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Dear Clients and Friends,                                        Greetings!

It’s been my pleasure to serve as managing partner of Plante &   It’s my pleasure and honor to serve as managing partner of
Moran for the past eight years. I’ve thoroughly enjoyed lead-    Plante & Moran. Bill has been the consummate leader, and
ing the Plante & Moran team and reaching out to you, our         I’m fortunate to inherit a firm with an 85-year legacy of
valued clients and friends, via Universal Advisor.               helping clients thrive and doing the right things for the right
                                                                 reasons. While we may not lead the same way, we do have
The theme of this issue is “Times are tough. Let’s get busy.”    the same goals; one thing I’ll definitely pattern after Bill is
A favorite saying of our co-founder Frank Moran, we              waking up every day trying to make Plante & Moran a better
felt it was the perfect battle cry for businesses that might     place for our staff and our clients.
be in a slump because of the economy.
Too many organizations become paralyzed                                              As Bill mentioned, the theme of this
in tough times by the doom and gloom,                                                issue of Universal Advisor is “Times are
rather than using this time to take stock of                                         tough. Let’s get busy.” That begs the
their businesses and position for success                                            question…busy doing what? In this
once things inevitably do turn around.                                               issue, you’ll learn how to take advantage
This issue will focus on actionable oppor-                                           of energy tax credits, demonstrate the
tunities that companies can take and get                                             long-term viability of your organization,
busy implementing.                                                                   and learn how to apply the “Stockdale
                                                                                     Paradox” to your organization. You’ll
As you may know, Gordon Krater has                                                   learn about global opportunities to
been elected my successor effective                                                  leverage, get the inside scoop on how
July 1. Gordon has been a part of the                                                two very different private equity firms
Plante & Moran family for nearly                                                     can help middle-market businesses,
30 years. Over the years, he’s served as                                             and discover why re-evaluating internal
office managing partner of the Southfield                                            controls can be crucial to your organi-
office, public sector group leader, and,                                             zation. Finally, you’ll meet Plante &
most recently, group managing partner                                                Moran’s new management team via our
in charge of industries. Gordon will be an                                           roundtable, where we discuss everything
outstanding leader for our new manage-                                               from tips for struggling businesses to
ment team and the firm.                                                              Plante & Moran’s plans for the future.

As for me, I will continue to support the firm’s growth by       I look forward to continuing to communicate with you via
assuming the role of service industry group leader. I look       Universal Advisor. Although times are tough, we anticipate
forward to helping our clients find opportunity today,           good things to come and believe we’re poised to face the
tomorrow, and into the future.                                   challenges the future may provide.

Thanks for listening.                                            Here’s to getting busy and thriving together.

                            William M. Hermann                                                Gordon E. Krater
                                                                                                                                                 [C o N t e N t s]
 4                                                               22

                            8                                                                             2009 issue two

                                  2   Potpourri
                                  3   In the Spotlight: P&M Corporate Finance
                                  4   Fast Tracking Healthcare Reform: What Does It Really Mean?
                                      While our crystal ball is not without clouds, here’s our two cents regarding what’s on
                                      the horizon as the healthcare reform effort begins.
                                  6   Private Equity Firms Provide Opportunity for Middle-Market Companies
                                      We recently sat down with two very different private equity firms to learn how they can
                                      help middle-market companies and what they look for in the businesses they acquire.
                                  8   Is Green the New Black?
                                      Making investments in renewable resources, alternative energy, or going green can
                                      yield rewards in the form of energy tax credits.
                                 10   Management Team Roundtable
                                      Meet the firm’s new management team, and hear their take on issues ranging from the economy
                                      and tips for struggling businesses to the team’s plans for Plante & Moran going forward.
                                 13   Losing Sleep Due To Fiduciary Responsibilities?
                                      Given today’s tumultuous market, it’s no wonder that insomnia plagues many 401(k) plan fiduciaries.
                                      Here’s our prescription for peace of mind and a good night’s sleep.
                                 14   Contemplating the Future Sale of Your Business?
                                      There are at least five key steps any business owner should consider to maximize flexibility
                                      and position to pursue specific alternatives in the future.
                                 16   Downsizing Staff, Upsizing Fraud
                                      When businesses embark upon staff reductions, internal controls often suffer, resulting in financial
                                      losses. Here are a few actions management can take to assist in detecting fraudulent activity.
                                 18   Impact of Recession Alters Consumer Behavior
                                      How has the recession affected consumer behavior? Read on to find out!
                                 20   Can You Demonstrate Long-term Viability?
                                      Demonstrating long-term viability is more important than ever for suppliers. It’s critical to understand
                                      what information your customers are considering and how they’ll evaluate your enduring potential.
                                 22   Think Globally
                                      The global recession is real…but that doesn’t mean global activity should be discounted.
                                 24   Happenings
                                 25   Business Trends: “The Stockdale Paradox” — Good Advice for Any Business
                                      Awareness of your current situation and the courage to act decisively are requirements for
                                      organizations that plan to succeed.

                                      Universal Advisor™ is written and published by Plante & Moran for clients, friends, and staff as a
                                      resource of services offered throughout the firm.
                                      What’s on your mind? We want to know. We encourage questions or comments of any kind, at any time.
                                      Contact us at 1.800.544.0203, extension 35377, or e-mail melinda.kroll@plantemoran.com.
Universal Advisor™                    For specific questions regarding the articles in this issue, contact any contributing author via the
                                      e-mail address noted with their photo.
Managing Editor – Mindy Kroll
Art Director – Jill Kulchinsky        plantemoran.com
[P o t P o u r r i]

                                   FoR PRIVATE CoMPANIES
                          Many have long thought that the drive toward adopting Inter-
                          national Financial Reporting Standards (IFRS), the international
                          counterpart to U.S. generally accepted accounting principles
                          (GAAP), would be led by public companies. However, with              Do YoU SToRE,
                          interest in the SEC’s much-publicized proposed roadmap               PRoCESS, oR
                          to adoption of IFRS waning, the continued push toward                TRANSMIT CREDIT CARD DATA?
                          the adoption of IFRS has received support from an unusual
                          source — private companies.
                                                                                               New Data Security
                               The IFRS standard-setting body is close to finalizing
                                                                                               Standards May Affect You!
                          new guidance that will provide a simplified version of IFRS          The Payment Card Industry (PCI)
                          specifically designed to meet the unique needs of private            Security Standard Council recently
                          companies. The standard will simplify many of the most               released new data security standards
                          complex areas of accounting, including goodwill, fair value,         to protect credit card holders. PCI
                          pensions, and others and also calls for a reduced set of financial   data security compliance applies
                          statement disclosures.                                               to any organization that stores,
                               Many companies have been calling for a similar set of           processes, or transmits cardholder
                          simplified standards for private companies in the United States      data. The number of cardholder
                          (the “big GAAP” vs. “little GAAP” debate), but only modest           transactions performed annually
                          progress has been made to date. Perhaps IFRS will be the             determines the process necessary
                          answer that private companies have been looking for.                 to obtain PCI compliance.
                                                                                                    The PCI Security Standard
                                                                                               Council recently named Plante
                                                                                               & Moran an Approved Scanning
                                                                                               Vendor (ASV). As an ASV, Plante &
                                                                                               Moran helps organizations ensure
                                                                                               they’re complying with the new
                                   CAPTIVE INSURANCE CoMPANIES                                 data security standards released by
                                                                                               the PCI Security Standard Council.
                                   Can Benefit the Middle Market                               Plante & Moran is one of only
                          The Internal Revenue Code Section 831(b) allows companies of         130 organizations in the world to
                          all sizes to realize the benefits of a captive insurance company.    receive this approval.
                          Unlike the large, single-parent captive insurance companies of            If an organization fails to com-
                          blue chip companies, the 831(b) captive offers unique benefits       ply with the PCI’s data security
                          to our middle-market clients.                                        standards, major credit card
                                Under Section 831(b) of the Internal Revenue Code, a           companies, like American Express,
                          company is allowed to establish a captive insurance company,         Discover Financial Services, JCB
                          limited to $1.2 million in premium. The parent can deduct this       International, MasterCard World-
                          premium as an ordinary business expense, but the greatest            wide and Visa Inc., can deny them
                          value is that the captive insurance company is not taxed on the      access to their credit services. For
                          premium income of $1.2 million, only the investment income           more information on the new data
                          generated by that premium. Companies can increase their              security standards or how Plante &
                          taxable deductions and save as much as $450,000 each year            Moran can help your organization
                          ($1.2 million x 40% effective tax rate = $480,000 - $30,000          become compliant, please contact
                          annual captive fees = $450,000).                                     Joe Oleksak at 248.223.3587.

