SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              --------------------

                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended June 30, 2002


                         Commission file number 33-96190


                                AEARO CORPORATION
             (Exact name of registrant as specified in its charter)

                            ------------------------


                Delaware                                 13-3840450
     (State or other jurisdiction of           (IRS Employer Identification No.)
     incorporation or organization)


          5457 West 79th Street                            46268
          Indianapolis, Indiana                          (Zip Code)
(Address of principal executive offices)

                                 (317) 692-6666
              (Registrant's telephone number, including area code)

                            ------------------------

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No__

         The number of shares of the registrant's common stock, par value $.01
per share, outstanding as of August 14, 2002 was 101,912.5.

                                     - 1 -
<PAGE>
                                Aearo Corporation
                                TABLE OF CONTENTS
             Form 10-Q for the Quarterly Period Ended June 30, 2002

PART I-FINANCIAL INFORMATION...................................................3
----------------------------

Item 1.    Financial Statements................................................3
-------    --------------------
           Condensed Consolidated Balance Sheets - Assets......................3
           ----------------------------------------------
           Condensed Consolidated Balance Sheets
           - Liabilities and Stockholders' Equity..............................4
           --------------------------------------
           Condensed Consolidated Statements of Operations.....................5
           -----------------------------------------------
           Condensed Consolidated Statements of Cash Flows.....................6
           -----------------------------------------------
           Notes To Condensed Consolidated Financial Statements................7
           ----------------------------------------------------
Item 2.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations..........................................14
           ------------------------------------------------------------
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........23
-------    ----------------------------------------------------------
PART II - OTHER INFORMATION...................................................25
---------------------------

Item 1.    Legal Proceedings..................................................25
-------    -----------------
Item 2.    Changes in Securities and Use of Proceeds..........................26
-------    -----------------------------------------
Item 3.    Defaults Upon Senior Securities....................................26
-------    -------------------------------
Item 4.    Submission of Matters to a Vote of Security Holders................26
-------    ---------------------------------------------------
Item 5.    Other Information..................................................26
-------    -----------------
Item 6.    Exhibits and Reports on Form 8-K...................................26
-------    --------------------------------
SIGNATURES....................................................................27
----------

CERTIFICATIONS................................................................28
--------------

EXHIBIT INDEX.................................................................29
-------------
                                     - 2 -
<PAGE>

                          PART I-FINANCIAL INFORMATION
     Item 1.      Financial Statements

                                AEARO CORPORATION

                 Condensed Consolidated Balance Sheets - Assets

                             (Dollars in Thousands)

<TABLE>
                                                                  --------------   --------------
                                                                       June 30,     September 30,
                                                                         2002           2001
                                                                  --------------   --------------
                                                                    (Unaudited)
CURRENT ASSETS:
<S>                                                               <C>              <C>
  Cash and cash equivalents                                       $     11,459     $      18,233
  Accounts receivable (net of reserve for doubtful accounts of
      $1,249 and $831 respectively)                                     48,724            42,428
  Inventories                                                           33,666            29,564
  Deferred and prepaid expenses                                          3,656             2,325
                                                                 -------------      -------------

      Total current assets                                              97,505            92,550
                                                                 -------------      -------------

PROPERTY, PLANT AND EQUIPMENT, NET                                      48,929            47,003

INTANGIBLE ASSETS, NET                                                 123,046           118,200

OTHER ASSETS                                                             2,652             3,549
                                                                 -------------      ------------


      Total assets                                                $    272,132      $    261,302
                                                                  ============     =============
</TABLE>

     The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                     - 3 -
<PAGE>

                                AEARO CORPORATION

  Condensed Consolidated Balance Sheets - Liabilities and Stockholders' Equity

                             (Dollars in Thousands)

<TABLE>
                                                                                -------------------- -- ------------------
                                                                                    June 30,                September 30,
                                                                                      2002                      2001
                                                                                --------------------    ------------------
                                                                                  (Unaudited)
CURRENT LIABILITIES:
<S>                                                                             <C>                       <C>
   Current portion of long-term debt                                            $         11,314          $         8,393
   Accounts payable and accrued liabilities                                               41,276                   37,896
   Accrued interest                                                                        5,663                    2,691
   U.S. and foreign income taxes                                                           2,813                    2,265
                                                                                ----------------           --------------

         Total current liabilities                                                        61,066                   51,245
                                                                                ----------------           --------------

LONG-TERM DEBT                                                                           186,134                  193,836

DEFERRED INCOME TAXES                                                                        429                      383

OTHER LIABILITIES                                                                          6,503                    5,982
                                                                                ----------------           --------------

         Total liabilities                                                      $        254,132           $      251,446
                                                                                ----------------           --------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value-
   (Redemption value of $106,102 and $96,801, respectively)
     Authorized--200,000 shares
     Issued and outstanding--45,000 shares                                                      -                        -
   Common stock, $.01 par value-
     Authorized--200,000 shares
     Issued and outstanding--101,913 and 102,088 shares, respectively                           1                        1
   Additional paid-in capital                                                             32,226                   32,374
   Accumulated earnings (deficit)                                                          1,094                   (2,494)
   Accumulated other comprehensive loss                                                  (15,321)                 (20,025)
                                                                                -----------------          --------------

         Total stockholders' equity                                                       18,000                    9,856
                                                                                ----------------           --------------

         Total liabilities and stockholders' equity                             $        272,132           $      261,302
                                                                                ================           ==============
</TABLE>

     The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                     - 4 -
<PAGE>


                 Condensed Consolidated Statements of Operations

                             (DOLLARS IN THOUSANDS)

                                   (Unaudited)
<TABLE>

                                                    ------------------------------------ --- -------------------------------------
                                                        For the Three Months Ended                For the Nine Months Ended
                                                                 June 30,                                  June 30,
                                                    ------------------------------------     -------------------------------------
                                                         2002                2001                 2002                 2001
                                                    ----------------    ----------------     ----------------    -----------------
<S>                                                 <C>                 <C>                  <C>                 <C>
NET SALES                                           $        76,435     $        72,138      $       208,761     $       214,542

COST OF SALES                                                40,024              39,007              110,312             115,676
                                                    ---------------     ---------------      ---------------     ---------------

         Gross profit                                        36,411              33,131               98,449              98,866

SELLING AND ADMINISTRATIVE                                   24,914              19,570               68,602              65,664

RESEARCH AND TECHNICAL SERVICES                               1,493               1,138                4,251               3,987

AMORTIZATION OF INTANGIBLES                                   1,570               1,593                4,686               4,882

OTHER CHARGES (INCOME), NET                                     330                 (87)                 368                 437
                                                    ---------------     ---------------      ---------------     ---------------

         Operating income                                     8,104              10,917               20,542              23,896

INTEREST EXPENSE, NET                                         4,972               5,451               15,018              17,131
                                                    ---------------     ---------------      ---------------     ---------------

         Income before provision for income taxes
                                                              3,132               5,466                5,524               6,765

PROVISION FOR INCOME TAXES                                      850                 454                1,936               1,105
                                                    ---------------     ---------------      ---------------     ---------------

         Net income                                 $         2,282     $         5,012      $         3,588     $         5,660
                                                    ===============     ===============      ===============     ===============
</TABLE>

     The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                     - 5 -
<PAGE>

                 Condensed Consolidated Statements of Cash Flows
                             (DOLLARS IN THOUSANDS)
                                   (Unaudited)
<TABLE>
                                                                                  -----------------------------------------
                                                                                         For the Nine Months Ended
                                                                                                  June 30,
                                                                                  -----------------------------------------
                                                                                          2002                  2001
                                                                                  -------------------    ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                 <C>                    <C>
   Net income                                                                       $       3,588          $       5,660
   Adjustments to reconcile net income to cash provided by operating activities-
      Depreciation                                                                          7,976                  7,695
      Amortization of intangible assets and deferred financing costs                        5,842                  5,990
      Deferred income taxes                                                                    --                   (150)
      Other, net                                                                              288                    186
      Changes in assets and liabilities-(net of effects of acquisitions)
         Accounts receivable                                                               (2,226)                 1,276
         Inventories                                                                       (1,385)                (1,178)
         Accounts payable and accrued liabilities                                             829                 (4,809)
         Other, net                                                                           (21)                  (731)
                                                                                    -------------          -------------

              Net cash provided by operating activities                                    14,891                 13,939
                                                                                    -------------          -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to property, plant and equipment                                              (5,846)                (5,804)
   Cash paid for Iron Age Vision                                                             (706)                    --
   Cash paid for Leader                                                                    (3,636)                    --
   Cash paid for Chesapeake                                                                (3,000)                    --
   Proceeds provided by disposals of property, plant and equipment                             13                     36
                                                                                    -------------          -------------

              Net cash used by investing activities                                       (13,175)                (5,768)
                                                                                    -------------          -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from revolving credit facility, net                                                --                 11,750
   Repayment of bonds                                                                      (2,000)                    --
   Repayment of term loans                                                                 (6,097)               (13,301)
   Repayment of capital lease obligations                                                    (100)                    --
   Repayment of long-term debt                                                               (102)                   (97)
   Other                                                                                     (147)                   173
                                                                                    -------------          -------------

              Net cash used by financing activities                                        (8,446)                (1,475)
                                                                                    -------------          -------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                       (44)                (1,237)
                                                                                    -------------          -------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                           (6,774)                 5,459

CASH AND CASH EQUIVALENTS, BEGINNING OF  PERIOD                                            18,233                  3,495
                                                                                    -------------          -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                            $      11,459          $       8,954
                                                                                    =============          =============

NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Capital lease obligations                                                        $       1,421          $          --
                                                                                    =============          =============

CASH PAID FOR:
   Interest                                                                         $      10,952          $      13,646
                                                                                    =============          =============
   Income taxes                                                                     $       1,536          $       1,557
                                                                                    =============          =============
</TABLE>
     The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                     - 6 -
<PAGE>

              Notes To Condensed Consolidated Financial Statements
                                  JUNE 30, 2002
                                   (Unaudited)

1)   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     In  the  opinion  of  management,   the  accompanying  unaudited  condensed
     consolidated  financial  statements  contain all  adjustments  necessary to
     present fairly, in accordance with accounting principles generally accepted
     in the United States of America, the Company's financial position,  results
     of operations and cash flows for the interim periods presented. The results
     of  operations  for  the  interim  periods  shown  in this  report  are not
     necessarily  indicative of results for any future interim period or for the
     entire year.  These  condensed  consolidated  financial  statements  do not
     include all  disclosures  associated with annual  financial  statements and
     accordingly  should be read in conjunction with the consolidated  financial
     statements  and notes thereto  included in the  Company's  Annual Report on
     Form 10-K405.

