**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM10-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 SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended July 3, 2004**

 

**OR**

 

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

 

**For the transition period from             to            **

 

**Commission File Number: 333-110531**

 

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

**(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 11, 2004Norcross Safety Products L.L.C. had 100 units outstanding, all of which were ownedby a holding company.

 

 

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

**For the Quarterly Period Ended July 3, 2004**

** **

**TABLE OF CONTENTS**

 
| **PART I Financial Information**   |
|------------------------------------|
|                               |
|                               | Item  1. Financial Statements (Unaudited) | 1 |
|                               |   |
|                               |   | Consolidated Balance Sheets | 1 |
|                               |   |   |   |
|                               |   | Consolidated Statements of Operations | 2 |
|                               |   |   |   |
|                               |   | Consolidated Statements of Cash Flows | 3 |
|                               |   |   |
|                               | Item  2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations | 17 |
|                               |   |   |
|                               | Item  3. Quantitative and Qualitative Disclosures About Market Risk | 25 |
|                               |   |   |
|                               | Item  4. Controls and Procedures | 26 |
|                               |   |   |
| **PART  II Other Information**     | 27 |
|                               |   |   |
|                               | Item  1. Legal Proceedings | 27 |
|                               |   |   |
|                               | Item  6. Exhibits and Reports on Form 8-K | 28 |
|                               |   |   |
| **Signatures**                     | 29 |
|                               |   |
| **Form  10-Q Listing of Exhibits** | 30 |

 

i

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**PARTI**FINANCIALINFORMATION

 

**Item 1****. FinancialStatements (Unaudited)**

 

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

**CONSOLIDATED BALANCE SHEETS**

**(Amountsin Thousands) (Unaudited)**

 
| ** **                                                                               | ** ** | **December 31,  2003(1)** | ** ** | **July 3,  2004** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------|------------|-------------------|------------|
| **Assets**                                                                               |       |                           |       | ** **        |       |
| Current assets:                                                                          |       |                           |       |              |       |
| Cash and cash equivalents                                                                |       | $                              | 16,341     |              | $          | 17,713 |   |
| Accounts receivable, less allowance of  $2,493 and $2,544 in 2003 and 2004, respectively |       | 53,291                         |       | 64,158            |       |
| Inventories                                                                              |       | 80,828                         |       | 84,635            |       |
| Deferred income taxes                                                                    |       | 30                             |       | 29                |       |
| Prepaid expenses and other current assets                                                |       | 3,833                          |       | 3,862             |       |
| Total current assets                                                                     |       | 154,323                        |       | 170,397           |       |
| Property, plant, and equipment, net                                                      |       | 56,213                         |       | 52,370            |       |
| Deferred financing costs, net                                                            |       | 10,832                         |       | 9,950             |       |
| Goodwill, net                                                                            |       | 130,032                        |       | 128,815           |       |
| Other intangible assets, net                                                             |       | 5,641                          |       | 5,801             |       |
| Due from NSP Holdings L.L.C.                                                             |       | 16,113                         |       | 17,764            |       |
| Other noncurrent assets                                                                  |       | 5,535                          |       | 5,433             |       |
| Total assets                                                                             |       | $                              | 378,689    |              | $          | 390,530 |   |
|                                                                                     |       |                           |       |              |       |
| **Liabilities and member’s equity**                                                 |       |                           |       |              |       |
| Current liabilities:                                                                     |       |                           |       |              |       |
| Accounts payable                                                                         |       | $                              | 18,157     |              | $          | 20,126 |   |
| Accrued expenses                                                                         |       | 27,837                         |       | 26,538            |       |
| Current maturities of long-term obligations                                              |       | 3,378                          |       | 3,256             |       |
| Total current liabilities                                                                |       | 49,372                         |       | 49,920            |       |
| Pension, post-retirement, and deferred  compensation                                     |       | 24,318                         |       | 25,606            |       |
| Long-term obligations                                                                    |       | 253,814                        |       | 252,674           |       |
| Other noncurrent liabilities                                                             |       | 430                            |       | 404               |       |
| Deferred income taxes                                                                    |       | 1,937                          |       | 1,896             |       |
| Minority interest                                                                        |       | 124                            |       | 140               |       |
|                                                                                     |       | 280,623                        |       | 280,720           |       |
| Member’s equity:                                                                    |       |                           |       |              |       |
| Contributed capital                                                                      |       | 116,060                        |       | 116,060           |       |
| Accumulated deficit                                                                      |       | (64,791                        | )          | (52,220           | )          |
| Accumulated other comprehensive loss                                                     |       | (2,575                         | )          | (3,950            | )          |
| Total member’s equity                                                               |       | 48,694                         |       | 59,890            |       |
| Total liabilities and member’s equity                                               |       | $                              | 378,689    |              | $          | 390,530 |   |

 

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

 

*See notes to unaudited consolidated financialstatements.*

 

1

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

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Amountsin Thousands) (Unaudited)**

 
| ** **                                        | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                        | ** ** | **June 28,  2003**     | ** ** | **July 3,  2004**    | ** ** | **June 28,  2003** | ** ** | **July 3,  2004** | ** ** |
| Net sales                                         |       | $                      | 90,997     |                 | $          | 107,005 |   | $ | 176,812 |   | $ | 216,078 |   |
| Cost of goods sold                                |       | 57,879                 |       | 68,823               |       | 112,932 |   | 137,700 |   |
| Gross profit                                      |       | 33,118                 |       | 38,182               |       | 63,880 |   | 78,378 |   |
| Operating expenses:                               |       |                   |       |                 |       |   |   |   |   |
| Selling                                           |       | 8,711                  |       | 10,422               |       | 17,236 |   | 20,826 |   |
| Distribution                                      |       | 4,268                  |       | 5,329                |       | 8,277 |   | 10,527 |   |
| General and administrative                        |       | 8,268                  |       | 9,506                |       | 16,419 |   | 19,474 |   |
| Amortization of intangibles                       |       | 809                    |       | 124                  |       | 1,620 |   | 250 |   |
| Strategic alternatives                            |       | —                 |       | 613                  |       | — |   | 613 |   |
| Total operating expenses                          |       | 22,056                 |       | 25,994               |       | 43,552 |   | 51,690 |   |
| Income from operations                            |       | 11,062                 |       | 12,188               |       | 20,328 |   | 26,688 |   |
| Other expense (income):                           |       |                   |       |                 |       |   |   |   |   |
| Interest expense                                  |       | 5,996                  |       | 5,660                |       | 12,709 |   | 11,296 |   |
| Interest income                                   |       | (34                    | )          | (29                  | )          | (54 | ) | (64 | ) |
| Other, net                                        |       | (183                   | )          | 59                   |       | (359 | ) | 593 |   |
| Income before income taxes and minority  interest |       | 5,283                  |       | 6,498                |       | 8,032 |   | 14,863 |   |
| Income tax expense                                |       | 1,096                  |       | 1,243                |       | 1,544 |   | 2,276 |   |
| Minority interest                                 |       | —                 |       | 11                   |       | — |   | 16 |   |
| Net income                                        |       | $                      | 4,187      |                 | $          | 5,244 |   | $ | 6,488 |   | $ | 12,571 |   |

 

*See notes to unaudited consolidatedfinancial statements.*

 

2

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

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

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

 
| ** **                                                                         | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **June 28,  2003**   | ** ** | **July 3,  2004** | ** ** |
| **Operating activities**                                                           |       |                 |       |   |   |
| Net income                                                                         |       | $                    | 6,488      |   | $ | 12,571 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                 |       |   |   |
| Depreciation                                                                       |       | 5,045                |       | 5,682 |   |
| Amortization of intangibles                                                        |       | 1,620                |       | 250 |   |
| Amortization of deferred financing costs                                           |       | 1,168                |       | 883 |   |
| Amortization of original issue discount                                            |       | 508                  |       | 45 |   |
| Write-off of deferred financing costs                                              |       | 1,270                |       | — |   |
| Loss on sale of property, plant and  equipment                                     |       | —               |       | 384 |   |
| Deferred income taxes                                                              |       | 151                  |       | (40 | ) |
| Minority interest                                                                  |       | —               |       | 16 |   |
| Changes in operating assets and  liabilities:                                      |       |                 |       |   |   |
| Accounts receivable                                                                |       | (3,754               | )          | (10,866 | ) |
| Inventories                                                                        |       | (7,709               | )          | (3,808 | ) |
| Prepaid expenses and other current assets                                          |       | (582                 | )          | (29 | ) |
| Other noncurrent assets                                                            |       | (54                  | )          | 103 |   |
| Accounts payable                                                                   |       | 3,042                |       | 1,968 |   |
| Accrued expenses                                                                   |       | (744                 | )          | (1,299 | ) |
| Pension, postretirement, and deferred  compensation                                |       | 372                  |       | 1,288 |   |
| Other noncurrent liabilities                                                       |       | (243                 | )          | (26 | ) |
| Other                                                                              |       | (2                   | )          | 13 |   |
| Net cash provided by operating activities                                          |       | 6,576                |       | 7,135 |   |
|                                                                               |       |                 |       |   |   |
| **Investing activities**                                                           |       |                 |       |   |   |
| Purchase of businesses, net of cash  acquired                                      |       | (227                 | )          | (235 | ) |
| Purchases of property, plant, and equipment                                        |       | (2,462               | )          | (2,614 | ) |
| Proceeds from sale of property, plant and  equipment                               |       | —               |       | 480 |   |
| Due from NSP Holdings L.L.C.                                                       |       | (917                 | )          | (1,651 | ) |
| Net cash used in investing activities                                              |       | (3,606               | )          | (4,020 | ) |
|                                                                               |       |                 |       |   |   |
| **Financing activities**                                                           |       |                 |       |   |   |
| Payments for deferred financing costs                                              |       | (6,998               | )          | — |   |
| Proceeds from borrowings                                                           |       | 130,000              |       | — |   |
| Payments of debt                                                                   |       | (86,253              | )          | (1,307 | ) |
| Net repayments under revolving credit  facility                                    |       | (30,960              | )          | — |   |
| Net cash provided by (used in) financing  activities                               |       | 5,789                |       | (1,307 | ) |
| Effect of exchange rate changes on cash                                            |       | 3,305                |       | (436 | ) |
| Net increase in cash and cash equivalents                                          |       | 12,064               |       | 1,372 |   |
| Cash and cash equivalents at beginning of  period                                  |       | 1,762                |       | 16,341 |   |
| Cash and cash equivalents at end of period                                         |       | $                    | 13,826     |   | $ | 17,713 |   |

* *

*See notes to unaudited consolidated financialstatements*

 

3

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

 

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

 

The accompanying unaudited consolidated financialstatements of Norcross Safety Products L.L.C. (the Company) have been preparedin accordance with accounting principles generally accepted in the UnitedStates for interim financial information. Accordingly, they do not include allof the information and notes required by accounting principles generallyaccepted in the United States for complete financial statements.

