jan 2006 tma newsletter final

Greetings! The International TMA convention in Chicago had record attendance. The Detroit Chapter sponsored a Second City Improv with the Chicago and St. Louis chapters on Wednesday night of the conference. Over 300 people were in attendance for this joint event. Detroit was well represented as Marty Battaglia, Van Conway, Bill Diehl and Kimberly Rodriguez were on a panel moderated by Judge Rhodes on the automotive industry. Scott Terryn arranged for LaSalle Bank to host the ACTP courses and exam over three days in late October. We had 23 attendees for this program which demonstrated our commitment to the CTP accreditation. Special thanks to Scott and LaSalle Bank for

hosting. The activity on the Presidents Counsel in 2005, which is comprised of Chapter Presidents, has merited the presidents special representation on the TMA Board. Dan Dooley from the Chicago chapter is our representative. Your TMA Board is working hard to produce quality programming in 2006. We hope to exceed last year’s attendance for the March 29th automotive conference. Brad Coulter, Bob Mollhagen and Jim Embree have been working with Judge Rhodes from the Eastern District regarding input to produce what I hope to be an even more spectacular event than the last one. We hope to have enough capacity this year at the Atheneum so as not to turn away anyone who wants to attend. Detroit has just been selected to receive the Most Improved Chapter of the Year Award by the International TMA. Awards will be presented at the International Spring Conference in Phoenix on March 24, 2006. We’ve come a long way baby! Special thanks to the Board for preparing the intake package and providing the necessary content in making the Detroit Chapter recognized for its outstanding growth and contribution to TMA. Finally, may 2006 continue to be a prosperous year for our industry and best wishes for good health to all of our membership. Sincerely,

Patrick M. O’Keefe TMA Detroit Chapter President

FROM THE CHAPTER PRESIDENT

TMA Detroit

T U R N A R O U N D M A N A G E M E N T A S S O C I A T I O N

Volume 1, Issue 2

January 2006

Featured Turnaround Articles

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2005-06 Detroit TMA Award Nominations

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Event Highlights 7

Education Connection 8

Save the Date 9

Legal Corner 10

Utilizing the TMA Web 12

People in the News 12

TMA Membership Application

13

Corporate Sponsors 14

Inside this issue:

• 1/24—Hedge Fund Panel, Troy Marriott 7:30 a.m.

• 3/29—Automotive Event, Atheneum Hotel

• 4/25—Cocktails & hors d’oeuvres– joint with ACG at the DAC

• 6/20 Golf Outing at Twin Lakes

Upcoming Events:

TMA Detroit Newsletter

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How Do You Cut Costs After You Have Cut to the Bone? The Top 30 Ways to Reduce Expense Many companies today are facing extremely tough financial and operating conditions that are only likely to get more difficult. Even more resources will be required in the future to compete for customers, employees, vendors, joint ven-ture partners, business partners, investors, lenders, publicity, and on and on. The purpose of this article is to provide assistance for companies that have already gone through their cost structure and have cut all the fat out, but recognize they must find a way to do much more to enable them to grow and be successful.

The first step is to recognize that further significant cost cuts demand strategic thinking, teamwork, and a sound business plan, the same process required for a growth plan. Otherwise, further cuts will weaken the organization and are very likely to lead to just more cost cutting later on.

Cost cuts should be a means of strengthening the organization for the future, not just buying time. An experienced consultant can provide the valuable perspectives to help make prudent decisions, the manpower to get the job done with a sense of urgency at a critical juncture, the new ideas and creativity from understanding how many other organizations have faced similar issues and the objectivity needed to counter entrenched vested interests.

In the list below, the most successful cost reduction methods are listed first and the least preferred (but the most often used methods) are listed last:

1. Refocus and reduce cost through strategic planning (the most successful method for cost reduction): rank each department or profit center in terms of its current and longer term value (basically, calculate the program’s future return on investment); cut the lowest-ranked areas.

