AFP Blogs

For companies with a centralized treasury structure or a shared service center (SSC), identifying and benchmarking key performance indicators is critical. Corporate treasury professionals confronting this challenge can get valuable advice from their peers at the AFP Treasury Management Forum, April 21-23, in Washington, DC.

Robert Polansky, Director, Treasury Operations for General Mills, will lead a roundtable discussion—“ How Centralized Companies Are Managing Working Capital”—at the forum. Besides learning from their peers, attendees will discuss issues associated with SSCs and ERPs as well as goals to measure performance.

“Treasury and finance professionals should attend the forum in order to gain up-to-date knowledge on working capital management, risk management, globalization and technology,” says Polansky. “It will also offer a great opportunity to network with industry leaders.”

Register for the event here.

Chief financial officers and treasurers will convene in Washington in May to discuss how to operate in today’s financial environment.

The Association for Financial Professional’s Sixth Annual Global Corporate Treasurers Forum will take place at the Four Seasons Hotel, May 16-18, with Bank of America Merrill Lynch as the exclusive sponsor.

“AFP members have played a critical role in maintaining the financial stability of their organizations through the recession,” said Jim Kaitz, president and CEO of AFP. “Now they are moving forward based on new economic realities.”

Speakers include CFOs of McCormick and the Ratner Companies as well as treasurers of Yahoo! Inc. and Global Container Terminals.

“Bank of America Merrill Lynch is proud to sponsor this gathering of financial executives, which comes during a pivotal period for the treasury management industry,” said Dub Newman, Global Treasury Executive at Bank of America Merrill Lynch. “These discussions should prove invaluable to providing treasurers and executives with a deeper understanding of key issues and meaningful solutions to help businesses optimize their working capital.”

For more information on the Global Corporate Treasurers Forum, see www.afponline.org/gctf or download the event brochure.

The FASB clarified the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements with Accounting Standards Update 2010-11.　Only one form of embedded credit derivative qualifies for the exemption and that is one related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. An entity must apply the amended guidance as of the beginning of its first fiscal quarter beginning after June 15, 2010.

Debt markets are not complicated. In fact, one expert says they are getting simpler with time.

“If anything, the debt world has been really dumbed down over the last decade,” says Andrew Kalotay, PhD, an authority on institutional debt management and fixed-income valuation. “There used to be more types of bonds issued and much of them on the corporate side have disappeared. Today, you would be hard pressed to find a single callable bond.”

Kalotay will lead “What Every Corporate Debt Manager Should Know,” a one-hour webinar for AFP members, April 15, 3:30 ET. Corporate treasury professionals can hear Dr. Kalotay discuss new issue structuring, debt retirement and hedging.

“Whether a swap or bond, think about the product as something to manage over time, cradle to grave, and contemplate contingencies,” says Kalotay. “Often corporates use them as a hedging transaction. They get a presentation that talks about locking in the interest rate but the transaction cost is not mentioned. The bid ask spread is narrow when you enter and quite wide when you get out.”

Fair Value  — The two Boards are planning to create educational materials for measuring fair value of difficult-to-value assets and liabilities will be developed to address concerns raised by entities in emerging and transition economies about applying such principles in their jurisdictions. The material will include case studies and examples to help constituents not used to applying concepts of the guidance think through problematic issues.

Financial Presentation –The Boards also discussed their proposed guidance on financial statement presentation. The Boards tentatively favor requiring full retrospective application upon adoption. Under the proposed accounting guidance, financial statements will be required to be cohesive, contain disaggregated information, and make a company’s liquidity and financial flexibility more transparent to users. As part of transition requirements, their proposal will include requiring entities to apply the new presentation guidance to previously issued financial statements which would entail for each prior period the following: reclassifications, new groups, and disaggregation of comparative information presented and disclosed as if the new presentation provisions had always been applied.

SEC/IRS Enters MOU on Municipal Securities

The Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC) entered into a memorandum of understanding (MOU) stating their intention to work cooperatively to identify issues and industry trends within the tax exempt bonds/municipal securities industry and to develop strategies to enhance performance of their respective responsibilities. Tthe IRS and SEC have agreed to inform the other in advance, where feasible and otherwise as soon as practicable, of issues that may affect the interests of the other party as they pertain to tax exempt bonds/municipal securities. Such information may include, but is not limited to, market risks, practices, and events relating to tax exempt bonds/municipal securities that may be of interest to the other agency.

The Financial Accounting Foundation (FAF) and the Financial Accounting Standards Board (FASB) support the SEC’s view that a single set of high-quality globally accepted accounting standards will benefit U.S. investors.  The FAF and FASB support the SEC’s further consideration of the issues identified in the “work plan” in making its determination on whether and how to transition the current financial reporting system for U.S. issuers to a system incorporating International Financial Reporting Standards (IFRS). The FAF and the FASB stand ready to fully assist the SEC as it works toward a decision next year.

This was another week where uncertainty was the name of the game.

We continued to receive unsettling news from the Aegean. The tug-of-war between Greece and the EC is ongoing. We learned that the credit rating agencies were considering further downgrades to Greece. Credit spreads widened and the CDS market continues to price in a higher likelihood of a default event. The European economies with similar debt and growth characteristics (affectionately referred to as the PIGS) saw their credit profiles also deteriorate. Questions about the survivability of the Euro continue to be raised.

In the US, the release of several weak economic numbers added to the feeling that the economic recovery is tepid as best. When the news from Europe and Chairman Bernanke’s comments were added into the mix, the result was that the Treasury market rallied for the first time in three weeks. Investors continue to seek the safety of the US government market and the greenback.

The market now believes the Fed is less inclined to raise the Fed Funds rate prior to the beginning of 2011. The futures market is now pricing in the probability of a tightening of interest rates at 50/50 by November.

All of this uncertainty has had a significant impact on the debt markets. We just concluded the quietest February for debt issuance since 2002. Even with corporate bond yields at their lowest levels since September 2005, we continue to witness debt and equity deals being cancelled and postponed due to market volatility.

One potential sign of an improving situation has been the recent growth in the commercial paper market. The CP market has now grown for the past three weeks. Since January 6^th, the CP market has grown by 7.3% or $78.1 billion.

The market’s eyes will be focused on the upcoming employment reports. Unfortunately, with the severe weather we have been experiencing, there is a high likelihood that any report will be tainted with weather related revisions in the future.

We will all have to remain vigilant as events around the world continued to develop.

On February 25th, the Department of Labor’s Employee Benefits Security Administration released a final rule establishing a civil penalty of up to $1,100 per day against multiemployer plans in endangered or critical funding status that fail to establish mandatory funding improvement and rehabilitation plans.

“The regulation makes clear that the $1,100/day penalty can be reduced or waived based on mitigating circumstances, in particular the severity or willfulness of the violation,” Judith F. Mazo, senior vice president and director of research for the Segal Co., told BNA Feb. 25.

The rule is effective March 29 for plan years beginning on or after Jan. 1, 2008 and is expected to be published in the Feb. 26 Federal Register.

At the Credit Card National Association’s annual government affairs conference held this week, House Financial Services Committee Chairman Barney Frank (D-Mass.) suggested that there it is unlikely that legislative action will be taken in 2010 that would limit interchange fees on credit cards and other payment cards.

According to a recent PwC IFRS survey, nearly 50% of US-based multinational companies are either currently using IFRS somewhere in the world, have completed an initial impact assessment, or are planning to do an assessment.