Cash Is King — Or Queen Why and How to Conduct Effective Cash Flow Forecasting Now May 18, 2020 Disclaimer

Cash is king — or queen Why and how to conduct effective cash flow forecasting now May 18, 2020 Disclaimer

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► These slides are for educational purposes only and are not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

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Page 3 Today’smoderator Kath Carter Partner, Global Transaction Advisory Services, Markets Accounts and Business Development Leader and EY Entrepreneurial Winning Women™ Global Executive Sponsor

Page 4 speakersToday’s Briana Richards Nick Bugden Principal, Americas Senior Manager, Americas Transaction Advisory Services, Transaction Advisory Services, Liquidity and Restructuring, Liquidity and Restructuring, Ernst & Young LLP Ernst & Young LLP

Page 5 Current situation

• Reduced demand and output • Economic uncertainty • Depleted cash reserves • Scenario analysis and cost saving measures • Liquidity conservation to survive the now • Planning for the next and beyond

Page 6 What is a cash flow forecast?

• Forecast of available liquidity • Often cash in bank and revolving loan availability • Near term, typically 13 weeks • Sometimes dives into daily cash availability • Direct cash flow, not GAAP accounting • Actual timing of customer receipts and supplier disbursements • Management tool • Used in conjunction with other planning tools

Page 7 What is a cash flow forecast?

• Typically built in a spreadsheet • 14 columns for 13 weeks + total • Number of rows varies by company and need • Rolling cash balances

Week 1 2 3 4 5 6 7 8 9 10 11 12 13 5/15 5/22 5/29 6/5 6/12 6/19 6/26 7/3 7/10 7/17 7/24 7/31 8/7 Total Receipts 3 3 3 3 3 3 3 3 3 3 3 3 3 39 A Disbursements Payroll (2) 0 (2) 0 (2) 0 (2) 0 (2) 0 (2) 0 (2) (14) Suppliers (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (13) Rent 0 0 0 (3) 0 0 0 (3) 0 0 0 0 (3) (9) Debt service 0 0 0 0 0 0 0 (6) 0 0 0 0 0 (6) Capex 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total disbursements (3) (1) (3) (4) (3) (1) (3) (10) (3) (1) (3) (1) (6) (42) B Net cash flows 0 2 0 (1) 0 2 0 (7) 0 2 0 2 (3) (3) A+B=C

Beginning cash 10 10 12 12 11 11 13 13 6 6 8 8 10 10 D Net cash flows 0 2 0 (1) 0 2 0 (7) 0 2 0 2 (3) (3) C Ending cash 10 12 12 11 11 13 13 6 6 8 8 10 7 7 D+C

Page 8 Cash flow forecasts are unique to each company

► Certain forecasts will be more complex (i.e., incorporate asset-based lending (ABL) facility). ► Companies may need multiple forecasts for distinct business units. ► Line items and structure can flex, as needed.

Week Ending Forecast Week-> 1 2 3 4 5 6 7 8 9 10 11 12 13 ($ in thousands) 11/9/2018 11/16/2018 11/23/2018 11/30/2018 12/7 /2018 12/14/2018 12/21/2018 12/28/2018 1/4/2019 1/11/2019 1/18/2019 1/25/2019 2/1/2019 13 Weeks

Beginning Cash Balance $ 14,002 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 14,002

Receipts Operating Receipts $ 56,908 $ 73,301 $ 50,424 $ 56,512 $ 28,848 $ 33,588 $ 49,872 $ 26,163 $ 24,684 $ 28,871 $ 48,825 $ 36,918 $ 33,392 $ 548,306 Non-operating Receipts 20 350 20 20 20 20 1,000 20 20 20 20 20 20 1,570 Total Receipts $ 56,928 $ 73,651 $ 50,444 $ 56,532 $ 28,868 $ 33,608 $ 50,872 $ 26,183 $ 24,704 $ 28,891 $ 48,845 $ 36,938 $ 33,412 $ 549,876

Disbursements Trade $ (51,235) $ (66,286) $ (45,399) $ (50,878) $ (25,982) $ (30,247) $ (45,785) $ (23,565) $ (22,234) $ (26,002) $ (43,961) $ (33,244) $ (30,071) $ (494,888) Payroll (78) (44) (296) (3,041) (666) (328) (856) (2,699) (121) (174) (281) (272) (2,254) (11,109) Barges / Charter - (1,258) (112) (751) (831) (473) (109) (495) (696) (183) (397) (13) (909) (6,227) Storage - (216) (476) - - (148) (549) - - - - (154) (772) (2,315) Other OPEX (46) (702) (685) (2,150) (1,759) (645) (1,252) (743) (794) (856) (654) (1,339) (2,284) (13,908) Interest - (39) - (144) (51) (92) (114) (75) (560) (153) (429) (2) (513) (2,171) Taxes - - - (247) - - - (630) - - - (230) - (1,107) Capex - (122) - - (252) - (40) - - - (263) - (81) (757) Total Disbursements $ (51,359) $ (68,666) $ (46,967) $ (57,211) $ (29,541) $ (31,932) $ (48,705) $ (28,206) $ (24,405) $ (27,368) $ (45,985) $ (35,255) $ (36,883) $ (532,483)

