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 December 31, 2001


                         Commission file number 33-96190


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

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


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

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

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

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

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

     The number of shares of the  registrant's  common stock, par value $.01 per
share, outstanding as of January 30, 2001 was 102,087.5.

                                     <PAGE>




                                Aearo Corporation
                                TABLE OF CONTENTS
           Form 10-Q for the Quarterly Period Ended December 31, 2001

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 Consolidated Condensed Financial Statements................7

Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations................................15
           Results of Operations..............................................15

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........20

PART II -  OTHER INFORMATION..................................................22

Item 1.    Legal Proceedings..................................................22

Item 2.    Changes in Securities and Use of Proceeds..........................22

Item 3.    Defaults Upon Senior Securities....................................22

Item 4.    Submission of Matters to a Vote of Security Holders................22

Item 5.    Other Information..................................................22

Item 6.    Exhibits and Reports on Form 8-K...................................23

SIGNATURES....................................................................24

EXHIBIT INDEX.................................................................25

                                     <PAGE>


                          PART I-FINANCIAL INFORMATION

Item 1...Financial Statements



                                AEARO CORPORATION

                  Condensed Consolidated Balance Sheets--Assets
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                    December 31,     September 30,
                                                                       2001              2001
                                                                    -----------      ------------
                                                                     Unaudited)
<S>                                                                     <C>              <C>
CURRENT ASSETS:

  Cash and cash equivalents                                           $ 20,016         $ 18,233
  Accounts receivable (net of reserve for doubtful accounts of
      $1,022 and $831 respectively)                                     35,164           42,428
  Inventories                                                           30,752           29,564
  Deferred and prepaid expenses                                          3,126            2,325
                                                                      --------         --------

      Total current assets                                              89,058           92,550
                                                                      --------         --------

PROPERTY, PLANT AND EQUIPMENT, NET                                      48,100           47,003

INTANGIBLE ASSETS, NET                                                 116,667          118,200

OTHER ASSETS                                                             3,267            3,549
                                                                      --------         --------

      Total assets                                                    $257,092         $261,302
                                                                      ========         ========

</TABLE>

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


                                     - 3 -
<PAGE>


                                AEARO CORPORATION

  Condensed Consolidated Balance Sheets - Liabilities and Stockholders' Equity
                             (Dollars in Thousands)

<TABLE>
<CAPTION>

                                                               December 31,     September 30,
                                                                  2001              2001
                                                              ------------      ------------
                                                               (Unaudited)
<S>                                                               <C>                <C>
CURRENT LIABILITIES:
   Current portion of long-term debt                          $   9,338          $   8,393
   Accounts payable and accrued liabilities                      34,226             37,896
   Accrued interest                                               5,636              2,691
   U.S. and foreign income taxes                                  1,873              2,265
                                                              ---------          ---------

         Total current liabilities                               51,073             51,245
                                                              ---------          ---------

LONG-TERM DEBT                                                  189,477            193,836

DEFERRED INCOME TAXES                                               486                383

OTHER LIABILITIES                                                 6,159              5,982
                                                              ---------          ---------

         Total liabilities                                    $ 247,195          $ 251,446
                                                              ---------          ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Preferred stock, $.01 par value-
   (Redemption value of $99,826 and $96,801, respectively)
     Authorized--200,000 shares
     Issued and outstanding--45,000 shares                         --                 --
   Common stock, $.01 par value-
     Authorized--200,000 shares
     Issued and outstanding--102,088 shares                           1                  1
   Additional paid-in capital                                    32,357             32,374
   Accumulated deficit                                           (3,205)            (2,494)
   Accumulated other comprehensive loss                         (19,256)           (20,025)
                                                              ---------          ---------

         Total stockholders' equity                               9,897              9,856
                                                              ---------          ---------

         Total liabilities and stockholders' equity           $ 257,092          $ 261,302
                                                              =========          =========

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



                                     - 4 -
<PAGE>


                 Condensed Consolidated Statements of Operations
                             (DOLLARS IN THOUSANDS)
                                   (Unaudited)

                                                  For the Three Months Ended
                                                          December 31,
                                               -------------------------------
                                                    2001               2000
                                               ------------        -----------

NET SALES                                      $     61,643        $   68,365

COST OF SALES                                        32,928            37,553
                                               ------------        ----------

         Gross profit                                28,715            30,812

SELLING AND ADMINISTRATIVE                           20,856            24,183

RESEARCH AND TECHNICAL SERVICES                       1,369             1,484

AMORTIZATION OF INTANGIBLES                           1,559             1,655

OTHER  CHARGES                                            9                 9
                                               ------------        ----------

