Made in America: Manufacturing Jobs Are Coming Home

The tale of American manufacturing has long been one of woeful decline. Just about a year ago, China replaced the U.S. as the world’s No. 1 maker of things, and that seemed a sure sign that the glory days had faded for good. But all of a sudden the talk is of a “manufacturing renaissance,” to quote a new study by the Boston Consulting Group.
The BCG study, “The Return of U.S. Manufacturing,” makes an interesting case. China’s wages are rising by 15 to 20 percent a year, while its productivity will improve at half that rate. The yuan is gaining in value, too, and Chinese-made products are destined to become more expensive. There is a shortage of skilled workers even in major manufacturing centers such as Shanghai and Tianjin.
In the U.S., wage increases have been minimal for years and will remain at 3 percent or so annually. U.S. productivity will remain higher than China’s by a wide margin, and government incentives are also a factor in attracting U.S. manufacturers back home. “Reinvesting in the U.S. will accelerate,” the study says, “as it becomes one of the cheapest locations for manufacturing in the developed world.”
The math that went into this study is impressive, and it works like this: Right now, labor costs in China are slightly less than half those of the U.S. when the difference in productivity is factored in. In five years’ time, labor costs on the mainland will be 70 percent of the U.S. figure. Counting costs such as inventory and shipping, the study says, the Chinese cost advantage will drop to single digits or disappear entirely.
It’s a convergence theory of a kind, and one forecasted result is that outsourcing jobs to China will turn out to have a beginning, middle, and end. “China will no longer be the default low-cost location for supplying the U.S. market,” the BCG study asserts. “The economics are becoming marginal for many products.”
Some interesting figures support the study’s argument. U.S. manufacturing grew at an estimated annual rate of 9.1 percent in the first quarter of this year, compared with a disappointing 1.8 percent for the economy as a whole. There are also some curious cases of prodigal industrial companies already returning home:

• Caterpillar, which has a major presence in China, is building its next plant to make excavating equipment in Texas, tripling its capacity for such equipment in the U.S.
• Ford is repatriating 2,000 jobs from China after reaching an agreement with the United Auto Workers that it says it can live with.
• NCR has already brought its production of automated teller machines back from China to shrink the time from production to market, to stitch divisions closer together and lower operating costs.
• The toy maker Wham-o (and this is my favorite) is repatriating half of its production of Hula Hoops and Frisbees, most from China, some from Mexico.

“It’s very early days, but this trend’s beginning,” says Hal Sirkin, a senior partner at Boston Consulting. “It’s all based on simple economics: wage rates, relative exchange rates, and productivity levels. Over four or five years, manufacturers will be indifferent to producing in China or the U.S. If it’s for the Chinese market, make it in China; if they’re producing for U.S. consumption, make it in the U.S.” 
A couple of myths seem about to explode. One was that manufacturing is finished in the U.S., another that we live in a post-industrial economy. The first is patently untrue—though manufacturing as a share of GDP has been declining for half a century, and steeply for the past decade. As to the second, there is no such thing, in my view, as a post-industrial economy. No one survives without making things.
President Obama is entirely on the right track in declaring a revival of industrial production as one of his economic priorities. But the Boston Consulting study starts to look more than a touch rosy (and too statistics-driven) when you consider a few of the harder facts:

• Recent growth in manufacturing is due partly to a come-from-behind context. True, the U.S. has added 250,000 manufacturing jobs since the start of 2010. Also true: It lost almost 6 million jobs in the past decade, including a third of all employment in manufacturing. 
• Growth in industrial production is concentrated in a few sectors such as oil and computers. “The Case for a National Manufacturing Strategy,” a new study by the Information Technology and Innovation Foundation, a Washington public-policy group, indicates that 15 of 19 sectors, accounting for almost 80 percent of U.S. industrial output—apparel, metals fabrication, machinery, printing, and so on—declined over the past decade.
• The U.S. strategy, such as it has one, is fundamentally different from those of Europe and Japan. Their manufacturing sectors are stable or better because they have automated drastically (Japan) or gone into high-end production (much of Europe). The U.S., by contrast, has lagged in capital investment and appears set to compete primarily by way of low wages and often costly packages of tax breaks and other incentives.

