Jim Gilreath, Gilreath Consultantcy, Skin-in-the-Game-Hiring

Confidential Bio of Dennis Kelly edited by Jim Gilreath for USAWS Equity CFO Search.

Early Background:
Dennis was born and raised in Chicago. He is one of four children (older brother, sister and younger brother). His dad worked for the City of Chicago as a Senior Storekeeper. His mother worked part-time as a receptionist and bookkeeper for Windy City Chevrolet in Chicago. Dennis graduated from Leo High School where he was voted “Outstanding Senior” by his classmates. Dennis participated on student council, the school newspaper and the yearbook. After graduation from high school he went to work at Chicago City Bank and Trust and attended Illinois University part-time for a year. Afterwards, he became a full time student at Illinois University while working 25 to 30 hours a week at Chicago City Bank and Trust in order to finance 100% of his college education.

University, Military & Certifications:
Dennis earned a Bachelor of Science degree in accountancy from Illinois University in 1967. He entered the U.S. Army in March 1968 and received an honorable discharge in October 1969 after serving 14 month in Viet Nam. Dennis earned the rank of Specialist 5^th Class and received the Army Commendation Medal for Meritorious Service. He earned his CPA certificate in February, 1973.

Entry Level Work & Early Work History:
After graduating from Illinois University (6/67) Dennis went to work for Shell Oil Company Midwest Data Center in Chicago as a staff Accountant until he entered the Army in March 1968. Dennis returned to Shell Oil in November 1969 after completing his service obligation. He was promoted to Accounting Supervisor with 6 people reporting to him in the Freight Accounting department until June 1970 when Dennis went into public accounting with Smith, Brown and Clark in Chicago in order to gain the valuable experience of working in public accounting, in particular in auditing. His experience was focused in the middle market privately held companies requiring certified audits. Dennis was with SB &C until 1974 when he accepted a position as Audit Manager with Jones, Sullivan and Reed CPA in Chicago. He worked 6 months at JS&R spending the majority of his time doing certified audits on commodities brokers and manufacturers. While Dennis exceeded bonus objectives and received favorable review, he left because he just didn’t fit into the firm’s culture. Dennis then took a position with Rogers Brothers, Stone, Green and Walter CPAs, Palmetto, Illinois as Audit Manager. He was given the responsibility of developing a standardized audit program because their practice was evolving from a tax oriented practice to a practice encompassing auditing and management consulting. In 1978, one of the senior partners left the practice and formed a new practice with his son and son in law. Legal action was taken by the remaining partners.

Since Dennis did work for all the partners, he felt he was in a no win situation. Dennis resigned from Rogers Brothers, Stone, Green and Walter and took a position with Stuart & Nevers CPAs as Senior Manager.

He was responsible for certified audits on a wide variety of clients (mfg, contractors, trade associations and credit unions). Dennis was instrumental in developing an audit practice for credit unions. His experience in public accounting gave him an excellent foundation in dealing with deadlines, internal controls analysis, problem solving and exposure to a wide variety of industries. It was focused almost entirely in the middle market privately held sector.

Chronological Job Titles During Later Career:

In 1982, Paymaster Credit Union, Lincoln Park Illinois recruited him for the position of Vice President/Finance. Paymaster was a troubled credit union because its field of membership was employees of International Harvester which was trying to avoid bankruptcy. Consequently, many members had been laid off permanently and faced financial hard times. In order to survive, Paymaster began diversifying its membership by merging other credit unions into Paymaster. While this increased revenue it also increased operating costs because the merged credit union branches were kept open. The company developed action plans during strategic planning to grow the credit union by signing up new employee groups without opening new branches. Paysaver could serve the new members through the use of its new ATM card, the first offered by a credit union in Illinois and periodic visits by credit union personnel to interface with its members.

His initial assessment of the operations was that it had a number of branch offices which were unprofitable. There was a lot of duplication of work. Personnel were often copying data from computer printout instead of using the data right from the reports. As the credit union had grown, it had inadvertently continued to add overhead. Department heads were all doing their own thing and spending a great deal of time on personnel matters. Training was inconsistent. There was no consistency in hiring and firing. The accounting department was staffed with a totally ineffective controller, an accounting manager that was performing the same tasks that were performed when the credit union was on a manual system twenty years ago. The Vice President of Operations and the President spent an inordinate amount of time dealing with employees personal problems. Employee’s personal problems were literally tying up the whole organization. Despite loan delinquency being the “Achilles heal” of the credit union, the collection area was void of any professional collection expertise. The member service area was staffed by former International Harvester employees who felt that only IH employees were “true members” of the credit union. The manager of data processing was a totally underused resource. She was previously employed as an instillation coordinator for a credit union software company. She was very knowledgeable about the capabilities and strengths of the current software package and how best to maximize its use. With a culture of fear of change she was rarely asked her opinion.

