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 March 31, 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 May 15, 2002 was 101,912.5.


                                     - 1 -
<PAGE>
                                Aearo Corporation
                                TABLE OF CONTENTS
             Form 10-Q for the Quarterly Period Ended March 31, 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

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
----------

EXHIBIT INDEX................................................................28
-------------
                                     - 2 -
<PAGE>

                          PART I-FINANCIAL INFORMATION

     Item 1.      Financial Statements



                                AEARO CORPORATION

                 Condensed Consolidated Balance Sheets - Assets
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                   -------------  -------------
                                                                      March 31,   September 30,
                                                                        2002          2001
                                                                   -------------  -------------
                                                                    (Unaudited)
   <S>                                                             <C>             <C>
   CURRENT ASSETS:
     Cash and cash equivalents                                     $     10,735    $    18,233
     Accounts receivable (net of reserve for doubtful accounts of
         $1,123 and $831 respectively)                                   42,878         42,428
     Inventories                                                         30,757         29,564
     Deferred and prepaid expenses                                        3,732          2,325
                                                                   ------------   ------------

         Total current assets                                            88,102         92,550
                                                                   ------------   ------------

   PROPERTY, PLANT AND EQUIPMENT, NET                                    47,490         47,003

   INTANGIBLE ASSETS, NET                                               116,892        118,200

   OTHER ASSETS                                                           3,769          3,549
                                                                   ------------   ------------


         Total assets                                              $    256,253    $   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>
<CAPTION>

                                                                        -----------------      -----------------
                                                                           March 31,              September 30,
                                                                              2002                     2001
                                                                        -----------------      -----------------
                                                                           (Unaudited)

<S>                                                                     <C>                     <C>
CURRENT LIABILITIES:
   Current portion of long-term debt                                    $         10,104        $         8,393
   Accounts payable and accrued liabilities                                       37,019                 37,896
   Accrued interest                                                                2,608                  2,691
   U.S. and foreign income taxes                                                   1,883                  2,265
                                                                        ----------------         --------------

         Total current liabilities                                                51,614                 51,245
                                                                        ----------------         --------------

LONG-TERM DEBT                                                                   185,913                193,836

DEFERRED INCOME TAXES                                                                495                    383

OTHER LIABILITIES                                                                  6,361                  5,982
                                                                        ----------------         --------------

         Total liabilities                                              $        244,383         $      251,446
                                                                        ----------------         --------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value-
   (Redemption value of $102,945 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                                                     32,248                 32,374
   Accumulated deficit                                                            (1,188)                (2,494)
   Accumulated other comprehensive loss                                          (19,191)               (20,025)
                                                                        -----------------         --------------

         Total stockholders' equity                                               11,870                  9,856
                                                                        ----------------          --------------

         Total liabilities and stockholders' equity                     $        256,253         $      261,302
                                                                        ================         ===============
</TABLE>


                                     - 4 -

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

                 Condensed Consolidated Statements of Operations
                             (DOLLARS IN THOUSANDS)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                    ------------------------------------     -------------------------------------
                                                        For the Three Months Ended                 For the Six Months Ended
                                                                 March 31,                                March 31,
                                                    ------------------------------------     -------------------------------------
                                                         2002                2001                 2002                 2001

<S>                                                 <C>                 <C>                  <C>                 <C>
NET SALES                                           $        70,683     $        74,039      $       132,326     $       142,404

COST OF SALES                                                37,360              39,116               70,288              76,669
                                                    ---------------     ---------------      ---------------     ---------------

         Gross profit                                        33,323              34,923               62,038              65,735

SELLING AND ADMINISTRATIVE                                   22,832              21,911               43,688              46,094

RESEARCH AND TECHNICAL SERVICES                               1,389               1,365                2,758               2,849

AMORTIZATION OF INTANGIBLES                                   1,557               1,634                3,116               3,289

OTHER CHARGES                                                    29                 514                   38                 523
                                                    ---------------     ---------------      ---------------     ---------------

         Operating income                                     7,516               9,499               12,438              12,980

INTEREST EXPENSE, NET                                         4,936               5,880               10,046              11,681
                                                    ---------------     ---------------      ---------------     ---------------