         Operating income                             4,922             3,481

INTEREST EXPENSE, NET                                 5,110             5,801
                                               ------------        ----------

         Loss before provision for income taxes       (188)           (2,320)

PROVISION FOR INCOME TAXES                              523                67
                                               ------------        ----------

         Net loss                              $      (711)        $  (2,387)
                                               ============        ==========

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



                                     - 5 -
<PAGE>




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

                                                                                          For the Three Months Ended
                                                                                                 December 31,
                                                                                        -------------------------------
                                                                                        --------------    -------------
                                                                                             2001             2000
   <S>                                                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                               $   (711)        $ (2,387)
   Adjustments to reconcile net loss to cash provided by operating activities-
      Depreciation                                                                           2,375            2,529
      Amortization of intangible assets and deferred financing costs                         1,866            1,988
      Deferred income taxes                                                                     96              (75)
      Other, net                                                                                15               16
      Changes in assets and liabilities-(net of effects of Iron Age Vision purchase)
         Accounts receivable                                                                 7,443            3,131
         Inventories                                                                        (1,073)          (1,454)
         Accounts payable and accrued liabilities                                           (1,017)             367
         Other, net                                                                           (890)            (680)
                                                                                          --------         --------

              Net cash provided by operating activities                                      8,104            3,435
                                                                                          --------         --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to property, plant and equipment                                               (1,811)          (1,595)
   Cash paid for Iron Age Vision                                                              (730)              --
   Proceeds provided by disposals of property, plant and equipment                              --               33
                                                                                          --------         --------

              Net cash used by investing activities                                         (2,541)          (1,562)
                                                                                          --------         --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from revolving credit facility, net                                               --              3,700
   Repayment of bonds                                                                       (2,000)
   Repayment of term loans                                                                  (2,017)          (4,409)
   Repayment of capital lease obligations                                                      (13)            --
   Proceeds (repayment) of long-term debt                                                      (35)              30
   Other                                                                                       (16)             (20)
                                                                                          --------         --------

              Net cash used by financing activities                                         (4,081)            (699)
                                                                                          --------         --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                        301             (752)
                                                                                          --------         --------

INCREASE IN CASH AND CASH EQUIVALENTS                                                        1,783              422

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

CASH AND CASH EQUIVALENTS, END OF PERIOD                                                  $ 20,016         $  3,917
                                                                                          ========         ========

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

CASH PAID FOR:
   Interest                                                                               $  1,698         $  2,423
                                                                                          ========         ========
   Income taxes                                                                           $    433         $    433
                                                                                          ========         ========
</TABLE>
  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.


                                     - 6 -
<PAGE>


                                AEARO CORPORATION

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

                                   (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.

     Reclassifications.  Certain amounts  included in the prior period financial
statements  may  have  been  reclassified  to  conform  to  the  current  period
presentation.  The  reclassifications  have no impact on net  income  previously
reported.

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

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


                                     - 7 -
<PAGE>


     Shipping and Handling Fees and Costs.  Shipping and handling  costs include
payments to third parties for the delivery of products to customers,  as well as
internal  salaries  and  overhead  costs  incurred  to store,  move and  prepare
finished  products for shipment.  Shipping and handling  costs are included with
selling and administrative  expenses in the accompanying  condensed consolidated
statement of  operations  and totaled $4.0 million in the period ended  December
31, 2001 and 2000, respectively.  The Company recovers a portion of its shipping
and handling costs from its customers and records this recovery in net sales.

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

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

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

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

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


                                     - 8 -
<PAGE>



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

     The Company has formally  documented its hedging  relationships,  including
identification  of the hedging  instruments  and the hedge items, as well as its
risk   management   objectives  and  strategies  for   undertaking   each  hedge
transaction.  From time to time the Company enters into foreign currency forward
contracts and interest rate swap and collar agreements, which are derivatives as
defined by SFAS No.  133.  The  Company  enters into  foreign  currency  forward
contracts  to  mitigate  the  effects of changes  in foreign  currency  rates on
profitability  and enters into interest rate swap and collar agreements to hedge
its variable interest rate risk. These derivatives are cash flow hedges. For all
qualifying and highly effective cash flow hedges,  the changes in the fair value
of  the  derivatives  are  recorded  in  other  comprehensive  income.   Amounts
accumulated in other comprehensive  income will be reclassified as earnings when
the related product sales affect earnings for foreign currency forward contracts
or when related  interest  payments  affect earnings for interest rate swaps and
collar agreements.  As a result of the foreign currency forward  contracts,  the
Company has  recorded a  derivative  receivable  of $0.2 million at December 31,
2001. All foreign currency forward contracts will expire over the next 9 months.
There were no interest rate swap agreements at December 31, 2001.

