To be sure, the company has made progress reversing its decline. Ford earned a second-quarter profit of $570 million, compared with a year-ago loss of $752 million, and assures Wall Street that it will be in the black again in the third quarter. Also, the company is beginning to see signs of life in its market share, which has stabilized after sliding earlier this year. However, its stock price was hovering around $10 a share in mid-September–a sign that even if the company has turned a corner, Wall Street remains wary.

But despite problems staying on schedule with cost cutting, Ford–both the company and CEO–appears determined to stage a comeback. One of the first moves to restore control was a decision to bring out of retirement former Vice Chairman and CFO Allan Gilmour. And when Treasurer Beth Acton stepped down this past spring to join Comerica Inc. as its CFO, the company didn't miss a beat, installing Ford treasury veteran Malcolm "Mac" Macdonald as vice president and treasurer.

And the treasury seems to be living up to the new finance team's expectations. Thanks to the work that treasury has done in the last year, Ford now has systems in place that have cut the number of cash management banks with direct links to the auto maker down to two from as many as 10. It is also capable of looking at its credit exposures from a company-wide basis right down to a specific entity. Ford can also now boast of its ability to view cash positions worldwide in real time. None of those three functions existed at the company a year ago.

The improvements are the culmination of an important move that Ford made in 1994, when it centralized the treasury operations of the company's European unit with those in North America. An even bigger push came in 2000, when the company merged the treasury function of its giant finance arm, Ford Motor Credit Co., with that of the parent company. "As we integrated treasury functions of Ford Credit and the parent company, it became a lot easier to focus on company-wide issues, like cash management and risk management," says Macdonald. "Then, there was the second factor of an increasing recognition by top corporate management that areas like risk management are all very important concerns, particularly given what has happened in the world at large."

Ford treasury consolidated on several fronts, including fixed-income and foreign exchange trading and analysis and oversight. Next came cash management and credit risk management. "Treasury over the years at Ford has evolved from being largely decentralized and quasi- autonomous into an almost totally integrated global function providing the best practices and best services [from each separate operation] to the corporation," Macdonald says.

And what appears to make treasury's achievements all the more sweet for Ford is that many of the ideas launched to improve operations were internally generated. "In a company this size," Macdonald says, "there is never a shortage of opportunities when you can put creative people together and challenge them."

The GOLD WINNERS in the 2002 Alexander Hamilton Awards:

Retirement–International Paper; Technology–Dell Computer; Credit Risk Management–Ford Motor; Insurance–Whirlpool; Corporate Finance–Continental Airlines; Real Estate–Whirlpool; Investor Relations–Cisco Systems; Cash Management–Ford; Financial Risk Management–McDonald's

Retirement – GOLD

THE JOYS OF UNBUNDLING

International Paper takes the gold

The goal was simple: Create the best possible savings plan for its employees. After five years of studying approaches to improving its $3.6 billion 401(k) program, International Paper Co. came up with the answer: Unbundle the services and give 401(k) participants a chance to get the best of both worlds–the benefit of a mutual fund company's expertise in record-keeping as well as the superior investing results achieved by institutional asset managers.

This year, International Paper launched a restructured plan for which record-keeping and asset management are provided by separate companies. IP's unbundled program has a three-tiered investment structure that offers employees 14 choices, up from six a few years ago.

Suddenly, says Robert Hunkeler, International Paper's vice president of investments, there are real options. Unbundling "enables us to remove a component of the system if it's not performing," he says.

Not all mutual fund companies wanted the record-keeping business without the guarantee of the investing. But J.P. Morgan/American Century Retirement Plan Services offered to do the job and was selected through an RFP.

Even with the unbundling, J.P. Morgan and American Century managed to win significant chunks of the investment business: Three life-cycle funds from J.P. Morgan make up the first tier, while the third tier is a brokerage window provided by American Century. However, doing this as unbundled service deals, Hunkeler points out, allows IP to drop a fund at any time and not jeopardize the record-keeping relationship.

The second tier of investment options provides 10 asset class funds, most of which are IP's own pension fund portfolios, which the company converted to commingled trusts to allow investments from both the pension program and the savings plan. Hunkeler says the pension plan choices represent his staff's "very best investment ideas."

IP is ahead of the curve in many ways: In 1999 it began to liberalize its rules about investing in company stock, which now represents just 27% of the plan's assets, versus 57% in 1997. It also worked on reducing expenses, which have declined to 16 basis points from 23 basis points in 1997. The cut saved plan participants $17 million over five years. IP also beefed up its employee communications and pared the 401(k) program to two plans from the 13 plans it once had as a legacy of various acquisitions.

SILVER: EQUIFAX INC.

Equifax has just $413 million of assets inits defined benefit pension plan, but it has worked hard to diversify the plan and keep close watch on its performance.

To reduce the volatility of its returns, Equifax built up holdings of asset classes that aren't correlated to the S&P 500. It began investing in venture capital in 1983 and now has a portfolio of 23 venture capital funds, which constitutes 6% of plan assets. Because its investments are too small to meet the minimums of many venture capital managers, the Atlanta-based credit reporting agency recently put $10 million into a fund with interests in various VC funds, which gives it broader exposure.

