Cal Cpa Bic 10 19 11

CalCPA

When Real Trouble Hits

How To Speak To Your Bank

California Society of CPA’s LA B&I

October 19, 2011

Agenda When Real Trouble Hits - How To Speak To Your Bank

Background of Jonathan Wernick and Kibel GreenStakeholdersCurrent Pulse of the Banking EnvironmentSigns of TroubleWhat Banks Want to SeeToolsAsksConsideration of a Third PartyQ & A

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Biography – Jonathan J. Wernick

Jonathan J. WernickManaging ConsultantKibel Green Inc.

Contact Information:

Professional Experience:

Jonathan Wernick is a Managing Consultant with the Turnaround Practice at Kibel Green. He bringsnearly 20 years of audit, finance and accounting experience to Kibel Green

Phone: 310-829-0255 x205Fax: 323-843-9385

E-mail Address:[email protected]

Mr. Wernick has assisted clients with forensic investigations, creditor negotiations, sale of assets, lossmitigation, litigation support, solvency analysis, financial restructuring, strategic and business plandevelopment, capital sourcing, and operational improvement

Prior to joining Kibel Green, Mr. Wernick served as an interim CFO/Controller for public and privatecompanies. Jonathan has also held management roles at Trader Joes Company, Softline Software &Patina Restaurant GroupOffice Address:

2001 Wilshire Blvd., Suite 420Santa Monica, CA 90403

Patina Restaurant Group

Prior to working in the private sector, Jonathan was a CPA with KPMG LLP where he focused onmiddle market companies in the real estate, manufacturing, healthcare and retail sectors

Mr. Wernick is an active participant in many professional associations including the California Societyof CPA’s Members in Industry, Association of Certified Fraud Examiners, Association for CapitalGrowth Turnaround Management Association American Bankruptcy Institute and ProvisorsGrowth, Turnaround Management Association, American Bankruptcy Institute and Provisors

Giving back to the community is important to Mr. Wernick. He sits on the board of the DownsSyndrome Association of Los Angeles and the Etta Israel Center. In addition, he has been a mentorto USC students and a sponsor of field projects so students could acquire real world businessexperience

Education & Certifications:MBA – University of Southern California

B.S. – Yeshiva University

Certified Public Accountant State of California – Active License

C tifi t i C li A tCertificate in Culinary Arts

Kibel Green Inc. - Firm OverviewWe offer three synergistic capabilities for middle market companies

Over 1,500 clients since 1984$5B in transactions

Primary focus on public and private middle market companies

OperationsProfitability improvementOrganization simplification

TurnaroundLender negotiationCash flow maximization

Supply chain efficiencyProject management

Business plan vettingCost managementCRO services

FinancialRestructuring

Broad experience

A one-stop solution

Strong partnership with management

RestructuringDebt negotiationsNew funding sourcesBankruptcy plansSale of assets

RetailManufacturingDistributionServiceReal Estate

Senior-level professionals

Resources and expertise for urgent situations

Sale of assetsReal EstateTechnology A regional presence in

the Western U.S.

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More Simply

Kibel Green is a financial advisor that connects the dots for all stakeholders

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Stakeholders

V dVendors

Customers

Ownership

Employees

Financial Institution

Professional Advisors

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Current Pulse of Banking Environment

Quarterly profit for Wells Fargo and Citibank close to $4 billion

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Despite profitability the banks are holding on

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Per Marketplace this past Monday Coronado: Well if you look through the details, the results are just OK. Banks are actually having a tougher time making money and growing revenue. So unfortunately, I think that what it means istougher time making money and growing revenue. So unfortunately, I think that what it means is credit standards are probably going to stay pretty tight for a while -- it doesn't look like it's going to ease up anytime soon.

Hobson: But when people hear about $3, $4 billion profits, and they know that these banks are p p $ , $ p , ysitting on a lot of cash; they've got access to cheap money from the Fed, they're going to say, "Why aren't they lending?"

Coronado: So we have a bit of a chicken and egg situation. After the financial crisis, we want to move to a world with smaller banks, with more tightly-regulated banks. So that means banks have to set aside more of their earnings to shore up their capital position so that they're safer.

And what that means is that there's going to be less of that money available for lending. And of b k k th ' d ti ht ti b t th ki d f l th t th k S i thcourse banks know they're under tighter scrutiny about the kinds of loans that they make. So in the

process of moving to a world of tighter regulation -- that by definition means less free money around.

