Learn the outlook for manufacturing across the country Presented at the Minnesota Chamber Manufacturers Summit on October 23, 2012

1. Next Generation Manufacturing
What lies ahead for manufacturers and distributers
Karen L. Kurek
National Manufacturing & Distribution Practice Leader at McGladrey
October 23, 2012
St. Paul Hilton Mall of America, Minneapolis, MN

2. About McGladrey
• 80+ year history
• Fifth-largest provider of accounting, tax and
business consulting services in the U.S.
• We provide services to more than 8,000 midsize
manufacturers and distributors across the nation
• 75 U.S. offices; offices in 85 countries worldwide
• 6,500 professionals nationally, 32,000 worldwide
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3. A distinctive industry focus
Understanding your • Focused on the middle market
business • Industry association memberships and board appointments
and industry • Advocate on both national and local levels
Sharing global best • Manufacturing & Distribution Monitor
practices • CFO Clubs
• Executive Summits
• Webinars
• Thought leadership articles and publications
Providing resources • National resources and services
• Subject matter experts
• Local, national and international presence
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4. U.S. still dominates manufacturing
worldwide, with China close behind
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Source: United Nations Statistics Division; the World Bank.

5. Real GDP forecast
Source: Bureau of Economic Analysis, NAM calculations , Moody’s Analytics simulation model 4

6. ISM manufacturing indices
Source: Institute for Supply Management 5

7. Growth in output
6
Source: Bureau of Labor Statistics

8. U.S. is the global leader in
labor productivity
Source: United Nations, Bureau of Labor Statistics, International Labor Organization 7

9. Employment situation
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Source: Bureau of Labor Statistics

10. Largest net employment
gains by sector
9
Source: Bureau of Labor Statistics

11. Top 20 states for
manufacturing job creation
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Source: Bureau of Labor Statistics

12. Building permits, starts and
completions higher in June 2012 vs.
June 2011
Source: U.S. Census Bureau, National Association of Home Builders 11

13. Distribution of U.S. exports
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Source: U.S. Department of Commerce

14. Percent growth of
manufactured goods exports
Source: U.S. Department of Commerce 13

15. A Manufacturing Renaissance:
Four goals for economic growth
1. The United States will be the best place in the world to
manufacture and to attract foreign direct investment.
2. The United States will expand access to global markets to
enable manufacturers to reach the 95 percent of consumers
who live outside our borders.
3. Manufacturers in the United States will have the workforce
that the 21st-century economy requires.
4. Manufacturers in the United States will be the world’s
leading innovators.
Source: National Association of Manufacturers 14

16. NAM: Critical issues affecting
the industry
•Tax reform: The coming “taxmageddon”
•Regulatory reform: Potential impact of the EPA's proposed regulations
•Trade and exports: A national competitiveness strategy must prioritize
exports
•Workforce investment: Education and training programs that result in
nationally portable, industry-recognized credentials
•Health care reform: Addressing costs and increasing regulation
•Innovation and efficiency: The impact of high energy prices
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17. Minnesota profile
• State job growth rose 2.2% in July 2012 from a year ago; national job
growth rose 1.4%
• State unemployment averaged 5.9% in July 2012; the national average
was 8.3%
• Personal income rose 2.6% to $243.0 billion in Q1 2012 from a year ago.
• Tax revenue increased 3.2% in Q1 2012 from a year ago.
• Exports fell 2.8% to $13.3 billion in the first four months of 2012 from a
year ago.
• Venture capital investment in MN rose 20.8% to $70.5 million in Q1 2012
from a year ago
Source: First research – September 2012 16

18. 17

19. Demographics and
key findings
• Report released September 12
• 924 total participants
- 554 Manufacturers
- 370 Distributors
- 62 Respondents from MN
• 77% private or closely held businesses
- Mostly CEO’s and CFO’s
• 12% private equity-owned businesses
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20. The number of thriving and growing
companies remained steady
56%
Source: 2012 McGladrey Monitor 19

