Treasurers Are Stuck Between A Rate Cut and Recession

With the Federal Reserve cutting rates 75 basis points Tuesday morning and the probability of more cuts to come, corporate treasuries are scrambling to make sure their cash portfolios are positioned for a potentially wild rate ride downhill. The prospects of significantly lower rates raise questions about whether companies need to continue to sit on record cash cushions or whether it is time to redeploy funds back into the business through expansion, M&A or even share purchases and dividend increases.

The longer-term answer will be different for every company depending on a company’s access to financing and outlook as the country lumbers toward recession. But in the very short run at least, bankers like Elyse Weiner, global product head for liquidity and investment products at Citigroup, are reminding treasurers and CFOs to look at money market mutual funds, where rates tend to lag cuts by the Fed. “One of the first calls I received after the cuts were announced was a note,” she says. “Of course, this makes sense. The rate cut, and the potential for additional cuts, will prompt treasuries to once again revisit their liquidity management policies and practices. Over time, holding overly high levels of excess cash will inevitably depress returns. But, on the other hand, there is a continuing push-pull effect as access to credit and the capital markets may still be limited despite the cuts."

Since the summer, when the credit market began to dry up as the subprime crisis spread, Weiner says treasurers and CFOs have been fixated on their cash and liquidity management, pushing ahead with account structures and processes to mobilize and consolidate cash accounts to ensure easy and inexpensive access to available liquidity. Recently some companies have been forced to pull back on debt issues in fear they would not be well received by skittish markets. "What this argues for is achieving the most efficient use of internally generated cash and the need for the best visibility possible into account and transaction level information. Know where your money is and if it is liquid and accessible where and when needed. Recent events have given rise to situations where companies could not gain ready access to cash they had earmarked for disbursement, and so had to borrow to cover current obligations. Although lower rates will lower the cost of borrowing, you don’t necessarily want a scenario where you have limited options."

Treasury consultants like Craig Jeffery stress that to get ahead of the cycle treasurers need to become masters of the cash conversion cycle. “You have to decide how do I move the lever to improve cash management and working capital,” Jeffery says. “This almost always involves software, as well as policy, and coordination with bank and financing partners.”

“If you’re driving down the road, you want to look far down the road,” he notes. “You can’t drive by looking two feet in front of a car. You gain better visibility by looking all the way down the road. And you can do that when you have the best forecasting tools."

Some Companies Go an Extra Mile When it Comes to Financial Disclosure

When it comes to financial reporting, some companies are going beyond the call of duty. In a study of 2006 financial statements from the 100 leading U.S. companies, the Financial Executives Research Foundation (FERF) assembled dozens of examples of companies doing just that in the face of accounting rules that seem to be getting more complicated and demanding with each passing day.

One example from the survey, “What’s New in Financial Reporting: Financial Statement Notes from Annual Reports,” focused on Best Buy Inc., which decided in 2006 to disclose more information on cash flows by the various segments of its business than was required by FAS 131. Given the growing importance of cash flow in investor evaluations of the health of companies, the move was considered by governance experts as something that should eventually be seen as a best practice to increase transparency for investors.

Besides those pioneers in potential new best practices, the report also found considerable variations in disclosures on commitments and contingencies, derivatives and financial instruments, goodwill and intangibles, and revenue recognition. It studied 13 disclosure categories. “The intent of the report is to give companies guidance on how their peers disclose key reporting issues,” says Cheryl Graziano, vice president of research and operations for FERF, an FEI affiliate.

The report, for example, notes that an increasing number of companies are providing environmental cost disclosures with contingencies and legal liabilities, or with asset retirement obligations, in a single note. And companies adopting FAS 158 (Employers’ Accounting for Defined Benefit Plans) are presenting tables summarizing adjustments to balance sheet values. All companies now expense the cost of stock options, in accordance with FAS 123.

Many provide meticulous detail about unseen legal issues, including roll-forward tables for contingent liabilities and insurance claims receivables. Corporations also provided tables of information about different acquired intangible assets, including accumulated amortization, useful life and segments.

Best Buy was also mentioned for work it is doing in income taxes. Among the companies singled out for recognition were: PepsiCo in derivatives, goodwill and intangibles, pensions, revenue recognition, Microsoft in goodwill and intangibles, income taxes, revenue recognition and Time Warner in goodwill and intangibles segments.

