希悅爾 (SEE) 2006 Q3 法說會逐字稿

Good day and welcome to the JohnsonDiversey 2006 third quarter earnings results conference call. [OPERATOR INSTRUCTIONS] At this time, for opening remarks and introductions, I would like to turn the conference over to Ms. Lori Marin. Please good ahead, ma'am.

Good morning. This is Lori Marin, Vice President and Corporate Treasurer of JohnsonDiversey. I would like to thank everyone for joining our investor call this morning. Today, we will discuss our results for the quarter and nine months ended September 29, 2006. I am joined on this call by Ed Lonergan, our President and Chief Executive Officer; Joe Smorada, our Executive Vice President and Chief Financial Officer; and Clive Newman, our Vice President and Corporate Controller.

On this call, we intend to provide an update on the general status of the business and the financial results for the quarter and nine months ended September 29, 2006, an overview of the balance sheet of September 29, 2006, an update on our restructuring program and an update on the results of JohnsonDiversey holdings. Some of the statements that will be made in this presentation are not historical fact and are forward-looking. These forward-looking statements are subject to risks and uncertainties, some of which are beyond our control.

Please refer to the risk factors and cautionary statements concerning forward-looking statement in the JohnsonDiversey registration statement on Form S4 that was declared effective by the SEC on November 7, 2002, in the JohnsonDiversey Holdings registration statement on Form S4 that was declared effective by the SEC on January 8, 2004, and in our Form 10-Q and Form 10-K reports, for certain risks and uncertainties that we face. The discussion today includes references to EBITDA for various periods. EBITDA is a non-GAAP measure within the meaning of the SEC's Regulation G.

In accordance with Regulation G, our Form 10-Q report includes a reconciliation of EBITDA for the quarter and nine months ended September 29, 2006 to net cash provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to EBITDA. Except for comments regarding EBITDA, net income and cash flow or where specifically indicated; today's discussion reflects the results of continuing operations, excluding the divested polymer business and chemicals [Mesit] associates business, divested at the beginning of our fourth quarter. Our Form 10-Q reports for JohnsonDiversey and JohnsonDiversey's holdings were filed with the Securities and Exchange Commission on November 9, 2006.

They are also posted on our website at johnsondiversey.com and can be found by clicking to Investor Relations link and selecting the relevant Company. JohnsonDiversey Holdings is a holding Company whose sole asset is its share of JohnsonDiversey. Other than differences in net income due to interest expense for the JohnsonDiversey Holdings senior discount notes, provision for income taxes and dividends received, the consolidated financial results of the two companies are the same. Accordingly, we will address the results of both companies on this call. I would now like to turn the call over to Ed Lonergan, our President and Chief Executive Officer, for a general business update.

Good morning. Thanks, Lori, Thank you all for joining us today. I am pleased to report that we are continuing to see momentum building in our core businesses with sales and EBITDA gains across virtually all our regions. We are executing our restructuring program with progress ahead of plan, while also reaffirming our commitment to grow our business through customer driven innovation. Our sales continued to grow, driven by pricing and volume. Our sales in the third quarter grew be 3% when adjusted for currency and one-time effects.

These one-time effects include the impact acquisitions and divestitures, currency, our decision to withdraw from the majority of the U.S. service oriented warewashing business and partial termination fees related to our mattress sales agency agreement with Unilever. About 50% of our growth was attributable to pricing and 50% to volume. We are seeing sales growth across all our regions except Japan, where we've reduced direct sales as a result of shifting of large numbers of small direct customers to more efficient distributor supply and by exiting low profit customer relationships. In North America, our core business grew in the grew in the quarter by 5.7%. This business has delivered solid growth for the year based on effective pricing, key account and distribution gains and new product innovation.

