from $38.4 million forthe three months ended July 3, 2004 to $45.4 million for the three monthsended July 2, 2005, primarily due to the $11.8 million, or 11.1%, increasein net sales. Our gross profit margin of 38.2% for the three months ended July2, 2005 was favorable to the 35.9% gross profit margin for the three monthsended July 3, 2004. In our general industrial segment, gross profit increased by$4.5 million, or 16.2%, from $27.5 million for the three months ended July3, 2004 to $32.0 million for the three months ended July 2, 2005. Thisincrease was primarily due to the overall net sales increase of  $6.4 million, or 8.5%, favorable exchangerates which has an impact of $1.0 million, and improved margin realization. Inour fire service segment, gross profit increased by $0.5 million, or 9.2%,from $6.3 million for the three months ended July 3, 2004 to $6.8 millionfor the three months ended July 2, 2005, primarily due to the$2.7 million, or 14.2% increase in net sales. In our utility/high voltagesegment, gross profit increased $2.0 million, or 43.2%, from $4.5 million for thethree months ended July 3, 2004 to $6.5 million for the three months ended July2, 2005, primarily due to the $2.7 million, or 21.8%, increase in net sales andimproved manufacturing performance.

 

19

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*Operatingexpenses.*Operatingexpenses increased by $3.2 million, or 12.4%, from $26.2 million forthe three months ended July 3, 2004 to $29.4 million for the three monthsended July 2, 2005. In our general industrial segment, operating expensesincreased by $3.3 million, or 17.0%, from $19.5 million for the threemonths ended July 3, 2004 to $22.8 million for the three months ended July2, 2005, primarily due to higher exchange rates, which had an impact of$0.6 million; higher payroll and other administrative costs; and increasedvariable distribution and selling expenses associated with the $6.4 million, or8.5% increase in net sales. In our fire service segment, operating expensesincreased $0.1 million, or 3.9%, from $3.0 million for the three monthsended July 3, 2004 to $3.1 million for the three months ended July 2,2005, primarily due to higher general and administrative expenses. In ourutility/high voltage segment, operating expenses increased by $0.2 million,or 11.7%, from $2.2 million for the three months ended July 3, 2004 to $2.4 millionfor the three months ended July 2, 2005, primarily due to higher sellingexpenses. Excluding the $0.6 million of expenses associated with exploringstrategic alternatives during the three months ended July 3, 2004, corporateexpense increased $0.2 million, primarily due to higher payroll andadministrative expenses including costs associated with public reporting andSarbanes-Oxley Act related compliance requirements.

 

*Incomefrom operations.*Incomefrom operations increased by $3.8 million, or 30.9%, from $12.2 millionfor the three months ended July 3, 2004 to $16.0 million for the threemonths ended July 2, 2005. As a percentage of net sales, income from operationsincreased from 11.4% for the three months ended July 3, 2004 to 13.5% for thethree months ended July 2, 2005. In our general industrial segment, income fromoperations increased by $1.2 million, or 14.3%, from $8.1 million forthe three months ended July 3, 2004 to $9.3 million for the three monthsended July 2, 2005, primarily due to higher net sales of $6.4 million, or8.5%. In our fire service segment, income from operations increased by$0.5 million, or 13.9%, from $3.3 million for the three months endedJuly 3, 2004 to $3.8 million for the three months ended July 2, 2005,primarily due to the $2.7 million, or 14.2% increase in net sales. In ourutility/high voltage segment, income from operations increased by$1.7 million, or 70.7%, from $2.4 million for the three months endedJuly 3, 2004 to $4.1 million for the three months ended July 2, 2005,primarily due to higher net sales of $2.7 million, or 21.8%, and improvedmanufacturing performance. Excluding the $0.6 million of expenses associatedwith exploring strategic alternatives during the three months ended July 3,2004, corporate expense increased $0.2 million, primarily due to higherpayroll and administrative expenses including costs associated with publicreporting and Sarbanes-Oxley Act related compliance requirements.

 

20

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Included in income fromoperations for the three months ended July 2, 2005 and July 3, 2004 weredepreciation and amortization expenses of $2.7 million and $3.0 million,respectively. Of these amounts, $2.3 million, $0.1 million,$0.3 million and $0.0 million were attributable to the generalindustrial, fire service, utility/high voltage segments and corporate,respectively, for the three months ended July 2, 2005 and $2.4 million,$0.1 million, $0.3 million and $0.2 million were attributable tothese segments and corporate for the three months ended July 3, 2004.

 

*Interestexpense.*Interestexpense was consistent at $5.7 million for the three months ended July 3, 2004and the three months ended July 2, 2005. Interest expense incurred by NSP andthe subsidiary guarantors totaled $5.6 million for both the three monthsended July 3, 2004 and the three months ended July 2, 2005.

