2014-15 Annual Review

Driving above-market growth through innovation, product expansion, global coordination and business integration in a market-leading decorative surfaces business with competitive advantages in manufacturing, distribution, service and design

Wilsonart, the clear leader in high pressure decorative laminates in North America, with additional operations in Asia and Europe, was a partnership-oriented transaction in which CD&R carved out a subsidiary that had not been an area of focus for its former parent, Illinois Tool Works (“ITW”). The Firm pursued an acquisition of Wilsonart for several years before gaining traction in late 2011 and then engaged in nearly a year of exclusive due diligence and negotiation with ITW.

The transaction enabled ITW to retain an initial 49% ownership stake, while providing CD&R with the operational control to begin to execute a value-building plan centered on repositioning the business organically, leveraging technology, scale and design across its global footprint and potentially pursuing transformational acquisitions.

CD&R Fund VIII’s preferred equity investment is characteristic of the Firm’s other partnership-oriented investments: senior equity position in a low leverage capital structure, a dividend-paying security, operational control and the ability to convert into common stock to capture equity upside in the business.

Company Profile

Wilsonart is a leading global manufacturer and distributor of high pressure decorative laminates (“HPL”) and other fine surfacing materials used in work surfaces, furniture, office and retail fixtures and panels, countertops, cabinetry and other applications. It holds #1 HPL positions in North America and Germany in addition to strong strategic positions in its market segments in the U.K., France, Thailand and China. The company’s global manufacturing footprint, unique process technologies, reputation for product quality and consistency, high customer service performance and distribution capabilities provide meaningful competitive advantages and barriers to entry.

The company operates 9 manufacturing facilities across North America, Europe and Asia and sells its products primarily under the Wilsonart, Durcon, Resopal, Polyrey, Arborite and Ralph Wilson brands. The company markets its products through an extensive global network of

independent and company-owned distributors as well as directly to large accounts, including manufacturers of furniture and postform countertops and home centers. It has exclusive geographic arrangements with its independent North American distributors and supplements that group with a network of 13 company-owned distributors. Wilsonart maintains more than 11,000 customer relationships across a diverse range of industries and end markets, with no single customer accounting for more than 3% of sales and the top 10 customers averaging a tenure of 22+ years.

Long Term Sourcing and
Partnership-Oriented Capital

CD&R pursued the acquisition of Wilsonart for several years before gaining traction in late 2011, and then engaged in nearly a year of exclusive due diligence and negotiation before signing and announcing a transaction with ITW. CD&R’s solution capital investment was modeled

after the Firm’s investments in Hussmann and Atkore, in which Ingersoll Rand and Tyco International, respectively, received significant upfront cash proceeds and retained large ongoing minority ownership positions. CD&R’s reputation as a trustworthy and value-added partner with IR and Tyco was critical for ITW. Like the Atkore and Hussmann transactions, the divestiture of Wilsonart addressed ITW’s desire to simplify its overall business structure, deconsolidate the business from its financials and maintain the ability to take advantage of the equity upside that CD&R’s operational stewardship could drive.

Value Building Initiatives

The Wilsonart management team and CD&R have identified several initiatives to improve top-line growth, profitability and efficiency:

• Organization Redesign and Geographic Coordination. Recruited full corporate team and established headquarters in Austin. Centralizing certain functions globally (e.g., supply chain) and creating a cohesive approach to market, particularly in Europe. Delayered Americas organization to speed decision making in most profitable geography. Reorganized European business to report to one leader for regional coordination and optimization; consolidating regional structure in Europe and targeting talent upgrades throughout the organization.
• Resourcing Sales & Growth Initiatives. Identifying and resourcing growth opportunities, such as hiring more specification representatives to drive pull-through demand. Reinvigorating product development and design focus and focus on new geographies (e.g., Eastern Europe and Middle East). Investing in new technology and capabilities such as engineered stone, low-pressure laminates and digital print innovation.

• Pricing and Product Mix Opportunities. Launched Wilsonart-branded engineered quartz and solid surface product lines in late 2014, broadening product offering to take advantage of adjacent, fast-growing markets. Hired pricing leader; building strategic pricing capabilities and identifying improvement opportunities by channel. Driving continued penetration of premium products across all geographies.
• Productivity Improvements. Pursuing improvement opportunities identified by management, including direct labor, inventory management, process optimization and freight & logistics in North America. Identified and executing productivity projects in all geographies with minimal capex that could reduce headcount by 10% and deliver $20+ million of annual savings. Investing in and exploring additional automation projects across all geographies to optimize processes and capabilities.

• Working Capital Management. Implementing new discipline regarding working capital, particularly with respect to receivables and payables, and continuing to drive working capital reductions. Developing better demand planning capabilities on front-end to drive inventory reduction.
• Acquisition Opportunities. Evaluating opportunistic M&A targets, with a focus on adding new surfacing product capabilities and/or extending geographic reach.

Looking Forward

End market demand in the Americas continues to be moderated, while overall macro conditions in Europe and Asia have dampened recent growth. Wilsonart’s performance in Europe is strengthening as a result of new design launches and management is focused on

implementing near-term cost reduction initiatives to improve profitability in the region. The Company’s growth initiatives, including new product launches in the Americas and penetration opportunities in other geographies, are key focus areas for Management in 2015. Finally, productivity initiatives continue to demonstrate meaningful impacts on results and are expected to support continued margin expansion in 2015.