 

In the opinion of management, all adjustments(consisting only of adjustments of a normal and recurring nature) considerednecessary for a fair presentation of the financial position and results ofoperations have been included. Interim results are not necessarily indicativeof the results that might be expected for any other interim period or for thefiscal year ending December 31, 2004. The financial statements presentedshould be read in conjunction with the consolidated financial statements andfootnotes thereto included in our 2003 consolidated financial statements.

 

# **2.****             ****Acquisition of KCL**

#  

On July 29, 2003, the Company acquired 100% ofthe common stock of Kächele-Cama Latex GmbH (KCL), a German-based manufacturerand marketer of liquid-proof and cut-resistant gloves for a variety ofindustries, for $20,127, including net debt assumed of $171 and acquisitioncosts of $1,121. The sellers of KCL will also be eligible to receive royaltypayments of up to €250 per year over the next three years based upon theachievement of certain cumulative net sales targets. The Company financed thisacquisition with $9,882 of cash on hand, $5,000 of borrowings under the SeniorCredit Facility and the issuance of $5,074 of junior subordinated notes. TheCompany believes the acquisition of KCL will increase its penetration of theEuropean personal protection equipment market.

 

The allocation of the purchase price is summarizedbelow:

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

 

The acquisition of KCL was accounted for by thepurchase method of accounting, and accordingly, the results of operations ofKCL have been included in the Company’s consolidated financial statements sincethe date of acquisition.

 

The followingtable presents the pro forma net sales and net income of the Company for thesix months ended June 28, 2003 assuming the acquisition of KCL had occurred onJanuary 1, 2003:

 
| Pro forma net sales  |   |   | $     | 191,523 |   |
|----------------------|--------|--------|-------|---------|--------|
| Pro forma net income |   |   | 7,527 |    |

 

4

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

 

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

#  

Inventories consist of the following:

 
| ** **              | ** ** | **December 31,  2003** | ** ** | **July 3,  2004** | ** ** |
|-------------------------|------------|------------------------|------------|-------------------|------------|
| At FIFO cost:           | ** ** | ** **             | ** ** | ** **        | ** ** |
| Raw materials           |       | $                      | 21,187     |              | $          | 22,601 |   |
| Work in process         |       | 9,010                  |       | 9,652             |       |
| Finished goods          |       | 52,512                 |       | 54,263            |       |
|                    |       | 82,709                 |       | 86,516            |       |
| Adjustment to LIFO cost |       | (1,881                 | )          | (1,881            | )          |
|                    |       | $                      | 80,828     |              | $          | 84,635 |   |

 

5

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

 

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

 

The Company’s debt consists of the following:

 
| ** **                                         | ** ** | **December 31,  2003** | ** ** | **July 3,  2004** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|-------------------|------------|
| Revolving credit facilities                        |       | $                      | —     |              | $          | — |   |
| Term loan                                          |       | 99,025                 |       | 98,375            |       |
| Senior subordinated notes                          |       | 152,500                |       | 152,500           |       |
| European term loans                                |       | 1,215                  |       | 927               |       |
| Arbin Seller Notes                                 |       | 837                    |       | 821               |       |
| Subordinated seller notes                          |       | 4,278                  |       | 3,996             |       |
| Capital lease obligations                          |       | 339                    |       | 268               |       |
| Unamortized discount on senior subordinated  notes |       | (1,002                 | )          | (957              | )          |
|                                               |       | 257,192                |       | 255,930           |       |
| Less: Current maturities of long-term  obligations |       | 3,378                  |       | 3,256             |       |
|                                               |       | $                      | 253,814    |              | $          | 252,674 |   |

 

On March 21, 2003, the Company entered into a newSenior Credit Facility with a group of banks and financial institutions. Underthe terms of this agreement, the Company can borrow up to $160,000 in theUnited States and approximately $7,600 in Canada ($10,000 Canadian). The SeniorCredit Facility consisted of a $30,000 revolving credit facility and a $130,000term loan in the United States, and a Canadian $10,000 revolving creditfacility. These borrowings replaced the existing senior credit facility of theCompany. The Company recorded a $1,270 charge to interest expense for thewrite-off of deferred financing fees associated with the existing senior creditfacility financing during the three months ended March 29, 2003.

 

On August 13, 2003, the Company issued $152,500of 9.875% Senior Subordinated Notes due 2011 (the New Senior SubordinatedNotes) and received gross proceeds of $151,465. The proceeds were primarilyused to: (i) repay principal and interest and repurchase warrants relatedto the existing Senior Subordinated Notes, (ii) repay $30,000 of principalrelated to the term loan, (iii) repay principal on the junior subordinatednotes used to finance the KCL acquisition, (iv) purchase preferred unitsof NSP Holdings L.L.C. from certain members of management and (v) pay feesand expenses.

 

Aggregate maturities of long-term debt as of July 3,2004, are as follows:

 
| 2005       | ** ** | $       | 3,256      | ** ** |
|------------|------------|---------|------------|------------|
| 2006       | ** ** | 2,786   | ** ** |
| 2007       | ** ** | 3,309   | ** ** |
| 2008       | ** ** | 1,275   | ** ** |
| 2009       | ** ** | 93,138  | ** ** |
| Thereafter | ** ** | 152,166 | ** ** |
| ** ** | ** ** | $       | 255,930    | ** ** |

 

6

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

 

# **5.****             ****Employee Benefit Plans**

 

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

 
| ** **                         | ** ** | **Six months ended June 28, 2003** | ** ** | **Six months ended July 3, 2004** | ** ** |
|------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| ** **                         | ** ** | **Pension  Benefits**              | ** ** | **Post-retirement  Benefits**     | ** ** | **Pension  Benefits** | ** ** | **Post-retirement  Benefits** | ** ** |
|                               |       |                               |       |                              |       |   |   |   |   |
| Service cost                       |       | $                                  | 374        |                              | $          | 14 |   | $ | 746 |   | $ | 14 |   |
| Interest cost                      |       | 930                                |       | 42                                |       | 1,744 |   | 40 |   |
| Expected return on plan assets     |       | (632                               | )          | —                            |       | (1,336 | ) | — |   |
| Amortization of prior service cost |       | 2                                  |       | 10                                |       | 2 |   | 8 |   |
| Amortization of actuarial loss     |       | 236                                |       | 30                                |       | 424 |   | 42 |   |
|                               |       | $                                  | 910        |                              | $          | 96 |   | $ | 1,580 |   | 104 |   |
|                                    |            |                                    |            |                                   |            |  |  |  |  |  |  |  |  |

 

# **6.****             ****Restructuring and Other Charges**

 

During 2002, the Company initiated a restructuringplan to exit the medical products business located in Cranston, Rhode Islandand close certain hand protection plants located in Tijuana, Mexico, Tallmadge,Ohio and Charleston, South Carolina and move production to China. The Companydecided to exit the medical products business at that time, because the medicalproducts business primarily served one customer, who decided to manufacture theproduct in-house. The Company closed its hand protection plants to increaseprofitability of certain low margin product lines. This restructuring resultedin the termination of approximately 105 employees who worked at theseoperations. We incurred restructuring and merger-related charges associatedwith the plan of $9,297, comprised of $6,345 in non-cash expense relating toaccelerated depreciation charges on long-lived assets to be abandoned; $1,242in severance costs; and $1,710 in facility closure and other exit costs. Theexit of the medical business was completed in 2002. The shut-down of theTallmadge facility was completed in 2003 and the Company successfully completedthe closure of the Charleston and Tijuana plants in the first and secondquarter of 2004, respectively.  TheDecember 31, 2003 accrued restructuring liability of $1,295 consists offacility closure and other exit costs of $937 and severance costs of $358. TheJuly 3, 2004 accrued restructuring liability of $365 consists of facilityclosure and other exit costs of $255 and severance costs of $110.  The change in the restructuring liabilityduring the six months ended July 3, 2004 was attributable to cash paymentsbeing applied to the liability. The restructuring liability is classified withinthe accrued expenses caption on the consolidated balance sheets.

 

7

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

 

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

 

The Company is subject to various claims arising inthe ordinary course of business. Most of these lawsuits and claims are productliability matters that arise out of the use of respiratory product linesmanufactured by the Company’s North Safety Products subsidiary. In particular,the Company’s North Safety Products subsidiary, its predecessors and/or theformer owners of such business are presently named as a defendant inapproximately 713 lawsuits involving respirators manufactured and sold by it orits predecessors. The Company is also monitoring an additional 13 lawsuits inwhich it feels that North Safety Products, its predecessors and/or the formerowners of such businesses may be named as defendants. Collectively, these 726lawsuits represent a total of approximately 25,000 (excluding spousal claims)plaintiffs. Approximately 90% of these lawsuits involve plaintiffs allegingthey suffer from silicosis, with the remainder alleging they suffer from otheror combined injuries, including asbestosis. These lawsuits typically allege thatthese conditions 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 manufacturedprior to the acquisition of North Safety Products in October 1998.

