**UNITED STATES**

**SECURITIES ANDEXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

----

 

**FORM 10-Q**

** **

**QUARTERLYREPORT UNDERSECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

----

 

| x          | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                   |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                     |
|       |       | **For the quarterly period ended March 29,  2008**                                                                                                                                  |
| ** ** |
| **OR**     |
| ** ** |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                  |
| ** ** |       | ** **                                                                                                                                                                               |
| ** ** |       | **For the transition period from               to             ** |

 

**Commission File Number: 333-127781**

 

**SAFETYPRODUCTS HOLDINGS, INC.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **34-2051198**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
| ** **                                                      | ** ** | ** **                            |
| **2001  Spring Road, Suite 425 Oak Brook, Illinois**       | ** ** | **60523**                             |
| (Address of  Principal Executive Offices)                       |       | (Zip Code)                            |

 

Registrant’stelephone number, including area code:

**(630)572-5715**

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x   No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 
| Large accelerated filer o                      |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer x                        |   | Smaller reporting  company o |
| (Do not check if a  smaller reporting company) |   |                              |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o  No x

 

**On May 12,2008 Safety Products Holdings, Inc. had**11,023,384 common shares outstanding.

 

 

----

 

**SAFETY PRODUCTS HOLDINGS, INC.FORM 10-Q QUARTERLY REPORT**

**For the Quarterly Period Ended March 29,2008**

 

**TABLE OF CONTENTS**

 
| **PART I Financial  Information**                                                              | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------|
|                                                                                                |       |       |
| Item 1. Financial Statements (Unaudited)                                                            |       | 1          |
|                                                                                                |       |       |
| Consolidated Balance Sheets                                                                         |       | 1          |
|                                                                                                |       |       |
| Consolidated Statements of Operations                                                               |       | 2          |
|                                                                                                |       |       |
| Consolidated Statements of Cash Flows                                                               |       | 3          |
|                                                                                                |       |       |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations |       | 9          |
|                                                                                                |       |       |
| Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 |       | 14         |
|                                                                                                |       |       |
| Item 4. Controls and Procedures                                                                     |       | 14         |
|                                                                                                |       |       |
| **PART II  Other Information**                                                                 |       | 15         |
|                                                                                                |       |       |
| Item  1. Legal Proceedings                                                                          |       | 15         |
|                                                                                                |       |       |
| Item 1A. Risk Factors                                                                               |       | 15         |
|                                                                                                |       |       |
| Item 6. Exhibits                                                                                    |       | 15         |
|                                                                                                |       |       |
| **Signatures**                                                                                      |       | 16         |
|                                                                                                |       |       |
| **Form 10-Q  Listing of Exhibits**                                                             |       | 17         |

 

----

** **

**PART IFINANCIAL INFORMATION**

** **

**Item 1. Financial Statements**

 

**SAFETY PRODUCTS HOLDINGS, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(Amountsin Thousands)**

 
| ** **                                                                                | ** ** | **December 31,  2007 (1)** | ** ** | **March 29,  2008** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------|------------|
| ** **                                                                                | ** ** | ** **                           | ** ** | **(Unaudited)**          | ** ** |
| **Assets**                                                                                | ** ** | ** **                           | ** ** | ** **               | ** ** |
| Current assets:                                                                           |       |                                 |       |                     |       |
| Cash and cash  equivalents                                                                |       | $                                    | 70,811     |                     | $          | 52,138 |   |
| Accounts  receivable, less allowance of $2,332 and $2,477 in 2007 and 2008,  respectively |       | 76,359                               |       | 93,510                   |       |
| Inventories                                                                               |       | 108,415                              |       | 110,214                  |       |
| Deferred income  taxes                                                                    |       | 1,762                                |       | 1,762                    |       |
| Prepaid expenses  and other current assets                                                |       | 3,665                                |       | 3,643                    |       |
| Total current  assets                                                                     |       | 261,012                              |       | 261,267                  |       |
| Property, plant  and equipment, net                                                       |       | 68,676                               |       | 68,228                   |       |
| Deferred  financing costs, net                                                            |       | 13,149                               |       | 12,307                   |       |
| Goodwill                                                                                  |       | 164,254                              |       | 164,737                  |       |
| Other intangible  assets, net                                                             |       | 275,325                              |       | 273,202                  |       |
| Other noncurrent  assets                                                                  |       | 7,234                                |       | 7,348                    |       |
| Total assets                                                                              |       | $                                    | 789,650    |                     | $          | 787,089 |   |
|                                                                                      |       |                                 |       |                     |       |
| **Liabilities  and shareholders’ equity**                                            | ** ** | ** **                           | ** ** | ** **               | ** ** |
| Current  liabilities:                                                                     |       |                                 |       |                     |       |
| Accounts payable                                                                          |       | $                                    | 20,283     |                     | $          | 24,871 |   |
| Accrued expenses                                                                          |       | 40,942                               |       | 30,487                   |       |
| Current  maturities of long-term obligations                                              |       | 11,654                               |       | 2,183                    |       |
| Total current  liabilities                                                                |       | 72,879                               |       | 57,541                   |       |
| Long-term liabilities:                                                                    |       |                                 |       |                     |       |
| Pension,  post-retirement and deferred compensation                                       |       | 13,792                               |       | 13,373                   |       |
| Long-term  obligations                                                                    |       | 477,059                              |       | 482,005                  |       |
| Other noncurrent  liabilities                                                             |       | 12,163                               |       | 12,112                   |       |
| Deferred income  taxes                                                                    |       | 50,231                               |       | 51,032                   |       |
| Total long-term  liabilities                                                              |       | 553,245                              |       | 558,522                  |       |
|                                                                                      |       |                                 |       |                     |       |
| Minority  interest                                                                        |       | 221                                  |       | 224                      |       |
|                                                                                      |       |                                 |       |                     |       |
| Shareholders’  equity:                                                               |       |                                 |       |                     |       |
| Common shares                                                                             |       | 110                                  |       | 110                      |       |
| Contributed  capital                                                                      |       | 113,527                              |       | 113,912                  |       |
| Common shares  held in treasury, at cost                                                  |       | —                               |       | (267                     | )          |
| Retained  earnings                                                                        |       | 16,503                               |       | 21,455                   |       |
| Accumulated  other comprehensive income                                                   |       | 33,165                               |       | 35,592                   |       |
| Total  shareholders’ equity                                                          |       | 163,305                              |       | 170,802                  |       |
| Total  liabilities and shareholders’ equity                                          |       | $                                    | 789,650    |                     | $          | 787,089 |   |

 

----

(1)          December 31,2007 balances were obtained from audited financial statements.

