Meantime, Cisco's own plans to handle growth through Web-based innovation have been waylaid by the rapid decline of the company's fortunes. Cisco's $2.7 billion loss last quarter, the first earnings deficit in its 11 years as a public company, has put several treasury projects on hold. Last year at this time the company was talking up its plan to build an internal international banking platform to help manage its worldwide pools of cash in different currencies. Insiders say the project has been iced.

Holland's relatively small treasury staff of

about 40, meanwhile, has been hit by the company's layoffs and lost about five

positions. (See "News & Views," page 9). He declined to discuss the

layoffs. –J.S.

Capital One Financial's ambitious investor

relations (IR) campaign two years ago won a Hamilton award for its thoroughness.

The Falls Church, Va.-based credit card company surveyed bond investors'

attitudes toward the company and used the results to build an effective action

plan. Paul Paquin, Capital One's vice president of investor relations, says

fixed-income investors are still a priority–as is the SEC's new "fair

disclosure" regulation.

Capital One is expanding its 10-person IR

department, in spite of the economy. "We're looking for someone to manage

all debt investor relations," says Paquin. "If we can increase the demand

for our securities and save even one basis point of borrowing cost, that would

pay for the entire investor relations department."

Big Questions

Selling the debt–which largely financed a 46% growth in the credit card

company's managed portfolio last year–is, of course, the challenge. In a

weak economy, investors and analysts always pose the "big questions," he

says–how will the company cope with loan losses and how can they possibly make

money buying the company's bonds. "When they get nervous, they rely

more and more on the companies they follow to give them confidence," he says.

But the bigger challenge for IR, he adds, is to

overcome the corporate instinct to hide when markets are under stress. "When

times get tough, some companies don't want to talk to anybody," Paquin says.

"But that's exactly when investors need more information, not less."

Credibility

Reg FD complicates the issue because every word of comfort, reassurance–or

caution–has to be spread equally to all investors. One side effect is that IR

departments must work more closely than ever with their IT departments.

"We now Webcast most of our presentations,"

Paquin says. Capital One also is becoming more reliant on its Web site as a

vehicle for posting all announcements, financial statements and broadcasts by

executives.

Despite all the changes affecting IR, however,

the eight-year Capital One veteran says one thing will never change in investor

relations."Be honest," advises Paquin. "The essence of this job is

credibility. Without that, you have nothing." –D.S.O.

Dell Computer won a gold award in the fi-

nancial risk management category in 1997 for its pioneering use of equity

collars in managing share-repurchase risk. Kevin Nater, then director of

corporate finance and now treasurer, updates us on his concerns today.

"Relative to four years ago, [treasury is]

becoming more tightly aligned with the [rest of the] business, and given the

recent gyrations in the economy, forecasting and managing cash flow has been one

of our largest risk management challenges," says Nater. "In addition to

hedging market-based risk and other normal treasury functions, we're now

managing the balance sheet and driving working-capital efficiency."

Outsourcing

The challenge is whether he can do more without expanding his staff. The

Round Rock, Texas, company is on an austerity budget that includes a plan to lay

off more than 10% of its employees. While the 26-person core treasury staff

(supplemented by eight in asset management and about 50 in tax) appears

relatively stable, their priorities have shifted.

Nater has doubled the accounting staff to 10 in

the past year to keep up with FAS 133, the new derivatives mark-to-market

accounting standard. He's also outsourcing more. "We're using external

money managers more heavily than we were four years ago," he says. "More of

our fixed-income portfolio [is] actively managed to get a bit further out on the

yield curve."

He's also focusing more personal attention on

Dell's venture capital and computer financing units. While other tech

companies may be counting the losses on their financing of defunct dot.com

customers, Nater says Dell Financial Services is thriving.

A joint venture with Livingston, N.J.-based

commercial-finance company CIT Group, Dell Financial did $3 billion of deals in

the first four months of this year and is growing faster than Dell itself, Nater

crows. He also touts Dell Ventures, the fund that he and former treasurer Alex

Smith set up two years ago to invest in pre-IPO technology companies, saying it

has "exceeded expectations."