 

*Other,net.*Other, netincreased by $0.3 from $0.1 million for the three months ended July 3, 2004 to$0.4 million for the three months ended July 2, 2005 as unrealized foreignexchange losses recorded during the three months ended July 2, 2005 exceededthe $0.4 million loss recorded on the sale of property, plant and equipment forthe three months ended July 3, 2004

 

*Incometax expense.*Incometax expense increased by $0.9 million, from $1.2 million for thethree months ended July 3, 2004 to $2.1 million for the three months endedJuly 2, 2005, as a result of higher income tax expense levels at foreignoperations.

 

*Netincome.*Netincome increased by $2.7 million, or 50.7%, from $5.2 million for thethree months ended July 3, 2004 to $7.9 million for the three months ended July2, 2005. This was the result of the reasons discussed above.

 

***SixMonths Ended July 2, 2005 as Compared to Six Months Ended July 3, 2004***

 

*Netsales.*Net salesincreased by $23.2 million, or 10.7%, from $216.1 million for the sixmonths ended July 3, 2004 to $239.3 million for the six months ended July2, 2005. In our general industrial segment, net sales increased by$13.2 million, or 8.7%, from $151.9 million for the six months endedJuly 3, 2004 to $165.1 million for the six months ended July 2, 2005. Thisincrease reflects a combination of the following: overall organic growth in ourCanadian, European and South African operations of $8.4 million; favorableexchange rates, which had an impact of $5.2 million; and lower overall netsales in the United States of $0.5 million as strong overall market demand was offsetby a decrease in government contract shipments of $3.9 million. In our fireservice segment, net sales increased by $5.4 million, or 13.7%, from $39.7 millionfor the six months ended July 3, 2004 to $45.1 million for the six monthsended July 2, 2005 reflecting strong market demand. In our utility/high voltagesegment, net sales increased by $4.6 million, or 18.6%, from $24.5 millionfor the six months ended July 3, 2004 to $29.1 million for the six monthsended July 2, 2005 primarily driven by strong overall market demand and newproduct penetration.

 

*Grossprofit.*Grossprofit increased by $11.5 million, or 14.6%, from $78.7 million forthe six months ended July 3, 2004 to $90.2 million for the six monthsended July 2, 2005, primarily due to the $23.2 million, or 10.7%, increasein net sales. Our gross profit margin of 37.7% for the six months ended July 2,2005 was favorable to the 36.4% gross profit margin for the six months endedJuly 3, 2004. In our general industrial segment, gross profit increased by$7.0 million, or 12.4%, from $56.5 million for the six months endedJuly 3, 2004 to $63.5 million for the six months ended July 2, 2005. Thisincrease was primarily due to the overall net sales increase of  $13.2 million, or 8.7%, favorable exchangerates which has an impact of $2.0 million, and improved margin realization.

 

21

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In our fire service segment, gross profit increased by$1.3 million, or 10.4%, from $12.9 million for the six months ended July3, 2004 to $14.2 million for the six months ended July 2, 2005, primarilydue to the $5.4 million, or 13.7% increase in net sales. In ourutility/high voltage segment, gross profit increased by $3.2 million, or33.5%, from $9.3 million for the six months ended July 3, 2004 to $12.5 millionfor the six months ended July 2, 2005, primarily due to the $4.6 million, or18.6% increase in net sales and improved manufacturing performance.

 

*Operatingexpenses.*Operatingexpenses increased by $6.6 million, or 12.7%, from $52.1 million forthe six months ended July 3, 2004 to $58.7 million for the six monthsended July 2, 2005. In our general industrial segment, operating expensesincreased by $5.9 million, or 15.1%, from $39.5 million for the sixmonths ended July 3, 2004 to $45.4 million for the six months ended July2, 2005, primarily due to higher exchange rates, which had an impact of $1.3 million;higher payroll and other administrative costs; and increased variabledistribution and selling expenses associated with the $13.2 million, or 8.7%increase in net sales. In our fire service segment, operating expensesincreased $0.5 million, or 7.8%, from $5.6 million for the six monthsended July 3, 2004 to $6.1 million for the six months ended July 2, 2005,primarily due to additional general and administrative expenses. In ourutility/high voltage segment, operating expenses increased by$0.4 million, or 10.7%, from $4.2 million for the six months ended July 3,2004 to $4.6 million for the six months ended July 2, 2005, primarily dueto higher selling expenses. Excluding the $0.6 million of expenses associatedwith exploring strategic alternatives during the six months ended July 3, 2004,corporate expense increased $0.4 million, primarily due to higher payrolland administrative expenses including costs associated with public reportingand Sarbanes-Oxley Act related compliance requirements.