 

*See notes to unaudited consolidated financialstatements.*

 

1

----

 

**SAFETY PRODUCTS HOLDINGS, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Amountsin Thousands) (Unaudited)**

 
| ** **                                                                   | ** ** | **Three months ended** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **March 31,  2007**         | ** ** | **March 29,  2008** | ** ** |
| Net sales                                                                    |       | $                                | 148,151    |   | $ | 166,102 |   |
| Cost of goods  sold                                                          |       | 90,709                           |       | 101,354 |   |
| Gross profit                                                                 |       | 57,442                           |       | 64,748 |   |
| Operating  expenses:                                                         |       |                             |       |   |   |
| Selling                                                                      |       | 13,489                           |       | 15,846 |   |
| Distribution                                                                 |       | 9,059                            |       | 9,866 |   |
| General and  administrative (1)                                              |       | 13,664                           |       | 14,993 |   |
| Amortization of  intangibles                                                 |       | 2,965                            |       | 2,830 |   |
| Seller  transaction expenses                                                 |       | —                           |       | 2,410 |   |
| Total operating  expenses                                                    |       | 39,177                           |       | 45,945 |   |
| Income from  operations                                                      |       | 18,265                           |       | 18,803 |   |
| Other expense  (income):                                                     |       |                             |       |   |   |
| Interest expense                                                             |       | 12,341                           |       | 12,111 |   |
| Interest income                                                              |       | (225                             | )          | (587 | ) |
| Other, net                                                                   |       | (96                              | )          | (492 | ) |
| Income from  continuing operations before income taxes and minority interest |       | 6,245                            |       | 7,771 |   |
| Income tax  expense                                                          |       | 2,617                            |       | 2,816 |   |
| Minority  interest                                                           |       | 6                                |       | 3 |   |
| Income from  continuing operations                                           |       | 3,622                            |       | 4,952 |   |
| Income from  discontinued operations, net of income tax (Note 1)             |       | (161                             | )          | — |   |
| Net income                                                                   |       | $                                | 3,783      |   | $ | 4,952 |   |

 

----

(1)  General andadministrative expenses exclude amortization of intangibles and sellertransaction expenses and include $340 and $427 of management incentivecompensation for the three months ended March 31, 2007 and March 29,2008, respectively.

 

*Seenotes to unaudited consolidated financial statements.*

 

2

----

** **

**SAFETY PRODUCTS HOLDINGS, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

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

 
| ** **                                                                     | ** ** | **Three months ended** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                     | ** ** | **March 31,  2007**         | ** ** | **March 29,  2008** | ** ** |
| **Operating  activities**                                                      |       |                             |       |   |   |
| Net income                                                                     |       | $                                | 3,783      |   | $ | 4,952 |   |
| Adjustments to  reconcile net income to net cash used in operating activities: |       |                             |       |   |   |
| Depreciation (1)                                                               |       | 3,601                            |       | 4,031 |   |
| Amortization of  intangibles                                                   |       | 2,965                            |       | 2,830 |   |
| Amortization of  deferred financing costs                                      |       | 842                              |       | 842 |   |
| Amortization of  original issue premium                                        |       | (30                              | )          | (20 | ) |
| Deferred income  taxes                                                         |       | 383                              |       | 431 |   |
| Minority  interest                                                             |       | 6                                |       | 3 |   |
| Noncash interest                                                               |       | 4,557                            |       | 5,106 |   |
| Noncash  management incentive compensation                                     |       | 340                              |       | 385 |   |
| Loss (gain) on  sale of property, plant and equipment                          |       | 108                              |       | (104 | ) |
| Changes in  operating assets and liabilities:                                  |       |                             |       |   |   |
| Accounts  receivable                                                           |       | (15,455                          | )          | (16,693 | ) |
| Inventories                                                                    |       | 492                              |       | (1,037 | ) |
| Prepaid expenses  and other current assets                                     |       | 76                               |       | 41 |   |
| Other noncurrent  assets                                                       |       | (152                             | )          | (167 | ) |
| Accounts payable                                                               |       | 3,761                            |       | 4,508 |   |
| Accrued expenses                                                               |       | (10,233                          | )          | (10,897 | ) |
| Pension,  postretirement and deferred compensation                             |       | (746                             | )          | (451 | ) |
| Other noncurrent  liabilities                                                  |       | (9                               | )          | (119 | ) |
| Net cash used in  operating activities                                         |       | (5,711                           | )          | (6,359 | ) |
|                                                                           |       |                             |       |   |   |
| **Investing  activities**                                                      |       |                             |       |   |   |
| Purchase of  businesses, net of cash acquired                                  |       | (159                             | )          | (118 | ) |
| Purchases of  property, plant and equipment                                    |       | (3,298                           | )          | (2,801 | ) |
| Proceeds from  sale of property, plant and equipment                           |       | 29                               |       | 494 |   |
| Net cash used in  investing activities                                         |       | (3,428                           | )          | (2,425 | ) |
|                                                                           |       |                             |       |   |   |
| **Financing  activities**                                                      |       |                             |       |   |   |
| Payments of debt                                                               |       | (710                             | )          | (9,611 | ) |
| Repurchases of  common shares                                                  |       | —                           |       | (267 | ) |
| Net cash used in  financing activities                                         |       | (710                             | )          | (9,878 | ) |
| Effect of  exchange rate changes on cash                                       |       | (24                              | )          | (11 | ) |
| Net decrease in  cash and cash equivalents                                     |       | (9,873                           | )          | (18,673 | ) |
| Cash and cash  equivalents at beginning of period                              |       | 26,796                           |       | 70,811 |   |
| Cash and cash  equivalents at end of period                                    |       | $                                | 16,923     |   | $ | 52,138 |   |

 

----

(1)         Depreciationincludes depreciation expense of $42 for the three months ended March 31,2007, related to discontinued operations (Note 1).

 

*Seenotes to unaudited consolidated financial statements*

 

3

----

 

**SAFETY PRODUCTS HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

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

** **

**1.**                 DiscontinuedOperations

** **

On June 29, 2007, Safety Products Holdings, Inc.(the “Company”) completed the sale of all of the issued and outstanding capitalstock of North Safety Products (Africa) (Proprietary) Limited (“South Africa”),a subsidiary of the Company. The Company received net cash proceeds of $3,223and recorded a net loss on disposal related to the transaction of $3,022($3,022 net of income tax). In accordance with Financial Accounting StandardsBoard (“FASB”) Statement of Accounting Standards (“SFAS”) No. 144, *Accounting for the Impairment or Disposal of Long-Lived**Assets*, the Company has reflected South Africa’s results ofoperations through the date of the sale as discontinued operations for allperiods presented. The cash flows from discontinued operations have beencombined with cash flows from continuing operations within each cash flowstatement category as the cash flows from discontinued operations are notmaterial to the Company’s consolidated results.

