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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 4, 2003
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: August 3, 2003

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 333-75869

SPECIAL DEVICES, INCORPORATED
(Exact name of Registrant as specified in its charter)

Delaware(State or other jurisdiction of incorporation or organization) 95-3008754(I.R.S. Employer Identification No.)

Delaware		95-3008754

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	14370 White Sage Road, Moorpark, California 93021 (Address of principal executive offices) (Zip Code)
	(805) 553-1200 (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant: (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

As of ~~June~~September 1311, 2003, the number of outstanding shares of the Registrant's common stock was 3,712,764.

SPECIAL DEVICES, INCORPORATED
INDEX TO QUARTERLY REPORT ON FORM 10-Q

			PAGE
PART I—FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	(a)	Consolidated Balance Sheets: ~~May~~August 43, 2003 and November 3, 2002	3
	(b)	Consolidated Statements of Operations: For the Three and ~~Six~~Nine Months Ended ~~May~~August 43, 2003 and ~~May~~August 54, 2002	4
	(c)	Consolidated Statements of Cash Flows: For the ~~Six~~Nine Months Ended ~~May~~August 43, 2003 and ~~May~~August 54, 2002	5
	(d)	Notes to Consolidated Financial Statements	6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		12
ITEM 3.	Quantitative and Qualitative Disclosures About Market ~~Risk~~Risks		16
ITEM 4.	Controls and Procedures		16
PART II—OTHER INFORMATION
ITEM 1.	Legal Proceedings		17
ITEM 6.	Exhibits and Reports on Form 8-K		1817
Signatures			21
Certifications			22

SPECIAL DEVICES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)

			May 4, 2003			November 3, 2002
			August 3, 2003			November 3, 2002
ASSETS
Current assets:
~~Cash and cash equivalents~~	Cash and cash equivalents		$	~~1,736~~499		$	4,852
	Accounts receivable, net of allowances of $361 at May 4, 2003 and $339 at November 3, 2002			13,928			12,700
	Accounts receivable, net of allowances of $500 at August 3, 2003 and $339 at November 3, 2002			11,652			12,700
	Inventories			109,~~236~~123			7,461
	Prepaid expenses and other current assets			54,~~019~~716			4,773
	Deferred tax assets			2,438			2,438
		Total current assets		3328,~~357~~428			32,224
Property, plant and equipment, at cost:
	Machinery and equipment			87,~~110~~684			84,626
	Construction in progress			56,~~699~~212			5,030
	Other			6,269			6,002
	Furniture, fixtures and computer equipment			5,944			5,706
		Gross property, plant and equipment		99,078			95,658
	Other			410			296
		Less accumulated depreciation and amortization		(67,738	)		(63,502	)
		Gross property, plant and equipment		100,250			95,658
		Net property, plant and equipment		31,340			32,156
		Less accumulated depreciation and amortization		(69,773	)		(63,502	)
Other assets, net of accumulated amortization				10,087			10,674
		Net property, plant and equipment		30,477			32,156
Total assets			$	74,784		$	75,054
Other assets, net of accumulated amortization				10,396			10,674
Total assets			$	69,301		$	75,054
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
	Accounts payable		$	118,~~063~~348		$	7,756
	Accrued liabilities			7,~~343~~487			10,355
	Accrued interest			31,~~232~~128			3,255
	Current portion of long-term debt			1,000			1,000
		Total current liabilities		2217,~~638~~963			22,366
Other liabilities				5,318			5,318
Long-term debt, net of current portion				75,~~819~~545			76,569
		Total liabilities		~~103~~98,~~775~~826			104,253
Commitments and contingencies (Note 10)
Redeemable preferred stock				4,000			4,000
Redeemable common stock				38,~~125~~875			36,625
Stockholders' equity (deficit):
	Preferred stock, $.01 par value, 2,000,000 shares authorized; 4,000 shares issued and outstanding at May 4, 2003 and November 3, 2002			—			—
	Preferred stock, $.01 par value, 2,000,000 shares authorized; 4,000 shares issued and outstanding at August 3, 2003 and November 3, 2002			—			—
	Common stock, $.01 par value, 20,000,000 shares authorized; 3,712,764 shares issued and outstanding at May 4, 2003 and November 3, 2002			30			30
	Common stock, $.01 par value, 20,000,000 shares authorized; 3,712,764 shares issued and outstanding at August 3, 2003 and November 3, 2002			30			30
	Additional paid-in capital			6261,~~602~~852			64,102
	Retained earnings (deficit)			(~~133~~134,~~680~~238	)		(133,956	)
	Accumulated foreign currency translation adjustment			(6844	)		—
		Total stockholders' equity (deficit)		(7172,~~116~~400	)		(69,824	)
Total liabilities and stockholders' equity (deficit)			$	7469,~~784~~301		$	75,054

See accompanying notes to consolidated financial statements.

SPECIAL DEVICES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)

			Three Months Ended						~~Six~~Nine Months Ended
			May 4, 2003			May 5, 2002			May 4, 2003			May 5, 2002
			August 3, 2003			August 4, 2002			August 3, 2003			August 4, 2002
Net sales			$	3026,~~230~~962		$	3129,~~862~~477		$	5582,~~810~~772		$	5988,~~427~~904
Cost of sales				2321,~~670~~805			2523,~~216~~761			4567,~~254~~059			4872,~~991~~752
		Gross profit		65,~~560~~157			65,~~646~~716			1015,~~556~~713			1016,~~436~~152
Operating expenses				23,~~622~~349			3,~~266~~355			58,~~155~~504			610,~~915~~270
		Income from operations		31,~~938~~808			32,~~380~~361			57,~~401~~209			35,~~521~~882
Other income (expense):
	Interest expense, net			(2,~~236~~164	)		(2,~~329~~263	)		(46,~~483~~647	)		(46,~~547~~810	)
	Gain on extinguishment of debt			—			—			—			521
	Equity in losses of SDI-Molan			(~~304~~355	)		—			(~~566~~921	)		—
		Total other income (expense)		(2,540	)		(2,329	)		(5,049	)		(4,026	)
		Total other expense		(2,519	)		(2,263	)		(7,568	)		(6,289	)
		Income (loss) from continuing operations before income taxes		~~1,398~~(711	)		~~1,051~~98			~~352~~(359	)		(~~505~~407	)
Income tax expense (benefit)				~~297~~(153	)		~~411~~49			76(77	)		(~~420~~371	)
		Income (loss) from continuing operations		~~1,101~~(558	)		~~640~~49			~~276~~(282	)		(8536	)
Gain on sale of discontinued operations, net of taxes of $28				—			—			—			41
Loss on sale of discontinued operations, net of tax benefit of $(126) and $(98), respectively				—			(188	)		—			(147	)
		Net income (loss)	$	1,101		$	640		$	276		$	(44	)
		Net loss	$	(558	)	$	(139	)	$	(282	)	$	(183	)

See accompanying notes to consolidated financial statements.

SPECIAL DEVICES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

			Six Months Ended
			Nine Months Ended
			May 4, 2003			May 5, 2002
			August 3, 2003			August 4, 2002
Cash Flows From Operating Activities:
	Net income (loss)		$	276		$	(44	)
	Net loss		$	(282	)	$	(183	)
	Gain on sale of discontinued operations			—			(41	)
	Loss on sale of discontinued operations			—			147
	Inome (loss) from continuing operations			276			(85	)
	Loss from continuing operations			(282	)		(36	)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
		Depreciation and amortization		46,~~583~~965			57,~~003~~517
		Gain on extinguishment of debt		—			(521	)
		Equity in losses of SDI-Molan		~~566~~921			—
		Deferred income taxes		—			1,873
	Changes in assets and liabilities:
		Accounts receivable and other assets		~~(1,395~~465	)		~~720~~3,068
		Inventories		(21,~~775~~662	)		1,~~821~~588
		Accounts payable and other liabilities		42(4,584	)		(24,~~581~~279	)
		Income taxes payable		~~230~~181			(~~497~~2,218	)
		Other		~~(16~~22	)		—
		Net cash provided by continuing operations		12,~~511~~026			36,~~860~~992
		Net cash provided by discontinued operations		—			69
		Net cash provided by operating activities		12,~~511~~026			37,~~929~~061
Cash Flows From Investing Activities:
	Purchases of property, plant and equipment			(34,~~472~~831	)		(34,~~336~~717	)
	Other			(405	)		(198	)
	Investment in SDI-Molan			(549	)		(973	)
	Net cash used in investing activities			(3,877	)		(3,534	)
	Other			25			(870	)
	Net cash used in investing activities			(5,355	)		(6,560	)
Cash Flows From Financing Activities:
	Repurchase of long-term debt			—			(293	)
	Repayment of long-term debt			(~~750~~1,024	)		(~~750~~1,025	)
	Net cash used by financing activities			(750	)		(1,043	)
	Net cash used in financing activities			(1,024	)		(1,318	)
Net decrease in cash and cash equivalents				(34,~~116~~353	)		(~~648~~817	)
Cash and cash equivalents at beginning of year				4,852			1,341
Cash and cash equivalents at end of period			$	~~1,736~~499		$	~~693~~524
Supplemental disclosure of cash flow information:
	Cash paid during the period for:
		Interest	$	48,~~406~~683		$	48,~~572~~858

See accompanying notes to consolidated financial statements.

