Mestek Board of Directors September 8, 2007 ACHIEVING PROFITABILITY IN CLEVELAND (Plus a Quick Look...

Mestek Board of Directors Mestek Board of Directors

September 8, 2007September 8, 2007

ACHIEVING PROFITABILITY IN ACHIEVING PROFITABILITY IN CLEVELANDCLEVELAND

(Plus a Quick Look at Maine, (Plus a Quick Look at Maine, Beijing and Cedar Rapids)Beijing and Cedar Rapids)

HOW WE STARTEDHOW WE STARTED

Purchase June 30, 2001Purchase June 30, 2001

Secure Hill / Gain CWPSecure Hill / Gain CWP

Yoder, Krasny-Kaplan, MentorYoder, Krasny-Kaplan, Mentor

Responsibility for invested fundsResponsibility for invested funds

Satisfactory return each yearSatisfactory return each year

Break even point less than 80%Break even point less than 80%

General Manager’s Primary General Manager’s Primary Accountability per John E. ReedAccountability per John E. Reed

FINANCIAL STATEMENT FINANCIAL STATEMENT HISTORYHISTORY

20062006 20052005 20042004 20032003 20022002 20012001

LeaderLeader MayeMayerr

MayeMayerr

SteelSteel SteelSteel SteelSteel SteelSteel

Net Net SalesSales

24,3724,3711

14,3714,3722

20,4020,4066

11,9011,9022

11,4111,4111

14,6014,6022

GP %GP % 16.816.8%%

25.125.1%%

19.319.3%%

12.2%12.2% 13.2%13.2% 13.3%13.3%

OperatinOperating Profit g Profit (Loss)(Loss)

(296)(296) (383)(383) (1)(1) (1,981(1,981))

(1,514(1,514))

(1,030(1,030))

EARLY CHALLENGESEARLY CHALLENGES

Machine Tool Recession 2002-3Machine Tool Recession 2002-3 Absorbed Dahlstrom / B&K 2002-3Absorbed Dahlstrom / B&K 2002-3 Krasny Kaplan Machines dropped 2004 Krasny Kaplan Machines dropped 2004 Closed Pipe Mill business 2004 Closed Pipe Mill business 2004 Key Engineering and Manufacturing Key Engineering and Manufacturing

RetirementsRetirements Manufactured Vulcans for Lockformer 2005-7Manufactured Vulcans for Lockformer 2005-7 Mentor unprofitable – sold 2006Mentor unprofitable – sold 2006

CURRENT ISSUESCURRENT ISSUES Still recovering from loss of key personnel Still recovering from loss of key personnel

in sales and servicein sales and service Still working through challenging and Still working through challenging and

problem jobs – all departments equally at problem jobs – all departments equally at faultfault

Still working through lagging product Still working through lagging product developmentdevelopment

Factory re-organization at early stageFactory re-organization at early stage Way behind booking and shipping targetsWay behind booking and shipping targets Costs still uncompetitiveCosts still uncompetitive Engineering needs more experienceEngineering needs more experience

FINANCIALSFINANCIALS(7 months)(7 months)

Net SalesNet Sales $7.333 million$7.333 million 53% budget53% budget

GP %GP % 16.3%16.3% 68% budget68% budget

ExpensesExpenses $2.563 million$2.563 million 96% budget96% budget

Operating Operating ProfitProfit

($1.367) ($1.367) millionmillion

$2.0 million $2.0 million off budgetoff budget

Bookings Bookings

8 months8 months$8.954 million$8.954 million 57% budget57% budget

BY PRODUCT LINEBY PRODUCT LINENet Sales Net Sales (omitting Vulcan and (omitting Vulcan and

Service)Service) Through JulyThrough July Through Through

October October (Projected)(Projected)

YoderYoder 42% of budget42% of budget 82% of budget82% of budget

B&KB&K 45% of budget45% of budget 57% of budget57% of budget

LockformerLockformer 2% of budget2% of budget 8% of budget8% of budget

WinProWinPro 19% of budget19% of budget 115% of budget115% of budget

PartsParts 76% of budget76% of budget 77% of budget77% of budget

BY PRODUCT LINEBY PRODUCT LINEGP %GP %

Through Through JulyJuly

Through October Through October (Projected)(Projected)

YoderYoder 11.8%11.8% 16.2%16.2%

B&KB&K 8.9%8.9% 5.0% 5.0% (development)(development)