 

For the three months ended March 31, 2007, SouthAfrica had net sales of $5,049, income tax expense of $66 and net income of$161.

 

**2.**                 Basis ofPresentation

** **

The accompanying unaudited consolidated financialstatements of the Company have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation. Accordingly, they do not include all of the information and notesrequired by accounting principles generally accepted in the United States forcomplete financial statements.

 

In the opinion of management, all adjustments(consisting only of adjustments of a normal and recurring nature) considerednecessary for a fair presentation of the financial position and results ofoperations have been included. Interim results are not necessarily indicativeof the results that might be expected for any other interim period or for thefiscal year ending December 31, 2008. The financial statements presentedshould be read in conjunction with the consolidated financial statements andfootnotes thereto included in our 2007 consolidated financial statements,included in the Company’s annual report on Form 10-K.

 

**3.**                 Reclassifications

** **

Certainprior period amounts have been reclassified to conform to current yearpresentation, including reclassifying results and amounts from South Africa todiscontinued operations. The reclassifications did not have an impact on netincome for the periods presented within the statement of operations.

 

**4.**                 Recent AccountingPronouncements

** **

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*,which defines fair value, establishes a framework for measuring fair value andexpands disclosures about fair value measurements. The provisions of SFAS No. 157are effective for the Company as of the beginning of its fiscal year ending December 31,2008. In February 2008, the FASB issued FASB Staff Position FAS 157-2, *Effective Date of FASB Statement No. *157, which delayedthe effective date of SFAS No. 157 for certain non-financial assets andliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis, until January 1, 2009. TheCompany adopted SFAS No. 157 with regards to all financial assets andliabilities on January 1, 2008, which resulted in an immaterial impact toits financials statements. The Company has not yet determined the impact on itsfinancial statement from adoption of SFAS No. 157 as it pertains tonon-financial assets and liabilities as of January 1, 2009.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities – Including an amendment of FASBStatement No. 115*. This statement is intended to improvefinancial reporting by providing entities with the opportunity to mitigatevolatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. It also establishes presentation and disclosure requirementsdesigned to facilitate comparisons between entities that choose different measurementattributes for similar types of assets and liabilities. The statement does notaffect any existing accounting literature that requires certain 

 

4

----

 

assetsand liabilities to be carried at fair value and it does not establishrequirements for recognizing dividend income, interest income or interestexpense. It also does not eliminate disclosure requirements included in otheraccounting standards. The provisions of SFAS No. 159 are effective for theCompany as of the beginning of its fiscal year ending December 31, 2008.The Company adopted SFAS No. 159 on January 1, 2008; however, theCompany has not elected to change the measurement attribute for any of thepermitted items to fair value upon adoption.

 

In December 2007,the FASB issued SFAS No. 141(R), *Business Combinations*.SFAS No. 141(R) requires the acquiring entity in a businesscombination to recognize the full fair value of the assets acquired andliabilities assumed in the transaction at the acquisition date; the immediateexpense recognition of transaction costs; and accounting for restructuringplans separately from the business combination among others. SFAS No. 141(R) iseffective for the Company’s fiscal year beginning 2009 and the majority of theadoption is prospective only. SFAS No. 141(R) fundamentally changesmany aspects of existing accounting requirements for business combinations. Assuch, if the Company enters into any business combinations after the adoptionof SFAS No. 141(R), a transaction may significantly impact the Company’sfinancial position and earnings, but not cash flows, compared to the Company’srecent acquisitions, accounted for under existing GAAP requirements, due to thereasons described above.

 

SFAS No. 141(R) amendsSFAS No. 109 such that adjustments made to valuation allowances ondeferred taxes and acquired tax contingencies associated with acquisitions thatclosed prior to the effective date of SFAS No. 141(R) would alsoapply the provisions of SFAS No. 141(R), and therefore changes in deferredtax asset valuation allowances and income tax uncertainties after theacquisition date that relate to acquisitions that close prior to the effectivefate of SFAS No. 141(R) generally will affect income tax expense. TheCompany is in the process of determining the effects, if any, the adoption ofSFAS No. 141(R) will have on its financial statements.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements – an amendment of ARB No. 51*.SFAS No. 160 requires entities to report noncontrolling (minority)interests as a component of member’s equity on the balance sheet; include allearnings of a consolidated subsidiary in consolidated results of operations;and treat all transactions between an entity and noncontrolling interest asequity transactions between the parties. SFAS No. 160 is effective for theCompany’s fiscal year beginning 2009 and adoption is prospective only; however,presentation and disclosure requirements described above must be appliedretrospectively. The Company does not expect a material impact to its financialstatements upon the adoption of SFAS No. 160.

 

**5.**                 ManagementIncentive Compensation

** **

Managementincentive compensation related to stock based compensation was $340 and $427for the three months ended March 31, 2007 and March 29, 2008,respectively.

 

**6.**                 Inventories

** **

Inventories consist of the following:

 
| ** **               | ** ** | **December 31,  2007** | ** ** | **March 29,  2008** | ** ** |
|--------------------------|------------|-----------------------------|------------|--------------------------|------------|
| At FIFO cost:            |       |                        |       |                     |       |
| Raw materials            |       | $                           | 26,967     |                     | $          | 30,030 |   |
| Work in process          |       | 10,527                      |       | 12,067                   |       |
| Finished goods           |       | 72,542                      |       | 69,738                   |       |
|                     |       | 110,036                     |       | 111,835                  |       |
| Adjustment to  LIFO cost |       | (1,621                      | )          | (1,621                   | )          |
|                     |       | $                           | 108,415    |                     | $          | 110,214 |   |

 

5

----

 

**7.**                 Long-TermObligations

** **

The Company’s long-term obligations consist of thefollowing:

 
| ** **                                         | ** ** | **December 31,  2007** | ** ** | **March 29,  2008** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Revolving credit  facilities                       |       | $                           | —     |                     | $          | — |   |
| Term loan                                          |       | 161,711                     |       | 152,350                  |       |
| Senior pay in  kind notes                          |       | 173,850                     |       | 178,956                  |       |
| Senior  subordinated notes                         |       | 152,500                     |       | 152,500                  |       |
| Subordinated  seller notes                         |       | 1,250                       |       | 1,000                    |       |
| Unamortized  discount on senior pay in kind notes  |       | (5,616                      | )          | (5,338                   | )          |
| Unamortized  premium on senior subordinated notes  |       | 5,018                       |       | 4,720                    |       |
|                                               |       | 488,713                     |       | 484,188                  |       |
| Less: Current  maturities of long-term obligations |       | 11,654                      |       | 2,183                    |       |
|                                               |       | $                           | 477,059    |                     | $          | 482,005 |   |