         Income before provision for income taxes
                                                              2,580               3,619                2,392               1,299

PROVISION FOR INCOME TAXES                                      563                 584                1,086                 651
                                                    ---------------     ---------------      ---------------     ---------------

         Net Income                                 $         2,017     $         3,035      $         1,306     $           648
                                                    ===============     ===============      ===============     ===============

</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>
<CAPTION>
                                                                                --------------------------------
                                                                                      For the Six Months Ended
                                                                                             March 31,
                                                                                --------------------------------
                                                                                     2002              2001
                                                                                -------------      -------------
<S>                                                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                   $       1,306      $         648
   Adjustments to reconcile net income to cash provided by operating activities-
      Depreciation                                                                      5,108              5,121
      Amortization of intangible assets and deferred financing costs                    3,890              4,009
      Deferred income taxes                                                               104               (85)
      Other, net                                                                          248                 22
      Changes in assets and liabilities-(net of effects of acquisitions)
         Accounts receivable                                                            1,772              1,389
         Inventories                                                                      224            (2,530)
         Accounts payable and accrued liabilities                                     (4,726)            (1,699)
         Other, net                                                                   (1,095)              (449)
                                                                                -------------      -------------

              Net cash provided by operating activities                                 6,831              6,426
                                                                                -------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to property, plant and equipment                                          (3,964)           (4,439)
   Cash paid for Iron Age Vision                                                         (706)                --
   Cash paid for Leader                                                                (3,636)                --
   Proceeds provided by disposals of property, plant and equipment                         12                 36
                                                                                -------------      -------------

              Net cash used by investing activities                                   (8,294)            (4,403)
                                                                                -------------      -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from revolving credit facility, net                                            --              7,500
   Repayment of bonds                                                                 (2,000)                 --
   Repayment of term loans                                                            (4,024)            (8,895)
   Repayment of capital lease obligations                                                (53)                 --
   Repayment of long-term debt                                                           (70)                (5)
   Other                                                                                (126)                139
                                                                                -------------      -------------

              Net cash used by financing activities                                   (6,273)            (1,261)
                                                                                -------------      -------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                   238            (1,424)
                                                                                -------------      -------------

DECREASE IN CASH AND CASH EQUIVALENTS                                                 (7,498)              (662)

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

CASH AND CASH EQUIVALENTS, END OF PERIOD                                        $      10,735      $       2,833
                                                                                =============      =============

NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Capital lease obligations                                                    $       1,285      $          --
                                                                                =============      =============

CASH PAID FOR:
   Interest                                                                     $       9,346      $      11,040
                                                                                =============      =============
   Income taxes                                                                 $       1,248      $       1,001
                                                                                =============      =============

</TABLE>

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

                                     - 6 -
<PAGE>

                                AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 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 included
     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 March 31,  2001 and 2002 were $4.5  million and
     $4.2 million,  respectively.  Shipping and handling costs in the six months
     ended  March  31,  2001 and  2002  were  $8.5  million  and  $8.2  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
                                 MARCH 31, 2002

                                   (Unaudited)

     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.

     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.

     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  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.

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

                                     - 8 -
<PAGE>
                               AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2002

                                   (Unaudited)

     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 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 swaps and
     collar  agreements.  As a result of the foreign currency forward contracts,
     the Company has recorded a derivative  receivable  of $0.1 million at March
     31, 2002. All foreign currency  forward  contracts are executed in exchange
     traded  markets for which quoted prices exist and will expire over the next
     6 months. There were no interest rate swap agreements at March 31, 2002.

     During the period  ending  March 31,  2002 the  Company  reclassified  into
     earnings  a net  gain of  approximately  $0.3  million  resulting  from the
     exercise  of foreign  currency  forward  contracts.  All  foreign  currency
     forward  contracts  were  determined to be highly  effective,  therefore no
     ineffectiveness was recorded in earnings.

     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 period ended March 31, 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 period ended March
     31, 2002.