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Per Marketplace this past Monday

i b k l b i h b h bl i S h f h i iBig banks are also being hurt by the problems in Europe. So to get the true sense of how America is doing, look at the little banks. Here's Fred Cannon at Keefe Bruyette & Woods.Fred Cannon: There's a lot of regional banks -- small community banks -- that are doing OK.The reason: Those banks are lending more money to local businesses and don't depend on volatile marketsmarkets.

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Signs of Trouble

Broken Covenants

Missed Projections

Declining Cash Flow

Diminishing Vendor Relationships

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More Signs of Trouble

Potential Distress Signals Checklist

Breaches of key performance covenants (i.e., minimum EBITDA maximum leverage or

Late filing of financial statements/other i f timinimum EBITDA, maximum leverage or

interest coverage, minimum FCCR)

Failure to meet business plan

Significant declines in cash flow

information

Tightening of availability/taking more reserves

Vendors tightening terms

Significant litigationIncreases in days payables

Piecemeal asset sales

Loss of key customer or vendor

Significant litigation

Capital infusion by owner

Large write-downs

Transfer to special assets divisionLayoffs

High turnover at officer level

Transfer to special assets division

Sales of debt obligations to other parties

Death/incapacity of owner

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What do Bankers Want to See

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CLARITY

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No Surprises “They are for birthdays”

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Full Disclosure

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Solutions / Not just Citing a Problem AKA “A Plan”

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Skin in the Game

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What are the Tools ?

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What are the Tools ?a. 13 week cash flow Yesb. Current Balance Sheet, Income Statement and cash flow Usually required Quarterly and

statements outside of quarterly reporting are subject to adjustments defeating the purpose, but willingness/ability to provide statements quickly suggests the owner is actually looking at their financials to make adjustments to operations from a borroweractually looking at their financials to make adjustments to operations from a borrower that is losing interest/ignorant/etc. In the same respect, a business owner that understands their financials and can discuss with the banker distinguishes them and goes a long way in likelihood of working together instead of arguing.

c. Quarterly cash flow If not a quarterly requirement, beneficial but cash flow and debt service ability usually performed by banker.

d. 12 month projection with debt and covenant coverage Projections are important, bank usually likes to determine ability to cover covenant requirements. When the borrowerusually likes to determine ability to cover covenant requirements. When the borrower tells the bank they will meet covenants in projections, it looks more like the projections have been established around ensuring the covenant requirement is met.

e. AR/ AP / INV aging with explanation of items over 60 days Yes, explanations are i t timportant.

f. Executive summary on the key business issues and plans on how to improve Anyone can say how things will get better, I could tell you the housing market will reach 2005 levels in the next year. Identifying ways the company has made improvements over the last 3‐

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6 months would be more beneficial.g. Listing of expense reductions Again, showing the benefit of expense reductions already

made would be better.

Asks

What should you be asking for ?

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Asks

Over advanceTimeInterest OnlyForbearanceAdditional Collateral

Be prepared to pay higher interest in exchange for the asks.

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Client Profile – Sample of Recent EngagementsWe have broad industry experience and strong expertise in distressed situations

Function Size Description Service Provided

Manufacturer $75M Consumer Products Operations

Manufacturer $310M Consumer Products Operations, Financial Restructuring

Manufacturer $1.0B Technology Operations

Manufacturer $300M Automotive Turnaround, Financial Restructuring

Manufacturer $1.1B Sports Equipment Operations

Distributor $90M Food Turnaround, Operations

Distributor $65M Consumer Products Turnaround

Distributor $80M Automotive Turnaround

Retailer $85M Home Furnishings Turnaround, Operations

Retailer $135M Consumer Products Operations$ p

Publisher $330M Media Turnaround, Financial Restructuring

Services $10M Entertainment Turnaround, Financial Restructuring

Services $56M Staffing Turnaround, Operations, Financial Restructuring

Services $41M Logistics TurnaroundServices $41M Logistics Turnaround

Services $100M Hospital Turnaround

Real Estate 1 $115M Residential Turnaround

Real Estate 1 $400M Residential Turnaround

R l E t t $ C l d

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1) Size measured by annual revenue except for real estate which represents asset value

Real Estate 1 $175M Commercial Turnaround

Service Offerings - TurnaroundOur turnaround service offering concentrates on four key activities to address visibility, cost and business model issues

