TOOLS TO WEATHER AN ECONOMIC DOWNTURN AND CAPITALIZE ON THE RECOVERY SRN Presentation 12/09/09

MILWAUKEE GEAR COMPANY Rick Fullington CEO

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 expectations Clearly 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 change Assumes 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