     During the period ending  December 31, 2001 the Company  reclassified  into
earnings a net gain of approximately $0.1 million resulting from the exercise of
foreign currency forward contracts.  All foreign currency forward contracts were
determined to be highly effective,  therefore no ineffectiveness was recorded in
earnings.

     The Company also  executes  foreign  currency  forward  contracts for up to
30-day  terms  to  protect  against  the  adverse  effects  that  exchange  rate
fluctuations  may  have  on the  foreign-currency-denominated  trade  activities
(receivables,  payables and cash) of foreign subsidiaries.  These contracts have
not been designated as hedges under SFAS No. 133 and accordingly,  the gains and
losses on both the derivative and foreign-currency-denominated  trade activities
are  recorded as  transaction  adjustments  in current  earnings.  The impact on
earnings was a loss of approximately  $0.1 million for the period ended December
31, 2001.

     The Company also entered into an interest  rate collar  arrangement  during
October 2001 to protect $25.0  million of adjustable  Term Loan debt (as defined
below in Note 6). The collar was not  designated  as a hedge under SFAS No. 133.
The fair value of the interest rate collar  remained  unchanged and  accordingly
there was no charge to earnings in the period ended December 31, 2001.


                                     - 9 -
<PAGE>


4) COMPREHENSIVE INCOME

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

                                                    Three months ended
                                                        December 31,
                                               ---------------------------------
                                                     2001              2000
                                                 (Unaudited)       (Unaudited)
                                               --------------    ---------------

    Net loss                                   $    (711)        $    (2,387)

       Foreign currency translation adjustment        560               1,694
       Unrealized gain (loss) on derivative
          Instruments                                 209             (1,701)
                                               --------------    ---------------
       Comprehensive income(loss)              $       58        $    (2,394)
                                               ==============    ===============

5) INVENTORIES

   Inventories consisted of the following (Dollars in thousands):


                                               December 31,      September 30,
                                                   2001              2001
                                              --------------    --------------
                                               (Unaudited)

   Raw materials                               $     7,556      $      7,259
   Work in process                                   8,296             8,364
   Finished goods                                   14,900            13,941
                                             --------------     --------------

                                              $     30,752      $     29,564
                                             ==============     ==============

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

6) DEBT

     The  Company's  debt  structure   includes:   (a)  $98  million  of  Senior
Subordinated  Notes (Notes) due 2005, which are publicly held and are redeemable
at the option of the Company, in whole or in part, at various redemption prices,
and (b) up to an aggregate of $135 million under a Credit Agreement with various
banks to provide  Senior Bank  Facilities  comprised  of (i) a secured term loan
facility  consisting  of loans  providing  for up to $100  million of term loans
(collectively  the Term Loans) with a portion of the Term Loans  denominated  in
foreign  currencies,  (ii) a secured revolving credit facility (Revolving Credit
Facility)  providing  for up to $30  million  of  revolving  loans  for  general
corporate purposes and (iii) a U.K. overdraft facility of up to an equivalent of
$5 million in Great Britain Pounds for working  capital  requirements as needed.
The amount outstanding on the Term Loans at December 31, 2001, was approximately
$97 million.  No amounts were outstanding under the Revolving Credit Facility or
the U.K. overdraft facility.


                                     - 10 -
<PAGE>


     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 December 31, 2001.

     On October 17, 2001 the Company  executed a First  Amendment  to the Credit
Agreement,  which  allowed  the  Company  the option to  purchase,  on or before
December  21,  2001,  up to $10  million of the Notes at or below par.  Prior to
December 21, 2001, the Company purchased and retired $2 million of the Notes.