 

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

 

Despite these indemnification arrangements, theCompany could potentially be liable for these losses or claims relating toproducts manufactured prior to the October 1998 acquisition date if Invensysfails to meet its obligations to indemnify the Company and the Company couldpotentially be liable for these losses and claims relating to products soldprior to January 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 our October 1998 acquisition of the North Safety Products business.Invensys is currently handling the defense of all of the cases, and to date theCompany has not incurred any material costs with respect to these lawsuits. Asof July 3, 2004, Invensys has sent us requests for reimbursement totaling $61,relating to settled cases in which Invensys claims that the period of allegedexposure included periods after October 1998. To date, the Company has notreimbursed Invensys for these claims, as the Company is currently pursuingnegotiations on the allocation of costs and the determination of the allegedexposure periods. Based on information provided to the Company by Invensys, theCompany believes that Invensys has made payments with respect to settlement ofthese claims of $745 for the six months ended July 3, 2004. The Companybelieves that Invensys has the ability to pay these claims based on its currentfinancial position, as publicly disclosed by Invensys. Separately, the Companyand Invensys settled on an unusual case for $65 in which the Company’ssettlement share was $45 (the Company’s net contribution after insuranceproceeds was $25).

 

Consistent with the current environment beingexperienced by companies involved in silica and asbestos-related litigation,there has been an increase in the number of asserted claims that couldpotentially involve the Company. Based upon information

 

8

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

 

provided to the Company by Invensys, the Company believes activityrelated to these lawsuits was as follows for the six months ended July 3, 2004:

 

| Beginning lawsuits   |   | 680 |    |
|----------------------|--------|-----|---------|
| New lawsuits         |   | 140 |    |
| Settlements          |   | (27 | )  |
| Dismissals and other |   | (67 | )  |
| Ending lawsuits      |   | 726 |    |

 

Plaintiffs have asserted specific dollar claims inless than a quarter of the approximately 713 cases pending as of July 3, 2004in which North Safety Products, its predecessors and/or the former owners ofsuch businesses have been named as defendants. A majority of jurisdictionsprohibit specifying damages in tort cases such as these, and most of theremaining jurisdictions do not require such specification. In those cases inwhich plaintiffs choose to assert specific dollar amounts in their complaints,brought in states that permit such pleading, the amounts claimed are typicallynot meaningful as an indicator of a company’s potential liability. This isbecause (1) the amounts claimed typically bear no relation to the level of theplaintiff’s injury, (2) the complaints typically assert claims against numerousdefendants, and (3) many cases are brought on behalf of plaintiffs who have notsuffered any medical injury, and, ultimately, are resolved without any paymentor payment of a small fraction of the damages initially claimed. Of the 713complaints, 570 do not specify the amount of damages sought, 39 generallyallege damages in excess of $50, 27 allege compensatory damages and punitivedamages, each in excess of $25, 4 generally allege damages in excess of $100,28 allege compensatory damages and punitive damages, each in excess of $50, 34generally allege damages of $15,000, 2 allege compensatory damages and punitivedamages, each in the amount of $15,000, 1 alleges compensatory damages andpunitive damages, each in excess of $10, 1 alleges compensatory damages andpunitive damages, each in excess of $15, 1 generally alleges damages in excessof $250, 2 generally allege damages in excess of $25, 1 generally allegesdamages in excess of $4 and 1 generally alleges damages not to exceed$290,000.  The Company currently does nothave access to the complaints with respect to the additional approximately 2cases that were pending as of July 3, 2004 in which North Safety Products, itspredecessors and/or the former owners of such businesses have been named asdefendants, or the previously mentioned additional 13 monitored cases, andtherefore do not know whether these cases allege specific damages, and, if so,the amount of such damages, but are in the process of seeking to obtain suchinformation. Due to the reasons noted above and to the indemnificationarrangements benefiting the Company, it does not believe that the damageamounts specified in these complaints are a meaningful factor in any assessmentof the Company’s potential liability.

 

The Company is not otherwise involved in any materiallawsuits. The Company historically has not been required to pay any materialliability claims. The Company maintains insurance against product liabilityclaims (with the exception of asbestosis and silicosis cases, for whichcoverage is not commercially available), but it is possible that its insurancecoverage will not continue to be available on terms acceptable to the Companyor that such coverage will not be adequate for liabilities actually incurred.The Company has a reserve of $2,300 against potential uninsured productliability claims of North Safety Products for periods prior to October 1998.The reserve was established at the date of acquisition and relates to potentialclaims primarily associated with fall protection products sold in Canada. TheCompany has not recorded any losses against this reserve to date. This reserveis re-evaluated periodically, and additional charges or credits to operationsmay result as additional information becomes available. It is possible that theCompany may incur liabilities in an amount in excess of amounts currentlyreserved. However, taking into account currently available information,historical experience, and the Company’s indemnification from Invensys, butrecognizing the inherent uncertainties in the projection of any future events,the Company believes that these suits or claims should not result in 

 

9

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

 

final judgments or settlements in excess of its reserve. The Companydoes not have a reserve for product liability claims for use of productsmanufactured after the 1998 acquisition of North Safety Products as it is notinvolved in any material lawsuits relating exclusively to product usage in theperiod after October 1998. In addition, the Company is not a party to anylawsuits involving asbestosis or silicosis relating exclusively to productusage in the period after October 1998.

 

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

#  

The following table presents information about theCompany by segment:

 
| ** **                           | ** ** | **General  Industrial** | ** **   | **Fire  Service** | ** ** | **Utility/  High  Voltage** | ** ** | **Corporate** | ** **   | **Eliminations** | ** ** | **Total**    | ** ** |
|--------------------------------------|------------|-------------------------|--------------|-------------------|------------|-----------------------------|------------|---------------|--------------|------------------|------------|--------------|------------|
| **Three Months Ended June 28, 2003** |       |                    |         |              |       |                        |       |          |         |             |       |         |       |
| Net sales—third parties         |       | $                       | 62,384       |              | $          | 17,718                      |       | $             | 10,895       |             | $          | —       |       | $ | — |   | $ | 90,997 |   |
| Net sales—intersegment          |       | 2,113                   |         | —            |       | 1                           |       | —        |         | (2,114           | )          | —       |       |
| Income (loss) from operations        |       | 5,830                   |         | 3,408             |       | 2,634                       |       | (810          | )            | —           |       | 11,062       |       |
| **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       |       |
|                                 |       |                    |         |              |       |                        |       |          |         |             |       |         |       |
| **Six Months Ended June 28, 2003**   |       |                    |         |              |       |                        |       |          |         |             |       |         |       |
| Net sales—third parties         |       | 121,601                 |         | 34,386            |       | 20,825                      |       | —        |         | —           |       | 176,812      |       |
| Net sales—intersegment          |       | 4,531                   |         | —            |       | 2                           |       | —        |         | (4,533           | )          | —       |       |
| Income (loss) from operations        |       | 10,800                  |         | 6,644             |       | 4,554                       |       | (1,670        | )            | —           |       | 20,328       |       |
|                                 |       |                    |         |              |       |                        |       |          |         |             |       |         |       |
| **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       |       |
|                                      |            |                         |              |                   |            |                             |            |               |              |                  |            |              |            |  |  |  |  |  |  |  |  |  |  |

 

10

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

 

# **9.****             ****Subsidiary Guarantors**

#  

All of the Company’s direct or indirect 100% ownedactive domestic subsidiaries, fully, unconditionally, jointly and severallyguarantee the Senior Credit Facility and the New Senior Subordinated Notes.Separate financial statements of the guarantor subsidiaries are not separatelypresented because, in the opinion of management, such financial statements arenot material to investors. The non-guarantor subsidiaries include wholly ownedsubsidiaries of the Company organized under the laws of foreign jurisdictionsand inactive subsidiaries, all of which are included in the consolidatedfinancial statements. The following is summarized combining financialinformation for Norcross Safety Products L.L.C. on a stand-alone basis (NSP),Norcross Capital Corp. (NCC), the guarantor subsidiaries of the Company and thenon-guarantor subsidiaries of the Company:

