Diversey 10-Q 2008 Q1 Quarterly report

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 MARCH 28, 2008

OR

¨ 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 333-97427

JOHNSONDIVERSEY, INC.

(Exact name of registrant as specified in its charter)

Delaware	39-1877511
(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):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

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 May 2, 2008, there were 24,422 outstanding shares of the registrant’s common stock, $1.00 par value.

* 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 March 28, 2008 and December 28, 2007	1
	Consolidated Statements of Operations for the three months ended March 28, 2008 and March 30, 2007	2
	Consolidated Statements of Cash Flows for the three months ended March 28, 2008 and March 30, 2007	3
	Notes to Consolidated Financial Statements – March 28, 2008	4
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3	Quantitative and Qualitative Disclosure about Market Risk	34
Item 4	Controls and Procedures	35
PART II – OTHER INFORMATION
Item 1	Legal Proceedings	36
Item 6	Exhibits	36
Signatures		37

Unless otherwise indicated, references to “JohnsonDiversey,” “the Company,” “we,” “our” and “us” in this quarterly report refer to JohnsonDiversey, Inc. and its consolidated subsidiaries.

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;

• 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 impact 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”).

i

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

JOHNSONDIVERSEY, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

	March 28, 2008			December 28, 2007
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	141,015		$	97,071
Accounts receivable, less allowance of $26,400 and $25,694, respectively		605,656			609,015
Accounts receivable – related parties		21,116			32,078
Inventories		326,486			286,296
Deferred income taxes		24,315			24,597
Other current assets		148,497			135,960
Current assets of discontinued operations		3,634			3,702
Total current assets		1,270,719			1,188,719
Property, plant and equipment, net		457,296			453,625
Capitalized software, net		35,159			36,556
Goodwill		1,350,619			1,279,579
Other intangibles, net		279,661			302,075
Long-term receivables – related parties		83,258			78,954
Other assets		84,374			89,074
Noncurrent assets of discontinued operations		6,879			7,947
Total assets	$	3,567,965		$	3,436,529
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	27,612		$	18,898
Current portion of long-term debt		13,763			13,181
Accounts payable		361,767			357,458
Accounts payable – related parties		42,380			51,927
Accrued expenses		503,283			486,014
Current liabilities of discontinued operations		3,338			3,808
Total current liabilities		952,143			931,286
Pension and other post-retirement benefits		247,780			233,677
Long-term borrowings		1,095,906			1,069,451
Long-term payables – related parties		31,964			31,101
Deferred income taxes		95,977			89,867
Other liabilities		133,266			118,655
Noncurrent liabilities of discontinued operations		4,585			4,225
Total liabilities		2,561,621			2,478,262
Commitments and contingencies
Stockholders’ equity:
Common stock – $1.00 par value; 200,000 shares authorized; 24,422 shares issued and outstanding		24			24
Class A 8% cumulative preferred stock – $100.00 par value; 1,000 shares authorized; no shares issued and outstanding		—			—
Class B 8% cumulative preferred stock – $100.00 par value; 1,000 shares authorized; no shares issued and outstanding		—			—
Capital in excess of par value		743,798			743,698
Retained deficit		(93,667	)		(80,933	)
Accumulated other comprehensive income		356,189			295,478
Total stockholders’ equity		1,006,344			958,267
Total liabilities and stockholders’ equity	$	3,567,965		$	3,436,529

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

1

JOHNSONDIVERSEY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands)

	Three Months Ended
	March 28, 2008			March 30, 2007
	(unaudited)
Net sales:
Net product and service sales	$	792,585		$	686,841
Sales agency fee income		8,457			22,387
		801,042			709,228
Cost of sales		469,560			413,440
Gross profit		331,482			295,788
Selling, general and administrative expenses		278,166			278,297
Research and development expenses		18,045			15,843
Restructuring expenses		6,497			2,121
Operating profit (loss)		28,774			(473	)
Other (income) expense:
Interest expense		26,094			27,365
Interest income		(1,915	)		(3,435	)
Other income, net		(799	)		(307	)
Income (loss) from continuing operations before income taxes		5,394			(24,096	)
Income tax provision		16,216			12,968
Loss from continuing operations		(10,822	)		(37,064	)
Income from discontinued operations, net of income taxes of $214 and $226		330			336
Net loss	$	(10,492	)	$	(36,728	)

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

2

JOHNSONDIVERSEY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

	Three Months Ended
	March 28, 2008			March 30, 2007
	(unaudited)
Cash flows from operating activities:
Net loss	$	(10,492	)	$	(36,728	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		27,414			29,584
Amortization of intangibles		5,941			7,409
Amortization of debt issuance costs		1,216			1,145
Interest accrued on long-term receivables- related parties		(665	)		(634	)
Deferred income taxes		1,900			4,731
(Gain) loss on disposal of discontinued operations		(8	)		402
(Gain) loss from divestitures		(2,481	)		180
(Gain) loss on property, plant and equipment disposals		(136	)		563
Other		(12,012	)		5,978
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses:
Accounts receivable securitization		(4,400	)		(16,400	)
Accounts receivable		47,121			16,671
Inventories		(34,184	)		(28,023	)
Other current assets		(7,519	)		(7,244	)
Other assets		5,311			(1,148	)
Accounts payable and accrued expenses		(26,958	)		(17,782	)
Other liabilities		177			(1,269	)
Net cash used in operating activities		(9,775	)		(42,565	)
Cash flows from investing activities:
Capital expenditures		(19,958	)		(17,625	)
Expenditures for capitalized computer software		(2,552	)		(1,403	)
Proceeds from property, plant and equipment disposals		479			1,614
Acquisitions of businesses		—			(2,696	)
Net proceeds from divestiture of businesses		67,999			421
Net cash provided by (used in) investing activities		45,968			(19,689	)
Cash flows from financing activities:
Repayments of short-term borrowings		6,636			(2,813	)
Payment of debt issuance costs		(123	)		—
Net cash provided by (used in) financing activities		6,513			(2,813	)
Effect of exchange rate changes on cash and cash equivalents		1,238			5,875
Change in cash and cash equivalents		43,944			(59,192	)
Beginning balance		97,071			208,313
Ending balance	$	141,015		$	149,121
Supplemental cash flows information
Cash paid during the year:
Interest	$	7,408		$	10,006
Income taxes		8,078			5,709

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

3

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

1.Description of the Company

JohnsonDiversey, Inc. (the “Company”) 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 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 Securities and Exchange Commission. 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 March 28, 2008 and its results of operations and cash flows for the three month period ended March 28, 2008 have been included. The results of operations for the three month period ended March 28, 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 Polymer Business as discontinued operations (see Note 7), resulting in the reclassification of prior period amounts in the Company’s consolidated statements of operations and consolidated balance sheets.

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 March 2008, the Financial Accounting Standards Board (“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

4

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

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 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 the Company is 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. 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 its 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 has issued FASB 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, 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 adoption of SFAS No. 157 as it pertains to nonfinancial assets and nonfinancial liabilities for our first quarter of 2009 (See Note 14).

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. The Company adopted the recognition provisions effective December 28, 2007.

5

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

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 quarter ended March 28, 2008.

