Note 3. Special Charges

During the fourth quarter of 2000 management approved various actions to improve the long-term efficiency and competitiveness of the company and to reduce costs. These actions included personnel reductions, discontinuance of certain product lines, changes to certain manufacturing and distribution operations and the closing of selected sales and administrative offices. As a result of these actions the company recorded restructuring expenses of $7,137,000 ($4,311,000 after tax), or $0.03 per diluted share in 2000. These restructuring expenses and subsequent reductions to the related liability accounts included the following:

Restructuring expenses have been included in “special charges” on the consolidated statement of income, with a portion of the expenses classified as cost of sales. The expenses have been included in the company’s corporate operating income for segment reporting purposes. Restructuring liabilities for employee termination benefits were classified in compensation and benefits in current liabilities and restructuring liabilities for other costs were classified in other current liabilities.

Employee termination benefit expenses included 86 personnel reductions through voluntary and involuntary terminations primarily in the sales, marketing and corporate administrative functions of the company. Cash payments for these benefits were completed during 2001.

Asset disposals included inventory and property, plant and equipment write-downs. Inventory write-downs totaled $1,948,000 and reflect the discontinuance of product lines which were not consistent with the company’s long-term strategies. Revisions of prior year estimates related to inventory write-downs reduced current year cost of sales by $566,000. Property, plant and equipment write-downs of $838,000 reflected the closing of sales and administrative offices and changes to certain manufacturing and distribution operations.

Other restructuring expenses included lease termination and other facility exit costs related to the closing of sales and administrative offices.

During the fourth quarter of 2001, the company incurred $940,000 in special charges to facilitate the acquisition of Henkel-Ecolab and to begin the integration process following the acquisition. These costs have been included in “special charges” on the consolidated statement of income and have been included in corporate operating income for segment reporting purposes.

During the first quarter of 2002, management announced its plans to undertake further restructuring and cost saving actions during 2002, primarily related to the integration of Henkel-Ecolab. These actions are expected to include workforce reductions, facility closings, employee benefit changes and product discontinuations. The company anticipates these actions will result in pretax charges of $50 million to $60 million in 2002, which will be partially offset by a benefit of approximately $6 million from changes to certain benefit plans. These actions are expected to produce significant annual cost savings.