Published On: Wed, Jun 17th, 2015

The Morning Ledger: Corporate Tax Reform- Stay Focused on the Big Picture

Paul Ryan.

Paul Morse

Good morning. The current corporate tax structure in the U.S. is eroding the tax base and the U.S. needs to use its tax rate to compete for business, said Paul Ryan (R., Wis.), chairman of the House Ways and Means Committee.

Mr. Ryan called corporate tax reform an issue of economic survival, CFO Journal’s James Willhite writes. He said it is important for the business community to keep in mind the larger goals of tax reform, such as getting rates down, and not get lost squabbling over details. “The biggest threat [to U.S. businesses] is that you will have a system where there is no haven for lower tax rates,” Mr. Ryan said in a conversation with The Wall Street Journal’s editorial board member Kimberley A. Strassel at the WSJ CFO Network annual conference in Washington, D.C.

CFO JOURNAL TODAY

John Noseworthy and Bernard Tyson.

Paul Morse

Data will drive better, cheaper healthcare, CEOs say.  Healthcare executives are betting on efficient data use to drive down costs in the sector, CFO Journal’s Maxwell Murphy writes. The chief executives of two not-for-profit health-care companies speaking at The Wall Street Journal’s CFO Network in Washington Tuesday said they’ve harnessed remote diagnostics and the electronic health record to achieve their cost-cutting goals.

Activists know eyes of the market are on them, says Jana. Activist investors have to keep up their performance in order to avoid a backlash from the public, says Charles Penner, a partner at activist fund Jana Partners LLC. “People are watching,” he said, during a  panel discussion at The Wall Street Journal’s CFO Network Tuesday in Washington D.C. He said a fund like Jana, which invests in companies and then agitates for changes, is simply “a market-driven mechanism” for dealing with underperforming companies, CFO Journal’s Vipal Monga writes.

Economy not fully recovered, says White House adviser. White House economic adviser Jason Furman, told a gathering of corporate finance chiefs that the U.S economy is not fully recovered yet, CFO Journal’s Vanessa O’Connell reports. Mr. Furman, chairman of the White House Council of Economic Advisers, told the WSJ CFO Network Tuesday that there wasn’t “any reason” to worry about the longevity of the economic expansion, following the longest continuous period of job growth in the U.S.

Trade bill needs currency safeguards, says Ford CFO. The current trade bill under congressional consideration fails to properly address the potential for currency manipulation, said Ford Motor Co.F +0.13% finance chief Bob Shanks.  He said the company typically supports foreign trade initiatives, but the automaker is against the Trans-Pacific Partnership in the current form because it lacks disciplined principles around foreign currency manipulation, , CFO Journal’s Kimberly S. Johnson reports. Ford recommends an International Monetary Fund framework, which offers safeguards.

Currency volatility took $32 billion chunk out of first quarter results. The adverse effects of volatile currencies on U.S corporate earnings are at their highest levels in years, CFO Journal’s Emily Chasan reports. Currency volatility accounted for a total cost of at least $31.7 billion for North American and European companies in the first quarter, up from $20.2 billion in the fourth quarter. North American and European companies that told investors they struggled with foreign currency on quarterly conference calls reported a 57% increase in hits to sales and earnings from currency movements, according to a study by foreign exchange risk management company FiREApps.

THE DAY AHEAD

The Mortgage Bankers Association will release results for the mortgage purchase applications index at 7:00 a.m.

At 2:00 p.m., Federal Open Market Committee meets to announce on policy rates. Following the announcement, Fed Chair Janet Yellen will hold a press conference at 2:30 p.m.

FedEx FDX -2.96% is ready to deliver. FedEx Corp. releases fiscal 2015 results Wednesday. The company acquired Dutch competitor TNT Express this spring, in an effort to gain a stronger foothold in Europe, Ahead of the Tape’s Spencer Jakab reports. FedEx is hitting some of its long-term financial goals as well.  Wednesday’s results should show the company has lifted operating margins to nearly 9% from 5.8% five years ago. Analysts expect per share earnings of $2.67 for the fiscal year ended May, up from $2.46 in the prior period.

