**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

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

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| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                  |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                              |
|       | ** ** | **For the quarterly period ended March 31, 2007**                                                                                                                                       |
|       | ** ** | ** **                                                                                                                                                                              |
| **OR**     |       |                                                                                                                                                                                    |
| ** ** |       |                                                                                                                                                                                    |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                 |
| ** ** | ** ** | ** **                                                                                                                                                                              |
| ** ** | ** ** | **For the transition period from               to            ** |

 

**CommissionFile Number: 333-127781**

**SAFETY PRODUCTS HOLDINGS, INC.**

(Exact name 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’s  telephone number, including area code:       |
| **(630)  572-5715**                                             |

 

Indicate by check mark whether the Registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x   No o

Indicate by check mark whether the Registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act.

Large accelerated filer  o  Accelerated filer  o  Non-accelerated filer  x

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

On May 11, 2007 Safety Products Holdings, Inc. had 11,030,884common shares outstanding.

 

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**SAFETY PRODUCTS HOLDINGS, INC.**

**FORM 10-Q QUARTERLY REPORT**

**For the Quarterly Period Ended March31, 2007**

**TABLEOF 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 |   | 11 |
|                              |   |                                                                                                 |   |   |
|                              |   | Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  |   | 17 |
|                              |   |                                                                                                 |   |   |
|                              |   | Item 4. Controls and  Procedures                                                                     |   | 18 |
|                              |   |                                                                                                 |   |   |
| **PART II Other Information**     |   | 19                                                                                                   |
|                              |   |                                                                                                 |   |   |
|                              |   | Item 1. Legal Proceedings                                                                            |   | 19 |
|                              |   |                                                                                                 |   |   |
|                              |   | Item  1A. Risk Factors                                                                               |   | 22 |
|                              |   |                                                                                                 |   |   |
|                              |   | Item  6. Exhibits                                                                                    |   | 23 |
|                              |   |                                                                                                 |   |   |
| **Signatures**                    |   | 24                                                                                                   |
|                              |   |                                                                                                 |   |   |
| **Form 10-Q Listing of Exhibits** |   | 25                                                                                                   |

 

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**PART IFINANCIAL INFORMATION**

**Item 1. Financial Statements**

**SAFETY PRODUCTS HOLDINGS,INC.**

**CONSOLIDATED BALANCESHEETS**

**(Amounts in Thousands)**
| ** **                                                                                | ** ** | ** **                           | ** ** | **March 31,**    | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------|------------|
| ** **                                                                                | ** ** | **December 31,  2006 (1)** | ** ** | **2007  (Unaudited)** | ** ** |
| **Assets**                                                                                | ** ** | ** **                           | ** ** | ** **            | ** ** |
| Current assets:                                                                           |       |                                 |       |                  |       |
| Cash and cash  equivalents                                                                |       | $                                    | 26,796     |                  | $          | 16,923 |   |
| Accounts  receivable, less allowance of $2,323 and $2,296 in 2006 and 2007,  respectively |       | 73,306                               |       | 88,994                |       |
| Inventories                                                                               |       | 108,270                              |       | 108,044               |       |
| Deferred income  taxes                                                                    |       | 2,143                                |       | 2,143                 |       |
| Prepaid expenses  and other current assets                                                |       | 3,624                                |       | 4,492                 |       |
| Total current assets                                                                      |       | 214,139                              |       | 220,596               |       |
| Property, plant and  equipment, net                                                       |       | 69,627                               |       | 69,503                |       |
| Deferred financing  costs, net                                                            |       | 16,517                               |       | 15,675                |       |
| Goodwill                                                                                  |       | 157,242                              |       | 157,843               |       |
| Other intangible  assets, net                                                             |       | 281,438                              |       | 278,820               |       |
| Other noncurrent assets                                                                   |       | 5,119                                |       | 6,180                 |       |
| Total assets                                                                              |       | $                                    | 744,082    |                  | $          | 748,617 |   |
|                                                                                      |       |                                 |       |                  |       |
| **Liabilities and shareholders’  equity**                                            | ** ** | ** **                           | ** ** | ** **            | ** ** |
| Current liabilities:                                                                      |       |                                 |       |                  |       |
| Accounts payable                                                                          |       | $                                    | 21,891     |                  | $          | 25,691 |   |
| Accrued expenses                                                                          |       | 40,596                               |       | 30,908                |       |
| Current  maturities of long-term obligations                                              |       | 4,820                                |       | 4,726                 |       |
| Total current  liabilities                                                                |       | 67,307                               |       | 61,325                |       |
| Pension,  post-retirement and deferred compensation                                       |       | 17,082                               |       | 16,339                |       |
| Long-term obligations                                                                     |       | 470,140                              |       | 474,046               |       |
| Other noncurrent  liabilities                                                             |       | 7,008                                |       | 12,505                |       |
| Deferred income taxes                                                                     |       | 55,460                               |       | 52,411                |       |
| Minority interest                                                                         |       | 199                                  |       | 204                   |       |
|                                                                                      |       | 549,889                              |       | 555,505               |       |
| Shareholders’ equity:                                                                |       |                                 |       |                  |       |
| Common shares                                                                             |       | 110                                  |       | 110                   |       |
| Contributed  capital                                                                      |       | 111,883                              |       | 112,223               |       |
| Retained  earnings                                                                        |       | 4,098                                |       | 7,505                 |       |
| Accumulated  other comprehensive income                                                   |       | 10,795                               |       | 11,949                |       |
| Total shareholders’  equity                                                          |       | 126,886                              |       | 131,787               |       |
| Total liabilities and shareholders’ equity                                           |       | $                                    | 744,082    |                  | $          | 748,617 |   |

 

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(1)          December 31, 2006balances were obtained from audited financial statements.

*See notes to unaudited consolidated financialstatements.*

1

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**SAFETY PRODUCTS HOLDINGS, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Amounts in Thousands) (Unaudited)**
| ** **                                        | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **April 1,**                | ** ** | **March 31,** | ** ** |
| ** **                                        | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| Net sales                                         |       | $                                | 141,876    |   | $ | 153,200 |   |
| Cost of goods  sold                               |       | 88,145                           |       | 94,545 |   |
| Gross profit                                      |       | 53,731                           |       | 58,655 |   |
| Operating  expenses:                              |       |                             |       |   |   |
| Selling                                           |       | 12,875                           |       | 13,922 |   |
| Distribution                                      |       | 7,926                            |       | 9,295 |   |
| General and administrative (1)                    |       | 13,957                           |       | 13,974 |   |
| Amortization of intangibles                       |       | 2,726                            |       | 2,965 |   |
| Total operating  expenses                         |       | 37,484                           |       | 40,156 |   |
| Income from  operations                           |       | 16,247                           |       | 18,499 |   |
| Other expense  (income):                          |       |                             |       |   |   |
| Interest expense                                  |       | 11,248                           |       | 12,349 |   |
| Interest income                                   |       | (163                             | )          | (225 | ) |
| Other, net                                        |       | (371                             | )          | (97 | ) |
| Income before  income taxes and minority interest |       | 5,533                            |       | 6,472 |   |
| Income tax  expense                               |       | 1,835                            |       | 2,683 |   |
| Minority  interest                                |       | 11                               |       | 6 |   |
| Net income                                        |       | $                                | 3,687      |   | $ | 3,783 |   |

 

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(1)   General and administrativeexpenses exclude amortization of intangibles and include $800 and $340 ofmanagement incentive compensation for the three months ended April 1, 2006 andMarch 31, 2007, respectively.