 
| ** **                                           | ** ** | **NSP**  | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------|------------|----------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **July 3, 2004**                                     |       |     |       |    |       |                        |       |                            |       |             |       |      |       |
| Current assets:                                      |       |     |       |    |       |                        |       |                            |       |             |       |      |       |
| Cash and cash equivalents                            |       | $        | 16,402     |    | $          | —                      |       | $                               | (2,533     | )                | $          | 3,844     |       | $ | — |   | $ | 17,713 |   |
| Accounts receivable, net                             |       | 9,660    |       | —  |       | 29,956                      |       | 24,542                          |       | —           |       | 64,158    |       |
| Inventories                                          |       | 12,273   |       | —  |       | 34,970                      |       | 37,392                          |       | —           |       | 84,635    |       |
| Deferred income taxes                                |       | —   |       | —  |       | —                      |       | 29                              |       | —           |       | 29        |       |
| Prepaid expenses and other current assets            |       | 1,677    |       | —  |       | 1,193                       |       | 992                             |       | —           |       | 3,862     |       |
| Total current assets                                 |       | 40,012   |       | —  |       | 63,586                      |       | 66,799                          |       | —           |       | 170,397   |       |
| Property, plant, and equipment, net                  |       | 5,086    |       | —  |       | 27,354                      |       | 19,930                          |       | —           |       | 52,370    |       |
| Deferred financing costs, net                        |       | 9,950    |       | —  |       | —                      |       | —                          |       | —           |       | 9,950     |       |
| Goodwill, net                                        |       | 426      |       | —  |       | 104,834                     |       | 23,555                          |       | —           |       | 128,815   |       |
| Other intangible assets, net                         |       | 3,424    |       | —  |       | —                      |       | 2,377                           |       | —           |       | 5,801     |       |
| Due from NSP Holdings L.L.C.                         |       | 17,764   |       | —  |       | —                      |       | —                          |       | —           |       | 17,764    |       |
| Investment in subsidiaries                           |       | 146,222  |       | —  |       | 36,351                      |       | —                          |       | (182,573         | )          | —    |       |
| Other noncurrent assets                              |       | —   |       | —  |       | 3,658                       |       | 1,775                           |       | —           |       | 5,433     |       |
| Total assets                                         |       | $        | 222,884    |    | $          | —                      |       | $                               | 235,783    |             | $          | 114,436   |       | $ | (182,573 | ) | $ | 390,530 |   |
| Current liabilities:                                 |       |     |       |    |       |                        |       |                            |       |             |       |      |       |
| Accounts payable                                     |       | $        | 3,109      |    | $          | —                      |       | $                               | 10,707     |             | $          | 6,310     |       | $ | — |   | $ | 20,126 |   |
| Accrued expenses                                     |       | 9,451    |       | —  |       | 9,082                       |       | 8,005                           |       | —           |       | 26,538    |       |
| Current maturities of long-term obligations          |       | 1,210    |       | —  |       | 703                         |       | 1,343                           |       | —           |       | 3,256     |       |
| Total current liabilities                            |       | 13,770   |       | —  |       | 20,492                      |       | 15,658                          |       | —           |       | 49,920    |       |
| Pension, post-retirement, and deferred  compensation |       | 369      |       | —  |       | 24,594                      |       | 643                             |       | —           |       | 25,606    |       |
| Long-term obligations                                |       | 250,708  |       | —  |       | 283                         |       | 1,683                           |       | —           |       | 252,674   |       |
| Intercompany balances                                |       | (101,853 | )          | —  |       | 48,426                      |       | 53,427                          |       | —           |       | —    |       |
| Other noncurrent liabilities                         |       | —   |       | —  |       | 380                         |       | 24                              |       | —           |       | 404       |       |
| Deferred income taxes                                |       | —   |       | —  |       | —                      |       | 1,896                           |       | —           |       | 1,896     |       |
| Minority interest                                    |       | —   |       | —  |       | —                      |       | 140                             |       | —           |       | 140       |       |
|                                                 |       | 149,224  |       | —  |       | 73,683                      |       | 57,813                          |       | —           |       | 280,720   |       |
| Member’s equity:                                |       |     |       |    |       |                        |       |                            |       |             |       |      |       |
| Contributed capital                                  |       | 116,060  |       | —  |       | 148,417                     |       | 47,086                          |       | (195,503         | )          | 116,060   |       |
| Accumulated deficit                                  |       | (52,220  | )          | —  |       | (6,809                      | )          | (6,121                          | )          | 12,930           |       | (52,220   | )          |
| Accumulated other comprehensive loss                 |       | (3,950   | )          | —  |       | —                      |       | —                          |       | —           |       | (3,950    | )          |
| Total member’s equity                           |       | 59,890   |       | —  |       | 141,608                     |       | 40,965                          |       | (182,573         | )          | 59,890    |       |
| Total liabilities and member’s equity           |       | $        | 222,884    |    | $          | —                      |       | $                               | 235,783    |             | $          | 114,436   |       | $ | (182,573 | ) | $ | 390,530 |   |

 

11

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

 

12

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**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**                        |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| 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  |       | —  |       | 74,319                      |       | 50,797                          |       | (12,357          | )          | 137,700   |       |
| Gross profit                                             |       | 12,424  |       | —  |       | 39,814                      |       | 26,140                          |       | —           |       | 78,378    |       |
| Operating expenses:                                      |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Selling                                                  |       | 1,534   |       | —  |       | 11,039                      |       | 8,253                           |       | —           |       | 20,826    |       |
| Distribution                                             |       | 1,787   |       | —  |       | 4,107                       |       | 4,633                           |       | —           |       | 10,527    |       |
| 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   |       | —  |       | 25,399                      |       | 18,711                          |       | —           |       | 51,690    |       |
| 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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**NORCROSS SAFETY PRODUCTS L.L.C.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS–(Continued)(Amounts in Thousands) (Unaudited)**

 
| ** **                                               | ** ** | **NSP** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Six Months Ended June 28, 2003**                       |       |    |       |                        |       |                            |       |             |       |      |       |
| Third party                                              |       | $       | 29,863     |                        | $          | 97,045                          |       | $                | 49,904     |      | $          | — |   | $ | 176,812 |   |
| Intercompany                                             |       | 4,203   |       | 2,997                       |       | 5,090                           |       | (12,290          | )          | —    |       |
| Net sales                                                |       | 34,066  |       | 100,042                     |       | 54,994                          |       | (12,290          | )          | 176,812   |       |
| Cost of goods sold                                       |       | 22,205  |       | 65,210                      |       | 37,807                          |       | (12,290          | )          | 112,932   |       |
| Gross profit                                             |       | 11,861  |       | 34,832                      |       | 17,187                          |       | —           |       | 63,880    |       |
| Operating expenses:                                      |       |    |       |                        |       |                            |       |             |       |      |       |
| Selling                                                  |       | 1,514   |       | 10,033                      |       | 5,689                           |       | —           |       | 17,236    |       |
| Distribution                                             |       | 1,657   |       | 3,857                       |       | 2,763                           |       | —           |       | 8,277     |       |
| General and administrative                               |       | 3,072   |       | 9,424                       |       | 3,923                           |       | —           |       | 16,419    |       |
| Amortization of intangibles                              |       | 111     |       | 1,509                       |       | —                          |       | —           |       | 1,620     |       |
| Total operating expenses                                 |       | 6,354   |       | 24,823                      |       | 12,375                          |       | —           |       | 43,552    |       |
| Income from operations                                   |       | 5,507   |       | 10,009                      |       | 4,812                           |       | —           |       | 20,328    |       |
| Other expense (income):                                  |       |    |       |                        |       |                            |       |             |       |      |       |
| Interest expense                                         |       | 10,493  |       | 2,103                       |       | 113                             |       | —           |       | 12,709    |       |
| Interest income                                          |       | (32     | )          | —                      |       | (22                             | )          | —           |       | (54       | )          |
| Intercompany charges                                     |       | (11,413 | )          | 4,030                       |       | 1,017                           |       | 6,366            |       | —    |       |
| Other, net                                               |       | (2      | )          | (6                          | )          | (351                            | )          | —           |       | (359      | )          |
| Income (loss) before income taxes and  minority interest |       | 6,461   |       | 3,882                       |       | 4,055                           |       | (6,366           | )          | 8,032     |       |
| Income tax (benefit) expense                             |       | (27     | )          | 189                         |       | 1,382                           |       | —           |       | 1,544     |       |
| Minority interest                                        |       | —  |       | —                      |       | —                          |       | —           |       | —    |       |
| Net income (loss)                                        |       | $       | 6,488      |                        | $          | 3,693                           |       | $                | 2,673      |      | $          | (6,366 | ) | $ | 6,488 |   |

 

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.                          |       | (1,651  | )          | —  |         | —                      |       | —                          |       | —           |       | (1,651    | )          |
| Net cash used in investing activities                 |       | (2,148  | )          | —  |         | (1,165                      | )          | (707                            | )          | —           |       | (4,020    | )          |
| **Financing activities**                              |       |    |       |    |         |                        |       |                            |       |             |       |      |       |
| Payments for deferred financing costs                 |       | —  |       | —  |         | —                      |       | —                          |       | —           |       | —    |       |
| Proceeds from borrowings                              |       | —  |       | —  |         | —                      |       | —                          |       | —           |       | —    |       |
| Payments of debt                                      |       | (650    | )          | —  |         | (349                        | )          | (308                            | )          | —           |       | (1,307    | )          |
| Net repayments under revolving credit  facility       |       | —  |       | —  |         | —                      |       | —                          |       | —           |       | —    |       |
| Intercompany                                          |       | 10,844  |       | —  |         | (9,771                      | )          | (1,073                          | )          | —           |       | —    |       |
| Net cash provided by (used in) financing  activities  |       | 10,194  |       | —  |         | (10,120                     | )          | (1,381                          | )          | —           |       | (1,307    | )          |
| 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 |   |
|                                                       |            |         |            |         |              |                             |            |                                 |            |                  |            |           |            |  |  |  |  |  |  |

 

15

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

 
| ** **                                                   | ** ** | **NSP** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Six months ended June 28, 2003**                           |       |    |       |                        |       |                            |       |             |       |      |       |
| **Operating activities**                                     |       |    |       |                        |       |                            |       |             |       |      |       |
| Net cash provided by (used in) operating  activities         |       | $       | 6,824      |                        | $          | 3,041                           |       | $                | (3,289     | )         | $          | — |   | $ | 6,576 |   |
| **Investing activities**                                     |       |    |       |                        |       |                            |       |             |       |      |       |
| Purchase of businesses, net of cash  acquired                |       | (164    | )          | —                      |       | (63                             | )          | —           |       | (227      | )          |
| Purchase of property, plant, and equipment                   |       | (319    | )          | (1,732                      | )          | (411                            | )          | —           |       | (2,462    | )          |
| Due from NSP Holdings L.L.C.                                 |       | (917    | )          | —                      |       | —                          |       | —           |       | (917      | )          |
| Net cash used in investing activities                        |       | (1,400  | )          | (1,732                      | )          | (474                            | )          | —           |       | (3,606    | )          |
| **Financing activities**                                     |       |    |       |                        |       |                            |       |             |       |      |       |
| Payments for deferred financing costs                        |       | (6,998  | )          | —                      |       | —                          |       | —           |       | (6,998    | )          |
| Proceeds from borrowings                                     |       | 130,000 |       | —                      |       | —                          |       | —           |       | 130,000   |       |
| Payments of debt                                             |       | (86,175 | )          | (287                        | )          | 209                             |       | —           |       | (86,253   | )          |
| Net borrowings (repayments) under revolving  credit facility |       | (29,262 | )          | —                      |       | (1,698                          | )          | —           |       | (30,960   | )          |
| Intercompany                                                 |       | (1,200  | )          | (4,134                      | )          | 5,334                           |       | —           |       | —    |       |
| Net cash provided by (used in) financing  activities         |       | 6,365   |       | (4,421                      | )          | 3,845                           |       | —           |       | 5,789     |       |
| Effect of exchange rate changes on cash                      |       | —  |       | 3,269                       |       | 36                              |       | —           |       | 3,305     |       |
| Net increase (decrease) in cash and cash  equivalents        |       | 11,789  |       | 157                         |       | 118                             |       | —           |       | 12,064    |       |
| Cash and cash equivalents at beginning of  period            |       | 3,306   |       | (2,381                      | )          | 837                             |       | —           |       | 1,762     |       |
| Cash and cash equivalents at end of period                   |       | $       | 15,095     |                        | $          | (2,224                          | )          | $                | 955        |      | $          | — |   | $ | 13,826 |   |

 

**10. Comprehensive Income**

 

Totalcomprehensive income for the three months ended June 28, 2003 and July 3, 2004amounted to $8,683 and $5,268, respectively. Total comprehensive income for thesix months ended June 28, 2003 and July 3, 2004 amounted to $13,928 and$11,196, respectively.

