TOOLS TO WEATHER AN ECONOMIC DOWNTURN AND

CAPITALIZE ON THE RECOVERY

SRN Presentation12/09/09

MILWAUKEE GEAR COMPANY

Rick FullingtonCEO

What are the challenges

During an Economic Downturn

Manage for the moment

Prepare for the future

It’s about the numbers

MANAGING FOR THE MOMENT

Be ahead of the curve Proactive rather than reactive Bias towards Action

Constantly re-assessing length and steepness React timely Management-lead by example Share the pain Market place should support these actions

Managing for the moment---continued

Customers Communicate, communicate, communicate

Goes both ways Constantly monitor credit Cancellations Push outs Always be business like Always approach from the economic/good business

practices standpoint

Managing for the moment---continued

Suppliers Communicate, communicate, communicate Everything is negotiable Reward good performance Take stock of what you have Communicate to all levels of your organization

Nothing is bought unless absolutely needed Make things last Take care of “our things”

Managing for the moment---continued

People (employees/associates) Various tools that can be deployed

Reduce/eliminate overtime Reduce/eliminate shifts Weekly crewing Rolling deferrals Shortened work weeks Planned shutdowns Communicate, communicate, communicate

Managing for the moment----continued

Various tools---continued Layoffs

MAINTAIN THE BEST TEAM Review everyone-classify as A, B, C, etc.

Set or reset expectationsClearly communicate responsibilities

Skill and ability Super Seniority Seniority

• Direct vs. indirect/support Pay cuts Benefit cuts What works for your organization

Managing for the moment---continued

Communication Early Often

Impact on Morale Keeps anxiety manageable

Transparency No hiding No holding back No sugar coating Bad news first

On-going, even with those laid off

PREPARE FOR THE FUTURE

Leaner Organization Processes/Procedures

Lean Mfg./Continuous Improvement efforts Shop Office

Systems IT Supply Chain Internal Pipelines

Prepare for the future---contd.

Leaner Organization---contd. People

Training Education Flexibility The tools you give them to work with

It’s about changeAssumes you want to maintain or improve

your competitive position

Prepare for the future---contd.

Markets How good are the industries that you serve How good are the customers you serve How to increase your market share

Short term Mid term Long term

Products/Services Sales/Marketing Organization

• How are customers changing• How might competitors be changing• How will things be changing globally• What impact will technology have

IT’S ABOUT THE NUMBERS!

Communications-with investors, bankers or owner/operators How good is your story Common themes for all of their businesses

Covenants EBITDA Ability to service debt

It’s about the numbers---contd.

Good Forecasts Revenue

Monthly, Quarterly, Annual Data points

Customers Economic Industry Leading Indicators

It’s about the numbers---contd.

Good Forecasts---contd. Costs

Establish new run rate Prepare a detailed budget Monthly, quarterly, annual Incorporate all cost saving measures

Cash Flow Working Capital—short term/long term Service debt Factor in Maintenance Capital Expenditures Cash is King!!!

It’s about the numbers---contd.

Good tools to control and monitor Financial Statements

Business Scorecard Financial reports

Balance Sheet Statement of Operations (Income or P&L Statement) Statement of Cash flows (Sources and Uses of Funds) Covenant analysis

• EBITDA (Earnings Before Interest, Taxes, Depr., Amort.)• Debt service coverage• Funded debt to EBITDA

It’s about the numbers---contd.

ORR ratios

Financial ratios

Asset Productivity ratios

Employee Productivity ratios

It’s about the numbers---contd.

Financial Ratios They are the basic scores on which managers are

judged by creditors and the suppliers of capital to the business, the investors. EBITDA Times Interest Earned Current Ratio Sales to Working Capital Debt to Equity

It’s about the numbers---contd.

Asset Productivity Ratios Defined

Average Collection Period Inventory Turnover Inventory holding Period (Days) Sales to Fixed assets

It’s about the numbers---contd.

Employee Productivity Ratios Defined

Sales Per Employee Value Added Per Employee Gross Margin Per Employee Total Payroll (% of Net Sales)

It’s about the numbers---contd.

Operational Analysis Sales Volume Analysis

Historical Comparison Fixed Costs Variable Costs Semi-Fixed/Variable Costs

Benchmarking—ORR Operate to a plan and a budget

It’s about the numbers---contd.

Cash is King If nothing else, you should build cash from;

Inventory reduction Accounts receivable reduction Absolute must for bank to see

Will be needed to finance inventory and A/R when upturn occurs

It’s about the numbers---contd.

Cash Flow statements/forecasts Quarterly

Several years worth Capex

Maintenance Productivity capacity

Summary Manage for the moment It’s about the numbers

Work to a plan Make your numbers

Prepare for the future Hard to recover if you fall behind

Questions