Huron Consulting Group Presentation Presented by : John DiDonato, - - PDF document

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Huron Consulting Group Presentation

Presented by : John DiDonato, Huron Consulting Group Tom Evans, Huron Consulting Group

May 16, 2007

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Automotive Industry Overview

0.6 1.0 3.0 15.3 20.4 24.3 Africa Middle East South America North America Europe Asia

Global Market

Forecasts call for continued growth in the automotive sector, as emerging markets with developing middle-classes turn to automobiles for transportation.

2006 Market Size (Light Vehicles by Production, Millions) Forecasted 2006-2013 CAGR 2.0%

Source: CSM Worldwide Report 2007

1.2% 4.4% 4.9% 1.6% 4.1%

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11.7 11.6 11.6 11.4 10.9 10.9 10.9 10.9 15.3 15.4 15.5 15.6 16.3 16.7 16.7 16.8 8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 2006 2007F 2008F 2009F 2010F 2011F 2012F 2013F United States North America

17.0 16.8 16.7 16.6 16.5 16.6 16.6 17.3 16.7 16.9 17.0 15.0 16.0 17.0 18.0 2001 2003 2005 2007F 2009F 2011F

North American Market

The North American market is one of the world’s largest but demand levels have remained fairly constant, ranging from 16 to 17 million units annually.

Source: (1) 2007 Automotive News Market Data North American Sales (2) CSM Worldwide Report 2007

U.S. Motor Vehicle Sales Trends(1) (Units in Millions) North American Light Vehicle Production(2) (Units in Millions)

6% 9% 10% 4% 7% 15% 31% 22% 0% 10% 20% 30% 40% Big 3 Total Toyota Nissan Honda 14% 29% 23% 15% 18% 25% 57% 67%

0% 10% 20% 30% 40% 50% 60% 70% Big 3 Total GM Ford Chrysler

Share Trends

As widely reported, the “Big 3” are experiencing declining market shares, driven by declines in SUV sales and mixed consumer response to current vehicles.

Source: (1) Automotive News Data Center, 12 month sales for 2001 (2) Automotive News Data Center, 12 months sales for 2006. (2) Automotive News Data Center, December 2006.

Market Share Comparison 2001 vs. 2006 (% of U.S. Car and Light Truck Sales)(1)(2)

Losing Share Gaining Share

2001 2006

Select North American OEM Market Share as a Percent of 2006 Unit Sales(3)

2001 2006

2% 6% 1% 2% 2% 2% 5% 2% Market Share % Volkswagen Nissan Mitsubishi Mercedes Benz Mazda Lexus Hyundai-Kia BMW Brand 2% 6% 1% 2% 2% 2% 5% 2% Market Share % Volkswagen Nissan Mitsubishi Mercedes Benz Mazda Lexus Hyundai-Kia BMW Brand

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27% 4%

• 4%
• 5%

16% 11% 15%

• 11%
• 1%

18%

• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 25% 30% Hyundai GMC Jeep Chrysler Nissan Dodge Honda Toyota Ford Chevrolet

U.S. Demand Market Share

2006 vs. 2013

Source: J.D. Power & Associates – North American Automotive Forecasting

Change in Demand Market Share - Top Volume Brands From 2006 vs. 2013

European 3.0% Domestic 77.2% Asian 19.8%

N.A. Production by Brand Origin

Asian 32.9% Domestic 63.2% European 3.9% Domestic 59.7% Asian 35.9% European 4.4%

Vol +19% Vol +19% Vol 3%

2007 15.1 Million 2013 16.5 Million 2000 17.2 Million

Vol

• 26%

Vol +45% Vol +45%

Source: J.D. Power & Associates – North American Automotive Forecasting

European Brand Production Stable; Asian Brands Grow; Traditionals Contract

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Demand Fragmentation

While constant in size, demand in the North American market fragmented as consumers shifted to light trucks and OEMs pursued niche vehicles as a way to reach specific consumer groups.

2001 – 2006 Light Truck Share Trends (Percent of Units Sales) Best Selling Cars and Light Duty Trucks in 2006 (Units in Thousands)

50.9 51.0 49.0 54.0 53.0 53.1 45.0 50.0 55.0 60.0 2001 2002 2003 2004 2005 2006 Source: (1) Automotive News Data Center, December 2006. 171 327 Total Nameplates 26% 24% Top 10 as % of Industry Volume 354.4 350.1 Honda Accord 364.2 344.5 Dodge Ram 448.5 390.4 Toyota Camry 636.0 716.1 GM Silverado 796.0 2006 Units 911.6 2001 Units Ford F-Series Nameplate 354.4 350.1 Honda Accord 364.2 344.5 Dodge Ram 448.5 390.4 Toyota Camry 636.0 716.1 GM Silverado 796.0 2006 Units 911.6 2001 Units Ford F-Series Nameplate

Share Trends

Ward’s 2007 and 2008 truck production forecasts indicate that Toyota and Honda plan to increase truck production in 2007 and 2008 as they attack Ford and GM’s lucrative truck franchise.

Share of Estimated North American Production Unit Change Trucks 2005 2006E 2007E 2008E 2006E/2005 2007E/2006E 2008E/2007E DCX 23.5% 23.8% 23.1% 23.1% (175,770) 14,123 136,391 Ford 24.3% 21.6% 21.4% 18.9% (438,287) 56,732 (118,953) GM 29.9% 30.8% 28.3% 27.2% (181,240) (121,100) 68,323 Big 3 77.7% 76.2% 72.7% 69.2% (795,297) (50,245) 85,761 Honda 6.0% 6.6% 7.2% 7.6% 2,493 69,291 83,910 Nissan 5.4% 5.3% 5.0% 5.5% (54,798) (8,514) 82,671 Toyota 5.0% 5.3% 7.5% 8.9% (20,893) 209,621 178,962

Source: Ward’s Automotive

A housing slowdown could further weaken demand for pickup trucks.