SPECIAL DEVICES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Company Operations

Special Devices, Incorporated, a Delaware corporation (the "Company" or "SDI"), is a leading designer and manufacturer of highly reliable precision engineered pyrotechnic devices. These devices are used predominantly in vehicle airbag and other automotive safety systems. The Company's primary products are initiators, which function like an "electrical match" to ignite the gas generating charge in an automotive airbag system. We believe we are the world's largest independent supplier of initiators sold to leading domestic and foreign automotive airbag system manufacturers. Those manufacturers use SDI's product in the assembly of integrated airbag safety systems, which they then sell to automobile original equipment manufacturers.

The Company formed a joint venture partnership, Special Devices-Molan GmbH & Co. KG ("SDI-Molan") in Germany in June 2001. SDI Germany GmbH ("SDI Germany"), a wholly owned German subsidiary, holds the Company's 50% interest in SDI-Molan. SDI Germany was established in 2001 for the purpose of holding the interest in the joint venture. SDI-Molan's business is the development, production, marketing, distribution and sale of air bag initiators, micro gas generators, and seat belt buckles and pyrotechnic pretensioners in Europe. SDI-Molan started operations in September 2002.

In June 2002 the Company incorporated Special Devices Japan Kabushiki Kaisha ("SDI Japan") in Japan and in October 2002 the Company incorporated Special Devices (Thailand) Co., Ltd. ("SDI Thailand"). SDI Japan and SDI Thailand are subsidiaries of SDI that were formed to create a direct business presence in these geographic markets. The Company previously distributed its products in Japan through an agent.

The divestiture of the Aerospace Division, which included the Company's subsidiary Scot, Incorporated ("Scot"), was completed in a series of transactions in 2000 and 2001. Scot was divested on September 21, 2000 and the net assets of the remaining Aerospace operations were sold on May 11, 2001.

As of ~~May~~August 43, 2003, the Company had net liabilities of $29.05 million. The Company's ability to pay the interest on, or to refinance debt, or to fund planned capital expenditures, will depend on generating cash flow from future operations. The Company had positive cash flow from continuing operations during the past two fiscal years and the nine months ended August 3, 2003.

2. Interim Financial Statements

The accompanying unaudited interim consolidated condensed financial statements of the Company include all adjustments (consisting of normal recurring entries) which management believes are necessary for a fair statement of the financial position and results of operations for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted. It is recommended that the accompanying consolidated condensed financial statements be read in conjunction with the Company's audited financial statements and footnotes as of and for the year ended November 3, 2002. Operating results for the three month and ~~six~~nine month periods ended ~~May~~August 43, 2003 are not necessarily indicative of the operating results for the full year.

During 2002, the Company refined its allocation of overhead expenses to cost of sales. As a result of this change, cost of sales, gross profit and operating expenses have been reclassified for all prior periods presented. There was no impact on results of operations or financial position in any period. On

November 4, 2002, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of SFAS No. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections." Accordingly, gains on extinguishment of debt have been reclassified to income from continuing operations. Certain other prior year amounts have been reclassified to conform to the current year's presentation.

The Company adopted the interim disclosure requirements of SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of ~~SFAS~~ SFAS No. 123" effective for the second quarter of fiscal 2003. At ~~May~~August 43, 2003, the Company has two stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. No stock-based employee compensation cost ishas ~~reflected~~been ~~in net income (loss)~~recorded, as all options granted under those plans had an exercise price equal to the estimated market value of the underlying common stock on the date of grant. The following table illustrates the effect on net ~~income (~~loss) if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation.

	Three Months Ended						~~Six~~Nine Months Ended
	May 4, 2003			May 5, 2002			May 4, 2003			May 5, 2002
	August 3, 2003			August 4, 2002			August 3, 2003			August 4, 2002
	(In thousands)						(In thousands)
Net income (loss), as reported	$	1,101		$	640		$	276		$	(44	)
Net loss, as reported	$	(558	)	$	(139	)	$	(282	)	$	(183	)
Add: Stock-based employee compensation expense included in net income (loss), net of related tax effects		—			—			—			—
Add: Stock-based employee compensation expense included in net loss, net of related tax effects		—			—			—			—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(~~1,198~~8	)		—			(1,~~198~~206	)		—
Pro forma net income (loss)	$	(97	)	$	640		$	(922	)	$	(44	)
Pro forma net loss	$	(566	)	$	(139	)	$	(1,488	)	$	(183	)

3. Recent Accounting Pronouncements

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments With Characteristics of both Liabilities and Equity". The statement changes the accounting for certain financial instruments that, under previous guidance, could be classified as equity or "mezzanine" equity, by now requiring those instruments to be classified as liabilities (or assets in some circumstances). The Company is required to adopt the provisions of SFAS No. 150 for financial instruments entered into or modified after May 31, 2003 and otherwise as of July 7, 2003, except for mandatorily redeemable financial instruments for which the adoption date is February 1, 2004. The Company's "mezzanine" equity does not meet the requirements of this statement and therefore the Company does not expect the adoption to have a material impact on the Company's results of operations or financial position.

of SFAS No. 149 for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company has only limited involvement in derivative financial instruments and does not hold or issue them for trading purposes. Foreign currency forward exchange contracts are selectively used to manage market risks related to changes in foreign exchange rates on transactions denominated in foreign currencies. There were no open contracts at ~~May~~August 43, 2003. The Company does not expect the adoption of this standard to have a material impact on the Company's results of operations or financial position.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred, not when it is "planned". The Company is required to adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 and does not expect the adoption of this standard to have a material impact on the Company's results of operations or financial position.

4. Inventories

Inventories consist of the following components:

	May 4, 2003		November 3, 2002
	August 3, 2003		November 3, 2002
	(In thousands)
Raw materials and components	$	43,~~203~~602	$	2,867
Work in process		1,~~157~~359		995
Finished goods		4,~~876~~162		3,599
Total inventories	$	109,~~236~~123	$	7,461

5. Long-Term Debt

The Company entered into a five-year credit facility (the "Credit Facility") in June 2001 which consists of a $25.0 million five-year Revolving ~~Credit~~ Credit Facility (the "Revolver") and a $5.0 million five-year Term Loan (the "Term Loan"). Available borrowings under the Revolver are based on a formula comprised of eligible ~~accounts~~ accounts receivable and inventory. The Credit Facility requires lockbox arrangements that provide for all receipts to be swept daily to reduce borrowings outstanding. The agreement governing the ~~Credit~~ Credit Facility contains customary covenants, including restrictions on the incurrence of debt, the sale of assets, mergers, acquisitions and other business combinations, voluntary prepayment of other debt, transactions with affiliates, repurchase or redemption of equity securities, and financial covenants on tangible net worth. The Revolver and the Term Loan bear interest at the Bank's Base Rate or the LIBOR Rate plus applicable margins. The Company has the option of electing the LIBOR Rate on all or a portion of the amount outstanding under the Credit Facility prior to the start of each ~~quarterly~~ quarterly interest period. On ~~April~~August 1, 2003, the Company elected the LIBOR Rate option for ~~$3.0 million~~the balance of the Term Loan for a contract term and rate of 43 months and 3.7662% per annum, respectively. At ~~May~~August 43, 2003, there were no borrowings outstanding under the Revolver. Letters of credit outstanding and applied for under the Revolver reduce the amount of borrowings available. The Company had $21.59 million in letters of credit outstanding at ~~May~~August 43, 2003. The total amount available under the Revolver at ~~May~~August 43, 2003 was $1110.67 million subject to compliance with certain financial and operating ~~covenants which the Company must meet on a quarterly basis. The Company was in compliance with~~

~~these~~covenants which the Company must meet on a quarterly basis. The Company was in compliance with these covenants as of ~~May~~August 43, 2003. Substantially all of the Company's assets are pledged as collateral under the Credit Facility.

The Company has guaranteed bank loans made to SDI-Molan under agreements entered into in August 2002. The Company's guarantee is limited to fifty percent of the loans ~~outstanding~~ outstanding and is subject to a maximum of 3.2 million Euro or approximately $3.6 million at ~~May~~August 43, 2003. SDI-Molan had bank loans outstanding in the amount of 53.5 million Euro or approximately $63.29 million at ~~May~~August 43, 2003.