4.Master Sales Agency Terminations and Umbrella Agreement

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 plc (“Unilever”), whereby the Company acted 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 was paid by Unilever to the Company in exchange for its sales agency services. An additional fee was payable by Unilever to the Company in the event that conditions for full or partial termination of the Sales Agency Agreement were 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 $185 and $91 during the three months ended March 28, 2008 and March 30, 2007, respectively.

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 incremental net product and service sales of $35,048 during the three month period ended March 28, 2008.

5.Acquisitions

In March 2007, the Company purchased an additional 6% interest in a North American business that provides purchasing and category management tools to certain of the Company’s end-users for $2,550. The Company 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.

6.Divestitures

Auto-Chlor Master Franchise and Branch Operations

In December 2007, in conjunction with its November 2005 Plan (see Note 11), the Company 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 Asset Impairment.” 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.

6

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

The transaction closed on February 29, 2008, subject to various post-closing adjustments including evaluation of potential pension related settlement charges, resulting in a net book gain approximating $2,481 after taxes and related costs. The gain associated with these divestiture activities is included as a component of selling, general and administrative expenses in the consolidated statements of operations.

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

Inventories	$	8,141
Property, plant and equipment, net		11,439
Goodwill		12,745
Other intangibles, net		32,517
Net assets divested	$	64,842

Net sales associated with these businesses were approximately $9,882 and $14,259 for the three month periods ended March 28, 2008 and March 30, 2007, respectively.

7.Discontinued Operations

Chemical Methods Associates

On September 30, 2006, in connection with its November 2005 Plan (see Note 11), the Company 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 three months ended March 30, 2007, the Company finalized purchase price and recorded additional closing costs, resulting in an additional gain of $15 ($9 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). Further adjustments are not expected to be significant.

Polymer Business

On June 30, 2006, Johnson Polymer, LLC (“JP”) and JohnsonDiversey Holdings II B.V. (“Holdings II”), an indirectly owned subsidiary of the Company, 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 ($235,906 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 ($216 after tax gain) of which $684 ($411 after tax) was recorded during the three months ended March 30, 2007. During the three months ended March 28, 2008, the Company recorded and refined additional closing costs increasing the gain by $7 ($8 after tax). Further adjustments are not expected to be significant.

7

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

The assets and liabilities remaining in discontinued operations at March 28, 2008 and December 28, 2007 relate to the Tolling Agreement. The Company recorded income from discontinued operations, net of tax, relating to the tolling agreement of $322 and $738, during the three months ended March 28, 2008 and March 30, 2007, respectively.

8.Accounts Receivable Securitization

The Company 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 the Company. JWPRC was formed for the sole purpose of buying and selling receivables generated by the Company 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. The total potential for securitization of trade receivables under this program at March 28, 2008 and December 28, 2007 was $75,000.

As of March 28, 2008 and December 28, 2007, the Conduit held $49,500 and $53,900, respectively, of accounts receivable that are not included in the accounts receivable balance reflected in the Company’s consolidated balance sheet.

As of March 28, 2008 and December 28, 2007, the Company had a retained interest of $94,222 and $95,348, 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 of approximately 75%. 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 global tax contingency reserves.

The Company reported an effective income tax rate of 300.6% on pre-tax income from continuing operations for the three month period ended March 28, 2008. The higher effective tax rate for the three month period ended March 28, 2008 is primarily attributable to pacing of pre-tax income (loss) in certain key jurisdictions. For example, the pre-tax income from continuing operations for the three month period ended March 28, 2008 includes a relatively high proportion of the projected annual U.S. pre-tax loss from continuing operations, for which no income tax benefit is claimed due to the U.S. valuation allowance.

The Company is projecting a charge to income tax expense of approximately $9,400 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 $123,500, including interest and penalties and positions impacting only the timing of tax benefits, of which $75,600, if recognized, would favorably affect the effective income tax rate in future periods (after considering the impact of valuation allowances). Additionally, $1,100 of unrecognized tax benefits would, if recognized, reduce goodwill. As of December 31, 2008, the Company is projecting accrued interest and penalties of $16,800 related to unrecognized tax benefits, of which $4,500 is expected to be recorded as income tax expense during the fiscal year ended December 31, 2008.

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 $29,400 (including interest and penalties) in unrecognized tax benefits during the next twelve months.

8

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

10.Inventories

The components of inventories are summarized as follows:

	March 28, 2008		December 28, 2007
Raw materials and containers	$	68,941	$	71,367
Finished goods		257,545		214,929
Total inventories	$	326,486	$	286,296

Inventories are stated in the consolidated balance sheets net of allowance for excess and obsolete inventory of $33,200 and $31,599 on March 28, 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 two to three 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 and CMA, 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 $6,497 for the three months ended March 28, 2008, for the involuntary termination of 130 employees, most of which are associated with the Japanese business segment. The Company recognized liabilities of $2,121 for the three months ended March 30, 2007 for the involuntary termination of 21 employees, most of which was associated with the European business segment.

The activities associated with the November 2005 Plan for three months ended March 28, 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		6,497			—			6,497
Cash paid1		(6,250	)		(75	)		(6,325	)
Liability balances as of March 28, 2008	$	43,316		$	3,082		$	46,398

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

In connection with the November 2005 Plan, the Company recorded long-lived asset impairment charges of $3,219 and $1,102 for the three months ended March 28, 2008 and March 30, 2007, respectively. The impairment charges are included in selling, general and administrative costs.

9

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

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

	Total Plan To-Date		Three Months Ended
			March 28, 2008			March 30, 2007
North America	$	26,651	$	789		$	316
Europe		91,381		(567	)		683
Japan		7,594		5,043			199
Latin America		3,820		387			309
Asia Pacific		527		43			—
Other		22,985		802			614
	$	152,958	$	6,497		$	2,121

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 $152 representing contractual obligations associated with involuntary terminations during the three months ended March 28, 2008. As of March 28, 2008, the Company had remaining exit and acquisition-related restructuring reserves of $1,285. The Company paid cash of $238 representing contractual obligations associated with involuntary terminations and lease payments on closed facilities during the three months ended March 30, 2007.

12.Other Income, Net

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

	Three Months Ended
	March 28, 2008			March 30, 2007
Foreign currency translation (gain) loss	$	(11,307	)	$	(1,005	)
Forward contracts (gain) loss		10,297			510
Other, net		211			188
	$	(799	)	$	(307	)

10

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

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 months ended March 28, 2008 and March 30, 2007 are as follows:

	Defined Pension Benefits
	Three Months Ended
	March 28, 2008			March 30, 2007
Service cost	$	6,715		$	7,666
Interest cost		10,240			9,218
Expected return on plan assets		(11,364	)		(10,075	)
Amortization of net loss		1,202			1,704
Amortization of transition obligation		63			100
Amortization of prior service credit		(230	)		(169	)
Effect of curtailments and settlements		45			551
Net periodic pension cost	$	6,671		$	8,995
	Other Post-Employment Benefits
	Three Months Ended
	March 28, 2008			March 30, 2007
Service cost	$	517		$	596
Interest cost		1,296			1,412
Amortization of net loss		68			351
Amortization of prior service credit		(48	)		(46	)
Effect of curtailments and settlements		44			(129	)
Net periodic benefit cost	$	1,877		$	2,184

The Company made contributions to its defined benefit pension plans of $11,202 and $8,060 during the three months ended March 28, 2008 and March 30, 2007, respectively.

