bofa cfo outlook (2011)

8/7/2019 BofA CFO Outlook (2011)

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Taking the Pulse of Corporate America

Jobs.Profts.Growth.Is more hiring on the horizon?Are the U.S. and globaleconomies on the rise?What are the uture trends

or corporate fnancing, M&Aand international trade?

Discover what AmericasCFOs see ahead in our13th nnu l CFO Outlook

ECONOMIES aN SECTORSEconomic nd sector outlooklooking up

PEOP E aN PRO CTSThe return of corpor tecon dence

FINaNCINHe lth c re costs c usinghe rtburn

MER ERS aN aCq ISITIONSHiring nd revenue growthon the horizon

INTERNaTIONa TRa E oing glob l h str ctio n

411152327

2011 CFO Outlook


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The survey results and interpretations in this report are not intended, nor implied, to be a substitu te or the pro essional advice you would receive rom a qualifed accountant, attorneyfnancial advisor. Always seek the advice o an accountant, attorney or fnancial advisor with any questions you may have regarding the decisions you undertake as a result o reviewithe in ormation contained herein. Nothing in this report should be construed as either advice or legal opinion.

Bank o America Merrill Lynch is the marketing name or the global banking and global markets businesses o Bank o America Corporation. Lending, derivatives, andcommercial banking activities are per ormed globally by banking a fliates o Bank o America Corporation, including Bank o America, N.A., member FDIC. Securities, sadvisory, and other investment banking activities are per ormed globally by investment banking a fliates o Bank o America Corporation (Investment Banking A fliincluding, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a register ed broker-dealer and member o FINRA and SIPC, and, in other jurisdiclocally registered entities. Investment products o ered by Investment Banking A fliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed. All rights re 2011 Bank o America Corpor ation.


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Bringing the uture into ocus

Clarity and optimism emerging

The value of being able to anticipate and plan for future events has long inspired many interesting methods,from the ancient practice of reading tea leaves to todays most advanced economic theories and computeralgorithms. Whether its looking for predictive patterns at the bottom of a teacup or economic recession,recognizing the important signs is critical to foreseeing whats ahead. Each year we take the pulse of AmericasCFOs, with whom so many critical decisions reside, using a disciplined approach that has provided a rich bodyof insightful data since we began our annual CFO Outlook survey

near the end of the last millennium.The lead story is increased optimism about corporate hiringand revenue, which are keys to growing employment, pro ts andexpansion. Likewise, corporate spending and borrowing plans maysignal a return to pre-recession levels. But concerns about theeconomy and economic growth remain, with the cost of health carereplacing revenue growth as the number one nancial concern of CFOs. Even that might be viewed as progress given that nancialexecutives appear optimistic that their own companies haveweathered the worst of the storm and are poised to grow.

On behalf of all of us at Bank of America Merrill Lynch, Id liketo thank the survey par ticipants who shared their valuable timeand insights. Building on this knowledge, and from what welearn each day as we partner with our clients to address a broadarray of unique needs, we look forward to bringing you exper tise,capabilities and clarity to help you succeed in 2011 and wellinto the future.

Laura Whitley

Middle Market Banking ExecutiveBank of America Merrill Lynch

ABO T T E 2011 CFO O TLOO

Who p rticip ted nd how results

were g thered

From September 20, 2010, through October 29, 2010,

an independent research company completed

telephone interviews with 801 fnancial executives

drawn rom a random sampling o U.S. manu acturin

and services and commodities companies with annual

revenues between $25 million and $2 billion. This is

the frst year the CFO Outlook has included services

and commodities companies.

Participants are re erred to as CFOs throughout the

report since more than hal have C-suite titles and

most are CFOs.