 

Aggregatematurities of long-term obligations as of March 29, 2008, are as follows:

 
| 2009   |   | $       | 2,183   |   |
|--------|--------|---------|---------|--------|
| 2010   |   | 2,134   |    |
| 2011   |   | 55,531  |    |
| 2012   |   | 352,065 |    |
| 2013   |   | 72,275  |    |
|   |   | $       | 484,188 |   |

 

**8.**                 Income Taxes

** **

The income taxexpense for the Company differs from the amount of income tax expense computedby applying the U.S. federal income tax rate to income before income taxesprimarily due to: 1) state taxes and 2) the impact of varied foreign statutoryrates on the Company’s foreign earnings.

 

**9.**                 Employee BenefitPlans

** **

The following table sets forth the components of netperiodic benefit (income) expense for the Company’s pension and post-retirementbenefits:

 
| ** **                      | ** ** | **Pension benefits**        | ** ** | **Post-retirement benefits** | ** ** |
|---------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|
| ** **                      | ** ** | **Three months ended** | ** ** | **Three months ended**  | ** ** |
| ** **                      | ** ** | **March 31,  2007**         | ** ** | **March 29,  2008**          | ** ** | **March 31,  2007** | ** ** | **March 29,  2008** | ** ** |
| Service cost                    |       | $                                | 27         |                              | $          | — |   | $ | 3 |   | $ | 2 |   |
| Interest cost                   |       | 981                              |       | 1,064                             |       | 16 |   | 16 |   |
| Expected return  on plan assets |       | (1,069                           | )          | (1,035                            | )          | — |   | — |   |
|                            |       | $                                | (61        | )                                 | $          | 29 |   | $ | 19 |   | $ | 18 |   |

 

**10.**          Restructuring andMerger-Related Charges

** **

Periodically, the Companyrecords restructuring and merger-related charges related to plant relocations,personnel reorganization and acquisition integration activities. As of March 29,2008, the restructuring liability associated with these restructuring andmerger-related charges was $2,326 and is classified within the accrued expensecaption on the consolidated balance sheet. The majority of this balance relatesto severance and severance related costs which will be paid during the nexttwelve month period.

 

**11.**          Legal Proceedings

** **

TheCompany is party to various claims and routine litigation arising in theordinary course of business. Historically, the Company has not been required topay any material liability claims. The Company maintains insurance againstproduct liability claims (with the exception of respiratory claims relating toasbestosis and silicosis cases, for which coverage is not 

 

6

----

 

commerciallyavailable), but it is possible that its insurance coverage will not continue tobe available on terms acceptable to the Company or that such coverage will notbe adequate for liabilities actually incurred.

 

As of March 29,2008, the Company has recorded a $5,000 reserve for respiratory claims. Therehas been no significant changes to these claims as reported in the Company’s2007 annual report on Form 10-K.

 

**12.**          Segment Data

** **

The following table presents information about theCompany by segment:

 
| ** **                                  | ** ** | **General  Safety &  Preparedness** | ** ** | **Fire  Service** | ** ** | **Electrical  Safety** | ** ** | **Corporate  (1)** | ** ** | **Eliminations  (2)** | ** ** | **Total**  | ** ** |
|---------------------------------------------|------------|----------------------------------------------|------------|-------------------|------------|------------------------|------------|--------------------|------------|-----------------------|------------|------------|------------|
| **Three  Months Ended March 31, 2007** | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| Net sales—third  parties               |       | $                                            | 99,450     |              | $          | 23,847                 |       | $                  | 24,854     |                  | —     |       | —     |   | $ | 148,151 |   |
| Net  sales—intersegment                |       | 2,334                                        |       | —            |       | 105                    |       | —             |       | (2,439                | )          | —     |       |
| Income (loss)  from operations              |       | 12,248                                       |       | 2,958             |       | 5,647                  |       | (2,588             | )          | —                |       | 18,265     |       |
| ** **                                  | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| **Three  Months Ended March 29, 2008** | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **         | ** ** | ** **            | ** ** | ** ** | ** ** |
| Net sales—third  parties               |       | $                                            | 112,325    |              | $          | 27,173                 |       | $                  | 26,604     |                  | —     |       | —     |   | $ | 166,102 |   |
| Net  sales—intersegment                |       | 2,002                                        |       | —            |       | 67                     |       | —             |       | (2,069                | )          | —     |       |
| Income (loss)  from operations              |       | 15,214                                       |       | 3,932             |       | 5,485                  |       | (5,828             | )          | —                |       | 18,803     |       |

 

----

(1)         Corporateexpenses include general and administrative expenses such as administrative,finance, human resources and legal, which are not directly associated with oneof the reporting segments.

 

(2)         Theeliminations column includes the elimination of intersegment net sales amongthe three reporting segments.

 

**13.**          Subsidiary Guarantors

** **

Safety Products Holdings, Inc. (“Safety Products”)and NSP Holdings Capital Corp. (“NSP Capital”) are co-issuers of the 113/4% senior payin kind notes due 2012 (the “Holdco Notes”). Both Safety Products and NSPCapital have no independent assets or operations. NSP Capital is a 100% ownedfinance subsidiary of Safety Products. The 113/4% senior pay in kind notes due 2012 are not guaranteedby any subsidiary of the Company. The terms of the senior credit facilitysignificantly restrict Norcross Safety Products L.L.C. (“Norcross”), a whollyowned subsidiary, from paying dividends and otherwise transferring assets tothe Company. Further, the terms of the indenture governing its 97/8% seniorsubordinated notes due 2011 (the “Opco Notes”) significantly restrict Norcrossand the Company’s other subsidiaries from paying dividends and otherwisetransferring assets to the Company, except for ordinary course operatingexpenses.

 

**14.**          Comprehensive Income

** **

Total comprehensive income (which includes the impactof foreign currency translation) amounted to $4,937 and $7,379 for the threemonths ended March 31, 2007 and March 29, 2008, respectively.

 

**15.**          Seller TransactionExpenses

** **

The Company incurred $2,410 in transaction expensesrelated primarily to professional services during the three months ended March 29,2008 associated with the exploration of strategic alternatives, including apossible sale of the Company (See Note 16). These costs are reflected withinoperating expenses as seller transaction expenses.

