Greetings from the HOME office for once, and I do mean HOME. It's a beautiful morning in "Jersey" (learned last week that to be a real local you don't say "New Jersey").

It's been a really big week for FEI! We had our first virtual chapter meeting, our big quality of earnings conference yesterday, and we're on front page of the WSJ today. Sometimes, there is so much interesting stuff going on I think my brain's going to pop!

Earnings Press Releases and Pro Forma Earnings
You may have seen this in today's WSJ, but FEI and NIRI just released best practice guidelines on the use of pro forma earnings in earnings press releases. CCR Chairman and GE Comptroller Phil Ameen did another masterful job on this project, along with many other committee members. NIRI contributed significantly as well and jointly published the guidelines with us.

The important points in the release are that earnings should include "reported" results under GAAP. While there are many cases where pro forma earnings are more useful, they should always be accompanied by clearly described reconciliation to GAAP results, which are often provided in a tabular format. In addition, the release includes a discussion of both the positive and negative factors significantly impacting the results.

You really should read the full document on our website.

Replay of Rossabeth Moss Kanter Virtual Chapter Meeting
We’re pleased to present to FEI Members our first-ever virtual chapter meeting, recorded last week. Rossabeth is the Ernest Arbuckle Professor of Business Administration at Harvard Business School. She specializes in change management. In my opinion, she is one of the best public speakers in America, and she absolutely delivered on her outstanding reputation. Thirteen chapters around the country participated, and I want to give them special thanks for their extra effort. The replay will be available Monday, April 30 on FEI's website.

FASB Summary of Business Combinations Comment Letters
The FASB has made some progress and additional decisions on the business combinations project. Here's a summary from our VP of Technical Activities, Dean Krogman:

G. Michael Crooch, board member of FASB, commented on changes the Board has tentatively made to the proposed standard on business combinations to improve operations. First, the definition of "Reporting Unit" will be changed to mean a unit that is at the same level as, or one level below of, an operating segment as defined in FASB Statement No. 131. We hope that this change will clear up a lot of confusion. Second, goodwill will not be considered impaired unless the fair value of a reporting unit is found to be less than its carrying amount, including goodwill. Therefore, when testing for impairment, if a company determines that the fair value of the reporting unit being tested exceeds its carrying (or book) value, the unit will be categorized as "not impaired," and the time and cost involved in determining the fair value of all the assets and liabilities of that reporting unit (paragraph 88 of APB Opinion No. 16) could be avoided. This could be yet another positive step.

You can also read the FASB's summary of all the comment letters (interesting reading that I recommend) on the FASB website.

FAS 133 and CCF
Our Committee on Corporate Finance recently lobbied the FASB and its Derivatives Implementation Group (DIG) regarding an important FAS 133 issue. CCF member Al Wargo, Treasurer of Eastman Chemical Company, reported this week on the DIG's ruling:

"Great News for users of options/caps/collars/floors! The FASB staff has just issued an interpretation of FAS133 that permits the market-to-market of options to go to OCI rather than earnings. Thank you to many of you for writing letters to the FASB on this issue over the past several months, both individually and as a committee."

You can view the new interpretation on the FASB's web site. (look about halfway down the page).

Quality of Earnings Conference
Yesterday, the FEI Research Foundation and the AICPA produced a one-day conference on Benchmarking the Quality of Earnings. Denny Beresford chaired the day. The following is a summary of speaker presentations:

• SEC Chief Accountant Lynn Turner - Lynn criticized sell-side analysts heavily. He recommended that they remove the word "analyst" from their titles and recognize that they are salespeople. He encouraged them to renew their commitment to professionalism. If they do not, he suggested there would be new regulations implemented that include lots of transparency as to the role of the analyst and their economic interests.

  Lynn listed numerous CFOs that received jail time for fraudulent reporting and manipulating the numbers. He also made the point that some defendants involved in current problem cases are looking at a minimum sentence of ten years in prison! He definitely got the audience's attention at this point, but I thought his comments were a little heavy-handed.

  He commented on FEI and NIRI's just-released best practices guidelines for earnings press releases. He applauded our efforts and called it a major step forward, especially citing the call for comparable reconciliations of pro forma earnings to GAAP-based results.

  Asked about the rate of change in the accounting rules, Lynn felt that the world was changing rapidly and that the rules needed to reflect the substantial changes we've experienced.

  On FAS 133, the audience wanted to know if the SEC staff would be lenient where a company had made a sincere effort to properly implement 133 and just missed the right answer due to the complicated nature of the standard. He said it was the SEC's job to enforce the rules and was hesitant to go much further. He discussed situations where they can tell the company has tried its best to implement a particular rule, but noted that it was of utmost importance to correct the error.

• Pat McConnell - Pat's an analyst from Bear Sterns, and was part of a panel of analysts commenting on the quality of earnings:

  "Financial reporting is like sausage; properly prepared, it's delicious. But if you look at how it's made, you wouldn't eat it."