 

*Incomefrom operations.*Incomefrom operations increased by $4.9 million, or 18.3%, from $26.7 millionfor the six months ended July 3, 2004 to $31.6 million for the six monthsended July 2, 2005. As a percentage of net sales, income from operationsincreased from 12.4% for the six months ended July 3, 2004 to 13.2% for the sixmonths ended July 2, 2005. In our general industrial segment, income fromoperations increased by $1.0 million, or 6.0%, from $17.1 million forthe six months ended July 3, 2004 to $18.1 million for the six monthsended July 2, 2005, primarily due to higher net sales of $13.2 million, or8.7%. In our fire service segment, income from operations increased by $0.9 million,or 12.4%, from $7.2 million for the six months ended July 3, 2004 to $8.1 millionfor the six months ended July 2, 2005, primarily due to the $5.4 million,or 13.7%, increase in net sales. In our utility/high voltage segment, income fromoperations increased by $2.7 million, or 52.2%, from $5.1 million forthe six months ended July 3, 2004 to $7.8 million for the six months endedJuly 2, 2005, primarily due to higher net sales of $4.6 million, or 18.6%, andimproved manufacturing performance. Excluding the $0.6 million of expensesassociated with exploring strategic alternatives during the six months endedJuly 3, 2004, corporate expense increased $0.4 million, primarily due tohigher payroll and administrative expenses including costs associated withpublic reporting and Sarbanes-Oxley Act related compliance requirements.

 

Included in income fromoperations for the six months ended July 2, 2005 and July 3, 2004 weredepreciation and amortization expenses of $5.6 million and $5.9 million,respectively. Of these amounts, $4.6 million, $0.2 million,$0.8 million and $0.0 million were attributable to the generalindustrial, fire service, utility/high voltage segments and corporate,respectively, for the six months ended July 2, 2005 and $4.8 million,$0.2 million, $0.6 million and $0.3 million were attributable tothese segments and corporate for the six months ended July 3, 2004.

 

*Interestexpense.*Interestexpense was consistent at $11.3 million for the six months ended July 3, 2004and the six months ended July 2, 2005. Interest expense incurred by NSP and thesubsidiary guarantors totaled $11.2 million for both the six months endedJuly 3, 2004 and the six months ended July 2, 2005.

 

22

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*Other,net.*Other, netincreased by $0.2 from $0.6 million for the six months ended July 3, 2004 to$0.8 million for the six months ended July 2, 2005 as unrealized foreignexchange losses recorded during the six months ended July 2, 2005 exceeded the$0.4 million loss recorded on the sale of property, plant and equipment for thesix months ended July 3, 2004.

 

*Incometax expense.*Incometax expense increased by $1.4 million, from $2.3 million for the sixmonths ended July 3, 2004 to $3.7 million for the six months ended July 2,2005, as a result of higher income tax expense levels at foreign operations.

 

*Netincome.*Netincome increased by $3.6 million, or 28.8%, from $12.6 million forthe six months ended July 3, 2004 to $16.2 million for the six monthsended July 2, 2005. This was the result of the reasons discussed above.

 

**Liquidityand Capital Resources**

 

We have historically usedinternal cash flow from operations, commercial borrowings on our lines ofcredit, seller notes, investments from our equityholders and capital marketstransactions to fund our operations, acquisitions, capital expenditures andworking capital requirements. For the six months ended July 2, 2005 and July 3,2004, cash provided by operating activities was $15.2 million and$7.1 million, respectively. The $8.1 million improvement was primarilyattributable to the $4.9 million increase in income from operations andfavorable working capital activity.

 

Historically, our principal uses of cash have been capitalexpenditures, acquisitions and working capital. Our capital expenditures were$3.5 million for the six months ended July 2, 2005 and $2.6 millionfor the six months ended July 3, 2004. During the six months ended July 3,2004, we funded cash to NSP Holdings L.L.C. of $0.5 million which wasrecorded under investing activities.

 

As of July 2, 2005, we had working capital of $134.9 million andcash of $29.3 million. We maintain inventory levels sufficient to satisfycustomer orders on demand, with generally a three month supply on hand. Bunkergear is an exception and is generally made to order. Our accounts receivableterms are generally 30 days, net.

 

For the six months ended July 2, 2005, net cash used in financingactivities was $14.1 million, including an excess cash flow sweep paymentunder the terms of the senior credit facility of $12.2 million and $0.4 millionof cash funded to NSP Holdings L.L.C. For the six months ended July 3, 2004,net cash used in financing activities was $2.5 million, represents payments onlong-term obligations of $1.3 million and dividend to NSP Holdings L.L.C. of$1.2 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 July 2, 2005, there wasapproximately $84.9 million of outstanding indebtedness under the seniorcredit facility and approximately $35.9 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 corporate purposes,including working capital, refinancings, acquisitions, investments and capitalexpenditures.