 

**16.**          Subsequent Events

** **

In April 2008, Safety Products entered into aStock Purchase Agreement (the "Purchase Agreement") by and amongSafety Products, the selling shareholders party thereto, HoneywellInternational Inc., a Delaware corporation ("Honeywell"), and OdysseyInvestment Services, L.L.C., a Delaware limited liability company, solely inits capacity as representative. Pursuant to the Purchase Agreement,Honeywell will purchase all of the issued and outstanding equity securities ofSafety Products for an aggregate cash purchase price of approximately $1.2billion. The portion of such purchase price to be paid to the holders of SafetyProducts' equity securities will be reduced by the net indebtedness of SafetyProducts, which will include fees and expenses incurred by it in connectionwith the transactions contemplated by the Purchase Agreement.

 

7

----

 

In April 2008, SafetyProducts and Norcross commenced a cash tender offer and consent solicitationrelating to all of the outstanding Holdco and Opco Notes. In conjunction withthe tender offers, Safety Products and Norcross also solicited consents toadopt proposed amendments to the indentures under which the Holdco and OpcoNotes were issued (as amended and supplemented from time to time, the“Indentures”) that, among other things, would eliminate substantially allrestrictive covenants and certain events of default provisions.  

 

The total considerationoffered by Safety Products (which included a consent payment of $30.00) foreach $1,000 principal amount of Holdco Notes validly tendered and accepted forpayment and consents validly delivered and not withdrawn on or prior to theconsent date was $1,052.50. The total consideration offered by Norcross(which included a consent payment of $30.00) for each $1,000 principal amountof Opco Notes validly tendered and accepted for payment and consents validlydelivered and not withdrawn on or prior to the consent date was$1,051.88. Safety Products and Norcross each received tenders and consentsfrom over 99% of their respective holders. 

 

As a result of obtaining the required consents, thesupplemental indentures effecting the amendments to the Indentures governingthe Holdco and Opco Notes contemplated by the tender offers and consent solicitationswere executed and withdrawal rights were terminated. The amendments to theIndentures set forth in each supplemental indenture will not become operativeuntil immediately prior to the consummation of the sale to Honeywell and willcease to be operative unless the sale to Honeywell is consummated and SafetyProducts and Norcross purchase all of the applicable Holdco and Opco Notestendered pursuant to each tender offer.

 

In April 2008, North Safety Products L.L.C., asubsidiary of the Company, acquired substantially all of the assets and certainliabilities of the first aid business of Swift First Aid, Inc. and certainassets used in such business owned by Medic Plus, Inc. for approximately$11,000 in cash.

 

8

----

 

**Item 2. Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

**Overview**

 

We are a leading designer, manufacturer andmarketer of branded products in the fragmented personal protection equipmentindustry. We manufacture and market a full line of personal protectionequipment for workers in the general safety and preparedness, fire service andelectrical safety industries. We sell our products under trusted, long-standingand well-recognized brand names, including *North*, *KCL*,*Fibre-Metal*,*NEOS*,**Morning Pride**, *Ranger*, *Servus*, *Pro-Warrington**,* American Firewear*,* Salisbury*and*SafetyLine. Our broad productoffering includes, among other things, respiratory protection, protectivefootwear, hand protection, turnout gear and linemen equipment.

 

We classify our diverse product offeringsinto three operating segments:

 

*General Safety and Preparedness*. Weoffer a diverse portfolio of leading products for a wide variety of industries,including the manufacturing, agriculture, automotive, construction, foodprocessing and pharmaceutical industries and the military, under the *North*, *KCL*,*Fibre-Metal*,*NEOS*,*Ranger*and *Servus* brandnames. Our product offering is one of the broadest in the personal protectionequipment industry and includes respiratory protection, protective footwear,hand protection, eye, head and face protection, first aid, hearing protectionand fall protection. We sell our general safety and preparedness productsprimarily through industrial distributors.

 

*Fire Service*. We manufacture and marketone of the broadest lines of personal protection equipment for the fire servicemarket, offering firefighters head-to-toe protection. Our products includeturnout gear, fireboots, helmets, gloves and other accessories. We market our productsunder our Total Fire Group umbrella, using the brand names of *Morning Pride*, *Ranger*, *Servus*, *Pro-Warrington*and*American Firewear*.We are the vendor of choice for many of the largest fire departments in NorthAmerica. We sell our fire service products primarily through specialized fireservice distributors.

 

*Electrical Safety*. We manufacture andmarket a broad line of personal protection equipment for the utility marketunder the *Salisbury*,*SafetyLine*and*Servus* brands. Our products includelinemen equipment, gloves, sleeves, footwear and arc flash protection. Ourproducts either meet or exceed the applicable standards of the AmericanNational Standards Institute (“ANSI”), the American Society for Testing ofMaterials (“ASTM”) and the International Electrotechinal Commission (“IEC”). Wesell our electrical safety products through specialized distributors, testlabs, utilities and electrical contractors.

 

**Discontinued Operations**

** **

In June 2007, we completed the sale ofall of the issued and outstanding capital stock of South Africa. We receivednet cash proceeds of $3.2 million and recorded a net loss related to thetransaction of $3.0 million. In accordance with SFAS No. 144, *Accounting for the Impairment or Disposal of Long-Lived**Assets*, we have reflected South Africa’s results ofoperations through the date of the sale and transaction loss as discontinuedoperations for all periods presented. We have combined cash flows fromdiscontinued operations with cash flows from continuing operations within each cashflow statement category as the cash flows from discontinued operations are notmaterial to our consolidated results.

 

**Gross Profit**

 

We calculate gross profit as the differencebetween our net sales and cost of goods sold. We do not include certain purchasingand distribution costs as a component of cost of goods sold. As a result, ourgross profit may not be comparable to other entities who may present all ofpurchasing and distribution costs as a component of cost of goods sold.

 

**Expense Classifications**

 

We include the following in each of the majorexpense categories:

 

*Cost of Goods Sold*. Primarily includesall direct and indirect costs related to our products including the following:raw materials, direct and indirect labor, including related benefits, overheadcosts, inbound freight charges, receiving costs, inspection costs, purchasingcosts, other internal transfer costs and cost of resale products.

 

*Selling.* Primarilyincludes all payroll and related benefits associated with sales and marketingemployees, internal and external sales commission payments, marketing costs,advertising expenses and other miscellaneous selling expenses.

 

9

----

 

*Distribution.*Primarilyincludes all direct and indirect labor associated with distribution and relatedbenefits, warehousing and freight-out costs and other miscellaneousdistribution expenses.

 

*General and Administrative.*Primarilyincludes the following: finance and accounting, certain purchasing costs,information systems, human resources, legal, corporate overhead expenses andother miscellaneous administrative expenses.