2)   COMPANY BACKGROUND

     Aearo  Corporation,  a Delaware  corporation,  and its direct  wholly owned
     subsidiary, Aearo Company, a Delaware corporation (collectively referred to
     herein as "the  Company")  manufactures  and sells products under the brand
     names:  AOSafety(R),  E-A-R(R),  and  Peltor(R).  These  products  are sold
     through  three  reportable  segments,  which are  Safety  Products,  Safety
     Prescription Eyewear and Specialty Composites.

3)   SIGNIFICANT ACCOUNTING POLICIES

     Use of Estimates.  The preparation of the condensed  consolidated financial
     statements in conformity with accounting  principles  generally accepted in
     the United  States of America  requires  management  to make  estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during the  reporting  periods.  Actual  results  could  differ  from those
     estimates.

     Revenue  Recognition.  The Company  recognizes revenue upon shipment of its
     products to customers.

     Foreign  Currency  Translation.  Assets and  liabilities  of the  Company's
     foreign operations are translated at period-end  exchange rates. Income and
     expenses are translated at the approximate  average rate during the period.
     Foreign  currency  translation  adjustments  are  recorded  as  a  separate
     component  of  stockholders'  equity.  Foreign  currency  gains and  losses
     arising  from  transactions  by  any  of  the  Company's  subsidiaries  are
     reflected in net income.

     Shipping and Handling Fees and Costs.  Shipping and handling  costs include
     payments to third  parties for the  delivery of products to  customers,  as
     well as internal  salaries and overhead costs  incurred to store,  move and
     prepare  finished  products for shipment.  Shipping and handling  costs are
     included  with  selling and  administrative  expenses  in the  accompanying
     condensed consolidated statement of operations. Shipping and handling costs
     in the three months ended June 30, 2001 and 2002 were $4.3 million and $4.6
     million, respectively. Shipping and handling costs in the nine months ended
     June 30,  2001 and 2002 were  $12.8 and $12.8  million,  respectively.  The
     Company  recovers a portion of its  shipping  and  handling  costs from its
     customers and records this recovery in net sales.

     Income Taxes.  Deferred tax assets and liabilities are determined  based on
     the difference between the financial  statement and tax basis of assets and
     liabilities using enacted tax rates.

     Intangible  Assets.  Intangible  assets consist  primarily of the goodwill,
     patents,  and  trademarks  purchased in business  acquisitions.  Intangible
     assets are amortized over their estimated useful lives.

     The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                     - 7 -
<PAGE>
                                AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                  JUNE 30, 2002
                                   (Unaudited)

     Rescission  of  FASB  Statements  No.  4,  44,  and 64,  Amendment  of FASB
     Statement No. 13, and Technical Corrections. In April 2002, the FASB issued
     SFAS No. 145,  "Rescission of FASB Statements No. 4, 44, and 64,  Amendment
     of FASB  Statement  No.  13, and  Technical  Corrections".  This  statement
     rescinds SFAS No. 4,  "Reporting  Gains and Losses from  Extinguishment  of
     Debt", and an amendment of that Statement, SFAS No. 64, "Extinguishments of
     Debt  Made to  Satisfy  Sinking-Fund  Requirements".  This  Statement  also
     rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers".
     This Statement amends SFAS No. 13, "Accounting for Leases", to eliminate an
     inconsistency   between  the   required   accounting   for   sale-leaseback
     transactions  and the required  accounting for certain lease  modifications
     that have economic effects that are similar to sale-leaseback transactions.
     This Statement also amends other existing  authoritative  pronouncements to
     make various  technical  corrections,  clarify  meanings or describe  their
     applicability  under changed  conditions.  The provisions of this statement
     related to the  rescission  of SFAS No. 4 will be  applied in fiscal  years
     beginning  after May 15, 2002.  The Company is in the process of evaluating
     the impact of this statement on its financial statements and will adopt the
     provisions of this statement in the first quarter of fiscal year 2003.

     Impairment or Disposal of Long-Lived  Assets. In August 2001, the Financial
     Accounting   Standards  Board  ("FASB")   issued   Statement  of  Financial
     Accounting  Standards  ("SFAS") No. 144  "Accounting  for the Impairment or
     Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting
     and  reporting  for the  impairment  or disposal of  long-lived  assets and
     superceded  SFAS No. 121,  "Accounting  for the  Impairment  of  Long-Lived
     Assets  and  for  Long-Lived  Assets  to Be  Disposed  Of"  and  Accounting
     Principles   Board   ("APB")   No.   30,    "Reporting   the   Results   of
     Operations-Reporting  the  Effects of  Disposal of a Segment of a Business,
     and   Extraordinary,   Unusual  and   Infrequently   Occurring  Events  and
     Transactions".  SFAS No 144 is effective in fiscal  years  beginning  after
     December 15, 2001, with early adoption permitted.  The Company is currently
     assessing the impact of adopting  this standard and has not yet  determined
     the effect of adoption on its financial position and results of operations.

     Asset Retirement  Obligations.  In July 2001, the FASB issued SFAS No. 143,
     "Accounting for Asset  Retirement  Obligations".  SFAS No. 143 is effective
     for fiscal years beginning after June 15, 2002, and establishes  accounting
     standards  requiring  the  recording  of  the  fair  value  of  liabilities
     associated with the retirement of long-lived  assets in the period in which
     they are  incurred.  The  Company  is  currently  assessing  the  impact of
     adopting this standard and has not yet determined the effect of adoption on
     its financial position and results of operations.

     Business  Combinations,  Goodwill and Other Intangibles.  In June 2001, the
     FASB issued two new pronouncements:  SFAS No. 141, "Business  Combinations"
     and SFAS No. 142  "Goodwill and Other  Intangibles."  SFAS No. 141 requires
     that  the  purchase   method  of   accounting  be  used  for  all  business
     combinations  initiated  after  June  30,  2001  and  that  the  use of the
     pooling-of-interest method is no longer allowed. SFAS No. 142 requires that
     upon  adoption,  amortization  of goodwill of  approximately  $3.2  million
     annually  will  cease  and  instead,  the  carrying  value of  goodwill  be
     evaluated for impairment on an annual basis. Identifiable intangible assets
     will  continue to be  amortized  over their  useful  lives and reviewed for
     impairment in accordance  with SFAS No. 121  "Accounting for the Impairment
     of  Long-Lived  Assets to be Disposed  Of".  SFAS No. 142 is effective  for
     fiscal years  beginning  after December 15, 2001. The Company is evaluating
     the impact of the adoption of these  standards  and has not yet  determined
     the effect of adoption on its financial position and results of operations.

     Accounting for Derivative  Instruments and Hedging Activities.  The Company
     adopted  the  provisions  of  SFAS  No.  133,  "Accounting  for  Derivative
     Instruments  and  Hedging  Activities"  on October  1,  2000.  SFAS No. 133
     requires that every derivative  instrument be recorded in the balance sheet
     as either an asset or a liability measured at its fair value.

          The  accompanying  notes  are an  integral  part  of  these  condensed
     consolidated financial statements.

                                     - 8 -
<PAGE>
                                AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                  JUNE 30, 2002
                                   (Unaudited)

     The Company has formally  documented its hedging  relationships,  including
     identification  of the hedging  instruments and the hedge items, as well as
     its risk management  objectives and strategies for  undertaking  each hedge
     transaction.  From time to time the Company  enters into  foreign  currency
     forward contracts and interest rate swap and collar  agreements,  which are
     derivatives  as defined by SFAS No. 133.  The Company  enters into  foreign
     currency  forward  contracts  to mitigate the effects of changes in foreign
     currency  rates on  profitability  and enters into  interest  rate swap and
     collar   agreements  to  hedge  its  variable  interest  rate  risk.  These
     derivatives are cash flow hedges.  For all qualifying and highly  effective
     cash flow  hedges,  the  changes in the fair value of the  derivatives  are
     recorded  in  other  comprehensive  income.  Amounts  accumulated  in other
     comprehensive  income will be  reclassified  as  earnings  when the related
     product sales affect  earnings for foreign  currency  forward  contracts or
     when related  interest  payments  affect  earnings for interest rate collar
     agreements.  As a result of the foreign  currency  forward  contracts,  the
     Company has  recorded a  derivative  liability  of $0.6 million at June 30,
     2002.  All foreign  currency  forward  contracts  are  executed in exchange
     traded  markets for which quoted prices exist and will expire over the next
     3 months.

     During the nine month  period  ending June 30, 2002,  amounts  reclassified
     into  earnings  resulting  from foreign  currency  forward  contracts  were
     minimal.  All foreign  currency  forward  contracts  were  determined to be
     highly effective; therefore no ineffectiveness was recorded.