   2     PlaNte & moraN uNiversal advisor
                                                                                                      [i N t h e s P o t l i g h t]
                                                                                                      [i N t h e s P o t l i g h t]
P&M Corporate Finance

P&M CoRPoRAte FINANCe, LLC (PMCF)                        Recently, a manufacturing company
IS A MIDDLe-MARket INveStMeNt BANk                  serving the energy industry enlisted PMCF
that provides merger & acquisition and              to execute a transaction that needed to satisfy
financial advisory services to companies            four criteria: partner with a buyer positioned
and private equity firms located throughout         to drive continued growth; provide economic
North America and Europe. Its services              opportunities for the management team;
include sale advisory, acquisition advisory,        achieve personal liquidity and diversify
fairness opinions, capital raising, and             business risk; and secure an attractive price.
strategic advice relating to leveraged buy-         PMCF identified a highly strategic company
outs, management buyouts, initial public            owned by an equity fund and negotiated
offerings, and strategic alliances.                 a transaction that met all objectives and
      PMCF advises clients across a broad           exceeded the owner’s expectations. The
spectrum of manufacturing and service               transaction closed in late 2008, even as
sectors and has dedicated industry teams            credit markets collapsed and oil prices fell.
focused on diversified industrials, plastics             Finally, PMCF is a founding member
and packaging, business services, life              of Corporate Finance International (CFI),
sciences, and healthcare services. Today,           a network of boutique investment banks
PMCF frequently consults with companies             executing middle-market transactions in
(1) planning a future sale of their business        key industry segments across the globe.
and interested in using the current soft            With more than a decade of international
market to implement strategies to opti-             collaboration among current members and
mize the sale process and proceeds, and             more than 135 professionals in 16 offices
(2) looking to take advantage of market             across 11 countries.
conditions and grow via raising growth                   Since PMCF’s inception in 1995, it has
capital or through acquisitions.                    completed more than 300 engagements for a
      PMCF differentiates its practice by           wide variety of clients, including individual
leveraging its deep industry expertise with         and family-owned businesses, large public
a strong analytical approach to provide             companies, and private equity firms. PMCF
customized transaction solutions. At the            specializes in transactions valued between
same time, it maintains a culture of entre-         $20 million and $200 million, typically
preneurial independence and senior-level            closing approximately 15–20 transactions
involvement that supports its middle-market         per year. The firm employs 25 professionals
clients and their unique financial require-         based in Chicago, Southfield, and Cleveland.
ments. Another differentiating factor is                 For more information about P&M
that PMCF consistently puts the interests of        Corporate Finance, please contact Phil Gilbert
its clients first, even if it means not closing a   by phone at 248.223.3326 or by e-mail at
transaction and not earning a fee.                  phil.gilbert@pmcf.com.

                                                             What will this mean for employers and individu-        plans. Right now, our total preventive care investment
                                                        als? While our crystal ball is not without clouds, here’s   of the $2.2 trillion annual spend is less than 2 percent.
                                                        our two cents regarding what’s on the horizon as the        Expect greater emphasis going forward.

                                                        reform effort begins.                                            Tax policy change. Our entire health system
                                                                                                                    is predicated on employer-based plans that provide
                                                        The Great Prognostication                                   for deductibility of insurance premiums. At the indi-
                                                        Universal coverage vs. universal access. Technically,       vidual level, unless self-employed, there is no way to
                                                        we already have a form of universal access; you’re          purchase health insurance with “pre-tax” dollars. As a
                                                        free to access care anytime you wish. The issue is,         result, the individual insurance industry, while large,
                                       Ed Murphy        who will pay for the care? You as an individual? The        is underdeveloped and nowhere near a mature, com-
                                                        government? Your insurance provider?                        petitive market that’s reached economic equilibrium.
                                 Plante Moran Group          Improvements in universal access will likely be        A balanced tax policy is one critical outcome and the
                                Benefit Advisors, LLC   the first step. The leap, and associated expense, to        cornerstone of the emergence of competition between
                                                        universal coverage likely won’t come for some time          an employer-based system and individual systems.
                                                        because of cost issues.                                          Free market reform. By way of example, look at
                                                             Tax limits. The Bush administration introduced         the cosmetic surgery industry. In the last 15 years,
                                                        the idea of limiting the deductibility of healthcare        the real price of cosmetic surgery has actually been

                                                        insurance premiums in 2006, while the Obama                 reduced while all other health care increased at
                                                        administration directly opposes such limits.                two to four times the consumer price index. Why?
                                                             Single payer. Defined by the National Library of       Because cosmetic surgery isn’t covered by most in-
                                                        Medicine as, “an approach to health care financing          surance plans. At the same time, cosmetic surgeries
                                                        with only one source of money for paying health care        have increased almost sixfold. This is an example of
                                                        providers,” the scope may be national (Canadian sys-        free market working to achieve market equilibrium.
                                                        tem), state-wide, or community based. The payer may         Look for more forms of consumer-based spending.
                                    Diane Hanley        be a governmental unit such as an insurance company         Evidence shows that when given the responsibility
                                   Senior Consultant    or other appointed payers. While the single-payer           for spending, consumers find ways to be more prudent
                                 Plante Moran Group     system may be viewed as having a better chance than         with consumption, and cost control is one byproduct
                                Benefit Advisors, LLC
                                                        universal coverage, we don’t believe such a system          of a free enterprise system.
                                                        will make it into the United States for years to come.           Other things to look and listen for in any reform
                                                             Wellness and population health management.             effort include improvements in provider quality ini-
                                                        Given some level of preventive intervention at a low        tiatives, play or pay, rationing of care, transparency
                                                        or nominal cost, the costlier expenses associated with      with respect to consumer information on provider
                                                        acute care can be avoided/reduced. Any new system           quality, consumer-driven health plans/account-based
                                                        will absolutely include preventive care that’s often        plans, pay for performance at the provider level, and
                                                        heretofore excluded or limited from many benefit            personal responsibilities.

                4              PlaNte & moraN uNiversal advisor
                                            Fa s t t r a C k i N g h e a lt h C a r e r e F o r m : w h at d o e s i t r e a l ly m e a N ?

                                                 A Few Facts About Healthcare Costs
                                                 •   In total, for 2007, we spent more than $2.2 trillion on health care. That means
                                                     we spent about $6,700/year for every man, woman, and child in the U.S.
                                                 •   The costs are doubling every seven to 10 years.
                                                 •   Health care accounts for more than 16 percent of the GDP and is expected
                                                     to be $1 of every $5 by 2020.
                                                 •   Government promises in the form of Medicare coverage would require a
                                                     $100 trillion funding to cover healthcare promises made for the current
                                                     population. That’s about 6.5 times our entire economy!

             The “T” Word                                        In Conclusion
             One thing that you undoubtedly won’t hear           The list of things to discuss is long and complex. At
           is any discussion regarding increased taxes.          the end of the day, we suggest a first round that will
         While the time is right for reform and cost             involve a multidisciplined approach, including input
       control, no one wants to admit that in order to           from providers, insurance companies, pharmaceutical
     provide universal coverage/access and fix many              manufactures, employers, and retirees, all trying to
    of the problems associated with the current sys-             collaborate on integrated solutions focused on reduc-
   tem, the overall cost will rise before it comes under         ing the current cost and cost escalation. The rhetoric
 control. Therefore the “T” word will be avoided to the          has already shifted to a mantra of “cost reduction.”
extent possible. One other thing to remember: when               More importantly lack of progress or a stalemate over
you hear talks about saving $2 trillion over the next            the next six to 12 months will be met with a shift to
10 years, what’s really meant is the cost over the next          government mandates and administrative takeover.
10 to 30 years will increase by $2 trillion less than            As such, there’s a great deal riding on this effort, and
projected. In real terms, that’s really not cost savings;        those with a stake in the game must produce or risk
its cost avoidance.                                              being “out of business” as we know it today.