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Feb-06 Feb-07 Absolute '06 YTD '07 YTD Absolute Market Share Month YTD Actual Actual y/y % chg actual actual y/y % chg Feb-06 Feb-07 y/y y/y GM 297.6 308.5 3.7% 590.9 553.3

• 6.4%

23.7% 24.7% 100 bp

• 100 bp

Ford 239.6 204.5

• 14.6%

441.2 366.8

• 16.8%

19.0% 16.4%

• 270 bp
• 270 bp

Chrysler 190.4 174.5

• 8.3%

345.8 330.8

• 4.3%

15.1% 14.0%

• 120 bp
• 30 bp

Big 3 727.6 687.5

• 5.5%

1,377.9 1,250.9

• 9.2%

57.8% 55.0%

• 280 bp
• 390 bp

Toyota 166.9 187.3 12.2% 327.6 363.2 10.9% 13.3% 15.0% 170 bp 190 bp Honda 106.6 110.0 3.2% 205.0 210.8 2.8% 8.5% 8.8% 30 bp 50 bp Nissan 84.3 85.2 1.2% 160.2 167.9 4.8% 6.7% 6.8% 10 bp 50 bp Japan 3 357.8 382.6 6.9% 692.8 741.9 7.1% 28.5% 30.6% 220 bp 290 bp Hyundai / Kia 54.7 58.0 6.0% 103.1 108.3 5.1% 4.4% 4.6% 20 bp 30 bp VW / Audi 21.1 23.0 8.7% 43.5 46.0 5.8% 1.7% 1.8% 10 bp 20 bp Mitsubishi 8.0 9.7 21.6% 15.5 19.1 23.4% 0.6% 0.8% 10 bp 20 bp Mazda 23.6 22.1

• 6.4%

41.8 41.3

• 1.0%

1.9% 1.8%

• 10 bp

0 bp BMW 22.0 24.6 11.9% 44.2 46.5 5.0% 1.8% 2.0% 20 bp 10 bp Porshe 2.7 2.0

• 27.1%

5.9 5.0

• 16.5%

0.2% 0.2% 0 bp 0 bp Others 40.5 39.6

• 2.3%

73.5 77.6 5.6% 3.1% 3.2% 10 bp 30 bp Ex Big 3 530.5 561.6 5.9% 1,020.2 1,085.6 6.4% Industry 1,258.1 1,249.1

• 0.7%

2,398.1 2,336.5

• 2.6%

Share Trends (cont.)

U.S. Light vehicle sales and market share in February 2007 (in 1,000 units)

Source: Ward’s AutoInfoBank and UBS Investment Research

Shakeout in the North American Supply Industry

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89% 38% 68% 54% 64% 70% 24% 38% 41% 76% 62% 59% 53% 47% 30% 36% 46% 11% 32% 62% 0% 20% 40% 60% 80% 100% American Axle ArvinMeritor Cooper- Standard Dura Automotive Lear Metaldyne Stoneridge Tenneco TRW Visteon

Reliance on the “Big 3”

While the North American market is critical, suppliers rely heavily on domestic OEMs that are losing share.

Sources: (1) UBS High Yield Auto Parts Research - Feb. 26, 2007 (2) Company financial reports

Are company revenues highly dependent on domestic OEMs

• r have you penetrated transplant accounts?

Big 3 Other

Big 3 Revenue Concentrations

Leverage(1) Interest Coverage(2) Liquidity(3)

Capital Structure

Importantly, a supplier’s financial structure can limit its flexibility to respond to market changes and consolidation opportunities.

Notes: (1) Total Debt / EBITDA (2) EBITDA / Interest (3) Total liquidity as % of Sales; Total liquidity equals cash & equivalents, credit facility availability and A/R facility availability

4.4% 6.9% 8.5% 9.3% 9.9% 14.0% 14.7% 15.7% 17.0% 18.9% Exide Hayes Lemmerz Remy Affinia Metaldyne Tenneco TRW Lear ArvinMeritor Visteon

Comparison of Financial Flexibility Among Suppliers Does the financial structure compound risks related to changing market conditions?

6.6x 4.6x 4.2x 3.3x 2.9x 2.5x 2.3x 1.8x 1.5x 0.7x American Axle TRW Lear ArvinMeritor Tenneco Visteon Hayes Lemmerz Metaldyne Exide Remy 6.1x 5.8x 5.7x 5.4x 4.7x 3.8x 3.5x 3.1x 2.7x 13.9x Remy Keystone Visteon Exide Metaldyne Affinia Tenneco ArvinMeritor Lear TRW

Average Among High- Yield Auto Parts Issuers 15.7% Average Among High- Yield Auto Parts Issuers Average Among High Yield Auto Parts Issuers 2.7X 5.7X

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Degree of Fragmentation

The automotive supply industry encompasses thousands of companies and a wide range

• f components. Fragmentation varies significantly across segments.

Source: (1) U.S. Census Bureau, industry reports, December 2004

Automotive Supply Product Segments(1) (Number of Companies)

24 207 113 835 704 88 287 666 196 433 100 200 300 400 500 600 700 800 900 Air Conditioning Brake Systems Carbureators, Valves and Pistons Engine Componenets Electrical and Electronics Lighting Seating Stamping Steering/ Suspension Transmission Powertrain

Supply Base

While OEMs have tremendous leverage over their suppliers, the assemblers still rely on a sizeable network of suppliers to produce the roughly 14,000 parts that exist in an average vehicle.

Suppliers to the 2006 Ford Fushion(1) – Total Suppliers 41

Source: (1) Automotive News.

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Supply Base

Because of long-term supply partnerships, Hyundai depends on a smaller network of suppliers than the typical North American OEM.

Suppliers to the 2006 Hyundai Sonata(1) – Total Suppliers 24

Source: (1) Automotive News

New Entrants

Lastly, global suppliers have established a beachhead in North America that will impede U.S.-based suppliers efforts to diversify revenues by making inroads at New American Manufacturers.

Source: (1) Automotive News Ranking of Top 100 Global OEM suppliers.