Dennis moved decisively and took the following actions:

He fired the controller and hired a CPA out of public accounting.

He did an analysis of branch operations and closed unprofitable branches without any significant drop in membership but a sizable reduction in costs.

Dennis worked with the manager of data processing to analyze where it could leverage information technology and eliminate duplication of effort. This resulted in the accounting manager taking an early retirement which was a significant cost savings.

He replaced the supervisor of member services with a young professional with outstanding people skills. This resulted in improved member satisfaction.

Dennis contracted with an outside social service organization to manage an employee assistance program (EAP). He insisted that the officers and managers use the program to deal with troubled employees. Paymaster had the highest utilization rate of all the social service organization’s clients.

Dennis developed a valuation program to be utilized in evaluating potential mergers. This resulted in completing 8 successful mergers and avoiding numerous unprofitable ones.

When it was discovered that a number of collection accounts were not being worked, Dennis replaced the collection manager with a professional collection manager who had 15 years of customer finance (HFC) experience.

Dennis took over responsibility for the branch operations, collections and consumer financing and the Vice President of Operations was fired.

Dennis promoted the supervisor of member services to manager with the responsibility to consolidate all HR functions and to develop an employee training program. This resulted in lower employee turnover, fewer teller shortages and branch managers spending more time selling credit union services.

In 1987 Paymaster successfully competed with the other large credit unions in the area to become the credit union for Cook County employees which doubled the potential membership of Paymaster overnight. However, in the late eighties this credit union, like many others faced high delinquencies because of the economic downturn. The president and Dennis took actions to reduce operating costs with a significant reduction in the workforce and by writing off a significant number of underperforming loans. The Board of Directors decided the credit union should back off of any significant growth initiative programs.

The President and Dennis felt that it could improve profitability and continue to grow at a controlled rate. In the spring of 1987 the President and Dennis both resigned.

After Dennis left the credit union in 1987, Roy Gilligan, former partner at Rogers Brothers, Stone, Green and Walter CPAs called him with a unique opportunity. His client, John Lane had just sold his auto auction business, Illinois Auto Auction, to GE Capital for several million dollars and he was looking for someone he could trust to manage his investments and to analyze potential future investments. Ray thought Dennis would be the ideal person for the job. Dennis met with John to discuss this opportunity. John wanted to set up a company (Lane Management Company) to manage his assets and explore opportunities for future investments. He wanted a person who he could trust to run Lane MC so he “could do what ever he wanted to do whenever he wanted to do it without worrying about his financial affairs”. With a mission statement in place, they agreed on terms of employment and Dennis went to work as Vice President of Lane MC, its first employee. Dennis started with a file cabinet filled with documents, forms for an S Corp and a corporate checking account. The portfolio of investments included stocks, bonds, rental properties, several limited liabilities partnerships, floor plan portfolio, personal loans and race horses. Dennis had authority to trade stocks and bonds on the open market. It was easy money in 1987 until October. Then Lane MC’s stock portfolio decreased by 20% in one day. Through patience and detailed analysis Dennis were able to work through this historical correction in the market without a margin call or significant loss in value. In the sale of some long held commercial properties he was able to take advantage of deferring income taxes through “a like kind of exchange with the purchase of two office buildings. This allowed Lane MC to defer approximately $600K in income taxes. In order to maximize an investment in two office buildings it was able to build a third office building on the site which increased the ROI by 25% Lane MC took office space in the new building and set up a shared office services concept which allowed the company to cut fixed overhead by 25%. The opportunity Lane MC gave Dennis was the valuable experience gained from organizing a new company from the beginning. It also provided him with the ultimate testimony of confidence in his integrity when John went to Alaska for six weeks only nine months after hiring him. He was accomplishing John’s mission by doing whatever he wanted to do whenever he wanted to do it. During his time with Lane MC Dennis was responsible for overseeing rental properties and negotiating lease terms. Dennis analyzed a wide variety of investment opportunities presented to John from car dealerships to a pawn shop franchise. It provided him with the experience of working closely with a true entrepreneur. It was an invaluable experience.