2011 CFO O TLOO


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Contents

02 MAjO FI I iring and revenue growth on the horizon

CFO concerns down, but not out

04 ECO OMIE A ECTOEconomic and sector outlook looking up

im . . views improving; global picture brighter

11 PEOPLE A P O CTThe return of corporate con dence

ising employment, & spending and prices

15 FI A CIealth care costs causing heartburn

Cash management, working capital are top needs

23 ME E A ACQ I ITIOA buyers market

ine out of 10 companies that see M&A opportunitysay theyre buying

27 I TE ATIO AL T A E oing global has tractionMomentum in Asia driving growth

30 E EMO AP ICepresenting Americas nancial decision-makers

A cross-section of companies and regions

2011 CFO Outlook

bankofamerica.com/CFOoutlook

1


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Hiring and revenue growth on the horizon

CFO concerns down, but not out

Financial executives at . .companies appear upbeat abouthiring employees and growingrevenues in 2011, which couldbode well for improving thenations unemployment rate andbolstering business growth. But

the optimistic tone remains mutedby lingering concern.

Of the 801 executives surveyedin the CFO Outlook, 47% of companies expect to hireadditional employees in 2011,up from 28% of the manufacturingcompanies who forecast hiringlast year (this is the rst yearwe surveyed services andcommodities businesses). Only

6% said they expect layoffs,compared with 9% last year. Inaddition, 64% of CFOs expectrevenue growth in 2011, up from61% last year. Additional positiveindicators include the fact thatcompanies & expenses, capitalexpenditures and borrowing

needs are comparable to pre-recession levels. In addition,

. . companies overall are highlyinvolved in foreign markets andare forecasting international salesgrowth in 2011.

Other not blesurvey ndings:

Economy gr des up slightly fterrecord low m rks

CFOs gave the current . .economy a score of 47 out of 100, up slightly from last yearsscore of 44, the lowest in the13-year history of the annualCFO Outlook. More than half of all CFOs expect . . economicgrowth in 2011 (56%), downfrom 66% who forecast economicgrowth a year ago. In comparison,CFOs have a more positive viewof the world economy, giving it anaverage rating of 51.

He lth c re costs c usinghe rtburn

When asked what will have thebiggest impact on the economy in2011, CFOs ranked health carereform o. 1 at 54%, followed bythe . . budget de cit at 52%and the housing market at 43%.

elated to the above, CFOs topnancial concern by far is health

care costs, followed by revenue

growth and cash ow. The topconcern last year was revenuegrowth.

M nuf cturing produces lessoptimism th n other sectors

Executives at manufacturingcompanies generally wereless positive about theirsector than CFOs at servicesand commodities companies,which include construction,retail, transportation, nance,education, health care and foodservice businesses. Only 47% of manufacturing CFOs predictedexpansion in their sector vs. 58%of CFOs in other sectors. CFOsof services and commoditiescompanies are extremelyoptimistic about the 2011 outlookof their sector, due in part to theirforecast for revenue growth andpricing increases.

47%expect to hiremore employeesin 2011

64%pro ect revenuegrowth

MAjO FI I

2

2011 CFO Outlook



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access llevi tes concern overcost of c pit l

Two-thirds of all . . companies,regardless of industry, will seek

nancing in 2011. As global creditmarkets ease, it is not surprisingthat only 27% of CFOs forecast anincrease in their cost of capital.The ma ority (60%) expect thattheir nancing costs will remainthe same in 2011, and 12%believe their cost of capital willdecrease.

When it comes to having accessto credit, 55% of CFOs think thatcredit availability is about thesame as a year ago while 28%

think their current lenders haveeither somewhat or signi cantly

increased the credit available totheir company, which suggestsimprovement in the . . nancialsystem.

oing glob l h s tr ction

The ma ority of . .manufacturers (85%) andservices and commoditiescompanies (51%) surveyedreported some form of foreign

market involvement. As a whole,56% of companies buy fromforeign markets, 49% sell toforeign markets, and 31% have

operations in foreign countries.Looking ahead, 61% of companiesexpect their international salesto increase in 2011. The top fourinternational markets identi edby . . companies for 2011 areAsia (67%), Latin America (59%),Europe (56%) and Canada (50%).

56%anticipate . .economic growth

Note: The statistical range o error or the total sample is plus or minus 4%; or each individual sector (manu acturing or services and commodities)the margin o error is plus or minus 5%. When signifcant di erences are noted throughout the report, they are based on a 90% confdence level.