The following are the fair value and carrying amounts of long-term debt, including short-term borrowings:

	May 4, 2003		November 3, 2002
	August 3, 2003		November 3, 2002
	(In thousands)
Fair value	$	6369,~~572~~186	$	45,188
Carrying amount		76,~~819~~545		77,569

The Company's borrowings under its Term Loan and Revolver have variable rates that reflect currently available terms and conditions for similar debt. The carrying amount of this debt is a reasonable estimate of its fair value. The Senior Subordinated Notes (the "Notes") issued in 1999 bearing interest at 11³/8% per annum are traded occasionally in public markets.

6. Income Taxes

For the ~~six~~nine months ended ~~May~~August 43, 2003 and ~~May~~August 54, 2002, the Company had effective tax rates of 21% and 8391%, respectively. The difference from the ~~expected~~ expected statutory rate results primarily from a valuation allowance provided against SDI Germany's losses in fiscal 2003 and a nontaxable gain on extinguishment of debt in fiscal 2002.

7. The Recapitalization

On December 15, 1998, the Company consummated a series of transactions accounted for as a recapitalization (the "Recapitalization") whereby affiliates of J.F. Lehman and Company ("J.F. Lehman") obtained a controlling interest in the Company. As a result of the Recapitalization, the Company delisted its Common Stock from the NASDAQ Stock Market, and accordingly filed for deregistration with the Securities and Exchange Commission (the "SEC"). The Company continues to file reports with the SEC pursuant to the terms governing the Notes, which were issued as part of the Recapitalization.

In connection with the Recapitalization all shares of the Company's Common Stock, other than those retained by certain members of management and certain other stockholders (the "Continuing Stockholders"), were converted into the right to receive $34 per share in cash. At the time of the Recapitalization, the Continuing Stockholders retained approximately 41.3% of the common equity of the Company while new investors acquired the balance of the equity interests in the Company. At ~~May~~August 43, 2003, the Continuing Stockholders owned approximately 29.5% of the common equity of the

Company. The following table shows the effect the Recapitalization had on stockholders' equity (deficit) (dollars in thousands):

	Common Stock											Total Stockholders' Equity (Deficit)
	Common Stock					Additional Paid-in Capital			Retained Earnings (Deficit)
	Shares		Amount			Additional Paid-in Capital			Retained Earnings (Deficit)
Balances, October 31, 1998	7,809,801		$	78		$	51,364		$	45,838		$	97,280
Record recapitalization transaction	(3,367,618	)		(41	)		22,562			(163,727	)		(141,206	)
Record redeemable common stock	(735,294	)		(7	)		—			(24,993	)		(25,000	)
Contributed assets	—			—			3,286			—			3,286
Accreted put premium on redeemable common stock	—			—			(2,625	)		—			(2,625	)
Net loss	—			—			—			(20,266	)		(20,266	)

Balances, October 31, 1999	3,706,889		$	30		$	74,587		$	(163,148	)	$	(88,531	)

8. Related Party Transactions

The Company made a working capital loan to SDI-Molan in August 2002 for $0.7 million. The balance outstanding at ~~May~~August 43, 2003 was $0.7 million. In addition, the Company has a receivable from SDI-Molan for expenses in the amount of $0.79 million at ~~May~~August 43, 2003.

9. Gain on Extinguishment of Debt

In November 2001, the Company repurchased $0.8 million face value of Notes in the open market for $0.3 million resulting in a gain of $0.5 million.

10. Commitments and Contingencies

Defense Criminal Investigative Service Investigation. The Company's former Aerospace Division remains the subject of an investigation by the Defense Criminal Investigative Service ("DCIS") of the Office of the Inspector General, Department of Defense, into allegations that SDI deviated from contractual requirements relating to the use of organic sealants. SDI responded to a subpoena in 1999 and met recently with the government regarding the status of the investigation. The government has indicated that it no longer is focusing on the sealant issue, but believes SDI may have deviated from contractual requirements regarding other organic epoxy. The Company disputes the government's interpretation of the contracts as precluding the use of the epoxy in question and have submitted to the government an expert report to that effect. One potential consequence of civil proceedings or criminal charges, if filed, is the possibility that the Company would be suspended from future military and federal government sales, and if convicted, debarred from such sales for a period of time. This would not be expected to materially affect the Company's financial condition, results of operations or liquidity given the divestiture of our Aerospace Division, which was completed in 2001. At this point, it is not possible to predict or assess the likelihood of an unfavorable outcome or predict the amount of potential liabilities.

~~OSHA~~Qui ~~Investigation~~Tam Suit. OnThe ~~September 1,~~Company ~~2000,~~is ana ~~accidental~~defendant ~~initiation~~in ~~incident~~a ~~occurred~~civil ataction ~~the~~entitled ~~Company's~~United ~~Moorpark~~States ex rel. Charles K. Holder v. ~~facility~~Special ~~and~~Devices, ~~two~~Incorporated ~~employees~~pending ~~were~~in ~~injured~~the U.S. ~~The~~District ~~State~~Court offor ~~California,~~the ~~Department~~Central District of ~~Industrial~~California. ~~Relations~~The action, ~~Division~~filed ofunder ~~Occupational~~seal ~~Safety~~in August 1999 and ~~Health~~first ~~("Cal-OSHA")~~served ~~conducted a~~on ~~post-incident~~the ~~and~~Company ~~process~~in ~~safety~~December 2001, ~~management~~is ~~inspection,~~a ~~which~~qui ~~resulted~~tam lawsuit in ~~the~~which ~~issuance~~a informer ~~February 2001~~employee of ~~citations~~the ~~for~~Company ~~alleged~~is ~~safety~~seeking, ~~violations~~on ~~and~~behalf ~~proposed~~of ~~fines~~the ~~aggregating approximately~~United ~~$168~~States,~~000.~~ ~~The~~an unspecified ~~Company~~amount ~~appealed~~of ~~the~~money ~~citations,~~damages and civil penalties under the ~~appeal~~federal ~~was~~False ~~settled~~Claims ~~pursuant~~Act. toThe acomplaint ~~Settlement~~alleges that the Company, when submitting invoices under unspecified

~~Agreement~~government ~~under~~contracts ~~which~~prior ~~the aggregate amount of fines was reduced~~ to ~~approximately $85,000, payable in quarterly installments commencing on December~~August 51999, ~~2002.~~falsely ~~Because~~certified ~~the~~that ~~accident~~it ~~resulted~~was in ~~a serious~~compliance ~~injury,~~with ~~Cal-OSHA's~~environmental ~~Bureau~~laws. ofThe ~~Investigation~~Company ~~("BOI")~~is ~~conducted~~vigorously ~~its~~defending ~~own investigation to determine whether to refer~~ the ~~matter~~action. toAt ~~the~~this ~~District~~stage, ~~Attorney's~~it ~~Office~~is ~~for~~not ~~Ventura County. By~~possible ~~letter~~to ~~dated~~evaluate ~~May 14,~~the ~~2003,~~likelihood ~~BOI~~of ~~advised~~an ~~that~~unfavorable ~~this~~outcome ~~investigation~~or ~~had~~estimate ~~been completed and~~ the ~~criminal~~range ~~aspect~~ of ~~the~~potential ~~case~~loss, ~~had~~if ~~been closed~~any.

~~Qui~~Hermetic ~~Tam~~Seal Suit. The Company iswas a defendant in a civil action entitled ~~United~~Hermetic ~~States~~Seal exCorporation ~~rel.~~and ~~Charles K.~~HCC ~~Holder~~Industries, Inc. v. Special Devices, Inc. ~~Incorporated~~in ~~pending~~the inSuperior Court of the ~~U.S.~~State ~~District~~of ~~Court~~California for the ~~Central~~County ~~District~~ of ~~California~~Los Angeles. The ~~action~~complaint, filed ~~under seal~~ in August ~~1999~~2002 ~~and~~by ~~first served~~a onformer ~~the~~supplier, ~~Company~~claimed damages in ~~December~~excess of $2.3 ~~2001,~~million isfor abreach ~~qui~~of ~~tam~~contract. ~~lawsuit~~The inCompany ~~which~~reached a ~~former~~settlement ~~employee~~with of the ~~Company~~plaintiffs isfollowing ~~seeking~~a mediation, onthe ~~behalf~~ terms of which required the ~~United States,~~Company anto ~~unspecified~~make ~~amount~~a payment of ~~money~~$530,000 ~~damages~~in ~~and~~exchange ~~civil~~for ~~penalties~~which ~~under~~plaintiffs released the ~~federal~~Company ~~False~~from ~~Claims~~certain ~~Act.~~known ~~The~~and ~~complaint~~unknown ~~alleges~~liabilities ~~that~~arising ~~the~~from ~~Company,~~any ~~when~~of ~~submitting~~their ~~invoices~~business dealings, ~~under~~including ~~unspecified~~all ~~government contracts~~liability ~~prior~~ to ~~August 1999,~~the ~~falsely~~plaintiffs ~~certified~~arising ~~that~~from itthe ~~was~~facts alleged in ~~compliance~~the ~~with environmental laws~~lawsuit. The ~~Company~~payment iswas ~~vigorously~~recorded ~~defending~~as an expense in the ~~action.~~statement Atof ~~this~~operations ~~stage,~~in itthe issecond ~~not~~quarter, ~~possible~~and tothe ~~evaluate~~lawsuit ~~the~~has ~~likelihood~~been ofdismissed anwith ~~unfavorable~~prejudice ~~outcome~~pursuant orto ~~estimate~~ the ~~range~~terms of ~~potential~~the ~~loss, if any~~settlement.