The question is obvious: Do Americans want to make their country a low-cost production platform? Ford is coming (fractionally) home because it can pay auto workers $14 an hour—about 10 bucks less than it paid them when it eliminated those jobs. Henry Ford famously thought his workers should be able to afford the products they made; he believed in a vital middle class. So other questions are obvious, too: What will a manufacturing renaissance, if it arrives, do for this country’s middle-income wage-earners? What will a decade or so of intense outsourcing have cost them in net terms when the jobs come home?
Related Links:
Manufacturing Is Expected to Return to America as China’s Rising Labor Costs Erase Most Savings from Offshoring (Boston Consulting Group)
The Case for a National Manufacturing Strategy (Information Technology and Innovation Foundation)
U.S. Manufacturing Rebound Is a Myth (The Market Oracle)
China Poised to Eclipse U.S. Manufacturing (Open Salon)

A Fragile Recovery for Banks

Commercial banks are facing strong headwinds to growing their business, even as they put their underwriting missteps behind them. A lack of lending and negative effects from regulation have put banks in a "revenue drought," says Lee Kyriacou, a partner at Novantas, a financial services consulting firm.
According to the Federal Deposit Insurance Corp.'s latest quarterly banking report, released on Tuesday, net interest income (the money banks earn primarily from lending) had its first year-over-year drop in 22 years, falling 3% in the first quarter of 2011. The FDIC attributed the downtrend to narrower net interest margins and weak growth in interest-earning assets. Battered by lower revenues from deposit account service charges and reduced trading income, banks also experienced a decline in noninterest income, which fell by $2.2 billion, or 3.7%. In total, banks' first-quarter net operating revenue was off 3.2%.

http://www.cfo.com/article.cfm/14578393/c_14578920

Mazuma Capital Funds Multimillion Dollar Transaction for Environmentally Conscience Ground Clearing and Reclamation Services Provider

DRAPER, UT, MAY 25, 2011–Mazuma Capital, an elite national direct lender, announces it has funded a $2.5 million dollar transaction for a privately owned services company. The company is a prominent national player in the ground clearing and reclamation services industry.  Well known for administering environmentally friendly solutions in order to maintain a miniscule ecological footprint.
With major growth and expansions over the past 18 months the company sought funding for new equipment.  The equipment was engineered with superior fuel efficiency in mind; as well as being able to withstand extreme stress and tough terrain while performing its functions. The equipment was vital as it was needed to accommodate the large amount of growth and expanding service contracts in the oil and gas sector, while still providing a level of environmental responsibility. 
The company had obtained new contracts throughout the country to work with utility providers in need of reclamation and mulching services.  The challenge was finding a structure to meet the needs of the company's growth and financial requirements, while not requiring personal guarantees. Mazuma Capital Corp provided a lease structure to procure the ground clearing and mulching equipment for the company.
Mazuma Capital’s experienced underwriters brought their ability to think outside the box, using innovation and their proven track record in securing funding for growing companies to the table. Mazuma was able to structure the lease to meet the company's needs while ensuring it would foster the current growth and help to facilitate new growth.
“Working with Mazuma Capital allowed us to ride the tailwind of our newly signed service contracts with the right equipment in place.  The flexibility Mazuma offered us was refreshing and it was a great fit for our needs,” said the CEO of the Services Company. “The team at Mazuma did not feel like your typical lender/banker, their business is relationship based on every level.  The dynamic throughout Mazuma’s staff was one of professionalism with an added level of personalized service. Working with a top notch lender that provided exactly what we needed was a great experience.”
About Mazuma: Mazuma Capital is committed to our client’s success. Our unique capabilities and innovative product offerings provide solutions accelerating financial growth. Servicing both rising companies and established businesses, Mazuma continues to secure its position as the middle-market industry leader. We build long-term relationships by delivering on our commitments. Mazuma co-authored the Utah Best Practices Alliance and subscribes to the ELFA Code of Fair Business Practices.