LockformerLockformer NEG.NEG. 0.0%0.0%

WinProWinPro NEG. NEG. 0.0.% 0.0.% (development)(development)

PartsParts 42.8%42.8% 43.0%43.0%

PROFITABILITY PLANPROFITABILITY PLAN

Product StrategyProduct Strategy

Sales/Marketing StrategySales/Marketing Strategy

Execution StrategyExecution Strategy

PROFITABILITY PLANPROFITABILITY PLANPRODUCT STRATEGYPRODUCT STRATEGY

Offer full range of roll forming products in Offer full range of roll forming products in pre-cut and post-cut, multiple profiles on pre-cut and post-cut, multiple profiles on adjustable frames, range of material adjustable frames, range of material specifications, notching/punching/cut off specifications, notching/punching/cut off capabilitiescapabilities YoderYoder B & KB & K HillHill Lockformer CustomLockformer Custom WinProWinPro

PROFITABILITY PLANPROFITABILITY PLANPRODUCT STRATEGYPRODUCT STRATEGY

Good mix of stand-alone/systems; Good mix of stand-alone/systems; custom/standard; repeat profile/new custom/standard; repeat profile/new profileprofile

Solution focus for customersSolution focus for customers Excellent parts and serviceExcellent parts and service

PARTSPARTS

SuccessSuccess Added TISHKENAdded TISHKEN R. Schaffer technical expertise in ServiceR. Schaffer technical expertise in Service Lowered costs through Formtek BeijingLowered costs through Formtek Beijing

ChallengesChallenges Lost B. HastingsLost B. Hastings Replacement leader failedReplacement leader failed Too much inventoryToo much inventory Not enough promotionNot enough promotion

PARTS 2007PARTS 2007

New leader who is customer-centricNew leader who is customer-centric Electronic library of reference Electronic library of reference

materialsmaterials Telephone lead generationTelephone lead generation Web-site promotionWeb-site promotion Link more to serviceLink more to service

YODERYODER

Success Success Refrigeration tube, welding wire, closed Refrigeration tube, welding wire, closed

shapes, custom roll formers, stand alone millsshapes, custom roll formers, stand alone mills With Hill systemsWith Hill systems

ChallengesChallenges Full systems profitabilityFull systems profitability Keeping market share on stand alone millsKeeping market share on stand alone mills Losing rafted jobsLosing rafted jobs Lost D. Muchnicki and D. Krosky in salesLost D. Muchnicki and D. Krosky in sales

YODER 2007YODER 2007

Focus on stand alone machines, roll Focus on stand alone machines, roll tooling, replacement stands and partstooling, replacement stands and parts

Limit number of systems, tube mills Limit number of systems, tube mills and customand custom

Use Managing Performance process to Use Managing Performance process to price at higher marginsprice at higher margins

Develop quick disconnect and Develop quick disconnect and universal arrangement for “rafting”universal arrangement for “rafting”

B & KB & K SuccessSuccess

2 DWR and control2 DWR and control 2 DWR Plus2 DWR Plus 3 TSR3 TSR

ChallengesChallenges Structural 12 gage punchingStructural 12 gage punching Bundling and controlBundling and control Accessory lineAccessory line Door lineDoor line VersamillVersamill

2DWR Supermill2DWR Supermill

VersamillVersamill

B & K 2007 B & K 2007

Finish development carefully with a Finish development carefully with a veiw to costs, start up and reliabilityveiw to costs, start up and reliability

Focus on supermill sales while de-Focus on supermill sales while de-emphasizing related productsemphasizing related products

International Sales – CE versionInternational Sales – CE version ROI SellingROI Selling

HILL HILL

SuccessSuccess P. Williams facilitates sales cooperation P. Williams facilitates sales cooperation

and brings $2.0-$3.0 million/year of and brings $2.0-$3.0 million/year of Yoder and WinPro salesYoder and WinPro sales

ChallengesChallenges No progress in moving people to No progress in moving people to

ClevelandCleveland Costs too highCosts too high

HILL 2007HILL 2007

Plan to downsize or sell Hill to focus on Plan to downsize or sell Hill to focus on high-end roll forming tools for punch, high-end roll forming tools for punch, notch and cut-offnotch and cut-off

Continue to sell rotary punching Continue to sell rotary punching technologytechnology

