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, 2003


                         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___

     Indicate by check mark whether the registrant  whether the registrant is an
accelerated  filer (as  defined in Rule  12b-2 of the  Exchange  Act). Yes No X

         The number of shares of the registrant's common stock, par value $.01
per share, outstanding as of May 15, 2003 was 101,912.5.
<PAGE>


                                Aearo Corporation
                                TABLE OF CONTENTS
             Form 10-Q for the Quarterly Period Ended March 31, 2003

PART I-FINANCIAL INFORMATION...................................................3
----------------------------
Item 1.    Financial Statements................................................3
-------    --------------------
           Condensed Consolidated Balance Sheets - Assets......................3
           ----------------------------------------------
           Condensed Consolidated Balance Sheets - Liabilities and Stockholders'
           Equity..............................................................4
           ---------------------------------------------------------------------
           Condensed Consolidated Statements of Operations.....................5
           -----------------------------------------------
           Condensed Consolidated Statements of Cash Flows.....................6
           -----------------------------------------------
           Notes To Condensed Consolidated Financial Statements................7
           ----------------------------------------------------
Item 2.    Management's Discussion and Analysis of Financial Condition and
-------    Results of Operations..............................................16
           ---------------------------------------------------------------------
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........25
-------    ----------------------------------------------------------
Item 4.    Controls and Procedures............................................27
-------    -----------------------

PART II - OTHER INFORMATION...................................................28
---------------------------
Item 1.    Legal Proceedings..................................................28
-------    -----------------
Item 2.    Changes in Securities and Use of Proceeds..........................29
-------    -----------------------------------------
Item 3.    Defaults Upon Senior Securities....................................29
-------    -------------------------------
Item 4.    Submission of Matters to a Vote of Security Holders................29
-------    ---------------------------------------------------
Item 5.    Other Information..................................................29
-------    -----------------
Item 6.    Exhibits and Reports on Form 8-K...................................29
-------    --------------------------------
SIGNATURES....................................................................30
----------

EXHIBIT INDEX.................................................................33
-------------
<PAGE>

                          PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

                               AEARO CORPORATION

                 Condensed Consolidated Balance Sheets - Assets
                             (Dollars in Thousands)
<TABLE>

                                                                  March 31,      September 30,
                                                                    2003             2002
                                                                 -----------     --------------
                                                                (Unaudited)
<S>                                                               <C>                <C>
                   CURRENT ASSETS:

Cash and cash equivalents                                        $     5,153        $    14,480
Accounts receivable (net of allowance for doubtful accounts of
    $1,895 and $1,524, respectively)                                  46,226             46,478
Inventories                                                           37,617             33,161
Deferred and prepaid expenses                                          3,751              3,449
                                                                 -----------     --------------
    Total current assets                                              92,747             97,568
                                                                 -----------     --------------

                  LONG TERM ASSETS:
Property, plant and equipment, net                                    48,309             48,096
Intangible assets, net                                               135,850            121,979
Other assets                                                           2,825              2,526
                                                                 -----------     --------------

    Total assets                                                 $   279,731     $      270,169
                                                                 ===========     ==============
</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>
                                                                  March 31,         September 30,
                                                                     2003               2002
                                                               -----------------  ----------------
                                                                 (Unaudited)

CURRENT LIABILITIES:
<S>                                                            <C>                  <C>
   Current portion of long-term debt                           $         15,063     $        12,847
   Accounts payable and accrued liabilities                              39,802              36,410
   Accrued interest                                                       2,566               2,568
   U.S. and foreign income taxes                                          3,140               1,156
                                                               ----------------      --------------

         Total current liabilities                                       60,571              52,981
                                                               ----------------      --------------

   Long-term debt                                                       176,637             182,715
   Deferred income taxes                                                    879                 800
   Other liabilities                                                     12,857              12,129
                                                               ----------------      --------------

         Total liabilities                                     $        250,944      $      248,625
                                                               ----------------      --------------

COMMITMENTS AND CONTINGENCIES:
Preferred stock, $.01 par value-
(Redemption value of $116,429 and $109,480, respectively)
    Authorized--200,000 shares
    Issued and outstanding--45,000 shares                                      -                   -

STOCKHOLDERS' EQUITY:
   Common stock, $.01 par value-
    Authorized--200,000 shares
    Issued and outstanding--101,913 shares                                    1                   1
   Additional paid-in capital                                            32,233              32,254
   Retained earnings                                                     10,558               6,825
   Accumulated other comprehensive loss                                 (14,005)            (17,536)
                                                               -----------------     --------------
         Total stockholders' equity                                      28,787              21,544
                                                               ----------------      --------------

         Total liabilities and stockholders' equity            $        279,731      $      270,169
                                                               ================      ==============
</TABLE>
         The accompanying notes are an intregal part of these condensed
                       consolidated financial statements.

                                     - 4 -
<PAGE>
                 Condensed Consolidated Statements of Operations
                             (DOLLARS IN THOUSANDS)
                                   (Unaudited)

<TABLE>
                                                        For the Three Months Ended                 For the Six Months Ended
                                                                 March 31,                                March 31,
                                                    ------------------------------------     -----------------------------------
                                                          2003                2002                 2003                 2002
                                                    ---------------    ----------------      ----------------  -----------------
<S>                                                 <C>                 <C>                  <C>                 <C>
NET SALES                                           $        76,686     $        70,683      $       145,403     $       132,326

COST OF SALES                                                39,912              37,360               75,557              70,288
                                                    ---------------     ---------------      ---------------     ---------------

         Gross profit                                        36,774              33,323               69,846              62,038

SELLING AND ADMINISTRATIVE                                   24,867              22,832               49,188              43,688

RESEARCH AND TECHNICAL SERVICES                               1,626               1,389                3,209               2,758

AMORTIZATION OF INTANGIBLES                                      16               1,557                  132               3,116

OTHER CHARGES                                                   499                  29                  957                  38
                                                    ---------------     ---------------      ---------------     ---------------

         Operating income                                     9,766               7,516               16,360              12,438

INTEREST EXPENSE, NET                                         5,001               4,936                9,943              10,046
                                                    ---------------     ---------------      ---------------     ---------------

         Income before provision for income taxes
                                                              4,765               2,580                6,417               2,392

PROVISION FOR INCOME TAXES                                    2,074                 563                2,684               1,086
                                                    ---------------     ---------------      ---------------     ---------------

         Net Income                                 $         2,691     $         2,017      $         3,733     $         1,306
                                                    ===============     ===============      ===============     ===============