 

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As of July 2, 2005,borrowings under the senior credit facility bore interest at a weighted averagerate of 6.1%. Prior to March 20, 2008, we may borrow, repay and re-borrowunder the revolving facilities without payment of penalty or premium. The termloan is payable in quarterly installments totaling $1.3 million per annum,with the remainder due on March 20, 2009. All of the domestic borrowers’obligations under the senior credit facility are secured by a pledge of all ourequity securities and the equity securities of our direct and indirect domesticsubsidiaries, substantially all of our tangible and intangible assets and 65%of the equity securities of, or equity interest in, each of our foreignsubsidiaries. All of the obligations under the senior credit facility areguaranteed by all of our present and future domestic subsidiaries, and all ofthe Canadian borrower’s obligations under the senior credit facility areguaranteed by all of our present and future Canadian subsidiaries.

 

Our senior credit facility and the indenture governing the notescontain, numerous restrictive covenants, including, among other things,covenants that limit our ability to incur indebtedness, use our assets assecurity in other transactions, make fundamental changes to our capitalstructure, dispose of assets, pay dividends, make capital expenditures, enterinto transactions with affiliates and enter into sale and leasebacktransactions. In addition, our senior credit facility requires us to meetspecified financial ratios and tests.

 

OnJuly 19, 2005, by operation of law upon consummation of the merger of SPHAcquisition LLC (“SPH Acquisition”) and the Company (the “Merger”), andpursuant to an assumption agreement entered into among SPH Acquisition, theCompany, North Safety Products Inc. (“North Safety”), and Morning PrideManufacturing L.L.C. (“Morning Pride”, and together with North Safety, the“U.S. Subsidiary Borrowers”), all of the rights and obligations of SPHAcquisition, as borrower, under the credit agreement among SPH Acquisition,Safety Products, as a guarantor, North Safety Products Ltd. (the “CanadianBorrower,” which became a party to the credit agreement upon consummation ofthe Merger), Credit Suisse, as Administrative Agent, Bank of America, NA, asSyndication Agent, GMAC Commercial Financing LLC, La Salle Bank NationalAssociation and US Bank NA, as Documentation Agents, Credit Suisse, TorontoBranch, as Canadian Agent, and certain other lenders (the “New CreditFacility”) were assigned by SPH Acquisition to the Company and the U.S.Subsidiary Borrowers, and assumed by the Company and the U.S. Subsidiary Borrowersfrom SPH Acquisition, and whereby the Company became Parent Borrower (asdefined in the New Credit Facility).

 

TheNew Credit Facility provides for aggregate borrowings of $138.0 million,consisting of (a) a term loan in the amount of $88.0 million, payable intwenty-eight consecutive quarterly installments commencing onSeptember 30, 2005 and (b) a revolving credit facility in anaggregate principal amount of $50.0 million.  The revolving creditfacility is comprised of a U.S. revolving facility and a Canadiansubfacility.  The amount of the total U.S. revolving facility is an amountequal to $50.0 million less the amount at such time outstanding under theCanadian subfacility.  The amount of the total Canadian subfacility is anamount denominated in Canadian dollars having a U.S. dollar equivalent of $25.0million less the amount at such time outstanding under the U.S. revolvingfacility.  At any time upon the request of us or the U.S. SubsidiaryBorrowers (as defined), one or more new term loan facilities may be added inany aggregate amount of up to $100.0 million (and not less than $10.0 millionfor any such additional term loan), subject to certain conditions, the proceedsof which shall be used to finance permitted acquisitions, pay fees and relatedexpenses thereto and to refinance indebtedness of the entity or associated withthe assets to be so acquired.  The New Credit Facility is subject tocertain mandatory prepayments upon the occurrence of certain events, subject tocertain exceptions set forth in the credit agreement.  The proceeds of the New Credit Facility wereused primarily to refinance our existing senior credit facility.

 

Borrowingsunder the U.S. revolving facility and term loan will bear interest at a rateper annum equal to our choice of (a) an alternate base rate (which isequal to the higher of (i) the rate of interest announced by Credit Suisseas its prime rate in effect and (ii) the federal funds rate plus 0.50%) or(b) the Eurodollar rate, plus an applicable margin.  Borrowings underthe Canadian subfacility will bear interest at a rate per annum equal to theCanadian prime rate (which is the higher of (i) the rate of interestannounced by Credit Suisse, Toronto Branch, as its reference rate then ineffect for determining interest rates on Canadian dollar denominated commercialloans in Canada and (ii) the CDOR rate plus 0.50% per annum), plus anapplicable margin, or with respect to banker’s acceptances or theirequivalents, the discount rate (as defined the credit agreement) plus anapplicable margin.

