2008 CFO Outlook. A Survey of Manufacturing Company CFOs

Transcription

1 2008 CFO Outlook A Survey of Manufacturing Company CFOs

2 About The Survey This is the 10th annual survey of manufacturing company CFOs commissioned by Bank of America Business Capital. The purpose of this proprietary research is to better understand how CFOs view the U.S. and world economy, and gauge the outlook for revenue, financing, M&A activity and involvement in foreign markets. From August 6, 2007 through October 8, 2007, an independent market research firm completed phone interviews with 601 top financial decision-makers drawn from a random sampling of U.S. manufacturing companies (NAICS Codes 31-33) with annual revenues between $25 million and $2 billion. The titles of these individuals varied from company to company (e.g., Chief Financial Officer, V.P. Finance, Director of Finance, Controller, etc.). For convenience, all participants are referred to as CFOs throughout the report. The statistical range of error for the total sample is plus or minus 4%. The survey results and interpretations in this report are not intended, nor implied, to be a substitute for the professional advice you would receive from a qualified accountant, attorney, or financial advisor. Always seek the advice of an accountant, attorney or financial advisor with any questions you may have regarding the decisions you undertake as a result of reviewing the information contained herein. Nothing in this report should be construed as either advice or legal opinion. Certain activities and services referred to in this document are provided by Banc of America Securities LLC, a subsidiary of Bank of America Corporation and an affiliate of Bank of America Business Capital Bank of America Corporation

3 Message to Readers Bank of America Business Capital is pleased to present the results of the 10th annual CFO Outlook. Each year we provide the market with valuable insights from manufacturers concerning their outlook for the U.S. economy and the manufacturing sector. In this year's survey, manufacturing CFOs see a strong economy today, but are cautious as they look ahead to Less than half of the CFOs surveyed predict the U.S. economy will expand next year and less than one-quarter believe it will outperform the world economy. However, a majority of CFOs believe the actions taken by the Federal Reserve Board over the past year have helped the economy and that there will be further rate cuts in Challenges are also evident in manufacturing with the same percentage of CFOs expecting the sector to contract as expand in A majority of CFOs continue to express concern primarily about the cost of energy, raw materials and healthcare, with 80% saying that the rise in energy costs will impact their product pricing in However, the sales and profit outlook continues to be positive and all indications are that corporate balance sheets are healthy. Despite the challenges ahead, manufacturers see opportunities for growth with nearly three quarters of CFOs surveyed planning to either increase or maintain their current level of capital expenditures. They are also continuing to establish foreign operations and more CFOs plan to sell to foreign markets. It is clear that CFOs remain hopeful for the U.S. economy and the manufacturing sector. Indeed, many manufacturers are taking the steps necessary to succeed in an increasingly competitive and global economy. We thank survey participants for sharing their insights and for helping us to better understand the unique needs of mid-size and large companies. Joyce White President Bank of America Business Capital

4 Table of Contents 1 The Major Findings 4 Economy Current State Fed Actions Effect on Growth Plans U.S. Economic Outlook U.S. Economy vs. World Economy Economic Concerns U.S. Manufacturing Sector Outlook Revenue Expectations Profit Margin Expectations Capital Expenditures Outlook 16 Financing Concerns Needs Costs Purpose Types Availability Products and Services Senior Financing Considerations 24 Labor Costs and Product Pricing 26 Mergers and Acquisitions (M&A) Activity Targets Purchase Price Multiples 29 International Trade Participation Trade Outlook Growth Markets Foreign Operations 33 Survey Demographics

5 The Major Findings Economy Manufacturing company CFOs view the current state of the U.S. economy in a positive light, giving it an average score of "64" versus last year s score of "67" on a scale ranging from 0 (extremely weak) to 100 (extremely strong). However, only 44% of all manufacturing company CFOs believe the U.S. economy will expand in 2008, down from 55% last year and representing the lowest level of optimism in six years. Less than a quarter of CFOs (22%) surveyed believe that the U.S. economy will outperform the world economy in 2008, a significant decline from 39% in 2007, 46% in 2006 and 58% in While 54% of CFOs consider oil prices as having the biggest potential impact on the U.S. economy, up from 33% last year, the housing market tops the list as the greatest concern of CFOs at 56%. This represents a significant increase from 13% last year. Fifty-eight percent of CFOs surveyed believe that the actions taken by the Federal Reserve Board have helped the economy. This is up slightly from 54% last year. Fifty-nine percent of CFOs expect the Fed to lower interest rates in Opinions are mixed about the outlook for the manufacturing sector. Nearly four in ten (39%) predict no change in 2008, while the remaining CFOs are evenly split between expansion and contraction at 30% each. This is slightly more optimistic than last year when 26% of CFOs predicted expansion and 35% predicted contraction. Although manufacturing CFOs are forecasting a softening economy in 2008, their expectations for revenue growth remain healthy (70%), up slightly from 68% last year. Profit margin expectations held steady at 45% for the third year in a row. Thirty-two percent of CFOs expect their level of capital expenditures to increase, the lowest percentage in four years. Bank of America Business Capital 2008 CFO Outlook