14.Fair Value Measurements

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. 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. SFAS No. 157 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels:

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.

11

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

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

	Balance at March 28, 2008		Level 1	Level 2		Level 3
Assets:
Foreign currency forward contracts	$	3,074	—	$	3,074	—
Liabilities:
Foreign currency forward contracts	$	4,116	—	$	4,116	—
Interest rate swap contracts		9,268	—		9,268	—
	$	13,384	—	$	13,384	—

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 month periods ended March 28, 2008 and March 30, 2007 was as follows:

	Three Months Ended
	March 28, 2008			March 30, 2007
Net loss	$	(10,492	)	$	(36,728	)
Foreign currency translation adjustments		70,198			14,539
Adjustments to pension and post-retirement liabilities, net of tax		(4,366	)		—
Unrealized gains (losses) on derivatives, net of tax		(5,121	)		408
Total comprehensive income (loss)	$	50,219		$	(21,781	)

16.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.

The Company maintains environmental reserves for remediation, monitoring and related expenses at 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.

12

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

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.

The Company 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, the Company 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 March 28, 2008 and December 28, 2007.

In connection with the acquisition of the DiverseyLever business, Holdings entered into a Stockholders’ Agreement with its stockholders, Holdco and Marga B.V., as amended and restated in May 2006. The Stockholders’ Agreement relates to, among other things:

• restrictions on the transfer of Holdings’ shares held by the stockholders;

• Holdings’ 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 Holdings 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 N.V.

Put and Call Options. Under the Stockholders’ Agreement, at any time after May 3, 2008, Unilever has the right to require Holdings to purchase the shares then beneficially owned by Unilever. Holdings has the option to purchase the shares beneficially owned by Unilever at any time after May 3, 2010. Any exercise by Holdings 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, Holdings’ obligations in connection with a put by Unilever are conditioned on a refinancing of the Company’s and Holdings’ indebtedness, including indebtedness under the Company’s senior subordinated notes and the Company’s senior secured credit facilities. In connection with the put, Holdings 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 Holdings purchases less than all of the shares subject to a put, Unilever may again put its remaining shares after a specified suspension period.

Following the exercise by Unilever of its put rights, if Holdings 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 Holdings 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 the Company’s and Holdings’ indebtedness.

13

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

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

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

• require Holdings to sell its Japan businesses or any other business or businesses that may be identified for sale by a special committee of Holdings’ 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 the Company’s and Holdings’ indebtedness.

The price for Holdings’ shares subject to a put or call option will be based on Holdings’ enterprise value at the time the relevant option is exercised, plus its cash and minus its indebtedness. Holdings’ enterprise value cannot be less than eight times the EBITDA of Holdings 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 Holdings, 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 Holdings 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, Holdings 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 Holdings’ outstanding shares. The amount of each payment will be equal to 25% of the amount by which the cumulative cash flows of Holdings 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 Holdings and the Company’s senior indebtedness including, without limitation, the senior discount notes of Holdings, the Company’s senior subordinated notes and the Company’s senior secured credit facilities.

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 Holdings to another entity of which Unilever owns at least an 80% interest, and a stockholder controlled by Holdco may transfer its shares of Holdings to another entity of which Holdco owns at least an 80% interest.

14

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

In addition, at any time after May 3, 2007, Unilever may sell all, but not less than all, of its shares of Holdings 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 the Company’s license agreement with SCJ and the sale not constituting a change of control under the Company’s senior secured credit facilities. Further, the purchaser of Holdings’ 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 Holdings 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 Holdings of its intention to sell its shares and Holdings 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 Holdings 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 Holdings, and Holdings has a right of first refusal to purchase the shares. The price for the shares under Holdings’ 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 Holdings had previously purchased shares held by Unilever. The premium would be paid by Holdco. Notwithstanding the foregoing, if Unilever has not notified Holdings 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 Holdings to Holdings 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 Holdings (the “Additional Shares”) equal to the lesser of (i) 1.5% of the total outstanding shares of Holdings 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.

15

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

17.Segment Information

Business segment information is summarized as follows:

	Three Months Ended March 28, 2008
	North America			Europe		Japan			Latin America		Asia Pacific		Eliminations/ Other1			Total Company
Net sales	$	181,982		$	431,087	$	72,160		$	58,756	$	63,496	$	(6,439	)	$	801,042
Operating profit		13,391			21,943		(156	)		3,280		2,574		(12,258	)		28,774
Depreciation and amortization		3,839			16,230		1,430			2,440		2,278		7,138			33,355
Interest expense		2,911			17,456		201			462		555		4,509			26,094
Interest income		861			2,330		4			27		141		(1,448	)		1,915
Total assets		398,100			2,163,513		301,279			227,114		211,241		266,718			3,567,965
Goodwill		136,749			889,442		117,703			87,369		68,412		50,944			1,350,619
Capital expenditures, including capitalized computer software		3,740			10,417		620			2,550		1,641		3,542			22,510
Long-lived assets2		217,167			1,219,732		171,589			126,245		99,291		304,763			2,138,787
	Three Months Ended March 30, 2007
	North America			Europe		Japan			Latin America		Asia Pacific		Eliminations/ Other1			Total Company
Net sales	$	180,607		$	366,930	$	63,729		$	50,753	$	52,448	$	(5,239	)	$	709,228
Operating profit (loss)		(3,936	)		14,626		851			4,217		2,658		(18,889	)		(473	)
Depreciation and amortization		7,570			13,215		1,529			2,050		1,995		10,634			36,993
Interest expense		2,938			18,479		199			738		963		4,048			27,365
Interest income		7,208			3,133		—			10		144		(7,060	)		3,435
Total assets		483,284			1,939,089		271,298			183,585		179,259		203,930			3,260,445
Goodwill		173,070			755,769		111,214			77,418		61,146		11,286			1,189,903
Capital expenditures, including capitalized computer software		3,739			7,904		627			1,986		1,877		2,895			19,028
Long-lived assets2		288,006			1,062,711		150,996			110,188		88,767		285,664			1,986,332

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.

18.Subsidiary Guarantors of Senior Subordinated Notes

The Company’s senior subordinated notes are guaranteed by certain of its wholly-owned subsidiaries. Such guarantees are full and unconditional, to the extent allowed by law, and joint and several. The following supplemental information sets forth, on an unconsolidated basis, statement of income, balance sheet and statement of cash flows information for the Company, for the guarantor subsidiaries and for the Company’s non-guarantor subsidiaries, each of which were determined on a combined basis with the exception of eliminating investments in combined subsidiaries and certain reclassifications, which are eliminated at the consolidated level.