 

**11. Strategic Alternatives**

** **

The Companyhad previously announced that it was in the process of exploring strategicalternatives, including a possible sale of the Company.  A decision was made by the Company in thesecond quarter to terminate this process and therefore it has expensed $613 inassociated costs.  These costs arereflected in operating expenses as strategic alternatives.

 

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**Item2****. Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

 

**Overview**

 

We are a leading designer, manufacturer and marketerof branded products in the fragmented personal protection equipment industry.We manufacture and market a full line of personal protection equipment forworkers in the general industrial, fire service and utility/high voltageindustries. We sell our products under trusted, long-standing andwell-recognized brand names, including *North*,*Morning Pride*, *Ranger*, *Servus*,*Pro-Warrington* and *Salisbury*. Our broad product offeringincludes, among other things, respiratory protection, protective footwear, handprotection, bunker gear and linemen equipment.

 

We classifyour diverse product offerings into three primary operating segments:

 

General Industrial. We offer a diverse portfolio of leading productsfor a wide variety of industries, including the manufacturing, agriculture, automotive,food processing and pharmaceutical industries and the military, under the *North*, *Ranger*and *Servus* brand names. Ourproduct offering is one of the broadest in the personal protection equipmentindustry and includes respiratory protection, protective footwear, handprotection, eye, head and face protection, first aid, hearing protection andfall protection. We sell our general industrial products primarily throughindustrial 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,including those of New York City, Chicago and Toronto. We sell our fire serviceproducts primarily through specialized fire service distributors.

 

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.

 

**KCL Acquisition**

 

In July 2003, we acquired the stock of KCL for$20.1 million, including the assumption of $0.2 million of KCL’s netindebtedness and acquisition costs of $1.1 million. The sellers of KCL willalso be eligible to receive royalty payments of up to €0.3 million peryear over the next three years based upon the achievement of certain cumulativenet sales targets.

 

17

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**Results ofOperations**

 

The following tables set forth our results ofoperations in dollars and as a percentage of net sales for the three and sixmonths ended June 28, 2003 and July 3, 2004. The data for the three and sixmonths ended June 28, 2003 and July 3, 2004 have been derived from ourhistorical unaudited financial statements.

 
| ** **                                        | ** ** | **Three Months Ended**     | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------------|------------|----------------------|------------|
| ** **                                        | ** ** | **June 28,  2003**         | ** ** | **July 3,  2004**    | ** ** | **June 28,  2003** | ** ** | **July 3,  2004** | ** ** |
|                                              |       | **(dollars in thousands)** |       |
| Net sales:                                        |       |                       |       |                 |       |   |   |   |   |
| General industrial                                |       | $                          | 62,384     |                 | $          | 75,428 |   | $ | 121,601 |   | $ | 151,892 |   |
| Fire service                                      |       | 17,718                     |       | 19,345               |       | 34,386 |   | 39,638 |   |
| Utility/high voltage                              |       | 10,895                     |       | 12,232               |       | 20,825 |   | 24,548 |   |
| Total net sales                                   |       | 90,997                     |       | 107,005              |       | 176,812 |   | 216,078 |   |
| Cost of goods sold                                |       | 57,879                     |       | 68,823               |       | 112,932 |   | 137,700 |   |
| Gross profit                                      |       | 33,118                     |       | 38,182               |       | 63,880 |   | 78,378 |   |
| Operating expenses                                |       | 22,056                     |       | 25,994               |       | 43,552 |   | 51,690 |   |
| Income from operations:                           |       |                       |       |                 |       |   |   |   |   |
| General industrial                                |       | 5,830                      |       | 8,127                |       | 10,800 |   | 17,073 |   |
| Fire service                                      |       | 3,408                      |       | 3,304                |       | 6,644 |   | 7,245 |   |
| Utility/high voltage                              |       | 2,634                      |       | 2,427                |       | 4,554 |   | 5,144 |   |
| Corporate                                         |       | (810                       | )          | (1,670               | )          | (1,670 | ) | (2,774 | ) |
| Total income from operations                      |       | 11,062                     |       | 12,188               |       | 20,328 |   | 26,688 |   |
| Other expense (income):                           |       |                       |       |                 |       |   |   |   |   |
| Interest expense                                  |       | 5,996                      |       | 5,660                |       | 12,709 |   | 11,296 |   |
| Interest income                                   |       | (34                        | )          | (29                  | )          | (54 | ) | (64 | ) |
| Other, net                                        |       | (183                       | )          | 59                   |       | (359 | ) | 593 |   |
| Income before income taxes and minority  interest |       | 5,283                      |       | 6,498                |       | 8,032 |   | 14,863 |   |
| Income tax expense                                |       | 1,096                      |       | 1,243                |       | 1,544 |   | 2,276 |   |
| Minority interest                                 |       | —                     |       | 11                   |       | — |   | 16 |   |
| Net income                                        |       | $                          | 4,187      |                 | $          | 5,244 |   | $ | 6,488 |   | $ | 12,571 |   |

 

18

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| ** **                                       | ** ** | **Three Months Ended**             | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|----------------------|------------|
| ** **                                       | ** ** | **June 28,  2003**                 | ** ** | **July 3,  2004**    | ** ** | **June 28,  2003** | ** ** | **July 3,  2004** | ** ** |
|                                             |       | **(as a percentage of net sales)** |       |
| Net sales:                                       |       |                               |       |                 |       |   |   |   |   |
| General industrial                               |       | 68.5                               | %          | 70.5                 | %          | 68.8 | % | 70.3 | % |
| Fire service                                     |       | 19.5                               | %          | 18.1                 | %          | 19.4 | % | 18.3 | % |
| Utility/high voltage                             |       | 12.0                               | %          | 11.4                 | %          | 11.8 | % | 11.4 | % |
| Total net sales                                  |       | 100.0                              | %          | 100.0                | %          | 100.0 | % | 100.0 | % |
| Cost of goods sold                               |       | 63.6                               | %          | 64.3                 | %          | 63.9 | % | 63.7 | % |
| Gross profit                                     |       | 36.4                               | %          | 35.7                 | %          | 36.1 | % | 36.3 | % |
| Operating expenses                               |       | 24.2                               | %          | 24.3                 | %          | 24.6 | % | 23.9 | % |
| Income from operations:                          |       |                               |       |                 |       |   |   |   |   |
| General industrial                               |       | 6.4                                | %          | 7.6                  | %          | 6.1 | % | 7.9 | % |
| Fire service                                     |       | 3.8                                | %          | 3.1                  | %          | 3.7 | % | 3.4 | % |
| Utility/high voltage                             |       | 2.9                                | %          | 2.3                  | %          | 2.6 | % | 2.4 | % |
| Corporate                                        |       | (0.9                               | )%         | (1.6                 | )%         | (0.9 | )% | (1.3 | )% |
| Total income from operations                     |       | 12.2                               | %          | 11.4                 | %          | 11.5 | % | 12.4 | % |
| Other expense (income):                          |       |                               |       |                 |       |   |   |   |   |
| Interest expense                                 |       | 6.6                                | %          | 5.3                  | %          | 7.2 | % | 5.2 | % |
| Interest income                                  |       | (0.0                               | )%         | (0.0                 | )%         | (0.0 | )% | (0.0 | )% |
| Other, net                                       |       | (0.2                               | )%         | 0.1                  | %          | (0.2 | )% | 0.3 | % |
| Income before income taxes and minority interest |       | 5.8                                | %          | 6.0                  | %          | 4.5 | % | 6.9 | % |
| Income tax expense                               |       | 1.2                                | %          | 1.1                  | %          | 0.9 | % | 1.1 | % |
| Minority interest                                |       | —                             |       | 0.0                  | %          | — |   | 0.0 | % |
| Net income                                       |       | 4.6                                | %          | 4.9                  | %          | 3.6 | % | 5.8 | % |

 

***ThreeMonths Ended July 3, 2004 as Compared to Three Months Ended June 28, 2003***

 

*Net sales.*Net sales increased by$16.0 million, or 17.6%, from $91.0 million for the three monthsended June 28, 2003 to $107.0 million for the three months ended July 3,2004. In our general industrial segment, net sales increased by$13.0 million, or 20.9%, from $62.4 million for the three monthsended June 28, 2003 to $75.4 million for the three months ended July 3,2004. This increase was primarily due to: higher overall net sales in theUnited States of $4.1 million, reflecting increased government contractshipments of $2.5 million and strong overall market demand in addition to anincrease in activity of products sold through the domestic preparednesschannel; favorable European and South African exchange rates, which had animpact of $1.2 million; and the impact of the acquisition of KCL inJuly 2003, which contributed incremental net sales of $7.9 million. Theseincreases were partially offset by a $1.1 million decrease in Canadian netsales (net of a favorable exchange rate impact of $0.5 million). In our fireservice segment, net sales increased by $1.7 million, or 9.2%, from$17.6 million for the three months ended June 28, 2003 to$19.3 million for the three months ended July 3, 2004 reflecting strongmarket demand. In our utility/high voltage segment, net sales increased by$1.3 million, or 12.2%, from $10.9 million for the three months endedJune 28, 2003 to $12.2 million for the three months ended July 3, 2004primarily driven by strong overall market demand and new product introductions.