 

Initially,the applicable margin with respect to the revolving credit facility is(a) 1.25% in the case of alternate base rate loans and Canadian dollarprime loans and (b) 2.25% in the case of Eurodollar rate loans andbankers’ acceptance rate loans.  With respect to the term loan, theapplicable margin will be (a) 1.00% in the case of alternate base rateloans and (b) 2.00% in the case of Eurodollar rate loans.  After ourfiscal quarter ending December 31, 2005, the margins applicable to therevolving credit facility and the U.S. swing line loans will adjust on asliding scale based on the total leverage ratio of the Company and itssubsidiaries.  In addition, we will be required to pay to the lendersunder the revolving credit facility an initial commitment fee in respect of theunused commitments thereunder at a per annum rate of 0.50%.  After ourfiscal quarter ending December 31, 2005, the commitment fee rate willadjust on a sliding scale based on the total leverage ratio of the Company andits subsidiaries.

 

Ourdomestic subsidiaries (including any future or indirect subsidiaries that maybe created or acquired by us) and Safety Products guarantee the U.S. SubsidiaryBorrowers’ and our obligations under the New Credit Facility. The guarantees inrespect of the New Credit Facility are secured by a perfected first prioritysecurity interest in all of our equity securities, the equity securities of itsdirect and indirect domestic subsidiaries, substantially all of the guarantors’tangible and intangible assets and 65% of the equity securities of, or equityinterest in, certain of its foreign first-tier subsidiaries, subject to certainexceptions.  All of the Canadian Borrower’s obligations under the New CreditFacility are be secured by all of the assets of our present and future Canadiansubsidiaries, and are guaranteed by all of our present and future Canadiansubsidiaries.

 

TheNew Credit Facility contains certain customary covenants, including among otherthings:

 

•      affirmative covenants requiring us to providecertain financial statements to the Administrative Agent for distribution toits lenders and to pay material obligations when due, maintain its legalexistence, keep its material properties in good working order and condition,provide certain notices to the Administrative Agent for distribution to itslenders, comply in all material respects with environmental laws and maintainat all times ratings for the New Credit Facility;

 

•      restrictive covenants including limitations onother indebtedness, liens, fundamental changes, asset sales, restrictedpayments, capital expenditures, investments, prepayments, transactions withaffiliates, sales and leasebacks, negative pledges, lines of business; and

 

•      financial covenants requiring us to maintaina maximum total leverage ratio of total debt over EBITDA for the period, aminimum fixed charge coverage ratio of EBITDA less capital expenditures overfixed charges for the period and a minimum interest coverage ratio of EBITDAover interest expense for the period.

 

                The New Credit Facility containscertain customary representations and warranties and events of default,including failure to pay interest, principal or fees, any material inaccuracyof any representation and warranty, failure to comply with covenants, materialcross-defaults, bankruptcy and insolvency events, ERISA events, change ofcontrol, failure to maintain first priority perfected security interest,material judgments, invalidity of guarantee and loss of subordination.  Certain of the events of defaults are subjectto exceptions, materiality qualifiers and baskets.

 

Inconnection with the closing of the Acquisition, we entered into a supplementalindenture dated as of July 19, 2005 (the “Supplemental Indenture”) by andamong us, Norcross Capital Corp. (“Capital”), the guarantors listed on thesignature pages thereto and Wilmington Trust Company, as trustee (the“Trustee”) under the indenture dated as of August 13, 2003 (the“Indenture”) providing for the issuance by us and Capital of $152.5 millionaggregate principal amount of 9 7/8% senior subordinated notes due 2011. Pursuant to the terms of the Supplemental Indenture, the definition ofPermitted Holders was amended and the parties confirmed that the RequisiteConsents (as defined in the Supplemental Indenture) had been delivered in orderto waive our obligations under the Change in Control covenant of the Indenturein connection with the Acquisition.

 

We believe that ourinternal cash flows and borrowings under the revolving portions of our seniorcredit facility will provide us with sufficient liquidity and capital resourcesto meet our current and future financial obligations for the foreseeablefuture, including funding our operations, debt service and capital expenditures.Our future operating performance will be subject to future economic conditionsand to financial, business and other factors, many of which are beyond ourcontrol. If our future cash flow from operations and other capital resourcesare insufficient to pay our obligations as they mature or to fund our liquidityneeds, we may be forced to reduce or delay our business activities and capitalexpenditures, sell assets, obtain additional debt or equity capital orrestructure or refinance all or a portion of our debt, on or before maturity.We cannot assure you that we would be able to accomplish any of thesealternatives on a timely basis or on satisfactory terms, if at all. Inaddition, the terms of our existing and future indebtedness, including our seniorsubordinated notes and our senior credit facility, may limit our ability topursue any of these alternatives.