2. Increase quality to reduce rework, scrap and administrative cost. 3. Take a fresh look at the entire expense structure by utilizing zero base budgeting and/or activity based accounting. 4. Tap into new ideas from employees--give them an opportunity to provide information without fear of being identified, patronized, or criticized--have a consultant ask for their ideas respectfully and confidentially. 5. Take advantage of your difficult financial circumstances to renegotiate leases or debt service payments (reduce or defer payments, extend terms, return equipment, request interest-only payments, etc.). 6. Negotiate feasible monthly payment terms with vendors to eliminate interest and penalties on past due amounts (as part of a sound overall business plan). 7. Prepare breakeven analyses, take a hard look at all opportunities—revenue (volume, price and mix), variable cost and fixed cost. Article continued on page three...

FEATURED TURNAROUND ARTICLES

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8. Develop a longer term view by preparing contingency plans (e.g., by developing alternative scenarios of 5%,

10% and 15% cuts in operations). 9. Pay down debt or reduce lease costs by selling off real estate, equipment and/or other underutilized assets. 10. Gain efficiencies and economies of scale: eliminate excess capacity and duplication of services, expand through

vertical or horizontal integration to gain synergies, and gain access to new geographic areas. 11. Bring more work in-house as opposed to utilizing more expensive outside vendors or outsource more work to

less expensive outside vendors, depending on the circumstances. 12. Centralize or decentralize overhead functions, depending on the circumstances. 13. Combine with other organizations to pool purchasing power and negotiate lower costs from suppliers. 14. Reduce “fixed costs” by utilizing the advice of outside experts in areas such as health insurance, phones, office

rent, property tax, vehicles, information technology, outside accounting fees and janitorial fees. 15. Obtain better computer systems to reduce the personnel cost of financial and operational reporting. 16. Target marketing and advertising dollars most efficiently by preparing demographic analyses. 17. Keep personnel costs in line with the competition by utilizing salary, wage and benefit analyses available from

outside sources. 18. Generate additional value and reduce expense by implementing incentive compensation systems, instead of using

flat salaries and wages, when appropriate. 19. Reduce administrative cost by listing all reports and then eliminating all those that are unnecessary. 20. Reduce significant costs by tracking (e.g., posting graphs and monitoring) key operating statistics as appropriate

(on a daily, weekly or monthly basis). 21. Incorporate the best practices of competitors and other similar organizations to reduce cost. 22. Reduce managerial personnel cost by expanding the number of direct reports per manager (flattening the organization). 23. Reduce the number and length of business meetings and the number of attendees at each meeting. 24. Require all employees to report how they utilized their time (the tasks they completed), on an hourly basis, for

one week each quarter. Least Preferred Cost Reduction Methods

1. Increase employee oversight and discipline by requiring all employees to utilize a time clock. 2. Freeze salaries, decrease employee benefits, increase overtime for exempt employees, postpone hiring, increase

reliance on contract employees and part-time staff who are not provided with benefits. 3. Cut all capital expenditures, repairs and maintenance, employee training, new programming, marketing and consulting fees. 4. Require the managers of all departments to devise their own means to reduce expense by a certain percentage or

dollar amount. 5. Require that all expenses be reduced by a specific percentage across the board. 6. Wait for a miracle.

...continued from page two



The Bottom Line

As stated previously, cost cuts should be a means of strengthening the company for the future. An experienced consultant can provide:

• Valuable perspectives to help make a prudent decision, • Manpower to get the job done with a sense of urgency at a critical juncture, • New ideas and creativity from understanding how other organizations have faced similar issues, • Objectivity needed to get past roadblocks and vested interests and gain the most value for the organization as a

whole, and the • Confidentiality for your employees so they can be forthcoming with many new ideas and procedures without fear of criticism or retribution. The best leaders are those constantly looking for good ideas everywhere and learning from others.