The partnership that generated one of our new product innovations was recognized this week by the Canadian American Business Council. The Council recognized JohnsonDiversey and our partner, Virox Technologies, for our unique approach to developing and marketing accelerated hydrogen peroxide products, which we sell under the brand Oxivir. This family of products is becoming a leading solution for safe, environmentally sound cleaning and disinfection in healthcare and other public settings. Oxivir is a key component of our program to help our customers prepare for the threat of pandemic. Our overall net sales in North America decreased by about 7%, reflecting our partial exit from the service oriented warewashing business in the U.S. We expected this result when we made the decision to pursue a new model for serving our North American warewashing customers.

Net sales in our Europe, Middle East and Africa business grew by 3.8% in the quarter. This growth was due primarily to increased volume in developing countries in Eastern Europe, Africa and the Middle East and the affect of price increases in Western Europe. We've continue to enjoy strong growth in Latin America and Asia Pacific. Latin America saw gains of 4.6% in the quarter. And Asia Pacific delivered 10% growth. I'm more excited than ever about our growth potential in developing markets.

Not only do we hold significant markets share position shares broadly, but we're also seeing rapid adoption of cleaning and hygiene best practices as these markets develop economically. Our customers are poised for growth and are turning to us as partners in their expansion. And you can expect to hear more from me about developing markets in the quarters to come. In Japan, our new sales declined 6.3% in the third quarter. As discussed in a previous call, the sales decline is the result of three planned actions. Restructuring the service relationship at a core Japanese retail customer, the planned withdrawal from low margin filter sales in the food and beverage business, and a change from direct selling to a joint venture for sales and distribution at select food service customers in key metropolitan markets.

We took these actions to improve the efficiency around profitability of our Japanese business and expect to see results in the coming quarters. Joe will discuss our EBITDA in detail in a minute. But first, let me say that we are taking the necessary steps to improve our EBITDA performance by both growing our business and reducing our cost structure. We continue to execute our restructuring program, with significant achievements in the third quarter. We announced the outsourcing of IT operations in all of Europe and financial services in Western Europe. And we announced plans to close factories in France and Spain, subject to Works Council approval. These steps in Europe are critical moves in our plant to make our European business more simple and more profitable.

We are also continuing to divest noncore business units. On September 30, we closed the sale of the CMA dish machine business to Italy based [Ali] Group. And on October 4, 2006 we announced the sale of a major southern territory of our autoclerk kitchen service business to a regional auotclerk dealer. These divestitures are part of our continuing plan to refocus our energy and resources on our core business.

Our commitment to growth through innovation resulted in an exciting global roll out in the third quarter of a new critical new tool in food safety. One of the greatest concerns in food safety is the presence of [Wisteria]. This is a deadly bacterium that commonly grows in floor drains in kitchens and food prep areas. We have developed the industry's safest and most effective application to kill Wisteria and clean drains without scrubbing. And we have rolled this out across the world under the ElimineX brand. This launch anchors a family portfolio targeted to improve hygiene in food prep areas.

The response from customers, particularly in the retail sector, has been overwhelming. And we expect to see substantial growth in our food safety offerings as a result. We're also innovating in green cleaning technology and systems. We recently announced that healthy and high performance cleaning program is the first of its kind to obtain the GREENGUARD certification for indoor air quality. GREENGUARD is an independent, non-profit organization that focuses on green and healthy facility management. We earned this certification through independent testing conducted by GREENGUARD's scientists. Their experts documented that our program meets their stringent requirements for elementary school indoor air quality.

Our green cleaning leadership is driving customer penetration in our core business and promises to deliver real results and companies and consumers seek to live healthier lives, with less impact on the environment. Overall we are showing growth across most of our operations. We intend to ramp up volume growth with additional innovation launches and unique customer partnering models. We're seeing ongoing momentum in developing markets. And we are leveraging our scale to grow in a majority of Western European markets and our core North American business.

We are putting the right people in the right roles and energizing our team with clarity of purpose and strategic direction. We are consistently executing on our restructuring program, controlling SG&A and turning this into a more simplified and nimble Company. I look forward to sharing more progress in the coming quarters. Now, I would like to turn it over to Joe Smorada for more detailed comments on our financial results.

