TheTable Company is projecting a charge to income tax expense of approximately $9,300 for the 2011 fiscal year related to uncertain income tax positions, primarily related to certain intercompany transactions. The Company is projecting total unrecognized tax benefits for uncertain tax positions, as of December 31, 2011, of $134,100, including positions impacting only the timing of tax benefits, of which $70,000, if recognized, would favorably affect the effective income tax rate in future periods (after considering the impact of valuation allowances). The Company is projecting accrued interest and penalties, as of December 31, 2011, of $29,600 related to unrecognized tax benefits, of which $5,100 is expected to be recorded as income tax expense during the fiscal year ending December 31, 2011. Contents

13.Table Fair Value Measurements of Financial Instruments Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10–Q

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

FOR THE QUARTERLY PERIOD ENDED ~~APRIL~~ JULY 1, 2011

¨	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

DIVERSEY, 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~~Including Zip Code)

(262) 631-4001

(Registrant’s Telephone Number, ~~including~~Including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule- 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 ~~month~~months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨x No ¨

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

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

There is no public trading market for the registrant’s common stock. As of ~~April~~July 29, 2011, 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 90 days.

INDEX

Section	Topic	Page
	Forward-Looking Statements		i
PART I – FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of April 1, 2011 (unaudited) and December 31, 2010		1
	Consolidated Balance Sheets as of July 1, 2011 (unaudited) and December 31, 2010		1
	Consolidated Statements of Operations for the three months ended April 1, 2011 (unaudited) and April 2, 2010 (unaudited)		2
	Consolidated Statements of Operations for the three and six months ended July 1, 2011 (unaudited) and July 2, 2010 (unaudited)		2
	Consolidated Statements of Cash Flows for the three months ended April 1, 2011 (unaudited) and April 2, 2010 (unaudited)		3
	Consolidated Statements of Cash Flows for the six months ended July 1, 2011 (unaudited) and July 2, 2010 (unaudited)		3
	Notes to Consolidated Financial Statements (unaudited)		4
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2030
Item 3	Quantitative and Qualitative ~~Disclosure~~Disclosures about Market Risk		3348
Item 4	Controls and Procedures		3348
PART II – OTHER INFORMATION
Item 1	Legal Proceedings		3449
Item 6	Exhibits		3449
SIGNATURES			3550
Exhibit Index			3651

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

Forward-Looking Statements.

We make statements in this Quarterly Report on 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 fully realize the anticipated benefits of the Transactions ;

•

our substantial indebtedness and our ability to operate in accordance with the terms and conditions of the agreements governing the indebtedness incurred pursuant to the Transactions, including the indebtedness under our Senior Secured Credit Facilities, our Senior Notes and the Holdings Senior Notes;

•

potential conflicts of interest that any of our indirect principal stockholders may have with us in the future;

•

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

•

the vitality of the global market for institutional and industrial cleaning, sanitation and hygiene products and related services and conditions affecting the industry, including health-related, political, global economic and weather-related;

•

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

•

the loss or insolvency of a significant supplier or customer, or the inability of a significant supplier or customer to fulfill its obligations to us;

•

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

•

our ability and the ability of our competitors to maintain service levels, retain and attract customers, and introduce new products and technical innovations;

•

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

•

general global economic, political and regulatory conditions, interest rates, exposure to foreign currency risks and financial market volatility;

•

our ability to maintain our relationships and commercial arrangements with our key affiliates;

•

the loss of, or changes in, executive management or other key personnel, and other disruptions in operations or increased labor costs;

• the loss of, or changes in, executive management or other key personnel, and other disruptions in operations or increased labor costs;

•

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;

•

tax, fiscal, governmental and other regulatory policies;

•

adverse or unfavorable publicity regarding us or our services;

•

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

•

the effect of relocating manufacturing capability from our primary U.S. manufacturing facility;

• the effect of future acquisitions or divestitures or other corporate transactions; ~~and~~

•

the ability to complete the pending Agreement and Plan of Merger; and

•

other factors listed from time to time in reports that we file with the SEC.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DIVERSEY, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

	April 1, 2011			December 31, 2010
	July 1, 2011			December 31, 2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	~~127~~67,~~812~~016		$	157,754
Restricted cash		1512,~~335~~099			20,407
Accounts receivable, less allowance of $21,219 and $19,888, respectively		565,953			563,006
Accounts receivable, less allowance of $20,576 and $19,888 respectively		630,241			563,006
Accounts receivable – related parties		12,082			6,433
Accounts receivable - related parties		9,786			6,433
Due from parent - current		~~60,901~~—			9,129
Inventories		~~306~~327,~~552~~487			263,247
Deferred income taxes		2524,~~726~~041			24,532
Other current assets		~~167~~166,~~910~~562			163,020
Total current assets		1,~~282~~237,~~271~~232			1,207,528
Property, plant and equipment, net		~~414~~426,~~158~~399			410,507
Capitalized software, net		5253,~~229~~087			52,980
Due from parent—non current		—			55,112
Due from parent - non current		—			55,112
Goodwill		1,~~281~~313,~~310~~944			1,246,103
Other intangibles, net		~~197~~199,~~537~~359			194,175
Other assets		~~154~~163,~~487~~469			142,919
Total assets	$	3,~~381~~393,~~992~~490		$	3,309,324
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Short-term borrowings	$	2540,~~949~~041		$	24,205
Current portion of long-term borrowings		9,~~769~~885			9,498
Accounts payable		~~332~~357,~~670~~531			327,831
Accounts payable – related parties		3331,~~808~~432			23,794
Accrued expenses		456,159			459,496
Due to parent - current		5,414			—
Total current liabilities		858,355			844,824
Accrued expenses		411,329			459,496
Pension and other post-retirement benefits		227,732			226,682
Total current liabilities		855,632			844,824
Long-term borrowings		1,212,829			1,192,146
Pension and other post-retirement benefits		231,446			226,682
Deferred income taxes		118,285			113,638
Long-term borrowings		1,220,571			1,192,146
Other liabilities		151,136			151,910
Deferred income taxes		121,158			113,638
Total liabilities		2,568,337			2,529,200
Other liabilities		147,168			151,910
Total liabilities		2,575,975			2,529,200
Commitments and contingencies
Stockholders’ equity:
Stockholder’s 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		—			—
Common stock – $1.00 par value; 200,000 shares authorized; 24,422 shares issued and outstanding		24			24
Capital in excess of par value		744,313			744,313
Accumulated deficit		(~~213~~242,~~014~~643	)		(213,739	)
Accumulated other comprehensive income		~~282~~315,~~332~~821			249,526
Total stockholders’ equity		813,655			780,124
Total stockholder’s equity		817,515			780,124
Total liabilities and stockholders’ equity	$	3,381,992		$	3,309,324
Total liabilities and stockholder’s equity	$	3,393,490		$	3,309,324

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

DIVERSEY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands)

	Three Months Ended						Six Months Ended
	April 1, 2011			April 2, 2010
	July 1,			July 2,			July 1,			July 2,
	(unaudited)
	2011			2010			2011			2010
Net sales:
	(unaudited)						(unaudited)
Net product and service sales	$	757,257		$	741,925
Net sales:
Sales agency fee income		6,498			5,735
Net product and service sales	$	869,638		$	788,146		$	1,626,895		$	1,530,071
		763,755			747,660
Sales agency fee income		6,367			6,171			12,865			11,906
Cost of sales		447,719			430,435
		876,005			794,317			1,639,760			1,541,977
Gross profit		316,036			317,225
Cost of sales		511,307			449,222			959,026			879,657
Selling, general and administrative expenses		255,325			249,957
Gross profit		364,698			345,095			680,734			662,320
Research and development expenses		17,604			16,727
Selling, general and administrative expenses		258,709			254,306			514,034			504,262
Restructuring credits		(224	)		(721	)
Research and development expenses		18,686			16,530			36,290			33,257
Operating profit		43,331			51,262
Restructuring credits		(925	)		(1,799	)		(1,149	)		(2,520	)
Other (income) expense:
Operating profit		88,228			76,058			131,559			127,321
Interest expense		25,775			27,822
Other (income) expense:
Interest income		(1,270	)		(463	)
Interest expense		23,020			27,642			48,795			55,464
Other (income) expense, net		(325	)		3,736
Interest income		(894	)		(1,796	)		(2,164	)		(2,259	)
Income from continuing operations before income taxes		19,151			20,167
Other (income) expense, net		435			18			110			3,754
Income tax provision		13,871			19,742
Income from continuing operations before income taxes		65,667			50,194			84,818			70,362
Income from continuing operations		5,280			425
Income tax provision		25,316			20,694			39,187			40,437
Loss from discontinued operations, net of income taxes of $0 and $0		—			(318	)
Income from continuing operations		40,351			29,500			45,631			29,925
Net income	$	5,280		$	107
Loss from discontinued operations, net of income taxes		—			(8,743	)		—			(9,061	)
Net income	$	40,351		$	20,757		$	45,631		$	20,864

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

DIVERSEY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

	Three Months Ended
	Six Months Ended
	April 1, 2011			April 2, 2010
	July 1, 2011			July 2, 2010
	(unaudited)
Cash flows from operating activities:
Net income	$	545,~~280~~631		$	~~107~~20,864
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		2450,~~914~~387			2345,~~935~~453
Amortization of intangibles		47,~~525~~855			48,~~483~~737
Amortization and direct expense of debt issuance costs		47,~~412~~480			25,~~617~~164
Accretion of original issue discount		~~477~~1,039			~~561~~1,015
Deferred income taxes		~~953~~813			917,~~036~~437
Loss on disposal of discontinued operations		—			61754
Japan inventory loss		1,162			—
Loss from divestitures		—			101
Loss on property, plant and equipment disposals		98			31
Japan inventory loss		701			—
Other		(587	)		5,546
Loss (gain) on property, plant and equipment disposals		(193	)		103
Other		3,319			8,476
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses:
Accounts receivable		3(49,~~782~~148	)		2(11,~~235~~613	)
Due from parent		3,340			24,196
Due from parent (net of due to parent)		850			24,950
Inventories		(3952,~~222~~672	)		(2030,~~004~~751	)
Other current assets		~~(528~~2,442	)		1(5,~~546~~712	)
Accounts payable and accrued expenses		(634,~~978~~459	)		(87110,~~417~~832	)
Other assets		(714,~~725~~337	)		3,~~222~~381
Other liabilities		(413,~~297~~779	)		(117,~~529~~528	)
Net cash used in operating activities		(1044,~~394~~071	)		(4130,~~374~~001	)
Cash flows from investing activities:
Capital expenditures		(1438,~~755~~807	)		(1330,~~521~~237	)
Expenditures for capitalized computer software		(410,~~965~~783	)		(25,~~430~~977	)
Proceeds from property, plant and equipment disposals		85646			~~581~~3,200
Net costs of divestiture of businesses		—			(61	)
Acquisitions of businesses and other intangibles		(2,463	)		—
Net cash used in investing activities		(19,635	)		(15,431	)
Net costs of divestiture of businesses		—			(855	)
Net cash used in investing activities		(51,407	)		(33,869	)
Cash flows from financing activities:
Proceeds from short-term borrowings, net		215,~~174~~606			~~6,192~~(915	)
Repayments of long-term borrowings		(24,~~433~~893	)		(24,~~379~~619	)
Payment of debt issuance costs		(2,806	)		(24,~~151~~254	)
Net cash provided by (used in) financing activities		(3,065	)		1,662
Dividends paid		(5,730	)		(81	)
Effect of exchange rate changes on cash and cash equivalents		3,152			(2,434	)
Net cash provided by (used in) financing activities		2,177			(9,869	)
Change in cash and cash equivalents		(29,942	)		(57,577	)
Effect of exchange rate changes on cash and cash equivalents		2,563			(4,256	)
Change in cash and cash equivalents		(90,738	)		(77,995	)
Beginning balance		157,754			249,440
Ending balance	$	~~127~~67,~~812~~016		$	~~191~~171,~~863~~445
Supplemental cash flows information
Cash paid during the period:
Interest, net	$	1340,~~573~~863		$	2153,~~944~~252
Income taxes		1934,~~738~~030			514,~~629~~469
Non-cash financing activities:
Dividend payable to Parent settled against Due from Parent note receivable	$	64,335		$	—

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

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

1. Description of the Company

Diversey, Inc., (the “Company”) is a leading global marketer and manufacturer of commercial cleaning, hygiene, operational efficiency, appearance enhancing products and equipment and related services and solutions for food safety and service, food and beverage plant operations, floor care, housekeeping and room care, laundry and skin care. The Company serves institutional and industrial end-users such as food service providers, lodging establishments, food and beverage processing plants, building service contractors, building managers and property owners, retail outlets, schools and health-care facilities in more than 175 countries worldwide.

The Company is a wholly-owned subsidiary of Diversey Holdings, Inc. (“Holdings”).

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 U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary to present fairly the financial position of the Company as of ~~April~~July 1, 2011 and its results of operations for the three and six months ended July 1, 2011 and cash flows for the ~~three~~six months ended ~~April~~July 1, 2011 ~~and April 2, 2010,~~ have been included. The results of operations for the three and six months ended ~~April~~July 1, 2011 are not necessarily indicative of the results to be expected for any subsequent interim period or for the full fiscal year ending December 31, 2011. 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 31, 2010. As a public reporting company, the Company evaluates subsequent events through the date the financial statements are issued.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Diversey, Inc. and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of 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 at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

The Company uses estimates and assumptions in accounting for the following significant matters, among others:

•

Allowances for doubtful accounts

•

Inventory valuation and allowances

•

Valuation of acquired assets and liabilities

•

Useful lives of property and equipment and intangible assets

•

Goodwill and other long-lived asset impairment

•

Contingencies

•

Accounting for income taxes

•

Stock-based compensation

•

Customer rebates and discounts

•

Environmental remediation costs

•

Pensions and other post-retirement benefits

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

Actual results may differ from previously estimated amounts, and such differences may be material to the consolidated financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made. No significant revisions to estimates or assumptions were made during the periods presented in the accompanying consolidated financial statements.

Unless otherwise indicated, all monetary amounts, except per share data, are stated in thousand dollars.

Accrued Employee-Related Expenses

The Company accrues employee compensation costs relating to payroll, payroll taxes, vacation, bonuses and incentives when incurred. During the three months ended July 1, 2011, the Company modified its performance-based compensation plans resulting in a $6,500 reduction of accrued expenses recorded as of April 1, 2011 and a reduction of selling, general, and administrative expense for the current quarter.

Reclassification

In 2010, as a result of integrating certain of the Company’s equipment business into the Americas and Europe segments, associated revenues, expenses, assets and liabilities have been reclassified from eliminations/Other to the Americas and Europe segments. Accordingly, prior period segment information in Note 19 has been restated for comparability and consistency.

3. Recent Accounting Pronouncements

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in ~~accounting~~ accounting pronouncements during the ~~three~~six months ended ~~April~~July 1, 2011, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, that are of significance, or potential significance, to the Company.

Comprehensive Income (ASC Topic 220)

In June 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. It does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This ASU is to be applied retrospectively and is effective for interim and annual periods beginning after December 15, 2011. Early adoption is permitted. The Company is currently evaluating the effect of this ASU on its financial statements.

Fair Value Measurement (ASC Topic 820)

In May 2011, the FASB issued an ASU incorporating amendments to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. This ASU represents the converged guidance of the FASB and the International Accounting Standards Board on fair value measurement. The FASB does not intend for many of the amendments to result in a change in the application of ASC Topic 820. This ASU is to be applied prospectively and is effective for interim and annual periods beginning after December 15, 2011. Early application is not permitted. The Company is currently evaluating the effect that this ASU may have on its financial statements.

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 1, 2011

(Unaudited)

Business Combinations (ASC Topic 805)

In December 2010, the FASB issued an ~~Accounting Standard Update (“~~ASU”) related to Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The Company adopted this ASU effective at the beginning of ~~its~~fiscal ~~current~~year ~~fiscal quarter~~2011, and will apply the ASU prospectively to future business combinations for which the acquisition date is after December 31, 2010, as required. This ASU did not impact the Company’s consolidated financial statements.

Intangibles - Goodwill and Other (ASC Topic 350)

In December 2010, the FASB issued an ASU describing when to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company adopted this ASU effective at the beginning of ~~its current~~ fiscal ~~quarter~~year 2011, as required. This ASU did not impact the Company’s consolidated financial statements.

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 and Unilever N.V. (“Unilever”), whereby the Company acts as an exclusive sales agent in the sale of Unilever’s consumer branded products to various institutional and industrial end-users. At acquisition, the Company assigned an intangible value to the Prior Agency Agreement of $13,000, which was fully amortized at May 2007.

In October 2007, the Company and Unilever entered into the Umbrella Agreement (the “Umbrella Agreement”), to replace the Prior Agency Agreement, which includes; i) a new agency agreement with terms similar to the ~~previous~~ Prior 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 have also entered into agreements with Unilever to distribute Unilever’s consumer branded products. Except for some transitional arrangements in certain countries, the Umbrella Agreement became effective January 1, 2008, and, unless otherwise terminated or extended, will expire on December 31, 2017.

5An agency fee is paid by Unilever to the Company in exchange for its sales agency services. An additional fee is payable by Unilever to the Company in the event that conditions for full or partial termination of the Prior Agency Agreement are met.

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

~~Unilever’s~~At ~~consumer~~various ~~branded~~times ~~cleaning~~during ~~products.~~the ~~The~~life ~~entities~~of ~~covered~~the byPrior Agency Agreement, the ~~License~~Company elected, and Unilever agreed, to partially terminate the Prior Agency Agreement ~~have~~in ~~also~~several ~~entered~~territories ~~into~~resulting ~~agreements~~in payment ~~with~~by Unilever to ~~distribute~~the ~~Unilever’s~~Company ~~consumer~~of ~~branded products.~~additional ~~Except~~fees, ~~for~~which ~~some~~are ~~transitional~~recognized ~~arrangements~~ in ~~certain~~the ~~countries,~~consolidated statements of operations over the life of the Umbrella Agreement. ~~became~~In ~~effective~~association ~~January~~with the partial terminations, the Company recognized sales agency fee income of $159 and $150 during the three months ended July 1, ~~2008,~~2011 and July 2, ~~unless~~2010, ~~otherwise~~respectively; ~~terminated~~and or$553 ~~extended,~~and ~~will~~$309 ~~expire~~during onthe ~~December~~six months ended July 311, ~~2017~~2011 and July 2, 2010.