</TABLE>

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

                                     - 5 -
<PAGE>

                 Condensed Consolidated Statements of Cash Flows
                             (DOLLARS IN THOUSANDS)
                                   (Unaudited)
<TABLE>

                                                                                           For the Six Months Ended
                                                                                                  March 31,
                                                                                           2003                2002
                                                                                       ---------------   ----------------
<S>                                                                                     <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                           $       3,733       $       1,306
   Adjustments to reconcile net income to cash provided by operating activities-
      Depreciation                                                                              5,363               5,108
      Amortization of intangible assets and deferred financing costs                              943               3,890
      Deferred income taxes                                                                       (7)                 104
      Other, net                                                                                  273                 248
      Changes in assets and liabilities-(net of effects of acquisitions)
         Accounts receivable                                                                    2,722               1,772
         Inventories                                                                          (2,069)                 224
         Accounts payable and accrued liabilities                                               (380)             (4,726)
         Income taxes payable                                                                   2,011               (349)
         Other, net                                                                             (807)               (746)
                                                                                        -------------       -------------

              Net cash provided by operating activities                                        11,782               6,831
                                                                                        -------------       -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to property, plant and equipment                                                  (4,339)            (3,964)
   Cash paid for acquisitions, net of cash acquired                                           (11,062)            (4,342)
   Proceeds provided by disposals of property, plant and equipment                                  6                  12
                                                                                        -------------       -------------

              Net cash used by investing activities                                          (15,395)             (8,294)
                                                                                        -------------       -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from revolving credit facility, net                                                   500                  --
   Repayment of bonds                                                                              --             (2,000)
   Repayment of term loans                                                                    (6,332)             (4,024)
   Repayment of capital lease obligations                                                       (106)                (53)
   Repayment of long-term debt                                                                   (31)                (70)
   Other                                                                                         (20)               (126)
                                                                                        -------------       -------------

              Net cash used by financing activities                                           (5,989)             (6,273)
                                                                                        -------------       -------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                           275                 238
                                                                                        -------------       -------------

DECREASE IN CASH AND CASH EQUIVALENTS                                                         (9,327)             (7,498)

CASH AND CASH EQUIVALENTS, BEGINNING OF  PERIOD                                                14,480              18,233
                                                                                        -------------       -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                                $       5,153       $      10,735
                                                                                        =============       =============

NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Capital lease obligations                                                            $         430       $       1,285
                                                                                        =============       =============

CASH PAID FOR:
   Interest                                                                             $       9,118       $       9,346
                                                                                        =============       =============
   Income taxes                                                                         $         747       $       1,248
                                                                                        =============       =============
</TABLE>

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

                                     - 6 -
<PAGE>
                                AEARO CORPORATION

              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2003
                                   (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 when title and risk
     transfer to the customer, which is generally when the product is shipped to
     customers.  At the time revenue is recognized,  certain provisions may also
     be recorded  including an allowance  for doubtful  accounts.  Allowance for
     doubtful  accounts is generally based on a percentage of aged  receivables.
     However,  management  judgment is involved with the final  determination of
     the allowance based on several  factors  including  specific  analysis of a
     customer's credit  worthiness,  historical bad debt experience,  changes in
     payment history and general economic and market trends.

     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  Transactions.  Foreign currency gains and losses arising
     from transactions by any of the Company's subsidiaries are reflected in net
     income.

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

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

                                     - 7 -
<PAGE>

                                AEARO CORPORATION
              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2003
                                   (Unaudited)


Goodwill and Other  Intangibles.  Effective October 1, 2002, the Company adopted
Statement of Financial  Accounting  Standards  ("SFAS") No. 142,  "Goodwill  and
Other  Intangibles".  Under  the  provisions  of  SFAS  No.  142,  goodwill  and
intangible  assets that have indefinite useful lives are no longer amortized but
are tested at least  annually for  impairment.  The Company  performed its first
annual  impairment  test as of  January  1,  2003 and  determined  there  was no
impairment.  Intangible assets that have finite useful lives will continue to be
amortized  over  their  useful  lives.  As  a  result  of  the  non-amortization
provisions of SFAS No. 142, the Company will no longer record approximately $5.8
million  of annual  amortization  relating  to  goodwill  and  indefinite  lived
intangibles. The following presents amortization expense and proforma net income
for the three and six months  ended  March 31,  2003 and 2002 as if SFAS No. 142
had been adopted (Dollars in thousands):
<TABLE>

                             Three Months Ended            Six Months Ended
                                 March 31,                     March 31,
                         --------------------------    -------------------------
                             2003          2002             2003          2002
                         ------------   -----------    -----------    ----------
<S>                      <C>            <C>            <C>                 <C>
Net income as reported   $     2,691    $    2,017     $     3,733         1,306
Goodwill amortization             --           778     $        --         1,558
Trademark amortization            --           741     $        --         1,482
                         ------------   -----------    -----------    ----------
     Net income          $     2,691    $    3,536     $     3,733         4,346
                         ============   ===========    ===========    ==========
</TABLE>

The trademark is deemed to have an indefinite useful life because it is expected
to generate cash flow indefinitely.

Asset  Retirement  Obligations.  Effective  October 1, 2002, the Company adopted
SFAS No.  143,  "Accounting  for Asset  Retirement  Obligations".  SFAS No.  143
requires the Company to record the fair value of liabilities associated with the
retirement  of long-lived  assets in the period in which they are incurred.  The
adoption  of SFAS No. 143 had no  material  impact on the  Company's  results of
operations or financial position.

Impairment  or Disposal of Long-Lived  Assets.  Effective  October 1, 2002,  the
Company  adopted SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of
Long-Lived  Assets",   which  supercedes  SFAS  No.  121,  "Accounting  for  the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of".
SFAS No. 144 retains the fundamental  provisions with respect to the recognition
and  measurement of long-lived  asset  impairment but does not apply to goodwill
and other  intangibles  assets.  The  adoption  of SFAS No. 144 had no  material
effect on the Company's results of operations or financial position.

Extinguishment of Debt.  Effective October 1, 2002, the Company adopted SFAS No.
145 "Rescission of Financial  Accounting  Standards Board ("FASB") Statement No.
4, 44, and 62,  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 the inconsistency  between the required accounting for sales-leaseback
transactions and the required  accounting for certain lease  modifications  that
have economic effects similar to  sale-leaseback  transactions.  The adoption of
SFAS No. 145 had no effect on the  Company's  results of operations or financial
position.