4)   COMPREHENSIVE INCOME

     Comprehensive   income  (loss)  consisted  of  the  following  (Dollars  in
     thousands):

<TABLE>
<CAPTION>
                                             For the Three Months Ended        For the Six Months
                                                      March 31,                  Ended March 31,
                                             --------------------------    --------------------------
                                                 2002          2001            2002           2001
                                             ----------    ------------    -----------    -----------
     <S>                                      <C>           <C>             <C>          <C>
     Net income                              $    2,017    $      3,035      $   1,306    $       648
     Foreign currency translation adjustment        160         (5,089)            698        (3,395)
     Unrealized gain (loss) on derivative
       Instruments                                 (95)           1,018            136          (683)
                                             ----------    ------------      ---------    -----------

     Comprehensive income (loss)             $    2,082    $    (1,036)      $   2,140    $   (3,430)
                                             ==========    ============      =========    ===========
</TABLE>

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

                                     - 9 -
<PAGE>
                               AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2002

                                   (Unaudited)
5)  INVENTORIES

    Inventories consisted of the following (Dollars in thousands):

<TABLE>
<CAPTION>

                                 March 31,       September 30,
                                  2002               2001
                              ---------------  ----------------

     <S>                      <C>               <C>
     Raw materials            $         7,875   $         7,259
     Work in process                    8,126             8,364
     Finished goods                    14,756            13,941
                              ---------------   ---------------
                              $        30,757   $        29,564
                              ===============   ===============
</TABLE>

     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  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  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 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 million of revolving loans for general  corporate  purposes and (iii) a
     U.K.  overdraft  facility  of up to an  equivalent  of $5  million in Great
     Britain  Pounds for  working  capital  requirements  as needed.  The amount
     outstanding  on the Term Loans at March 31, 2002, was  approximately  $94.3
     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 March 31, 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,  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

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

                                     - 10 -
<PAGE>
                               AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2002

                                   (Unaudited)

     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 March 31, 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
                                 MARCH 31, 2002

                                   (Unaudited)

     Net Sales by Business Segment (Dollars in thousands):
<TABLE>
<CAPTION>

                                             For the Three Months Ended        For the Six Months Ended
                                                     March 31,                         March 31,
                                          --------------------------------    --------------------------
                                                2002            2001              2002           2001
                                          ---------------- ---------------    -------------- -----------

     <S>                                  <C>              <C>                <C>            <C>
     Safety Products                      $      50,377    $        53,070    $     95,383   $   102,248
     Safety Prescription Eyewear                 10,550             10,701          19,544        19,642
     Specialty Composites                         9,756             10,268          17,399        20,514
                                          -------------    ---------------    ------------   -----------
     Total                                $      70,683    $        74,039    $    132,326   $   142,404
                                          =============    ===============    ============   ===========
</TABLE>

     Inter-segment  sales of the  Specialty  Composites  segment  to the  Safety
     Products segment totaled $0.6 million and $0.9 million for the three months
     ended March 31, 2002 and 2001,  respectively.  Inter-segment  sales totaled
     $1.3  million and $1.9  million for the six months ended March 31, 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>
<CAPTION>
                                                      For the Three Months Ended  For the Six Months Ended
                                                               March 31,                  March 31,
                                                      --------------------------  -------------------------
                                                           2002          2001         2002         2001
                                                      ------------- ------------  ----------- -------------

<S>                                                     <C>           <C>           <C>         <C>
Safety Products                                         $    10,200   $   11,027    $  18,182   $    17,586
Safety Prescription Eyewear                                     746        1,074        1,000         1,074
Specialty Composites                                            953          616          984         1,214
Reconciling Items                                               103          903          700         1,405
                                                      ------------- ------------  ----------- -------------
Total EBITDA                                                 12,002       13,620       20,866        21,279

Depreciation                                                  2,733        2,591        5,108         5,121
Amortization                                                  1,557        1,634        3,116         3,289
Non-operating Costs                                             196        (104)          204         (111)
Interest                                                      4,936        5,880       10,046        11,681
                                                      ------------- ------------  ----------- -------------
Income before provision for income taxes                $     2,580   $    3,619    $   2,392   $     1,299
                                                      ============= ============  =========== =============
</TABLE>

     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  (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.