Good morning to all. Thank you Ed and good morning to all. Just a reminder, that a reconciliation to EBITDA to net cash provided by operating activities can be found in our 10-Q reports for the quarter, as well as for the nine months ended September 29, 2006, all of which, of course, can be accessed from our Website. On an as reported basis, net sales in the third quarter of 2006 were $739 million, as compared to $743 million in the same period last year. Excluding the impact of foreign currency exchange rates and acquisitions and divestitures, our net sales were slightly lower than the third quarter of 2005.

Our net sales during the third quarter were impacted by our decision to exit the majority of the service oriented laundry and warewashing business in the United States. After adjusting for this impact, net sales for the third quarter 2006 increased 3%, compared to the third quarter of 2005. In the first nine months of 2006, net sales were $2.19 billion, as compared to $2.24 billion in the first nine months of 2005. This decrease is due to the same factors I mentioned for the third quarter, along with the $6.7 million impact of the partial termination fee related to our master sales agency agreement with Unilever, and a $15.3 million impact previously disclosed lease accounting, which had the affect of increasing net sales in the first quarter of 20 05. On a cost and currency basis and after adjusting for these one-time impacts, net sales increased by 3.6% on a year-over-year basis.

In our professional segment, sales in North America decreased by 7.3% in the third quarter versus the same period a year ago and decreased by 1.5 in the first nine months of 2006 as compared to the same period in the prior year. This reflects the impact of the announcement on March 7 of 2006 of our intent to withdraw from the majority of the underperforming service oriented laundry and warewashing business in th U.S. Partially offset by the impact of price increases in 2005 and strong growth in all core business units.

In our Europe, Middle East and Africa region, net sales in the third quarter grew by 3.8%, as compared to the third quarter of 20 05. For the first nine months of 2006, sales in this region increased by 2.2% as compared to the same period a year ago. Excluding the impacts of the 2005 lease accounting adjustment I just mentioned, nets sales grew by 3.7%. This growth was primarily due to increased sales volume in our Central European area and in developing countries in Eastern Europe, Africa and the Middle East and the affect of price increases in Western Europe.

Both the Asia Pacific and Latin America regions showed solid sales growth in the third quarter. Asia Pacific posted sales growth of 10% in the quarter and 8.2% on a year-to-date basis. Led by growth in the food and beverage business and the lodging, retail and quick service restaurant sectors. Latin America grew by 4.6% in the quarter and by 6.8% on a year to date basis, as favorable economic conditions contributed to increased sales in most geographic areas. With growth in the food and beverage business, the retail and lodging sectors and distribution. This more than offset lower health and hospitality sales in Mexico, where tourism is still adversely affected by hurricane damage and our decision to exit direct sales to the cruise business in the Caribbean

In Japan, net sales decreased by 6.3% in the third quarter and by 5.5% on a year-to-date basis, primarily due to the restructuring of the service relationship at a core Japanese retail customer, the discontinuance of low margin filter sales in the food and beverage business, and a change from direct selling to a joint venture initiative for select food service customers in the Tokyo metropolitan area. Our gross margins in the third quarter declined as compared to the same period a year ago. On a consolidated basis, our third quarter 2006 gross margin was 42.3%, as compared to a gross margin of 43.3% in the third quarter of '05. For the first nine months of 2006, gross margin was also 42.3%, as compared to 43.2% for the first nine months of 2005.

As we have been discussing in considerable detail for the past year, this was primarily the result of raw material and transportation cost increases that were not fully offset by price increases taken in '05 and in the first half of 2006. However, gross margin in the third quarter improved versus the first semester, reflecting the impact of pricing activity that Ed mentioned earlier, as well as the early benefits of our restructuring program. As reported, SG&A expense as percent of net sales was 37.8% in the third quarter of 2006, as compared to 35.6% in the same period last year.