The optimistic outlook of both themanufacturing and services and commoditiessectors bodes well for the . . economy.

MAjO FI I


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Economies

and ectors


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Economic and sector outlook looking up

im . . views improving; global picture brighter

R ting the current economy

Three years after the global nancial crisis, . . companies are reportingan uptick in optimism toward their industry sectors and the . . andworld economies. As a whole, CFOs still have a cautious view of the . .economy, giving it an average score of 47 on a scale ranging from 0 to100, extremely weak to extremely strong. This view is consistent among

both manufacturers (48) and services and commodities companies (47).et, despite this gloomy average, 39% of CFOs rate the current state of the . . economy above the 50 midpoint. The segments most likely torate the economy above the midpoint are manufacturers (42%), companiesin the ortheast region (53%), and those selling to both consumers andbusinesses (52%).

Comparatively, CFOs of . . companieshave a more positive view of theworld economy, giving it an averagerating of 51. In terms of this measure,manufacturers give higher marks

(52) than services and commoditiescompanies (49). Likewise, ortheastcompanies (53) and those selling toboth consumers and businesses (56)have the most favorable view of theglobal economy at this time.

iffering sector ssessments

The overall consensus of CFOs is that the current state of the . . servicesand commodities sector is positive (56). In contrast, the manufacturingsector is viewed more critically, with an overall average score of 48.

Interestingly, CFOs of manufacturing companies rate their sector higherthan their services and commodities colleagues (49 and 47, respectively).

Q:

ow wouldyou rate thecurrent st teof the . .

economy, theworld economyand themanufacturingand services andcommoditiessectors? Average Rating, on a Scale of

0 (Extremely Weak) to 100 (Extremely Strong)

Current State of the Economy

Services and Commodities

Manufacturing

World

U.S.

48

51

47

56

ECO OMIE A ECTO

2011 CFO Outlook


5


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.S. economic exp nsion he d

The ma ority of CFOs from . . companies (56%) believe the nationaleconomy will expand in 2011. This sentiment is shared by CFOs in both themanufacturing sector (55%), which marks a return to the pre-recession levelof 2007, and services and commoditiessector (56%). In terms of both geographicregion and sales size, companies in the

ortheast (62%) and those with revenuesbetween $500 million and $2 billion (63%)are the segments most likely to predicteconomic expansion.

Optimism v ries by comp ny size, m keup

Although there are no signi cantdifferences in the . . economic outlookof manufacturers by region, the segmentsexpressing the most optimistic views forexpansion are those that have revenues of $500 million to $2 billion (65%),sell primarily to consumers (63%), are publicly-owned (62%), and haveforeign operations (68%).

The services and commodities subgroups that have the most optimisticviews of the . . economy are located in the ortheast region (68%),have revenues of $500 million to $2 billion (62%), and have foreign

operations (62%).

Q:

Looking ahead,do you think the

.S. economy willexpand, contractor stay the same?

ECO OMIE A ECTO

Percent CFOs Who Expect U.S. Economic Expansion

Economic Outlook


Manufacturing

U.S. Economy

56%

55%

56%

CFOs from . . companies believethe national economy will expand in 2011.


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Q:

ow would your te your concernabout the potentialimpact thesefactors will haveon the . .economyin 2011?

He lth c re, de cit nd housing re chief concerns

The top three factors that CFOs of all . . companies feel will mostimpact the . . economy in 2011 are health care reform (54%), the . .budget de cit (52%), and the housing market (43%). This is based on thepercentage of CFOs who rated these concerns an 8, 9 or 10 on a scale of 1to 10. Interestingly, there were no signi cant differences of opinion betweenmanufacturing CFOs and services and commodities CFOs across all 11factors evaluated in this question.

egionally, companies in the Midwest express the greatest concern overhealth care reform (60%) and the . . budget de cit (57%). The outhexpressed the most concern about the housing market (52%), followedby credit availability and corporate tax rates (43% and 44% respectively).

