global business outlook

Global Business OutlookA joint survey effort between

Duke Universityand

CFO magazine

1Global Business Outlook Duke University Winter 2009

John R. GrahamD. Richard Mead Jr. Family Professor of Finance

Director, Global Business Outlook Survey

Global Business Outlook

• Quarterly Survey– Since July 1996 (55 quarters)

• Send to CFO subscribers and ‘Friends of Duke’– Title of CFO, Treasurer, VP Finance

• Global: US, Europe, Asia, China• 1000+ responses• Present results quarterly

– Frequent press coverage– MSNBC, WSJ, FT, BW, Wash Post, NPR, podcast, etc.

Global Business Outlook Duke University Winter 2009 2

Content

• Ask questions about

• Economic Outlook– Similar questions every quarter

• Topical issues– Effects of credit crisis, gov’t intervention in

financial markets, cost of fuel, etc.

Global Business Outlook Duke University Winter 2009 3

Global Business Outlook Duke University Winter 2009 4

Global Business Outlook Duke University Winter 2009 5

Global Business Outlook Duke University Winter 2009 6

Global Business Outlook Duke University Winter 2009 7

Global Business Outlook Duke University Winter 2009 8

Global Business Outlook Duke University Winter 2009 9

Global Business Outlook Duke University Winter 2009 10

Top CFO Concerns (December 2009)

External:• Consumer Demand• Federal Government

Agenda/Policies• Price Pressure• Credit Markets/Interest

Rates

Internal: • Margin Maintenance• Ability to Forecast

Results• Maintaining Morale /

Productivity • Working Capital

Management

Global Business Outlook Duke University Winter 2009 11

Global Business Outlook Duke University Winter 2009 12

Global Business Outlook Duke University Winter 2009 13

Global Business Outlook Duke University Winter 2009 14

Global Business Outlook Duke University Winter 2009 15

Global Business Outlook Duke University Winter 2009 16

Global Business Outlook Duke University Winter 2009 17

Global Business Outlook Duke University Winter 2009 18

Tech SectorUSA

EuropeAsia

China

-20%-15%-10%

-5%0%5%

10%15%20%25%

08Q4 09Q1 09Q2 09Q3 2009Q4

-0.8%8.0%

9.5%24.3%

6.7%

Earnings Growth

Expected percentage change in earnings over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Global Business Outlook Duke University Winter 2009 19

Tech SectorUSA

EuropeAsia

China

-10%

-5%

0%

5%

08Q4 09Q1 09Q2 09Q3 2009Q4

2.7%-1.4%

-2.6%

4.9%4.5%

Domestic Employment

Expected percentage change in domestic employment over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Global Business Outlook Duke University Winter 2009 20

Tech SectorUSA

EuropeAsia

China

-10%

-5%

0%

5%

10%

08Q4 09Q1 09Q2 09Q3 2009Q4

-7.4%

2.6%-0.5%

7.5%2.0%

Outsourced Employment

Expected percentage change in outsourced employment over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Global Business Outlook Duke University Winter 2009 21

Tech SectorUSA

EuropeAsia

China

-5%

0%

5%

10%

08Q4 09Q1 09Q2 09Q3 2009Q4

5.1%0.3%

-0.2%

2.6%0.9%

Prices

Expected percentage change in prices of own firm’s products over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Global Business Outlook Duke University Winter 2009 22

Tech SectorUSA

EuropeAsia

China

-5%

0%

5%

10%

08Q4 09Q1 09Q2 09Q3 2009Q4

3.0%1.9%

1.0%

6.4%7.2%

Wages & Salaries

Expected percentage change in wages & salaries over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Global Business Outlook Duke University Winter 2009 23

Tech SectorUSA

EuropeAsia

China

0%

5%

10%

15%

08Q4 09Q1 09Q2 09Q3 2009Q4

10.1%6.8%

1.4%5.5%

3.0%

Health Care Costs

Expected percentage change in health care costs over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Global Business Outlook Duke University Winter 2009 24