An ~~agency fee is paid by Unilever to the Company in exchange for its sales agency services. An~~ additional fee is payable by Unilever to the Company in the event that conditions for full or partial termination of the ~~Prior Agency~~ License Agreement are met. AtThe ~~various times during the life of the Prior Agency Agreement, the~~ Company elected, and Unilever agreed, to partially terminate the ~~Prior~~ ~~Agency~~License Agreement in several territories resulting in payment by Unilever to the Company of additional fees~~, which are recognized in the consolidated statements of operations over the life of the Umbrella Agreement~~. In association with the partial terminations, the Company recognized sales ~~agency fee~~ income of $~~393~~80 and $~~159~~0 during the three months ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010, respectively; and $159 and $0 during the six months ended July 1, 2011 and July 2, 2010.

AnUnder ~~additional~~the ~~fee~~License isAgreement, ~~payable by Unilever to~~ the Company inrecorded ~~the~~net ~~event~~product ~~that~~and ~~conditions~~service ~~for~~sales ~~full or partial termination~~ of ~~the License Agreement are met. The Company elected~~$34,889 and ~~Unilever agreed~~$29,911 ~~to partially~~during ~~terminate~~ the ~~License~~three ~~Agreement~~months inended July 1, ~~several~~2011 ~~territories~~and ~~resulting~~July 2, ~~in payment by Unilever to the Company of additional fees. In association with the partial terminations~~2010, ~~the~~respectively; ~~Company~~and ~~recognized sales income of~~ $7965,332 and $060,878 during the ~~three~~ six months ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010, respectively.

~~Under the License Agreement, the Company recorded net product and service sales of $30,443 and $30,967 during the three months ended April 1, 2011 and April 2, 2010, respectively~~5. Acquisitions

~~5. Inventories~~Strategic Alliance

The Company entered into a strategic alliance agreement with Eulen, S.A. (“Eulen”), a Spain-based corporation engaged in cleaning services, whereby the Company acquired certain assets of Eulen for total cash consideration of $3,600, of which approximately $2,500 was paid in the three months ended July 1, 2011 and $1,100 is payable in annual installments over the next 3 years. The Company expects to finalize the purchase accounting related to this acquisition in the second half of the year.

6. Inventories

The components of inventories are summarized as follows:

	April 1, 2011		December 31, 2010
	July 1, 2011		December 31, 2010
Raw materials and containers	$	6067,~~109~~695	$	56,412
Finished goods		~~246~~259,~~443~~792		206,835
Total inventories	$	~~306~~327,~~552~~487	$	263,247

Inventories are stated in the consolidated balance sheets net of allowance for excess and obsolete ~~inventory~~ inventory of $ 23,~~730~~098 and $21,806 on ~~April~~July 1, 2011 and December 31, 2010, respectively.

67. Indebtedness and Credit Arrangements

Amendment to the Senior Secured Credit Facilities credit agreement. The Senior Secured Credit Facilities were amended in March 2011. This amendment reduced the interest rate payable with respect to the Term Loans, thereby reducing borrowing costs over the remaining life of the credit facilities. The spread on the U.S. dollar and Canadian dollar denominated borrowings was reduced from 325 basis points to 300 basis points, and the minimum LIBOR and BA floors were reduced from 2.00% to 1.00%. The spread on the euro denominated borrowing was reduced from 400 basis points to 350 basis points and the EURIBOR floor was reduced from 2.25% to 1.50%.

In7 addition, the amendment changed various financial covenants and credit limits to provide us with greater flexibility to operate our business. These changes include the ability to issue incremental term loan facilities and the ability to issue dividends to Holdings to fund cash interest payments on the Holdings Senior Notes.

In connection with the amendment and in accordance with ASC 470-50, Debt Modifications and Extinguishments, the Company capitalized $443 and expensed $2,363 in transaction fees paid to third parties, and wrote-off $160 in previously unamortized discounts and capitalized debt issuance costs. These amounts are included in interest expense in the consolidated statements of operations for the three months ended April 1, 2011. The effective interest rates on the Term loans were reduced from 5.70% – 6.91% to 4.19% - 5.40%.

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

7In addition, the amendment changed various financial covenants and credit limits to provide greater flexibility to operate the business. ~~Restructuring~~These ~~Liabilities~~changes include the ability to issue incremental term loan facilities and the ability to issue dividends to Holdings to fund cash interest payments on the Holdings Senior Notes.

In connection with the amendment and in accordance with ASC 470-50, Debt Modifications and Extinguishments, the Company capitalized $443 and expensed $2,363 in transaction fees paid to third parties, and wrote-off $160 in previously unamortized discounts and capitalized debt issuance costs. These amounts are included in interest expense in the consolidated statements of operations for the six months ended July 1, 2011. The effective interest rates on the Term loans were reduced from 5.70% – 6.91% to 4.19% – 5.40%.

The Company’s existing indebtedness is intended to be paid off in connection with the Merger Agreement discussed in Note 22. At July 1, 2011, the unamortized discount and debt issuance costs relating to the Company’s indebtedness were $12,651 and $49,965, respectively.

8. Restructuring Liabilities

November 2005 Restructuring Program

On November 7, 2005, the Company announced a restructuring program (“November 2005 Plan”), which included redesigning the Company’s organizational structure, the closure of a number of manufacturing and other facilities, outsourcing the majority of information technology support worldwide, outsourcing certain financial services in Western Europe and a workforce reduction of approximately 15%. As of ~~April~~July 1, 2011, the Company has terminated 2,~~850~~881 employees in the execution of this plan. Our November 2005 Plan activity is expected to continue through fiscal 2011, with the associated reserves expected to be substantially paid out through cash that has been transferred to irrevocable trusts established for the settlement of these obligations. These ~~funds~~trusts have a balance of $1512,~~335~~099 as of ~~April~~July 1, 2011 and are classified as restricted cash in the Company’s consolidated balance sheet.

The activities associated with the November 2005 Plan for the three and six months ended ~~April~~July 1, 2011 were as follows:

	Employee-Related			Other			Total
Liability balances as of December 31, 2010	$	21,924		$	1,181		$	23,105
Net adjustments to restructuring liability		(224	)		—			(224	)
Cash paid 1		(3,564	)		34			(3,530	)
Liability balances as of April 1, 2011	$	18,136		$	1,215		$	19,351
Net adjustments to restructuring liability		(946	)		21			(925	)
Cash paid 1		(4,159	)		(18	)		(4,177	)
Liability balances as of July 1, 2011	$	13,031		$	1,218		$	14,249

1 Cash paid includes the effects of foreign exchange .

The Company did not incur any long-lived asset impairment charges for the three and six month periods ended July 1, 2011. In connection with the November 2005 Plan, the Company recorded long-lived asset impairment charges of $0115 and $~~563~~519 for the three ~~months ended~~and ~~April 1,~~six ~~2011~~months ~~and~~ended ~~April~~July 2, 2010, respectively. The impairment charges are included in selling, general and administrative costs. ~~Any additional impairment charges related to this plan are not anticipated to be significant.~~

~~Total~~8 ~~plan-to-date expenses, net, associated with the November 2005 Plan, by reporting segment are summarized as follows:~~

	Total PlanTo-Date		Three Months Ended
			April 1, 2011			April 2, 2010
Europe	$	148,307	$	(727	)	$	(392	)
Americas		41,508		376			(192	)
Greater Asia Pacific		18,877		127			(111	)
Other		25,473		—			(26	)
	$	234,165	$	(224	)	$	(721	)

8. Exit or Disposal Activities

In June 2010, the Company announced plans to transition certain accounting functions in its corporate center and certain Americas locations to a third party provider. The Company expects to execute the plan between July 2010 and December 2011. The Company also affirmed its decision to cease manufacturing operations at Waxdale, its primary U.S. manufacturing facility, and to move some production to other locations in North America, as well as pursue contract manufacturing for a portion of its product lines. The timeline to transition out of Waxdale is not certain, but is expected to be largely completed during the first semester of fiscal 2012. In connection with these plans, the Company reduced its original estimate of $5,972 for the involuntary termination of employees by $303 during the three months ended April 1, 2011. These costs are included in selling, general and administrative expenses in the consolidated statements of operations.

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

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

For the fiscal year ending December 31, 2011, the Company is projecting an effective income tax rate on pre-tax income from continuing operations of approximately 47%. The projected effective income tax rate for the fiscal year exceeds the statutory income tax rate primarily as a result of increased valuation allowances against deferred tax assets in certain jurisdictions and increases in reserves for uncertain tax positions.


	Total Plan		Three Months Ended						Six Months Ended
	To-Date		July 1, 2011			July 2, 2010			July 1, 2011			July 2, 2010
Europe	$	147,484	$	(823	)	$	(1,184	)	$	(1,550	)	$	(1,576	)
Americas		41,512		4			(425	)		380			(617	)
Greater Asia Pacific		18,784		(93	)		311			34			200
Other		25,460		(13	)		(501	)		(13	)		(527	)

	$	233,240	$	(925	)	$	(1,799	)	$	(1,149	)	$	(2,520	)

~~The~~9 Company reported an effective income tax rate of 72.4% on pre-tax income from continuing operations for the first quarter ended April 1, 2011. When compared to the estimated annual effective income tax rate, the effective income tax rate for the first quarter ended April 1, 2011 is higher primarily due to actual pacing of pre-tax income (loss) and income tax expense (benefit) in certain key jurisdictions. For example, the pre-tax income from continuing operations for the three month period ended April 1, 2011 includes a relatively low proportion of the projected annual foreign pre-tax income from continuing operations. The higher effective income tax rate for the first quarter ended April 1, 2011 due to pacing of pre-tax income (loss) and income tax expense (benefit) is partially offset by certain income tax benefit amounts that were recorded as discrete items during the period, rather than included in the annual effective income tax rate.

~~The Company is currently under audit by various state and foreign tax authorities. Based on the anticipated outcomes of these tax audits and the potential lapse of statutes of limitation~~DIVERSEY, ~~it is reasonably possible there could be a reduction of $17,700 in unrecognized tax benefits during the next twelve months~~INC.

~~10.~~NOTES ~~Other~~TO ~~(Income)~~CONSOLIDATED ~~Expense,~~FINANCIAL ~~Net~~STATEMENTS

July 1, 2011

(Unaudited)

9. Exit or Disposal Activities

In June 2010, the Company announced plans to transition certain accounting functions in its corporate center and certain Americas locations to a third party provider. The Company expects to execute the plan between July 2010 and December 2011. The Company also affirmed its decision to cease manufacturing operations at Waxdale, its primary U.S. manufacturing facility, and to move some production to other locations in North America, as well as pursue contract manufacturing for a portion of its product lines. The timeline to transition out of Waxdale is not certain, but is expected to be largely completed during the first semester of fiscal 2012. In connection with these plans, the Company reduced its original estimate of $5,972 for the involuntary termination of employees by $299 and $602 during the three and six months ended July 1, 2011, respectively. These costs are included in selling, general and administrative expenses in the consolidated statements of operations.

As of July 1, 2011, the Company carries a liability balance of $5,201 related to these involuntary terminations.

10. Income Taxes

For the fiscal year ending December 31, 2011, the Company is projecting an effective income tax rate on pre-tax income from continuing operations of approximately 48%. The projected effective income tax rate for the fiscal year exceeds the statutory income tax rate primarily as a result of increased valuation allowances against deferred tax assets in certain jurisdictions and increases in reserves for uncertain tax positions.

The Company reported an effective income tax rate of 46.2% on pre-tax income from continuing operations for the six month period ended July 1, 2011, which is consistent with the projected effective income tax rate for the fiscal year ending December 31, 2011.

11. Other (Income) Expense, Net

The components of other (income) expense, net in the consolidated statements of operations, include the following:

	Three Months Ended						Six Months Ended
	April 1, 2011			April 2, 2010
	July 1, 2011			July 2, 2010			July 1, 2011			July 2, 2010
Foreign currency (gain) loss	$	(52,~~616~~297	)	$	35,~~384~~591		$	(7,913	)	$	8,975
Forward contracts (gain) loss		53,~~427~~037			(35,~~275~~440	)		8,464			(8,715	)
Loss on hyperinflationary country foreign currency translations		—			3,874
Hyperinflationary foreign currency (gain) loss		—			31			—			3,905
Other, net		(~~136~~305	)		(~~247~~164	)		(441	)		(411	)
	$	~~(325~~435	)	$	~~3,736~~18		$	110		$	3,754

810

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

1112. Defined Benefit Plans and Other Post-Employment Benefit Plans

The components of net periodic benefit costs for the Company’s defined benefit pension plans and other post-employment benefit plans for the three and six months ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010, are as follows:

	Defined Pension Benefits
	Three Months Ended						Six Months Ended
	April 1, 2011			April 2, 2010
	July 1, 2011			July 2, 2010			July 1, 2011			July 2, 2010
Service cost	$	2,~~368~~514		$	2,~~405~~291		$	4,882		$	4,696
Interest cost		8,~~711~~997			8,~~660~~299			17,708			16,960
Expected return on plan assets		(10,~~560~~906	)		(9,~~453~~091	)		(21,466	)		(18,544	)
Amortization of net loss		1,~~450~~477			1,~~661~~568			2,927			3,229
Amortization of transition obligation		4749			5853			95			111
Amortization of prior service credit		(638	)		(385	)
Amortization of prior service (credit) cost		(672	)		(371	)		(1,309	)		(757	)
Net periodic pension cost	$	1,378		$	2,946
Curtailments, settlements and special termination benefits		894			4,785			894			4,785
	Other Post-Employment Benefits
Net periodic pension cost	$	2,353		$	7,534		$	3,731		$	10,480
	Three Months Ended
	Other Post-Employment Benefits
	April 1, 2011			April 2, 2010
	Three Months Ended						Six Months Ended
Service cost	$	313		$	327
	July 1, 2011			July 2, 2010			July 1, 2011			July 2, 2010
Interest cost		1,128			1,158
Service cost	$	314		$	326		$	628		$	653
Amortization of net gain		(17	)		(22	)
Interest cost		1,129			1,157			2,257			2,316
Amortization of prior service credit		(51	)		(51	)
Amortization of net (gain) loss		(17	)		(22	)		(34	)		(45	)
Net periodic benefit cost	$	1,373		$	1,412
Amortization of prior service credit		(51	)		(51	)		(103	)		(102	)
Net periodic benefit cost	$	1,375		$	1,410		$	2,748		$	2,822

The Company made contributions to its defined benefit pension plans of $8,~~654~~069 and $57,~~927~~516 during the three months ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010, respectively; and $16,723 and $13,443 during the six months ended July 1, 2011 and July 2, 2010, respectively.

12In June 2011, the Company recognized a settlement of defined benefits to former U.S. ~~Financial~~employees ~~Instruments~~resulting in a related loss of $894. The Company recorded this loss in selling, general and administrative expenses in the consolidated statement of operations.

~~The~~In ~~Company~~June ~~sells~~2010, ~~its~~the ~~products~~Company inrecognized ~~more~~a ~~than~~settlement ~~175~~of ~~countries~~defined ~~and~~benefits to ~~approximately~~former 85U.2%S. ofemployees ~~the~~resulting ~~Company’s~~in ~~revenues~~a ~~are~~related ~~generated~~loss ~~outside~~of ~~the United States~~$3,974. The Company’s ~~activities~~recorded ~~expose~~$1,996 ~~it to a variety~~ of ~~market~~this ~~risks,~~loss ~~including~~as ~~the~~a ~~effects~~component of ~~changes~~discontinued inoperations, ~~foreign currency exchange rates~~ and ~~interest~~$1,978 ~~rates.~~in ~~These~~selling, ~~financial~~general ~~risks are monitored~~ and ~~managed~~administrative byexpenses in the ~~Company~~consolidated asstatement ~~an integral part~~ of ~~its overall risk management program~~ operations.

~~The~~In ~~Company~~June ~~maintains~~2010, athe ~~foreign~~Company ~~currency~~recognized ~~risk~~a ~~management~~curtailment ~~strategy~~and ~~that uses~~settlement ~~derivative~~of ~~instruments~~defined ~~(foreign~~benefits ~~currency forward contracts)~~ to ~~protect~~former ~~its~~Japan ~~interests~~employees, resulting ~~from fluctuations~~ in ~~earnings~~a ~~and~~related ~~cash~~loss ~~flows~~of ~~caused by the volatility in currency exchange rates~~$571. ~~Movements~~The ~~in foreign currency exchange rates pose a risk to the~~ Company’s ~~operations~~recorded ~~and~~this ~~competitive~~loss ~~position~~in selling, ~~since~~general ~~exchange rate changes may affect the profitability~~ and ~~cash~~administrative ~~flow~~expenses ofin the ~~Company,~~consolidated ~~and~~statement ~~business and/or pricing strategies~~ of ~~competitors~~operations.

911

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

In June 2010, the Company recognized a curtailment of defined benefits to former Ireland employees resulting in a related loss of $241. The Company recorded this loss in selling, general and administrative expenses in the consolidated statement of operations.

13. Financial Instruments

The Company sells its products in more than 175 countries and approximately 85% of the Company’s revenues are generated outside the United States. The Company’s activities expose it to a variety of market risks, including the effects of changes in foreign currency exchange rates and interest rates. These financial risks are monitored and managed by the Company as an integral part of its overall risk management program.

The Company maintains a foreign currency risk management strategy that uses derivative instruments (foreign currency forward contracts) to protect its interests from fluctuations in earnings and cash flows caused by the volatility in currency exchange rates. Movements in foreign currency exchange rates pose a risk to the Company’s operations and competitive position, since exchange rate changes may affect the profitability and cash flow of the Company, and business and/or pricing strategies of competitors.

Certain of the Company’s foreign business unit sales and purchases are denominated in the customers’ or vendors’ local currency. The Company purchases foreign currency forward contracts as hedges of foreign currency denominated receivables and payables and as hedges of forecasted foreign currency denominated sales and purchases. These contracts are entered into to protect against the risk that the future dollar-net-cash inflows and outflows resulting from such sales, purchases, firm commitments or settlements will be adversely affected by changes in exchange rates.

At ~~April~~July 1, 2011 and December 31, 2010, the Company held 2433 and 23 foreign currency forward contracts, respectively, as hedges of foreign currency denominated receivables and payables with an aggregate notional amount of $~~136~~ 164,~~218~~612 and $163,092, respectively. Because the terms of such contracts are primarily less than three months, the Company did not elect hedge accounting treatment for these contracts. The Company records the changes in the fair value of these contracts within other (income) expense, net, in the consolidated statements of operations. Total net realized and unrealized (gains) losses recognized were $53,~~427~~037 and ($38,~~275)~~464 during the three and six months ended ~~April~~July 1, 2011, respectively compared with such (gains) losses of $(5,440) and ~~April~~$(8,715), respectively for the three and six months ended July 2, 2010~~, respectively~~.