16

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

Consolidating condensed statements of operations for the three months ended March 28, 2008:

	Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net product and service sales	$	147,097		$	14,235		$	660,481		$	(29,228	)	$	792,585
Sales agency fee income		—			—			8,457			—			8,457
		147,097			14,235			668,938			(29,228	)		801,042
Cost of sales		91,375			7,847			399,152			(28,814	)		469,560
Gross profit		55,722			6,388			269,786			(414	)		331,482
Selling, general and administrative expenses		59,803			3,652			214,711			—			278,166
Research and development expenses		9,898			—			8,147			—			18,045
Restructuring expense		1,591			—			4,906			—			6,497
Operating profit (loss)		(15,570	)		2,736			42,022			(414	)		28,774
Other expense (income):
Interest expense		28,737			—			17,648			(20,291	)		26,094
Interest income		(11,335	)		(9,061	)		(1,810	)		20,291			(1,915	)
Other (income) expense, net		(25,279	)		(228	)		30			24,678			(799	)
Income (loss) before taxes		(7,693	)		12,025			26,154			(25,092	)		5,394
Income tax (benefit) provision		3,121			2,923			10,172			—			16,216
Income (loss) from continuing operations		(10,814	)		9,102			15,982			(25,092	)		(10,822	)
Income from discontinued operations, net of income taxes		322			(3	)		11			—			330
Net income (loss)	$	(10,492	)	$	9,099		$	15,993		$	(25,092	)	$	(10,492	)

Consolidating condensed statements of operations for the three months ended March 30, 2007:

	Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net product and service sales	$	144,093		$	17,548		$	548,959		$	(23,759	)	$	686,841
Sales agency fee income		959			7			21,421			—			22,387
		145,052			17,555			570,380			(23,759	)		709,228
Cost of sales		90,785			9,544			337,107			(23,996	)		413,440
Gross profit		54,267			8,011			233,273			237			295,788
Selling, general and administrative expenses		80,078			3,784			194,435			—			278,297
Research and development expenses		8,873			—			6,970			—			15,843
Restructuring expense		931			—			1,190			—			2,121
Operating profit (loss)		(35,615	)		4,227			30,678			237			(473	)
Other expense (income):
Interest expense		36,192			80			19,118			(28,025	)		27,365
Interest income		(10,373	)		(18,786	)		(2,301	)		28,025			(3,435	)
Other (income) expense, net		(12,834	)		39			(383	)		12,871			(307	)
Income (loss) before taxes		(48,600	)		22,894			14,244			(12,634	)		(24,096	)
Income tax (benefit) provision		(11,134	)		5,706			18,396			—			12,968
Income (loss) from continuing operations		(37,466	)		17,188			(4,152	)		(12,634	)		(37,064	)
Income from discontinued operations, net of income taxes		738			(402	)		—			—			336
Net income (loss)	$	(36,728	)	$	16,786		$	(4,152	)	$	(12,634	)	$	(36,728	)

17

JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

Condensed consolidating balance sheet at March 28, 2008:

	Parent Company		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	63,154	$	1,195	$	76,666	$	—		$	141,015
Accounts receivable		3,724		1,284		621,764		—			626,772
Intercompany receivables		—		456,634		—		(456,634	)		—
Inventories		55,303		6,074		265,323		(214	)		326,486
Other current assets		39,477		85		156,396		(23,146	)		172,812
Current assets of discontinued operations		3,634		—		—		—			3,634
Total current assets		165,292		465,272		1,120,149		(479,994	)		1,270,719
Property, plant and equipment, net		90,084		470		372,042		(5,300	)		457,296
Capitalized software, net		31,656		—		3,503		—			35,159
Goodwill and other intangibles, net		104,039		107,478		1,418,763		—			1,630,280
Intercompany advances		359,109		263,755		32,408		(655,272	)		—
Other assets		112,666		12		55,120		(166	)		167,632
Investments in subsidiaries		1,934,010		17,649		—		(1,951,659	)		—
Noncurrent assets of discontinued operations		6,879		—		—		—			6,879
Total assets	$	2,803,735	$	854,636	$	3,001,985	$	(3,092,391	)	$	3,567,965
Liabilities and stockholders’ equity
Current liabilities:
Short-term borrowings	$	—	$	—	$	27,612	$	—		$	27,612
Current portion of long-term debt		8,750		—		5,013		—			13,763
Accounts payable		59,644		1,017		343,486		—			404,147
Intercompany payables		285,315		—		171,319		(456,634	)		—
Accrued expenses		147,403		7,256		371,846		(23,222	)		503,283
Current liabilities of discontinued operations		3,338		—		—		—			3,338
Total current liabilities		504,450		8,273		919,276		(479,856	)		952,143
Intercompany note payable		22,394		—		654,074		(676,468	)		—
Long-term borrowings		1,085,880		—		10,026		—			1,095,906
Other liabilities		180,082		21,711		307,358		(164	)		508,987
Noncurrent liabilities of discontinued operations		4,585		—		—		—			4,585
Total liabilities		1,797,391		29,984		1,890,734		(1,156,488	)		2,561,621
Stockholders’ equity		1,006,344		824,652		1,111,251		(1,935,903	)		1,006,344
Total liabilities and equity	$	2,803,735	$	854,636	$	3,001,985	$	(3,092,391	)	$	3,567,965

Condensed consolidating balance sheet at December 28, 2007:

	Parent Company		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	45,015	$	564	$	51,492	$	—		$	97,071
Accounts receivable		5,200		1,117		634,776		—			641,093
Intercompany receivables		—		383,470		—		(383,470	)		—
Inventories		54,666		6,620		225,172		(162	)		286,296
Other current assets		26,886		79		143,295		(9,703	)		160,557
Current assets of discontinued operations		3,702		—		—		—			3,702
Total current assets		135,469		391,850		1,054,735		(393,335	)		1,188,719
Property, plant and equipment, net		102,097		508		355,957		(4,937	)		453,625
Capitalized software, net		32,842		—		3,714		—			36,556
Goodwill and other intangibles, net		96,830		174,612		1,324,132		(13,920	)		1,581,654
Intercompany advances		327,190		253,026		30,107		(610,323	)		—
Other assets		118,104		2		50,051		(129	)		168,028
Investments in subsidiaries		1,838,528		24,785		—		(1,863,313	)		—
Noncurrent assets of discontinued operations		7,947		—		—		—			7,947
Total assets	$	2,659,007	$	844,783	$	2,818,696	$	(2,885,957	)	$	3,436,529
Liabilities and stockholders’ equity
Current liabilities:
Short-term borrowings	$	—	$	—	$	18,898	$	—		$	18,898
Current portion of long-term debt		8,750		—		4,431		—			13,181
Accounts payable		72,232		1,075		336,078		—			409,385
Intercompany payables		210,428		—		173,042		(383,470	)		—
Accrued expenses		151,256		7,852		325,308		1,598			486,014
Current liabilities of discontinued operations		3,808		—		—		—			3,808
Total current liabilities		446,474		8,927		857,757		(381,872	)		931,286
Intercompany note payable		23,841		—		607,678		(631,519	)		—
Long-term borrowings		1,060,590		—		8,861		—			1,069,451
Other liabilities		165,610		21,711		285,606		373			473,300
Noncurrent liabilities of discontinued operations		4,225		—		—		—			4,225
Total liabilities		1,700,740		30,638		1,759,902		(1,013,018	)		2,478,262
Stockholders’ equity		958,267		814,145		1,058,794		(1,872,939	)		958,267
Total liabilities and equity	$	2,659,007	$	844,783	$	2,818,696	$	(2,885,957	)	$	3,436,529