10 28 TRW Automotive 9 8 7 6 5 4 3 2 1 2005 Rank(1) 17 Faurecia 5 Lear Corp. 6 Johnson Controls 4 Denso Corp. 11 Aisin Seiki Co., Ltd. 2 Visteon Corp. 1 Delphi Corp. 8 Magna International 3 2000 Rank(1) Robert Bosch GmbH OEM Part Supplier

Top Global OEM Part Suppliers (Ranked by Sales)

DENSO Corporation Announces Major Expansion of U.S. Manufacturing Facility in Kentucky: Company Press Release - Aug 8, 2006 DENSO announced that KYOSAN DENSO Manufacturing Kentucky, DENSO's subsidiary in Mt. Sterling, Kentucky, U.S., plans to expand its 80,700-square-foot facility by 84,500 square feet. The new investment totals $27.1 million and will create approximately 150 new jobs by 2010. Aisin Seiki to Establish New Production Company on the U.S. West Coast and New Plant in Canada to Bolster Manufacturing Structure for Door Frames in North America: Company Press Release - Oct. 31, 2006 In an effort to strengthen its manufacturing structure, Aisin Seiki Co., Ltd. will establish a production company, Aisin Mfg. California, LLC (AMC), in the U.S. state of California together with building a second plant at Aisin Canada, Inc. (ACI) in Canada to address increasing orders for door frames on the U.S. West Coast and in Canada. Aisin Seiki to Establish New Production Company on the U.S. West Coast and New Plant in Canada to Bolster Manufacturing Structure for Door Frames in North America: Company Press Release - Oct. 31, 2006 In an effort to strengthen its manufacturing structure, Aisin Seiki Co., Ltd. will establish a production company, Aisin Mfg. California, LLC (AMC), in the U.S. state of California together with building a second plant at Aisin Canada, Inc. (ACI) in Canada to address increasing orders for door frames on the U.S. West Coast and in Canada. TD Automotive Compressor Georgia Celebrates Grand Opening of Georgia Facility: Company Press Release - Dec 1, 2006 TD Automotive Compressor Georgia, LLC (TACG)-a joint venture between Toyota Industries Corporation (TICO) and DENSO Corporation (DENSO) to produce car air- conditioning compressors in Georgia, U.S.- held a grand opening ceremony at its new 344,000-square-foot facility on November 30. TD Automotive Compressor Georgia Celebrates Grand Opening of Georgia Facility: Company Press Release - Dec 1, 2006 TD Automotive Compressor Georgia, LLC (TACG)-a joint venture between Toyota Industries Corporation (TICO) and DENSO Corporation (DENSO) to produce car air- conditioning compressors in Georgia, U.S.- held a grand opening ceremony at its new 344,000-square-foot facility on November 30. Valeo announces the signing of a Memorandum of Understanding for the acquisition of Ford Thermal Systems facility in North America: Company Press Release – December 4, 2006 Valeo recently announced that it had signed a Memorandum of Understanding with Ford to acquire their Thermal Systems facility, Sheldon Road, (Plymouth, Michigan). This acquisition is conditional upon reaching a new and competitive agreement with the

• UAW. The activity currently employs around 1,250 employees (of which about 1,000 are

unionized hourly employees) and supplies air-conditioning units and radiators to Ford in North America. It has forecast sales in 2006 of around 450 million US dollars Valeo announces the signing of a Memorandum of Understanding for the acquisition of Ford Thermal Systems facility in North America: Company Press Release – December 4, 2006 Valeo recently announced that it had signed a Memorandum of Understanding with Ford to acquire their Thermal Systems facility, Sheldon Road, (Plymouth, Michigan). This acquisition is conditional upon reaching a new and competitive agreement with the

• UAW. The activity currently employs around 1,250 employees (of which about 1,000 are

unionized hourly employees) and supplies air-conditioning units and radiators to Ford in North America. It has forecast sales in 2006 of around 450 million US dollars

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Big 3 Inventories Increasing

The Big 3 inventory levels are up over last year and significantly higher than their Asian

• counterparts. High inventories at the Big 3 add to the cost of a vehicle, creating a

structural competitive disadvantage.

Source: Ward’s AutoInfoBank and UBS Investment Research

February 2007 Inventory Days of Supply YTD Change in Sales by Segment

3%

• 8%
• 19%
• 3%
• 8%
• 9%
• 1%

12%

• 22%
• 17%
• 12%
• 7%
• 2%

3% 8% 13% 18% Small Car Middle Car Large Car Luxury Car Cross Utility Sport Utility Van Pickup

Cars Trucks Vehicles GM 77 84 82 Decade Average 72 89 81 Ford 77 71 71 Decade Average 67 82 76 Chrysler 53 73 68 Decade Average 54 73 68 Big 3 70 77 75 Decade Average 67 82 76 Japan Decade Average 54 53 53 Industry Decade Average 63 76 69

Positioning for Success in the Midst of Consolidation

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Huron Perspective

Huron research and client experience points to a discrete set of strategic, operational and financial factors that influence a company’s position within the industry.

Sources: (1) OneSource, PPG Industries company reports, Huron Consulting Group analysis.

Company Position Key Ingredients Customer Diversification 20% 85% Geographical Balance 37% 71% Lean Operating Platform 80% 95% Scaled SG&A Functions 4% 18% Adequate Debt Coverage >3.0 <1.8 Balanced Revenue Portfolio Formula for Success Globally Competitive Position Adaptive Capital Structure Cost of Debt A B- Judicious Mix of Debt/Equity Metrics

• Big 3 sales as a % of

revenue(1)

• North American sales

% of revenue

• Operating cost %
• SG&A % of revenue
• EBITDA to interest
• Credit rating
• Debt to total equity

1.0 2.0 Best Observed Worst Observed

Summary

• Executives at automotive supply companies face critical choices that will determine

their fate in the coming 12 to 36 months

• Successful companies will make well-reasoned choices about their business direction

and strategy; this may involve a sale as a strategic alternative to position their company in an increasingly global and competitive market

• Companies that decide to “go it alone” must address three critical issues:

– What is the company’s unique product and market positions? Significant consolidation has taken place in the North American market. Is the company

• perating in a competitive landscape or are there to many players in the

segment? – Is the operating platform globally competitive? If not, what actions are required to achieve parity or cost leadership? Company’s must maximize asset utilization and assembly capacity. – What capital structure offers the flexibility to support company strategies and industry cycles?