                       Glencoe Capital, LLC                                                                          for our investors and for the manage-
                       Headquarters: Birmingham, Michigan, and Chicago, Illinois                                     ment team. Many times companies
                                                                                                                     are capital starved or could use more
                            Targets: Thriving, middle-market companies valued between $25 and $125 million
                                                                                                                     sophistication in managing capital
                        Interviewees: Jason Duzan, managing director of the Michigan opportunities Fund, and         structures. We invest capital wisely
                                      Greg DeMars, associate                                                         and provide businesses with the
                                                                                                                     financial and operational tools they
                                                                   Tell us a bit about Glencoe Capital.              need to succeed.

                                                                   JD: Glencoe Capital is a private equity       GD: We’re also fortunate to partner
                                                                       firm focused on middle-market                 with Glencoe’s proprietary Executive
                                                                       acquisitions and growth equity                Network — a group of 40 former
                                                                       investments. Since 1993, we’ve                and current C-level executives who
                                                                       completed more than 25 deals with             work closely with Glencoe Capital.
                                                                       a combined transaction value of               These executives have spent
                                                                       more than $1 billion. We’ve managed           20-30 years in industry, have sat
                                                                       three funds out of Chicago and have           in the same chairs as CEos, and
                                                                       recently held our first closing on our        can provide significant insight and
                                                                       Michigan opportunities Fund — a fund          guidance relative to the businesses.
                                                                       dedicated to identifying candidates for   What attributes do you look for
                                                                       investment in the state of Michigan.      in the companies you acquire?
                                                                   What are the main reasons that                GD: Glencoe Capital invests in middle-
                                                                   thriving companies choose to sell                 market businesses across a variety
                                                                   to your private equity group?                     of industries that are based in
                                                                   JD: We’re not day-to-day managers of the          Michigan and looking to expand into
                                                                       business. When we get involved with           the state. We target companies with
                                                                       a company, we work together to plan           strong, experienced, and motivated
                                                                       for the next five years to create value       management teams; market-leading

6   PlaNte & moraN uNiversal advisor
                                                              P r i vat e e q u i t y F i r m s P r o v i d e o P P o r t u N i t y F o r m i d d l e - m a r k e t C o m P a N i e s

    products, processes, or technologies;        TMB Industries
    and opportunities to grow organically        Headquarters: Chicago, Illinois
    or via acquisitions. We typically look for
                                                       Targets: Underperforming, middle-market businesses with
    companies with an EBITDA (earnings
                                                                revenues between $30 million and $500 million
    before interest, taxes, depreciation,
    and amortization) between $5 and               Interviewee: Tom Begel, chairman and founder, TMB Industries
    $15 million, although we will do
    smaller deals if companies demon-            I understand that 2009 marks TMB                          some kind of specialized technology
    strate an opportunity for growth.            Industries’ 20th year in business.                        or methodology that will allow them to

Tell us about the Michigan                       tB: Yes, it does. We’ve had a great success               compete in the North American environ-
Opportunities Fund.                                  rate over that time period. We’ve                     ment; we don’t target organizations
                                                     acquired 41 businesses in the general                 whose plans include going offshore.
JD: As part of her 2008 State of the State
    address, Michigan Governor Jennifer              industrial, automotive, medium and
                                                                                                      How do you help struggling
    Granholm earmarked $300 million in               heavy-duty truck, and engineered                 companies regain and grow
    equity capital to invest into Michigan           products sectors. We’re proud of our             profitability?
    companies — a portion will go to                 accomplishments and proud that                                                                           Craig Thornton
                                                                                                      tB: We assist companies with everything
    venture capital and co-investment, and           we’ve been able to help struggling                                                                       Partner
                                                                                                          from strengthening their IT and cost
    the rest will target mature companies.           businesses across the Midwest.                                                                           Strategy
                                                                                                          accounting systems to making sure
    Glencoe Capital was chosen to manage                                                                  their people are rewarded appropriately
                                                 Which raises a great point:
    the allocation for the mature compa-         why does TMB Industries target                           for the work they do — everything that
    nies, including buyouts and growth           distressed businesses?                                   a struggling company needs in order to

    equity investments. We’re looking to                                                                  be brought back to health.
                                                 tB: We know that most other firms target
    invest $150 million in equity capital
                                                     well-managed, profitable entities, so
    in 8-10 Michigan companies over the                                                               I understand TMB functions a bit
                                                     there are a number of opportunities
    next three years, which corresponds                                                               differently than most private equity
                                                     to take advantage of in the distressed           companies, since you typically rely
    to a $10-20 million equity investment
                                                     market. Almost all of the investors at           upon your own capital and perhaps
    per business.
                                                     our firm have an operating background            some from a small number of your
Have you closed any deals yet?                       versus a financial one, so we bring              investment partners.                                    Michele McHale
JD: We’re actively pursuing opportunities            that experience to bear by acquiring             tB: Absolutely. We’ve deliberately never                Associate
    in Michigan, and expect to announce              companies that aren’t running well for               raised a fund…not that we haven’t                   Strategy
    something shortly.                               one reason or another and turning them               had opportunities. As long as we
                                                     around to create value. We don’t focus               have the ability to invest in the deals
Is there anything else you’d like                    on organizations that are in dire straits;
to tell middle-market companies                                                                           ourselves, we know we have more
                                                     there has to be some opportunity for                 invested than a typical private equity
about Glencoe?
                                                     our team to turn things around and                   firm. We may do fewer deals per
JD: The principal objective of the Michigan          make a profit. Still, we’ve brought a                year than most other firms, but we’re
    opportunities Fund is to invest in               unique presence to the private                       very focused on the deals we enter
    successful businesses and provide                equity environment and helped many                   into, because it’s our money, and
    attractive returns to investors. This,           struggling organizations.                            our livelihood depends upon these
    we believe, will create vitality for
                                                 What attributes do you look for                          companies’ successes.
    businesses in Michigan. These are
    obviously challenging times, but we’re       in the companies you acquire?
                                                                                                         For more information on how
    pleased to be able to help stimulate         tB: We target organizations in the indus-            private equity firms can assist
    the economy by finding the best                  trial manufacturing sector that could            your organization, please contact
    businesses in Michigan and helping               be better managed or need capital to             Craig Thornton at 216.274.6535 or
    them continue to grow.                           grow. We target companies that have              Michele McHale at 248.223.3579.

                                       Renewable Energy Fun Facts
                                       •   Utility grade wind turbines installed today can reach up to 360 feet tall and
                                           have a “wing span” of more than 300 feet – that’s larger than a Boeing 747.
                                       •   In just one hour, the Earth receives more energy from the sun than the entire
                                           world uses during a whole year.
                                       •   The easiest and most cost-effective way of reducing your utility bills and
                                           becoming “green” is to simply reduce your energy consumption.

                                       •   The earliest known windmills were in Persia and looked like large paddle wheels.

                                       •   During the 15th century, Leonardo da Vinci already had plans for solar
                                           concentrators in his notebooks.

8   PlaNte & moraN uNiversal advisor
                                                                                                                          is greeN the New blaCk?

Businesses                                                               solar, biomass, and other forms of renewable energy,
A few years ago, the U.S. market share of renewable                      can see as much as 30 percent of the total project cost
energy products was composed almost entirely of                          returned to them in the form of a cash grant within 60

European companies. However, as product diversi-                         days of placing the project in service.
fication and finding new sales outlets becomes even
more important to many U.S. businesses, the alterna-                     Individuals
tive energy market has become the new frontier. Here                     Provisions within the ARRA have increased the energy
are a few opportunities for businesses to consider:                      tax credit for homeowners who make energy-efficient
   • The ARRA has created a 30 percent investment tax credit or          improvements to their existing homes. The new law
     cash grant on qualified costs (including installation) on           increases the credit rate to 30 percent of the cost of all   Jon Sluis
     equipment used for producing alternative energy products,           qualifying improvements and raises the maximum               Associate
     such as energy storage systems, wind turbines, or other             credit limit to $1,500 for improvements placed in            Assurance
     components of renewable energy systems.                             service in 2009 and 2010. The credit applies to improve-
                                                                         ments such as adding insulation, energy-efficient
   •   Residential home builders also received a boost within the
                                                                         exterior windows, and energy-efficient heating and
       ARRA. A tax credit of up to $2,000 is available to contractors
                                                                         air-conditioning systems.
       for the construction or manufacture of new, qualified,