The company's Internet link to its master trustee allows it to monitor all the plan's transactions. Equifax leases a copy of WinTech's ProVal stochastic asset liability model, which lets it keep closer track of the plan's exposure to Internal Revenue Service and Erisa funding tests and engage in sophisticated "what-if" analysis.

Equifax says its strategy has made its plan better able to "weather difficult markets." Its pension plan has been achieving a compounded annualized return of 11.5% since 1985, beating its 11.3% benchmark return.

BRONZE: EDS CORP.

When EDS contemplated the projected 18% annual growth in its pension plan's liabilities, it decided that it needed to increase investment returns on the plan, which had $635 million in assets in 1995.

EDS had been holding 20% of the pension plan's assets in fixed income and 80% in equities. It gradually cut its fixed-income allocation to 10% by directing new contributions to other assets. Meanwhile, it diversified its equity holdings by building a private equity program through Adams Street Partners, and by mid-2000, that program made up 20% of the plan's assets. The private equity component has a large allocation to venture capital partnerships but also includes buyout, mezzanine, distressed and special situation investments.

EDS reviewed its managers to be sure that each was "best in class," and replaced a number of them with more aggressive managers. It also shifted from contributing to the plan once a year to making monthly contributions, and used those flows to pay benefits and expenses while keeping its plan assets fully invested. The monthly contributions also helped in its effort to redirect plan assets.

The company estimates that its more aggressive approach to investing its pension plan assets helped its plan outperform the median plan by $729 million over the last six years.

Technology – GOLD

STAND BACK! ENZO HAS ARRIVED

Dell Computer snags the gold

Dell Computer Corp. wasn't satisfied with the accuracy of its cash flow forecasts, so it built its own forecasting tool, using Microsoft Excel and Mi-crosoft Visual Basic for Applications. The result: The Enzo Liquidity Forecasting Tool (named for race car designer Enzo Ferrari) provides Dell with speedier, more accurate forecasts and requires much less manpower to generate those forecasts.

While Dell's previous systems only looked out three years–and in the case of some types of analysis weren't accurate beyond the current quarter–Enzo can project out 10 years. A cash flow forecast that used to take three people two days to tackle now can be accomplished by one person in a single afternoon. The new tool also forecasts most components with a variance of less than $30 million, which translates into a 99.4% accuracy level for Dell's $5 billion account payable balance. Dell estimates that using Enzo, along with other tools, enabled it to increase its investment income by $1.5 million annually.

But to create the tool, Dell's treasury team first had to figure out how various components of the enterprise interacted. "The tricky pieces were tax, the [weighted average shares outstanding] and foreign exchange," says Nathan Brunner, senior finance consultant at Dell. "We quite honestly didn't have a good understanding of how some of the cash flows worked. By drilling down and working with our business partners, we were able to build a much more comprehensive model."

With Enzo in place, Dell's treasury can "answer a lot of questions we hadn't even contemplated before," Brunner says. He cites as an example the impact that a rising stock price would have on the company's taxes as it changed the rate at which employees exercised options. The tool's analysis provides "a comprehensive picture," he says. "Any question you can have about a scenario, you can answer."

The process of building the cash-forecasting tool also increased communication within treasury. A.E.–After Enzo–people in different areas began to take the initiative, actually reaching out when something was happening or was going better or worse than expected. "People are a lot more frequently proactive about letting people know what the impact will be," Brunner says. "And we have a common framework for understanding what that means."

SILVER: CISCO SYSTEMS INC.

All Cisco's foreign exchange trades flow through its San Jose, Calif., headquarters, and with some 60 subsidiaries dealing in 28 different currencies, Cisco's treasury faced a massive job just aggregating the exposures, doing the transactions and maintaining the records, which involved re-keying data into multiple systems. Treasury's month-end foreign exchange cycle was taking days to complete instead of hours, says Greg Bromberger, senior manager in Cisco's treasury.

The solution: A Web-enabled process that consolidates the foreign exchange exposures and needs of the subsidiaries and feeds trades into multibank foreign exchange platform FXall, providing straight-through processing.

There wasn't anything right off the shelf that fit Cisco's needs so it hired Green River Computing to provide a customized version of its Orbit software.

The task of rethinking Cisco's processes and revising and building upon the software took 15 months.

The system has eliminated re-keying–data is entered manually just once, at the beginning of the process, by Cisco's subsidiaries. And it cut the time spent on FX transactions, reducing the month-end cycle to a mere 12 hours from five days. "It's just so much smoother," says Bromberger. Cisco estimates that overall the new system reduces direct labor costs by up to 70%. With the time that has been freed up, treasury analysts can review transactions rather than just process them and devote more time to strategic initiatives, Bromberger says.

BRONZE: GENERAL ELECTRIC CORP.

Talk about capturing savings from innovation. GE Capital's treasury worked to get commercial banks to bill it electronically, rather than on paper, and has saved more than $2.7 billion in just the first 19 months.

Treasury pays the bank fees for all GE subsidiaries, which have 4,200 accounts in 24 banks, and the banks were sending it tons of paper account analyses a month. Although it had a system to capture electronic account analysis statements, few banks were using it and even fewer were sending meaningful statements. The flood of paper made it hard for treasury to check the charges on statements.

It launched its reforms in the first quarter of 2001 by letting the banks know that it wanted all statements delivered electronically and by the 15th of each month. It asked them to attach standardized codes to every item, and to provide a price list that it could use to check the statements.