6 The Major Findings (Continued) Financing The top three financial concerns shared by manufacturing company CFOs are the cost of materials excluding energy (74%), healthcare costs (71%) and energy costs (65%). Only 13% of CFOs cited Sarbanes-Oxley as a financial concern, down significantly from 55% last year. Twenty-one percent of CFOs expect their borrowing needs to increase in 2008, down slightly from 25% last year and the lowest percentage in the 10-year history of the survey. The majority of CFOs (57%) report that their level of borrowing will stay the same next year. With interest rates remaining steady over the past year and then being lowered during this survey, it is not surprising that only 26% of CFOs forecast an increase in the cost of capital, down from 46% last year and 59% the previous year. Fifty-eight percent of manufacturing companies are considering financing in The top reasons for financing are capital expenditures (34%), working capital (29%), U.S. expansion (20%) and acquisition (18%). Fifty-nine percent of manufacturing company CFOs plan to use internal sources as a means of financing in Other types of commonly-used financing include cash flow financing (42%), asset-based financing (38%) and leasing (33%). Of the various products and services offered by lenders, Cash Management (59%) and Letters of Credit (54%) continue to be the most used by manufacturing companies. These are followed by Foreign Exchange (37%) and Retirement Plan Services (36%). Labor Costs and Product Pricing Fifty-five percent of CFOs expect their labor costs to increase in the coming year, on par with the 56% reported last year. More than half of CFOs (56%) surveyed this year expect to increase the price of their products in 2008, down from the 60% predicting product price increases last year. 2 Bank of America Business Capital 2008 CFO Outlook

7 The Major Findings (Continued) Eighty percent of CFOs surveyed expect rising energy costs to impact their product pricing in Nine percent expect energy costs to have a significant impact on their product pricing and 71% say the impact will be moderate. Mergers and Acquisitions (M&A) Twenty-three percent of manufacturing company CFOs expect to participate in a merger or acquisition in 2008, up slightly from the 20% reported last year, but down from 30% the previous year. Among those companies expecting M&A activity, 86% report that they will be making the acquisition, while only 7% say they will be acquired by another firm. Twenty-nine percent of CFOs believe that there are more businesses available at lower purchase price multiples in 2007 than last year. This is up from 23% in last year s survey. Twenty-one percent of CFOs think the purchase price of companies as a multiple of earnings will increase in 2008, and 26% feel it will decrease. International Eighty-three percent of manufacturing companies surveyed conduct business internationally. This is down from 87% reported in the 2007 CFO Outlook. Compared to last year, fewer companies are currently selling to foreign markets (64% vs. 71%), buying from foreign suppliers (62% vs. 75%), and have operations outside the United States (39% vs. 42%). Looking ahead, however, 71% of companies that sell to foreign markets expect sales to increase in 2008, compared to 64% last year. Although Asia (57%) continues to be the top foreign expansion market, CFOs also are expecting international growth in Europe (54%), Latin America (30%) and Canada (25%). Among manufacturing companies with operations in foreign countries, 53% report that they have plans to expand them in However, only 8% of companies without foreign operations are planning to establish them in Bank of America Business Capital 2008 CFO Outlook

8 Current State of the Economy On a scale ranging from 0 (extremely weak) to 100 (extremely strong), how would you rate the current state of the U.S. economy, the manufacturing sector and the world economy? Manufacturing company CFOs are optimistic about the current state of the U.S. economy, giving it an average score of "64" on a scale ranging from 0 (extremely weak) to 100 (extremely strong). This represents a directional decline compared to last year s score of "67." CURRENT STATE OF THE ECONOMY Average Rating on a Scale 0 (Extremely Weak) to 100 (Extremely Strong) U.S. Economy World Economy U.S. Manufacturing Sector *CFOs were asked about the current state of the manufacturing sector beginning in 2003 and the world economy beginning in Seventy-four percent of CFOs rate the current state of the U.S. economy above the "50" midpoint. While significantly lower than the 83% rating reported in the 2007 CFO Outlook, this still indicates that CFOs view the economy in a positive light. This view is consistent between both private and public companies. Regionally, manufacturing company CFOs in the Midwest are the most optimistic about the U.S. economy (78%) and those in the Northeast are the least (72%). CFOs also have a positive view of the world economy, giving it an average score of "67," a modest improvement over last year s score of "66." Regarding the current state of the manufacturing sector, CFOs gave it a rating of "59," a score that has remained the same for the past three years. 4 Bank of America Business Capital 2008 CFO Outlook