*See notes to unaudited consolidatedfinancial statements.*

2

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**SAFETY PRODUCTS HOLDINGS, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Amounts in Thousands) (Unaudited)**
| ** **                                                                     | ** ** | **Three months ended** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                     | ** ** | **April 1,**                | ** ** | **March 31,** | ** ** |
| ** **                                                                     | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| **Operating  activities**                                                      | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                                     |       | $                                | 3,687      |   | $ | 3,783 |   |
| Adjustments to  reconcile net income to net cash used in operating activities: |       |                             |       |   |   |
| Depreciation                                                                   |       | 3,139                            |       | 3,601 |   |
| Amortization of intangibles                                                    |       | 2,726                            |       | 2,965 |   |
| Amortization of deferred financing costs                                       |       | 833                              |       | 842 |   |
| Amortization of original issue premium                                         |       | (35                              | )          | (30 | ) |
| Deferred income taxes                                                          |       | 231                              |       | 383 |   |
| Minority interest                                                              |       | 11                               |       | 6 |   |
| Noncash interest                                                               |       | 4,064                            |       | 4,557 |   |
| Management incentive compensation                                              |       | 800                              |       | 340 |   |
| (Gain) loss on sale of property, plant and equipment                           |       | (79                              | )          | 108 |   |
| Changes in operating assets and liabilities:                                   |       |                             |       |   |   |
| Accounts receivable                                                            |       | (10,337                          | )          | (15,455 | ) |
| Inventories                                                                    |       | (3,104                           | )          | 492 |   |
| Prepaid expenses and other current assets                                      |       | 412                              |       | 76 |   |
| Other noncurrent assets                                                        |       | 73                               |       | (152 | ) |
| Accounts payable                                                               |       | 3,768                            |       | 3,761 |   |
| Accrued expenses                                                               |       | (8,353                           | )          | (10,233 | ) |
| Pension, postretirement and deferred compensation                              |       | (269                             | )          | (746 | ) |
| Other noncurrent liabilities                                                   |       | (24                              | )          | (9 | ) |
| Net cash used in  operating activities                                         |       | (2,457                           | )          | (5,711 | ) |
|                                                                           |       |                             |       |   |   |
| **Investing  activities**                                                      | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Purchase of  businesses, net of cash acquired                                  |       | (4,636                           | )          | (159 | ) |
| Purchases of property,  plant and equipment                                    |       | (2,291                           | )          | (3,298 | ) |
| Proceeds from  sale of property, plant and equipment                           |       | 113                              |       | 29 |   |
| Net cash used in  investing activities                                         |       | (6,814                           | )          | (3,428 | ) |
|                                                                           |       |                             |       |   |   |
| **Financing  activities**                                                      | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Payments of debt                                                               |       | (494                             | )          | (710 | ) |
| Proceeds from  the issuance of shares                                          |       | 563                              |       | — |   |
| Net cash  provided by (used in) financing activities                           |       | 69                               |       | (710 | ) |
| Effect of  exchange rate changes on cash                                       |       | 279                              |       | (24 | ) |
| Net decrease in  cash and cash equivalents                                     |       | (8,923                           | )          | (9,873 | ) |
| Cash and cash  equivalents at beginning of period                              |       | 20,819                           |       | 26,796 |   |
| Cash and cash  equivalents at end of period                                    |       | $                                | 11,896     |   | $ | 16,923 |   |

 

*See notes to unaudited consolidated financial statements*

3

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**SAFETYPRODUCTS HOLDINGS, INC.**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS(Amounts in Thousands) (Unaudited)

**1.**                 Transactions

OnFebruary 2, 2006, Safety Products Holding, Inc. (the “Company” or “SafetyProducts”) completed the acquisition of all of the issued and outstandingcapital stock of American Firewear, Inc. (“American Firewear”). The purchaseprice consisted of $4,453 in cash (including acquisition costs of $203 and netof cash acquired of $183) and a $1,000 subordinated seller note. In addition,the purchase price may be increased by $750 over a four year period based onAmerican Firewear achieving certain financial and operating objectives. TheCompany financed the acquisition through cash on the balance sheet and theissuance of the $1,000 subordinated seller note. The Company believes the acquisition of American Firewear willstrengthen its hand protection product line in the fire service segment.  The results of operations of AmericanFirewear are included in the Company’s consolidated statement of operationsfrom the date of acquisition.

OnJune 9, 2006, the Company completed the acquisition of all of the issued andoutstanding capital stock of The White Rubber Corporation (“White Rubber”). Thepurchase price was $22,182 (including acquisition costs of $636 and gross ofoutstanding checks of $773). The Company financed the acquisition throughadditional term borrowings under the senior credit facility and cash on thebalance sheet.  The Company believes the acquisition of White Rubber will strengthen itshand protection product line in the electrical safety segment.  The results of operations of WhiteRubber are included in the Company’s consolidated statement of operations fromthe date of acquisition.

OnSeptember 19, 2006, the Company completed the acquisition of all of the issuedand outstanding capital stock of The New England Overshoe Company, Inc. (“NEOS”).  The purchase price consisted of $3,639 incash (including acquisition costs of $139 and net of cash acquired of $6) and a$750 subordinated seller note.  Inaddition, the purchase price may be increased over a five year period based onNEOS achieving certain net sales targets. The Company financed the acquisition through cash on the balance sheetand the issuance of the $750 subordinated seller note.  TheCompany believes the acquisition of NEOS will broaden its footwear productportfolio in the general safety and preparedness segment.  The results of NEOS are included inthe Company’s consolidated statement of operations from the date of acquisition.

The acquisition of American Firewear is referred to as the “AmericanFirewear Transaction”, the acquisition of White Rubber is referred to as the “WhiteRubber Transaction” and the acquisition of NEOS is referred to as the “NEOSTransaction.”  Collectively, the AmericanFirewear Transaction, the White Rubber Transaction and the NEOS Transaction arereferred to as the “Transactions.”

**2.**                 Basis ofPresentation

The accompanyingunaudited consolidated financial statements of the Company have been preparedin accordance with accounting principles generally accepted in the UnitedStates for interim financial information. Accordingly, they do not include allof the information and notes required by accounting principles generallyaccepted in the United States for complete 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, 2007. The financial statements presented shouldbe read in conjunction with the consolidated financial statements and footnotesthereto included in our 2006 consolidated financial statements, included in theCompany’s annual report on Form 10-K.

The consolidated financial statements reflect the Transactions underthe purchase method of accounting, in accordance with the Financial AccountingStandards Board (“FASB”) Statement of Accounting Standards (“SFAS”) No. 141, *Business Combinations*.

The following table presents the pro forma net sales, income fromoperations, and net income of the Company assuming the Transactions hadoccurred on January 1, 2006:

4

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|                         | ** ** | **Three  months  ended  April 1,  2006** | ** ** | **Three  months  ended  March 31,  2007** | ** ** |
|-------------------------|------------|-----------------------------------------------|------------|------------------------------------------------|------------|
| Net sales               |       | $                                             | 148,081    |                                           | $          | 153,200 |   |
| Income from  operations |       | 16,994                                        |       | 18,499                                         |       |
| Net income              |       | 4,082                                         |       | 3,783                                          |       |
|                         |            |                                               |            |                                                |            |  |  |

 

**3.**                 Recent AccountingPronouncements

In September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*, which definesfair value, establishes a framework for measuring fair value, and expandsdisclosures about fair value measurements. The provisions of SFAS No. 157 areeffective for the Company as of the beginning of its fiscal year ended December31, 2008. The Company is in the process of determining the effects, if any,that adoption of SFAS No. 157 will have on its financial statements.

In February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for Financial Assets andFinancial Liabilities — Including an amendment of FASB Statement No. 115.*Thisstatement is intended to improve financial reporting by providing entities withthe opportunity to mitigate volatility in reported earnings caused by measuringrelated assets and liabilities differently without having to apply complexhedge accounting provisions. It also establishes presentation and disclosurerequirements designed to facilitate comparisons between entities that choosedifferent measurement attributes for similar types of assets and liabilities.The statement does not affect any existing accounting literature that requirescertain assets and liabilities to be carried at fair value, and it does notestablish requirements for recognizing dividend income, interest income orinterest expense. It also does not eliminate disclosure requirements includedin other accounting standards. We are required to adopt SFAS No. 159 as of thebeginning of our fiscal year ended December 31, 2008.  The Company is in the process of determiningthe effects, if any, that adoption of SFAS No. 159 will have on our financialstatements.

**4.**                 ManagementIncentive Compensation

Management incentive compensation related to stockbased compensation was $800 and $340 for the three months ended April 1, 2006and March 31, 2007, respectively.

**5.**                 Inventories

Inventories consist of the following:
| ** **              | ** ** | **December 31,  2006** | ** ** | **March 31,  2007** | ** ** |
|-------------------------|------------|-----------------------------|------------|--------------------------|------------|
| At FIFO cost:           |       |                        |       |                     |       |
| Raw materials           |       | $                           | 24,823     |                     | $          | 29,616 |   |
| Work in process         |       | 13,756                      |       | 11,323                   |       |
| Finished goods          |       | 70,799                      |       | 68,213                   |       |
|                    |       | 109,378                     |       | 109,152                  |       |
| Adjustment to LIFO cost |       | (1,108                      | )          | (1,108                   | )          |
|                    |       | $                           | 108,270    |                     | $          | 108,044 |   |

 

5

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# **6.****              Long-Term Obligations**

The Company’s long-term obligations consist of thefollowing:
| ** **                                         | ** ** | **December 31,  2006** | ** ** | **March 31,  2007** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Revolving credit  facilities                       |       | $                           | —     |                     | $          | — |   |
| Term loan                                          |       | 165,720                     |       | 165,293                  |       |
| Senior pay in  kind notes                          |       | 155,090                     |       | 159,647                  |       |
| Senior  subordinated notes                         |       | 152,500                     |       | 152,500                  |       |
| European term  loans                               |       | 173                         |       | 157                      |       |
| Subordinated  seller notes                         |       | 1,750                       |       | 1,500                    |       |
| Capital lease  obligations                         |       | 205                         |       | 183                      |       |
| Unamortized  discount on senior pay in kind notes  |       | (6,626                      | )          | (6,382                   | )          |
| Unamortized  premium on senior subordinated notes  |       | 6,148                       |       | 5,874                    |       |
|                                               |       | 474,960                     |       | 478,772                  |       |
| Less: Current  maturities of long-term obligations |       | 4,820                       |       | 4,726                    |       |
|                                               |       | $                           | 470,140    |                     | $          | 474,046 |   |

 

Aggregate maturities of long-term obligations as ofMarch 31, 2007, are as follows:
| 2008       |   | $       | 4,726   |   |
|------------|--------|---------|---------|--------|
| 2009       |   | 2,634   |    |
| 2010       |   | 2,066   |    |
| 2011       |   | 36,356  |    |
| 2012       |   | 270,784 |    |
| Thereafter |   | 162,206 |    |
|       |   | $       | 478,772 |   |

 

**7.**                 Income Taxes

Effective January 1,2007, the Company adopted FIN No. 48*, Accounting forUncertainty in Income Taxes*, which  requires that the Company recognize in thefinancial statements, the impact of a tax position, if that position is morelikely than not of being sustained on audit, based on the technical merits ofthe position.  In addition, FIN 48provides guidance on the derecognition, classification, accounting in interimperiods and disclosure requirements for uncertain tax positions.  

