1998 Annual Report - The New Machine

Annual Report Contents

PERFORMANCE CHEMICALS

Leading producer of high quality engineered polymers and chemicals used in coatings, binders, adhesives and process additives for paper, carpet, textile and various specialty industries.

• Strong and growing number two in styrene butadiene latex market
• Growth and diversification into new markets and product niches rapidly accelerating through acquisitions, organic investments, and capacity expansion

Textiles, graphic arts, construction, nonwovens, acrylics, vinyl acetates, resins, insolubilizers...

Excellent Performance

• 25% sales growth recorded in 1998
• Operating profit increased 60% in 1998; Compound Annual Growth Rate 1994 to 1998 of 35%

Strategic Acquisitions Highlight Value-Creating Growth

March 1998 purchase of Goodyear's latex business

• Adds over $50 million in new annualized sales
• Calhoun, Georgia facility expands capacity 30%
• Gives strategic southeastern presence in U.S. to serve synergistic carpet and tire cord customer base
• Provides continuous emulsion manufacturing process

November 1998 purchase of Sequa's U.S. based specialty chemicals unit

• Adds $90 million in new annualized sales
• Manufacturing facilities in Chester, South Carolina and Greensboro, North Carolina expand capacity by 30% across several market segments including textiles, nonwovens, paper, construction, graphic arts, industrial coatings and adhesives
• Key growth enabler into new related markets with technically diverse and balanced line of differentiating products

  Chemical markets that use resins, softeners, lubricants, catalysts, insolubilizers and sizing additives

• Brings over 150 new products
• Provides significant platform for global expansion

December 1998 purchase of PolymerLatex's U.S. acrylics business

• Adds $10 million in new annualized sales
• Fitchburg, Massachusetts facility expands capacity by 60 million pounds, with room to grow
• Provides key northeast U.S. location
• Strengthens market position in acrylics and styrene acrylics and provides new technology to accelerate expansion of product lines
• Facilities grow from 2 to 6 through acquisitions
• With acquisitions, gain strong positions as "one-stop shop" in nine major markets
• Available markets served grow from $1 billion to $5 billion with acquisitions
• Acquisitions open doors for global opportunities

GenCorp's acquisition of Sequa's U.S. based specialty chemicals unit serves as a key growth enabler into new related markets including textiles and nonwovens.

Internal Expansion, Organic Growth Continue to Drive Value Creation

• 300% total capacity expansion 1993 to 1998
• 35% expansion at Mogadore, Ohio facility -- world's largest latex plant
• Styrene butadiene acrylonitrile capability on line at Mogadore 2nd quarter 1999
• Styrene butadiene acrylonitrile production capacity continues to grow at Green Bay, Wisconsin -- most advanced plant in U.S.
• Commissioned new pilot paper coater in 1998

  Strengthens partnership with customers as key enabler for new product development

• New pilot plant scheduled late 1999

  State-of-the-art support for new product development and qualification

• 50% increase in new products over three years

  Over 550 new products distributed over a wide variety of product families

Stage is set for continued double-digit sales and profit growth and continued market and product expansion in 1999

DECORATIVE & BUILDING PRODUCTS

Providing decorative and high performance products to customers across a broad array of markets

• Worldwide leader in commercial wallcoverings
• Number one in North America for vinyl woodgrain laminates
• Leading supplier of coated fabrics, paper laminates, graphic arts, industrial films and roofing membrane systems
• Serving diversified consumer and industrial markets

Hospitality, health care, retail, commercial construction and roofing systems, ready to assemble furniture, indoor/outdoor furniture, marine and transportation seating, office supplies, graphic arts, ...

• Commercial wallcoverings, laminates, coated fabrics, roofing systems represent over 90% of total sales
• Integrated customer solutions, design leadership, print quality, high performance coating technologies serve as key core competencies

Outstanding Performance

• Sales increase of more than 8% in 1998
• Operating profit up over 16% in 1998; Compound Annual Growth Rate 1995 to 1998 of 23.5%
• Significant improvement in cash flow generation every year

Strategic Acquisitions Highlight Value-Creating Growth

August 1998 purchase of U.K. based commercial wallcovering business from Walker Greenbank

• Adds over $70 million in new annualized sales
• Two new facilities in Europe
• Elevates market position to number one worldwide in commercial wallcoverings
• Major step towards globalization
• Provides key European distribution platforms for other decorative and building products such as coated fabrics and laminates
• Adds complementary products to commercial wallcovering product line

Acquisitions will be complemented by aggressive new product development

 

1997 acquisition of Printworld fully integrated

• Added sales of $40 million
• Expanded product lines to include decorative paper laminates for furniture, cabinets, direct print for window blind and textile market, transfer printing for home furnishings and apparel markets
• Enabled integration of vinyl and paper woodgrain laminates for coordinated, one-stop source purchasing by furniture and cabinet customers
• Printworld sales in 1998 up over 12%, with corresponding operating profit increase of 28%

1998 strategic divestitures of non-core businesses eliminate nearly $4 million operating profit drain and the need to divert management focus and resources from core operations

• Exited General Wallcoverings Distribution business
• Exited residential wallcovering business

Internal Expansion, Organic Growth Continue to Drive Value Creation

• High performance coater for decorative laminates at

Auburn, Pennsylvania facility
Will enable development of next generation scratch and stain resistant coatings, expand capacity and improve quality

• Short run printing press for commercial wallcoverings and coated fabrics at Columbus, Mississippi plant
  

  More flexible for quick changeover and less scrap for improved customer service, cost reduction and higher quality

• Ink room expansion at Printworld, Monroe, North Carolina
  

  Automation for improved customer service, lower cost, higher quality

• Operational excellence focus continues for breakthrough improvements in cost, quality and cycle time
  

  40% improvement in order-to-delivery cycle time in commercial wallcovering in 1998

Pace accelerating to leverage technology and new product development

• Continuous development and introduction of superior new performance enhancing coatings
• Successful introduction of integrated paper and vinyl woodgrains
  

  One-stop source for furniture customers

• Faster sampling and prototyping through new digital business system

Look for continued solid results and value-creating growth from this increasingly profitable and global business in 1999

"The separation into two individual companies, with independent management and efficient corporate structures, is a step that will enable both companies to increase focus on their key core businesses. Operating independently will allow both companies to be more cost effective, better tailor capital investments and resources to particular business needs and requirements, enhance competitiveness in their separately served markets, and more aggressively pursue their own growth strategies."

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Annual Report Contents