As of ~~April~~July 1, 2011 and December 31, 2010, the Company held ~~136~~141 and 194 foreign currency forward contracts, respectively, as hedges of forecasted foreign currency denominated sales and purchases with an aggregate notional amount of $40 44,~~779~~798 and $62,983, respectively. The maximum length of time over which the Company typically hedges cash flow exposures is twelve months. To the extent that these contracts are designated and qualify as cash flow hedging instruments, the effective portion of the gain or loss on the derivative instrument is recorded in other comprehensive income and reclassified as a component to net income (loss) in the same period or periods during which the hedged transaction affects earnings. Net unrealized (gain) loss on cash flow hedging instruments of $~~159~~ (157) and $409 were included in accumulated other comprehensive income, net of tax, at ~~April~~July 1, 2011 and December 31, 2010, respectively. There was no ineffectiveness related to cash flow hedging instruments during the three and six months ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010, respectively. Unrealized gains and losses existing at ~~April~~July 1, 2011, which are expected to be reclassified into the consolidated statements of operations from other comprehensive income during the next year, are not expected to be significant.

At12 ~~April 1, 2011 and December 31, 2010, the location and fair value amounts of derivative instruments were as follows:~~

Asset Derivatives

Liability Derivatives

April 1, 2011

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments

Foreign currency forward contracts

Other current assets

976

Accrued expenses

1,139

Derivatives not designated as hedging instruments

Foreign currency forward contracts

Other current assets

105

Accrued expenses

558

Total Derivatives

1,081

1,697

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

Asset Derivatives

Liability Derivatives

December 31, 2010

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments

Foreign currency forward contracts

Other current assets

724

Accrued expenses

1,316

Derivatives not designated as hedging instruments

Foreign currency forward contracts

Other current assets

1,293

Accrued expenses

669

Total Derivatives

2,017

1,985

At July 1, 2011 and December 31, 2010, the location and fair value amounts of derivative instruments were as follows:

The amounts of (gain) loss recognized in Other Comprehensive Income (“OCI”) and the amounts reclassified from accumulated OCI into income during the three months ended April 1, 2011 and April 2, 2010 were as follows:


	Asset Derivatives			Liability Derivatives
	July 1, 2011			July 1, 2011
	Balance Sheet Location	Fair Value		Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments

Foreign currency forward contracts	Other current assets	$	1,070		Accrued expenses	$	841

Derivatives not designated as hedging instruments

Foreign currency forward contracts	Other current assets		48		Accrued expenses		1,928


Total Derivatives		$	1,118			$	2,769


	December 31, 2010			December 31, 2010

Derivatives designated as hedging instruments

Foreign currency forward contracts	Other current assets	$	724		Accrued expenses	$	1,316

Derivatives not designated as hedging instruments

Foreign currency forward contracts	Other current assets		1,293		Accrued expenses		669


Total Derivatives		$	2,017			$	1,985

	Amount of (gain) lossrecognized in OCI on derivatives(effective portion)			Amount of (gain) lossreclassified from accumulatedOCI into income(effective portion)
Derivatives with cash flow hedging relationships	Three months endedApril 1, 2011		Location of (gain) loss reclassified from accumulated OCI into income	Three months endedApril 1, 2011
Foreign currency forward contracts	$	163	Other (income) expense, net	$	(475)
	Amount of (gain) lossrecognized in OCI on derivatives(effective portion)			Amount of (gain) lossreclassified from accumulatedOCI into income(effective portion)
Derivatives with cash flow hedging relationships	Three months endedApril 2, 2010		Location of (gain) loss reclassified from accumulated OCI into income	Three months endedApril 2, 2010
Foreign currency forward contracts	$	(34)	Other (income) expense, net	$	(197)

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

~~Financial instruments measured at fair value on a recurring basis as of April 1~~DIVERSEY, ~~2011~~INC. ~~and December 31, 2010 were as follows:~~

	Balance atApril 1, 2011		Level 1		Level 2		Level 3
Assets:
Foreign currency forward contracts	$	1,081	$	—	$	1,081	$	—
Liabilities:
Foreign currency forward contracts	$	1,697	$	—	$	1,697	$	—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Balance atDecember 31, 2010		Level 1		Level 2		Level 3
Assets:
Foreign currency forward contracts	$	2,017	$	—	$	2,017	$	—
Liabilities:
Foreign currency forward contracts	$	1,985	$	—	$	1,985	$	—

July 1, 2011

(Unaudited)

The effect of derivative instruments on the Consolidated Financial Statements for the three and six months ended July 1, 2011 and July 2, 2010, was as follows:


	Amount of (gain) loss recognized in OCI on derivatives (effective portion)				Amount of (gain) loss reclassified from accumulated OCI into income (effective portion)
Derivatives with cash flow hedging relationships	Three Months Ended July 1, 2011			Location of (gain) loss reclassified from accumulated OCI into income	Three Months Ended July 1, 2011

Foreign currency forward contracts	$	(392	)	Other (income) expense, net	$	(158	)


	Amount of (gain) loss recognized in OCI on derivatives (effective portion)				Amount of (gain) loss reclassified from accumulated OCI into income (effective portion)
Derivatives with cash flow hedging relationships	Three Months Ended July 2, 2010			Location of (gain) loss reclassified from accumulated OCI into income	Three Months Ended July 2, 2010

Foreign currency forward contracts	$	440		Other (income) expense, net	$	168


	Amount of (gain) loss recognized in OCI on derivatives (effective portion)				Amount of (gain) loss reclassified from accumulated OCI into income (effective portion)
Derivatives with cash flow hedging relationships	Six Months Ended July 1, 2011			Location of (gain) loss reclassified from accumulated OCI into income	Six Months Ended July 1, 2011

Foreign currency forward contracts	$	(229	)	Other (income) expense, net	$	(633	)


	Amount of (gain) loss recognized in OCI on derivatives (effective portion)				Amount of (gain) loss reclassified from accumulated OCI into income (effective portion)
Derivatives with cash flow hedging relationships	Six Months Ended July 2, 2010			Location of (gain) loss reclassified from accumulated OCI into income	Six Months Ended July 2, 2010

Foreign currency forward contracts	$	406		Other (income) expense, net	$	365

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 1, 2011

(Unaudited)

14. Fair Value Measurements of Financial Instruments

Financial instruments measured at fair value on a recurring basis as of July 1, 2011 and December 31, 2010 were as follows:


	Balance at July 1, 2011		Level 1		Level 2		Level 3
Assets:
Foreign currency forward contracts	$	1,118	$	—	$	1,118	$	—


Liabilities:
Foreign currency forward contracts	$	2,769	$	—	$	2,769	$	—


	Balance at December 31, 2010		Level 1		Level 2		Level 3
Assets:
Foreign currency forward contracts	$	2,017	$	—	$	2,017	$	—


Liabilities:
Foreign currency forward contracts	$	1,985	$	—	$	1,985	$	—

The Company primarily uses readily observable market data in conjunction with globally accepted valuation model software when valuing its financial instruments portfolio and, consequently, the Company designates all financial instruments as Level 2. Under ASC Topic 820, Fair Value Measurements and Disclosures, there are three levels of inputs that may be used to measure fair value. Level 2 is defined as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

1115. Stockholder’s Equity

During the six months ended July 1, 2011, the Company declared a dividend payable to Holdings of $69,980. The Company settled $5,645 in cash with the remaining $64,335 recorded as a noncash settlement against Due from Parent note receivable.

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

~~14.~~ Comprehensive ~~Income~~income (~~Loss~~loss) for the three and six months ended July 1, 2011 and July 2, 2010 are as follows:

Comprehensive income (loss) for the three months ended April 1, 2011 and April 2, 2010 are as follows:


	Three Months Ended						Six Months Ended
	July 1, 2011			July 2, 2010			July 1, 2011			July 2, 2010
Net income	$	40,351		$	20,757		$	45,631		$	20,864
Foreign currency translation adjustments		35,470			(41,886	)		68,310			(76,218	)
Adjustments to pension and post-retirement liabilities, net of tax		(2,297	)		(5,013	)		(2,581	)		(2,929	)
Unrealized gains on derivatives, net of tax		316			(232	)		566			(44	)

Total comprehensive income (loss)	$	73,840		$	(26,374	)	$	111,926		$	(58,327	)

	Three Months Ended
	April 1, 2011			April 2, 2010
Net income	$	5,280		$	107
Foreign currency translation adjustments		32,840			(34,332	)
Adjustments to pension and post-retirement liabilities, net of tax		(284	)		2,084
Unrealized gains on derivatives, net of tax		250			188
Total comprehensive income (loss)	$	38,086		$	(31,953	)

16. Stock-Based Compensation

15. Stock-Based Compensation

Stock Incentive Plan

The Company maintains a Stock Incentive Plan (“SIP”) for the officers and most senior managers of the Company. The SIP provides for the purchase or award of new class B common stock of Holdings (“Shares”) and options to purchase new Shares representing in the aggregate up to 12% of the outstanding common stock of Holdings.

During the ~~three~~six months ended ~~April~~July 1, 2011, pursuant to the SIP, participants purchased 4,410 Shares in Holdings at $13.60 per share, and were awarded 11,759 matching options to purchase Shares pursuant to a matching formula, at an exercise price of $13.60 per share, with a contractual term of ten years. The matching options are subject to a vesting period of four years. In addition, Holdings repurchased 27,500 Shares at $13.60 per share, relating to separated employees. In conjunction with these departures, ~~150~~153,000 matching options were forfeited.

During the six ~~three~~ months ended ~~April~~July 1, 2011, pursuant to the SIP, 1,~~241~~251,~~789~~478 Deferred Share Units (“DSUs” as defined in the SIP) granted in 2010 vested. 186,823 of these vested DSUs were redeemed for cash by the participants to pay all or a portion of their required withholding tax liability, and therefore were not converted into Shares. As a result of this redemption for cash, 627,099 matching options were forfeited. In addition, ~~following~~as a result of the ~~retirement~~departure of ancertain ~~executive~~employees, 6051,~~060~~374 DSUs and ~~608~~646,~~500~~652 matching options were forfeited. Upon the closing of the Merger as discussed in Note 22, 548,473 of these options will be reinstated and accelerated pursuant to the terms of the Merger Agreement. As this event is solely contingent on the Merger closing, no compensation expense has been recognized for these options. For purposes of retention, 1422,~~706~~059 additional DSUs were granted to ~~a participant~~two participants, with no matching options. These DSUs have a weighted average grant-date fair value of $13.6083, and are subject to vesting periods of two to three years.

~~The~~16 ~~following table summarizes the stock option activity during the three months ended April 1, 2011:~~

	Number ofOptions			Exercise Price perOption 1		RemainingContractualTerm 1 (in years)		AggregateIntrinsic Value
Outstanding at January 1, 2011		9,728,836		$	10.02
Granted		11,759			13.60
Forfeited		(1,235,599	)		10.00
Outstanding at April 1, 2011		8,504,996		$	10.03		8.75	$	36,358
Exercisable at April 1, 2011		646,950		$	10.00		8.75	$	2,782

1 Weighted-average

The weighted-average grant-date fair value of all outstanding options at April 1, 2011 is $3.43.

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

The following table summarizes ~~DSU~~the stock option activity during the ~~three~~six months ended ~~April~~ July 1, 2011:

	Number ofDSUs			Weighted-AverageGrant-Date Fair Value
	Number of Options			ExercisePriceperOption1		RemainingContractualTerm1(in years)		AggregateIntrinsicValue
Nonvested DSUs at January 1, 2011		2,698,107		$	10.00
Outstanding at January 1, 2011		9,728,836		$	10.02
Granted		1411,~~706~~759			13.60
Vested		(1,241,789	)		10.00
Forfeited		(1,273,751	)		10.00
Forfeited		(60,060	)		10.00
Outstanding at July 1, 2011		8,466,844		$	10.03		8.5	$	138,389
Nonvested DSUs at April 1, 2011		1,410,964		$	10.04
Exercisable at July 1, 2011		646,950		$	10.00		8.5	$	10,591

~~At April~~ 1, ~~2011, there was $17,679 of unrecognized compensation cost related to DSUs and non~~Weighted-~~vested option compensation arrangements that is expected to be recognized as a charge to earnings over a weighted-~~average ~~period of five years.~~

The weighted-average grant-date fair value of all outstanding options at July 1, 2011 is $3.43.

The following table summarizes DSU activity during the six months ended July 1, 2011:


	Number of DSUs			Weighted- Average Grant-Date Fair Value
Nonvested DSUs at January 1, 2011		2,698,107		$	10.00
Granted		22,059			13.83
Vested		(1,251,478	)		10.00
Forfeited		(51,374	)		10.00

Nonvested DSUs at July 1, 2011		1,417,314		$	10.06

At July 1, 2011, there was $15,267 of unrecognized compensation cost related to DSUs and non-vested option compensation arrangements that is expected to be recognized as a charge to earnings over a weighted-average period of five years.

Director Stock Incentive Plan

The Company maintains a Director Stock Incentive Plan (“DIP”), which provides for the sale of Shares to certain non-employee directors of the Company, as well as the grant to these individuals of DSUs in lieu of receiving cash compensation for their services as a member of the Company’s Board of Directors.

~~The~~17 ~~following table summarizes the Director DSU activity during the three months ended April 1, 2011:~~

	Numberof DSUs			Weighted-AverageGrant-Date Fair Value
Nonvested Director DSUs at January 1, 2011		45,729		$	10.36
Granted		51,291			13.60
Vested		(45,729	)		10.36
Nonvested Director DSUs at April 1, 2011		51,291		$	13.60

Compensation expenses related to the SIP and DIP were $3,501 and $3,490 during the three months ended April 1, 2011 and April 2, 2010, respectively, and is recorded as part of selling, general and administrative expenses in the consolidated statements of operations.

Stock Appreciation Rights Plan

The Company also maintains an incentive program for certain managers of the Company who are not in the SIP, which provides for cash awards based on stock appreciation rights (“SARs”). SARs have no effect on shares outstanding as appreciation awards are paid in cash and not in common stock. The Company accounts for SARs as liability awards in which the pro-rata portion of the awards’ fair value is recognized as expense over the vesting period, which approximates three years.

Compensation expenses related to the SARs plan were $359 and $186 for the three months ended April 1, 2011 and April 2, 2010, respectively, and is recorded as part of selling, general and administrative expenses in the consolidated statements of operations.

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

~~16.~~The ~~Commitments~~following ~~and~~table ~~Contingencies~~summarizes the Director DSU activity during the six months ended July 1, 2011:


	Number of DSUs			Weighted-Average Grant-Date Fair Value
Nonvested Director DSUs at January 1, 2011		45,729		$	10.36
Granted		51,291			13.60
Vested		(45,729	)		10.36

Nonvested Director DSUs at July 1, 2011		51,291		$	13.60

Compensation expenses related to the SIP and DIP were $2,671 and $3,794 for the three months ended July 1, 2011 and July 2, 2010, respectively; and $6,173 and $7,284 for the six months ended July 1, 2011 and July 2, 2010, respectively. These expenses are recorded as part of selling, general and administrative expenses in the consolidated statements of operations.

Stock Appreciation Rights Plan

Compensation expenses related to the SARs plan were $3,805 and $218 for the three months ended July 1, 2011 and July 2, 2010, respectively; and $4,164 and $404 for the six months ended July 1, 2011 and July 2, 2010, respectively. These expenses are recorded as part of selling, general and administrative expenses in the consolidated statements of operations.

17. Commitments and Contingencies

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

The Company has purchase commitments for materials, supplies, and property, plant and equipment incidental to the ordinary conduct 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 year. 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.

In the fourth quarter of 2010, the Company concluded that it unconditionally pledged $6,000 to a charitable organization near its Sturtevant, Wisconsin headquarters, which it recognized as selling, general and administrative expense. The Company made its first of several installment payments ~~early~~ in ~~the~~April ~~second fiscal quarter of~~ 2011, and expects to make the final installment in 2012.

In the second quarter of 2011, a subsidiary of the Company within the Americas segment was notified of claims by an administrative council regarding employment tax matters covering the years 2002 through 2006. While the Company believes it has defenses against these claims and other employment tax claims for the same period, and has not accrued for these contingencies because it does not believe that a loss is probable, the ultimate resolution of the matter could result in a loss of up to approximately $6,500.

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 1, 2011

(Unaudited)

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

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. The Company continues to evaluate the nature and extent of the identified contamination and is preparing and executing plans to address the contamination, including the potential to recover some of these costs from Unilever under the terms of the DiverseyLever purchase agreement. As of ~~April~~ July 1, 2011, the Company maintained related reserves of $10,~~200~~593 on a discounted basis (using country specific rates ranging from 7.6% to 21.7%) and $13,~~200~~576 on an undiscounted basis. The Company intends to seek recovery from Unilever under indemnification clauses contained in the purchase agreement.

1718. Japan Operations

Immediate impact of the disaster

On March 11, 2011, Japan suffered a significant natural disaster. The Company’s Japan ~~subsidiaries~~subsidiary sustained damage to inventories at one of its leased facilities and recorded estimated losses and other charges totaling $1,300, ~~most~~in the first quarter, of which $461 was reversed in the second quarter, as actual losses were ascertained to be less than the estimated amounts. Most of the loss was recorded in cost of sales in the consolidated statements of operations. The Company expects that as a result of the nuclear crisis and the uncertain effects of the disaster on the Japanese economy, it may sustain further losses which are not yet currently estimable but are not expected to be material to the Company’s consolidated results. The Company’s Japan operations are based in Yokohama, which is approximately 150 miles from the damaged nuclear plant. The Company anticipates that certain ~~of these~~ losses, if sustained, will be covered by its insurance policies. The Company carries comprehensive property damage and business interruption ~~insurance~~ policies that ~~have~~cover a maximum loss limit of $25,000, and subject to a minimum deductible of $1,000; inventory losses are subject to a $50 deductible. The Company’s Japanese subsidiaries represent approximately 10% of the Company’s consolidated net sales and total assets. Its operations in Japan are based in Yokohama, which is approximately 150 miles from the damaged nuclear plant.

For the six months ended July 1, 2011, the Company’s Japan business had net sales of $153,446, and operating profit of $8,963.

Longer term potential business disruption impact

The Company believes that the disaster ~~will~~may have an adverse effect on its sales and operating profits in Japan for the current fiscal year. It currently is not able to provide a reliable estimate of the potential loss this year or in future years and whether these losses will be offset by business interruption insurance policies carried by the Company.