CORPORATE NEWS

James Park, co-founder of FitBit in San Francisco Calif., Wednesday, March 5, 2014.  Jason Henry for The Wall Street Journal

Fitbit IPO is tracking a $3.7 billion valuation. Fitbit Inc., pioneer in wearable fitness-tracking devices is set to raise more than $600 million as early as Wednesday evening, the WSJ’s Corrie Driebusch reports. Deal tracker Dealogic said the initial public offering is shaping up to be the fifth largest in the U.S. this year. A recognizable consumer brand, strong revenue growth and annual profit are all helping generate buzz among investors. Fitbit would be just the second company out of 12 tech IPOs this year to report net income in its latest fiscal year according to Dealogic.

Hedge fund bet hits pensions. Companies have been betting their pensions on hedge funds over a period when the stock market has been performing much better. The Wall Street Journal’s Timothy W. Martin reports that large corporate pension funds quadrupled the share of their portfolios invested in hedge funds over the past five years, according to an analysis of S&P 500 firms by Wilshire Consulting.  During that period, those pensions lagged behind the performance of the broader stock market in four years out of five. Their return of 9.7% in 2014 was below 13.7% for the S&P 500, including dividends. Private-sector pension funds now account for 20% of cash invested globally by institutional investors in hedge funds, according to pension investments tracker Preqin.

Amazon’s next delivery drone: You. Amazon.com Inc.AMZN +0.13% is considering plans to recruit the American public to its roster of delivery personnel, bypassing traditional courier services in the process. The Seattle retailer is developing a mobile application that would, in some cases, pay ordinary people, rather than carriers such as United Parcel Service Inc., to drop off packages en route to other destinations, according to people familiar with the matter. With the service, known internally as “On My Way,” Amazon would enlist brick-and-mortar retailers in urban areas to store the packages, renting space from them or paying a per-package fee, the people said.

Investment bank Houlihan Lokey has filed confidentially for IPO. Houlihan Lokey Inc., one of America’s largest independent investment banks, has confidentially filed for an initial public offering, people familiar with the company said. The firm has been considering an IPO since last year and is working with Goldman Sachs Group Inc.GS -0.29% and Bank of America Corp.BAC -1.03% on the deal, the people added. Companies can file confidentially for U.S. IPOs if they generate under $1 billion in annual revenue – Houlihan generated about $700 million in revenue in its prior fiscal year. Founded in 1972, it has advised on some of the biggest bankruptcies in history, including Enron Corp and Lehman Brothers Holdings Inc.

Banks feel pinch from declining overdraft fees. Overdraft fees are disappearing as a big earner for banks, thanks to tighter regulation and firms implementing more customer-friendly policies. More large banks are waiving certain overdraft fees, capping the number of times customers can incur the charges and processing transactions in the order they occur rather than by the dollar amount. The changes are hitting the bottom line, analysts said.

Showdown looms in bankruptcy of gun-maker Colt defense. Bondholders are criticizing gun-maker Colt Defense LLC over plans for an early August auction led by its current majority owner. The bondholder group is offering a $55 million loan to keep the company afloat during its chapter 11 restructuring says Colt is rushing into a sale that will leave too little for them. In a court filing, they accuse Colt of wanting the court “to order an expedited sales process that it has guaranteed will chill competing bids.” The troubled firearms manufacturer has said its business is too fragile to withstand a long stay in chapter 11.  A large segment of the company’s revenue comes from government sources.

Fund managers pile into cash amid market volatility. Fund managers globally hold more cash now than they have at any other time during the past six months, according to a survey released Tuesday by Bank of America Merrill Lynch. In Europe, fund managers are holding more than they have since the depths of the financial crisis in March 2009. Over the past month, bond and stock markets have witnessed some of the biggest swings in years, triggered partly by anticipation of an interest-rate increase in the U.S. and concerns over Greece’s protracted financing negotiations with its international creditors.

REGULATION

Fed seeks feedback on ‘stress tests’. A top Federal Reserve official is reaching out to a variety of bank executives to discuss how the central bank might make its annual “stress tests” less stressful. The discussions between Fed governor Daniel Tarullo and bank executives comes as Washington and Wall Street debate whether post crisis rules, including the annual tests of banks’ ability to withstand tough times, should be scaled back for smaller banks. The chief executives of U.S. Bancorp, Capital One Financial Corp., PNC Financial Services Group Inc. and BB&T Corp. met with Mr. Tarullo last month to discuss potential changes to the process.