~~CharTech~~Selleck Suit. AThe ~~lawsuit~~Company ~~alleging~~is ~~that~~a ~~the~~defendant ~~Company~~in ~~willfully~~a ~~infringed~~civil ~~two~~action ~~patents~~entitled ~~held~~Daniel byF. ~~CharTech~~Selleck ~~Engineering, Inc~~v. Special Devices, ~~("CharTech")~~Incorporated ~~was~~pending ~~filed~~in onthe ~~July 14,~~Superior ~~2000,~~Court inof the ~~U.S.~~State ~~District~~of ~~Court~~California for the ~~Central~~County ~~District~~ of ~~California~~Ventura. ~~The~~A ~~Company~~complaint, ~~answered~~served ~~the~~in ~~complaint~~September 2002, ~~asserted~~alleged ~~counterclaims~~breach ~~against~~of ~~CharTech~~contract, ~~and~~fraud ~~filed~~and adeceit, ~~third~~negligent ~~party~~misrepresentation, ~~complaint~~and ~~against~~injunctive ~~CharTech~~and declaratory relief, ~~its~~and ~~related~~seeks ~~company~~damages ~~Iso~~in ~~Vac~~excess ~~Engineering,~~of $1 ~~Inc.~~million ~~("IsoVac")~~relating ~~and~~to ~~George~~the ~~Neff,~~Plaintiff's apurchase ~~principal~~from the Company of certain real estate located in ~~both~~Moorpark, ~~companies~~California. ~~Mediation~~An ~~resulted~~amended complaint served in aJanuary 2003 ~~binding settlement~~withdrew ~~agreement,~~the ~~under~~allegations ~~which~~of ~~the~~fraud ~~Company~~and ~~will~~deceit ~~pay~~and ~~CharTech~~the aclaim ~~fee~~for ofinjunctive $1relief,~~250,000~~ ~~for~~and aadded ~~non-exclusive~~allegations ~~license~~of negligent ~~under~~interference ~~the~~with ~~CharTech~~prospective ~~patent~~economic ~~rights~~advantage. The ~~fee~~Company isalso ~~payable~~successfully ~~in installments,~~challenged ~~with~~the anegligent ~~total~~interference ~~of $775~~claim,~~000~~ ~~paid~~which towas ~~date~~withdrawn ~~and~~in ~~the~~a ~~last~~further ~~installment~~amended ~~payable~~complaint onfiled ~~December~~in July ~~31, 2007~~2003. The ~~pending~~Company ~~lawsuit~~is ~~has~~vigorously ~~been~~defending the ~~dismissed~~action. ~~with~~At ~~prejudice~~this ~~pursuant~~stage, it is not possible to evaluate the ~~terms~~likelihood of an unfavorable outcome or estimate the ~~settlement~~ range of potential loss, if any.

Hermetic Seal Suit. The Company is a defendant in a civil action entitled Hermetic Seal Corporation and HCC Industries, Inc. v. Special Devices, Inc. pending in the Superior Court of the State of California for the County of Los Angeles. The complaint, filed in August 2002 by a former supplier, claimed damages in excess of $2.3 million for breach of contract. The Company has reached an agreement in principle with the plaintiffs following a mediation, the terms of which will require the Company to make a payment of $530,000 in exchange for which plaintiffs will release the Company from certain known and unknown liabilities arising from any of their business dealings, including all liability the Company may have to the plaintiffs arising from the facts alleged in the lawsuit. The payment has been recorded as an expense in the statement of operations in the second quarter.

Selleck Suit. The Company is a defendant in a civil action entitled Daniel F. Selleck v. Special Devices, Incorporated pending in the Superior Court of the State of California for the County of Ventura. A complaint, served in September 2002, alleged breach of contract, fraud and deceit, negligent misrepresentation, and injunctive and declaratory relief, and seeks damages in excess of $1 million relating to the Plaintiff's purchase from the Company of certain real estate located in Moorpark, California. An amended complaint served in January 2003 withdrew the allegations of fraud and deceit and the claim for injunctive relief, and added allegations of negligent interference with prospective economic advantage. The Company is vigorously defending the action. At this stage, it is not possible to evaluate the likelihood of an unfavorable outcome or estimate the range of potential loss, if any.

Newhall Property. The Company recently learned that it holds record title to approximately 156 acres in Newhall, California, including the property on which it conducted its operations prior to relocating to Moorpark in 1999. It had been management's understanding that title to the property was held by an entity affiliated with the Company's former owner, from which the Company leased the property from 1978 until 1999. The Company is currently investigating the status of ownership of the property and the potential effects, if any, of such status on the Company and its financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the related Notes thereto included elsewhere in this report. During 2002, we refined our allocation of overhead expenses to cost of sales. As a result of this change, cost of sales, gross profit and operating expenses have been reclassified for all prior periods presented. There was no impact on net income (loss) in any period.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in the Company's Consolidated Statements of Operations.

	Three Months Ended				~~Six~~Nine Months Ended
	May 4, 2003		May 5, 2002		May 4, 2003		May 5, 2002
	August 3, 2003		August 4, 2002		August 3, 2003		August 4, 2002
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	7880.39	%	7980.16	%	81.10	%	8281.48	%
Gross profit	2119.71	%	2019.94	%	1819.90	%	1718.62	%
Operating expenses	812.74	%	1011.34	%	910.23	%	11.76	%
Income from operations	136.07	%	108.60	%	98.7	%	56.96	%

Comparison of the Three Months Ended ~~May~~August 43, 2003 to the Three Months Ended ~~May~~August 54, 2002

Net Sales

Consolidated net sales for the ~~second~~third quarter of 2003 were $3027.20 million, compared to consolidated net sales of $3129.95 million for the ~~second~~third quarter of 2002. While total units shipped increased by 78%, the decrease in net sales was primarily due to lower unit sales and lower prices on high value-added lead wire products. Leadwire products differ from ~~standard~~ standard products in that SDI adds a length of electrical wire, an electrical harness connector and, in some cases, a machined retainer. Any combination of these value-added features, depending on the ~~customer~~ customer need, differentiates a leadwire or value-added product from a standard product.

Gross Profit

Consolidated gross profit for the ~~second~~third quarter of 2003 was $65.62 million or 2119.71% of consolidated net sales, compared to consolidated gross profit of $65.67 million or 2019.94% of consolidated net sales for the ~~second~~third quarter of 2002. ~~The improvement in gross margin is primarily due to productivity gains achieved through operating efficiencies.~~

Operating Expenses

Consolidated operating expenses for the ~~second~~third quarter of 2003 were $23.43 million or 812.04% of consolidated net sales, compared with consolidated operating expenses of $3.34 million or 1011.34% of consolidated net sales for the ~~second~~third quarter of 2002. ~~The~~While ~~decrease~~operating ~~was~~expense ~~primarily~~dollars decreased slightly, operating expenses as a percentage of consolidated net sales increased slightly due to ~~lower~~the ~~accrued~~decrease ~~incentive~~in ~~bonus~~sales.

Other Income (Expense)

We recorded $0.34 million in the ~~second~~third quarter of 2003 for our share of the losses of our joint venture in Germany, SDI-Molan. SDI-Molan started operations in September 2002 and we anticipate net losses from its operations during the current fiscal year.