Tech SectorUSA

EuropeAsia

China

-20%-15%-10%

-5%0%5%

10%15%20%

08Q4 09Q1 09Q2 09Q3 2009Q4

-1.0%1.5%

-3.7%16.0%

7.8%

Capital Spending

Expected percentage change in capital spending over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Global Business Outlook Duke University Winter 2009 26

USA

Europe

Asia

China

-10%

-5%

0%

5%

10%

08Q4 09Q1 09Q2 09Q3 2009Q4

0.1%-2.8%

8.0%8.1%

IT Spending

Expected percentage change in capital spending over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Global Business Outlook Duke University Winter 2009 27

CFO Optimism about owncountry’s economy, on ascale of 0 to 100

For U.S. firms,CFO Optimism about ownfirm’s financial prospectsalso shown (in green)

Source: www.cfosurvey.org

Can CFOs Predict the Future?

1) CFOs predict the future reasonably well

• CFO optimism about own firm is highly correlated with future national numbers for

– Earnings (43% correlation with next year’s earnings)– Employment (81%) – see chart– GDP (78%)

Global Business Outlook Duke University Winter 2009 28

Source: www.cfosurvey.org

Why care what CFOs say?

2) CFOs say it first

• Correlation with future quarter’s value for– CEO optimism (84%, 1 qtr ahead) – see chart– ISM (75%, 1)– Conf Board consumer confidence (86%, 2)– Michigan consumer confidence (81%, 1)– UBS/Gallup Investor confidence (49%, 2)

Global Business Outlook Duke University Winter 2009 29

Source: www.cfosurvey.org

Global Business Outlook Duke University Winter 2009 30

Plan to acquire entire firm or part of firm in next 12 months (top 4 US industries)

Global Business Outlook Duke University Winter 2009 31

Percentage of respondents whose firm has been directly adversely affected by the credit market conditionsSource: Duke University / CFO Magazine Global Business Outlook

Global Business Outlook Duke University Winter 2009 32

Has your company been directly affected by credit crisis? %yes US firms, by credit rating

Source: www.cfosurvey.org

Global Business Outlook Duke University Winter 2009 33

Among companies affected by credit crisis … how has your company been affected?

Source: www.cfosurvey.org

Global Business Outlook Duke University Winter 2009 34

Figure 2/3 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

Actions taken in response to credit crisis

-22.0

-9.1

-32.4

-10.9-15.0 -14.2

-9.0

-0.6-4.5

-2.7 -2.7 -2.9

-40

-30

-20

-10

010

% C

hange in P

olicy

Vari

able

Constrained Unconstrained

Policies of Constrained vs. Unconstrained FirmsPanel B - Two Constraint Categories

R&D Expenditures Capital ExpendituresMarketing Expenditures Number of EmployeesCash Holdings Dividend Payments

-4.9-10.1 -11.4

-7.8-3.5

-57.5

-3.7

-11.2-7.1

1.0

-2.0-6.0

-60

-40

-20

0

% C

han

ge

in P

olicy

Var

iable

Constrained Unconstrained

Policies of Constrained vs. Unconstrained FirmsPanel A - Europe

R&D Expenditures Capital ExpendituresMarketing Expenditures Number of EmployeesCash Holdings Dividend Payments

-3.5-6.9

-5.0

5.6

-9.9-11.6

5.6 4.5 4.7 5.72.6

-6.4

-40

-30

-20

-10

010

% C

han

ge

in P

olicy

Var

iable

Constrained Unconstrained

Policies of Constrained vs. Unconstrained FirmsPanel B - Asia

R&D Expenditures Capital ExpendituresMarketing Expenditures Number of EmployeesCash Holdings Dividend Payments

Firms subject to financial constraints plan to cut R&D, capital spending, etc. more than deeply than plans for unconstrained firms

Global Business Outlook Duke University Winter 2009 35

Cash holdings and cash burn rate during crisis

15.1

11.7

14.6 14.8

010

20

30

Cash

as

% o

f Fir

m T

ota

l A

sset

s

Constrained Unconstrained

Cash Savings of Constrained vs. Unconstrained FirmsPanel D - U.S.