                                                                              However, there are a few caveats. First, not all
       energy-efficient homes during 2009.
                                                                         products are available for the credit. The standards
   •   The Energy Policy Act of 2005 includes a tax deduction of up      in the new law are higher than the standards for the
       to $1.80 per square foot for investments in “energy-efficient     credit that was available in 2007 for products that qual-
       commercial building property.” These investments must             ify as “energy efficient.” As such, homeowners should
       significantly reduce energy costs by updating the heating and     verify that the new products meet the IRS regulations
       cooling, building envelope, and interior lighting components      for the new energy-efficiency threshold. Second, be
       in new or existing commercial buildings (which includes           aware that the credit is non-refundable. Individuals         Jim Manning
       apartment buildings that are four floors or more). In the case    that don’t pay any federal income tax will not benefit       Partner
       of projects on or in property owned by a governmental unit,       from the energy efficiency credit. Finally, the $1,500       Tax
       the deduction can be allocated to the person primarily            is an aggregate credit for the years 2009 and 2010.
       responsible for designing the property.                                The AARA also has created a nonrefundable
   •   Businesses looking to demonstrate their investment in energy      energy tax credit that will help individual taxpayers
       efficiency can obtain LEED certification. In the United States    pay for qualified residential alternative energy equip-
       and a number of other countries around the world, LEED            ment, such as solar hot water heaters, geothermal
       certification is the recognized standard for measuring building   heat pumps, and residential-sized wind turbines. The
       sustainability. Achieving LEED certification is the best way      new law removes the previously imposed maximum
       for a business to demonstrate that a building project is truly    credit amount and allows for a credit equal to 30 per-
       green. While there currently aren’t any federal tax incentives    cent of the cost of qualified property.
       for producing LEED-certified commercial buildings, there are
       numerous direct and indirect cost benefits such as decreased      Taking Advantage of Renewable
       energy bills, project marketability, and an increased sales       Energy Incentives
       price when the building is sold in the future.                    While all of these incentives are related to federal
                                                                         programs, there are several state and local incentives
Alternative Energy Developers and Producers                              such as property tax abatement, additional grants,
Perhaps the biggest winners within the current                           and other incentives for businesses and individuals.
alternative energy market are energy facility project                    No matter what type of business or industry you rep-
developers that produce electricity. Thanks to                           resent, there are a variety of opportunities. Whether
advantageous financing options such as upfront cash                      you’re looking to put in a residential-size wind turbine
grants, investment tax credits, production tax credits,                  on your home, start a whole new division within your
favorable depreciation rules, and clean renewable                        business to manufacture within the renewable energy
energy bonds, these capital-intensive projects, which                    market, build LEED-certified buildings, or represent
historically haven’t provided adequate investment                        a utility company affected by renewable portfolio
returns, may now be financially viable.                                  standards, our energy experts can help you under-
     Under the new law, developers looking to build                      stand what financial incentives are available and how
qualified renewable energy projects, such as wind,                       you can maximize the incentives on your project.

                      For the past couple of years, former Managing Partner              Frank Moran had a saying: “Times are tough. Let’s
                      Bill Hermann has encouraged those of us in the                     get busy.” What kinds of things should organizations
                      Midwest to adopt an optimistic outlook, despite all of             focus on to withstand the economy and position for
                      the obvious challenges with our economy. Is that a                 profitability when things do turn around?
                      viewpoint you all share?
                                                                                         JP: Companies that are struggling need to find a way to get to a
                      Gk: Absolutely. It’s like the Stockdale Paradox. We have to be         cash flow neutral position immediately. Then it’s important to
                          optimistic in our appraisal but realistic in our approach.         make investments in areas that organizations can take
                          People keep saying these are unprecedented times, and              advantage of when the economy turns around — whether it’s
                          I think that’s true. However, unprecedented times yield            people, technology, new customers, or markets.
                          unprecedented opportunities. We have to be diligent about
                                                                                         LC: Make sure the organization is structured properly. Are the
                          finding and capitalizing on those opportunities.
                                                                                             right people in the right roles? Is there appropriate financing?
                      JP: It’s interesting…if you read the papers, which tend to focus       Is there a positive relationship with banks and investors?
                          on very large organizations, you can get into a malaise in         Is the cost structure in alignment with current market
                          a hurry. We all know that things could be a lot better, but        conditions and demand? If a company understands what their
                          organizations with strong management teams will make it            customers are going to need and is appropriately structured
                          through this downturn and come out a lot stronger.                 to provide that assistance, that’s a step in the right direction.

10   PlaNte & moraN uNiversal advisor
                                                                                                                                       m a N a g e m e N t t e a m r o u N d ta b l e

                                                  From left to right: Ron Eckstein, Jim Proppe, Beth Bialy, Gordon Krater, Laura Claeys, Frank Audia, Craig Thornton, and Bruce Shapiro

Ct: It’s critical that organizations truly understand what their                  complementary skills. They recognize where gaps exist —
    customers value and that everything they do translates                        whether strategy, people issues, financial analysis, etc. —
    into creating value in the most efficient, high quality,                      and fill them, sometimes with Plante & Moran.
    profitable way.
                                                                             How can Plante & Moran help clients position
What are the attributes that thriving companies tend                         themselves for success when the economy recovers?
to have in common?
                                                                             Gk: We’ve been around 85 years, so we’ve seen our share of ups and
BB: Thriving companies have a long-term focus coupled with                       downs. Some clients haven’t weathered a recession, so it’s hard
    short-term discipline. They also put their customers first and               to imagine what life’s like on the other side. We can help give
    treat their staff well.                                                      them perspective and good advice — things like when/where/
BS: Absolutely. They also have an unwavering focus on growth.                    how to deploy capital and keeping a healthy balance between
                                                                                 the short and long term. We can also be change agents.
Re: And they’re opportunistic. When everyone else is moaning                     oftentimes, clients may have certain practices they know
    and groaning, these organizations are determining how to                     aren’t good for the company, but inertia takes over and nothing
    turn the challenges into something positive. They’re not afraid              ever changes. Times like these are perfect for making positive
    to go against the grain or make necessary investments.                       changes to enable prosperity when the economy recovers.
FA: Thriving organizations genuinely understand the needs of their
                                                                             LC: Situations like today’s economy allow us to learn even more
    customers and constantly deliver on those needs. They also have
                                                                                 about our clients and their businesses. We can help them
    a great work ethic and are forward-thinking — they consider
                                                                                 identify their strengths, analyze their business processes,
    what their customers’ needs will be tomorrow vs. simply today.
                                                                                 and discuss what the future might look like. We can help them
JP: Agreed. Most successful companies do have very forward-                      make current decisions to make sure they’re here and ready
    thinking management teams. Those teams also tend to have                     for success when things pick up again.