Comparison of the ~~Six~~Nine Months Ended ~~May~~August 43, 2003 to the ~~Six~~Nine Months Ended ~~May~~August 54, 2002

Net Sales

Consolidated net sales for the ~~six~~nine months ended ~~May~~August 43, 2003 were $5582.8 million, compared to consolidated net sales of $5988.49 million for the ~~six~~ ~~months~~nine months ended ~~May~~August 54, 2002. While total units shipped increased by 98%, the decrease in net sales was primarily due to lower unit sales and lower prices on high value-added lead wire products. Leadwire products differ from standard products in that SDI adds a length of electrical wire, an electrical harness connector and, in some cases, a machined retainer. Any combination of these value-added features, depending on the customer need, differentiates a leadwire or value-added product from a standard product.

Gross Profit

Consolidated gross profit for the ~~six~~nine months ended ~~May~~August 43, 2003 was $1015.67 million or 1819.90% of consolidated net sales, compared to consolidated gross profit of $1016.42 million or 1718.62% of consolidated net sales for the ~~six~~nine months ended ~~May~~August 54, 2002. The improvement in gross margin is primarily due to productivity gains achieved through operating efficiencies.

Operating Expenses

Consolidated operating expenses for the ~~six~~nine months ended ~~May~~August 43, 2003 were $58.05 million or 810.93% of consolidated net sales, compared with consolidated operating expenses of $610.93 million or 11.76% of consolidated net sales for the ~~six~~nine months ended ~~May~~August 54, 2002. The decrease was primarily due to reduced legal expenses related to the CharTech Litigation (see ~~Note~~our Quarterly Report on Form 10-Q tofor the ~~Consolidated~~quarter ~~Financial~~ending ~~Statements in Part~~May 14, 2003) and lower accrued incentive bonus.

Other Income (Expense)

There were no gains on extinguishment of debt in the ~~six~~nine months ended ~~May~~August 43, 2003 compared to a gain of $0.5 million in the ~~six~~nine months ended ~~May~~ August 54, 2002. We repurchased $0.8 million face value of Senior Subordinated Notes (the "Notes") issued in 1999 bearing interest of 113/8% per annum in the open market for $0.3 million.

We recorded $0.69 million in the ~~six~~nine months ended ~~May~~August 43, 2003 for our share of the losses of our joint venture in Germany, SDI-Molan. SDI-Molan ~~started~~ started operations in September 2002 and we anticipate net losses from its operations during the current fiscal year.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flow from operations and borrowings under our credit facilities. Our principal uses of cash are debt service requirements, capital expenditures and working capital.

We entered into a five-year credit facility (the "Credit Facility") in June 2001 which consists of a $25.0 million Revolving Credit Facility (the "Revolver") and a $5.0 million five-year Term Loan (the "Term Loan"). Available borrowings under the Revolver are based on a formula comprised of our eligible accounts receivable and inventory. The Credit Facility requires lockbox arrangements that provide for all receipts to be swept daily to reduce borrowings outstanding.

The agreement governing the Credit Facility contains customary covenants, including restrictions on the incurrence of debt, the sale of assets, mergers, acquisitions and other business combinations, voluntary prepayment of other debt, transactions with affiliates, repurchase or redemption of equity securities, and financial covenants on tangible net worth. Substantially all of our assets are pledged as collateral under the Credit Facility.

On ~~April~~August 1, 2003, the Company elected the LIBOR Rate option for ~~$3.0 million~~the balance of the Term Loan for a contract term and rate of 43 months and 3.7662% per annum, respectively. As of ~~May~~ August 43, 2003, we had no borrowings and $21.59 million in letters of credit outstanding under the Revolver. The total amount available under the Revolver at ~~May~~August 43, 2003 was $1110.67 million subject to compliance with certain financial and operating covenants which we must meet on a quarterly basis. As of ~~May~~August 43, 2003, we were in compliance with all ~~such~~ such covenants.

We have guaranteed bank loans made to SDI-Molan under agreements entered into in August 2002. Our guarantee is limited to fifty percent of the loans outstanding and is subject to a maximum of 3.2 million Euro or approximately $3.6 million at ~~May~~August 43, 2003. SDI-Molan had bank loans outstanding in the amount of 53.5 million Euro or $63.29 million at ~~May~~August 43, 2003. SDI-Molan started operations in September 2002. We anticipate net losses from its operations for the current year.

Continuing operations provided cash of $12.50 million and $37.91 million in the ~~six~~nine months ended ~~May~~August 43, 2003 and ~~May~~August 54, 2002, respectively. The decrease in cash flow was primarily due to higher ~~incentive~~inventory ~~bonus~~levels ~~payments~~and ~~made~~lower incollections ~~the~~on ~~first~~accounts ~~quarter~~receivable ofdue to lower consolidated net sales in 2003 compared to 2002. Capital expenditures, primarily for manufacturing equipment, were $34.58 million in the ~~six~~nine months ended ~~May~~August 43, 2003 compared to $34.37 million in the ~~six~~nine months ended ~~May~~August 54, 2002. We expect to spend approximately $56.0 to $67.0 million on capital expenditures, primarily for manufacturing equipment, during 2003~~, comparable to the $6~~.~~0 million~~ ~~spent in 2002.~~ We will make the next semi-annual interest payment of $4.2 million on our Notes in ~~June~~in December 2003. We expect to make the aforementioned payments with cash from operations and borrowings under the Revolver.

As of ~~May~~August 43, 2003, we had net liabilities of $29.05 million. Our ability to pay the interest on, or to refinance our debt, or to fund planned capital expenditures, will depend on generating cash flow from future operations. We have had positive cash flow from continuing operations during the past two fiscal years and the nine months ended August 3, 2003.

Critical Accounting Policies

We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. This requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. From time to time, we may have the following allowances and/or accruals among others:

1.: Allowances for accounts receivable including a sales allowance and an allowance for bad debts;
2.: Allowances for inventory including allowances for obsolescence and shrinkage;
3.: Valuation allowances for deferred taxes;
4.: Accruals for cleanup at formerly operated sites; and
5.: Other expense accruals such as for litigation.

General Business and Economic Conditions

Our business and earnings are sensitive to general business and economic conditions. These conditions include automotive vehicle sales, short-term interest rates and consumer confidence levels about the economy. If any of these conditions worsen, our business and earnings could be adversely affected. For example, if consumer confidence erodes and short term interest rates rise to a point where purchases of automobiles are deferred, our production of initiators, our principal revenue producing product, would be adversely affected. We believe that the airbag initiator market in the United States has become, and will for the foreseeable future remain, closely tied with the fluctuations of the automotive market. In particular, our third quarter is affected by the automotive industry shutdown for the model year ~~changeover. We are subject to price pressure from our customers which reduces our revenues through~~

~~lower~~changeover. ~~standard~~We ~~unit~~are ~~pricing.~~subject Weto ~~also~~price ~~are~~pressure ~~affected~~from byour ~~the~~customers ~~trend~~which ~~towards~~reduces ~~increased~~our ~~unit~~revenues ~~sales~~through of lower ~~cost~~ standard ~~products~~unit ~~as replacements for higher cost prior generation lead wire products~~pricing. The retail automotive market remains very competitive as the OEMs compete for market share. During calendar year 2002 and early 2003, automobile manufacturers have offered an array of incentives in an effort to sustain sales.

We also are affected by the trend towards increased unit sales of lower cost standard products as replacements for higher cost prior generation lead wire products. The retail automotive market remains very competitive as the OEMs compete for market share. During calendar year 2002 and early 2003, automobile manufacturers have offered an array of incentives in an effort to sustain sales.

Accounting Developments

In May 2003, the Financial Accounting Standards Board ("FASB") issued ~~SFAS~~Statement of Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments With Characteristics of both Liabilities and Equity". The statement changes the accounting for certain financial instruments that, under previous guidance, could be classified as equity or "mezzanine" equity, by now requiring those instruments to be classified as liabilities (or assets in some circumstances). We are required to adopt the provisions of SFAS No. 150 for financial instruments entered into or modified after May 31, 2003 and otherwise as of July 7, 2003, except for mandatorily redeemable financial instruments for which the adoption date is February 1, 2004. Our "mezzanine" equity does not meet the requirements of this statement and therefore we do not expect the adoption to have a material impact on our results of operations, financial position or liquidity.

In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities". The statement amends and clarifies the accounting guidance on (1) derivative instruments (including certain derivative instruments embedded in other contracts) and (2) hedging activities that fall within the scope of SFAS No. 133, "Accounting for Derivatives and Hedging Activities". The changes in the statement are meant to result in more consistent reporting of contracts as either derivatives or hybrid instruments. We are required to adopt the provisions of SFAS No. 149 for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. We have only limited involvement in derivative financial instruments and do not hold or issue them for trading purposes. Foreign currency forward exchange contracts are selectively used to manage market risks related to changes in foreign exchange rates on transactions denominated in foreign currencies. There were no open contracts at ~~May~~August 43, 2003. We do not expect the adoption of this standard to have a material impact on our results of operations, financial position or liquidity.