By April 2002, 99% of the bank statements were arriving electronically, 77% were on time, and the error rate had fallen to less than 1%, from 6% in mid-2001. "The goal is to know exactly what we're paying bank fees for and avoid erroneous charges," says Terence Devine, manager of treasury consulting.

Credit Risk Management – GOLD

A LONG-RANGE RADAR FOR RISK

Ford Motor rides off with the gold

It was the end of 2000, and Ford Motor Co. was in the throes of centralizing its treasury. The group had already consolidated the transaction, execution and analysis/oversight functions of its many, far-flung subsidiaries and departments under a single umbrella and counterparty risk management was the next area to be tackled.

The task would prove to be tough. The Dearborn, Mich.-based company's counterparty risk exposures weren't viewed on an aggregate basis; each legal entity reviewed its own exposures, which were looked at in the context of mark-to-market values with no consideration given to future potential changes in exposure. On top of that, the systems used to manage these risks were either fragmented or didn't exist.

Ford treasury's first step was to collect data from the units within Ford in order to get the lay of the land and begin standardizing the data. Just this initial phase took risk analyst Chichin Chang six months. From there, Chang and fellow risk analyst Vidya Krishnamachar were able to determine Ford's company-wide exposure and the scope of counterparty risks to be included. They then set specific risk tolerances at both a company-wide level as well as with each individual counterparty.

RiskMetrics then was tapped to provide a Web-based tool that could calculate current and potential credit exposures at various levels, ranging from company-wide to various Ford entities to specific asset classes. After that, Ford's treasury developed a governance policy that covered areas like exposure limits, monitoring and reporting strategies and risk mitigation steps.

The next challenge was to create and implement new policies to manage Ford's risk exposures. All the finance teams–right up to the board of directors–got the drill on the benefits of the new process, and the proposed plan was ultimately approved at the end of 2001 to be implemented in the following year.

The result? Though the company never set quantitative benchmarks for the project, Ford can now get a complete picture of its counterparty risk exposure, which has enabled the company to get what it describes as "long-range radar for potential issues." "Although our overall strategies haven't changed," says Krishnamachar, "we now have better tools that allow us to be more proactive in managing our risks."

The next step to be achieved in the second half of the year: Develop a database that stores limits data, disallows allocations that violate pre-set rules and automatically logs allocation changes. Also, roll out a tool that will automatically compare counterparty risks and limits.

SILVER: CISCO SYSTEMS INC.

Cash has always been king at this telecommunications giant. So it is no surprise that the San Jose, Calif.-based company's credit risk group long had been considering ways to use the Web to better manage its credit and collections performance. However, when the tech sector imploded, many of Cisco's customers began to falter and global days sales outstanding (DSO) began trending upward to peak at 47 days in January 2001. That made developing a Web-based solution to manage credit risk take on even greater importance.

What the company built in-house was a series of global reporting tools that enhance cash management, including accounts receivable reports and cash collection updates; real-time summaries of collections and customer credit reports, including a monthly watch list of customers with potential credit or collection issues. Additionally, the information is available online to Cisco personnel globally.

With the Web reporting in place, Cisco set a goal of trimming its DSO number to 30 days. But because of aggressive accounts receivable aging and cash collections, the company was able to bring that number to 24 days within three quarters.

BRONZE: EDS CORP.

As an information technology services provider, EDS has a rather unique business model. The Plano, Texas-based company manufactures no hardware but often is asked by its large customers to deliver services that depend on the use and maintenance of IT assets that EDS is then required to purchase. That has effectively made EDS a financier with significant long-term credit risk exposure, as it often takes years for EDS to recover what it spent on equipment for a client. What EDS needed was a way to provide its services to its customers, but without taking on credit risk that, one can argue, should have remained with the client.

EDS treasury considered a host of options, including traditional and synthetic leasing, receivable sales and pooling techniques, but none in their traditional forms met all of EDS' criteria. The answer lay in creating an entirely new approach based on existing financial strategies and called the Customer Financing Transaction program. The most popular route is to have third-party investors buy the hardware needed for an EDS client and then lease the goods to EDS, which in turn subleases the hardware to its client as part of an IT contract.

The result is that EDS' clients become the primary obligor, with the contract spelling out clearly that investors are taking on the credit risk of that client–which has enabled EDS to pass this savings on to clients.

Insurance – GOLD

MAKING LIABILITIES PERFECTLY CLEAR

Whirlpool nabs the gold

In insurance these days, the challenge for financial executives is not just getting coverage, but getting affordable coverage. The solution the risk managers at Whirlpool Corp. came up with: Provide insurers with information so clear that it eliminates uncertainty and improves the price insurers are willing to offer. So when it came time to re-bid the company's coverage in 2001, the team sat down and created "the perfect submission" for underwriters.

"Without getting the data right and telling the correct story around the data, there was no way we were going to be able to bring our pricing [on insurance premiums] down," says Gary Kilburg, Whirlpool's director of risk management. When insurers don't understand, "they price in uncertainty," he adds. "That's what this project was all about–how do you strip that [uncertainty] out of there."

