Purolator InternationalLong Island Supply Chain Index

April 30, 2019

Report prepared byStony Brook University

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INTRODUCTIONThePurolatorInternationalLongIslandSupplyChainIndexlaunchedinMarch2016asanannualguidetotheoveralleconomichealthofLongIsland.Bygaugingthestateofthelocalmanufacturingindustry,directlyfromthefeedbackofLongIslandbasedmanufacturers,researchdatacanreliablyforecasttheoverallstrengthofthelocalregionforthecomingsixmonths.ThisIndexisthefourthinstallmentcommissionedbyPurolatorInternational.InitialsurveydatawascollectedinNovember2015(publiclyreleasedMarch2016),thesecondsurveyinMay2016(publiclyreleasedAugust2016)andthethirdsurveyinJuly2017(publiclyreleasedinOctober2017).Surveyrespondentsareaskedtoprovideinsightintoneworders,productionlevel,prices,employment,inventorylevels,backlogoforders,exports,andairshipments.Akeyelementofthisresearchistheoverallindexanalysis.Eachdatapointfromthesurveyhasbeenconvertedintoanindexthatrangesfrom0(unanimousdecline)to100(unanimousimprovement).Thenumbersabove50indicatepositivegrowthandthosebelow50indicatedecline.InadditiontotheIndexquestions,thisyear’ssurveyalsoaskedrespondentsabouttheirperceptionsofthefutureoftheLongIslandmanufacturingindustry,includingwhatindustriesshowpotentialforgrowth,theuseofadvancedmanufacturingand/orrobotics,andhowtheregioncanbettersupportlocalmanufacturing(pages14-16).ThePurolatorInternationalLongIslandSupplyChainIndexsurveywasdesignedandanalyzedbyStonyBrookUniversity.TheinterviewswereconductedbyTheOhioStateUniversitywithasampleofmanufacturingbusinessesinNassauandSuffolkcountiesofNewYork.DatawascollectedbytelephonebetweenDecember11,2018andMarch25,2019.FurtherinformationonthemethodologyisavailableintheAppendixtothereport.

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KEYINDEXFINDINGS

• LongIslandmanufacturingexecutivesandmanagersanticipategoodconditionsinthecomingsixmonths.

• Theoutlookismoreoptimisticthanayearago.

• EachIndexindicatorisinpositiveterritory(exceeding50)andhasincreasedoverthelastyear.Thereisamarkedincreaseinoptimismaboutneworders,productionlevels,hiring,andexportscomparedtoayearago.

• Thepictureforneworderswasespeciallypositive.Almosttwo-thirds(64%)ofallexecutivesandmanagersexpectneworderstoincreaseinthenextsixmonths,comparedtoonly7%whoperceivedecline.Another30%expectneworderstoremainthesame.ThisresultedinanIndexof78.6forneworders,oneofthemostoptimisticfindingsinthisyear’ssurvey.Almosthalfofthisincreaseinneworderswasattributedtotheemergenceofnewcustomersand/ormarketsaswellasageneralimprovementinbusinessconditions.

• Optimismaboutincreasedproductionlevelsisequallyhigh.Overhalf(54%)ofLongIslandmanufacturingexecutivesexpectproductionlevelstoincreaseinthenextsixmonths,comparedto4%whoexpectadecrease,resultinginanoptimisticindexscoreof75.2.Almosthalfofthisincreasedproductionwasattributedtotheemergenceofnewcustomersand/ormarketsaswellasageneralimprovementinbusinessconditions.

• Thepictureforhiringisverypositive.66%ofcompanieshadhiredatleastonenewemployeeinthelastyear.36%ofexecutivesandmanagerssaidtheywouldincreasethenumberofemployeesinthenextsixmonths,andonly4%expectedtodecreasetheirworkforce,resultinginapositiveindexof66,amarkedimprovementover2017(59.7).

• Mostexpectedtheirinventorylevelstoremainthesameinthecomingmonths(58%),butagreaterpercentexpectedanincrease(28%)ratherthanadecrease(14%)resultinginapositiveindexscoreof56.7.

