New AFP Liquidity Survey Reveals Businesses Maintaining High Level of Cash

Accumulating Cash a Sign of Uncertainty About the Future

Bethesda, MD – August 9, 2007 – The Association for Financial Professionals (AFP) 2007 Liquidity Survey has found that U.S. businesses are maintaining high levels of cash and a significant percentage (36%) are building their cash positions. More than a quarter (27%) expect their organizations to increase their short-term balances over the next year. Stockpiling cash is a sign that businesses are unwilling to invest in acquisitions, capital improvements, and expansion due to uncertainty about economic and business conditions.

The survey, underwritten by Citi, reported that many organizations increased their U.S. holdings of cash and short-term investment vehicles over the six-month period surveyed from November 2006 to May 2007. During the same time period, fewer organizations increased their non-U.S. cash holdings. In the cases of both U.S and non-U.S. holdings, organizations were more likely to have maintained their current cash and cash equivalent balances than they had a year earlier.

"Companies hold and accumulate cash for a number of reasons, including a precautionary cushion against unexpected events, protection against a 'credit crunch' and the ability to fund strategic investment opportunities that may arise," said Jeff Glenzer, Executive Director of AFP’s Corporate Treasurers Council. "This survey shows that the current investment climate and economic conditions have not yet presented a compelling argument for companies to invest rather than preserve cash."

The AFP 2007 Liquidity Survey was conducted to provide financial professionals with an understanding of how organizations are currently managing their short-term portfolios. In addition to changes in cash and cash equivalent positions, the survey covered a variety of topics -- goals and challenges of cash strategies; use of various investment tools, including multi-family trading portals; selection of investment service providers; cash investment policies; and the evolving status of cash equivalents.

"We are confident that practitioners will benefit from the wider view of industry practices outlined in this survey, to either confirm their current approach or serve as a catalyst to advance their liquidity and investment programs," said Elyse Weiner, Managing Director and Head of Global Liquidity and Investments at Citi.

Here are some of the survey’s key findings:

• In May 2007, 36 percent of organizations held a larger U.S. cash and short-term equivalent balance than they carried six months earlier
• 27 percent of financial professionals expect their organizations to increase their U.S. short-term cash and equivalents balances over next 12 months
• Most organization’s policies allow diversity of investment vehicles beyond bank deposits and treasury bills for short-term investments (6.4 vehicles on average), but most organizations remain conservative, on average using 2.7 different investment options for their cash and short-term equivalent balances.
• Organizations typically expect to earn up to an additional 25 basis points by investing in cash equivalents rather than cash investments.
• One-third of organizations that invested in either auction-rate securities or variable rate demand notes reduced use of these investment tools after the major accounting firms ruled that these instruments were not "cash equivalents."

Survey respondents reported that they have not experienced and do not expect significant changes in their cash and cash equivalents balances despite the new accounting decisions and recent Financial Accounting and Standards Board’s (FASB) rulings to eliminate cash equivalents. However, it may be too soon to determine what financial impact the FASB ruling may have on businesses because not enough time has passed for organizations to assess the impact, if any.

The survey did show companies are permitted to spread their short-term investments across a variety of investment vehicles using money market mutual funds (76%), commercial paper (69%), and repurchase agreements (57%). At least two-thirds of organizations allow at least half of their cash and short-term equivalents balances to be placed in bank deposits, money market mutual funds, agency securities and treasury bills.

According to the survey, some of the challenges that organizations face in optimizing investments, include:

• Obtaining accurate cash forecasts (67%)
• Getting real-time visibility over cash in bank accounts (42%)
• Consolidating cash held in multiple entities (42%)
• Late-day transactions (39%)

In addition, 37 percent of financial professionals indicate that regulatory, tax and/or legal considerations hamper their ability to optimize their organizations’ cash and short-term investment strategies. Further complicating things are the rules and regulations (and interpretations of them) that tend to be dynamic in nature, potentially changing from one quarter to the next.

The survey was conducted in May 2007 with 449 corporate practitioners responding on the strategies associated with the management of short-term investments. The complete AFP 2007 Liquidity Survey report is available to download at www.AFPonline.org/research.

About AFP®

The Association for Financial Professionals (AFP) serves more than 16,000 individual members throughout all stages of their careers in treasury and financial management. Headquartered in Bethesda, MD, AFP provides professional certification, continuing education, research, development of industry standards, financial tools and publications, training and career development and representation to legislators and regulators. AFP’s global reach includes AFP of Canada, a Toronto-based membership organization and gtnews, a London-based, on-line resource for the treasury and finance community.

AFP is the daily resource for its members to seek answers, solutions, best practices and collaboration with peers. For more information about AFP, visit www.AFPonline.org.