Working with its broker, Marsh Inc., and one of its insurers, Munich American Risk Partners, Whirlpool set out to tie up loose ends, verify the accuracy of information and, in general, eliminate mystery. The company scoured the data on its loss history, checking for inconsistencies and making sure that data coming in from various units was classified and warehoused correctly. To make sure its businesses around the world provided the same type of information about their operations and risks, Whirlpool gave them exact definitions of what it was seeking when it asked them to provide data on, say, business continuity values or property values. Once the data was checked, Whirlpool took the information and analyzed it, using modeling and actuarial representation, to depict the scope of its risks for insurers.

"It sounds simple, but Munich Re and other insurers tell us that while they get a lot of data, they don't understand what they're supposed to get from the statistical information," says Kilburg.

Whirlpool loaded its submission onto CD-ROMs to present to underwriters. Insurers appreciated getting the data in CD form, Kilburg says, noting that underwriters often receive emails with huge numbers of attachments. "With a CD, you can click on one file, and it opens up into a very sophisticated presentation. You can click on any line and get a more detailed presentation." The CD also provided other information about Whirlpool, including a video.

Kilburg says the improved submission increased insurers' interest in Whirlpool's business. "On the lead umbrella [program] alone, we brought in three new [insurers] that had not been in the Whirlpool program, and they were aggressive in their bids."

And the best result of all the hard work by Whirlpool risk managers to craft a clear submission for its underwriters: The company saved $1.1 million on its 2002 insurance premiums.

SILVER: DELL COMPUTER CORP.

One consequence of the rapid spike in the size of the workforce at Dell during the 1990s was a higher-than-anticipated increase in worker disability claims and lost time on the job, which exceeded industry benchmarks. To deal with this unpleasant surprise, Dell set up a multi-disciplinary team to audit the company's existing practices for dealing with disability claims and lost time, compare them with industry standards and then make recommendations for changes that might help lower Dell's lost time and workers compensation numbers.

Their conclusion? The key to improving lost time statistics is "integrated intake," says Ken Smith, Dell's risk manager for business risk management and insurance. "It's getting the thing reported and getting early intervention, [determining] the care an employee is going to get and what they need to return to work."

After the recommendations were developed, the team put together an RFP for vendors to work with Dell in implementing them. Among its new set of providers are UNUM Provident and three affiliates, which provide telephone claim intake, nurse case management and database systems and reporting, and CNA and Gallagher Bassett, which were selected to handle Dell's workers comp coverage.

In the first six months under the new system, Dell saw a 23% reduction in the average lost time for short-term disability cases and a 57% reduction in average lost time for workers compensation claims. Its costs for short-term disability claims fell 23% and workers comp claims costs fell 63%.

Smith says Dell hadn't realized the extent to which employees' absences were caused by medical reasons rather than workers' comp claims. "Ninety-five percent of the opportunity was on the [non-occupational] side," Smith says. "That process didn't have the rigor around it. People weren't actively managed back to work."

BRONZE: AT&T BROADBAND

AT&T Broadband was not happy with the projections it was getting from brokers and consultants on its worker compensation casualty claims. First of all, most of them were using loss development factors for the telecommunications industry, which the cable company didn't see as a good standard to gauge risks facing a player in its industry. Next, AT&T Broadband's own complicated history of acquisitions and divestitures, not to mention the six different third-party administrators that handled the company's claims in recent years, didn't help developing good models.

The company decided that if it wanted accurate forecasts of its worker compensation casualty claims, it would have to do them itself. So in late 2001, AT&T Broadband–with the help of RiskLaboratories LLC, which already provided AT&T Broadband with a risk management information system called RiskFolio–set out to build a tool combining @Risk 4.05, a software application by Palisade, and RiskFolio's cost-of-risk allocation module to produce better projections. The tool takes AT&T Broadband's historical data on its worker compensation claims and its loss development factors, as well as other information, like the outlook for inflation, and projects the frequency and severity of the company's claims for the coming year.

On a small scale, the new tool saves AT&T Broadband $30,000 to $40,000 in annual fees that would have been paid to outsiders attempting forecasts. More important, in its first six months of use, the tool contributed to a 15% reduction in claims losses. Rick McPherson, vice president of corporate services, says the modeling tool "really helps identify where the [claims] costs could be higher and therefore where you need to spend more attention on preventive measures and awareness campaigns." The information should also help when it comes time to negotiate next year's coverage with insurers, he says.

Corporate Finance – GOLD

STAYING ALOFT AMID TURBULENCE

Continental Airlines soars its way to gold

On the morning of Sept. 11, members of Continental Airlines Inc.'s finance team drove from New York City to Newark International Airport to start a road show for the initial public offering of Continental's commuter airline subsidiary, ExpressJet Holdings.

From Continental's hub at the airport, "we watched the towers collapse," says Gerry Laderman, Continental's senior vice president of finance and treasurer. "You just saw the [airline] industry collapsing as the towers collapsed."

The finance executives ended up driving home to Houston, a trek that was just the start of their efforts to keep Continental solvent as it burned through millions of dollars a day in the wake of the terrorist attacks. Credit was unavailable, and airlines weren't able to access the capital markets.

In dealing with the situation, Continental's finance group could rely on state-of-the-art forecasting tools that it had put in place after the company's early 1990s financial crisis, including a cash-forecasting model that provided detailed daily projections for the first four months. Within days after Sept. 11, its forecasts showed the company would run out of cash before yearend.

