Genesis Products: Environmental Challenges and Opportunities Presentation May 2008

Presentation

May 2008

Formaldehyde is: a naturally occurring substance discovered in 1867 present in most life forms: humans, animals & plants normally functioning cells produce and use formaldehyde used in the production of furniture, fabrics, paint, foam, rubber, insulation, textiles, paper, pharmaceuticals, wood paneling products and many other household items even found in outer space!

a naturally occurring substance discovered in 1867

present in most life forms: humans, animals & plants

normally functioning cells produce and use formaldehyde

used in the production of furniture, fabrics, paint, foam, rubber, insulation, textiles, paper, pharmaceuticals, wood paneling products and many other household items

even found in outer space!

Formaldehyde is used as: an industrial disinfectant and/or as a preservative a raw material in resins, producing a unique glue bond for the manufacturing of items such as furniture, flooring, cabinets a component of dyes and inks - in magazines, newspapers and photo-copiers in our industry, HcHo is used in the glue or adhesive in pressed wood products - such as particleboard, hardwood plywood, and medium density fiberboard (MDF)

an industrial disinfectant and/or as a preservative

a raw material in resins, producing a unique glue bond for the manufacturing of items such as furniture, flooring, cabinets

a component of dyes and inks - in magazines, newspapers and photo-copiers

in our industry, HcHo is used in the glue or adhesive in pressed wood products - such as particleboard, hardwood plywood, and medium density fiberboard (MDF)

How can / will our Industry respond? Time and technology will resolve many of our challenges, as will ordinary business cycles- but not all of them Long term success, perhaps even survival, will depend in part on delivering a compelling message of leadership and stewardship (corporate responsibility, “go green”) Success will also depend on supplier/customer strategies that will ultimately lower manufacturing costs

Time and technology will resolve many of our challenges, as will ordinary business cycles- but not all of them

Long term success, perhaps even survival, will depend in part on delivering a compelling message of leadership and stewardship (corporate responsibility, “go green”)

Success will also depend on supplier/customer strategies that will ultimately lower manufacturing costs

The best plan?... Have a plan. Genesis rejected idea # 37: Deliver bundles of wood with flat bed “concept-car” to reduce HcHo rating.

Today’s Topics Overview of CARB CARB 1 and 2: What it means for you The role Genesis is taking in this Industry transition

Overview of CARB

CARB 1 and 2: What it means for you

The role Genesis is taking in this Industry transition

CARB’s View: US Emission Standards Set in 1985 by U.S. Dept. of Housing and Urban Development (HUD) This is considered “dated” and out-of-touch with World-wide standards Applies only to PB and HWPW in manufactured homes Emissions occur with many products, and in many areas of living High emission rate compared to Europe, Australia, and Japan Need to recognize our role and responsibility as a Global Supplier

Set in 1985 by U.S. Dept. of Housing and Urban Development (HUD)

This is considered “dated” and out-of-touch with World-wide standards

Applies only to PB and HWPW in manufactured homes

Emissions occur with many products, and in many areas of living

High emission rate compared to Europe, Australia, and Japan

Need to recognize our role and responsibility as a Global Supplier

CARB’s View: International Emission Standards Lower than current U.S. standard If the U.S. doesn’t keep up, it will become obsolete in Global Market Programs are fundamentally different and not directly comparable Asian, European, HUD – all are measured and tested to different standards

Lower than current U.S. standard

If the U.S. doesn’t keep up, it will become obsolete in Global Market

Programs are fundamentally different and not directly comparable

Asian, European, HUD – all are measured and tested to different standards

Key Elements of the ATCM Establishes new formaldehyde emission limits for HWPW, PB, and MDF panels, and requires their use in finished goods Panel manufacturers must demonstrate compliance through third party certification Fabricators must use compliant products in their finished goods for California

Establishes new formaldehyde emission limits for HWPW, PB, and MDF panels, and requires their use in finished goods

Panel manufacturers must demonstrate compliance through third party certification

Fabricators must use compliant products in their finished goods for California

ATCM Provisions Applies to products sold, supplied, used, or manufactured for sale in California Emission standards in two phases Sell-through Exemptions Enforcement

Applies to products sold, supplied, used, or manufactured for sale in California

Emission standards in two phases

Sell-through

Exemptions

Enforcement

ATCM Applicability Panel manufacturers Distributors ( Genesis ) Importers Fabricators ( Genesis, Keystone RV ) Retailers Finished goods Consumer Products but Not Consumers