Exit or Disposal Activities. Effective October 1, 2002, the Company adopted SFAS
No. 146,  "Accounting for Costs  Associated  with Exit or Disposal  Activities".
SFAS No.  146  requires  that a  liability  for  costs  associated  with exit or
disposal  activities  be  recognized  and  measured  at fair value only when the
liability is incurred. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not
have a material  effect on the  Company's  results of  operations  or  financial
position.

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

                                     - 8 -
<PAGE>
                               AEARO CORPORATION
              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2003
                                   (Unaudited)

Stock-based  Compensation.  In  December  2002,  the FASB  issued  SFAS No. 148,
"Accounting  for  Stock-Based  Compensation  -  Transition  and  Disclosure,  an
amendment of FASB Statement No. 123". SFAS No. 148 provides  alternative methods
of  transition  for a  voluntary  change  to the  fair  value  based  method  of
accounting for stock-based employee  compensation.  In addition,  this statement
amends  the  disclosure  requirements  of  SFAS  No.  123 to  require  prominent
disclosures in both annual and interim financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on  reported  results.  The  Company  currently  accounts  for  stock-based
compensation  under the intrinsic method of Accounting  Principles Board ("APB")
Opinion No. 25. The following  table  illustrates the effect on net income as if
the fair value based  method had been  applied to all  outstanding  and unvested
awards:

                             (Dollars in thousands)
<TABLE>

                                                          Three Months Ended           Six Months Ended
                                                                March 31,                  March 31,
                                                       ------------------------     ------------------------
                                                          2003           2002           2003         2002
                                                       -----------    ---------     -----------  -----------
<S>                                                    <C>            <C>           <C>          <C>
Net income as reported                                 $     2,691    $   2,017     $     3,733  $     1,306
Add: Total stock-based employee compensation expense
determined under intrinsic value method for all
awards, net of tax Add:                                                                      -             -
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of tax                                                                     (74)          (94)
                                                       -----------   ----------     -----------   -----------
Net income                                             $     2,654   $    1,970     $     3,659   $     1,212
                                                       ===========   ==========     ===========   ===========
</TABLE>

Disclosure  Requirements for Guarantees.  In November 2002, the FASB issued FASB
Interpretation   ("FIN")  No.  45,   "Guarantor's   Accounting   and  Disclosure
Requirements for Guarantees,  Including  Indirect  Guarantees of Indebtedness of
Others".  FIN No. 45 expands upon the  disclosure  requirements  to be made by a
guarantor  in  its  interim  and  annual  financial   statements  regarding  its
obligations under certain guarantees that it has issued.  Additionally,  FIN No.
45 requires that the  guarantor  recognize,  at the inception of a guarantee,  a
liability  for the fair  value  of the  obligation  undertaken  in  issuing  the
guarantee.  Footnote  disclosures are required in interim and year-end financial
statements ending after December 15, 2002. Liability recognition and measurement
provisions apply prospectively to guarantees issued or modified starting January
1, 2003.  The  adoption of FIN No. 45 had no effect on the  Company's  financial
position or results of operations.

Consolidation of Variable  Interest  Entities.  In January 2003, the FASB issued
FIN No. 46,  "Consolidation of Variable Interest  Entities,  an Amendment of ARB
No. 51". FIN No. 46 addresses  consolidation of business  enterprises of certain
variable  interest  entities,  and is effective for variable  interest  entities
created  after  January 31, 2003 and to variable  interest  entities in which an
enterprise  obtains an interest  after that date. The adoption of FIN No. 46 had
no effect on its financial position or results of operations.

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

                                     - 9 -
<PAGE>
                                AEARO CORPORATION
              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2003
                                   (Unaudited)

Accounting  for Derivative  Instruments  and Hedging  Activities.  SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities"  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 forward foreign currency
contracts and interest rate swap and collar agreements, which are derivatives as
defined by SFAS No.  133.  The  Company  enters into  forward  foreign  currency
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  forward  foreign   currency
contracts.  As a result of the forward foreign currency  contracts,  the Company
has recorded a derivative payable of $0.7 million at March 31, 2003. All forward
foreign currency contracts will expire over the next six months.

During  the three and six month  period  ending  March  31,  2003,  the  Company
reclassified  into  earnings a net loss of  approximately  $0.5 million and $0.6
million,  respectively  resulting from the exercise of forward foreign  currency
contracts.  All forward foreign currency  contracts were determined to be highly
effective; therefore no ineffectiveness was recorded in earnings.

The Company also executes  forward foreign  currency  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. There was no impact on earnings for
the period ended March 31, 2003.

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 fair value of the collar at March 31, 2003 was a liability  of $0.1
million.  The Company has not elected to take hedge accounting treatment for the
interest  rate collar as defined  under SFAS No. 133 and, as a result,  any fair
value  adjustment is charged  directly to other income  (expense).  There was no
impact on earnings for the three and six month period ended March 31, 2003.

4) COMPREHENSIVE INCOME

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

                                                  For the Three Months Ended    For the Six Months
                                                           March 31,              Ended March 31,
                                                  -------------------------   ------------------------
                                                       2003         2002         2003          2002
                                                  -----------    ----------   ---------    -----------
     <S>                                               <C>            <C>          <C>          <C>
     Net income                                   $    2,691     $    2,017   $   3,733    $     1,306

     Foreign currency translation adjustment           1,317            160       4,185            698
     Unrealized gain (loss) on derivative
       instruments                                      (57)           (95)       (654)            136
                                                  ----------     ----------   ---------    -----------
     Comprehensive income                         $    3,951     $    2,082   $   7,264    $     2,140
                                                  ==========     ==========   =========    ===========
</TABLE>

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

                                     - 10 -
<PAGE>
                               AEARO CORPORATION
              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2003
                                   (Unaudited)
5) INVENTORIES

     Inventories consisted of the following (Dollars in thousands):

<TABLE>
                                           March 31,           September 30,
                                             2003                  2002
                                       ----------------      ----------------
     <S>                                    <C>                    <C>
     Raw materials                     $         8,175        $         7,514
     Work in process                            11,148                 10,196
     Finished goods                             18,294                 15,451
                                       ---------------        ---------------
                                       $        37,617        $        33,161
                                       ===============        ===============
</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)  $98.0  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  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  (collectively the Senior Bank Facilities).
     The amounts outstanding on the Term Loans and the Revolving Credit Facility
     at March 31,  2003  were  approximately  $89.2  million  and $0.5  million,
     respectively.   No  amounts  were  outstanding  under  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, 2003.