As a result of theimplementation of FIN No. 48, the Company recorded at the date of adoption anadditional liability of $5,961 for unrecognized tax benefits relating touncertain tax positions. Of this amount, approximately $376 was accounted foras a reduction to the January 1, 2007 balance of retained earnings.  There have been no significant changes tothese amounts during the quarter ended March 31, 2007.

At January 1, 2007, theCompany had $7,024 in unrecognized tax benefits, the recognition of which wouldhave an affect of $776 on the effective tax rate. In addition, $4,261 ofunrecognized tax benefits would, if realized, reduce goodwill.

Included in the balanceof unrecognized tax benefits at January 1, 2007, is $1,525 related to taxpositions for which it is reasonably possible that the total amounts couldsignificantly change during the next twelve months.  This amount represents the maximum potential decreasein unrecognized tax benefits comprised of items related to foreign income taxfilings and audit settlement negotiations. 

The Company recognizesinterest and penalties related to unrecognized tax benefits as a component ofincome tax expense.  At January 1, 2007,the Company had accrued $219 and $279 for the potential payment of interest andpenalties related to unrecognized tax benefits, respectively.  There have been nosignificant changes to these amounts during thequarter ended March 31, 2007.

The Company and itssubsidiaries are subject to U.S. federal income tax as well as income tax ofmultiple state and international jurisdictions. As of January 1, 2007, the Company is subject to U.S. Federal income taxexaminations for the tax years 1998 through 2000 and 2002 through 2006, and tonon-U.S. income tax examinations for the tax years of 1998 through 2006. Inaddition, the Company is subject to state and local income tax examinations forthe tax years 1998 through 2006.

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.

**8.**                 Employee Benefit Plans

The following table sets forth the components of netperiodic benefit cost for the Company’s pension and post-retirement benefits:
| ** **                      | ** ** | **Pension benefits**                                       | ** ** | **Post-retirement benefits**                                | ** ** |
|---------------------------------|------------|-----------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                      | ** ** | **Three  months   ended   April 1,   2006** | ** ** | **Three  months   ended   March 31,   2007** | ** ** | **Three   months   ended   April 1,   2006** | ** ** | **Three   months   ended   March 31,   2007** | ** ** |
|                            |       |                                                            |       |                                                             |       |   |   |   |   |
| Service cost                    |       | $                                                               | 491        |                                                             | $          | 27 |   | $ | 6 |   | $ | 3 |   |
| Interest cost                   |       | 944                                                             |       | 981                                                              |       | 18 |   | 16 |   |
| Expected return  on plan assets |       | (906                                                            | )          | (1,069                                                           | )          | — |   | — |   |
|                            |       | $                                                               | 529        |                                                             | $          | (61 | ) | $ | 24 |   | $ | 19 |   |

 

6

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**9.**                 Restructuring andMerger-Related Charges

In conjunction with the Fibre-Metal Transaction, the Company initiateda restructuring plan to close the Fibre-Metal manufacturing facility located inConcordville, Pennsylvania and move production to its Cranston, Rhode Islandand Mexicali, Mexico facilities.  Inaddition, the Company plans to close certain Fibre-Metal distribution centersand integrate Fibre-Metal distribution into its existing distributionfacilities.  The Company initiated thisplan in order to increase profitability through utilizing excess capacity atits existing plants and moving manufacturing to locations with favorable laborcosts.  The The Company expects the planto be substantially completed in the second quarter of 2007.  As of the date of the Fibre-MetalTransaction, the Company recorded an accrual for costs associated with the planof $1,716, comprised of $1,383 in severance costs and $333 in facility closureand other exit costs.  The restructuringliability is classified within the accrued expenses caption on the consolidatedbalance sheet.

A rollforward of the restructuring liability is asfollows:
| ** **                              | ** ** | **Severance  and  severance  related  costs** | ** ** | **Facility  closure and  other exit  costs** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------------------|------------|-----------|------------|
| Balance as of  January 1, 2007          |       | $                                             | 1,039      |                                                   | $          | 173       |       | $ | 1,212 |   |
| Payments                                |       | (410                                          | )          | (127                                                   | )          | (537      | )          |
| Effect of  foreign currency translation |       | —                                        |       | 1                                                      |       | 1         |       |
| Balance as of March 31,  2007           |       | $                                             | 629        |                                                   | $          | 47        |       | $ | 676 |   |

 

In conjunctionwith the White Rubber Transaction, the Company initiated a restructuring planto move certain production and distribution functions located in Ohio andWashington to its Charleston, South Carolina, Skokie, Illinois and Chicago,Illinois facilities.  The Companyinitiated this plan in order to increase profitability by utilizing excesscapacity and consolidating distribution functions.  The Company expects the plan to besubstantially completed in the second quarter of 2007.  As of the date of the White RubberTransaction, the Company recorded an accrual for costs associated with the planof $1,018, comprised of severance and severance related costs.   The restructuring liability is classifiedwithin the accrued expenses caption on the consolidated balance sheet.

A rollforward ofthe restructuring liability is as follows:
| ** **                     | ** ** | **Severance   and   severance   related   costs** | ** ** |
|--------------------------------|------------|-----------------------------------------------------------------------|------------|
| Balance as of  January 1, 2007 |       | $                                                                     | 841        |   |
| Payments                       |       | (79                                                                   | )          |
| Balance as of March 31,  2007  |       | $                                                                     | 762        |   |

 

**10.          LegalProceedings**

The Company is subject to various claims arising in the ordinary courseof business.  Most of these lawsuits andclaims are product liability matters that arise out of the use of respiratoryproduct lines manufactured by the Company’s North Safety Productssubsidiary.  As March 31, 2007, theCompany’s North Safety Products subsidiary, along with its predecessors and/orthe former owners of such business were named as defendants in approximately624 lawsuits involving respirators allegedly manufactured and sold by it or itspredecessors. The Company is also monitoring an additional 12 lawsuits in whichit feels that North Safety Products, its predecessors and/or the former ownersof such businesses may be named as defendants. Collectively, these 636 lawsuitsrepresent a total of approximately 8,434 plaintiffs. Approximately 85% of theselawsuits involve plaintiffs alleging injury resulting from exposure to silicadust, with the remainder alleging injury resulting from exposure to other dustparticles, including asbestos. These lawsuits typically allege that thepurposed injuries resulted in part from respirators that were negligentlydesigned or manufactured. Invensys plc (“Invensys”), formerly Siebe plc, iscontractually obligated to indemnify the Company for any losses, includingcosts of defending claims, resulting from respiratory products manufactured orsold prior to the acquisition of North Safety Products in October 1998.

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In addition, the Company’s North Safety Products subsidiary iscontractually entitled to indemnification from Norton Company, an affiliate ofSaint-Gobain, which owned the North Safety Products business prior to Invensys.Pursuant to a December 14, 1982 asset purchase agreement, Siebe Norton, Inc., anewly formed wholly-owned subsidiary of Norton Company, acquired the assets ofNorton’s Safety Products Division and the stock of this company was in turnacquired by Siebe Gorman Holdings PLC. Under the terms of the agreement, SiebeNorton, Inc. did not assume any liability for claims relating to productsshipped by Norton Company prior to the closing date. Moreover, Norton Companycovenanted in the agreement to indemnify Siebe Norton, Inc. and its successorsand assigns against any liability resulting from or arising out of any state offacts, omissions or events existing or occurring on or before the closing date,including, without limitation, any claims arising from products shipped byNorton Company or any of its affiliates prior to the closing date. SiebeNorton, Inc., whose name was subsequently changed to Siebe North Inc., wassubsequently acquired by the Company as part of the 1998 acquisition of theNorth Safety Products business from Invensys.

Despite these indemnification arrangements, the Company couldpotentially be liable for losses or claims relating to products manufacturedprior to the October 1998 acquisition date if Invensys fails to meet itsobligations to indemnify the Company and the Company could potentially beliable for losses and claims relating to products sold prior to January 10,1983 if both Invensys and Norton fail to meet their obligations to indemnifythe Company. The Company believes that Invensys has the ability to pay theseclaims based on its current financial position, as publicly disclosed byInvensys.  The Company could also beliable if the alleged exposure involved the use of a product manufactured bythe Company after the October 1998 acquisition of the North Safety Productsbusiness.