• Companiesexpecttheirbacklogoforderstoincreaseratherthandecreaseasfurtherevidenceofgoodbusinessconditions.49%expectedconditionstoremainthesame,38%expectedbacklogtogrow,and13%expectedthebacklogtodecrease.Thisleadstoapositiveindexscoreof62.7.

• Over50%ofcompaniesreportedexportinggoodsoutsidetheU.S.,asignificantincreaseover2017(35%).Ofthosewhocurrentlyexportgoods,35%expectthistoincreasewhereas56%expectlevelstoremainthesame,leadingtoapositiveIndexof62.7.

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BusinessConditionsLongIslandmanufacturingexecutivesandmanagersexpectgrowthinthecomingmonths,andareconsiderablymoreoptimisticaboutbusinessconditionsthanayearago.Overall,thePurolatorInternationalLongIslandSupplyChainIndexincreasedalmostsixpoints,goingfrom61.6in2017toacurrent67.5.LongIslandmanufacturersexpressedoptimisminallareascoveredbytheIndexbutthatsentimentisespeciallystrongwhenitcomestoneworders,productionlevels,andhiring.AnotherinterestingfindingwastheincreaseinthenumberofLongIslandcompaniesexportingtheirgoods.ManufacturingexecutivesandmanagersweremostoptimisticaboutneworderswithanIndexscoreof78.6.Almosttwo-thirds(64%)ofallexecutivesandmanagersexpectneworderstoincreaseinthenextsixmonths,amarkedincreasefromthe53%reportedin2017.Another30%expectneworderstoremainthesame.Thisresultsinover90%ofrespondentsanticipatinggrowthorstabilityintheirbusiness.Similarly,overhalf(54%)ofLongIslandmanufacturersexpectproductionlevelstoincrease,comparedtoonly4%whoexpectedadecrease,resultinginanall-timehighIndexratingof75.2Expectationsforagrowthinemploymentalsoimprovednoticeablyoverthelastyear,risingfrom59.7in2017to66.0currently.Infact,36%ofrespondentsexpecttohireinthenextsixmonths,anincreasefromthe25%reportedin2017.Thisdemonstratesstrongpotentialjobgrowthfortheregioninthecomingmonths.Comparedtothe2017Index,thenumberofLongIslandmanufacturersthatexporthasincreasedsignificantly,from35%in2017to53%currently,and35%expecttoincreasethenumberofgoodsthatthey’reexportinginthecomingmonths.

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PurolatorInternationalLongIslandSupplyChainIndexSummary

Table1:LongIslandSupplyChainIndex

%

Increase%

Decrease%

SameIndex,2019

Index,2017

Index,2016

NewOrders 64 7 30 78.6 72.4 73.0

ProductionLevel 54 4 42 75.2 69.9 69.3

Price(RawMaterial) 62 4 34 78.9 75.0 67.5

Exports 35 9 56 62.7 56.8 60.0

NewEmployees 36 4 60 66.0 59.7 56.3

InventoryLevel 28 14 58 56.7 53.7 54.9

BacklogOrders 38 13 49 62.7 55.6 54.3

AirShipment* 24 5 71 59.3 50.0 49.3

SUMMARYINDEX 67.5 61.6 60.6*Askedaboutpastsixmonths.“Don’tknow”responsesareexcludedfromthetablebutincludedinthecalculationofpercentages.

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NewOrdersAlmosttwo-thirds(64%)ofallexecutivesandmanagersexpectneworderstoincreaseinthenextsixmonths.Only7%mentionedadecrease,andlessthanathird(30%)expectedneworderstoremainthesame.Thisresultsinconsiderableoptimismaboutneworders.Whenconvertedintoanindexrangingfrom0to100(completedeclinetocompleteexpansion),newordersyieldedaverypositivescoreof78.6(calculatedaddingthepercentwhoseegrowthorexpansionplusahalfofthosewhobelievethingswillremainthesame).ThisisthehighestIndexscorerecordedoverthelastthreeyears.(Figure1)

Figure1:Overthenextsixmonths,doyouanticipateNEWORDERSfromcustomersto…?(Q2)

Note:Datain2015excludescompanieswith1-4employees

Regardlessofcompanysize,manufacturingexecutivesexpectedanincreaseinnewordersinthecomingmonths:69%ofcompanieswith25ormoreemployeesanticipatedanincreaseinnewordersfromcustomers,comparedto66%ofcompanieswith10orfeweremployees.