7) COMMITMENTS AND CONTINGENCIES

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

     Contingencies. Various lawsuits and claims arise against the Company in the
ordinary course of its business. Most of these lawsuits and claims relate to the
Company's  safety eyewear and  respiratory  product lines and primarily  involve
accidents and/or exposures  occurring after the Company's  Predecessor  acquired
the AOSafety(R)  Division from American  Optical  Corporation in April 1990. The
Company is  contingently  liable  with  respect to numerous  lawsuits  involving
respirators sold by American Optical Corporation prior to the acquisition of the
AOSafety(R)  Division in April 1990. These lawsuits typically involve plaintiffs
alleging that they suffer from asbestosis or silicosis,  and that such condition
results  in  part  from   respirators,   which  were  negligently   designed  or
manufactured.  The defendants in these lawsuits are often numerous, and include,
in  addition  to  respirator  manufacturers,  employers  of the  plaintiffs  and
manufacturers of sand (used in sand blasting) and asbestos.  Responsibility  for
legal costs, as well as for settlements and judgments,  is shared  contractually
by the  Company,  American  Optical  Corporation  and a prior  owner of American
Optical  Corporation.  The Company and Cabot have  entered  into an  arrangement
whereby,  so long as the Company pays to Cabot an annual fee of $400,000,  which
the Company has elected to pay, Cabot will retain  responsibility  and liability
for, and indemnify the Company against, certain legal claims asserted after July
11, 1995 (the date of the Company's  formation)  alleged to arise out of the use
of respirators  manufactured prior to July 1995. In addition, the Company may be
responsible  for  claims  alleged  to  arise  out  of  the  use  of  respirators
manufactured  by the  Company as well as  products  purchased  for  resale.  The
Company may also be responsible  for certain claims of acquired  companies other
than the AOSafety(R)  Division that are not covered by the management  agreement
with Cabot.

     At December 31, 2001, the Company has reserved  approximately  $5.0 million
for product  liabilities  including  those arising from  asbestosis or silicosis
litigation. The reserve is reevaluated periodically and may result in additional
charges to operations if additional  information  becomes available.  Consistent
with  the  general  environment  experienced  by  other  companies  involved  in
asbestos-related  litigation,  there  has  been an  increase  in the  number  of
asserted  legal  claims  that could  potentially  involve the  Company.  Various
factors   increase  the  difficulty  in  determining  the  Company's   potential
liability,  if any, in such claims,  including  the fact that the  defendants in
these  lawsuits are often  numerous and the claims  generally do not specify the
amount  of  damages  sought.  Additionally,  the  bankruptcy  filings  of  other
companies with asbestos-related  litigation could affect the Company's cost over


                                     - 11 -
<PAGE>



time.  However,  it is  management's  opinion,  taking  into  account  currently
available information, historical experience, uncertainties, the Cabot agreement
and the  Company's  reserve,  that these  suits and claims  should not result in
final  judgments or settlements  that, in the  aggregate,  would have a material
effect on the Company's financial condition or results of operation.


8) SEGMENT REPORTING

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

Net Sales by Business Segment (Dollars in thousands):

                                            Three Months Ended
                                                December 31,
                                -------------------------------------------
                                       2001                     2000
                                -------------------      ------------------
                                   (Unaudited)              (Unaudited)

    Safety Products             $         45,006         $          49,178
    Safety Prescription Eyewear            8,994                     8,941
    Specialty Composites                   7,643                    10,246
                                -------------------      ------------------
    Total                       $         61,643         $          68,365
                                ===================      ==================

     Inter-segment  sales of the  Specialty  Composites  segment  to the  Safety
Products  segment  totaled  $0.7  million and $1.1  million for the three months
ended December 31, 2001 and 2000, respectively. The inter-segment sales value is
determined at fully absorbed inventory cost at standard rates plus 25%.

                                     - 12 -
<PAGE>


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

                                                   Three Months Ended
                                                       December 31
                                        ----------------------------------------
                                              2001                     2000
                                        -----------------      -----------------
                                         (Unaudited)             (Unaudited)

Safety Products                          $         7,982         $         6,559
Safety Prescription Eyewear                          254                      --
Specialty Composites                                  31                     598
Reconciling Items                                    597                     502
                                         ----------------      -----------------
Total EBITDA                                       8,864                   7,659

Depreciation                                       2,375                   2,529
Amortization                                       1,559                   1,655
Non-operating Costs                                    8                     (6)
Interest                                           5,110                   5,801
                                         ----------------      -----------------
Loss before provision for income taxes   $         (188)         $       (2,320)
                                         ================      =================

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

9) RESTRUCTURING CHARGE

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

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



                                     - 13 -
<PAGE>



As of December 31, 2001, there is approximately  $7.9 million accrued related to
the restructuring.