Privately-owned companies are signi cantly more concerned about healthcare reform (55%), the . . budget de cit (55%), and the trade de cit (30%)than are public corporations (47%, 44% and 21% respectively).

M nuf cturing: fewer predict exp nsion

When it comes to the manufacturing sector, both manufacturers andservices and commodities companies share similar views regarding the2011 outlook. The 45% of manufacturing CFOs forecasting expansion fortheir industry in 2011 is down signi cantly from the 59% reported lastyear, presumably because the industry had hit bottom in 2009 and wasexpecting a turnaround.

ECO OMIE A ECTO

Percent CFOs Rating Concern an 8, 9 or 10 on a Scale of 1 to 10

U.S. Economic Concerns

In ation

Terrorism

Con icts in the Middle East

Oil Prices

Trade De cit

Strength of the U.S. Dollar

Corporate Tax Rates

Credit Availability

Housing Market

U.S. Budget De cit

Health Care Reform

40%

52%

16%

18%

39%

33%

14%

43%

28%

24%

54%

2011 CFO Outlook


7


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Overall, 47% of CFOs are forecasting expansion in the manufacturingsector in the coming year. Of the remaining companies, 43% believe theindustry will remain the same in 2011 and 10% think it will contract.The companies that are the most optimistic about manufacturing sectorexpansion are those with revenues of $200 million to $499 million (53%)and those with revenues of $500 million to $2 billion (52%), as well asMidwest-based companies (51%).

Services nd commodities: outlook highly positive

Almost six in 10 CFOs of . . companies think the services andcommodities sector will expand in the coming year. Thirty-eight percentpredict the industry will remain the same, while only 4% say it willcontract. ervices and commodities CFOs are signi cantly more likely thanmanufacturing CFOs to forecast expansion in their own industry (61% vs.54%). The companies that are the most likely to forecast expansion haverevenues of $200 million to $499 million (64%), revenues of $500 millionto $2 billion (63%) and those companies that are located in the ortheastregion (64%).

Revenue growth resoundingly optimistic

Overall, 64% of those surveyed areexpecting revenue growth in 2011,66% in the manufacturing sector(the third consecutive year a ma orityof respondents expect revenue growth)and 62% in services and commodities.

These predictions for healthy revenuegrowth are consistent across allgeographic regions and company type.The segments expressing the mostoptimistic views for growth are largecompanies with sales of $500 millionto $2 billion (75%) and corporations that sell to both consumers andbusinesses (73%). Finally, companies hiring additional employees in 2011

(80%), those expecting sales to foreign markets to increase (78%), andbusinesses expecting M&A activity (70%) are all expecting revenue growthin 2011.

Q:

o you expectyour companys

revenues togrow, contract orstay the same in2011?

Q:

Looking ahead,do you thinkthe sectorwill expand,contract orstay the same?

ECO OMIE A ECTO

Percent CFOs Responding

Revenue Expectations

Grow 64%

Stay the Same 30%

Contract 6%

8

2011 CFO Outlook



13/36

Q:

o you expectyour companyspro t m rginto increase,decrease orstay the samein 2011?

High expect tions

Manufacturing companies that are increasing product prices in 2011 (77%),those expecting sales to foreign markets to increase (77%), and those withforeign operations (71%) are all expecting revenue growth in 2011. Thetwo services and commodities subgroups reporting above average revenuegrowth in 2011 are large companies with revenues of $500 million to$2 billion (79%) and those expecting foreign market sales growth (78%).

Incre sing pro t m rgins v ry by sector

As a whole, more than half (55%) of . . CFOs are expecting pro t margingrowth in 2011. Only 15% are expecting pro t margin declines, while theremaining 30% expect pro t margins to remain the same.

CFOs of services and commodities companies are signi cantly morelikely (61%) to forecast increased pro ts than manufacturing CFOs (48%).Fortunately, manufacturers are not expecting to see a loss in pro ts in2011; rather a signi cantly higher percentage is predicting that their pro tswill hold steady (37% manufacturing vs. 24% services and commodities).