Article submitted by Fred Leeb, FRED LEEB & ASSOCIATES, LLC

Turnaround first, bankruptcy second, meant smoother sailing The Chapter 11 Bankruptcy of Knowlton Specialty Papers Inc., the oldest continually operating paper proc-essing mill in the United States, went smoothly. All parties worked together, there was little adversity, and creditors were paid in full. A big part of the reason, said Ron Castor, turnaround professional with JC Jones & Associates, was that the company’s turnaround was completed prior to the bankruptcy. “That’s a huge advan-tage,” he said. “So many turnaround people go in and bankrupt the company first, and then figure out what to do with it.” Castor says JC Jones’ preference is to fix the operations first, fix the core business, and make a plan for the fu-ture without the added administrative pressures and distractions of bankruptcy proceedings. In Knowlton’s case, forestalling the bankruptcy allowed Castor’s team to direct their full energy and management’s focus on fixing the operations. Only then could the company’s cash flow and true value become apparent and realized. Article continued on page 5….

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Forestalling a bankruptcy filing until after a turnaround is complete isn’t always possible. Sometimes doing the turnaround first reveals that a filing might not be even necessary. For Knowlton, a proposed “Informal Bankruptcy Plan” would have given more value faster had key vendors agreed, in Castor’s opinion. Instead, an involuntary Chapter 7, converted to a voluntary 11, delayed initial payments for over a year and added hun-dreds of thousands of dollars of costs. By virtue of the hard work and cooperation of management, unions and turnaround professional Ron Castor; and the patience of vendors, customers and lenders, Knowlton’s turnaround saved 100 jobs, preserved the history of a 200-year-old company, and earned JC Jones & Associates the Turnaround Management Association’s Turnaround of the Year Award. Article Submitted by JC Jones & Associates, LLC, a business turnaround and management consulting firm with offices in Detroit, Dallas, Rochester and Syracuse, NY.

Technical or Legal Articles

Have something you think fellow TMA members would like to be informed about? Send your articles to board member Bob Mollhagen @ [email protected].

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New Awards Program Established for 2005-2006 by the TMA Detroit Chapter Entries Due: Monday, April 15, 2006 for Turnaround and Transaction Awards Please contact Marc M. Bakst ([email protected]) or Jenni Brewer ([email protected]) for further information. At the Detroit Chapter of the Turnaround Management Association, we know that a turnaround means more than adjusting a balance sheet. When corporate value is on the line, jobs are at stake and time is the enemy, turnaround professionals step in to establish effective operations, implement solid management, improve cash flow and increase production, and address myriad other factors to contribute to the triumphant recovery of a struggling company. Because the Detroit Chapter understands that each turnaround is unique, we have created distinct categories to recognize outstanding turnarounds, and our members involvement in those turnarounds. In 2006, for the first time, the Detroit Chapter will consider applications for awards in several categories to be presented to the mem-ber who, together with his or her team of turnaround professionals, has orchestrated the most successful turn-around in that category in 2005 - 2006. The award categories are: Turnaround of the Year-Small Company Honoring the successful turnaround of a company whose revenue at the onset of the turnaround was below $50 million (USD). Turnaround of the Year-Large Company Honoring the successful turnaround of a company whose revenue at the onset of the turnaround was at or above $50 million (USD). Transaction of the Year Award This award will honor the turnaround professionals who led a distressed financial transaction that if not exe-cuted, would have likely resulted in the failure of a business and lower recoveries to creditors. The application for the winning transaction should demonstrate that the results obtained clearly surpassed alternatives in recov-ery and/or value capture and clearly be shown to have been the optimal exit or result for the business, creditors and other constituencies. Examples include: capital restructure, sale of assets, refinancing of debt, etc. For each award, the transaction must have closed between January 1, 2005 and March 31, 2006. Recipients of the awards will be recognized at the annual golf outing in June. Please contact board member Marc M. Bakst ([email protected]) of Bodman LLP if you are interested in being a member of the Awards Committee, or with any questions about the new Awards program. Applications will be available February 1, 2006.