10) ACQUISITIONS

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

11) SUBSEQUENT EVENTS

     On January 21, 2002 the Company acquired the industrial  safety business of
Montreal,  Canada based Leader Industries,  Inc. for approximately $3.3 million.
The  transaction  was accounted  for using the purchase  method of accounting in
accordance with SFAS No. 141,  "Business  Combinations",  and  accordingly,  the
operating results of Leader Industries,  Inc. will be included with those of the
Company subsequent to January 22, 2002.



                                     - 14 -
<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


                              Results of Operations
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                        Three Months Ended December 31,
                                         -------------------------------------------------------------
                                              2001            %               2000               %
                                         -----------   ------------      -----------     ------------
   Net Sales
<S>                                      <C>                   <C>        <C>                    <C>
     Safety Products                     $    45,006           73.0       $    49,178            71.9
     Safety Prescription Eyewear               8,994           14.6             8,941            13.1
     Specialty Composites                      7,643           12.4            10,246            15.0
                                         -----------    -----------       -----------     -----------
        Total net sales                       61,643          100.0            68,365           100.0

   Cost of Sales                              32,928           53.4            37,553            54.9

      Gross profit                            28,715           46.6            30,812            45.1

   Operating Expenses-
     Selling and administrative               20,856           33.8            24,183            35.4
     Research and technical services           1,369            2.2             1,484             2.2
     Amortization of intangibles               1,559            2.5             1,655             2.4
     Other charges, net                            9             --                 9              --
                                         -----------    -----------       -----------     -----------
        Total operating expenses              23,793           38.6            27,331            40.0

   Operating income                            4,922            8.0             3,481             5.1

   Interest expense, net                       5,110            8.3             5,801             8.5
                                         -----------    -----------       -----------     -----------
     Loss before provision for income
     taxes                                     (188)           (0.3)           (2,320)           (3.4)
   Provision for income
                  taxes                          523            0.8                67             0.1
                                         -----------    -----------       -----------     -----------
   Net loss                                    (711)          (1.2)           (2,387)           (3.5)

   EBITDA                                $     8,864           14.4       $     7,659     $      11.2
                                         ===========    ===========       ===========     ===========
</TABLE>



                                     - 15 -
<PAGE>


Results of Operations -- Three Months Ended  December 31, 2001 Compared to Three
Months Ended December 31, 2000

     Net Sales.  Net sales in the three months ended December 31, 2001 decreased
9.8% to $61.6 million from $68.4 million in the three months ended  December 31,
2000. The change in sales was primarily  driven by the  significant  slowdown in
the  manufacturing  sector of the  economy  in which  the  Company  markets  its
products,  exacerbated  by the impact of the  terrorist  events of September 11,
2001. The Safety  Products  segment net sales in the three months ended December
31, 2001  decreased 8.5% to $45.0 million from $49.2 million in the three months
ended  December 31, 2000.  This decrease was  primarily  driven by the continued
effects of a weak economy as mentioned  above. The Safety  Prescription  Eyewear
segment net sales in the three months ended  December 31, 2001 increased 1.0% to
$9.0 million from $8.9 million in the three months ended December 31, 2000. This
increase was the result of increased  share in the safety  prescription  eyewear
market  despite the weak  economy and events of September  11,  2001.  Specialty
Composites'  net sales in the three  months ended  December  31, 2001  decreased
25.4% to $7.6 million from $10.2 million in the three months ended  December 31,
2000. The decrease was primarily  driven by volume  declines in the truck market
and the electronics  segment of the precision  equipment market,  which includes
computers and personal communications system (PCS) applications.

     Gross  Profit.  Gross Profit in the three  months  ended  December 31, 2001
decreased  6.8% to $28.7  million  from $30.8  million in the three months ended
December 31, 2000. Gross Profit as a percentage of net sales in the three months
ended  December  31,  2001  improved  to 46.6% as compared to 45.1% in the three
months ended  December 31, 2000. The decline in Gross Profit is primarily due to
lower sales volumes caused by the events of September 11, 2001 and the continued
recession. The increase in the Gross Profit percentage of net sales is primarily
due to continued productivity  improvements in manufacturing  operations and the
positive  impact of the  restructuring  plan  announced  on  September  30, 2001
partially offset by unfavorable product mix and lower capacity utilization.

     Operating  Expenses.  Operating expenses in the three months ended December
31, 2001 decreased 12.9% to $23.8 million from $27.3 million in the three months
ended December 31, 2000. The decrease in operating expenses was primarily driven
by  lower  selling  and  administrative  expenses.  Selling  and  administrative
expenses as a  percentage  of net sales  decreased  to 33.8% in the three months
ended  December 31, 2001 as compared to 35.4% in the three months ended December
31, 2000. The decrease in selling and administrative  expenses was primarily due
to discretionary spending controls to keep expenses in line with revenues.

