BUILDING A GREAT COMPANYBulab Holdings 2011 Annual Report

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BUILDING A GREAT COMPANYAt Buckman we have many goals. But the most important one is becoming a great company. The past year marks a big step in that direction—the completion of our transition from Value Stream Initiative to our Continuous Improvement model. It represents the kind of serious culture shift we need to go from good to great. Continuous Improvement is about rethinking, remeasuring, leveling and building new structures and tearing down old ones. It’s the culture of innovation. The culture of better. Better ideas. Better safety. Better research. Better training. And better opportunities for profitable sales. To continuously improve means understanding that there is always room for improvement. There is always room for better solutions.

As we work on Continuous Improvement, we look to the Buckman Compass for guidance. In 2011, our compass helped promote sustainable success by continuing to ensure that the right associates are in the right positions doing the right things in the right way.

For us, “right” is matching skills and tasks, strategies and goals, processes and results. This is something we are focused on by involving every associate in the Talent Management process. “Right” is making sure that everything we do adheres to our Fundamentals, our Code of Ethics, the Seven Principles of Highly Effective Teamwork and our Environmental, Safety and Quality Policies. And, ultimately, “right” is that which makes us most successful for the long run.

By following the compass down the path of “right” we will find the best ways to improve. We’ll improve our customers’ performance, our environment and ourselves. And, by doing so, we’ll improve our opportunities for building a great company that makes all of us proud.

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IMPROVING OUR VALUEIf we need proof that our compass is true and our direction is clear, we can look no further than Buckman’s 2011 designation as a High Performing Company by Hay Group, an independent organization that specializes in measuring and benchmarking company performance. Hay Group cited our exceptional financial performance and our successful practices of engaging and enabling associates as key reasons for the distinction.

It’s quite an honor. Still, we recognize that we have a lot of work to do. This is, after all, the nature of Continuous Improvement.

ChallengesMany challenges were thrown our way in 2011. Raw material costs continued to rise during the first three quarters of 2011, finally moderating somewhat in the fourth quarter of the year. As a result, our cost basket (prices of key raw materials used on a global basis in the manufacture of Buckman products) increased 5.7 percent in 2011.

In the U.S., WSCP, our algae control product for recreational water applications, continued to meet new competition. And we were forced to reduce prices in an effort to remain competitive. While swimming pool sales revenue decreased by 23 percent, we held onto a large percentage of our market share.

In China and Brazil, we faced safety and environmental issues. Rest assured, however, that we investigated the root cause of the incidents and implemented the appropriate actions to prevent similar incidents from reoccurring anywhere in our global organization. The lessons learned from these experiences will lead to the continuous improvement of our safety processes and environ­mental procedures.

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SuccessesEven with some setbacks, Buckman saw significant financial progress overall. We invested in additional sales associates, especially in the high­growth Asian markets, and the strategy has paid off. In fact, Asia­Pacific led the global com­pany with a 22 percent increase in sales. We saw solid improvement in Europe of almost 10 percent as well, and we look forward to continued growth there.

Our 2011 sales by geographic region were as follows:

All around the world, Buckman worked to improve processes and increase productivity. Continuous Improvement initiatives in 2011 included:

•Restructuring operations and improving sales forecasting in Australia, which resulted in increased productivity and hundreds of thousands of dollars in savings

•Upgrading plants in Asia to bring more production in­house, saving hundreds of thousands of dollars

•Improving Internet connectivity in South Africa, saving time and greatly enhancing communication

•Improving inventory management in Canada to reduce shortages and slow­moving inventories

•Improving materials movement and product filling capacity in China to save batch processing and package processing time

•Replacing a cooling tower in the U.S. for a fraction of the usual cost by using creative sourcing strategies

In all, we completed more than 500 CI projects last year. These projects pro­vided $5.6 million in hard dollar cost savings and their positive impact will be felt for years to come.

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Counting the DaysIn 2011 we wanted to maintain days in inventory and accounts receivable days outstanding to 2010 year­end levels while continuing to grow sales.

Our inventory turnover goal was 69 days. Actual turnover for inventory was 63 days. By focusing on reducing inventories more than 365 days old, we were able to reduce our average days in inventory for the third year in a row. In addition, we launched a Sales and Operations Planning process that enhanced communication between sales and production, giving us the ability to plan production more efficiently.