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

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

                                     - 12 -
<PAGE>
                                AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2002

                                   (Unaudited)

     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 March 31,  2002,  there is
     approximately $6.6 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.  will be
     included with those of the Company subsequent to January 22, 2002.

11)  SUBSEQUENT EVENTS

     On May 7, 2002, the Company acquired the assets of Chesapeake Optical 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 will be 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 taken a full
     valuation  allowance.  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.

     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.

                                     - 14 -
<PAGE>

     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 March 31, 2002  Compared to
     Three Months Ended March 31, 2001

                              Results of Operations
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                         Three Months Ended March 31,
                                                       ----------------------------------------------------------------
                                                            2002               %               2001                %
                                                       ---------------   --------------    --------------   -----------
<S>                                                    <C>                      <C>        <C>                     <C>
  Safety Products                                      $    50,377              71.3       $    53,070             71.7
  Safety Prescription Eyewear                               10,550              14.9            10,701             14.4
  Specialty Composites                                       9,756              13.8            10,268             13.9
                                                       -----------       -----------       -----------      -----------
     Total net sales                                        70,683             100.0            74,039            100.0

Cost of Sales                                               37,360              52.9            39,116             52.8

Gross profit                                                33,323              47.1            34,923             47.1

Operating Expenses-
  Selling and administrative                                22,832              32.3            21,911             29.6
  Research and technical services                            1,389               2.0             1,365              1.8
  Amortization of intangibles                                1,557               2.2             1,634              2.2
  Other charges, net                                            29                --               514               .7
                                                       -----------       -----------       -----------      -----------
     Total operating expenses                               25,807              36.5            25,424             34.3

Operating income                                             7,516              10.6             9,499             12.8

Interest expense, net                                        4,936               7.0             5,880              7.9
                                                       -----------       -----------       -----------      -----------
  Income before provision for income taxes                   2,580               3.7             3,619              4.9

Provision for income taxes                                     563               0.8               584              0.8
                                                       -----------       -----------       -----------      -----------
Net income                                                   2,017               2.9             3,035              4.1
                                                       ===========       ===========       ===========      ===========

EBITDA                                                 $    12,002              17.0       $    13,620             18.4
                                                       ===========       ===========       ===========      ===========
</TABLE>

     Net Sales.  Net sales in the three  months  ended March 31, 2002  decreased
     4.5% to $70.7  million  from $74.0  million in the three months ended March
     31,  2001.  The  change in sales was  primarily  driven by the  significant
     slowdown  in the  manufacturing  sector of the economy in which the Company
     markets its products,  exacerbated by the impact of the terrorist events of
     September  11,  2001.  The Safety  Products  segment net sales in the three
     months  ended March 31, 2002  decreased  5.1% to $50.4  million  from $53.1
     million  in the three  months  ended  March 31,  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
     $1.4  million in the three  months  ended March 31, 2002 as compared to the
     three months ended March 31, 2001.  The Safety  Products  segment sales for
     the three months ended March 31, 2002 included $1.4 million of sales due to
     the  acquisition  of Leader  Industries  on January  22,  2002.  The Safety
     Prescription  Eyewear segment net sales in the three months ended March 31,
     2002 decreased 1.4% to $10.6 million from $10.7 million in the three months
     ended March 31, 2001. The Safety Prescription Eyewear segment sales for the
     three months ended March 31, 2002 included $0.4 million of sales due to the
     acquisition of Iron Age Vision on December 14, 2001. Specialty  Composites'
     net sales in the three months ended March 31, 2002  decreased  5.0% to $9.8

                                     - 15 -
<PAGE>

     million from $10.3  million in the three  months ended March 31, 2001.  The
     decrease was  primarily  driven by volume  declines in the truck market and
     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  March 31,  2002
     decreased  4.6% to $33.3  million  from $34.9  million in the three  months
     ended March 31, 2001. The decline in Gross Profit is primarily due to lower
     sales volumes  caused by the events of September 11, 2001 and the continued
     recession.  Gross Profit as a  percentage  of net sales in the three months
     ended March 31, 2002  compared to the three months ended March 31,  2001was
     unchanged  at  47.1%.  Gross  Profit  as a  percentage  of  net  sales  was
     relatively  unchanged as the positive impact of  productivity  improvements
     and the positive  impact of the  restructuring  plan announced on September
     30,  2001  were  offset  by  unfavorable  product  mix and  lower  capacity
     utilization.