• Bankruptcy is an expensive but potentially effective approach to reposition a supply

company to compete in the current market environment

• Huron Consulting Group has strong points-of-view on the automotive supply industry,

based on work with automotive suppliers and experience working with companies in distressed industries

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Case Study / Discussion Materials Situation Analysis

• The North American automotive supplier industry has been negatively impacted by a confluence
• f events that has resulted in unprecedented industry turmoil and the Chapter 11 filings of

some of the industry’s largest companies.

• Major North American suppliers, such as the “Company” we will discuss today, have been

severely impacted by rapidly rising raw material costs (such as steel, aluminum and plastic resins), market share losses suffered by the Big Three and related capacity utilization shortfalls, the shift in consumer demand away from SUVs and contractual and/or negotiated price-downs.

• Despite the significant restructuring actions implemented by new management since 2003, the

Company’s financial performance has deteriorated. – Consolidated adjusted EBITDA has declined from $259 million for FY2002 to the $70 million range for FY2007. – Adjusted EBITDA for the domestic operations has declined dramatically as well over this same period. – In 3Q 2005 Lear decided to internally manufacture the seat adjusters for the GMT 900 program which will negatively impact the Company’s financial performance in the near term, rapidly eliminating nearly $275 million of annual revenue by the middle of 2008. – The Company’s significant leverage and announced earnings disappointments are impacting its “new business” quoting activity with OEM customers.

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Situation Analysis (cont.)

• In February 2006, the Company announced an operational restructuring plan which is

expected to impact over 50% of the Company’s worldwide operations either through product relocation, facility closures and off-shore sourcing initiatives. – The Plan is expected to cost $100 million and be completed by year-end 2007. – Management optimistically projects a three-year payback period for the combined program.

• Absolute debt levels continued to weigh heavily on the Company’s liquidity outlook.

– Declining cash flow from domestic operations and additional borrowings have resulted in an increase in the Company’s leverage with a Total Debt/LTM Adjusted EBITDA ratio

• f 8.5x and growing.
• Uncertainty regarding the 2007 operating results and the resultant impact on liquidity have

contributed to a deterioration in the trading levels of the Company’s securities. – Market is concerned about domestic OEM production volumes dropping further going forward.

• In October 2006, the Company and its U.S. (and Canadian subsidiaries under a foreign

recognition order) filed for protection under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the District of Delaware. The Company is an independent designer and manufacturer of driver control systems, seating control systems, glass systems, engineered assemblies, structural door modules and exterior trim systems for the global automotive and recreation and specialty vehicle industries.

Company Profile

• The Company has manufacturing facilities located in the U.S., Brazil, Canada, China, Czech Republic,

France, Germany, Mexico, Portugal, Romania, Slovakia, Spain and the United Kingdom. The Company also has a presence in India, Japan and Korea.

Revenue Mix by Region: Revenue Mix by Region: 57% 40% 3% North America Europe Other 57% 40% 3% North America Europe Other Customer Revenue Mix: Customer Revenue Mix: 24% 21% 17% 13% 9% 5% 3% 2% 6% GM Ford RV and Specialty Volkswagen DaimlerChrysler BMW Nissan PSA Other 24% 21% 17% 13% 9% 5% 3% 2% 6% GM Ford RV and Specialty Volkswagen DaimlerChrysler BMW Nissan PSA Other 34% 15% 13% 10% 6% 6% 5% 11% Driver Control Glass Systems Seating Control Structural Door Module Exterior Trim Engineered Assemblies RVSV Appliances Other 34% 15% 13% 10% 6% 6% 5% 11% Driver Control Glass Systems Seating Control Structural Door Module Exterior Trim Engineered Assemblies RVSV Appliances Other

• GMT 800 / 900
• F-150

Key Platforms:

• GMT 800 / 900
• F-150

Key Platforms:

• Ram
• Explorer
• Ram
• Explorer

Product Line Mix: Product Line Mix:

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Lessons Learned

• Critical lessons learned regarding the Company situation:

– Continuous and aggressive cash management is critical to a company’s survival in the automotive space (ex. payment terms, tooling investments, CapX, AR management, cash costs for restructuring actions, etc.) – Detailed plans for restructuring actions, related cash costs, the reality of successful execution, appropriate project management systems and adequate talent to execute are essential. – Proactive approach to customer and supplier communications, informing them regarding details of the situation and potential mutual program avoidance actions can greatly enhance the chances of achieving a “soft landing” restructuring outcome. – Internal personnel are typically not technically capable of managing within a “business critical” operating environment, and are prone to a “state of denial” relative to the true business situation. – Professional advisory help, in focused operational and tactical areas prior to the business “emergency stages” being reached, is critical to achieving a more positive and controllable outcome.

Overview of Huron Consulting Group

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• Formed in 2002 through the combination of several leading specialized consulting

groups with approximately 200 professionals at inception

• Today, over 1,000 professionals with leading experts in numerous industries
• Headquartered in Chicago with 11 offices nationwide including Detroit and offices in

London and Frankfurt

• Huron Consulting Group Inc., the parent company, became a publicly traded

company

• n the NASDAQ National Market under the symbol “HURN” in October 2004
• Conducted more than 2,500 engagements
• Acquired Glass & Associates (“Glass”) in January 2007

Glass was founded in 1985 and has completed over 800 restructuring

engagements

Glass named “Top 12 Outstanding Turnaround Firm” by Turnarounds and

Workouts Magazine every year since 1993

Huron named “Top 12 Outstanding Turnaround Firm” by Turnarounds and

Workouts Magazine every year since its inception

Glass has won the TMA Turnaround of the Year award five times, including

2005 “Mega” Turnaround of the Year award for Southern States Cooperative

Huron received the 2006 Large Turnaround of the Year award for United

Airlines The acquisition of Glass creates a restructuring team of over 90 professionals strengthening Huron’s team by adding operating and financial professionals with a broad range of functional, industry and cross border expertise.

