Economics During COVID-19:

Impact & Cash Flow Best

Practices

Economics During COVID-19:

Impact & Cash Flow Best

Practices

Speakers

Patrick Gilbert, Director, BKDpgilbert@bkd.com

Greg Knight, Director, BKDgknight@BKD.com

Chad Moutray, Chief Economist, NAMcmoutray@nam.org

Presented by:

Updated April 15, 2020@chadmoutray

Manufacturing

Indicators

40

42

44

46

48

50

52

54

56

58

60

62

Jan-19 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar

ISM® Manufacturing Purchasing Managers’ Index®

(January 2019 – March 2020)

Purchasing Managers' Index New Orders Production Employment Exports

Source: Institute for Supply Management

93.5% 95.1%

92.5%

88.7%89.5%

79.8%

67.9% 67.6%

75.6%

2018:1 2018:2 2018:3 2018:4 2019:1 2019:2 2019:3 2019:4 2020:1

NAM Manufacturers’ Outlook Survey by Quarter(First Quarter 2018 – First Quarter 2020)

Note: Percentage of respondents who characterized the current business outlook as somewhat or very positive.

-10.0%

-9.0%

-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Mar-19 Apr May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar

Percentage Changes in Manufacturing Production(March 2019 – March 2020)

Manufacturing Durable Goods Nondurable Goods

Source: Federal Reserve Board

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

Mar-19 Apr May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar

Year-Over-Year Industrial Production Growth(March 2019 – March 2020)

Industrial Production Manufacturing Durable Goods Nondurable Goods

Source: Federal Reserve Board

62%

64%

66%

68%

70%

72%

74%

76%

78%

80%

85

90

95

100

105

110

Manufacturing Production and Capacity Utilization (January 2008 to March 2020)

Manufacturing Production Manufacturing Capacity Utilization

Manufacturing

Production (SIC)

(2012=100)

Manufacturing

Capacity

Utilization (SIC)

Source: Federal Reserve Board

-80

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Apr-19 May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar Apr

Regional Federal Reserve Bank Manufacturing and Business Surveys

(April 2019 – April 2020)

Kansas City New York Philadelphia Richmond Dallas

Index

(Growth >0)

Source: Regional Federal Reserve Banks

46.146.9

50.1

44.8

47.8

45.4

50.5

44.2

48.4

43.2

Canada Mexico China Japan United

Kingdom

Germany Netherlands South Korea Brazil France

IHS Markit Purchasing Managers’ Indices® for the Top 10 Export Markets for U.S. Manufactured Goods

(March 2020)

Source: IHS Markit

Note: Top 10 Export Markets Based on 2019 Data from the U.S. Commerce Department

Emerging Markets Manufacturing PMI: 49.1Eurozone Manufacturing PMI: 44.5

Global Manufacturing PMI: 47.8U.S. Manufacturing PMI (Markit): 48.5

269

1

147

210

85

182 194 207 208 185

261

184214

275

-701

20 5 -3 2 0 9 7 3 3 -41

58

-2 -22 13 -18

Jan-19 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar

Monthly Changes in Employment(January 2019 – March 2020, in Thousands of Employees)

Nonfarm Payrolls Manufacturing

Source: Bureau of Labor Statistics

0

1000

2000

3000

4000

5000

6000

7000

8000

Weekly Initial Unemployment Claims, 2007-2020(in Thousands, Seasonally Adjusted)

Source: Bureau of Labor Statistics

0

1000

2000

3000

4000

5000

6000

7000

Continuing Unemployment Claims, 2007-2020(in Thousands, Seasonally Adjusted)

Source: Bureau of Labor Statistics

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

Mar-19 Apr May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar

Percentage Changes for Retail Spending by Month(March 2019 – March 2020)

Retail Sales Excluding Autos Excluding Autos and Gasoline

Source: Census Bureau

Economic

Outlook

2.5% 3.5% 2.9%1.1%

3.1%2.0% 2.1% 2.1%

-8.0%

-30.0%

15.0%

1.5%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2018:I II III IV 2019:I II III IV 2020:I II III IV

Real Gross Domestic Product(Chained 2012 Dollars)

Real GDP Forecast:↑ 2.9% (2018)

↑ 2.3% (2019)

↓5.0% (2020)

↑ 2.3% (2021)

Source: Bureau of Economic Analysis, NAM calculations using Moody’s Analytics simulation model

90

92

94

96

98

100

102

104

106

108

110

2016 2017 2018 2019 2020

Actual and Predicted Manufacturing Production Growth(NAICS, 2012=100)

Actual Manufacturing Production Predicted Manufacturing Production

Manufacturing Production:↓ 0.7% (2016) ↑ 2.1% (2017)↑ 2.7% (2018)↑ 0.0% (2019)↓ 6.5% (2020)↑ 2.6% (2021)

Source: Federal Reserve Board, NAM calculations using Moody’s Analytics simulation model