     The Company also  executes  foreign  currency  forward  contracts for up to
     30-day  terms to protect  against the adverse  effects that  exchange  rate
     fluctuations may have on the foreign-currency-denominated  trade activities
     (receivables,  payables and cash) of foreign subsidiaries.  These contracts
     have not been designated as hedges under SFAS No. 133 and accordingly,  the
     gains and losses on both the  derivative  and  foreign-currency-denominated
     trade  activities  are  recorded  as  transaction  adjustments  in  current
     earnings.  The impact on earnings was a loss of approximately  $0.1 million
     for the nine month period ended June 30, 2002.

     The Company also entered into an interest  rate collar  arrangement  during
     October  2001 to protect  $25.0  million of  adjustable  Term Loan debt (as
     defined  below in Note 6). The collar was not  designated  as a hedge under
     SFAS No. 133. The fair value of the interest rate collar remained unchanged
     and  accordingly  there was no charge to earnings in the nine month  period
     ended June 30, 2002.

4)   COMPREHENSIVE INCOME

     Comprehensive income consisted of the following (Dollars in thousands):
<TABLE>

                                                        For the Three Months         For the Nine Months
                                                             Ended June 30,              Ended June 30,
                                                        ------------------------  -------------------------
                                                           2002       2001        2002            2001
                                                        ----------    ----------  ----------    -----------
<S>                                                     <C>           <C>         <C>           <C>
     Net income                                         $    2,282    $    5,012  $   3,588     $     5,660

     Foreign currency translation adjustment                 4,622        (1,633)     5,320          (5,027)
     Unrealized gain (loss) on derivative instruments         (752)          613       (616)            (70)
                                                        ----------    ----------  ----------    -------=---
     Comprehensive income                               $    6,152     $   3,992   $   8,292     $      563
                                                        ==========    ==========  ==========    ===========
</TABLE>

          The  accompanying  notes  are an  integral  part  of  these  condensed
     consolidated financial statements.

                                     - 9 -
<PAGE>

                                AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                  JUNE 30, 2002
                                   (Unaudited)

5)   INVENTORIES

     Inventories consisted of the following (Dollars in thousands):


                                 June 30,    September 30,
                                   2002          2001
                              ------------  --------------

     Raw materials            $      8,634  $        7,259
     Work in process                 8,733           8,364
     Finished goods                 16,299          13,941
                              ------------  --------------

                              $     33,666  $       29,564
                              ============  ==============

     Inventories, which include materials, labor and manufacturing overhead, are
     stated at the lower of cost or  market,  cost  being  determined  using the
     first-in, first-out method.

6)   DEBT

     The  Company's  debt  structure  includes:  (a)  $98.0  million  of  Senior
     Subordinated Notes (Notes) due 2005, which are publicly held and redeemable
     at the option of the Company,  in whole or in part,  at various  redemption
     prices,  and (b) up to an  aggregate  of  $135.0  million  under  a  Credit
     Agreement with various banks to provide Senior Bank Facilities comprised of
     (i) a secured term loan facility  consisting  of loans  providing for up to
     $100.0 million of term loans  (collectively  the Term Loans) with a portion
     of the  Term  Loans  denominated  in  foreign  currencies,  (ii) a  secured
     revolving credit facility  (Revolving Credit Facility)  providing for up to
     $30.0 million of revolving loans for general corporate purposes,  and (iii)
     a U.K.  overdraft  facility of up to an equivalent of $5.0 million in Great
     Britain  Pounds for  working  capital  requirements  as needed.  The amount
     outstanding  on the Term Loans at June 30, 2002,  was  approximately  $95.6
     million. No amounts were outstanding under the Revolving Credit Facility or
     the U.K. overdraft facility.

     Under the terms of both the Senior Bank Facilities and the Notes indenture,
     Aearo  Company is required to comply with certain  financial  covenants and
     restrictions.  Aearo Company was in compliance with all financial covenants
     and restrictions at June 30, 2002.

7)   COMMITMENTS AND CONTINGENCIES

     Lease  Commitments.  The Company  leases certain  transportation  vehicles,
     warehouse  facilities,  office space,  and  machinery  and equipment  under
     cancelable and non-cancelable  leases, most of which expire within 10 years
     and may be renewed by the Company.

     Contingencies. Various lawsuits and claims arise against the Company in the
     ordinary  course of its  business.  Most of these  lawsuits  and claims are
     product  liability  matters that arise out of the use of safety eyewear and
     respiratory  product lines  manufactured by the Company as well as products
     purchased for resale. In addition,  the Company may be contingently  liable
     with  respect  to  numerous  lawsuits  involving  respirators  sold  by its
     predecessors, American Optical Corporation and Cabot Corporation ("Cabot"),
     arising out of agreements  entered into when the  AOSafety(R)  Division was
     sold by American Optical  Corporation to Cabot in April 1990 and when later
     sold by Cabot to the  Company in 1995.  These  lawsuits  typically  involve
     plaintiffs alleging that they suffer from asbestosis or silicosis, and that
     such  condition  results in part from  respirators  which were  negligently
     designed  or  manufactured.  The  defendants  in these  lawsuits  are often
     numerous, and include, in addition to respirator  manufacturers,  employers
     of the  plaintiffs  and  manufacturers  of sand (used in sand blasting) and
     asbestos.  Responsibility  for legal costs,  as well as for settlements and
     judgments,  is shared

          The  accompanying  notes  are an  integral  part  of  these  condensed
     consolidated financial statements.

                                     - 10 -
<PAGE>

                                AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                  JUNE 30, 2002
                                   (Unaudited)

     contractually by the Company,  Cabot,  American  Optical  Corporation and a
     prior owner of American Optical  Corporation.  Liability is allocated among
     the parties  based on the number of years each  company  owned the AOSafety
     Division and the alleged years of exposure of the individual plaintiff. The
     Company's  share of the  contingent  liability  is  further  limited  by an
     agreement  entered into between the Company and Cabot  whereby,  so long as
     the  Company  pays to Cabot an annual fee of  $400,000,  Cabot will  retain
     responsibility  and  liability  for,  and  indemnify  the Company  against,
     asbestos and silicosis  related legal claims  asserted  after July 11, 1995
     (the date of the  Company's  formation)  alleged to arise out of the use of
     respirators  manufactured  prior  to July 11,  1995.  This  annual  fee was
     negotiated as part of the 1995 agreement  between the Company and Cabot. To
     date,  the Company has  elected to pay the annual  fee.  The Company  could
     potentially  be  liable  for  these  exposures  if the  Company  elects  to
     discontinue its participation in this arrangement, or if Cabot is no longer
     able to meet its obligations in these matters.  With these  arrangements in
     place,  however,  the Company's potential liability is limited to exposures
     alleged to arise from the use of  respirators  manufactured  after July 11,
     1995.  The Company may also be  responsible  for certain claims of acquired
     companies other than the AOSafety(R)  Division that are not covered by, and
     are unrelated to, the agreement with Cabot.

     At June 30, 2002, the Company has reserved  approximately  $5.0 million for
     product  liabilities  including  those arising from asbestosis or silicosis
     litigation.  The  reserve  is  reevaluated  periodically  and may result in
     additional  charges  to  operations  if  additional   information   becomes
     available.  As is standard in the insurance industry, the Company's product
     liability  insurance  excludes asbestos and silicosis  related  respiratory
     claims. Therefore, the Company's accrual has not been reduced for estimated
     insurance recoveries.  Consistent with the general environment  experienced
     by other companies involved in asbestos-related  litigation, there has been
     an increase in the number of asserted  legal claims that could  potentially
     involve  the  Company.  Since the  Company,  until  recently,  has not been
     directly named in the lawsuits,  it has very little  available  information
     regarding  specific  numbers of claims that  affect the  Company  directly.
     Various  factors  increase the  difficulty  in  determining  the  Company's
     potential  liability,  if any, in such claims,  including the fact that the
     defendants in these lawsuits are often numerous and the claims generally do
     not  specify the amount of damages  sought.  Additionally,  the  bankruptcy
     filings of other companies with  asbestos-related  litigation  could affect
     the Company's cost over time. However, it is management's  opinion,  taking
     into  account  currently  available  information,   historical  experience,
     uncertainties,  the Cabot agreement and the Company's  reserve,  that these
     suits and claims should not result in final judgments or settlements  that,
     in the aggregate,  would have a material effect on the Company's  financial
     condition or results of operation.

8)   SEGMENT REPORTING

     The  Company  manufactures  and  sells  products  under  the  brand  names:
     AOSafety(R), E-A-R(R), and Peltor(R). These products are sold through three
     reportable segments, which are Safety Products, Safety Prescription Eyewear
     and Specialty  Composites.  The Safety Products  segment  manufactures  and
     sells hearing protection  devices,  non-prescription  safety eyewear,  face
     shields, reusable and disposable respirators, hard hats and first aid kits.
     The Safety Prescription Eyewear segment manufactures and sells prescription
     eyewear  products  that are  designed  to protect the eyes from the typical
     hazards  encountered  in the  industrial  work  environment.  The Company's
     Safety  Prescription  Eyewear segment purchases component parts (lenses and
     the  majority of its frames)  from various  suppliers,  grinds,  shapes and
     applies   coatings  to  the  lenses  in  accordance   with  the  customer's
     prescription, and then assembles the glasses using the customer's choice of
     frame.  The  Specialty  Composites  segment  manufactures  a wide  array of
     energy-absorbing  materials that are incorporated into other manufacturers'
     products to control noise, vibration and shock.

          The  accompanying  notes  are an  integral  part  of  these  condensed
     consolidated financial statements.