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Huron Consulting Group

• Business Disputes
• Economic Consulting
• Intellectual Property
• Forensic & Complex

Accounting

• Valuation
• Fraud Investigations
• Digital Evidence
• Discovery
• Document Review
• Law Firm Management
• Records Management
• Strategy, Process and

Technology

• Strategy
• Performance Optimization
• Sourcing
• Interim Management
• Compliance & Disputes
• Strategy/Galt & Company
• Operational Consulting
• Performance

Improvement

• Supply Chain &

Sourcing

• Utility Consulting
• Corporate Advisory

Services

• Restructuring
• Interim Management

Healthcare & Education Consulting Legal Operational Consulting

Huron Consulting Group is a diversified firm of specialized consulting practices.

Legal Financial Consulting (Litigation Support) Corporate Consulting

Supply Chain & Sourcing – Services

Strategic Sourcing Procurement Transformation Operational Procurement

Current State Assessment Strategy & Planning Process Improvement Technology Evaluation & Implementation Organizational Development Performance Metrics

Assisting companies to create the greatest possible improvements to the bottom line while limiting the behavioral changes required.

Non-Salary Cost Reduction Spend Category Expertise Supplier Strategy Bid Event Facilitation Negotiation Support Outsourcing Advisory

Assisting companies to improve the price component of purchased good and services. Assisting companies to expand their purchasing and sourcing capabilities. Value Proposition

Supply Chain Optimization Spend Analysis Category Management Contract Management & Compliance Specialized Software Tools Interim Management

Areas of Focus

Current State Assessment Strategy & Planning Process Improvement Technology Evaluation & Implementation Organizational Development Performance Metrics

Assisting companies to create the greatest possible improvements to the bottom line while limiting the behavioral changes required.

Non-Salary Cost Reduction Spend Category Expertise Supplier Strategy Bid Event Facilitation Negotiation Support Outsourcing Advisory

Assisting companies to improve the price component of purchased good and services. Assisting companies to expand their purchasing and sourcing capabilities. Value Proposition

Supply Chain Optimization Spend Analysis Category Management Contract Management & Compliance Specialized Software Tools Interim Management

Areas of Focus

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Revenue Enhancement Business Alignment Supply Chain/ Operations SG&A Efficiency Organizational Alignment

Performance Improvement

Huron assists executives in addressing both top and bottom line business issues.

Portfolio Evaluation Investment Evaluation Product / Market Realignment Helping clients reposition when facing difficult

competitive environments or deteriorating financial performance

Supply Chain & Operations Manufacturing Efficiency Asset Effectiveness Procurement Process

• Strategic Sourcing

Helping companies improve performance of

core business activities

Business Planning Market Segmentation Pricing Channel Management

• Merger & Acquisition Advisory & Integration

Helping companies generate profitable growth

through identification of new product/ market

• pportunities

Shared Services Design Outsourcing Evaluation Indirect Sourcing Process Improvement IT Alignment Helping companies improve the efficiency and

effectiveness of support functions

Helping companies configure their organization

to meet customer and competitive requirements Value Proposition

Sales Force Effectiveness Management Process Improvement Organizational Design Performance Measurement

Representative Engagements

Portfolio Evaluation Investment Evaluation Product / Market Realignment Helping clients reposition when facing difficult

competitive environments or deteriorating financial performance

Supply Chain & Operations Manufacturing Efficiency Asset Effectiveness Procurement Process

• Strategic Sourcing

Helping companies improve performance of

core business activities

Business Planning Market Segmentation Pricing Channel Management

• Merger & Acquisition Advisory & Integration

Helping companies generate profitable growth

through identification of new product/ market

• pportunities

Shared Services Design Outsourcing Evaluation Indirect Sourcing Process Improvement IT Alignment Helping companies improve the efficiency and

effectiveness of support functions

Helping companies configure their organization

to meet customer and competitive requirements Value Proposition

Sales Force Effectiveness Management Process Improvement Organizational Design Performance Measurement

Representative Engagements

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Corporate Advisory Services

Corporate Finance

Maximizing Enterprise Value

• Mergers & acquisitions
• Capital raising / refinancing
• Distressed M&A
• Management buyouts
• Recapitalizations

Financial Advisory

Creating Enterprise Value

• Restructuring advisory
• Chapter 11 bankruptcy advisory
• Strategic planning
• Capital sourcing
• Business plan review and financial forecasting
• Financial and operational due diligence
• Vendor rationalization
• Trade credit management
• Forensic accounting
• Claims management

Interim Management CEO, CFO, COO, CRO

Preserving Enterprise Value

• Crisis stabilization
• Operational improvements
• Customer accommodation agreements
• Viability assessment
• Cash flow management
• Identification and implementation
• f cost reduction initiatives
• Trustee services

Strategic Valuation

Measuring and Increasing Enterprise Value

• Business valuation
• Intellectual asset management
• Solvency analysis
• Performance management &

incentive compensation framework

• Valuation of intangibles

Situation Analysis

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• Deep industry

experience has been a key factor in the firm’s ability to complete client engagements successfully.

• Knowing the territory

helps us quickly evaluate a situation and win the confidence of stakeholders.

Industry Experience

Automotive

Automotive Experience

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Our professionals have worked with companies, lenders and other constituencies throughout the automotive industry value chain, including major global automobile manufacturers and the following types of manufacturers that produce a wide range of key components to install into their vehicles.