     Operating Expenses.  Operating expenses in the three months ended March 31,
     2002 increased 1.5% to $25.8 million from $25.4 million in the three months
     ended March 31, 2001.  The increase was primarily  driven by an increase in
     selling and administrative expenses partially offset by a decrease in other
     charges, net. Selling and administrative expenses in the three months ended
     March 31, 2002 included  approximately $0.6 million of incremental expenses
     due to acquisitions  as well as increased  legal expenses.  The decrease in
     other charges,  net was primarily  driven by foreign  exchange gains in the
     three months ended March 31, 2002 as compared to foreign exchange losses in
     the three months ended March 31, 2001.

     Operating  Income.  As a result of the factors  mentioned above,  operating
     income  decreased 20.9% to $7.5 million in the three months ended March 31,
     2002 from $9.5 million in the three months ended March 31, 2001.  Operating
     income as a  percentage  of net sales in the three  months  ended March 31,
     2002  decreased  to 10.6% as  compared to 12.8% in the three  months  ended
     March 31, 2001.

     Interest  Expense,  Net.  Interest  expense,  net in the three months ended
     March 31, 2002  decreased  16.1% to $4.9  million  from $5.9 million in the
     three  months ended March 31, 2001.  The  decrease is  attributed  to lower
     weighted  average interest rates in effect for the three months ended March
     31, 2002 as compared to the three months ended March 31, 2001.

     Provision For Income Taxes. The provision for income taxes was unchanged at
     $0.6   million  in  the  three  months  ended  March  31,  2002  and  2001,
     respectively.  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 offset by a valuation allowance.

     Net Income.  For the three  months ended March 31, 2002 the Company had net
     income of $2.0  million as  compared to $3.0  million for the three  months
     ended March 31, 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  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
     below may not be comparable to similarly titled measures presented by other
     companies and comparisons could be misleading.

                                     - 16 -
<PAGE>

                               EBITDA Calculation
                           Three Months Ended March 31
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                               Three Months Ended                             Change
                                                    March 31,                        Favorable (Unfavorable)
                                       ------------------------------------    -------------------------------------
                                            2002                 2001              Amount             Percent
                                       ----------------     ---------------    ---------------   -------------------

    <S>                                   <C>                  <C>                 <C>                 <C>
    Operating Income                      $    7,516           $    9,499          $ (1,983)           (20.9%)
    Add Backs:
        Depreciation                           2,733                2,591                142               5.5
        Amortization of intangibles            1,557                1,634               (77)             (4.7)
        Non-operating costs, net                 196                (104)                300                --
                                          ----------           ----------          ---------     -------------
    EBITDA                                $   12,002           $   13,620          $ (1,618)           (11.9%)
                                          ==========           ==========          =========     =============

    By Segment
        Safety Products                   $   10,200           $   11,027          $   (827)            (7.5%)
        Safety Prescription Eyewear              746                1,074              (328)            (30.5)
        Specialty                                953                  616                337              54.7
        Reconciling Items                        103                  903              (800)            (88.6)
                                          ----------           ----------          ---------     -------------
    EBITDA                                $   12,002           $   13,620          $ (1,618)           (11.9%)
                                          ==========           ==========          =========     =============
</TABLE>