                                     - 11 -
<PAGE>
                               AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                  JUNE 30, 2002
                                   (Unaudited

     Net Sales by Business Segment (Dollars in thousands):

<TABLE>
                                    For the Three Months Ended     For the Nine Months Ended
                                             June 30,                        June 30,
                                  ----------------------------    ---------------------------
                                  -------------   ------------    ------------   ------------
                                       2002           2001             2002            2001
                                  -------------   ------------    ------------    -----------
     <S>                               <C>             <C>             <C>             <C>
     Safety Products              $      55,034   $     52,901    $    150,417    $   155,149
     Safety Prescription Eyewear         11,118         10,074          30,662         29,716
     Specialty Composites                10,283          9,163          27,682         29,677
                                  -------------   ------------    ------------    -----------
     Total                        $      76,435   $     72,138    $    208,761    $   214,542
                                  =============   ============    ============    ===========
</TABLE>

     Inter-segment  sales of the  Specialty  Composites  segment  to the  Safety
     Products segment totaled $1.3 million and $1.1 million for the three months
     ended June 30, 2002 and 2001,  respectively.  Inter-segment  sales  totaled
     $2.6  million and $3.1  million for the nine months ended June 30, 2002 and
     2001,  respectively.  The inter-segment  sales value is determined at fully
     absorbed inventory cost at standard rates plus 25%.

     EBITDA by Business  Segment and  reconciliation  to income before provision
     for income taxes (Dollars in thousands):
<TABLE>

                                                       For the Three Months Ended             For the Nine Months Ended
                                                                June 30,                              June 30,
                                                   ------------------------------------    --------------------------------
                                                        2002                  2001              2002              2001
                                                   ----------------     ---------------    -------------    ---------------
     <S>                                                  <C>                  <C>                <C>              <C>
     Safety Products                                 $    10,940          $   11,367         $  29,122        $    28,953
     Safety Prescription Eyewear                             484                 650             1,484              1,724
     Specialty Composites                                  1,468                 408             2,452              1,622
     Reconciling Items                                      (285)              2,655               415              4,059
                                                   ----------------     ---------------    -------------    ---------------
     Total EBITDA                                         12,607              15,080            33,473             36,358

     Depreciation                                          2,868               2,574             7,976              7,695
     Amortization                                          1,570               1,593             4,686              4,882
     Non-operating Costs (Income)                             65                 (4)               269              (115)
     Interest                                              4,972               5,451            15,018             17,131
                                                   ----------------     ---------------    -------------    ---------------
     Income before provision for income taxes
                                                     $     3,132          $    5,466         $   5,524        $     6,765
                                                   ================     ===============    =============    ===============
</TABLE>

     The Company  evaluates the  performance of its operating  entities based on
     EBITDA, which is defined by the Company as earnings before interest, taxes,
     depreciation,   amortization,   and   non-operating   income  or   expense.
     Non-operating  income or expense is further defined as extraordinary  gains
     or  losses,  or gains or  losses  from  sales of assets  other  than in the
     ordinary course of business.  While the Company believes EBITDA is a useful
     indicator of its ability to service  debt,  EBITDA should not be considered
     as a  substitute  for net  income  (loss)  determined  in  accordance  with
     accounting principles generally accepted in the United States of America as
     an indicator of operating  performance or as an alternative to cash flow as
     a measure of liquidity.  Investors should be aware that EBITDA as presented
     above may not be comparable to similarly titled measures presented by other
     companies  and  comparisons  could be  misleading  unless all companies and
     analysts calculate this measure in the same fashion.

     Reconciling items include unallocated selling, administrative, research and
     technical expenses as well as manufacturing profit realized on intercompany
     transactions not allocable to a specific segment.

          The  accompanying  notes  are an  integral  part  of  these  condensed
     consolidated financial statements.

                                     - 12 -
<PAGE>
                               AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                  JUNE 30, 2002
                                   (Unaudited
9)   RESTRUCTURING CHARGE

     During fiscal 2001, the Company recorded an unusual charge of $11.4 million
     relating to a  restructuring  plan  announced by the Company to improve its
     competitive  position and  long-term  profitability.  The plan includes the
     closure  of  its  Ettlingen,   Germany  plant,  significantly  reorganizing
     operations  at the  Company's  Varnamo,  Sweden  plant,  rationalizing  the
     manufacturing  assets and product mix of its Specialty  Composites business
     unit and a reduction of products and product lines.

     The unusual  charge  includes cash charges of $2.3 million,  which includes
     $1.8  million  for  severance  and  other  separation  costs to  cover  the
     reduction  of 5% of the  Company's  work force and $0.5  million  for other
     costs associated with this plan. The unusual charge also includes  non-cash
     charges of $9.1 million,  which  includes  $3.2 million for  non-cancelable
     long-term  lease  obligations,  $2.9  million for asset  impairments,  $2.4
     million for inventory disposals and $0.6 million related to the sale of the
     Company's  Ettlingen,  Germany  location.  As of June  30,  2002,  there is
     approximately $ 5.6 million accrued related to the restructuring.

10)  ACQUISITIONS

     On December 14, 2001,  the Company  acquired  Iron Age Vision from Iron Age
     Corporation of Pittsburgh,  Pennsylvania  for  approximately  $0.7 million.
     Iron Age Vision was the safety  prescription  eyewear  division of Iron Age
     Corporation. The transaction was accounted for using the purchase method of
     accounting in accordance with SFAS No. 141,  "Business  Combinations",  and
     accordingly,  the  operating  results of Iron Age Vision have been included
     with those of the Company subsequent to December 14, 2001.

     On January 21, 2002 the Company acquired the industrial  safety business of
     Montreal,  Canada based Leader  Industries,  Inc.  for  approximately  $3.6
     million.  The  transaction  was accounted for using the purchase  method of
     accounting in accordance with SFAS No. 141,  "Business  Combinations",  and
     accordingly,  the operating  results of Leader  Industries,  Inc. have been
     included with those of the Company subsequent to January 22, 2002.

     On May 7, 2002,  the  Company  acquired  the assets of  Chesapeake  Optical
     Company  of  Baltimore,   Maryland  for  approximately  $3.0  million.  The
     transaction  was accounted  for using the purchase  method of accounting in
     accordance with SFAS No. 141, "Business Combinations", and accordingly, the
     operating  results of  Chesapeake  Optical have been included with those of
     the Company subsequent to May 7, 2002.

          The  accompanying  notes  are an  integral  part  of  these  condensed
     consolidated financial statements.

                                     - 13 -
<PAGE>
     Item 2.  Management's  Discussion  and Analysis of Financial  Condition and
     Results of Operations

     The  following   discussion   should  be  read  in  conjunction   with  the
     Consolidated Financial Statements of the Company,  including notes thereto.
     This  Report  contains  forward-looking  statements  within the  meaning of
     Section 27A of the Securities Act of 1933 and Section 21E of the Securities
     Exchange Act of 1934. The Company's actual results could differ  materially
     from those set forth in such forward-looking  statements.  The factors that
     might cause such a difference include,  among others, the following:  risks
     associated  with  indebtedness;   risks  related  to  acquisitions;   risks
     associated with the conversion to a new management information system; high
     level of  competition  in the Company's  markets;  importance  and costs of
     product innovation; risks associated with international operations; product
     liability  exposure;   unpredictability  of  patent  protection  and  other
     intellectual  property  issues;  dependence on key  personnel;  the risk of
     adverse  effect of economic and regulatory  conditions on sales;  and risks
     associated with environmental matters.

     Critical Accounting Policies

     The  Company's  discussion  and  analysis of its  financial  condition  and
     results of operations are based upon the Company's  condensed  consolidated
     financial   statements,   which  have  been  prepared  in  accordance  with
     accounting  principles  generally  accepted in the United States of America
     (GAAP). GAAP requires the use of estimates,  judgments and assumptions that
     affect the reported amounts of assets, liabilities,  revenues and expenses.
     The  Company  believes  its  use of  estimates  and  underlying  accounting
     assumptions  adhere  to GAAP  and are  consistently  applied.  The  Company
     revises its estimates and assumptions as new information becomes available.

     The Company believes that of its significant accounting policies (see Notes
     to the Consolidated  Financial Statements in the Company's Annual Report on
     Form  10-K405) the following  policies  involve a higher degree of judgment
     and/or complexity.

     Income Taxes - The Company  accounts for income  taxes in  accordance  with
     SFAS No. 109,  "Accounting for Income Taxes",  which requires  deferred tax
     assets and liabilities be recognized using enacted tax rates for the effect
     of temporary  differences between book and tax bases of recorded assets and
     liabilities. SFAS No. 109 also requires deferred tax assets be reduced by a
     valuation  allowance if it is more likely than not that some portion or all
     of the deferred tax assets will not be realized.  Recognition of a deferred
     tax asset is dependent on generating sufficient future taxable income prior
     to the  expiration  of the tax loss and  credit  carryforwards.  Due to the
     uncertainties  of realizing these tax benefits,  the Company has recorded a
     full valuation allowance against these losses and credit carryforwards. The
     Company  evaluates  the  adequacy of the  valuation  allowance by assessing
     prudent and  feasible  tax  planning  strategies.  The  ultimate  amount of
     deferred tax assets  realized  could be different from those  recorded,  as
     influenced by potential changes in enacted tax laws and the availability of
     future taxable income.

     Accrued  Liabilities  -The Company has  established  reserves for potential
     liabilities.  A  significant  amount of judgment  and use of  estimates  is
     required to quantify the Company's  ultimate  exposure in these matters and
     the  valuation  of reserves  is  periodically  reviewed.  While the Company
     believes  that the current  level of reserves is  adequate,  changes in the
     future could impact these determinations.

     Restructuring - The Company recorded an unusual charge in fiscal 2001 based
     on a restructuring  plan to improve its competitive  position and long-term
     profitability.  The  provision  recorded  was  based  on  estimates  of the
     expected costs associated with site closures, consolidation of products and
     product lines,  disposal of assets,  contract  terminations  or other costs
     directly related to the restructuring.  To the extent that actual costs may
     differ from amounts recorded,  revisions to the estimated reserves would be
     required.