Electronic and Sensory Systems (cables, connectors, etc..) Air Bag Systems Suspension and Springs Motor Design, Engine Casting & Manufacturing Acoustics & Side Insulators Transmission & Power train Chassis Seat Fabrics & Paneling Dashboard & Door Paneling Body Stamping

Automotive Industry Expertise

Wheel Hubs Brake Drums Steering Wheel Entertainment and Climate Control Battery Glass Exhaust System Pumps & Valves Floor Consoles

Select Automotive Engagements

• Steven Korf was CFO and subsequently CEO of AI Automotive Corporation, a privately-held, $400 million

wholesale and retail distributor of automotive parts and supplies. Steve oversaw the Company’s successful restructuring under Chapter 11 where he was able to jettison underperforming operations and eliminate

• perating losses and improve cash flow through various EBITDA initiatives. Ultimately, at the request of the

shareholders, Steve oversaw the sale of the Company at prices which generated a return on invested capital in excess of 17%.

• Performed due diligence and merger integration planning for a $150 million company in the aftermarket

parts business. Defined strategy, integrated structure and information system transition plan. Created facility consolidation and merger communication plans.

• Chief Restructuring Officer and Interim CFO at a producer of metal stampings and assemblies. We were

retained as a result of the company’s default under its loan agreement and severe over-advanced.

• Interim CEO and CFO at a stamping subsidiary of an automotive holding company. This two phase

engagement included both operational and financial restructuring initiatives at both the subsidiary and holding company. The operational restructuring involved consolidating five plants to three, reducing

• verhead, eliminating excess equipment, improving tool changeover times and introducing statistical

process control, reducing the number of inspectors. Huron assisted the company in negotiating accommodations from its customers and UAW employees. The customer accommodations recovered 90%

• f raw material price increases and the UAW negotiations resulted in co-pays and deductibles on the health

benefits for the first time and reduced job classifications. As Interim CFO of the holding company, Huron assisted with restructuring the company’s bank debt, negotiated accommodations on Seller Notes and helped to raise new capital.

• Advisor to a Tier I manufacturer of water shields in its price negotiations with GM and forbearance

negotiations with its Senior Lender. Huron is also assisting this company in raising subordinated capital.

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Select Automotive Engagements

• Provide financial advisory services to help an automotive parts supplier refinance existing subordinated

debt, increase liquidity to finance new R&D projects, and find a potential new equity partner.

• Advisor to a Big Three customer of a large US Tier I to determine likelihood of production interruptions in

Europe due to the US company’s Chapter 11 filing.

• Assisted a private equity group to acquire a Tier 1 manufacturer of die cut and molded film and foam

laminated water shields. Assisted with extensive negotiations with Ford, Nissan, Honda, Toyota for price accommodations.

• Advisor to the Senior Lender Group to a Tier I blow mold manufacturer operating under Chapter 11
• Advisor to WL Ross & Co. in its acquisition of European automotive assets
• Financial advisor to the Creditors' Committee for Meridian Automotive Systems, where we have been

instrumental in the Committee's review and analysis of the Debtor's filing, the ongoing assessment of its liquidity and cash needs, and the negotiation of its DIP financing. As the case progresses, Huron will lead the effort to assess the Debtor's operations and its ability to address its operating, strategic and competitive needs, as well as to undertake a valuation of its assets.

• Financial advisor to the Unsecured Creditors' Committee for Performance Transportation Services

(Leaseway), the second largest provider of new automobile logistics distribution for OEM's in the United States and Canada. Huron has been instrumental in the Committee's review and analysis of the Debtor's DIP financing, Employee Performance Incentive program and settlement negotiations with regard to the Debtor's proposed Disclosure Statement and Plan of Reorganization. In addition, Huron is also responsible for monitoring the Debtor's cash position and EBITDA performance as well as reviewing the Debtor's

• perational and strategic restructuring initiatives.

Select Automotive Engagements

• Supported the restructuring of a $1 billion automotive supplier reorganizing under Chapter 11 protection.

Developed cash flow projections to help the company monitor and preserve value and launched numerous cash-generating activities (asset sales, plant closures, conversion cost reductions).

• Developed and led a program to generate profits in all business cycles for a $700 million automotive

industry business unit. Set priorities to achieve breakeven at various target volume levels, launched pricing and cost reduction actions at facilities in North America and Europe.

• Directed a team charged with generating value from a $60 million ERP rollout at a $26 billion supplier.

Worked with manufacturing divisions and support organizations to help develop, prioritize, launch and implement cost reduction projects.

• Led a cost reduction program for a $5 billion automotive supplier that covered North America, Europe

and Asian operations. Established benchmarks, defined cost-reduction opportunities, set budgets and helped implement programs that yielded $125 million in first-year payroll and expense cuts.

• Led a turnaround effort at a $800 million manufacturer of stampings and structural parts. Developed

cash flow models, identified construction and tooling milestones critical to accelerate cash flow, identified and help implement plant and SG&A cost reductions, evaluated a proposed merger.

• Evaluated strategic alternatives for service operations affiliated with a $7 billion manufacturer of heavy-

duty diesel engines. Modeled supply and demand conditions, evaluated service territories, pricing and network structure changes to respond to market & product trends.

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Customer Accommodations

Negotiating modification of commercial terms - Huron has deep relationships with OEMs and their financial advisors having successfully negotiated favorable price concessions from all major North American and European OEMs in the past. The following are three examples:

Foamade Industries

Foamade Industries provides

air filters, lightweight floor and trunk underlayment, gaskets, molded panels, vinyl roof padding, water deflectors and, protective insulators to the Automotive industry.

Huron successfully negotiated

price accommodations from OEMs.

Bahr Incorporated

Bhar, Incorporated is a custom

injection molding company and has been a supplier to General Motors for more than 25 years. The company provides a variety

• f parts used in multiple General

Motors vehicle platforms.

Huron successfully negotiated

price accommodations from Bhar’s customers.

Ward Products

Ward Products is a tier 1

manufacturers of automobile antennas and wire cable assemblies.

Huron negotiated price

accommodations from OEMs.