 

**Results of Operations**

** **

The following tables setforth our results of operations in dollars and as a percentage of net sales forthe three months ended March 31, 2007 and March 29, 2008 and havebeen derived from the unaudited statements of operations.

 
| ** **                                                                   | ** ** | **Three months ended**     | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                   | ** ** | **March 31,  2007**             | ** ** | **March 29,  2008** | ** ** |
| ** **                                                                   | ** ** | **(dollars in thousands)** | ** ** |
| Net sales:                                                                   |       |                                 |       |   |   |
| General safety and preparedness                                              |       | $                                    | 99,450     |   | $ | 112,325 |   |
| Fire service                                                                 |       | 23,847                               |       | 27,173 |   |
| Electrical safety                                                            |       | 24,854                               |       | 26,604 |   |
| Total net sales                                                              |       | 148,151                              |       | 166,102 |   |
| Cost of goods sold                                                           |       | 90,709                               |       | 101,354 |   |
| Gross profit                                                                 |       | 57,442                               |       | 64,748 |   |
| Operating expenses                                                           |       | 39,177                               |       | 45,945 |   |
| Income (loss) from operations:                                               |       |                                 |       |   |   |
| General safety and preparedness                                              |       | 12,248                               |       | 15,214 |   |
| Fire service                                                                 |       | 2,958                                |       | 3,932 |   |
| Electrical safety                                                            |       | 5,647                                |       | 5,485 |   |
| Corporate                                                                    |       | (2,588                               | )          | (5,828 | ) |
| Total income from operations                                                 |       | 18,265                               |       | 18,803 |   |
| Other expense (income):                                                      |       |                                 |       |   |   |
| Interest expense                                                             |       | 12,341                               |       | 12,111 |   |
| Interest income                                                              |       | (225                                 | )          | (587 | ) |
| Other, net                                                                   |       | (96                                  | )          | (492 | ) |
| Income from continuing operations before  income taxes and minority interest |       | 6,245                                |       | 7,771 |   |
| Income tax expense                                                           |       | 2,617                                |       | 2,816 |   |
| Minority interest                                                            |       | 6                                    |       | 3 |   |
| Income from continuing operations                                            |       | 3,622                                |       | 4,952 |   |
| Income from discontinued operations                                          |       | (161                                 | )          | — |   |
| Net income                                                                   |       | $                                    | 3,783      |   | $ | 4,952 |   |

 

10

----

 
| ** **                                                                   | ** ** | **Three months ended**                            | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **March 31,  2007**                                    | ** ** | **March 29,  2008** | ** ** |
| ** **                                                                   | ** ** | **(as a percentage of net sales)** | ** ** |
| Net sales:                                                                   |       |                                                        |       |   |   |
| General safety and preparedness                                              |       | 67.1                                                        | %          | 67.6 | % |
| Fire service                                                                 |       | 16.1                                                        | %          | 16.4 | % |
| Electrical safety                                                            |       | 16.8                                                        | %          | 16.0 | % |
| Total net sales                                                              |       | 100.0                                                       | %          | 100.0 | % |
| Cost of goods sold                                                           |       | 61.2                                                        | %          | 61.0 | % |
| Gross profit                                                                 |       | 38.8                                                        | %          | 39.0 | % |
| Operating expenses                                                           |       | 26.4                                                        | %          | 27.6 | % |
| Income (loss) from operations:                                               |       |                                                        |       |   |   |
| General safety and preparedness                                              |       | 8.3                                                         | %          | 9.2 | % |
| Fire service                                                                 |       | 2.0                                                         | %          | 2.4 | % |
| Electrical safety                                                            |       | 3.8                                                         | %          | 3.3 | % |
| Corporate                                                                    |       | (1.7                                                        | )%         | (3.5 | )% |
| Total income from operations                                                 |       | 12.4                                                        | %          | 11.4 | % |
| Other expense (income):                                                      |       |                                                        |       |   |   |
| Interest expense                                                             |       | 8.3                                                         | %          | 7.3 | % |
| Interest income                                                              |       | (0.1                                                        | )%         | (0.3 | )% |
| Other, net                                                                   |       | (0.0                                                        | )%         | (0.3 | )% |
| Income from continuing operations before  income taxes and minority interest |       | 4.2                                                         | %          | 4.7 | % |
| Income tax expense                                                           |       | 1.8                                                         | %          | 1.7 | % |
| Minority interest                                                            |       | 0.0                                                         | %          | 0.0 | % |
| Income from continuing operations                                            |       | 2.4                                                         | %          | 3.0 | % |
| Income from discontinued operations                                          |       | (0.1                                                        | )%         | 0.0 | % |
| Net income                                                                   |       | 2.5                                                         | %          | 3.0 | % |

 

***Three Months Ended March 29, 2008 asCompared to Three Months Ended March 31, 2007***

 

*Netsales.*Net salesincreased by $17.9 million, or 12.1%, from $148.2 million for the three monthsended March 31, 2007 to $166.1 million for the three months ended March 29,2008. In our general safety and preparedness segment, net sales increased by$12.8 million, or 12.9%, from $99.5 million for the three months ended March 31,2007 to $112.3 million for the three months ended March 29, 2008. Thisincrease reflects a combination of the following: favorable exchange rates,which had an impact of $7.8 million, overall organic growth in our NorthAmerican non-government business of $2.2 million, organic growth in ourinternational operations of $1.7 million and growth in our North Americangovernment contract shipments of $1.1 million. In our fire service segment, netsales increased by $3.4 million, or 13.9%, from $23.8 million for the threemonths ended March 31, 2007 to $27.2 million for the three months ended March 29,2008 due to continued demand for our patented products. In our electricalsafety segment, net sales increased by $1.7 million, or 7.0%, from $24.9million for the three months ended March 31, 2007 to $26.6 million for thethree months ended March 29, 2008 in part due to increased internationalshipments.

 

*Grossprofit.*Grossprofit increased by $7.3 million, or 12.7%, from $57.4 million for the threemonths ended March 31, 2007 to $64.7 million for the three months ended March 29,2008, primarily due to the $17.9 million, or 12.1%, increase in net sales. Ourgross profit margin was 39.0% for the three months ended March 29, 2008 ascompared to 38.8% for the three months ended March 31, 2007. In ourgeneral safety and preparedness segment, gross profit increased by $5.4million, or 13.3%, from $40.5 million for the three months ended March 31,2007 to $45.9 million for the three months ended March 29, 2008. Thisincrease was primarily due to the overall net sales increase of $12.8 million,or 12.9%, and improved margin realization. In our fire service segment, grossprofit increased by $1.7 million, or 23.8%, from $7.4 million for the threemonths ended March 31, 2007 to $9.1 million for the three months ended March 29,2008, primarily due to the increase in net sales of $3.4 million, or 13.9% andproduction efficiencies. In our electrical safety segment, gross profitincreased by $0.2 million, or 1.8%, from $9.6 million for the three monthsended March 31, 2007 to $9.8 million for the three months ended March 29,2008 as the $1.7 million, or 7.0%, increase in net sales was partially offsetby inefficiencies within our Charleston, South Carolina facility.