In December 2002, the ~~Financial Accounting Standards Board ("~~FASB") issued ~~Statement of Accounting Standards ("~~SFAS") No. 148, "Accounting for Stock- Based Compensation—Transition and Disclosure—an amendment of SFAS No. 123". This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We have chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related ~~interpretations~~Interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the estimate of the market value of our stock at the date of the grant over the amount an employee must pay to acquire the stock. We adopted the interim disclosure provisions of SFAS No. 148 for financial reports for the quarter ended May 4, 2003 (see Note 2 to the Consolidated Financial Statements in Part 1). As the adoption of this standard ~~involves~~involved disclosures only, wethere dowas ~~not~~no ~~expect a~~ material impact on our results of operations, financial position or liquidity.

~~with~~Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred, not when it is "planned". We are required to adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 and do not expect the adoption of this standard to have a material impact on our results of operations, financial position or liquidity.

Forward-Looking Information

The Management's Discussion and Analysis of Financial Condition and Results of Operations section in this report on Form 10-Q contains certain forward-looking statements and information within the meaning of the Private Litigation Reform Act of 1995. These forward-looking statements and the information relating to our business are based on ~~the~~ the beliefs of management as well as assumptions made by and information currently available to management. The words "anticipates," "believes," "estimates," "expects," "plans," "intends," and similar expressions, as they relate to our operations, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. We do not intend to update these forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We have only limited involvement in derivative financial instruments and do not hold or issue them for trading purposes. We are exposed to market risk related to changes in foreign exchange rates on transactions denominated in foreign currencies and we selectively use foreign currency forward exchange contracts to manage those risks. At ~~May~~August 43, 2003 we had no open contracts. Certain amounts borrowed under our Credit Facility are at variable rates and we are thus subject to market risk resulting from interest rate fluctuations. A change of 1% in the interest rates on these borrowings would have no material impact on our financial position, results of operations or liquidity.

We also are exposed to market risks related to fluctuations in interest rates on the Notes we issued in December 1998. For fixed rate debt such as the Notes, changes in interest rates generally affect the fair value of the debt instrument. However, we do not have an obligation to repay the Notes prior to maturity in December 2008.

ITEM 4. CONTROLS AND PROCEDURES

The Chief Executive Officer and the Vice President Finance of Special Devices, Incorporated (its principal executive officer and principal financial ~~and accounting~~ officer, respectively) have concluded, based on their evaluation as of ~~a date within 90 days prior to~~ the ~~date~~end of the ~~filing~~period ofcovered by this report, that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the Chief Executive Officer and Vice President Finance, as appropriate to allow timely decisions regarding required disclosure.

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~Defense~~Hermetic ~~Criminal~~Seal ~~Investigative Service Investigation~~Suit. ~~Our~~We ~~former~~were ~~Aerospace~~a ~~Division~~defendant ~~remains~~in ~~the~~a ~~subject~~civil ofaction anentitled ~~investigation by~~Hermetic ~~the~~Seal ~~Defense~~Corporation ~~Criminal~~and ~~Investigative~~HCC Industries, Inc. ~~Service~~v. ~~("DCIS")~~Special ofDevices, Inc. ~~the~~in ~~Office of~~ the ~~Inspector~~Superior ~~General,~~Court ~~Department~~ of ~~Defense, into allegations that SDI deviated from contractual requirements relating to~~ the ~~use~~ State of ~~organic~~California ~~sealants.~~for ~~SDI responded to a subpoena in 1999 and met recently with~~ the ~~government~~County ~~regarding the status~~ of ~~the~~Los ~~investigation~~Angeles. The ~~government~~complaint, ~~has~~filed ~~indicated that it no longer is focusing~~in onAugust 2002 ~~the~~by ~~sealant~~a ~~issue~~former supplier, ~~but~~claimed ~~believes~~damages ~~SDI~~in ~~may~~excess ~~have~~of ~~deviated~~$2.3 million ~~from~~for ~~contractual~~breach ~~requirements~~of ~~regarding other organic epoxy~~contract. We ~~dispute~~reached ~~the~~a ~~government's~~settlement ~~interpretation~~with of the ~~contracts~~plaintiffs asfollowing ~~precluding~~a ~~the~~mediation, ~~use of~~ the ~~epoxy~~terms inof ~~question~~which required ~~and~~us ~~have submitted~~ to ~~the~~make ~~government~~a anpayment ~~expert report to that effect. One potential consequence~~ of ~~civil proceedings or criminal charges~~$530,000 ifin ~~filed,~~exchange isfor ~~the~~which ~~possibility~~plaintiffs ~~that~~released ~~we would~~us ~~be suspended~~ from ~~future~~certain ~~military~~known and ~~federal~~unknown ~~government~~liabilities ~~sales,~~arising ~~and if convicted, debarred~~ from ~~such~~any ~~sales for a period~~ of ~~time.~~their ~~This~~business ~~would~~dealings, ~~not~~including beall ~~expected~~ liability to ~~materially~~the ~~affect~~plaintiffs ~~our~~arising ~~financial condition,~~from ~~results~~the offacts ~~operations~~alleged orin ~~liquidity given~~ the ~~divestiture~~lawsuit. ofThe ~~our~~payment ~~Aerospace~~was ~~Division,~~recorded ~~which~~as ~~was~~an ~~completed~~expense in ~~2001.~~the Atstatement ~~this~~of ~~point,~~operations itin isthe ~~not~~second ~~possible~~quarter toand ~~predict or assess~~ the ~~likelihood~~lawsuit ofwas andismissed with ~~unfavorable~~prejudice ~~outcome~~pursuant orto ~~predict~~ the ~~amount~~terms of ~~potential~~the ~~liabilities~~settlement.

~~OSHA~~Selleck ~~Investigation~~Suit. OnWe ~~September 1,~~are ~~2000,~~a andefendant ~~accidental~~in ~~initiation~~a ~~incident~~civil ~~occurred~~action atentitled ~~our~~Daniel F. ~~Moorpark~~Selleck ~~facility~~v. ~~and~~Special ~~two~~Devices, ~~employees~~Incorporated ~~were~~pending ~~injured.~~in ~~The~~the ~~State~~Superior Court of ~~California,~~the ~~Department~~State of ~~Industrial~~California ~~Relations,~~for ~~Division~~the County of ~~Occupational~~Ventura. ~~Safety~~A ~~and~~complaint, ~~Health~~served ~~("Cal-OSHA")~~in ~~conducted~~September 2002, aalleged ~~post-incident~~breach ~~and~~of contract, fraud ~~process~~and ~~safety~~deceit, ~~management~~negligent ~~inspection~~misrepresentation, ~~which~~and ~~resulted~~injunctive inand ~~the~~declaratory ~~issuance~~relief, and seeks damages in ~~February 2001~~excess of ~~citations~~$1 million ~~for~~relating ~~alleged~~to ~~safety~~the ~~violations~~Plaintiff's ~~and~~purchase ~~proposed~~from ~~fines~~SDI ~~aggregating~~of ~~approximately~~certain ~~$168,000.~~real Weestate ~~appealed~~located ~~the~~in ~~citations~~Moorpark, ~~and~~California. ~~the~~An ~~appeal~~amended ~~was~~complaint ~~settled~~served ~~pursuant~~in toJanuary 2003 awithdrew ~~Settlement~~the ~~Agreement~~allegations ~~under~~of ~~which~~fraud ~~the~~and ~~aggregate~~deceit ~~amount~~and ofthe ~~fines~~claim ~~was~~for ~~reduced~~injunctive ~~to approximately $85~~relief,~~000,~~ ~~payable~~and inadded ~~quarterly~~allegations ~~installments~~of negligent ~~commencing~~interference onwith ~~December 5,~~prospective ~~2002~~economic advantage. ~~Because~~We ~~the~~also ~~accident~~successfully ~~resulted~~challenged inthe anegligent ~~serious~~interference ~~injury~~claim, ~~Cal-OSHA's~~which ~~Bureau~~was ofwithdrawn ~~Investigation~~in ~~conducted~~a ~~its~~further ~~own~~amended ~~investigation~~complaint tofiled ~~determine~~in ~~whether~~July 2003. toWe ~~refer~~are ~~the~~vigorously ~~matter~~defending to the ~~District~~action. ~~Attorney's~~At ~~Office~~this ~~for~~stage, ~~Ventura~~it ~~County.~~is Bynot ~~letter~~possible ~~dated~~to ~~May 14,~~evaluate ~~2003,~~the ~~BOI~~likelihood ~~advised~~of ~~that~~an ~~this~~unfavorable ~~investigation~~outcome ~~had~~or ~~been~~estimate ~~completed and~~ the ~~criminal~~range ~~aspect~~ of ~~the~~potential ~~case~~loss, ~~had been~~if ~~closed~~any.