Foley & Lardner LLP Presentation

Presented by: Charles Dougherty, Foley & Lardner LLP Judy O’Neill, Foley & Lardner LLP Sal Barbatano, Foley & Lardner LLP

May 16, 2007

22

Foley & Lardner Overview

Foley’s Automotive Industry and Restructuring Capabilities

Foley’s Automotive Industry Team (AIT) represents

companies throughout the automotive supply chain, with an emphasis on representing Tier 1 suppliers

More than 50 attorneys practice in Foley’s Business

Reorganizations Practice Group, including in New York, Delaware, Detroit and other jurisdictions

Foley is the only national law firm with a Detroit Office

and dedicated Automotive Industry Team, with deep knowledge of supply chain contracts and how to deal with troubled customers/suppliers

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Foley’s Automotive Industry

Chapter 11 Experience

Foley & Lardner attorneys have had significant

involvement in the following Chapter 11 cases in the automotive industry: – Tower Automotive – Meridian Automotive Systems – BBi Enterprises – Collins & Aikman – Pilot Industries – Venture – Oxford Automotive – Intermet Corporation – Key Plastics – Amcast Industrial – Delphi – JL French – Dana Corporation – Dura Automotive

Automotive Supply Chain and Contracting Overview

24

The Contract

• Blanket Purchase Orders
• Releases
• LTA
• Cost Downs

The Product

• Sole Sourced
• Just In Time
• Tooling
• Platform
• Re-Sourcing
• Capacity
• Supplier
• Product

Timing

• Shutdown
• Changeover
• New Awards

Timeline for New Auto Business Average Time from Quote to Full Production 18 – 30 Months

*RFQ Issued PO Issued Tool Design Tool Build Tool Completion PPAP SOP

2 Months 1 Month 3 Months 4 Months 9 Months 3 Months

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Current Contracting Practices

RFQ’s Quotations Purchase Orders “Battle of the Forms”

Current Contracting Practices

What is the contract?

– T’s & C’s: conflicting terms and the “Battle of the Forms” – Termination date is important: fixed or indefinite? – Emails and conduct impacts what constitutes the “contract” (course of dealing and course of performance)

Directed supply Hostage situations Trends: Long Term Agreements?

26

Common Issues in Automotive Restructurings

Common Issues in Automotive Restructurings

Customer Influence – Short Term

– New business hold – Resourcing – Setoffs and recoupment – A/R remittances slow down

27

Common Issues in Automotive Restructurings

Importance of Contract Issues in

Restructurings and Acquisitions

– Impact of contracts and contract terms on:

Ability to stop shipment in transit Terminate contract Demand and obtain adequate assurance

• f performance

Bankruptcy Rights

– Performance in the Gap Period: » Bankruptcy law requires the non-debtor party to perform in the gap period

Common Issues in Automotive Restructurings

Assumption or Rejection of Executory Contracts

– If contract is executory, the contract must be assumed or rejected at least by confirmation of the plan – Assumption requires cure of all monetary defaults, including pre-petition defaults – Suppliers need to be aware of leverage that may enable pre- confirmation assumption or rejection

– Acquisitions

Suppliers may have leverage if contract is not assigned

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Common Issues in Automotive Restructurings

Accommodation and Access Agreements

– What are they?

Typically between customers, suppliers and secured

lenders, these agreements are designed to provide continuity of supply and protection of the secured lenders’ collateral base

The access agreement permits the customer, under limited

circumstances, to access the supplier’s plant to produce parts pending transfer of the contract and/or facility to a healthier supplier

Common Issues in Automotive Restructurings

Accommodation and Access Agreements

(cont.)

– The accommodation agreement provides accommodations that solidify the lenders’ collateral base through protections on inventory and receivables and commitments to continue sourcing

• f existing parts to the troubled supplier

– Often provide for waiver of the right of setoff as to consequential damages – May provide for loans or financial accommodations

Why are they used? Key Provisions

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Common Issues in Automotive Restructurings

Critical Vendor Status

– “Essential or “critical” suppliers

Cardinal principal of bankruptcy is that similarly

situated creditors receive equal treatment

Certain creditors (usually trade) can be deemed

“critical” in bankruptcy proceedings if they are”

– Irreplaceable – Crucial to continued operation and successful reorganization – Can be used as a means to obtain unsecured credit

Common Issues in Automotive Restructurings

Critical Vendor Status (cont.)

– Auto industry gives support to critical vendor arrangements

Customers may not have alternative markets for the goods

they are purchasing

An inability to replace that supplier (owing to the high cost

associated with moving tooling from one supplier to another and the attendant time delay)

Extremely thin profit margins (where the collapse of even

• ne customer may mean economic ruin for many

suppliers)

Tooling vendors often considered critical vendors Lien issues (possessory and by filing)

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Common Issues in Automotive Restructurings

Impact of revisions to code on

acquisition in bankruptcy

– Section 503(b)(9) of the Bankruptcy Code – Administrative claim for goods sold to the debtor in the ordinary course of business in the 20 days preceding the bankruptcy – Expanded time period for reclamation rights

Common Issues in Automotive Restructurings

Customer influence – long term

– Customer expectations of restructured supplier

Competent management with automotive

experience

Sound capital structure able to survive cyclical

nature of industry

Long term owners with stable ownership.