9 Fed Actions Do you think the actions taken by the Federal Reserve Board over the past year regarding interest rates have helped or hurt the U.S. economy? A majority of manufacturing company CFOs (58%) believe the actions taken by the Federal Reserve Board over the past year have helped the U.S. economy. This increase from last year (54%) is to be expected given the half-point decline in the Federal Fund Rate from 5.25% to 4.75%, action taken while this survey was being conducted. Twenty percent of CFOs believe the actions taken by the Federal Reserve Board over the past year have hurt the U.S. economy, a substantial decline from 36% last year. Compared to last year, companies with $500 million to $2 billion in revenue (61% vs. 50%) and publicly-owned companies (64% vs. 50%) are significantly more positive about the Fed s actions. IMPACT OF FED'S ACTIONS ON THE U.S. ECONOMY Percent CFOs Responding 5.25% 4.75% Fed Fund Rate 83% 3.75% 72% 1.75% 60% 54% 58% Helped 1.0% 4% 11% 23% 36% 20% Hurt Bank of America Business Capital 2008 CFO Outlook

10 Fed Actions Do you believe the Federal Reserve Board will raise, lower or keep interest rates the same in 2008? Looking ahead to 2008, nearly six in ten manufacturing company CFOs (59%) expect the Federal Reserve Board to lower interest rates. Thirty-one percent predict the rates will remain the same, while only 9% expect rate increases. ACTIONS EXPECTED BY FEDERAL RESERVE BOARD Stay The Same 31% Don't Know/ Didn't Answer 1% Raise 9% Lower 59% 6 Bank of America Business Capital 2008 CFO Outlook

11 Impact of Rising Interest Rates If the Federal Reserve Board decides to increase interest rates in 2008, what impact will it have on your company? If negative (or positive), will the impact on your company be significant or moderate? Nearly two-thirds of manufacturing companies (64%) predict that an increase in interest rates in 2008 would negatively impact their company. Among this group, 85% believe the negative impact would be moderate and 15% think it would be significant. IMPACT OF INCREASED INTEREST RATES Don t Know/ Didn t Answer 1% Positive 6% No Impact 29% Negative 64% Geographically, companies in the Midwest are more likely to be negatively impacted by rising interest rates than companies in the South (70% vs. 58%). Bank of America Business Capital 2008 CFO Outlook

12 Economy s Effect on Growth Plans Has the current state of the economy caused you to alter your plans for growth or expansion? Although economic conditions do not appear to be negatively affecting growth plans for manufacturing companies, few are accelerating their plans. Twothirds of CFOs surveyed report that the current state of the U.S. economy will not cause them to change their plans to grow or expand. However, the percentage of CFOs who accelerated their growth plans as a result of economic conditions continues to drop from a high of 25% three years ago to 12% this year. EFFECT OF ECONOMY ON EXPANSION PLANS Percent CFOs Responding 13% 25% 15% 13% 12% Accelerate 57% 61% 73% 70% 67% No Change Subgroups that are the most likely to accelerate their plans for growth or expansion include: Companies in the West (17%) Companies expecting the cost of capital to increase in 2008 (17%) Seventeen percent of CFOs delayed plans for growth or expansion. The reasons supporting their decision include poor sales performance/cash flow (39%), market uncertainty (20%), housing market slowdown (18%) and cost of borrowing money (11%). 8 Bank of America Business Capital 2008 CFO Outlook

13 U.S. Economic Outlook Looking ahead, do you think the economy will expand, contract or stay the same? Manufacturing company CFOs are less optimistic about the outlook of the U.S. economy than they have been in the past six years. Forty-four percent of CFOs believe the national economy will expand in 2008, down significantly from the 55% who cited expansion in last year s survey and from a high of 77% reported in the 2005 CFO Outlook. OUTLOOK FOR U.S. ECONOMY Percent CFOs Responding 43% 69% 74% 77% 58% 55% 44% Expand 23% 5% 4% 6% 13% 16% 20% Contract For the third consecutive year, a growing number of companies think the economy will contract (20% vs. 16% in 2007 and 13% in 2006), while 36% say it will stay the same. Although there are no significant differences in economic outlook by sales size, there are several key subgroups that have a somewhat more positive perspective about expansion: Publicly-owned companies (48%) Companies in the Northeast (47%) Companies expecting to participate in a merger or acquisition in 2008 (47%) CFOs of companies expecting sales to foreign markets to increase (47%) Companies expecting the manufacturing sector to expand (63%), labor costs to decrease (55%) and product prices to increase (48%) Bank of America Business Capital 2008 CFO Outlook