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JOHNSONDIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 28, 2008

(unaudited)

Condensed consolidating statement of cash flows for the three months ended March 28, 2008:

	Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net cash provided by (used in) operating activities	$	(31,980	)	$	(4,315	)	$	62,751		$	(36,231	)	$	(9,775	)
Cash flows from investing activities:
Capital expenditures, net		(6,278	)		(27	)		(15,726	)		—			(22,031	)
Acquisitions of businesses		9,035			7,137			—			(16,172	)		—
Net proceeds from divestiture of businesses		67,992			7			—			—			67,999
Net cash provided by (used in) investing activities		70,749			7,117			(15,726	)		(16,172	)		45,968
Cash flows from financing activities:
Proceeds from (repayments of) short-term borrowings		—			—			6,636			—			6,636
Intercompany financing		(31,548	)		(3,579	)		35,127			—			—
Proceeds from (repayments of) additional paid in capital		(18,995	)		(9,037	)		(18,669	)		46,701			—
Payment of debt issuance costs		—			—			(123	)		—			(123	)
Dividends paid		—			(5,702	)		—			5,702			—
Net cash provided by (used in) financing activities		(50,543	)		(18,318	)		22,971			52,403			6,513
Effect of exchange rate changes on cash and cash equivalents		29,913			16,147			(44,822	)		—			1,238
Change in cash and cash equivalents		18,139			631			25,174			—			43,944
Beginning balance		45,015			564			51,492			—			97,071
Ending balance	$	63,154		$	1,195		$	76,666		$	—		$	141,015

Condensed consolidating statement of cash flows for the three months ended March 30, 2007:

	Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net cash provided by (used in) operating activities	$	(75,668	)	$	40,425		$	(53	)	$	(7,269	)	$	(42,565	)
Cash flows from investing activities:
Capital expenditures, net		(4,413	)		(614	)		(12,387	)		—			(17,414	)
Acquisitions of businesses		10,829			3,150			—			(16,675	)		(2,696	)
Net proceeds from divestiture of businesses		493			(72	)		—			—			421
Net cash provided by (used in) investing activities		6,909			2,464			(12,387	)		(16,675	)		(19,689	)
Cash flows from financing activities:
Proceeds from (repayments of) short-term borrowings		—			—			(2,813	)		—			(2,813	)
Intercompany financing		14,939			(19,455	)		4,510			6			—
Proceeds from (repayments of) additional paid in capital		(2,253	)		(16,902	)		5,964			13,191			—
Payment of debt issuance costs		—			—			—			—			—
Dividends paid		—			(10,293	)		(454	)		10,747			—
Net cash provided by (used in) financing activities		12,686			(46,650	)		7,207			23,944			(2,813	)
Effect of exchange rate changes on cash and cash equivalents		9,456			3,995			(7,576	)		—			5,875
Change in cash and cash equivalents		(46,617	)		234			(12,809	)		—			(59,192	)
Beginning balance		83,601			481			124,231			—			208,313
Ending balance	$	36,984		$	715		$	111,422		$	—		$	149,121

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

Executive Overview

The following discussion and analysis describes material changes in the financial condition and results of operations of JohnsonDiversey, 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, March 28, 2008, our annual report on Form 10-K for the year ended December 28, 2007, and the section entitled “Forward-Looking Statements” located before Part I of this report.

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 Chemical Methods Associates (“CMA”) and the Polymer Business segment (“Polymer Business”) as discussed in Note 7 to the consolidated financial statements.

In the three months ended March 28, 2008, net sales increased by $91.8 million from the same period in the prior year. As indicated in the following table, our net sales increased 1.4% for the three months ended March 28, 2008, compared to the same period in the prior year 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”). Beginning in fiscal year 2008, the License Agreement has replaced the Sales Agency Agreement in most countries.

	Three Months Ended						Change
(dollars in thousands)	March 28, 2008			March 30, 2007
Net sales	$	801,042		$	709,228		12.9	%
Variance due to:
Foreign currency exchange					66,695
Acquisitions and divestitures					(6,093	)
Sales agency fee income (SAF)		(8,457	)		(22,387	)
License Agreement revenue		(35,048	)
		(43,505	)		38,215
	$	757,537		$	747,443		1.4	%

We continue to show net sales growth in Europe, Asia Pacific, and Latin America primarily due to a balance of selective price increases in certain business sectors and global geographic areas and increased sales volume, which was driven by continued expansion of developing markets in Asia Pacific, Latin America, Central and Eastern Europe, Africa and the Middle East.

As indicated below, our gross profit percentage, based on net sales as reported, declined by 30 basis points for the first quarter of 2008 compared to the first quarter of 2007. Excluding the impact of sales agency fee income, our gross profit percentage improved 100 basis points for the first quarter of 2008 compared to the first quarter of 2007 due to success from our Global Strategic Sourcing Initiative, the favorable impact of our cost reduction programs, and selective price increases. Our gross profit percentages for the three months ended March 28, 2008 and March 30, 2007 were as follows:

Margin on Net Sales as Reported Three Months Ended				Margin on Net Sales Adjusted for SAF Three Months Ended
March 28, 2008		March 30, 2007		March 28, 2008		March 30, 2007
41.4	%	41.7	%	40.8	%	39.8	%

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While we have been successful in improving our margin with selective price increases and cost reduction initiatives, the current environment of rising oil, freight, and fuel, which increases other raw material costs, present significant challenges to improve or maintain the current margin.

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.

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

• completed the redesign phase of our European operations, initiating the transition to one centrally managed European region to strengthen the focus of our local organizations on sales and marketing execution;

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

• completed the sale of our Auto-Chlor Master Franchise and all of our remaining Auto-Chlor branch operations, which were non-core businesses of our North American region;

• commenced activity to consolidate and streamline our Japanese sales and marketing functions into one legal entity and two business units;

• completed the divestiture of our factory and other related assets in Tsukuba (near Tokyo), Japan;

• continued the global transition of human resource information systems to new providers;

• moved our North American operation into our global headquarters building and created a financial shared service center and training facility in Sturtevant, Wisconsin; 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 $6.5 million, which consisted primarily of severance costs, for the fiscal quarter ended March 28, 2008. In addition, we recorded $8.1 million of period costs related to the November 2005 Plan for the fiscal quarter ended March 28, 2008. These costs consist of $3.2 million related to long-lived asset impairments primarily related to warehouse closures in our European region and $4.9 million related to other period costs associated with restructuring activities primarily at the Corporate Center, including human resource related costs of $2.6 million, facilities related costs of $0.6 million, temporary project-related labor costs of $0.6 million, and other costs totaling $1.1 million.

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 on product sales when risk of loss and title to the product is transferred to the customer. We record an estimated reduction to revenue for customer discount programs and incentive offerings, including

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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 impact 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 $3.2 million and $1.1 million, during the three-month periods ended March 28, 2008, and March 30, 2007, respectively, in connection with the November 2005 Plan.

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Change in Fiscal Year End Date. Beginning with fiscal year 2008, we will change our fiscal year end date from the Friday nearest December 31 to December 31. Accordingly, fiscal year 2008 will end on December 31, 2008.

New Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (“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 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.

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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 FASB 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 are currently evaluating the impact of the provision of SFAS No. 157 as it pertains to nonfinancial assets and nonfinancial liabilities, which will be effective for us in our fiscal year 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 quarter ended March 28, 2008.

Three Months Ended March 28, 2008 Compared to Three Months Ended March 30, 2007

Net Sales:

	Three Months Ended				Change
(dollars in thousands)	March 28, 2008		March 30, 2007		Amount			Percentage
Net product and service sales	$	792,585	$	686,841	$	105,744		15.4	%
Sales agency fee income		8,457		22,387		(13,930	)	-62.2	%
	$	801,042	$	709,228	$	91,814		12.9	%

• Net product and service sales.The weakening of the U.S. dollar against the euro and certain other foreign currencies contributed $66.7 million to the increase in net product and service sales.

• 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 1.4% for the three months ended March 28, 2008, compared to the same period in the prior year. The increase was due to growth in our European, Latin America, and Asia Pacific regions. This growth was partially offset by declining sales in Japan and North America. 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, Africa and Middle East markets, net sales in the first quarter of 2008 increased 1.3% compared to the same period in the prior year. This growth was driven by a combination of selective price increases in certain business sectors and geographic areas and increased sales volume, which was driven by increased application sales to existing customers and continued expansion of developing markets in Central and Eastern Europe, Africa and the Middle East. This sales growth was offset and impacted, in part, by distributors accelerating purchases in the fourth quarter of 2007, a result of rapid growth in raw material costs and expected future price increases.

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• In Asia Pacific, net sales increased 10.5% in the first quarter of 2008 compared to the same period in the prior year despite severe weather conditions in China during January and February, which offset this region’s continued strong performance. This growth was led by top customer growth and strong sales volume throughout most countries in the region, primarily in the food and beverage as well as the food and lodging sectors.

• In Latin America, net sales increased 2.0% in the first quarter of 2008 compared to the same period in the prior year, primarily driven by selective price increases throughout the region and continued success with our indirect channel partners, offset by some start up requirements related to an ERP system launch in one of our key Latin American markets.

• In North America, net sales decreased 1.0% in the first quarter of 2008 compared to the same period in the prior year, primarily due to food and beverage customer consolidation and distributor inventory reduction.

• In Japan, net sales showed a slight decrease of 0.3% in the first quarter of 2008 compared to the same period in the prior year, primarily due to a transfer of food service sales, previously recorded as direct, to a distributor, and softness in the alcoholic beverage marketplace.

• 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 brand 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 Agreement became effective January 1, 2008, and unless otherwise terminated or extended, will expire on December 31, 2017.

Under the License Agreement, we recorded incremental net product and service sales of $35.0 million during the three month period ended March 28, 2008.

For the sales agency agreement, we recorded total sales agency fee income of $8.5 million, consisting of $6.9 million under the new agency agreement, $1.4 million under transitional arrangements, and $0.2 million of termination fees. We anticipate that sales under the previous agreement will be phased out in 2008.

Gross Profit:

	Three Months Ended						Change
(dollars in thousands)	March 28, 2008			March 30, 2007			Amount		Percentage
Gross Profit	$	331,482		$	295,788		$	35,694	12.1	%
Gross profit as a percentage of net sales as reported:		41.4	%		41.7	%
Gross profit as a percentage of net sales adjusted for sales agency fee income:		40.8	%		39.8	%

• The weakening of the U.S. dollar against the euro and certain other foreign currencies increased gross profit by $29.3 million for the three months ended March 28, 2008 compared to the same period in the prior year.

• Excluding the impact of foreign currency exchange rates, gross profit increased $6.4 million in the first quarter of fiscal year 2008 compared to the same period in the prior year, primarily due to growth in our European, Asia Pacific, and Latin America regions mentioned above.

• Based on net sales as reported, our gross profit percentage for the first quarter of 2008 declined by 30 basis points compared to the same period in the prior year. Excluding the impact of sales agency fee income, our gross profit percentage improved 100

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basis points for the first quarter of 2008 compared to the first quarter of 2007 with higher margins in Europe, North America, and Japan. Success from our Global Strategic Sourcing Initiative, the favorable impact of our cost reduction programs, and selective price increases contributed to the increased margin.

Operating Expenses:

	Three Months Ended						Change
(dollars in thousands)	March 28, 2008			March 30, 2007			Amount			Percentage
Selling, general and administrative expenses	$	278,166		$	278,297		$	(131	)	0.0	%
Research and development expenses		18,045			15,843			2,202		13.9	%
Restructuring expenses		6,497			2,121			4,376		206.3	%
	$	302,708		$	296,261		$	6,447		2.2	%
As a percentage of reported net sales:
Selling, general and administrative expenses		34.7	%		39.2	%
Research and development expenses		2.3	%		2.2	%
Restructuring expenses		0.8	%		0.3	%
		37.8	%		41.7	%
As a percentage of net sales adjusted for SAF:
Selling, general and administrative expenses		35.1	%		40.5	%
Research and development expenses		2.3	%		2.3	%
Restructuring expenses		0.8	%		0.3	%
		38.2	%		43.1	%

• Operating expenses.The weakening of the U.S. dollar against the euro and certain other foreign currencies increased operating expenses by $24.2 million in the three months ended March 28, 2008 compared to the same period in the prior year.

• Selling, general and administrative expenses. As a percentage of adjusted net sales excluding sales agency fee income, selling, general and administrative costs were 34.1% for the first quarter of 2008 compared to 36.6% the first quarter of 2007 when period costs under the November 2005 Plan restructuring program are excluded. Excluding the impact of foreign currency and costs associated with the November 2005 Plan, selling, general and administrative costs declined $5.0 million during the first quarter of 2008 compared to the first quarter of 2007. This was due to accelerated 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 $1.5 million during the first quarter of 2008 compared to the prior year period.

• Restructuring expenses.Excluding the impact of foreign currency, restructuring expenses increased $4.3 million during the first quarter of 2008 compared to the prior year period. This was primarily due to increased employee severance and other expenses related to the November 2005 Plan in Japan where we have taken action to consolidate and streamline our sales and marketing functions into one legal entity and two business units.

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Restructuring and Integration:

A summary of all costs associated with the November 2005 Plan for the three months ended March 28, 2008 and March 30, 2007, and since inception of the program in November 2005, is outlined below:

(dollars in thousands)	Three Months Ended March 28, 2008			Three Months Ended March 30, 2007			Total Project to Date March 28, 2008
Reserve balance at beginning of period	$	46,226		$	70,225		$	—
Restructuring costs charged to income		6,497			2,177			153,032
Liability adjustments		—			(52	)		313
Payments of accrued costs		(6,325	)		(13,643	)		(106,947	)
Reserve balance at end of period	$	46,398		$	58,707		$	46,398
Period costs classified as selling, general and administrative expenses	$	8,152		$	26,602		$	237,294
Period costs classified as cost of sales		(16	)		379			3,736
Capital expenditures		3,460			3,678			44,458

• During the first quarter of 2008 and 2007, we recorded $6.5 million and $2.1 million, respectively, of restructuring costs related to our November 2005 Plan in our consolidated statements of operations. Costs for the first quarter of 2008 consisted primarily of involuntary termination costs associated with our Japanese business segment, and the costs for the first quarter of 2007 consisted primarily of involuntary termination and other costs incurred by our North American and European business segments as well as our Corporate Center. In addition, during the first quarter of 2008 and the first quarter of 2007, we recorded $8.2 million and $26.6 million, respectively, of selling, general and administrative expenses and $0 and $0.4 million, respectively, for cost of sales, of which $3.2 million and $1.1 million, respectively, related to long-lived asset impairments, $0 million and $1.9 million, respectively, related to impairment of tangible related non-cash items and $4.9 million and $24.0 million related to other period costs associated with restructuring activities. The overall decrease in these expenses over the prior year was mainly due to a reduction in restructuring activities at our North American business segment as well as the Corporate Center.