     Operating  Income.  Primarily as a result of the factors  mentioned  above,
operating  income  increased  41.4% to $4.9  million in the three  months  ended
December 31, 2001 from $3.5 million in the three months ended December 31, 2000.
Operating income as a percentage of net sales in the three months ended December
31,  2001  increased  to 8.0% as  compared  to 5.1% in the  three  months  ended
December 31, 2000.

     Interest  Expense,  Net.  Interest  expense,  net in the three months ended
December 31, 2001 decreased 11.9% to $5.1 million from $5.8 million in the three
months ended  December 31, 2000.  The decrease is attributed  to lower  weighted
average interest rates in effect for the three months ended December 31, 2001 as
compared to the three months ended December 31, 2000.



                                     - 16 -
<PAGE>


     Provision  For Income Taxes.  The  provision for income taxes  increased to
$0.5 million in the three  months  ended  December 31, 2001 from $0.1 million in
the three months ended December 31, 2000. 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 (Loss). For the three months ended December 31, 2001 the Company
had a net loss of $0.7  million as compared to net loss of $2.4  million for the
three months ended December 31, 2000.

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

                               EBITDA Calculation
                         Three Months Ended December 31
                             (Dollars in Thousands)
                                   (Unaudited)

                                   Three Months Ended           Change
                                      December 31,       Favorable (Unfavorable)
                                      ------------       -----------------------
                                    2001        2000       Amount        Percent
                                    ----        ----       ------        -------

 Operating Income                $  4,922     $ 3,481   $  1,441           41.4%
 Add Backs:
     Depreciation                   2,375       2,529       (154)         (6.1%)
     Amortization of intangibles    1,559       1,655        (96)         (5.8%)
     Non-operating costs, net           8          (6)        14             --
                                 --------     --------  ---------

 EBITDA                          $  8,864     $ 7,659   $  1,205           15.7%
                                 ========     ========  =========

     EBITDA for the three months ended December 31, 2001 increased 15.7% to $8.9
million from $7.7 million for the three months ended  December 31, 2000.  EBITDA
as a percentage  of net sales in the three  months  ended  December 31, 2001 was
14.4% as compared to 11.2% in the three  months ended  December  31,  2000.  The
increase in EBITDA is primarily  attributed to the  improvement  in gross margin
percentage and the reduction in selling and administrative  expenses, which were
partially offset by lower sales volume and unfavorable product mix.

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  currency.  While many of the  Company's  selling and
distribution costs are also denominated



                                     - 17 -
<PAGE>


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

Effects of Inflation

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

Effects of Economic Conditions

     Softening  of the North  American  economy  began  during the first  fiscal
quarter of 2001. Since that time the overall  economic  downturn has resulted in
many  companies  announcing  layoffs  which has also had an  impact  on  overall
consumer confidence.  The announced layoffs have had a significant impact on the
number of employed  industrial  workers. As a result of this it is expected that
sales, on a comparable  quarterly basis,  will remain soft for at least the next
two fiscal quarters.

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  million  of  Senior
Subordinated  Notes (Notes) due 2005, which are publicly held and are redeemable
at the option of the Company, in whole or in part, at various redemption prices,
and (b) up to an  aggregate  of $135.0  million  under a Credit  Agreement  with
various banks to provide Senior Bank Facilities  comprised of (i) a secured term
loan facility consisting of loans providing for up to $100 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  $30million  of  revolving  loans  for  general
corporate purposes and (iii) a U.K. overdraft facility of up to an equivalent of
$5.0 million in Great Britain Pounds for working capital requirements as needed.
The amount outstanding on the Term Loans at December 31, 2001, was approximately
$97.0 million.  No amounts were outstanding  under the Revolving Credit Facility
or the U.K. overdraft facility.

     Under the terms of both the Senior Bank Facilities and the Notes indenture,
Aearo  Company is  required  to comply  with  certain  financial  covenants  and
restrictions.  Aearo Company was in compliance with all financial  covenants and
restrictions at December 31, 2001.

     On October 17, 2001 the Company  executed a First  Amendment  to the Credit
Agreement,  which  allowed  the  Company  the option to  purchase,  on or before
December  21,  2001,



                                     - 18 -
<PAGE>


     up to $10 million of the Notes at or below par. Prior to December 21, 2001,
the Company purchased and retired $2.0 million of the Notes.