In 1990 Dennis ran into David Daniels, CFO at Brown Manufacturing Company (BMC) at the health club. He asked if Dennis would be interested in coming to BMC to discuss an opportunity with this company. BMC, a 90% employee owned ESOP Company, was started in 1968 by Charles W. Brown with a new concept of a non repairable pneumatic cylinder. He created a new market and a Brown like cylinder became the “Xerox copy” of the industry.

David explained that he was getting involved in the operations and communications and the Controller was moving to project manager for an MRPII conversion. David wanted to get a senior financial executive involved to take on the responsibilities of the CFO. Dennis met with the CEO, Paul Orne and Ron Matthews Vice President of HR. It was agreed that Dennis would take the position of Director of Finance and function as the CFO and be a member of the Senior Staff, which consisted of the 6 officers and him. The CEO said that at the appropriate time he would submit his name to the Board of Directors to become an officer. Dennis was really interested in getting involved with an ESOP company because the structure requires a company to focus on value creation without the burden of SEC rules and regulations. It also would provide him with an opportunity to work with people and to develop and mentor a staff. It was an opportunity Dennis could not pass up.

As Director of Finance Dennis was responsible for Accounting, Information Technology and Purchasing Departments. The culture at BMC was very paternalistic which it was trying to change. Dennis quickly discovered that the Senior Staff was the main roadblock to the change in culture. There was a strong resistance to change which played a major role in a disastrous MRPII conversion. This presented him with an opportunity to completely change the direction of the Finance Area. Dennis insisted that Brown Manufacturing was going to change from a “worker mentality” focused on task to a “professional mentality” focused on objectives. When the Manager of Data Services told him that the company didn’t need PCs, because they just allowed an organization to make mistakes at the speed of light, Dennis knew it needed to change directions. Dennis hired a consultant out of Price Waterhouse as Director of Information Technology and transferred the Manager of Data Services out of the Finance area. With this move it put BMC on the information highway.

He changed the environment by introducing:

Client server environment

Standardized organization on MS Office

Interfaced the client server environment with the AS400 which ran the MRPII software

Bar coding for inventory control and product fulfillment.

Data warehousing.

Sharing inventory data with suppliers for inventory replenishment.

Electronic transfer of customer invoices and statements.

BMC created Brown Link as the first in its industry to have a web site.

While making the above changes, BMC was able to reduce headcounts in the IS area by 33%.

In the accounting area, Dennis hired a Controller, a young female professional. Dennis purposely hired a female in this highly visible position because its stated goal was to add diversity to its management team. Dennis knew if he didn’t make the effort it would never happen organizationally. Dennis also replaced the cost accountant with a young female professional to further diversify the management team. With the right team in place in accounting it made the following changes:

Reengineered the accounts payable process- electronically matching PO, receiver and invoice.

Reengineered the accounts receivable process by use of a lock box, and electronic receipts,

Introduced Activity Based Cost System as a management information tool.

Developed product line reporting.

Eliminated the need for year end physical inventory count by effectively using cycle counting. This added a day of production annually.

Converted in house financial reporting to a packaged software solution.

Reengineered budget process by converting to a packaged software solution.

Outsourced payroll.

These changes helped to reduce monthly closing from 15 work days to 5 work days.

It contributed to reducing day’s sales outstanding from 51 days to 35 days.

As an ESOP company BMC was required to have an outside valuation firm to establish the value of its shares annually. Dennis developed a valuation model that mirrored the valuation model used by the outside valuation firm. This allowed us to calculate the impact on share value of any action plan, new product and potential acquisition. Dennis was a key driver in getting the organization to focus on value growth and relating it to increases and decreases in the value of its shares.

In 1994 the Board of Directors approved the CEO’s recommendation to promote him to officer as the Vice President of Finance. Dennis was the first person promoted to officer since 1989 when BMC became an ESOP company. Dennis was an active participate in Strategic Planning, Sales and Operational Planning, Reporting results to officers and managers on a monthly basis. Dennis was instrumental in developing employee incentive programs.

