Glendale Company Putting Its Seal on Coating Market

Russia was in revolution when George Gregory was born in Moscow in 1917. At age 3, Gregory and his Jewish parents fled to their native Latvia (now part of the Soviet Union), then later settled in Hamburg, Germany. They were forced to move again in 1937, to London, after Adolf Hitler came to power.

But in exchange for sanctuary in Britain, Gregory, a metallurgist’s son who studied chemistry as a youngster, was prevented from working for wages. Britain “would let you in provided you weren’t going to compete in the labor market,” Gregory recalled. “It was stamped right onto my landing card--’Cannot Take Employment.’ ”

Came to U.S.

Gregory found his way to the United States to look for work and earned a bachelor’s degree in chemistry from UCLA. In 1948, he became vice president of Products Research & Chemical, a sales arm for other companies’ chemical products.

But Gregory, whose vision was to make PRC “a first-class company in the area of specialty chemicals,” became company president in 1959 and turned it into a thriving Glendale manufacturing and chemical-research concern that now employs 850 people.

Forty years after he started, he doesn’t have to worry about a paycheck. At 71, he will earn $890,000 this year as chairman of PRC, which specializes in making coatings, sealants and other specialty chemicals. And to make his way around town, he drives a 1987 Bentley.

In its last fiscal year, PRC earned $7.9 million on sales of $95.1 million. And in the first nine months of the fiscal year that ended June 30, PRC’s profit climbed another 5% from a year earlier. Over the past five years the company’s sales have climbed a steady 10% a year, and PRC expects sales to grow another 15% to 20% over each of the next five years.

Given his age and wealth, Gregory, a heavy-set man who retains a European accent, might be expected to retire soon. Besides his salary, Gregory has a 3% share of PRC’s stock, which has a market value of $3.7 million.

But a person who guides a company for 40 years does not easily walk away. “I have no desire to leave,” he said.

A decade ago, Gregory had built PRC into a profitable company doing about $50 million in sales, but it mostly relied on outside suppliers for the polymers it turned into finished products.

The main ingredient for PRC’s products are polymers, which are chains of molecules that typically come in liquid form. In the case of, say, a window sealant, PRC’s scientists will treat the polymers by combining them with various other chemicals until the solution has the properties--such as strength and durability--that PRC wants.

Because PRC’s competitors had access to the same polymers, PRC often was turning out duplicate products and unable to charge more than the competition, thus limiting its profits.

Own Polymers

Since then, PRC has put its chemists on the trail of discovering its own family of polymers, which enables it to sell finished chemicals that often are unique in the industry, said Dean M. Willard, PRC’s president and chief executive.

Today, PRC’s products are sold principally to the aerospace, defense and construction industries. Their products are commonly found in buildings, airplanes, cars and ships but are seldom noticed.

One PRC sealant, for instance, bonds dual-paned windows used in skyscrapers and other buildings and ensures that the windows don’t fog up when it’s freezing on the outside and warm on the inside.

Whereas 10 years ago only 10% of PRC’s polymers were developed in-house, today it’s 25% to 30% and in the next three to five years “well in excess of half of PRC’s sales will come from internally produced polymers,” Willard said.

PRC’s polymers allow the company to charge relatively higher prices--there are no competitors in those product areas to undercut them on price--boosting PRC’s profit margins. In fiscal 1987, PRC earned 18 cents per dollar of sales before taxes; the average for other publicly held specialty chemical companies last year was 14 cents.

PRC also sells sealants and coatings that protect aircraft parts against corrosion and leakage. Willard said PRC dominates this market--which includes newly built and existing aircraft, both military and commercial--with about a 90% market share. Boeing, the nation’s biggest builder of commercial jets, buys most of its sealants from PRC.

Navy jets frequently land on another type of PRC coating, a non-skid and anti-fire coating that is used on the decks of aircraft carriers.

And PRC has developed a line of coatings for jet fighters and other military equipment that is designed to help evade enemy radar. The coatings absorb most radar signals, sending back only a fraction of the signal that the enemy would rely on for a target.

A jet fighter, for example, typically will appear on a radar screen as “a 100-square-meter object moving toward you,” Willard explained. With PRC’s coating, the jet would show up as only one square meter in size, he said.

Asked if PRC’s coatings will be used on the secret B-2 stealth bomber being developed by Northrop, Willard and Gregory declined to identify any programs on which the coatings are being considered, saying it is classified information. But Willard noted that the coatings could be applied to ships, tanks, missiles and other military equipment, not just jet aircraft.

Some of PRC’s highest profit chemicals are those it sells to aerospace and defense companies, which account for roughly 40% of its overall sales.

And with new generations of aircraft being produced that need sophisticated sealants and coatings, this market is expected to lead PRC’s sales and profit growth in the next few years, analysts said.

“The prospects are improving each year as we get more and more of the aerospace business in the company’s mix, compared to its window siding, sealant market” and construction business, said Theodore S. Semegran, an analyst with Shearson Lehman Hutton in New York.

Success isn’t guaranteed, however. Willard acknowledged that such big rivals as W.R. Grace in New York and Plessey of Britain also have developed advanced coatings and sealants for military use. And in construction, which is 42% of its business, PRC must contend with such giants as General Electric.

So PRC also is pushing overseas. International business currently accounts for 35% of its sales, but Gregory wants more. Earlier this year, PRC bought its British licensee, Berger, which will spearhead efforts to expand in Scandinavia, Africa, Australia and the Middle East.

As talk of PRC’s growth prospects has increased, so has its stock, which closed Monday at $17.25 a share, up 23% for the year but still well below the $21.875-a-share mark it hit in the first quarter of 1987.

Still, the stock is high enough that some observers doubt that PRC, despite its growth prospects and proprietary line of products, will become a takeover target. Another potential barrier: Gregory and other PRC employees own nearly 32% of the stock.

“I don’t think it’s a prime takeover candidate. We don’t own it for that,” said Herb Royce, an analyst with IDS Financial, a Minneapolis-based mutual fund division of American Express that owns 200,000 PRC shares.

With 8 million shares outstanding, PRC’s total market value of all its stock is only about $150 million; that’s less than the yearly interest due on some billion-dollar takeovers.

But analysts said PRC’s stock is still expensive. It is selling for about 17 times the price of its per-share earnings over the last 12 months, higher than the average on the New York Stock Exchange.

“I don’t think people are buying chemical firms with those kinds of multiples in mind,” Semegran said.

Which suits Gregory fine. Although PRC is “approached from time to time” about being acquired, Gregory isn’t interested in selling and said, “Without our management and people it wouldn’t be worth very much.”