 

**Forward-LookingStatements**

 

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 are intended to identifyforward-looking statements. Forward-looking statements are not guarantees offuture performance and involve risks, uncertainties, and other

 

24

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factors, including those set forth below, which maycause our actual results, performance, or achievements to be materially differentfrom any future results, performance, or achievements expressed or implied bythose statements. Important factors that could cause our actual results,performance, or achievements to be materially different from any futureresults, performance, or achievements expressed or implied by those statementsinclude, but are not limited to: (i) our high degree of leverage andsignificant debt service obligations; (ii) the impact of current and futurelaws and governmental regulations affecting us or our product offerings; (iii)the impact of governmental spending; (iv) our ability to retain existingcustomers, maintain key supplier status with those customers with which we haveachieved such status, and obtain new customers; (v) the highly competitivenature of the personal protection equipment industry; (vi) any future changesin management; (vii) acceptance by consumers of new products we develop oracquire; (viii) the importance and costs of product innovation; (ix) unforeseenproblems associated with international sales, including gains and losses fromforeign currency exchange and restrictions on the efficient repatriation ofearnings; (x) the unpredictability of patent protection and other intellectualproperty issues; (xi) cancellation of current orders; (xii) the outcome ofpending product liability claims and the availability of indemnification forthose claims; (xiii) general risks associated with the personal protectionequipment industry; and (xiv) the successful integration of acquired companieson economically acceptable terms. We undertake no obligation to publicly updateor revise 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 About Market Risk**

 

There have been nomaterial changes to our exposure to market risk since December 31, 2004.

 

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**Item 4.Controls and Procedures**

 

Based on their evaluation as of the end of the periodcovered by this quarterly report on Form 10-Q, our Chief Executive Officer andChief Financial Officer have concluded that our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)) are effective.  There was no change in our internal controlover financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) identified in connection with the evaluation required by Rule13a-15(d) of the Exchange Act that occurred during the period covered by thisquarterly report on Form 10-Q that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

 

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**PART IIOTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

As of July 2, 2005, our North Safety Products subsidiary, alongwith its predecessors and/or the former owners of such business were named asdefendants in approximately 928 lawsuits involving respirators manufactured andsold by it or its predecessors. We are also monitoring an additional 11lawsuits in which we feel that North Safety Products, its predecessors and/orthe former owners of such businesses may be named as defendants. Collectively,these 939 lawsuits represent approximately 25,000 (excluding spousal claims)plaintiffs. Approximately 92% of these lawsuits involve plaintiffs alleginginjury resulting from exposure to silica dust, with the remainder alleginginjury from exposure to other particles, including asbestos. These lawsuitstypically allege that the purported injuries resulted in part from respiratorsthat were negligently designed and/or manufactured. The defendants in theselawsuits are often numerous, and include, in addition to respiratormanufacturers, employers of the plaintiffs and manufacturers of sand (used insand blasting) and asbestos.  We acquiredour North Safety Products subsidiary on October 2, 1998 fromSiebe plc.  In connection with theacquisition, Siebe, which was subsequently merged with BTR plc (now knownas “Invensys plc”), contractually agreed to indemnify us for any losses,including costs of defending claims, resulting from respiratory productsmanufactured or sold prior to our acquisition of North Safety Products inOctober 1998.

 

In addition, our NorthSafety Products subsidiary is contractually entitled to indemnification fromNorton 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-ownedsubsidiary of Norton Company, acquired the assets of Norton’s Safety ProductsDivision and the stock of this company was in turn acquired by Siebe GormanHoldings PLC. Under the terms of the Agreement, Siebe Norton, Inc. did notassume any liability for claims relating to products shipped by Norton Companyprior to the closing date. Moreover, Norton Company covenanted in the Agreementto indemnify 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 from products shipped by Norton Company or anyof its affiliates prior to the closing date. Siebe Norton, whose name wassubsequently changed to Siebe North Inc., was subsequently acquired by us as partof the 1998 acquisition of the North Safety Products business from Invensys.

 

Despite theseindemnification arrangements, we could potentially be liable for losses orclaims relating to products manufactured prior to the October 1998acquisition date if Invensys fails to meet its obligations to indemnify us andwe could potentially be liable for losses and claims relating to products soldprior to January 10, 1983 if both Invensys and Norton fail to meet theirobligations to indemnify us. We could also be liable if the alleged exposureinvolved the use of a product manufactured by us after our October 1998acquisition of the North Safety Products business. Invensys is currentlyhandling the defense of all of the cases prior to October 1998 in whichNorth Safety Products, its predecessors and/or the former owners of suchbusinesses have been named as defendants. We are jointly with Invensys handlingthe defense of all of the cases which allege exposure including periods pre andpost October 1998. We will individually handle the defense of all caseswith exclusive post October 1998 exposure, however, we have not beeninvolved in a case with exclusive post October 1998 exposure to date. Asof July 2, 2005, Invensys has sent us requests for reimbursement totaling$178,300, relating to settled cases in which Invensys claims that the period ofalleged exposure 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$40,200 for the six months ended July 2, 2005.