49% 43% 37% 30%

6%6% 9%

7%

45% 51% 53%64%

November2015 May2016 July2017 March2019

Increase

Decrease

RemainabouttheSame

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Whenaskedwhytheyexpectneworderstoincrease,anearmajorityofmanufacturingexecutivesandmanagerssawthisaslinkedtofactorslikelytopersistovertime.Justoveraquarter(28%)mentionedtheemergenceofnewcustomersornewmarkets,13%mentionedanimprovementinbusinessconditions,and6%mentionedexpandedproduction.Aminority(27%)mentionedtemporaryfactorslinkedtoheightenedseasonaldemandastheexplanationforanticipatedneworders.Interestingly,25%thisyearstated“other”reasonsincludingcompetitorsgoingoutofbusiness,oraddingmoresalesforces,ormarketing.(Table2)

Table2.WhatisthemainreasonwhyyouexpectNEWORDERSfromcustomerstoincrease?(Q2a)

ReasonsforIncreaseNovember

2015

May

2016

July

2017

March

2019

Emergenceofnewcustomersoranew

market32% 26% 34% 28%

Increaseinseasonaldemand 18% 26% 27% 27%

Improvementingeneralbusinessconditions 21% 13% 19% 13%

Expandedproductioncapacity 11% 13% 10% 6%

Other 18% 20% 10% 25%

EnhancedProductionLevelsMorethanhalf(54%)ofLongIslandmanufacturingexecutivesandmanagersexpectproductionlevelstoincreaseinthenextsixmonths,comparedtoonly4%whoexpectadecrease,leadingtooverallgrowth.Thisrepresentsamarkedincreaseover2017.TheproductionIndexhitanall-timehighof75.2.(Figure2)

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Figure2.Overthenextsixmonths,doyouexpectPRODUCTIONLEVELSto…?(Q1)

Note:Datain2015excludescompanieswith1-4employees

Theexpectedgrowthinproductionwasmostpronouncedamonglargercompanieswith25ormoreemployees.66%ofthesecompaniesexpectedproductiontoincreasecomparedto53%ofthosewithfewerthan10employees.(Figure3)

Figure3.Overthenextsixmonths,doyouexpectPRODUCTIONLEVELSto…?(Q1)“ByNumberofEmployees”

53% 46% 42% 42%

9%7% 8% 4%

38% 45% 47% 54%

November2015 May2016 July2017 March2019

Increase

Decrease

RemainabouttheSame

43% 52%31%

4%3%

3%

53% 45%66%

Lessthan10 10-24 25+

Increase

Decrease

RemainabouttheSame

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Roughly46%attributedthegrowthinproductiontorelativelystablefactorssuchasnewmarkets(25%)andageneralimprovementinbusinessconditions(21%).Another23%attributedthistoincreasedseasonaldemand.(Table3)

Table3.Whatisthemainreasonwhyyouexpect

PRODUCTIONLEVELStoincrease?(Q1a)

ReasonsforIncreaseNovember

2015May2016

July2017

March2019

Increaseinseasonaldemand 20% 27% 35% 23%

Emergenceofnewcustomersoranewmarket 24% 37% 25% 25%

Improvementingeneralbusinessconditions 22% 15% 20% 21%

ExpandedProductionCapacity 16% 9% 14% 11%

Other 17% 12% 6% 21%Note:Datain2015excludescompanieswith1-4employees

InventoryLevelsAgreaternumberofLongIslandmanufacturingexecutivesandmanagersexpecttheirinventorylevelstoincrease(28%)thandecrease(14%)inthenextsixmonths,with58%expectinglevelstostaythesame.ThisgeneratedapositiveIndexof56.7.Increasedinventoryisconsideredmoreadvantageousthandecreasedinventorybecauseitmeansthatmanufacturershavethecapacitytomeetsalesdemand.Expectationsaboutincreasedinventoryweregreateramongcompanieswithasmallersalesvolumeandfeweremployees.38%ofthosewithlessthanamilliondollarsinsalesexpectedanincreaseininventorycomparedto20%ofthosewithsalesoveramilliondollars.Overall,theinventoryIndexincreasedfrom53.7in2017to56.7in2019.(Figure4)

