Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10–Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 2008

¨	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 333-108853

JOHNSONDIVERSEY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

80-0010497

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

8310 16^th Street

Sturtevant, Wisconsin 53177-0902

(Address of Principal Executive Offices, Including Zip Code)

(262) 631-4001

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x*

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

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

There is no public trading market for the registrant’s common stock. As of October 31, 2008, there were 3,920 outstanding shares of the registrant’s class A common stock, $0.01 par value, and there were 1,960 outstanding shares of the registrant’s class B common stock, $0.01 par value, which is subject to put and call options.

*	Note: As a voluntary filer not subject to filing requirements, the registrant filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 3 months.

INDEX


Section	Topic	Page
	Forward-Looking Statements	i

PART I – FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)

	Consolidated Balance Sheets as of September 26, 2008 and December 28, 2007	1

	Consolidated Statements of Operations for the three and nine months ended September 26, 2008 and September 28, 2007	2

	Consolidated Statements of Cash Flows for the nine months ended September 26, 2008 and September 28, 2007	3

	Notes to Consolidated Financial Statements – September 26, 2008	4

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3	Quantitative and Qualitative Disclosure about Market Risk	45

Item 4	Controls and Procedures	45

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	47

Item 4	Submission of Matters to a Vote of Security Holders	47

Item 6	Exhibits	47

Signatures		48

Unless otherwise indicated, references to “Holdings,” “the Company,” “we,” “our” and “us” in this quarterly report refer to JohnsonDiversey Holdings, Inc. and its consolidated subsidiaries, and references to “JDI” refer to JohnsonDiversey, Inc., a wholly owned subsidiary of Holdings.

FORWARD-LOOKING STATEMENTS

We make statements in this Form 10–Q that are not historical facts. These “forward-looking statements” can be identified by the use of terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “project,” “potential,” or the negative of these terms, and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following:

•

our ability to execute our business strategies;

•

our ability to successfully execute and complete our restructuring program, including workforce reduction, achievement of cost savings, as well as plant closures and disposition of assets;

•

successful operation of outsourced functions, including information technology and certain financial shared services;

•

changes in general economic and political conditions, interest rates and, in particular, exposure to foreign currency risks;

•

the vitality of the institutional and industrial cleaning and sanitation market;

•

restraints on pricing flexibility due to competitive conditions in the professional market;

•

the loss or insolvency of a significant supplier or customer;

•

effectiveness in managing our manufacturing processes, including our inventory, fixed assets and system of internal control;

•

changes in energy costs, the costs of raw materials and other operating expenses;

•

our ability and the ability of our competitors to introduce new products and technical innovations;

•

the costs and effects of complying with laws and regulations relating to the environment and to the manufacture, storage, distribution and labeling of our products;

•

the occurrence of litigation or claims;

•

changes in tax, fiscal, governmental and other regulatory policies;

•

the effect of future acquisitions or divestitures or other corporate transactions;

•

adverse or unfavorable publicity regarding us or our services;

•

the loss of, or changes in, executive management or other key personnel;

•

natural and manmade disasters, including acts of terrorism, hostilities, war, and other such events that cause business interruptions or affect our markets;

•

conditions affecting the food and lodging industry, including health-related, political and weather-related; and

•

other factors listed from time to time in reports that we file with the Securities and Exchange Commission (“SEC”).

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

JOHNSONDIVERSEY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)


	September 26, 2008			December 28, 2007
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	181,623		$	97,176
Accounts receivable, less allowance of $25,483 and $25,646, respectively		628,322			604,755
Accounts receivable – related parties		18,559			31,715
Inventories		319,431			279,175
Deferred income taxes		35,335			24,597
Other current assets		148,024			135,699
Current assets of discontinued operations		2,732			15,344

Total current assets		1,334,026			1,188,461
Property, plant and equipment, net		422,065			442,434
Capitalized software, net		41,500			36,556
Goodwill		1,270,149			1,287,158
Other intangibles, net		245,231			290,759
Long-term receivables – related parties		80,936			78,954
Other assets		83,050			90,284
Non current assets of discontinued operations		5,260			40,203

Total assets	$	3,482,217		$	3,454,809

LIABILITIES, CLASS B COMMON STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	46,746		$	18,898
Current portion of long-term debt		13,494			13,181
Accounts payable		375,982			355,089
Accounts payable – related parties		35,740			51,927
Accrued expenses		494,020			482,692
Non current liabilities of discontinued operations		4,522			14,786

Total current liabilities		970,504			936,573

Pension and other post-retirement benefits		221,675			233,677
Long-term borrowings		1,448,580			1,454,432
Long-term payables – related parties		30,522			31,101
Deferred income taxes		141,421			91,267
Other liabilities		100,396			96,127
Non current liabilities of discontinued operations		5,751			2,825

Total liabilities		2,918,849			2,846,002

Commitments and contingencies

Class B common stock subject to put and call options– $0.01 par value; 3,000 shares authorized; 1,960 shares issued and outstanding		531,616			531,127

Stockholders’ equity:
Class A common stock – $0.01 par value; 7,000 shares authorized; 3,920 shares issued and outstanding		—			—
Capital in excess of par value		10,503			10,692
Retained deficit		(256,413	)		(231,961	)
Accumulated other comprehensive income		277,662			298,949

Total stockholders’ equity		31,752			77,680

Total liabilities, class B common stock and stockholders’ equity	$	3,482,217		$	3,454,809

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

JOHNSONDIVERSEY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands)


	Three Months Ended						Nine Months Ended
	September 26, 2008			September 28, 2007			September 26, 2008			September 28, 2007
	(unaudited)						(unaudited)
Net sales:
Net product and service sales	$	846,696		$	744,589		$	2,495,035		$	2,160,724
Sales agency fee income		9,804			24,149			28,376			68,824

		856,500			768,738			2,523,411			2,229,548
Cost of sales		513,760			441,145			1,496,279			1,295,957

Gross profit		342,740			327,593			1,027,132			933,591
Selling, general and administrative expenses		262,888			275,025			819,077			818,423
Research and development expenses		15,698			15,824			50,885			47,100
Restructuring expenses		2,244			9,133			13,484			15,452

Operating profit		61,910			27,611			143,686			52,616
Other (income) expense:
Interest expense		38,449			38,517			114,747			114,365
Interest income		(2,070	)		(2,260	)		(5,983	)		(7,708	)
Other (income) expense, net		2,325			(429	)		678			(32	)

Income (loss) from continuing operations before income taxes		23,206			(8,217	)		34,244			(54,009	)
Income tax provision		32,831			19,858			69,416			57,009

Loss from continuing operations		(9,625	)		(28,075	)		(35,172	)		(111,018	)
Income from discontinued operations, net of income taxes of $9,802, $1,065, $12,066 and $3,869		9,414			1,595			12,962			5,802

Net loss	$	(211	)	$	(26,480	)	$	(22,210	)	$	(105,216	)

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

JOHNSONDIVERSEY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)


	Nine Months Ended
	September 26, 2008			September 28, 2007
	(unaudited)
Cash flows from operating activities:
Net loss	$	(22,210	)	$	(105,216	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		79,832			95,831
Amortization of intangibles		18,796			21,339
Amortization of debt issuance costs		3,913			3,821
Interest accreted on notes payable		13,566			34,454
Interest accrued on long-term receivables – related parties		(2,021	)		(1,926	)
Deferred income taxes		41,888			26,106
(Gain) loss on disposal of discontinued operations		(10,210	)		880
Gain from divestitures		(1,499	)		(268	)
Gain on property, plant and equipment disposals		(73	)		(4,323	)
Other		11,797			10,853
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses:
Accounts receivable securitization		(14,200	)		(12,600	)
Accounts receivable		(19,844	)		(32,965	)
Inventories		(50,102	)		(23,005	)
Other current assets		(14,412	)		(16,960	)
Other assets		2,645			5,462
Accounts payable and accrued expenses		188			(20,435	)
Other liabilities		(9,536	)		17,334

Net cash provided by (used in) operating activities		28,518			(1,618	)
Cash flows from investing activities:
Capital expenditures		(69,968	)		(63,979	)
Expenditures for capitalized computer software		(16,601	)		(4,871	)
Proceeds from property, plant and equipment disposals		3,380			10,258
Acquisitions of businesses and other intangibles		(6,321	)		(3,861	)
Proceeds from divestitures, net of transaction costs		128,562			2,351

Net cash provided by (used in) investing activities		39,052			(60,102	)
Cash flows from financing activities:
Proceeds from (repayments of) short-term borrowings		27,872			(7,308	)
Repayments of long-term borrowings		(6,701	)		(6,413	)
Payment of debt issuance costs		(123	)		(500	)

Net cash provided by (used in) financing activities		21,048			(14,221	)
Effect of exchange rate changes on cash and cash equivalents		(4,171	)		6,020

Change in cash and cash equivalents		84,447			(69,921	)
Beginning balance		97,176			208,418

Ending balance	$	181,623		$	138,497


Supplemental cash flows information
Cash paid during the year:
Interest	$	76,505		$	56,917
Income taxes		29,466			19,644

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

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

1. Description of the Company

JohnsonDiversey Holdings, Inc. (“Holdings” or the “Company”) directly owns all of the shares of JohnsonDiversey, Inc. (“JDI”), except for one share which is owned by S.C. Johnson & Son, Inc. (“SCJ”). The Company is a holding company and its sole business interest is the ownership and control of JDI and its subsidiaries. JDI is a leading global marketer and manufacturer of cleaning, hygiene, operational efficiency and appearance enhancing products and equipment, and related services for the institutional and industrial cleaning and sanitation markets.

Except where noted, the consolidated financial statements and related notes, excluding the consolidated statements of cash flows, reflect the results of continuing operations excluding the divestiture of DuBois Chemicals (“DuBois”), Chemical Methods Associates (“CMA”) and the Polymer Business segment (“Polymer Business”) (see Note 7).

2. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary to present fairly the financial position of the Company as of September 26, 2008 and its results of operations for the three and nine month periods ended September 26, 2008 and cash flows for the nine month period ended September 26, 2008 have been included. The results of operations for the three and nine month periods ended September 26, 2008 are not necessarily indicative of the results to be expected for the full fiscal year. It is recommended that the accompanying consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 28, 2007.

The Company has accounted for the divestiture of CMA and the Polymer Business as discontinued operations (see Note 7).

The Company has also accounted for the divestiture of DuBois as a discontinued operation, resulting in the reclassification of prior period amounts in the Company’s consolidated statements of operations and consolidated balance sheets (see Note 7).

Unless otherwise indicated, all monetary amounts, excluding share data, are stated in thousands.

Beginning with fiscal year 2008, the Company will change its fiscal year end date from the Friday nearest December 31 to December 31. Accordingly, fiscal year 2008 will end on December 31, 2008.

3. New Accounting Standards

In August 2008, the SEC announced that it will issue for comment a proposed roadmap regarding the potential use of International Financial Reporting Standards (“IFRS”) for the preparation of financial statements by U.S. registrants. IFRS are standards and interpretations adopted by the International Accounting Standards Board. Under the proposed roadmap, we would be required to prepare financial statements in accordance with IFRS in fiscal 2016, including comparative information also prepared under IFRS for fiscal 2014 and fiscal 2015. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. We are currently assessing the potential impact of IFRS on our financial statements, including early adoption of IFRS, and will continue to follow the proposed roadmap for future developments.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

In May 2008, the Financial Accounting Standards Board (“the FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162). SFAS No. 162 provides a framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for nongovernmental entities. SFAS No. 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” We do not expect the adoption of SFAS No. 162 will have a significant effect on our financial condition, results of operations or cash flows.

In April 2008, the FASB issued Staff Position No. 142-3, “Determining the Useful Life of Intangible Assets” (“FSP No. 142-3”). FSP No. 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value by allowing an entity to consider its own historical experience in renewing or extending the useful life of a recognized intangible asset. FSP No. 142-3 is effective for fiscal years beginning after December 15, 2008, which for the Company is its fiscal year 2009. We are currently evaluating the impact of the provisions of FSP No. 142-3.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires companies to provide enhanced disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in their hedged positions. The statement also requires companies to disclose more information about the location and amounts of derivative instruments in financial statements; how derivatives and related hedges are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities;” and how the hedges affect the entity’s financial condition, results of operations and cash flows. SFAS No. 161 is effective prospectively for fiscal years and interim periods beginning after November 15, 2008, which for the Company is its fiscal year 2009. Early adoption is encouraged. We are currently evaluating the impact of the provisions of SFAS No. 161.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”), which replaces SFAS No. 141, “Business Combinations.” SFAS No. 141(R) retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but SFAS No. 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for changes in valuation allowances on deferred taxes and acquired tax contingencies related to acquisitions prior to the date of adoption of SFAS No. 141(R). Early adoption is not permitted. The provisions of SFAS No. 141(R) are effective for the fiscal year beginning on or after December 15, 2008, which for the Company is its fiscal year 2009. We are currently evaluating the impact of the provisions of SFAS No. 141(R).

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statement, an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled, and presented in the consolidated financial statements within equity, but separate from the parent’s equity. It also requires that once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The provisions of SFAS No. 160 are effective for the fiscal year beginning on or after December 15, 2008, which for the Company is its fiscal year 2009. We are currently evaluating the impact of the provisions of SFAS No. 160.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

In January 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 is intended to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. It also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The statement does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value, and it does not establish requirements for recognizing dividend income, interest income or interest expense. It also does not eliminate disclosure requirements included in other accounting standards. The Company adopted SFAS No. 159 at the beginning fiscal year of 2008; however, we have not elected to change the measurement attribute for any of the permitted items to fair value upon adoption. The adoption of SFAS No. 159 has not had a significant effect on our financial condition, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. Relative to SFAS No. 157, the FASB issued FSP No. 157-2, which delays the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. As required, the Company adopted SFAS No. 157 at the beginning of fiscal year 2008 for financial assets and liabilities and for nonfinancial assets and liabilities that are remeasured at least annually, the provisions of which have not had a significant effect on our financial condition, results of operations or cash flows. We have not yet determined the impact on our financial statements from the adoption of SFAS No. 157 as it pertains to nonfinancial assets and nonfinancial liabilities for fiscal 2009 (See Note 14).

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132 (R)” (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in its consolidated balance sheets and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 does not change the amount of net periodic benefit cost included in net earnings. The Company adopted the recognition provisions of SFAS No. 158 effective December 28, 2007.

SFAS No. 158 also requires the measurement of defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end consolidated balance sheets (with limited exceptions). The Company adopted such provisions at the beginning of fiscal year 2008, resulting in a $2,242 increase in pension and post-retirement benefits and retained deficit during the three month period ended March 28, 2008 and nine month period ended September 26, 2008.

4. Master Sales Agency Terminations

In connection with the May 2002 acquisition of the DiverseyLever business, the Company entered into a master sales agency agreement (the “Sales Agency Agreement”) with Unilever, whereby the Company acts as an exclusive sales agent in the sale of Unilever’s consumer branded products to various institutional and industrial end-users. At acquisition, the Company assigned an intangible value to the Sales Agency Agreement of $13,000.

An agency fee is paid by Unilever to the Company in exchange for its sales agency services. An additional fee is payable by Unilever to the Company in the event that conditions for full or partial termination of the Sales Agency Agreement are met. The Company elected, and Unilever agreed, to partially terminate the Sales Agency Agreement in several territories resulting in payment by Unilever to the Company of additional fees. In association with the partial terminations, the Company recognized sales agency fee income of $180 and $2,229 during the three months ended September 26, 2008 and September 28, 2007, respectively; and $587 and $2,947 during the nine months ended September 26, 2008 and September 28, 2007, respectively.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

In October 2007, the Company and Unilever agreed on an Umbrella Agreement (the “Umbrella”), to replace the previous Sales Agency Agreement, which includes; i) a new agency agreement with terms similar to the previous Sales Agency Agreement, covering Ireland, the United Kingdom, Portugal and Brazil, and ii) a Master Sub-License Agreement (the “License Agreement”) under which Unilever has agreed to grant 31 of the Company’s subsidiaries a license to produce and sell professional size packs of Unilever’s consumer branded cleaning products. The entities covered by the License Agreement will also enter agreements with Unilever to distribute Unilever’s consumer branded products. Except for some transitional arrangements in certain countries, the Umbrella became effective January 1, 2008, and, unless otherwise terminated or extended, will expire on December 31, 2017.