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2005-2006 DETROIT TMA AWARDS NOMINATIONS

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Kurt Eichenwald Book Signing

(From left to right) Pat O’Keefe, Kurt Eichenwald and

Brad Coulter before the event

October 5th at the Detroit Athletic Club

Kurt Eichenwald, New York Times writer and author of Conspiracy of Fools, presented insight into the Enron debacle. After the event, he personally signed 100 of his books, one for each attendee.

On November 9, TMA hosted a breakfast event at the Detroit Athletic Club featuring Rob Simon from J.D. Power Automotive Forecasting Group. The event was a complete sell out and Mr. Simon gave the audience a somewhat upbeat view on future prospects for the Big 3 automakers. With the large number of new models coming out in 2006 and 2007, J.D. Power is forecasting a temporary stemming of the ongoing market share loss, especially at GM, and the presentation was a nice respite from the gloom and doom scenarios that we are used to hearing.

Katrina Initiative

TMAssist put on two one-day seminars in Baton Rouge and New Orleans on December 14th and 15th. Patrick O’Keefe was part of the team that presented at the seminar. Over 150 business owners attended. The team toured blighted areas in New Orleans. It was very chilling to see the devastation in the area. It will take at least 3-5 years to reestablish the ruined neighborhoods. There is no labor force available due to a lack of housing. Burger King was offering $6,000 bonuses to workers for hire. Business owners are faced with moving their businesses or mothballing until the area rejuvenates. Bankers are faced with cutting their losses and keeping inadequate insurance proceeds or letting business owners keep proceeds and try to restart their businesses. The problems are real and the courses of action at this date are still uncertain.

EVENT HIGHLIGHTS

Detroit Welcomes JD Power

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EDUCATION CONNECTION

Special thanks to the following participants of the CTP program in October Special thanks to Scott Terryn and LaSalle Bank for hosting ACTP educational sessions. 23 TMA members sat for courses in law, finance and management over three days in October. The Accredita-tion for Certified Turnaround Professionals is the highest certification the TMA offers for individuals who demonstrate experience and technical proficiency in turnaround management. Congratulations to all who sat for the courses and exams.

Daubert Challenge – Opposing Attorneys Trojan Horse



Jeffrey Addison Conway MacKenzie & Dunleavy Scott Boen BBK William Byrne LaSalle Bank Midwest NA Lawrence Casselman Huntington National Bank Sebastian Coppola JC Jones & Associates Brad Coulter Amherst Partners, LLC David Distel O'Keefe & Associates James Embree Comerica Bank P. Foster Finley AlixPartners, LLC Philip Goy BBK John Peter Kotas Conway MacKenzie & Dunleavy Brian Krasicky O'Keefe & Associates Glenn Kushiner Conway MacKenzie & Dunleavy Ken Latz Conway MacKenzie & Dunleavy Jonathan Martin Amherst Partners, LLC Scott Mell AlixPartners, LLC David Moore BBK John Newman Conway MacKenzie & Dunleavy David Priestley Plante & Moran, PLLC J.C. Ruthenburg Mark Schumacher BBK William Wildern BBK James Zumstein BBK

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Upcoming Events

January 24, 2006 - Hedge Funds panel presentation 7:30 a.m. at the Troy Marriott. $30 for members and $45 for non-members. Breakfast will be provided. For your convenience, please register online at www.turnaround.org listed under the Detroit Chapter. March 29, 2006 - Automotive industry program at the Atheneum Hotel Downtown Detroit (time and speakers to be announced) April 25, 2006 - Joint venture with ACG at the Detroit Athletic Club. Cocktails and hors d’oeuvres. June 20, 2006 - Annual golf outing at Twin Lakes Golf & Swim Club, Oakland, MI TMA International 2006 Spring Conference, March 22-25, at the JW Marriott Desert Ridge in Phoenix, Arizona TMA Regional 5th Annual Great Lakes Conference - May 2006, Holiday Valley Resort, Great Valley, New York ABI Central States Bankruptcy Workshop, June 15-18, Grand Traverse Resort, Acme, Michigan RMA Real Estate Lending Academy Detroit, MI - February 1, 2006 to Friday, February 3, 2006