     During the first quarter of fiscal 2002,  the Company's  Board of Directors
     authorized  management to  repurchase,  from time to time, a portion of the
     Company's 12.5% Notes,  subject to market conditions and other factors.  No
     assurances  can be  given  as to  whether  or when or at  what  price  such
     repurchases will occur. Subsequently,  pursuant to a first amendment to the
     Senior Bank Facilities,  the Company  purchased and retired $2.0 million of
     the Notes during the first quarter of fiscal 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.

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

                                     - 11 -
<PAGE>
                               AEARO CORPORATION
              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2003
                                   (Unaudited)

     Contingencies  Various lawsuits and claims arise against the Company in the
     ordinary  course of its  business.  Most of these  lawsuits  and claims are
     products  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 that 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 on July
     11, 1995, as amended in 2002. This agreement  provides that, 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  silica-related  legal claims asserted after July 11, 1995 and
     alleged  to have  arisen  out of the use of  respirators  while  exposed to
     asbestos  or silica  prior to January 1, 1997.  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 have arisen from the
     use of respirators  while exposed to asbestos or silica on or after January
     1, 1997. The Company also may be responsible for certain claims relating to
     acquired companies other than the AOSafety(R) Division that are not covered
     by, and are unrelated to, the agreement with Cabot.

     At March 31, 2003, the Company has recorded  liabilities  of  approximately
     $4.7  million,  which  represents  reasonable  estimates  of  its  probable
     liabilities for product liabilities  substantially  related to asbestos and
     silica-related  claims as determined by the Company in consultation with an
     independent  consultant.  This  reserve is  re-evaluated  periodically  and
     additional  charges  or  credits to  operations  may  result as  additional
     information  becomes  available.  Consistent  with the current  environment
     being  experienced  by companies  involved in asbestos  and  silica-related
     litigation,  there has been an increase  in the number of  asserted  claims
     that could  potentially  involve the Company.  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 and  silica-related  litigation  could increase the Company's
     cost  over  time.  In light of these and other  uncertainties  inherent  in
     making long-term projections, the Company has determined that the five-year
     period  through  fiscal  2007  is  the  most  reasonable  time  period  for
     projecting  asbestos and  silica-related  claims and defense  costs.  It is
     possible that the Company may incur  liabilities  in an amount in excess of
     amounts  currently  reserved.   However,   taking  into  account  currently
     available information,  historical experience, and the Cabot agreement, but
     recognizing  the inherent  uncertainties  in the  projection  of any future
     events,  it is  management's  opinion that these suits or claims should not
     result in final judgments or settlements in excess of the Company's reserve
     that,  in the  aggregate,  would  have a material  effect on the  Company's
     financial condition, liquidity or results of operations.

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

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

                                     - 12 -
<PAGE>
                                AEARO CORPORATION
              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2003
                                   (Unaudited)

     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.

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

                                   For the Three Months Ended       For the Six Months Ended
                                            March 31,                       March 31,
                                  ----------------------------    ----------------------------
                                       2003           2002             2003             2002
                                  -------------  -------------    ------------     -----------
     <S>                               <C>            <C>              <C>              <C>
     Safety Products              $      58,198  $      50,377    $    108,684     $    95,383
     Safety Prescription Eyewear         10,494         10,550          20,298          19,544
     Specialty Composites                 7,994          9,756          16,421          17,399
                                  -------------  -------------    ------------     -----------
     Total                        $      76,686  $      70,683    $    145,403     $   132,326
                                  =============  =============    ============     ===========
</TABLE>

     Inter-segment  sales of the  Specialty  Composites  segment  to the  Safety
     Products segment totaled $0.8 million and $0.6 million for the three months
     ended March 31, 2003 and 2002,  respectively.  Inter-segment  sales totaled
     $1.6  million and $1.3  million for the six months ended March 31, 2003 and
     2002,  respectively.  The inter-segment  sales value is determined at fully
     absorbed inventory cost at standard rates plus 25%.

     Profit by Business  Segment and  reconciliation  to income before provision
     for income taxes (Dollars in thousands):
<TABLE>
                                                     For the Three Months Ended     For the Six Months Ended
                                                              March 31,                   March 31,
                                                    ---------------------------   --------------------------
                                                         2003            2002          2003          2002
                                                    -------------  ------------   -----------  -------------
     <S>                                                 <C>            <C>            <C>          <C>
     Safety Products                                $      12,059  $     10,013   $    21,013  $      18,431
     Safety Prescription Eyewear                              416           752           357          1,099
     Specialty Composites                                      11         1,041           485          1,132
                                                    -------------  ------------   -----------  -------------
        Segment profit                                     12,486        11,806        21,855         20,662

     Depreciation                                           2,704         2,733         5,363          5,108
     Amortization of intangibles                               16         1,557           132          3,116
     Interest                                               5,001         4,936         9,943         10,046
                                                    -------------  ------------   -----------  -------------
     Income before provision for income taxes       $       4,765    $    2,580   $     6,417  $       2,392
                                                    =============  ============   ===========  =============
</TABLE>

     Segment  profit  is  defined  as  operating  income  before   depreciation,
     amortization  and interest  expense and  represents the measure used by the
     chief  operating  decision  maker to assess  segment  performance  and make
     decisions about the allocation of resources to business segments.

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

                                     - 13 -
<PAGE>

                                AEARO CORPORATION
              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2003
                                   (Unaudited)
9) RESTRUCTURING CHARGE

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

     The unusual  charge  included 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 included  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.

     During 2002, the Company reversed $0.6 million of reserves related to the
     September 30, 2001 restructuring provision. The adjustment represents a
     change in estimate of the plan for the disposal of certain items of
     inventory and the closure of its Ettlingen, Germany plant. The portion
     related to inventory of $0.5 million was classified as a reduction in cost
     of sales with the remaining $0.1 million classified as operating expenses.

     The following table displays the activity and balances of the restructuring
     reserve  account  for the six  months  ended  March 31,  2003  (Dollars  in
     thousands):

                                   September 30,                       March 31,
                                       2002           Charges            2003
                                  -------------    -------------    ------------
    Employee termination costs    $        730     $      (304)     $       426
    Lease agreements                     2,352            (448)           1,904
    Loss on disposal of assets             700                              700
    Other                                   47             (25)              22
                                  -------------    -------------    ------------
    Total                         $      3,829     $      (777)     $     3,052
                                  =============    =============    ============

10) ACQUISITIONS

     On October 7, 2002, the Company acquired  Industrial  Protection  Products,
     Inc. ("IPP") of Wilmington,  Massachusetts for approximately  $1.2 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 IPP have been included with those of the Company
     subsequent  to October 7, 2002.  If the  acquisition  had  occurred  at the
     beginning of fiscal 2002, the pro forma  consolidated  results would not be
     materially different from actual results for the six months ended March 31,
     2002.