                                     - 14 -
<PAGE>

     Impairment of Long-Lived Assets - The Company evaluates  long-lived assets,
     including other intangibles and related goodwill,  of identifiable business
     activities for impairment when events or changes in circumstances indicate,
     in management's judgment, that the carrying value of such assets may not be
     recoverable.  Cash flows used in the potential  impairment  evaluation  are
     based on  management's  estimates  and  assumptions.  Changes  in  business
     conditions   could   potentially   require  future   adjustments  to  asset
     valuations.

     Results of Operations -- Three Months Ended June 30, 2002 Compared to Three
     Months Ended June 30, 2001

                              Results of Operations
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
                                                            Three Months Ended June 30,
                                                ------------------------------------------------
                                                    2002          %          2001          %
                                                ----------------------   -----------------------
    <S>                                             <C>           <C>         <C>           <C>
      Safety Products                           $    55,034       72.0   $    52,901       73.3
      Safety Prescription Eyewear                    11,118       14.5        10,074       14.0
      Specialty Composites                           10,283       13.5         9,163       12.7
                                                -----------  ---------   ----------- -----------
         Total net sales                             76,435      100.0        72,138      100.0

    Cost of Sales                                    40,024       52.4       39,007        54.1

         Gross profit                                36,411       47.6       33,131        45.9

    Operating Expenses-
      Selling and administrative                     24,914       32.6        19,570       27.1
      Research and technical services                 1,493        2.0         1,138        1.6
      Amortization of intangibles                     1,570        2.1         1,593        2.2
      Other charges (income), net                       330         --           (87)        --
                                                -----------  ---------   ----------- -----------
        Total operating expenses                     28,307       37.0        22,214       30.8

    Operating income                                  8,104       10.6        10,917       15.1

    Interest expense, net                             4,972        6.5         5,451        7.6
                                                -----------  ---------   ----------- -----------
    Income before provision for income taxes          3,132        4.1         5,466        7.6

    Provision for income taxes                          850        1.1           454        0.6
                                                -----------  ---------   ----------- -----------
    Net income                                        2,282        3.0         5,012        6.9
                                                ===========  =========   =========== ===========

    EBITDA                                      $    12,607       16.5   $    15,080       20.9
                                                ===========  =========   =========== ===========
</TABLE>

     Net Sales. Net sales in the three months ended June 30, 2002 increased 6.0%
     to $76.4  million  from $72.1  million in the three  months  ended June 30,
     2001. The increase in sales was primarily driven by the recent acquisitions
     and improvement in the Specialty  Composites  segment.  The Safety Products
     segment net sales in the three months ended June 30, 2002 increased 4.0% to
     $55.0  million from $52.9  million in the three months ended June 30, 2001.
     The weakness of the U.S. dollar had the impact of increasing  sales by $0.5
     million in the three  months  ended June 30,  2002 as compared to the three
     months ended June 30, 2001. The Safety Products segment sales for the three
     months  ended  June 30,  2002  included  $1.8  million  of sales due to the
     acquisition   of  Leader   Industries  on  January  22,  2002.  The  Safety
     Prescription  Eyewear

                                     - 15 -
<PAGE>

     segment net sales in the three months ended June 30, 2002  increased  10.4%
     to $11.1  million  from $10.0  million in the three  months  ended June 30,
     2001. The Safety  Prescription  Eyewear  segment sales for the three months
     ended June 30, 2002 included $1.1 million of sales due to the  acquisitions
     of Iron Age Vision on December  14, 2001 and  Chesapeake  Optical on May 7,
     2002. The Specialty  Composites segment net sales in the three months ended
     June 30, 2002  increased  12.2% to $10.3  million  from $9.2 million in the
     three  months ended June 30, 2001.  The  increase was  primarily  driven by
     volume in the electronics segment of the precision equipment market,  which
     includes computers and personal communications system (PCS) applications.

     Gross  Profit.  Gross  profit  in the  three  months  ended  June 30,  2002
     increased  9.9% to $36.4  million  from $33.1  million in the three  months
     ended June 30,  2001.  The  increase in gross  profit is  primarily  due to
     increased  productivity and  acquisitions.  Gross profit as a percentage of
     net sales in the three months  ended June 30, 2002  increased to 47.6% from
     45.9% in the three  months ended June 30, 2001.  The  improvement  in gross
     profit  as a  percentage  of  net  sales  is  primarily  due  to  increased
     productivity and the positive impacts resulting from the 2001 restructuring
     plan partially offset by a less favorable product mix.

     Operating  Expenses.  Operating expenses in the three months ended June 30,
     2002  increased  27.3% to $28.3  million  from  $22.2  million in the three
     months  ended  June 30,  2001.  The  increase  was  primarily  driven by an
     increase in selling and  administrative  expenses and other  charges,  net.
     Selling and administrative expenses in the three months ended June 30, 2002
     included   approximately  $1.0  million  of  incremental  expenses  due  to
     acquisitions as well as increased spending for brand support. For the three
     months ended June 30,  2001,  operating  expenses  were lower due to salary
     reductions,  deferral of the Company's  401k match and other  discretionary
     spending  cuts made to offset  the  impact of the weak  economy in the last
     half of fiscal  2001.  The  increase in other  charges,  net was  primarily
     driven by foreign  exchange  losses in the three months ended June 30, 2002
     as compared to foreign  exchange  gains in the three  months ended June 30,
     2001.

     Operating  Income.  As a result of the factors  mentioned above,  operating
     income  decreased  25.8% to $8.1 million in the three months ended June 30,
     2002 from $10.9 million in the three months ended June 30, 2001.  Operating
     income as a percentage of net sales in the three months ended June 30, 2002
     decreased  to 10.6% as compared to 15.1% in the three months ended June 30,
     2001.

     Interest Expense, Net. Interest expense, net in the three months ended June
     30, 2002  decreased  8.8% to $5.0  million  from $5.5  million in the three
     months ended June 30, 2001.  The decrease is attributed  to lower  weighted
     average  interest  rates in effect for the three months ended June 30, 2002
     as compared to the three months ended June 30, 2001.

     Provision  For Income Taxes.  The  provision for income taxes  increased to
     $0.9  million in the three  months ended June 30, 2002 from $0.5 million in
     the three  months  ended June 30, 2001.  Certain of the  Company's  foreign
     subsidiaries  had taxable income in their foreign  jurisdictions  while the
     Company's  domestic  subsidiaries  generated  a  net  operating  loss.  The
     domestic subsidiaries have net operating loss carry-forwards for income tax
     purposes.  Due to the uncertainty of realizing these tax benefits,  the tax
     benefits  generated by the net  operating  losses have been fully  reserved
     with a valuation allowance.

     Net Income.  For the three months ended June 30, 2002,  the Company had net
     income of $2.2  million as  compared to $5.0  million for the three  months
     ended June 30, 2001.

     EBITDA.  EBITDA is defined  by the  Company as  earnings  before  interest,
     taxes,  depreciation,  amortization,  and non-operating  income or expense.
     Non-operating  income or expense is further defined as extraordinary  gains
     or  losses,  or gains or  losses  from  sales of assets  other  than in the
     ordinary course of business.  While the Company believes EBITDA is a useful
     indicator of its ability to service  debt,

                                     - 16 -
<PAGE>

     EBITDA should not be considered as a substitute  for net income  determined
     in accordance  with GAAP as an indicator of operating  performance or as an
     alternative  to cash flow as a measure of  liquidity.  Investors  should be
     aware that EBITDA as  presented  below may not be  comparable  to similarly
     titled  measures  presented by other  companies  and  comparisons  could be
     misleading.

                               EBITDA Calculation
                        Three Months Ended June 30, 2002
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>

                                           Three Months Ended              Change
                                                 June 30,            Favorable (Unfavorable)
                                      -----------------------------  ------------------------
                                           2002             2001        Amount       Percent
                                      -------------- --------------  ----------- ------------
    <S>                                    <C>              <C>          <C>              <C>
    Operating Income                   $    8,104       $   10,917   $ (2,813)        (25.8%)
    Add Backs:
        Depreciation                        2,868            2,574         294          11.4
        Amortization of intangibles         1,570            1,593        (23)          (1.4)
        Non-operating costs, net               65              (4)          69            --
                                       ----------       ----------   ---------  -------------
    EBITDA                             $   12,607       $   15,080   $ (2,473)        (16.4%)
                                       ==========       ==========   =========  =============

    By Segment
        Safety Products                $   10,940       $   11,367   $   (427)         (3.8%)
        Safety Prescription Eyewear           484              650       (166)         (25.5)
        Specialty                           1,468              408       1,060            --
        Reconciling Items                   (285)            2,655     (2,940)            --
                                       ----------       ----------   ---------  -------------
    EBITDA                             $   12,607       $   15,080    $(2,473)        (16.4%)
                                       ==========       ==========   =========  =============
</TABLE>

     EBITDA for the three  months ended June 30, 2002  decreased  16.4% to $12.6
     million from $15.1 million in the three months ended June 30, 2001.  EBITDA
     as a  percentage  of net sales in the three  months ended June 30, 2002 was
     16.5% as compared to 20.9% in the three  months  ended June 30,  2001.  The
     decrease in EBITDA is primarily  attributed to higher operating expenses as
     compared  to the prior  period  which  benefited  from  salary  reductions,
     deferral of the Company's 401k match and other discretionary  spending cuts
     that were taken to offset the unfavorable  impact of foreign currencies and
     the weak  economy.  These  actions  impacted  each of the  Company's  three
     operating segments.  The Safety Products segment EBITDA in the three months
     ended June 30, 2002  decreased  3.8% to $10.9 million from $11.4 million in
     the three months ended June 30, 2001.  This  decrease was  primarily due to
     higher operating expenses due to last year's actions as mentioned above and
     increased brand support. The Safety Prescription Eyewear segments EBITDA in
     the three  months  ended June 30,  2002  decreased  25.5% to $0.5 from $0.7
     million  in the  three  months  ended  June 30,  2001.  This  decrease  was
     primarily driven by higher operating expenses due to last year's actions as
     mentioned above,  product mix and higher  distribution costs. The Specialty
     Composites segments EBITDA for the six months ended June 30, 2002 increased
     259.8% to $1.5 million from $0.4 million in the three months ended June 30,
     2001.  This increase was primarily  driven by improved sales volume and the
     positive  impacts  of  productivity  improvements  partially  offset by the
     relative  increase in  operating  expenses  due to last  year's  actions as
     mentioned above.
                                     - 17 -
<PAGE>

