State of the Nation

by E.W. Phares II

I am most pleased to report that the first quarter of 2007 has started off well. The Company had sales slightly behind our plan but close to 3% ahead of 2006. Our consolidated pretax income for the quarter was 6.5%, ahead of both plan and last year. All operations are doing well. Penetone, however, continues to be behind plan although ahead of last year. Increased sales in pulp and paper, military, and pipeline are helping Penetone, and we anticipate that all three markets will continue to improve during the rest of the year. Preliminary market development activities are occurring for the hog market in the States with hopeful anticipation that we will have the same results at Penetone as we have had at West Canada.

Sales continue nicely at West Canada. We are well ahead of plan and last year in both sales and operating income. The farm area with the hog program continues extremely well, and we expect an increase of over 50% in our sales for this market during 2007. Supermarket sales also continue in a positive direction for the first quarter, approximately 10% ahead of last year.

R&M is running behind plan. However, we anticipate some very large contractual arrangements to be accomplished during the second quarter which will increase our sales for the second quarter and for the rest of the year.

Petron sales, although somewhat behind plan, are doing extremely well when compared to last year. Our pretax operating income for the quarter is above the previous period. All areas continue strong with sales improvement in South Africa, Brazil, Chile, and various segments of the Far East. Further, we have now completed the expansion at Petron and have fulfilled the necessary requirements for the corrective action on our chlorinated spill that happened years ago and was only recently discovered. We have worked very closely with the State of Wisconsin's DEP and have gotten complete approval on the action plan that we have taken.

Preliminary indications are that the second quarter should continue well. We are anticipating being ahead of plan for the first six months.

Where have all the handbooks gone?

By Ralph Santoro

They come in all dark blue with white lettering as well as the very rare light blue with white on the binding. I have a copy of both. Bruce has 3 copies (but no light blue). People are very possessive about their copies. All people with at least 10 years with the Company have at least one. The first printing was 1961 followed by a second printing in 1969. The last printing was 1974. I am, of course, writing about The Penetone Handbook.

Some years ago, while working in Customer Service, I received a call from an aide to the late Senator from Maine, Edmund Muskie, inquiring about our Handbook. He said that the Senator had seen our Handbook at a friend's house and that he pored over it for hours fascinated by all the conversion tables, mechanical data and the thousand of bits of minutiae it contained. I sent a Handbook to Washington and two months later received a handwritten thank you from the Senator. Apparently he was doing some work around his house and used some of the tables to finish the job. Customer Service used to field five or ten calls per week requesting the Handbook; not any within recent memory however. Alas, the Handbook has gone the way of the slide rule and Smith-Corona-- a casualty of the PC. I wonder what the light blue Handbook would fetch as an antique of eBay.

Nah, I could never part with it.

West Penetone and C-TPAT

By James Tormey

West Penetone has recently undergone an audit by the US Customs Authority. The Customs Trade Partnership Against Terrorism (C-TPAT) program came into being as one of the many measures of heightened security since 9/11.

We as a company want to be part of the solution and not part of the problem. Therefore it is everyone's responsibility to protect our interests, by working with the US Customs Authority, in providing the highest security for trucks leaving this establishment for points south of the border.

This started with auditing our many providers of raw materials and packaging. Transport companies that we now use for US shipments have to be C-TPAT accredited.

Over the past couple of months, West has worked with the consulting firm Global MLX Inc. on providing all the prerequisites for the Audit and by training people in the various roles and responsibilities required to meet the C-TPAT standard.

Now, thanks to everyone's hard work, West Penetone has been C-TPAT accredited. Customs Agents John Bilotti and Randy Morabito are recommending to their superiors that we receive a class three status as we went above and beyond their expectations. A class three is the highest accreditation given to a firm outside the Customs Authority.

Shipping costs reduced at ASARCO

by Gerry Enroth

ASARCO Ray, Mission, Hayden, and Silver Bell make up the largest fleet of shovels in Arizona, totaling 15 lubricated with Petron Open Gear Lubricant 595. A typical shovel will consume approximately 500 pounds of open gear lubricant per month. This translates into 7,500 pounds per month or five small bin tanks total for ASARCO. Shipping 595 in small bin tanks worked well for the customer but Petron felt costs could be reduced through 45,000 pound bulk tanker shipments.

Armando Munoz, Petron service engineer who supports the ASARCO properties, discussed bulk shipments of 595 with mine management. He learned there was an 11,500 gallon storage silo at Ray that could be used if substantial savings in shipping costs were possible. Petron calculated savings of $15,000 that could be realized through two bulk shipments per year versus 60 small bin tanks. Not only were significant savings possible, but product availability for all properties would also be enhanced.

The transition from bin tanks to bulk took place with our first tanker load of 595 Open Gear Lubricant to ASARCO Ray in November, 2006. Bins are now filled from the bulk silo rather than shipping to and from Petron. This is truly a win-win for both ASARCO & Petron.

Petron SPCC Program receives approval

By Pat Ray

Petron completes its long journey toward obtaining certification of its Spill Prevention Control and Countermeasures (SPCC) Plan which was obtained in February. The SPCC program has been in development since the beginning of 2000 during its initial plant expansion study and progressively evolved as the new plant design and engineering were completed. The first step toward upgrading the plant was to convert an existing truck dock into a sealed 9,600-gallon spill containment area.

Several attempts were made at designing the new plant expansion and equipment layout and the final plant design that met both the SPCC requirements and future growth potential was approved in May 2005. Actual ground breaking for the plant expansion occurred on July 7, 2005. The transition from the old production process to the new process was not a simple undertaking. The ability to continue production at full capacity during a record sales year and accomplish 98% on time shipment while under construction required some very creative thinking and actions. Fortunately, we were able to accomplish this by using a 3 phase approach to transition. The first phase included building the new addition (plant 3) and installing 2 new 8,000-gallon mixers and 7 new 12,000-gallon bulk storage tanks in order to maintain production during the 2nd phase. The second phase consisted of removing, updating, re-certifying, and installing the existing production equipment from plant 1 into the new addition. The third phase included the up-grade, and improvement of the existing production process in plant 2.

The primary goal of the expansion was to provide the space and opportunity to meet the requirements of the SPCC Plan. Prior to the expansion we had difficulty meeting the secondary containment or inspection requirements for bulk storage tanks under the SPCC Plan. We now have a total secondary containment capacity of 28,000-gallons, and all storage tanks have been certified by the state, and can easily be inspected while in service. The secondary benefit of the expansion was the increase in production capability and storage capacity. Petron's current manufacturing facility is 22,496 square feet which has 260,000-Gallons of bulk storage and 83,040-Gallons of mixing capacity under roof Petron is now positioned for the future to meet its regulatory requirements, as well as, it continual growth.

Going to the hogs!

In order to capture the large potential market of cleaning and disinfecting "hog barns", we shared our recent successes and experiences with our Canadian sales team during a meeting in Montreal.

This is a hugh bucket from a dragline that mines limestone from a quarry in Crystal river, FL. The customer uses Penetone degreasers and Petron lubricants.

Service Awards

Congratulations to Jim Brooks, Military Manager who celebrated 10 years of service and Heather Perine, Customer Service Manager on 5 years of service. Both are Penetone employees.

New Hires

We welcome Darlene Vogel to the position of Accounting Assistant, Petron.