ECO OMIE A ECTO

More than half of . . CFOs are expectingpro t margin growth in 2011.


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Manu acturing

Improving economic scores: U.S. economy up rom44 to 48 while the global economic score rose rom

46 to 52.

Who is most optimistic: 55% o manu acturers in the

Northeast and 55% o manu acturers who sell to both

consumers and businesses gave the U.S. economy

a score o 50+. The global economy was rated a 57

by manu acturers who sell to both consumers and

businesses and 55 rom manu acturers with revenues o

$75 million to $199 million.

Rising sector confdence: Manu acturing scored 49, an

increase o 9 points over last years all-time low.

More confdence in credit availability: This concerned

manu acturers most last year (49%) but is expected to

have a signifcantly lesser impact on the economy in

2011 (38%).


Muted economic views: U.S. economy rated 47 andthe global economy 49 by services and commodities

companies (compare to 48 and 52 rom manu acturers).

Higher sector confdence: In contrast, services and

commodities CFOs have a positive view o the current

state o their own industry, rating it 56.

Who is most optimistic: Companies in the Northeast

region gave the sector a rating o 61, businesses that

expect international sales growth a 60, and those that

sell to both consumers and businesses a 59.

Revenue and profts on the rise: 62% o services andcommodities anticipate increased revenue and 61%

orecast increased profts .

Following re few interesting industry f cts nd/or comp risons b sed on CFO responses by sector.

T E POTTI : ECO OMIE A ECTO

Most nticip te ste dy or incre sed spending

Among all CFOs surveyed, 33% report that their capital expendituresfor 2011 will be higher than 2010. Of the remaining companies, mostare taking a more conservative approach by keeping their capitalexpenditures steady (43%), spending less (15%), or refraining from makingcapital expenditures altogether (9%). Although there are no signi cantdifferences between manufacturing and services and commodities forthis measure, it appears as though manufacturers are directionally morelikely than services and commodities companies to forecast higher capitalexpenditures in 2011 (34% vs. 31%). ervices and commodities companiesare directionally more likely than manufacturers to keep their capitalexpenditures the same as last year (45% vs. 40%).

Q:

o you expectyour companysc pit lexpendituresto be higher,about the sameor lower in2011, or are youholding off?

ECO OMIE A ECTO

10

2011 CFO Outlook



15/36

People and

Products


16/36


17/36

Q:

Will yourl bor costs andproduct pricing increase, decreaseor stay the same?

PEOPLE A P O CT

Rising l bor costs m y drive pricing incre ses

As a whole, 58% of CFOs of . . companies think their labor costs willincrease in 2011. Of the remaining companies, 35% report that theirlabor costs will remain the same and only 7% are forecasting decreases.

ervices and commodities companies are signi cantly more likely (68%)than manufacturing companies (49%) to expect rising labor costs in theyear ahead.

In terms of product pricing,48% of all companies surveyedintend to increase the prices of their products in 2011, 43% willkeep prices steady, and only 7%

will lower their prices. Perhapsto offset their swelling laborcosts, services and commoditiescompanies are much more likelythan manufacturers to reportproduct pricing increases.


Labor Costs and Product Pricing

Labor Costs Product Pricing

35%Stay the Same

58%Increase

48%Increase

43%Stay the Same

7%Decrease

7%Decrease

early half of CFOs from . . companies areplanning to hire additional employees in 2011.


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Manu acturing

Most likely to add permanent employees: Companies that

sell to both consumers and businesses (55%), companies

expecting expansion in the manu acturing sector (54%),

and businesses expecting M&A activity (53%).

Expecting above-average increases in labor costs:

Companies in the West (66%) and Northeast (59%),

manu acturers primarily selling to consumers (58%), and

corporations with oreign operations (53%).

Expecting above-average increases in product prices:

Companies expecting to increase sales to oreign markets

(54%) and publicly-owned companies (50%).

Most optimistic R&D levels: While 61% report 2010

R&D expenses on par with pre-recession levels, the most optimistic are companies expecting oreign market sales

increases and businesses anticipating M&A activity

(both 31%).