     EBITDA for the three months ended March 31, 2002  decreased  11.9% to $12.0
     million  from $13.6  million for the three  months  ended  March 31,  2001.
     EBITDA as a  percentage  of net sales in the three  months  ended March 31,
     2002 was 17.0% as  compared  to 18.4% in the three  months  ended March 31,
     2001.  The decrease in EBITDA is primarily  attributed  to decreased  sales
     volume  related  to the  continued  effects of a weak  economy.  The Safety
     Products  segment's  EBITDA  in the  three  months  ended  March  31,  2002
     decreased  7.5% to $10.2  million  from $11.0  million in the three  months
     ended March 31, 2001.  This decrease was primarily  driven by reduced sales
     volume.  The  Safety  Prescription  Eyewear  segment's  EBITDA in the three
     months  ended March 31, 2002  decreased  30.5% to $0.7 from $1.1 million in
     the three months ended March 31, 2001.  This decrease was primarily  driven
     by product mix and higher  distribution  costs.  The  Specialty  Composites
     segment's  EBITDA for the three months ended March 31, 2002 increased 54.7%
     to $1.0 million from $0.6 million in the three months ended March 31, 2001.
     This  increase was  primarily  driven by the  positive  impacts of the 2001
     restructuring plan.


                                     - 17 -
<PAGE>


     Results of  Operations  -- Six Months Ended March 31, 2002  Compared to Six
     Months Ended March 31, 2001

                              Results of Operations
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       Six Months Ended March 31,
                                                   ------------------------------------------------------------------
                                                        2002                  %                  2001         %
                                                   ----------------    -----------------    -------------------------

<S>                                                <C>                        <C>           <C>                  <C>
Net Sales
  Safety Products                                  $    95,383                72.1          $   102,223          71.8
  Safety Prescription Eyewear                           19,544                14.8               19,642          13.8
  Specialty Composites                                  17,399                13.1               20,539          14.4
                                                   -----------         -----------          -----------    ----------
     Total net sales                                   132,326               100.0              142,404         100.0

Cost of Sales                                           70,288                 53.1              76,669          53.8

   Gross profit                                         62,038                 46.9              65,735          46.2

Operating Expenses-
  Selling and administrative                            43,688                33.0               46,094          32.4
  Research and technical services                        2,758                 2.1                2,849           2.0
  Amortization of intangibles                            3,116                 2.4                3,289           2.3
  Other charges, net                                        38                  --                  523            .4
                                                   -----------         -----------          -----------    ----------
     Total operating expenses                           49,600                37.5               52,755          37.1

Operating income                                        12,438                 9.4               12,980           9.1

Interest expense, net                                   10,046                 7.6               11,681           8.2
                                                   -----------         -----------          -----------    ----------
 Income before provision for income taxes                2,392                 1.8                1,299           0.9

Provision for income taxes                               1,086                 0.8                  651           0.5
                                                   -----------         -----------          -----------    ----------
Net income                                               1,306                 1.0                  648           0.4
                                                   ===========         ===========          ===========    ==========

EBITDA                                             $    20,866                15.8          $    21,279          14.9
                                                   ===========         ===========          ===========    ==========
</TABLE>

     Net Sales.  Net sales in the six months ended March 31, 2002 decreased 7.1%
     to $132.3  million  from $142.4  million in the six months  ended March 31,
     2001. The change in sales was primarily driven by the significant  slowdown
     in the manufacturing sector of the economy in which the Company markets its
     products,  exacerbated  by the impact of the terrorist  events of September
     11,  2001.  The Safety  Products  segment net sales in the six months ended
     March 31, 2002  decreased  6.7% to $95.4 million from $102.2 million in the
     six months ended March 31, 2001. This decrease was primarily driven by

                                     - 18 -
<PAGE>

     the continued effects of a weak economy as mentioned above. The strength of
     the U.S. dollar had the impact of reducing sales by $1.7 million in the six
     months  ended March 31, 2002 as compared to the six months  ended March 31,
     2001. The Safety Products  segment sales for the six months ended March 31,
     2002  included  $1.4  million  of sales  due to the  acquisition  of Leader
     Industries on January 22, 2002. The Safety Prescription Eyewear segment net
     sales in the six months  ended  March 31, 2002  decreased  by 0.5% to $19.5
     million  from $19.6  million in the six months  ended March 31,  2001.  The
     Safety  Prescription  Eyewear  segment sales for the six months ended March
     31, 2002 included $0.4 million of sales due to the  acquisition of Iron Age
     Vision on December 14,  2001.  Specialty  Composites'  net sales in the six
     months  ended March 31, 2002  decreased  15.3% to $17.4  million from $20.5
     million in the six months ended March 31, 2001.  The decrease was primarily
     driven by volume declines in the truck market and the  electronics  segment
     of the precision  equipment market,  which includes  computers and personal
     communications system (PCS) applications.