Cash Holdings 1-Year Ago Cash Holdings Today

8.36.4

13.6 13.5

010

2030

Cas

h a

s %

of Fir

m T

ota

l A

sset

s

Constrained Unconstrained

Cash Savings of Constrained vs. Unconstrained FirmsPanel E - Europe

Cash Holdings 1-Year Ago Cash Holdings Today

17.515.6

27.626.1

010

2030

Cas

h a

s %

of Fir

m T

otal

Ass

ets

Constrained Unconstrained

Cash Savings of Constrained vs. Unconstrained FirmsPanel F - Asia

Cash Holdings 1-Year Ago Cash Holdings Today

15.1

11.7

14.6 14.8

010

20

30

Cash

as

% o

f Fir

m T

ota

l A

sset

s

Constrained Unconstrained

Cash Savings of Constrained vs. Unconstrained FirmsPanel D - U.S.

Cash Holdings 1-Year Ago Cash Holdings Today

8.36.4

13.6 13.5

010

2030

Cas

h a

s %

of Fir

m T

ota

l A

sset

s

Constrained Unconstrained

Cash Savings of Constrained vs. Unconstrained FirmsPanel E - Europe

Cash Holdings 1-Year Ago Cash Holdings Today

17.515.6

27.626.1

010

2030

Cas

h a

s %

of Fir

m T

otal

Ass

ets

Constrained Unconstrained

Cash Savings of Constrained vs. Unconstrained FirmsPanel F - Asia

Cash Holdings 1-Year Ago Cash Holdings Today

Figure 4 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

Unconstrained firms maintained cash balances during 2008. Financially constrained firms cash on balance sheet fell by 1/5 (from 15.1% of assets to 11.7%)

Global Business Outlook Duke University Winter 2009 37

0.500.55

0.130.17

0.28

0.42

0.07 0.060

.2.4

.6

Pro

port

ion o

f Fir

ms

Report

ing C

hoic

e

Constrained Unconstrained

Drawing Funds from LCs: Constrained vs. Unconstrained FirmsPanel D - U.S.

Liquidity Needs Daily OperationsPrecautionary Savings Strategic Timing

0.38

0.62

0.04

0.15

0.23

0.38

0.07 0.06

0.2

.4.6

Pro

port

ion o

f Fir

ms

Rep

ort

ing C

hoic

e

Constrained Unconstrained

Drawing Funds from LCs: Constrained vs. Unconstrained FirmsPanel E - Europe

Liquidity Needs Daily OperationsPrecautionary Savings Strategic Timing

0.46

0.59

0.200.18 0.18

0.27

0.070.05

0.2

.4.6

Pro

port

ion o

f Fir

ms

Rep

ort

ing C

hoic

e

Constrained Unconstrained

Drawing Funds from LCs: Constrained vs. Unconstrained FirmsPanel F - Asia

Liquidity Needs Daily OperationsPrecautionary Savings Strategic Timing

Figure 7 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

Line of credit use during crisis

17% of constrained U.S. firms said that they borrowed now from line of credit in case their bank cut off access in the future … a “run” on bank lines of credit.

Global Business Outlook Duke University Winter 2009 38

To what extent have you drawn down your line of credit (as % of maximum)?

0%

10%

20%

30%

40%

50%

60%

70%

80%

2009Q1 2009Q2 2009Q3 2009Q4

AAA / AA A BBB / BB B or lower

Global Business Outlook Duke University Winter 2009 40

0.46

0.20

0.2

.4.6

.81

Prop

ortio

n of

Fir

ms R

epor

ting

Effec

ts

Constrained Unconstrained

When Markets Operate Normally: Constrained vs. Unconstrained FirmsPanel D - U.S.

0.44

0.18

0.2

.4.6

.81

Prop

ortio

n of

Fir

ms R

epor

ting

Effec

ts

Constrained Unconstrained

When Markets Operate Normally: Constrained vs. Unconstrained FirmsPanel E - Europe

0.47

0.20

0.2

.4.6

.81

Prop

ortio

n of

Firm

s Rep

ortin

g Eff

ects

Constrained Unconstrained

When Markets Operate Normally: Constrained vs. Unconstrained FirmsPanel F - Asia

Figure 10/11 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

0.86

0.44

0.2

.4.6

.81

Prop

ortio

n of

Fir

ms

Rep

ortin

g Eff

ects

Constrained Unconstrained

In a Financial Crisis: Constrained vs. Unconstrained FirmsPanel D - U.S.