Under the License Agreement, the Company recorded net product and service sales of $39,447 and $114,535 during the three and nine months ended September 26, 2008, respectively.

5. Acquisitions

June 2008

In June 2008, JDI purchased certain intangible assets relating to a cleaning technology for an aggregate purchase price of $8,020. The purchase price includes a $1,000 non-refundable deposit made in July 2007; $5,020 paid at closing; and $2,000 of future payments that are contingent upon, among other things, achieving commercial production. Assets acquired include primarily intangible assets, consisting of trademarks, patents, technological know-how, customer relationships and a non-compete agreement.

In September 2008, having met certain contingent requirements, the Company paid the sellers $1,000.

In conjunction with the acquisition, the Company and the sellers entered into a consulting agreement, under which the Company will pay to the sellers $1,000 in fiscal 2009 and $1,000 in fiscal 2010, subject to meeting certain conditions.

In addition to the purchase price discussed above, the Company previously maintained an intangible asset in its consolidated balance sheet in the amount of $4,700, representing a payment from the Company to the sellers in a previous period in exchange for an exclusive distribution license agreement relating to this technology. This distribution agreement was terminated as a result of the acquisition and the value of this asset is considered in the final allocation of purchase price.

At September 26, 2008, the Company’s allocation of purchase price is as follows:


	Fair Value		Useful Life
Trademarks	$	540	Indefinite
Patents		40	18 years
Technological know-how		10,470	20 years
Customer relationships		50	10 years
Non-compete		600	10 years

The Company expects to allocate any future contingent payments to technological know-how, as paid.

March 2007

In March 2007, JDI purchased an additional 6% interest in a North American business that provides purchasing and category management tools to certain of JDI’s end-users for $2,550. JDI previously held 9% of the outstanding shares. The transaction is not considered material to the Company’s consolidated financial position, results of operations or cash flows.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

6. Divestitures

Auto-Chlor Master Franchise and Branch Operations

In December 2007, in conjunction with its November 2005 Plan (see Note 11), JDI executed a sales agreement for its Auto-Chlor Master Franchise and substantially all of its remaining Auto-Chlor branch operations in North America, a business that marketed and sold low-energy dishwashing systems, kitchen chemicals, laundry and housekeeping products and services to foodservice, lodging, healthcare, and institutional customers, for $69,800.

The sales agreement was subject to the approval of the Company’s Board of Directors and Unilever consent, both of which the Company considered necessary in order to meet “held for sale” criteria under SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” Accordingly, these assets were classified as “held and used” as of December 28, 2007. The Company obtained approval from its Board of Directors and consent from Unilever in January 2008.

The transaction closed on February 29, 2008, and the Company recorded an estimated gain of $2,481 after taxes and related costs during the three months ended March 28, 2008. The Company recorded additional one-time costs and refined net assets disposed, reducing the gain by $50 during the three months ended September 26, 2008, resulting in a gain of $1,509 after taxes and related costs during the nine months ended September 26, 2008. The gain associated with these divestiture activities is included as a component of selling, general and administrative expenses in the consolidated statements of operations. The gain is subject to additional post-closing adjustments including evaluation of potential pension-related settlement charges.

As of the divestiture date, net assets were as follows:


Inventories	$	8,343
Property, plant and equipment, net		11,439
Goodwill		12,745
Other intangibles, net		32,517

Net assets divested	$	65,044

Net sales associated with these businesses were approximately $0 and $15,487 for the three months ended September 26, 2008 and September 28, 2007, respectively; and $9,882 and $45,929 for the nine months ended September 26, 2008 and September 28, 2007, respectively.

7. Discontinued Operations

DuBois Chemicals

On September 26, 2008, JDI and JohnsonDiversey Canada, Inc., a wholly-owned subsidiary of JDI, sold substantially all of the assets of DuBois Chemicals (“DuBois”) to DuBois Chemicals, Inc. and DuBois Chemicals Canada, Inc., subsidiaries of The Riverside Company (collectively, “Riverside”) for approximately $69,700, of which, $5,000 was escrowed subject to meeting fiscal year 2009 performance measures and $1,000 was escrowed subject to resolution of certain environmental representations by JDI. The purchase price is also subject to certain post-closing adjustments that are based on net working capital targets. JDI and Riverside are expected to finalize the performance related adjustments during the second quarter of 2010 and all other adjustments during the first quarter of 2009.

DuBois is a North American based manufacturer and marketer of specialty chemicals, control systems and related services primarily for use by industrial manufacturers. DuBois was a non-core asset of JDI and a component of the North American business segment. The sale resulted in a gain of approximately $16,900 ($8,300 after tax), net of related costs.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

The following summarizes the carrying amount of assets and liabilities of DuBois immediately preceding divestiture:


	September 26, 2008
ASSETS
Current assets:
Accounts receivable, less allowance of $72	$	13,239
Inventories		7,232
Other current assets		139

Current assets of discontinued operations	$	20,610

Non current assets:
Property, plant and equipment, net	$	10,985
Goodwill		9,749
Other intangibles, net		9,906

Non current assets of discontinued operations	$	30,640

LIABILITIES
Current liabilities:
Accounts payable	$	2,803
Accrued expenses		3,765

Current liabilities of discontinued operations	$	6,568

Net sales from discontinued operations for the three and nine months ended September 26, 2008 and September 28, 2007 were as follows:


	Three Months Ended				Nine Months Ended
	September 26, 2008		September 28, 2007		September 26, 2008		September 28, 2007
Net sales ¹	$	23,448	$	31,121	$	72,134	$	94,996

¹	Includes intercompany sales of $2,121 and $8,843 for the three months ended September 26, 2008 and September 28, 2007, respectively; and $7,193 and $29,995 for the nine months ended September 26, 2008 and September 28, 2007, respectively.

Income from discontinued operations for the three and nine months ended September 26, 2008 and September 28, 2007 were comprised of the following:


	Three Months Ended						Nine Months Ended
	September 26, 2008			September 28, 2007			September 26, 2008			September 28, 2007
Income from discontinued operations before taxes and gain from sale	$	2,126		$	2,642		$	6,630		$	9,276
Taxes on discontinued operations		(745	)		(1,057	)		(2,423	)		(3,710	)
Gain on sale of discontinued operations before taxes		16,938			—			16,938			—
Taxes on gain from sale of discontinued operations		(8,629	)		—			(8,629	)		—

Income from discontinued operations	$	9,690		$	1,585		$	12,516		$	5,566

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

The Asset Purchase Agreement refers to ancillary agreements governing certain relationships between the parties, including a Distribution Agreement and Supply Agreement, each of which is not considered material to JDI’s consolidated financial results.

On September 26, 2008, in association with the divestiture, Commercial Markets Holdco, Inc. (“Holdco”), Marga B.V., a subsidiary of Unilever, and the Company amended and restated the Amended and Restated Stockholders’ Agreement (the “Agreement”) dated as of January 1, 2008. Holdco and Marga B.V. own 66 2/3% and 33 1/3% of the outstanding shares of the Company, respectively. The Company owns 100% of the outstanding shares of JDI. The amendment and restatement of the Stockholders’ Agreement adjusted the buyout formula relating to the purchase of Marga B.V.’s shares by the Company in the amount of $19,100, subject to an adjustment based on the performance measures previously mentioned, at the time of Marga B.V.’s exit.

Chemical Methods Associates

On September 30, 2006, in connection with its November 2005 Plan (see Note 11), JDI sold its equity interest in CMA to Ali SpA, an Italian-based manufacturer of equipment for the food service industry, for $17,000. CMA was a non-core asset of the Company. In January 2007, the Company finalized and collected additional purchase price of $314 related to a working capital adjustment. During the fiscal year ended December 29, 2006, the Company recorded an estimated gain of $2,322 ($497 after tax), net of related costs. During the nine months ended September 28, 2007 the Company finalized purchase price and recorded additional closing costs, resulting in a reduction to the gain of $125 ($75 after tax). During the fiscal year ended December 28, 2007, the Company finalized purchase price and recorded additional closing costs, resulting in a reduction to the gain of $262 ($300 after tax).

Polymer Business

On June 30, 2006, Johnson Polymer, LLC (“JP”) and JohnsonDiversey Holdings II B.V. (“Holdings II”), an indirectly owned subsidiary of JDI, completed the sale of substantially all of the assets of JP, certain of the equity interests in, or assets of certain JP subsidiaries and all of the equity interests owned by Holdings II in Johnson Polymer B.V. (collectively, the “Polymer Business”) to BASF Aktiengesellschaft (“BASF”) for approximately $470,000 plus an additional $8,119 in connection with the parties' estimate of purchase price adjustments that are based upon the closing net asset value of the Polymer Business. Further, BASF paid the Company $1,500 for the option to extend the tolling agreement by up to six months. In December 2006, the Company and BASF finalized purchase price adjustments related to the net asset value and the Company received an additional $4,062. The Polymer Business developed, manufactured and sold specialty polymers for use in the industrial print and packaging industry, industrial paint and coatings industry and industrial plastics industry. The Polymer Business was a non-core asset of the Company and had been reported as a separate business segment. During the fiscal year ended December 29, 2006, the Company recorded an estimated gain of $352,907 ($256,693 after tax), net of related costs.

During the fiscal year ended December 28, 2007, the Company finalized and paid certain pension related adjustments, adjusted net assets disposed and recorded additional closing costs, reducing the gain by $1,742 ($305 after tax gain) of which $243 ($145 after tax) and $1,342 ($805 after tax) was recorded during the three and nine months ended September 28, 2007, respectively. During the three and nine months ended September 26, 2008, the Company recorded and refined additional closing costs reducing the gain by $14 ($58 after tax) and $186 ($223 after tax), respectively. Further adjustments are not expected to be significant.

The Company recorded income (loss) from discontinued operations, net of tax, relating to the tolling agreement of ($218) and $238, during the three months ended September 26, 2008 and September 28, 2007, respectively, and $669 and $1,116, respectively for the nine months ended September 26, 2008 and September 28, 2007.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

8. Accounts Receivable Securitization

JDI and certain of its subsidiaries entered into an agreement (the “Receivables Facility”) whereby they sell, on a continuous basis, certain trade receivables to JWPR Corporation (“JWPRC”), a wholly-owned, consolidated, special purpose, bankruptcy-remote subsidiary of JDI. JWPRC was formed for the sole purpose of buying and selling receivables generated by JDI and certain of its subsidiaries party to the Receivables Facility. JWPRC, in turn, sells an undivided interest in the accounts receivable to a nonconsolidated financial institution (the “Conduit”) for an amount equal to the value of all eligible receivables (as defined under the receivables sale agreement between JWPRC and the Conduit) less the applicable reserve. As of September 26, 2008 and December 28, 2007, the size of our Receivables Facility for securitization was $75,000.

As of September 26, 2008 and December 28, 2007, the Conduit held $39,700 and $45,200, respectively, of accounts receivable that are not included in the accounts receivable balance reflected in the Company’s consolidated balance sheet.

As of September 26, 2008 and December 28, 2007, JDI had a retained interest of $88,047 and $79,957, respectively, in the receivables of JWPRC. The retained interest is included in the accounts receivable balance and is reflected in the consolidated balance sheet at estimated fair value.

9. Income Taxes

For the fiscal year ending December 31, 2008, the Company is projecting an effective income tax rate on income from continuing operations of approximately 250%. The projected effective income tax rate for the fiscal year exceeds the statutory tax rate primarily as a result of increased valuation allowances against net deferred tax assets and increases in reserves for uncertain tax positions.

The Company reported an effective income tax rate of 141.5% and 202.7% on pre-tax income from continuing operations for the three and nine month periods ended September 26, 2008, respectively. When compared to the estimated annual effective tax rate, the effective tax rates for the three and nine month periods ended September 26, 2008 are lower primarily due to actual pacing of pre-tax income (loss) and income tax expense (benefit) in certain key jurisdictions. Additionally, the effective tax rate on income from continuing operations for the three and nine month periods ended September 26, 2008 was reduced by the income tax benefit from use of the current year pre-tax loss from continuing operations to offset the income and gain from the divestiture of the DuBois business. While the estimated annual effective tax rate is also reduced by the effect of the divestiture, the impact on the three and nine month periods is more pronounced due to the lower level of pre-tax income for the periods.

The Company reported an effective income tax rate of 51.0% and 48.2% on pre-tax income from discontinued operations for the three and nine month periods ended September 26, 2008, respectively. The effective income tax rate exceeds the statutory tax rate primarily as a result of an excess of book goodwill over tax goodwill considered disposed in conjunction with the divestiture of the DuBois business. In accordance with SFAS No. 109, “Accounting for Income Taxes,” the income tax benefit from use of the current year pre-tax loss from continuing operations to offset the gain from the divestiture of the DuBois business is reported as an income tax benefit for continuing operations.

The Company is projecting a charge to income tax expense of approximately $8,000 for the 2008 fiscal year related to uncertain income tax positions, primarily related to certain intercompany transactions. As of December 31, 2008, the Company is projecting total unrecognized tax benefits for uncertain tax positions of $123,600, including positions impacting only the timing of tax benefits, of which $39,200, if recognized, would favorably affect the effective income tax rate in future periods (after considering the impact of valuation allowances). Additionally, $4,500 of unrecognized tax benefits would, if recognized, reduce goodwill. As of December 31, 2008, the Company is projecting accrued interest and penalties of $13,700 related to unrecognized tax benefits, of which $2,900 is expected to be recorded as income tax expense during the fiscal year ended December 31, 2008.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

The Company is currently under audit by various state and international tax authorities. Based on the anticipated outcomes of these tax audits and the potential lapse of statutes of limitation, it is reasonably possible there could be a reduction of $17,200 in unrecognized tax benefits during the next twelve months.

10. Inventories

The components of inventories are summarized as follows:


	September 26, 2008		December 28, 2007
Raw materials and containers	$	68,377	$	69,810
Finished goods		251,054		209,365

Total inventories	$	319,431	$	279,175

Inventories are stated in the consolidated balance sheets net of allowance for excess and obsolete inventory of $27,810 and $30,594 on September 26, 2008 and December 28, 2007, respectively.

11. Restructuring Liabilities

November 2005 Restructuring Program

On November 7, 2005, the Company’s Board of Directors approved a restructuring program (“November 2005 Plan”), which is expected to take one to two more years to implement, and includes a redesign of the Company’s organization structure, the closure of a number of manufacturing and other facilities and a workforce reduction of approximately 10%, in addition to previously planned divestitures. In addition to the divestiture of the Polymer Business, CMA and DuBois (see Note 7), the Company is considering the potential divestiture of, or exit from, certain other non-core or underperforming businesses.

In connection with the November 2005 Plan, the Company recognized liabilities of $2,244 for the involuntary termination of 57 employees during the three months ended September 26, 2008, most of which are associated with the European and North American business segments. During the nine months ended September 26, 2008, the Company recognized liabilities of $13,445 for the involuntary termination of 219 employees, most of which are associated with the European and Japanese business segments. The Company also recorded $0 and $39 of other restructuring costs during the three and nine months ended September 26, 2008, respectively.