14Goodwill impairment assessment

During the Company’s 2010 impairment review, performed as of October 1, 2010, the Japan reporting unit had a fair value that exceeded its carrying value by 20%. The assumptions and estimates underlying fair value were determined with the assistance of a third party valuation firm and are subject to uncertainty. Failure of the Japanese business to realize financial forecasts or further weakening of the Japanese business environment, as a result of the disaster or other factors, could potentially impact the future recoverability of the $145,280 of goodwill held in our Japan reporting unit at July 1, 2011. The Company reviewed the events in Japan and based on qualitative and quantitative analyses performed as of July 1, 2011, including consideration of the Company’s implied valuation under the terms of the Merger Agreement (Note 22), concluded that there was no indicator of impairment that

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

would require a Step 1 test under ASC 350, Intangibles – Goodwill ~~impairment~~and ~~assessment~~Other to be performed. The Company believes that the disaster may have an adverse effect on its sales and operating profits in Japan for the current year. However, future effects are still not determinable, and it currently believes that the long term assumptions remain appropriate.

~~During the Company’s 2010 impairment review, performed as of October 1, 2010, the Japan reporting unit had a fair value that exceeded its carrying value by 20%~~19. ~~Failure~~Segment ofInformation the Japanese business to realize financial forecasts or further weakening of the Japanese business environment, as a result of the disaster or other factors, could potentially impact the future recoverability of the $140,204 of goodwill held in our Japan reporting unit at April 1, 2011. The Company reviewed the events in Japan and based on qualitative and quantitative analyses performed as of April 1, 2011, concluded that there was no indicator of impairment that would require a Step 1 test under ASC 350, Intangibles – Goodwill and Other to be performed. The Company believes that the disaster will have an adverse effect on its sales and operating profits in Japan for the current year. However, future effects are still not determinable, and it currently believes that the long term assumptions remain appropriate.

18. Segment Information

Business segment information is summarized as follows:

	Three Months Ended April 1, 2011
	Three Months Ended July 1, 2011
	Europe		Americas		Greater AsiaPacific		Eliminations/Other 1			TotalCompany
Net sales	$	463,958	$	260,065	$	164,113	$	(12,131	)	$	876,005
Operating profit		49,628		29,935		14,942		(6,277	)		88,228
Depreciation and amortization		10,956		6,011		4,054		7,782			28,803
Interest expense		8,598		4,173		316		9,933			23,020
Interest income		267		592		204		(169	)		894
Total assets		2,015,861		723,411		577,524		76,694			3,393,490
Goodwill		832,975		215,488		215,901		49,580			1,313,944
Capital expenditures, including
capitalized computer software		18,370		6,688		3,690		1,122			29,870
Long-lived assets 2		1,100,811		316,460		303,048		280,494			2,000,813
	Three Months Ended July 2, 2010
	Europe		Americas		Greater AsiaPacific		Eliminations /Other 1			TotalCompany
Net sales	$	~~405~~411,~~136~~054	$	~~220~~245,~~974~~224	$	~~147~~146,~~635~~337	$	(98,~~990~~298	)	$	~~763~~794,~~755~~317
Operating profit		1748,~~077~~694		2026,~~256~~962		69,~~652~~795		(~~654~~9,393	)		4376,~~331~~058
Depreciation and amortization		1110,~~426~~782		5,~~836~~489		43,~~177~~740		85,~~000~~761			2925,~~439~~772
Interest expense		910,~~100~~199		34,~~909~~456		~~309~~578		12,~~457~~409			2527,~~775~~642
Interest income		~~268~~317		~~626~~543		~~196~~161		~~180~~775			1,~~270~~796
Total assets		1,~~938~~778,~~172~~748		~~716~~592,~~385~~391		~~551~~511,~~057~~189		~~176~~350,~~378~~118			3,~~381~~232,~~992~~446
Goodwill		~~809~~716,~~613~~936		~~212~~205,~~951~~884		~~209~~196,512		4947,~~234~~571			1,~~281~~166,~~310~~903
Capital expenditures, including capitalized computer software		10,947		4,697		2,852		1,224			19,720
Capital expenditures, including
Long-lived assets 2		1,062,375		312,106		294,574		281,033			1,950,088
capitalized computer software		6,292		5,401		3,762		4,808			20,263
	Three Months Ended April 2, 2010
Long-lived assets 2		955,443		299,448		273,027		278,818			1,806,736
	Europe		Americas		Greater AsiaPacific		Eliminations /Other 1			TotalCompany
Net sales	$	405,684	$	209,248	$	133,976	$	(1,248	)	$	747,660
Operating profit		35,538		18,029		6,878		(9,183	)		51,262
Depreciation and amortization		11,394		6,149		3,688		7,187			28,418
Interest expense		11,159		4,431		543		11,689			27,822
Interest income		401		418		120		(476	)		463
Total assets		1,881,805		593,763		496,244		381,717			3,353,529
Goodwill		766,151		207,634		189,776		48,630			1,212,191
Capital expenditures, including capitalized computer software		5,681		4,309		2,349		3,612			15,951
Long-lived assets 2		1,020,944		302,434		264,274		295,514			1,883,166

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 affiliates.

1520

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

19. Subsidiary Guarantors of Senior Notes


	Six Months Ended July 1, 2011
	Europe		Americas		Greater Asia Pacific		Eliminations/ Other ¹			Total Company
Net sales	$	869,094	$	481,039	$	311,748	$	(22,121	)	$	1,639,760
Operating profit		66,705		50,191		21,594		(6,931	)		131,559
Depreciation and amortization		22,382		11,847		8,231		15,782			58,242
Interest expense		17,698		8,082		625		22,390			48,795
Interest income		535		1,218		400		11			2,164
Total assets		2,015,861		723,411		577,524		76,694			3,393,490
Goodwill		832,975		215,488		215,901		49,580			1,313,944
Capital expenditures, including
capitalized computer software		29,317		11,385		6,542		2,346			49,590
Long-lived assets ²		1,100,811		316,460		303,048		280,494			2,000,813

	Six Months Ended July 2, 2010
	Europe		Americas		Greater Asia Pacific		Eliminations / Other ¹			Total Company
Net sales	$	818,270	$	459,228	$	280,314	$	(15,835	)	$	1,541,977
Operating profit		85,740		44,648		16,673		(19,740	)		127,321
Depreciation and amortization		22,304		11,726		7,428		12,732			54,190
Interest expense		21,303		8,890		1,121		24,150			55,464
Interest income		718		961		282		298			2,259
Total assets		1,778,748		592,391		511,189		350,118			3,232,446
Goodwill		716,936		205,884		196,512		47,571			1,166,903
Capital expenditures, including
capitalized computer software		11,972		9,761		6,110		8,371			36,214
Long-lived assets ²		955,443		299,448		273,027		278,818			1,806,736

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 affiliates.

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 1, 2011

(Unaudited)

20. Subsidiary Guarantors of Senior Notes

The Diversey Senior Notes are guaranteed by certain of the Company’s 100% owned subsidiaries (the “Guarantor Subsidiaries”). Such guarantees are full and unconditional, to the extent allowed by law, and joint and several. Separate financial statements of the Guarantor Subsidiaries are not presented because the guarantors are unconditionally, jointly, and severally liable under the guarantees, and the Company believes such separate statements or disclosures would not be useful to investors. The following supplemental financial information sets forth, on an unconsolidated basis, statements of operations, balance sheets and statements of cash flows information for the Company (“Parent Company”), for the Guarantor Subsidiaries and for the Company’s non-guarantor subsidiaries (the “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. The supplemental financial information reflects the investments of the Company in the Guarantor Subsidiaries and Non-guarantor Subsidiaries using the equity method of accounting.

~~Condensed~~22 ~~consolidating statements of operations for the three months ended April 1, 2011:~~

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			ConsolidatingAdjustments			Consolidated
Net product and service sales	$	121,106		$	859		$	655,007		$	(19,715	)	$	757,257
Sales agency fee income		—			—			6,498			—			6,498
		121,106			859			661,505			(19,715	)		763,755
Cost of sales		74,560			638			392,136			(19,615	)		447,719
Gross profit		46,546			221			269,369			(100	)		316,036
Selling, general and administrative expenses		29,112			208			226,005			—			255,325
Research and development expenses		8,261			—			9,343			—			17,604
Restructuring expense		376			—			(600	)		—			(224	)
Operating profit		8,797			13			34,621			(100	)		43,331
Other expense (income):
Interest expense		20,028			34			9,651			(3,938	)		25,775
Interest income		(1,264	)		(3,342	)		(602	)		3,938			(1,270	)
Other (income) expense, net		(16,951	)		—			(2,104	)		18,730			(325	)
Income (loss) before taxes		6,984			3,321			27,676			(18,830	)		19,151
Income tax provision		1,704			1,767			10,400			—			13,871
Income (loss) from continuing operations		5,280			1,554			17,276			(18,830	)		5,280
Loss from discontinued operations, net of income taxes		—			—			—			—			—
Net income (loss)	$	5,280		$	1,554		$	17,276		$	(18,830	)	$	5,280

Condensed consolidating statements of operations for the three months ended April 2, 2010:

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			ConsolidatingAdjustments			Consolidated
Net product and service sales	$	123,603		$	658		$	637,912		$	(20,248	)	$	741,925
Sales agency fee income		—			—			5,735			—			5,735
		123,603			658			643,647			(20,248	)		747,660
Cost of sales		77,617			517			372,577			(20,276	)		430,435
Gross profit		45,986			141			271,070			28			317,225
Selling, general and administrative expenses		42,183			(96	)		207,870			—			249,957
Research and development expenses		8,190			—			8,537			—			16,727
Restructuring expense		14			—			(735	)		—			(721	)
Operating profit (loss)		(4,401	)		237			55,398			28			51,262
Other expense (income):
Interest expense		20,528			26			12,415			(5,147	)		27,822
Interest income		(1,484	)		(3,390	)		(736	)		5,147			(463	)
Other (income) expense, net		(25,375	)		—			3,417			25,694			3,736
Income (loss) before taxes		1,930			3,601			40,302			(25,666	)		20,167
Income tax provision		1,505			1,861			16,376			—			19,742
Income (loss) from continuing operations		425			1,740			23,926			(25,666	)		425
Loss from discontinued operations, net of income taxes		(318	)		—			—			—			(318	)
Net income (loss)	$	107		$	1,740		$	23,926		$	(25,666	)	$	107

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

Condensed consolidating ~~balance~~statements ~~sheet~~of atoperations ~~April~~for the three months ended July 1, 2011:

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			ConsolidatingAdjustments			Consolidated
Assets
Net product and service sales	$	149,740		$	870		$	741,618		$	(22,590	)	$	869,638
Current assets:
Sales agency fee income		—			—			6,367			—			6,367
Cash and cash equivalents	$	22,288		$	285		$	105,239		$	—		$	127,812
		149,740			870			747,985			(22,590	)		876,005
Restricted cash		15,335			—			—			—			15,335
Cost of sales		93,997			676			439,084			(22,450	)		511,307
Accounts receivable		48,957			552			516,444			—			565,953
Gross profit		55,743			194			308,901			(140	)		364,698
Accounts receivable—related parties		30			—			12,052			—			12,082
Selling, general and administrative expenses		36,271			24			222,414			—			258,709
Intercompany receivables		—			460,728			—			(460,728	)		—
Research and development expenses		8,296			—			10,390			—			18,686
Due from parent		60,901			—			—			—			60,901
Restructuring expenses (credits)		(248	)		—			(677	)		—			(925	)
Inventories		61,251			215			245,330			(244	)		306,552
Operating profit (loss)		11,424			170			76,774			(140	)		88,228
Deferred income taxes		—			—			28,379			(2,653	)		25,726
Other (income) expense:
Other current assets		27,473			55			155,261			(14,879	)		167,910
Interest expense		17,453			4,239			10,918			(9,590	)		23,020
Total current assets		236,235			461,835			1,062,705			(478,504	)		1,282,271
Interest income		(932	)		(6,982	)		(2,570	)		9,590			(894	)
Property, plant and equipment, net		75,609			232			338,842			(525	)		414,158
Other (income) expense, net		(45,579	)		—			499			45,515			435
Capitalized software, net		41,653			—			10,576			—			52,229
Income (loss) before taxes		40,482			2,913			67,927			(45,655	)		65,667
Goodwill		52,305			107,073			1,121,932			—			1,281,310
Income tax provision		131			1,575			23,610			—			25,316
Other intangibles, net		31,356			—			166,181			—			197,537
Income (loss) from continuing operations		40,351			1,338			44,317			(45,655	)		40,351
Intercompany advances		—			27,000			—			(27,000	)		—
Loss from discontinued operations, net of income taxes		—			—			—			—			—
Other assets		54,857			—			115,545			(15,915	)		154,487
Net income (loss)	$	40,351		$	1,338		$	44,317		$	(45,655	)	$	40,351
Investments in subsidiaries		1,752,741			26,508			—			(1,779,249	)		—
Condensed consolidating statements of operations for the three months ended July 2, 2010:
Total assets	$	2,244,756		$	622,648		$	2,815,781		$	(2,301,193	)	$	3,381,992
	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			ConsolidatingAdjustments			Consolidated
Liabilities and Stockholders’ Equity
Net product and service sales	$	151,055		$	822		$	659,248		$	(22,979	)	$	788,146
Current liabilities:
Sales agency fee income		—			—			6,171			—			6,171
Short-term borrowings	$	—		$	—		$	25,949		$	—		$	25,949
		151,055			822			665,419			(22,979	)		794,317
Current portion of long-term borrowings		4,500			—			5,269			—			9,769
Cost of sales		87,454			683			385,327			(24,242	)		449,222
Accounts payable		45,630			112			286,928			—			332,670
Gross profit		63,601			139			280,092			1,263			345,095
Accounts payable - related parties		4,721			—			29,087			—			33,808
Selling, general and administrative expenses		51,938			(26	)		202,394			—			254,306
Intercompany payables		335,603			—			125,125			(460,728	)		—
Research and development expenses		8,059			—			8,471			—			16,530
Accrued expenses		123,080			7,101			342,903			(16,925	)		456,159
Restructuring expenses		(926	)		—			(873	)		—			(1,799	)
Total current liabilities		513,534			7,213			815,261			(477,653	)		858,355
Operating profit (loss)		4,530			165			70,100			1,263			76,058
Pension and other post-retirement benefits		74,508			—			153,224			—			227,732
Other (income) expense:
Intercompany note payable		—			—			—			—			—
Interest expense		20,701			22			11,536			(4,617	)		27,642
Long-term borrowings		774,320			—			438,509			—			1,212,829
Interest income		(2,393	)		(3,358	)		(662	)		4,617			(1,796	)
Deferred income taxes		(11,816	)		25,209			104,892			—			118,285
Other (income) expense, net		(44,346	)		—			(394	)		44,758			18
Other liabilities		80,555			—			86,495			(15,914	)		151,136
Income (loss) before taxes		30,568			3,501			59,620			(43,495	)		50,194
Total liabilities		1,431,101			32,422			1,598,381			(493,567	)		2,568,337
Income tax provision		1,731			1,779			17,184			—			20,694
Stockholders’ equity		813,655			590,226			1,217,400			(1,807,626	)		813,655
Income (loss) from continuing operations		28,837			1,722			42,436			(43,495	)		29,500
Total liabilities and stockholders’ equity	$	2,244,756		$	622,648		$	2,815,781		$	(2,301,193	)	$	3,381,992
Loss from discontinued operations, net of income taxes		(8,080	)		(663	)		—			—			(8,743	)
Net income (loss)	$	20,757		$	1,059		$	42,436		$	(43,495	)	$	20,757

1723

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

Condensed consolidating statement of operations for the six months ended July 1, 2011:


	Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net product and service sales	$	270,846		$	1,729		$	1,396,625		$	(42,305	)	$	1,626,895
Sales agency fee income		—			—			12,865			—			12,865

		270,846			1,729			1,409,490			(42,305	)		1,639,760
Cost of sales		168,557			1,314			831,220			(42,065	)		959,026

Gross profit		102,289			415			578,270			(240	)		680,734
Selling, general and administrative expenses		65,383			232			448,419			—			514,034
Research and development expenses		16,557			—			19,733			—			36,290
Restructuring expenses (credits)		128			—			(1,277	)		—			(1,149	)

Operating profit (loss)		20,221			183			111,395			(240	)		131,559
Other (income) expense:
Interest expense		37,481			4,273			20,569			(13,528	)		48,795
Interest income		(2,196	)		(10,324	)		(3,172	)		13,528			(2,164	)
Other (income) expense, net		(62,530	)		—			(1,605	)		64,245			110

Income (loss) from continuing operations before income taxes		47,466			6,234			95,603			(64,485	)		84,818
Income tax provision		1,835			3,342			34,010			—			39,187

Income (loss) from continuing operations		45,631			2,892			61,593			(64,485	)		45,631
Loss from discontinued operations, net of

Net income (loss)	$	45,631		$	2,892		$	61,593		$	(64,485	)	$	45,631

Condensed consolidating statement of operations for the six months ended July 2, 2010:
	Parent Company			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net product and service sales	$	274,658		$	1,480		$	1,297,160		$	(43,227	)	$	1,530,071
Sales agency fee income		—			—			11,906			—			11,906

		274,658			1,480			1,309,066			(43,227	)		1,541,977
Cost of sales		165,071			1,200			757,904			(44,518	)		879,657

Gross profit		109,587			280			551,162			1,291			662,320
Selling, general and administrative expenses		94,120			(122	)		410,264			—			504,262
Research and development expenses		16,249			—			17,008			—			33,257
Restructuring expenses		(912	)		—			(1,608	)		—			(2,520	)

Operating profit (loss)		130			402			125,498			1,291			127,321
Other (income) expense:
Interest expense		41,229			48			23,951			(9,764	)		55,464
Interest income		(3,877	)		(6,748	)		(1,398	)		9,764			(2,259	)
Other (income) expense, net		(69,721	)		—			3,023			70,452			3,754

Income (loss) before taxes		32,499			7,102			99,922			(69,161	)		70,362
Income tax provision		3,237			3,640			33,560			—			40,437

Income (loss) from continuing operations		29,262			3,462			66,362			(69,161	)		29,925
Income (loss) from discontinued operations, net of income taxes		(8,398	)		(663	)		—			—			(9,061	)

Net income (loss)	$	20,864		$	2,799		$	66,362		$	(69,161	)	$	20,864

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 1, 2011

(Unaudited)

Condensed consolidating balance sheet at July 1, 2011:


	Parent Company			Guarantor Subsidiaries		Non-guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	7,547		$	80	$	59,389	$	—		$	67,016
Restricted cash		12,099			—		—		—			12,099
Accounts receivable		55,809			613		573,819		—			630,241
Accounts receivable - related parties		15			—		9,771		—			9,786
Intercompany receivables		—			329,688		—		(329,688	)		—
Inventories		63,905			236		263,778		(432	)		327,487
Deferred income taxes		—			—		27,896		(3,855	)		24,041
Other current assets		22,752			97		156,909		(13,196	)		166,562

Total current assets		162,127			330,714		1,091,562		(347,171	)		1,237,232
Property, plant and equipment, net		72,677			235		353,962		(475	)		426,399
Capitalized software, net		37,709			—		15,378		—			53,087
Goodwill		52,305			107,073		1,154,566		—			1,313,944
Other intangibles, net		30,715			—		168,644		—			199,359
Other assets		56,959			—		124,314		(17,804	)		163,469
Investments in subsidiaries		1,667,468			26,508		—		(1,693,976	)		—

Total assets	$	2,079,960		$	464,530	$	2,908,426	$	(2,059,426	)	$	3,393,490


Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings	$	—		$	—	$	40,041	$	—		$	40,041
Current portion of long-term borrowings		4,500			—		5,385		—			9,885
Accounts payable		48,145			80		309,306		—			357,531
Accounts payable - related parties		6,554			—		24,878		—			31,432
Intercompany payables		173,176			—		156,512		(329,688	)		—
Due to parent - current		5,414			—		—		—			5,414
Accrued expenses		112,196			1,251		314,418		(16,536	)		411,329

Total current liabilities		349,985			1,331		850,540		(346,224	)		855,632
Pension and other post-retirement benefits		73,882			—		157,564		—			231,446
Long-term borrowings		773,411			—		447,160		—			1,220,571
Deferred income taxes		(11,160	)		25,209		107,109		—			121,158
Other liabilities		76,327			—		88,649		(17,808	)		147,168

Total liabilities		1,262,445			26,540		1,651,022		(364,032	)		2,575,975
Stockholders’ equity		817,515			437,990		1,257,404		(1,695,394	)		817,515

Total liabilities and stockholders’ equity	$	2,079,960		$	464,530	$	2,908,426	$	(2,059,426	)	$	3,393,490

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 1, 2011

(Unaudited)

Condensed consolidating balance sheet at December 31, 2010:


	Parent Company		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	54,780	$	257	$	102,717	$	—		$	157,754
Restricted cash		20,407		—		—		—			20,407
Accounts receivable		43,326		528		525,585		—			569,439
Intercompany receivables		—		458,087		—		(458,087	)		—
Due from parent		9,129		—		—		—			9,129
Inventories		51,047		241		212,096		(137	)		263,247
Other current assets		21,516		58		172,703		(6,725	)		187,552

Total current assets		200,205		459,171		1,013,101		(464,949	)		1,207,528
Property, plant and equipment, net		78,308		241		332,490		(532	)		410,507
Capitalized software, net		44,913		—		8,067		—			52,980
Goodwill and other intangibles, net		84,302		107,073		1,248,903		—			1,440,278
Intercompany advances		55,112		27,000		—		(27,000	)		55,112
Other assets		57,573		—		103,788		(18,442	)		142,919
Investments in subsidiaries		1,708,863		18,300		—		(1,727,163	)		—

Total assets	$	2,229,276	$	611,785	$	2,706,349	$	(2,238,086	)	$	3,309,324


Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings	$	—	$	—	$	24,205	$	—		$	24,205
Current portion of long-term borrowings		4,500		—		4,998		—			9,498
Accounts payable		56,176		98		295,351		—			351,625
Intercompany payables		346,890		—		111,197		(458,087	)		—
Accrued expenses		119,891		6,016		294,408		39,181			459,496

Total current liabilities		527,457		6,114		730,159		(418,906	)		844,824
Intercompany note payable		—		—		72,230		(72,230	)		—
Long-term borrowings		775,240		—		416,906		—			1,192,146
Other liabilities		146,455		25,209		340,025		(19,459	)		492,230

Total liabilities		1,449,152		31,323		1,559,320		(510,595	)		2,529,200
Stockholders’ equity		780,124		580,462		1,147,029		(1,727,491	)		780,124

Total liabilities and stockholders’ equity	$	2,229,276	$	611,785	$	2,706,349	$	(2,238,086	)	$	3,309,324

1826

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~April~~July 1, 2011

(Unaudited)

Condensed consolidating statement of cash flows for the ~~three~~six months ended ~~April~~ July 1, 2011:

	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			ConsolidatingAdjustments			Consolidated
Net cash provided by (used in) operating activities	$	(2924,~~282~~136	)	$	21153,129		$	17(3,~~638~~027	)	$	1(170,~~229~~037	)	$	(1044,~~394~~071	)
Cash flows from investing activities:
Capital expenditures, net		(12,~~305~~717	)		(723	)		(1336,~~443~~067	)		—			(1438,~~755~~807	)
Expenditures for capitalized computer software		(2,~~002~~878	)		—			(27,~~963~~905	)		—			(410,~~965~~783	)
Proceeds from property, plant and equipment disposals		62			—			23			—			85
Proceeds from property, plant, and equipment disposals		181			—			465			—			646
Net cash used in investing activities		(3,245	)		(7	)		(16,383	)		—			(19,635	)
Acquisitions of businesses and other intangibles		—			—			(2,463	)		—			(2,463	)
Net cash used in investing activities		(5,414	)		(23	)		(45,970	)		—			(51,407	)
Cash flows from financing activities:
Proceeds from (repayments of) short-term borrowings		—			—			215,~~174~~606			—			215,~~174~~606
Repayments of long-term borrowings		(12,~~125~~250	)		—			(12,~~308~~643	)		—			(24,~~433~~893	)
Intercompany financing, net		~~765~~(8,486	)		14(140,123	)		25,~~555~~229			(3143,~~334~~380	)		—
Payment of debt issuance costs		(1,770	)		—			(1,036	)		—			(2,806	)
Dividends paid		—(5,645	)		—(13,162	)		(213,~~105~~580	)		226,~~105~~657			—(5,730	)
Net cash provided by (used in) financing activities		(218,~~130~~151	)		14(153,285	)		~~280~~3,576			(1170,~~229~~037	)		(32,~~065~~177	)
Effect of exchange rate changes on cash and cash equivalents		~~2,165~~468			—2			~~987~~2,093			—			32,~~152~~563
Change in cash and cash equivalents		(3247,~~492~~233	)		28(177	)		2(43,~~522~~328	)		—			(2990,~~942~~738	)
Beginning balance		54,780			257			102,717			—			157,754
Ending balance	$	227,~~288~~547		$	~~285~~80		$	~~105~~59,~~239~~389		$	—		$	~~127~~67,~~812~~016
Condensed consolidating statement of cash flows for the three months ended April 2, 2010:
Condensed consolidating statement of cash flows for the six months ended July 2, 2010:
	ParentCompany			GuarantorSubsidiaries			Non-guarantorSubsidiaries			ConsolidatingAdjustments			Consolidated
Net cash provided by (used in) operating activities	$	747,~~917~~374		$	~~(3,681~~330	)	$	(2613,~~294~~984	)	$	(1963,~~316~~721	)	$	(4130,~~374~~001	)
Cash flows from investing activities:
Capital expenditures, net		(59,~~099~~073	)		(2533	)		(1023,~~246~~908	)		—			(1533,~~370~~014	)
Acquisitions of businesses		51,~~786~~972			54,~~817~~998			(1—	)		(116,~~602~~970	)		—
Net costs of divestiture of businesses		(61192	)		—(663	)		—			—			(61855	)
Net cash provided by (used in) investing activities		~~626~~(7,293	)		54,~~792~~302			(1023,~~247~~908	)		(116,~~602~~970	)		(1533,~~431~~869	)
Cash flows from financing activities:
Proceeds from (repayments of) short-term borrowings		—			31122			6(1,~~161~~037	)		—			~~6,192~~(915	)
Repayments of long-term borrowings		(12,~~124~~250	)		—			(12,~~255~~369	)		—			(24,~~379~~619	)
Intercompany financing		62,~~708~~099			36,~~912~~939			(109,~~620~~172	)		—134			—
Proceeds from (repayments of) additional paid in capital		(1848,~~996~~562	)		(54,~~793~~974	)		(51,~~448~~671	)		3055,~~237~~207			—
Payment of debt issuance costs		(2,~~147~~540	)		—			(41,714	)		—			(24,~~151~~254	)
Dividends paid		—			—(6,749	)		(~~681~~8,682	)		~~681~~15,350			—(81	)
Net cash provided by (used in) financing activities		(1551,~~559~~253	)		(14,~~850~~662	)		(1124,~~847~~645	)		3070,~~918~~691			1(9,~~662~~869	)
Effect of exchange rate changes on cash and cash equivalents		(~~680~~4,589	)		—			~~(1,754~~333	)		—			(24,~~434~~256	)
Change in cash and cash equivalents		(715,~~696~~761	)		~~261~~(30	)		(5062,~~142~~204	)		—			(5777,~~577~~995	)
Beginning balance		84,163			229			165,048			—			249,440
Ending balance	$	7668,~~467~~402		$	~~490~~199		$	~~114~~102,~~906~~844		$	—		$	~~191~~171,~~863~~445

1927

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 1, 2011

(Unaudited)

21. European Principal Company

In May 2011, the Company approved, subject to successful works council consultations, plans to reorganize its European operations to function under a centralized management and value chain model. After completing the reorganization in 2012, the European Principal Company (“EPC”) will manage the European segment centrally. The European subsidiaries will execute sales and distribution locally, and local production companies will act as toll manufacturers on behalf of the EPC. The Company expects to incorporate the EPC in The Netherlands.

As a result of this approval, the Company recorded restructuring and implementation liabilities of $2,608 during the current fiscal quarter.

22. Agreement and Plan of Merger

On May 31, 2011, Holdings, Sealed Air Corporation (“Sealed Air”) and Solution Acquisition Corp. (“Merger Sub”), a wholly-owned subsidiary of Sealed Air, entered into an Agreement and Plan of Merger (the “Merger Agreement”) under which Sealed Air will acquire 100% of the common stock of Holdings. Pursuant to the Merger Agreement, and subject to the terms and conditions set forth therein, Merger Sub will be merged with and into Holdings (the “Merger”), with Holdings continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of Sealed Air.

Pursuant to the terms of the Merger Agreement, Holdings’ stockholders and equity interest holders will receive an aggregate of approximately $2.1 billion in cash (subject to certain adjustments) and 31.7 million shares of Sealed Air common stock. The final merger price consideration will depend upon the closing price of Sealed Air common stock at the time of closing. Upon closing of the transaction, Holdings’ stockholders are expected to own approximately 15% of Sealed Air’s common stock. Also pursuant to the Merger Agreement, $1.5 billion of existing indebtedness of Holdings and the Company will be extinguished through payment by Sealed Air.

The completion of the Merger is subject to certain conditions, including, among others, (i) the absence of any law or order prohibiting the closing and (ii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, as amended, and the implementing regulation promulgated pursuant thereto and the laws or regulations of certain other foreign jurisdictions. Each of Sealed Air and Holdings has made customary representations and warranties in the Merger Agreement. Holdings has agreed to various covenants and agreements, including, among others things, (i) not to solicit alternate transactions and (ii) to conduct its business in the ordinary course during the period between the date of the Merger Agreement and the effectiveness of the Merger and refrain from taking various non-ordinary course actions during that period, and Sealed Air has also agreed to various covenants and agreements, including, among others things, to conduct its business in the ordinary course during the period between the date of the Merger Agreement and the effectiveness of the Merger and refrain from taking various non-ordinary course actions during that period.

The Merger Agreement may be terminated by each of Sealed Air and Holdings under specified circumstances, including if the Merger is not consummated by December 31, 2011 (which date can be extended to March 31, 2012 in specified circumstances, including if regulatory approval has not been obtained). The Merger Agreement contains certain termination rights for both Sealed Air and Holdings, and further provides that, upon the termination of the Merger Agreement in the event that the financing for the transaction is not obtained, Sealed Air will be required to pay to Holdings a cash termination fee of $160 million.

Further details to the Merger Agreement can be found in the Company’s Form 8-K filed with the SEC on June 3, 2011.

DIVERSEY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 1, 2011

(Unaudited)

Also on May 31, 2011, Holdings’ stockholders representing 100% of its voting common stock executed a written consent adopting and approving the Merger Agreement. No further approval by the stockholders is necessary to approve the Merger Agreement and to consummate the Merger.

As of July 1, 2011, the estimated merger price consideration is approximately $2.9 billion, net of certain adjustments pursuant to the Merger Agreement, or about $26.37 per share of Holdings common stock and common stock equivalents. The accompanying financial statements do not include any adjustments that may be necessary under purchase accounting, upon the consummation of the Merger, to reflect the impact of the transaction on the Company’s financial position, liquidity or financial commitments.

In connection with the Merger Agreement, the Company recorded certain transaction costs of approximately $3,941, mostly relating to legal fees, which are included in selling, general and administrative expenses in the current fiscal quarter. Upon the closing of the Merger and the occurrence of a change in control of the Company, the reinstatement and/or acceleration of certain vesting benefits in the Company’s stock-based compensation plans (Note 16) will result in the recognition of additional compensation expense, and the extinguishment of the Company’s indebtedness will result in a write-off of currently unamortized discounts and capitalized debt issuance costs (Note 7). The Company also expects to incur advisory fees of approximately $25,000 that are contingent on the Merger closing and hence have not been recorded at July 1, 2011.

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

Executive Overview

The following management discussion and analysis describes material changes in the financial condition and results of operations of Diversey, Inc. and its consolidated subsidiaries since December 31, 2010. This discussion should be read in conjunction with our consolidated financial statements as of, and for the three and six months ended ~~April~~July 1, 2011, our Annual Report on Form 10-K and the section entitled “Forward-Looking Statements” immediately preceding 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 175 countries through our direct sales force, wholesalers and third-party distributors. Our sales are balanced geographically, with our principal markets being Western Europe, North America and Japan, with an increasing presence in the emerging markets of Asia Pacific, Latin America, Africa, Middle East and Eastern Europe.

As indicated in the following table, net sales for the three and six months ended ~~April~~July 1, 2011 , increased by 210.23% and 6.3%, respectively, when compared to the ~~three~~comparable ~~months~~periods ~~ended~~of ~~April 2,~~the ~~2010~~prior year. Excluding the impact of foreign currency exchange, our net sales increased ~~decreased~~ by 1.1% and 0.54% during the ~~current~~three months and six months ended July 1, 2011 compared to the comparable period of the prior year.

	Three Months Ended							Six Months Ended
(dollars in millions)	~~April~~July 1, 2011		~~April~~July 2, 2010		Change			July 1, 2011		July 2, 2010		Change
Net sales	$	~~763~~876.80	$	~~747~~794.63		210.23	%	$	1,639.8	$	1,542.0		6.3	%
Variance due to foreign currency exchange		—		1971.9							91.8
	$	~~763~~876.80	$	~~767~~866.52		–01.51	%	$	1,639.8	$	1,633.8		0.4	%

WeOur ~~continue~~net tosales ~~experience~~grew ~~broad-based~~in ~~growth~~the current quarter due to continued strength in our emerging markets, and ~~have realized~~improved ~~improvement~~performance in certain developed markets. ~~during~~Each ~~the~~of ~~quarter. Our~~our ~~performance~~segments reported sales increases, ~~were~~reflecting successful implementation of growth initiatives and pricing strategies. Our improvement was driven by global equipment sales and an expanding food and beverage business, which ~~demonstrated~~grew ~~growth~~ in all ~~segments~~regions. These increases were partially offset by our planned exit from non-strategic toll manufacturing in Europe and ~~general~~unforeseen ~~softness in sales to end-users served through distribution, as well as unforeseeable~~ events, such as the natural disaster in Japan and the ~~political~~instability ~~turmoil~~ in Egypt. We ~~are~~continue ~~investing~~to invest in emerging markets and ~~reorganizing~~in tothe ~~more~~deployment ~~consistently~~of ~~deliver~~ our ~~value~~sector-based ~~proposition~~organization ~~to our customers~~model. We expect our investments in capabilities, new business models and technologies to ~~enable~~promote ~~sales~~further growth as the ~~year~~ year progresses.

As indicated in the following table, the Company’s gross profit percentage declined ~~for~~in the ~~first~~ second quarter of 2011 when compared to the ~~first~~second quarter of 2010 and during the six months ended July 1, 2011 when compared to the six months ended July 2, 2010.

Margin on Net Sales Three Months Ended						Margin on Net Sales Six Months Ended
April 1, 2011			April 2, 2010
July 1, 2011			July 2, 2010			July 1, 2011			July 2, 2010
	41.4	%		42.4	%
	41.6	%		43.4	%		41.5	%		43.0	%

~~During~~30 the quarter, the Company experienced a 100 basis point decline in margin as compared to the same period last year. The decline in margin was primarily driven by materials cost inflation and adverse mix changes resulting from reduced volumes in certain institutional sectors of our developed markets, which were partially offset by price increases and savings derived from our global strategic sourcing initiatives. Our margin was also adversely affected by inventory losses of $1.2 million following the disaster in Japan (see Note 17 to the consolidated financial statements).

During the three and six months ended July 1, 2011, the Company experienced a 180 basis point decline and 150 basis point decline in margin, respectively, as compared to the comparable periods of the prior year. The decline in margin was primarily driven by materials cost inflation, higher fuel and freight costs, and adverse mix changes, which were partially offset by price increases and savings derived from our global strategic sourcing initiatives. We expect to continue to leverage our pricing strategies, sourcing initiatives and process improvements to mitigate current and expected inflationary pressures.

As of ~~April~~July 1, 2011, we were in compliance with the financial covenants under the credit agreement for our Senior Secured Credit Facilities. We believe that our cash flows from continuing operations, together with available cash on hand, and borrowings available under our Senior Secured Credit Facilities will generate sufficient cash flow to meet our liquidity needs for the foreseeable future. We will continue to closely monitor current economic and credit market conditions that may affect our liquidity and the future availability of credit. We believe that we are positioned to deal with inflationary concerns or economic downturns; however, we are not able to predict how much either would affect our business and our customers’ businesses going forward. From time to time, the Company has considered and may in the future pursue debt or other financing alternatives, depending on market conditions and other factors.