Like many of his colleagues, Nater is still

searching for the Holy Grail of straight-through processing. He says he yearns

for more seamless integration of data among treasury systems, accounting systems

"and across the company's information systems globally," though budgetary

constraints are likely to limit things there for a while.

As for that Hamilton award-winning strategy for

managing stock buybacks, Nater says it remains useful even in a weak economy.

"It's absolutely critical to use stock

options for hiring and retaining people," he insists. "For purposes of

shareholder value, you need to manage dilution?? 1/2 And we have been absolutely

consistent in using cash flow to buy back shares to offset that dilution." –D.S.O

Microsoft nabbed a Hamilton award last year for

a risk-management program that centralized its view of cross-market positions in

equity, fixed income and foreign exchange. George Zinn, who has been promoted to

assistant treasurer from director of corporate finance since helping to direct

the project, talks about treasury's evolving role at the Redmond, Wash.-based

company.

"The problems that treasury tackles today are

strategic and external," says Zinn. "More and more, the risks we are

attempting to manage are related to the fundamental business, like strategic

investments that will help drive the future growth of Microsoft."

Even as treasury's duties are expanding,

however, the department is keeping its headcount flat. To manage, says Zinn,

Microsoft is relying more than ever before on outsourcing. For example, over the

past year it has shifted a small part of its investment portfolio to outside

portfolio managers, and is slowly giving them more.

"We do not have the expertise in-house, nor

should we want to, for building and maintaining a team dedicated to

international equity research, for instance," he says, noting that the

company's investment portfolio grew 30% to $42 billion in the past fiscal

year. "But our objectives will continue to be making sure that we are smart

about what we do [and eliminate] things that do not need to be done anymore."

Too Far in Front?

At the same time, Zinn wishes that Microsoft weren't always so far in

front of the herd. While many treasury managers were just waking up to what FAS

133 had in store for them last June, he and his colleagues were deep in the

murky details of accounting for risk management.

This year, Zinn and his team have similarly

embarked on an analysis of the Financial Accounting Standards Board's L&E

(Liabilities and Equity) project, which will affect accounting and reporting

methods for minority interests and convertible debt–two major components of

Microsoft's investment portfolio. Certain derivatives, such as those used for

hedging share buybacks, would be reported as liabilities rather than equity

under the proposal.

"A significant source of the difficulty in

implementing these accounting standards changes is that Microsoft has a June

yearend," Zinn says with a sigh. "As a result, we're typically an early

adopter–not by choice."

On the other hand, he claims to have an edge on

most of his peers in coping with treasury's growing complexities because of

Microsoft's technology smarts.

"We are currently using our

soon-to-be-released Windows XP operating system and newly released Office XP,"

says Zinn, 35, who has been with Microsoft for five years. "They are really

cool. The increased ability to have my team collaborate electronically, not only

with each other but also with other groups, via our SharePoint portal server, is

truly enhancing our output."

While cash management continues to be a major

focus of most treasuries, Zinn says there has been a distinct shift at Microsoft

away from transactions. "Treasury was formerly considered overhead at

Microsoft," he says. "Now people have seen the value we can add." –D.S.O.

Continental Airlines' crafting of a

structured-financing tool that reduced its crushing debt load won it an

Alexander Hamilton award last year. The now prosperous airline remains focused

on financing, says Gerry Laderman, Continental's senior vice president of

finance and its newly appointed treasurer.

After rescuing Continental from three encounters

with bankruptcy in the early and mid-90s, Laderman, along with former CFO Larry

Kellner (who was elevated to president last month), now sits atop a well-oiled

financing machine.

Continental still issues enhanced-equipment

trust certificates (EETCs), the securitized instruments at the center of its

Hamilton-winning project, which use aircraft mortgages as collateral. (It sold

$709 million EETCs in April, bringing its total issuance of them to around $6

billion.) But Laderman, who manages an eight-person treasury team (including

three in administration), says other things are changing.

"What I get concerned about is at some point

the fixed-income market becoming more difficult, just like the bank market

did," he says. "The challenge is to continue to develop sources of

attractive financing."