Stemming the financial crisis involved reaching out to government officials in Washington. On Sept. 21, 2001, Congress approved a $15 billion bailout of the airlines–$10 billion of it in loan guarantees. But attempts to limit the loan program led to further efforts by Laderman and other Continental executives to educate administration officials involved in the loan program about the airline industry and airline finance.

Executives made their case to investors, hitting the road in October to talk to investors around the country. The company also increased the amount of data it released. For example, in early October, it began providing passenger traffic updates biweekly instead of once a month.

Continental credits its efforts to reach out to investors with helping it regain access to the markets within months of the terrorist attacks. In late November, Continental raised $172 million through a common equity offering–the first by a major U.S. airline since Sept. 11. In mid-January it did a $175 million convertible bond offering, followed the next month by a $475 million enhanced equipment trust certificate deal that featured the added security of a triple-A-rated insurance wrap and was used to finance seven new aircraft. In April, Continental completed the ExpressJet IPO that it had been starting to market last September, and raised $450 million.

SILVER: PPL CORP.

Back in 2000, when utilities were spinning off their energy-generating subsidiaries at sky-high multiples, Allentown, Pa.-based PPL Corp. had a better idea. Reluctant to spin off its electricity generating business, but interested in providing it with more capital, PPL used some of the techniques employed in securitizing mortgages to fence off its regulated and low-risk electricity transmission business and raise additional capital on the strength of that business.

Separating the utility from the rest of the business required a number of measures, including appointing an independent administrator and arranging a long-term power-supply contract. PPL then persuaded rating agencies to allow it to boost the leverage of the regulated utility to 65% from 55% without altering its rating. The cash it raised by selling $800 million of six- and eight-year notes in August 2001 flowed back to the holding company to be used by the generating subsidiary.

"It was the first use of securitization techniques to segregate away from the riskier components of our business a whole operating business," says James Abel, PPL's treasurer. The lower cost of capital is a plus for both shareholders and ratepayers, he says, and PPL's stock has performed better than the stock of energy companies that spun off their generating units, some of which are now flirting with bankruptcy.

BRONZE: PFIZER INC.

Sometimes you get criticized even when you get and maintain the highest rating possible. Just ask the treasury at Pfizer Inc. The New York-based pharmaceutical giant is one of the few U.S. corporations still rated triple-A, reflecting both its strong performance and its limited use of leverage. Yet, thanks to current economic theory that contends that a company's capital structure has no effect on its valuation except to the extent that debt reduces tax costs and financial distress raises costs, Pfizer sometimes has faced both external and internal criticism for its conservative capital structure.

It was time to come up with a better answer about why it made sense to do it this way. So treasury looked at a group of Pfizer's peers, which it defined as big companies with high levels of intangible assets and R&D and above-average P/Es. The group included high-tech companies like Microsoft Corp. as well as other pharmaceutical companies. The analysis showed that all tended to have low levels of debt and big cash reserves–exactly like Pfizer.

Treasury then went further, focusing on the relationship between intangible assets and cash flows. Since the company derives more than half its market value from intangibles, such as drug patents, treasury felt it was important to protect its R&D funding of those intangibles and financial distress would limit that funding. Conclusion: Companies that derive a significant component of valuation from intangibles must protect against financial distress. That means keeping debt low and cash reserves high "as insurance against financial distress cost."

Real Estate – GOLD

A ONE-STOP REAL ESTATE SHOP

Whirlpool takes home the gold

Whirlpool Corp.'s Web-based real estate extranet provides one-stop shopping for everyone concerned with the company's real estate transactions and facilities management.

Ultimately, the extranet cut 35% off the company's facilities management costs by allowing it to outsource such tasks at its headquarters and nearby locations. "On one page, we've combined the information that the real estate people need to manage transactions with the self-service component for facilities management," says Carl Nedderman, Whirlpool's director of corporate real estate.

Headquarters employees can use the extranet to submit requests for repairs or to book a conference room. And because Whirlpool's extranet is Web-based, that self-service capacity can easily be provided to other Whirlpool locations, Nedderman says.

The real estate group also outsources its transaction activities and project management for all 330 locations in 48 countries worldwide. "To do this [much outsourcing] on a global basis without the service providers and the real estate group and our end users having access [to information] on a real-time basis made it very difficult to manage effectively," he says.

The platform collects data on how much it costs Whirlpool locations to operate their facilities and benchmarks those costs against other Whirlpool locations and other companies. Nedderman expects this careful comparison of costs to create "better operating efficiencies" down the road by encouraging locations with high costs to become more efficient.

His department operates with only six employees and was facing increased activity, much of it overseas. "We weren't being allowed to increase our head count, so we had to find a way to more effectively manage those resources," Nedderman says. "So we gravitated toward this system."

Nedderman is especially proud of his budget for the extranet project, which came to a grand total of $50,000. Combining Whirlpool's facilities management business and transaction business and placing it all with one provider made Whirlpool a strategic account for the provider, Jones Lang LaSalle, which pitched in to design the extranet, he says. "Basically, they are developing this system for us at no cost to us," Nedderman says. "That's a biggie–a lot of companies spend millions of dollars to have what we have."