     Maturities  under the  Company's  Term  Loans  are:  $6.0  million  for the
remainder  of fiscal  2002,  $12.0  million in fiscal  2003,  and $78.0  million
thereafter.  Other than upon a change of control or as a result of certain asset
sales,  or in the event that  certain  excess funds exist at the end of a fiscal
year, the Company will not be required to make any principal payments in respect
of the Notes until maturity.  The Company is required to make interest  payments
with respect to both the Senior Bank  Facilities  and the Notes.  The  Company's
Revolving Credit Facility and Term Loans mature in March 2005.

     The  Company's  net cash  provided by  operating  activities  for the three
months ended  December 31, 2001 totaled $8.1 million as compared to $3.4 million
for the three months ended  December 31, 2000.  The increase of $4.7 million was
due  primarily  to a $1.7  million  improvement  in net loss and a $3.1  million
increase in the Company's net changes in assets and  liabilities.  The Company's
net changes in assets and liabilities was primarily driven by a larger reduction
in receivables  of $4.3 million,  an improvement in the change in inventories of
$0.4 million,  offset by a decrease in the change in accounts  payable and other
liabilities  of $1.4  million,  as well as a $0.2  million  decrease  in the net
change in other assets and  liabilities.  The decrease in the change in accounts
payable and other  liabilities  included $0.5 million in payments related to the
Company's restructuring plan.

     Net cash used by investing activities was $2.5 million for the three months
ended  December  31, 2001 as compared to $1.6 million for the three months ended
December  31,  2000.  The increase of $0.9 million in net cash used by investing
activities  is primarily  attributed to the  acquisition  of Iron Age Vision for
$0.7  million  in  December  2001 and an  increase  of $0.2  million  in capital
expenditures  for the three months ended  December 31, 2001,  as compared to the
three months ended December 31, 2000.

     Net cash used by financing  activities  for the three months ended December
31, 2001 was $4.1 million  compared  with net cash used by financing  activities
for the three months ended December 31, 2000 of $0.7 million. The change of $3.4
million  is  primarily  due to no draw of  proceeds  from the  Revolving  Credit
Facility  during the three months ended  December 31, 2001, as compared to a net
draw of $3.7  million  during the three months  ended  December  31,  2000.  The
Company paid off the  Revolving  Credit  Facility upon the execution of the July
13, 2001 amendment and restatement of its Credit Agreement.

     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 the future.  In  particular,  during  fiscal 2001 and the three  months ended
December 31, 2001, the Company was affected by the  significant  slowdown in the
manufacturing  sector of the economies in which the Company markets its products
that  began  in  earnest  during  the  first  fiscal  quarter  of  fiscal  2001,
exacerbated  by the impact of the terrorist  events of September 11, 2001. It is
expected that sales, on a comparable  quarterly  basis,  will remain soft for at
least the next two fiscal quarters.



                                     - 19 -
<PAGE>


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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

Foreign Currency Risk

     The Company's  results of operations are subject to risks  associated  with
operating in foreign  countries,  including  fluctuations  in currency  exchange
rates.   While  many  of  the  Company's  selling  and  distribution  costs  are
denominated  in Canadian and  European  currencies,  a large  portion of product
costs are U.S. Dollar  denominated.  As a result,  a decline in the value of the
U.S.  Dollar  relative to other  currencies  can have a favorable  impact on the
profitability  of the Company  and an  increase in the value of the U.S.  Dollar
relative  to  these  other   currencies  can  have  a  negative  effect  on  the
profitability  of the Company.  As a result of the  acquisition  of Peltor,  the
Company's  operations are also affected by changes in exchange rates relative to
the Swedish  Krona.  In contrast  with the above,  a decline in the value of the
Krona  relative  to  other  currencies  can  have  a  favorable  impact  on  the
profitability  of the Company and an increase in the value of the Krona relative
to other  currencies  can have a  negative  impact on the  profitability  of the
Company.  The  Company  executes  two  hedging  programs,  one  for  transaction
exposures,  and the other for cash flow  exposures in European  operations.  The
Company has utilized foreign currency forward contracts for transaction and cash
flow  exposures.  During the period ended  December 31,  2001,  net  transaction
losses  were $0.1  million  and cash flow  hedge  gains  were $0.1  million.  In
addition,  the Company limits foreign  exchange impact on the balance sheet with
foreign denominated debt in Great Britain Pound Sterling and Euros.