Projecting and Managing Cash

Flow

Reducing Costs –Lowering Break

Even

Developing a Plan – Current

State vs. Future

Improving Management

ReportingFlow Even State Reporting

Develop a rolling 13-week plan

Tie projections to

Renegotiate real estate and personal property leases

Develop a detailed current state income statement

Create weekly information package

Develop companyTie projections to balance sheet

Create goals and assign responsibility

Identify potential

Evaluate facility consolidation

Reduce payroll expense

Build a target future state – profitable business model

Identify actions necessary to

Develop company dashboard / key driver report

Improve communication among lenders equity andy p

sources of cash Reengineer processes necessary to implement plan

lenders, equity and management

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Service Offerings – Financial RestructuringIntegrates diverse skill-set to offer powerful Financial Restructuring platform

Restructuring Expertise

Deep understanding of the restructuring process (in and out of Chapter 11). Long-standing presence in the distressed environment and reputation for knowing the players and sources of capital.Forge constructive deals

g p g p

Forge constructive deals.

Powerful Platform

Combination of Financial Restructuring, Turnaround and Operations under one roof provides a differentiated platform.Can develop capital structure solutions, provide credible reporting and implement value-enhancing operational improvements

Client AdvocateAble to vet Plans of Reorganization and formulate alternative Plans.Will fight on behalf of client constituency to ensure they are not taken advantage of

implement value enhancing operational improvements.

advantage of.

ConfidentialityAs a smaller firm, better able to prevent market knowledge of a transaction.Preserve confidentiality where creditor wants to stay unrestricted (i.e., not receive non-public information) and needs party to review that information

ObjectivityProvide objective 3rd party perspective on a Company’s situation and recovery prospects for constituencies.Honest broker that can manage intra-creditor differences.

receive non-public information), and needs party to review that information.

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g

Service Offerings – Financial RestructuringRepresenting Creditors and Debtors in various types of Financial RestructuringsRepresenting Creditors and Debtors in various types of Financial Restructurings

Restructuring Balance Sheets$645M meat processor and sandwich maker

Renegotiating Debt Covenants/Terms$140M mobile phone distributor

$250M contract manufacturer of field rations for the military

$366M natural gas plants in the Northeast

$150M chain of furniture stores

$200M chain of regional casinos

$96M global provider of telecommunications services

$350M chain of electronics and furniture stores

$350M manufacturer and distributor of medical

Raising Capital$100M Group of wineries in Northern California

Selling Distressed Assets/Companies

$150M chain of furniture stores $350M chain of electronics and furniture stores

$350M manufacturer and distributor of medical consumables for the elderly

$126M manufacturer and distributor of dairy products

$100M Group of wineries in Northern California

$114M Jeweler targeting low-middle income Hispanic market

$200M retailer of denim and casual clothing for $75M chain of Mexican restaurants

$100M integrated media publishing company (trade magazines, journals, conferences)

teens

$125M manufacturer of consumer and commercial cooking equipment

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Service Offerings – Financial RestructuringWhen to contact usWhen to contact us

The earlier Kibel Green is brought in, the wider the range of restructuring options.As operations and enterprise value deteriorate, the probability of a successful turnaround or restructuring declines dramatically.

Potential Distress Signals Checklist

Breaches of key performance covenants (i.e., minimum EBITDA maximum leverage or

Late filing of financial statements/other i f timinimum EBITDA, maximum leverage or

interest coverage, minimum FCCR)

Failure to meet business plan

Significant declines in cash flow

information

Tightening of availability/taking more reserves

Vendors tightening terms

Significant litigationIncreases in days payables

Piecemeal asset sales

Loss of key customer or vendor

Significant litigation

Capital infusion by owner

Large write-downs

Transfer to special assets divisionLayoffs

High turnover at officer level

Transfer to special assets division

Sales of debt obligations to other parties

Death/incapacity of owner

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Kibel Green’s ApproachOur standard approach translates objective, fact-based analyses into tangible client benefits

Objectivity and ExperienceA 3rd party that is the Honest Broker and can achieve results with key constituentsA 3rd party that is the Honest Broker and can achieve results with key constituents

Critical, Thorough AnalysesDetailed cash flow financial forecasts and valuations and analysis of stakeholder interests

Development of Strategies and PlansV i d/ d l f b i l h b li bl ll k i

Detailed cash flow, financial forecasts and valuations, and analysis of stakeholder interests

Practical Solutions and Action Steps

Vetting and/or development of business plans that are believable to all key constituents

Positive Results for Clients

pConverting the Plan into action and guiding the client through the process

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Achieving the client’s objectives

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Stabilized cash flow, enhanced relationship with outsourced billing company, evaluated viability of expiring service contract.

Results DeliveredNegotiated new lower cost contract

with provider.