  She cited the press's low opinion of the quality of earnings and reporting. She also complimented IBM on their excellent annual report just issued. Additionally, she indicated that she loves the increased length and information contained in financial statements.

  She defines high-quality earnings as those that result in "cash in the bank" immediately, with little uncertainty or contingencies and with a high likelihood of recurrence on a regular basis. She recognizes that it is low volatility and low uncertainty earnings that get higher P/E ratios. But she also pointed out that the old model of taking the historical earnings and applying a P/E to get a value is long gone. Today, analysts take apart the results, dissect the cash flow, and use DCF models or EBITDA to enterprise value to more scientifically value the company. The repetitive nature of the cash flows is most important. She encourages companies to disaggregate the information and numbers as much as possible to make it understandable to investors.

• Howard Schilit - Howard is a noted commentator on "financial shenanigans" in corporate reporting. Mere technical compliance with the underlying accounting rules is not enough, in his opinion. Being true to the economic transaction and the company's situation is more important. He defines a "shenanigan" as a situation where companies have poor control environment, lack of independent board members, inadequate internal audit function, are small fast growth companies, and have a management team facing competitive pressure, etc.

  His seven "shenanigans" include: 1) recording revenue too soon; 2) recording bogus revenue; 3) boosting income with one-time gains; 4) shifting expenses to a later or earlier period; 5) failing to disclose all liabilities; 6) shifting current income to a later period; and 7) shifting future expenses into the current period. Howard is a leading source of ammunition for the short-seller community.

• Roger Trupin, Controller of Citigroup, responded to the analyst's comments. He feels that management teams put more pressure on themselves than the "street" does. He has no sympathy for those teams that break the rules. Neither does he have any sympathy for management that doesn't have strong control systems or strong audit committees.

  Roger observed that FAS 133 has had little impact on the bottom line of companies. He can't understand why we go through all the trouble to implement it with all the cost and tracking.

• Phil Ameen of GE echoed Roger's comments, indicating that GE had $3 billion net income in their recent first quarter and they had a $8 million impact on net income from FAS 133. He asked the question: "How can the confusion and cost of the FAS 133 make it worth the implementation?" Phil also commented on FEI's CCR support for the FASB business combination proposal.
• Shaun F. O'Malley, Chairman Emeritus of Price Waterhouse, talked about the work of his Public Oversight Board (POB) panel on audit effectiveness. In the panel's review of actual audit, they found the number of meetings to be deficient in too many cases. He listed subject areas of under-reporting by the auditors to the audit committees: risk of fraud, compliance with laws, interim financial reporting, and the quality of financial reporting. Regarding the auditor, they must recognize the audit committee as the client, not the management team. Audit committees should request management to report on the control environment within the entity. Also, audit committees should exercise more control of the external auditor relationship.
• Charles Elson, noted corporate governance expert and a professor at the University of Delaware, pointed out that audit committees must pay attention to their charter and review it each year to be sure they are doing what they are expected to. Due to that requirement, Charles expects audit committees to incur higher expectations and possibly higher liability. On financial literacy / expertise, he thinks all directors should be financially literate, but precisely defining what the term means for the audit committee is a problem, because there is no legal definition for the term "financial literacy."

  On the topic of earnings management, he commented that the new audit committee requirements aren't going to solve any problems. He thinks that a much too cozy relationship already exists between the auditors and management. He is also concerned that the new audit rules will create a new super-director category that will discourage qualified applicants from attempting to join audit committees.

• Harvey Goldschmid of Columbia Law School and former general counsel of the SEC strongly disagreed with some of Elson's comments. He noted that increased activity by directors and especially audit committees provide better defenses, not increased legal liability. I think Harvey is right. It is hard to find a case where a director has been found liable when they were diligent and active in their role as a director.

Overall, I was really pleased with the conference and the tremendous insight into these timely topics offered by all the speakers. Kudos to the FEI Research Foundation for doing such a fantastic job!

Women's Forum Series: Investor Relations And The Creation of Value
Join us on Tuesday, May 8, 2001, at the Hacienda Restaurant, located in the Fairmont Scottsdale Princess, Scottsdale, Arizona from 12:00- 1:30pm.

Nancy Humphries, Vice President of Investor Relations for BellSouth Corporation, will be the guest speaker. Nancy will share her views on how investor relations can create value for a corporation in the financial marketplaces as well as how to manage market expectations under Regulation FD. Beth Broderson, Chief Marketing Officer for Hyperion, will give opening remarks.

Partnering with FEI on this Women's Forum Series is Hyperion, the major provider of analytic financial software. For more information, please visit the Conferences Section of FEI's website.