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Figure4:Overthenextsixmonths,

doyouexpectyourINVENTORYLEVELSto…?(Q3)

Note:Datain2015excludescompanieswith1-4employees

BacklogOrderAgreaternumberofexecutivesexpectedtheirbacklogoforderstoincrease(38%)thandecrease(13%)inthecomingsixmonths.Thiswaslargelyduetostablefactorssuchasnewcustomers(33%)andimprovedbusinessconditions(19%).Increasedseasonaldemandalsoplayedaninfluentialrolewith38%ofexecutivesandmanagerssayingitwouldleadtoanincreaseinbacklogorders.Anexpectedincreaseinbacklogwasobservedregardlessofcompanysalesvolume.ThebacklogIndexwasapositive62.7,anincreaseover55.6in2017,reflectinganexpectedincreaseinordersandapotentialneedforincreasedfutureproduction.(Figure5)

68% 63% 63% 58%

15%13% 13%

14%

14% 22% 20% 28%

November2015 May2016 July2017 March2019

Increase

Decrease

RemainabouttheSame

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Figure5:Overthenextsixmonths,

doyouexpectYOURBACKLOGOFORDERSto?(Q9)

Note:Questionwasn’taskedin2015

PriceofRawMaterialsExecutivesexpectedanincreaseinthepriceofrawmaterialsincomingmonths,servingasanadditionalindicatorofgrowthinthemanufacturingindustry.TherehavebeenexpectedincreasesinpricesineachsuccessiveIndexfrom67.5in2016to75in2017and78.9in2019.In2019,62%ofexecutivesexpectedpricestoincreasecomparedto4%whoexpectedadecline.HiringTheoverallpictureforhiringispositive.66%ofcompanieshadhiredanewemployeeinthelastyearwhichwasanincreaseover2017(60%).Largecompaniesweremostlikelytohavehired.83%ofcompanieswith25employeesormorehadhiredanewemployeecomparedto54%ofthosewith10orfeweremployees.76%ofcompanieswithannualrevenuesofamilliondollarsormorehadhiredcomparedto47%ofthosewithrevenuesunderamillion.Theoutlookforhiringinthenextsixmonthswasalsoverypositiveandreflectedanimprovementover2017.36%ofexecutivesexpectedtoexpandthesizeoftheircompanycomparedto4%whosaidtheircompanywoulddecreaseinsize.

65% 63%49%

13% 12%

13%

22% 24%38%

May2016 July2017 March2019

Increase

Decrease

RemainabouttheSame

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Companyexecutivessaidthatthisgrowthwasduetostablefactorssuchasnewcustomers(32%)andimprovedbusinessconditions(24%)plussomeincreaseinseasonaldemand(16%).Overall,theemploymentIndexreachedarecordhighof66comparedto59.7in2017and56.3in2016.Largercompanieswithagreaternumberofemployeesweremostlikelytosaytheywouldincreasetheirworkforceinthenext6months.(Figure6)

Figure6:OvertheNEXTSIXMONTHS,doyouexpectthetotalnumberofemployeesinyourcompanyto?(Q6)

“ByNumberofEmployees”

AirShipments42%ofcompaniesinthestudydonotshipbyair.Amongthosewhodo,amajority(71%)saidairshipmentshadremainedthesameoverthelastsixmonths.Almostaquarterofcompanieshadincreased(24%)airshipmentsinthepastsixmonthscomparedtoonly5%whoreducedthenumberoftheirairshipments.