     Results of  Operations  -- Nine Months Ended June 30, 2002 Compared to Nine
     Months Ended June 30, 2001

                              Results of Operations
                             (Dollars in Thousands)
                                   (Unaudited)

                                               Nine Months Ended June 30,
                                      ------------------------------------------
                                           2002        %          2001      %
                                      ------------- --------  ----------- ------

     Net Sales
       Safety Products                $   150,417     72.1   $   155,149    72.3
       Safety Prescription Eyewear         30,662     14.7        29,716    13.9
       Specialty Composites                27,682     13.2        29,677    13.8
                                      -----------   ------   -----------  ------
          Total net sales                 208,761    100.0       214,542   100.0

     Cost of Sales                        110,312     52.8      115,676     53.9

        Gross profit                       98,449     47.2       98,866     46.1

     Operating Expenses-
       Selling and administrative          68,602     32.9        65,664    30.6
       Research and technical services      4,251      2.0         3,987     1.9
       Amortization of intangibles          4,686      2.2         4,882     2.3
       Other charges, net                     368      0.2           437     0.2
                                      -----------   ------   -----------  ------
          Total operating expenses         77,907     37.3        74,970    34.9

     Operating income                      20,542      9.8        23,896    11.1

     Interest expense, net                 15,018      7.2        17,131     8.0
                                      -----------   ------   -----------  ------
      Income before provision for
       income taxes                         5,524      2.6         6,765     3.2

     Provision for income taxes             1,936      0.9         1,105     0.5
                                      -----------   ------   ----------- -------
     Net income                             3,588      1.7         5,660     2.6
                                      ===========   ======   =========== =======
     EBITDA                           $    33,473     16.0   $    36,358    16.9
                                      ===========   ======   =========== =======

     Net Sales.  Net sales in the nine months ended June 30, 2002 decreased 2.7%
     to $208.8  million  from $214.5  million in the nine months  ended June 30,
     2001. The favorable  impact of  acquisitions  was not sufficient  enough to
     offset  the  unfavorable   impact  of  the  significant   slowdown  in  the
     manufacturing  sector of the  economy  in which  the  Company  markets  its
     products  that was  exacerbated  by the impact of the  terrorist  events of
     September 11, 2001 and the strong U.S. dollar.  The Safety Products segment
     net sales in the nine months ended June 30, 2002  decreased  3.0% to $150.4
     million from $155.1  million in the nine months  ended June 30, 2001.  This
     decrease was primarily driven by the continued effects of a weak economy as
     mentioned above. The strength of the U.S. dollar had the impact of reducing
     sales by $1.1 million in the nine months ended June 30, 2002 as compared to
     the nine months ended June 30, 2001. The Safety Products  segment sales for
     the nine months ended June 30, 2002  included  $3.3 million of sales due to
     the  acquisition  of Leader  Industries  on January  22,  2002.  The Safety
     Prescription  Eyewear  segment net sales in the nine months  ended June 30,
     2002  increased  by 3.2% to $30.7  million  from $29.7  million in the nine
     months ended June 30, 2001. The Safety  Prescription  Eyewear segment sales
     for the

                                     - 18 -
<PAGE>

     nine months ended June 30, 2002  included  $1.5 million of sales due to the
     acquisitions of Iron Age Vision on December 14, 2001 and Chesapeake Optical
     on May 7, 2002.  The  Specialty  Composites  segment  net sales in the nine
     months  ended June 30,  2002  decreased  6.7% to $27.7  million  from $29.7
     million in the nine months ended June 30, 2001.  The decrease was primarily
     driven by volume  declines in the industrial  equipment  markets due to the
     weak economy.

     Gross Profit. Gross profit in the nine months ended June 30, 2002 decreased
     0.4% to $98.5  million from $98.9 million in the nine months ended June 30,
     2001.  The slight  decline in gross profit is primarily  due to lower sales
     volumes  caused by the events of  September  11, 2001 and the weak  economy
     offset by strong ongoing productivity improvements within the manufacturing
     plants.  Gross profit as a percentage of net sales in the nine months ended
     June 30,  2002  improved  to 47.2% as  compared to 46.1% in the nine months
     ended June 30, 2001.  The increase in the Gross  Profit  percentage  of net
     sales  is  primarily  due  to  continued   productivity   improvements   in
     manufacturing  operations and the positive impact of the restructuring plan
     announced on September 30, 2001  partially  offset by  unfavorable  product
     mix, lower capacity utilization and a stronger U.S. dollar.

     Operating  Expenses.  Operating  expenses in the nine months ended June 30,
     2002  increased 3.9% to $77.9 million from $75.0 million in the nine months
     ended June 30,  2001.  The increase in  operating  expenses  was  primarily
     driven  by  higher  selling  and  administrative   expenses.   Selling  and
     administrative  expenses  in the nine months  ended June 30, 2002  included
     approximately  $1.6 million of incremental  expenses due to acquisitions as
     well as  increased  spending for brand  support.  For the nine months ended
     June 30,  2001,  operating  expenses  were lower due to salary  reductions,
     deferral of the Company's 401k match and other discretionary  spending cuts
     made to offset  the  impact of the weak  economy in the last half of fiscal
     2001.  Selling and  administrative  expenses as a  percentage  of net sales
     increased  to 32.9% in the nine  months  ended June 30, 2002 as compared to
     30.6% in the nine months ended June 30, 2001.

     Operating  Income.  As a result of the factors  mentioned above,  operating
     income  decreased  14.0% to $20.5 million in the nine months ended June 30,
     2002 from $23.9  million in the nine months ended June 30, 2001.  Operating
     income as a percentage  of net sales in the nine months ended June 30, 2002
     decreased  to 9.8% as compared  to 11.1% in the nine months  ended June 30,
     2001.

     Interest Expense,  Net. Interest expense, net in the nine months ended June
     30, 2002  decreased  12.4% to $15.0  million from $17.1 million in the nine
     months ended June 30, 2001.  The decrease is attributed  to lower  weighted
     average interest rates in effect for the nine months ended June 30, 2002 as
     compared to the nine months ended June 30, 2001.

     Provision  For Income Taxes.  The  provision for income taxes  increased to
     $1.9  million in the nine months  ended June 30, 2002 from $1.1  million in
     the nine  months  ended June 30,  2001.  Certain of the  Company's  foreign
     subsidiaries  had taxable income in their foreign  jurisdictions  while the
     Company's  domestic  subsidiaries  generated  a  net  operating  loss.  The
     domestic subsidiaries have net operating loss carry-forwards for income tax
     purposes.  Due to the uncertainty of realizing these tax benefits,  the tax
     benefits generated by the net operating losses have been fully reserved for
     by a valuation allowance.

     Net  Income.  For the nine  months  ended June 30, 2002 the Company had net
     income of $3.6  million as  compared  to $5.7  million  for the nine months
     ended June 30, 2001.

     EBITDA.  EBITDA is defined  by the  Company as  earnings  before  interest,
     taxes,  depreciation,  amortization,  and non-operating  income or expense.
     Non-operating  income or expense is further defined as extraordinary  gains
     or  losses,  or gains or  losses  from  sales of assets  other  than in the
     ordinary course of business.  While the Company believes EBITDA is a useful
     indicator of its ability to service  debt,  EBITDA should not be considered
     as a substitute  for net income  determined in  accordance  with GAAP as an
     indicator of operating  performance  or as an alternative to cash flow as a
     measure of liquidity.

                                     - 19 -
<PAGE>

     Investors  should  be aware  that  EBITDA  as  presented  below  may not be
     comparable to similarly  titled  measures  presented by other companies and
     comparisons could be misleading.

                               EBITDA Calculation
                            Nine Months Ended June 30
                             (Dollars in Thousands)
                                   (Unaudited)

                                       Nine Months Ended          Change
                                            June 30,      Favorable(Unfavorable)
                                    --------------------- ----------------------
                                       2002       2001       Amount     Percent
                                    ---------- ---------- ----------- ----------
     Operating Income               $   20,542 $   23,896   $ (3,354)    (14.0%)
     Add Backs:
        Depreciation                     7,976      7,695        281        3.7
        Amortization of intangibles      4,686      4,882       (196)      (4.0)
        Non-operating costs, net           269       (115)       384        --
                                    ---------- ----------   ---------  ---------
     EBITDA                         $   33,473 $   36,358   $ (2,885)     (7.9%)
                                    ========== ==========   ========= ==========
    By Segment
        Safety Products             $   29,122 $   28,953   $    169        0.6%
        Safety Prescription Eyewear      1,484      1,724       (240)     (13.9)
        Specialty                        2,452      1,622        830       51.2
        Reconciling Items                  415      4,059     (3,644)     (89.8)
                                    ----------  ---------   ---------  ---------
    EBITDA                          $   33,473 $   36,358   $ (2,885)     (7.9%)
                                    ========== ==========   =========  =========

     EBITDA for the nine  months  ended June 30,  2002  decreased  7.9% to $33.5
     million from $36.4 million for the nine months ended June 30, 2001.  EBITDA
     as a  percentage  of net sales in the nine  months  ended June 30, 2002 was
     16.0% as  compared  to 16.9% in the nine months  ended June 30,  2001.  The
     decrease in EBITDA is primarily  attributed to higher operating expenses as
     compared  to the prior  period  which  benefited  from  salary  reductions,
     deferral of the Company's 401k match and other discretionary  spending cuts
     that were taken to offset the unfavorable  impact of foreign currencies and
     the weak economy.  These actions  impacted each of the Company's  operating
     segments.  The Safety Products segment EBITDA in the nine months ended June
     30, 2002  increased  0.6% to $29.1  million from $29.0  million in the nine
     months ended June 30, 2001. This increase was primarily  driven by improved
     gross margin due to productivity improvements and the acquisition of Leader
     Industries  on January 22, 2002  partially  offset by  increased  operating
     expenses  due to the  actions  mentioned  above.  The  Safety  Prescription
     Eyewear  segment  EBITDA in the nine months  ended June 30, 2002  decreased
     13.9% to $1.5  million  from $1.7 million in the nine months ended June 30,
     2001. This decrease was primarily driven by higher  operating  expenses due
     to  last  year's  actions  as  mentioned  above,  product  mix  and  higher
     distribution  costs. The Specialty  Composites  segment EBITDA for the nine
     months  ended  June 30,  2002  increased  51.2% to $2.5  million  from $1.6
     million in the nine months ended June 30, 2001. This increase was primarily
     driven by productivity  improvements  and the positive  impacts of the 2001
     restructuring plan partially offset by lower sales volume.