Effective July 1, 2006, the Company entered into a joint defenseagreement through December 31, 2008 with the former owners of the North SafetyProducts business (the “Joint Defense Agreement” or “JDA”).  Under the terms of the Joint DefenseAgreement, the Company agreed to pay a weighted average percentage of defensecosts (including legal fees, expert witnesses and out of pocket expenses)associated with defending the Company and the prior owners of the North SafetyProducts business subject to a cap of $525, $960 and $1,000 for the period fromJuly 1, 2006 through December 31, 2006, the year ended December 31, 2007 andthe year ended December 31, 2008, respectively. The cap excludes settlement costs and other costs incurred exclusivelyby the Company (including trial costs and special requests of counsel), whichit be required to pay under the JDA. Separately, the Company agreed to pay Invensys $200 related to settledcases through June 30, 2006 in which Invensys claimed that the period ofalleged exposure included periods after October 1998.

Although the JDAexpires on December 31, 2008, the Company expects to incur additional defenseand settlement costs beyond this date. The Company will consider itsalternatives for defending the claims as the JDA nears expiration and determinethe appropriate course of action, which would include an extension of the JDA.

Based upon information provided to the Company by Invensys, the Companybelieves activity related to these lawsuits was as follows for the three monthsended March 31, 2007:
|                                           | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
|-------------------------------------------|------------|----------------|------------|-----------|------------|
| Beginning  lawsuits as of January 1, 2007 |       | 8,746          |       | 644       |       |
| New lawsuits                              |       | 2              |       | 1         |       |
| Settlements                               |       | —         |       | —    |       |
| Dismissals and  other                     |       | (314           | )          | (9        | )          |
| Ending lawsuits as of  March 31, 2007     |       | 8,434          |       | 636       |       |

 

Both the rate of new filings and the number ofexisting claimants have declined dramatically since 2003 as courts andlegislatures have tightened the rules on when and where the silica claims canbe pursued in an effort to reduce the large number of unmeritoriousclaims.  The new rules make bringingsilica cases on a mass level much less attractive to the plaintiffs’ bar.  Plaintiffs’ attorneys in many jurisdictionscan no longer (1) find a worker with some stated exposure to silica, (2) take aX-ray of his chest, (3) have it interpreted as demonstrating lung shadows by aradiologist, (4) then file a single lawsuit in a dangerous venue with hundredsof other plaintiffs against hundreds of defendants with the pleading containinglittle more than the parties’ names and some standard pleading language. Morespecifically, the legislatures of at least seven states — including formerhotbeds of silica litigation such as Texas, Florida and Ohio — passedimpairment-criteria legislation that redefined injury. These acts forceplaintiffs to prove impairment as a result of their exposure to qualify forjudicial treatment.  The same legislationrequires that each silica claimant be tried individually, and not in themultiple plaintiff format in which the potential for large verdicts resultedfrom increased plaintiffs and where a few meritorious claims could increase thevalue of unmeritorious ones. Further tort reform in Texas created a state-widemulti-district litigation (“MDL”) wherein one judge presides over the pretrialof all Texas-silica cases. In Mississippi, the Supreme Court changed

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the venue rules making it much more difficult tofile out-of-state plaintiffs there. The Mississippi court also changed thepleading requirements making the plaintiffs’ attorneys includeplaintiff-specific allegations against each defendant sued, instead of thevague allegations against hundreds of defendants.

Plaintiffs haveasserted specific dollar claims in approximately 30% of the approximately 624cases pending as of March 31, 2007 in which North Safety Products, itspredecessors and/or the former owners of such businesses have been named asdefendants. A majority of jurisdictions prohibit specifying damages in tortcases such as these, and most of the remaining jurisdictions do not requiresuch specification. In those cases in which plaintiffs choose to assertspecific dollar amounts in their complaints, the amounts claimed are typicallynot meaningful as an indicator of a company’s potential liability. This isbecause (1) the amounts claimed typically bear no relation to the level of theplaintiff’s injury, (2) the complaints typically assert claims against numerousdefendants, and (3) many cases are brought on behalf of plaintiffs who have notsuffered any medical injury, and ultimately are resolved without any payment orpayment of a small fraction of the damages initially claimed. Of the 624complaints maintained in the Company’s records, 448 do not specify the amountof damages sought, 25 generally allege damages in excess of $50, one allegescompensatory damages in excess of $50 and an unspecified amount of punitivedamages, 81 allege compensatory damages and punitive damages, each in excess of$25, two generally allege damages in excess of $100, three allege compensatorydamages and punitive damages, each in excess of $50, 20 generally allegedamages in excess of $15,000, one generally alleges damages of $23,000, onealleges compensatory damages and punitive damages, each in excess of $10, fourallege general damages of $18,000 and punitive damages of $10,000, two allegegeneral damages of $13,000 and punitive damages of $10,000, one allegescompensatory and punitive damages, each in excess of $15, one alleges punitivedamages in excess of $25, one alleges punitive damages in excess of $50, eightgenerally allege damages in excess of $15, 12 generally allege damages inexcess of $25, one alleges compensatory damages of $18,000 and punitive damagesof $10,000, one alleges punitive damages of $13,500 and compensatory damages of$10,000, one alleges punitive damages of $13,000 and compensatory damages of$10,000, seven allege compensatory damages of $13,000 and punitive damages of$10,000, one alleges compensatory and punitive damages, each of $15 and twoallege compensatory and punitive damages, each in excess of $15,000. TheCompany currently does not have access to the complaints with respect to thepreviously mentioned additional 12 monitored cases, and therefore it does notknow whether these cases allege specific damages, or if so, the amount of suchdamages, but is in the process of seeking to obtain such information. Due tothe reasons noted above and to the indemnification arrangements benefiting theCompany, it does not believe that the damage amounts specified in thesecomplaints are a meaningful factor in any assessment of the Company’s potentialliability.

Norcross Safety Products L.L.C., the Company’s whollyowned subsidiary (“Norcross”), recorded a $1,250 reserve for respiratory claimsduring the year ended December 31, 2004. Norcross reevaluated this reserve in its first and second quarter 2005financial statements and concluded the $1,250 recorded reserve continued to beits best estimate of the probable loss for the respiratory contingency.

In the July 2005 acquisition purchase accounting (asfirst reported in the Form 10-Q for the third quarter of 2005), the Companycarried forward the $1,250 liability for this pre-acquisition contingency.  Although management concluded that it waslikely their estimate of this pre-acquisition contingent liability would beincreased during the purchase accounting allocation period as the new ownershipfinalized their strategy for addressing the liability and gathered information(primarily related to case information and the working relationship among theprior owners of North), it was unlikely the amount would be lower than the$1,250.  Thus, the $1,250 amountrepresented the low end of a probable loss range, subject to further adjustmentduring the allocation period.

In December 2005, the Company began negotiations withthe former owners of the North business to enter into the JDA. The Companydetermined that the liability should be increased to $5,000 as of December 31,2005 as part of the purchase price allocation process.  The $5,000 reserve as of December 31, 2005represented management’s best estimate of the liability based on the currentstatus of negotiations.  As of December31, 2005, the estimate was still preliminary as the Company was awaitingfinalization of the JDA negotiation process.

As discussed above, the Company entered into the JDAeffective July 1, 2006 and completed its evaluation of the reserve.  After all information was obtained, theCompany adjusted the reserve to $7,000 as part of the purchase price allocationprocess during the permitted allocation period. As of March 31, 2007, the reserve balance is $6,800.

The final estimated amount recorded in purchaseaccounting related entirely to losses incurred before the July 2005acquisition. The Company’s final estimate of the probable loss for therespiratory contingency incorporated the new ownerships’ decision to enter intothe JDA.  The decision represented asignificantly different plan as new ownership agreed

9

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toassume losses related to claims with unknown years of exposure.  In addition, the decision to enter the JDAwas being considered from the date of the acquisition and the ultimate decisionwas made during the allocation period.

The Company believes that this reserve represents areasonable estimate of its probable and estimable liabilities for productclaims alleging injury resulting from exposure to silica dust and otherparticles, including asbestos. The Company believes that a five-year projectionof claims and related defense costs is the most reasonable approach. Thisreserve will be re-evaluated periodically and additional charges or creditswill be recorded to operating expenses as additional information becomesavailable.

It is possible that the Company may incur liabilities in an amount inexcess of amounts currently reserved. However, taking into account currentlyavailable information, historical experience, and the Company’s indemnificationfrom Invensys, but recognizing the inherent uncertainties in the projection ofany future events, the Company believes that these suits or claims should notresult in final judgments or settlements in excess of its reserve.

The Company historically has not been required to pay any materialliability claims. The Company maintains insurance against product liabilityclaims (with the exception of asbestosis and silicosis cases, for whichcoverage is not commercially available), but it is possible that its insurancecoverage will not continue to be available on terms acceptable to the Companyor that such coverage will not be adequate for liabilities actually incurred.