Use of EAE Turkey and India sources for Use of EAE Turkey and India sources for standard toolsstandard tools

Continue to look for Cleveland-based Continue to look for Cleveland-based people with tooling skillspeople with tooling skills

LOCKFORMERLOCKFORMER

SuccessSuccess Triplex in 6” and 8” designedTriplex in 6” and 8” designed Chassis from Formtek BeijingChassis from Formtek Beijing

ChallengesChallenges Lack of pre-cut application engineering Lack of pre-cut application engineering

talenttalent Lack of sales concepting talentLack of sales concepting talent Costs too highCosts too high Competition is diffuse, but strongCompetition is diffuse, but strong

LOCKFORMER 2007LOCKFORMER 2007

Use R. Heilman for conceptingUse R. Heilman for concepting Re-develop dealers in the U.S.Re-develop dealers in the U.S. Purchase base units for triplex, Purchase base units for triplex,

duplex and double-extended shaft duplex and double-extended shaft models from EAE Turkeymodels from EAE Turkey

Consider line integration in MaineConsider line integration in Maine

WINPROWINPRO Success Success

SFM: Crystal Achievement AwardSFM: Crystal Achievement Award MRP Downloads - FenevisionMRP Downloads - Fenevision Screen express controlScreen express control Stiffener machineStiffener machine

ChallengesChallenges SFM Profiles / controlsSFM Profiles / controls Screen Express VerticalScreen Express Vertical Residential real estateResidential real estate Controls engineersControls engineers

Screen ExpressScreen Express

SFM Roll FormerSFM Roll Former

WINPRO 2007WINPRO 2007

Be selective on SFM – develop standard Be selective on SFM – develop standard screen frame to sell to small producersscreen frame to sell to small producers

Stop Vertical screen frame developmentStop Vertical screen frame development Delay sales force and service expansion Delay sales force and service expansion

until 2008-9 buying seasonuntil 2008-9 buying season ARX-SYS DevelopmentARX-SYS Development

ARX-SYS SPACER SYSTEMARX-SYS SPACER SYSTEM

System OverviewSystem Overview

Drops into existing CED Intercept line – Drops into existing CED Intercept line – 285 units in the field285 units in the field

Structural spacer system with four Structural spacer system with four continuous corners and enhanced rigiditycontinuous corners and enhanced rigidity

Employs a state of the art absorbent Employs a state of the art absorbent technology used in the medical and technology used in the medical and pharmaceutical industries produced by pharmaceutical industries produced by CSP Technologies called the DesiKey.CSP Technologies called the DesiKey.

Corner AssemblyCorner Assembly

Plug

Spacer

Connector

Latch (A Raised Featureon the Connector)

Chamfered Edges for Easy Insertion

Bottom View

DesiKeyDesiKey

AlignmentFeatures

Latch

Muntin AssemblyMuntin Assembly

CSP’s Activ-PolymerCSP’s Activ-PolymerTMTM

A three component blendA three component blend

1.1. A majority polymerA majority polymer (e.g. PP, PE, …) – the (e.g. PP, PE, …) – the base component -- provides structurebase component -- provides structure

2.2. A particleA particle (e.g. absorbing agent) (e.g. absorbing agent)

3.3. A minority polymerA minority polymer that is immiscible that is immiscible (like mixing oil and water) in the majority (like mixing oil and water) in the majority polymer and has a chemical attraction for polymer and has a chemical attraction for the particlethe particle

Channels composed of the minority polymer and Channels composed of the minority polymer and the particle resides in the channelsthe particle resides in the channels

Production AdvantageProduction Advantage

Integrates into existing production Integrates into existing production Less heat – quicker cool-down and Less heat – quicker cool-down and

throughputthroughput Greater rigidity – easy of handlingGreater rigidity – easy of handling Reduction of labor and cost of rivet Reduction of labor and cost of rivet Roll-Former capacity of 4200 units per Roll-Former capacity of 4200 units per

shift (based on 36” x 24” IG, 7 hour shift shift (based on 36” x 24” IG, 7 hour shift at 100 FPM)at 100 FPM)

Quality AdvantageQuality Advantage

No 4No 4thth corner – 4 continuous corners corner – 4 continuous corners Elimination of the screw/rivetElimination of the screw/rivet Better seal with key plugBetter seal with key plug No sagging of Matrix bead/unaffected by No sagging of Matrix bead/unaffected by