Copies of the study are free for U.S. Financial Executives International members. Non-members can buy copies for $129 at the FERF bookstore, FERF.org .

Careers

Hess Corp., the $28.7 billion integrated oil and gas company, based in New York, promoted Sachin Mehra to vice president and treasurer. Mehra, 37, succeeds Robert J. Vogel, who is retiring after 18 years with Hess. Mehra came to the company last April as vice president and deputy treasurer. Prior to joining Hess, he spent a decade with General Motors Corp. in various treasury-related capacities in New York, Singapore, Brussels and Shanghai.

The $70.5 billion wealth management, capital markets and advisory company Merrill Lynch, based in New York, has appointed Noel B. Donohoe co-chief risk officer. Donohoe will share responsibility with Edmond N. Moriarty, who was appointed in September 2007. Donohoe joins Merrill from Dune Capital Management, where he most recently served as a partner and as chief operating officer. Prior to Dune he spent 11 years with Goldman Sachs, including heading firmwide risk, where he was responsible for global market risk. Six years before joining Goldman, Donohoe assumed various risk and finance positions at Salomon Smith Barney in London. His career began with PricewaterhouseCoopers in 1980 through 1987.

Time Warner Cable Inc., the $11.9 billion cable system provider, based in New York, named William F. Osbourn Jr. senior vice president and controller. Osbourn has served as vice president of technical accounting since joining the company in 2003. Prior to Time Warner Cable, Osbourn was executive director for external financial reporting and accounting policy for Time Warner. Beginning in 1987, he began a 14-year career with PricewaterhouseCoopers LLP, where he served in various capacities of increasing responsibility, eventually admitted to partnership in 2000.

The $15.9 billion, specialty retailer, Gap Inc., with headquarters in San Francisco, promoted Sabrina Simmons CFO. Simmons, 44, was named executive president and acting CFO August of last year. She joined Gap about seven years ago as vice president and treasurer. Prior to being named acting CFO, she served as senior vice president of corporate finance. Before joining the retailer, Simmons assumed the role of CFO for Sygen International PLC. She also spent five years with Levi Strauss & Co., as well as serving in various finance roles at Hewlett Packard and KPMG.

The $25.9 billion international diversified management and holding company, Power Corp. of Canada, based in Montreal, appointed Philip K. Ryan executive vice president and CFO. Ryan succeeds Michel Plessis-Belair, who has retired. Ryan has spent the last 22 years with Credit Suisse Group serving in various financial management and investment banking capacities, including assuming the role of CFO.

Conseco, Inc., the $4.5 billion insurer, with headquarters in Carmel, Ind., named Todd M. Hacker senior vice president and treasurer. Hacker, 41, replaces Dan Murphy, who has departed the company. Hacker most recently served as vice president and treasurer for YRC Worldwide. From 2005 to 2006, he assumed the role of senior vice president of finance and administration, for Yellow Transportation, a YRC subsidiary. His financial career includes a variety of treasury management roles with NALCO Company, CNH Global and CNH Capital, and positions in bank lending with the Bank of Nova Scotia and Boulevard Bank.

Holly Corp., the $4 billion independent petroleum refiner, with headquarters based in Dallas, named Bruce R. Shaw senior vice president and CFO. Shaw, 40, succeeds Stephen J. McDonnell, who has been appointed assistant to the chairman of the board. Shaw came to the company in 1997, assuming numerous management roles including vice president of marketing, planning and corporate development and most recently vice president of corporate development. Before joining Holly, he worked at consulting firm McKinsey & Co.

IDT Corp., the $2 billion multinational holding company has re-named Stephen R. Brown CFO and treasurer. Brown, 51, returns to the CFO position after serving as chairman of IDT Carmel since June 2007. In May 1995, Brown joined the Registrant as CFO. He was named president and treasurer of Registrant's IDT Entertainment subsidiary from December 2002 and named COO in October 2007. He assumed the role of treasurer from March 2007 through August 2007. Brown served as a director of Net2Phone, Inc, and the CFO of IDT Spectrum from June 2005 to November 2005. The company has also named Marc J. Oppenheimer, 50, COO and promoted Bill Pereira from senior vice president of corporate to executive vice president of finance.