**11.**                               SegmentData

The following table presents information about theCompany by segment:
| ** **                             | ** ** | **General  Safety &  Preparedness** | ** ** | **Fire  Service** | ** ** | **Electrical  Safety** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|-------------------|------------|------------------------|------------|---------------|------------|------------------|------------|------------|------------|
| ** **                             | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Three  Months Ended April 1, 2006**  | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net sales—third  parties          |       | $                                            | 99,183     |              | $          | 24,072                 |       | $             | 18,621     |             | $          | —     |       | $ | — |   | $ | 141,876 |   |
| Net  sales—intersegment           |       | 2,665                                        |       | —            |       | —                 |       | —        |       | (2,665           | )          | —     |       |
| Income (loss)  from operations         |       | 11,276                                       |       | 2,662             |       | 4,877                  |       | (2,568        | )          | —           |       | 16,247     |       |
|                                   |       |                                         |       |              |       |                   |       |          |       |             |       |       |       |
| **Three  Months Ended March 31, 2007** | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net sales—third  parties          |       | $                                            | 104,499    |              | $          | 23,847                 |       | $             | 24,854     |             | —     |       | —     |   | $ | 153,200 |   |
| Net  sales—intersegment           |       | 2,334                                        |       | —            |       | 105                    |       | —        |       | (2,439           | )          | —     |       |
| Income (loss) from  operations         |       | 12,482                                       |       | 2,958             |       | 5,647                  |       | (2,588        | )          | —           |       | 18,499     |       |
|                                        |            |                                              |            |                   |            |                        |            |               |            |                  |            |            |            |  |  |  |  |  |  |

 

**12.**                               SubsidiaryGuarantors

NSP Holdings Capital Corp. is a 100% owned financesubsidiary of the Company with no assets or operations. None of the Company’sother subsidiaries guarantee the 113/4% senior pay in kind notes due 2012. Theterms of the senior credit facility significantly restrict Norcross from payingdividends and otherwise transferring assets to the Company. Further, the termsof the indenture governing its 97/8%senior subordinated notes due 2011 significantly restrict Norcross and theCompany’s other subsidiaries from paying dividends and otherwise transferringassets to the Company, except for ordinary course operating expenses.

**13.          Comprehensive Income**

Totalcomprehensive income (which includes the impact of foreign currencytranslation) amounted to $5,391 and $4,937 for the three months ended April 1,2006, and March 31, 2007, respectively.

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

**Overview**

We are a leading designer, manufacturer and marketerof branded products in the fragmented personal protection equipment industry.We manufacture and market a full line of personal protection equipment forworkers in the general safety and preparedness, fire service and electricalsafety industries. We sell our products under trusted, long-standing andwell-recognized brand names, including *North*, *KCL**, Fibre-Metal, NEOS, *Morning Pride**, *Ranger*, *Servus*, *Pro-Warrington, American Firewear, Salisburyand SafetyLine*. Our broad product offering includes, among otherthings, respiratory protection, protective footwear, hand protection, bunkergear and linemen equipment.

We classify our diverse product offerings into threeoperating segments:

*General Safety andPreparedness*. We offer a diverse portfolio of leadingproducts for a wide variety of industries, including manufacturing,agriculture, automotive, construction, food processing and pharmaceuticalindustries and the military, under the *North*, *KCL, Fibre-Metal, NEOS, Ranger and Servus* brand names. Ourproduct offering is one of the broadest in the personal protection equipmentindustry and includes respiratory protection, protective footwear, handprotection, eye, head and face protection, first aid, hearing protection andfall protection. We sell our general safety and preparedness products primarilythrough industrial distributors.

*Fire Service*.We manufacture and market one of the broadest lines of personal protectionequipment for the fire service market, offering firefighters head-to-toeprotection. Our products include bunker gear, fireboots, helmets, gloves andother accessories. We market our products under our Total Fire Group umbrella,using the brand names of *MorningPride*, *Ranger*, *Servus*,*Pro-Warrington and American Firewear*. Weare 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 and market a broad line of personal protection equipment for theutility market under the *Salisbury, SafetyLine*and*Servus* brands. Our products includelinemen equipment, gloves, sleeves and footwear. All our products either meetor exceed the applicable standards of the American National Standards Institute(“ANSI”) and the American Society for Testing of Materials (“ASTM”). Wedistribute our electrical safety products through specialized distributors,test labs, utilities and electrical contractors.

**Acquisitions**

InFebruary 2006, we completed the acquisition of all of the issued andoutstanding capital stock of American Firewear. The purchase price consisted of $4.5 million in cash (includingacquisition costs of $0.2 million and net of cash acquired of $0.2 million) anda $1.0 million subordinated seller note. In addition, the purchase price may be increased by $0.8 million over afour year period based on American Firewear achieving certain financial andoperating objectives.  We financed theacquisition through cash on the balance sheet and the issuance of the $1.0million subordinated seller note.

InJune 2006, we completed the acquisition of all of the issued and outstandingcapital stock of White Rubber. The purchase price of $22.2 million (including$0.6 million of acquisition costs and gross of outstanding checks of $0.8million) was financed through $15.0 million of additional term borrowings underthe senior credit facility and cash on the balance sheet.

InSeptember 2006, we completed the acquisition of all of the issued andoutstanding capital stock of NEOS.  Thepurchase price consisted of $3.6 million in cash (including acquisition costsof $0.1 million and net of cash acquired) and a $0.8 million subordinatedseller note.  In addition, the purchaseprice may be increased over a five year period based on NEOS achieving certainnet sales targets.  We financed theacquisition through cash on the balance sheet and the issuance of the $0.8million subordinated seller note.

**Resultsof Operations**

The followingtables set forth our results of operations in dollars and as a percentage ofnet sales for the three  months endedApril 1, 2006 and the three months ended March 31, 2007 and have been derivedfrom the unaudited statements of operations. 

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| ** **                                        | ** ** | **Three months ended**     | ** ** |
|---------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                        | ** ** | **April 1,  2006**              | ** ** | **March 31,  2007** | ** ** |
| ** **                                        | ** ** | **(dollars in thousands)** | ** ** |
| Net sales:                                        |       |                                 |       |   |   |
| General safety and preparedness                   |       | $                                    | 99,183     |   | $ | 104,499 |   |
| Fire service                                      |       | 24,072                               |       | 23,847 |   |
| Electrical safety                                 |       | 18,621                               |       | 24,854 |   |
| Total net sales                                   |       | 141,876                              |       | 153,200 |   |
| Cost of goods  sold                               |       | 88,145                               |       | 94,545 |   |
| Gross profit                                      |       | 53,731                               |       | 58,655 |   |
| Operating  expenses                               |       | 37,484                               |       | 40,156 |   |
| Income (loss)  from operations:                   |       |                                 |       |   |   |
| General safety and preparedness                   |       | 11,276                               |       | 12,482 |   |
| Fire service                                      |       | 2,662                                |       | 2,958 |   |
| Electrical safety                                 |       | 4,877                                |       | 5,647 |   |
| Corporate                                         |       | (2,568                               | )          | (2,588 | ) |
| Total income  from operations                     |       | 16,247                               |       | 18,499 |   |
| Other expense  (income):                          |       |                                 |       |   |   |
| Interest expense                                  |       | 11,248                               |       | 12,349 |   |
| Interest income                                   |       | (163                                 | )          | (225 | ) |
| Other, net                                        |       | (371                                 | )          | (97 | ) |
| Income before  income taxes and minority interest |       | 5,533                                |       | 6,472 |   |
| Income tax  expense                               |       | 1,835                                |       | 2,683 |   |
| Minority  interest                                |       | 11                                   |       | 6 |   |
| Net income                                        |       | $                                    | 3,687      |   | $ | 3,783 |   |

 

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| ** **                                        | ** ** | **Three months ended**                            | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                        | ** ** | **April 1,  2006**                                     | ** ** | **March 31,  2007** | ** ** |
| ** **                                        | ** ** | **(as a percentage of net sales)** | ** ** |
| Net sales:                                        |       |                                                        |       |   |   |
| General safety and preparedness                   |       | 69.9                                                        | %          | 68.2 | % |
| Fire service                                      |       | 17.0                                                        | %          | 15.6 | % |
| Electrical safety                                 |       | 13.1                                                        | %          | 16.2 | % |
| Total net sales                                   |       | 100.0                                                       | %          | 100.0 | % |
| Cost of goods  sold                               |       | 62.1                                                        | %          | 61.7 | % |
| Gross profit                                      |       | 37.9                                                        | %          | 38.3 | % |
| Operating  expenses                               |       | 26.5                                                        | %          | 26.2 | % |
| Income (loss)  from operations:                   |       |                                                        |       |   |   |
| General safety and preparedness                   |       | 7.9                                                         | %          | 8.1 | % |
| Fire service                                      |       | 1.9                                                         | %          | 1.9 | % |
| Electrical safety                                 |       | 3.4                                                         | %          | 3.7 | % |
| Corporate                                         |       | (1.8                                                        | )%         | (1.6 | )% |
| Total income  from operations                     |       | 11.4                                                        | %          | 12.1 | % |
| Other expense  (income):                          |       |                                                        |       |   |   |
| Interest expense                                  |       | 7.9                                                         | %          | 8.1 | % |
| Interest income                                   |       | (0.1                                                        | )%         | (0.1 | )% |
| Other, net                                        |       | (0.3                                                        | )%         | (0.1 | )% |
| Income before  income taxes and minority interest |       | 3.9                                                         | %          | 4.2 | % |
| Income tax  expense                               |       | 1.3                                                         | %          | 1.7 | % |
| Minority  interest                                |       | 0.0                                                         | %          | 0.0 | % |
| Net income                                        |       | 2.6                                                         | %          | 2.5 | % |