63% 59% 59%

4%3% 3%

33% 38% 38%

Lessthan10 10-24 25+

Increase

Decrease

RemainabouttheSame

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ExportMorethanahalf(53%)ofallmanufacturingcompaniessurveyedexporttheirproducts,anincreaseover2017when35%ofcompaniessaidtheyexportedtheirproducts.Ofthelessthanhalf(47%)thatdonotexport,only18%saidtheywereormightbeinterestedinexportinggoodsinthefuture.ThemostcommonregionforexportsisAsia(41%),anincreasewhencomparedto2017(28%).ThisisfollowedbyCanada(34%)andEurope(30%).AquarterofcompaniesexporttoMexico(25%)andtoothercountriesinCentralandSouthAmerica(25%).14%exporttotheMiddle-East.Amongexporters,themajority(62%)receivelessthan10%oftheirrevenuesfromexports.Amongcompaniesthatexport,agreaternumberexpecttoincrease(35%)thandecreaseexports(9%)inthecomingsixmonths.Newercompanies,foundedin1975orlater,weremostlikelytoexpectanincreaseintheirexports(29%comparedto7%ofcompaniesfoundedbefore1975).Alltold,theexportIndexforthosecompaniescurrentlyengagedinexportinggoodsoutofthecountrywasapositive62.7,andhigherthanin2017whentheindexwas56.8.ChallengesFacedbyExportersWhencurrentexporterswereaskedaboutthechallengestheyface,thetwomostcommonlymentionedfactorsweremeetingforeignregulationsandcustomsrequirements,andshippingcostsand/ordelays.Otherconcernsincludedthecostoftariffs,developingcontactsinforeignmarkets,andalackofassistanceinhelpingtomarketandworkwithforeigncustomers.(Figure7)

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Figure7.Whatifanychallengesdoyoufindinexportingyourproducts?

FutureofManufacturingonLongIslandInadditiontotheIndexquestions,thePurolatorInternationalLongIslandSupplyChainIndexaskedsurveyrespondentsfortheirperceptionsandbeliefsaboutthefutureofthemanufacturingindustryonLongIsland,wheregrowthwilloccur,howthelocalgovernmentcouldbettersupportlocalmanufacturers,aswellastheadoptionofadvancedmanufacturingand/orrobotics.Onaverage,manufacturingexecutivesandmanagersweresplitoverwhethertheyfeltmoreoptimisticaboutLongIslandmanufacturingthan10yearsago.Aslightlygreaternumberwerelessoptimistic(55%)thanmoreoptimistic(45%).ThosewhorespondedwithlessoptimismwerethenaskedwhytheybelieveLongIslandmanufacturingwasweakerthaninthepast,themostcommonresponsewasthehighcostofdoingbusinessonLongIsland,followedbyageneraldeclineinAmericanmanufacturing,andalackofskilledlabor.(Figure8).

Contactsinforeignmarkets,16%

Foreignregulations/custom,

36%

Increasingproductionto

meetdemand,2%Staffing,2%

Lackofsupportworkingwithforeign

customers,8%

Shippingcosts/delays,30%

Tariffs,18%

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Figure8:Whydoyoubelievethemanufacturingindustryon

LongIslandisweakernowthanyearspast?

ManufacturingexecutivesandmanagerswerealsoaskedwhatbusinessgroupsandgovernmentcoulddotobettersupportLongIslandmanufacturing.(Table4)

Table4:WhatcouldbusinessgroupsandgovernmentofficialsdotobettersupportthemanufacturingindustryonLongIsland?

HowcanBusinessGroupsandGovernmentHelp March2019

Providetaxrelief 73%

Providemoreeducationandtraining 32%

Passfavorablelegislation 24%

Providegrantprograms 24%

Other 15%

CostofdoingbusinessonLong

Island,66%

LessmanufacturingintheUS,27%

Alackofskilledworkers,17%

Lackoftrainingandeducation,5%

Alloftheabove,7%Other,15%

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WhenaskedwhatmanufacturingindustrysectorsonLongIslandhavepotentialforfuturegrowth,themostpopularresponsewasmedicalcareequipmentanddevices,followedbyaerospace,biotechnologysuchasgeneticresearchandDNAmapping,andcomputerandelectroniccomponents.(Table5).

Table5:InwhatmanufacturingindustrydoyouforeseegrowthopportunitiesonLongIsland?