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Media Contact: Julie Fuchs, 801-816-0800 Ext. X291, jfuchs@mazumacapital.com, http://mazumacapital.com

FASB, IASB Revert to One Model for Lease Accounting

Never mind, the Financial Accounting Standards Board has decided on its plan to allow two different accounting methods for leases. They like their original, single-model idea best after all.
In deciding how companies should account for leases, the FASB and the International Accounting Standards Board initially proposed all leases would be treated like financing transactions, with companies recognizing a liability to make lease payments and putting an asset on the balance sheet reflecting the right to use the asset for the term of the lease. Both would be measured at the present value of the lease payments. The liability would be measured in subsequent periods using the effective interest method while the asset would be amortized or written down based on the pattern of consumption and the expected future economic benefit it would produce.
Companies swallowed the treatment for long-term lease agreements that look and feel a lot like the financed purchase of an asset, but they cried foul for short-term leases that look and feel more like simple rental agreements. FASB and IASB acquiesced and agreed they would work on a two-model approach.
The boards determined “finance leases” would be treated like installment purchases, much the way today's capital leases are booked in the financial statements. “Other than finance” leases would be treated like today's operating leases, with an even amount recognized as expense each period over the life of the lease. Such a recognition pattern would more closely match the actual cash flows as companies pay down their lease obligations, companies argued and the boards conceded. FASB and IASB instructed their staff to define the criteria that would be needed to distinguish between the two types of leases.
Now, however, the boards have reversed course and decided they won't establish a two-model approach. In a joint meeting last week, FASB and IASB said they're going to stick with their original idea as described in the exposure draft for a single model for all leases. They promised to give some further thought to how to address concerns about the presentation and disclosure of information related to amortization, interest expense on the liability to make lease payments, total lease expense, and lease payment cash flows.
The lease project is one of four key accounting standards FASB and IASB are developing jointly to try to bridge major differences between U.S. and international accounting rules. The board continue to mull over how they want map out the accounting requirements for lessors as well.

See entire article:  http://www.complianceweek.com/fasb-iasb-revert-to-one-model-for-lease-accounting/article/203665/

Revolvers Return, with Some Twists- Good news for credit-seekers as banks relax, a little.

If anything bodes well for the economy, this does: companies are opening up new revolving lines of credit and refinancing older instruments at reduced rates.

In 2010, lenders doubled their issuance of syndicated, revolving lines of credit, a staple of corporate finance, according to data from Thomson Reuters Loan Pricing Corp., with borrowings accelerating the second half of the year, to $381 billion.

During the financial crisis, banks cut their exposure to revolvers, downsizing instruments or flatly refusing to renew them. Now, individual banks are slowly raising the amount of untapped commercial-credit commitments they're willing to keep on their books, according to federal call reports.

As in the larger corporate-loan market, new issues are predominantly refinancings of debt set to mature in the next 12 months. In late February, for example, Avista Corp. replaced existing debt set to mature last April with a new $400 million facility that expires in 2015. Near the same time, FelCor Lodging Trust, an owner of 82 upscale hotels, closed on a $225 million instrument secured by 11 of its properties.

FelCor had terminated a line of credit in 2009 because covenants were getting tight, says Steve Schafer, FelCor's vice president of strategic planning. But once earnings rebounded, FelCor pursued a new revolver with a three-year maturity, a lower interest rate, and an option for a one-year extension to 2015.

"It's always good to push out maturities," says Schafer. "The lower interest rate [LIBOR plus 4.5%] improves our earnings, and a new [line] will help us manage liquidity better — we've been carrying excess cash because we didn't have a line of credit."

"With not as many strong credits, banks are eager to lend, and they are kind of bending some of the standards," says Richard M. Pollak, a practice group leader in lending and structured finance at Troutman Sanders LLP.