                                                            Ct: The key is to start now. Clients          How do you plan to leverage the past to guide Plante &
                                                                need to manage their businesses in        Moran’s future?
                                                                such a way as to preserve capital         Gk: one of the hardest things for companies to change is their
                                                                while simultaneously developing a             culture. When it’s wrong, it’s very difficult to make it right.
                                                                well-thought-out strategy. This way,          Plante & Moran has worked hard to develop a wonderful culture
                                                                when the economy begins to re-                we can build on. It’s an incredible advantage that will allow us
                                                                cover, they have a clear game plan,           to continue to attract and retain talented professionals, provide
                                                                financial resources, and market               great client service, and ensure our future success.
                                                                focus to capitalize on opportunities.
                                                                                                          Ct: We’ve been steadfast in maintaining our values and principles
                                                            FA: A lot of it is helping clients design a       over many years. We recognize the importance of maintaining
                                                                sustainability plan. Are they viable?         and enhancing our reputation, and know that we must do so
                                                                Are their business plans realistic?           with each and every decision. We have a tremendous foundation
                                                                If yes, what are the important                and are committed to upholding our values. We won’t be blind
                                                                metrics/action items? If not, what’s          to opportunities that face us, but we won’t ignore the values
                                                                next? There are a lot of things we            that have brought us to where we are today.
                                                                can do to help clients reduce op-
                                                                erating costs, optimize technology,       BB: We have a saying at the firm: do the right things for the right
     Gordon Krater, Plante & Moran’s new managing partner       and achieve their business plans              reasons. We’ve followed this simple strategy for 85 years.
                                                                while ensuring they remain solvent.           It sounds simple, but when it comes to taking care of clients
                                                                                                              and staff, that’s all the strategy you need.
                               Let’s switch gears and talk a little about the focus of
                                                                                                          What does Plante & Moran’s presence as an accounting
                               Plante & Moran’s new management team. What are
                                                                                                          and business advisory firm mean to the Midwest?
                               the top things you hope to accomplish over the next
                                                                                                          To the nation? Internationally?
                               couple of years?
                                                                                                          FA: I strongly believe that there are opportunities within the
                               Re: First and foremost, continued growth for the firm. Second,
                                                                                                              Midwest, despite the current business climate. If you agree
                                   continue to recruit and retain the best and brightest staff,
                                                                                                              with me, you would likely also agree that there are organiza-
                                   as the campus recruit of today could be the managing
                                                                                                              tions operating here that need and deserve an excellent
                                   partner of tomorrow.
                                                                                                              trusted advisor. They need a firm like Plante & Moran that
                               BS: It’s important to look at our geographic footprint and determine           balances expertise and resources with a personal touch, and
                                    if we’re sufficiently diverse. It’s equally important to ensure           we’re happy to be here in the Midwest for people to count on.
                                    we deploy our staff and resources effectively so that we’re               We’re not leaving this region; instead, we’ll continue to invest
                                    best positioned to serve our clients and continue to grow to              here and be part of our region’s resurgence.
                                    provide opportunities for staff. Finally, we want to make sure
                                                                                                          Gk: At the same time, business doesn’t know any boundaries.
                                    we preserve our great culture.
                                                                                                              Nationally, I think we’re recognized as a unique firm throughout
                               JP: I’d like to see us help our clients through this difficult period          the country. We’ve really raised the bar in doing things the
                                   by living up to and delivering on our role as a trusted advisor.           right way and abiding by the Golden Rule throughout the
                                   We’ll continue to expand our team’s ability to serve clients —             accounting profession. Internationally, what sets us apart is
                                   not just the breadth of services, but also the depth — and                 our ability to help a client execute an international strategy.
                                   continue to exceed our clients’ expectations. And like Ron said,           In addition to asking, “Where do you want to be strategically?”
                                   continue to recruit the best talent. If we do those three things,          we dive down to, “Who are the right suppliers? What’s the
                                   we’ll have a great firm that provides significant opportunities            availability of skilled labor?” We can provide clients with these
                                   to staff and consummate service to clients.                                answers not only in our own backyards but across the globe.

                               This interview with Plante & Moran’s management team was conducted by Universal Advisor Editor Mindy Kroll.

12   PlaNte & moraN uNiversal advisor
                                                                              l o s i N g s l e e P d u e t o F i d u C i a ry r e s P o N s i b i l i t i e s ?

The best way to ensure a good night’s sleep is for        Monitor and Select Investment Options

plan fiduciaries to understand and fulfill their          Even though participants may choose their invest-
responsibilities under the Employee Retirement            ments, fiduciaries are still responsible for the options
Income Security Act (ERISA) and the Department            from which the participants make elections. Selecting
of Labor (DOL) by (1) abiding to a stringent              investment options and then continuously monitoring
fiduciary process and (2) partnering with a               performance, including replacing an investment
retirement plan investment advisor. Below is              manager with a more appropriate choice, are among
an overview of some of the items that should be           the most important fiduciary responsibilities. This
addressed by plan fiduciaries.                            requires extreme due diligence, and fiduciaries have
                                                          a duty to understand every investment option. For                             Susan Shoemaker
Understand ERISA and DOL Regulations                      example, stable value funds that have historically                            Partner
ERISA and the DOL establish the rules for                 been considered “safe” may need to be monitored                               Plante Moran Financial Advisors
fiduciaries. They require fiduciaries to perform          more closely, as many insurance companies are
duties in a prudent manner and for the exclusive          struggling financially, and market-to-book value
benefit of participants. One of the rules, called         ratios have been declining. Moreover, many invest-
“404(c),” can assist fiduciaries in reducing or           ment options have security lending policies of which

eliminating liability for losses on participant-          plan fiduciaries may not be aware.
directed investments. Following 404(c) includes
but is not limited to communicating with plan             Review and Benchmark Plan Expenses
participants, allowing participants to have control       It’s important that fiduciaries understand total fees,
over their investments, and providing investment          including those buried within investment products.
diversification opportunities. We suggest all             For example, fees may be layered in group annuity
401(k) plan fiduciaries review and ensure they            products, different funds have different share classes
understand their responsibilities under ERISA,            with fees that may be higher than their institutional                         Kimberly Little
DOL, and 404(c).                                          counterparts, and third parties can negotiate differ-                         Senior Consultant
                                                          ent revenue-sharing arrangements. It’s crucial to                             Plante Moran Financial Advisors
Processes and Due Diligence                               exercise caution here and have your retirement plan
This begins with developing an Investment Policy          fees benchmarked.
Statement — a roadmap that defines the purpose
of the plan, provides objective criteria for investment   Partner With a Retirement Plan
selection and monitoring, sets standards for measur-      Investment Advisor
ing performance, outlines criteria for fund removal,      The world of retirement plans continues to evolve,
determines the level of acceptable expenses, and          making it increasingly difficult for plan fiduciaries to
sets other criteria for decision-making. Due diligence    get a good night’s sleep. Given the heightened sensi-
includes documentation of decisions including             tivity to a plan fiduciary’s responsibilities, it’s never
meeting minutes, periodic performance and                 been more important to partner with a retirement
benchmark reports, manager search documentation,          plan investment advisor. Feel free to contact us for
and other written and back-up documents.                  more information on your fiduciary responsibility.

                                                  of what          Nonetheless, mergers and               Business owners continue to
                      many consider to be the most            acquisitions in the middle market      sell and explore strategic alter-
                      severe recession since the Great        (those transactions valued at less     natives for a variety of reasons,
                      Depression. The U.S. government         than $250 million) continue to         including wealth diversification,
                      has allocated trillions of dollars to   occur, albeit at a slower pace.        succession planning, estate and
                      various initiatives designed to         Alongside this continued activity,     tax planning, and a desire for per-
                      restore liquidity to the financial      a number of trends have emerged,       sonal liquidity. Certain business
                      markets, create or save jobs,           including more private equity          owners also are attracted to the
                      reduce taxes, and jumpstart the         firms acquiring minority stakes        opportunity to form alliances with
                      economy from recession; the S&P         in companies; more frequent use        strategic or financial partners
                      500 Index remains approximately         of seller financing in transactions;   that can help them take their
                      45 percent below its peak in            larger equity contributions            businesses to the next level
                      October 2007; and gross domestic        (with less debt); and larger earn-     or become a more formidable
                      product shrunk at an annual             outs, which serve to incentivize       competitor in the marketplace.
                      rate of 6.1 percent from January        shareholders while reducing                 There are at least five key
                      through March.                          risk to buyers.                        steps any business owner should

14   PlaNte & moraN uNiversal advisor
                                                                                         C o N t e m P l at i N g t h e F u t u r e s a l e o F y o u r b u s i N e s s ?

consider in order to maximize                 company’s business plan. Diver-                acquisitions to existing portfolio
flexibility and enhance the ability           sify your supplier and customer                companies, while strategic buyers
to pursue specific alternatives               base, as large concentrations are              include larger companies usually
in the future. Advanced prepara-              viewed by both buyers and lend-                already operating in the same

tion and business positioning can             ers as considerable risks. Develop             industry. Unlike strategic
significantly increase company                strong inventory controls, and                 buyers, which normally purchase
valuation and buyer interest,                 improve your company’s cash                    100 percent of the company,
shorten a future sale process, and            conversion cycle. Are accounts                 most financial buyers encourage
decrease the likelihood of running            receivable days, inventory days,               or even require current manage-
into serious financing constraints            and payables days in line with                 ment to retain a minority stake                      Phil Gilbert
in the future.                                industry averages? If not, develop             in the company going forward.                        Managing Director
                                              an improvement plan. Reinvest                  Strategic buyers, on the other                       P&M Corporate Finance
Be Proactive Now                              in the business and in personnel               hand, may be able to pay more
Enlist a reputable accounting firm            to achieve growth objectives —                 due to potential synergies or
to review or audit your financial             buyers want to see reinvestment                competitive positioning, such as
statements; this will shorten the             in the company. Finally, optimize              market share, technology, and
due diligence process. Prepare                the utilization and throughput of              customer lists. Tightness in the
supportable financial projections             production equipment; buyers                   credit markets also frequently

