State of the Nation

by E. W. Phares II

Our first quarter of fiscal 2009 was completed at the end of February. I am most pleased to inform you that our company did considerably better than anticipated.

Sales were close to 12.5% behind our plan, however the bottom line was nicely ahead of plan, due to cost reductions in raw materials, reductions in personnel, and overall tight control of our operating expenses.

Looking forward, the economic forecast for the 2nd quarter is disappointing and we anticipate a considerable drop in sales across the board but primarily at Petron. Sales at Penetone are holding up nicely in spite of the economic downturn with continued strong sales to the pulp and paper market. This is due to the poor furnish that is only available here in the States as the good material is being purchased by China. Our military sales during the first quarter were quite light, however we anticipate that the new contractual commitments will occur shortly and that we will have a boost in the military sales in the second quarter.

Canadian sales were well below plan due to very slow sales in the Midwest and also a dramatic drop off in sales in the West through R&M. Close to 50% of the gas and oil rigs are down in Western Canada, so that our sales to the gas and oil industry are well below plan.

Sales continue strong in the supermarkets and have picked up with DeLaval. We unfortunately, forecast continued very low sales in both the industrial and refining industries in the 2nd quarter.

Petron sales were dramatically negatively impacted by the economy, and ran close to over 17% behind plan. Fortunately, our cost reduction program, including raw material reductions, help counterbalance this drop and our first quarter profits ended up ahead of plan. We have been informed, unfortunately, that most of our major mining accounts both in the Midwest as well as off-shore, will either be cut back dramatically or closed from April through August. This is going to have a large negative impact on sales and profitability and we are under enormous pressure to achieve operating profits.

The continued dramatic economic downturn worldwide is affecting all of our operations, and we unfortunately forecast that the second quarter may very well be 20-25% behind plan.

These are very difficult times for the company and I look to all of you for your continued commitment and hard work.

ISO 9001:2000

by Elisa Pieroni

Petron was recently audited by SRI for maintaining our certificate of registration. We are proud to say that we have now maintained our ISO 9001 registration for 9 years.

The Standards for ISO have recently been update to ISO 9001-2008 which we intend to be audited against later this year.

Innovation Triumphs over Economic Pitfalls

by Bruce Muretta

In this struggling economy Penetone has managed to complete the first third of the year with sales on plan and income ahead of plan. Team effort, years of experience and some product innovation have compensated for some market slowdowns.

Pulp and Paper sales are 39% above plan with margin improvement over last year of 3%. Mike Nelson and Jim Mobley have done a superb job supplying customer product demands and assisting customers with specialty requirements. With the assistance of Phil Figdore they have introduced a low VOC product that meets waste stream requirements for a major customer, maintaining strong sales.

Transportation sales are 33% above plan with a margin improvement over last year of 12%. Pete Boutsikaris has done a fine job with NJ Transit relations to ensure proper usage and provide product. John Dessel has won major bids with improved margins at all three New York transportation facilities. We have maintained all existing business and won some additional business.

Military Type IV and V products developed by Phil Figdore and Charlie Good have successfully won extensive business gains for Jim Brooks and Chad Tennant at many Air Force and Navy installations. New products were introduced by Mike Bradford and Jim Brooks at the Military Corrosion Conference in March which has already created interest.

Ralph Santoro's group efforts of Eversley Brown and Luis Suruy in production and Ron Costello and Colonel Robertson in shipping have resulted in no product problems and 100% on time deliveries in the first four months. These efforts combined with Heather Perine's and Sylvia Paredez' close contact with customers and their requirements has ensured maximum service.

Administratively, Joyce Seccia has reduced the General Ledger closing to three days after sales closing. She has also has done an outstanding job maintaining the computer system. Kathy Frato's collection efforts have resulted in consistent accounts receivable days outstanding less than 40 days, well below the industry standard. Kim Lyons has worked well with our insurance consultants to lower our premium costs by almost 20%. The use of on-line banking tools and electronic data has greatly reduced postage and overnight expenses. Charlie Good has done a tremendous job in providing an effective yet extremely less costly phone service.

The slowdowns in the auto and housing industries have caused some lost core sales and will continue to negatively affect the company for the remainder of the year. This will require our workforce to continue to be creative and innovative to meet these challenges and all should be congratulated on their strong contributions to date.

Who says green products don't work?

by Pierre Stewart

I have just signed the license renewal for a 3rd year of certification for our "green" Ecologo series of products which we call our Bio-Logic line. This was originally developed back in 2006 for our biggest customer, the Sobeys chain of food stores, as a greener option for their cleaning chemicals. The products consisted of a window cleaner, a dish detergent, a biological degreaser, a surfactant based degreaser, a hand soap, a grease trap treatment and a trash compactor deodorizer. Since Sobeys are still continuing to use our standard products, we decide to test our new line in other markets. The results in many cases have been nothing short of amazing. For example, after years of experimenting with several types of bacteria/enzyme based grease trap products, with little or no results, our Ecologo version actually seems to work. It eats up the grease in the trap and greatly reduces the frequency of trap cleanups. The biggest surprise however is the performance of our surfactant based degreaser, Bio-Eze 3. We first tested it in the meat and deli departments of some food stores and the feedback was that it works as well as the caustic based product they were currently using. Very surprising considering that Bio-Eze 3 has a pH of only 11 and was used at the same dilution rate as the caustic product. Even more shocking was the fact the Bio- Eze 3 is now being used as a bus wash and even in the printing industry to remove water based flexographic inks, again replacing highly alkaline products. Also unlike a lot of the Green Seal or "green" products which sell for more than double the price of classical products, our Bio- Logic products are very reasonably priced, usually within 10% of the cost of its nongreen counterpart.