SAVE THE DATE

TMA Detroit Officers and Board of Directors 2005-2006

Patrick O’Keefe, President Mike Hausman, Secretary/Treasurer Brad Coulter, Vice President Ralph Kourtjian, Director Marc Bakst, Director Bob Mollhagen, Director James Embree, Director David Priestley, Director James Farrell, Director Scott Terryn, Director

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Reclamation Claims Under the New Bankruptcy Act Turnaround managers and insolvency professionals must be alert to the new rights given reclamation creditors under the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) , which became effective October 17, 2005. Although the new powers granted reclamation creditors will not be fully under-stood until litigation and reported decisions fill in the gaps, it is clear that sellers of goods to insolvent buyers now have a strengthened hand. THE WEAK HAND Under Section 2-702 of the Uniform Commercial Code a seller could demand return of goods sold on credit in the ordinary course of business to an insolvent buyer by making a written demand within 10 days of the goods being received by the buyer. If the buyer filed for bankruptcy protection prior to BAPCPA before the 10 day demand period expired, the seller then had 20 days from the date of buyer’s receipt of goods to demand return. If the buyer had sold the goods to a good faith purchaser for value in the ordinary course of business, then the reclamation creditor was granted an administrative expense priority in the buyer’s Chapter 11 estate. Unfortu-nately for reclamation creditors, this administrative expense priority was subordinate to a creditor holding a security interest or lien in the goods in the possession of the debtor/buyer. In an effort to promote efficiency in case administration, bankruptcy courts the allowed debtor/buyers to set up reclamation procedures to sort through invoices, delivery dates, financial condition of buyer, inventory liens and priorities. When this process was completed, reclamation claims often end up having little, if any, value. THE STRONG HAND BAPCPA gives the seller more time to make a reclamation demand for return of goods. Now, the seller can look back 45 days before the bankruptcy petition was filed and demand return of goods received by the debtor/buyer in that period. The written demand must be made within 45 days of delivery of the goods to the buyer. If the filing of the bankruptcy petition occurs before the 45 days has expired, the seller has 20 days from the date of the filing to demand return of the goods. For example, goods sold on credit and delivered to an insolvent buyer on February 1, 2006 can be reclaimed by the seller under UCC Section 2-702 if written demand is made within 10 days of buyer’s receipt. If the buyer files for Chapter 11 on March 15, 2006, the seller has until April 4, 2006 to demand return of the goods deliv-ered to the insolvent buyer on February 1, 2006. Because the 45 day demand period expires three days after the filing of the Chapter 11 petition, the seller has 20 days from filing date to make demand. Article continued on page 11...

LEGAL CORNER

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In the unusual instance where no liens have attached to the goods or the proceeds from the buyer’s sale of the goods, then the reclamation claim may have real value, because subordination does not occur. Problems will still arise when the goods cannot be identified or have been consumed during the 45 day period. THE LOOSE HAND If the seller drops the ball and does not make timely written demand within the applicable 45 day or the 20 day period, the seller still has limited relief. Under BAPCPA the seller is granted an administrative expense priority for the value of all goods delivered to the debtor/buyer within 20 days before filing for bankruptcy protection. No written demand is required for this administrative expense priority. The seller need only show that delivery occurred within 20 days before the debtor filed the petition and file a claim for an administrative expense. In the earlier example, the seller who fails to make a timely written demand for goods delivered on February 1, 2006 will lose reclamation rights, but if goods were delivered after February 23, 2006, the seller gets an administrative expense for those goods by showing delivery and filing the claim. THE FLOATING HAND (OR LIEN) An all inventory lien can reach goods subject to reclamation and subordinate the seller’s reclamation claim. Senior lien holders can be ordered by a bankruptcy court to marshal assets and look for full satisfaction from sources other than those claimed by reclamation creditors. Even in the rare cases where this has been ordered, post-filing depletion of assets often leaves the reclamation creditors unpaid. Some writers in the field have sug-gested that sellers of goods on credit obtain a carve-out for their claims from a loan facility held by senior lend-ers. This would be a difficult, but prudent step, giving the reclaiming seller a steady and strong hand in the new game. This article was submitted by Ray Reynolds Graves, former Bankruptcy Judge for the Eastern District of Michigan, now a Principal with BBK, LTD, an international business advisory firm based in Southfield, Michigan, with other offices in New York, Chicago, Frankfurt, Warsaw and Shanghai.