14 U.S. Economy vs. World Economy Comparing the U.S. economy to the world economy, do you feel the U.S. economy will underperform, perform equally or outperform the world economy in 2008? U.S. ECONOMY VS. WORLD ECONOMY Percent CFOs Responding 58% 46% 39% 22% Outperform 17% 34% 35% 48% Underperform Looking ahead, 22% of CFOs surveyed predict the U.S. economy will outperform the world economy in 2008 and 48% believe the U.S. economy will underperform. This represents a significant change from the 2007 CFO Outlook when 39% expected our national economy to be more robust than the world economy. Regionally, CFOs in the West and the South are the most optimistic (25% and 24%, respectively) about the U.S. economy outperforming the world economy in The Midwest (19%) and Northeast (18%) have the smallest percentages of CFOs expressing optimism. 10 Bank of America Business Capital 2008 CFO Outlook

15 Concerns about the U.S. Economy Which of the following factors concern you most with respect to their potential impact on the U.S. economy in 2008? U.S. ECONOMIC CONCERNS Percent CFOs Responding Housing Market Oil Prices Rising Interest Rates Trade Deficit War in Iraq Inflation U.S. Budget Deficit Terrorism Hedge Funds % 56% 33% 54% 11% 37% 8% 34% 10% 33% 6% 31% 9% 30% 8% 28% 1% 15% More than half of all manufacturing company CFOs are concerned about the impact that the housing market and oil prices will have on the U.S. economy in 2008 (56% and 54%, respectively), a significant increase for both factors compared to last year s survey. This isn t surprising given the downturn in the housing market and the steady increase in oil prices during the time this survey was conducted. Other factors that concern CFOs are rising interest rates (37%), the trade deficit (34%) and the war in Iraq (33%). These are also significantly higher than last year. Regionally, more CFOs in the Northeast (61%) are concerned about the impact the housing market will have on economic conditions in 2008, than in the South (52%). Bank of America Business Capital 2008 CFO Outlook

16 U.S. Manufacturing Sector Outlook Looking ahead, do you think the manufacturing sector will expand, contract or stay the same? Three in ten CFOs forecast expansion in the manufacturing sector. This is an increase from the 26% who predicted expansion last year, but is the second lowest percentage in the history of the survey. Despite a somewhat improved industry outlook, this is significantly less than the 44% expecting the U.S. economy to expand in Thirty percent of CFOs expect the manufacturing sector to contract in 2008, while 39% predict no change. Companies in the West (37%) are the most optimistic about expansion in the manufacturing sector, while the South (38%) has the largest percentage of companies predicting that the manufacturing sector will contract. MANUFACTURING SECTOR OUTLOOK Percent CFOs Responding 67% 53% 44% 33% 26% 30% Expand 6% 16% 24% 32% 35% 30% Contract Bank of America Business Capital 2008 CFO Outlook

17 Revenue Expectations Do you expect your company s revenues to grow, contract or stay the same in 2008? Although manufacturing CFOs are predicting a softening of the U.S. economy next year, seven in ten expect revenue growth in This represents a slight increase over last year when 68% predicted revenues would grow. REVENUE EXPECTATIONS Percent CFOs Responding 51% 71% 72% 81% 73% 68% 70% Grow 14% 3% 4% 4% 6% 9% 9% Contract While there are no significant regional differences in projected revenue growth, there are several key subgroups that show significantly higher growth expectations: Companies with revenues between $200 million and $499 million (85%) and from $500 million to $2 billion (81%) Companies that are publicly-owned (80%) Companies that have foreign operations (78%), as well as those expecting sales to foreign markets to increase in 2008 (79%) Companies expecting M&A activity next year (81%) Companies planning to increase product prices in 2008 (79%) Bank of America Business Capital 2008 CFO Outlook

18 Profit Margin Expectations Do you expect your company s profit margin to grow, contract or stay the same in 2008? When CFOs were asked about their profit margins for next year, most expect margins to increase (45%) or stay the same (36%). Only 18% predict that their 2008 profit margins will decline. These expectations are nearly identical to those expressed by CFOs for the past two years. Subgroups that expect their profit margin to grow next year include: Companies with sales between $200 million and $499 million (55%) Companies expecting their sales to foreign markets to increase in 2008 (53%) Companies expecting their labor costs to decrease (53%), as well as those planning to increase the price of their products next year (51%) Companies expecting to participate in a merger or acquisition in 2008 (50%) PROFIT MARGIN EXPECTATIONS Decrease 18% Don t Know/ Didn t Answer 1% Stay The Same 36% Increase 45% 14 Bank of America Business Capital 2008 CFO Outlook

19 Capital Expenditures Outlook Do you expect your company s level of capital expenditures over the next 12 months to be higher, lower or about the same as the past 12 months? The outlook for capital expenditures has weakened somewhat with only 32% of CFOs indicating that their capital expenditures for next year will be higher compared to 38% last year. Twenty-seven percent of CFOs expect to spend less or refrain from making capital expenditures altogether in 2008 compared to 21% last year. This correlates with the uncertainty about the direction of the U.S. economy. CAPITAL EXPENDITURES IN THE NEXT 12 MONTHS Percent CFOs Responding 35% 32% 41% 37% 38% 32% Increase 11% 24% 19% 21% 21% 27% Decrease/ Holding Off The subgroups that are reporting the highest levels of capital expenditures over the next 12 months are: Companies with revenues between $200 million and $499 million (40%) Companies expecting merger and acquisition activity in 2008 (40%) Companies expecting labor costs to decrease (40%) Companies expecting expansion in the manufacturing sector (41%) Bank of America Business Capital 2008 CFO Outlook