 

*Operatingexpenses. *Operating expenses increased by $6.7million, or 17.3%, from $39.2 million for the three months ended March 31,2007 to $45.9 million for the three months ended March 29, 2008. In ourgeneral safety and 

 

11

----

 

preparedness segment, operating expenses increased by $2.4 million, or8.6%, from $28.3 million for the three months ended March 31, 2007 to$30.7 million for the three months ended March 29, 2008, driven by increasedvariable selling and distribution expenses associated with the $12.8 million,or 12.9%, increase in net sales and the impact of unfavorable exchange rates.In our fire service segment, operating expenses increased by $0.8 million, or17.7%, from $4.4 million for the three months ended March 31, 2007 to $5.2million for the three months ended March 29, 2008, primarily due increasedvariable selling and distribution expenses associated within the $3.4 million,or 13.9%, increase in net sales and higher general and administrative expenses.In our electrical safety segment, operating expenses increased by $0.3 million,or 8.5%, from $4.0 million for the three months ended March 31, 2007 to$4.3 million for the three months ended March 29, 2008 due to increasedvariable selling and distribution expenses related to the $1.7 million, or7.0%, increase in net sales. Corporate expenses for the three months ended March 31,2007 consisted of $2.3 million of general and administrative expenses and $0.3million of management incentive compensation expense. Corporate expenses forthe three months ended March 29, 2008 consisted of $3.0 million of generaland administrative expenses, $0.4 million of management incentive compensationexpense and $2.4 million of seller transaction expenses. The increase incorporate general and administrative expenses of $0.7 million wasprimarily related to increased professional fees associated with the engagementof a supply-chain improvement consulting firm.

 

*Incomefrom operations.*Incomefrom operations increased by $0.6 million, or 2.9%, from $18.2 million for thethree months ended March 31, 2007 to $18.8 million for the three monthsended March 29, 2008. In our general safety and preparedness segment,income from operations increased by $3.0 million, or 24.2%, from $12.2 millionfor the three months ended March 31, 2007 to $15.2 million for the threemonths ended March 29, 2008. In our fire service segment, income fromoperations increased by $0.9 million, or 32.9%, from $3.0 million for the threemonths ended March 31, 2007 to $3.9 million for the three months ended March 29,2008. In our electrical safety segment, income from operations decreased by$0.1 million, or 2.9%, from $5.6 million for the three months ended March 31,2007 to $5.5 million for the three months ended March 29, 2008. Corporateexpenses for the three months ended March 31, 2007 consisted of $2.3million of general and administrative expenses and $0.3 million of managementincentive compensation expense. Corporate expenses for the three months ended March 29,2008 consisted of $3.0 million of general and administrative expenses, $0.4million of management incentive compensation expense and $2.4 million of sellertransaction expenses. These segment variances were the result of the reasonsdiscussed above.

 

Included in incomefrom operations for the three months ended March 31, 2007 and March 29,2008 were depreciation and amortization expenses of $6.5 million and $6.9million, respectively. Of these amounts, $4.0 million, $1.2 million and $1.3million were attributable to the general safety and preparedness, fire service,and electrical safety segments, respectively, for the three months ended March 31,2007 and $4.4 million, $1.2 million and $1.3 million were attributable to thesesegments for the three months ended March 29, 2008.

 

*Interest expense.*Interestexpense decreased by $0.2 million, or 1.8%, from $12.3 million for the threemonths ended March 31, 2007 to $12.1 million for the three months ended March 29,2008, primarily due a lower weighted average interest rate associated withborrowings under the senior credit facility. Included in interest expense werenon-cash interest charges associated with the senior pay in kind notes of $4.6million and $5.1 million for the three months ended March 31, 2007 and March 29,2008, respectively.

 

*Interest income.*Interestincome increased by $0.4 million from $0.2 million for the three months ended March 31,2007 to $0.6 million for the three months ended March 29, 2008, primarilydue to interest earned on higher cash balances during the three months ended March 29,2008.

 

*Other, net.*Other,net increased by $0.4 million from ($0.1) million for the three months ended March 31,2007 to $(0.5) million for the three months ended March 29, 2008,primarily due to unrealized foreign exchange rate gains.

 

*Incometax expense.*Incometax expense increased by $0.2 million, from $2.6 million for the three monthsended March 31, 2007 to $2.8 million for the three months ended March 29,2008, primarily as a result of improved operating performance.

 

*Incomefrom discontinued operations.*Income from discontinued operations for the threemonths ended March 31, 2007 included $0.2 million associated with SouthAfrica discontinued operations.

 

*Netincome.*Netincome increased by $1.2 million, or 30.9%, from $3.8 million for the threemonths ended March 31, 2007 to $5.0 million for the three months ended March 29,2008 as a result of the reasons discussed above.

 

12

----

 

**Liquidity and Capital Resources**

** **

We havehistorically used internal cash flow from operations, commercial borrowings onour lines of credit, seller notes, investments from our equityholders andcapital markets transactions to fund our operations, acquisitions, capitalexpenditures and working capital requirements.

 

For the threemonths ended March 31, 2007 and March 29, 2008, net cash used inoperating activities was $5.7 million and $6.4 million, respectively. Theseamounts were driven by increased accounts receivables and decreased accruedexpenses, partially offset by higher income from operations.

 

Historically, our principal uses of cash havebeen capital expenditures, acquisitions and working capital. Our capitalexpenditures were $3.3 million for the three months ended March 31, 2007and $2.8 million for the three months ended March 29, 2008. Investingactivities for the three months ended March 31, 2007 included $0.2 millionof royalty payments made to the sellers of Arbin. For the three months ended March 29,2008, investing activities included $0.1 million of royalty payments made tothe sellers of Arbin. In addition, we received cash proceeds of $0.5 millionrelated to the sale of property, plant and equipment.

 

As of March 29, 2008, we had workingcapital of $203.7 million and cash of $52.1 million. We maintain inventorylevels sufficient to satisfy customer orders on demand, with generally a threemonth supply on hand. Turnout gear is an exception and is generally made to order.Our accounts receivable terms are generally 30 days, net.