Net Cash Flow $ 5,569 $ 4,984 $ 3,476 $ (679) $ (672) $ 1,676 $ 2,167 $ (2,023) $ 299 $ 1,523 $ 2,860 $ 1,684 $ (3,471) $ 17,393

Cash before financing $ 19,571 $ 14,984 $ 13,476 $ 9,321 $ 9,328 $ 11,676 $ 12,167 $ 7,977 $ 10,299 $ 11,523 $ 12,860 $ 11,684 $ 6,529 $ 151,395

Borrowings $ - $ - $ - $ 679 $ 672 $ - $ - $ 2,023 $ - $ - $ - $ - $ 3,471 $ 6,845 Repayments (9,571) (4,984) (3,476) - - (1,676) (2,167) - (299) (1,523) (2,860) (1,684) - (28,240) Change in ABL (9,571) (4,984) (3,476) 679 672 (1,676) (2,167) 2,023 (299) (1,523) (2,860) (1,684) 3,471 (21,395)

Cash Flow incl. Financing $ (4,002) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ (4,002)

Ending Cash Balance $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

Restricted cash ------

Available cash $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

Page 9 18PresentationPage May 10 2020 title Poll question 1

What level of cash flow A None forecasting do you currently do? B Review of major funding needs in the next couple weeks Text [Select one] C WeeklyText cash flow forecast for the next several months Text D Monthly forecast based on project financial statements

Page 10 Why cash, and why 13 weeks?

• Cash is the lifeline of the business. • Pay employees • Purchase goods or services • Pay other creditors (e.g., banks) • Pay owners or other investors • Predict ability to generate sufficient cash to fund operations. • The 13-week timeline allows for proactive action to address or mitigate liquidity issues. • Note that one quarter captures most types of expenses

Page 11 When to develop a forecast

• Declining cash balances • Times of uncertainty • Potential financial strain or distress • During transaction or reorganization • Near-term forecasting can optimize cash uses • Required reporting to lenders • Often resulting from covenant breaches or unforeseen drawdown requests

Page 12 Who is involved in the process?

• A thorough cash flow forecast will consider all aspects of the business: • Management/strategy • Finance and accounting • Sales team • Operations • Human resources

Page 13 How to forecast cash flows

Review Prepare methodology weekly and forecast assumptions

Perform Record and variance reconcile analysis actuals

• Iterative process that improves every week • Imperative to track actual cash flows

• Can be as broad or detailed as is necessary

Page 14 Getting started Review Forecast

Variance Actuals

• Before jumping into the weekly cash flow forecasting cycle, know the data and what level of detail is feasible • Identify operating bank accounts and other liquidity • Establish data sources for cash actuals • Create a cash flow template with viable lines — receipts and disbursements • Populate actuals for a reasonable historical period • Review the latest balance sheet and budget

Page 15 Initial weekly forecast Review Forecast

Variance Actuals

• What has happened • Unwinding balance sheet accounts • Accounts receivable: collections due from prior sales • Accounts payable: payment of actual expenses based on terms • Already incurred; timing may be controllable • What will happen • Underlying regular payments • Payroll, rent, debt • Generally fixed costs with very little flexibility • What might happen • Future activity that will convert into cash • Future sales and vendor purchases • Asset sales and capital expenditures • Most controllable portion of the cash flows

Page 16 Building blocks of a cash flow forecast

Opening bank position Unwind of opening balance sheet Receipts and payments arising from forecast per bank statements trade debtors and creditors sales and purchases

Beginning Cash Balance $ 14,002 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 14,002

Net Cash Flow $ 5,569 $ 4,984 $ 3,476 $ (679) $ (672) $ 1,676 $ 2,167 $ (2,023) $ 299 $ 1,523 $ 2,860 $ 1,684 $ (3,471) $ 17,393

Cash before financing $ 19,571 $ 14,984 $ 13,476 $ 9,321 $ 9,328 $ 11,676 $ 12,167 $ 7,977 $ 10,299 $ 11,523 $ 12,860 $ 11,684 $ 6,529 $ 151,395

Cash Flow incl. Financing $ (4,002) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ (4,002)

Ending Cash Balance $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

Restricted cash ------

Available cash $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

One-off irregular payments, Underlying operating Revolver/ e.g., capex, loan repayments, payments, e.g., rent, payroll financing activity redundancy costs