~~CharTech~~For other ~~Suit. A~~legal ~~lawsuit~~proceedings, ~~alleging~~see ~~that~~our ~~SDI~~Annual ~~willfully~~Report ~~infringed two patents held by CharTech Engineering, Inc. ("CharTech") was filed~~ on ~~July~~Form ~~14,~~10-K ~~2000, in the U.S. District Court~~ for the ~~Central~~year ~~District~~ended ~~of California. We answered the complaint~~November 3, ~~asserted~~2002 ~~counterclaims against CharTech,~~ and ~~filed~~our aQuarterly ~~third party~~Report ~~complaint~~on ~~against CharTech, its related company Iso Vac Engineering,~~Form ~~Inc.~~10-Q ~~("IsoVac") and George Neff, a principal in both companies. Mediation resulted in a binding settlement agreement, under which we will pay CharTech a fee of $1,250,000~~ for ~~a non-exclusive license under~~ the ~~CharTech patent rights. The fee is payable in installments, with a total of $775,000 paid to date~~quarter ~~and~~ending ~~the last installment payable on December~~May 314, ~~2007~~2003. ~~The pending lawsuit has been dismissed with prejudice pursuant to the terms of the settlement.~~

Hermetic Seal Suit. We are a defendant in a civil action entitled Hermetic Seal Corporation and HCC Industries, Inc. v. Special Devices, Inc. pending in the Superior Court of the State of California for the County of Los Angeles. The complaint, filed in August 2002 by a former supplier, claimed damages in excess of $2.3 million for breach of contract. We have reached an agreement in principle with the plaintiffs following a mediation, the terms of which will require us to make a payment of $530,000 in exchange for which plaintiffs will release us from certain known and unknown liabilities arising from any of their business dealings, including all liability we may have to the plaintiffs arising from the facts alleged in the lawsuit. The payment has been recorded as an expense in the statement of operations in the second quarter.

For other legal proceedings, see our Annual Report on Form 10-K for the year ended November 3, 2002.

ITEM 2 THROUGH 5.

Omitted as not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibit No.		Description
1.1(g)		Purchase Agreement, dated as of December 11, 1998, among SDI Acquisition Corp. and BT Alex. Brown Incorporated and Paribas Corporation.
2.1(a)		Amended and Restated Agreement and Plan of Merger, dated as of June 19, 1998, between the Company and SDI Acquisition Corp.
2.2(b)		Amendment No. 1, dated as of October 27, 1998, to the Amended and Restated Agreement and Plan of Merger between the Company and SDI Acquisition Corp.
2.3(c)		Guaranty Agreement, dated as of June 19, 1998, between J.F. Lehman Equity Investors I, LP and the Company.
3.1(g)		Certificate of Incorporation of the Company.
3.2(g)		Bylaws of the Company.
4.1(g)		Indenture, dated as of December 15, 1998, among SDI Acquisition Corp., the Guarantors named therein and United States Trust Company of New York, as Trustee.
4.2(g)		First Supplemental Indenture, dated as of December 15, 1998, among the Company, the Guarantors named therein and the United States Trust Company of New York, as Trustee.
4.3(g)		Form of 113/8% Senior Subordinated Note due 2008, Series A (see Exhibit A of the First Supplemental Indenture in Exhibit 4.2).
4.4(g)		Form of 113/8% Senior Subordinated Note due 2008, Series B (see Exhibit B of the First Supplemental Indenture in Exhibit 4.2).
4.5(g)		Registration Rights Agreement, dated as of December 15, 1998, among SDI Acquisition Corp., as Issuer and BT Alex. Brown Incorporated and Paribas Corporation as Initial Purchasers.
4.6(k)		Certificate of Designation of Preferences and Relative Participating, Optional and Other Special Rights of Series A 6% Cumulative Convertible Preferred Stock of Special Devices, Incorporated dated as of February 28, 2001.
10.6(g)		Management Agreement, dated as of December 15, 1998, between the Company and J.F. Lehman & Company.
10.7(g)		Management Services Agreement, dated as of December 15, 1998, between the Company and J.F. Lehman & Company.
10.8(g)		Subscription Agreement, dated as of September 7, 1998, among the Company, Paribas Principal Incorporated, J.F. Lehman Equity Investors I, LP and JFL Co-Invest Partners I, LP.
10.9(g)		Amendment No. 1 to Subscription Agreement, dated as of December 3, 1998, among the Company, Paribas Principal Incorporated, J.F. Lehman Equity Investors I, LP and JFL Co-Invest Partners I, LP.
10.10(g)		Amendment No. 2 to Subscription Agreement, dated as of December 15, 1998, among the Company, Paribas Principal Incorporated, J.F. Lehman Equity Investors I, LP and JFL Co-Invest Partners I, LP.
10.11(g)		Stockholders Agreement, dated as of December 15, 1998, among the Company, J.F. Lehman & Co., J.F. Lehman Equity Investors I, LP, JFL Co-Invest Partners I, LP, the Neubauer Family Trust, by Walter Neubauer trustee, and the Treinen Family Trust, by Thomas F. Treinen trustee.

(a) EXHIBITS

Exhibit No.		Description
1.1(g)		Purchase Agreement, dated as of December 11, 1998, among SDI Acquisition Corp. and BT Alex. Brown Incorporated and Paribas Corporation.
2.1(a)		Amended and Restated Agreement and Plan of Merger, dated as of June 19, 1998, between the Company and SDI Acquisition Corp.
2.2(b)		Amendment No. 1, dated as of October 27, 1998, to the Amended and Restated Agreement and Plan of Merger between the Company and SDI Acquisition Corp.
2.3(c)		Guaranty Agreement, dated as of June 19, 1998, between J.F. Lehman Equity Investors I, LP and the Company.
3.1(g)		Certificate of Incorporation of the Company.
3.2(g)		Bylaws of the Company.
4.1(g)		Indenture, dated as of December 15, 1998, among SDI Acquisition Corp., the Guarantors named therein and United States Trust Company of New York, as Trustee.

4.2(g)		First Supplemental Indenture, dated as of December 15, 1998, among the Company, the Guarantors named therein and the United States Trust Company of New York, as Trustee.
4.3(g)		Form of 11³/8% Senior Subordinated Note due 2008, Series A (see Exhibit A of the First Supplemental Indenture in Exhibit 4.2).
4.4(g)		Form of 11³/8% Senior Subordinated Note due 2008, Series B (see Exhibit B of the First Supplemental Indenture in Exhibit 4.2).
4.5(g)		Registration Rights Agreement, dated as of December 15, 1998, among SDI Acquisition Corp., as Issuer and BT Alex. Brown Incorporated and Paribas Corporation as Initial Purchasers.
4.6(k)		Certificate of Designation of Preferences and Relative Participating, Optional and Other Special Rights of Series A 6% Cumulative Convertible Preferred Stock of Special Devices, Incorporated dated as of February 28, 2001.
10.6(g)		Management Agreement, dated as of December 15, 1998, between the Company and J.F. Lehman & Company.
10.7(g)		Management Services Agreement, dated as of December 15, 1998, between the Company and J.F. Lehman & Company.
10.8(g)		Subscription Agreement, dated as of September 7, 1998, among the Company, Paribas Principal Incorporated, J.F. Lehman Equity Investors I, LP and JFL Co-Invest Partners I, LP.
10.9(g)		Amendment No. 1 to Subscription Agreement, dated as of December 3, 1998, among the Company, Paribas Principal Incorporated, J.F. Lehman Equity Investors I, LP and JFL Co-Invest Partners I, LP.
10.10(g)		Amendment No. 2 to Subscription Agreement, dated as of December 15, 1998, among the Company, Paribas Principal Incorporated, J.F. Lehman Equity Investors I, LP and JFL Co-Invest Partners I, LP.
10.11(g)		Stockholders Agreement, dated as of December 15, 1998, among the Company, J.F. Lehman & Co., J.F. Lehman Equity Investors I, LP, JFL Co-Invest Partners I, LP, the Neubauer Family Trust, by Walter Neubauer trustee, and the Treinen Family Trust, by Thomas F. Treinen trustee.
10.12(g)		Pledge Agreement, dated as of December 15, 1998, between the Neubauer Family Trust, by Walter Neubauer, trustee and J.F. Lehman & Company.
10.13(g)		Rollover Stockholders Agreement, dated as of December 15, 1998, among the Company, J.F. Lehman & Co., the Neubauer Family Trust, by Walter Neubauer trustee, and the Treinen Family Trust, by Thomas F. Treinen trustee.
10.15(g)		Registration Rights Agreement, dated as of December 15, 1998, among the Company, J.F. Lehman Equity Investors I, LP, JFL Co-Invest Partners I, LP, Paribas Principal Incorporated, the Neubauer Family Trust, by Walter Neubauer trustee, and the Treinen Family Trust, by Thomas F. Treinen trustee.
10.19(d)		Technology License Agreement dated November 7, 1990 between the Company and Davey Bickford Smith.
10.20(e)		Amended and Restated 1991 Stock Incentive Plan of the Company.
10.27(f)		Development Agreement, dated August 28, 1996, between Company and the City of Moorpark.
10.29(h)		Employment Agreement dated October 1, 1999 between the Company and Thomas W. Cresante.