This increase reflects the inclusion of period costs associated with our restructuring program of $29.2 million in the third quarter, as compared to $9.8 million in the third quarter of 2005. After adjusting for these period costs attendant to our restructuring program, SG&A expenses were 33.8% of net sales in the third quarter, as compared to 34% in the third quarter 2005 on a like basis. Excluding the impact of foreign currency and period costs, SG&A in the third quarter was $7.5 million below prior year levels. Year-to-date and on an as reported basis, SG&A expenses as percent of sales were 39.9%, as compared to 36.7% in the same period a year ago. Once again, this increase reflects the inclusion of period costs associated with our restructuring program of $106.4 million in the first nine months of 2006. This compares to $22.8 million in the first nine months of 2005.

Excluding the impact of foreign currency and periods, the SG&A expense in the third quarter was $21.4 million lower than the prior year, which included a net gain of $7.3 million related to pension and post-retirement benefit curtailments and settlements in the first nine months of 2006. It should be noted that the $106.4 million of period costs incurred during the first nine months of 2006, $52.6 million related to tangible and intangible asset impairment. Primarily associated with our decision to withdraw from the majority of the U.S. service oriented warewashing business. The remainder primarily relates to IT project costs, consulting and professional services.

Restructuring expenses in the third quarter of 2006 were $30.8 million, compared to $4.3 million in the same appeared. For the first nine months of 2006, restructuring expenses were $108.5 million, as compared to $12.4 million in the same period a year ago. These costs consisted of severance and other employee related costs associated with our restructuring program. EBITDA reported in the third quarter of 2006 was $33.8 million, as compared to $91.7 million in the third quarter of 2005. This decrease is primarily due to a $40.5 million increase in restructuring expense and period costs recorded as SG&A related to our restructuring program that I mentioned just a minute ago.

For the nine months of 2006, EBITDA was $434 million, as compared to $263 million in the same period in the prior year. This change is largely a result of a $356 million pretax gain reported on the divestiture of our polymer business, partially offset by $130 million increase in restructuring expense and period costs. The Company reported a net loss of $16.1 million in the third quarter of 2006, compared to a net income of $8.4 million in the third quarter of 2005. This difference was primarily due to the $45.9 million increase in restructuring related expenses, partially offset by decreases in income tax expense, as well as interest expense.

JohnsonDiversey Holdings reported a net loss of $28.1 million in the third quarter of 2006, as compared to net income of $2.2 million in the third quarter of 2005. As previously mentioned, the main differences between the results of JohnsonDiversey Holdings and JohnsonDiversey Inc. are interest expense, provision for income taxes and dividend income. Capital expenditures in the first nine months of 2006 were $63 million, compared to $64.6 million in this same period last year. At this time, I would now like to ask Clive Newman, our Vice President and Corporate Controller, to provide you with an update on the status of our restructuring plan.

Thanks, Joe. As we discussed, we are continuing to see positive momentum in our restructuring program. Incremental cost savings to date are estimated at about $43 million, which as Ed mentioned earlier, are ahead of plan. We continue to expect annual savings of approximately $150 to $170 million from the program by the end of fiscal year 2008.

As Ed has already mentioned, on September 30, as part of our restructuring program, we completed the sale of our CMA subsidiary. A noncore business that was engaged in the manufacture and sale of dish machines for use in the food service industry to Ali SBA, an Italian based manufacturer of equipment in this space. Further, we previously announced the sale of a major southern territory of our autoclerk kitchen service business to a regional autoclerk dealer. I'm please to advise that we closed this transaction on November 3.

A number of key elements of the operational restructuring of our Company were progressed or announced in the quarter. Including, and of great significance, the following: Firstly, the announcement of our intention to proceed with the outsourcing of our IT support work in Europe, which followed our earlier announcement related to IT support work outside Europe. And secondly, the announcement of our intention to proceed with the outsourcing of financial services in Western Europe. In addition, we also announced significant restructuring of our European manufacturing footprint. With the announcement of our intention to close the JohnsonDiversey powder factory located in [Bobinue] near Paris, France and the [palinia] factory in Barcelona. Together with the reorganization of the [Baldemoro] factory in Madrid to improve the capacity utilization of our manufacturing asset in Spain.