Most likely to add permanent employees: Businesses

expecting M&A activity in 2011 (64%), companies with

revenues o $200 million to $499 million (59%), and

companies selling to oreign markets (56%).

Expecting above-average increases in labor costs:

Companies in the South (73%) and Northeast (71%)

are the most likely to expect labor cost increases, while

businesses selling primarily to consumers are orecasting

expensive labor (73%).

Most likely to predict product increases: Companies in the

Northeast, Midwest and South are signifcantly more likely

(59%, 54% and 54% respectively) than those in the West

(42%) to predict pricing increases. R&D outlook higher or companies with oreign market

activity: Pre-recession level spending is reported by 57%

o services and commodities companies, led by those

companies expecting oreign market sales growth (24%).


T E POTTI : PEOPLE A P O CT

Q:

Are your 2010R& expenses higher, lower orabout the sameas pre-recessionlevels?

R& returning to pre-recession levels

If & expenditures are a barometer for overall corporate health andstability, then the results of this question suggest . . companies arerecovering following the global nancial crisis and . . recession. Overall,about six in 10 . . companies report that their 2010 & expenses areabout the same as they were prior to the recession of 2008. Eighteenpercent say their & expenditures are higher and 14% think they are lowerthan pre-recession levels.

Manufacturers are signi cantly more likely than services and commoditiescompanies to report that their & levels today are higher than they wereprior to the recession (23% vs. 12%).

PEOPLE A P O CT

14

2011 CFO Outlook



19/36

Financing


20/36

Health care costs causing heartburn

Cash management, working capital are top nancial needs

FI A CI

Q:

What are yourmost signi cant

n nci lconcerns ?

Cost of he lth c re, not m teri ls, now chief concern

For many years, the cost of materials and energy is what keptmanufacturing CFOs awake at night. While those are still critical issues,

nancial executives of both manufacturing and services and commoditiescompanies (54%) are now most likely to lose sleep over rising health carecosts as well as revenue growth (44%). This is based on the percentage of CFOs who rated these concerns an 8, 9 or 10 on a scale of 1 to 10.

Cost of materials is now the second biggest nancial concern formanufacturing companies (45%). For all companies, other key nancialconcerns are cash ow (39%) and consumer con dence (35%). The mostsigni cant differences between the sectors are that manufacturers aremuch more concerned than services and commodities companies when itcomes to energy costs (31% vs. 25%) and foreign competition (20% vs. 5%).

Foreign Competition

Funding Pension Plans

Strength of the U.S. Dollar

U.S. Competition

Labor Costs

Credit Availability

Energy CostsIncluding Oil and Gas

U.S. Unemployment Levels

Corporate Taxes

Consumer Con dence

Cash Flow

Revenue Growth

Cost of Materials/Supplies/EquipmentExcluding Energy

Health Care Costs

39%

45%

28%

25%

25%

35%

33%

21%

44%

29%

26%

54%

Percent CFOs Rating Concern an 8, 9 or 10 on a Scale of 1 to 10

Financial Concerns

13%

12%

16

2011 CFO Outlook



21/36

FI A CI

Q:

Will your companysborrowing needsincrease, decreaseor stay the same?

Competition from Chin looms l rge

Overall, 12% of all . . CFOs surveyed report that foreign competition is anancial concern. Among those concerned about competition from abroad,81% say that competition is coming from Asia (predominantly China). Theseconcerns are consistent among both manufacturers and services andcommodities companies.

Borrowing mostly t; reductions credited to more revenue

Corporate borrowing needs are expected to remain the same at 61%of companies in 2011 as compared to 2010, while 24% expect theirborrowing needs to increase and 14% plan to borrow less. igni cantlymore private company CFOs expect their

borrowing needs to increase in 2011than public company CFOs (26% vs.18%). Also, services and commoditiescompanies are directionally more likelythan manufacturers to increase theirborrowing in 2011 (27% vs. 22%).