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UTILIZING THE TMA WEBSITE

Miscellaneous Items at Hand • For added convenience, you can now register for events online at www.turnaround.org • Click on chapters, then click on Michigan, and to the left of the screen, click on the link with the event you

wish to attend and complete your information using a credit card for payment. • Know someone interested in joining TMA? Click on membership, then application, and print either a hard

copy to mail or fax, otherwise, you can apply right online or, use the TMA 2006 Membership Application on page 13 of the newsletter.

__________________________________________________________________________________

PEOPLE IN THE NEWS

Congratulations!

• Joel Applebaum has joined the Detroit office of Clark Hill PLC as a member of the bankruptcy practice group.

• Shaun Buckley, formerly with Deloitte & Touche, has joined the Dallas office of JC Jones & Associates.

• Jim Connor has joined BBK as Principal.

• Tim Emmitt has joined the Detroit office of Stout Risius Ross, Inc. as a Director in the Restructuring & Performance Improvement group.

• Gary M. Giallonardo of Industrial Visions Company has been appointed to Saginaw Valley State University’s College of Business & Management Advisory Board.

• Erin Gillespie has moved from Comcast Spotlight to Hennessey Capital as Marketing Manager.

• John Landefeld wrote an article entitled, “Dangerous Curves Ahead” in the Jan/Feb 2006 ABF Journal.

• Barbara Rom of Pepper Hamilton was selected and profiled in Crain’s Who’s Who in Detroit and has also been selected for The Best Lawyers in America 2006 under bankruptcy and debtor-creditor rights.

• Gary Kulesza has joined BBK as Principal.

• Janice Murray has joined Alvarez & Marsal located in the Town Center in Southfield.

• Scott Terryn has joined JPMorgan Chase located on Big Beaver in Troy.

• Jim Whitney has joined Conway MacKenzie & Dunleavy.




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Turnaround Management Associa tio n

Detroit Corporate Sponsors

6001 N. Adams Rd., Ste. 205 Bloomfield Hills, MI 48304

Phone: 248-593-4810 Fax: 248-593-6108 Email: [email protected] www.turnaround.org



*Jeffrey Beard, Glass & Associates

*Douglas Bernstein, Plunkett & Cooney

*Gene Bitonti, Stout Risius Ross Advisors, LLC

*Jeffrey Bricker, Mark IV Automotive

*I. William Cohen, Pepper Hamilton

*John Dery, Doeren Mayhew

*Scott Hazlett, Conway MacKenzie & Dunleavy

*Marcus Hudson, BBK

*Nate Lomax, MEI Corporation

*Peter Lynch, Conway MacKenzie & Dunleavy

*Michael Ripper, Collins & Aikman

*Daniel Scanlan, Peninsula Capital Partners

*Julie Skidmore, BMC Group

*Mandy Townsend, Plante & Moran

*Douglas Wilterdink, BlueWater Partners, LLC

Special thanks to the newsletter committee: Joel Applebaum, Jennifer Brewer, Parker Lapp, Bob Mollhagen, Cory Thompson and Dan Wollschlager.

NEW MEMBERS

jan 2006 tma newsletter final

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