     Gross Profit. Gross Profit in the six months ended March 31, 2002 decreased
     5.6% to $62.0  million from $65.7 million in the six months ended March 31,
     2001.  The decline in Gross Profit is primarily  due to lower sales volumes
     caused by the events of  September  11, 2001 and the  continued  recession.
     Gross Profit as a percentage of net sales in the six months ended March 31,
     2002  improved to 46.9% as compared to 46.2% in the six months  ended March
     31,  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 and lower
     capacity utilization.

     Operating  Expenses.  Operating  expenses in the six months ended March 31,
     2002  decreased  6.0% to $49.6 million from $52.8 million in the six months
     ended March 31,  2001.  The decrease in  operating  expenses was  primarily
     driven by lower selling and administrative expenses and other charges, net.
     The decrease in selling and  administrative  expenses was  primarily due to
     discretionary spending controls to keep expenses in line with revenues. The
     decrease in other charges,  net was primarily due to foreign exchange gains
     in the six months  ended March 31,  2002 as  compared  to foreign  exchange
     losses in the six months  ended  March 31,  2001.  Because of the lower net
     sales,  Selling and  administrative  expenses as a percentage  of net sales
     increased  to 33.0% in the six months  ended  March 31, 2002 as compared to
     32.4% in the six months ended March 31, 2001.

     Operating  Income.  As a result of the factors  mentioned above,  operating
     income  decreased  4.2% to $12.4  million in the six months ended March 31,
     2002 from $13.0  million in the six months ended March 31, 2001.  Operating
     income as a percentage  of net sales in the six months ended March 31, 2002
     increased  to 9.4% as  compared  to 9.1% in the six months  ended March 31,
     2001.

     Interest Expense,  Net. Interest expense, net in the six months ended March
     31, 2002  decreased  14.0% to $10.0  million from $11.7  million in the six
     months ended March 31, 2001.  The decrease is attributed to lower  weighted
     average interest rates in effect for the six months ended March 31, 2002 as
     compared to the six months ended March 31, 2001.

     Provision  For Income Taxes.  The  provision for income taxes  increased to
     $1.1  million in the six months  ended March 31, 2002 from $0.7  million in
     the six months ended March 31, 2001. 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 offset by a valuation allowance.

     Net  Income.  For the six months  ended  March 31, 2002 the Company had net
     income of $1.3 million as compared to $0.6 million for the six months ended
     March 31, 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  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
     below may not be comparable to similarly titled measures presented by other
     companies and comparisons could be misleading.


                                     - 19 -
<PAGE>


                               EBITDA Calculation
                            Six Months Ended March 31
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                             Six Months Ended                Change
                                                March 31,            Favorable (Unfavorable)
                                    ----------------------------    --------------------------
                                        2002            2001          Amount         Percent
                                    -------------  -------------    ------------   -----------

<S>                                    <C>            <C>             <C>               <C>
 Operating Income                      $   12,438     $   12,980      $   (542)         (4.2%)
 Add Backs:
    Depreciation                            5,108          5,121           (13)          (0.3)
    Amortization of intangibles             3,116          3,289          (173)          (5.3)
    Non-operating costs, net                  204          (111)            315             --
                                       ----------     ----------      ---------     ----------
 EBITDA                                $   20,866     $   21,279      $   (413)         (1.9%)
                                       ==========     ==========      =========     ==========


By Segment
    Safety Products                   $   18,182      $   17,586     $     596           3.4%
    Safety Prescription Eyewear            1,000           1,074           (74)          (6.9)
    Specialty                                984           1,214          (230)         (18.9)
    Reconciling Items                        700           1,405          (705)         (50.2)
                                      ----------      ----------     ----------     ----------
EBITDA                                $   20,866      $   21,279     $    (413)         (1.9%)
                                      ==========      ==========     ==========     ==========
</TABLE>