Company ChallengesMulti-unit medical service provider experienced strained relationship

ith t d billi id Identified a discrepancy in data transmissions, illustrated the

difference and expedited the funds due to them.

with outsourced billing provider. Procedure revenue was in excess of

previous year yet cash reimbursements were considerable

Provided tools to monitor and estimate timely reimbursement.

Recommended to not renew contract and arranged for a fair and

lower.Company knew something was

wrong but felt paralyzed in how to go about fixing the issue. contract and arranged for a fair and

equitable wind down of operationsgo about fixing the issue.

Contract with local hospital was expiring and the company was

unsure if renewing would fit their long term profitability goals

Jonathan J. WernickManaging Consultant

Steven J. GreenCo Founder & President

long term profitability goals.

Managing Consultant310-829-0255 [email protected]

Co- Founder & President310-829-0255 [email protected]

Guided company through default with lender and restart operations.

Results DeliveredNegotiated forbearance agreement

with bank.

Company ChallengesEstablished multi-location $50 million manufacturer in over d iti ith l d Prepared 13 week cash flow and

streamlined financial reporting package.

Initiated plan to get suppliers to

advance position with lender. Forecasting tools and inventory

management tools deemed unreliable from bank. Initiated plan to get suppliers to

ship raw materials.Convinced management and

bankers on the viability of a going concern

Suppliers refused to ship raw materials.

Bank and management considering to close operations concern.to close operations.


Steven J. GreenCo Founder & PresidentManaging Consultant

310-829-0255 [email protected]


Enabled turnaround and achieved long-term agreement on $130 million syndicated loan.

Results DeliveredPrepared an objective assessment

providing clarity to the lenders.

Company ChallengesMulti-unit $350 million retailer

required line of credit for consumer fi i Implemented a weekly cash flow

modeling tool to navigate tighter loan availability.

Created a dashboard of key

financing. Loan was in default and needed

restructuring. Lenders were concerned about the Created a dashboard of key

performance drivers (KPI’s) to assess and improve financial and

operational results.Identified costs savings and

Lenders were concerned about the reliability of the business plan.

Expanded rapidly in last 3 years and internal infrastructure of

financial and purchasing practices Identified costs savings and inventory reduction programs

leading to significant improvements in liquidity and profitability.

financial and purchasing practices did not keep pace with growth.

Measures to cut costs and improve working capital were not enough to


Steven J. GreenCo Founder & President

address decreasing revenues.

Managing Consultant310-829-0255 [email protected]


Fostered confidence in financial oversight for an equity sponsor and asset based lender

Results DeliveredDelivered a robust financial reporting package using the i ti ft S l d b k th

Company ChallengesEquity sponsor of $30 million health

and beauty aid manufacturer f ’ fi i l existing software. Scaled back the

need for equity sponsor’s oversight meetings from weekly to monthly.Increased credit line and reduced

unsure of company’s financial stability and ability to report

results. Asset based lender concerned

bank fees.Developed AP payment plan that clearly communicated to vendors

and adhered to.

about finance operations. Vendors losing trust with lack of follow through on commitments

and communication. and adhered to.Created weekly AR review process and customer contact campaign

that improved cash receipts.

and communication. Distributors were lax in paying in a

timely manner.


Steven J. GreenCo Founder & PresidentManaging Consultant

310-829-0255 [email protected]


Contact Information – Los Angeles Office 2001 Wilshire Boulevard Suite 420 Santa Monica, CA 90403

Steven J. Green, Co-Founder & President

2001 Wilshire Boulevard Suite 420 Santa Monica, CA 90403866.875.0255 Tel 310.453.6324 Fax www.kginc.com

310.829.0255 [email protected]

Jonathan J. Wernick, Managing Consultant, Turnaround Group310.829.0255 x205J i k@k [email protected]

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The Book -

How to Turn Around a Financially Troubled Company*By Harvey R. KibelSelected by the Library Journal as one of the ten best business books. This unique turnaround manual gives you principles and practical advice for survival in very tough situations Here are just a few of the key questions itprinciples and practical advice for survival in very tough situations. Here are just a few of the key questions it answers:

• Can I find a way to buy time for my company? • When is a bank willing to function as a working partner rather than as an adversary? • How can the vendor be given enough confidence in the company to deliver products.

*This book, a bible for the workout field, was selected as one of the ten best business books by the Library Journal and resulted in Mr. Kibel's receipt of the National Award of Excellence from President Reagan at a White House ceremony.

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Documents

Cal Cpa Bic 10 19 11