UV or southern exposureUV or southern exposure Greater rigidity of spacerGreater rigidity of spacer Aesthetics Aesthetics

Cost AdvantageCost Advantage

Elimination of PPG royalty payment Elimination of PPG royalty payment Reduction of energy costsReduction of energy costs Elimination of maintenance and parts Elimination of maintenance and parts

of Matrix extruder / alternative useof Matrix extruder / alternative use Consistent cost accounting by unit -Consistent cost accounting by unit -

Intercept does not apply the same Intercept does not apply the same bead sizebead size

Reduced Muntin clip costs (no royalty)Reduced Muntin clip costs (no royalty)

Savings Analysis AssumptionsSavings Analysis Assumptions

1600 IGUs/shift, 250 work days, 2 shifts/day1600 IGUs/shift, 250 work days, 2 shifts/day PPG Royalty at $.03 / ft.PPG Royalty at $.03 / ft. Matrix costs at $.03 / ft – DesiKey at $.25 eachMatrix costs at $.03 / ft – DesiKey at $.25 each Average unit size of 24” x 36”Average unit size of 24” x 36” Electricity costs of $45 / matrix pump / shiftElectricity costs of $45 / matrix pump / shift 60% of IGUs have grids60% of IGUs have grids Muntin clip cost of $.027 each (ArxSys at $.024)Muntin clip cost of $.027 each (ArxSys at $.024) The ArxSys Spacer incorporates 20% more metalThe ArxSys Spacer incorporates 20% more metal 15/32 Spacer Intercept Strip Width of 1.30” vs. 15/32 Spacer Intercept Strip Width of 1.30” vs.

1.56” for ArxSys at $52/cwt (Intercept $.025/ft)1.56” for ArxSys at $52/cwt (Intercept $.025/ft)

Savings AnalysisSavings Analysis1 machine1 machine 12 machines12 machines

RoyaltyRoyalty $240,000$240,000 $2,880,000$2,880,000

DesiccantDesiccant $64,000$64,000 $768,000$768,000

Matrix Pump Matrix Pump MaintenanceMaintenance

$5,000$5,000 $60,000$60,000

Power ConsumptionPower Consumption $11,250$11,250 $135,000$135,000

Muntin ClipsMuntin Clips $38,400$38,400 $460,000$460,000

SavingsSavings $358,650$358,650 $4,303,800$4,303,800

Metal DifferenceMetal Difference $40,000$40,000 $480,000$480,000

Net SavingsNet Savings $318,650$318,650 $3,823,800$3,823,800

ArxSys Price $380,000 - $420,000

PROFITABILITY PLANPROFITABILITY PLANSALES/MARKETINGSALES/MARKETING

Regionalize Sales in North AmericaRegionalize Sales in North America Improve Contract ManagementImprove Contract Management Improve Price Quotation AccuracyImprove Price Quotation Accuracy Tap the power of SalesForce.comTap the power of SalesForce.com Focus on profitable growth in Yoder, Focus on profitable growth in Yoder,

B&K and partsB&K and parts Sell what is in stock and engineeredSell what is in stock and engineered

Regional SalesRegional Sales

Hired E. Martin to replace key lossesHired E. Martin to replace key losses Created six (6) U.S. RegionsCreated six (6) U.S. Regions Kick off with sales meeting – April Kick off with sales meeting – April

2007 2007 Focus two sales engineers on Focus two sales engineers on

proposalsproposals

ROLLFORMING CUSTOMERS PER STATEROLLFORMING CUSTOMERS PER STATE

0

1 to 4

4 to 5

5 to 9

9 to 18

18 to 68

(37)

(31)

(43)

(18)

(19) (21)

(25)

(47)

(32)(68)

(33)

DAN RINEHART

JARED SHEETS

TOM FOX

TBA

OPEN

DAVE VOTH

JACK PENNUTO JR.