He also sees the extranet as "a marketing tool for the treasury department," and notes that other parts of the business, such as legal, security and procurement, are trying to get on board. "Once they find the information resource that's here, they're tagging onto it and asking us to collect cost information for them and tie it to this data base," Nedderman says.

SILVER: MICROSOFT CORP.

Over the last five years, Microsoft's real estate group developed portfolio management strategies that helped it to provide enough space to keep up with the 11% annual growth in the company's headcount. More recently, the group has had to fine-tune its methods as Microsoft's growth rate slowed. The new focus: how to avoid burdening the company with unnecessary space.

"When we were in a phase of incredible growth, there wasn't much time to work on tools, we just needed space," says Mary Dixon, the company's senior manager of real estate and facilities. "But with the change in the economy and Microsoft's growth being impacted, we had to refine the tools to be more strategic."

For example, the company's supply/demand tool now applies three different growth rates to Microsoft's real estate portfolio, and develops plans not only for the expected growth rate but also for other scenarios.

The real estate group's work seems to be panning out. Microsoft's square foot per head fell to 262 in FY 02 from 269 in FY 01, which represents $7.1 million in costs avoided. It expects a fall to 254 square feet per head in FY 03 for another $9.3 million of costs avoided.

Investor Relations – GOLD

OVERCOMING THE MARKET'S PERCEPTION

Cisco Systems strikes gold

For Cisco Systems Inc.'s investor relations managers, the problems began in April 2001 with the collapse of the telecommunications sector. Cisco managed to stay slightly ahead of the pack, although its stock price clearly suffered too. That tough period was followed by revelations about Enron Corp.'s accounting chicanery in the fall of 2001. Not too many months later, bombshells about WorldCom, Global Crossing and Qwest–scandals that hit much closer to home–dropped. Cisco found itself getting painted with the same brush as a lot of erstwhile high fliers, particularly those in telecom. Even though media scrutiny of the San Jose, Calif.-based company's accounting and business practices yielded nothing, it didn't seem to matter.

Investors were making decisions based on perceptions of the industry and not the reality about individual companies. Cisco's stock price dropped nearly 30% to just over $14 a share at the end of February from over $19 at the start of the year. Despite historically strong relationships with shareholders, some of its largest institutional investors began to desert, while others were voicing increasing confusion about information in the company's financial statements. On top of that, a slew of new regulations put forth by every organization from the Securities and Exchange Commission to the National Investor Relations Institute only heightened investor anxiety over whether companies were on the level with their numbers.

Cisco's investor relations group didn't sit idly by. Instead, it launched a three-pronged strategy. First, IR reached out to its investors to find out their top concerns. They discovered confusion about deferred revenue and the use of pro forma versus GAAP and a need for more cash generation and use-of-cash information.

The next step was to better coordinate the company's financial information inside the company to ensure that the data was understood clearly internally and thus could be efficiently distributed externally. The third step was to modify how financial information was distributed through the company's 10-Qs and conference calls, paying close attention to better disclosure of commitments and contingencies, reclassifying more accurately its revenue picture and taking several steps to eliminate confusion about GAAP and pro forma numbers. As part of that, Cisco also decided to include PowerPoint slides in its Webcasts, which run simultaneously with the conference calls.

Finally, the work done to raise the comfort level of investors also persuaded Cisco to acquire all of its properties that had been financed through off-balance sheet synthetic leases–even though the company disclosed the leases' existence in its filings.

It appears the strategy has worked. For the fiscal third quarter, Cisco registered a 3.5% decline in its stock price on the day the company released its results–consistent with industry performance for that period. And on the day after the results came out, the stock shot up 20% to $16.27.

SILVER: MDU RESOURCES GROUP INC.

MDU had gone from being a pure electric utility in the 1920s to a diversified energy company with $2.2 billion in annual sales last year. The problem: The investment community didn't seem to appreciate fully the Bismarck, N.D.-based company's transformation. Even though the company during a 10-year period posted annual revenue growth rates of around 22%, MDU executives didn't think the company was getting the recognition it deserved from institutional investors.

MDU's management determined that what it needed was to spread the word about the company's current scope–everything from natural gas collection and development to construction materials supplier–and its future growth strategy. The next step was to identify key buy-side and sell-side analysts who could help take MDU's message to investors. CEO Martin A. White, CFO Warren L. Robinson and three divisional presidents met face-to-face with more than 700 analysts, brokers, investors and shareholders to discuss the company's current health, tout its business plan and lay out where the company was heading.

The strategy worked: MDU's stock price advanced 114% between March 1997 and March 2002 to $31 a share (it has since slipped to around $23); the number of analysts who cover the company jumped to 17 from nine and institutional holdings of MDU shares climbed to 32% in March from 20% five years earlier.

BRONZE: TEKTRONIX INC.

It was the spring of 2000 and Tektronix had just sold its printing and imaging division to Xerox Corp.–effectively halving the company's revenue base. The Beaverton, Ore.-based company, which reported 2001 revenues of $1.2 billion, was now solely in the business of selling test, measurement and monitoring instruments for the communications and high-tech industries. But its investor base still reflected that of a company with a printing business, and the frequent buying and selling of Tektronix's stock by these aggressive investors led to wild price swings. On top of that, the number of sell-side analysts who followed the new company had shrunk to what the company called a "dangerously low level" and they lacked the technology background needed to understand Tektronix's new world order.