0.80

0.36

0.2

.4.6

.81

Prop

ortio

n of

Fir

ms

Rep

ortin

g Eff

ects

Constrained Unconstrained

In a Financial Crisis: Constrained vs. Unconstrained FirmsPanel E - Europe

0.69

0.29

0.2

.4.6

.81

Prop

ortio

n of

Fir

ms R

epor

ting

Effec

ts

Constrained Unconstrained

In a Financial Crisis: Constrained vs. Unconstrained FirmsPanel F - Asia

Credit constrained from pursuing NPV>0 projects

Global Business Outlook Duke University Winter 2009 42

0.52

0.34

0.13

0.56 0.55

0.46

0.09

0.31

0.2

.4.6

.8

Pro

port

ion o

f Fir

ms

Report

ing C

hoic

e

Constrained Unconstrained

Funding Investment: Constrained vs. Unconstrained FirmsPanel D - U.S.

Inv. Funded by Cash Flow Inv. Funded by Cash HoldingsInv. Funded by Other Inv. Cancelled/ Postponed

0.400.35

0.26

0.41 0.41

0.52

0.180.16

0.2

.4.6

.8

Pro

port

ion o

f Fir

ms

Rep

ort

ing C

hoic

e

Constrained Unconstrained

Funding Investment: Constrained vs. Unconstrained FirmsPanel F - Asia

Inv. Funded by Cash Flow Inv. Funded by Cash HoldingsInv. Funded by Other Inv. Cancelled/ Postponed

0.31

0.12

0.31

0.69

0.39 0.40

0.17

0.33

0.2

.4.6

.8

Pro

port

ion o

f Fir

ms

Rep

ort

ing C

hoic

e

Constrained Unconstrained

Funding Investment: Constrained vs. Unconstrained FirmsPanel E - Europe

Inv. Funded by Cash Flow Inv. Funded by Cash HoldingsInv. Funded by Other Inv. Cancelled/ Postponed

Figure 12 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

How fund investment if credit constrained?

Global Business Outlook Duke University Winter 2009 44

To raise funds during the credit crisis …have you sold assets? % who answered yes

• Source: Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

Global Business Outlook Duke University Winter 2009 45

As of December 2009, when do you anticipate domestic employment at your firm to return to year-

end 2007 levels? Cumulative Percent

0%10%20%30%40%50%60%70%80%90%

100%

Already at or Exceeding

2007 Levels

In 6 months In one year In two years In three years In four years In 5+ years Possibly Never

US

Global Business Outlook Duke University Winter 2009 46

As of December 2009, when do you anticipate domestic employment at your firm to return to year-

end 2007 levels? Cumulative Percent

0%10%20%30%40%50%60%70%80%90%

100%

Already at or Exceeding 2007 Levels

In 6 months In one year In two years In three years

In four years In 5+ years Possibly Never

Tech Sector

Global Business Outlook Duke University Winter 2009 47

As of December 2009, when do you anticipate domestic employment at your firm to return to year-

end 2007 levels? Cumulative Percent

0%

20%

40%

60%

80%

100%

Already at or

Exceeding 2007 Levels

In 6 months In one year In two years In three years

In four years In 5+ years Possibly Never

Manu Sector

Global Business Outlook Duke University Winter 2009 48

As of September 2009, compared to current sales revenue, how much will your company’s revenue need

to increase for you to increase domestic employment to year-end 2007 levels?

Global Business Outlook Duke University Winter 2009 49

Reason(s) your company would not benefit from the adoption of a national healthcare system

Credit Line Terms – Q2 2008 vs. Q2 2009

12.7

Commit Fee Int RateMarkup

Maturity(months)

26.4

127.5

196.8

30.1 27.

6

U.S.A.

Commit Fee Int RateMarkup

Maturity(months)

Europe

Commit Fee Int RateMarkup

Maturity(months)

Asia

20.8

22.6

87.9

115.5

30.5 26.