In addition, and in connection with the November 2005 Plan, the Company recognized liabilities of $8,986 and $14,764 for the involuntary termination of 73 and 195 employees, most of which are associated with the European business segment. The company also recorded liabilities of $147 and $762 and liability adjustments, resulting in reductions of $0 and $74, associated with other restructuring activity during the three and nine months ended September 28, 2007, respectively.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

The activities associated with the November 2005 Plan for the nine months ended September 26, 2008 were as follows:


	Employee- Related			Other			Total
Liability balances as of December 28, 2007	$	43,069		$	3,157		$	46,226
Liability recorded as restructuring expense, net		6,497			—			6,497
Cash paid ¹		(6,250	)		(75	)		(6,325	)

Liability balances as of March 28, 2008	$	43,316		$	3,082		$	46,398

Liability recorded as restructuring expense, net		4,704			39			4,743
Cash paid ²		(11,636	)		(45	)		(11,681	)

Liability balances as of June 27, 2008	$	36,384		$	3,076		$	39,460

Liability recorded as restructuring expense, net		2,244			—			2,244
Cash paid ³		(11,720	)		(79	)		(11,799	)

Liability balances as of September 26, 2008	$	26,908		$	2,997		$	29,905

¹	Cash paid is increased by $70 due to the effects of foreign exchange.

²	Cash paid is increased by $245 due to the effects of foreign exchange.

³	Cash paid is increased by $302 due to the effects of foreign exchange.

In connection with the November 2005 Plan, the Company recorded long-lived asset impairment charges of $242 and $ 6,265 for the three and nine months ended September 26, 2008, respectively. In addition, and in connection with the November 2005 Plan, the Company recorded long-lived asset impairment charges of $6,429 and $9,848 for the three and nine months ended September 28, 2007, respectively. The impairment charges are included in selling, general and administrative costs.

Total plan-to-date expense, net associated with the November 2005 Plan, by reporting segment is summarized as follows:


	Total Plan To-Date		Three Months Ended						Nine Months Ended
	Total Plan To-Date		September 26, 2008			September 28, 2007			September 26, 2008			September 28, 2007
North America	$	27,529	$	421		$	818		$	2,374		$	3,519
Europe		96,892		1,512			8,822			4,944			11,012
Japan		8,321		50			423			5,770			935
Latin America		4,442		474			(4	)		1,009			731
Asia Pacific		856		(24	)		56			372			38
Other		21,905		(189	)		(982	)		(985	)		(783	)

	$	159,945	$	2,244		$	9,133		$	13,484		$	15,452

Exit and Acquisition-Related Restructuring Programs

In connection with the acquisition of the DiverseyLever business, the Company recorded liabilities for the involuntary termination of former DiverseyLever employees and other exit costs associated with former DiverseyLever facilities. The Company paid cash of $114 and $420 representing contractual obligations associated with involuntary terminations during the three and nine months ended September 26, 2008. As of September 26, 2008, the Company had remaining exit and acquisition-related restructuring reserves of $681. The Company paid cash of $315 and $803 representing contractual obligations associated with involuntary terminations and lease payments with respect to closed facilities during the three and nine months ended September 28, 2007, respectively.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

12. Other (Income) Expense, Net

The components of other (income) expense, net in the consolidated statements of operations are as follows:


	Three Months Ended						Nine Months Ended
	September 26, 2008			September 28, 2007			September 26, 2008			September 28, 2007
Foreign currency translation (gain) loss	$	15,644		$	(4,809	)	$	6,701		$	(8,754	)
Forward contracts (gain) loss		(13,334	)		3,979			(6,394	)		7,610
Other, net		15			401			371			1,112

	$	2,325		$	(429	)	$	678		$	(32	)

13. Defined Benefit Plans and Other Post-Employment Benefit Plans

The components of net periodic benefit costs for the Company’s defined benefit pension plans and other post-employment benefit plans for the three and nine months ended September 26, 2008 and September 28, 2007 are as follows:


	Defined Pension Benefits
	Three Months Ended						Nine Months Ended
	September 26, 2008			September 28, 2007			September 26, 2008			September 28, 2007
Service cost	$	6,586		$	8,016		$	20,066		$	23,480
Interest cost		10,011			9,517			30,433			28,105
Expected return on plan assets		(11,147	)		(10,375	)		(33,867	)		(30,680	)
Amortization of net loss		951			2,042			3,009			5,457
Amortization of transition obligation		61			102			187			302
Amortization of prior service credit		(232	)		(177	)		(702	)		(520	)
Effect of curtailments, settlements and special termination benefits		504			2,950			3,081			7,301

Net periodic pension cost	$	6,734		$	12,075		$	22,207		$	33,445


	Other Post-Employment Benefits
	Three Months Ended						Nine Months Ended
	September 26, 2008			September 28, 2007			September 26, 2008			September 28, 2007
Service cost	$	513		$	601		$	1,541		$	1,792
Interest cost		1,292			1,418			3,880			4,241
Amortization of net loss		62			350			187			1,051
Amortization of prior service credit		(45	)		(47	)		(136	)		(140	)
Effect of curtailments and settlements		106			—			150			(129	)

Net periodic benefit cost	$	1,928		$	2,322		$	5,622		$	6,815

The Company made contributions to its defined benefit pension plans of $11,066 and $26,158 during the three months ended September 26, 2008 and September 28, 2007, respectively; and $32,075 and $43,469 during the nine months ended September 26, 2008 and September 28, 2007, respectively.

In September 2008, the Company recognized curtailment and special termination benefit losses of $453 in defined pension benefits and $106 in other post-employment benefits related to the divestiture of the Dubois business in the United States and Canada. The Dubois related losses were recorded as a component of discontinued operations in the consolidated statement of operations.

In September 2008, the Company recognized a curtailment gain of $200 relating to the announced freeze of the Cash Balance Pension Plan in the United States. The Company recorded the gain in selling, general and administrative expenses in the consolidated statement of operations.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

In June 2008, the Company recognized a settlement of defined benefits to former Japan employees, resulting in a related loss of $2,535 in the three months ended June 27, 2008. In September 2008, the Company recognized a related additional loss of $251 for the three months ended September 26, 2008. The Company recorded these losses in selling, general and administrative expenses in the consolidated statement of operations.

In July 2007, the Company recognized a settlement of defined benefits to former North American Professional and Polymer employees resulting in related losses of $1,900 and $500, respectively, in the three months ended September 28, 2007. The Company recorded the Professional losses, which are related to the November 2005 Plan, in selling, general and administrative expenses in the consolidated statement of operations. The Polymer related losses were recorded as a component of discontinued operations in the consolidated statement of operations.

In July 2007, the Company’s Italian subsidiary recognized curtailment charges relating to legislative changes to the mandatory termination indemnity program resulting in losses of $550 in the three months ended September 28, 2007. The Company recorded the losses in selling, general and administrative expenses in the consolidated statement of operations.

In June 2007, the Company recognized a settlement of defined benefits to former North American Professional and Polymer employees resulting in related losses of $3,500 and $600, respectively, in the three months ended June 29, 2007. The Company recorded the Professional losses, which include the effects of severance activity related to the November 2005 Plan, in selling, general and administrative expenses in the consolidated statement of operations. The Polymer related losses were recorded as a component of discontinued operations in the consolidated statement of operations.

14. Fair Value Measurements


Level 1 –		Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2 –		Observable prices that are based on inputs not quoted in active markets, but corroborated by market data.

Level 3 –		Unobservable inputs for which there is little or no market data available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

The fair value of financial assets and liabilities measured at fair value on a recurring basis was as follows:


	Balance at September 26, 2008		Level 1		Level 2		Level 3
Assets:
Foreign currency forward contracts	$	1,995	$	—	$	1,995	$	—

Liabilities:
Foreign currency forward contracts	$	5,249	$	—	$	5,249	$	—
Interest rate swap contracts		5,074		—		5,074		—

	$	10,323	$	—	$	10,323	$	—

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

We utilize the market approach to measure fair value for our financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

15. Comprehensive Income (Loss)

Comprehensive income (loss) for the three and nine month periods ended September 26, 2008 and September 28, 2007 was as follows:


	Three Months Ended						Nine Months Ended
	September 26, 2008			September 28, 2007			September 26, 2008			September 28, 2007
Net loss	$	(211	)	$	(26,480	)	$	(22,210	)	$	(105,216	)
Foreign currency translation adjustments		(84,566	)		58,088			(22,523	)		89,725
Adjustments to pension and post-retirement liabilities, net of tax		(6,121	)		—			2,407			—
Unrealized gains (losses) on derivatives, net of tax		326			(1,618	)		(1,171	)		(316	)

Total comprehensive income (loss)	$	(90,572	)	$	29,990		$	(43,497	)	$	(15,807	)

16. Stockholders’ Agreement and Class B Common Stock Subject to Put and Call Options

In connection with the acquisition of the DiverseyLever business, the Company entered into a Stockholders’ Agreement with its stockholders, Commercial Markets Holdco, Inc. (“Holdco”) and Marga B.V., a wholly owned subsidiary of Unilever N.V. (“Unilever”), as amended and restated in September 2008. The Stockholders’ Agreement relates to, among other things:

•

restrictions on the transfer of the Company’s shares held by the stockholders;

•

the Company’s corporate governance, including board and committee representation and stockholder approval provisions;

•

the put and call options and rights of first offer and refusal with respect to shares held by Marga B.V.;

•

certain payments to Marga B.V. as described below; and

•

various other rights and obligations of the Company and its stockholders, such as provisions relating to delivery of and access to financial and other information, payment of dividends and indemnification of directors, officers and stockholders.

Marga B.V.’s obligations under the Stockholders’ Agreement are guaranteed by Unilever.

Put and Call Options. Under the Stockholders’ Agreement, at any time after May 3, 2008, Unilever has the right to require the Company to purchase the shares then beneficially owned by Unilever. The Company has the option to purchase the shares beneficially owned by Unilever at any time after May 3, 2010. Any exercise by the Company of its call option must be for at least 50% of the shares beneficially owned by Unilever. Any exercise by Unilever of its put option must be for all of its shares.

Before May 3, 2010, the Company’s obligations in connection with a put by Unilever are conditioned on a refinancing of JDI’s and the Company’s indebtedness, including indebtedness under JDI’s senior subordinated notes and JDI’s senior secured credit facilities. In connection with the put, the Company must use its reasonable best efforts prior to May 3, 2009, and its best efforts after that date, to consummate a refinancing and may be required to purchase less than all of the shares subject to the put under some circumstances. If the Company purchases less than all of the shares subject to a put, Unilever may again put its remaining shares after a specified suspension period.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

Following the exercise by Unilever of its put rights, if the Company fails to purchase all of Unilever’s shares for cash by May 3, 2010, it must issue a promissory note to Unilever in exchange for the remaining shares. The maturity date of the promissory note will be either 90 days or one year after its issuance, depending on the level of Unilever’s ownership interest in the Company at that time. The terms of the promissory note will provide Unilever with rights similar to its rights as a stockholder under the Stockholders’ Agreement, including board representation, veto and access and informational rights. The promissory note will contain various subordination provisions in relation to JDI’s and the Company’s indebtedness.

If, after May 3, 2010, Unilever has not been paid cash with respect to its put option, Unilever may also:

•

require the Company to privately sell Unilever’s shares or other shares of Holdings’ capital stock to a third party; and

•

require the Company to sell its Japan businesses or any other business or businesses that may be identified for sale by a special committee of the Company’s board of directors. The special committee is required to identify such other business or businesses after May 3, 2009 and prior to May 3, 2010 and to engage an investment banking firm to assist it with such identification and evaluation.

The exercise of these remedies, other than sales of Unilever’s shares, is subject to compliance with the agreements relating to JDI’s and the Company’s indebtedness.

The price for the Company’s shares subject to a put or call option will be based on the Company’s enterprise value at the time the relevant option is exercised, plus its cash and minus its indebtedness. The Company enterprise value cannot be less than eight times the EBITDA of the Company and its subsidiaries, on a consolidated basis, for the preceding four fiscal quarters, as calculated in accordance with the terms of the Stockholders’ Agreement. If the Company, Unilever and their respective financial advisors cannot agree on an enterprise value, the issue will be submitted to an independent third-party for determination.

If the Company purchases less than all of the shares beneficially owned by Unilever in connection with the exercise of the put or call option, Unilever may elect to fix the price for its remaining shares not purchased. If Unilever does not elect to fix the price, the price will float and a new price will be determined based on the enterprise value the next time a put or call option is exercised.

Contingent Payments. Under the Stockholders’ Agreement, the Company may be required to make payments to Unilever in each year from 2007 through 2010 so long as Unilever continues to beneficially own 5% or more of the Company’s outstanding shares. The amount of each payment will be equal to 25% of the amount by which the cumulative cash flows of the Company and its subsidiaries, on a consolidated basis, for the period from May 3, 2002, through the end of the fiscal year preceding the payment (not including any cash flow with respect to which Unilever received a payment in a prior year), exceeds:

•

$727,000 in 2006;

•

$975,000 in 2007;

•

$1,200,000 in 2008; and

•

$1,425,000 in 2009.

The aggregate amount of all these payments cannot exceed $100,000. Payment of these amounts is subject to compliance with the agreements relating to the Company and JDI’s senior indebtedness including, without limitation, the senior discount notes of the Company, JDI’s senior subordinated notes and JDI’s senior secured credit facilities.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

Holdings did not meet the cumulative cash flow requirement for the measurement periods ended December 28, 2007 and December 29, 2006 and will not be required to make a contingent payment.

Transfer of Shares. Under the Stockholders’ Agreement, a stockholder controlled by Unilever may transfer its shares of the Company to another entity of which Unilever owns at least an 80% interest, and a stockholder controlled by Holdco may transfer its shares of the Company to another entity of which Holdco owns at least an 80% interest.

In addition, at any time after May 3, 2007, Unilever may sell all, but not less than all, of its shares of the Company to no more than one person (an “Early Sale”), subject to certain restrictions, including, but not limited to, the requirement that all consents and approvals are obtained, the sale not violating or resulting in the termination of JDI’s license agreement with SCJ and the sale not constituting a change of control under the JDI’s senior secured credit facilities. Further, the purchaser of the Company’s shares from Unilever cannot be a competitor of SCJ and must be approved by Holdco, which approval cannot be unreasonably withheld or delayed. If Unilever sells its shares of the Company to a third party, that third party would be entitled to the same rights and be subject to the same obligations applicable to Unilever under the Stockholders’ Agreement.

From May 3, 2007 through May 3, 2008, prior to commencing an Early Sale, Unilever must notify the Company of its intention to sell its shares and the Company has the right of first offer to purchase the shares beneficially owned by Unilever at the price and on the terms specified by Unilever. If the Company does not elect to purchase the shares, Unilever may commence an Early Sale. Prior to completing that sale, however, Unilever must again offer the shares to the Company, and the Company has a right of first refusal to purchase the shares. The price for the shares under the Company’s right of first refusal would be the price at which the shares are offered to the third-party purchaser plus a premium equal to 3% of that third-party price, with a maximum aggregate premium of $15 million and a minimum aggregate premium of $10 million. The maximum and minimum limitations applicable to the premium are prorated to the extent that the Company had previously purchased shares held by Unilever. The premium would be paid by Holdco. Notwithstanding the foregoing, if Unilever has not notified the Company of its intention to sell its shares pursuant to an Early Sale prior to May 3, 2008, Unilever would be required to first exercise its put option prior to selling its shares to a third party as described in this paragraph.

Purchase of Additional Shares from Holdco. Under the Stockholders’ Agreement, on the earlier of May 3, 2010 and the date on which Unilever sells all of its shares of the Company to the Company or a third party in accordance with the terms of the Stockholders’ Agreement, Unilever will have the right to buy from Holdco that number of class A common shares of the Company (the “Additional Shares”) equal to the lesser of (i) 1.5% of the total outstanding shares of the Company and (ii) the largest whole number of class A common shares, the aggregate value (as determined pursuant to the Stockholders’ Agreement) of which does not exceed $40 million. The purchase price to be paid by Unilever to Holdco for such Additional Shares would be $.01 per share. Unilever may then require the immediate repurchase by Holdco of the Additional Shares at a price determined in accordance with the Stockholders’ Agreement. The obligations to transfer the Additional Shares and repurchase those shares are obligations solely of Holdco.