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Labor Agreement Issues in Bankruptcy Cases Labor Issues in Bankruptcy

Bankruptcy Code § 1113 Rejection of Collective Bargaining Agreements

(“CBAs”)

– Rejection of a CBA may be necessary to terminate a pension plan if the Union refuses to drop a contract bar – Aggressive approach may be appropriate if the Union “holds hostage” the pension plan termination issue as leverage in negotiations – To reject a CBA, the debtor must meet strict procedural requirements and show that its proposed modifications to the CBA are “necessary to permit the reorganization of the debtor”

32

Labor Issues in Bankruptcy

Courts Have Divergent Interpretations of How

“Necessary” the CBA Changes Need To Be

– Third Circuit – “But for” test – debtor may propose only those modifications necessary to avoid liquidation – Second Circuit – Less stringent test – whether changes “will enable the debtor to complete the reorganization process successfully” because rejection will result in a greater chance for reorganization than if the CBA remains in force – If Debtor is Selling its Assets – In a liquidating chapter 11 case where a sale of assets is proposed, the debtor only must show modifications are “necessary to confirmation of the plan”

Pension Issues in Bankruptcy Cases

33

Pension Issues in Bankruptcy

Pensions

– Bankruptcy Code § 1114 – Role of Pension Benefit Guaranty Corporation (the “PBGC”)

A governmental “insurance company” that oversees Title IV

• f ERISA

Roles in chapter 11 cases include overseeing plan

termination process, recovering premiums and filing claims

Take a very active role in chapter 11 cases, particularly

automotive restructurings

In many cases will sit on the Official Committee of

Unsecured Creditors

Pension Issues in Bankruptcy

Recurring problem of underfunded

pension plans

– Funding must always be sufficient to cover an “accumulated funding deficiency” – Very onerous on companies to fund deficits – ERISA does not allow over-funding in good times – “Anti-cutback” rule in Internal Revenue Code prevents employers from decreasing or delaying certain benefits – Many employers stuck with pension plans they cannot possibly fund

34

Pension Issues in Bankruptcy

Tools Bankruptcy Provides to Deal with

Pension Issues

– Distress Termination – Rejection of Collective Bargaining Agreements – Potential Suspension of Contributions – Limiting PBGC Claims

Distress Termination

– A voluntary distress termination requires approval by the PBGC and the Bankruptcy Court – The Plan Administrator must give the PBGC and participants 60 days written notice – Termination cannot violate the terms of a collective bargaining agreement unless the agreement is rejected as part of the termination

Company may try to get the Union to drop a contract bar

through negotiations

Important strategic call of the company on whether to

integrate, or bifurcate, the distress termination and section 1113 process

Pension Issues in Bankruptcy

35

Pension Issues in Bankruptcy

Legal Standard for Distress Termination

– Financial Necessity Test – Whether the debtor can confirm any plan of reorganization absent termination of its pension plan

• r plans

– Necessary does not mean necessary to a particular preferred plan—it must be necessary to any confirmable plan – Requires review of the debtor’s cash flow, opportunities for debt capital and extent of its pension obligations – If the debtor has multiple plans, the court will likely analyze them in the aggregate rather than on a plan-by-plan basis

Pension Issues in Bankruptcy

Potential Suspension of Contributions

– The debtor often attempts to suspend minimum funding contributions while in bankruptcy – Can be an interim first step prior to the distress termination process

36

Pension Issues in Bankruptcy

Limiting PBGC Claims

– PBGC generally has claims against all estates in multi-debtor case due to joint and several liability of all members of the plan sponsor’s “control group” (generally meaning all entities 80% or more commonly owned) – PBGC also has a claim for any missed funding contributions and insurance premiums – PBGC may oppose substantive consolidation in

• rder to enhance its recoveries

Pension Issues in Bankruptcy

Calculation of Claim – Dispute Over Discount Rate

– PBGC’s unfunded benefits claim must be discounted to present value – Until 2003, courts had consistently applied the “prudent investor rate” to present value the PBGC’s claims—the rate achieved by a prudent investor over the long term while preserving capital and minimizing risk – CSC Industries decision by the Sixth Circuit is one of the leading decisions on this issue – In 2003, the US Airways case rejected the “prudent investor rate” and accepted the PBGC’s use of ERISA’s valuation regulation as an interest rate, which results in a much lower rate – PBGC has used the US Airways decision as settlement leverage in courts not governed by current authority

37

Pension Issues in Bankruptcy

Priority of PBGC Claims

– PBGC may attempt to obtain administrative expense or priority tax status for its unfunded benefit claims – Most courts have limited administrative expense status to unfunded benefits attributable to post-petition labor – Priority claim theories have faired poorly as well in recent years – In some cases, PBGC may have a perfected secured lien due to collateral posted by the debtor as security for missed contributions or the perfection of a lien pre-petition

Pension Issues in Bankruptcy

Impact of possible substantive consolidation Liquidity shortfalls to fund plans Customer influence – long term

– Customer expectations of restructured supplier

Competent Management with automotive experience Sound Capital Structure able to survive cyclical nature

• f industry

Long term owners with stable ownership

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Distressed Investment Opportunities and Investment Considerations Investment Opportunities

Targets of Opportunity

– Companies that can be deleveraged and restructured – Spin-offs of non-core but otherwise healthy operations of larger suppliers – Second lien debt issues – Recognizing When a Company is Troubled

Late and delayed payments Increasing receivables Decreasing market share Dun & Bradstreet reports Changes in key management positions Lengthening of credit terms Delays in payment of dividends or payments on funded debt

39

Investment Opportunities

Early warning signs of financial distress may include:

– Supplier requests for price increases, early payments, accelerated payment terms, or customer financing – Late deliveries or negative changes in product quality – Failure to update information technology systems – Failure to effectuate cost reductions or to address volume reduction during economic downturns – Delinquent taxes – Deteriorating accounts receivable and accounts payable – Restatement of or delays in issuing audited financial statements, or a change in audit firms – Changes in key management positions

Investment Opportunities

Vehicles for Acquisition

– Section 363 Sales – Acquisition of Claims/Conversion to Equity – Plan of Reorganization

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Investment Considerations

Customer relationships

– Strength – Diversity – Opportunities to expand offerings – Ability to restructure existing contracts – Reliance on supplier as sole source

Investment Considerations

Platform analysis and book of business

– Strength of platforms they are supplying – Runoff versus new awards – Current bidding scorecard

Product offerings

– Market leader or also-ran – Commodity versus value-add – Product design and R&D capabilities – Industry capacity to absorb company’s product offerings

41

Investment Considerations

Other considerations

– Facilities and equipment – Labor and unions – Operational and management differentiators

Questions & Answers