Banks, once the major source of financing for

aircraft, are getting even tighter with credit as a result of mergers. "It's

a case of where two plus two doesn't equal four," he says. "Each bank has

its own capacity limits, and it doesn't double once those banks merge."

Close Call

Laderman gets some solace from the corporate finance flexibility offered by

the Internet. When Continental missed an important prospectus printing deadline

for its April EETC offering, it posted the documents on its Web site, and the

deal was quickly sold. (Hard copies of the red herring didn't arrive on

investors' desks until the morning after the deal priced.)

"Things move a lot faster than they used to,

which saves money and lowers transaction time at a time when that's

critical," says Laderman. "We tend to be opportunistic when we raise money

and those markets can go away quickly. Had we waited a few days, it would have

cost us millions of dollars."–J.S.

Yazaki North America won Hamilton honors in 2000

for a revamped 401(k) program that enhanced the auto electronics

manufacturer's recruiting efforts and lowered its administrative costs. Evan

Stitt, who helped design the plan, says his priorities have changed.

As a cooling economy puts the brakes on the auto

industry, Yazaki North America's finance department is pulling in its wings.

For the past few years, the manufacturer of automotive electric components had

been dispatching its financial analysts and cost estimators to the company's

business units. But Yazaki N.A is now "recentralizing."

"With the decrease in [auto] production

volume, the finance area has to help our operating units find ways to adapt the

businesses to meet lower volumes," says Stitt, formerly director of finance at

the subsidiary of Japan's Yazaki Group. His new title, director of cost

control at a Yazaki subsidiary called Nacom Corp., speaks volumes about the new

emphasis.

"When I started in financial-related work 17

or 18 years ago, everything was in-sourcing," Stitt says. "We had a need for

a 401(k), and the finance department stepped up and did it. We kept adding

functions as the company grew. Now, we are keeping those staffs smaller. We are

not afraid to partner with a vendor to deliver on a certain project.

For example, the company is close to selecting

an outside money manager for its $75 million-asset defined-contribution

retirement plan. It also is looking to free treasury of more of its

transactional roles by outsourcing customer loan processing, among other

activities.

In at the Creation

The goal is to convert the finance area into a "business adviser" to the

rest of the company, Stitt says. He notes that finance is increasingly being

called in early on new business projects so it can advise on things such as

meshing capital-raising schedules with product-development plans.

"A lot of times business units want to answer

customer demands but can't do it because they involve things such as tax

implications, cash flow and incentives to doing business," says Stitt. "Now

people are making sure they involve finance from the get-go of the project."

–J.S

Eastman Chemical nabbed a Hamilton award in 2000

for redesigning an on-site care program that reduced worker's compensation

claims made by the hundreds of on-site contractors it insures. Richard McKee,

manager of Eastman's risk management/insurance department, outlines his

priorities today.

Eastman Chemical is splitting off its

fast-growing specialty chemicals business into a separate company that will be

70% controlled by the existing company, which will be left making commodity

chemicals. McKee's role is to figure out how to slice and dice current

insurance programs to make sure that each company starts out adequately

protected. At the same time, he's calculating how to consolidate coverages

inherited from Eastman's purchases last July of McWhorter Technologies and

units of Hercules Industries last month.

"The integration of those acquisitions,

[their] insurance programs and [of] more sites than we have ever had is

obviously a great challenge for us," says McKee.

But, he says tight budgets and a broader menu of

responsibilities are making all risk managers work harder. McKee oversees a

three-person department–himself, an analyst and an administrative assistant.

They've been working longer hours, though fortunately for their workman's

comp history, "not [yet] at a back-breaking pace," he says.

Back to Bundling

At the same time, all risk managers are being asked to negotiate more

smartly in a rapidly changing insurance market, requiring them to think more

creatively and to constantly reassess strategies being promoted by underwriters

and brokers.

For his part, McKee has never been a fan of

bundled, enterprise-risk programs but, particularly in a rising-rate

environment, he says he may have to revisit the concept. –D.S.O.