InOn ~~December~~May 31, ~~2010~~2011, the Company ~~announced~~entered ainto ~~further~~an ~~enhancement~~Agreement and Plan of ~~its~~Merger ~~organizational~~(“Merger ~~structure~~Agreement”) with Sealed Air Corporation (“Sealed Air”) whereby Sealed Air will acquire 100% of the Company’s equity for approximately $2.1 billion in cash (subject to certain adjustments) and 31.7 million shares of Sealed Air common stock. The ~~new~~final ~~structure~~merger ~~provides~~price aconsideration ~~focus~~will ondepend upon the ~~role~~closing price of ~~emerging~~Sealed ~~markets~~Air incommon ~~our~~stock ~~growth~~at ~~objectives~~the time of closing. Upon closing of the transaction, ~~and~~Holdings’ ~~will~~stockholders ~~consist~~are expected to own approximately 15% of ~~four~~Sealed ~~regions~~Air’s ~~reporting~~common stock. Also pursuant to the ~~CEO~~Merger Agreement, as$1.5 ~~follows:~~billion of existing indebtedness of Holdings and the Company will be extinguished through payment by Sealed Air. The completion of the merger is subject to certain conditions and is more fully described in Note 22 to the consolidated financial statements.

In December 2010, the Company announced a further enhancement of its organizational structure. The new structure, expected to be effective in the third quarter of the current fiscal year, provides a focus on the role of emerging markets in our growth objectives and will consist of four regions reporting to the CEO, as follows:

•

Europe – This region will be comprised of operating units in Western and Eastern Europe and Russia and will no longer include our operations in Turkey, Africa and Middle East countries. Europe will continue to be our largest region.

•

Americas – The operating units in this region will remain unchanged.

•

Asia Pacific, Africa, Middle East, Turkey (“APAT”) – This region will be comprised of our operations in Asia Pacific, Africa, Middle East, Turkey and the Caucasian and Asian Republics. This region will no longer include Japan.

•

Japan – Japan becomes a stand-alone region.

In addition, a new Customer Solutions and Innovation group is being organized to coordinate global sectors, marketing, research, development and engineering leadership, and to collaborate directly with the regions to build and deliver sector growth strategies. The implementation of this organizational redesign is currently in progress. Regional presidents for each of the four regions have been appointed and are currently transitioning. The Company will continue to report its operating segments under the current three region model until the new management, operating, and financial reporting structures are effectively in place~~, which currently is expected to be completed during the third quarter of this fiscal year~~.

Critical Accounting Policies and Estimates

There have been no material changes to the Company’s critical accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2010.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 3 to the consolidated financial statements in Part I, Item I of this report.

2131

Three Months Ended ~~April~~July 1, 2011 Compared to Three Months Ended ~~April~~July 2, 2010

Net Sales:

	Three Months Ended				Change
(dollars in millions)	~~April~~July 1, 2011		~~April~~July 2, 2010		Amount			Percentage
Net product and service sales	$	~~757~~869.36	$	~~741~~788.91	$	1581.45			210.13	%
Sales agency fee income		6.54		56.72		0.82			~~13.~~3.2	%
		763.8		747.6		16.2			2.2	%
		876.0		794.3		81.7			10.3	%
Variance due to foreign currency exchange				1971.9		(1971.9	)
		763.8		767.5		(3.7	)		-0.5	%
	$	876.0	$	866.2	$	9.8			1.1	%

• Net sales for the three months ended ~~April~~July 1, 2011 increased by 210.23% when compared to the three months ended ~~April~~July 2, 2010.

• The comparability of net sales reported in the two periods is affected by the impact of foreign exchange rate movements. As measured against prior period’s results, the weaker U.S. dollar against the euro and a majority of other foreign currencies resulted in a $1971.9 million increase in net sales in the ~~first~~current quarter ~~of 2011~~.

• Excluding the impact of foreign currency exchange rates, net sales ~~decreased~~increased by 01.51%. WeOur ~~continue~~net tosales ~~experience~~grew ~~broad-based~~in ~~growth~~the current quarter due to continued strength in our emerging markets, and ~~have~~improved ~~realized~~performance ~~improvement~~ in certain developed markets. ~~during~~Each ~~the~~of ~~quarter.~~our ~~Our~~segments ~~performance~~reported sales increases, ~~were~~reflecting successful implementation of growth initiatives and pricing strategies. Our improvement was driven by global equipment sales and an expanding food and beverage business, which ~~demonstrated~~grew ~~growth~~ in all ~~segments~~regions. These increases were partially offset by our planned exit from non-strategic toll manufacturing in Europe and ~~general~~unforeseen ~~softness in sales to end-users served through distribution, as well as unforeseeable~~ events, such as the natural disaster in Japan and the ~~political~~instability ~~turmoil~~ in Egypt. We ~~are~~continue ~~investing~~to invest in emerging markets and ~~reorganizing~~in tothe ~~more~~deployment ~~consistently~~of ~~deliver~~ our ~~value~~sector-based ~~proposition~~organization ~~to our customers~~model. We expect our investments in capabilities, new business models and technologies to ~~enable~~promote ~~sales~~further growth as the year progresses. ~~The~~Following ~~following~~ is a review of the sales performance for each of our regions:

• In our Europe, Middle East and Africa markets, net sales ~~decreased~~increased by 20.42% in the ~~first~~current quarter ~~of 2011~~ versus the same period last year. The ~~volume~~increase ~~decline~~is ~~was~~due ato ~~result~~volume ofgrowth ~~a reduction~~ in ~~non-strategic~~the ~~toll~~food ~~manufacturing.~~and ~~Additionally,~~beverage wesector ~~experienced~~and ~~general~~continued ~~softness~~growth in ~~our~~equipment ~~distributor~~sales ~~network,~~in ~~and~~addition ~~volume~~to ~~reduction~~price ~~from~~increases, ~~the~~mainly ~~turmoil~~ in ~~Egypt.~~our ~~These~~emerging ~~challenges~~markets. ~~were~~This was partially offset by ~~price~~our ~~increases,~~exit ~~expansion~~from innon-strategic ~~the~~toll ~~food~~manufacturing and ~~beverage~~decreased ~~sector,~~volume ~~and~~due ~~continued~~to ~~growth~~the instability in ~~equipment sales~~Egypt. We ~~experienced~~continue ~~strong~~to ~~growth~~experience ~~across~~positive performance in our emerging markets, a trend we expect through the remainder of this fiscal year. WeTo ~~will~~offset ~~pursue~~ the ~~successful~~effects ~~execution~~ of ~~our~~inflation, ~~pricing~~the ~~and~~Company ~~sales~~has ~~strategies~~deployed toprice ~~mitigate~~increases ~~continuing~~in ~~challenges~~both inemerging ~~the~~and developed markets inwhich were effective at the ~~region~~beginning of the third quarter of this year.

• In our Americas region, net sales increased by 12.57% in the ~~first~~current quarter ~~of 2011~~ versus the same period last year. Our emerging markets in Latin America, led by Brazil, Argentina and Chile, continued strong growth trends, particularly in the food and beverage sector. ~~These~~Canada ~~gains~~grew ~~were~~based ~~partially~~on ~~offset~~steady byperformance ~~sales declines~~ in ~~the~~food ~~U.S.~~service and ~~Canada,~~sales ~~primarily~~through ~~in customers served by~~ distribution ~~and~~channels. ~~the~~In ~~voluntary~~addition ~~exit~~to ~~from~~consumption ~~underperforming~~growth, ~~applications~~we inexpect ~~the~~that ~~food~~price ~~and~~increases, ~~beverage~~which ~~sector.~~were Weeffective ~~expect~~at athe ~~continued~~beginning ~~trend~~ of ~~consumption~~the ~~growth~~third inquarter ~~emerging~~this ~~markets.~~year, We will ~~continue~~mitigate tocost ~~execute~~trends ~~our~~in ~~pricing~~both ~~strategies~~emerging and ~~deploy~~developed ~~our~~markets, ~~sector~~particularly ~~growth strategies to help address general softness~~ in ~~our~~the ~~developed marketplaces~~U.S.

• In our Greater Asia Pacific region, net sales improved by 21.03% in the ~~first~~current quarter ~~of 2011~~ versus the same period last year. The increase is mainly due to strong volume improvements in the food and beverage ~~sector~~and lodging sectors in our emerging markets, particularly in Greater China and India. Sales growth was achieved through volume increases in our existing customer base, new customer acquisitions, as well as continuing improvement in equipment sales in most markets. Our growth in emerging markets was partially offset by a 6% sales decline in Japan, a result of the recent natural disaster. We expect continued negative effects on sales in the current fiscal year in Japan as a result of the disaster. The region plans to pursue specific country growth plans and ~~ongoing~~customer ~~depressed~~acquisition strategies to accelerate growth in its emerging markets. The Company has deployed price increases effective at the beginning of the third quarter of this year, across all geographies to offset the continuing effects of inflation.

2232

conditions in the market. We expect continued adverse effects on sales in the current fiscal year in Japan as a result of the disaster. We are not able to provide a reliable estimate of the potential loss this year or in future years and whether these losses will be offset by insurance policies carried by the Company. The region plans to pursue specific country growth plans and customer acquisition strategies to accelerate growth in its emerging markets.

•

Sales Agency Fee. As explained in Note 4 to our consolidated financial statements, the Company entered into an Umbrella Agreement with Unilever consisting of a new sales agency (“Sales Agency Agreement”) and License Agreement, which became effective January 1, 2008, and unless otherwise terminated or extended, will expire on December 31, 2017. The amounts of sales agency fee income earned under the Sales Agency Agreement are reported in the preceding table.

Gross Profit:

Our gross profit and gross profit percentages for the three months ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010 were as follows:

	Three Months Ended						Change
(dollars in millions)	~~April~~July 1, 2011			~~April~~July 2, 2010			Amount			Percentage
Gross Profit	$	~~316~~364.07		$	~~317~~345.21		$	(119.26	)		-05.47	%
Gross profit as a percentage of net sales		41.46	%		4243.4	%

• Gross profit for the three months ended ~~April~~July 1, 2011 ~~decreased~~increased by $119.26 million when compared to the three months ended ~~April~~July 2, 2010.

• The comparability of gross profit between the two periods is affected by the impact of foreign exchange rate movements. As measured against the same period in the prior year, the weaker U.S. dollar against the euro and a majority of other foreign currencies resulted in ana $831.29 million improvement in gross profit in the current quarter. Excluding the impact of foreign currency, gross profit decreased by $912.43 million.

• Our gross profit percentage declined by ~~100~~180 basis points in the ~~first~~second quarter of 2011 compared to the ~~first~~second quarter of 2010.

• The decline in margin was primarily driven by materials cost inflation, ~~and~~higher ~~adverse~~fuel ~~mix~~and ~~changes~~freight ~~resulting~~costs, ~~from~~and ~~reduced~~adverse ~~volumes~~mix ~~in certain institutional sectors of our developed markets~~changes, which were partially offset by price increases and savings derived from our global strategic sourcing initiatives. Our margin was also adversely affected by inventory losses of $1.2 million following the disaster in Japan (see Note 17 to the consolidated financial statements). We expect to continue to leverage our pricing strategies, sourcing initiatives and process improvements to mitigate current and expected inflationary pressures.

23• We expect further deployment of our pricing strategies to mitigate the effects of current and expected inflationary pressures. In addition, we expect margin improvement will result from the continued execution of our global sourcing initiatives and process enhancements.

Operating Expenses:

	Three Months Ended						Change
(dollars in millions)	~~April~~July 1, 2011			~~April~~July 2, 2010			Amount		Percentage
Selling, general and administrative expenses	$	~~255~~258.37		$	~~249~~254.93		$	54.4		2.1.7	%
Research and development expenses		1718.67			16.75			02.92		513.23	%
Restructuring expenses (credits)		(0.29	)		(01.78	)		0.59		6850.90	%
	$	~~272~~276.75		$	~~265~~269.90		$	67.85		2.68	%
As a percentage of net sales:
Selling, general and administrative expenses		3329.45	%		3332.40	%
Research and development expenses		2.31	%		2.21	%
Restructuring expenses (credits)		-0.01	%		-0.12	%
		35.7	%		35.5	%
		31.5	%		33.9	%

• Operating expenses for the three months ~~ended~~July ~~April~~ 1, 2011 increased by $67.85 million when compared to the three months ended ~~April~~July 2, 2010.

• The comparability of operating expenses between the two periods is affected by the impact of foreign exchange rate movements. As measured against the same period in the prior year, the weaker U.S. dollar against the euro and a majority of other foreign currencies resulted in a $622.68 million increase in operating expenses. Excluding the impact of foreign currency, operating expenses ~~increased~~decreased by $015.23 million.

• Selling, general and administrative expenses. As a percentage of net sales, selling, general and administrative expenses were 3329.45% for the ~~first~~second quarter of 2011 and 32.0% for the same period in the prior year. Selling, general and administrative expenses increased by $54.4 million during the current period. Excluding the impact of foreign currency, selling, general and administrative expenses decreased by $016.89 million during the ~~first~~second quarter of 2011 compared to the same period in the prior year. This decrease is primarily due to a reduction in ~~period~~performance-based ~~costs~~compensation ~~associated~~expense ~~with~~of $15.2 million (see Note 2 to the ~~November~~consolidated ~~2005~~financial ~~Plan~~statements), the impact of non-recurring costs in 2010 of $9.0 million, and improved operating efficiencies, partially offset by ~~certain non-recurring~~ costs incurred in the current fiscal quarter, ~~totaling~~related to organizing the European Principal Company (see Note 21 to the consolidated financial statements) in the amount of $5.4.5 million, Merger-related transaction costs of $3.9 million (Note 22 to ~~assessing~~the aconsolidated ~~reorganization~~financial statements), and increased compensation costs of $3.5 million related to the ~~Company’s~~impact ~~European~~of ~~operations~~the Merger on our SARs (Note 16 to the consolidated financial statements).

• Research and development expenses. Research and development expenses increased by $02.92 million in the current period. Excluding the impact of foreign currency, research and development expenses increased by $0.57 million during the ~~first~~current quarter ~~of 2011~~ compared to the same period in the prior year.

• Restructuring expenses (credits). ~~Credit~~As ~~adjustments, as~~ the November 2005 Plan winds down, credit adjustments related to previously recorded restructuring reserves decreased by $0.59 million during the ~~first~~current quarter ~~of 2011~~ compared to the same period in the prior year.

2434

Restructuring:

A summary of all costs associated with the November 2005 Plan for the quarters ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010, and since inception of the program in November 2005, is outlined below:

	Three Months Ended						Total Project to ~~DateApril 1, 2011~~Date
(dollars in millions)	~~April~~July 1, 2011			~~April~~July 2, 2010			July 1, 2011
Reserve balance at beginning of period	$	2319.14		$	4839.40		$	—
Restructuring charges and adjustments		(0.29	)		(01.78	)		~~234~~233.52
Payments of accrued costs		(34.52	)		(8.7.5	)		(~~215~~218.19	)
Reserve balance at end of period	$	1914.43		$	3929.07		$	1914.43
Period costs classified as selling, general and administrative expenses	$	1.72		$	23.89		$	~~321~~322.02
Period costs classified as cost of sales		—			0.32			8.6

• November 2005 Plan Restructuring Costs. During the ~~first~~three ~~quarter~~months ofended July 1, 2011 and July 2, 2010, we reduced restructuring liabilities by $0.29 million and $01.78 million, respectively, for involuntary termination costs for certain individuals, formerly expected to be severed, who were either retained by the Company or resigned. Restructuring activities under the November 2005 Plan will continue to wind down during 2011.

• November 2005 Plan Period Costs. Period costs of $1.72 and $23.89 million for 2011 and 2010, respectively, included in selling, general and administrative expenses and $ 0.32 million for 2010, included in cost of sales pertained to: (a) $0.39 million in 2011 ($1.67 million in 2010) for personnel related costs of employees and consultants associated with restructuring initiatives, (b) $1.(0.2) million in 2011 ($0.75 million in 2010) for value chain and cost savings projects, and (c) $0.45 million in 2011 ($01.89 million in 2010) related to facilities, asset impairment charges and various other costs. The overall decrease in these expenses over the prior period was mainly due to a reduction in restructuring activities within our ~~Americas~~Corporate center and Greater Asia Pacific ~~segments~~segment.

25Non-Operating Results:


	Three Months Ended						Change
(dollars in millions)	July 1, 2011			July 2, 2010			Amount			Percentage

Interest expense	$	23.0		$	27.6		$	(4.6	)		-16.7	%
Interest income		(0.9	)		(1.8	)		0.9			50.0	%

Net interest expense	$	22.1		$	25.8		$	(3.7	)		-14.3	%


Other (income) expense, net		0.4			—			0.4			NM

•

Net interest expense decreased in the current quarter compared to the same period in the prior year primarily due to optional Term Loan repayments made in the second half of 2010, lower interest rates obtained from an improved leverage ratio, and the amendment to the Senior Secured Credit Facilities credit agreement (see Note 7 to the consolidated financial statements).

Income Taxes:


	Three Months Ended						Change
(dollars in millions)	July 1, 2011			July 2, 2010			Amount		Percentage

Income from continuing operations, before income taxes	$	65.7		$	50.2		$	15.5		30.9	%
Provision for income taxes		25.3			20.7			4.6		22.2	%

Effective income tax rate		38.5	%		41.2	%

•

For the fiscal year ending December 31, 2011, we are projecting an effective income tax rate of approximately 48% on pre-tax income from continuing operations. The projected effective income tax rate for the fiscal year exceeds the statutory income tax rate primarily as a result of increased valuation allowances against net deferred tax assets in certain jurisdictions and increases in reserves for uncertain tax positions.

•

We reported an effective income tax rate of 38.5% on the pre-tax income from continuing operations for the second quarter ended July 1, 2011. When compared to the estimated annual effective income tax rate, the effective income tax rate for the second quarter ended July 1, 2011 is lower primarily due to actual pacing of pre-tax income (loss) and income tax expense (benefit) in certain key jurisdictions. For example, the pre-tax income from continuing operations for the three month period ended July 1, 2011 includes a relatively low proportion of the projected annual U.S. pre-tax loss from continuing operations.

•

We reported an effective income tax rate of 41.2% on the pre-tax income from continuing operations for the second quarter ended July 2, 2010. The high effective income tax rate is primarily the result of increased valuation allowances against deferred tax assets in certain jurisdictions and increases in reserves for uncertain tax positions.

Net income:

Our net income of $40.4 million for the second quarter of 2011 represents an improvement of $19.6 million from the second quarter of 2010. Excluding the impact of foreign currency exchange of $5.7 million, our net income increased by $13.9 million. The increase in net income is primarily due to higher operating profit, lower net interest expense and the impact of discontinued operations in 2010.