 

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***Three Months Ended March 31, 2007  as Compared to Three Months Ended April 1,2006***

*Net sales.*Net sales increased by $11.3 million, or8.0%, from $141.9 million for the three months ended April 1, 2006 to $153.2million for the three months ended March 31, 2007.  In our general safety and preparednesssegment, net sales increased by $5.3 million, or 5.4%, from $99.2 million forthe three months ended April 1, 2006 to $104.5 million for the three monthsended March 31, 2007. The increase reflects a combination of the following:combined organic growth in our international operations of $3.5 million,favorable exchange rates, which had an impact of $1.0 million and overallorganic growth in our North American non-government business of $4.9 million,which offset a decrease in government contract shipments of $4.1 million. Inour fire service segment, net sales decreased by $0.2 million, or 0.9%, from$24.1 million for the three months ended April 1, 2006 to $23.9 million for thethree months ended March 31, 2007.  Inour electrical safety segment, net sales increased by $6.2 million, or 33.5%,from $18.6 million for the three months ended April 1, 2006 to $24.8 millionfor the three months ended March 31, 2007 primarily driven by strong marketdemand, new product penetration and incremental White Rubber net sales.

*Gross profit.*Gross profit increased by $5.0 million,or 9.2%, from $53.7 million for the three months ended April 1, 2006 to $58.7million for the three months ended March 31, 2007, primarily due to the $11.3million, or 8.0%, increase in net sales. Excluding the impact of inventory purchase accounting adjustments of $0.7million for the three months ended April 1, 2006, gross profit increased by$4.3 million, or 7.7%.  After adjustingfor the inventory purchase accounting adjustments, our gross profit margin was38.3% for the three months ended March 31, 2007 as compared to 38.4% for thethree months ended April 1, 2006. In our general safety and preparednesssegment (after adjusting for charges related to purchase accounting of $0.7million for the three months ended April 1, 2006), gross profit increased by$2.9 million, or 7.3%, from $38.8 million for the three months ended April 1,2006 to $41.7 million for the three months ended March 31, 2007. This increasewas primarily due to the overall net sales increase of $5.3 million, or 5.4%,and improved margin realization in our European and North Americanoperations.  In our fire service segment,gross profit decreased by $0.2 million, or 2.5%, from $7.5 million for thethree months ended April 1, 2006 to $7.3 million for the three months endedMarch 31, 2007, primarily due to the decrease in net sales of $0.2 million, or0.9%. In our electrical safety segment, gross profit increased by $1.6 million,or 19.3%, from $8.0 million for the three months ended April 1, 2006 to $9.6million for the three months ended March 31, 2007, as the increase in net salesof $6.2 million, or 33.5%, was partially offset by lower margin realizationprimarily due to White Rubber product line integration costs and the impact ofproduct mix.

*Operating expenses. *Operating expenses increased by $2.7 million, or 7.1%,from $37.5 million for the three months ended April 1, 2006 to $40.2 millionfor the three months ended March 31, 2007. In our general safety andpreparedness segment, operating expenses increased $2.4 million, or 8.8%, from$26.8 million for the three months ended April 1, 2006 to $29.2 million for thethree months ended March 31, 2007, driven by increased variable selling anddistribution expenses associated with the $5.3 million, or 5.4%, increase innet sales and higher payroll expenses. In our fire service segment, operating expenses decreased $0.5 million,or 10.0%, from $4.9 million for the three months ended April 1, 2006 to $4.4million for the three months ended March 31, 2007, primarily due to lower legalexpenses associated with litigation with a competitor. In our electrical safetysegment, operating expenses increased by $0.8 million, or 24.6%, from $3.2million for the three months ended April 1, 2006 to $4.0 million for the threemonths ended March 31, 2007 due to increased variable selling and distributionexpenses related to the $6.2 million, or 33.5%, increase in net sales, higheramortization expense of $0.2 million associated with intangible assets recordedas part of purchase accounting and incremental White Rubber operating expenses.Corporate expenses for the three months ended April 1, 2006 consisted of $1.8million of general and administrative expenses and $0.8 million of managementincentive compensation expense.  Corporateexpenses for the three months ended March 31, 2007 consisted of $2.3 million ofgeneral and administrative expenses and $0.3 million of management incentivecompensation expense.  The increase incorporate general and administrative expenses of $0.5 million wasprimarily due to higher payroll, administrative expenses and professional fees.

*Income from operations.*Income from operations increased by $2.3million, or 13.9%, from $16.2 million for the three months ended April 1, 2006to $18.5 million for the three months ended March 31, 2007. In our generalsafety and preparedness segment, income from operations increased by $1.2million, or 10.7%, from $11.3 million for the three months ended April 1, 2006to $12.5 million for the three months ended March 31, 2007, primarily due tohigher net sales of $5.3 million, or 5.4%, favorable margin realization and theimpact of the $0.7 million of inventory purchase accounting adjustments. In ourfire service segment, income from operations increased by $0.3 million, or11.1%, from $2.7 million for the three months ended April 1, 2006 to $3.0million for the three months ended March 31, 2007, primarily as a result oflower general and administrative expenses. In our electrical safety segment,income from operations increased by $0.8 million, or 15.8%, from $4.8 millionfor the three months ended April 1, 2006 to $5.6 million for the three monthsended

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March 31, 2007, primarily due to higher net sales of $6.2 million, or33.5%. Corporate expenses for the three months ended April 1, 2006 consisted of$1.8 million of general and administrative expenses and $0.8 million ofmanagement incentive compensation expense. Corporate expenses for the three months ended March 31, 2007 consistedof $2.3 million of general and administrative expenses and $0.3 million of managementincentive compensation expense.  Theincrease in corporate general and administrative expenses of $0.5 millionwas primarily due to higher payroll, administrative expenses and professionalfees.

Included in income from operations for the three monthsended March 31, 2007 and April 1, 2006 were depreciation and amortizationexpenses of $6.6 million and $5.9 million, respectively. Of these amounts, $4.1million, $1.2 million, and $1.3 million were attributable to the general safetyand preparedness, fire service, and electrical safety segments, respectively,for the three months ended March 31, 2007 and $3.9 million, $1.1 million, and$0.9 million were attributable to these segments for the three months endedApril 1, 2006.

*Interest expense.*Interestexpense increased by $1.1 million, or 9.8%, from $11.2 million for the threemonths ended April 1, 2006 to $12.3 million for the three months ended March31, 2007, primarily due to the combined impact of higher outstanding debtbalances related to the White Rubber Transaction and higher non-cash interestcharges associated with the senior pay in kind notes.  Included in interest expense were non-cashinterest charges associated with the senior pay in kind notes of $4.1 millionand $4.6 million for the three months April 1, 2006 and March 31, 2007,respectively.

*Other, net.*Other,net increased by $0.3 million from $(0.4) million for the three months endedApril 1, 2006 to $(0.1) million for the three months ended March 31, 2007.

*Income tax expense.*Income tax expense increased by $0.9million, from $1.8 million for the three months ended April 1, 2006 to $2.7million for the three months ended March 31, 2007, primarily as a result ofimproved operating performance.

*Net income.*Net income increased by $0.1 million,from $3.7 million for the three months ended April 1, 2006 to $3.8 million forthe three months ended March 31, 2007 as a result of the reasons discussedabove.

**Liquidityand Capital Resources**

We have historically used internal cash flow fromoperations, commercial borrowings on our lines of credit, seller notes,investments from our equityholders and capital markets transactions to fund ouroperations, acquisitions, capital expenditures and working capitalrequirements. For the three months ended March 31, 2007 and April 1, 2006, netcash used in operating activities was $5.7 million and $2.5 million,respectively. The $3.2 million decrease was primarily attributable to increasedaccounts receivable balances due in part to the $11.3 million, or 8.0%, increasein net sales, which was partially offset by higher income from operations.

Historically, our principal uses of cash have beencapital expenditures, acquisitions and working capital. Our capitalexpenditures were $3.3 million for the three months ended March 31, 2007 and$2.3 million for the three months ended April 1, 2006. Investing activities forthe three months ended March 31, 2007 included $0.2 million of royalty paymentsmade to the sellers of Arbin.  For thethree months ended April 1, 2006, investing activities included $4.5 million ofpurchase price related to the American Firewear Transaction and $0.2 million ofroyalty payments made to the sellers of Muck Boot and Arbin.