20 Financial Concerns What are your most significant financial concerns? FINANCIAL CONCERNS Percent CFOs Responding (Multiple Responses Accepted) Cost of Materials/Supplies/Equipment Excluding Energy Healthcare Costs Energy Costs Including Oil and Gas 65% 74% 71% Revenue Growth Rising Interest Rates Labor Costs Cash Flow U.S. Competition Strength of the Dollar Foreign Competition 52% 49% 48% 45% 44% 44% 40% Credit Availability 23% Sarbanes-Oxley (public companies only) Funding Pension Plans 13% 12% For the second consecutive year, the cost of materials/supplies/equipment excluding energy is the primary financial concern of manufacturing company CFOs (74%). Healthcare costs and energy costs including oil and gas, are also of concern to the majority of CFOs (71% and 65%, respectively). Regionally, 78% percent of CFOs in the Midwest are concerned about healthcare costs compared to 62% of CFOs in the West. Substantially more CFOs in the Northeast (63%) are concerned about revenue growth than in the South (39%). Cash flow is a greater concern to Northeast companies (55%) than to those in the Midwest and South (40%), and credit availability is a greater concern to CFOs in the West (29%) than to those in the South (17%). 16 Bank of America Business Capital 2008 CFO Outlook

21 Financing Needs Will your company s borrowing needs increase, decrease or stay the same in 2008 as compared to 2007? Only 21% of CFOs surveyed expect their company s financing requirements to increase in 2008, the lowest percentage in the ten-year history of the study. Fifty-seven percent expect their financing requirements to remain the same next year, while 20% say they plan to borrow less. Forty percent of CFOs anticipating M&A activity in 2008 expect their borrowing needs to increase next year. Of those CFOs not anticipating M&A activity in 2008, only 15% expect their borrowing needs to increase. More private company CFOs expect their borrowing needs to increase next year than public company CFOs (23% vs. 15%). Geographically, the Northeast has the highest percentage of companies expecting an increase in borrowing needs (23%), while the West has the lowest percentage (19%). OUTLOOK FOR FINANCING REQUIREMENTS Percent CFOs Responding 46% 30% 29% 25% 25% 21% Increase 45% 59% 52% 58% 57% 57% Stay The Same Bank of America Business Capital 2008 CFO Outlook

22 Financing Costs Do you expect your financing cost of capital to increase, decrease or stay the same in 2008 compared to 2007? Only 26% of CFOs surveyed expect their cost of capital to increase in 2008 compared to 46% who expected their cost of capital to increase in The lowest percentage in the past nine years of the survey, this decline is likely due to interest rates remaining steady for most of the past year followed by a half-point decrease in the Federal Fund Rate during this study. Fifty-four percent of CFOs project that their financing costs will remain the same in 2008, up from 43% last year. FINANCING COSTS Percent CFOs Responding 54% 41% 62% 59% 46% 26% Increase 41% 50% 30% 33% 43% 54% Stay The Same Regionally, companies in the Northeast and West are significantly more likely (31% and 30%, respectively) than those in the South (20%) to project an increase in their cost of capital for next year. 18 Bank of America Business Capital 2008 CFO Outlook

23 Financing Purpose Are you currently considering financing for any of the following? FINANCING PURPOSE Percent CFOs Responding (Multiple Responses Accepted) Capital Expenditures 34% Working Capital 29% U.S. Expansion Acquisition/LBO/MBO 53% 44% 18% 20% Foreign Expansion 11% Refinance 10% Recapitalization Restructuring 5% 6% Turnaround 2% Fifty-eight percent of manufacturing company CFOs are currently considering financing for at least one of these purposes. Thirty-four percent will seek financing for a capital expenditure, followed by working capital (29%), U.S. expansion (20%) and acquisition (18%). Private companies are significantly more likely than public companies to consider financing for capital expenditures (37% vs. 24%) and refinancing (12% vs. 5%). Bank of America Business Capital 2008 CFO Outlook

24 Financing Types Which of the following types of financing does your company plan to use in 2008? More than half of manufacturing company CFOs (59%) plan to use internal sources as a means of financing in Other types of financing that will be used most often include cash flow financing (42%), asset-based financing (38%) and leasing (33%). TYPES OF FINANCING PLANNED IN 2008 Percent CFOs Responding (Multiple Responses Accepted) *Internal Sources/Self Funding 59% Cash Flow Financing Asset-Based Financing 38% 42% Leasing 33% Private Debt (Private Equity, Hedge Funds) 13% Securitization Commercial Paper Commercial Real Estate Public Debt (IPO, Bonds) Junior Debt (Second Lien, Tranche B, Mezzanine) 9% 8% 7% 6% 5% *Internal Sources includes Investors, Cash on Hand, Sale of Equipment/Division/Real Estate/Product Line Private companies are significantly more likely than public companies to use asset-based financing (42% vs. 27%), leasing (35% vs. 27%) and private debt (15% vs. 5%). 20 Bank of America Business Capital 2008 CFO Outlook