Our goal for outstanding accounts receivable was 63 days. Actual outstanding days for accounts receivable was 70 days. The increase in accounts receivable days was in line with positive sales growth, the timing of customer payments and the extension of credit in certain growth markets.

Closing the Gap The gap between the profitability of sales to our target markets and the cost of nonmarketing expenses was closed in 2010, and we continued to keep the gap closed in 2011. However, the cushion is smaller than it was in 2010, so this will remain a focus area for improvement.

Record Stock PriceBuckman’s stock price reached a record $36.20 per share before declining to $32.70 with third­quarter financial results in line with a declining stock market. We were able to increase the quarterly dividend rate mid year by 71 percent from $0.1225 per share to $0.21 per share, which represents an annual dividend yield of 2.57 percent.

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Worldwide DWT Sales

2011

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IMPROVING OUR CUSTOMERS’ PERFORMANCEThe Buckman Compass is always pointing to the customer. In fact, the best way to ensure our own success is to make our customers more successful. In 2011, we worked hard to do just that in all the key industries we serve.

WaterFor our water treatment customers, we are now in a position to quantify ROE (return on environment). That gives us great leverage in selling sustainable solutions. And it’s a big reason our sales in the water segment increased 17.7 percent last year.

With the ongoing training of our sales associates (expected to be completed in May 2012), and the completion of our Green Champions training in all regions, we are poised to increase sales by providing customers with green solutions and measurable results.

Other water initiatives included the rollout of new biotechnologies, greener technologies and real­time monitoring programs that focus on improving plant performance.

We successfully hired a director of corporate sales, Paul Van Namen. Paul has extensive experience in corporate sales with our major competitors.

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WorldwidePaper Sales

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PaperIn the global pulp and paper industry, our sales increased 10.5 percent as we con tin­ued to focus on our key growth areas—pulp, packaging, tissue and water treatment.

Pulp In China, Indonesia, Southern Cone and Europe, we took advantage of growth opportunities in both virgin and recycled pulp.

Tissue We maintained profitable business in mature markets while accelerating our associate mentoring program and training in emergent markets.

PackagingWe developed special teams to better focus our marketing efforts in four key regions: China, Southern Cone, Northern Europe and the U.S. Key applications focused on sustainable solutions that enable customers to run more effectively and efficiently. In addition, we introduced our oxidizing chemistry to the packaging industry. This breakthrough technology has applications throughout the papermaking process.

New InitiativesBuckman has established a valuable relationship with Voith. We contributed to the success of their new tissue innovation center in São Paulo, Brazil. So far, we have been selected to supply the start­up chemistry on five new ATMOS tissue machines.

Other 2011 initiatives in the paper segment included:

•A global Paper Sustainability Training program to help sales associates work with customers on sustainability issues. We are finding that our ability to demonstrate ROE and incorporate sustainability principles into our Continuous Improvement processes are having a positive impact on both new business and customer retention.

•New global and local teams to standardize procedures for handling hazardous products.

•We appointed Darren Robinson, former Northern Europe manager for paper, to oversee our corporate sales efforts and manage the Global Key Corporate Account team process for paper technologies.

WorldwideLeather Sales

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LeatherGlobal leather production was down in 2011 compared to 2010. Nevertheless, we experienced a 4.4 percent increase in sales.

Our performance in Asia was outstanding in all areas and was the main driver of our global success. Also, leather production in the U.S. is once again on the rise, and we are poised to take advantage.

Beamhouse and TanyardOur growth in the BBTS (Buckman Beamhouse and Tanyard system), which covers the process area from raw to wetblue, was due in part to the advanced training of our associates and the successful leveraging of our enzyme applications. In fact, we established a Leather Enzyme Marketing Team to improve awareness and acceptance of enzyme applications and strengthen our image as a leading enzyme supplier. We also promoted other ways to help customers reduce their environmental impact, including low sulfide liming which reduces sulfide use by up to 50 percent.

Microorganism ControlWe maintained our global leadership position in microorganism control by continuing to meet market needs in the face of increased regulatory require ments and restrictions on hazardous substances. We also developed high­performance products that take advantage of the global shift from salted hides to more sustainable fresh hides. We continued to expand the market for our new fungicide active substance CHED, which has been well received.