Companies with steady earnings can lengthen terms to five and, at the outside, seven years. "It's fairly typical of what we see entering a growth cycle," says Walter Owens, head of U.S. commercial banking at TD Bank. "But we're a bit surprised by some of the deals going out [five and seven years]. We've let some of these deals go because we didn't think the company deserved that type of facility."

Borrowers like being locked in. "They don't have to worry about waking up one morning and discovering that their lender is not so enamored of their business anymore," Pollak says.

So, could banks be under pricing risk again? While easing up on some loan conditions, banks are more disciplined at valuing the receivables, inventory, and real estate that secure lines of credit, says TD Bank's Owens. "Since loss and default rates were not as high as most banks anticipated, in the last six months banks have been more aggressive. But, from a historical perspective, they're still fairly conservative."

And companies are having to put up a lot of assets. For example, Delta Air Lines's new revolver is secured by accounts receivable, airport slots, ground-service equipment, spare parts, engines, and flight simulators, among other property. "Out of an abundance of caution, banks are taking a lot more collateral," says Pollak. So, while banks and institutional investors may be going long, they're definitely hedging their bets.

http://cfo.com/

Accounting update from ELFA

May 23, 2011: At a joint meeting on May 19, the FASB and IASB reversed recent tentative decisions in the lease accounting project as follows:

• Lessee P&L - No leases will be allowed straight line rent expense treatment but rather all leases will have be front ended lease costs equal to interest expense and depreciation of the right of use lease asset
• Lease Term - Will not be current GAAP but rather will be a lower threshold including consideration of strategic importance of asset, lessee intent and behavior in renewing in the past and will be adjusted when there are changes in judgment or circumstances
• Incremental Borrowing Rate - Lessee will use its new incremental borrowing rate to calculate adjustments when lease payment assumptions change
• Short-Term Leases - Will not be exempt from capitalization
• Lessor Accounting - Still undecided between only using a derecognition method or having both an operating lease method and a derecognition method. They are considering accreting residuals in the derecognition method.