Regional SalesRegional Sales

““Stirring the pot” with telephone, Stirring the pot” with telephone, web-site pop-ups, flash faxes, mailing web-site pop-ups, flash faxes, mailing campaignscampaigns

Training in all product linesTraining in all product lines Manage sales activities and Manage sales activities and

behaviors in Salesforce.combehaviors in Salesforce.com

Improve Contract Improve Contract ManagementManagement

Hired Chris Shea with 20 years experienceHired Chris Shea with 20 years experience Created standard formats and language Created standard formats and language

onlineonline Trained general managers and controllers Trained general managers and controllers Trained sales peopleTrained sales people Key for Cleveland – 12-15 negotiated Key for Cleveland – 12-15 negotiated

contracts per yearcontracts per year All proposals include sales covenants, All proposals include sales covenants,

product specifications, standard terms and product specifications, standard terms and conditions and, if required, forms of letters of conditions and, if required, forms of letters of creditcredit

Improve Price Quotation Improve Price Quotation AccuracyAccuracy

Focus only 2 people on proposals and triageFocus only 2 people on proposals and triage Examining costing system resourcesExamining costing system resources Examining product templates by product line Examining product templates by product line

to building a quotationto building a quotation Consider re-instating position of “estimator”Consider re-instating position of “estimator” Reviewing cost build-up methods, rates, Reviewing cost build-up methods, rates,

calculations, forms and team-based processcalculations, forms and team-based process Instituted a “math” reviewInstituted a “math” review

Tap the Power of Tap the Power of Salesforce.comSalesforce.com

All sales people trained and using to record All sales people trained and using to record sales meetings, proposals and informationsales meetings, proposals and information

Low, medium, high odds attached to pipelineLow, medium, high odds attached to pipeline Campaigns developed for shows and Campaigns developed for shows and

promotionpromotion Managers have standardized reports on Managers have standardized reports on

sales calls, quote tracking and opportunity sales calls, quote tracking and opportunity developmentdevelopment

FocusFocus

Profit resides in Yoder stand alone, Profit resides in Yoder stand alone, B&K supermills and all parts – focus B&K supermills and all parts – focus herehere

Triage sales response and calls to Triage sales response and calls to these prioritiesthese priorities

Sell Stock / Light Sell Stock / Light EngineeringEngineering

In stock sales targets reviewed In stock sales targets reviewed weeklyweekly

Orders with less engineering are Orders with less engineering are given prioritygiven priority

Price new profiles to cover risk and Price new profiles to cover risk and quote extra tooling as T & Mquote extra tooling as T & M

Use on-line auction for slow-movingUse on-line auction for slow-moving

PROFITABILITY PLANPROFITABILITY PLANEXECUTIONEXECUTION

First Class Roll ToolingFirst Class Roll Tooling One Building / One SystemOne Building / One System Measurement ToolsMeasurement Tools Managing PerformanceManaging Performance Best Practices ImprovementBest Practices Improvement

First Class Roll ToolingFirst Class Roll Tooling

Four solid, experienced tooling Four solid, experienced tooling designers, all with testing ability, and designers, all with testing ability, and operating experience in pre-cut and operating experience in pre-cut and post-cutpost-cut

J. KopsickJ. Kopsick M. GrantM. Grant

R. Abu-HashimR. Abu-Hashim K. JohnsonK. Johnson

Test mills available for 80% of ordersTest mills available for 80% of orders

First Class Roll ToolingFirst Class Roll Tooling

Four effective roll testers for Four effective roll testers for assembly, start up and field serviceassembly, start up and field service

E. PliskeE. Pliske M. WilesM. WilesM. BoughmanM. Boughman D. ZikeliD. Zikeli

State-of-the-art Mazak/Mitsubishi State-of-the-art Mazak/Mitsubishi Turning /EDM Roll Tooling Turning /EDM Roll Tooling Manufacturing Cell installed in JulyManufacturing Cell installed in July

Reach goal of $3.0 million in sales in Reach goal of $3.0 million in sales in 20082008

One Building / One SystemOne Building / One System

Could not justify new building in Could not justify new building in 20062006 Bought Commerce Parkway buildingBought Commerce Parkway building Continue to hone two building efficient Continue to hone two building efficient

operation planoperation plan Hired R. Hilfer as Plant Manager in MayHired R. Hilfer as Plant Manager in May Began facility/work space improvement Began facility/work space improvement

programprogram

One Building / One System One Building / One System

Decided not to purchase M2M for ERPDecided not to purchase M2M for ERP Cost and implementation not justifiedCost and implementation not justified Will upgrade “Jobscope” in 2008Will upgrade “Jobscope” in 2008 Have good core of users who will come Have good core of users who will come

up to speed quicker in 2008up to speed quicker in 2008 Will make a difference to profitability, Will make a difference to profitability,

on-time delivery and inventory control on-time delivery and inventory control in 2009in 2009

