There are treasurers who win kudos when the
economy is strong and the markets are surging.
Well, that's not so hard. There are treasurers
who manage to excel when simply tough times
would be a relief. Then, there are treasurers like
Edward M. Dwyer. As treasurer of AT&T Corp. since
1997, Dwyer has seen it all with the telecommunica-
tions giant. When he first took charge of the company's
treasury, AT&T was a darling of Wall Street, with a
strong credit rating and a fabled CEO on an acquisi-
tions spree. C. Michael Armstrong was gobbling up a
string of mammoth cable TV properties that were to re-
define AT&T as a broadband supplier of everything
from local phone service to Internet. When that strate-
gy failed and the binge left the long-distance carrier
strapped with debt and teetering, Dwyer was charged
with keeping AT&T solvent as it sold off non-core as-
sets and returned to offering long distance service.
Dwyer entered a new world of credit down-
grades and a jittery–and sometimes outright
hostile–Wall Street.
Now, after having toiled for three years help-
ing to transform the Bedminster, N.J.-based
telecom into a leaner, albeit far smaller, finan-
cial performer with an unburdened balance
sheet, he has a new mission: Cut down the company's re-
liance on the capital markets. "The most important job
that I can do for AT&T, given the uncertainty [in the
telecom sector and the economy], is ensure that we have
financial flexibility so we don't have to make sub-optimal
decisions," the treasurer says. "The credo around here is
liquidity and financial flexibility. Without it, you are at
the mercy of the market."
But Dwyer realized treasury couldn't accomplish that
alone. He and his treasury staff of 36 set out to re-educate
AT&T employees on the need to consider the cash flow
implications of every decision they make. It also meant
taking a hard look at treasury's own efficiency level.
"Over the last three years, AT&T's treasury has been so
focused on transactions and restructuring that we
haven't focused on the blocking and tackling," Dwyer
says. "We are now in the process of looking at processes
like cash management, foreign exchange and derivatives
to make sure we haven't missed anything."
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Though that's certainly a tall order for any treasurer,
Dwyer views the systems evaluation as a breather from
the slog through bond issues, equity offerings and asset
sales that he and his team–most notably, Assistant
Treasurer Jim Hodge and treasury directors Will Prip,
Shelley Rothenberg, Mary Ellen Skinkle, Patrick Mo-
letteri and David Barach–were forced to pursue in or-
der to chip away at the debt that Armstrong
accumulated.
Their results have been impressive: His team helped
AT&T amass $8 billion in cash, while at the same time
cutting the debt load from an onerous $56.2 billion at
the end of 2000 to $12.9 billion at the close of 2002.
Analysts say that AT&T, which operates in an industry
of over-leveraged companies, is now actually under-
leveraged, with what analysts call one of the strongest
balance sheets in the sector. The company has achieved
a net debt/total capital ratio of just 37%–one of just
two telecoms (BellSouth Corp. is the other) to achieve
so much success in debt reduction. The norm for tele-
coms runs in the 50% to 60% range. "I don't believe peo-
ple see how under-leveraged they are," says Susan Kalla,
an equity analyst at Friedman Billings Ramsey. "They
have done a masterful job."
Still, this is a very different company from the one
that Dwyer originally joined, and he, along with the rest
of the AT&T treasury, has had to make adjustments. Af-
ter once being the dominant player in the U.S. tele-
phone business, AT&T is now roughly half the size of the
smallest Baby Bell, with a market cap of around $15 bil-
lion. Its smaller size and dwindling credit rating–now a
triple B–has made raising capital that much tougher–
and more expensive.
Some financial analysts believe the shrinkage could
make it an M&A target for an offspring created with the
1984 breakup of Ma Bell or perhaps a foreign concern
looking to break into the U.S. market. "Long term, they
cannot remain an independent company," says Patrick
Comack, a telecom analyst at Guzman & Co. in Miami.
"The evolution of long distance is such that it will be-
come obsolete."
The bleak outlook for long distance has blinded some
on the Street to the new financial profile the company
has been able to carve out. "[AT&T] is clearly in the
midst of some pretty dramatic changes," says Robert Ray,
senior vice president at Moody's Investors Service,
which has a negative outlook on the company largely be-
cause of market conditions. "The efforts to reduce its
debt load are pretty significant, and their current finan-
cials are very, very strong. But when does this company
settle and reach a position of relative stability? I don't
have a definitive answer."
Planning on Going It Alone
For his part, Dwyer says AT&T has enough cash on
hand to remain a stand-alone company, and treasury is
making financial decisions on the assumption the com-
pany will be going it alone for the foreseeable future,
even if long distance isn't the cash cow it once was. "We
have had to redouble our efforts in turning over every
stone to generate incremental cash," he says. "My role as
treasurer is more engaged now in the flows of the busi-
ness than it was in 1997, when I would stand at the
mouth of the river and not be affected by the tributaries
upstream. Today, I run up and down the river making
sure the tributaries remain robust, and if they're not,
have a plan in place to deal with it."
In 1997, when Dwyer started as treasurer, the only
reason AT&T employees might have known his name
was "because they saw it on their paychecks." Today,
they know who Dwyer is. "Before 2000 [when AT&T
announced it would split up its cable, wireless and
long distance businesses], I had never been to a board
meeting," he says. Today, treasury is a "fixture on the
board agenda."
And even though cozying up to the banks is still a
challenge, thanks to the continued weakness in the sec-
tor, Dwyer is confident. "AT&T is in a league of its own,"
he says. For the first time in a long time, Dwyer is even
letting himself think about taking a vacation.
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