     Effects of Changes in Exchange Rates

     In general,  the Company's results of operations are affected by changes in
     exchange  rates.  Subject  to market  conditions,  the  Company  prices its
     products in Europe and Canada in local currencies. While

                                     - 20 -
<PAGE>

     many of the Company's  selling and distribution  costs are also denominated
     in these  currencies,  a large  portion  of product  costs are U.S.  Dollar
     denominated.  As a  result,  a  decline  in the  value of the  U.S.  Dollar
     relative  to  other   currencies  can  have  a  favorable   impact  on  the
     profitability  of the  Company  and an  increase  in the  value of the U.S.
     Dollar relative to these other currencies can have a negative effect on the
     profitability of the Company. As a result of the acquisition of Peltor, the
     Company's  operations  are also  affected  by  changes  in  exchange  rates
     relative to the Swedish  Krona.  In contrast to the above, a decline in the
     value of the Krona relative to other currencies can have a favorable impact
     on the  profitability  of the  Company  and an increase in the value of the
     Krona  relative  to other  currencies  can have a  negative  impact  on the
     profitability of the Company. The Company utilizes forward foreign currency
     contracts and other hedging  instruments to mitigate the effects of changes
     in foreign currency rates on profitability.

     Effects of Inflation

     In recent  years,  inflation  has been  modest  and has not had a  material
     impact upon the results of the Company's operations.

     Effects of Economic Conditions

     Softening  of the North  American  economy  began  during the first  fiscal
     quarter of 2001. Since that time the overall economic downturn has resulted
     in many  companies  announcing  layoffs  which  has also had an  impact  on
     overall consumer  confidence.  The announced layoffs have had a significant
     impact on the number of employed industrial workers. As a result of this it
     is expected  that the  Company  will  continue to operate in a  challenging
     sales environment.

     Liquidity and Capital Resources

     The Company's  sources of funds have consisted  primarily of operating cash
     flow  and  debt  financing.  The  Company's  uses of  those  funds  consist
     principally of debt service, capital expenditures and acquisitions.

     The  Company's  debt  structure  includes:  (a)  $98.0  million  of  Senior
     Subordinated  Notes  (Notes)  due  2005,  which are  publicly  held and are
     redeemable  at the option of the Company,  in whole or in part,  at various
     redemption  prices,  and (b) up to an aggregate of $135.0  million  under a
     Credit  Agreement  with  various  banks to provide  Senior Bank  Facilities
     comprised of (i) a secured term loan facility consisting of loans providing
     for up to $100.0 million of term loans (collectively the Term Loans) with a
     portion of the Term Loans denominated in foreign currencies, (ii) a secured
     revolving credit facility  (Revolving Credit Facility)  providing for up to
     $30.0 million of revolving loans for general corporate purposes,  and (iii)
     a U.K.  overdraft  facility of up to an equivalent of $5.0 million in Great
     Britain  Pounds for  working  capital  requirements  as needed.  The amount
     outstanding  on the Term Loans at June 30, 2002,  was  approximately  $95.6
     million. No amounts were outstanding under the Revolving Credit Facility or
     the U.K. overdraft facility.

     Under the terms of both the Senior Bank Facilities and the Notes indenture,
     Aearo  Company is required to comply with certain  financial  covenants and
     restrictions.  Aearo Company was in compliance with all financial covenants
     and restrictions at June 30, 2002.

     On October 17, 2001 the Company  executed a First  Amendment  to the Credit
     Agreement,  which allowed the Company the option to purchase,  on or before
     December 21, 2001, up to $10.0 million of the Notes at or below par.  Prior
     to December 21, 2001, the Company purchased and retired $2.0 million of the
     Notes.

     Maturities  under the  Company's  Term  Loans  are:  $2.1  million  for the
     remainder of fiscal 2002,  $12.4 million in fiscal 2003,  and $81.0 million
     thereafter.  Other  than upon a change of control or as a result of certain
     asset sales,  or in the event that certain excess funds exist at the end of
     a  fiscal  year,  the  Company

                                     - 21 -
<PAGE>

     will not be required to make  additional  principal  payments in respect of
     the Term Loans  until  maturity  in 2005.  The  Company is required to make
     interest  payments with respect to both the Senior Bank  Facilities and the
     Notes.  The Company's  Revolving  Credit  Facility and Term Loans mature in
     March 2005.

     The Company's net cash provided by operating activities for the nine months
     ended June 30, 2002 totaled  $14.9 million as compared to $13.9 million for
     the nine months  ended June 30,  2001.  The  increase  of $1.0  million was
     primarily  due to a $2.6  million  net  change  in assets  and  liabilities
     partially  offset by a $1.7 million decrease in net income adjusted for non
     cash charges  (depreciation,  amortization,  deferred taxes and other). The
     Company's net changes in assets and liabilities  was primarily  driven by a
     $6.4  million  increase in accounts  payable  and accrued  liabilities  and
     other,  net,  partially  offset by a $3.7  million  reduction  of cash from
     accounts  receivables and inventory  compared to a $0.1 million increase in
     cash from accounts  receivable and inventory for the nine months ended June
     30, 2001.

     Net cash used by investing activities was $13.2 million for the nine months
     ended June 30, 2002 as compared to $5.8  million for the nine months  ended
     June 30,  2001.  The increase of $7.4 million in net cash used by investing
     activities is primarily  attributed to the  acquisitions of Iron Age Vision
     for $0.7 million in December 2001, the acquisition of Leader Industries for
     $3.6 million in January 2002 and the acquisition of Chesapeake  Optical for
     $3.0 million in May 2002.

     Net cash used by  financing  activities  for the nine months ended June 30,
     2002 was $8.5 million  compared with net cash used by financing  activities
     for the nine months ended June 30, 2001 of $1.5 million. The change of $7.0
     million  is  primarily  due to no  borrowings  from  the  Revolving  Credit
     Facility  during the nine months ended June 30, 2002,  as compared to a net
     draw of $11.8 million during the nine months ended June 30, 2001, partially
     offset by a decrease in Term Loans and Notes  repayments  of $5.2  million.
     The  Company  has  no  financing  arrangements  involving  special  purpose
     entities.

     The Company has a substantial amount of indebtedness. The Company relies on
     internally  generated  funds,  and to the extent  necessary,  on borrowings
     under the Revolving Credit Facility  (subject to certain  customary drawing
     conditions)  to meet its  liquidity  needs.  The Company  anticipates  that
     operating  cash flow will be  adequate  to meet its  operating  and capital
     expenditure  requirements for the next several years, although there can be
     no assurances that existing  levels of sales and normalized  profitability,
     and therefore cash flow, will be maintained.  In particular,  during fiscal
     2001 and the nine months ended June 30,  2002,  the Company was affected by
     the significant  slowdown in the  manufacturing  sector of the economies in
     which the Company  markets its  products  that began in earnest  during the
     first  fiscal  quarter  of fiscal  2001,  exacerbated  by the impact of the
     terrorist  events of September 11, 2001.  As a result,  it is expected that
     the Company will  continue to operate in a challenging  sales  environment.
     The Company  expects to arrange for new  financing  of both the Senior Bank
     Facilities and the Notes before the maturity of the Senior Bank  Facilities
     in March 2005. There can be no assurances that any additional  financing or
     other  sources of capital will be  available  to the Company at  acceptable
     terms, or at all. The inability to obtain additional financing would have a
     material adverse effect on the Company's business,  financial condition and
     results of operations.

                                     - 22 -
<PAGE>
     Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The  Company  is  exposed  to market  risks  related  to changes in foreign
     currencies,   interest  rates  and  commodity  pricing.  The  Company  uses
     derivatives  to mitigate  the impact of changes in foreign  currencies  and
     interest rates.  All  derivatives are for purposes other than trading.  The
     Company adopted the provisions of SFAS No. 133,  "Accounting for Derivative
     Instruments  and Hedging  Activities"  on October 1, 2000.  The Company has
     formally documented its hedging relationships,  including identification of
     hedging  instruments  and the hedge items,  as well as its risk  management
     objectives.