In 1995 Dennis volunteered to have the Quality department report directly to him and become part of the Finance area. In his evaluation of the Quality department Dennis determined it did not have the leadership to move the Quality effort from a quality assurance mindset to quality being a driver to value creation. Dennis replaced the Manager of Quality with a Quality professional with a mindset that quality improvement should be an integral part in everything it did. Prior to this change the Quality department took an adversarial role in dealing with the rest of the organization. With a change in personnel it produced a change in perception. Quality started to focus and measure defects per million (DPM). The quality department became an expert resource in dealing with operational and processing problems. With the changes made in the quality area it improved DPM by 56% in three years.

In 1995 BMC started an expansion program to increase capacity by adding to new factories in Manteno, Illinois and Frankfort, Illinois. Dennis took this opportunity to get competitive bids on the financing of the expansion program. BMC had a long standing relationship with a banker who had developed strong relationships with the executive staff. Dennis felt that he had a fiduciary responsibility to ensure that it was getting the best terms available. Dennis recommended changing banking relationships because a competing proposal was based on LIBOR based borrowing on an unsecured basis while proposing to finance the expansion program with industrial revenue bonds. This resulted in an annual savings of $100K and a savings of over $700K on the expansion program.

In 1998 BMC started acquisition negotiations with the owners of Thomas Manufacturing in Chicago, Illinois. They manufactured repairable cylinders in larger sizes than BMC’s products. These cylinders were considered low tech products that have been around since World War II. Thomas seemed to service a niche market with a reputation for outstanding customer service and delivery. The owners were very secretive and untrusting. In the past they went through a possible sale and information gathered by a potential buyer was turned against them. BMC were unable to view their operation until it agreed on terms. They were not willing to share past financial statements. Dennis had developed a trusting relationship with the owners and convinced them that it could not possible make an offer without seeing financial results. Dennis assured them that he would be the only one to view the financial statements. Dennis had its sales and marketing area develop a five and ten year sales forecast. Dennis established a value of $12 million which showed that it could add $3.00 to its share value. BMC was able to obtain 100% financing from the bank. It successfully acquired Thomas which developed into a vital part of its future success eventually representing 36% of its overall value.

In 1998 BMC was presented with a unique opportunity to convert to an S Corp. As an ESOP Company there would be no taxes due because the shares were held by the ESOP Trust which was tax exempt. This meant that any cash distributions made to the ESOP Trust would be non taxable until the distributions were withdrawn from the ESOP Trust. There were only 3 barriers to converting to an S Corp. One, it required 100% approval by all the shareholders. The Brown family owned approximately 10% of the common shares and converting to an S Corp would result in taxable event on their share of taxable income. Secondly, a former employee held some shares in an IRA account which would disqualify BMC from converting to an S Corp.

Thirdly, there can be only one class of shares to qualify as an S Corp. The five original officers held preferred shares which had minimal value but had voting rights. This was set up when the ESOP bought the company from the Brown family. Since the officers had to personally guarantee the ESOP debt, they had to get the outside valuation firm to do a valuation on these shares in order to establish a selling price. This became a very contentious situation with the officers assuming values of anywhere between $3 and $6 million. Dennis worked with the valuation firm (Price Waterhouse) to establish a value of $750k. He took some hits but his job was to ensure that all the shareholders were protected from BMC overpaying for preferred shares regardless of who held the shares. The CEO decided he would talk to the former employee about selling his shares back to BMC. This former employee had a history with the executive staff and felt that he had not been treated properly in the past. This resulted in his asking for $1M for his shares which had a value of approximately $250K. The negotiations broke down and it had to take a pass on becoming an S Corp. The following December Dennis suggested to the CEO that he contact the former employee and try to negotiate a sale with him, since Dennis did not have a history with him. Dennis contacted the former employee and set up a meeting over lunch. He worked at establishing a trusting relationship before it started negotiations. The end result was that he agreed to sell his shares for a premium of $50K. Dennis got approval from the Brown family to convert to an S Corp. In 1999 it converted to an S Corp. This has resulted in over $5 million which would have been paid out in corporate income taxes being contributed to the ESOP through 2000.