ManufacturingGrowthIndustriesonLongIsland March2019

Medicalcareequipmentanddevices 35%

Aerospace 32%

Biotechnology(geneticresearch,DNAmapping) 23%

Computerandelectroniccomponents 23%

Energy 14%

Chemical 7%

Other 24%

AdvancedManufacturingandRoboticsAlmost80%ofrespondentsexpectedLongIslandmanufacturingcompaniestoadoptadvancedmanufacturingandrobotics,althoughexecutivesweresplitoverwhetherthiswouldgeneratejoblosses(51%believeditwould).Todate,47%saidtheirowncompanyhaddigitizedsomeofthemanufacturingprocess,and75%whohaddonesoprovidedtrainingforemployeesonthenewtechnology.

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RespondentCharacteristicsThefinalnumberofrespondentswas106.Morethanafourth(41%)ofallsurveyrespondentswereCEOsorPresidents,aquarter(25%)wereMangersorSupervisorsandtherestwereVP/Directorsorotherexecutives.Amajorityofrespondents’wereinvolvedinpurchasing(67%),manufacturingorproduction(75%),operations(70%),Inventory(64%)andshipping(66%)androughlytwo-thirdswereinvolvedinthesupplychain.(Table6)

Table6:Title/PositionofRespondent

Title N=106

CEO/President 41%

Manager/Supervisor 25%

VicePresident/Director 17%

Executive 5%

Other(Pleasespecify) 12%

CurrentPositionInvolves:

Manufacturing/Production 75%

Operations 70%

Purchasing 67%

Shipping 66%

SupplyChain 65%

Inventory 64%

Other 25%

MethodologySUMMARYTheSupplyChainIndexsurvey,obtainedinterviewswithasampleof106manufacturingbusinessesinNassauandSuffolkcountiesofNewYork.ThesurveywasconductedbyTheOhioStateUniversityanddatawascollectedbytelephonefromDecember11,2018toMarch25,2019.Themarginofsamplingerrorforthecompletesetofdatais±9.5percentagepoints.StonyBrookUniversitydesignedthesurveyandanalyzedthedatatopreparethisreport.

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DESIGNANDCONTACTPROCEDURESSampleDesignSamplewasprovidedbyListGiantandwasdrawnfromtheirDun&BradstreetMasterFile.AllcompanieswithmanufacturingSICcodeswithalocationinNassauorSuffolkcountywereinitiallyselected.ContactProceduresInterviewswereconductedfromDecember11,2018toMarch25,2019.Datawascollectedbyphoneinterview.Atotalofbetween2and11attemptsweremadetocontacteverysampledcompany.Interviewerslocatedthepersonresponsibleformanufacturing,production,inventory,operations,purchasing,orshipping.Interviewersalsoverifiedthenumberofemployeestobe3ormore.

AboutPurolatorInternationalPurolatorInternationalisasubsidiaryofPurolatorInc.,aleadingintegratedfreight,packageandlogisticssolutionsproviderinCanada.PurolatorInternationalspecializesintheairandsurfaceforwardingofExpress,FreightandParcelshipments,customsbrokerage,andfulfillmentanddeliveryservicesto,fromandwithinNorthAmerica.PurolatorInternationalhasreceivednumerousindustryawardsforitssuperiorserviceandinnovativesolutions,including“100GreatSupplyChainProjects”bySupply&DemandChainExecutivemagazine,“Top100GreatSupplyChainPartners”bySupplyChainBrainmagazine,“Top1003PLProviders”byInboundLogistics,andLogisticsManagement’s“QuestforQualityAward.”InadditiontofacilitiesthroughoutNewYork,PurolatorInternationalhaslocationsinkeyU.S.marketsincludingAtlanta,Baltimore,Boston,Buffalo,Charlotte,Chicago,Cincinnati,Cleveland,Columbus,Denver,Dallas-FortWorth,Detroit,Nashville,Newark,Houston,Indianapolis,NewYork,LosAngeles,KansasCity,Memphis,Miami,Milwaukee,Minneapolis,Philadelphia,Phoenix,Pittsburgh,Raleigh-Durham,SanDiego,Seattle,SanFrancisco,SaltLakeCity,andSt.Louis.FormoreinformationaboutPurolatorInternational,visitwww.purolatorinternational.com.