 

For the three months ended March 31,2007, net cash used in financing activities was $0.7 million related topayments on long-term obligations. For the three months ended March 29,2008, net cash used in financing activities was $9.9 million comprised of $9.6million of payments on long-term obligations (including an excess cash flowsweep payment of $9.3 million under the terms of the senior credit facility)and $0.3 million of payments made to repurchases common shares.

 

As of March 29, 2008, borrowings underthe senior credit facility bore interest at a weighted average rate of 5.1%. Asof March 29, 2008, there was approximately $152.4 million of outstandingindebtedness under the senior credit facility and approximately $47.2 millionof available borrowings under the revolving credit facility.

 

We believe thatour internal cash flows and borrowings under our new senior credit facilitywill provide us with sufficient liquidity and capital resources to meet ourcurrent and future financial obligations for the foreseeable future, includingfunding our operations, debt service and capital expenditures. Our futureoperating performance will be subject to future economic conditions and tofinancial, business and other factors, many of which are beyond our control. Ifour future cash flow from operations and other capital resources areinsufficient to pay our obligations as they mature or to fund our liquidityneeds, we may be forced to reduce or delay our business activities and capitalexpenditures, sell assets, obtain additional debt or equity capital orrestructure or refinance all or a portion of our debt, including the seniorsubordinated notes, on or before maturity. We cannot assure you that we wouldbe able to accomplish any of these alternatives on a timely basis or onsatisfactory terms, if at all. In addition, the terms of our existing andfuture indebtedness, including our senior subordinated notes and our seniorcredit facility, may limit our ability to pursue any of these alternatives.

 

**Forward-Looking Statements**

 

ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations contains forward-looking information. These statements reflectmanagement’s expectations, estimates, and assumptions based on informationavailable at the time of the statement. Forward-looking statements include, butare not limited to, statements regarding future events, plans, goals,objectives, and expectations. The words “anticipate,” “believe,” “estimate,”“expect,” “plan,” “intent,” “likely,” “will,” “should,” and similar expressionsare intended to identify forward-looking statements. Forward-looking statementsare not guarantees of future performance and involve risks, uncertainties, andother factors, including those set forth below, which may cause our actualresults, performance, or achievements to be materially different from anyfuture results, performance, or achievements expressed or implied by thosestatements. Important factors that could cause our actual results, performance,or achievements to be materially different from any future results,performance, or achievements expressed or implied by those statements include,but are not limited to: (i) our high degree of leverage and significantdebt service obligations; (ii) the impact of current and future laws andgovernmental regulations affecting us or our product offerings; (iii) theimpact of governmental spending; (iv) our ability to retain existingcustomers, maintain key supplier status with those customers with which we haveachieved such status, and obtain new customers; (v) the highly competitivenature 

 

13

----

 

of thepersonal protection equipment industry; (vi) any future changes inmanagement; (vii) acceptance by consumers of new products we develop oracquire; (viii) the importance and costs of product innovation; (ix) unforeseenproblems associated with international sales, including gains and losses fromforeign currency exchange and restrictions on the efficient repatriation ofearnings; (x) the unpredictability of patent protection and otherintellectual property issues; (xi) cancellation of current orders; (xii) theoutcome of pending product liability claims and the availability ofindemnification for those claims; (xiii) general risks associated with thepersonal protection equipment industry; and (xiv) the successful integration ofacquired companies on economically acceptable terms.  We undertake no obligation to publicly updateor revise any forward-looking statements to reflect changed assumptions, theoccurrence of anticipated or unanticipated events, or changes to future resultsover time.

 

**Item 3. Quantitative andQualitative Disclosures About Market Risk**

 

There have been nomaterial changes to our exposure to market risk since December 31, 2007.

 

**Item 4. Controls and Procedures**

 

Based on theirevaluation as of the end of the period covered by this quarterly report on Form 10-Q,our Chief Executive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the“Exchange Act”)) are effective. There was no change in our internal controlover financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) ofthe Exchange Act that occurred during the period covered by this quarterlyreport on Form 10-Q that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

 

14

----

 

**PART IIOTHER INFORMATION**

** **

**Item 1. Legal Proceedings**

** **

We areparty to various claims and routine litigation arising in the ordinary courseof business. Historically, we have not been required to pay any materialliability claims. We maintain insurance against product liability claims (withthe exception of respiratory claims relating to asbestosis and silicosis cases,for which coverage is not commercially available), but it is possible that itsinsurance coverage will not continue to be available on terms acceptable to usor that such coverage will not be adequate for liabilities actually incurred.

 

As of March 29,2008, we have recorded a $5.0 million reserve for respiratory claims. There hasbeen no significant changes to these claims as reported in our 2007 annualreport on Form 10-K.

 

**Item 1A. RiskFactors**

** **

There have been nomaterial changes to the risks impacting our business since December 31,2007.

 

**Item 6. Exhibits**

 

See attached Exhibit Index.

 

15

----

 

**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,Safety Products Holdings, Inc. has duly caused this report to be signed onits behalf by the undersigned thereunto duly authorized.

 
|                   | SAFETY PRODUCTS HOLDINGS, INC. |
|-------------------|--------------------------------|
|              |                           |   |
|              |                           |   |
| May 12, 2008 | By:                            | /s/ ROBERT A. PETERSON |
|              |                           | Robert A. Peterson |
|              |                           | President, Chief Executive Officer and Director |
|              |                           | (Principal Executive Officer) |
|              |                           |   |
|              |                           |   |
| May 12, 2008 | By:                            | /s/ DAVID F. MYERS, JR. |
|              |                           | David F. Myers, Jr. |
|              |                           | Executive Vice President, Chief Financial Officer, |
|              |                           | Secretary and Director |
|              |                           | (Principal Financial and Accounting Officer) |

 

16

----

 

**SAFETY PRODUCTS HOLDINGS, INC.**

**FORM 10-Q LISTING OFEXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                           |
| 10.1                 |       | Stock Purchase Agreement dated April 3, 2008 by  and among Honeywell International Inc., Safety Products Holdings, Inc., the  selling shareholders party thereto, and Odyssey Investment Services, L.L.C.  (incorporated by reference to Exhibit 2.1 to Safety Products  Holdings, Inc. Form 8-K filed April 4, 2008) |
|                 |       |                                                                                                                                                                                                                                                                                                                                           |
| 31.1                 |       | Certification of Chief Executive Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                           |
| 31.2                 |       | Certification of Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                           |
| 32.1                 |       | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                           |
| 32.2                 |       | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                       |

 

17

----