At this point we are now starting to expand the line and are working on an Ecologo grill/oven cleaner which is giving great results in test stores. People using it claim it cleans as well as the caustic version but without the strong odor. We are just beginning the testing and submission process for this product so we hope to have it ready for sale later this year. Another product will be a hydrogen peroxide based foaming degreaser. This would combine the oxidizing action of peroxide to remove organic deposits while maintaining a neutral pH. The advantage here is that the product would degrade into oxygen and water after use. We are just at the initial formulating stage for this one but with any luck, we should have it certified by years end too.

Team Work!

by Elisa Pieroni

New business in 2005 put our open gear lubricant on some mining shovels in an area where winters get cold.

The winter temperatures in 2005 fluctuated from 0^oF to -10^oF. Temperatures are monitored at a weather site at the local airport; however, due to the depth of the mines, there is a typical 10^oF difference with the mine being colder. Our lubricant was looking beautiful with it tacking and adhering on the shovel stick and gearing during the snow and rain.

The winter of 2006 was a tad bit colder; winter temperatures fluctuated from -10^oF to -20^oF with our performance going well. Global warming is increasing, right?

During the last half of 2007 our winter temperatures fluctuated in the -15^oF to -25^oF range and on a couple occasions held at -22^oF to -30^oF for up to 6 days in a row. The mine began to notice that the lubricant was having difficulty pumping. The first quarter of 2008 brought us 8 days straight of -22^oF to -31^oF, the lubricants pumping range was being challenged. Gerry Enroth and Jasper Engineering personnel were out there on these coldest of days keeping the automatic lubrication systems running.

The low temperatures allowed us to see the limits of where our lubricants could perform and work well. Fortunately the cold snaps were brief and once the sun rose the temperatures would warm up just enough to allow things to continue working real well. But we did see the cold temperature limit of our open gear lubricant. It is not good enough to pump to only -20^oF or -30^oF when we experience a cold winter. It needed to be improved without sacrificing any Quality!

It was mid March. The deadline - August of 2008. The goal - our Shovel Open Gear Lubricant had to pump with ease down at -40^oF.

Petron's lab worked long and hard over the spring and summer, a true Team Effort. Reports were written and submitted on the strides being made. Some paths came to a dead end or a confirmation of the issue at hand. We were seeing success but felt the need to keep testing and challenging our formulation. On August 13th we manufactured our first drums of the improved formulation for use at the Mine.

The 2nd half of 2008 and early 2009 followed the cooling trend we experienced in previous winters. We were consistently between -15^oF to -25^oF with a couple of days that were -23^oF to -38^oF. We are very pleased to report that the lubricant pumped and protected with no issues. Gerry Enroth and I visited the mine during one of these cold snaps, it was -40^oF in the mine and we were able to cycle the lubrication systems and watch the injectors work with no hesitations on the 4 shovels we visited. There were no problems this winter and I feel confident that this formulation will pump at -50^o F. Now we have a lubricant that can be taken into northern regions of the world with a comfort level that it will work during these extreme working conditions.

New IT "Network" will be Greener by using "Virtualization"

by Antoine Alonzo

The term "virtualization" was introduced back in the early 60's to refer to a virtual machine; a term which itself dates from the experimental IBM M44/44X system. The creation and management of virtual machines has been called platform virtualization, or server virtualization, more recently. Virtualization was first implemented in 1961 by IBM as a way to logically partition mainframe computers into separate virtual machines. These partitions allowed mainframes to "multitask": run multiple applications and processes at the same time. Since mainframes were expensive resources at the time, they were designed for partitioning as a way to fully leverage the investment.

Virtualization was abandoned during the 1980s and 1990s when client-server applications and inexpensive x86 servers and desktops led to distributed computing. The broad adoption of Windows and the emergence of Linux as server operating systems in the 1990s established x86 servers as the industry standard.

Platform virtualization is performed on a given hardware platform by host software (a control program), which creates a simulated computer environment, a virtual machine, for its guest software. The guest software is not limited to user applications; many hosts allow the execution of complete operating systems. The guest software executes as if it were running directly on the physical hardware.

In case of server consolidation, many small physical servers are replaced by one larger physical server, to increase the utilization of costly hardware resources such as CPU. Although hardware is consolidated, typically Operating Systems are not. Instead, each OS running on a physical server becomes converted to a distinct OS running inside a virtual machine. The large server can "host" many such "guest" virtual machines.

A virtual machine can be more easily controlled and inspected from outside than a physical one, and its configuration is more flexible.

A new virtual machine can be provisioned as needed without the need for an up-front hardware purchase. Also, a virtual machine can easily be relocated from one physical machine to another as needed. At the same time, an error inside a virtual machine does not harm the host system, so there is no risk of breaking down the OS. Because of the easy relocation, virtual machines can be used in disaster recovery scenarios.

By choosing the virtualization, we wanted to consolidate the workloads of several under-utilized servers to fewer machines making savings on hardware, management and administration of the server infrastructure cost.

We also wanted to make more choices that would be friendly for our environment in our new IT network implementation. We will require less hardware equipment reducing environmental cost related to future disposal purpose.

This new network will not only be better performing and reliable but also greener for our environment for the next generation to come.