 

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Consistent with the current environment being experienced by companiesinvolved in silica and asbestos-related litigation, there has been an increasein the number of asserted claims that could potentially involve us. Based uponinformation provided to us by Invensys, we believe activity related to theselawsuits was as follows for the six months ended July 2, 2005:

 
| Beginning lawsuits   |   | 858  |   |
|----------------------|--------|------|--------|
| New lawsuits         |   | 192  |   |
| Settlements          |   | (10  | )      |
| Dismissals and other |   | (101 | )      |
| Ending lawsuits      |   | 939  |   |

 

Plaintiffshave asserted specific dollar claims in approximately a quarter of theapproximately 928 cases pending as of July 2, 2005, in which North SafetyProducts, its predecessors and/or the former owners of such businesses havebeen named as defendants. A majority of jurisdictions prohibit specifyingdamages in tort cases such as these, and most of the remaining jurisdictions donot require such specification. In those cases in which plaintiffs choose toassert specific dollar amounts in their complaints, brought in states thatpermit such pleading, the amounts claimed are typically not meaningful as anindicator of a company’s potential liability. This is because (1) theamounts claimed typically bear no relation to the level of the plaintiff’sinjury, (2) the complaints typically assert claims against numerousdefendants, and (3) many cases are brought on behalf of plaintiffs whohave not suffered any medical injury, and, ultimately, are resolvedwithout any payment or payment of a small fraction of the damages initiallyclaimed. Of the 928 complaints maintained in our records, 700 do not specifythe amount of damages sought, 36 generally allege damages in excess of $50,000,three allege compensatory damages in excess of $50,000 and an unspecifiedamount of punitive damages, 92 allege compensatory damages and punitivedamages, each in excess of $25,000, three generally allege damages in excess of$100,000, 18 allege compensatory damages and punitive damages, each in excessof $50,000, 28 generally allege damages of $15.0 million, one generally allegesdamages not to exceed $290.0 million, one alleges compensatory damages andpunitive damages, each in excess of $10,000, one alleges compensatory andpunitive damages, each in excess of $15,000, seven allege punitive damages inexcess of $25,000, one alleges punitive damages in excess of $50,000, 28generally allege damages in excess of $15,000, six generally allege damages inexcess of $25,000, one alleges compensatory damages in excess of $25,000 andtwo allege compensatory and punitive damages each in excess of $15.0 million.We currently do not have access to the complaints with respect to thepreviously mentioned additional 11 monitored cases, and therefore do not knowwhether these cases allege specific damages, and if so, the amount of suchdamages, but are in the process of seeking to obtain such information. Due tothe reasons noted above and to the indemnification arrangements benefiting us,we do not believe that the damage amounts specified in these complaints are ameaningful factor in any assessment of our potential liability.

 

Bankruptcy filings ofcompanies with asbestos and silica-related litigation could increase our costover time. If we were found liable in these cases and either Invensys or Nortonfailed to meet its indemnification obligations to us or the suit involvedproducts manufactured by us after our October 1998 acquisition of NorthSafety Products, it would have a material adverse effect on our business.

 

During the year endedDecember 31, 2004, we recorded a $1.25 million liability and charge tooperating expenses to establish a reserve for respiratory claims, which remainsoutstanding as of July 2, 2005. We believe that this reserve represents areasonable estimate of our probable and estimable liabilities for productclaims alleging injury resulting from exposure to silica dust and otherparticles, including asbestos, as determined by us in consultation with anindependent consultant. We believe that a five-year projection of claims anddefense costs is the most reasonable approach. However, it is possible that we may incur liabilities in excess of theamounts currently reserved. This reserve will be re-evaluated periodically andadditional charges or credits will be recorded to operating expenses asadditional information becomes available.

 

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We are not otherwiseinvolved in any material lawsuits.  Wehistorically have not been required to pay any material liability claims.  We maintain insurance against productliability claims (with the exception of asbestosis and silicosis cases, forwhich coverage is not commercially available), but it is possible that insurancecoverage will not continue to be available on terms acceptable to us or thatsuch coverage will not be adequate for liabilities actually incurred. Inconnection with the North Safety Products acquisition, we recorded a$2.5 million reserve for 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 claimsprimarily associated with fall protection products sold in Canada. ThroughDecember 2003, we incurred charges of approximately $0.2 million againstthis reserve, which reduced the reserve balance to $2.3 million. During 2004,we reduced this reserve to $1.0 million to reflect our current expectations ofthe liability based on information available and recorded a $1.3 million creditto operating expenses. The $1.0 million reserve remains outstanding as of July 2,2005. This reserve is re-evaluated periodically, and additional charges orcredits will be recorded to operating expenses as additional informationbecomes available.