As of March 31, 2007, we had working capital of $159.3million and cash of $16.9 million. We maintain inventory levels sufficient tosatisfy customer orders on demand, with generally a three month supply on hand.Bunker gear is an exception and is generally made to order. Our accountsreceivable terms are generally 30 days, net.

For the three months ended March 31, 2007, net cashused in financing activities consisted of $0.7 million of payments on long-termobligations.  For the three months endedApril 1, 2006, net cash provided by financing activities included $0.6 millionof capital contributions and $0.5 million of payments on long-term obligations.

As of March 31, 2007, borrowings under the new seniorcredit facility bore interest at a weighted average rate of 7.5%. As of March31, 2007, there was approximately $165.3 million of outstanding indebtednessunder the senior credit facility and approximately $47.6 million of availableborrowings under the revolving credit facility.

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We believe that our internal cash flows and borrowingsunder our new senior credit facility will provide us with sufficient liquidityand capital resources to meet our current and future financial obligations forthe foreseeable future, including funding our operations, debt service andcapital expenditures. Our future operating performance will be subject tofuture economic conditions and to financial, business and other factors, manyof which are beyond our control. If our future cash flow from operations andother capital resources are insufficient to pay our obligations as they matureor to fund our liquidity needs, we may be forced to reduce or delay ourbusiness activities and capital expenditures, sell assets, obtain additionaldebt or equity capital or restructure or refinance all or a portion of ourdebt, including the senior subordinated notes, on or before maturity. We cannotassure you that we would be able to accomplish any of these alternatives on atimely basis or on satisfactory terms, if at all. In addition, the terms of ourexisting and future indebtedness, including our senior subordinated notes andour senior credit facility, may limit our ability to pursue any of thesealternatives.

**Forward-Looking Statements**

This Management’s Discussion and Analysis of Financial Condition andResults of Operations contains forward-looking information.  These statements reflect management’sexpectations, estimates, and assumptions based on information available at thetime of the statement.  Forward-lookingstatements include, but are 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 expressions are intended to identifyforward-looking statements. Forward-looking statements are not guarantees of future performance andinvolve risks, uncertainties, and other factors, including those set forthbelow, which may cause our actual results, performance, or achievements to bematerially different from any future results, performance, or achievementsexpressed or implied by those statements. Important factors that could cause our actual results, performance, orachievements to be materially different from any future results, performance,or achievements expressed or implied by those statements include, but are notlimited to: (i) our high degree of leverage and significant debt serviceobligations; (ii) the impact of current and future laws and governmentalregulations affecting us or our product offerings; (iii) the impact ofgovernmental spending; (iv) our ability to retain existing customers, maintainkey supplier status with those customers with which we have achieved suchstatus, and obtain new customers; (v) the highly competitive nature of thepersonal protection equipment industry; (vi) any future changes in management;(vii) acceptance by consumers of new products we develop or acquire; (viii) theimportance and costs of product innovation; (ix) unforeseen problems associatedwith international sales, including gains and losses from foreign currencyexchange and restrictions on the efficient repatriation of earnings; (x) theunpredictability of patent protection and other intellectual property issues;(xi) cancellation of current orders; (xii) the outcome of pending productliability claims and the availability of indemnification for those claims;(xiii) general risks associated with the personal protection equipmentindustry; and (xiv) the successful integration of acquired companies oneconomically acceptable terms.  Weundertake no obligation to publicly update or revise any forward-lookingstatements to reflect changed assumptions, the occurrence of anticipated orunanticipated events, or changes to future results over time.

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

There have been nomaterial changes to our exposure to market risk since December 31, 2006.

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**Item 4. Controls and Procedures**

Based on their evaluation as of the end of the periodcovered by this quarterly report on Form 10-Q, our Chief ExecutiveOfficer and Chief Financial Officer have concluded that our disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)) areeffective. There was no change in our internal control over financial reporting(as defined in Rules 13a-15(f) and 15d-15(f) under the ExchangeAct) identified in connection with the evaluation required by Rule 13a-15(d)of the 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.

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**PART IIOTHER INFORMATION**

**Item1. Legal Proceedings**

We are subject to various claims arising in theordinary course of business. Most of these lawsuits and claims are productliability matters that arise out of the use of respiratory product linesmanufactured by our North Safety Products subsidiary. As of March 31, 2007, ourNorth Safety Products subsidiary, along with its predecessors and/or the formerowners of such business were named as defendants in approximately 624 lawsuitsinvolving respirators allegedly manufactured and sold by it or itspredecessors. We are also monitoring an additional 12 lawsuits in which we feelthat North Safety Products, its predecessors and /or the former owners of suchbusinesses may be named as defendants. Collectively, these 636 lawsuitsrepresent approximately 8,434 (excluding spousal claims) plaintiffs.Approximately 85% of these lawsuits involve plaintiffs alleging injuryresulting from exposure to silica dust, with the remainder alleging injury fromexposure to other particles, including asbestos. These lawsuits typicallyallege that the purported injuries resulted in part from respirators thatwere negligently designed and/or manufactured. The defendants in these lawsuitsare often numerous, and include, in addition to respirator manufacturers,employers of the plaintiffs and manufacturers of sand (used in sand blasting)and asbestos. We acquired our North Safety Products subsidiary onOctober 2, 1998 from Siebe plc. In connection with the acquisition, Siebe,which was subsequently merged with BTR plc (now known as “Invensys plc”),contractually agreed to indemnify us for any losses, including costs ofdefending claims, resulting from respiratory products manufactured or soldprior to our acquisition of North Safety Products in October 1998.

In addition, our North Safety Products subsidiary iscontractually entitled to indemnification from Norton Company, an affiliate ofSaint-Gobain, which owned the North Safety Products business prior to Invensys.Pursuant to a December 14, 1982 asset purchase agreement, SiebeNorton, Inc., a newly formed wholly-owned subsidiary of Norton Company,acquired the assets of Norton’s Safety Products Division and the stock of thiscompany was in turn acquired by Siebe Gorman Holdings PLC. Under the terms ofthe agreement, Siebe Norton, Inc. did not assume any liability for claimsrelating to products shipped by Norton Company prior to the closing date.Moreover, Norton Company covenanted in the agreement to indemnify Siebe Norton,Inc. and its successors and assigns against any liability resulting from orarising out of any state of facts, omissions or events existing or occurring onor before the closing date, including, without limitation, any claims arisingfrom products shipped by Norton Company or any of its affiliates prior to theclosing date.  Siebe Norton, Inc., whosename was subsequently changed to Siebe North Inc., was subsequently acquired byus as part of the 1998 acquisition of the North Safety Products businessfrom Invensys.

Despite these indemnification arrangements, we couldpotentially be liable for losses or claims relating to products manufacturedprior to the October 1998 acquisition date if Invensys fails to meet itsobligations to indemnify us and we could potentially be liable for losses andclaims relating to products sold prior to January 10, 1983 if bothInvensys and Norton fail to meet their obligations to indemnify us. We couldalso be liable if the alleged exposure involved the use of a productmanufactured by us after our October 1998 acquisition of the North SafetyProducts business.

Effective July 1, 2006, we entered into a jointdefense agreement through December 31, 2008 with the former owners of the NorthSafety Products business (the “Joint Defense Agreement” or “JDA”).  Under the terms of the Joint DefenseAgreement, we agreed to pay a weighted average percentage of defense costs(including legal fees, expert witnesses and out of pocket expenses) associatedwith defending ourselves and the prior owners of the North Safety Productsbusiness subject to a cap of $525,000, $960,000 and $1.0 million for the periodfrom July 1, 2006 through December 31, 2006, the year ended December 31, 2007and the year ended December 31, 2008, respectively.  The cap excludes settlement costs and othercosts incurred exclusively by us (including trial costs and special requests ofcounsel), which we will be required to pay under the JDA.  Separately, we agreed to pay Invensys$200,000 related to settled cases through June 30, 2006 in which Invensysclaims that the period of alleged exposure included periods after October 1998.

Although the JDAexpires on December 31, 2008, we expect to incur additional defense andsettlement costs beyond this date. We will consider our alternatives fordefending the claims as the JDA nears expiration and determine the appropriatecourse of action, which would include an extension of the JDA.