with defined avenues to growth.               may be willing to pay more for                 favors strategic buyers in the
Having a credible plan to achieve             a company that’s able to operate               current market.
projections is just as important              with lower total assets.
as the projections themselves.                                                               Enlist the Assistance of an
Develop a 12-month budget that                Think Like a Buyer To                          Investment Banker Early
can be tracked against actual                 Be a Better Seller                             to Assure Best Results                               Scott George
results — did the company and                 Buyers are willing to pay more                 Regardless of whether you                            Managing Director
management meet, exceed, or fall              for companies that are diligently              currently are considering a trans-                   P&M Corporate Finance
short of expectations? Develop a              pursuing carefully crafted                     action, it’s never too early (or
clear understanding of margins                strategic plans. That’s why it’s               late) to meet with an investment
and profitability trends, while               critical to perform reverse due                banker to discuss strategic alterna-
identifying key performance                   diligence. Anticipate how buyers               tives. Now may be the optimal
indicators and tracking metrics.              will view the company, and be                  time to start that dialogue.
Unfortunately, many companies                 prepared to confront potential                      Current conditions, although
focus on revenue while ignoring               issues upfront. Consider yourself              arguably improving, remain far
what actually contributes to the              as the buyer: what would you                   from optimal. Many business
bottom line. Finally, agree upon a            want to see in a business you’re               owners are finding themselves
realistic valuation expectation —             considering acquiring? What                    forced into selling early for a
not what you believe the business             would you view as a negative                   variety of reasons, including debt
is worth, but what buyers may be              or a deal breaker? Apply these                 repayment challenges, competi-
willing to pay.                               answers to your company.                       tive disadvantages, impending
                                                                                             estate and tax liabilities, and
Refine Your Long-term                         Understand the Difference                      bankruptcy prevention. Following
Strategic Plan                                Between Financial and                          these best practices can better
Develop a strong and deep man-                Strategic Buyers                               position you and your company to
agement team that has industry                Financial buyers include private               maximize value and avoid being
expertise, a proven track record,             equity firms searching for                     defeated by market conditions
and the ability to execute the                platform acquisitions or add-on                that may not be in your favor.

P&M Corporate Finance can assist you and your business in this planning process.
our Value optimization Assessment Program combines business assessment and value analysis to optimize the positioning and preparation of a company for a
transaction. For more information, give us a call at 248.223.3326.

                                                                                  Many organizations have been affected by layoffs and workforce reductions in
                                                                                  recent months. As responsibilities are distributed amongst fewer personnel,

                                                                                  internal controls often suffer, as the segregation of duties that once was no
                                                                                  longer exists.
                                                                                       In its 2008 Report to the Nation, the Association of Certified Fraud
                                                                                  Examiners revealed that inadequate internal controls are the number-one
                                                                                  enabler of fraud. Further, the study noted that most of the frauds reported were
                                                                                  committed by accounting personnel in schemes involving cash theft, pay-
                                                                                  roll fraud, and billing schemes. That’s why it’s so important for management
                                                                Michelle McHale   to evaluate internal controls to make sure that the benefit of reducing staff
                                             Senior Manager                       won’t be outweighed by the costs associated with fraudulent activity.
                               Forensic & Valuation Services                           Let’s look at a simple example in the accounts payable process. The typical
                                                                                  procedure of processing invoices may look like this before a personnel decrease:

                                                                                        AP Clerk 1                   AP Clerk 2                  AP Clerk 3
                                                                                         New vendor                                             Disbursement
                                                                                                                   Invoice entry and
                                                                                      setup/changes to                                           and invoice
                                                                                                                   check processing
                                                                                     vendor information                                          verification

16   PlaNte & moraN uNiversal advisor
                                                                                                                 d o w N s i z i N g s ta F F, u P s i z i N g F r a u d

      After a workforce reduction,                The results of these and other tests can be indicators that problematic
this process may now be controlled           activity may be occurring, resulting in financial losses that outweigh the
by one person — one person who               purpose of the workforce reductions.
may now have the opportunity to                   Let’s look at a second example, the payroll function. Before a staffing
create a shell or fictitious vendor          reduction, a company’s human resource/payroll department may have looked
and invoice the company for                  like this:
nonexistent services or make pur-
chases for personal use on the
company’s dime.
      So how do you make sure you
still have a level of control in your               Human Resources                        PR Clerk 1                       PR Clerk 2
organization to help thwart fraud-              Initial entry and modifications
ulent activity, despite smaller                                                            Payroll period                 Processing and
                                                   of employee information
numbers of staff? There are ana-                                                            data entry                      verification
                                                      into payroll system
lytical procedures that can and
should be performed by manage-
ment and/or internal auditors to                 Afterward, the entire payroll function may be controlled by one or two
help detect problematic activity.            people, creating opportunities for fraudulent activity to occur. Such schemes
Reports can be run to:                       may include the addition of ghost employees to the payroll, unauthorized
                                             increases in wages or salary, and a claim of overtime hours not worked.
  1. List new vendors entered into the
                                             Management can run reports to identify:
     system. Reviewing this list may
     identify vendors that appear              1. Employees with matching information, such as duplicate social security numbers or
     suspicious, such as new vendors              direct deposit account numbers.
     with no address information or            2. Employees with missing information. Are there employees who have no residential
     payees that would likely not transact        address listed?
     business with the company.
                                               3. Changes in wages/salary made to employee records. Were these changes authorized?
  2. Identify changes made to existing
                                               4. Anomalies regarding total overtime, by hours, paid to employees. Are the overtime
     vendors. Were these changes
                                                  wages inflated?
     appropriate and authorized?
                                               5. The number of payroll distributions for each employee. This ensures all employees are
  3. Extract duplicate invoices and/or
                                                  receiving the same number of checks.
     payments made to vendors.
     Duplicate payments may be                    It’s worth noting that the perception of detection can be one of the best
     an indication of refunds being          deterrents of occupational fraud and abuse. Asking questions regarding
     diverted to an account controlled       specific transactions sets the tone that management is closely watching
     by the employee.                        employee activities. For example, requesting supporting documentation and
                                             asking about the specifics of certain purchases lets employees know that
  4. Determine vendors that may be           management is taking an interest in what’s being disbursed from the
     receiving higher than average           company’s bank accounts. These inquiries should be performed randomly.
     payments. For example, is the                An internal control structure can never be completely effective, regard-
     utility bill for the employee now       less of the care followed in its design and implementation. However, the
     being paid by the company?              system can be significantly hindered when the ability to segregate duties has
  5. Compare budget to actual                been reduced. By applying some analytical procedures, management can
     expenses on a regular basis             help detect if problematic activity is being performed before the losses to the
     to identify anomalies.                  company outweigh the savings attempted through workforce reductions.

18   PlaNte & moraN uNiversal advisor
                                                                            i m P a C t o F r e C e s s i o N a lt e r s C o N s u m e r b e h av i o r

The U.S. economy remainS in The grip of The moST         early June, Fed Chairman Ben Bernanke suggested
Severe receSSion Since aT leaST The early 1980s,         that the nation’s central bank is projecting a slow
although a number of indicators point to a poten-        road back to growth.