     On March 14,  2003 the  Company  acquired  VH  Industries,  Inc.  ("VH") of
     Concord, North Carolina for approximately $11.5 million. VH Industries is a
     manufacturer of fall protection products sold under the SafeWaze trade name
     in the United States.  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 VH have been
     included  with  those of the  Company  subsequent  to March 14,  2003.

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

                                     - 14 -
<PAGE>
                                AEARO CORPORATION
              Notes To Condensed Consolidated Financial Statements
                                 MARCH 31, 2003
                                   (Unaudited)

     The following  unaudited pro forma  information  presents results as if the
     acquisition  had  occurred  at  the  beginning  of the  respective  periods
     (Dollars in thousands):
<TABLE>

                                  Three Months Ended         Six Months Ended
                                       March 31,                March 31,
                               -----------------------    ---------------------
                                    2003          2002        2003        2002
                               ----------   ----------    ---------- ----------
     <S>                            <C>          <C>           <C>           <C>
     Net sales as reported     $   76,686   $   70,683    $  145,403    132,326
     Pro forma sales               79,408       73,402       150,465    137,099

     Net income as reported    $    2,691   $    2,017    $    3,733      1,306
     Pro forma net income           3,187        2,536         4,267      1,930
</TABLE>

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

                                     - 15 -
<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,   assumptions  and  subjective   interpretations  of
accounting  principles 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
Statement of Financial  Accounting  Standards ("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 in the United States prior to the expiration of
the tax loss and credit carryforwards, which expire over various periods ranging
from 2010 to 2021. In its evaluation of the adequacy of the valuation allowance,
the Company  assesses prudent and feasible tax planning  strategies.  Due to the
uncertainties  of realizing these tax benefits,  the Company has recorded a full
valuation allowance against these losses and credit carryforwards.  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.

Product Liabilities -The Company has established  reserves for potential product
liabilities that arise out of the use of the Company's  products.  A significant
amount of judgment is required to quantify the  Company's  ultimate  exposure in
these  matters and the  valuation  of reserves is  estimated  based on currently
available  information,  historical experience and from time to time the Company
may seek the assistance of an independent consultant. 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

                                     - 16 -
<PAGE>

may differ from amounts recorded,  revisions to the estimated  reserves would be
required. A reduction of $0.6 million was made during fiscal 2002 to account for
new information made available during that year.

Pension Plan - The valuation of the  Company's  pension plan requires the use of
assumptions  and  estimates  that are used to develop  actuarial  valuations  of
expenses and  assets/liabilities.  These  assumptions  include  discount  rates,
investment  returns,   projected  salary  increases  and  mortality  rates.  The
actuarial  assumptions  used in the  Company's  pension  reporting  are reviewed
annually and compared  with external  benchmarks to assure that they  accurately
account  for  future  pension  obligations.  Changes in  assumptions  and future
investment  returns could  potentially  have a material  impact on the Company's
pension expense and funding requirements.

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

Revenue  Recognition  - The  Company  recognizes  revenue  when  title  and risk
transfer  to the  customer,  which is  generally  when the product is shipped to
customers.  At the time revenue is  recognized,  certain  provisions may also be
recorded  including an allowance for doubtful  accounts.  Allowance for doubtful
accounts  is  generally  based on a  percentage  of aged  receivables.  However,
management  judgment is involved with the final  determination  of the allowance
based on several  factors  including  specific  analysis of a  customers  credit
worthiness,  historical  bad debt  experience,  changes in payment  history  and
general economic and market trends.

                                     - 17 -
<PAGE>

Results of  Operations  -- Three Months  Ended March 31, 2003  Compared to Three
Months Ended March 31, 2002

                              Results of Operations
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
                                                                   Three Months Ended March 31,
                                                 ---------------------------------------------------------------------
                                                      2003               %               2002                %
<S>                                               <C>                     <C>        <C>                     <C>
   Safety Products                               $    58,198              75.9       $    50,377             71.3
   Safety Prescription Eyewear                        10,494              13.7            10,550             14.9
   Specialty Composites                                7,994              10.4             9,756             13.8
                                                 -----------       -----------       -----------      -----------
      Total net sales                                 76,686             100.0            70,683            100.0

 Cost of Sales                                        39,912               52.0           37,360             52.9

 Gross profit                                         36,774              48.0            33,323             47.1

 Operating Expenses-
   Selling and administrative                         24,867              32.4            22,832             32.3
   Research and technical services                     1,626               2.1             1,389              2.0
   Amortization of intangibles                            16                --             1,557              2.2
   Other charges, net                                    499               0.7                29               --
                                                 -----------       -----------       -----------      -----------
      Total operating expenses                        27,008              35.2            25,807             36.5

 Operating income                                      9,766              12.7             7,516             10.6

 Interest expense, net                                 5,001               6.5             4,936              7.0
                                                 -----------       -----------       -----------      -----------
   Income before provision for income taxes            4,765               6.2             2,580              3.7

 Provision for income taxes                            2,074               2.7               563              0.8
                                                 -----------       -----------       -----------      -----------
 Net income                                      $     2,691               3.5       $     2,017              2.9
                                                 ===========       ===========       ===========      ===========
</TABLE>

Net Sales.  Net sales in the three months ended March 31, 2003 increased 8.5% to
$76.7 million from $70.7  million in the three months ended March 31, 2002.  The
increase in net sales was primarily driven by the impact of foreign exchange and
acquisitions  as organic  growth in the Safety  Products  segment was  partially
offset by declines in the Safety Prescription  Eyewear and Specialty  Composites
segments.  The weakness of the U.S.  dollar  relative to other  currencies,  and
acquisitions,  favorably  impacted net sales by $4.0  million and $2.1  million,
respectively.  The Safety  Products  segment net sales in the three months ended
March 31, 2003 increased  15.5% to $58.2 million from $50.4 million in the three
months ended March 31,  2002.  The  increase in net sales  resulted  from a 5.6%
increase due to organic  growth,  a 7.8% increase due to foreign  exchange and a
2.1% increase due to acquisitions. The Safety Prescription Eyewear segment sales
for the three months ended March 31, 2003  decreased  0.5% to $10.5 million from
$10.6  million in the three months ended March 31, 2002.  The decrease in volume
was  mostly  offset  by  a  10.1%  increase  due  to  acquisitions.  The  Safety
Prescription  Eyewear  segment  sales  have  been  negatively  impacted  by  the
continued reduction in manufacturing  employment in North America. The Specialty
Composites  segment  sales in the three  months  ended March 31, 2003  decreased
18.1% to $8.0  million  from $9.8  million in the three  months  ended March 31,
2002. 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.