10.12(g)		Pledge Agreement, dated as of December 15, 1998, between the Neubauer Family Trust, by Walter Neubauer, trustee and J.F. Lehman & Company.
10.13(g)		Rollover Stockholders Agreement, dated as of December 15, 1998, among the Company, J.F. Lehman & Co., the Neubauer Family Trust, by Walter Neubauer trustee, and the Treinen Family Trust, by Thomas F. Treinen trustee.
10.15(g)		Registration Rights Agreement, dated as of December 15, 1998, among the Company, J.F. Lehman Equity Investors I, LP, JFL Co-Invest Partners I, LP, Paribas Principal Incorporated, the Neubauer Family Trust, by Walter Neubauer trustee, and the Treinen Family Trust, by Thomas F. Treinen trustee.
10.19(d)		Technology License Agreement dated November 7, 1990 between the Company and Davey Bickford Smith.
10.20(e)		Amended and Restated 1991 Stock Incentive Plan of the Company.
10.27(f)		Development Agreement, dated August 28, 1996, between Company and the City of Moorpark.
10.29(h)		Employment Agreement dated October 1, 1999 between the Company and Thomas W. Cresante.
10.31(h)		1999 Stock Option Plan dated June 23, 1999.
10.41(l)		Partnership Agreement, dated as of June 26, 2001, among SDI Germany GmbH, Klaus-Jurgen Dittrich and Frank Dittrich.
10.42(l)		Side Agreement, dated as of June 26, 2001, among the Company, Anhaltinische Chemische Fabriken ACF GmbH, Molan-Werk Dittrich Gessellschaft mit beschrankter Haftung & Co. Komman-ditgesellschaft, SDI Germany GmbH, Klaus-Jurgen Dittrich and Frank Dittrich.
10.43(l)		Loan and Security Agreement, dated as of June 27, 2001, among the Company and Foothill Capital Corporation (now known as Wells Fargo Foothill, Inc.).
10.44(n)		Amended and Restated 1999 Stock Option Plan of the Company.
10.45		Letter Agreement between the Company and Wells Fargo Foothill, Inc. dated July 17, 2002.
10.45(p)		Letter Agreement between the Company and Wells Fargo Foothill, Inc. dated July 17, 2002.
10.46		Letter Agreement between the Company and Wells Fargo Foothill, Inc. dated October 23, 2002.
10.46(p)		Letter Agreement between the Company and Wells Fargo Foothill, Inc. dated October 23, 2002.
10.47		Letter Agreement between the Company and Wells Fargo Foothill, Inc. dated March 28, 2003.
10.47(p)		Letter Agreement between the Company and Wells Fargo Foothill, Inc. dated March 28, 2003.
10.48		Consent and First Amendment to Loan Documents between the Company and Wells Fargo Foothill, Inc. dated April 16, 2003.
10.48(p)		Consent and First Amendment to Loan Documents between the Company and Wells Fargo Foothill, Inc. dated April 16, 2003.
10.49		Letter Agreement between the Company and Wells Fargo Foothill, Inc. dated June 13, 2003.
10.49(p)		Letter Agreement between the Company and Wells Fargo Foothill, Inc. dated June 13, 2003.
10.50		Letter Agreement between the Company and Wells Fargo Foothill, Inc. dated June 24, 2003.
10.51		Letter Agreement between the Company and Wells Fargo Foothill, Inc. dated July 29, 2003.
12.1(g)		Statement of Computation of Ratios of Earnings to Fixed Charges.
21.1(o)		Subsidiaries of the Company.
25.1(g)		Form T-1 Statement of Eligibility of United States Trust Company of New York to act as trustee under the Indenture.
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
99.1(i)		Special Devices, Incorporated Press Release dated September 22, 2000.
99.2(i)		Agreement and Plan of Merger between the Company and Wind Point Partners IV, LP dated August 18, 2000.
99.3(j)		Special Devices, Incorporated Press Release dated May 14, 2001.
99.4(j)		Asset Purchase Agreement, dated as of March 27, 2001, among the Company, PS/EMC West LLC and Pacific Scientific Company (solely with respect to Section 7.2 thereof).
99.5(j)		Amendment No. 1 to Asset Purchase Agreement dated as of May 11, 2001.
99.6(k)		Lease Agreement, dated as of June 4, 2001, among the Company, Autosafe Airbag 14 (CA) LP and Autosafe Airbag 12 (CA) LP.

99.4(j)		Asset Purchase Agreement, dated as of March 27, 2001, among the Company, PS/EMC West LLC and Pacific Scientific Company (solely with respect to Section 7.2 thereof).
99.5(j)		Amendment No. 1 to Asset Purchase Agreement dated as of May 11, 2001.
99.6(k)		Lease Agreement, dated as of June 4, 2001, among the Company, Autosafe Airbag 14 (CA) LP and Autosafe Airbag 12 (CA) LP.
99.7(m)		Amendment No. 2 to Asset Purchase Agreement dated as of July 30, 2001.

99.7(m)

Amendment No. 2 to Asset Purchase Agreement dated as of July 30, 2001.

(a): Previously filed as Appendix A to the Company's Proxy Statement on Schedule 14A filed with the Commission on August 18, 1998 and incorporated herein by reference.
(b): Previously filed as Appendix B to the Company's Proxy Statement on Schedule 14A filed with the Commission on December 10, 1998 and incorporated herein by reference.
(c): Previously filed as Exhibit 2.3 to the Company's Current Report on Form 8-K filed with the Commission on July 10, 1998 and incorporated herein by reference.
(d): Previously filed as an exhibit to Registration Statement on Form S-1 (File No. 33-40903) and incorporated herein by reference.
(e): Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1994 and incorporated herein by reference.
(f): Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1996 and incorporated herein by reference.
(g): Previously filed as an exhibit to Registration Statement on Form S-4 (File No. 333-75869) and incorporated herein by reference.
(h): Previously filed as an exhibit to the Company's Annual Report on Form 10-K405 for the fiscal year ended October 31, 1999 and incorporated herein by reference.
(i): Previously filed as an exhibit to the Company's Current Report on Form 8-K filed with the Commission on October 6, 2000 and incorporated herein by reference.
(j): Previously filed as an exhibit to the Company's Current Report on Form 8-K filed with the Commission on May 25, 2001 and incorporated herein by reference.
(k): Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 29, 2001 and incorporated herein by reference.
(l): Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended July 29, 2001 and incorporated herein by reference.
(m): Previously filed as an exhibit to the Company's Annual Report on Form 10-K405 for the fiscal year ended October 31, 2001 and incorporated herein by reference.
(n): Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended May 5, 2002 and incorporated herein by reference.
(o): Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 3, 2002 and incorporated herein by reference.
(p): Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended May 4, 2003 and incorporated herein by reference.

(b) REPORTS ON FORM 8-K

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SPECIAL DEVICES, INCORPORATED
Dated: June 13, 2003		/s/ THOMAS W. CRESANTE Director, President and Chief Executive Officer (Principal Executive Officer)
Dated: September 11, 2003		/s/ THOMAS W. CRESANTE Director, President and Chief Executive Officer (Principal Executive Officer)
Dated: June 13, 2003		/s/ JAMES E. REEDER Vice President Finance (Principal Financial and Accounting Officer)
Dated: September 11, 2003		/s/ JAMES E. REEDER Vice President Finance (Principal Financial Officer)

CERTIFICATIONS

I, Thomas W. Cresante, certify that:

Dated: June 13, 2003 /s/ THOMAS W. CRESANTE Director, President and Chief Executive Officer (Principal Executive Officer)

CERTIFICATIONS

I, James E. Reeder, certify that:

Dated: June 13, 2003 /s/ JAMES E. REEDER Vice President Finance (Principal Financial and Accounting Officer)

QuickLinks

SPECIAL DEVICES, INCORPORATED INDEX TO QUARTERLY REPORT ON FORM 10-Q
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited)
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

ITEM 4. CONTROLS AND PROCEDURES

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2 THROUGH 5.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES

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