Jan 2006 TMA newsletter final - Turnaround Management Association

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Jan 2006 TMA newsletter final - Turnaround Management Association

TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

TMA Newsletter Detroit

January 2006

Volume 1, Issue 2

Inside this issue:

Featured Turnaround

Articles

2005-06 Detroit TMA

Award Nominations

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

2

6

13

Corporate Sponsors 14

Upcoming Events:

• 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

FROM THE CHAPTER PRESIDENT

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


TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

FEATURED TURNAROUND ARTICLES

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 venture

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...

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TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

...continued from page two

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.

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TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

...continued from page three

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 processing

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 advantage,”

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 future

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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TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

...continued from page four

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 hundreds

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 @ rdm@h2law.com.

5


TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

2005-2006 DETROIT TMA AWARDS NOMINATIONS

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 (mbakst@bodmanllp.com) or Jenni Brewer (jbrewer@okeefac.com) 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 member

who, together with his or her team of turnaround professionals, has orchestrated the most successful turnaround

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 executed,

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 recovery

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 (mbakst@bodmanllp.com) 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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TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

EVENT HIGHLIGHTS

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.

Kurt Eichenwald Book Signing

(From left to right) Pat O’Keefe,

Kurt Eichenwald and

Brad Coulter before the event

Detroit Welcomes JD Power

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.

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TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

Daubert Challenge – Opposing Attorneys Trojan Horse

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 Accreditation

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.

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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TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

Daubert Challenge – Opposing Attorneys Trojan Horse

SAVE THE DATE

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

TMA Detroit Officers and Board of Directors 2005-2006

Patrick O’Keefe, President

Brad Coulter, Vice President

Marc Bakst, Director

James Embree, Director

James Farrell, Director

Mike Hausman, Secretary/Treasurer

Ralph Kourtjian, Director

Bob Mollhagen, Director

David Priestley, Director

Scott Terryn, Director

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TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

Daubert Challenge – Opposing Attorneys Trojan Horse

LEGAL CORNER

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 understood

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. Unfortunately

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 delivered

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...

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TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

Daubert Challenge – Opposing Attorneys Trojan Horse

...continued from page ten

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 suggested

that sellers of goods on credit obtain a carve-out for their claims from a loan facility held by senior lenders.

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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TURNAROUND MANAGEMENT ASSOCIATION

TMA Detroit

Newsletter

Daubert Challenge – Opposing Attorneys Trojan Horse

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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Turnarou nd Manag em en t Associa tio n

TURNAROUND MANAGEMENT ASSOCIATION

6001 N. Adams Rd., Ste. 205

Bloomfield Hills, MI 48304

Phone: 248-593-4810

Fax: 248-593-6108

Email: jbrewer@okeefac.com

www.turnaround.org

TMA Detroit

Newsletter

Special thanks to the newsletter committee: Joel Applebaum, Jennifer

Brewer, Parker Lapp, Bob Mollhagen, Cory Thompson and Dan

Wollschlager.

NEW MEMBERS

*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

Detroit Corporate Sponsors

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