17. Commitments and Contingencies

The Company is subject to various legal actions and proceedings in the normal course of business. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, the Company does not believe the final outcome of any current litigation will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

The Company has purchase commitments for materials, supplies and property, plant and equipment entered into in the ordinary course of business. In the aggregate, such commitments are not in excess of current market prices. Additionally, the Company normally commits to some level of marketing related expenditures that extend beyond the fiscal period. These marketing expenses are necessary in order to maintain a normal course of business and the risk associated with them is limited. It is not expected that these commitments will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

The Company maintains environmental reserves for remediation; monitoring and related expenses for one of its domestic facilities. While the ultimate exposure to further remediation expense at this site continues to be evaluated, the Company does not anticipate a material effect on its consolidated financial position or results of operations.

In connection with the acquisition of the DiverseyLever business, the Company conducted environmental assessments and investigations at DiverseyLever facilities in various countries. These investigations disclosed the likelihood of soil and/or groundwater contamination or potential environmental regulatory matters. An estimate of costs has been made and maintained based on the expected extent of contamination and the expected likelihood of recovery for some of these costs from Unilever under the purchase agreement for the acquisition.

JDI is a licensee of certain chemical production technology used globally. The license agreement provides for guaranteed minimum royalty payments during a term ending on December 31, 2014. Under the terms of agreement and based on current financial projections, the Company does not expect to meet the minimum guaranteed payments. In accordance with the requirements of SFAS No. 5, JDI has estimated its possible range of loss as $1,943 to $3,446 and, in accordance with FASB Interpretation No. 14, maintained a loss reserve of $1,943 at December 28, 2007. The Company revised its estimated possible loss range to $2,532 to $3,446, recording a charge of $589 in the three months ended September 26, 2008, resulting in a loss reserve of $2,532 that date.

JOHNSONDIVERSEY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 26, 2008

(unaudited)

18. Segment Information

Business segment information is summarized as follows:


	Three Months Ended September 26, 2008
	North America		Europe		Japan		Latin America		Asia Pacific		Eliminations / Other ¹			Total Company
Net sales	$	178,699	$	475,463	$	72,533	$	71,044	$	64,503	$	(5,742	)	$	856,500
Operating profit		17,933		43,475		4,775		5,931		1,183		(11,387	)		61,910
Depreciation and amortization		4,407		14,028		1,380		2,858		2,299		7,074			32,046
Interest expense		2,883		17,697		263		470		533		16,603			38,449
Interest income		653		2,122		98		573		92		(1,468	)		2,070
Total assets		359,298		2,081,097		276,745		228,351		202,601		334,125			3,482,217
Goodwill		126,926		822,237		111,398		81,095		61,486		67,007			1,270,149
Capital expenditures, including capitalized computer software		4,102		10,493		809		4,188		2,970		7,008			29,570
Long-lived assets ²		183,411		1,122,965		156,819		119,784		90,828		320,592			1,994,399

	Three Months Ended September 28, 2007
	North America		Europe		Japan		Latin America		Asia Pacific		Eliminations / Other ¹			Total Company
Net sales	$	181,852	$	408,095	$	68,251	$	56,658	$	57,534	$	(3,652	)	$	768,738
Operating profit		19,001		22,183		318		5,308		1,753		(20,952	)		27,611
Depreciation and amortization		8,271		15,856		3,661		2,030		2,117		9,635			41,570
Interest expense		2,801		17,419		175		768		833		16,521			38,517
Interest income		1,215		2,728		1		4		166		(1,854	)		2,260
Total assets		409,019		2,051,602		265,410		195,766		194,312		307,322			3,423,431
Goodwill		163,890		800,638		101,876		82,586		65,222		41,745			1,255,957
Capital expenditures, including capitalized computer software		6,201		8,397		654		1,460		2,643		4,187			23,542
Long-lived assets ²		254,409		1,112,008		150,732		117,365		94,935		295,593			2,025,042

	Nine Months Ended September 26, 2008
	North America		Europe		Japan		Latin America		Asia Pacific		Eliminations / Other ¹			Total Company
Net sales	$	517,773	$	1,412,869	$	219,920	$	196,890	$	193,066	$	(17,107	)	$	2,523,411
Operating profit		43,415		110,089		4,411		13,694		7,004		(34,927	)		143,686
Depreciation and amortization		12,557		44,294		7,007		7,649		6,914		20,207			98,628
Interest expense		8,991		53,027		686		1,383		1,645		49,015			114,747
Interest income		2,248		6,795		149		644		356		(4,209	)		5,983
Total assets		359,298		2,081,097		276,745		228,351		202,601		334,125			3,482,217
Goodwill		126,926		822,237		111,398		81,095		61,486		67,007			1,270,149
Capital expenditures, including capitalized computer software		9,725		35,566		2,315		9,606		7,089		22,268			86,569
Long-lived assets ²		183,411		1,122,965		156,819		119,784		90,828		320,592			1,994,399

	Nine Months Ended September 28, 2007
	North America		Europe		Japan		Latin America		Asia Pacific		Eliminations / Other ¹			Total Company
Net sales	$	528,903	$	1,184,761	$	202,817	$	160,700	$	166,174	$	(13,807	)	$	2,229,548
Operating profit		16,347		67,705		6,063		13,387		8,015		(58,901	)		52,616
Depreciation and amortization		23,955		42,454		6,628		6,239		6,060		31,834			117,170
Interest expense		8,562		52,237		551		2,185		2,599		48,231			114,365
Interest income		5,137		8,190		77		21		445		(6,162	)		7,708
Total assets		409,019		2,051,602		265,410		195,766		194,312		307,322			3,423,431
Goodwill		163,890		800,638		101,876		82,586		65,222		41,745			1,255,957
Capital expenditures, including capitalized computer software		14,185		29,250		2,423		6,580		6,594		9,818			68,850
Long-lived assets ²		254,409		1,112,008		150,732		117,365		94,935		295,593			2,025,042

¹	Eliminations/Other includes the Company's corporate operating and holding entities, discontinued operations and corporate level eliminations and consolidating entries.

²	Long-lived assets includes property, plant and equipment, capital software, intangible items and investments in unconsolidated subsidiaries.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

The following management discussion and analysis describes material changes in the financial condition and results of operations of JohnsonDiversey Holdings, Inc. and its consolidated subsidiaries since December 28, 2007. This discussion should be read in conjunction with our unaudited consolidated financial statements as of, and for the quarterly period ended, September 26, 2008, our annual report on Form 10-K for the year ended December 28, 2007, and the section entitled “Forward-Looking Statements” located prior to Part I of this report.

We operate our business through Holdings’ sole subsidiary, JDI, and its subsidiaries. We are an environmentally responsible, leading global marketer and manufacturer of cleaning, hygiene, operational efficiency, appearance enhancing products and equipment and related services for the institutional and industrial cleaning and sanitation market. We have net product and service sales (“net sales”) in more than 170 countries through our direct sales force, wholesalers and third-party distributors. Our sales are balanced geographically, with our principal markets being Europe, North America and Japan, with an increasing presence in the emerging markets of Asia Pacific and Latin America.

Except where noted, the management discussion and analysis below, excluding the consolidated statements of cash flows, reflects the results of continuing operations, which excludes the divestiture of DuBois Chemicals (“DuBois”), Chemical Methods Associates (“CMA”) and the Polymer Business segment (“Polymer Business”) as discussed in Note 7 to the consolidated financial statements.

In the three and nine months ended September 26, 2008, net sales increased by $87.8 million and $293.9 million, respectively, from the same periods in the prior year. As indicated in the following table, after excluding the impact of foreign currency exchange rates, acquisitions and divestitures, sales agency fee income (“SAF”), and sales from our Master Sub-License Agreement (the “License Agreement”), our net sales increased 4.6% for the three months ended September 26, 2008 compared to the same period in the prior year, and our 2008 year-to-date results compared to 2007 year-to-date results increased 3.4%. Beginning in fiscal year 2008, the License Agreement has replaced the Sales Agency Agreement in most countries.


	Three Months Ended								Nine Months Ended
(dollars in thousands)	September 26, 2008			September 28, 2007			Change		September 26, 2008			September 28, 2007			Change
Net sales	$	856,500		$	768,738		11.4	%	$	2,523,411		$	2,229,548		13.2	%

Variance due to:
Foreign currency exchange					43,030								181,172
Acquisitions and divestitures					(16,019	)							(39,515	)
Sales agency fee income		(9,804	)		(24,149	)				(28,376	)		(68,824	)
License Agreement revenue		(39,447	)							(114,535	)

		(49,251	)		2,862					(142,911	)		72,833

	$	807,249		$	771,600		4.6	%	$	2,380,500		$	2,302,381		3.4	%

Our third quarter and year-to-date results show net sales growth in all of our regions except Japan, primarily due to price increases taking hold in all global geographic areas and business sectors and the expansion of developing markets in Asia Pacific, Latin America and Central and Eastern Europe.

As indicated below, our gross profit percentage, based on net sales as reported, declined by 260 basis points for the third quarter of 2008 compared to the same period in the prior year. Excluding the impact of sales agency fee income, our gross profit percentage declined 150 basis points for the third quarter of 2008 compared to the same period in the prior year as pricing actions taken during the third quarter of 2008 have not kept pace with unprecedented cost increases in key raw materials costs. Unprecedented cost escalation occurred at the end of the second quarter and flowed directly into the third quarter, as evidenced by significant increases in phosphorous materials, caustic soda, chelates, and other key materials. In addition, a significant increase in the cost of oil has affected our acquisition costs of key materials and our ability to deliver our products in a cost effective manner. Certain materials, linked with production of products in varying markets like housing, have driven significant cost increases due to scarcity of supply versus historical levels. The volatile market makes it extremely difficult to predict where material costs are headed on a month-to-month and quarter-on-quarter basis. Our gross profit percentages for the three months ended September 26, 2008 and September 28, 2007 were as follows:


Margin on Net Sales as Reported				Margin on Net Sales Adjusted for SAF
Three Months Ended				Three Months Ended
September 26, 2008		September 28, 2007		September 26, 2008		September 28, 2007
40.0	%	42.6	%	39.3	%	40.8	%

Rising raw material costs will continue to present significant challenges in 2008 and 2009. In response, we continue to implement price increases to recover these costs, to the fullest extent possible, and continue to pursue cost reduction initiatives.

We remain well within our financial covenants under our senior secured credit facilities, although the global economy has been greatly affected by the recent credit crisis with many lenders and institutional investors ceasing to provide funding to even the most credit-worthy borrowers. We believe that we are positioned to deal with the current crisis, however, we are not able to predict how severe the crisis may become and how it will affect our business or our customers’ businesses going forward. A severe decline in the global economy would affect a number of our end-users who may reduce the volume of their purchases from us during economic downturns. This would likely have an adverse impact on our business, financial condition, results of operations and cash flows. We continue to monitor economic conditions closely and pursue cost saving opportunities through our restructuring program and other cost reduction initiatives as well as growth opportunities through certain strategic investments and innovations.

In November 2005, in response to structural changes in raw material markets that gave rise to significant increases in our input costs, we announced a program (“November 2005 Plan”) to implement an operational restructuring of our Company. The program also considers the potential divestiture of, or exit from, certain non-core or underperforming businesses. Although we are experiencing a similar pattern of events with volatile fuel costs and increases in raw materials prices in 2008, our restructuring program has positioned us to confront these challenges more effectively.

During the third fiscal quarter of 2008, we continued to make significant progress with the operational restructuring of our Company in accordance with the November 2005 Plan. In particular, key activities during the quarter included the following:

•

successfully completed the sale of our DuBois industrial business, a non-core operation primarily in our North American segment, which included a principal manufacturing plant in Sharonville, Ohio, for $69.7 million in cash proceeds, of which $5.0 million was escrowed subject to meeting fiscal year 2009 performance measures and $1.0 million was escrowed subject to the resolution of certain environmental representations;

•

substantially completed the transition to one centrally managed European region;

•

continued the transition of certain general ledger accounting functions in Western Europe to a third party provider;

•

completed phase one of the consolidation and streamlining of our Japanese sales and marketing functions into one legal entity and two business units;

•

substantially completed the implementation of a global human resource information system in over 60 countries; and

•

continued progress on various supply chain optimization projects to improve capacity utilization and efficiency.

In connection with the aforementioned and other activities under the November 2005 Plan, we recorded restructuring charges of approximately $2.2 million and $13.5 million, which consisted primarily of severance costs, for the three and nine months ended September 26, 2008, respectively. In addition, we recorded period costs of $7.9 million and $32.3 million related to the

November 2005 Plan for the three and nine months ended September 26, 2008, respectively. For the three months ended September 26, 2008, the $7.9 million of period costs mainly relate to costs in the Corporate Center. These period costs consisted of the following:

•

$3.7 million of human resource and pension related costs;

•

$1.6 million of sales and marketing related costs;

•

$1.2 million of global sourcing and value chain related costs;

•

$1.2 million of professional services related costs;

•

($1.2) million of facilities related net proceeds; and

•

other costs totaling $1.4 million.

For the nine months ended September 26, 2008, the $32.3 million of period costs mainly relate to costs in our European and Japanese regions as well as the Corporate Center. These period costs consisted of the following:

•

$11.0 million of human resource and pension related costs;

•

$6.3 million related to long-lived asset impairments primarily related to warehouse closures in our European and Japanese regions;

•

$3.7 million of global sourcing and value chain related costs;

•

$3.6 million of professional services related costs;

•

$3.3 million of sales and marketing related costs;

•

$1.8 million of outplacement, relocation and recruiting costs; and

•

other costs totaling $2.6 million.

In addition to the ongoing November 2005 Plan initiatives and results mentioned above and as reported in the second quarter of 2008, we plan to move to an operating model organized into three regions. During the third quarter of 2008, we developed plans to initiate this process in our new Americas and Asia Pacific regions and our existing European region. This reorganization will better position us to address consolidation and globalization trends among our customers while also enabling us to more effectively deploy resources against the most compelling market and customer growth opportunities. We also believe this move will boost our efforts to more rapidly deploy innovation globally. We remain on target to complete this reorganization in fiscal 2009. We will consider the effects of the reorganization on our prospective segment reporting, but we do not expect to change our reporting structure during fiscal 2008.

Critical Accounting Policies

The preparation of our financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results may differ from these estimates under different assumptions or conditions. The following are the accounting policies that we believe are most critical to our financial condition and results of operations and that involve management’s judgment and/or evaluation of inherent uncertain factors:

Revenue Recognition. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or ownership has transferred to the customer, the sales price is fixed or determinable, and collection is probable. We record an estimated reduction to revenue for customer discount programs and incentive offerings, including allowances and other volume-based incentives. If market conditions were to decline, we may take actions to increase customer incentive offerings, possibly resulting in a reduction of gross profit margins in the period during which the incentive is offered. Revenues are reflected in the consolidated statement of operations net of taxes collected from customers and remitted to governmental authorities.

In arriving at net sales, we estimate the amounts of sales deductions likely to be earned by customers in conjunction with incentive programs such as volume rebates and other discounts. Such estimates are based on written agreements and historical trends and are reviewed periodically for possible revision based on changes in facts and circumstances.

Estimating Reserves and Allowances. We estimate inventory reserves based on periodic reviews of our inventory balances to identify slow-moving or obsolete items. This determination is based on a number of factors, including new product introductions, changes in customer demand patterns, product life cycle, and historic usage trends.

We estimate the allowance for doubtful accounts by analyzing accounts receivable balances by age, applying historical trend rates, analyzing market conditions and specifically reserving for identified customer balances, based on known facts, which are deemed probable as uncollectible. For larger accounts greater than 90 days past due, an allowance for doubtful accounts is recorded based on the customer’s ability and likelihood to pay and based on management’s review of the facts and circumstances. For other customers, we recognize an allowance based on the length of time the receivable is past due based on historical experience.

We accrue for losses associated with litigation and environmental claims based on management’s best estimate of future costs when such losses are probable and reasonably able to be estimated. We record those costs based on what management believes is the most probable amount of the liability within the ranges or, where no amount within the range is a better estimate of the potential liability, at the minimum amount within the range. The accruals are adjusted as further information becomes available or circumstances change.

