Case Study of a Turnaround

1. Case Study of a Turnaround Anthony Macari Clinical Assistant Professor of Finance and Owner of ExplainFinance.net September 20, 2011

2. What we will cover • Introduction • Turnaround process • Guiding Principles • Lessons Learned • Major Mistakes • Case Study • Questions

3. BACKGROUND • Education: • University of Connecticut – BA, MBA • Pace Law School–JD • Emery Worldwide, PepsiCo, Kiewit Continental - 1981-1988 • Various Finance/Planning/Acquisitions positions • Fortune Brands – 1988-1999 • Director of Planning and Director of Business Development-focus on Strategic Planning, Acquisitions, Divestitures • Sacred Heart University-2000-2003, 2008-Present • New York University-2003-2006 • Clinical Asst. Professor of Finance and Director of Welch MBA Program • Assistant Dean of Business and Legal Studies at NYU • Consulting work with for-profit Education • Clients included SchoolNet, Cardean Learning Group, Lehman Brothers • ExplainFinance.net

4. ExplainFinance.net • Provide financial training/coaching to non-financial employees and executives • More cost-effective than seminars • Can be customized by company or function (human resources, operations, marketing, etc.) in order to focus on what is most relevant to the group

5. Thanks to Mark Bonney • Mark is the EVP and CFO for Direct Brands and has permitted me to use a number of his slides outlining the turnaround process. His affiliations include: • Board of Directors • American Bank Note Holographics, Inc. (NASDAQ) • Audit Committee Chair; Compensation Committee • Axsys Technologies, Inc. (NASDAQ) • ThreeCore Inc. (Venture funded start-up) • Community Health Centers, Inc. (Non-profit) • Chairman of the Board; Audit and Finance Committee; Compensation Committee; Executive Committee

6. Turnaround Process • Fix – Find what is broken and fix it • Re-Margin – restructure, revise business processes, renegotiate and retool IT to lower fixed and variable costs • Grow – look for the “Blue Ocean” growth opportunity early but fix and re-margin first so growth is profitable

7. Fortune Brands • Tobacco, Spirits, Golf • Office Products • Home Improvement (Moen, Mlock, Cabinets) • Office Products and Home Improvement combined some low margin businesses in consolidating industries

8. Guiding Principles • People will watch your every move! • Be respectful of everyone. • Work harder than anyone. • Be visible. Be accessible. Talk with people about their lives not just their work. • Communicate and cascade appropriately. Expression needs to match words. • Base decisions on facts and data. • Decide quickly. • Good results come from your Team’s efforts. • Bad results come from bad decisions…don’t be afraid to say that you made a mistake…makes you human…earns respect. • Managing up is as important as managing across and down. • It’s not “just business”. It is about people and the relationships that form and maintain that will define you. • Enjoy the ride and have fun.

9. Lessons Learned • Before you join. • Can the business be saved? • I look for three things: • CEO with strong skills in the critical area. • Brand reputation. • People that will execute. • Also good if there is an obvious source of CASH.

10. Lessons Learned • You have six months: • Day 1: Communicate the seriousness of the situation and take control of CASH processes • Day 2: Understand why performance is bad • Bad is a relative term • History is more important than you think • Day 3: Find the enablers • Change is harder than you think • Always think in terms of FIX, Re-Margin, then GROW!

11. Major mistakes • Impatience while learning • Firing too fast • Firing too slow • Not respecting history • Giving history too much credence • Over-achieving • Not managing upward

12. Case Study-Profile • Highly educated work force • Significant licensure requirements • Strong pricing-well above inflation rates • Strong demand profile worldwide • Highly fragmented • Product quality inconsistent • Consumer profile varies

13. Case Study-Profile • Considerable debate on whether industry or individual providers need to be fixed • Definition of product quality and basic success metrics unclear

14. The Education Industry • K-12 • Community Colleges • Regional Colleges • State Universities • Elite Universities

15. A Few Myths • Just need business expertise • Gates Foundation • Mike Milken Foundation • Mike Bloomberg • Just need more money • Technology will solve the problem

16. Educational Governance • At the college level, the “inmates” do run the asylum, with mixed impact • Personal agendas vs. optimal solution • Project management vs. academic integrity • Input is considered a “right” • Similar to local non-profit Boards

17. The “Corporate “ Culture • 20% are truly outstanding • 60% are competent and want to do the right thing • 10% are not competent • 10% are very high maintenance • Real gap between faculty and “corporate/administrative” functions

18. What is “Good” Education • Before understand why performance is bad, need to define “good” performance • Is it achievement on standardized exams? • Is it getting a job? • Good teacher evaluations? • Assurance of learning? • Is it development of the total person (soft skills, dorm life, athletics)

19. For Profit Education • Lower teaching costs ($1.5k vs $25k) • Leverage technology • Marketing and customer service • Rubric based grading and assessment • Marketability of degree • Quality debate • More typical corporate structure

20. Back to Mark’s Points • Can the “business” be saved? • Can it be fixed like any other business or is there a different model?

21. Questions