Comparisons

with Previous

Recessions

Recession Dates

January to June

1980, and July

1981 to

November 1982

July 1990 to

March 1991

March to

November

2001

December 2007

to June 2009 February/March 2020 to TBD

Gross Domestic Product

(largest quarterly decline during

the recession period)

-8.0% in the first

quarter of 1980

-3.6% in the

fourth quarter of

1990

-1.7% in the

third quarter of

2001

-8.4% in the

fourth quarter of

2008

-24% to -30% in the second quarter of

2020; for 2020 as a whole, -3.5%

Unemployment Rate

(peak unemployment rate during

or right after the recession period)

10.8% on

November and

December 1983

7.8% on June

1992

6.3% on June

2003

10.0% on

October 2009

14-15% in May 2020 before starting to

pull back to roughly 9% by the fall

Manufacturing Employment

(total lost employment during or

right after the recession period,

peak to trough)

2.1 million

workers between

June 1981 and

Dec. 1982

1.3 million

between Mar.

1989 to July

1993

2.95 million

between Sept.

2000 to Jan.

2004

2.3 million

workers between

Dec. 2007 and

Feb. 2010

1,500,000 workers over the next three

months before rebounding; or 600,000

by year’s end

Manufacturing Production

(total percentage of lost output in

the sector, peak to trough)

-9.1% between

May 1981 to

Nov. 1982

-2.0% between

Aug. 1990 to

Jan. 1992

-6.1% between

July 2000 to

Oct. 2001

-20.8% between

Dec. 2007 to June

2009

Down 12.0% between Feb. and May

before rebounding; output down 6.5%

in 2020 overall relative to last year

Manufacturing Value-Added

Output (total percentage change,

peak to trough)

-11.0% between

Q4:2006 to

Q4:2009

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve, Moody’s Analytics

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

1980 1985 1990 1995 2000 2005 2010 2015

Quarterly Percentage Changes in Real GDP, 1980–2019

Source: Bureau of Economic Analysis

0%

2%

4%

6%

8%

10%

12%

Monthly Unemployment Rate, 1980–2019

Source: Bureau of Labor Statistics

10

11

12

13

14

15

16

17

18

19

20

Monthly Employment in Manufacturing, 1979–2020(in Thousands of Workers)

Source: Bureau of Labor Statistics

40

50

60

70

80

90

100

110

120

Monthly Manufacturing Production, 1980–2020(NAICS, 2012=100)

Source: Federal Reserve

50

60

70

80

90

100

110

University of Michigan and Thomson Reuters Consumer Sentiment Index, 2004–2020

Source: University of Michigan/Thomson Reuters

Presented by:

Exhibit 1 – BKD COVID‐19 Business Planning Framework

Now13‐Week Cash Flow Roller

1.  Customer Plan 2.  Vendor Plan3.  Labor Plan

4.  Material Resource Plan5.  Financing Plan

How do I optimize my cash flows?

How do I identify critical liquidity 

gaps?

“Bottom‐Up” Economic Model

How do I analyze varying levels of complexity and uncertainty?

Financial Statement Model

Analyze

Sales and Margins Analysis

Labor Model

Overhead Spend

Operating ModelHow do I adapt my operating model?

Projection Tools – Forecasted IS, BS, CF

Adapt

How do I realign my strategy to accomplish objectives?

Inform

Business Strategy

FOR MORE INFORMATION // Please contact Greg Knight at gknight@bkd.com or 317.383.4296

Vendor Input

SBA Loans

Customer Input

Labor Input

Assess Plan

1‐4weeks

5 – 39 weeks

Accounts Payable

Known Purchases

Orders

Inventory

Payroll Registers

Debt Service& SBA Loan

Options

Forecasted Sales Orders

Forecasted Operating/

SG&A Spend

Known Sales Orders

Forecasted Material

Purchases

Received, Not Invoiced

Shipped, Not InvoicedAccounts

Receivable

Exhibit 2 – 13‐Week Cash Flow Data Sources

FOR MORE INFORMATION // Please contact Greg Knight at gknight@bkd.com or 317.383.4296

1.  Customer Plan

2.  Vendor Plan

4.  Material Resource Planning

3.  Labor Plan

5.  Financing Plan

BKD COVID‐19 Webinar Series

Exhibit 3 ‐ 13‐Week Cash Flow Projection Example

Q2 Q3 Q4

Week Ending Line 4/10 4/17 4/24 5/1 5/8 5/15 5/22 5/29 6/5 6/12 6/19 6/26 7/3 7/10 10/9/20 1/8/21 4/9/21

Week Number Ref. 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14‐26 27‐39 40‐52

Cash flows from operating activities:

Cash received from customers (PLAN 1):

Accounts receivable (past) 1 ‐           2,800       3,000       3,800       3,500       2,600       2,600       1,000       400          200          ‐           ‐           ‐           ‐          Shipped, not invoiced (past) 2 ‐           140          150          190          175          130          130          50             20             10             ‐           ‐           ‐           ‐          Known sales orders (present) 3 ‐           90             80             15             15             60             70             160          195          190          190          190          190          190         Forecasted sales orders (future) 4 ‐           900          800          150          150          600          700          1,600       1,950       1,900       1,900       1,900       1,900       1,900      