Measurement ToolsMeasurement Tools

Gross Margin ReportsGross Margin Reports Reviewing all unsatisfactory jobs back to Reviewing all unsatisfactory jobs back to

Jan 2006 (>$25K-NS/<20% GP)Jan 2006 (>$25K-NS/<20% GP) Root cause(s) analysis for eachRoot cause(s) analysis for each Correcting procedures and training Correcting procedures and training

people from lessons learnedpeople from lessons learned Reviewing >$25K-NS / >30% GP to learn Reviewing >$25K-NS / >30% GP to learn

what we do wellwhat we do well

Measurement ToolsMeasurement Tools

Metrics MonthlyMetrics Monthly Department budgetsDepartment budgets Average inventory / inventory turnsAverage inventory / inventory turns

Broken down by type and productBroken down by type and product WarrantyWarranty

Service reportsService reports Engineering/manufacturing/sales reviewEngineering/manufacturing/sales review

Re-work/scrap – manufacturing reviewRe-work/scrap – manufacturing review On-time shipments – all reviewOn-time shipments – all review

Measurement Tools Measurement Tools

Cost Control SummaryCost Control Summary All WIP jobsAll WIP jobs Record M, L, B and AE actual against Record M, L, B and AE actual against

quote estimatesquote estimates Update weeklyUpdate weekly Review key jobs dailyReview key jobs daily SWAT team for jobs going badSWAT team for jobs going bad

Managing PerformanceManaging Performance

Team-based activity with all disciplines Team-based activity with all disciplines represented for major jobsrepresented for major jobs At proposalAt proposal If scope changesIf scope changes At order receipt before acknowledgementAt order receipt before acknowledgement

Primary TasksPrimary Tasks Risk assessment / mitigationRisk assessment / mitigation Commitment to profitability, reliability and Commitment to profitability, reliability and

deliverydelivery Within goals and focus of Business PlanWithin goals and focus of Business Plan

Managing PerformanceManaging Performance ToolsTools

Multi-page documentMulti-page document Check lists by activityCheck lists by activity Commitment PledgeCommitment Pledge

Areas of FocusAreas of Focus Know customer needs, expectations, savingsKnow customer needs, expectations, savings Develop a “complete” proposal that all can commit Develop a “complete” proposal that all can commit

toto All specifications, performance standards, All specifications, performance standards,

acceptance test standards are clear, attainable and acceptance test standards are clear, attainable and risk mitigatedrisk mitigated

Develop ROI selling toolDevelop ROI selling tool Mean what we sayMean what we say


Proposal messageProposal message Use as a selling opportunity – solution Use as a selling opportunity – solution

for decision-makerfor decision-maker Cover letter addresses CUSTOMER Cover letter addresses CUSTOMER

needs needs No surprisesNo surprises

Negotiation strategyNegotiation strategy Sales supported by execution teamSales supported by execution team


Project ManagementProject Management From beginning to end, single point From beginning to end, single point

contactcontact Prevents scope creepPrevents scope creep Manages process of fulfillment, factory Manages process of fulfillment, factory

test, punchlist, start up, training, test, punchlist, start up, training, warrantywarranty


Order AcknowledgementOrder Acknowledgement Last chance to say no and get it rightLast chance to say no and get it right Contract compliance by customer on Contract compliance by customer on

purchase order, down payment, letters purchase order, down payment, letters of credit, required informationof credit, required information

All sign off and commit to PROFITABILITY All sign off and commit to PROFITABILITY and DELIVERYand DELIVERY


Kick Off MeetingKick Off Meeting Set tone for performanceSet tone for performance Re-examine the risksRe-examine the risks Design communication planDesign communication plan Make sure all disciplines are “in”Make sure all disciplines are “in”

Best Practices – John ReedBest Practices – John Reed Product Quality Consistently HighProduct Quality Consistently High Very Low Warranty/Return/Allowance ExpenseVery Low Warranty/Return/Allowance Expense Negligible order writing, pricing errorsNegligible order writing, pricing errors Complete, up-to-date knowledge of costsComplete, up-to-date knowledge of costs Fast reaction to raw material and component cost Fast reaction to raw material and component cost

increasesincreases Very few orders taken at low prices and then only Very few orders taken at low prices and then only

for specific policy reasonsfor specific policy reasons Complete understanding of pricing, regularly Complete understanding of pricing, regularly

review price sheets to maximize margins, eliminate review price sheets to maximize margins, eliminate loserslosers

