Due Diligence Interview Focus

I Backlog, Demand/Market Outlook

a signed contracts vs. LOI or other commitment
b. identified risks in backlog (delays, cancellations)
c. product mix and margin in backlog
d. projected gross margin in backlog contracts
e. 2003, 2004 orders outlook
f. loss contracts in backlog
g. HWS market share trends

II Operations, Manufacturing
a. quality issues addressed by plant
b. vendor/supplier issues, claims
c. planned changes in manufacturing process: outsourcing,
subsystems assembly, etc.
d. adequacy of manufacturing facilities, M&E. – planned major
capital expenditures required
d. inventory issues:finished goods or slow moving. Causes and planned resolution
e. cost of quality detail
f. product performance issues: by product and by customer
g. product liability by product and by customer
h. major ongoing technical problems
i. warranty spending by installation site
j. major shipment or start-up delays
k. long-term purchasing/supply agreements: assumable? terminable?
l. plans to reduce fixed cost platforms
m. status of the Ft. Worth facility – major issues? contract machining activity?

III Engineering, Product Development, IP

a. overview and status of major product development activity – cost to complete.
b. new products sold.
c. patent portfolio status – major infringement claims or exposure; major settlement agreements
wrt intellectual property; control of gapless technology; status of gapless blanket patents:
licensing or manufacturing agreements with suppliers.
d. review of engineering resources: background, experience; discussion of any loss of critical
engineering talent.

IV Aftermarket, Service, Installation organizations

a. overview of aftermarket and spare parts business globally; organization structure, inventory
locations, dealer and selling entities’ parts inventories; status of the order entry system
b. status of service/installation organization globally; review critical talent and experience.
c. review management of both organizations.

Systems
a. review status of SAP; completeness of implementation; requirements for expanding for
Newco integration.
b. Review of hardware status, location and ownership of servers; possibility of contracting
elements of the system to HD for a multi-year period
c. review status of CAD/CAM systems at all locations.
d. systems issues generally: capability of the management team, planned or required upgrades,
reinstallations; principal terms, cost of the SAP contract, required hardware upgrades and
spending, disaster recovery program
Human Resources
a. structure of the human resources management team
b. benefit programs by location and organization level.
c. pension plans, obligation
d. employment contracts
e. employee issues or claims: age racial or other discrimination, sexual harassment,
wrongful termination, etc.
f. labor contacts, organizing activies.
g. Compensation structure generally, review of any relevant compensation surveys or analyses

Financial, Administrative, and Miscellaneous

a. general review of reserve status
b. review of major past due receivables
c. review of reserves relating to product/installation/customer issues
d. status of exposure to customer financing arrangements: guarantees, buy-backs, etc.
e. review recent and anticipated major customer settlements.
f.