Pension and Post-Retirement Benefits. We sponsor separately funded pension and post-retirement plans in various countries, including the United States. Several statistical and judgmental factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets, rate of future compensation increases and healthcare cost trends, as determined by us and our actuaries. In addition, our actuarial consultants also use subjective factors, such as withdrawal and mortality rates, to estimate these factors. We use actuarial assumptions that may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, longer or shorter life spans of participants and changes in actual costs of healthcare. Actual results may significantly affect the amount of pension and other post-retirement benefit expenses recorded by us.

Goodwill and Long-Lived Assets. We periodically conduct an impairment review on long-lived assets, including non-amortizing intangible assets and goodwill, and assess whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated by the excess of the asset’s carrying value over its estimated fair value. We also periodically reassess the estimated remaining useful lives of our amortizing intangible assets and our other long-lived assets. Changes to estimated useful lives would affect the amount of depreciation and amortization expense recorded in our consolidated financial statements. We annually complete an impairment analysis of goodwill and non-amortizing intangible assets. Moreover, where indicators of impairment are identified for long-lived assets, we prepare a future undiscounted cash flow analysis, determine any impairment impact and record, if necessary, a reduction in the affected asset(s). Based on our business approach to decision-making, planning and resource allocation, we have determined that we have five reporting units for purposes of evaluating goodwill for impairment, which is aligned with our five geographic segments. Goodwill balances are typically recorded at the reporting unit level; however, where applicable, balances may be allocated to reporting units based upon geographic alignment. We recorded impairment charges on certain long-lived assets of $6.3 million and $9.8 million, during the nine-month periods ended September 26, 2008, and September 28, 2007, respectively, in connection with the November 2005 Plan.

New Accounting Pronouncements

In August 2008, the SEC announced that it will issue for comment a proposed roadmap regarding the potential use of International Financial Reporting Standards (“IFRS”) for the preparation of financial statements by U.S. registrants. IFRS are standards and interpretations adopted by the International Accounting Standards Board. Under the proposed roadmap, we would be required to prepare financial statements in accordance with IFRS in fiscal 2016, including comparative information also prepared under IFRS for fiscal 2014 and fiscal 2015. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. We are currently assessing the potential impact of IFRS on our financial statements, including early adoption, and will continue to follow the proposed roadmap for future developments.

In May 2008, the Financial Accounting Standards Board (“the FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162). SFAS No. 162 provides a framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. SFAS No. 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” We do not expect the adoption of SFAS No. 162 will have a significant effect on our financial condition, results of operations or cash flows.

In April 2008, the FASB issued Staff Position No. 142-3, “Determining the Useful Life of Intangible Assets” (“FSP No. 142-3”). FSP No. 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value by allowing an entity to consider its own historical experience in renewing or extending the useful life of a recognized intangible asset. FSP No. 142-3 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact of the provisions of FSP No. 142-3.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires companies to provide enhanced disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in their hedged positions. The statement also requires companies to disclose more information about the location and amounts of derivative instruments in financial statements; how derivatives and related hedges are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities;” and how the hedges affect the entity’s financial condition, results of operations and cash flows. SFAS No. 161 is effective prospectively for fiscal years and interim periods beginning after November 15, 2008, which for us is our fiscal year 2009. Early adoption is encouraged. We are currently evaluating the impact of the provisions of SFAS No. 161.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”), which replaces SFAS No. 141, “Business Combinations.” SFAS No. 141(R) retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but SFAS No. 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS No. 141(R) is effective on a prospective basis for all business combinations when the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for changes in valuation allowances on deferred taxes and acquired tax contingencies related to acquisitions prior to the date of adoption of SFAS No. 141(R). Early adoption is not permitted. The provisions of SFAS No. 141(R) are effective for the fiscal year beginning on or after December 15, 2008, which for us is our fiscal year 2009. We are currently evaluating the impact of the provisions of SFAS No. 141(R).

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”), an amendment of ARB No. 51. SFAS No. 160 requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled, and presented in the consolidated financial statements within equity, but separate from the parent’s equity. It also requires that once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The provisions of SFAS No. 160 are effective for the fiscal year beginning on or after December 15, 2008, which for us is our fiscal year 2009. We are currently evaluating the impact of the provisions of SFAS No. 160.

In January 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 is intended to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. It also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The statement does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value, and it does not establish requirements for recognizing dividend income, interest income or interest expense. It also does not eliminate disclosure requirements included in other accounting standards. We adopted SFAS No. 159 at the beginning of fiscal year 2008; however, we have not elected to change the measurement attributes for any of the permitted items to fair value upon adoption. The adoption of SFAS No. 159 has not had a significant effect on our financial condition, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. Relative to SFAS No. 157, the FASB issued Staff Position (FSP) 157-2, which delays the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. As required, we adopted SFAS No. 157 at the beginning of fiscal year 2008 for financial assets and liabilities and for nonfinancial assets and liabilities that are remeasured at least annually, the provisions of which have not had significant effect on our financial condition, results of operations or cash flows. We have not yet determined the impact on our financial statements from the adoption of SFAS No. 157 as it pertains to nonfinancial assets and nonfinancial liabilities for fiscal 2009. See Note 14 (Fair Value Measurements) to our consolidated financial statements, included elsewhere in this report, for further discussion.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS No. 158”), an amendment of FASB Statements No. 87, 88, 106, and 132 (R). SFAS No. 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in its consolidated balance sheets and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 does not change the amount of net periodic benefit cost included in net earnings. We adopted the recognition provisions effective December 28, 2007.

SFAS No. 158 also requires the measurement of defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end consolidated balance sheets (with limited exceptions). We adopted such provisions at the beginning of fiscal year 2008, resulting in a $2.2 million increase in pension and post-retirement benefits and retained deficit during the three month period ended March 28, 2008 and nine month period ended September 26, 2008.

Three Months Ended September 26, 2008 Compared to Three Months Ended September 28, 2007

Net Sales:


	Three Months Ended				Change
(dollars in thousands)	September 26, 2008		September 28, 2007		Amount			Percentage
Net product and service sales	$	846,696	$	744,589	$	102,107		13.7	%
Sales agency fee income		9,804		24,149		(14,345	)	-59.4	%

	$	856,500	$	768,738		87,762		11.4	%

•

Net product and service sales. As measured against prior year’s results, the weakening of the U.S. dollar against the euro and certain other foreign currencies contributed $43.0 million to the increase in net product and service sales.

Excluding the impact of foreign currency exchange rates, acquisitions and divestitures, sales agency fee income, and sales under the License Agreement, our net product and service sales increased 4.6% for the three months ended September 26, 2008, compared to the same period in the prior year. The increase was due to growth in all of our regions except Japan, primarily due to price increases taking hold in all global geographic areas and business sectors and the expansion of developing markets in Asia Pacific, Latin America and Central and Eastern Europe. The following is a review of the sales performance for each of our regions, which also excludes the impact of foreign currency exchange rates, acquisitions and divestitures, sales agency fee income, and sales under the License Agreement:

•

In our Europe, Middle East and Africa markets, net sales increased 4.4% in the third quarter of 2008 compared to the same period in the prior year. Overall growth was primarily driven by additional pricing in Western European countries and the expansion of certain developing markets in Central and Eastern Europe, which boosted growth through both volume and price increases.

•

In Asia Pacific, net sales increased 7.4 % in the third quarter of 2008 compared to the same period in the prior year. The increase was driven by a mix of pricing and volume growth. A combination of increased sales to top customers and strong sales volume by certain key developing markets in the region, primarily in the food and beverage as well as the food and lodging sectors, contributed to this growth.

•

In Latin America, net sales increased 12.4% in the third quarter of 2008 compared to the same period in the prior year, further increasing the growth trend from the second quarter. Growth came from most countries in the region with both pricing and volume growth contributing to the overall increase. This strong performance was due to top customer growth and strong sales in the food and beverage sector.

•

In North America, net sales increased 4.7% in the third quarter of 2008 compared to the same period in the prior year, which excludes the impact of DuBois, a non-core operation of our North American segment that we divested in the third quarter. The increase was primarily due to price increases taking hold in all sectors as well as growth in the retail, building service contractor and food and beverage sectors.

•

In Japan, net sales decreased 3.0% in the third quarter of 2008 compared to the same period in the prior year, which is an improvement over the second quarter’s performance. Much of the decline continues to be driven by choices made to exit certain non-core and/or underperforming accounts in both direct and indirect channels.

•

Sales Agency Fee and License Agreement. In October 2007, we reached agreement with Unilever on a new Umbrella Agreement, to replace the previous Sales Agency Agreement, which includes; i) a new agency agreement with terms similar to the previous Sales Agency Agreement, covering Ireland, the United Kingdom, Portugal and Brazil, and ii) the License Agreement under which Unilever has agreed to grant 31 of our subsidiaries a license to produce and sell professional size packs of Unilever’s consumer branded cleaning products. The entities covered by the License Agreement have also entered into agreements with Unilever to distribute Unilever’s consumer branded products. Except for some transitional arrangements in certain countries, the Umbrella Agreement became effective January 1, 2008, and unless otherwise terminated or extended, will expire on December 31, 2017.

Under the License Agreement, we recorded net product and service sales of $39.4 million during the three month period ended September 26, 2008.

With respect to the Sales Agency Agreement, we recorded total sales agency fee income of $9.8 million, consisting of $8.6 million under the new agency agreement, $1.1 million under transitional arrangements, and $0.2 million of termination fees during the quarter. Except for the countries mentioned above, we anticipate that sales under the previous agreement for other countries will be converted to the License Agreement in 2008.

Gross Profit:


	Three Months Ended						Change
(dollars in thousands)	September 26, 2008			September 28, 2007			Amount		Percentage
Gross Profit	$	342,740		$	327,593		$	15,147	4.6	%
Gross profit as a percentage of net sales as reported:		40.0	%		42.6	%
Gross profit as a percentage of net sales adjusted for sales agency fee income:		39.3	%		40.8	%

•

As measured against prior year’s results, the weakening of the U.S. dollar against the euro and certain other foreign currencies increased gross profit by $19.7 million for the three months ended September 26, 2008 compared to the same period in the prior year.

•

Based on net sales as reported, our gross profit percentage for the third quarter of 2008 declined by 260 basis points compared to the same period in the prior year. Excluding the impact of sales agency fee income, our gross profit percentage declined 150 basis points for the third quarter of 2008 compared to the same period in the prior year due to the unprecedented cost increases in key raw materials costs mentioned above. Rising raw material costs will continue to present significant challenges in 2008 and 2009. In response, we continue to implement price increases to recover these costs, to the fullest extent possible, and continue to pursue cost reduction initiatives.

Operating Expenses:


	Three Months Ended						Change
(dollars in thousands)	September 26, 2008			September 28, 2007			Amount			Percentage
Selling, general and administrative expenses	$	262,888		$	275,025		$	(12,137	)	-4.4	%
Research and development expenses		15,698			15,824			(126	)	-0.8	%
Restructuring expenses		2,244			9,133			(6,889	)	-75.4	%

	$	280,830		$	299,982		$	(19,152	)	-6.4	%

As a percentage of net sales:
Selling, general and administrative expenses		30.7	%		35.8	%
Research and development expenses		1.8	%		2.1	%
Restructuring expenses		0.3	%		1.2	%

		32.8	%		39.1	%

As a percentage of net sales adjusted for SAF:
Selling, general and administrative expenses		31.0	%*		36.9	%*
Research and development expenses		1.9	%		2.1	%
Restructuring expenses		0.3	%		1.2	%

		33.2	%		40.2	%

*	The percentages for 2008 and 2007 are 30.1% and 33.6%, respectively, when period costs associated with the November 2005 Plan are excluded from selling, general and administrative expenses.

•

Operating expenses. As measured against prior year’s results, the weakening of the U.S. dollar against the euro and certain other foreign currencies increased operating expenses by $14.3 million in the three months ended September 26, 2008 compared to the same period in the prior year.

•

Selling, general and administrative expenses. Excluding period costs associated with the November 2005 Plan, selling, general and administrative expenses as a percentage of net product and service sales (excludes sales agency fee income) were 30.1% for the third quarter of 2008 compared to 33.6% for the same period in the prior year. Excluding the impact of foreign currency and costs associated with the November 2005 Plan, selling, general and administrative costs declined $8.9 million during the third quarter of 2008 compared to the same period in the prior year. This was due to savings from our November 2005 Plan.

•

Research and development expenses. Excluding the impact of foreign currency, research and development expenses decreased $0.5 million during the third quarter of 2008 compared to the same period in the prior year.

•

Restructuring expenses. Excluding the impact of foreign currency, restructuring expenses decreased $7.2 million during the third quarter of 2008 compared to the same period in the prior year. This was primarily due to decreased employee severance and other expenses related to the November 2005 Plan.

Restructuring and Integration:

A summary of all costs associated with the November 2005 Plan for the three months ended September 26, 2008 and September 28, 2007, and since inception of the program in November 2005, is outlined below:


(dollars in thousands)	Three Months Ended September 26, 2008			Three Months Ended September 28, 2007			Total Project to Date September 26, 2008
Reserve balance at beginning of period	$	39,460		$	48,268		$	—
Restructuring costs (net) charged to income		2,244			9,133			160,019
Liability adjustments (net)		—			—			313	*
Payments of accrued costs		(11,799	)		(10,693	)		(130,427	)

Reserve balance at end of period	$	29,905		$	46,708		$	29,905

Period costs classified as selling, general and administrative expenses	$	7,833		$	24,693		$	261,978
Period costs classified as cost of sales		20			(1,498	)		3,170
Capital expenditures		4,408			4,908			54,276

*	$387 of this amount was reclassified from other liabilities and $74 was recorded as a reduction of restructuring expense, resulting in a net liability adjustment of $313.

•

November 2005 Plan restructuring costs. During the third quarters of 2008 and 2007, we recorded $2.2 million and $9.1 million, respectively, of restructuring costs related to our November 2005 Plan in our consolidated statements of operations. These costs consisted primarily of involuntary termination costs associated with our European and North American business segments.

•

November 2005 Plan period costs. During the third quarter of 2008 and the third quarter of 2007, we recorded $7.8 million and $24.7 million, respectively, of selling, general and administrative expenses mainly for restructuring activities related to human resource and pension related costs, various value chain related projects and various sales and marketing related projects at the Corporate Center. These costs consisted of $0.2 million and $6.4 million, respectively, for long-lived asset impairments, $0.3 million and ($1.5) million, respectively, for write-offs and adjustments of other assets (pensions, inventory, and accounts receivable) and $7.4 million and $18.3 million, respectively, for other period costs associated with our restructuring activities (current period costs are further explained above in the Executive Overview). The overall decrease in these expenses over the prior year was mainly due to a reduction in restructuring activities at our European business segment as well as the Corporate Center.

•

DiverseyLever acquisition. In connection with the acquisition of the DiverseyLever business, we also recorded liabilities for the involuntary termination of former DiverseyLever employees and other exit costs associated with former DiverseyLever facilities. During the third quarter of 2008 and 2007, we paid cash of $0.1 million and $0.3 million, respectively, representing contractual obligations associated with involuntary terminations and lease payments on closed facilities. The restructuring reserve balances associated with the exit plans and our acquisition-related restructuring plans were $0.7 million and $1.8 million as of September 26, 2008 and September 28, 2007, respectively. We continue to make cash payments representing contractual obligations associated with involuntary terminations and lease payments on closed facilities.

Non-Operating Results:


	Three Months Ended						Change
(dollars in thousands)	September 26, 2008			September 28, 2007			Amount			Percentage
Interest expense	$	38,449		$	38,517		$	(68	)	-0.2	%
Interest income		(2,070	)		(2,260	)		190		-8.4	%

Net interest expense	$	36,379		$	36,257		$	122		0.3	%

Other expense (income), net		2,325			(429	)		2,754

•

Net interest expense increased marginally in the third quarter of 2008 compared to the same period in the prior year primarily due to lower interest income resulting from lower average cash balances during the period as compared to the same period last year, and a lower interest yield on investments due to lower interest rates.