Autodesk took home a financial risk management

award last year for the speed with which it converted an acquired Canadian

company's functional currency into U.S. dollars. Corporate treasurer Jan

Berger says currency plays and overseas expansion are still major issues for the

San Rafael, Calif., software company.

"The issue for us is how best to deploy that

cash," says Berger, referring to the $423 million of cash, cash equivalents

and marketable securities with which Autodesk ended its most profitable fiscal

year on Jan. 31. The company is playing a delicate balancing game between

investing in new overseas markets, minimizing currency translation risk and

having enough on hand for stock buybacks and emergencies.

Cross-Border Issues

It's a game that almost every treasurer involved with cross-border sales

must master today, he says. In May, Autodesk, which books 54% of its revenue

outside the U.S., set up a shared-services center in Singapore to consolidate

and manage operations in the Asia-Pacific region. The company has another

U.S.-dollar-based hub in Switzerland.

"From a tax standpoint, to dividend the

built-up cash from hub to parent company is a costly transaction," Berger

explains, "so we'll either allow that cash to build up in those hubs to be

reinvested locally, or we'll need to find mechanisms to repatriate it. Issues

arise such as, do we allow payments in a country like South Korea to be in local

currency, or in U.S. dollars, as with our normal sales channels?"

Berger says his central issue looking ahead is

the familiar one of weighing the control benefits of a centralized treasury

against the efficiencies of overseas treasury centers. "We control all cash

investments, the funding of all country operating expenses and all foreign

currency transactions centrally from California," says Berger. "The

challenge is effectively maintaining that centralized approach and managing our

cash assets and financial risk from that vantage point."

Meantime, Autodesk continues to run an

aggressive stock-buyback program to offset dilution caused by employee stock

options. In March, the board approved repurchase of an additional 6 million

shares, on the heels of two previous 8 million-share buybacks.

Berger manages all this with a staff of three,

and doesn't anticipate that changing very soon. What he does anticipate is an

ever-greater reliance on banks to help manage the cash flow.

One challenge that does not frighten Berger is

hedging the company's foreign-exchange risk. "We actually see [FAS 133] as a

benefit to our reporting, since for cash-flow hedges on anticipated

transactions, we can recognize settlement gains as net revenues on the top line

rather than in other income and expense," he says. "To the extent that we

can mitigate the effects of unfavorable FX movements on revenue, we benefit."

–D.S.O.

John van Roden Jr. led the finance department at

steel manufacturer Lukens to a gold Hamilton award for risk management in 1996

by imposing order on a rambling program. Today, as CFO of Connectiv, an

expanding Wilmington, Del.-based electric utility, van Roden retains strong

views on the role of finance.

In every industry, the role of CFO and treasurer

is evolving to one of being a "major partner" to the CEO and corporate

board, van Roden says.

"It's not just adding up the numbers at the

end of the day," he explains. "You need to create the strategy and make sure

the company is focused in a laser-like way on the things that really matter.

Then you can work at facilitating what the company needs–capital, the right

metrics or communication [with shareholders]."

As it turns out, van Roden is simultaneously

working on all three, while keeping the big picture clearly in focus. In

February, Potomac Electric Power (Pepco) said it would buy Connectiv for $2.2

billion in cash and stock, forming the largest electricity distributor in the

mid-Atlantic region.

"Everything is colored by the merger," says

van Roden. The company's strategy in these energy-sensitive times is to

operate "mid-merit" power-generation plants. These units operate during

peak-demand periods, which helps keep their operating and maintenance expenses

below those of traditional baseload plants.

It's going to be a tough sell to the market,

van Roden concedes. Central to the growth strategy is the acquisition of

generation sites, a formidable obstacle given the "not-in-my-backyard"

attitude the public has toward energy facilities.

Developing a Message

At the same time, the as-yet-unnamed new holding company needs to find

capital, set up effective risk-management structures and develop a compelling

message to Wall Street. "We need to educate the investing community as

to what 'mid-merit' means and how you make money doing it," van Roden

says. The challenge there, he adds, hasn't changed since yesterday and won't

change tomorrow. "It's all about developing a strategy for the business as a

lasting value-creation process for shareholders," he says. –D.S.O.