                                     - 18 -
<PAGE>

Gross  Profit.  Gross Profit in the three months ended March 31, 2003  increased
10.4% to $36.8  million  from $33.3  million in the three months ended March 31,
2002. The increase in gross profit is primarily due to product mix, productivity
improvements, the impact of foreign exchange and acquisitions. Gross Profit as a
percentage  of net sales in the three  months  ended March 31, 2003  improved to
48.0% as  compared  to 47.1% in the  three  months  ended  March 31,  2002.  The
increase  in  gross  profit  is  primarily  due  to  product  mix,  productivity
improvements and the impact of foreign exchange.

Operating Expenses.  Operating expenses in the three months ended March 31, 2003
increased  4.7% to $27.0  million  from $25.8  million in the three months ended
March 31, 2002. The increase was primarily  driven by an increase in selling and
administrative expenses and other charges, net partially offset by a decrease in
amortization  expense.  Selling and administrative  expenses in the three months
ended March 31, 2003 included approximately $0.7 million of incremental expenses
due to acquisitions,  $0.9 million due to the weakness of the U.S dollar as well
as increased spending to support new product launches and build brand awareness.
The increase in other  charges,  net was  primarily  driven by foreign  exchange
losses in the three months ended March 31, 2003 as compared to foreign  exchange
gains in the three months ended March 31, 2002.  Amortization  expense decreased
approximately  $1.6  million due to the  adoption of SFAS No. 142.  SFAS No. 142
requires the Company to no longer amortize  goodwill and other  intangibles with
indefinite  useful lives. Had the provisions of SFAS No. 142 been adopted in the
three months ended March 31, 2002,  amortization expense would have been reduced
by  approximately  $1.5  million.  Selling  and  administrative  expenses  as  a
percentage  of net sales  increased to 32.4% in the three months ended March 31,
2003 as compared to 32.3% in the three months ended March 31, 2002.

Operating Income.  As a result of the factors mentioned above,  operating income
increased  30.0% to $9.8  million in the three  months ended March 31, 2003 from
$7.5 million in the three months  ended March 31,  2002.  Operating  income as a
percentage  of net sales in the three months  ended March 31, 2003  increased to
12.7% as compared to 10.6% in the three months ended March 31, 2002.

Interest Expense, Net. Interest expense, net in the three months ended March 31,
2003  increased 1.3% to $5.0 million from $4.9 million in the three months ended
March 31, 2002.

Provision For Income  Taxes.  The provision for income taxes in the three months
ended March 31, 2003 was $2.1  million as compared to $0.6  million in the three
months ended March 31, 2002.  The  effective  tax rate in the three months ended
March 31, 2003 and 2002 was different  from the statutory rate due to the mix of
income between the Company's foreign subsidiaries and domestic subsidiaries. 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, 2003 the Company had net income
of $2.7 million as compared to $2.0 million for the three months ended March 31,
2002.

                                     - 19 -
<PAGE>

Results of  Operations -- Six Months Ended March 31, 2003 Compared to Six Months
Ended March 31, 2002

                             Results of Operations
                             (Dollars in Thousands)
                                  (Unaudited)

<TABLE>
                                                                Six Months Ended March 31,
                                                  ---------------------------------------------------------
                                                       2003              %             2002            %
                                                  -----------    ------------   ------------    -----------
      <S>                                         <C>               <C>           <C>                 <C>
      Safety Products                             $   108,684            74.7     $    95,383          72.1
      Safety Prescription Eyewear                      20,298            14.0          19,544          14.8
      Specialty Composites                             16,421            11.3          17,399          13.1
                                                  -----------     -----------     -----------   -----------
         Total net sales                              145,403           100.0         132,326         100.0

    Cost of Sales                                      75,557            52.0          70,288          53.1

       Gross profit                                    69,846            48.0          62,038          46.9

    Operating Expenses-
      Selling and administrative                       49,188            33.8          43,688          33.0
      Research and technical services                   3,209             2.2           2,758           2.1
      Amortization of intangibles                         132             0.1           3,116           2.4
      Other charges, net                                  957             0.7              38            --
                                                  -----------     -----------     -----------   -----------
         Total operating expenses                      53,486            36.8          49,600          37.5

    Operating income                                   16,360            11.2          12,438           9.4

    Interest expense, net                               9,943             6.8          10,046           7.6
                                                  -----------     -----------     -----------   -----------
     Income before provision for income taxes           6,417             4.4           2,392           1.8

    Provision for income taxes                          2,684             1.8           1,086           0.8
                                                  -----------     -----------     -----------   -----------
    Net income                                          3,733             2.6           1,306           1.0
                                                  ===========     ===========     ===========   ===========
</TABLE>

Net Sales.  Net sales in the six months ended March 31, 2003  increased  9.9% to
$145.4  million from $132.3  million in the six months ended March 31, 2002. The
increase  in sales was  primarily  driven by the  impact  of  foreign  exchange,
organic growth in the Safety Products segment and acquisitions  partially offset
by volume declines in the Specialty  Composites and Safety Prescription  Eyewear
segments.  The weakness of the U.S.  dollar  relative to other  currencies,  and
acquisitions,  favorably  impacted net sales by $6.0  million and $4.8  million,
respectively.  The Safety  Products  segment  net sales in the six months  ended
March 31, 2003  increased  13.9% to $108.7 million from $95.4 million in the six
months ended March 31,  2002.  The  increase in net sales  resulted  from a 5.1%
increase due to organic  growth,  a 6.2% increase due to foreign  exchange and a
2.7% increase due to acquisitions. The Safety Prescription Eyewear segment sales
for the six months  ended March 31, 2003  increased  3.9% to $20.3  million from
$19.5 million in the six months ended March 31, 2002.  The increase in net sales
resulted from an 11.4% increase due to  acquisitions  and a 0.3% increase due to
foreign exchange  partially offset by a 7.8% reduction in volume.  The reduction
in volume experienced by the Safety Prescription  Eyewear segment is a result of
the continued decline in industrial  manufacturing  employment in North America.
The  Specialty  Composites  segment net sales in the six months  ended March 31,
2003  decreased 5.6% to $16.4 million from $17.4 million in the six months ended
March 31,  2002.  The decrease was  primarily  driven by volume  declines in the
automotive market, the truck market and the