Income Taxes:


	Three Months Ended						Change
(dollars in thousands)	September 26, 2008			September 28, 2007			Amount		Percentage
Income (loss) from continuing operations before income taxes	$	23,206		$	(8,217	)	$	31,423	-382.4	%
Provision for income taxes		32,831			19,858			12,973	65.3	%

Effective income tax rate		141.5	%		-241.7	%

•

For the fiscal year ending December 31, 2008, we are projecting an effective income tax rate of approximately 250%. The projected effective income tax rate for the fiscal year exceeds the statutory tax rate primarily as a result of increased valuation allowances against net deferred tax assets and increases in reserves for uncertain tax positions.

We reported an effective income tax rate of 141.5% on the pre-tax income from continuing operations for the three month period ended September 26, 2008. When compared to the estimated annual effective tax rate, the lower effective tax rate for the three month period ended September 26, 2008 is primarily attributable to actual pacing of pre-tax income (loss) and income tax expense (benefit) in certain key jurisdictions, and the income tax benefit from use of the current year pre-tax loss from continuing operations to offset the income and gain from the divestiture of the DuBois business. While the estimated annual effective tax rate is also reduced by the effect of the DuBois divestiture, the impact on the three month period ended September 26, 2008 is more pronounced due to the lower level of pre-tax income for the period.

•

We reported an effective income tax rate of -241.7% on the pre-tax loss from continuing operations for the three month period ended September 28, 2007. The high effective income tax rate is primarily the result of increased valuation allowances against deferred tax assets for U.S. and international tax loss and credit carryforwards and increased valuation allowances against other net deferred tax assets.

Net Income:

Our net income increased by $26.3 million, to a net loss of $0.2 million for the third quarter of 2008 compared to a net loss of $26.5 million for the same period in the prior year, mainly due to an increased operating profit of $34.3 million and the $8.3 million after-tax gain from the sale of DuBois, which increased income from discontinued operations. This was partially offset by a $13.0 million increase in the income tax provision. The increase in operating profit was achieved through a $15.1 million increase in gross profit, a $22.2 million decrease in restructuring expenses and period costs included in selling, general and administrative expenses related to our November 2005 Plan and cost savings generated from our November 2005 Plan.

EBITDA:

EBITDA is a non-U.S. GAAP financial measure, and you should not consider EBITDA as an alternative to U.S. GAAP financial measures such as (a) operating profit or net profit as a measure of our operating performance or (b) cash flows provided by operating, investing and financing activities (as determined in accordance with U.S. GAAP) as a measure of our ability to meet cash needs.

We believe that, in addition to cash flows from operating activities, EBITDA is a useful financial measurement for assessing liquidity as it provides management, investors, lenders and financial analysts with an additional basis to evaluate our ability to incur and service debt and to fund capital expenditures. In addition, various covenants under our senior secured credit facilities are based on EBITDA, as adjusted pursuant to the provisions of those facilities.

In evaluating EBITDA, management considers, among other things, the amount by which EBITDA exceeds interest costs for the period, how EBITDA compares to principal repayments on outstanding debt for the period and how EBITDA compares to capital expenditures for the period. Management believes many investors, lenders and financial analysts evaluate EBITDA for similar purposes. To evaluate EBITDA, the components of EBITDA, such as net sales and operating expenses and the variability of such components over time, should also be considered.

Accordingly, we believe that the inclusion of EBITDA in this report permits a more comprehensive analysis of our liquidity relative to other companies and our ability to service debt requirements. Because all companies do not calculate EBITDA identically, the presentation of EBITDA in this report may not be comparable to similarly titled measures of other companies.

EBITDA should not be construed as a substitute for, and should be considered together with, net cash flows provided by operating activities as determined in accordance with U.S. GAAP. The following table reconciles EBITDA to net cash flows provided by operating activities, which is the U.S. GAAP measure most comparable to EBITDA for the three months ended September 26, 2008 and September 28, 2007.


	Three Months Ended
(dollars in thousands)	September 26, 2008			September 28, 2007
Net cash flows used in operating activities	$	90,220		$	68,160
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses		(7,082	)		(35,792	)
Changes in deferred income taxes		(29,307	)		(7,801	)
Gain (loss) from divestitures		10,331			(439	)
Gain on property disposals		(90	)		2,331
Depreciation and amortization expense		(32,046	)		(41,570	)
Amortization of debt issuance costs		(1,385	)		(1,310	)
Interest accreted on notes payable		(11,697	)		(11,697	)
Interest accrued on long-term receivables-related parties		682			650
Other, net		(19,837	)		988

Net income (loss)		(211	)		(26,480	)

Provision for income taxes		42,633			20,923
Interest expense, net		36,378			36,257
Depreciation and amortization expense		32,046			41,570

EBITDA	$	110,846		$	72,270

EBITDA increased by $38.6 million for the three months ended September 26, 2008 compared to the same period in the prior year, which was primarily due to a $15.8 million decrease in restructuring expenses and period costs included in selling, general and administrative expenses related to our November 2005 Plan, a $16.9 million gain from the sale of DuBois, and cost savings generated from the November 2005 Plan. This increase was partially offset by raw material cost increases not fully offset by pricing actions.

Nine Months Ended September 26, 2008 Compared to Nine Months Ended September 28, 2007

Net Sales:


	Nine Months Ended				Change
(dollars in thousands)	September 26, 2008		September 28, 2007		Amount			Percentage
Net product and service sales	$	2,495,035	$	2,160,724	$	334,311		15.5	%
Sales agency fee income		28,376		68,824		(40,448	)	-58.8	%

	$	2,523,411	$	2,229,548	$	293,863		13.2	%

•

Net product and service sales. As measured against prior year’s results, the weakening of the U.S. dollar against the euro and certain other foreign currencies contributed $181.2 million to the increase in net product and service sales.

Excluding the impact of foreign currency exchange rates, acquisitions and divestitures, sales agency fee income, and sales under the License Agreement, our net product and service sales increased 3.4% compared to the same period in the prior year. All regions except Japan contributed to the increase, primarily due to price increases taking hold in all global geographic areas and business sectors and the expansion of developing markets in Asia Pacific, Latin America and Central and Eastern Europe. The following is a review of the sales performance for each of our regions, which also excludes the impact of foreign currency exchange rates, acquisitions and divestitures, sales agency fee income, and sales under the License Agreement:

•

In our Europe, Middle East and Africa markets, net sales increased 3.9% in the first nine months of 2008 compared to the same period in the prior year driven by strong performances in the second and third quarters. This increase was primarily driven by additional pricing and the expansion of certain Western European countries as well as developing markets in Central and Eastern Europe.

•

In Asia Pacific, net sales increased 8.7% in the first nine months of 2008 compared to the same period in the prior year. Approximately two thirds of this increase was due to volume growth and one third was due to pricing. Growth was achieved through top customer growth and strong sales volume in certain key developing markets in the region, primarily in the food and beverage and the lodging sectors.

•

In Latin America, net sales increased 8.8% in the first nine months of 2008 compared to the same period in the prior year with growth coming from most countries in the region. The overall increase was driven by an equal mix of pricing and volume growth, which was driven by success with our indirect channel partners and growth in the food and beverage sector.

•

In North America, net sales increased 1.6% in the first nine months of 2008 compared to the same period in the prior year, primarily due to price increases taking hold in all sectors and an expanding retail sector. This growth was partially offset by losses due to customer consolidation and distributor inventory reduction.

•

In Japan, net sales decreased 4.0% in the first nine months of 2008 compared to the same period in the prior year, primarily due to choices made to exit certain non-core and/or underperforming accounts in both direct and indirect channels.

•

of Unilever’s consumer brand cleaning products. The entities covered by the License Agreement have also entered into agreements with Unilever to distribute Unilever’s consumer branded products. Except for some transitional arrangements in certain countries, the Umbrella Agreement became effective January 1, 2008, and unless otherwise terminated or extended, will expire on December 31, 2017.

Under the License Agreement, we recorded net product and service sales of $114.5 million during the first nine months of 2008.

With respect to the Sales Agency Agreement, we recorded total sales agency fee income of $28.4 million, consisting of $23.9 million under the new agency agreement, $3.9 million under transitional arrangements, and $0.6 million of termination fees. Except for the countries mentioned above, we anticipate that sales under the previous agreement for other countries will be converted to the License Agreement in 2008.

Gross Profit:


	Nine Months Ended						Change
(dollars in thousands)	September 26, 2008			September 28, 2007			Amount		Percentage
Gross Profit	$	1,027,132		$	933,591		$	93,541	10.0	%

Gross profit as a percentage of net sales as reported:		40.7	%		41.9	%

Gross profit as a percentage of net sales adjusted for sales agency fee income:		40.0	%		40.0	%

•

As measured against prior year’s results, the weakening of the U.S. dollar against the euro and certain other foreign currencies increased gross profit by $81.1 million for the nine months ended September 26, 2008 compared to the same period in the prior year.

•

Based on net sales as reported, our gross profit percentage for the third quarter of 2008 declined by 120 basis points compared to the same period in the prior year. Excluding the impact of sales agency fee income, our gross profit percentage was unchanged for the first nine months of 2008 compared to the same period in 2007. This was due to the unprecedented cost increases in key raw materials costs mentioned above. Rising raw material costs will continue to present significant challenges in 2008 and 2009. In response, we continue to implement increases to recover these costs, to the fullest extent possible, and pursue cost reduction initiatives.

Operating Expenses:


	Nine Months Ended						Change
(dollars in thousands)	September 26, 2008			September 28, 2007			Amount			Percentage
Selling, general and administrative expenses	$	819,077		$	818,423		$	654		0.1	%
Research and development expenses		50,885			47,100			3,785		8.0	%
Restructuring expenses		13,484			15,452			(1,968	)	-12.7	%

	$	883,446		$	880,975		$	2,471		0.3	%

As a percentage of net sales:
Selling, general and administrative expenses		32.5	%		36.7	%
Research and development expenses		2.0	%		2.1	%
Restructuring expenses		0.5	%		0.7	%

		35.0	%		39.5	%

As a percentage of net sales adjusted for SAF:
Selling, general and administrative expenses		32.8	%*		37.9	%*
Research and development expenses		2.0	%		2.2	%
Restructuring expenses		0.5	%		0.7	%

		35.3	%		40.8	%

*	The percentages for 2008 and 2007 are 31.5% and 34.7%, respectively, when period costs associated with the November 2005 Plan are excluded from selling, general and administrative expenses.

•

Operating expenses. As measured against prior year’s results, the weakening of the U.S. dollar against the euro and certain other foreign currencies increased operating expenses by $61.6 million in the nine months ended September 26, 2008 compared to the same period in the prior year.

•

Selling, general and administrative expenses. Excluding period costs associated with the November 2005 Plan, selling, general and administrative expenses as a percentage of net product and service sales (excludes sales agency fee income) were 31.5% for the first nine months of 2008 compared to 34.7% for the same period in 2007. Excluding the impact of foreign currency and costs associated with the November 2005 Plan, selling, general and administrative costs declined $22.2 million during the first nine months of 2008 compared to the same period in the prior year. This was achieved through savings from our November 2005 Plan and controlled spending in most of our regions.

•

Research and development expenses. Excluding the impact of foreign currency, research and development expenses increased $2.0 million during the first nine months of 2008 compared to the same period in the prior year.

•

Restructuring expenses. Excluding the impact of foreign currency, restructuring expenses decreased $2.7 million during the first nine months of 2008 compared to the same period in the prior year. This was primarily due to decreased employee severance and other expenses related to the November 2005 Plan.

Restructuring and Integration:

A summary of all costs associated with the November 2005 Plan for the nine months ended September 26, 2008 and September 28, 2007, and since inception of the program in November 2005, is outlined below:


(dollars in thousands)	Nine Months Ended September 26, 2008			Nine Months Ended September 28, 2007			Total Project to Date September 26, 2008
Reserve balance at beginning of period	$	46,226		$	70,225		$	—
Restructuring (net) costs charged to income		13,484			15,526			160,019
Liability adjustments (net)		—			(70	)		313	*
Payments of accrued costs		(29,805	)		(38,973	)		(130,427	)

Reserve balance at end of period	$	29,905		$	46,708		$	29,905

Period costs classified as selling, general and administrative expenses	$	32,836		$	69,045		$	261,978
Period costs classified as cost of sales		(583	)		(261	)		3,169
Capital expenditures		13,278			14,690			54,276

*	$387 of this amount was reclassified from other liabilities and $74 was recorded as a reduction of restructuring expense, resulting in a net liability adjustment of $313.

•

November 2005 Plan restructuring costs. During the first nine months of 2008 and 2007, we recorded $13.5 million and $15.5 million, respectively, of restructuring costs related to our November 2005 Plan in our consolidated statements of operations. Costs for the first nine months of 2008 consisted primarily of involuntary termination costs associated with our Japanese and European business segments, and the costs for the first nine months of 2007 consisted primarily of involuntary termination and other costs incurred throughout North America and Europe.

•

November 2005 Plan period costs. During the first nine months of 2008 and the first nine months of 2007, we recorded $32.8 million and $69.0 million, respectively, of selling, general and administrative expenses and $0.6 million and $0.3 million reduction, respectively, of cost of sales (representing an adjustment of previous inventory reserves), mainly for restructuring activities related to the Japan reorganization and various value chain related projects and costs related to human resources and sales and marketing at the Corporate Center. These costs consisted of $6.3 million and $9.8 million, respectively, for long-lived asset impairments, $1.9 million and $0.9 million, respectively for write-offs and adjustments of other assets (pensions, inventory, and accounts receivable) and $24.1 million and $58.0 million, respectively, for other period costs associated with restructuring activities (current period costs are further explained above in the Executive Overview). The overall decrease in these expenses over the prior year was mainly due to a reduction in restructuring activities in our North American and European business segments as well as the Corporate Center.

•

DiverseyLever acquisition. In connection with the acquisition of the DiverseyLever business, we also recorded liabilities for the involuntary termination of former DiverseyLever employees and other exit costs associated with former DiverseyLever facilities. During the first nine months of 2008 and 2007, we paid cash of $0.4 million and $0.8 million, respectively, representing contractual obligations associated with involuntary terminations and lease payments on closed facilities. The restructuring reserve balances associated with the exit plans and our acquisition-related restructuring plans were $0.7 million and $1.8 million as of September 26, 2008 and September 28, 2007, respectively. We continue to make cash payments representing contractual obligations associated with involuntary terminations and lease payments on closed facilities.

Non-Operating Results:


	Nine Months Ended						Change
(dollars in thousands)	September 26, 2008			September 28, 2007			Amount		Percentage
Interest expense	$	114,747		$	114,365		$	382	0.3	%
Interest income		(5,983	)		(7,708	)		1,725	-22.4	%

Net interest expense	$	108,764		$	106,657		$	2,107	2.0	%

Other expense (income), net		678			(32	)		710

•

Net interest expense increased in the first nine months of 2008 compared to the same period in the prior year primarily due to lower interest income resulting from lower average cash balances during the period as compared to the same period last year, and a lower interest yield on investments due to lower interest rates.

Income Taxes:


	Nine Months Ended						Change
(dollars in thousands)	September 26, 2008			September 28, 2007			Amount		Percentage
Income (loss) from continuing operations before income taxes	$	34,244		$	(54,009	)	$	88,253	-163.4	%
Provision for income taxes		69,416			57,009			12,407	21.8	%

Effective income tax rate		202.7	%		-105.6	%

•

We reported an effective income tax rate of 202.7% on the pre-tax income from continuing operations for the nine month period ended September 26, 2008. When compared to the estimated annual effective tax rate, the lower effective tax rate for the nine month period ended September 26, 2008 is primarily attributable to actual pacing of pre-tax income (loss) and income tax expense (benefit) in certain key jurisdictions, and the income tax benefit from use of the current year pre-tax loss from continuing operations to offset the income and gain from the divestiture of the DuBois business. While the estimated annual effective tax rate is also reduced by the effect of the DuBois divestiture, the impact on the nine month period ended September 26, 2008 is more pronounced due to the lower level of pre-tax income for the period.