9 8.9

12.5

124.5

193.5

27.725.3

Source: www.cfosurvey.org June 2009 survey. SeeCampello, Giambona, Graham, and Harvey, 2009

Basispoints

Basispoints

Months

50Global Business Outlook Duke University Winter 2009

Interest Rate Markup – Q2 2008 vs. Q2 2009 (US data)

Constrained Unconstrained

Non-Investment Grade Investment Grade Negative Cash Flow Positive Cash Flow

191.4

355.9

105.1

141.3

119.2

189.3

155.0

184.1

117.9

213.1

128.4

191.0

Constrained Credit vs. Unconstrained Credit Firms

Non-Investment Grade vs. Investment Grade Firms

Negative Cash Flow vs. Positive Cash Flow Firms

Source: www.cfosurvey.org June 2009 survey. SeeCampello, Giambona, Graham, and Harvey

Units = basis points

51Global Business Outlook Duke University Winter 2009

Maturity of new lines – Q2 2008 vs. Q2 2009 (US data)

Constrained Credit Unconstrained Credit

Non-Investment Grade Investment Grade Negative Cash

Flow

Positive Cash

Flow

28.3

22.5

30.729.1

29.125.9

36.6 37.7

23.020.5

31.228.8

Constrained Credit vs. Unconstrained Credit Firms

Non-Investment Grade vs. Investment Grade Firms

Negative Cash Flow vs. Positive Cash Flow Firms

Source: www.cfosurvey.org June 2009 survey. SeeCampello, Giambona, Graham, and Harvey

Units = months

52Global Business Outlook Duke University Winter 2009

Global Business Outlook Duke University Winter 2009 53

How would you rate your employees’ morale level? Fair + Poor, 2009Q4

5.5% 4.9%

14.6%

39.1%36.1% 35.7%

33.0%

55.3%

0%

10%

20%

30%

40%

50%

60%

USA Europe Asia China

Year-end 2007 Now

Source: www.cfosurvey.org

Global Business Outlook Duke University Winter 2009 54

Relative to 2008, does your company plan to adjust its target compensation mix for 2010?

Net percentage change, 2009Q4

-20%0%

20%40%60%

USA Europe Asia

Salary

Equity-based

Bonus

Source: www.cfosurvey.org

Global Business Outlook Duke University Winter 2009 55

Relative to 2008, does your company plan to adjust its target compensation mix for 2010?

Net percentage change, 2009Q4

19.1%

0.0%

41.2%

3.7%0.0%

22.6%

-1.0%

50.0%

15.7%

-10%

0%

10%

20%

30%

40%

50%

60%

USA Tech Sector Manu Sector

Salary Equity-based Bonus

Source: www.cfosurvey.org

Global Business Outlook Duke University Winter 2009 56

Among companies that have taken action, will you restore these areas to pre-recession levels in

2010? 2009Q4

16.3%18.7%

35.9%33.3%

31.8%32.9%

9.0%15.2%

10.7%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Reduced WorkforceEliminated or Reduced Overtime

Reduced Work HoursReduced Wages

Furloughed EmployeesReduced 401(K) Match

Reduced Contribution to Health BenefitsReduced Contribution to Other Benefits

Outsourced Employees

USASource: www.cfosurvey.org

Global Business Outlook Duke University Winter 2009 57

Among companies with reduced growth prospects, they are reduced because . . .

2009Q4

55.2%

48.0%

46.0%

35.6%

18.0%

0% 10% 20% 30% 40% 50% 60%

Deep Cuts in Workforce

Reduced Spending on Training

Reduced Spending on Marketing and Advertising

Delayed or Turned Down Attractive Investment Opportunities

Cut R&D Spending

USA

Source: www.cfosurvey.org

Global Business Outlook Duke University Winter 2009 58

Why are banks less willing to makes loans today vs. Summer 2008 (pre-crisis)? 2009Q4

79.0%

43.5%

37.4%

35.0%

31.3%

23.8%

19.2%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

More conservative lending standards

Covenants too restrictive

High lending rates

View my company as too restrictive

Care less about servicing my company

Process takes too long

Bank will not fund our project

USA

Source: www.cfosurvey.org