Cash paid to suppliers (PLAN 2 & 4):

Accounts payable (past) 5 ‐           (2,300)      (2,800)      (2,300)      (2,900)      (1,800)      (1,000)      (100)  ‐ ‐           ‐           ‐           ‐           ‐          Received, not invoiced (past) 6 ‐           (115)  (140)  (115)  (145)  (90) (50) (5)  ‐ ‐           ‐           ‐           ‐           ‐          Know purchase orders (present) 7 ‐           (63) (56) (11) (11) (42) (49) (112)  (137)  (133)  (133)  (133)  (133)  (133)        Forecasted material purchases (future) 8 ‐           (630)  (560)  (105)  (105)  (420)  (490)  (1,120)      (1,365)      (1,330)      (1,330)      (1,330)      (1,330)      (1,330)     

Cash paid to non‐material vendors (PLAN 2):

Accounts payable (past) 9 ‐           (100)  (100)  (100)  (100)  (300)  (300)  (300)  (300)  (300)  (300)  (300)  (300)  (300)        Received, not invoiced (past) 10 ‐           (20) (20) (20) (20) (60) (60) (60) (60) (60) (60) (60) (60) (60)          Known overhead expenditures (present) 11 ‐           (10) (10) (10) (10) (30) (30) (30) (30) (30) (30) (30) (30) (30)          Forecasted overhead expenditures (future) 12 ‐           (3)  (3)  (3)  (3)  (8)  (8)  (8)  (8)  (8)  (8)  (8)  (8)  (8)             

Cash paid for labor (PLAN 3):

Payroll 13 ‐           (1,100)      (300)  (300)  (300)  (1,100)  (200)  (200)  (200)  (1,100)  (300)  (300)  (300)  (300) Fringe benefits (payroll tax, health, workers' comp.) 14 ‐           (275)  (75) (75) (75) (275)  (50) (50) (50) (275)  (75) (75) (75) (75)          Temporary contractors (1099) 15 ‐           (110)  (30) (30) (30) (110)  (20) (20) (20) (110)  (30) (30) (30) (30)          

Net cash provided by (used) in operating activities 16 ‐           (796)  (64) 1,087       142          (845)  1,244  806          396          (1,046)      (176)  (176)  (176)  (176) 

Cash flows from investing activities (PLAN 5):

Capital expenditures 17 ‐           (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10)          Proceeds from sale of assets 18 ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐          

Net cash provided by (used) in investing activities 19 ‐           (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10)          

Cash flows from financing activities (PLAN 5)

Payments on line‐of‐credit 20 ‐           (781)  (685)  (505)  (509)  (548)  (633)  (619)  (677)  (484)  (90) (191)  (423)  (300)        Inflows:Borrowings from notes payable 21 ‐           ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐          Borrowings from Economic Injury Disaster Loans (EIDL) 22 ‐           ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐          Borrowings from Payroll Protection Program (PPP) 23 4,625       ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐          Forgiveness of Payroll Protection Program 24 ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐          

Outflows:Principal payments on notes payable 25 ‐           (5)  (5)  (5)  (5)  (5)  (5)  (5)  (5)  (5)  (5)  (5)  (5)  (5)             Principal payments on Economic Injury Disaster Loans (EIDL) 26 ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐ ‐           ‐          Principal payments on Payroll Protection Program (PPP) 27 ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐          Interest payments 28 ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐           ‐          

Net cash providing by (used) in financing activities 29 4,625       (786)  (690)  (510)  (514)  (553)  (638)  (624)  (682)  (489)  (95) (196)  (428)  (305)        

Effect of changes in cash 30 4,625       (1,592)      (764)  567 (382)  (1,408)  596          172          (296)  (1,545)  (281)  (382)  (614)  (491) 

Cash, beginning of period 31 ‐           4,625       3,034       2,270       2,837       2,455       1,048       1,643       1,815       1,519       (26) (307)  (688)  (1,302) 

Cash, end of period 32 4,625       3,034       2,270       2,837       2,455       1,048       1,643       1,815       1,519       (26) (307)  (688)  (1,302)  (1,792)     

Key:

Cash inflows

Cash outflows

Cash flow resulting from PPP loans

Effect of net cash flows on line‐of‐credit

Positive cash position

Negative cash position

FOR MORE INFORMATION // Please contact Greg Knight at gknight@bkd.com or 317.383.4296

Q1

BKD COVID‐19 Webinar Series

Exhibit 4 ‐ Contribution Margin (Revenues less Variable Cost)

Quadrant A Quadrant B

Quadrant C Quadrant D

Contribution Margin

Revenue

Customers

FOR MORE INFORMATION // Please contact Greg Knight at gknight@bkd.com or 317.383.4296