The upshot was that the company needed to change its investor base and bring in a better-suited cadre of Wall Street analysts to follow the company. To do that, it launched a two-pronged strategy. First, the investor relations team approached and educated sell-side analysts about Tektronix's measurement business. The next phase involved building a list of 100 institutional investors that the company felt had a longer-term value-investing approach and contacting those buyers.

The efforts have paid off. While Tektronix had set a goal of adding two sell-side analysts to its roster within a 12-month pe-riod ending this past spring, the company wound up adding four to bring the total to 13. On the investor side, the company was able to dominate its buy-side mix with value investors, which now comprise 78% of the institutional investors holding Tektronix shares.

Cash Management – GOLD

CENTRALIZING AND SIMPLIFYING

Ford Motor consolidates its way to gold

On the heels of merging the treasury operations of its finance arm, Ford Credit, with that of the parent company, Ford Motor Co. was keen on centralizing as many functions as possible. Work had already been done to collapse into a single function fixed-income and foreign exchange trading, and now treasury's sights were fixed on the rest of its cash management operations.

But this would prove to be a formidable task. Over time, Ford's cash management function had sprawled into an operation with 10 different platforms that handled various cash management tasks–the result of the treasury shops operating separately until their consolidation in the summer of 2000. In addition, the Dearborn, Mich.-based company had more than 300 legal entities that required cash management services and 700 bank accounts to manage those accounts and handle 5,000 transactions a month in more than 25 currencies.

What Ford envisioned first was a single cash management system that would be used globally to view cash positions and bank reporting and process wire transfers worldwide. The second goal was to streamline Ford's bank communications while at the same time keeping its existing bank relationships intact and not relying solely on a proprietary bank system, as the company wanted a flexibility not found with bank-unique systems.

The company accomplished its first goal by tapping Wall Street Systems to standardize Ford's cash management processing. Already deployed to handle FX and fixed-income trading, Wall Street Systems was able to add its cash management module to existing software and further customize it to fulfill Ford's requirements. That decision eliminated the need to build a solution from scratch. The move also leveraged a strategy common in Europe, where standardized processing software enables companies to use multiple banks and not be bound by proprietary banking systems.

The second goal was achieved by naming two "hub" banks–Bank of America and Comerica Bank–that would use a standard Swift format for message communication and would act as intermediaries between Ford and more than 60 other banks for funds transfers and bank balance and transaction reporting. The idea was to send instructions for wire transfers in a Swift message from Ford's system to a hub, which then passed the information on to one of the banks. The banks would send balance and transaction reporting through the hub to Ford.

The moves have trimmed the number of banks with direct links to Ford to two from as many as 10 and has reduced the number of systems treasury staff must be trained to use. Also, since it's not tethered to specific bank software, Ford says it can now redirect its cash flows to wherever it can maximize its use of funds.

SILVER: CISCO SYSTEMS INC.

When it came time to revamp how Cisco's cash management processes were handled in the Asia Pacific region, the San Jose, Calif.-based company decided that it needed to take matters into its own hands. With 14 different currencies, varying tax and legal rules, less developed banking systems and more than 40 different bank accounts at 11 different banks, Cisco's treasury wanted a way to consolidate and automate cash management functions using a just-in-time funding approach–ideally under a single bank using a Web-based interface.

When treasury approached seven banks about a solution, their suggestions tended toward cross-border liquidity strategies that in the end wouldn't work with all 14 countries. What Cisco would have to do was to create a prototype that standardized the relevant data, provided transparency of its cash positions and had a single set of terms and conditions for U.S. dollar billing. To that end, treasury conducted extensive research, talking to banks about what was feasible. It then approached the same seven banks with an RFP that outlined exactly what the company wanted.

Ultimately, J.P. Morgan Chase was selected to handle the task, which has enabled the company to collapse those multiple accounts into a single U.S.-dollar account based in New York, responsible for funding 14 local entities in 11 countries using a just-in-time method. Also, the company has reduced its idle cash by 96% and improve the transparency of FX conversion rates and banking fees to generate annual savings of more than $1 million.

BRONZE: THE RELATED COS.

Call them growing pains. The New York-based real estate company had gone through a growth spurt–its revenue advanced 12% a year for the past three years–and treasury needed to keep up with the pace. What had worked in Related's early days was no longer appropriate for a department responsible for the treasury functions of more than 400 entities, including three public companies. Simply put, treasury had to centralize and modernize procedures like wire transfers, retrieval and distribution of Bank Administration Institute (BAI) information and customer account analysis–all of which had relied on antiquated processes that increased the risk of errors and were slower to execute.

The solution rested with a project jointly developed by Related's treasury and IT teams and termed the Treasury Workstation Interface Network (TWIN). What they came up with was a secure Web-based application that permits treasury and Related's business units to post information online and enable others access to the data. Wire transfers can be conducted via the Web, and BAI information and cash management schedules can be stored on the site. What's more, the new interface enables treasury to interact with its accounting software systems to automate the general ledger and accounts payable posting linked to wire transfers.

