Management's Discussion and Analysis

     Total pre-tax charges under this restructuring plan are estimated to be $110-$130 million with approximately 65% related to the consumer segment and 35% related to the industrial segment. We originally estimated pre-tax charges of $130-$150 million under this program. However, after considering the $33.7 million pre-tax gain on our Signature investment and other refinements to the estimates, we now anticipate pre-tax charges of $110- $130 million for this program. Of these charges, we expect that $85-$95 million will consist of severance and other personnel costs and $40-$45 million of other exit costs. Asset write-offs are expected to be $20-$25 million, excluding the gain on our Signature investment of $34 million.

     In the fourth quarter of 2005, $10.7 million ($7.2 million after-tax) of charges were recorded, of which $10.5 million related to our consumer business. These charges included certain severance costs associated with the closing of our manufacturing plant in Salinas, California, closing costs for a small plant in Belgium and costs associated with reorganization of the sales and distribution networks in the U.S. and Europe. Following the $10.7 million charge recorded in 2005, we recorded $50.4 million during 2006, including the gain on Signature. The remaining portion will be incurred approximately 65% in 2007 and 35% in 2008.

     For the total plan, the cash related portion of the charges will be $95-$105 million, of which $46.7 million was spent in 2006 (after offsetting the $9.2 million in cash received from the Signature gain below). We intend to fund this spending through internally generated funds. A significant portion of the cash expenditures are for employee severance. The actions being taken pursuant to the restructuring plan are expected to reduce our global workforce by approximately 1,000 over the three-year period. Approximately 700 employees have been notified, of which the majority have left in fiscal 2006. From inception of the project in November 2005, $48.2 million in cash has been spent on restructuring charges under the plan, after offsetting the $9.2 million in net cash received from the sale of Signature.

     Joint Venture Transactions -We participated in two separate joint ventures with the same joint venture partner, Hero A.G. We owned 50% of Signature and 51% of DPI. In the second quarter of 2006, we received the remaining 49% share of DPI in redemption of our 50% ownership investment in Signature. In addition, we received $9.2 million in cash with this transaction.

     In recording this transaction, we valued both the investment received and the investment given at their fair value. On the disposition of our Signature investment, the fair value of our investment was $56.0 million as compared to our book value of this unconsolidated subsidiary of $21.7 million. After consideration of transaction costs of $0.6 million and taxes of $7.2 million, we recorded a net aftertax gain of $26.5 million which is shown on the line entitled "Gain on sale of unconsolidated operations" in our income statement. On the acquisition of the 49% minority interest of DPI, the fair value of these shares was assessed at $46.9 million. Since this business was consolidated, the book value of this 49% share was shown as $29.9 million of minority interest on our balance sheet. After consideration of transaction costs of $0.7 million, we allocated $17.7 million to goodwill. The impact of increasing our share in DPI and disposing of Signature on future net income is not material.

     In the third quarter of 2006, in connection with exiting an unconsolidated joint venture in Japan, we recorded a net gain of $0.3 million, after-tax.

     These actions are part of our plan to simplify our joint venture structure under the restructuring program and focus on those areas we believe have strong growth potential.

     Other Restructuring Costs - In 2006, we recorded restructuring charges, exclusive of the gain on Signature, of $84.1 million ($57.1 million after-tax). The costs recorded during 2006 primarily included severance costs and special early retirement benefits, asset write-downs and other exit costs. These expenses were classified in restructuring charges ($72.4 million) and cost of goods sold ($11.7 million) in the income statement. Through 2006, actions included: our voluntary separation program in several functions in the U.S. that led to severance costs and special early retirement benefits; closures of manufacturing facilities in Salinas, California; Hunt Valley, Maryland; Sydney, Australia; Paisley, Scotland; and Kerava, Finland; and the reduction of both administrative and plant personnel at other global locations. In our income statement, restructuring charges under this program are displayed in three line items. The gain related to our disposition of Signature and a joint venture in Japan as described under joint venture transactions is on the line entitled "Gain on sale of unconsolidated operations." Other restructuring costs are included in restructuring charges and cost of goods sold.