New Government Regulations Driving Healthcare's Demand for Equipment Financing

Have you ever stood in a doctor’s office and stared at the seemingly endless rows of color-coded file folders lining every spare inch of the office? It is a scene we are all familiar with because the healthcare profession still maintains vital medical records the old fashioned way – handwritten notes, stuffed in manila folders, and stored on shelves or in file cabinets.
The federal government is seeking to change this system by promoting wide-spread usage of electronic health records (EHR) and providing financial incentives so physicians, hospitals, clinics and other medical services facilities are able to implement EHR systems. New government regulations will automate and streamline the physician’s workflow to improve patient safety and the quality of patient care. This industry-wide transformation is driving demand for new equipment and system upgrades.
Despite leading the world in IT development for sectors such as banking, communications and transportation, the United States has lagged behind other industrialized nations in the race to adopt EHRs and modernize its healthcare system. Some of the world’s leading users of this technology include the Netherlands, where 98% of primary-care providers use EHR systems, New Zealand and Australia, with 92% and 89% use respectively, according to a 2009 Commonwealth Fund survey.
Recently, however, US adoption rates of EHRs have improved. At the 2011 Annual Conference for HIMSS, Health and Human Services Secretary Kathleen Sebelius highlighted increases in the use of EHRs by US patient care providers in what she called “a revolution in healthcare.” Secretary Sebelius cited 2008 figures that showed only 10% of hospitals, and just fewer than 20% of doctors, use basic EHRs. Over the last two years, according to Ms. Sebelius, the percent of doctors using electronic records has increased to almost 30, and four out of five hospitals say they are planning to apply for government incentive payments by 2015 that will require them to meet meaningful use standards in EHRs.
Paper-based medical records lead to inevitable inefficiencies, and possible life-threatening errors. The aim of the federal regulations is to reduce data entry errors, speed the sharing of patient information, and minimize the time spent on preparing charts in advance of appointments. In order for electronic medical records to be truly effective, all healthcare providers who have a meaningful impact on patient care – from generalists to specialists – must meet the “meaningful use” standards.
Overview of the “HITECH” Act
The American Recovery and Reinvestment Act of 2009 included $19 billion in funding for the Health Information Technology for Economic and Clinical Health (HITECH) Act, aimed at advancing the adoption of electronic health records. The HITECH Act provides incentive payments for healthcare providers who implement EHR systems and meet “meaningful use” requirements. Penalties for those who fail to comply with these requirements will begin in 2015. The tight timeframe for achieving meaningful use and receiving the financial benefits will drive significant demand.
The objective of the HITECH Act was to encourage the use of EHRs in a meaningful manner while improving the quality of care through the efficiencies the electronic exchange of healthcare information creates. The financial incentives provided under the HITECH Act come in the form of Medicare and Medicaid reimbursements.
Achieving Meaningful Use
To receive the financial incentives and avoid penalties, medical providers must demonstrate that they are using the equipment and software in a meaningful way. Simply purchasing new software and hardware will not qualify a provider for incentive payments. Healthcare providers must demonstrate their usage of the equipment in a meaningful way, as defined by the Centers for Medicare and Medicaid Services (CMS), thereby reducing the redundancy and cost of patient care.
Meaningful use will be implemented in three stages, with stage one covering 2011 and 2012. For full details on the HITECH Act and the meaningful use requirements please visit the CMS website at www.cms.gov or the Office of the National Coordinator for Healthcare Information Technology’s website at www.healthit.hhs.gov.
Once approved, healthcare providers will be eligible for $40,000 to $65,000 in incentive payments. Federally qualified health centers, rural health clinics, children’s hospitals and other healthcare facilities are also eligible for funding through CMS.
The incentive payments for providers will be phased out over time, and Medicare/Medicaid payments will be reduced for those who fail to adopt certified electronic health records. Those not meeting the meaningful use requirements will see the incentives turn to penalties if meaningful use is not met by 2015.
Factors Driving Investment
Compliance with the new regulations means medical providers will need to invest in new IT hardware, software, and services. Purchasing the necessary equipment could cost tens of thousands of dollars for a small practice and carry a significantly higher price tag for larger practices and healthcare facilities. This required investment comes at a time when the healthcare industry, like most US industries, faces significant budgetary constraints.
During the recession, healthcare providers deferred investments in equipment upgrades to protect their own financial well-being. To cope with the recessionary environment, medical providers have been forced to improve quality, reduce costs, and increase transparency. In these tight budgetary times, medical providers cannot afford noncompliance. The built-up demand created by those deferrals, accompanied with the government initiatives, will drive new equipment purchases and installations.
Providers are looking to preserve their cash reserves and credit facilities to deliver services, fund operations, and undertake projects that are not easily financed. Installing the technology early will help healthcare providers to demonstrate “meaningful use” in order to qualify for the federal stimulus incentives provided by the HITECH Act. Therefore, it is increasingly important for them to team-up with a knowledgeable financing partner to acquire and deploy the necessary hardware, software, and services to evolve their businesses to comply with the new regulations and satisfy the meaningful use requirements.
Healthcare Providers Have Multiple Financing Options
By acquiring the necessary equipment through a lease, healthcare providers get access to the cutting edge technology needed to deliver best-in-class patient care without bearing the full up-front cost of ownership. Term financing enables the lessee to match a long-term capital acquisition with a long-term finance solution.
Medical professionals need to partner with healthcare equipment manufacturers, software providers, and IT professionals to satisfy the meaningful use requirements. The acquisition and implementation of these systems present a significant growth opportunity for finance providers who understand the industry and regulatory framework, and who can provide financing solutions within the industry’s budgetary restraints.
In summary, as the healthcare industry continues to upgrade technology and equipment to comply with federal regulations, there is a growing demand for equipment financing solutions tailored to the healthcare industry. The good news is that healthcare providers are looking for knowledgeable financing partners that can work with them to provide best-in-class healthcare and qualify for federal stimulus incentives to offset the cost of deployment.

Source: World Leasing News/Leasing Finance Blogs