Among the 14% that plan to decreasetheir borrowing, the most frequentlymentioned reason is that they haveexperienced an increase in their

Percent CFOs Responding Outlook for Borrowing Needs

Stay The Same 61%

Increase 24%

Decrease 14%

. . CFOs surveyed report that foreigncompetition is predominantly from China.


22/36

revenues/pro ts, and therefore have less need to borrow money (38%).Other commonly mentioned reasons are economic uncertainty (24%),excess capacity (23%), concerns about future taxes and governmentregulation (22%), and insuf cient product demand (21%).

Cost of c pit l holding ste dy

As a whole, 60% of companies pro ectthat their nancing costs will remain thesame, 27% expect their cost of capitalto increase, and 12% believe theircost of capital will decrease in 2011.These expectations are consistent byindustry sector, geographic region andsales size. One noteworthy exceptionis that privately-owned companies aresigni cantly more likely than publiccompanies to forecast an increase intheir nancing costs for the coming year (29% vs. 21%).

iven the economic recovery under way and the impact on credit markets, itis not surprising that only 26% of manufacturing company CFOs expect theircost of capital to increase in 2011, down signi cantly from 48% in 2010and 42% in 2009. This years nancing costs pro ection by manufacturersmarks a return to pre-recession levels (26% in 2008). imilar to

manufacturers, 59% of services and commodities companies expect their2011 nancing costs will stay the same and 28% expect them to increase.

C pit l expenditures, working c pit l top n ncing needs

ixty-seven percent of . . companies are currently considering nancingfor at least one of the purposes listed above. The top two needs companieshave for nancing are capital expenditures (38%) and working capital (35%).Private companies are signi cantly more likely than public companies tobe considering nancing for capital expenditures (40% vs. 31%), workingcapital (38% vs. 24%), and re nancing (21% vs. 15%). In contrast, publiccompanies are signi cantly more likely than private rms to not beconsidering nancing at this time (42% vs. 30%).

FI A CI

Q:

Are you currentlyconsidering

n ncing forany of thefollowing?

Q:

Will yourn ncing cost

of c pit lincrease,decrease or

stay the same?

Acquisition/LBO/MBO

. . Expansion

Foreign Expansion

Working Capital

Capital Expenditure

Turnaround Financing

e nancing

estructuring

ecapitalization


Financing Costs

Stay the Same 60%

Increase 27%

Decrease 12%

18

2011 CFO Outlook



23/36

Comp nies looking inw rd for n ncing

early seven in 10 . . companies plan to use internal sources as ameans of nancing in 2011. Other types of nancing that will be used arecash ow nancing (44%), asset-based nancing (40%), and leasing (36%).Only 6% of companies will not require nancing. The types of nancing usedby manufacturers are similar to those used by services and commoditiescompanies.

Of particular note, companies in the ortheast region (52%) are signi cantlymore likely than businesses in any other region to rely on cash ow

nancing in 2011. In addition, private companies are signi cantly morelikely than public companies to use asset-based nancing (45% vs. 24%),private debt (21% vs. 14%) or commercial real estate (14% vs. 6%).

FI A CI

Q:

Which types of n ncing does

your companyplan to usein 2011?

Line of Credit

Second Lien

Mezzanine

Commercial Paper

Securitization

Commercial Real Estate

Private Debt or Equity

Private Debt

Leasing

Asset-Based Financing

Cash Flow Financing

Internal Sources or Self-Funding

36%

44%

12%

1%

20%

13%

40%

11%

69%

Percent CFOs Responding (Multiple Responses Accepted)

Types of Financing Planned

2%

9%

5%

2011 CFO Outlook


19


24/36

FI A CI

Credit m rkets cle rly improving

Thinking about credit availability from their current lenders over the pastyear, 55% of CFOs said its comparable to one year ago. Twenty-eightpercent, however, think their current lenders have increased the creditavailable to their company (22% somewhat increased and 6% signi cantlyincreased). Only 16% report thatcredit has tightened over thepast year. All are clear signs of improvement in the credit markets.

The segments reporting the highestlevels of increased credit availabilityare large companies with revenues

between $500 million and $2 billion(47%) and businesses expecting M&Aactivity in 2011 (39%).

