We manufacture, formulate and globally distribute specialty chemicals. We grow primarily by purchasing product lines and businesses that operate in segments of the specialty chemical industry that:
•provide an opportunity to obtain a significant share of the market segment through further acquisitions and organic growth;
•are of a size that larger industry participants generally find too small to be attractive;
•have niche products with well established and proven commercial uses;
•offer products that have moved well beyond their discovery phase and into their consolidation phase and require little or no on-going research and development expenditures; and
•have significant barriers to entry.
We have acquired and currently operate segments engaged in the electronic chemicals, industrial wood preserving and animal health businesses. Our electronic chemicals segment provides high purity wet process chemicals to the semiconductor industry, primarily to clean and etch silicon wafers in the production of semiconductors. We are the leading supplier of high purity wet process chemicals to the semiconductor industry in the United States, and have a significant presence in Europe. Our wood preserving chemicals, pentachlorophenol, or penta, and creosote, are sold to industrial customers who use these preservatives primarily to extend the useful life of utility poles and railroad crossties. We are the only supplier of penta in North America, and we are the principal supplier of creosote in the United States to wood treaters who do not produce their own creosote. Our animal health pesticides are used on cattle, swine and poultry to protect these animals from flies and other pests.
Our goal is to continue to profitably grow in a manner that increases shareholder value. Our business strategies to achieve this are:
•Operate. We seek to increase the profitability and maximize the cash flow and return on invested capital of our businesses by focusing on customer satisfaction, rational pricing policies, optimization of operating assets, efficient management of raw material purchasing, and maintaining a low overhead structure.
•Acquire. The cash flow generated by the businesses that we operate provides us with the ability to pursue further acquisitions in order to build on one of our existing segments, or to establish a new business platform for future growth. We screen though many market segments and acquisition candidates to find opportunities that exhibit the characteristics described above. We systematically approach identified acquisition candidates to attempt to structure an acquisition that meets our financial requirements. We typically do not spend a material sum of money on third party services in pursuit of an acquisition candidate until we feel the opportunity has a reasonable likelihood of meeting our financial requirements and of closing.
•Integrate. We have consistently been improving our ability as an organization to efficiently integrate progressively larger acquisitions. Our focus is to maintain reliable service to our customers during the integration period, identify and harvest the long-term synergies, and efficiently absorb acquisitions into our operations. An effective integration strategy sets the stage for optimized operations.
Electronic Chemicals—North America and International Segments. Our electronic chemicals business sells high purity wet process chemicals to the semiconductor industry. High purity process chemicals are used to clean and etch silicon wafers in the production of semiconductors. The business was acquired in December 2007 from Air Products and Chemicals, Inc. (“Air Products”). Our products include sulfuric, phosphoric, nitric and hydrofluoric acids, ammonium hydroxide, hydrogen peroxide, isopropyl alcohol and various blends of chemicals. Our customers rely on us to provide products with very low levels of contaminants and particles, in some cases at < 100-500 parts per trillion levels. To accomplish that objective, we purchase chemicals as raw materials from various suppliers, some of which are further purified. We are then responsible for their purity level, for analytical testing, blending and packaging, and for distribution to our customers. Our products are sold in several containers, including bottles, drums, totes and in bulk. This process is largely accomplished at our Pueblo, Colorado, and Milan, Italy facilities, although we do contract with Air Products to produce certain products for us at their Dallas, Texas facility. We believe that the market for wet process chemicals is down from a year ago and is now approximately $160 million in the United States, $80 million in Europe and $450 million in Asia, including Japan. Of our total net sales in fiscal year 2009, the Electronic Chemicals-North America segment accounted for 37% and the Electronic Chemicals-International segment accounted for 8%. Our international segment sells primarily in Europe, and we do not yet participate materially in Asia. Our electronic chemicals business accounted for 45% of our net sales in fiscal year 2009 and 40% (over the seven months we had the business) in fiscal year 2008.
Wood Preserving Chemicals—Penta and Creosote Segments. We supply penta and creosote to industrial customers who use these products to extend the useful life of wood, primarily utility poles and railroad crossties. Our penta products include penta blocks, solutions and hydrochloric acid, a byproduct of penta production. Penta is used primarily to treat utility poles, protecting them from insect damage and decay. We estimate that approximately two million treated utility poles are purchased each year by electric utility companies in the United States and that approximately 45% are treated with penta. We manufacture solid penta blocks at our facility in Matamoros, Mexico. We sell solid penta to our customers, or make it into a liquid solution of penta concentrate at our Matamoros, Mexico and Tuscaloosa, Alabama facilities. We sell penta products primarily in the southeastern and northwestern United States and in Canada. The hydrochloric acid we produce as a byproduct of penta production is sold in Mexico for use in the steel and oil well service industries. Our penta segment constituted about 14% of our net sales in fiscal year 2009, 17% in fiscal year 2008 and 33% in fiscal year 2007.
Creosote is a wood preservative used to treat utility poles and railroad crossties. Creosote is produced by the distillation of coal tar, a by-product of the transformation of coal into coke. For several years, purchases of wood crossties by United States and Canadian railroads have been at the top of their historic range of from about 15.0 million to 21.0 million ties. In calendar 2008, we believe that crosstie purchases were somewhat greater than approximately 20.0 million ties per year. Almost all wood crossties are treated with creosote. We believe that less than 10% of utility poles are treated with creosote annually. We sell creosote to wood treaters throughout the United States. Our creosote segment constituted about 35% of our net sales in fiscal year 2009, 36% in 2008 and 51% in 2007.
Animal Health Pesticides Segment. We sell animal health pesticides to protect cattle, swine and poultry from flies and other pests. These animal health pesticides include oral larvicides, ear tags, sprays and dust products. We manufacture these products at our Elwood, Kansas facility or under agreements with third-party formulators. These products are sold under the trade names Avenger, Rabon, Ravap, Patriot and Annihilator, among others. We purchased the Rabon and Ravap product lines in fiscal years 2003 and 2004, respectively. The Rabon and Ravap products contain tetrachlorvinphos and include oral larvicides, insecticidal powders and liquid sprays. We sell these products in the United States and Canada. In February 2006, we expanded our presence in animal health pesticides by purchasing additional product lines, including insecticide ear tags for cattle, along with several liquid and dust formulations for livestock and their premises. These products are sold in the United States, Canada, Australia, Mexico and several other countries in Latin America. Our animal health pesticides segment comprised about 6% of our net sales in fiscal year 2009, 7% in fiscal year 2008 and 16% in fiscal year 2007.
As of the end of fiscal year 2009, we had a total of 272 full-time employees. At our corporate offices in Houston, Texas, we employed 41 persons. At the end of the fiscal year, we had 67 employees at our Pueblo, Colorado facility, 71 at our Milan, Italy facility, 55 at the Matamoros, Mexico facility, nine at our Alabama facility, 11 in Kansas at our animal health operating facility, and the remainder of our employees worked from home. None of our employees in the United States are represented by a labor union. Approximately 50% of our employees in Mexico are represented under an annual labor agreement which was last renewed in May 2009. We believe that we have good relations with our employees.