Sixth Annual Spring Professional Development Conference
FEI's Chicago Chapter is pleased to invite other FEI Members to this special event on May 17, 2001 at Northwestern University. This award-winning, one day program is designed to provide senior financial executives and associates with an overview and discussion of issues in areas that will enhance their effectiveness in the workplace and in their careers. Instructors with proven expertise in their fields have been gathered to discuss the topics in which our members have expressed significant interest. For more information and to register, please click here.

Risk Management Survey
The FEI Research Foundation would like to thank the more than 350 executives that have responded to the ongoing enterprise-wide risk management survey. Results from the survey will provide content for Andersen Partner James DeLoach's May 7 presentation at the FEI Summit. If you haven't been able to fill out this survey yet and would like to, click here. Those who respond to the survey by 6:00 p.m. CDT on Monday, May 7, will get a free copy of the Executive Summary of Jim DeLoach's book on Risk Management published by the Financial Times.

Ask the Librarian
There has been an enhancement to FEI's Ask the Librarian service, "Ask the Librarian About…," which offers answers to popular questions condensed into a single article. The current article resides on the Research Foundation page here, and an archive is kept here.

FEI TechKnowledge from the Research Foundation
Earlier this month, the Research Foundation debuted TechKnowledge, a monthly electronic newsletter that will report on new IT products and services, trends in IT services and feature interviews with financial executives who have recently implemented new programs. Check it out!

International Newsletter, Global Update
We just published our first e-newsletter, Global Update, focused on International financial matters. I think it's outstanding and enlightening. Check it out.

Interested In Becoming A Member Of AcSEC?
The AICPA has asked us to recommend a business candidate to serve on its Accounting Standards Executive Committee (AcSEC), which is composed of 15 members drawn from a variety of CPA firms, industries, and universities. Someone from manufacturing has traditionally filled this open spot; however, the AICPA is also interested in considering candidates from new economy and technology companies and financial services. Industry representation on this committee is important because the Statements of Position (SOP) issued by AcSEC can have far-reaching implications, as evidenced by the recent real estate exposure draft which may go beyond real estate investments and become the guidance on when and how to use the equity method of accounting for any equity investment.

If you would be interested in serving on this committee, please contact Janet Luallen at jluallen@financialexecutives.org or Dean Krogman at dkrogman@financialexecutives.org and send in a bio by May 4, 2001. Information on AcSEC projects and their meeting calendar are available on the AICPA web site, in the site directory under AICPA Teams/Accounting Standards Team.

Expert Roundtables
The AICPA is creating Expert Roundtables to explore the current and emerging trends and issues in select industries in a non-competitive environment. Discussion will focus on best practices, risks, valuations issues, financial reporting issues, professional development/conferences, other guidance, etc. For the finance exec, participation in these roundtables will give them an opportunity to network with their peers, share/learn best practices and get issues on the table that need to be addressed by organizations like AICPA. By sponsoring these roundtables, AICPA has a chance to better connect with finance and create programs, products and services to support them. For more information about participating, e-mail Marc Simon (Pharm/BioTech) or Dan Noll (High Tech).

Upcoming Teleconferences
SEC Corporate Governance Update with Roger Bayless: A discussion of accounting and reporting issues arising from recent registrant filings as observed by the SEC Division of Corporate Finance; including compliance with the disclosure requirements of SFAS 131 on Segments of an Enterprise, Restructuring Charges (EITF 94-3, EITF 95-3, and SAB 100), implementation of the interpretive guidance of SAB 101 on Revenue Recognition, and other current issues. Wednesday, May 2nd at 12:00 p.m. ET/ 9:00 a.m. PT

GE Best Practices: Acquisition Integration, How to Avoid the 7 Pitfalls of Buying a Business: Wednesday, May 16th at 1:00 p.m. ET/ 10:00 a.m. PT.

Financing Strategic Initiatives in the Middle Market Wednesday, May 22nd at 2:00 p.m. ET/ 11:00 a.m. PT.

Sign up for all upcoming teleconferences here.

New Member Welcome
Congratulations to James Goltz, President and Treasurer, Quadratech Group LLC, Washington, D.C., and Maureen Lundy, VP of Finance, Jenzabar, Inc., Boston, MA.

Job Posting- CFO (FEI Job #5281)
DHL Airways, the U.S. based cargo airline recently divested from DHL International, is seeking an experienced executive to serve as Chief Financial Officer. As a key member of this new entity's first executive team, the CFO will help the company quickly establish appropriate profitability and ramp up to expected high levels of operation. Based in Chicago and reporting to the CEO, this is an exceptional opportunity to get in on the ground floor of this strongly backed airline's new future. Candidates MUST have experience as a financial executive in the airline, aviation or air-cargo industries, coupled with well-rounded financial expertise, to include experience with Wall Street analysts. CPA/MBA desired. Please respond to: Fleming Jones, Robert W. Dingman Company, Inc., E-Mail: fleming@dingman.com. For more career opportunities, please visit the Career Services Center on FEI's website.

That's all for now,