During strategic planning in 2000 BMC decided that a strategy for growth would be to grow through acquisitions. Its industry was dominated by three large international players (Parker Hannifin, Festo and IMI) with revenue in the billions. The rest of the industries were populated with several niche players, like Brown, which had the highest name recognition in the North American marketplace. The industry was ripe for a roll up and Brown thought it could gain an advantage because of its name recognition and strong financial position. The CEO decided that the chairman of the board, Charles Brown, Jr. should lead this effort. This was not a popular choice among the senior staff because he had a history of not finishing what he started and often got lost in the detail. Dennis stated that it was critical that it move quickly and with purpose because it would shake up the industry. Target companies were identified and Chuck started to make contacts. This process dragged on for several months. The acquisition targets that Chuck brought to him to value were all overvalued. Brown lost two years of time and focus in the process. In 2002, when the recession started to hit its industry the board of directors voted to explore the possibility of selling BMC. Dennis stated that he thought the timing was wrong to go to the market place and expect to get full value. Dennis also stated that if it wanted to pursue a sale it should first do the things necessary to present BMC in the best light. This would require cutting costs with a reduction in workforce. It was decided BMC would turn to the private equity firms. Working with Price Waterhouse it met with 6 private equity firms. The offers from the private equity firms were all $10 million less than Brown’s target price.

Dennis took advantage of the situation and recommended that it close its international branch operations in England. This was the pet project of both the Chairman of the Board and the CEO. However, it was costing us $600K a year with little prospect of improvement. The board of directors voted to close Brown Limited in 2002.

BMC then turned to multi national players in its industry. At this point, Dennis stated that it were losing focus on the operations and stopped doing things, like developing new products, to continue to add value. By going to competitors, it would be giving up valuable time and information to competitors for a questionable outcome. Dennis knew it could not get the price asked for because it was in an economic downturn, its sales were down and it had not significantly addressed reducing costs. During 2002 and 2003 company executives met with Parker Hannifin, IMI and Bosch to discuss a sale of BMC. Brown actually went through due diligence with IMI in 2002 before it rejected their offer which was approximately $10 million under its target. In 2003 Brown was in talks with Bosch. It was decided that if Bosch did not make an adequate offer it would take BMC out of play until the economy picked up. Brown would not develop new products or pursue any acquisitions. It would be status quo until the economy turned around. There was a lucrative early buyout program in place for the officers. If an officer could show that he could be replaced without incurring any additional costs, he could take advantage of it. Dennis felt that a strategy of staying status quo would not work over an extended period of time. The thought of coming in daily and reading the WSJ waiting for a suitor to knock on the door with the right offer was very unappealing to him. Dennis had mentored his direct reports to continually eliminate non value added work and take on increased responsibility. Dennis had the pieces in place to pass the torch. In his tenure, it put BMC on the information highway, increased the value of its shares from $25.50 to $62.50, inventory turns from 3.5 to 6.5, receivables turnover from 7.1 to 10.6, cash return on assets from 15.4% to 22.2%, debt to equity ratio from 1.4 to .5, cash distributions into the employees pension plan were in excess of $5 million while making maximum contributions to the ESOP, lead the effort to diversify the management team by hiring women in key positions in the Finance area, improved quality by 56% in four years and lead the way in efficiency by reducing headcounts by 43% in the Finance area while volume was increasing by 170%. Dennis had been the key driver in getting the organization to focus on value. It was time to move on to the next challenge.

Since leaving BMC in 2003 Dennis has been doing consulting work while exploring various opportunities. Dennis has worked with a building materials distributor setting financial objectives and defining corporate goals and objectives. Dennis was recruited to investigate embezzlement and function as CFO while valuing investments in a divorce settlement. Dennis successfully negotiated with the IRS and State of Illinois for abatement of seven years of penalties for non payment of payroll taxes. He assisted a start up land developer obtain financing for a development project valued at over $100 million.

Personal Data:

His wife is a graduate of Northern Illinois University with a BS degree in Education and a MS from the University of Illinois in Information Technology Training.

She currently works for a large law firm in Chicago as Manager of Information Technology Training. He and his wife have been married for 35 years and have three children and two grandchildren. His son is a graduate of Notre Dame with a BS in Accounting. He is a CPA and a Senior Audit Manager for Price Waterhouse in Chicago. His oldest daughter is a graduate of Loyola University in Chicago with a BA in Sociology. She also received her MA degree in Applied Psychology from Fordham University in Bronx, NY. She was a high school counselor prior to becoming a stay at home mother raising two boys. His youngest daughter is a graduate of Illinois University with a BS in Psychology and an MA from DePaul University in Early Childhood Development. Previously, she was a director of a day care center in Chicago. She currently is a preschool and primary teacher.

His leisure time is spent playing in an organized basketball league, working out, reading and family activities with a large extended family.