     EBITDA for the six months  ended  March 31,  2002  decreased  1.9% to $20.9
     million from $21.3 million for the six months ended March 31, 2001.  EBITDA
     as a  percentage  of net sales in the six months  ended  March 31, 2002 was
     15.8% as compared  to 14.9% in the six months  ended  March 31,  2001.  The
     increase in EBITDA is  primarily  attributed  to the  improvement  in gross
     margin percentage and the reduction in selling and administrative expenses,
     which were partially  offset by lower sales volume and unfavorable  product
     mix. The Safety Products segment's EBITDA in the six months ended March 31,
     2002  increased  3.4% to $18.2 million from $17.6 million in the six months
     ended March 31, 2001. This increase was primarily  driven by improved gross
     margin and the reduction in selling and administrative  expense,  partially
     offset by lower  capacity  utilization.  The  Safety  Prescription  Eyewear
     segment's  EBITDA in the six months ended March 31, 2002  decreased 6.9% to
     $1.0 million from $1.1 million in the six months ended March 31,2001.  This
     decrease was primarily driven by product mix and higher distribution costs.
     The Specialty  Composites  segment's  EBITDA for the six months ended March
     31, 2002  decreased  18.9% to $1.0  million  from $1.2 million in the three
     months ended March 31, 2001.  This decrease was  primarily  driven by lower
     sales volume,  partially  offset by improved gross margins and the positive
     impacts of the 2001 restructuring plan.


     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  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.


                                     - 20 -
<PAGE>

     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 we 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 March 31, 2002, was  approximately  $94.3
     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 March 31, 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:  $4.0  million  for the
     remainder of fiscal 2002,  $12.0 million in fiscal 2003,  and $78.0 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  will not be  required  to make any  principal
     payments  in respect of the Notes 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 six months
     ended March 31, 2002  totaled  $6.8 million as compared to $6.4 million for
     the six months  ended March 31,  2001.  The  increase  of $0.4  million was
     primarily due to a $0.7 million  improvement in net income partially offset
     by a $0.3  million  decrease  in the  Company's  net  changes in assets and
     liabilities.  The  Company's  net  changes in assets and  liabilities  were
     primarily  driven by a decrease in cash used to fund  accounts  payable and
     accrued liabilities

                                     - 21 -
<PAGE>

     and other,  net,  partially  offset by an increase in cash from receivables
     and  inventory.  The  decrease in the change in accounts  payable and other
     liabilities  included  $1.3  million in payments  related to the  Company's
     restructuring plan.

     Net cash used by investing  activities  was $8.3 million for the six months
     ended March 31, 2002 as compared to $4.4  million for the six months  ended
     March 31, 2001.  The increase of $3.9 million in net cash used by investing
     activities is primarily  attributed to the acquisition of Leader Industries
     for $3.6 million in January 2002,  the  acquisition  of Iron Age Vision for
     $0.7  million in December  2001 and an decrease of $0.4  million in capital
     expenditures  for the six months ended March 31,  2002,  as compared to the
     six months ended March 31, 2001.

     Net cash used by  financing  activities  for the six months ended March 31,
     2002 was $6.3 million  compared with net cash used by financing  activities
     for the six months ended March 31, 2001 of $1.3 million. The change of $5.0
     million is primarily due to no draw of proceeds  from the Revolving  Credit
     Facility  during the six months ended March 31, 2002,  as compared to a net
     draw of $7.5 million during the six months ended March 31, 2001,  partially
     offset by a decrease in term loan and bond repayments of $2.0 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 six months ended March 31,  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. 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 six months
     ended March 31,  2002,  net  transaction  losses were $0.1 million and cash
     flow hedge gains were $0.3 million. 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.

     The Company adopted 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  liability  measures at its fair value.  As a result of forward  foreign
     currency  contracts,  the Company has recorded a derivative  receivable  of
     $0.1 million as of March 31, 2002. The forward foreign  currency  contracts
     will expire over the next 6 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 was 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 risk.

                                     - 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 March 31, 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: May 15, 2002         AEARO CORPORATION
                                /s/ Jeffrey S. Kulka

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



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                                  EXHIBIT INDEX


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