25 Financing Availability Would you say that your current lender has increased, maintained or restricted credit availability compared to a year ago? Despite the beginning of what appears to be a tightening credit market, 35% of CFOs report that credit availability from their current lender has increased over the past 12 months. Half of CFOs surveyed said credit availability has remained the same and 10% experienced credit tightening over the past 12 months. CREDIT AVAILABILITY Percent CFOs Responding 40% 27% 40% 38% 39% 35% Increase 50% 60% 48% 52% 52% 50% Stay The Same The subgroups that are reporting increased levels of credit availability compared to one year ago include: Companies with revenues between $200 million and $499 million (45%) Companies expecting their cost of capital to increase (43%) Companies expecting merger and acquisition activity in 2008 (41%) Bank of America Business Capital 2008 CFO Outlook

26 Financing Products and Services Which of the following products and services do you currently utilize from your lender? PRODUCTS AND SERVICES FROM CURRENT LENDER Percent CFOs Responding (Multiple Responses Accepted) Cash Management 59% Letters of Credit Foreign Exchange 53% 37% 54% Retirement Plan Services Investment Banking (M&A, Equity Products, Other Debt Capital Raising) 29% 36% Asset Management Risk Management (Interest Rate/ Commodity/Precious Metals Hedging) Credit Services 2% 20% 19% Cash Management and Letters of Credit (59% and 54%, respectively) are the most widely used financial products/services from lenders. Private companies are significantly more likely than public companies to use Letters of Credit (56% vs. 47%) and slightly more likely to use Cash Management (60% vs. 56%). The use of Retirement Plan Services experienced the largest increase compared to last year (36% vs. 23%). CFOs of companies with revenues between $500 million and $2 billion are significantly more likely than their counterparts at companies with revenues between $25 million and $74 million to use Letters of Credit (67% vs. 48%), Foreign Exchange (54% vs. 32%), Investment Banking (42% vs. 24%) and Risk Management (23% vs. 13%). 22 Bank of America Business Capital 2008 CFO Outlook

27 Senior Financing Considerations Which of the following is most important to your company when considering senior financing? MOST IMPORTANT CONSIDERATIONS FOR SENIOR FINANCING Percent CFOs Responding (Multiple Responses Accepted) Willingness to Work with Us During Good Times and Bad 42% Effectively Meets My Company s Credit Needs 23% Lender s Ability to Provide a Wide Range of Commercial Products Fewer Financial Covenants 11% 10% Liquidity Flexible Reporting Requirements Investor Perception of the Type of Financing 2% 6% 5% By far, CFOs report that the most important factor in their consideration of senior financing is the lender s willingness to work with them during good times and bad (42%). Effectively meeting their credit needs (23%) is another consideration frequently mentioned by CFOs. The biggest increase reported from last year s survey was the lender s ability to provide a wide range of commercial products and services (11% vs. 6%). Companies with revenues between $25 million and $74 million are significantly more likely than companies with revenues from $500 million to $2 billion to report that willingness to work with them during good times and bad is their most important consideration (48% vs. 28%, respectively). Bank of America Business Capital 2008 CFO Outlook

28 Labor Costs and Product Pricing Do you expect your labor cost per unit to increase, decrease or stay the same in 2008 as compared to 2007? What about product pricing? Fifty-five percent of CFOs predict their labor costs will increase in 2008, nearly the same as the 56% reported last year. Thirty-two percent predict that labor costs will remain the same and 12% expect labor costs to decrease. The expectation that labor costs will rise in the coming year is most prevalent among publiclyowned companies (61%). The majority of CFOs (56%) anticipate that their product pricing will increase in The expectation of increasing prices in 2008 is consistent across all regions. Companies with revenues between $500 million and $2 billion (49%) are the least likely to increase prices in the coming year. LABOR COSTS VS. PRODUCT PRICING Percent CFOs Responding Increase 56% 60% 55% 56% Stay The Same Decrease Don t Know/ Didn t Answer 28% 26% 32% 33% 16% 14% 12% 10% Labor Costs Product Pricing Labor Costs Product Pricing 2007 Outlook 2008 Outlook 24 Bank of America Business Capital 2008 CFO Outlook