tial bottoming on some fronts. The most recent                 Over the long term, stock market returns are
estimate of economic output for the first quarter        driven by a handful of factors. The most important
of the year suggests that the pace of contraction        fundamental drivers of stock performance in the
may have improved slightly from the final three          long run are earnings growth (driven by GDP growth
months of 2008. While the results were still weak        and profit margins) and dividends. Changes in the
at an annualized contraction of 5.7 percent, that        earnings multiple (P/E ratio) that investors are
result was skewed substantially by a reduction in        willing to pay for each dollar of earnings can also                    Jim Baird
business inventories. Consumer spending improved         have a very substantial impact over extended                           Partner
in the first quarter, but the uptick appears to          periods. As we assess the equity market today, we                      Plante Moran Financial Advisors
have been tied to post-holiday bargain hunting.          do not believe stock prices to be particularly cheap
U.S. consumers have subsequently held back,              given current earnings levels. In fact, a muted
instead driving the savings rate up to a 14-year high.   economic recovery may limit stock market returns
The recent rate of nearly 6 percent is in marked         over time. While we believe that the current
contrast to the negative savings rate reached in 2005,   momentum in stocks could continue for awhile, a
when households were actually outspending their          tepid recovery could take some wind out of investor
income, fueled by the availability of cheap and           sails. For a more in-depth analysis of our current
inadvisably easy credit.                                 views on stocks, our recently released research paper
      Although individuals may be spending more          titled “Equity Market Outlook: A Rational View” is
judiciously, consumer sentiment is improving.            available at our website: www.pmfa.com.
However, we expect that households that have seen              Typically, markets rally in advance of economic
the value of their assets decline substantially are      recoveries — often by six to nine months. We believe
less likely to return to their aggressive spending       that even if the economy does recover in the latter
habits of recent years. The rebuilding of personal       half of this year, the potential for sub-par growth
balance sheets will take some time.                      remains significant and could disappoint investors.
                                                         If economic data comes in softer than expected, the
Strong Market Reaction to Hints of Recovery              potential for a correction remains high. Investors
Since bottoming in early March, global stock markets     should thus be careful to temper their optimism
have posted a robust rally. Other “risk-oriented”        fueled by recent gains with the expectation that
assets such as corporate bonds and commodities           volatility may remain elevated, and the potential for
have also performed well, as investors (and specula-     the market to re-trace its steps back to lower levels
tors) have begun to price in the prospect that the       remains a legitimate concern. Nonetheless, current
economy may be bottoming, and an end to the              pricing supports the argument that stocks, and many
recession may be in sight. Even though economic          other risk-oriented investments, should continue
news remains far from rosy, recent results have          to reward patient investors with long-term returns
suggested that the pace of deterioration in certain      in excess of those afforded by cash or government
measures has slowed. We remain skeptical of the          bonds. However, the path to those long-term returns
sustainability of the rally, however, as the potential   will be volatile, and diversification of risk-based
for a sharp rebound in the pace of growth coming         capital to areas outside of the stock market will be
out of the recession appears limited. As recently as     important to the long-term success of a portfolio.

                                                                              In these challengIng tImes,           Keys to Survival
                                                                                                                    The key to surviving in a difficult economy comes

                                                                              there’s little room for error. Com-
                                                                              panies must evaluate all aspects      down to two things: short-term liquidity and a strong
                                                                              of their businesses for weakness      balance sheet. It may come as a surprise, but the
                                                                              and potential risks. The ongoing      balance sheet is often a better indicator of financial
                                                                              struggles of the U.S. automotive      strength than earnings. In a struggling economic
                                                                              industry have highlighted the         environment, customers are most interested in
                                                                              importance of the supply base         your ability to weather the storm, not necessarily
                                                                              and its ability to survive. OEMs      your current profitability. One of the keys to evalu-
                                                      Andrew Davignon         and tier 1 suppliers have gained      ating where a business is heading is it’s financial
                                                                 Consultant   a greater appreciation and un-        trends. The following metrics are frequently used
                                                            Restructuring &   derstanding of the importance         by customers when evaluating their suppliers:
                                                    operations Improvement    of identifying and supporting            • Current Ratio

                                                                              viable, long-term suppliers.            •   Debt to Equity
                                                                                   Identifying which suppliers
                                                                                                                      •   Debt Service Coverage Ratio
                                                                              are viable, long-term supply
                                                                                                                      •   operating Income (Loss)

                                                                              chain candidates versus those
                                                                              that aren’t can be a difficult          •   Net Income (Loss)
                                                                              task. Many manufacturers                •   Altman Z-Score
                                                                              have initiated supplier risk
                                                                              assessment programs to evaluate         •   Value-Add as a Percentage of Sales
                                                                              the health of their supply base.            Altman’s Z-Score for predicting bankruptcy
                                                                              As a supplier, it’s critical to       is a formula for the measurement of the financial
                                                                              understand what information           health of a company that forecasts the probability
                                                         Jamey Schalter
                                                                              your customers are considering        of a company entering bankruptcy within a two-year
                                                          Senior Consultant
                                                                              and how they’ll be evaluating         period. This metric only provides a snapshot of
                                                            Restructuring &
                                                    operations Improvement    your business’s potential as          where a company stands and can be misleading
                                                                              a long-term, viable supplier.         if viewed at a single point in time. Assessing the

20   PlaNte & moraN uNiversal advisor
                                                                                          C a N y o u d e m o N s t r at e l o N g - t e r m v i a b i l i t y ?

Z-Score as a trend, on the other hand, provides
insight into where a business is heading and is a
better indicator of future financial strength.
      Another useful financial metric is value-add
as a percentage of sales. Value-add is calculated as
sales price less material cost. If a supplier’s value-add
is trending down, the supplier is providing less and
less value to its customer and moving more toward
becoming a pass-through entity. Suppliers that
provide little value to the manufacturing cycle are
often not sustainable when volumes decrease.

The Importance of Your Bank Relationship
Because a supplier’s bank generally plays an integral
role in its long-term viability, customers frequently
monitor a supplier’s banking relationship for
indicators of weakness. Issues such as violating
debt covenants and forbearance agreements are
often signs that a business is struggling. Your
customer is aware that many banks have little
tolerance for struggling businesses in high-risk
industries. They will likely attempt to address
the situation quickly before risking a production
shutdown caused by a liquidity crisis associated
with insufficient credit availability.

Continuing as a Viable Supplier
How can you ensure that your customers view
you as a viable, enduring supplier? The first step
is to begin monitoring the metrics and ratios listed
on page 20. Even if your customer hasn’t asked you
to submit financial information as part of a supplier       Mitigating Supply Chain Risk
assessment program, tracking the strength of                In these difficult economic times, many oEMs and tiered suppliers are worried that
your business, basic liquidity, and risk trends is          their key suppliers may not be there when they need them, leading to production delays
essential for a high-performing business. Strong            and missed customer shipments. A supplier risk assessment process can help ensure
companies perform trend analyses on a regular               the timely receipt of materials, parts, and services an organization requires in order to
basis and monitor their results closely. If liquidity       operate efficiently and profitably. By collecting indicators of operational and financial
and profitability begin to deteriorate, ratio and           health as well as bankruptcy predictors and scoring each supplier relative to risk,
trend analyses can act as an early warning system,          organizations will identify the following:
alerting management that action is necessary.                  •	   Suppliers who require immediate review for resourcing
      If your business begins to experience hardship,
                                                               •    Those who need deeper assessment and closer monitoring for signs
early action can mean the difference between
                                                                    of further deterioration
survival and failure. We’ve seen many businesses
end up in liquidation because they ignored early               •    Those who should be considered for increased sourcing
warning signs and delayed immediate and decisive            The assessment and monitoring process is designed to identify problems before they
action. Those that are proactive and address                negatively affect business and a customer is the “last one out.” Plante & Moran has
concerns as they arise are the suppliers that               provided assistance to oEM and tier 1 suppliers in understanding supply chain risk
will ultimately be viable in the supply chain for           through supplier risk assessments. Contact us to find out more.
years to come.

22   PlaNte & moraN uNiversal advisor
                                                                                                                  t h i N k g l o b a l ly

                     that we’re in a global recession,   of this article, Mexico’s peso has depreciated an
there are still several pockets of opportunity that      unbelievable 35 percent.
organizations can take advantage of. Here are                  Because the peso has depreciated so signifi-

a few tips and trends we’ve seen that businesses         cantly since July 2008, some organizations may
may want to consider.                                    want to consider executing a hedge. For example,
                                                         let’s say an organization has $100,000 of payroll in
Product Representation                                   2009. If you convert it to pesos now or execute a
Some companies have successfully leveraged               hedge with a future contract, you can lock in a
the United States Department of Commerce to              30–35 percent (after transaction costs) savings
economically represent products in foreign markets.      compared with the exchange rates as recently as           Lou Longo
Moreover, there are a number of independent              September 2008. Moreover, you don’t have to let           Partner
agents in foreign markets looking to increase their      the money just sit there; you might consider taking       Plante Moran Global Services
representation portfolio because volumes are down        advantage of Mexican government bonds, which
on the products they typically represent.                typically earn higher interest than you could earn
                                                         here in the states. Be sure to check with your
Infrastructure Investments                               Plante & Moran advisor to learn more about hedges
Both the United States and China have cited              and the associated tax implications.

infrastructure spending as an important component
of their respective stimulus packages. This is great     Commodities
news for companies participating in construction/        As larger economies try to stimulate activity, some —
building materials or machinery/off-road equipment       particularly China — may indirectly subsidize certain
providers that operate in those markets.                 commodities, complicating things for foreign com-
     In addition, there’s been a lot of discussion       petitors but providing opportunities for foreign users
about India as becoming a competitor of China’s;         of those commodities. If you’re manufacturing             Jason Drake
one thing India is sorely lacking is infrastructure.     product in China, you might be able to take advan-        Manager
If/when this happens, it will present all kinds of       tage of these savings and buy a larger quantity of        Plante Moran Global Services
opportunities for manufacturers.                         steel and other materials for use both now and later.