• 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 quarter of 2008 and 2007, we paid cash of $0.2 million and $0.2 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 $1.3 million and $2.4 as of March 28, 2008 and March 30, 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)	March 28, 2008			March 30, 2007			Amount			Percentage
Interest expense	$	26,094		$	27,365		$	(1,271	)	-4.6	%
Interest income		(1,915	)		(3,435	)		1,520		-44.3	%
Net interest expense	$	24,179		$	23,930		$	249		1.0	%
Other expense (income), net		(799	)		(307	)		(492	)	160.3	%

• Net interest expense increased in the first quarter of 2008 compared to the prior year period primarily due to lower interest income during the quarter. The lower interest income resulted from lower average cash balances and interest rates during the first quarter of 2008 as compared to the prior year period. This was partially offset by lower interest expense during the first quarter of 2008 as compared to the prior year period, which resulted from lower interest rates.

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Income Taxes:

	Three Months Ended						Change
(dollars in thousands)	March 28, 2008			March 30, 2007			Amount		Percentage
Income (loss) from continuing operations before income taxes and discontinued operations	$	5,394		$	(24,096	)	$	29,490	-122.4	%
Provision for income taxes		16,216			12,968			3,248	25.0	%
Effective income tax rate		300.6	%		-53.8	%

• For the fiscal year ending December 31, 2008, we are projecting an effective income tax rate of approximately 75%. 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 global tax contingency reserves.

We reported an effective income tax rate of 300.6% on the pre-tax income from continuing operations for the three month period ended March 28, 2008. The higher effective income tax rate for the three month period ended March 28, 2008 is primarily attributable to pacing of pre-tax income (loss) in certain key jurisdictions. For example, the pre-tax income from continuing operations for the three month period ended March 28, 2008 includes a relatively high proportion of the projected annual U.S. pre-tax loss from continuing operations, for which no income tax benefit is claimed due to the U.S. valuation allowance.

• We reported an effective income tax rate of -53.8% on the pre-tax loss from continuing operations for the three month period ended March 30, 2007. The negative effective income tax rate on the pre-tax loss for the period was primarily due to increases in valuation allowances against U.S. net deferred tax assets.

Net Income:

Our net income increased by $26.2 million to a net loss of $10.5 million for the first quarter of 2008 compared to a net loss of $36.7 million for the first quarter of 2007, mainly due to increased operating profits of $29.2 million, offset by a $3.2 million increase in the income tax provision. The increase in operating profit was driven by a $35.7 million increase in gross profit and controlled selling, general and administrative spending, partially offset by increased restructuring expenses of $4.4 million and increased research and development expenses of $2.2 million.

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.

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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 March 28, 2008 and March 30, 2007.

	Three Months Ended
(dollars in thousands)	March 28, 2008			March 30, 2007
Net cash flows used in operating activities	$	(9,775	)	$	(42,565	)
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses		20,452			55,195
Changes in deferred income taxes		(1,900	)		(4,731	)
Gain (loss) from divestitures		2,489			(582	)
Gain (loss) on property disposals		136			(563	)
Depreciation and amortization expense		(33,355	)		(36,993	)
Amortization of debt issuance costs		(1,216	)		(1,145	)
Interest accrued on long-term receivables-related parties		665			634
Other, net		12,012			(5,978	)
Net loss		(10,492	)		(36,728	)
Provision for income taxes		16,430			13,194
Interest expense, net		24,179			23,930
Depreciation and amortization expense		33,355			36,993
EBITDA	$	63,472		$	37,389

EBITDA increased by $26.1 million for the quarter ended March 28, 2008 as compared to the prior year first quarter, primarily due to a $14.7 million decrease in restructuring costs and period costs included in selling, general and administrative costs related to our November 2005 Plan as well as controlled selling, general and administrative spending excluding restructuring costs.

Liquidity and Capital Resources

	Three Months Ended						Change
(dollars in thousands)	March 28, 2008			March 30, 2007			Amount			Percentage
Net cash used in operating activities	$	(9,775	)	$	(42,565	)	$	32,790		-77.0	%
Net cash provided by (used in) investing activities		45,968			(19,689	)		65,657		-333.5	%
Net cash provided by (used in) financing activities		6,513			(2,813	)		9,326		-331.5	%
Capital expenditures		(22,510	)		(19,028	)		(3,482	)	18.3	%
							Change
	March 28, 2008			December 28, 2007			Amount			Percentage
Cash and cash equivalents	$	141,015		$	97,071		$	43,944		45.3	%
Working capital (1)		549,111			518,004			31,107		6.0	%
Total debt		1,137,281			1,101,530			35,751		3.2	%

(1) Working capital is defined as net accounts receivable, plus inventories less accounts payable.

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• The increase in cash and cash equivalents at March 28, 2008 compared to December 28, 2007 resulted primarily from cash proceeds from the divestiture of the Auto-Chlor business in February 2008. This amount was partially offset by cash used during the quarter to fund capital expenditures.

• The decrease in net cash used in operating activities during the three months ended March 28, 2008 compared to the prior year period was primarily due to a smaller increase in working capital and a reduction in the utilization of the Asset Securitization program that was $12 million less than the prior year quarter.

• The increase in net cash provided by (used in) investing activities during the three months ended March 28, 2008 compared to the prior year period was primarily due an increase in proceeds from divestitures, primarily related to the divestiture of the Auto-Chlor business in February 2008. This was partially offset by slightly higher capital expenditures in the first quarter of 2008 as compared to the prior year quarter. 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 increase in cash flow provided by (used in) financing activities during the three months ended March 28, 2008 compared to the prior year period was due to an increase in short term borrowings in the current year quarter, as compared to a repayment of short term borrowing in the prior year quarter.

• The weakening U.S. dollar contributed to the $31.1 million increase in working capital during the three months ended March 28, 2008. This included a $40.2 million increase in inventories and a $5.2 million decrease in accounts payable, partially offset by a $14.3 million decrease in accounts receivable. The increase in inventories is a result of a seasonal build in inventory levels and build from factory closures.

Debt and Contractual Obligations. As a result of the DiverseyLever acquisition, we have a significant amount of indebtedness. On May 3, 2002, in connection with the acquisition, we issued senior subordinated notes and entered into a $1.2 billion senior secured credit facility. We used the proceeds of the sale of the senior subordinated notes and initial borrowings under the 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 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 March 28, 2008, we had $8.3 million in letters of credit outstanding under the revolving portion of the senior secured credit facilities and therefore had the ability to borrow $166.7 million under those revolving facilities.