29 Labor Costs and Product Pricing What impact will increasing energy costs have on your 2008 product pricing? Eight in ten manufacturing company CFOs report that rising energy costs will impact their product pricing in Nine percent expect energy costs to have a significant impact on their product pricing and 71% say the impact will be moderate. IMPACT OF ENERGY COSTS ON PRODUCT PRICING No Impact 19% Refused 1% Significant Impact 9% Moderate Impact 71% Bank of America Business Capital 2008 CFO Outlook

30 Mergers and Acquisitions (M&A) Activity Will your company participate in any mergers or acquisitions in 2008? If so, will your company be making the acquisition or be acquired? Twenty-three percent of manufacturing company CFOs expect to participate in a merger or acquisition in 2008, up slightly from the 20% reported last year. This upward trend is consistent across all regions, among companies of all sizes, and among both public and private companies. Public companies continue to have higher expectations of being involved in M&A activity than private companies (32% vs. 20%). ANTICIPATED M&A ACTIVITY Percent CFOs Responding "Yes" 30 30% 15 21% 16% 18% 18% 14% 23% 20% 23% 10% Smaller companies are less likely to be involved in M&A activity with only 17% of companies with sales between $25 million and $74 million expecting to participate. In comparison, 30% of companies with sales between $500 million and $2 billion anticipate M&A activity in Among those companies expecting M&A activity in 2008, the vast majority (86%) report that they will be making the acquisition, while only 7% say they will be acquired by another firm. 26 Bank of America Business Capital 2008 CFO Outlook

31 M&A Targets Are there more businesses available at lower purchase prices compared to a year ago? Consistent with the expectation that M&A activity will increase in 2008, the attractiveness of purchase price multiples has also increased from last year. Twenty-nine percent of CFOs believe there are more businesses available at lower prices, up from 23% in Thirty-five percent of CFOs believe there are the same or fewer businesses available at lower prices compared to a year ago. MORE BUSINESSES AVAILABLE AT LOWER PRICES Percent CFOs Responding 38% 38% 27% 20% 23% 29% Yes 47% 39% 48% 48% 42% 35% No Bank of America Business Capital 2008 CFO Outlook

32 M&A Purchase Price Multiples Do you think that the purchase price for companies in your industry as a multiple of EBITDA will increase, decrease or stay the same in 2008 compared to 2007? Forty-six percent of CFOs surveyed believe that the purchase price for companies in their industry as a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA) will remain the same in 2008, up slightly from 44% last year. Twenty-six percent expect pricing to decrease and only 21% expect pricing to increase. OUTLOOK FOR PURCHASE PRICE MULTIPLES Percent CFOs Responding 17% 43% 26% 32% 23% 22% 21% Increase Stay The Same 32% Decrease 33% 39% 53% 47% 51% 44% 46% Don t Know/ Didn t Answer 18% 6% 12% 14% 7% 17% 4% 21% 5% 27% 7% 26% 7% Bank of America Business Capital 2008 CFO Outlook

33 International Trade Participation Regarding foreign markets, do you buy from, sell to or have operations in foreign countries? Eighty-three percent of manufacturing company CFOs surveyed report conducting business internationally, down from 87% last year. The most significant decline is in the percentage of CFOs who buy from foreign suppliers (62%), down from 75% last year. This is not surprising considering the continuing decline in the value of the U.S. dollar against foreign currency. Thirty-nine percent have foreign operations, down from 42% last year and 45% the year before. FOREIGN MARKET INVOLVEMENT Percent CFOs Responding (Multiple Responses Accepted) Buy From Sell To Have Foreign Operations No Foreign Market Participation Public companies are significantly more likely than private companies to have foreign operations (54% vs. 34%). Companies with revenues between $500 million and $2 billion are more likely than companies with revenues between $25 million and $74 million to have operations in foreign countries (61% vs. 27%). Bank of America Business Capital 2008 CFO Outlook

34 International Trade Outlook Will your company s sales to foreign markets increase, decrease or stay the same in 2008 as compared to 2007? Seventy-one percent of all companies selling to foreign markets expect international sales to increase next year, up from the 64% reported last year. One quarter expect foreign sales to remain the same, and only 3% expect a decrease. Significantly more manufacturing company CFOs in the Northeast (79%) expect increases in their foreign markets sales than in the Midwest (64%). Publiclyowned companies are more likely than private companies to forecast increased international sales (81% vs. 68%). Also, companies with revenues between $200 million and $499 million are significantly more likely than companies with revenues between $25 million and $74 million to predict that foreign sales will increase in 2008 (82% vs. 65%). FOREIGN SALES EXPECTATIONS Percent CFOs Responding 53% 62% 68% 64% 71% Increase 41% 33% 28% 31% 25% Stay The Same Bank of America Business Capital 2008 CFO Outlook

35 International Growth Markets Geographically, where do you expect that international growth to occur? Asia (57%) and Europe (54%) continue to be the top two foreign expansion markets, with expected growth in Europe increasing from 42% last year. Significant increases compared to last year are also evident in both Latin America (36% vs. 19%) and Canada (25% vs. 11%), with a weaker dollar making sales to foreign markets more attractive. INTERNATIONAL GROWTH MARKETS (Multiple Responses Accepted) Asia 57% Europe 54% Latin America 36% Canada 25% Africa Middle East 2% 6% Bank of America Business Capital 2008 CFO Outlook