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

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

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

EBITDA should not be construed as a substitute for, and should be considered together with, net cash flows provided by operating activities as determined in accordance with U.S. GAAP. The following table reconciles EBITDA to net cash flows provided by operating activities, which is the U.S. GAAP measure most comparable to EBITDA for the three months ended July 1, 2011 and July 2, 2010.


	Three Months Ended
(dollars in millions)	July 1, 2011			July 2, 2010
Net cash provided by (used) in operating activities	$	(33.7	)	$	11.4
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses		109.4			50.3
Changes in deferred income taxes		0.2			(8.4	)
Depreciation and amortization expense		(28.8	)		(25.8	)
Japan inventory loss		0.5			—
Amortization and payment of debt issuance costs		(3.1	)		(2.6	)
Accretion of original issue discount		(0.5	)		(0.4	)
Other, net		(3.7	)		(3.7	)

Net income		40.3			20.8

Provision for income taxes		25.3			20.7
Interest expense, net		22.1			25.8
Depreciation and amortization expense		28.8			25.8

	$	116.5		$	93.1

EBITDA for the three months ended July 1, 2011 increased by $23.4 million when compared to the same period in the prior year. Excluding the impact of foreign currency of $11.0 million, EBITDA improved by $12.4 million during the current period. This was primarily due to higher operating profit.

Credit Agreement EBITDA. For the purpose of calculating compliance with our financial covenants, the credit agreement for our Senior Secured Credit Facilities (see discussion in Liquidity and Capital Resources, Debt and Contractual Obligations) requires us to use a financial measure called Credit Agreement EBITDA, which is calculated as follows:


(dollars in millions)
EBITDA	$	116.5
Restructuring related costs		0.3
Non-cash expenses and charges		(0.7	)
Non-recurring gains or losses		13.8
Compensation adjustment and consulting fees		8.0

Credit Agreement EBITDA	$	137.9

We present Credit Agreement EBITDA because it is a financial measure that is used in the calculation of compliance with our financial covenants under the credit agreement for our Senior Secured Credit Facilities. Credit Agreement EBITDA is not a measure under U.S. GAAP and should not be considered as a substitute for financial performance and liquidity measures determined in accordance with U.S. GAAP, such as net income, operating income or operating cash flow.

Borrowings under our Senior Secured Credit Facilities are a key source of our liquidity. Our ability to borrow under our Senior Secured Credit Facilities depends upon, among other things, compliance with certain representations, warranties and covenants under the credit agreement for our Senior Secured Credit Facilities. The financial covenants in our Senior Secured Credit Facilities include a specified debt to Credit Agreement EBITDA leverage ratio and a specified Credit Agreement EBITDA to interest expense coverage ratio for specified periods.

Six Months Ended July 1, 2011 Compared to Six Months Ended July 2, 2010

Net Sales:


	Six Months Ended				Change
(dollars in millions)	July 1, 2011		July 2, 2010		Amount			Percentage

Net product and service sales	$	1,626.9	$	1,530.1	$	96.8			6.3	%
Sales agency fee income		12.9		11.9		1.0			8.4	%

		1,639.8		1,542.0		97.8			6.3	%
Variance due to foreign currency exchange				91.8		(91.8	)

	$	1,639.8	$	1,633.8	$	6.0			0.4	%

•

Net sales for the six months ended July 1, 2011 increased by 6.3% when compared to the six months ended July 2, 2010.

•

The comparability of net sales reported in the two periods is affected by the impact of foreign exchange rate movements. As measured against prior period’s results, the weaker U.S. dollar against the euro and a majority of other foreign currencies resulted in a $91.8 million increase in net sales in the first half of 2011.

•

Excluding the impact of foreign currency exchange rates, net sales increased by 0.4%. We continue to experience growth in our emerging markets, and have realized improvement in certain developed markets during the period. The following is a review of the sales performance for each of our regions:

•

In our Europe, Middle East and Africa markets, net sales decreased by1.0% in the first six months of 2011 versus the same period last year. The decline was a result of a reduction in non-strategic toll manufacturing, and decreased volume due to the instability in Egypt. In addition, sales of consumer branded products were adversely impacted by competitive pressures. These challenges were partially offset by price increases, expansion in the food and beverage sector, and continued growth in equipment sales. We experienced strong growth across emerging markets, a trend we expect through the remainder of this fiscal year. To offset the effects of inflation, the Company has deployed price increases in both emerging and developed markets which were effective at the beginning of the third quarter of this year.

•

In our Americas region, net sales increased by 2.2% in the first six months of 2011 versus the same period last year. Our emerging markets in Latin America, led by Brazil, continued strong growth trends, particularly in the food and beverage sector. Canada grew based on steady performance in food service and sales through distribution channels. These gains were partially offset by sales declines in the U.S., primarily in the retail and food and beverage sectors. We expect a continued trend of consumption growth in emerging markets. In addition to consumption growth, we expect that price increases which were effective at the beginning of the third quarter this year, will mitigate cost trends in both emerging and developed markets, particularly in the US.

•

In our Greater Asia Pacific region, net sales improved by 1.6% in the first six months of 2011 versus the same period last year. The increase is mainly due to strong volume improvements in the food and beverage and lodging sectors in our emerging markets, particularly in Greater China and India. Sales growth was achieved through new customer acquisitions, volume increases in our existing customer base, as well as continuing improvement in equipment sales in most markets. Our growth in emerging markets was partially offset by a 4.9% sales decline in Japan, primarily a result of the recent natural disaster. We expect continued negative effects on sales in the current fiscal year in Japan as a result of the disaster. The Company has deployed price increases, effective at the beginning of the third quarter of this year, across all geographies to offset the continuing affects of inflation.

•

Gross Profit:

Our gross profit and gross profit percentages for the six months ended July 1, 2011 and July 2, 2010 were as follows:


	Six Months Ended						Change
(dollars in millions)	July 1, 2011			July 2, 2010			Amount		Percentage

Gross Profit	$	680.7		$	662.3		$	18.4		2.8	%

Gross profit as a percentage of net sales		41.5	%		43.0	%

•

Gross profit for the six months ended July 1, 2011 increased by $18.4 million when compared to the six months ended July 2, 2010.

•

The comparability of gross profit between the two periods is affected by the impact of foreign exchange rate movements. As measured against the same period in the prior year, the weaker U.S. dollar against the euro and a majority of other foreign currencies resulted in a $40.0 million improvement in gross profit in the current six months period. Excluding the impact of foreign currency, gross profit decreased by $21.6 million.

•

Our gross profit percentage declined by 150 basis points in the first half of 2011 compared to the first half of 2010.

•

The decline in margin was primarily driven by materials cost inflation, higher fuel and freight costs, and adverse mix changes, and which were partially offset by price increases and savings derived from our global strategic sourcing initiatives. Our margin was also adversely affected by inventory losses following the disaster in Japan (see Note 18 to the consolidated financial statements).

•

We expect further deployment of our pricing strategies to mitigate the effects of current and expected inflationary pressures. In addition, we expect margin improvement will result from the continued execution of our global sourcing initiatives and process enhancements.

Operating Expenses:


	Six Months Ended						Change
(dollars in millions)	July 1, 2011			July 2, 2010			Amount		Percentage

Selling, general and administrative expenses	$	514.0		$	504.3		$	9.7		1.9	%
Research and development expenses		36.3			33.3			3.0		9.0	%
Restructuring expenses (credits)		(1.1	)		(2.5	)		1.4		56.0	%

	$	549.2		$	535.1		$	14.1		2.6	%


As a percentage of net sales:
Selling, general and administrative expenses		31.3	%		32.7	%
Research and development expenses		2.2	%		2.2	%
Restructuring expenses (credits)		-0.1	%		-0.2	%

		33.5	%		34.7	%

•

Operating expenses for the six months ended July 1, 2011 increased by $14.1 million when compared to the six months ended July 2, 2010.

•

The comparability of operating expenses between the two periods is affected by the impact of foreign exchange rate movements. As measured against the same period in the prior year, the weaker U.S. dollar against the euro and a majority of other foreign currencies resulted in a $29.2 million increase in operating expenses. Excluding the impact of foreign currency, operating expenses decreased by $15.1 million.

•

Selling, general and administrative expenses. As a percentage of net sales, selling, general and administrative expenses were 31.3% for the first half of 2011 and 32.7% for the same period in the prior year. Selling, general and administrative expenses increased by $9.7 million during the current period. Excluding the impact of foreign currency, selling, general and administrative expenses decreased by $17.7 million during the first half of 2011 compared to the same period in the prior year. This decrease is primarily due to a reduction in performance-based compensation expense of $17.4 million (see Note 2 to the consolidated financial statements), the impact of non-recurring costs in 2010 of $9.0 million, and improved operating efficiencies, partially offset by costs incurred related to organizing the European Principal Company (see Note 21 to the consolidated financial statements) in the amount of $9.9 million, Merger-related transaction costs of $3.9 million (Note 22 to the consolidated financial statements), and increased compensation costs of $3.5 million related to the impact of the Merger on our SARs (Note 16 to the consolidated financial statements).

•

Research and development expenses. Research and development expenses increased by $3.0 million in the current period. Excluding the impact of foreign currency, research and development expenses increased by $1.2 million during the first half of 2011 compared to the same period in the prior year.

•

Restructuring expenses (credits). As the November 2005 Plan winds down, credit adjustments related to previously recorded restructuring reserves decreased by $1.4 million during the first half of 2011 compared to the same period in the prior year.

Restructuring:

A summary of all costs associated with the November 2005 Plan for the six months ended July 1, 2011.and July 2, 2010, and since inception of the program in November 2005, is outlined below:


	Six Months Ended						Total Project to Date
(dollars in millions)	July 1, 2011			July 2, 2010			July 1, 2011

Reserve balance at beginning of period	$	23.1		$	48.4		$	—
Restructuring charges and adjustments		(1.1	)		(2.5	)		233.2
Payments of accrued costs		(7.7	)		(16.2	)		(218.9	)

Reserve balance at end of period	$	14.3		$	29.7		$	14.3


Period costs classified as selling, general and administrative expenses	$	2.9		$	6.7		$	322.2
Period costs classified as cost of sales		—			0.5			8.6

•

November 2005 Plan Restructuring Costs. During the first half of 2011 and 2010, we reduced restructuring liabilities by $1.1 million and $2.5 million, respectively, for involuntary termination costs for certain individuals, formerly expected to be severed, who were either retained by the Company or resigned. Restructuring activities under the November 2005 Plan will continue to wind down during 2011.

•

November 2005 Plan Period Costs. Period costs of $2.9 and $6.7 million for 2011 and 2010, respectively, included in selling, general and administrative expenses and $ 0.5 million for 2010, included in cost of sales pertained to: (a) $1.2 million in 2011 ($3.3 million in 2010) for personnel related costs of employees and consultants associated with restructuring initiatives, (b) $0.8 million in 2011 ($1.2 million in 2010) for value chain and cost savings projects, and (c) $0.9 million in 2011 ($2.7 million in 2010) related to facilities, asset impairment charges and various other costs. The overall decrease in these expenses over the prior period was mainly due to a reduction in restructuring activities within our Americas and Greater Asia Pacific segments.

Non-Operating Results:

	Three Months Ended						Change
	Six Months Ended						Change
(dollars in millions)	~~April~~July 1, 2011			~~April~~July 2, 2010			Amount			Percentage
Interest expense	$	2548.8		$	2755.85		$	(26.07	)		–7-12.41	%
Interest income		(12.32	)		(02.53	)		(0.81	)		~~–174~~4.3	%
Net interest expense	$	2446.56		$	2753.32		$	(26.86	)		~~–10~~-12.14	%
Other (income) expense, net		(0.31	)		3.78			(43.07	)		~~–106~~-97.04	%

• Net interest expense decreased in the first ~~quarter~~half of 2011 compared to the same period in the prior year primarily due to optional Term Loan repayments made ~~after~~in the ~~first~~second ~~quarter~~half of 2010, ~~and~~ lower interest rates obtained from an improved leverage ratio, and, the amendment to the Senior Secured Credit Facilities credit agreement (see Note 67 to the consolidated financial statements). This long term reduction in interest expense was offset by the expensing of $2.4 million of fees incurred related to the amendment.

•

Other (income) expense, net declined mainly due to the impact of $3.9 million foreign currency loss resulting from our adoption of highly inflationary accounting for our Venezuelan subsidiary in 2010.

~~Income~~41 ~~Taxes:~~

	Three Months Ended						Change
(dollars in millions)	April 1, 2011			April 2, 2010			Amount			Percentage
Income (loss) from continuing operations before income taxes	$	19.2		$	20.2		$	(1.0	)		–5.0	%
Provision for income taxes		13.9			19.7			(5.8	)		–29.2	%
Effective income tax rate		72.4	%		97.9	%

• For the fiscal year ending December 31, 2011, we are projecting an effective income tax rate of approximately 47% on pre-tax income from continuing operations. The projected effective income tax rate for the fiscal year exceeds the statutory income tax rate primarily as a result of increased valuation allowances against net deferred tax assets in certain jurisdictions and increases in reserves for uncertain tax positions.

• We reported an effective income tax rate of 72.4% on the pre-tax income from continuing operations for the first quarter ended April 1, 2011. When compared to the estimated annual effective income tax rate, the effective income tax rate for the first quarter ended April 1, 2011 is higher primarily due to actual pacing of pre-tax income (loss) and income tax expense (benefit) in certain key jurisdictions. For example, the pre-tax income from continuing operations for the three month period ended April 1, 2011 includes a relatively low proportion of the projected annual foreign pre-tax income from continuing operations. The higher effective income tax rate for the first quarter ended April 1, 2011 due to pacing of pre-tax income (loss) and income tax expense (benefit) is partially offset by certain income tax benefit amounts that were recorded as discrete items during the period, rather than included in the annual effective income tax rate.

• We reported an effective income tax rate of 97.9% on the pre-tax income from continuing operations for the first quarter ended April 2, 2010. The high effective income tax rate is primarily the result of increased valuation allowances against deferred tax assets in certain jurisdictions and increases in reserves for uncertain tax positions.

Income Taxes:


	Six Months Ended						Change
(dollars in millions)	July 1, 2011			July 2, 2010			Amount			Percentage

Income from continuing operations, before income taxes	$	84.8		$	70.4		$	14.4			20.5	%
Provision for income taxes		39.2			40.4			(1.2	)		-3.0	%

Effective income tax rate		46.2	%		57.5	%

•

We reported an effective income tax rate of 46.2% on the pre-tax income from continuing operations for the six month period ended July 1, 2011, which approximates the estimated annual effective income tax rate.

•

We reported an effective income tax rate of 57.5% on the pre-tax income from continuing operations for the six month period ended July 2, 2010. The high effective income tax rate is primarily the result of increased valuation allowances against deferred tax assets in certain jurisdictions and increases in reserves for uncertain tax positions.

Net income:

Our net income of $545.36 million for the first ~~quarter~~half of 2011 represents an improvement of $524.28 million from the first ~~quarter~~half of 2010. Excluding the impact of foreign currency exchange of $17.41 million, our net income increased by $317.87 million. The increase in net income is primarily due to ~~lower~~higher ~~income~~operating ~~tax~~profit, ~~provision~~lower ~~during~~net interest expense, the ~~current~~impact ~~quarter~~of ~~compared~~discontinued tooperations in 2010 and the ~~same~~adoption ~~period~~of ~~last~~highly ~~year~~inflationary accounting in Venezuela in 2010.

EBITDA and Credit Agreement EBITDA:

~~EBITDA~~42 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 April 1, 2011 and April 2, 2010.

	Three Months Ended
(dollars in millions)	April 1, 2011			April 2, 2010
Net cash used in operating activities	$	(10.4	)	$	(41.4	)
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses		51.7			87.8
Changes in deferred income taxes		(1.0	)		(9.0	)
Depreciation and amortization expense		(29.4	)		(28.4	)
Japan inventory loss		(1.2	)		—
Amortization and payment of debt issuance costs		(4.4	)		(2.6	)
Accretion of original issue discount		(0.5	)		(0.6	)
Other, net		0.5			(5.7	)
Net income		5.3			0.1
Provision for income taxes		13.9			19.7
Interest expense, net		24.5			27.3
Depreciation and amortization expense		29.4			28.4
	$	73.1		$	75.5

EBITDA ~~for~~should ~~the~~not ~~three~~be ~~months~~construed ~~ended~~as ~~April 1,~~a ~~2011~~substitute ~~decreased~~for, byand ~~$2.4~~should ~~million~~be ~~when~~considered ~~compared~~together with, tonet ~~the~~cash ~~same~~flows ~~period~~provided by operating activities as determined in ~~the~~accordance ~~prior~~with ~~year~~U.S. ~~Excluding~~GAAP. ~~the~~The ~~impact~~following oftable ~~foreign~~reconciles ~~currency~~EBITDA ofto ~~$2.3~~net ~~million,~~cash ~~EBITDA~~flows ~~declined~~provided by ~~$4.7~~operating ~~million~~activities, ~~during~~which is the ~~current period~~U.S. ~~This~~GAAP ~~was~~measure ~~primarily~~most ~~due~~comparable to ~~decreased~~EBITDA ~~gross~~for ~~profit arising from~~ the six ~~decrease~~months inended ~~sales~~July 1, ~~materials cost~~2011 ~~inflation~~ and ~~adverse mix changes~~July 2, ~~as previously explained~~2010.


	Six Months Ended
(dollars in millions)	July 1, 2011			July 2, 2010
Net cash used in operating activities	$	(44.1	)	$	(30.0	)
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses		161.1			138.1
Changes in deferred income taxes		(0.8	)		(17.4	)
Depreciation and amortization expense		(58.2	)		(54.2	)
Japan inventory loss		(0.7	)		—
Amortization and payment of debt issuance costs		(7.5	)		(5.2	)
Accretion of original issue discount		(1.0	)		(1.0	)
Other, net		(3.2	)		(9.4	)

Net income		45.6			20.9

Provision for income taxes		39.2			40.4
Interest expense, net		46.6			53.2
Depreciation and amortization expense		58.2			54.2

	$	189.6		$	168.7

EBITDA for the six months ended July 1, 2011 increased by $20.9 million when compared to the same period in the prior year. Excluding the impact of foreign currency of $13.2 million, EBITDA improved by $7.7 million during the current period. This was primarily due to higher operating profit.