Wet EndGrowth in the wet end market in Asia was the result of prior years’ investment in people, training and product development. Wet end includes all the process ing that takes place from wetblue to dried leather, or crust. Our “free­of­formaldehyde” syntan product line has been successful and is a more sustainable solution.

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IMPROVING THE WORLD IN WHICH WE LIVEBuckman followed the compass toward sustainability—financially, socially and environmentally. With the official certification of our 2010 Sustainability Report by the Global Reporting Initiative (GRI) during the year, we demonstrated that our commitment to international sustainability is on par with the most respected and emulated companies in the world. The GRI standard gives associates, customers and the communities we serve a way to measure and compare our performance to that of other companies, and it helps establish us as a supplier of choice.

New AccomplishmentsWe continued to focus on improving our sustainability record in 2011. Our accomplishments included:

•Operating with a world­class safety record•Reducing operational emissions•Completing leadership development training for all associates worldwide •Rolling out globally a more robust talent development strategy and

plan that includes training, talent forums, specific development plans, and more

•Conducting our first global BuckmanCares day devoted to the recognition of our volunteers and service projects

•Setting reduction targets for emissions, water usage and energy consumption by 2015

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New Thinking Senior management and the ERP Steering Team determined that it was not prudent to continue with plans to implement a global SAP Human Capital Management (HCM) system in 2012. In light of uncertain global economic conditions and our own internal financial forecasts, we are placing this project on hold until management determines that business conditions are favorable for us to re­engage.

The reasons for choosing SAP as our core ERP business system remain. There­fore, we will continue to plan and prepare for a successful implementation. For 2012, we plan to:

•Accelerate progress in establishing standardization of key data elements•Establish infrastructure and utility for use of SAP Business Intelligence

Reporting Tools utilizing the standardized data•Establish use of an SAP component that allows us to develop all types

of training materials, not only ERP training materials•Continue SAP training for Information Technology and Human

Resources associates•Continue developing the landscape for eventual HCM implementation

using internal resources

New LeadershipThere were some notable leadership changes at Buckman during 2011.

•Tom Johnstone, who helped build our business in Canada, retired after 33 years of service

•Davor Mehes was appointed general manager of sales, Canada•Ihab Wassef was appointed general manager of operations, Canada•Junai Maharaj was appointed general manager of South Africa•Leigh Mann will direct our operations in Asia

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IMPROVING OUR OPPORTUNITIES FOR 2012With much of the global economy still uncertain, 2012 will be a challenging year. But we believe we can grow aggressively by emphasizing programs that offer customers both a return on investment and a return on environment. For example, we’ll expand our water treatment offerings to include new membrane technology. And we’ll market our oxidizing chemistry, a great new green alternative for both the water treatment market and the paper industry.

In addition, we will launch Buckman On­Site, a secure portal that offers system status monitoring and document management for our customers. Using an interactive dashboard, customers can review automated controller data, input data manually, generate reports and quickly access all the information they need to stay informed about their systems.

We will also be looking for ways to increase quality. Although we have ISO quality systems in place around the world, we recognize opportunity exists to reduce poor quality, and we have launched an effort to more effectively address this issue.

Finally, we will be working on ways to improve the profitability of new business. We’ll look closely at just how much a new customer costs and make sure that all costs of capturing and carrying that business are covered. That means making sure our pricing is in line with the value we deliver. And it means accurately assessing the customer’s financial viability to reduce our risk.

No doubt, 2012 will be a big year. And you can rest assured that we will do our best to live up to our new designation as a high­performing company by using our compass to guide all of our activities —the products we innovate, the training we provide to our associates, and the unsurpassed value we deliver to all our customers.

Steven B. BuckmanChief Executive Officer

and PresidentBulab Holdings, Inc.

Kathy Buckman GibsonChairman of the Board Bulab Holdings, Inc.

Bulab Holdings, Inc.1256 North McLean Blvd.Memphis, Tennessee 38108-1241 U.S.A.

buckman.com

Printed in U.S.A. on paper from environmentally managed sources and using 30% post-consumer waste.

Printed in U.S.A. on paper from environmentally managed sources and using 30% post-consumer fiber. © 2012 Buckman Laboratories International, Inc. All rights reserved.