Financial Risk Management – GOLD

SEIZING OPPORTUNITY OR SAVING MONEY

McDonald's captures the gold

When the purchasing department of the world's biggest fast-food chain looked at the menu of a typical McDonald's restaurant, it saw hundreds of different items that needed to be bought to make that restaurant function. Treasury, meanwhile, saw a diversified portfolio of risk. And therein lay the problem. As the purchasing department did everything it could to hold the line on the costs of beef, fries and hamburger buns, treasury's goal was to do whatever it could to limit the company's risk exposure–which sometimes meant actually spending money rather than saving it.

Until the middle of 2000, those competing philosophies put the Oak Brook, Ill.-based McDonald's Corp. at a disadvantage as far as managing risk went. Purchasing agents would only focus on the commodities that they were responsible for and hedged accordingly. The problem was that there were several instances when a hedging strategy for one commodity may have actually boosted the company's overall risk because the commodity hedged had acted as a natural hedge against another exposure. What McDonald's needed was a way to view its commodity risk in its entirety.

To gain that kind of perspective, McDonald's risk management team, headed by director Michael Irgang, didn't have to look far. Already, the company had been using a basket option pricer to manage the currency risk associated with McDonald's international business. Irgang and his team figured if they replaced the Deutsche mark with beef and the Japanese yen with hamburger buns they might be able to create a model with which to view McDonald's commodities risk in aggregate.

First, the company asked the suppliers of its top 30 purchase items to detail the different ingredient commodities and components used to create the products. For instance, the company that supplies the famous sesame seed buns clearly has to worry about the price of flour and then the price of grain–and of course the price of sesame seeds. Armed with that information, treasury created a matrix with the top 30 purchase items on one axis and on another axis the different commodities that went into creating the purchase items (for example, hamburger bun commodities included prices for wheat, soy oil and the fuel required to bring the buns to the restaurants). This gave McDonald's a more accurate idea of which commodities could be hedged using exchange-traded futures.

With this knowledge, McDonald's created a commodity risk strategy, the crux of which was based on a dynamic relationship between cost and risk. "You could be increasing risk to save money or spending money to lower risk," Irgang says. This clearer view has enabled treasury to identify several opportunities to take advantage of favorable prices, including buying coffee at a 35-year low and locking in the cost of diesel fuel before energy prices rose. In addition, the company has been able to pass on more stable food costs, which has helped stores protect operating margins.

SILVER: SUN MICROSYSTEMS INC.

The tech sector meltdown was already in full swing and the treasury department at Santa Clara, Calif.-based Sun Microsystems needed updating. During the go-go Internet boom days, a 20% growth rate at Sun meant few paid close attention to foreign exchange exposure; the goal was to sell computer servers. But when the party ended, the shortcomings in treasury quickly came to light, particularly as the company moved to become more proactive in managing foreign exchange risk.

The solution came with a Web-based FX tool called Crystal Ball that was developed in-house and enabled field finance staff to submit exposure forecasts in a consistent format that would interact with Sun's trading platform from FXall. The end result is a seamless link that allows trade information to be aggregated in Crystal Ball for trading via FXall. From there the executed trades are uploaded into Sun's Quantum treasury system to be populated into the general ledger.

The moves to a Web-based system have yielded an estimated $1.2 million in annual pre-tax savings and have extended Sun's hedge duration without costing the company more. Also, rather than using two-month options, the company is now able to utilize three layers of option hedges, permitting more exchange rate flexibility.

BRONZE: CISCO SYSTEMS INC.

In just 5 1/2 years, this San Jose, Calif.-based telecommunications giant's cash and investment portfolio had grown tenfold to $21 billion, but the treasury department's ability to put its arms around its ballooning portfolio hadn't kept pace. Risk management reporting was piecemeal and cumbersome, while accounting for assets proved to be a chore in large part because it was a manual process that required the meshing of disjointed systems. When Cisco and its external portfolio asset managers decided the company needed to expand its investment operations both domestically and internationally, it was clear that the time had come to bring some clarity to Cisco's risk management.

The company identified three areas of risk that it faced in managing its mammoth portfolio: operational risk, accounting risk and investment risk. It then looked for vendors that could provide straight-through processing for trades done internally and could be consolidated with the external asset management positions. Cisco chose Bloomberg's Portfolio Trading System to manage the operational risks, State Street Corp. to tackle accounting issues, and RiskMetrics to handle the task of providing Cisco treasury with a true picture of its investment risk.

The upshot: Treasury was able to streamline its accounting processes, enabling staff to spend more time analyzing data rather than focusing on clerical duties like data entry. What's more, the task of closing the investment books each month has been slashed to a 90-minute process from what once took 120 people- hours to accomplish.

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THE JUDGES AND HOW THEY WERE SELECTED

Frederick D.S. Choi, dean, undergraduate college,

Stern School of Business, New York University

Glenn Gunn, Treasurer, Alcatel USA

Matthew McKenna, Treasurer, PepsiCo Inc.

J. Kevin Nater, Treasurer, Dell Computer Corp.

Richard Passov, Treasurer, Pfizer Inc.

Each judge read all entries in the nine AHA categories. They then graded them and sent the grades to T&RM's editors. The editors added up the grades to see which company scored the highest and awarded the gold, silver and bronze accordingly. Judges recused themselves from voting in categories in which their companies had submitted applications. To choose the overall winner, the judges discussed, via conference call, the quality of the winning applications and the potential impact of the innovation on the profession until a consensus was reached as to which company should be awarded the overall prize.