Oil Prices, Health Care Costs, Security Expenses Still Take Toll Private
Companies Voluntarily Adopting Sarbanes-Oxley Provisions
FLORHAM PARK, N.J. and NEW YORK, Sept. 21 /PRNewswire/ -- CFOs' optimism
about the economy and their own companies' financial prospects remains high,
virtually unchanged from last quarter, despite continuing high oil prices,
relentless increases in health care costs and added expenses required to
protect their companies from a possible terrorist attack.
Oil, Terrorism, Health Care
According to the September "CFO Outlook Survey," conducted by Financial
Executives International and Baruch College's Zicklin School of Business, oil
prices are hurting earnings at about one out of five companies (19%) overall.
The manufacturing industry is the most affected, where 36% report a
significant negative impact. At all companies, an additional 11% of CFOs
expect a significant negative earnings impact if the price per barrel of oil
reaches $50. In contrast, two-thirds of respondents say earnings are not tied
to the price of oil in any significant way.
Of the companies impacted by oil prices, 65% have absorbed most or all of
the additional cost, rather than passing it along to customers.
Two-thirds of companies report increased expenses related to terrorism
concerns; however, the increase averages only 3.5% percent for all companies.
Health care costs, which CFOs report rose 10% over the past twelve months,
are expected to rise another 9% in the coming year. For the past several
years, CFOs have been forecasting double-digit healthcare increases.
Despite this challenging business environment, CFOs' economic optimism
averaged 71.98 (out of 100), just off last quarter's record high of 73.55.
Optimism about company prospects was also virtually unchanged at a near record
high of 76.06.
"Overall, CFOs see the economy as staying the course," said Burton
Rothberg, Assistant Professor of Accounting at Baruch College. "While they
acknowledge the burden of numerous external factors, their forecasts suggest
spending, earnings and revenues will increase. They're also expecting modest
increases in employee count and salaries, with a spike in prices planned over
the next year that exceeds today's inflation rate." (See page 3 for specific
forecast figures.)
Regarding interest rate levels, Mr. Rothberg noted that last quarter the
surveyed CFOs as a group had been accurate in predicting that the market was
overestimating the increase in rates. This quarter, CFOs still lean to the
bearish side of interest rates, but not as strongly. About half feel the
futures markets are "just about right" in forecasting that short-term interest
rates will rise to 3.05% over the next twelve months. Forty-two percent think
the market is overestimating the increase. Last quarter, the market had
forecast a rise to 3.50%.
Private Company Views on Sarbanes-Oxley
To gauge the accuracy of conventional wisdom, FEI and Baruch queried
private companies this quarter on their attitudes towards Sarbanes-Oxley.
Results indicate it is being embraced by private companies. Almost 60% of
surveyed private companies plan to comply with at least some aspects of
Sarbanes-Oxley (see list on page 3 for more detail). The reasons cited by
those who are complying at least in part are that "it's a better way to run a
business," 61%; "they anticipate it will apply eventually to private
companies," 52%; and "stakeholders should be treated like public investors,"
35%. (More than one response was allowed).
Of the private companies that might consider going public, over half (54%)
say Sarbanes-Oxley will not deter them. In contrast, 20% are holdouts, saying
they will not go public because of the requirements.
Public Companies Under Scrutiny
Now that mutual funds must publicly disclose their proxy votes, just over
half of the public company CFOs surveyed say these institutional investors are
more interested in their companies' business and corporate governance
practices than they were a year ago. Further, 42% say that they have more
analysts covering their companies than they did the prior year.
Despite expectations to the contrary, Sarbanes-Oxley is not creating
widespread problems with earnings announcements. Sixty-nine percent of public
company CFOs in the survey say the timing of their company's year-end earnings
release will not be affected by Sarbanes-Oxley, and 59% say their book closing
process is not taking longer.
Corporate Forecasts
Average Expected % Change
over the Next 12 months
Health Care Costs* 9.1%
Number of Employees* 5.1%
Wages/Salaries* 3.6%
Capital Spending** 7.8%
Technology Spending** 6.5%
Prices of Products** 4.0%
Earnings** 24.0%
Revenues** 13.3%
* Employee-weighted averages
** Revenue-weighted averages
Private Company Sarbanes-Oxley Compliance
Percentage based on the group of private companies that are complying with
parts of Sarbanes-Oxley
Company documentation of financial controls 72.6 %
Auditor testing of financial controls 67.9 %
CEO and CFO signing of financial documents 65.5 %
Independent audit committee on board 50.0 %
Independent compensation committee on board 40.5 %
Majority of independent directors 36.9 %
About the Survey
For full survey results, visit http://www.cfosurveys.com.
This quarter, the CFO Outlook Survey, conducted by Financial Executives
International and Baruch College's Zicklin School of Business, interviewed 221
corporate CFOs electronically the second week of September. CFOs from both
public and private companies and from a broad range of industries, revenues
and geographic areas, including some off-shore companies, are represented.
Survey respondents are members of Financial Executives International.
Revenue-weighted averages are provided for earnings, revenues, capital
spending, technology spending, and prices of products. Employee-weighted
averages are used for health care costs, number of employees and
wages/salaries.
FEI has been conducting surveys gauging the country's economic outlook
from the perspective of corporate CFOs for the past eight years.
Financial Executives International (FEI) is the leading advocate for the
views of corporate financial management. Its 15,000 members hold
policy-making positions as chief financial officers, treasurers, and
controllers. FEI enhances member professional development through peer
networking, career planning services, conferences, publications, and special
reports and research. Members participate in the activities of 86 chapters,
75 of which are in the United States and 11 in Canada. For more information
about FEI, visit http://www.fei.org.
Baruch College, founded in 1847, is a senior college of the City
University of New York. The Zicklin School of Business at Baruch College is
the largest collegiate school of business in the nation, producing graduates
who assume leadership positions in all areas of American business as well as
conduct important academic research. Baruch has one of the largest accounting
programs in the country whose graduates become practicing CPAs.
Contact:
Andrew Healy Chris Allen Burton Rothberg
TowersGroup FEI Baruch College
Zicklin School of Business
212.354.5020 973.765.1058 646.312.3204
andrewhealy@towerspr.com callen@fei.org burt@rothberg.net
SOURCE Financial Executives International; Baruch College
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Related links:
http://www.fei.org
http://www.cfosurveys.com
Company News On-Call:
http://www.prnewswire.com/comp/310650.html
CONTACT:
Andrew Healy of TowersGroup, +1-212-354-5020,
andrewhealy@towerspr.com; or Chris Allen of Financial Executives
International, +1-973-765-1058, callen@fei.org; or Burton
Rothberg of Baruch College, Zicklin School of Business,
+1-646-312-3204, burt@rothberg.net
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