Head count reductions to date under the restructuring program are about 1,300. Of which, about 450 are related to cost reduction initiatives and organizational redesign. And the remainder are related to the aforementioned exist from the service oriented laundry and warewash business in the United States and divestiture activity. These reductions are also slightly ahead of our expectations.

Third quarter costs associated with the restructuring program include $30.8 million of restructuring expenses. These costs were primarily related to severance accruals associated with the decision to outsource our IT support and certain financial operations in Western Europe and severance accruals related to the aforementioned restructuring of our European supply operations. In addition, we recorded $29.2 million of period costs in selling, general and administrative expenses related to restructuring actions. Of this amount, $1 million related to tangible asset impairment and $5.1 related to intangible asset impairment.

On a year to date basis, the Company recorded $108.5 million in restructuring expenses $106.4 million of period costs in SG&A expense related to restructuring actions. Of the amount recorded as period costs, $26.9 million related to tangible asset impairments and $25.7 million related to intangible asset impairments. Primarily related to the withdrawal from the majority of the service oriented warewash business in the United States.

Of the total asset impairments, $47.1 million were recorded as adjustments to depreciation and are therefore, not included in EBITDA. The remaining $53.8 million of period costs, to consulting and professional services of $24 million, IT project costs of $12.9 million and employee retention benefit and out placement costs of $6.7 million. Cash spending for restructuring related activities totaled $41.1 million during the third quarter of 2006 and $90.6 million during the first nine months. Restructuring reserves at the end of the quarter were $74 million. I will now turn the call back over to Lori Marin, who will discuss the Company's cash and debt position.

Thank you, Clive. On July 14, 2006, the Company fully drew down our $100 million delayed draw term loan. Of this amount, $42 million was used to repurchase the Italian receivables under our accounts receivable security basing program. The program size was reduced from $150 million to $75 million. At September 29, 2006 our total debt balance was $1.1 billion. We held cash and cash equivalents of $163 million, as compared to $158 million at December 30, 2005. Usage under our accounts receivable securities basing program was $58.4 million.

JohnsonDiversey Holdings consolidated debt balance at the end of third quarter of 2006 was $1.4 billion, which include $340 million of senior discount notes. As of September 29, 2006, the Company had total credit availability of $167 million under our revolving credit facility. Of the total credit available at the end of the quarter, we could borrow this full amount and still be in compliance with all of our financial covenants.

This concludes our presentation. I would like to remind you that our iNvestor Relations Website can be found at johnsondiversey.com. We consider this Website to be a key communication tool with the investment community and we encourage you to periodically access the site. Documents related to the JohnsonDiversey senior subordinated notes and the JohnsonDiversey Holdings senior discount notes, as well as both Company's financial results can also be found on the Investor Relations site.

A recording of this conference call will be available for replay for the next two weeks by dialing into the numbers listed on the press release announcing this call. Please direct questions related to our financial results to Kathy Powers or to me. John Matthews will continue to be the contact for all nonfinancial matters. Our contact information can be found on our Website. We will move on to the question and answer session.

[OPERATOR INSTRUCTIONS] Our first question comes from Sam [Gimerik] from Deutsche Bank London.

Yes, it's actually Patrick [Kersting] from Deutsche Bank . Hello. Just a very quick question to verify whether I understood one number correctly. I think you said $26.9 and $25.7 period costs were respectively tangible and intangible asset impairment. But only $47.1 of those were actually in the depreciation of that EBITDA, so there is a difference of what is that, $5.5 million, roughly, that hasn't run through that. is that true?

I am sorry could you repeat the question, Patrick? I didn't quite catch it all.

I think you said in the period that there was intangible and tangible asset impairment $25.7 and $26.9, combined $52.6. And you said only $47.1 or so has actually ran through the depreciation line? Or are you excluding from EBITDA?

That is correct. There was about $5 million of bad debt write down in there as well.