 

*Gross profit.*Grossprofit increased by $5.1 million, or 15.3%, from $33.1 million forthe three months ended June 28, 2003 to $38.2 million for the three monthsended July 3, 2004, primarily due to the $16.0 million, or 17.6%, increasein net sales. Our gross profit margin of 35.7% for the three months ended July3, 2004 was unfavorable to the 36.4% gross profit margin for the three monthsended June 28, 2003. In our general industrial segment, gross profit increasedby $4.7 million, or 20.4%, from $22.9 million for the three monthsended June 28, 2003 to $27.6 million for the three months ended July 3,2004. This increase was primarily due to: the impact of the acquisition of KCL,which contributed $3.1 million of incremental gross profit; favorableCanadian, European and South African exchange rates which had an impact of$0.6 million; and higher gross profit in the United States of $1.0million, as a result of the $4.1 million increase in net sales. In our fire servicesegment, gross profit increased by $0.4 million, or 6.6%, from $5.7million for the three months ended June 28, 2003 to $6.1 million for thethree months ended July 3, 2004, primarily due to the $1.7 million, or9.2% increase in net sales. In our utility/high voltage segment, gross profitremained consistent at $4.5 million for the three months ended June 28, 2003and three months ended July 3, 2004 as higher net sales of $1.3 million, or12.2% were offset by unfavorable product mix.

 

*Operating expenses.*Operating expenses increased by$3.9 million, or 17.9%, from $22.1 million for the three months endedJune 28, 2003 to $26.0 million for the three months ended July 3, 2004. Inour general industrial segment, operating expenses increased by $2.4 million,or 13.9%, from $17.1 million for the three months ended June 28, 2003 to$19.5 million for the three months ended July 3, 2004, as loweramortization of intangibles of $0.7 million was more than offset by higherother operating expenses due to: incremental KCL operating expenses of$2.2 million; higher Canadian, European and South African exchange rates,which had an impact of $0.4 million; higher payroll and otheradministrative costs; and increased variable distribution and selling expensesassociated with the $13.0 million or 20.9% increase in net sales. In our fireservice segment, operating expenses increased $0.4 million, or 21.0%, from$2.4 million for the three months ended June 28, 2003 to $2.8 millionfor the three months ended July 3, 2004, primarily due to additional payrolland variable selling expenses associated with the $1.7 million, or 9.2%,increase in net sales. In our utility/high voltage segment, operating expensesincreased by $0.2 million, or 11.6%, from $1.9 million for the threemonths ended June 28, 2003 to $2.1 million for the three months ended July3, 2004, primarily due to higher general and administrative and sellingexpenses. Our corporate expense increased $0.9 million, or 106.2%,primarily due to $0.6 million of expenses associated with exploring strategicalternatives and higher payroll and administrative expenses during the threemonths ended July 3, 2004.

 

*Income from operations.*Income from operations increased by$1.1 million, or 10.2%, from $11.1 million for the three months endedJune 28, 2003 to $12.2 million for the three months ended July 3, 2004. Asa percentage of net sales, income from operations decreased from 12.2% for thethree months ended June 28, 2003 to 11.4% for the three months ended July 3,2004. In our general industrial segment, income from operations increased by$2.3 million, or 39.4%, from $5.8 million for the three months endedJune 28, 2003 to $8.1 million for the three months ended July 3, 2004,primarily due to higher net sales of $13.0 million, or 20.9%. In our fireservice segment, income from operations decreased by $0.1 million, or3.0%, from $3.4 million for the three months ended June 28, 2003 to$3.3 million for the three months ended July 3, 2004, as the $1.7 million,or 9.2% increase in net sales, was more than offset by higher operatingexpenses. In our utility/high voltage segment, income from operations decreasedby $0.2 million, or 7.9%, from $2.6 million for the three monthsended June 28, 2003 to $2.4 million for the three months ended July 3,2004, primarily due to unfavorable product mix. Our corporate expensesincreased $0.9 million, or 106.2%, primarily due to $0.6 million ofexpenses associated with exploring strategic alternatives and higher payrolland administrative expenses during the three months ended July 3, 2004.

 

19

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Included in income from operations for the threemonths ended July 3, 2004 and June 28, 2003 were depreciation and amortizationexpenses of $3.0 million and $3.3 million, respectively. Of theseamounts, $2.4 million, $0.1 million, $0.3 million and$0.2 million were attributable to the general industrial, fire service,utility/high voltage segments and corporate, respectively, for the three monthsended July 3, 2004 and $2.8 million, $0.1 million, $0.3 millionand $0.1 million were attributable to these segments and corporate for thethree months ended June 28, 2003.

 

*Interest expense.*Interest expense decreased by$0.3 million, or 5.6%, from $6.0 million for the three months endedJune 28, 2003 to $5.7 million for the three months ended July 3, 2004 aslower weighted average interest rates were partially offset by higher debtlevels associated with our senior subordinated notes financing. Interestexpense incurred by NSP and the subsidiary guarantors totaled $5.9 millionfor the three months ended June 28, 2003 and $5.6 million for the threemonths ended July 3, 2004.

 

*Other, net.*Other, net increased by $0.3 from $(0.2)million for the three months ended June 28, 2003 to $0.1 million for the threemonths ended July 3, 2004 primarily due to a $0.4 million loss recorded on thesale of property, plant and equipment during the three months ended July 3,2004.

 

*Income tax expense.*Income tax expense increased by$0.1 million, from $1.1 million for the three months ended June 28,2003 to $1.2 million for the three months ended July 3, 2004.

 

*Net income (loss).*Net income increased by$1.0 million, or 25.2%, from $4.2 million for the three months endedJune 28, 2003 to $5.2  million for the three months ended July 3, 2004.This was the result of the reasons discussed above.

 

***SixMonths Ended July 3, 2004 as Compared to Six Months Ended June 28, 2003***

 

*Net sales.*Net sales increased by$39.3 million, or 22.2%, from $176.8 million for the six months endedJune 28, 2003 to $216.1 million for the six months ended July 3, 2004. Inour general industrial segment, net sales increased by $30.3 million, or24.9%, from $121.6 million for the six months ended June 28, 2003 to $151.9 millionfor the six months ended July 3, 2004. This increase was primarily due to:higher overall net sales in the United States of $8.1 million, reflectinghigher footwear shipments of $2.9 million, increased government contractshipments of $3.0 million and strong overall market demand in addition to anincrease in activity of products sold through the domestic preparednesschannel; favorable Canadian, European and South African exchange rates, whichhad an impact of $5.6 million; and the impact of the acquisition of KCL inJuly 2003, which contributed incremental net sales of $16.5 million. Inour fire service segment, net sales increased by $5.3 million, or 15.3%,from $34.3 million for the six months ended June 28, 2003 to$39.6 million for the six months ended July 3, 2004 reflecting strongmarket demand in part due to comprehensive marketing efforts. In ourutility/high voltage segment, net sales increased by $3.7 million, or17.9%, from $20.8 million for the six months ended June 28, 2003 to $24.5 millionfor the six months ended July 3, 2004 primarily driven by strong overall marketdemand and new product introductions.

 

*Gross profit.*Gross profit increased by$14.5 million, or 22.7%, from $63.9 million for the six months endedJune 28, 2003 to $78.4 million for the six months ended July 3, 2004,primarily due to the $39.3 million, or 22.2%, increase in net sales. Ourgross profit margin of 36.3% for the six months ended July 3, 2004 wasfavorable to the 36.1% gross profit margin for the six months ended June 28,2003. In our general industrial segment, gross profit increased by$12.0 million, or 26.8%, from $44.5 million for the six months endedJune 28, 2003 to $56.5 million for the six months ended July 3, 2004. Thisincrease was primarily due to: the impact of the acquisition of KCL, whichcontributed $6.6 million of incremental gross profit; favorable Canadian,European and South African exchange rates which had an impact of$1.9 million; and higher gross profit in the United States of $3.0 million,reflecting a combination of the $8.1 million increase in net sales andfavorable fixed overhead

 

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absorption. In our fire service segment, gross profit increased by$1.5 million, or 13.9%, from $11.0 million for the six months ended June28, 2003 to $12.5 million for the six months ended July 3, 2004, primarilydue to the $5.3 million, or 15.3% increase in net sales. In ourutility/high voltage segment, gross profit increased by $1.0 million, or12.3%, from $8.3 million for the six months ended June 28, 2003 to$9.3 million for the six months ended July 3, 2004, primarily due to the$3.7 million, or 17.9% increase in net sales.

 

*Operating expenses.*Operating expenses increased by$8.1 million, or 18.7%, from $43.6 million for the six months endedJune 28, 2003 to $51.7 million for the six months ended July 3, 2004. Inour general industrial segment, operating expenses increased by$5.7 million, or 16.8%, from $33.8 million for the six months endedJune 28, 2003 to $39.5 million for the six months ended July 3, 2004,as lower amortization of intangibles of $1.4 million was more than offset byhigher other operating expenses due to: incremental KCL operating expenses of$4.2 million; higher Canadian, European and South African exchange rates,which had an impact of $1.4 million; higher payroll and otheradministrative costs; and increased variable distribution and selling expensesassociated with the $30.3 million or 24.9% increase in net sales. In our fireservice segment, operating expenses increased $0.9 million, or 21.2%, from$4.4 million for the six months ended June 28, 2003 to $5.3 millionfor the six months ended July 3, 2004, primarily due to additional payroll andvariable selling expenses associated with the $5.3 million, or 15.3%,increase in net sales. In our utility/high voltage segment, operating expensesincreased by $0.4 million, or 11.4%, from $3.8 million for the six monthsended June 28, 2003 to $4.2 million for the six months ended July 3, 2004,primarily due to higher general and administrative and selling expenses. Ourcorporate expense increased $1.1 million, or 66.1%, primarily due to $0.6million of expenses associated with exploring strategic alternatives and higherpayroll and administrative expenses during the six months ended July 3, 2004.