 

It is possible that wemay incur liabilities in an amount in excess of amounts currently reserved.However, taking into account currently available information, historicalexperience, and our indemnification from Invensys, but recognizing the inherentuncertainties in the projection of any future events, we believe that thesesuits or claims should not result in final judgments or settlements in excessof our reserve.

 

**Item 6. Exhibits**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.1             |       | First Supplemental  Indenture dated as of July 19, 2005 among Norcross Safety Products  L.L.C., Norcross Capital Corp. and Wilmington Trust Company, as trustee.

                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1            |       | Credit Agreement dated  as of July 19, 2005 among Safety Products Holdings, Inc., as a  Guarantor, Norcross Safety Products L.L.C., North Safety Products Inc.,  Morning Pride Manufacturing L.L.C., North Safety Products LTD., the Several  Lenders from Time to Time Parties thereto, Credit Suisse, as Administrative  Agent, Bank of America, N.A., as Syndication Agent, GMAC Commercial Finance  LLC, LaSalle Bank National Association and US Bank National Association, as  Documentation Agents, and Credit Suisse, Toronto Branch, as Canadian Agent |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2            |       | Amended and Restated  Employment Agreement dated as of May 20, 2005 by and between Norcross Safety  Products L.L.C. and Robert A. Peterson                                                                                                                                                                                                                                                                                                                                                                                                                           |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3            |       | Amended and Restated  Employment Agreement dated as of May 20, 2005 by and between Norcross Safety  Products L.L.C. and David F. Myers, Jr.                                                                                                                                                                                                                                                                                                                                                                                                                          |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.4            |       | Employment Agreement  dated as of May 20, 2005 by and between Norcross Safety Products L.L.C. and  William Grilliot                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.5            |       | Employment Agreement  dated as of May 20, 2005 by and between Norcross Safety Products L.L.C. and  Charles S. Ellis                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.6            |       | Purchase and Sale  Agreement dated May 20, 2005 by and among NSP Holdings L.L.C., Norcross  Safety Products L.L.C. and Safety Products Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 31.1            |       | Certification  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 31.2            |       | Certification  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 32.1            |       | Certification  of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 32.2            |       | Certification  of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

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**SIGNATURES**

 

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

 
|            | NORCROSS SAFETY PRODUCTS L.L.C. |
|-----------------|---------------------------------|
|            |                            |
|            |                            |
| August 15, 2005 | By:                             | /s/ ROBERT A. PETERSON |   |
|            |                            | Robert A. Peterson |
|            |                            | President, Chief Executive Officer and Manager |
|            |                            | (Principal Executive Officer) |
|            |                            |   |
|            |                            |   |
| August 15, 2005 | By:                             | /s/ DAVID F. MYERS, JR. |   |
|            |                            | David F. Myers, Jr. |
|            |                            | Executive Vice President, Chief  Financial Officer, |
|            |                            | Secretary and Manager |
|            |                            | (Principal Financial and Accounting Officer) |

 

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

**FORM 10-Q LISTING OFEXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.1             |       | First Supplemental  Indenture dated as of July 19, 2005 among Norcross Safety Products  L.L.C., Norcross Capital Corp. and Wilmington Trust Company, as trustee.

                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1            |       | Credit Agreement dated  as of July 19, 2005 among Safety Products Holdings, Inc., as a  Guarantor, Norcross Safety Products L.L.C., North Safety Products Inc.,  Morning Pride Manufacturing L.L.C., North Safety Products LTD., the Several  Lenders from Time to Time Parties thereto, Credit Suisse, as Administrative  Agent, Bank of America, N.A., as Syndication Agent, GMAC Commercial Finance  LLC, LaSalle Bank National Association and US Bank National Association, as  Documentation Agents, and Credit Suisse, Toronto Branch, as Canadian Agent |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2            |       | Amended and Restated  Employment Agreement dated as of May 20, 2005 by and between Norcross Safety  Products L.L.C. and Robert A. Peterson                                                                                                                                                                                                                                                                                                                                                                                                                           |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3            |       | Amended and Restated  Employment Agreement dated as of May 20, 2005 by and between Norcross Safety  Products L.L.C. and David F. Myers, Jr.                                                                                                                                                                                                                                                                                                                                                                                                                          |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.4            |       | Employment Agreement  dated as of May 20, 2005 by and between Norcross Safety Products L.L.C. and  William Grilliot                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.5            |       | Employment Agreement  dated as of May 20, 2005 by and between Norcross Safety Products L.L.C. and  Charles S. Ellis                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.6            |       | Purchase and Sale  Agreement dated May 20, 2005 by and among NSP Holdings L.L.C., Norcross  Safety Products L.L.C. and Safety Products Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

32

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