Spending consistently in line with budgetsSpending consistently in line with budgets Customers’ expectations fully met in fact & Customers’ expectations fully met in fact &

perceptionperception

Best Practices – John ReedBest Practices – John Reed Orders produced and shipped promptlyOrders produced and shipped promptly Labor variances from standard insignificantLabor variances from standard insignificant Continuous improvement programs offset wage Continuous improvement programs offset wage

increasesincreases ““Fires” brought under control promptly so that Fires” brought under control promptly so that

management has time to think and planmanagement has time to think and plan A well balanced team. Each seat on the bus is A well balanced team. Each seat on the bus is

filled with the right personfilled with the right person Intolerance on the part of the executive for Intolerance on the part of the executive for

anything but first class executionanything but first class execution A “breakeven” point that does not put pressure A “breakeven” point that does not put pressure

on either sales or expenseon either sales or expense

-Action Plan for Each-Action Plan for Each- An Example - An Example

Best Practices “The Fix”Best Practices “The Fix”B.B. VERY LOW WARRANTY/RETURN/ALLOWANCE VERY LOW WARRANTY/RETURN/ALLOWANCE

EXPENSE EXPENSE Initiate quality review prior to shippingInitiate quality review prior to shipping Supply a quality service/operations manual and Supply a quality service/operations manual and

operator trainingoperator training

By improving the overall quality, warranty related By improving the overall quality, warranty related service issues should diminishservice issues should diminish

Any equipment problems must be corrected prior to Any equipment problems must be corrected prior to shipment (even in times of month-end deadlines)shipment (even in times of month-end deadlines)

A procedure must be established to control the return A procedure must be established to control the return of spare parts ordered incorrectly by customersof spare parts ordered incorrectly by customers

Need to establish a restocking cost structureNeed to establish a restocking cost structure Utilize the RGA system to return goodsUtilize the RGA system to return goods Do NOT accept damaged returned goods (parts should Do NOT accept damaged returned goods (parts should

be inspected, before accepted)be inspected, before accepted)

Best Practices “Fixes”Best Practices “Fixes”

Project Management InitiativeProject Management Initiative Project Management is proposal to Project Management is proposal to

commissioning; full responsibility with commissioning; full responsibility with full authority and accountabilityfull authority and accountability CostCost ScheduleSchedule ScopeScope CommunicationCommunication Cheer Leading (emphasis on leading Cheer Leading (emphasis on leading

with positive attitude)with positive attitude)

Best PracticesBest Practices

RB Dewey to be in Cleveland majority of RB Dewey to be in Cleveland majority of time September 15 – October 30time September 15 – October 30

Full review of table of organization and Full review of table of organization and people, all process and procedure and all people, all process and procedure and all facilities, equipment and toolsfacilities, equipment and tools

Create new organization and realistic plan Create new organization and realistic plan to achieve profitability in 2008to achieve profitability in 2008

Evaluate long-term prospects and explore Evaluate long-term prospects and explore continued ownershipcontinued ownership

Formtek Maine – through Formtek Maine – through JulyJuly

RESULTS:RESULTS:


Gross ProfitGross Profit 26.7%26.7% 92% budget92% budget

ExpenseExpense $1.571 million$1.571 million 104% budget104% budget


$0.396 million$0.396 million 38% budget38% budget

Booked SalesBooked Sales $9.621 million$9.621 million 110% budget110% budget

Formtek Maine Formtek Maine

Goals MetGoals Met Profitable in first half despite poor Profitable in first half despite poor

backlogbacklog Addressing regional manager and dealer Addressing regional manager and dealer

issuesissues Addressing inventory issuesAddressing inventory issues Breakeven is now under $10.0 millionBreakeven is now under $10.0 million

Formtek MaineFormtek Maine

Expectations by Year EndExpectations by Year End

Net sales Net sales $13.121 million$13.121 million 87% 87% budgetbudget

Op. Profit Op. Profit $1.068 million$1.068 million 60% budget60% budget

Solid backlog of $5.0 million setting the Solid backlog of $5.0 million setting the stage for good 2008stage for good 2008

IPI-Cedar Rapids – through IPI-Cedar Rapids – through JulyJuly

RESULTS:RESULTS:


Gross ProfitGross Profit 27.2%27.2% 86% budget86% budget



$0.935 million$0.935 million 62% budget62% budget


IPI-Cedar RapidsIPI-Cedar Rapids

Goals MetGoals Met Implemented and using all M2M modulesImplemented and using all M2M modules Upgrade material management system – hired Upgrade material management system – hired

Dana VigDana Vig Replace non-performing:Replace non-performing:

Engineering Manager – hired Matt LawlerEngineering Manager – hired Matt Lawler Plant Manager – hired Scott SloanPlant Manager – hired Scott Sloan Controller – hired Larry FriedhoffController – hired Larry Friedhoff Industrial Engineer – hired Darlene SmithIndustrial Engineer – hired Darlene Smith

Implement new duct line control – in testImplement new duct line control – in test Rationalize CMP line – 40% doneRationalize CMP line – 40% done Develop CNC punching head – tested and Develop CNC punching head – tested and

operatingoperating

IPI-Cedar RapidsIPI-Cedar Rapids

Expectations by Year EndExpectations by Year EndNet SalesNet Sales $25.0 million$25.0 million 101% budget101% budgetOp. ProfitOp. Profit $1.945 million$1.945 million 75% budget75% budget(Variance: Robert/IMSA warranty; Airkan/Sotis (Variance: Robert/IMSA warranty; Airkan/Sotis

legal and United Welding R&D - $455,000)legal and United Welding R&D - $455,000)Backlog will be $6.8 million Backlog will be $6.8 million

Keys to 2008Keys to 2008: : ASHRAE success, CMP and FlexFab ASHRAE success, CMP and FlexFab

projectsprojects

Formtek Beijing – through Formtek Beijing – through JulyJuly

RESULTS:RESULTS:


Gross ProfitGross Profit 45.8%45.8% 112% budget*112% budget*



$1.009 million$1.009 million 133% budget*133% budget*


*Before physical inventory, audit and currency adjustment

Shipments Intercompany - $0.330 million Europe; $1.338 million U.S.

Formtek BeijingFormtek Beijing

GoalsGoals Improve reporting in U.S. accounting – Improve reporting in U.S. accounting –

hired consultanthired consultant Replacement for retiring U.S. engineer Replacement for retiring U.S. engineer

– R. Runyan– R. Runyan Finish Econoslear – one installed in Finish Econoslear – one installed in

China, one headed to IndiaChina, one headed to India Expand Plant economically – plans in Expand Plant economically – plans in

placeplace

Beijing FacilityBeijing Facility

Formtek Beijing Formtek Beijing

Expectations for Year EndExpectations for Year EndNet SalesNet Sales $6.668 million $6.668 million 98% budge98% budge

tt

Inter-co SalesInter-co Sales $2.255 million $2.255 million 76% 76% budgetbudget

Op. ProfitOp. Profit $1.700 million $1.700 million 120% budget120% budget

International Sales ChartInternational Sales ChartBookings by TerritoryBookings by Territory

#/$ #/$ (in thousands US-D)(in thousands US-D)

OceanaOceana 30/ 2,886.6 30/ 2,886.6

AsiaAsia 38/ 914.8 38/ 914.8

Middle EastMiddle East 30/ 2,047.2 30/ 2,047.2

EuropeEurope 124/ 2,341.8124/ 2,341.8

Latin AmericaLatin America 16/ 628.9 16/ 628.9

TotalTotal 238/ 8,819.3238/ 8,819.3

International Sales ChartInternational Sales ChartBookings by DivisionBookings by Division

#/$ #/$ (in thousands US-D)(in thousands US-D)

LockformerLockformer 47/ 659.6 47/ 659.6IPIIPI 7/ 664.8 7/ 664.8EngelEngel 12/ 1,611.5 12/ 1,611.5F. BeijingF. Beijing 62/ 3,643.2 62/ 3,643.2F. EuropeF. Europe 106/ 1,271.9106/ 1,271.9ClevelandCleveland 1/ 750.0 1/ 750.0HillHill 3/ 218.3 3/ 218.3

TotalTotal 238/ 8,819.3238/ 8,819.3

$8.819 million represents 16.6% of all machinery $8.819 million represents 16.6% of all machinery bookings in 2007 and is 20% ahead of last yearbookings in 2007 and is 20% ahead of last year

Mestek Board of Directors September 8, 2007 ACHIEVING PROFITABILITY IN CLEVELAND (Plus a Quick Look...

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