36 Future Plans for Foreign Operations Do you plan to expand the operations you currently have in foreign countries? Do you plan to set up operations in foreign countries in 2008? Among manufacturing companies surveyed with operations in foreign countries, 53% have expansion plans. However, only 8% of companies currently without foreign operations plan to establish them in FUTURE PLANS FOR FOREIGN OPERATIONS Percent CFOs Responding 53% Yes 8% 45% No 89% Expand Operations New Operations 32 Bank of America Business Capital 2008 CFO Outlook

37 Survey Demographics Is your company public or private? 72% Privately owned 24% Publicly owned 3% Majority privately owned with some public debt * Refused or don t know What type or types of product(s) does your company manufacture? 12% Industrial/commercial machinery and computer equipment 11% Fabricated metal products (except machinery and transportation equipment) 10% Food products 10% Electronic/electrical equipment (except computer equipment) 8% Chemicals 7% Transportation equipment 6% Primary metal industries 6% Printing and publishing 5% Analysis/control instruments 5% Textiles and apparel 4% Rubber and plastic products 4% Lumber and wood products 4% Paper products 3% Stone, clay and glass products 2% Furniture 2% Miscellaneous manufacturing 1% Leather products * Petroleum refining * Percentage less than 0.5 Bank of America Business Capital 2008 CFO Outlook

38 Survey Demographics (Continued) Sales 39% $25 million to $74,999,999 35% $75 million to $199,999,999 16% $200 million to $499,999,999 9% $500 million to $2 billion U.S. Region 25% South (Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia) 27% Midwest (Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin) 26% Northeast (Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Pennsylvania, Vermont) 22% West (Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming) Gender 87% Male 13% Female 34 Bank of America Business Capital 2008 CFO Outlook

39 About Bank of America Bank of America serves clients in 175 countries and has relationships with 99 percent of the U.S. Fortune 500 companies and 80 percent of the Global Fortune 500. To learn more visit Certain activities and services referred to in this document are provided by Banc of America Securities LLC, a subsidiary of Bank of America Corporation and an affiliate of Bank of America Business Capital Bank of America Corporation Bank of America Business Capital 2008 CFO Outlook

40 About Bank of America Business Capital As one of the world s largest asset-based lenders, Bank of America Business Capital serves mid-size and large companies in the manufacturing, wholesale, distribution and service sectors throughout the United States, Canada and Europe. Loans are typically $2 million to $1 billion supporting recapitalization, restructuring and turnarounds, leveraged buyouts, refinancing, growth, working capital, mergers and acquisitions, and capital expenditures. As a client, you can leverage a broad array of financial solutions from Bank of America including junior and high yield debt, loan syndications, international secured lending, treasury services, interest rate protection and commodity risk management, foreign exchange, mergers and acquisitions advisory, and capital markets products. Bank of America has the financial products and services companies need to grow, manage, protect and plan for their businesses. For more information call Additional Resources: The CFO Outlook is just one of the many ways Bank of America Business Capital provides mid-size and large companies and their advisors with intellectual capital. To stay informed throughout the year, subscribe free to CapitalEyes, a bi-monthly e-newsletter. Every other month you ll receive insights on senior debt, private equity, M&A, leveraged loan multiples and more. Visit to subscribe. 36 Bank of America Business Capital 2008 CFO Outlook

41 Regional Contacts Bank of America Business Capital has more than 20 offices serving the U.S., Canada and Europe. Visit a complete list of office locations or contact any of the marketing managers below. Pacific/Southwest U.S. and Canada Steve Hinrichs 55 South Lake Avenue Pasadena, CA stephen.r.hinrichs@bankofamerica.com Midwest U.S. and Canada James Cockey 231 South LaSalle Street Chicago, IL james.d.cockey@bankofamerica.com Southeast U.S. Harold Blatt 300 Galleria Parkway Suite 800 Atlanta, GA Northeast U.S. Joseph Powers 335 Madison Avenue 6th Floor New York, NY joseph.p.powers@bankofamerica.com Europe Carmen Bernardis 5 Canada Square London E14 5AQ United Kingdom carmen.bernardis@bankofamerica.com harold.blatt@bankofamerica.com Bank of America Business Capital 2008 CFO Outlook

42 If you need financing to enhance your capital structure, a top-tier syndications desk and a broad array of complementary banking products and services, visit or call Bank of America Business Capital Asset-based financing Treasury and risk management Global capital markets Certain activities and services referred to in this document are provided by Banc of America Securities LLC, a subsidiary of Bank of America Corporation and an affiliate of Bank of America Business Capital Bank of America Corporation