Our Next question is from Thomas [Solbeck] from [Jidud] Value Partners.

I have some questions for you on -- particularly the Western European business. First of all, you mentioned that you have put through some price increases in Western Europe. If you look sort of year-over-year, what kind of percentage are we talking about?

This is Ed. We don't generally share the specific percentages but you can assume that about 50% the business -- or 50% of the gain that we are reporting in Western Europe of about 3.8% is in price.

And shall I assume that he other 50% is then in volumes?

In organic, yes.

But when you walked through the discussion notes, the 3.8% was Europe, Middle East and Africa. And you singled out Eastern Europe, Middle East and Africa as the volume growth regions. Does that mean Western Europe had a negative volume growth in the quarter year over year?

We don't break out Western Europe from the broader EMA. However, you can assume there is lower organic volume growth in Western Europe than there is in the East and it's not negative.

Not negative growth? Okay. And If you look at Europe going forward because it is I believe it's has been sort one of the main areas of potential improvement, how do you assess the situation in Western Europe? And what are the things you are working on to improve the situation there and gain more growth? Are you looking to centralize management, are you looking acquisitions? How are you attacking Western Europe?

This is Ed. I have spent most of the last 10 years of my life working in Europe. And it is a challenging marketplace. While, most people talk about Europe being relatively flat in internal organic growth, a lot of the gains comes from export. I do believe you can grow in Western Europe. I have seen that in my past life. And I believe we can, as well. We are making significant changes in our Western European structure. We are moving from country specific organizations and areas or groups of countries, to a region infrastructure. We are making strategic decisions sort of via across countries, as opposed to by country as we move forward. And as we look at the innovations we're bringing to market, as we look at the clarity we're bringing in terms of the channels that we're focusing on and the customers that we're focusing on, we believe that there is pretty significant potential for growth over time. We do have some target countries that we are putting effort against, including the UK and France where we see opportunities to increase our growth. But I believe that we are getting the base right so that we can grow from -- focus on our core. And I'll ask Joe to spend a minute or two on the process of focusing Europe and add some clarity as well.

I think in your question you correctly suggested that there was some benefits from restructuring. And there clearly is. A significant part of our global restructuring is indeed Europe and Western Europe is inclusive in such. We have not -- our previously announced plans are clear in the context of material reduction in head count, as well as consolidation. And in our supply chain footprint we have taken some of those actions in a very material way.

And as we said earlier, we have taken actions already with respect to outsourcing IT functions and moving toward a shared financial service arrangement in Europe. We reorganized around sales clusters in ways that allow for taking out middle strips of management, if you will. Everything I just said is Germany to Western Europe, as well as other locations. So the answer to your question, in addition to what Ed said, is we are absolutely benefiting from the restructuring program.

Great. Just an interesting comment, you said the UK in France, you're targeting. Is that because that is where you have the most Company specific potential to improve or is that because those are the two most interesting markets, in your view?

I think it is probably a combination of the two. We have scale and opportunity to grow from that base. And we have identified opportunities with customers and product portfolios that we think bring value to the corporation.

One finally question on a different topic. On the raw materials, could you let us know approximately what the year-over-year increase in raw materials were, third quarter '06 compared to third quarter '05?

We generally don't report that information. What I would say --.

Well, just sort of get a sense for either looking at your margins, what the impact of raw materials has been now compared to in the past where it was maybe more dramatic.

I think you can read that from the data that we've now provided. Because we have the SG&A numbers is why. I would say, we are doing a pretty good job in 2006 recovering the incremental costs of materials and a significant portion of the 2005 driven materials increases. Although, we are still in the process of regaining the material cost increases we took in '04 and early '05. So, our profit on program, our efforts to simplify and standardize our portfolio and our materials that go into our products will have an impact. Our global strategic sourcing initiative will have an impact by becoming -- or by helping us become more scaled in the purchases we make. I don't know, Clive if you wanted to add anything else?

Just a sense, are we talking double digit percentage increase in raw materials still?

No, lower single digits.

