Durable Results Transform Your Business By Simplifying Your Metrics Presented by Don Davis

Duckridge Advisors Release Your Inner Bean Counter Simplify your Financial Statements and Drive Improved Results Understand the Impact of Metric Management Introduction

Duckridge Advisors Agenda Cash Flow as the Ultimate Metric How Your Financial Statements Fit Together What Metrics Are Best For Your Business Industry Examples Lincare, Invacare, American Home Patient Using Ratio Analysis for Quick Review

Duckridge Advisors Cash Flow: The Ultimate Metric “Too often we measure everything and understand nothing. The three most important things you need to measure in a business are customer satisfaction, employee satisfaction, and cash flow. If you’re growing customer satisfaction, market share is sure to grow, too. Employee satisfaction feeds you productivity, quality, pride and creativity. And cash flow is the pulse -- the key vital sign of a company” Jack Welch - former CEO, GE

Quick Primer on Cash Flow Information Available in Your Monthly Financial Statements

Duckridge Advisors Cash Flow Statement Financial Statements The Three Pillars Earnings Statement Balance Sheet Sales Cost of Sales Gross Profit Operating & Admin EBIT Interest & Taxes Net Income Change in Working Capital Cash from Operations CAPEX Cash from Financing Activities Cash AR Rental Equipment Total Assets AP & Accruals Debt Total Liabilities Equity Total Liabilities & Equity

Consolidated Statement of Operations In $ millions Net revenues 1, , ,409.8 Cost of goods and services Operating expenses Selling & Administrative Bad Debt expense Depreciation and Amortization EBIT EBITDA Interest & Tax (161.5) (157.1) (134.1) Net Income EBIT Margin24% 25% Earnings per Share $3.17 $2.58 $2.16 P/E EBITDA Multiple4.9X7.7X10.8X

Consolidated Statement of Cash Flows In $ millions Net Income Depreciation and amortization Provision for losses on receivables Stock-based compensation expense Deferred income tax Increase in AR (2.3) (52.3) (49.6) Increase in AP and Accruals Other Operating (23.3) Net Cash Provided by Operating Activities Net Cash Used for Investing Activities (108.4) (232.9) (127.6) Net Borrowings & Finance Costs (287.2) Stock Repurchase and Stock Options (22.6) (627.3) (232.4) Net Cash Provided (Used) by Financing Activities (309.8) (146.7) (184.6) Increase in cash Cash at beginning of year Cash and cash equivalents at end of year

Duckridge Advisors Ratio Analysis In $ millions Sales 1, , ,409.8 EBIT EBITDA Net Income Cash from Operations AR Debt EBIT Margin24% 25% EBITDA Margin31% 32% Net Margin14% 15% Sales Converted to Cash26%25%23% Cash to EBITDA85%81%73% Debt to EBITDA 1.1X 1.7X 0.8X Days Sales Outstanding394538

Duckridge Advisors What Are Most Effective Cash Flow Metrics? Daily Cash Report How Much Cash Did You Begin the Day With? How Much Cash Came In? How Much Cash Went Out? How Much Cash Do I Have at End Of Day? Month End Cash Flow Statement Compare to Prior Months for Orientation Develop Sales Converted to Cash Orientation

Duckridge Advisors Simplify Your Metrics Drive Results Compare Either versus prior year or prior months The more comparison points the better Summarize Always have a one page summary prepared. Use the summary to evaluate the detail Divide Use ratios to your advantage Benchmark yourself against yourself

Duckridge Advisors Industry Examples Quick Snap Shot of Publicly Traded Industry Leaders Focus on Simplicity and Relevancy Incorporates the Idea of Compare, Summarize and Divide What Other Metrics Would You Add?

Company Comparison and Ratio Analysis As of December 31, 2008 In $ millions Rotech Sales 1, ,755.7 Cost of Sales ,266.8 Bad Debt Write-offs S G & A EBIT EBITDA Net Income (246.9) 38.6 Cash from Operations AR Debt EBIT Margin24%8%1%5% COS to Sales24% 40%72% Bad Debt to Sales2% 4%1% SG&A to Sales20%7%55%23% Sales Converted to Cash26%13% 4% Debt to EBITDA1.1X4.5X6.8X3.6X Days Sales Outstanding38.8 days53.5 days41.4 days56.3 days

Cash Flow P&L Key Ratios  Gross Margin  EBIT Margin  Sales Converted to Cash  Sales by Employee  Payroll to Sales  Other Identified Costs to Sales  Days Sales Outstanding  Inventory Turns  Gross Margin by Product Line  Quick Ratios  Debt to EBITDA  Debt to Equity Balance Sheet

Gauging Sales by Employee Under $50,0003%21% $51K to $75K2%9% $76K to $100K8%12% $101K to $125K16%18% $126K to $150K19%18% $150+K52%21% Per Steven Richards & Associates, Inc

Duckridge Advisors Major Players: Sales, PROFIT & Cash per Employee At LincareAHOMRotechInvacare Employees Per Employee $’s Sales EBITDA Cash from Operations

DSO: a Matter of Opinion? Per Steven Richards & Associates, Inc

Duckridge Advisors DSO: The Assorted Math Calculations Differ by Organization Some use rolling average Some annualize Timing of Write-offs Has Impact What Impact Does a Day Mean?

Duckridge Advisors DSO: The Assorted Math Lincare Example (in $ Millions) 4 th Quarter 2009 Full Year 2009 Sales Accounts Receivable DSO

Duckridge Advisors DSO: The Assorted Math Timing of Write-offs Matter ABCXYZ Sales3,600 Bad Debt (Reported) Bad Debt to Sales3%0% Accounts Receivable DSO4556

Duckridge Advisors DSO: The Assorted Math What Is A Day Worth? Sales $ 3,650,000 One Day’s Sales (One time effect) $ 10,000 Write-off 1% (annually) $ 36,500

Duckridge Advisors So What? Summarize, Compare and Divide For High Level Review Establish Your Own Metrics Quick Summaries allow for Quick Reviews for Busy Executives Different Comparisons provide Different Points of View Focus on Cash

Duckridge Advisors Transform Your Business By Simplifying Your Metrics Daily Cash Report Monthly Review of Cash Flow Sales converted to Cash Compare all Metrics Prior Months Prior Year to Date Budget

Where to Get More Information Get remote electronic access to your Financial Reporting Software and Explore Learn more about your own Company by Understanding Your Industry Leaders Click on Search for Company Filings Focus on 10-K Annual Reports Contact me at or D uckridge A dvisors