                                     - 20 -
<PAGE>

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, 2003  increased
12.6% to $69.8  million  from $62.0  million in the six months  ended  March 31,
2002.  The increase in gross profit is primarily  due to product mix, the impact
of foreign exchange, productivity improvements and acquisitions. Gross profit as
a  percentage  of net sales in the six months  ended March 31, 2003  improved to
48.0% as compared to 46.9% in the six months ended March 31, 2002.  The increase
in the gross  profit as a percentage  of net sales is  primarily  due to product
mix, foreign exchange, and productivity improvements.

Operating  Expenses.  Operating  expenses in the six months ended March 31, 2003
increased 7.8% to $53.5 million from $49.6 million in the six months ended March
31, 2002. The increase in operating expenses was primarily driven by an increase
in selling and  administrative  expenses,  research and  technical  services and
other  charges,  net  partially  offset by a decrease in  amortization  expense.
Selling and  administrative  expenses  included  approximately  $1.7  million of
incremental  expenses due to  acquisitions,  $1.5 million due to the weakness of
the U.S dollar as well as increased  spending for product launches and marketing
support.  Research and technical services expense increased $0.5 million related
to new product development. The increase in other charges, net was primarily due
to foreign exchange losses in the six months ended March 31, 2003 as compared to
foreign  exchange  gains in the six months  ended March 31,  2002.  Amortization
expense decreased  approximately  $3.0 million due the adoption of SFAS No. 142.
SFAS No. 142  requires  the  Company to no longer  amortize  goodwill  and other
intangibles  with  indefinite  useful lives.  Had the provisions of SFAS No. 142
been adopted in the six months ended March 31, 2002,  amortization expense would
have been reduced by  approximately  $3.0  million.  Selling and  administrative
expenses as a percentage of net sales increased to 33.8% in the six months ended
March 31, 2003 as compared to 33.0% in the six months ended March 31, 2002.

Operating Income.  As a result of the factors mentioned above,  operating income
increased  31.5% to $16.4  million in the six months  ended  March 31, 2003 from
$12.4  million in the six months  ended March 31,  2002.  Operating  income as a
percentage  of net sales in the six months  ended  March 31, 2003  increased  to
11.2% as compared to 9.4% in the six months ended March 31, 2002.

Interest Expense,  Net. Interest expense,  net in the six months ended March 31,
2003  decreased  1.0% to $9.9 million from $10.0 million in the six months ended
March 31, 2002.

Provision  For Income Taxes.  The  provision for income taxes  increased to $2.7
million  in the six months  ended  March 31,  2003 from $1.1  million in the six
months  ended March 31,  2002.  The  effective  tax rate in the six months ended
March 31, 2003 and 2002 was different  from the statutory rate due to the mix of
income between the Company's foreign subsidiaries and domestic subsidiaries. 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, 2003 the Company had net income
of $3.7  million as compared to $1.3  million for the six months ended March 31,
2002.


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

                                     - 21 -
<PAGE>

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.  Since the
acquisition of Peltor, the Company's  operations are also affected by changes in
exchange  rates  relative to the  Swedish  Krona.  In  contrast to the above,  a
decline  in the  value of the  Krona  relative  to other  currencies  can have a
favorable  impact on the  profitability  of the  Company  and an increase in the
value of the Krona relative to other  currencies  can have a negative  impact on
the profitability of the Company.  The Company utilizes forward foreign currency
contracts  and other hedging  instruments  to mitigate the effects of changes in
foreign currency rates on profitability.

Effects of Inflation

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

Effects of Economic Conditions

Softening of the North American economy began during the first fiscal quarter of
2001.  Since  that time the  overall  economic  downturn  has  resulted  in many
companies  announcing  layoffs which has also had an impact on overall  consumer
confidence. The announced layoffs have had a significant impact on the number of
employed  industrial  workers.  Although  the Company has  experienced  improved
revenue  trends in the first half of fiscal  2003,  there can be no  assurances,
given the current economic conditions,  that these trends will be maintained for
the remainder of the year.

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
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   (collectively   the  Senior  Bank
Facilities).  The amounts outstanding on the Term Loans and the Revolving Credit
Facility at March 31, 2003 were  approximately  $89.2  million and $0.5 million,
respectively. No amounts were outstanding under 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, 2003.

During the first  quarter  of fiscal  2002,  the  Company's  Board of  Directors
authorized  management  to  repurchase  from  time to  time,  a  portion  of the
Company's  12.5%  Notes,  subject to market  conditions  and other  factors.  No
assurances  can be given as to whether  or when or at what price such  purchases
will  occur.  Subsequently,  pursuant  to a first  amendment  to the Senior Bank
Facilities,  the Company  purchased and retired $2.0 million of the Notes during
the first quarter of fiscal 2002.

Maturities  under the Company's Term Loans are:  approximately  $6.4 million for
the remainder of fiscal 2003,  $17.0  million in fiscal 2004,  and $65.8 million
thereafter. The Company is required to make interest

                                     - 22 -
<PAGE>

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, 2003  totaled  $11.8  million as compared to $6.8  million for the six
months ended March 31, 2002. The increase of $5.0 million was primarily due to a
$5.4 million  improvement in the Company's net changes in assets and liabilities
partially  offset by a $0.4 million decrease in net income adjusted for non-cash
charges  (depreciation,  amortization,  deferred taxes and other). The Company's
net changes in assets and  liabilities  were primarily  driven by an increase in
cash from receivables,  accounts payable,  accrued  liabilities and income taxes
payable partially offset by a reduction of cash for inventory.

Net cash used by investing activities was $15.4 million for the six months ended
March 31, 2003 as compared  to $8.3  million for the six months  ended March 31,
2002.  The increase of $7.1 million in net cash used by investing  activities is
primarily  attributed  to an increase  in  acquisitions  of $6.8  million and an
increase in capital expenditure of $0.3 million.