The Hartford Financial Services Group Inc. the $26.5 billion diversified financial services company announced the resignation of executive vice president and CFO David M. Johnson. Johnson, 46, will stay with the company until mid-year to ensure a smooth transition. Before joining the Hartford, Johnson served as senior executive vice president and CFO of Cendant Corp. Prior to Cendant he spent twelve years with Merrill Lynch serving under various capacities including managing director in the investment banking division.

Viacom Inc. $11.5 billion entertainment content company, based in New York, has appointed James W. Barge as executive vice president, controller, tax and treasury. Barge succeeds Jacques Tortoroli, who was named executive vice president and CFO for MTV Networks. Barge joins Viacom from Time Warner, most recently serving as senior vice president and controller. He began his career with Time Warner over 13 years ago as assistant controller and had progressed through the company in a variety of financial roles. Prior to joining Time Warner, Barge spent 17 years in public accounting with Ernst & Young, he was eventually named partner and area industry leader of the consumer products group for the west region.

The National Football League, based in New York, has announced the appointment of Anthony Noto to executive vice president and chief financial officer. Noto, 39, fills the CFO position, which has been vacant since 2003. Numerous individuals in the finance and strategic development units have performed CFO responsibilities since then. Noto comes to the NFL from Goldman Sachs where he most recently served as partner and managing director of the communication, media and entertainment equity research business unit. Prior to his time at Goldman Sachs, Noto was an analyst for the retail sector for Lehman Brothers. Before equity research, he served as a brand manager for Kraft Foods and was a captain in the U.S. Army.

Managing Risk With Riskonnect

Visualizing risks and their relationships is a central function of enterprise risk management (ERM) systems. Helping to ease that task is Riskonnect, a Marietta, Ga.-based software company that has launched an ERM system, also called Riskonnect, that enables risks to be easily identified, assessed and mitigated. The product is intended to make managing enterprise risk an efficient, demonstrable and repeatable process rather than a costly, one-time engagement.

By consolidating risks into a single database, Riskonnect lets companies anticipate and manage numerous risk relationships that threaten large enterprises today. The system uses influence diagrams to view risks and allows risk owners to drill down to observe the causes of risk in any number of areas that impact an organization. It not only allows for visual root cause analysis and comprehensive risk assessment, but also allows tracking of ongoing plans for mitigating risks.

The product is specifically aimed at non-financial companies that have had difficulty implementing ERM. Southern Co., an electric power generator, uses it to track and assess risks at its four operating utilities--Alabama Power, Georgia Power, Gulf Power, and Mississippi Power. “We have a deep ability to track activities, documents, and tasks around both risk assessment and risk mitigation,” says Riskonnect CEO Bob Morrell.

New XBRL Software Makes Reporting Easier

Enterprise Engineering Inc. has unveiled XBRL-based software that helps companies share information within the enterprise and also with outside entities. Called EnterpriseFTX for XBRL, the product maps data stored in separate systems and formats and makes it usable for business reporting and analysis. Specifically, it maps and converts data from proprietary formats into XBRL.

Extensible Business Reporting Language (XBRL) is a widely used format for reporting financial data. The SEC, which has been pressing for an XBRL mandate, recently launched an XBRL-based online tool that allows investors to extract, compare and analyze executive compensation for large U.S. companies. EnterpriseFTX for XBRL includes modules for regulatory reporting and for profiling and alert management, which provides automatic notification for material changes

EEI has also launched an XBRL-based analytical tool that makes it possible to compare a company’s income statement, balance sheet and other financial reports to peers and industries. The tool, which is integrated with Microsoft Excel, is aimed at accountants, bankers, credit managers, financial advisers, analysts and other financial professionals.

RIMS 2008 Annual Conference & Exhibiton

RIMS 2008 Annual Conference & Exhibition, scheduled for April 27 to May 1 in San Diego, will feature more than 130 sessions for professionals at all experience levels. Speakers will share new strategies and techniques that can be implemented immediately. Moreover, the exhibit hall will feature a myriad of solutions that can boost your bottom line. Register at www.RIMS.org/RIMS2008. The early bird registration deadline is February 29.