Genesis Products: Environmental Challenges and Opportunities

1. Genesis Products:Environmental Challengesand Opportunities • Presentation • May 2008

2. 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!

3. 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)

4. 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

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

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

7. 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

8. CARB’s View:InternationalEmission 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

9. 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

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

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

12. Composite Wood ProductsCovered Under ATCM • Hardwood Plywood (HWPW) • Veneer core • Composite core • Particleboard (PB) • Medium Density Fiberboard (MDF) • Thickness >8mm • Thickness < 8mm (Thin MDF)

13. Phase 1 Standards * Shown in parts per million (ppm) and based on ASTM E1333

14. Phase 2 Standards * Shown in parts per million (ppm) and based on ASTM E1333

15. Comparison of ATCM Standards* * Shown in parts per million (ppm) and based on ASTM E1333

16. Comparison of Worldwide Standards

17. 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

18. 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…

19. 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…

22. Panel Markings - backstamp LFE 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 F - 4 STAR 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

23. Genesis Compliance Statement sample:

24. Supplier Chain-of-Custody sample: CERT SHEET

25. 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.

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

27. 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 3rd Party Requirements • No Added Formaldehyde Panels • Ultra Low Emission Formaldehyde Panels

28. 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

29. 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

30. 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

31. - 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)