Acquisitions                                             Talent
Some of the hottest markets right now are the BRIC       China is experiencing a myriad of layoffs and plant
(Brazil, Russia, India, China) countries, which are      closings; it’s estimated that 35,000–40,000 small
experiencing decreases in pricing for acquisitions       businesses have closed in Southern China alone.
and equity interests. U.S. companies that are well       India is experiencing a similar depression in costs
capitalized and able to attract management talent        of talent and facilities. This may be an optimal time
should consider the possibility of expanding via         to consider outsourcing certain business activities
acquisition into foreign markets. It’s important to      and support.
note that well-capitalized Chinese companies are
doing the same thing here in the United States.          Think Globally
                                                         There are a variety of opportu-nities available for
Currency                                                 global-savvy organizations. The key is to be aware
Currency fluctuations and the opportunities they         of those opportunities — whether or not you
present should be top of mind for all globally minded    choose to act on them. Feel free to contact us for
businesses. For example, as of the publishing date       more information.

[h a P P e N i N g s]
                                                                                  Congratulations to Plante & Moran’s Newest Partners!
                                                                                  Plante & Moran is pleased to announce nine new partners,
                                                                                  effective July 1, 2009. Please join us in congratulating and recog-
                                             Paul Bryant Receives                 nizing these outstanding individuals for their accomplishments.
                                             National Achievement
                                             in Public Accounting
                                             Award From NABA
                                            We’re excited to announce
                                            that Paul Bryant received
                           the National Achievement in Public
                           Accounting Award from the National
                           Association of Black Accountants, Inc.
                           (NABA). Paul has served in several
                           capacities with NABA over the years.
                           He is viewed as an intricate part of the
                           organization as a resource and coach to
                           many up and coming professionals, as
                           well as established “lifers” in the industry.
                           Please join us in congratulating Paul on
                           this significant accomplishment!
                                                                                  Plante & Moran’s new partners from left to right: Jason Marvin, Scott Chaudoir, Paul Edwards,
                                                                                  Kirsten Lescher, Mike Johnson, Scott Sneckenberger, Dean Feenstra, Jim Baird, and Jason Thomas
                           New Plantemoran.com Helps Clients
                           Find Solutions                                                               PMFA’s Nancy Meconi Named One of the
                           Plante & Moran recently launched the new                                     Top 50 Women in Wealth Management
                           and improved plantemoran.com. Chief                                     We’re pleased to announce that Nancy Meconi,
                           among the new features is our solution                                  a partner with Plante Moran Financial Advisors
                           finder. A unique way for clients and pros-                              (PMFA), has been named one of Wealth Manager’s
                           pects to identify their challenges and find                             “Top 50 Women in Wealth Management.”
                           solutions, we’re the only accounting firm                                   “My goal has always been for my clients to
                           that we know of to offer such a feature.               feel confident in their life situation due to a well-thought-out,
                                Plantemoran.com also has more                     organized, comprehensive, and sophisticated financial plan,”
                           targeted industry information, and service             says Nancy. “I’m pleased that others recognize the value of
                           offerings are detailed in a way that’s much            a tailored wealth management strategy. I’m honored to be
                           more relevant for users. Finally, our                  recognized alongside such an impressive group of women.”
                           home page also includes valuable client                     Please join us in congratulating Nancy on this tremendous
                           satisfaction data. Check it out today.                 accomplishment.

                           Plante & Moran Enters Into Merger Agreement With Cincinnati-Based Jackson, Rolfes, Spurgeon & Co.
                           We’re pleased to announce that Plante & Moran has merged with Cincinnati-based Jackson, Rolfes, Spurgeon &
                                                                                Co. (JRS), the 11th largest accounting, tax, and management consulting
                                                                                firm in Cincinnati. The firm has been serving Cincinnati businesses for
                                                                                25 years and has a reputation of great client service. We chose JRS because
                                                                                they share our commitment to top-notch client service and the same basic
                                                                                principles that have contributed to our firm’s success for the past 85 years.
                                                                                “We’re very excited about this merger,” says Plante & Moran Managing
                                                                                Partner Gordon Krater. “There are synergies between our firms that will
                                                                                benefit clients of all sizes, and it extends our geographic footprint and
                           Jackson, Rolfes, Spurgeon & Co. partners from
                           left to right: Jim Rolfes, Jeff oehler, Dennis Tepe, positions us for additional growth in Ohio, Northern Kentucky, and Indiana.
                           Mark Jackson, and Roger Spurgeon                     It’s a win-win for both firms.”

  24      PlaNte & moraN uNiversal advisor
                                                                                                                 [ b u s i N e s s t r e N d s]
“The Stockdale Paradox” —

Good Advice for Any Business
If you’ve ever read “Good to Great”                           In today’s tight credit environment, your cur-
by Jim Collins, you’re familiar with the Stockdale       rent bank is probably your best bank. Organizations
Paradox. Admiral James Stockdale, one of the most        are advised to do whatever it takes to maintain their
highly decorated officers in the history of the U.S.     existing banking relationship. Forecast weekly cash
Navy, told Collins how he survived his time at the       positions for at least the next three months, and
“Hanoi Hilton” prisoner-of-war camp during the           continually project and update the cash forecast.
Vietnam War. He never doubted that he would get          Don’t get caught by surprise, and don’t surprise
out or that he would prevail in the end, but at the      your banker. Companies that can maintain liquidity
same time, he remained realistic about the brutal        will survive and have the ability to fund growth in
facts of his situation.                                  their businesses when things pick up.
     When Collins asked Admiral James Stockdale
which prisoners of war didn’t survive the “Hanoi         Keys to Survival for Companies With Strong
Hilton,” Stockdale replied, “That’s easy. The            Balance Sheets
optimists.” What Collins learned from his exchange       Enterprises with strong balance sheets and positive
with Stockdale was that in the direst situations sheer   relationships with financial institutions have the
optimism isn’t enough. What separates those who          same areas of emphasis; however, they also have
succeed from those who fail is how they deal with        special opportunities that their weaker competitors
challenges in their environment. The key, he deter-      don’t. These companies can look for strategic
mined, was to understand the Stockdale Paradox:          acquisitions during times of financial weakness
     “Retain faith that you will prevail in the end,     and grow market share through aggressive pricing,
regardless of the difficulties. And at the same time,    a new marketing campaign, and/or increased
confront the most brutal facts of your current reality   advertising. They can also focus on recruiting
whatever they might be.”                                 historically hard-to-recruit talent at attractive
                                                         compensation levels, selectively look at equipment
     That’s good advice for companies in today’s         purchases, and consider an investment to enter a
economy. This recession is likely to be more severe      new geography. For strong companies, recessions
than any other in recent history. When things do         are a great time to add new customers, products, and
begin to turn around, the improvement curve              geographic reach.
will likely be flatter and longer. It’s important
that organizations do what they can to survive the       Live To Fight Another Day
downturn and position themselves for the inevitable      In today’s economy and tight credit environment,
turnaround. However, the keys to surviving and           all companies that hope to survive and thrive after
thriving during the upturn depend upon the strength      this recession must secure a cash flow neutral or
of your balance sheet.                                   positive position, maintain faith in the future, yet
                                                         be cognizant of their reality, and act on immediate
Keys to Survival for Companies With Weak                 and long-term challenges. As Stockdale pointed out,
Balance Sheets                                           optimism is important, but awareness of your
For companies with weaker balance sheets, liquidity      current situation and the courage and decisiveness
is the key to survival. These companies need laser-      to act accordingly are required for organizations
like focus on becoming cash flow positive and            that plan to succeed.
managing receivables and inventory to create cash.            For more information, feel free to contact
They also need to retain staff with the skills neces-    Craig Fitzgerald at 248.223.3228 or Dennis Graham
sary to fuel growth when the economy improves.           at 248.223.3810.

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