(dollars in millions)
EBITDA	$	73189.16
Restructuring related costs		1.47
Non-cash expenses and charges		21.69
Non-recurring gains or losses		620.20
Compensation adjustment and consulting fees		412.4
Credit Agreement EBITDA	$	87225.76

2843

Liquidity and Capital Resources

The following table sets forth, for the periods presented, information relating to our liquidity and capital resources as summarized from our consolidated statements of cash flows:

	Three Months Ended						Change
	Six Months Ended						Change
(dollars in millions)	~~April~~July 1, 2011			~~April~~July 2, 2010			Amount			Percentage
Net cash used in operating activities	$	(1044.41	)	$	(4130.40	)	$	31(14.01	)		7447.90	%
Net cash used in investing activities		(1951.64	)		(1533.49	)		(417.25	)		-2751.26	%
Net cash (used in) provided by financing activities		(3.1	)		1.7			(4.8	)		-284.4	%
Net cash provided by (used in) financing activities		2.2			(9.9	)		12.1			122.2	%
Capital expenditures		1949.76			1636.02			313.74			2337.60	%

• The ~~decrease~~increase in net cash used in operating activities during the ~~three~~six months ended ~~April~~July 1, 2011 as compared to the same period last year was primarily due to ~~lower~~an increase in working capital ~~requirements~~ during the current period, explained below.

• The increase in net cash used in investing activities during the ~~three~~six months ended ~~April~~July 1, 2011 as compared to the same period last year was primarily due to an increase of $313.74 million in capital expenditures and the acquisition of business and other intangibles (see Note 5 to the consolidated financial statements).

• The increase in net cash ~~used~~provided inby financing activities during the ~~three~~six months ended ~~April~~July 1, 2011 as compared to the same period last year was mainly due to aan ~~decrease~~increase in proceeds from short-term borrowings.

The following table sets forth, for the periods presented, information relating to our liquidity and capital resources as summarized from our consolidated balance sheets:

	As of				Change
	April 1, 2011		December 31, 2010		Amount			Percentage
	July 1, 2011		December 31, 2010		Amount			Percentage
Cash and cash equivalents	$	~~127~~67.80	$	157.8	$	(3090.08	)		-1957.05	%
Working capital*		~~518~~578.16		481.1		3797.05			720.73	%
Short-term borrowings		2540.90		24.2		115.78			765.23	%
Total borrowings		1,~~248~~270.5		1,225.8		2244.7			13.96	%

*	Working capital is defined as net accounts receivable plus inventories less accounts payable (including related party amounts).

• The decrease in cash and cash equivalents as of ~~April~~July 1, 2011 compared to December 31, 2010 resulted primarily from cash used in operating activities and $1949.76 million in capital expenditures.

• Working capital increased by $3797.05 million during the ~~three~~six months ended ~~April~~July 1, 2011. This increase resulted primarily from a $4364.32 million increase in inventories and an increase of $870.6 million in accounts receivable offset by an increase of $1437.93 million in accounts payable. The increase in inventories was primarily driven by a build up for new product offerings, the transition of our manufacturing operations, and ~~variability~~normal inseasonal ~~customer~~build ~~ordering~~ patterns. The increase in accounts payable is primarily a result of the increase in inventories and the impact of a generally weaker U.S. dollar compared to other foreign currencies. The increase in accounts receivable ~~also~~is ~~reflects~~primarily ~~the~~a ~~impact~~result of ~~exchange~~an ~~rates~~increase asin ~~well~~sales asand anthe ~~increase~~impact inof ~~trade~~a ~~receivables~~generally ~~from~~weaker ~~Unilever,~~U.S. adollar ~~related~~compared ~~party~~to other foreign currencies.

~~Working~~44 capital as of April 1, 2011, when compared to working capital as of April 2, 2010, decreased by $25.4 million. When adjusted for the foreign exchange impact of a generally weaker dollar, the decrease was $49.3, primarily due to improved collections and higher accounts payable balances, the majority of which is due to higher inventories.

• As of ~~April~~July 1, 2011, short-term borrowings primarily consisted of borrowings by our foreign subsidiaries on local lines of credit, which totaled $~~25.9~~40 million at a weighted average interest rate of approximately 56.8997%. Local credit arrangements vary by country and are primarily used to fund working capital. The maximum amount of short-term borrowings during 2011 ~~was~~is $2549.92 million.

•

Total debt increased primarily as a result of the impact on our foreign currency denominated loans of a weaker dollar against the euro and other foreign currencies.

Debt and Contractual Obligations.

Senior Secured Credit Facilities. Diversey, its Canadian subsidiary and one of its European subsidiaries, each as a borrower, entered into a credit agreement, whereby the lenders provided an aggregate principal amount of up to $1.25 billion available in U.S. dollars, euros, Canadian dollars and British pounds.

The Senior Secured Credit Facilities ~~consists~~consist of (a) a revolving loan facility in an aggregate principal amount not to exceed $250.0 million, including a letter of credit sub-limit of $50.0 million and a swingline loan sub-limit of $30.0 million, that matures on November 24, 2014, and (b) term loan facilities in US dollars, euros and Canadian dollars maturing on November 24, 2015 (“Term Loans”). The Senior Secured Credit Facilities also ~~provides~~provide for an increase in the revolving credit facility of up to $50.0 million under specified circumstances. The revolving facility will mature on November 24, 2014. As of ~~April~~July 1, 2011, we had $3.7 million in letters of credit outstanding under the revolving portion of the Senior Secured Credit Facilities and therefore had the ability to borrow an additional $246.3 million under ~~this~~ this revolving facility.

The net proceeds of the Term Loans, after deducting the original issue discount of $15.0 million, but before offering expenses and other debt issuance costs, were approximately $985.0 million. The New Term Loans will mature on November 24, 2015 and will amortize in quarterly installments of 1.0% per annum with the balance due at maturity.

All obligations under the Senior Secured Credit Facilities are secured by all the assets of Holdings, the Company and each subsidiary of the Company (but limited to the extent necessary to avoid materially adverse tax consequences to the Company and its subsidiaries, taken as a whole, and by restrictions imposed by applicable law).

Amendment to the Senior Secured Credit Facilities credit agreement. The Senior Secured Credit Facilities were amended in March 2011. This amendment reduced the interest rate payable with respect to the Term Loans, thereby reducing borrowing costs over the remaining life of the credit facilities. The spread on the U.S. dollar and Canadian dollar denominated borrowings was reduced from 325 basis points to 300 basis points, and the minimum LIBOR and BA floors were reduced from 2% to 1%. The spread on the euro denominated borrowing was reduced from 400 basis points to 350 basis points and the EURIBOR floor was reduced from 2.25% to 1.5%. In addition, the amendment changed various financial covenants and credit limits to provide us with greater flexibility to operate our business. These changes include the ability to issue incremental term loan facilities, the ability to issue dividends to Holdings to fund cash interest payments on the Holdings Senior Notes, and the ability to settle the due from parent balance carried in the consolidated financial statements.

In connection with the amendment and in accordance with ASC 470-50, Debt Modifications and Extinguishments, the Company expensed $2.4 million in transaction fees paid to third parties and wrote-off $0.2 million in unamortized discounts and capitalized debt issuance costs. These amounts are included in interest expense in the consolidated statements of operations for the ~~three~~six months ended ~~April~~July 1, 2011. The effective interest rates on the Term loans were reduced from 5.770% -– 6.91% to 4.19% -– 5.40%.

Diversey Senior Notes. In 2009, we issued $400.0 million aggregate principal amount of 8.25% senior notes due 2019. The net proceeds of the offering, after deducting the original issue discount of $3.3 million, but before estimated offering expenses and other debt issuance costs, were approximately $396.7 million.

We pay interest on May 15 and November 15 of each year, beginning on May 15, 2010. The Diversey Senior Notes will mature on November 15, 2019.

3045

The Diversey Senior Notes are unsecured and are effectively subordinated to the Senior Secured Credit Facilities to the extent of the value of our assets and the assets of our subsidiaries that secure such indebtedness. The indenture governing our Diversey Senior Notes contains restrictions and limitations that could also significantly impact the ability of the Company and its restricted subsidiaries to conduct certain aspects of the business.

As of ~~April~~July 1, 2011, we had total indebtedness of $1.~~262~~283 billion, consisting of $400.0 million of Diversey Senior Notes, $~~835~~843.71 million of borrowings under the Senior Secured Credit Facilities, and $~~25.9~~40 million in other short-term credit lines. In addition, we had $~~165~~173.86 million in operating lease commitments, $1.4 million in capital lease commitments and $3.7 million committed under letters of credit.

Our financial position and liquidity are, and will be, influenced by a variety of factors, including:

•

our ability to generate cash flows from operations;

•

the level of our outstanding indebtedness and the interest we are obligated to pay on this indebtedness; and

•

our capital expenditure requirements, which consist primarily of purchases of equipment.

We believe that the cash flows from continuing operations, together with available cash on hand and borrowings available under our Senior Secured Credit Facilities will generate sufficient cash flow to meet our liquidity needs for the foreseeable future. ~~From~~We will continue to closely monitor current economic and credit market conditions that may affect our liquidity and the future availability of credit. We believe that we are positioned to deal with inflationary concerns or economic downturns; however, we are not able to predict how much either would affect our business and our customers’ businesses going forward. From time to time, the company has considered and may in the future pursue debt or other financing alternatives, depending on market conditions and other factors.

We have obligations related to our pension and post-retirement plans that are discussed in detail in Note 1112 to the consolidated financial statements. As of the most recent actuarial estimation, we anticipate making $28.1 million of contributions to pension plans in fiscal year 2011. Post-retirement medical claims are paid as they are submitted and are anticipated to be $5.3 million in fiscal year 2011.

Our operations are subject to volatility because of currency fluctuations, inflation changes and changes in political and economic conditions in the countries where we conduct business. 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. Consequently, we engage in hedging activities, including forward foreign exchange contracts, to reduce the exposure of our cash flows to fluctuations in foreign currency rates. See Notes 1213 and 1314 to the consolidated financial statements for gains and losses associated with these contracts.

Restricted Cash. As of ~~April~~July 1, 2011, we had $1512.31 ~~million~~ classified as restricted cash in our consolidated balance sheets. These funds will be used to pay for our November 2005 Plan restructuring obligations (see Note 7 to the consolidated financial statements).

Measurement of income tax reserve position. For the fiscal year ending December 31, 2011, we expect to increase income tax reserve liabilities by $6.7 million, resulting in total income tax reserve liabilities of $63.5 million. Total income tax reserve liabilities for which payments are expected in less than one year are $7.54 million. We are not able to provide a reasonably reliable estimate of the timing of future payments relating to non-current income tax reserve liabilities.

Financial Covenants under Our Senior Secured Credit Facilities

Under the terms of the credit agreement for 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.

31Maximum 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 credit agreement for our Senior Secured Credit Facilities for that financial covenant period. The

~~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 credit agreement for our Senior Secured Credit Facilities for that financial covenant period. The maximum~~ leverage ratio is the ratio of (1) our consolidated indebtedness less cash and cash equivalents as of the last day of the financial covenant period to (2) our consolidated EBITDA (“Credit Agreement EBITDA”) as defined in the credit agreement for Senior Secured Credit Facilities for the same financial covenant period.

The March 2011 amendment to the Senior Secured Credit Facilities fixed the maximum leverage ratio at 4.75 to 1 for the duration of the facilities.

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 credit agreement for our Senior Secured Credit Facilities for that financial covenant period. The minimum interest coverage ratio is the ratio of (1) our consolidated Credit Agreement EBITDA for a financial covenant period to (2) our cash interest expense for that same financial covenant period calculated in accordance with the Senior Secured Credit Facilities.

The March 2011 amendment to the Senior Secured Credit Facilities fixed the minimum interest coverage ratio at 2.75 to 1 for the duration of the facilities.

Failure to comply with these financial ratio covenants would result in a default under the credit agreement for our Senior Secured Credit Facilities and, absent a waiver or amendment from our lenders, would permit the acceleration of all our outstanding borrowings under our Senior Secured Credit Facilities.

Compliance with Maximum Leverage Ratio and Minimum Interest Coverage Ratio. For our financial covenant period ended on ~~April~~ July 1, 2011, we were in compliance with the maximum leverage ratio and minimum interest coverage ratio covenants contained in the credit agreement for our Senior Secured Credit Facilities.

Holdings Senior Notes

On November 24, 2009, Holdings issued $250.0 million initial aggregate principal of its 10.50% senior notes due 2020 (“Original Holdings Senior Notes”). The Holdings Senior Notes bear interest at a rate of 10.50% per annum, compounded semi-annually on each May 15 and November 15. Under the terms of the indenture governing the Holdings Senior Notes, prior to November 15, 2014, Holdings may elect to pay interest on the Holdings Senior Notes in cash or by increasing the principal amount of the Holdings Senior Notes. Thereafter, cash interest will be payable on the Holdings Senior Notes on May 15 and November 15 of each year, commencing on May 15, 2015; provided that cash interest will be payable only to the extent of funds actually available for distribution by the Company to Holdings under applicable law and under any agreement governing the Company’s indebtedness. The Holdings Senior Notes will mature on May 15, 2020. The Holdings Senior Notes are not guaranteed by the Company or any of its subsidiaries. The indenture governing the Holdings Senior Notes contains certain covenants and events of default that the Company believes are customary for indentures of this type.

On May 15, 2010, the principal of the Holdings Senior Notes increased by $12.5 million, in lieu of a cash interest payment, to $262.5 million.

Holdings paid cash interest on November 15, 2010 and has elected to pay cash interest on May 15, 2011 and November 15, 2011. The amount of each cash interest payment is $13.8 million.

32Plan of Merger

In connection with the Merger Agreement, the Company’s indebtedness consisting of the Senior Secured Credit Facilities, Diversey Senior Notes, certain local borrowings, as well as the Holding Senior Notes, will be paid off by Sealed Air. Upon the extinguishment of this indebtedness, the Company expects to write-off currently unamortized discounts and capitalized debt issuance costs, which are carried in the Company’s balance sheet as of July 1, 2011 at $12.7 million and $50.0 million, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE ~~DISCLOSURE~~DISCLOSURES ABOUT MARKET RISK

There have been no significant changes to our market risk since December 31, 2010. For a discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the SEC on March 17, 2011.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Diversey’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.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s independent registered public accounting firm will provide an attestation report regarding the Company’s internal control over financial reporting with the issuance of its Annual Report on Form 10-K for fiscal 2011.

Disclosure Controls. As of the end of the period covered by this quarterly report, under the supervision and with the participation of senior management, including the Company’s President and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, 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. During the quarter ended April 1, 2011, the Company implemented a new consolidation software application at its corporate headquarters. The Company followed a system development process that required significant pre-implementation planning, design and testing. There has not been any ~~other~~ change in our internal control over financial reporting during the quarter ended ~~April~~July 1, 2011, 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.

3348

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, employment matters (including employee benefits), 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 Agreement between Diversey, Inc. and David S. Andersen dated January 25, 2011 (effective March 18, 2011).
2.1		Agreement and Plan of Merger, dated as of May 31, 2011 by and among Sealed Air Corporation, Solution Acquisition Corp. and Diversey Holdings, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K, filed with the SEC on June 3, 2011).
10.2		Diversey, Inc. Annual Incentive Plan, amended and restated effective as of December 31, 2010.
10.1		Separation Agreement between Diversey, Inc. and David S. Andersen dated January 25, 2011 (effective March 18, 2011) (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, filed with the SEC on May 12, 2011).
10.3		Diversey, Inc. Long-Term Cash Incentive Plan, as amended on December 31, 2010.
10.2		Diversey, Inc. Annual Incentive Plan, amended and restated effective as of December 31, 2010 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q, filed with the SEC on May 12, 2011).
10.4		Diversey, Inc. Profit Sharing Plan, as amended on December 31, 2010.
10.3		Diversey, Inc. Long-Term Cash Incentive Plan, as amended on December 31, 2010 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q, filed with the SEC on May 12, 2011).
10.5		Diversey, Inc. Severance Pay Plan, as amended on December 31, 2010.
10.4		Diversey, Inc. Profit Sharing Plan, as amended on December 31, 2010 (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q, filed with the SEC on May 12, 2011).
10.5		Diversey, Inc. Severance Pay Plan, as amended on December 31, 2010 (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q, filed with the SEC on May 12, 2011).
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.
101.1		XBRL Instance Document: File di-20110701.xml*
101.2		XBRL Taxonomy Extension Schema Document: File di-20110701.xsd*
101.3		XBRL Taxonomy Extension Calculation Linkbase Document: File di-20110701_cal.xml*
101.4		XBRL Taxonomy Extension Definition Linkbase Document: File di-20110701_def.xml*
101.5		XBRL Taxonomy Extension Label Linkbase Document: File di-20110701_lab.xml*
101.6		XBRL Taxonomy Extension Presentation Linkbase Document: File di-20110701_pre.xml*

34* Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six months ended July 1, 2011, and July 2, 2010; (ii) Consolidated Balance Sheets at July 1, 2011, and December 31, 2010; (iii) Consolidated Statements of Cash Flows for the six months ended July 1, 2011, and July 2, 2010; and (vi) Notes to Consolidated Financial Statements. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed “furnished” and not “filed” for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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.

		DIVERSEY, INC.
Date: May 12, 2011		/s/ Norman Clubb
Date: August 8, 2011		/s/ Norman Clubb
		Norman Clubb, Executive Vice President and Chief Financial Officer

3550

DIVERSEY, INC.

EXHIBIT INDEX

10.1		Separation Agreement between Diversey, Inc. and David S. Andersen dated January 25, 2011 (effective March 18, 2011).
10.2		Diversey, Inc. Annual Incentive Plan, amended and restated effective as of December 31, 2010.
10.3		Diversey, Inc. Long-Term Cash Incentive Plan, as amended on December 31, 2010.
10.4		Diversey, Inc. Profit Sharing Plan, as amended on December 31, 2010.
10.5		Diversey, Inc. Severance Pay Plan, as amended on December 31, 2010.
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.
101.1		XBRL Instance Document: File di-20110701.xml*
101.2		XBRL Taxonomy Extension Schema Document: File di-20110701.xsd*
101.3		XBRL Taxonomy Extension Calculation Linkbase Document: File di-20110701_cal.xml*
101.4		XBRL Taxonomy Extension Definition Linkbase Document: File di-20110701_def.xml*
101.5		XBRL Taxonomy Extension Label Linkbase Document: File di-20110701_lab.xml*
101.6		XBRL Taxonomy Extension Presentation Linkbase Document: File di-20110701_pre.xml*

36* Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six months ended July 1, 2011, and July 2, 2010; (ii) Consolidated Balance Sheets at July 1, 2011, and December 31, 2010; (iii) Consolidated Statements of Cash Flows for the six months ended July 1, 2011, and July 2, 2010; and (vi) Notes to Consolidated Financial Statements. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed “furnished” and not “filed” for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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