 

*Income from operations.*Income from operations increased by$6.4 million, or 31.3%, from $20.3 million for the six months endedJune 28, 2003 to $26.7 million for the six months ended July 3, 2004. As apercentage of net sales, income from operations increased from 11.5% for thesix months ended June 28, 2003 to 12.4% for the six months ended July 3, 2004.In our general industrial segment, income from operations increased by$6.3 million, or 58.1%, from $10.8 million for the six months endedJune 28, 2003 to $17.1 million for the six months ended July 3, 2004,primarily due to higher net sales of $30.3 million, or 24.9%. In our fireservice segment, income from operations increased by $0.6 million, or9.1%, from $6.6 million for the six months ended June 28, 2003 to$7.2 million for the six months ended July 3, 2004, primarily due to the$5.3 million, or 15.3%, increase in net sales. In our utility/high voltagesegment, income from operations increased by $0.6 million, or 13.0%, from$4.5 million for the six months ended June 28, 2003 to $5.1 millionfor the six months ended July 3, 2004, primarily due to higher net sales of$3.7 million, or 17.9%. Our corporate expenses increased $1.1 million, or66.1%, primarily due to $0.6 million of expenses associated with exploringstrategic alternatives and higher payroll and administrative expenses duringthe six months ended July 3, 2004.

 

Included in income from operations for the six monthsended July 3, 2004 and June 28, 2003 were depreciation and amortizationexpenses of $5.9 million and $6.7 million, respectively. Of theseamounts, $4.8 million, $0.2 million, $0.6 million and$0.3 million were attributable to the general industrial, fire service,utility/high voltage segments and corporate, respectively, for the six monthsended July 3, 2004 and $5.6 million, $0.2 million, $0.6 millionand $0.3 million were attributable to these segments and corporate for thesix months ended June 28, 2003.

 

*Interest expense.*Interest expense decreased by$1.4 million, or 11.1%, from $12.7 million for the six months endedJune 28, 2003 to $11.3 million for the six months ended July 3, 2004.Included in interest expense for the six months ended June 28, 2003 is $1.3 millionattributable to the write-off of deferred financing fees associated with thesenior credit facility financing. Excluding this write-off, interest expense decreased by $0.1 million aslower weighted average interest rates were partially offset by higher debtlevels associated with our senior subordinated notes financing. Interestexpense incurred by NSP and the subsidiary guarantors totaled$12.6 million for the six months ended June 28, 2003 and$11.2 million for the six months ended July 3, 2004.

 

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*Other, net.*Other, net increased by $1.0 from $(0.4)million for the six months ended June 28, 2003 to $0.6 million for the sixmonths ended July 3, 2004 primarily due to a $0.4 million loss recorded on thesale of property, plant and equipment and unrealized foreign exchange lossesrecorded as a result of the strengthening of the U.S. dollar during the sixmonths ended July 3, 2004.

 

*Income tax expense.*Income tax expense increased by$0.8 million, from $1.5 million for the six months ended July 28,2003 to $2.3 million for the six months ended July 3, 2004, primarily dueto incremental KCL income tax expense of $0.7 million.

 

*Net income (loss).*Net income increased by$6.1 million, or 93.8%, from $6.5 million for the six months endedJune 28, 2003 to $12.6 million for the six months ended July 3, 2004. Thiswas the result of the reasons discussed above.

 

**Liquidity andCapital Resources**

 

We have historically used internal cash flow fromoperations, commercial borrowings on our lines of credit, seller notes,investments from our equityholders and capital markets transactions to fund ouroperations, acquisitions, capital expenditures and working capitalrequirements. For the six months ended July 3, 2004 and June 28, 2003, cashprovided by operating activities was $7.1 million and $6.6 million,respectively. The $0.5 million increase was primarily attributable to a$6.1 million increase in net income which was partially offset by an increasein working capital in part due to higher net sales of $39.3 million.

 

Historically,our principal uses of cash have been capital expenditures, acquisitions andworking capital. Our capital expenditures were $2.6 million for the sixmonths ended July 3, 2004 and $2.5 million for the six months ended June28, 2003. During the six months ended July 3, 2004 and June 28, 2003, we fundedcash to NSP Holdings L.L.C. of $1.7 million and $0.9 million,respectively.

 

As of July 3,2004, we had working capital of $120.5 million and cash of$17.7 million. We maintain inventory levels sufficient to satisfy customerorders on demand, with generally a three month supply on hand. Bunker gear isan exception and is generally made to order. Our accounts receivable terms aregenerally 30 days, net.

 

For the six monthsended July 3, 2004, net cash used in financing activities was$1.3 million, representing payments on long term debt obligations. For thesix months ended June 28, 2003, net cash provided by financing activities was$5.8 million, representing payments of deferred financing costs of $7.0million, retirement of our previous senior credit facility and other debtpayments of $117.2 million, offset by borrowings under our senior creditfacility of $130.0 million.

 

On March 21, 2003, we entered into a seniorcredit facility which provides for aggregate borrowings by us of$160.0 million and C$10.0 million, consisting of (1) a$30.0 million United States revolving credit facility; (2) aC$10.0 million Canadian revolving credit facility; and (3) a$130.0 million term loan. As of July 3, 2004, there was approximately$98.4 million of outstanding indebtedness under the senior credit facilityand approximately $35.8 million of available borrowings under the revolvingfacilities. We used the proceeds of our senior credit facility to refinance ourexisting senior credit facility and for general corporate purposes, includingworking capital, refinancings, acquisitions, investments and capitalexpenditures.

 

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As of July 3, 2004, borrowings under the senior creditfacility bore interest at a weighted average rate of 4.90%. Prior toMarch 20, 2008, we may borrow, repay and re-borrow under the revolvingfacilities without payment of penalty or premium. The term loan is payable inquarterly installments totaling $1.3 million per annum, with the remainderdue on March 20, 2009. All of the domestic borrowers’ obligations underthe senior credit facility are secured by a pledge of all our equity securitiesand the equity securities of our direct and indirect domestic subsidiaries,substantially all of our tangible and intangible assets and 65% of the equitysecurities of, or equity interest in, each of our foreign subsidiaries. All ofthe obligations under the senior credit facility are guaranteed by all of ourpresent and future domestic subsidiaries, and all of the Canadian borrower’sobligations under the senior credit facility are guaranteed by all of ourpresent and future Canadian subsidiaries.

 

Our seniorcredit facility and the indenture governing the notes contain, numerousrestrictive covenants, including, among other things, covenants that limit ourability to incur indebtedness, use our assets as security in othertransactions, make fundamental changes to our capital structure, dispose ofassets, pay dividends, make capital expenditures, enter into transactions withaffiliates and enter into sale and leaseback transactions. In addition, oursenior credit facility requires us to meet specified financial ratios and tests.

 

OnAugust 13, 2003, the Company issued $152.5 million of 9.875% seniorsubordinated notes due 2011 and received gross proceeds of $151.5 million.The proceeds were primarily used to: (i) repay principal and interest andrepurchase warrants related to our previous senior subordinated notes,(ii) repay $30.0 million of principal related to the term loan,(iii) repay principal on the junior subordinated notes used to finance theKCL acquisition, (iv) purchase preferred units of NSP Holdings L.L.C. fromcertain members of management and (v) pay fees and expenses.

 

In connection with the offering, we amended our seniorcredit facility to provide for the incurrence of the outstanding seniorsubordinated notes. The amendment also modified certain of the covenants underour senior credit facility.

 

We believe that our internal cash flows and borrowingsunder the revolving portions of our senior credit facility will provide us withsufficient liquidity and capital resources to meet our current and futurefinancial obligations for the foreseeable future, including funding ouroperations, debt service and capital expenditures. Our future operatingperformance will be subject to future economic conditions and to financial,business and other factors, many of which are beyond our control. If our futurecash flow from operations and other capital resources are insufficient to payour obligations as they mature or to fund our liquidity needs, we may be forcedto reduce or delay our business activities and capital expenditures, sellassets, obtain additional debt or equity capital or restructure or refinanceall or a portion of our debt, on or before maturity. We cannot assure you thatwe would be able to accomplish any of these alternatives on a timely basis oron satisfactory terms, if at all. In addition, the terms of our existing andfuture indebtedness, including our senior subordinated notes and our seniorcredit facility, may limit our ability to pursue any of these alternatives.

 

**Forward-Looking Statements**

 

This Management’s Discussion and Analysis of FinancialCondition and Results of Operations contains forward-looking information. Thesestatements reflect management’s expectations, estimates, and assumptions basedon information available at the time of the statement. Forward-lookingstatements include, but are not limited to, statements regarding future events,plans, goals, objectives, and expectations. The words ‘‘anticipate,’’‘‘believe,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘intent,’’ ‘‘likely,’’‘‘will,’’ ‘‘should,’’ and similar expressions are intended to identifyforward-looking statements. Forward-looking statements are not guarantees offuture performance and involve risks, uncertainties, and other

 

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factors, including those set forth below, which may cause our actualresults, performance, or achievements to be materially different from anyfuture results, performance, or achievements expressed or implied by thosestatements. Important factors that could cause our actual results, performance,or achievements to be materially different from any future results,performance, or achievements expressed or implied by those statements include,but are not limited to: (i) our high degree of leverage and significant debtservice obligations; (ii) the impact of current and future laws andgovernmental regulations affecting us or our product offerings; (iii) theimpact of governmental spending; (iv) our ability to retain existing customers,maintain key supplier status with those customers with which we have achievedsuch status, and obtain new customers; (v) the highly competitive nature of thepersonal protection equipment industry; (vi) any future changes in management;(vii) acceptance by consumers of new products we develop or acquire; (viii) theimportance and costs of product innovation; (ix) unforeseen problems associatedwith international sales, including gains and losses from foreign currencyexchange and restrictions on the efficient repatriation of earnings; (x) theunpredictability of patent protection and other intellectual property issues;(xi) cancellation of current orders; (xii) the outcome of pending productliability claims and the availability of indemnification for those claims;(xiii) general risks associated with the personal protection equipmentindustry; and (xiv) the successful integration of acquired companies oneconomically acceptable terms. We undertake no obligation to publicly update orrevise any forward-looking statements to reflect changed assumptions, theoccurrence of anticipated or unanticipated events, or changes to future resultsover time.