Fed faulted BofA regarding its foresight. The Federal Reserve reprimanded Bank of America Corp. earlier this year for not anticipating problems with its “stress test” submission. The Fed has told Bank of America it doesn’t believe its management is forward-looking enough and instead merely reacts to problems after they are raised by regulators. In response to the criticism, Bank of America hired several outside consultants, including McKinsey & Co., KPMG LLP, Ernst & Young and Deloitte, to scrutinize the way it runs the tests, according to others close to the situation. The bank disclosed in April that it would spend an extra $100 million this year to improve its stress-testing procedures.

Former AIG AIG -0.19% chief Greenberg to appeal damages ruling in bailout case. Maurice R. “Hank” Greenberg, former longtime chief executive of American International Group Inc. said he would appeal the federal court decision not to award shareholders any of the $40 billion in damages they were seeking.

A federal judge’s ruling Monday that the government overstepped its authority in demanding an equity stake in bailing out American International Group Inc. in 2008 was a moral victory for Mr. Greenberg. But Judge Thomas C. Wheeler of the U.S. Court of Federal Claims said “zero damages” were being awarded because he had to take into consideration that AIG’s alternative to the government’s harsh deal terms was to file for bankruptcy, an outcome that likely would have left shareholders with nothing.

ECONOMY

U.S. Treasury bonds gain on Greece; Fed rate statement looms. U.S. government-bond prices rose for a second consecutive day, as investors sought refuge amid jitters over a possible default by Greece. A breakdown in talks between Greek officials and international creditors over the country’s debt has sparked worries about how a default would ripple through global financial markets and the eurozone economy. That has bolstered the allure of Treasurys and other developed-country bonds, which had sold off sharply in recent weeks on improving economic data and valuation concerns.

Chinese firms put cash to work in stocks. Chinese companies are turning to an unlikely source for profits in the soft economy: the country’s red-hot stock markets. Chinese companies are finding stock investing an attractive option as the wider economy struggles with tepid demand and excess industrial capacity. Persistently high borrowing costs and have also contributed to the equity push.

CFO MOVES

Marvel Entertainment LLC, a New York subsidiary of Walt Disney Co., named Rob Steffens CFO, Variety reported. He will succeed Chris Acquaviva, who “is leaving amicably…to pursue new opportunities” according to an e-mail provided to CFO Journal. Mr. Steffens has been CFO with Broadway Video Entertainment Inc., according to a LinkedIn profile. He was previously an executive vice president of operations for Marvel Entertainment and a general manager for Marvel Studios LLC, according to the profile.

Leidos Holdings Inc., a Reston, Va., holding company operating in health, engineering, national security and corporate areas, named James Reagan CFO, effective July 6. Mr. Reagan has been CFO at Vencore Inc. Leidos Holdings in January said CFO Mark Sopp would retire, citing a desire to spend more time with his family and “other personal goals,” according to a news release. Mr. Reagan will receive a salary of $550,000, a signing bonus of $150,000 and equity valued at $1.4 million, according to a regulatory filing. Additionally, he will be eligible for a 2015 bonus between $267,000 and $422,000. Mr. Sopp received compensation valued at $1.9 million including a salary of $640,000 in the company’s 2014 fiscal year, according to a proxy filing.

ZS Pharma Inc., a Redwood City, Calif., biopharmaceutical company, named Jeffrey Farrow CFO. Mr. Farrow was CFO at Hyperion Therapeutics Inc. until May, the monthHorizon Pharma HZNP +4.57% PLC acquired that company, according to a news release. He succeeds Todd Creech, who will “pursue other opportunities,” according to ZS Pharma’s news release. The company is relocating the CFO role from Texas to the Bay Area, according to the release. Mr. Farrow will receive a salary of at least $415,000 and will be eligible for a bonus targeted at 40% of that base salary, prorated for 2015, according to a regulatory filing. Additionally, subject to approval by the board of directors, he will receive a stock option for 85,000 shares of common stock, vesting over time.

 

[“source – wsj.com”]