Based upon informationprovided to us by Invensys, we believe activity related to these lawsuits wasas follows for the three months ended March 31, 2007:

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| ** **                                | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
|-------------------------------------------|------------|----------------|------------|-----------|------------|
| Beginning  lawsuits as of January 1, 2007 |       | 8,746          |       | 644       |       |
| New lawsuits                              |       | 2              |       | 1         |       |
| Settlements                               |       | —         |       | —    |       |
| Dismissals and  other                     |       | (314           | )          | (9        | )          |
| Ending lawsuits as of  March 31, 2007     |       | 8,434          |       | 636       |       |

 

Both the rate of new filings and the number ofexisting claimants have declined dramatically since 2003 as courts andlegislatures have tightened the rules on when and where the silica claims canbe pursued in an effort to reduce the large number of unmeritoriousclaims.  The new rules make bringingsilica cases on a mass level much less attractive to the plaintiffs’ bar.  Plaintiffs’ attorneys in many jurisdictionscan no longer (1) find a worker with some stated exposure to silica, (2) take aX-ray of his chest, (3) have it interpreted as demonstrating lung shadows by aradiologist, (4) then file a single lawsuit in a dangerous venue with hundredsof other plaintiffs against hundreds of defendants with the pleading containinglittle more than the parties’ names and some standard pleading language. Morespecifically, the legislatures of at least seven states — including formerhotbeds of silica litigation such as Texas, Florida and Ohio — passedimpairment-criteria legislation that redefined injury. These acts forceplaintiffs to prove impairment as a result of their exposure to qualify forjudicial treatment.  The same legislationrequires that each silica claimant be tried individually, and not in themultiple plaintiff format in which the potential for large verdicts resultedfrom increased plaintiffs and where a few meritorious claims could increase thevalue of unmeritorious ones. Further tort reform in Texas created a state-widemulti-district litigation (“MDL”) wherein one judge presides over the pretrialof all Texas-silica cases. In Mississippi, the Supreme Court changed the venuerules making it much more difficult to file out-of-state plaintiffs there. TheMississippi court also changed the pleading requirements making the plaintiffs’attorneys include plaintiff-specific allegations against each defendant sued,instead of the vague allegations against hundreds of defendants.

Plaintiffs haveasserted specific dollar claims in approximately 30% of the approximately 624cases pending as of March 31, 2007 in which North Safety Products, itspredecessors and/or the former owners of such businesses have been named asdefendants. A majority of jurisdictions prohibit specifying damages in tortcases such as these, and most of the remaining jurisdictions do not requiresuch specification. In those cases in which plaintiffs choose to assertspecific dollar amounts in their complaints, brought in states that permit suchpleading, the amounts claimed are typically not meaningful as an indicator of acompany’s potential liability. This is because (1) the amounts claimedtypically bear no relation to the level of the plaintiff’s injury, (2) thecomplaints typically assert claims against numerous defendants, and(3) many cases are brought on behalf of plaintiffs who have not sufferedany medical injury, and, ultimately, are resolved without any payment orpayment of a small fraction of the damages initially claimed. Of the 624complaints maintained in our records, 448 do not specify the amount of damagessought, 25 generally allege damages in excess of $50,000, one allegescompensatory damages in excess of $50,000 and an unspecified amount of punitivedamages, 81 allege compensatory damages and punitive damages, each in excess of$25,000, two generally allege damages in excess of $100,000, three allegecompensatory damages and punitive damages, each in excess of $50,000, 20generally allege damages of $15.0 million, one generally alleges damages of$23.0 million, one alleges compensatory damages and punitive damages, each in excessof $10,000, four allege general damages of $18.0 million and punitive damagesof $10.0 million, two allege general damages of $13.0 million and punitivedamages of $10.0 million, one alleges compensatory and punitive damages, eachin excess of $15,000, one alleges punitive damages in excess of $25,000, onealleges punitive damages in excess of $50,000, eight generally allege damagesin excess of $15,000, 12 generally allege damages in excess of $25,000, onealleges compensatory damages of $18.0 million and punitive damages of $10.0million, one alleges punitive damages of $13.0 million and compensatory damagesof $10.0 million, one alleges punitive damages of $13.5 million andcompensatory damages of $10.0 million, seven allege compensatory damages of $13.0million and punitive damages of $10.0 million, one alleges compensatory andpunitive damages, each of $15,000, and two allege compensatory and punitivedamages, each in excess of $15.0 million. We currently do not have access tothe complaints with respect to the previously mentioned additional 12 monitoredcases, and therefore do not know whether these cases allege specific damages,and if so, the amount of such damages, but are in the process of seeking toobtain such information. Due to the reasons noted above and to theindemnification arrangements benefiting us, we do not believe that the damageamounts specified in these complaints are a meaningful factor in any assessmentof our potential liability.

Bankruptcy filings of companies with asbestos andsilica-related litigation could increase our cost over time. If we were foundliable in these cases and either Invensys or Norton Company failed to meet itsindemnification obligations to us or the suit involved products manufactured byus after our October 1998 acquisition of North Safety Products, it wouldhave a material adverse effect on our business.

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Norcross recorded a $1.25 million reserve forrespiratory claims during the year ended December 31, 2004.  Norcross reevaluated this reserve in its firstand second quarter 2005 financial statements and concluded the $1.25 millionrecorded reserve continued to be its best estimate of the probable loss for therespiratory contingency.

In the July 2005 acquisition purchase accounting (asfirst reported in the Form 10-Q for the third quarter of 2005), we carriedforward the $1.25 million liability for this pre-acquisition contingency.  Although management concluded that it waslikely their estimate of this pre-acquisition contingent liability would beincreased during the purchase accounting allocation period as the new ownershipfinalized their strategy for addressing the liability and gathered information(primarily related to case information and the working relationship among theprior owners of North), it was unlikely the amount would be lower than the$1.25 million.  Thus, the $1.25 millionamount represented the low end of a probable loss range, subject to furtheradjustment during the allocation period.

In December 2005, we began negotiations with the formerowners of the North business to enter into the JDA. We determined that theliability should be increased to $5.0 million as of December 31, 2005 as partof the purchase price allocation process. The $5.0 million reserve as of December 31, 2005 represented management’sbest estimate of the liability based on the current status of negotiations. Asof December 31, 2005, the estimate was still preliminary as we were awaitingfinalization of the JDA negotiation process.

As discussed above, we entered into the JDA effectiveJuly 1, 2006 and completed our evaluation of the reserve.  After all information was obtained, weadjusted the reserve to $7.0 million as part of the purchase price allocationprocess during the permitted “allocation period”.  As of March 31, 2007, the reserve balance is$6.8 million.

The final estimated amount recorded in purchaseaccounting related entirely to losses incurred before the July 2005acquisition. Our final estimate of the probable loss for the respiratorycontingency incorporated the new ownerships’ decision to enter into theJDA.  The decision represented asignificantly different plan as new ownership agreed to assume losses relatedto claims with unknown years of exposure. In addition, the decision to enter the JDA was being considered from thedate of the acquisition and the ultimate decision was made during theallocation period.

We believe that this reserve represents a reasonableestimate of our probable and estimable liabilities for product claims alleginginjury resulting from exposure to silica dust and other particles, includingasbestos. We believe that a five-year projection of claims and related defensecosts is the most reasonable approach. This reserve will be re-evaluatedperiodically and additional charges or credits will be recorded to operatingexpenses as additional information becomes available.

It is possible that we may incur liabilities inan amount in excess of amounts currently reserved. However, taking into accountcurrently available information, historical experience, and our indemnificationfrom Invensys, but recognizing the inherent uncertainties in the projection ofany future events, we believe that these suits or claims should not result infinal judgments or settlements in excess of our reserve.

We historically have not been required to pay anymaterial liability claims. We maintain insurance against product liabilityclaims (with the exception of asbestosis and silicosis cases, for whichcoverage is not commercially available), but it is possible that insurancecoverage will not continue to be available on terms acceptable to us or thatsuch coverage will not be adequate for liabilities actually incurred.

We are subject to legal proceedings and claims thatarise in the ordinary course of our business. In our opinion, the outcome ofthese actions will not have a material adverse effect on our financial positionor results of operations.

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**Item 1A. Risk Factors**

There have been nomaterial changes to the risks impacting our business since December 31, 2006.

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**Item 6. Exhibits**
| Exhibit No. | ** ** | **Description**                                                                                          |
|-------------|------------|----------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                     |
| 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      |

 

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, Safety Products Holdings, Inc. has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
|              |   | SAFETY PRODUCTS HOLDINGS, INC. |
|--------------|--------|--------------------------------|
|         |   |                           |   |   |
|         |   |                           |
| May 11, 2007 |   | By:                            |   | /s/ ROBERT A. PETERSON |
|         |   |                           |   | Robert A. Peterson |
|         |   |                           |   | President, Chief Executive Officer and Director |
|         |   |                           |   | (Principal Executive Officer) |
|         |   |                           |   |   |
|         |   |                           |   |   |
| May 11, 2007 |   | By:                            |   | /s/ DAVID F. MYERS, JR. |
|         |   |                           |   | David F. Myers, Jr. |
|         |   |                           |   | Executive Vice President, Chief Financial Officer, |
|         |   |                           |   | Secretary and Director |
|         |   |                           |   | (Principal Financial and Accounting Officer) |
|              |        |                                |  |  |  |  |

 

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**SAFETY PRODUCTS HOLDINGS, INC.**

**FORM 10-Q LISTINGOF EXHIBITS**
| Exhibit No. | ** ** | **Description**                                                                                          |
|-------------|------------|----------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                     |
| 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      |

 

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