Net cash used by  financing  activities  for the six months ended March 31, 2003
was $6.0 million compared with net cash used by financing activities for the six
months  ended  March 31,  2002 of $6.3  million.  The change of $0.3  million is
primarily due to the $0.5 million proceeds from the Revolving Credit Facility as
the  increase in the  repayment  for term loans was offset by no  repayment  for
bonds in the six months ended March 31, 2003 as compared to the six months ended
March 31, 2002.

The Company  maintains a  non-contributory  defined benefit cash balance pension
plan. The Company utilizes an outside actuarial firm to estimate pension expense
and funding  based on various  assumptions  including  the discount rate and the
expected  long-term  rate of return on plan assets.  In developing  the expected
long-term rate of return assumption,  the Company's  management  evaluates input
from outside  investment  advisors and  actuaries  as of the  measurement  date.
Beginning  in fiscal year 2000,  the actual  assets  returns  for the  Company's
pension plan have been adversely affected by the continued  deterioration in the
equity  markets.  During that time,  the asset returns on the Company's  pension
plan have been negative.  Although  short-term  trends have been  negative,  the
Company  believes  that an 8.5%  long-term  rate of  return  on plan  assets  is
reasonable  based on historical  trends over a 20-30 year period.  The estimated
effect of a 1% change in the  expected  long-term  rate of return on plan assets
results in a $0.1 million impact on pension expense.  The discount rate has also
declined  during the same period.  The Company bases the discount rate on the Aa
Corporate bond yields.  The estimated impact of a 1% change in the discount rate
results in a $0.2 million impact on pension expense.

The  negative  asset  returns  and  declining  discount  rates are  expected  to
unfavorably  impact the Company's  pension  expense and the funded status of the
pension plan. Under minimum funding rules, no additional  pension  contributions
are required to be made in fiscal 2003.  However,  contributions may increase in
future years.  Due to the  uncertainty  of the future  returns of the equity and
corporate  bond  markets,  it is  difficult  to  estimate  the impact of pension
contributions in the future.

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,  since  fiscal  2001,  the  Company  has  been  affected  by the
significant  slowdown in the manufacturing  sector of the economies in which the
Company  markets  its  products  and the  related  reductions  in  manufacturing
employment,  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

                                     - 23 -
<PAGE>

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.

                                     - 24 -
<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.  Since 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,  2003,  cash flow hedge  gains were $0.6
million  and there  was no impact on  earnings  for  transaction  exposures.  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  measured at its fair value. As a result of forward  foreign  currency
contracts,  the Company has recorded a derivative  payable of $0.7 million as of
March 31, 2003. The forward foreign currency contracts will expire over the next
six 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.

                                     - 25 -
<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.

                                     - 26 -
<PAGE>

Item 4. Controls and Procedures

Disclosure  controls and  procedures  are defined by the Securities and Exchange
Commission as those  controls and other  procedures  that are designed to ensure
that  information  required to be disclosed in the  Company's  filings under the
Securities Act of 1934 is recorded,  processed,  summarized and reported  within
the time periods specified in the Securities and Exchange Commission's rules and
forms.  The Company's Chief Executive  Officer and Chief Financial  Officer have
evaluated the Company's  disclosure controls and procedures within 90 days prior
to the filing of this  Quarterly  Report on Form 10-Q and have  determined  that
such disclosure controls and procedures are effective.


Changes in Controls and Procedures

Subsequent to the Company's  evaluation,  there were no  significant  changes in
internal  controls or other  factors that could  significantly  affect  internal
controls,   including  any   corrective   actions  with  regard  to  significant
deficiencies and material weaknesses.

                                     - 27 -
<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 products
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 that 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 on July 11, 1995,  as amended in 2002.  This
agreement  provides  that, 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  silica-related  legal claims asserted after July
11, 1995 and alleged to have arisen out of the use of respirators  while exposed
to asbestos or silica prior to January 1, 1997. 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 have  arisen  from the use of
respirators while exposed to asbestos or silica on or after January 1, 1997. The
Company  also  may be  responsible  for  certain  claims  relating  to  acquired
companies other than the  AOSafety(R)  Division that are not covered by, and are
unrelated to, the agreement with Cabot.

At March 31, 2003, the Company has recorded  liabilities of  approximately  $4.7
million,  which represents  reasonable estimates of its probable liabilities for
product liabilities  substantially related to asbestos and silica-related claims
as determined by the Company in  consultation  with an  independent  consultant.
This reserve is re-evaluated  periodically and additional  charges or credits to
operations may result as additional  information  becomes available.  Consistent
with the current environment being experienced by companies involved in asbestos
and  silica-related  litigation,  there has been an  increase  in the  number of
asserted  claims that could  potentially  involve the Company.  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
and  silica-related  litigation  could increase the Company's cost over time. In
light of these and other uncertainties inherent in making long-term projections,
the Company has determined that the five-year  period through fiscal 2007 is the
most reasonable time period for projecting  asbestos and  silica-related  claims
and defense costs.  It is possible that the Company may incur  liabilities in an
amount in excess of amounts  currently  reserved.  However,  taking into account
currently available information, historical experience, and the Cabot agreement,
but  recognizing  the inherent  uncertainties  in the  projection  of any future
events, it is management's  opinion that these suits or claims should not result
in final  judgments or settlements  in excess of the Company's  reserve that, in
the  aggregate,  would  have  a  material  effect  on  the  Company's  financial
condition, liquidity or results of operations.

                                     - 28 -
<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.

                                     - 29 -
<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, 2003              AEARO CORPORATION


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


                                     - 30 -
<PAGE>

CERTIFICATION


I, Michael A. McLain, Principal Executive Officer of Aearo Corporation,  certify
that:

1.   I have reviewed this quarterly report on Form 10-Q of Aearo Corporation;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and  procedures  as of a date  within 90 days prior the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors  (or person  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

     Date: May 15, 2003


                             /s/ Michael A. McLain

                             -------------------------
                             Michael A. McLain
                             Chief Executive Officer, President and Chairman
                             of the Board
                             (Principal Executive Officer)


                                     - 31 -
<PAGE>


CERTIFICATION


I, Jeffrey S. Kulka,  Principal Financial Officer of Aearo Corporation,  certify
that:

1.   I have reviewed this quarterly report on Form 10-Q of Aearo Corporation;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and  procedures  as of a date  within 90 days prior the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors  (or person  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

     Date:  May 15, 2003

                                  /s/ Jeffrey S. Kulka

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

                                     - 32 -
<PAGE>
                                  EXHIBIT INDEX


EXHIBITS                DESCRIPTION

                                     - 33 -
<PAGE>