Lower single digits.

Under 3%.

If you go -- Joe Smorada. If you go back to what I had said previously, the third gross margin was 42.3 compared to gross margin of 43.3. As we said, the pricing is not fully recovering costs. So, if you do the arithmetic you could probably get pretty close to your answer.

Got it. Thank you very much, Joe.

Our next question is from [Lorn Jollid] of Lehman Brothers.

I wanted to ask you a question regarding the interest on the senior discount notes. As I understand it, and bear in mind I am new to your Company, the senior discount notes become cash pay if permittable under the credit facility and indenturing in May 2007. Is that correct.

They become cash pay in May of 2007. And the first payment is due in November.

And then, I was reading through a transcript from your November 2005 bank meeting. And I believe it was you, Lori, who made a comment, if I'm reading it correctly, you had an option to simply increase the interest rate by 1% and take an holiday.

Yes, we do have that option.

Can you explain that a little bit more because I wasn't reading that in the document?

We have the option of not making the interest payment, the first one that's due in November of 2007. We can take an additional interest expense of an additional 1% on the bonds.

For the life of the note?

Yes.

Okay. And can you comment on your plans as of today regarding taking the holiday or just making the cash payment?

That would be a very forward-looking statement and not one that we are able to do at this time.

And just regarding your free cash flow, it appeared to be -- as we calculate it we back out the securitization AR facility pay down. So our free cash flow actually looks a lot better than the second quarter. Can you all comment on your views for free cash flow for the fourth quarters and into '07? And then commensurate with that, kind of where you see the leverage going?

Again, that would be something that would be forward looking. I think you can go back though, and look at our historical trends. Because we do have some seasonality that you do see with our cash flow generation.

Last question. I have information on your covenants. Your EBITDA definition as defined in the credit agreement, is that the same EBITDA that you report in your numbers? So, if we are trying to calculate how close you are to hitting your covenants, should we be focusing on the reported EBITDA number or were there some more add-backs?

You need to look at the senior credit facility, that is also available on our Website. There is a very different definition of EBITDA. There are numerous add-backs and subtractions.

Thanks very much.

Our next question is from David [Pearson] with [Jefferies] International.

Just a couple of questions. You recorded for the nine months ended restructuring costs of $108.5 and restructuring costs in SG&A of $106.4. Could you just explain why these two line items are reported separately?

Yes, David. The restructuring costs that are recorded as restructuring are those that meet the definition of restructuring under U.S. GAAP. They're primarily severance related accruals. The other cost don't meet a strict definition of restructuring under U.S. GAAP but are clearly costs that are associated with the restructuring program. I think we mentioned some of them were consulting fee, professional fees, some likely project costs and employee out placement and so forth.

Okay. And of all of these costs, how much is applicable strictly to the professional division?

Essentially, all applicable to the professional division, David. To the extent that there were any of these types of costs associated with the polymer business, they are either -- it is taken against the gain/loss calculation and therefore included in EBITDA.

And I don't know if it has been mentioned earlier on the call, but I was wondering what is the cash costs of the restructuring program have been spent year to date since launch?

I think we did mention it on the call. We mentioned a figure of, I think, of $19 million for the nine months. I will -- let me just be clear there. One of the working assumptions in that, is that the period costs, as we call them, those are the costs associated with the restructuring program that we pull through SG&A; we assume that those are cash in nature. And as you know, there will be some movement in accruals around that. But we are not able to estimate that, clearly. So, we do make that assumption.

So, you are making the assumption that all of the restructuring costs going through SG&A are cash?

Yes.

And I think we were -- I am not sure if --?

David, just to be completely clear, that was obviously with the exception of those that we specifically called out as being part of depreciation and amortization.

Fair enough. What is the schedule for spending on the rest of the cash costs for the program going forward?

We are not going to be overly specific. But as as we have said before and as I myself, I think, suggested in the bank meetings last year, we would expect to spend the preponderance of the monies attendant in this program prior to the end of '07.