 

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**Item3****. Quantitative and Qualitative Disclosures About Market Risk**

 

There have been no material changes to our exposure tomarket risk since December 31, 2003.

 

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**Item4****. 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 II**OTHER INFORMATION

 

**Item 1. Legal Proceedings**

 

Our North Safety Products subsidiary, its predecessorsand/or the former owners of such business are presently named as a defendant inapproximately 713 lawsuits involving respirators manufactured and sold by it orits predecessors. We are also monitoring an additional 13 lawsuits in which wefeel that North Safety Products, its predecessors and/or the former owners ofsuch businesses may be named as defendants. Collectively, these 726 lawsuitsrepresent approximately 25,000 (excluding spousal claims) plaintiffs.Approximately 90% of these lawsuits involve plaintiffs alleging that theysuffer from silicosis, with the remainder alleging they suffer from other orcombined injuries, including asbestosis. These lawsuits typically allege thatthese conditions resulted in part from respirators that were negligentlydesigned or manufactured. The defendants in these lawsuits are often numerous,and include, in addition to respirator manufacturers, employers of theplaintiffs and manufacturers of sand (used in sand blasting) and asbestos. Weacquired our North Safety Products subsidiary on October 2, 1998 from Siebeplc. In connection with the acquisition, Siebe, which was subsequently mergedwith BTR plc (now known as “Invensys plc”), contractually agreed to indemnifyus for any losses, including costs of defending claims, resulting fromrespiratory products manufactured prior to our acquisition of North SafetyProducts in October 1998.

 

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

 

Despite these indemnification arrangements, we couldpotentially be liable for these losses or claims relating to productsmanufactured prior to the October 1998 acquisition date if Invensys fails tomeet its obligations to indemnify us and we could potentially be liable forthese losses and claims relating to products sold prior to January 10, 1983 ifboth Invensys and Norton fail to meet their obligations to indemnify us. Wecould also be liable if the alleged exposure involved the use of a productmanufactured by us after our October 1998 acquisition of the North SafetyProducts business. Invensys is currently handling the defense of all of thecases in which North Safety Products, its predecessors and/or the former ownersof such businesses have been named as defendants, and to date we have notincurred any material costs with respect to these lawsuits. As of July 3, 2004,Invensys has sent us requests for reimbursement totaling $61,143, relating tosettled cases in which Invensys claims that the period of alleged exposureincluded periods after October 1998. To date, we have not reimbursed Invensysfor these claims, as we are currently pursuing negotiations regarding theallocation of costs and the determination of the alleged exposure periods.Based on information provided to us by Invensys, we believe that Invensys hasmade payments with respect to settlement of these claims of $0.7 million forthe six months ended July 3, 2004. Separately, we settled on an unusual casealong with Invensys for $65,000 in which our settlement share was $45,000 (ournet contribution after insurance proceeds was $25,000).

 

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Consistent with the current environment beingexperienced by companies involved in silica and asbestos-related litigation,there has been an increase in the number of asserted claims that couldpotentially involve us. Based upon information provided to us by Invensys, webelieve activity related to these lawsuits was as follows for the six monthsended July 3, 2004:

 
| ** **           | ** ** | ** ** | ** ** |
|----------------------|------------|------------|------------|
| Beginning lawsuits   | ** ** | 680        | ** ** |
| New lawsuits         |       | 140        |       |
| Settlements          |       | (27        | )          |
| Dismissals and other |       | (67        | )          |
| Ending lawsuits      |       | 726        |       |

 

Plaintiffshave asserted specific dollar claims in less than a quarter of theapproximately 713 cases pending as of July 3, 2004 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 resolved without anypayment or payment of a small fraction of the damages initially claimed. Of the713 complaints, 570 do not specify the amount of damages sought, 39 generallyallege damages in excess of $50,000, 27 allege compensatory damages andpunitive damages, each in excess of $25,000, 4 generally allege damages inexcess of $100,000, 28 allege compensatory damages and punitive damages, eachin excess of $50,000, 34 generally allege damages of $15.0 million, 2allege compensatory damages and punitive damages, each in the amount of$15.0 million, 1 alleges compensatory damages and punitive damages, eachin excess of $10,000, 1 alleges compensatory damages and punitive damages, eachin excess of $15,000, 1 generally alleges damages in excess of $250,000, 2generally allege damages in excess of $25,000, 1 generally alleges damages inexcess of $4,000 and 1 generally alleges damages not to exceed$290.0 million. We currently do not have access to the complaints withrespect to the additional approximately 2 cases that were pending as of July 3,2004 in which North Safety Products, its predecessors and/or the former ownersof such businesses have been named as defendants, or the previously mentionedadditional 13 cases we are monitoring, and therefore do not know whetherthese cases allege specific damages, and, if so, the amount of such damages,but are in the process of seeking to obtain such information. Due to thereasons noted above and to the indemnification arrangements benefiting theCompany, we do not believe that the damage amounts specified in thesecomplaints are a meaningful factor in any assessment of the Company’s potentialliability.

 

Bankruptcy filings of companies with asbestos and silica-relatedlitigation could increase our cost over time. If we were found liable in thesecases and either Invensys or Norton failed to meet their indemnificationobligations to us or the suit involved products manufactured by us after ourOctober 1998 acquisition of North Safety Products, it would have a materialadverse effect on our business.

 

We are not otherwise involved in any material lawsuits. We historicallyhave not been required to pay any material liability claims. We maintaininsurance against product liability claims (with the exception of asbestosisand silicosis cases, for which coverage is not commercially available), but itis possible that our insurance coverage will not continue to be available onterms acceptable to us or that such coverage will not be adequate forliabilities actually incurred. We have a reserve of $2.3 million againstpotential uninsured product liability claims of North Safety Products forperiods prior to October 1998. This reserve was established at the date ofacquisition and relates to potential claims primarily associated with fallprotection products sold in Canada. We have not recorded any losses againstthis reserve to date. This reserve is re-evaluated periodically, and additionalcharges or credits to operations may result as additional information becomesavailable. It is possible that we may incur liabilities in an amount in excessof amounts currently reserved. However, taking into account currently availableinformation, historical experience, and our indemnification from Invensys, butrecognizing the inherent uncertainties in the projection of any future events,we believe that these suits or claims should not result in final judgments orsettlements in excess of our reserve. We do not have a reserve for productliability claims for use of products manufactured after the 1998 acquisition ofNorth Safety Products as we are not involved in any material lawsuits relatingexclusively to product usage in the periods after October 1998. Inaddition, we are not a party to any lawsuits involving asbestosis or silicosisrelating exclusively to product usage in the period after October 1998.

 

**Item6.****Exhibits and Reports on Form 8-K**

 

(a)                                  Exhibits

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                       |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                  |
| 3.1             |       | Second  Amended and Restated Agreement of Limited Liability Company of NSP Holdings  L.L.C.                                                                                                                                                           |
|            |       |                                                                                                                                                                                                                                                  |
| 10.1            |       | Form  of Class E Unit Purchase Agreement entered into between NSP Holdings L.L.C.  and Robert A.  Peterson                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                  |
| 10.2            |       | Form  of Class E Unit Purchase Agreement entered into between NSP Holdings L.L.C.  and David F. Myers, Jr.                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                  |
| 10.3            |       | Form  of Class E Unit Purchase Agreement entered into between NSP Holdings L.L.C.  and each of the persons listed on Exhibit A to such form of agreement as of  the dates and with respect to the number of Class E Units set forth on such  Exhibit. |
|            |       |                                                                                                                                                                                                                                                  |
| 10.4            |       | NSP  Holdings L.L.C. Unit Appreciation Rights Plan                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                  |
| 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                                                                                                                                                  |

 

(b)                                 Reports on Form 8-K

 

On May 12, 2004 we filed acurrent report on Form 8-K to furnish, under Item 12 of that form, our pressrelease announcing our results for the three months ended April 3, 2004.

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, Norcross Safety Products L.L.C. has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
|             | NORCROSS SAFETY PRODUCTS L.L.C. |
|------------------|---------------------------------|
|             |                            |
|             |                            |
| August 11,  2004 | By:                             | /s/ Robert A. Peterson |   |
|             |                            | Robert A.  Peterson |
|             |                            | President,  Chief Executive Officer and Manager |
|             |                            | (Principal  Executive Officer) |
|             |                            |   |
|             |                            |   |
| August 11,  2004 | By:                             | /s/ David F. Myers, Jr. |   |
|             |                            | David F. Myers, Jr. |
|             |                            | Executive Vice President, Chief Financial Officer, |
|             |                            | Secretary and Manager |
|             |                            | (Principal  Financial and Accounting Officer) |

 

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**NORCROSS SAFETY PRODUCTS L.L.C.FORM 10-Q LISTING OF EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                       |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1             |       | Second  Amended and Restated Agreement of Limited Liability Company of NSP Holdings  L.L.C.                                                                                                                                                           |
|            |       |                                                                                                                                                                                                                                                  |
| 10.1            |       | Form  of Class E Unit Purchase Agreement entered into between NSP Holdings L.L.C.  and Robert A.  Peterson                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                  |
| 10.2            |       | Form  of Class E Unit Purchase Agreement entered into between NSP Holdings L.L.C.  and David F. Myers, Jr.                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                  |
| 10.3            |       | Form  of Class E Unit Purchase Agreement entered into between NSP Holdings L.L.C.  and each of the persons listed on Exhibit A to such form of agreement as of  the dates and with respect to the number of Class E Units set forth on such  Exhibit. |
|            |       |                                                                                                                                                                                                                                                  |
| 10.4            |       | NSP  Holdings L.L.C. Unit Appreciation Rights Plan                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                  |
| 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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