•

We reported an effective income tax rate of -105.6% on the pre-tax loss from continuing operations for the nine month period ended September 28, 2007. The high effective income tax rate is primarily the result of increased valuation allowances against deferred tax assets for U.S. and international tax loss and credit carryforwards and increased valuation allowances against other net deferred tax assets.

Net Income:

Our net income increased by $83.0 million, to a net loss of $22.2 million for the first nine months of 2008 compared to a net loss of $105.2 million for the first nine months of 2007, mainly due to an increased operating profit of $91.1 million and the $8.3 million after-tax gain from the sale of DuBois, which increased income from discontinued operations. This was partially offset by a $12.4 million increase in the income tax provision. The increase in operating profit was primarily achieved through a $93.5 million increase in gross profit and cost savings generated from our November 2005 Plan.

EBITDA:

The following table reconciles EBITDA to net cash flows provided by operating activities, which is the U.S. GAAP measure most comparable to EBITDA for the nine months ended September 26, 2008 and September 28, 2007.


	Nine Months Ended
(dollars in thousands)	September 26, 2008			September 28, 2007
Net cash flows used in operating activities	$	28,518		$	(1,618	)
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses		105,261			83,169
Changes in deferred income taxes		(41,888	)		(26,106	)
Gain (loss) from divestitures		11,709			(612	)
Gain on property disposals		73			4,323
Depreciation and amortization expense		(98,628	)		(117,170	)
Amortization of debt issuance costs		(3,913	)		(3,821	)
Interest accreted on notes payable		(13,566	)		(34,454	)
Interest accrued on long-term receivables-related parties		2,021			1,926
Other		(11,797	)		(10,853	)

Net loss		(22,210	)		(105,216	)

Provision for income taxes		81,482			60,878
Interest expense, net		108,764			106,657
Depreciation and amortization expense		98,628			117,170

EBITDA	$	266,664		$	179,489

EBITDA increased by $87.2 million for the nine months ended September 26, 2008 compared to the same period in the prior year, which was primarily due to a $16.9 million gain from the sale of DuBois and cost savings generated from the November 2005 Plan, which contributed to the $91.1 million increase in operating profit over the prior year. This increase was partially offset by raw material costs increases not fully offset by pricing actions in the third quarter.

Liquidity and Capital Resources


	Nine Months Ended					Change
(dollars in thousands)	September 26, 2008		September 28, 2007			Amount		Percentage
Net cash provided by (used in) used in operating activities	$	28,518	$	(1,618	)	$	30,136	-1862.5	%
Net cash provided by (used in) investing activities		39,052		(60,102	)		99,154	-165.0	%
Net cash provided by (used in) financing activities		21,048		(14,221	)		35,269	-248.0	%
Capital expenditures		86,569		68,850			17,719	25.7	%

						Change
	September 26, 2008		December 28, 2007			Amount		Percentage
Cash and cash equivalents	$	181,623	$	97,176		$	84,447	86.9	%
Working capital*		554,590		508,629			45,961	9.0	%
Total debt		1,508,820		1,486,511			22,309	1.5	%

*	Working capital is defined as net accounts receivable, plus inventories less accounts payable.

•

The increase in cash and cash equivalents at September 26, 2008 compared to December 28, 2007 resulted primarily from cash generated by operating activities, proceeds from the divestitures of the Auto-Chlor business in February 2008 and the DuBois business in September 2008, and proceeds from short term borrowings. This cash generation was partially offset by capital expenditures and dividends paid.

•

The increase in net cash provided by (used in) operating activities during the nine months ended September 26, 2008 compared to the same period in the prior year was primarily due to an increase in net income during the nine months ended September 26, 2008.

•

The increase in net cash provided by (used in) investing activities during the nine months ended September 26, 2008 compared to the same period in the prior year was primarily due an increase in proceeds from divestitures, mostly related to the divestitures of the Auto-Chlor business in February 2008 and the DuBois business in September 2008. This was partially offset by slightly higher capital expenditures in the first nine months of 2008 as compared to the same period in 2007. Our investments tend to be in dosing and feeder equipment with new and existing customer accounts as well as ongoing expenditures in information technology and manufacturing. We may also make significant cash expenditures in an effort to capitalize on cost savings opportunities.

•

The decrease in cash flow used in financing activities during the nine months ended September 26, 2008 compared to the same period in the prior year was due to an increase in short term borrowings in the current year, as compared to a repayment of short-term borrowings for the same period in the prior year.

•

Working capital increased $46.0 million during the nine months ended September 26, 2008. This included a $10.4 million increase in accounts receivable and a $40.3 million increase in inventories, partially offset by a $4.7 million increase in accounts payable. The increase in accounts receivable is largely the result of net sales growth, driven by significant pricing actions. The increase in inventories is a result of a seasonal build in inventory levels and transitional builds from factory closures to meet customer obligations, the revaluation of inventory from significant inflation experienced throughout 2008, and inventory build from the License Agreement. Current programs are in place to improve receivable and inventory turnover.

Debt and Contractual Obligations. As a result of the DiverseyLever acquisition, we and JDI have a significant amount of indebtedness. On May 3, 2002, in connection with the acquisition, we issued senior discount notes with a principal amount at maturity of $406.3 million to Unilever. Under the indenture for the senior discount notes, the principal amount of the senior discount notes accreted at a rate of 10.67% per annum through May 15, 2007. After May 15, 2007, interest accrues on the accreted value of the senior discount notes at this rate, and is payable in cash semiannually in arrears to the extent that JDI can distribute to us the cash necessary to make the payments in accordance with the restrictions contained in the indentures for the JDI senior subordinated notes and the JDI senior secured credit facilities. The failure by us to make all or any portion of a semiannual interest payment on the senior discount notes will not constitute an event of default under the indenture for the senior discount notes if that failure results from JDI’s inability to distribute the cash necessary to make that payment in accordance with these restrictions. Instead, interest will continue to accrue on any unpaid interest at a rate of 10.67% per annum, and the unpaid interest will be payable on the next interest payment date on which JDI is able to distribute us the cash necessary to make the payment in accordance with the provisions contained in the indentures for the JDI senior subordinated notes and the JDI senior secured credit facilities. We have no income from operations and no meaningful assets other than our interest in JDI. We receive all of our income from JDI and substantially all of our assets consist of our investment in JDI. The senior discount notes mature on May 15, 2013.

In addition, on May 3, 2002, in connection with the acquisition, JDI issued its senior subordinated notes and entered into a $1.2 billion senior secured credit facility. JDI used the proceeds of the sale of the JDI senior subordinated notes and initial borrowings under the JDI senior secured credit facilities, together with other available funds, to finance the cash portion of the purchase price for the DiverseyLever business and the related fees and expenses and to refinance then-existing indebtedness.

The JDI senior secured credit facilities were amended and restated in December 2005. The amended facilities, among other things, permit the global restructuring under the November 2005 Plan and modify the financial covenants contained in our previous credit facilities. The amended facilities consist of a revolving loan facility in an aggregate principal amount not to exceed $175 million, including a letter of credit sub-limit of $50 million and a swingline loan sub-limit of $30 million, that matures on December 16, 2010, as well as a term loan facility that matures on December 16, 2011. In addition, the amended facilities include a committed delayed draw term facility of up to $100 million, which was fully drawn on July 14, 2006. The amended facilities also provide for an increase in the revolving credit facility of up to $25 million under specified circumstances. As of September 26, 2008, JDI had $4.9 million in letters of credit outstanding under the revolving portion of the senior secured credit facilities and therefore had the ability to borrow $170.1 million under those revolving facilities.

As of September 26, 2008, excluding indebtedness held by JDI, our only indebtedness consisted of the senior discount notes with a book value of $387.9 million. As of September 26, 2008, our subsidiaries had total indebtedness of $1.1 billion, consisting of $628.1 million of senior subordinated notes, $434.1 million of borrowings under the senior secured credit facilities, $11.9 million of other long-term borrowings and $46.7 million in short-term credit lines. In addition, JDI had $190.1 million in operating lease commitments, $2.4 million in capital lease commitments and $4.9 million committed under letters of credit.

We believe that the cash flows from continuing operations, including the effects of divestitures made as part of the November 2005 Plan, together with available cash, borrowings available under the JDI senior secured credit facilities, and the proceeds from the JDI receivables securitization facility will generate sufficient cash flow to meet our liquidity needs for the foreseeable future, including those related to the November 2005 Plan. We do not expect the divestitures of the Polymer Business and other businesses, made as part of the November 2005 Plan and included as part of continuing and discontinuing operations, to significantly affect our future liquidity or our ability to meet our debt service obligations.

We have obligations related to our pension and post-retirement plans that are discussed in detail in Note 13 of the notes to our consolidated financial statements. As of the most recent actuarial estimation, we anticipate making $47.5 million of contributions to pension plans in fiscal year 2008. Post-retirement medical claims are paid as they are submitted and are anticipated to be $3.8 million in fiscal year 2008.

Off-Balance Sheet Arrangements. JDI and certain of its subsidiaries entered into an agreement (the “Receivables Facility”) in March 2001, as amended, whereby JDI and each participating subsidiary sell, on a continuous basis, certain trade receivables to JWPR Corporation (“JWPRC”), JDI’s wholly owned, consolidated, special purpose, bankruptcy-remote subsidiary. JWPRC was formed for the sole purpose of buying and selling receivables generated by JDI and certain of its subsidiaries party to the Receivables Facility. JWPRC, in turn, sells an undivided interest in the accounts receivable to nonconsolidated financial institutions (the “Conduits”) for an amount equal to the value of all eligible receivables (as defined under the receivables sale agreement between JWPRC and the Conduits) less the applicable reserve. The accounts receivable securitization arrangement is accounted for as a sale under the provisions of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities–A replacement of FASB Statement No. 125.” As September 26, 2008 and December 28, 2007, the size of JDI’s Receivables Facility for securitization was $75 million.

As of September 26, 2008 and December 28, 2007, the Conduits held $39.7 million and $45.2 million, respectively, of accounts receivable that are not included in the accounts receivable balance reflected in our consolidated balance sheets.

As of September 26, 2008 and December 28, 2007, JDI had a retained interest of $88.0 million and $80.0 million, respectively, in the receivables of JWPRC. The retained interest is included in the accounts receivable balance and is reflected in the consolidated balance sheets at estimated fair value.

For the nine months ended September 26, 2008, JWPRC’s cost of borrowing under the Receivables Facility was at a weighted average rate of 4.50% per annum.

Under the terms of the JDI senior secured credit facilities, JDI must use any net proceeds from the Receivables Facility first to prepay loans outstanding under the JDI senior secured credit facilities. In addition, the net amount of trade receivables at any time outstanding under this and any other securitization facility that JDI may enter into may not exceed $200 million in the aggregate.

Contractual Obligations

For the fiscal year ending December 31, 2008, we expect to increase FIN No. 48 liabilities (excluding interest and penalties) by $1.2 million, resulting in total FIN No. 48 liabilities (excluding interest and penalties) of $31.7 million. Total FIN No. 48 liabilities for which payments are expected in less than one year are $3.9 million. We are not able to provide a reasonably reliable estimate of the timing of future payments relating to non-current unrecognized tax benefits.

Financial Covenants under the JDI Senior Secured Credit Facilities

Under the amended terms of our senior secured credit facilities, we are subject to certain financial covenants. The financial covenants under our senior secured credit facilities require JDI to meet the following targets and ratios.

Maximum Leverage Ratio. JDI is required to maintain a leverage ratio for each financial covenant period of no more than the maximum ratio specified in the senior secured credit facilities for that financial covenant period. The maximum leverage ratio is the ratio of (1) JDI’s consolidated indebtedness (excluding up to $55 million of indebtedness incurred under the Receivables Facility and indebtedness relating to specified interest rate hedge agreements) as of the last day of a financial covenant period using a weighted-average exchange rate for the relevant fiscal three-month period to (2) JDI’s consolidated EBITDA, as defined in the JDI senior secured credit facilities, for that same financial covenant period.

The JDI senior secured credit facilities require that JDI maintain a leverage ratio of no more than the ratio set forth below for each of the financial covenant periods ending nearest the corresponding date set forth below:


		Maximum Leverage Ratio
September 30, 2008		4.25 to 1
December 31, 2008		4.25 to 1
March 31, 2009		4.25 to 1
June 30, 2009		4.25 to 1
September 30, 2009		3.75 to 1
December 31, 2009		3.75 to 1
March 31, 2010		3.75 to 1
June 30, 2010		3.75 to 1
September 30, 2010 and thereafter		3.50 to 1

Minimum Interest Coverage Ratio. JDI is required to maintain an interest coverage ratio for each financial covenant period of no less than the minimum ratio specified in the JDI senior secured credit facilities for that financial covenant period. The minimum interest coverage ratio is the ratio of (1) JDI’s consolidated EBITDA, as defined in the JDI senior secured credit facilities, for a financial covenant period to (2) JDI’s cash interest expense for the same financial covenant period.

The JDI senior secured credit facilities require that JDI maintain an interest coverage ratio of no less than the ratio set forth below for each of the financial covenant periods ending nearest the corresponding date set for the below:


		Minimum Interest Coverage Ratio
September 30, 2008		2.50 to 1
December 31, 2008		2.50 to 1
March 31, 2009		2.50 to 1
June 30, 2009		2.50 to 1
September 30, 2009		2.75 to 1
December 31, 2009		2.75 to 1
March 31, 2010		2.75 to 1
June 30, 2010		2.75 to 1
September 30, 2010 and thereafter		3.00 to 1

Compliance with Maximum Leverage Ratio and Minimum Interest Coverage Ratio. For JDI’s financial covenant period ended on September 26, 2008, JDI was in compliance with the maximum leverage ratio and minimum interest coverage ratio covenants contained in the JDI senior secured credit facilities.

Capital Expenditures. Capital expenditures are limited under the JDI senior secured credit facilities to $130 million per fiscal year. To the extent that JDI makes capital expenditures of less than the limit in any fiscal year, however, JDI may carry forward into the subsequent year the difference between the limit and the actual amount we expended, provided that the amounts that JDI carries forward from the previous year will be allocated to capital expenditures in the current fiscal year only after the amount allocated to the current fiscal year is exhausted. As of September 26, 2008, JDI was in compliance with the limitation on capital expenditures for fiscal year 2008.

Restructuring Charges. The senior secured credit facilities limit the amount of cash payments (i) arising in connection with the November 2005 Plan at any time from fiscal year 2006 through the end of fiscal year 2009 to $355 million in the aggregate and (ii) arising in connection with permitted divestitures at any time from fiscal year 2006 through the end of fiscal year 2008 to $45 million. As of September 26, 2008, we were in compliance with the limitation on spending for restructuring and permitted divestiture-related activities.

In addition, the JDI senior secured credit facilities contain covenants that restrict JDI’s ability to declare dividends and to redeem and repurchase capital stock. The JDI senior secured credit facilities also limit JDI’s ability to incur additional liens, engage in sale-leaseback transactions and incur additional indebtedness and make investments.

Acquisitions

June 2008

In June 2008, JDI purchased certain intangible assets relating to a cleaning technology for an aggregate purchase price of $8.0 million. The purchase price includes a $1.0 million non-refundable deposit made in July 2007; $5.0 million paid at closing; and $2.0 million of future payments that are contingent upon, among other things, achieving commercial production. Assets acquired include primarily intangible assets, consisting of trademarks, patents, technological know-how, customer relationships and a non-compete agreement.

In September 2008, having met certain contingent requirements, we paid the sellers $1.0 million.

In conjunction with the acquisition, we entered into a consulting agreement with the sellers, under which we will pay to the sellers $1.0 million in fiscal 2009 and $1.0 million in fiscal 2010, subject to meeting certain conditions.

In addition to the purchase price discussed above, we previously maintained an intangible asset in our consolidated balance sheet in the amount of $4.7 million, representing a payment from us to the sellers in a previous period in exchange for an exclusive distribution license agreement relating to this technology. This distribution agreement was terminated as a result of the acquisition and the value of this asset is considered in the final allocation of purchase price.