     Foreign Currency Risk

     The Company's  results of operations are subject to risks  associated  with
     operating in foreign countries, including fluctuations in currency exchange
     rates.  While many of the  Company's  selling  and  distribution  costs are
     denominated in Canadian and European currencies, a large portion of product
     costs are U.S. Dollar  denominated.  As a result, a decline in the value of
     the U.S. Dollar relative to other currencies can have a favorable impact on
     the  profitability  of the Company and an increase in the value of the U.S.
     Dollar relative to these other currencies can have a negative effect on the
     profitability of the Company. As a result of the acquisition of Peltor, the
     Company's  operations  are also  affected  by  changes  in  exchange  rates
     relative to the Swedish Krona. In contrast with the above, a decline in the
     value of the Krona relative to other currencies can have a favorable impact
     on the  profitability  of the  Company  and an increase in the value of the
     Krona  relative  to other  currencies  can have a  negative  impact  on the
     profitability of the Company.  The Company  executes two hedging  programs,
     one for  transaction  exposures,  and the other for cash flow  exposures in
     European  operations.  The Company has utilized  forward  foreign  currency
     contracts for transaction  and cash flow exposures.  During the nine months
     ended June 30,  2002,  net  transaction  losses were $0.1 million and there
     were no cash flow hedge gains or losses.  In addition,  the Company  limits
     foreign exchange impact on the balance sheet with foreign  denominated debt
     in Great Britain Pound Sterling, Euros and Canadian dollars.

     SFAS No. 133 requires that every  derivative  instrument be recorded in the
     balance  sheet as either an asset or liability  measured at its fair value.
     As a result of forward foreign currency contracts, the Company has recorded
     a  derivative  payable of $0.6  million as of June 30,  2002.  The  forward
     foreign currency contracts will expire over the next 3 months.

     Interest Rates

     The Company is exposed to market risk changes in interest rates through its
     debt. The Company  utilizes  interest rate instruments to reduce the impact
     of either  increases or decreases  in interest  rates on its floating  rate
     debt.

     As a result of the current  economic  slowdown and  corresponding  interest
     rate  reductions,   the  Company  entered  into  an  interest  rate  collar
     arrangement  in October 2001 to protect  $25.0  million of the  outstanding
     variable  rate term loan debt from future  interest  rate  volatility.  The
     collar floor is set at 2% LIBOR (London Interbank Offering Rate) and cap at
     6.25% LIBOR.  The collar was not  designated  as a hedge under SFAS No. 133
     and  accordingly,  the  fair  value  of gains or  losses  were  charged  to
     earnings.

     The Company is of the opinion that it is well positioned to manage interest
     exposures in the short term. The Company continues to monitor interest rate
     movements  and  has   mitigated  the  risks  of  potential   interest  rate
     fluctuations   through  the  use  of  the   aforementioned   interest  rate
     instruments.

                                     - 23 -
<PAGE>

     Commodity Risk

     The Company is subject to market risks with respect to industry  pricing in
     paper and crude oil as it relates to various  commodity  items. The Company
     is also exposed to market risks for  electricity,  fuel oil and natural gas
     consumed in its  operations.  Items with potential  impact are  paperboard,
     packaging  films,  nylons,  resins,  propylene,  ethylene,  plasticizer and
     freight. The Company manages pricing exposures on larger volume commodities
     such  as   polycarbonate,   polyols  and   polyvinyl   chloride  via  price
     negotiations   utilizing  alternative  supplier  competitive  pricing.  The
     Company  sources  some  products  and  parts  from Far East  sources  where
     resource  availability,   competition,  and  infrastructure  stability  has
     provided a favorable  purchasing  environment.  The Company  does not enter
     into derivative instruments to manage commodity risks.

                                     - 24 -
<PAGE>



                           PART II - OTHER INFORMATION

     Item 1. Legal Proceedings

     Contingencies. Various lawsuits and claims arise against the Company in the
     ordinary  course of its  business.  Most of these  lawsuits  and claims are
     product  liability  matters that arise out of the use of safety eyewear and
     respiratory  product lines  manufactured by the Company as well as products
     purchased for resale. In addition,  the Company may be contingently  liable
     with  respect  to  numerous  lawsuits  involving  respirators  sold  by its
     predecessors,  American Optical Corporation and Cabot Corporation,  arising
     out of agreements  entered into when the  AOSafety(R)  Division was sold by
     American Optical  Corporation to Cabot in April 1990 and when later sold by
     Cabot to the Company in 1995. These lawsuits  typically involve  plaintiffs
     alleging  that they  suffer from  asbestosis  or  silicosis,  and that such
     condition results in part from respirators which were negligently  designed
     or manufactured.  The defendants in these lawsuits are often numerous,  and
     include,  in  addition  to  respirator  manufacturers,   employers  of  the
     plaintiffs and  manufacturers of sand (used in sand blasting) and asbestos.
     Responsibility  for legal costs,  as well as for settlements and judgments,
     is shared contractually by the Company, Cabot, American Optical Corporation
     and a prior owner of American Optical  Corporation.  Liability is allocated
     among the  parties  based on the  number of years  each  company  owned the
     AOSafety  Division  and the alleged  years of  exposure  of the  individual
     plaintiff.  The  Company's  share of the  contingent  liability  is further
     limited by an agreement entered into between the Company and Cabot whereby,
     so long as the Company pays to Cabot an annual fee of $400,000,  Cabot will
     retain responsibility and liability for, and indemnify the Company against,
     asbestos and silicosis  related legal claims  asserted  after July 11, 1995
     (the date of the  Company's  formation)  alleged to arise out of the use of
     respirators  manufactured  prior  to July 11,  1995.  This  annual  fee was
     negotiated as part of the 1995 agreement  between the Company and Cabot. To
     date,  the Company has  elected to pay the annual  fee.  The Company  could
     potentially  be  liable  for  these  exposures  if the  Company  elects  to
     discontinue its participation in this arrangement, or if Cabot is no longer
     able to meet its obligations in these matters.  With these  arrangements in
     place,  however,  the Company's potential liability is limited to exposures
     alleged to arise from the use of  respirators  manufactured  after July 11,
     1995.  The Company may also be  responsible  for certain claims of acquired
     companies other than the AOSafety(R)  Division that are not covered by, and
     are unrelated to, the agreement with Cabot.

     At June 30, 2002, the Company has reserved  approximately  $5.0 million for
     product  liabilities  including  those arising from asbestosis or silicosis
     litigation.  The  reserve  is  reevaluated  periodically  and may result in
     additional  charges  to  operations  if  additional   information   becomes
     available.  As is standard in the insurance industry, the Company's product
     liability  insurance  excludes asbestos and silicosis  related  respiratory
     claims. Therefore, the Company's accrual has not been reduced for estimated
     insurance recoveries.  Consistent with the general environment  experienced
     by other companies involved in asbestos-related  litigation, there has been
     an increase in the number of asserted  legal claims that could  potentially
     involve  the  Company.  Since the  Company,  until  recently,  has not been
     directly named in the lawsuits,  it has very little  available  information
     regarding  specific  numbers of claims that  affect the  Company  directly.
     Various  factors  increase the  difficulty  in  determining  the  Company's
     potential  liability,  if any, in such claims,  including the fact that the
     defendants in these lawsuits are often numerous and the claims generally do
     not  specify the amount of damages  sought.  Additionally,  the  bankruptcy
     filings of other companies with  asbestos-related  litigation  could affect
     the Company's cost over time. However, it is management's  opinion,  taking
     into  account  currently  available  information,   historical  experience,
     uncertainties,  the Cabot agreement and the Company's  reserve,  that these
     suits and claims should not result in final judgments or settlements  that,
     in the aggregate,  would have a material effect on the Company's  financial
     condition or results of operation.

                                     - 25 -
<PAGE>

     Item 2.      Changes in Securities and Use of Proceeds
             None.

     Item 3.      Defaults Upon Senior Securities
             None.

     Item 4.      Submission of Matters to a Vote of Security Holders
             None.

     Item 5.      Other Information
             None.

     Item 6.      Exhibits and Reports on Form 8-K
             None.



                                     - 26 -
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
     Registrant has duly caused this report to be signed on its behalf by the
     undersigned thereunto duly authorized.

     Date: August 14, 2002      AEARO CORPORATION

                                /s/ Jeffrey S. Kulka

                                ---------------------------------------
                                Jeffrey S.  Kulka Vice  President,
                                Chief Financial Officer, Treasurer,and Secretary
                                (Principal Financial and Accounting Officer)


                                     - 27 -
<PAGE>

                                 CERTIFICATIONS

     In connection with the Quarterly Report of the Company on Form 10-Q for the
     period  ending  June 30,  2002 as filed with the  Securities  and  Exchange
     Commission on the date hereof (the "Report"),  I, Michael A. McLain,  Chief
     Executive Officer of the Company, certify, pursuant to 18 U.S.C ss.1350, as
     adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

     1) The Report fully  complies  with the  requirements  of section  13(a) or
     15(d)  of the  Securities  Exchange  Act of  1934,  and

     2) The information contained in the Report fairly presents, in all material
     respects, the financial condition and results of operations of the Company


                                /s/Michael A. McLain

                                ---------------------------------------
                                Michael A. Mclain
                                Chief Executive Officer, President, and Chairman
                                of the Board of Directors


     In connection with the Quarterly Report of the Company on Form 10-Q for the
     period  ending  June 30,  2002 as filed with the  Securities  and  Exchange
     Commission on the date hereof, I, Jeffrey S. Kulka, Chief Financial Officer
     of the Company,  certify, pursuant to 18 U.S.C ss.1350, as adopted pursuant
     to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

     1) The Report fully  complies  with the  requirements  of section  13(a) or
     15(d)  of the  Securities  Exchange  Act of  1934,  and

     2) The information contained in the Report fairly presents, in all material
     respects, the financial condition and results of operations of the Company

                                /s/ Jeffrey S. Kulka

                                --------------------------------------
                                Jeffrey S. Kulka
                                Vice President, Chief Financial Officer,
                                Treasurer, and Secretary (Principal Financial
                                and Accounting Officer)

                                     - 28 -
<PAGE>

                                  EXHIBIT INDEX


     EXHIBITS                           DESCRIPTION
     ---------                          ------------