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PRODUCTS GROUP, INC.
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TO
OUR SHAREHOLDERS, CUSTOMERS, PARTNERS, EMPLOYEES
For PPGI,
2009 was a difficult and challenging year. The worldwide economic
recession affected our markets and most of our customers experienced the
downturn. We also were impacted by a slow-down in the military
markets we serve. Although we saw lower order activity in the fourth
quarter of 2008, this continued throughout 2009. Overall, orders
declined 27% in 2009 from the previous year and we experienced a significant
decline in our semiconductor and defense/aerospace related
businesses.
Instead
of waiting for an economic recovery, we proactively took steps to reduce costs
and right-size workforce levels, in both our Northvale and Sarasota
operations. Anticipating a difficult business environment, we took
additional measures to conserve cash. Despite these initiatives,
revenues declined 32% from 2008, and we had a net loss of $2.8 million which
included a non-cash goodwill impairment charge of $1.6
million. However, we generated positive cash flow from operations and
improved our cash position, ending 2009 with over $4.0 million in cash and cash
equivalents. We also continued our focus on strengthening the balance
sheet, paying down long-term debt and taking a charge against goodwill, as
previously mentioned.
We have
taken time during this difficult period to focus on the future growth of our
business. We reorganized our sales force and recently added a west
coast sales manager. We realigned our manufacturing team to better
serve our customers and made the personnel adjustments to strengthen our
engineering capability. We strengthened our finance area to support
the need for more timely and sophisticated analysis and financial
reporting. In addition, we made selective investments in capital
equipment, with an emphasis on improving our metrology, with the result that we
have seen product improvements in several areas. The old axiom “you
cannot make or improve what you cannot measure” is very true in our
business.
During
the year, we increased our sales and marketing efforts in the international
marketplace by re-energizing relationships with existing representatives and
selectively choosing new representatives whose portfolio of products and
customers are more aligned with our product offerings. I am delighted
to report that we are seeing considerable interest in our products in several
international markets and it appears that European and Asian markets are
recovering from the worldwide economic recession at a slightly faster pace than
the United States. Although we have seen a small uptick in
international sales in early 2010, we believe this will have a more significant
impact in future periods. We also put a greater effort on improving
our relationships with existing customers and key component
suppliers. To that end, we have had numerous meetings at our customer
sites and have welcomed them in visits to both our Northvale and Sarasota
operations. The result of these meetings has been to identify
improvements in the products we produce and opportunities to enter new markets
not previously visible to us.
In 2009,
for the second year in a row, we were awarded the “Supplier Excellence 3 Star
Award” from Raytheon. This award is given to select suppliers of
Raytheon and is an acknowledgement of our exemplary customer service and
performance based upon meeting and exceeding Raytheon’s on-time delivery and
product quality objectives.
Early
last year, Dr. John C. Rich retired from the Board after serving as a director
since March 2000 and as Chairman since August 2004. We thank John for
his many years of service and valued contributions to the Board and will miss
his wise counsel. Jan M. Winston was elected to succeed John as
Chairman and we look forward to his leadership of our Board of
Directors.
In 2009,
we also welcomed two new Board members, Rick Strandlund and Dennis
Romano. As mentioned in last year’s Annual Report, Rick brings to the
Board an extensive background and knowledge in the photonics industry,
particularly in the manufacturing and operational area. Dennis, who
joined the Board in September 2009, brings a wealth of experience in marketing,
business and strategic development in the defense sector after a lengthy and
successful career with Northrop Grumman.
OUTLOOK
AND PRIORITIES FOR 2010
During
the fourth quarter of 2009, we began to see a noticeable increase in requests
for quotes that has continued, to-date. First quarter bookings
exceeded our expectations and we are interpreting this as a sign that our
business is starting to recover. We are encouraged but
cautious. The economy is fragile and we expect that it will take time
to fully recover to pre-recession levels. We recognize that periodic
setbacks could continue to negatively affect the markets we serve.
This
year, we will continue to focus on improving our operations, expanding our
customer base, domestically and internationally, and reducing costs further
through process improvements. As in recent years, we will evaluate
opportunities for strengthening our balance sheet by reducing debt and improving
cash flows.
Our goal
for 2010 is to position PPGI to respond effectively to increased product demand
and we will work diligently to improve our relationships with our current
customers while aggressively seeking new customers. We plan to
selectively invest in new equipment to help to retain our leadership in the
markets we serve and enter new market segments that require unique
capabilities. We look forward to the future with cautious
optimism.
Joseph J.
Rutherford
President
and CEO
April 30,
2010