Any sort of -- any breakdown in terms of quarters over 2007 or is it's going to be front end weighted?

Not to be overly specific, but it is not going to be overly front end loaded.

Could you also just give an approximate split between fixed and variable costs for the professional division in terms of cost of goods sold?

Let us just generalize that most people in the manufacturing world have approximately a 70/30.

Okay. That's all my questions thank you.

Our next is from [Phil Spencer with Credit Suisse].

My question has been answered. Thank you.

[OPERATOR INSTRUCTIONS]

Our next question from Kevin [Sweet] at Goldman Sachs? Last call we talked about recovering some of the lost service laundry and warewash business through other third party vendors. I was wondering if the relatively low North American sales in this quarter reflects that maybe that is not still happening. Could you comment on that?

Yes, this is Ed. The results in North America are pretty much in line with our plan, as we executed the exit from the majority of the business, as we announced on March 7. We actually believe we're going to end up with a little bit more of that business than we had built into the original plan. Part of that comes through our distributors and part of that retains direct from JohnsonDiversey. And what it reflects is there are some significant elements of our business in warewashing in America that are positive for JohnsonDiversey. We intend to keep them and the customers are anxious to be part of our Company.

Okay.

Just as one additional clarification. We said in the beginning, it was -- the numbers we were talking were less than 3% of our overall top line sales, and that remains our guidance.

Sure. [Equilab] put up another pretty good sales quarter. Can you comment on anything you are seeing competitively different from the prior period?

I would say part of those positive results were a gift from us, as we exited our piece of business in the United States. And I think as you look at our core business around the world, despite the fact that we are restructuring the Company broadly, we are delivering growth that calculate at ahead of the marketplace. So, I believe we have a great competitor and they certainly building share in a fragmented marketplace but I believe we are as well. In a market where, as we calculate it, almost 75% of the business isn't in Equilab or JohnsonDiversey, there's a heck of a lot of ground for growth for both of us.

In terms of the gross margin which you attribute to the products primarily [inaudible] Is it safe to say that it would have been up sequentially if it weren't for mix or is that a normal seasonal mix? Or how should we think about that?

If you look at the third quarter there are a couple of things that play. The third quarter over second quarter, the key driver was a mix effect in the business in the third quarter. There's also, the second quarter tends to peak a little bit as we have manufacturing build of the season, which gives favorable manufacturing recoveries.

Then you're -- as you are seeing oil prices maybe stabilize or come down, much of what you are seeing on the raw material front. But do you feel there is a need to put further price increases through? And do you think the raw materials will be a benefit to you going forward and at what point?

That's the million dollar question and it seems to change every day on the outlook for oil. I would, at this point, our plan is should there be additional materials cost increases that we'll price to recover. And I think like everybody in our industry, we are watching closely to see what happens in the marketplace.

But no major price increases that we should be concerned about in the near term?

I couldn't comment on that.

And you talk about the restructuring program going very well. Is that ahead of plan or is it -- you talk about it being ahead of plan. But is is it timing ahead of plan or are you realizing more savings than you had anticipated?

Both.

And are you spending less than you had anticipated?

We are spending nearly to plan.

That is all. Thanks very much.

We have time for a final question from Andy [Geral] from AllState Investments.

Just a clarification on the depreciation figures. For the first and second quarters, the tangible and intangible assets impairments, you had $40.8 in the first and $46.4 or 46.5 in the second. Was the full amount -- those full amounts included in the depreciation figure or is there a discrepancy like there was in the third quarter?

No, they are included.

Then the bank defined EBITDA figure, can you tell us what that was for first, second and third quarter?

No, it not something that we publicly disclose.

But the definition is available for me to calculate myself.

Yes, it is.

That is it.

On behalf of everyone at JohnsonDiversey and JohnsonDiversey Holdings, we would all like to thank you for attending this conference call and for your continued support and interest in our Company. I hope everyone has a very pleasant day. Thank you.

And that does conclude today's conference call. Thank you for your participation. You may now disconnect.