PAGE   29                                                       Business 
Week

                       April 12, 1976, Industrial Edition

SECTION: CORPORATE CASH; Pg. 28

LENGTH:  790 words

HEADLINE: Shifting rates throw earnings out of kilter

 BODY:    The slide of the British pound, the Italian lira, and the 
French franc against the U.S. dollar has American multinational 
treasurers anxiously reaching for their calculators.  Under a recently 
introduced accounting rule, companies must show the effects of 
exchange-rate fluctuations on their quarterly earnings, which could 
produce profound changes in their stock prices.

   With first-quarter earnings just beginning to surface, the results are 
mixed. TRW Inc., which has bing operations in Brazil where the cruzeiro 
has fallen 24% in the past year, lost about 6 cents per share on foreign 
exchange.  Continental Can Co., with plants in Holland, Mexico, and 
Brazil, figures it lost a similar amount.  By contrast, Ford Motor, 
Johns-Manville, and Memorex all expect an increase in their exchange per 
share from foreign exchange, thanks at least in part to more 
sophisticated foreign exchange management.

   Ironically even those companies benefiting from the new rule are not 
particularly happy.  Jerome Ottmar, president of Amtel Inc., an 
engineering company in Providence, R.I., which gained 93 cents per share 
on currency fluctuations last year (when the accounting change was 
voluntary), believes it leads to distortions.   David Saks,  
vice-president of Drexel Burnham Inc., the Wall Street broker, is even 
more critical.  "This new regulation has done a stupid thing," he says.  
"It has created unnecessary earnings volatility and caused companies to 
do things not in their normal way of doing business. . . all so the 
average investing person will not be confused." The rule comes from the 
Financial Accounting Standards Board.

   Besides ups and downs in their earnings -- and perhaps their stock 
prices -- what bothers the multinationals is the time and effort they are 
expending on the new rule.  Levi Strauss & Co., for instance, has created 
a special foreign-exchange committee that meets weekly and has expanded 
its treasury department to devote more time to exchange dealings.  Crown 
Zellerbach Corp. is reviewing its currency positions more frequently.

   What the multinationals are expending effort on is a stepped-up 
program of balancing foreign assets against foreign debt to smooth out 
the swings so that they do not show up on quarterly earnings reports.  
Johns-Manville, says James F. Beasley, manager of banking and finance, 
has been "borrowing in local currencies rather than in international 
currencies." Memorex Corp. has just started a hedging program in Europe.  
Westinghouse Electric Corp. is sending more dividends back to the U.S. 
from countries with sagging currencies.

   Hedging has its critics, however.  For one thing, it can be costly: 
Blue-chip companies in Italy, for example, pay at least 20% for business 
loans, while their British counterparts pay 10% or more.  Pieter deZwart, 
assistant cashier

                                                                       
PAGE   30

              1976 McGraw-Hill, Inc., Business Week, April 12, 1976             


at  Bank  of America's Global Treasury Management Group in Chigaco, says 
some companies go overboard on hedging.  "Bell & Howell just covers 
everything," he says, "and Consolidated Foods, they always hedge to 
much." Consolidated Foods is now rethinking its strategy.

   A number of companies go further and do not hedging at all.  Beatrice 
Foods Co. forbids covering obligations in foreign currency as a matter of 
policy. Barber-Greene Co., a heavy machinery maker with large British and 
Brazilian operations, lost $1.4 million on foreign exchange fluctuations 
last year but is still not hedging.  Explains Frank J. Merrill, group 
vice-president for international operations: "It's a cost we feel can 
can't justify."

   Barber-Greene, like some other companies that make the same product in 
several countries, can reduce the impact of the fluctuations.  "As the 
British pound has become less valuable," says Merrill, "the prospective 
customer [in a third country] will find our British products less 
expensive.  So what we lose on the apples, we make up on the peaches."

   Continental Can Co., like other U.S. multinationals, recorded big 
fluctuations in its reported earnings because of a new accounting rule 
that requires companies to "translate" foreign exchange gains and losses 
in their income statements.  Under the old rules, such gains and losses 
were set agianst a reserve on the balance sheet, which effectively 
insulated operating results from the uncertainties of floating exchange 
rates.     How a rule change alters             earnings                       
Earnings per share Calendar             Originally quarters              
reported   Restated 1ST                        $0.71     $0.49 2nd                        
$1.29      1.34 3rd                         1.40      1.56

4th                         0.67      0.38            Year 1974       
$4.07      3.77 1st                        $0.40     $0.32 2nd                         
0.83      0.87 3rd                         1.33      1.80 4th                         
0.75      0.65            Year 1975       $3.31     $3.64