21. Thriving and growing:
Manufacturing and distribution
MN Respondents
Source: 2012 McGladrey Monitor 20

22. Industries leading growth
50%
48%
47%
45%
45%
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Source: 2012 McGladrey Monitor

23. Industrial and Commercial
Sector in biggest decline
Industry Sector Thriving in 2011 Thriving in 2012
Aerospace - 34%
Automotive (OEM and Aftermarket) 57% 45%
Biotech, Life Sciences and Medical Equipment/Supplies 38% 45%
Building Materials 24% 28%
Chemicals, Petroleum and Plastics 48% 40%
Computers, Electronics and Electrical Components/Appliances 52% 41%
Energy and CleanTech 41% 48%
Food and Beverage 44% 47%
Furniture and Fixtures 17% 34%
Industrial and Commercial Machinery 20% Decrease 63% 43%
Metal Fabrication 47% 41%
Textiles, Apparel and Accessories 29% 16%
Transportation Equipment 52% 50%
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Wood/Paper Products and Printing 25% 29%

24. Business optimism and the
outlook for growth
U.S. Economy
dropped 15%
World Economy
dropped 33%
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Source: 2012 McGladrey Monitor

25. Business optimism by
MN respondents
Source: McGladrey 2012 Distribution Monitor 24

26. Taxes pose a major concern
25
Source: 2012 McGladrey Monitor

27. U.S. and non-U.S. sales
26
Source: 2012 McGladrey Monitor

28. Increase expectations in U.S.
sales by industry sector
Percent increase expected over next 12 months
27
Source: 2012 McGladrey Monitor

29. Importance of new products and
services to company growth
28
Source: 2012 McGladrey Monitor

30. Cost expectations over the
next 12 months
29
Source: 2012 McGladrey Monitor

31. Inventory level changes
30
Source: 2012 McGladrey Monitor

32. Inventory level changes for MN
respondents in the next 12 months
31
Source: 2012 McGladrey Monitor

33. Strategies to maintain margins
32
Source: 2012 McGladrey Monitor

34. Approximate percentage increase in
sales prices in next 12 months
33
Source: 2012 McGladrey Monitor

35. Capital expenditures
Capital equipment spending compared to previous year (average)
34
Source: 2012 McGladrey Monitor

36. Capital expenditure changes
in the next 12 months
Information
technology is
the biggest
target for all
companies
35
Source: 2012 McGladrey Monitor

37. Most midsize companies
likely to increase workforce
• Two thirds of companies (67%) are expected to increase employment levels
- 67% 2012 vs. 56% in 2011
- Private equity companies are most likely to increase hiring (76%)
- 85% of T&G companies plan to increase workforce where 42% of
declining companies plan to reduce workforce
36
Source: 2012 McGladrey Monitor

38. Percent planning workforce
increase in the next 12 months
37
Source: 2012 McGladrey Monitor

39. Finding skilled talent
38
Source: 2012 McGladrey Monitor

40. Companies are attempting to
address the skills gap
39
Source: 2012 McGladrey Monitor

41. Process improvements
40
Source: 2012 McGladrey Monitor

42. Social media
41
Source: 2012 McGladrey Monitor

43. Perception of information and
data risks
42
Source: 2012 McGladrey Monitor

44. Best practices of thriving and
growing companies
• Have increased and plan to increase U.S. and non-U.S. sales
• Corporate objectives are all about infrastructure
• Plan to use the following sales strategies to drive growth:
- Increased penetration in existing markets
- New customer segments
- New products and line extensions
• Hiring talent by proactively addressing skills gap
• Have a mature continuous improvement culture
• Annual investment in R&D is higher compared to others
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Source: 2012 McGladrey Monitor

45. Experience the power of being understood.SM
In addition to the key findings outlined in this
presentation, results from the 2012 McGladrey
Manufacturing and Distribution Monitor can be found at
http://www.mcgladrey.com
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46. Open Discussion- Q&A
Questions?
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47. Contact me
Karen L. Kurek
McGladrey LLP
National Manufacturing & Distribution Practice Leader
karen.kurek@mcgladrey.com
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