At September 26, 2008, our allocation of the purchase price is as follows (000’s):


	Fair Value		Useful Life
Trademarks	$	540	Indefinite
Patents		40	18 years
Technological know-how		10,470	20 years
Customer relationships		50	10 years
Non-compete		600	10 years

We expect to allocate any future contingent payments to technological know-how, as paid.

March 2007

In March 2007, JDI purchased an additional 6% interest in a North American business that provides purchasing and category management tools to certain of JDI’s end-users for $2.6 million. JDI previously held 9% of the outstanding shares. The transaction is not considered material to our consolidated financial position, results of operations or cash flows.

Divestitures

Auto-Chlor Master Franchise and Branch Operations

In December 2007, in conjunction with our November 2005 Plan , JDI executed a sales agreement for our Auto-Chlor Master Franchise and substantially all of our remaining Auto-Chlor branch operations in North America, a business that marketed and sold low-energy dishwashing systems, kitchen chemicals, laundry and housekeeping products and services to foodservice, lodging, healthcare, and institutional customers, for $69.8 million.

The sales agreement was subject to the approval of JDI’s Board of Directors and Unilever consent, both of which we considered necessary in order to meet “held for sale” criteria under SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, these assets were classified as “held and used” as of December 28, 2007. JDI obtained approval from its Board of Directors and consent from Unilever in January 2008.

The transaction closed on February 29, 2008, and we recorded an estimated gain of $2.5 million after taxes and related costs during the three months ended March 28, 2008. We recorded some additional one-time costs and refined net assets disposed, reducing the gain by $0.1 million during the three months ended September 26, 2008, resulting in a gain of $1.5 million after taxes and related costs during the nine months ended September 26, 2008. The gain associated with these divestiture activities is included as a component of selling, general and administrative expenses in the consolidated statements of operations. The gain is subject to additional post-closing adjustments including evaluation of potential pension-related settlement charges.

As of the divestiture date, net assets were as follows (000’s):


Inventories	$	8,343
Property, plant and equipment, net		11,439
Goodwill		12,745
Other intangibles, net		32,517

Net assets divested	$	65,044

Net sales associated with these businesses were approximately $0 million and $15.5 million for the three months ended September 26, 2008 and September 28, 2007, respectively; and $9.9 million and $45.9 million for the nine months ended September 26, 2008 and September 28, 2007, respectively.

Discontinued Operations

DuBois Chemicals

On September 26, 2008, JDI and JohnsonDiversey Canada, Inc., a wholly-owned subsidiary of JDI, sold substantially all of the assets of DuBois to DuBois Chemicals, Inc. and DuBois Chemicals Canada, Inc., subsidiaries of The Riverside Company (collectively, “Riverside”), for approximately $69.7 million, of which, $5.0 million was escrowed subject to meeting fiscal year 2009 performance measures and $1.0 million was escrowed subject to resolution of certain environmental representations by JDI. The purchase price is also subject to certain post-closing adjustments that are based on net working capital targets. JDI and Riverside are expected to finalize the performance related adjustments during the second quarter of 2010 and all other adjustments during the first quarter of 2009.

The following summarizes the carrying amount of assets and liabilities of DuBois immediately preceding divestiture (000’s):


	September 26, 2008
ASSETS
Current assets:
Accounts receivable, less allowance of $72	$	13,239
Inventories		7,232
Other current assets		139

Current assets of discontinued operations	$	20,610

Non current assets:
Property, plant and equipment, net	$	10,985
Goodwill		9,749
Other intangibles, net		9,906

Non current assets of discontinued operations	$	30,640

LIABILITIES
Current liabilities:
Accounts payable	$	2,803
Accrued expenses		3,765

Current liabilities of discontinued operations	$	6,568

Net sales from discontinued operations for the three and nine months ended September 26, 2008 and September 28, 2007 were as follows (000’s):


	Three Months Ended				Nine Months Ended
	September 26, 2008		September 28, 2007		September 26, 2008		September 28, 2007
Net sales ¹	$	23,448	$	31,121	$	72,134	$	94,996

¹	Includes intercompany sales of $2,121 and $8,843 for the three months ended September 26, 2008 and September 28, 2007, respectively; and $7,193 and $29,995 for the nine months ended September 26, 2008 and September 28, 2007, respectively.

Income from discontinued operations for the three and nine months ended September 26, 2008 and September 28, 2007 were comprised of the following (000’s):


	Three Months Ended						Nine Months Ended
	September 26, 2008			September 28, 2007			September 26, 2008			September 28, 2007
Income from discontinued operations before taxes and gain from sale	$	2,126		$	2,642		$	6,630		$	9,276
Taxes on discontinued operations		(745	)		(1,057	)		(2,423	)		(3,710	)
Gain on sale of discontinued operations before taxes		16,938			—			16,938			—
Taxes on gain from sale of discontinued operations		(8,629	)		—			(8,629	)		—

Income from discontinued operations	$	9,690		$	1,585		$	12,516		$	5,566

On September 26, 2008, in association with the divestiture, Commercial Markets Holdco, Inc. (“Holdco”), Marga B.V., a subsidiary of Unilever, and the Company amended and restated the Amended and Restated Stockholders’ Agreement dated as of January 1, 2008 among the parties (as amended and restated, the “Stockholders’ Agreement”). Holdco and Marga B.V. own 66 2/3% and 33 1/3% of the outstanding shares of our company, respectively. We own 100% of the outstanding shares of JDI. The amendment and restatement of the Stockholders’ Agreement adjusted the buyout formula relating to the purchase of Marga B.V.’s shares by us in the amount of $19.1 million, subject to an adjustment based on the performance measures previously mentioned, at the time of Marga B.V.’s exit.

Chemical Methods Associates

On September 30, 2006, in connection with its November 2005 Plan, JDI sold its equity interest in CMA to Ali SpA, an Italian-based manufacturer of equipment for the food service industry, for $17.0 million. CMA was a non-core asset of our company. In January 2007, we finalized and collected an additional purchase price of $0.3 million related to a working capital adjustment. During the fiscal year ended December 29, 2006, we recorded an estimated gain of $2.3 million ($0.5 million after tax), net of related costs. During the nine months ended September 28, 2007, we finalized the purchase price and recorded additional closing costs, resulting in a reduction to the gain of $0.1 million ($0.1 million after tax). During the fiscal year ended December 28, 2007, we finalized the purchase price and recorded additional closing costs, resulting in a reduction to the gain of $0.3 million ($0.3 million after tax).

Polymer Business

On June 30, 2006, Johnson Polymer, LLC (“JP”) and JohnsonDiversey Holdings II B.V. (“Holdings II”), an indirectly owned subsidiary of JDI, completed the sale of substantially all of the assets of JP, certain of the equity interests in, or assets of certain JP subsidiaries and all of the equity interests owned by Holdings II in Johnson Polymer B.V. (collectively, the “Polymer Business”) to BASF Aktiengesellschaft (“BASF”) for approximately $470.0 million plus an additional $8.1 million in connection with the parties’ estimate of purchase price adjustments that are based upon the closing net asset value of the Polymer Business. Further, BASF paid us $1.5 million for the option to extend the tolling agreement by up to six months. In December 2006, we and BASF finalized purchase price adjustments related to the net asset value and we received an additional $4.1 million. The Polymer Business developed, manufactured and sold specialty polymers for use in the industrial print and packaging industry, industrial paint and coatings industry

and industrial plastics industry. The Polymer Business was a non-core asset of our company and had been reported as a separate business segment. During the fiscal year ended December 29, 2006, we recorded an estimated gain of $352.9 million ($256.7 million after tax), net of related costs.

During the fiscal year ended December 28, 2007, we finalized and paid certain pension related adjustments, adjusted net assets disposed and recorded additional closing costs, reducing the gain by $1.7 million ($0.3 million after tax gain) of which $0.2 million ($0.1 million after tax) and $1.3 million ($0.8 million after tax) was recorded during the three and nine months ended September 28, 2007, respectively. During the three and nine months ended September 26, 2008, we recorded and refined additional closing costs reducing the gain by $0 million ($0.1 million after tax) and $0.2 million ($0.2 million after tax), respectively. Further adjustments are not expected to be significant.

We recorded income from discontinued operations, net of tax, relating to the tolling agreement of ($0.2) million and $0.2 million, during the three months ended September 26, 2008 and September 28, 2007, respectively, and $0.7 million and $1.1 million respectively for the nine months ended September 26, 2008 and September 28, 2007.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

As of September 26, 2008, JDI had $434.1 million of debt outstanding under its senior secured credit facilities. After giving effect to the interest rate swap transactions that JDI has entered into with respect to some of the borrowings under our credit facilities, $234.1 million of the debt outstanding remained subject to variable rates. In addition, as of September 26, 2008, JDI had $58.6 million of debt outstanding under foreign lines of credit, all of which were subject to variable rates. Accordingly, our earnings and cash flows are affected by changes in interest rates. At the above level of variable rate borrowings, we do not anticipate a significant impact on earnings in the event of a reasonable change in interest rates. In the event of an adverse change in interest rates, management would likely take actions that would mitigate our exposure to interest rate risk; however, due to the uncertainty of the actions and their possible effects, this analysis assumes no such action. Further, this analysis does not consider the effects of the change in the level of the overall economic activity that could exist in such an environment.

Foreign Currency Risk

Through JDI and its subsidiaries, we conduct our business in various regions of the world and export and import products to and from many countries. Our operations may, therefore, be subject to volatility because of currency fluctuations, inflation changes and changes in political and economic conditions in these countries. Sales and expenses are frequently denominated in local currencies, and results of operations may be affected adversely as currency fluctuations affect product prices and operating costs. We engage in hedging operations, including forward foreign exchange contracts, to reduce the exposure of our cash flows to fluctuations in foreign currency rates. All hedging instruments are designated and effective as hedges, in accordance with U.S. GAAP. Other instruments that do not qualify for hedge accounting are marked to market with changes recognized in current earnings. We do not engage in hedging for speculative investment reasons. There can be no assurance that our hedging operations will eliminate or substantially reduce risks associated with fluctuating currencies.

Based on our overall foreign exchange exposure, we estimate that a 10% change in the exchange rates would not materially affect our financial position and liquidity. The effect on our results of operations would be substantially offset by the impact of the hedged items.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of JohnsonDiversey Holdings’ Disclosure Controls and Internal Controls. As of the end of the period covered by this quarterly report, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (“Disclosure Controls”). The controls evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).

CEO & CFO Certifications. Attached as exhibits 31.1 and 31.2 to this quarterly report are certifications of the CEO and the CFO required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This portion of our quarterly report includes the information concerning the controls evaluation referred to in the certifications and should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s independent registered public accounting firm will provide an attestation report regarding the Company’s internal control over financial reporting with the issuance of its Annual Report on Form 10-K for fiscal 2008.

Disclosure Controls. As of the end of the period covered by this quarterly report, we evaluated the effectiveness of the design and operation of our Disclosure Controls as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon the controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this quarterly report, our Disclosure Controls are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that information is accumulated and communicated to the CEO and CFO, as appropriate, to allow timely discussions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There has not been any change in our internal control over financial reporting during the quarter ended September 26, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls. Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance of achieving the designed control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We and JDI are party to various legal proceedings in the ordinary course of our business which may, from time to time, include product liability, intellectual property, contract, environmental and tax claims as well as government or regulatory agency inquiries or investigations. We believe that, taking into account our insurance and reserves and the valid defenses with respect to legal matters currently pending against us and JDI, the ultimate resolution of these proceedings will not, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations or cash flows.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On September 26, 2008, the Company obtained the following special written consents of its shareholders as follows: (1) shareholders unanimously approved a divestiture where JDI and JohnsonDiversey Canada, Inc., a wholly-owned subsidiary of JDI, sold substantially all of the assets of DuBois Chemicals to DuBois Chemicals, Inc. and DuBois Chemicals Canada, Inc., subsidiaries of The Riverside Company and (2) in association with the divestiture of DuBois, shareholders unanimously approved an amendment and restatement of the Amended and Restated Stockholders’ Agreement dated as of January 1, 2008 to adjust the buyout formula relating to Marga B.V.’s shares in the Company.

ITEM 6.

EXHIBITS


10.1		Level I Employment Agreement between JohnsonDiversey, Inc. and Edward F. Lonergan, dated September 15, 2008 (incorporated by reference to Exhibit 10.1 to JohnsonDiversey, Inc.’s Form 8-K filed with the SEC on September 18, 2008).

10.2		Level I Employment Agreement between JohnsonDiversey, Inc. and Joseph F. Smorada, dated September 15, 2008 (incorporated by reference to Exhibit 10.1 to JohnsonDiversey, Inc.’s Form 8-K filed with the SEC on September 18, 2008).

10.3		Level I Employment Agreement between JohnsonDiversey, Inc. and Scott D. Russell, dated September15, 2008 (incorporated by reference to Exhibit 10.1 to JohnsonDiversey, Inc.’s Form 8-K filed with the SEC on September 18, 2008).

10.4		Level I Employment Agreement between JohnsonDiversey, Inc. and Pedro Chidichimo, dated September15, 2008 (incorporated by reference to Exhibit 10.1 to JohnsonDiversey, Inc.’s Form 8-K filed with the SEC on September 18, 2008).

10.5		Amended and Restated Stockholders’ Agreement, dated September 26, 2008 by and among JohnsonDiversey Holding’s Inc., Commercial Markets Holdco, Inc. and Marga B.V.*

10.6		Form of Level I Employment Agreement provided to certain executive officers of JohnsonDiversey, Inc.

10.7		Form of Level II Employment Agreement provided to certain officers of JohnsonDiversey, Inc.

10.8		Form of Level III Employment Agreement provided to certain officers of JohnsonDiversey, Inc.

31.1		Principal Executive Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Principal Financial Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Certain information, including schedules and other attachments to this exhibit, were intentionally omitted. We agree to furnish supplementally a copy of any omitted schedules or attachments to the Securities and Exchange Commission upon request.

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.


		JOHNSONDIVERSEY HOLDINGS, INC.

Date: November 6, 2008		/s/ Joseph F. Smorada
		Joseph F. Smorada, Vice President and Chief Financial Officer

JOHNSONDIVERSEY HOLDINGS, INC.

EXHIBIT INDEX


10.1		Level I Employment Agreement between JohnsonDiversey, Inc. and Edward F. Lonergan, dated September 15, 2008 (incorporated by reference to Exhibit 10.1 to JohnsonDiversey, Inc.’s Form 8-K filed with the SEC on September 18, 2008).

10.2		Level I Employment Agreement between JohnsonDiversey, Inc. and Joseph F. Smorada, dated September 15, 2008 (incorporated by reference to Exhibit 10.1 to JohnsonDiversey, Inc.’s Form 8-K filed with the SEC on September 18, 2008).

10.3		Level I Employment Agreement between JohnsonDiversey, Inc. and Scott D. Russell, dated September15, 2008 (incorporated by reference to Exhibit 10.1 to JohnsonDiversey, Inc.’s Form 8-K filed with the SEC on September 18, 2008).

10.4		Level I Employment Agreement between JohnsonDiversey, Inc. and Pedro Chidichimo, dated September15, 2008 (incorporated by reference to Exhibit 10.1 to JohnsonDiversey, Inc.’s Form 8-K filed with the SEC on September 18, 2008).

10.5		Amended and Restated Stockholders’ Agreement, dated September 26, 2008 by and among JohnsonDiversey Holding’s Inc., Commercial Markets Holdco, Inc. and Marga B.V.*

10.6		Form of Level I Employment Agreement provided to certain executive officers of JohnsonDiversey, Inc.

10.7		Form of Level II Employment Agreement provided to certain officers of JohnsonDiversey, Inc.

10.8		Form of Level III Employment Agreement provided to certain officers of JohnsonDiversey, Inc.

31.1		Principal Executive Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Principal Financial Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Certain information, including schedules and other attachments to this exhibit, were intentionally omitted. We agree to furnish supplementally a copy of any omitted schedules or attachments to the Securities and Exchange Commission upon request.