Page 17 Example sources Review Forecast

Variance Actuals

• Balance sheet — current assets and liabilities • Payroll calendar • Annual budget • Debt amortization schedules • Discussion among management, including operations • Other sources/considerations • Recent run rates • Sales team projections • Inventory forecasts • Capital expenditure budget • Contingency allowance for the unknown

Page 18 18PresentationPage May 19 2020 title Poll question 2

What is the impact of COVID-19 A TextSevere on your 2020 revenues? B Major [Select one] C TextMinor Text

D TextZero or positive

Page 19 Record and reconcile actuals Review Forecast

Variance Actuals

• Collect cash flow source data • Bank statements • Payroll reports • Check runs • Collect data on latest balances • Accounts receivable/accounts payable • Checks outstanding • Organize into cash flow lines • Check: beginning cash + activity = ending cash

Page 20 Perform variance analysis Review Forecast

Variance Actuals

• Align prior week forecast and actuals • Calculate the variance • Identify timing and permanent variances

Week 11 20-Feb through 24-Feb Variance Forecast (1) Actual $ % Comments

Operating cash flows Receipts Operating receipts $ 6,897 $ 6,832 $ (65) -1% Miscellaneous receipts - - - 0% Total receipts 6,897 6,832 (65) -1%

Operating Disbursements Payroll & Benefits (2,540) (1,977) 562 22% Bonus check timing Raw materials (7,146) (4,680) 2,465 34% Select vendors providing limited terms Freight out (523) (628) (105) -20% Supplies / Repairs / Dies (698) (425) 272 39% Utilities (791) (270) 522 66% Timing Insurance - - - 0% Taxes (379) (171) 208 55% G&A / rent / cards (69) (35) 35 50% Commission (5) - 5 100% Contract / Professional services (60) (108) (48) -79% Other disbursements (179) (26) 153 85% Total operating disbursements (12,391) (8,321) 4,070 33%

Net operating cash flows (5,494) (1,489) 4,005 73%

Restructuring costs Professional fees (100) (67) 33 33% Delay in receipt of professionals invoices US Trustee fees - - - 0% Adequate assurance - Utilities - - - 0% Other restructuring costs - - - 0% Page 21 Total Restructuring costs (100) (67) 33 33%

Net cash flows (before financing) $ (5,594) $ (1,556) $ 4,038 72%

Financing cash flows Adequate protection - Senior Secured - - - 0% DIP loan interest / fees - - - 0% Total Financing cash flows - - - 0%

Net cash flows $ (5,594) $ (1,556) $ 4,038 72% Review and roll forward Review Forecast

Variance Actuals

• Review drivers of prior week variances • Refine methodologies and assumptions • What is the appropriate detail level? • Were all categories of spend captured? • Roll forward the forecast, always looking at the next 13 weeks • Determine whether proactive actions are required to maintain adequate cash availability

Page 22 Insights/actions

• Scenario analysis • Model impact of external economic drivers • Sensitize various options and outcomes • Cash conservation • Defer capital projects • Stretch payables • Personnel actions (i.e., limited overtime, furloughs, reductions in force) • Capital conversations • Raising funds (debt/equity) • Covenant waivers

Page 23 18PresentationPage May 24 2020 title Poll question 3

What actions are you taking to A Delaying payments to vendors extend your liquidity position? Text B Offering discounts [Select one] C TextMinimizing purchases Text D TextFurloughing employees Borrowing funds/raising additional E capital

F All of the above

Page 24 Potential levers to enhance liquidity

• Impact and risk will vary by sector and individual organization.

Focus here first … … and consider prepping for this Short Long term term

• Stretch accounts payable • Eliminate/reduce 401(k) • Factor accounts • Reduce SG&A costs • Employee furlough match receivable • Raise new capital • Temporarily idle • Reduction in force • Eliminate/reduce dividend • Sale or monetization of operations • Reduce inventory (if relevant) non-core assets (i.e., sale • Consider wage and bonus purchases • Tax stimulus/incentives and leaseback) deferment/cut • Review AR and (as available) • Footprint and SKU • Delay capital accelerate collections • Manufacturing/ops rationalization expenditures • Expand ABL availability transformation • Liquidate aged inventory • Defer marketing spend • Tighten discretionary • Repatriate cash sitting in (if relevant) and related programs spending limits/approvals overseas bank accounts • Procurement optimization • Draw on remaining • Implement hiring freeze • Outsource/offshore credit lines admin back office • Offer temporary • Conduct zero-based discounts to promote budgeting exercise sales

• Reduce customer credit lines • Evaluate potential insurance claims • Apply vendor/supplier credits • Offer early payment discounts

Business risk: Low Medium High

Page 25 For more information, please visit:

Scenario planning webcast replay

COVID-19 resources

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