Panel manufacturers

Distributors ( Genesis )

Importers

Fabricators ( Genesis, Keystone RV )

Retailers

Finished goods

Consumer Products

but Not Consumers

Composite Wood Products Covered Under ATCM Hardwood Plywood (HWPW) Veneer core Composite core Particleboard (PB) Medium Density Fiberboard (MDF) Thickness >8mm Thickness < 8mm (Thin MDF)

Hardwood Plywood (HWPW)

Veneer core

Composite core

Particleboard (PB)

Medium Density Fiberboard (MDF)

Thickness >8mm

Thickness < 8mm (Thin MDF)

Phase 1 Standards  ----- 0.21 ppm Thin MDF ----- 0.21 ppm MDF ----- 0.18 ppm PB 0.08 ppm ----- HWPW-CC ----- 0.08 ppm HWPW-VC Jul 1, 2009 Jan 1, 2009 Product

Phase 2 Standards  0.05 ppm Jan 1, 2010 ----- 0.13 ppm ----- Thin MDF ----- ----- 0.11 ppm MDF ----- ----- 0.09 ppm PB 0.05 ppm ----- ----- HWPW-CC ----- ----- HWPW-VC Jul 1, 2012 Jan 1, 2012 Jan 1, 2011 Product

Comparison of ATCM Standards*  0.05 0.05 0.08 0.08 0.20 None Hardwood Plywood: - Veneer Core - Composite Core 0.11 0.13 0.21 0.21 None None Medium Density Fiberboard (>8mm) - Thin MDF (<8mm) 0.09 0.18 0.30 Particleboard Phase 2 CARB 2010-12 Phase 1 CARB 2009 HUD

Comparison of Worldwide Standards 0.20 0.05 0.13 PPM CPA EPP Japanese F**** European E1 (LFE) Standard

Requirements for Fabricators Emission Standards in Two Phases (CARB 1-2) “ Reasonable Prudent Precautions” Product Labeling (Bundle tags, product stamping) Statement of Compliance on Invoice Record Keeping Sell Through Facility Inspections

Emission Standards in Two Phases (CARB 1-2)

“ Reasonable Prudent Precautions”

Product Labeling (Bundle tags, product stamping)

Statement of Compliance on Invoice

Record Keeping

Sell Through

Facility Inspections

Additional Requirements (c) Fabricators must take reasonable prudent precautions to ensure that complying… wood products are sourced for production of finished goods Fabricators must also keep records showing the date of purchase and the supplier… in electronic or hard copy form for a minimum of two years…

(c) Fabricators must take reasonable prudent precautions to ensure that complying… wood products are sourced for production of finished goods

Fabricators must also keep records showing the date of purchase and the supplier… in electronic or hard copy form for a minimum of two years…

Product Labeling (d)(1) … The label shall be applied as a stamp, tag, sticker, or bar code on every finished good … or on every box containing finished goods. The label shall include… the fabricator’s name and a marking to denote that the product was made with (compliant) HWPW, PB, or MDF… (d)(2) Designate their goods as being made with (compliant) HWPW, PB, or MDF… on the bill of lading or invoice provided to distributors…

(d)(1) … The label shall be applied as a stamp, tag, sticker, or bar code on every finished good … or on every box containing finished goods. The label shall include… the fabricator’s name and a marking to denote that the product was made with (compliant) HWPW, PB, or MDF…

(d)(2) Designate their goods as being made with (compliant) HWPW, PB, or MDF… on the bill of lading or invoice provided to distributors…

DECORATIVE FINISH ON WOOD PRODUCT ASTM E84 FLAME SPREAD 200 OR LESS FMVSS 302 CONFORMS TO HUD FORMALDEHYDE EMISSION 24 CFR 3280.302, BOARD CLASSIFICATION: LFE DECORATIVE FINISH ON WOOD PRODUCT ASTM E84 FLAME SPREAD 200 OR LESS FMVSS 302 CONFORMS TO HUD FORMALDEHYDE EMISSION 24 CFR 3280.302 .05 PPM or LESS, BOARD CLASSIFICATION: F-4 STAR LFE F - 4 STAR Panel Markings - backstamp

Genesis Compliance Statement sample:

Supplier Chain-of-Custody sample: CERT SHEET

Sell-through Provisions Appendix 1 (d)(1) … Finished goods containing HWPW-VC, HWPW-CC, PB, MDF, or thin MDF produced before the Phase 1 and Phase 2 effective dates specified in section 93120.2(a) may be sold… for up to 18 months after each of the specified effective dates. I.E. Finished goods made with HWPW-VC that does not comply with the Phase 1 standard may be sold by fabricators until June 30, 2010.