As of March 28, 2008, we had total indebtedness of $1.1 billion, consisting of $656.1 million of senior subordinated notes, $438.5 million of borrowings under the senior secured credit facilities, $15.0 million of other long-term borrowings and $27.6 million in short-term credit lines. In addition, we had $186.1 million in operating lease commitments, $2.8 million in capital lease commitments and $8.3 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 our senior secured credit facilities, and the proceeds from our 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 impact our future liquidity or our ability to meet our debt service obligations. With regards to the divestiture of the Polymer Business, we anticipate that the interest savings from the repayment of the term B loan with $420.0 million of proceeds from the sale will largely offset the operating cash flows that would have been generated by this business.

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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. We and certain of our subsidiaries entered into an agreement (the “Receivables Facility”) in March 2001, as amended, whereby we and each participating subsidiary sell, on a continuous basis, certain trade receivables to JWPR Corporation (“JWPRC”), our wholly owned, consolidated, special purpose, bankruptcy-remote subsidiary. JWPRC was formed for the sole purpose of buying and selling receivables generated by us and certain of our 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 March 28, 2008 and December 28, 2007, our total potential for securitization of trade receivables was $75.0 million.

As of March 28, 2008 and December 28, 2007, the Conduits held $49.5 million and $53.9 million, respectively, of accounts receivable that are not included in the accounts receivable balance reflected in our consolidated balance sheets.

As of March 28, 2008 and December 28, 2007, we had a retained interest of $94.2 million and $95.3 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 three months ended March 28, 2008, JWPRC’s cost of borrowing under the Receivables Facility was at a weighted average rate of 5.68% per annum.

Under the terms of our senior secured credit facilities, we must use any net proceeds from the Receivables Facility first to prepay loans outstanding under the senior secured credit facilities. In addition, the net amount of trade receivables at any time outstanding under this and any other securitization facility that we 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 (including interest and penalties) by $8.9 million, resulting in total FIN No. 48 liabilities (including interest and penalties) of $62.6 million. Total FIN No. 48 liabilities (including interest and penalties) for which payments are expected in less than one year are $9.6 million. We are not able to provide a reasonably reliable estimate of the timing of future payments relating to non-current FIN No. 48 liabilities.

Financial Covenants under Our 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 us to meet the following targets and ratios.

Maximum Leverage Ratio. We are 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) our consolidated indebtedness (excluding up to $55 million of indebtedness incurred under our 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) our consolidated EBITDA, as defined in the senior secured credit facilities, for that same financial covenant period.

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The senior secured credit facilities require that we 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
March 31, 2008	4.75 to 1
June 30, 2008	4.75 to 1
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.We are required to maintain an interest coverage ratio for each financial covenant period of no less than the minimum ratio specified in the senior secured credit facilities for that financial covenant period. The minimum interest coverage ratio is the ratio of (1) our consolidated EBITDA, as defined in the senior secured credit facilities, for a financial covenant period to (2) our cash interest expense for the same financial covenant period.

The senior secured credit facilities require that we 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
March 31, 2008	2.25 to 1
June 30, 2008	2.25 to 1
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 our financial covenant period ended on March 28, 2008, we were in compliance with the maximum leverage ratio and minimum interest coverage ratio covenants contained in the senior secured credit facilities.

Capital Expenditures. Capital expenditures are limited under the senior secured credit facilities $130 million per fiscal year. To the extent that we make capital expenditures of less than the limit in any fiscal year, however, we may carry forward into the subsequent year the difference between the limit and the actual amount we expended, provided that the amounts we carry 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 March 28, 2008, we were 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

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(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 March 28, 2008, we were in compliance with the limitation on spending for restructuring and permitted divestiture-related activities.

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

Discontinued Operations

Chemical Methods Associates

On September 30, 2006, in connection with its November 2005 Plan , we sold our 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. In January 2007, we finalized and collected 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 first quarter of 2007, we finalized purchase price and recorded additional closing costs, resulting in an immaterial additional gain. During the fiscal year ended December 28, 2007, we finalized purchase price and recorded additional closing costs, resulting in a reduction to the gain of $0.3 million ($0.3 million after tax). Further adjustments are not expected to be significant.

Polymer Business

On June 30, 2006, Johnson Polymer, LLC (“JP”) and JohnsonDiversey Holdings II B.V. (“Holdings II”), our indirectly owned subsidiary, 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 ($235.9 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 ($0.2 million after tax gain) of which $0.7 million ($0.4 million after tax) was recorded during the three months ended March 30, 2007. During the three months ended March 28, 2008, we recorded and refined additional closing costs increasing the gain by an immaterial amount. Further adjustments are not expected to be significant.

The assets and liabilities remaining in discontinued operations at March 28, 2008 and December 28, 2007 relate to the Tolling Agreement. We recorded income from discontinued operations, net of tax, relating to the tolling agreement of $0.3 million and $0.7 million, during the three months ended March 28, 2008 and March 30, 2007, respectively.

Acquisitions

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

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Divestitures

Auto-Chlor Master Franchise and Branch Operations

In December 2007, in conjunction with its November 2005 Plan, we 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 our Board of Directors and Unilever consent, both of which we consider necessary in order to meet “held for sale” criteria under SFAS No. 144 “Accounting for Asset Impairment.” Accordingly, these assets were classified as “held and used” as of December 28, 2007. We obtained approval from our Board of Directors and consent from Unilever in January 2008.

The transaction closed on February 29, 2008, subject to various post closing adjustments including evaluation of potential pension related settlement charges, resulting in a net book gain approximating $2.5 million after taxes and related costs. The gain associated with these divestiture activities is included as a component of selling, general and administrative expenses in the consolidated statements of operations.

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

Inventories	$	8,141
Property, plant and equipment, net		11,439
Goodwill		12,745
Other intangibles, net		32,517
Net assets divested	$	64,842

Net sales associated with these businesses were approximately $9.9 million and $14.3 million for the three month periods ended March 28, 2008 and March 30, 2007, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

As of March 28, 2008, we had $438.5 million of debt outstanding under our senior secured credit facilities. After giving effect to the interest rate swap transactions that we have entered into with respect to some of the borrowings under our credit facilities, $238.5 million of the debt outstanding remained subject to variable rates. In addition, as of March 28, 2008, we had $42.7 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

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.

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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’s 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.

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 March 28, 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.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We 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, 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 6. EXHIBITS

10.1	Separation and Release Agreement between JohnsonDiversey, Inc. and Thomas Gartland, dated April 1, 2008, and April 30, 2008, respectively.
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.

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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, INC.
Date: May 8, 2008	/s/ Joseph F. Smorada
	Joseph F. Smorada, Executive Vice President and Chief Financial Officer

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JOHNSONDIVERSEY, INC.

EXHIBIT INDEX

10.1	Separation and Release Agreement between JohnsonDiversey, Inc. and Thomas Gartland, dated April 1, 2008, and April 30, 2008, respectively.
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.

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