     The Company adopted SFAS No. 133 "Accounting for Derivative Instruments and
Hedging  Activities"  on  October  1, 2000.  SFAS No.  133  requires  that every
derivative  instrument  be recorded  in the balance  sheet as either an asset or
liability  measures at its fair value. As a result of foreign  currency  forward
contracts,  the Company has recorded a derivative  receivable of $0.2 million as
of December 31, 2001. The foreign  currency  forward  contracts will expire over
the next 9 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.

                                     - 20 -
<PAGE>


     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.

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.


                                     - 21 -
<PAGE>


                           PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

     Various  lawsuits  and claims  arise  against the  Company in the  ordinary
course  of its  business.  Most of  these  lawsuits  and  claims  relate  to the
Company's  safety eyewear and  respiratory  product lines and primarily  involve
accidents and/or exposures  occurring after the Company's  Predecessor  acquired
the AOSafety(R)  Division from American  Optical  Corporation in April 1990. The
Company is  contingently  liable  with  respect to numerous  lawsuits  involving
respirators sold by American Optical Corporation prior to the acquisition of the
AOSafety(R)  Division in April 1990. These lawsuits typically involve plaintiffs
alleging that they suffer from asbestosis or silicosis,  and that such condition
results  in  part  from   respirators   which  were   negligently   designed  or
manufactured.  The defendants in these lawsuits are often numerous, and include,
in  addition  to  respirator  manufacturers,  employers  of the  plaintiffs  and
manufacturers of sand (used in sand blasting) and asbestos.  Responsibility  for
legal costs, as well as for settlements and judgments,  is shared  contractually
by the  Company,  American  Optical  Corporation  and a prior  owner of American
Optical  Corporation.  The Company and Cabot have  entered  into an  arrangement
whereby,  so long as the Company pays to Cabot an annual fee of $400,000,  which
the Company has elected to pay, Cabot will retain  responsibility  and liability
for, and indemnify the Company against, certain legal claims asserted after July
11, 1995 (the date of the Company's  formation)  alleged to arise out of the use
of respirators  manufactured prior to July 1995. In addition, the Company may be
responsible  for  claims  alleged  to  arise  out  of  the  use  of  respirators
manufactured  by the  Company as well as  products  purchased  for  resale.  The
Company may also be responsible  for certain claims of acquired  companies other
than the AOSafety(R)  Division that are not covered by the management  agreement
with Cabot.

     At December  31, 2001 the Company has reserved  approximately  $5.0 million
for liabilities including those arising from asbestosis or silicosis litigation.
The reserve is re-evaluated periodically and may result in additional charges to
operations if additional  information  becomes  available.  Consistent  with the
general environment  experienced by other companies involved in asbestos-related
litigation,  there has been an increase in the number of asserted  legal  claims
that could  potentially  involve  the  Company.  Various  factors  increase  the
difficulty in determining  the Company's  potential  liability,  if any, in such
claims,  including  the fact that the  defendants  in these  lawsuits  are often
numerous and the claims  generally do not specify the amount of damages  sought.
Additionally,  the bankruptcy  filings of other companies with  asbestos-related
litigation  could  affect  the  Company's  cost  over  time.   However,   it  is
management's  opinion,  taking into  account  currently  available  information,
historical  experience,  uncertainties,  the Cabot  agreement  and the Company's
reserve,  that these suits and claims  should not result in final  judgments  or
settlements  that,  in the  aggregate,  would  have  a  material  effect  on the
Company's financial condition or results of operation.


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.



                                     - 22 -
<PAGE>



Item 6.  Exhibits and Reports on Form 8-K

     (a) Exhibits

     Exhibit  10.30  -  First  Amendment  to the  Amended  and  Restated  Credit
     Agreement,  as of July 13, 2001,  dated October 17, 2001

     (b)  Reports on Form 8-K

     On  October  1,  2001,  the  Company  filed a  Current  Report  on Form 8-K
     regarding the announcement of its restructuring.

     On  October  19,  2001,  the  Company  filed a  Current  Report on Form 8-K
     regarding a slowdown in the market for its products and other matters.




                                     - 23 -
<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: January 30, 2002              AEARO CORPORATION
                                    /s/ Jeffrey S. Kulka

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




                                     - 24 -
<PAGE>



                                  EXHIBIT INDEX


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

10.30*              First Amendment to the Amended and Restated Credit Agreement
                    as of July 13, 2001, dated October 17, 2001


*Filed herewith.