Appendix 1 (d)(1) … Finished goods containing HWPW-VC, HWPW-CC, PB, MDF, or thin MDF produced before the Phase 1 and Phase 2 effective dates specified in section 93120.2(a) may be sold… for up to 18 months after each of the specified effective dates.

I.E. Finished goods made with HWPW-VC that does not comply with the Phase 1 standard may be sold by fabricators until June 30, 2010.

Enforcement Provisions Third Party Certification: Large Chamber Testing Statements of Compliance Recordkeeping Product Labeling Facility Inspections Compliance Testing

Third Party Certification: Large Chamber Testing

Statements of Compliance

Recordkeeping

Product Labeling

Facility Inspections

Compliance Testing

Panel Exemptions Products not for sale in California Products subject to HUD standards Construction Graded Panels Softwood Plywood, OSB, Hardboard Standards: PS1, PS2, ANSI 135 Exempt from 3 rd Party Requirements No Added Formaldehyde Panels Ultra Low Emission Formaldehyde Panels

Products not for sale in California

Products subject to HUD standards

Construction Graded Panels

Softwood Plywood, OSB, Hardboard

Standards: PS1, PS2, ANSI 135

Exempt from 3 rd Party Requirements

No Added Formaldehyde Panels

Ultra Low Emission Formaldehyde Panels

Costs will Rise – Why? Increased Adhesive Usage High Cost Resin Fortifiers/Substitutes Melamine Phenol MDI (Isocyanate) PVA/Soy (Hardwood Plywood Only) Reduced Productivity Regulatory Compliance Labor

Increased Adhesive Usage

High Cost Resin Fortifiers/Substitutes

Melamine

Phenol

MDI (Isocyanate)

PVA/Soy (Hardwood Plywood Only)

Reduced Productivity

Regulatory Compliance Labor

Resin Costs Urea Adhesive: $0.24/lb Phenolic Adhesive: $0.48/lb MDI Adhesive: $1.40/lb Melamine Adhesive: $1.75/lb Methanex Methanol Monopoly “ The only cheaper industrial chemicals than UF adhesives are salt and water” -Adhesive Supplier

Urea Adhesive: $0.24/lb

Phenolic Adhesive: $0.48/lb

MDI Adhesive: $1.40/lb

Melamine Adhesive: $1.75/lb

Methanex Methanol Monopoly

“ The only cheaper industrial chemicals than UF adhesives are salt and water”

-Adhesive Supplier

What You Can Do About Costs Engineering and Design Density: Do you really need it? Where? Density: More Wood & Adhesive = Higher Cost Evaluate Solid Wood/MDF/Particleboard Ratios Evaluate panel lengths/yields to maximize sq. ft. usage Strategic Partner with Suppliers Assure Supply and Quality of Material = Better yields Develop True Custom Products to Match Application and Need (i.e. MDF stiles vs. LC in low moisture areas, panel thickness, etc.) Increase the ROI of your dollars with value-added services

Engineering and Design

Density: Do you really need it? Where?

Density: More Wood & Adhesive = Higher Cost

Evaluate Solid Wood/MDF/Particleboard Ratios

Evaluate panel lengths/yields to maximize sq. ft. usage

Strategic Partner with Suppliers

Assure Supply and Quality of Material = Better yields

Develop True Custom Products to Match Application and Need (i.e. MDF stiles vs. LC in low moisture areas, panel thickness, etc.)

Increase the ROI of your dollars with value-added services

- Overall Air Quality - Is this the beginning of consumer awareness and concern? VOCs Mold Inhibiting materials Green manufacturing Regulations following Litigations Renewable materials (bamboo, cork, reclaim)

Is this the beginning of consumer awareness and concern?

VOCs

Mold Inhibiting materials

Green manufacturing

Regulations following Litigations

Renewable materials (bamboo, cork, reclaim)