C sh m n gement nd workingc pit l most widely used

Cash management and working capital (66% and 60% respectively) arethe nancial products/services most widely used by . . companies. Ingeneral, the nancial products that manufacturers use are consistent withthose used by services and commodities companies. owever, investmentbanking is used by 38% of services and commodities companies vs. 32% of

manufacturing businesses, while trade services are used to a signi cantlygreater degree by manufacturers (29% vs. 21%).

egionally, Midwest companies are much more likely than all others toutilize cash management services (73%). Also, companies in the outh(41%) are signi cantly more likely than businesses in any other regionto use investment banking services. Companies with revenues between$500 million and $2 billion have above-average use of investment bankingservices (49%) and risk management (38%). Lastly, private companies aresigni cantly more likely than public companies to use working capital (64%vs. 49%), while investment banking services are used to a signi cantlygreater degree by public entities (42% vs. 31%).

Q:

as thecredit v il bleto your comp ny increased,decreased orstayed the same?

Q:

Which productsnd services do

you currently utilizefrom your lender?


Credit Availability

Stayed the Same 55%

Increased 28%

Decreased 16%

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FI A CI

Q:

When consideringsenior n ncing ,which of thefollowing is mostimportant to yourcompany?

A lenders willingness to work with them duringgood times and bad is a valuable attribute.

ender choice b sed on multiple criteri

Many factors are important to CFOs of . . companies when consideringsenior nancing. Overall, the top two most important factors are thelenders willingness to work with them during good times and bad (55%) anda competitive interest rate (51%). For the most part, both sectors value thesame attributes when selecting a lender for senior nancing.

Two key differences are that manufacturers are signi cantly more likelythan services and commodities companies to say that willingness to workwith them during good times and bad is a top-ranking consideration(59% vs. 51%). Conversely, services and commodities companies aremuch more likely to value a long-term relationship with a bankingrepresentative (39% vs. 29%).


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Manu acturing

Top regional concerns: Companies in the South, Northeast

and Midwest are signifcantly more concerned about

health care costs (63%, 59% and 57% respectively) than

businesses in the West (38%). Those in the South report

the highest level o concern or revenue growth (50%)

and cash ow (46%).

Most likely to borrow more: Manu acturers with sales

revenues o $200 million to $499 million (29%) and

those anticipating M&A activity (30%).

Greater access to credit: In 2009, nearly one-third

thought their lenders had decreased the credit available

to their company, compared to only 16% in 2010. Large

companies reported the greatest increase o availability to

credit at 43%.

Company type a ects lender choice: Privately-owned

companies are signifcantly more likely than public

companies to report that a long-term relationship with the

banking representative is a key actor in their decision-

making (34% vs. 16%).


Top regional concerns: Companies in the Midwest are

ar more concerned than others about health care

costs (60%), and those in the South and Northeast are

particularly concerned about their cash ow (48% and

46% respectively).

Most likely to borrow more: Companies expecting their

cost o capital to increase (42%), those anticipating M&A

activity (37%), and large companies with revenues o

$500 million to $2 billion (36%). Greater access to credit: 31% think there has been an

increase in credit availability, led by large companies

(50%) and businesses expecting M&A activity (45%).

Company type a ects lender choice: A willingness to

work with you during good times and bad is especially

important to companies with sales o $25 million to

$74 million and $75 million to $199 million (57% and

56% respectively) as well as private companies (54%).


T E POTTI : FI A CI

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2011 CFO Outlook



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Mergers and

Acquisitions


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A buyers market

ine out of 10 companies that see M&A opportunitysay theyre buying

ME E A ACQ I ITIO

Q:

Will your companyparticipate in

any mergers orc uisitions in2011?

If so, will yoube making theacquisition orbe acquired?

M&a ctivity nticip ted by u rter of CFOs

In 2011, about one in four . . companies expects to participate in a mergeror acquisition, a nding that is consistent across both manufacturing (25%)and services and commodities (27%) sectors. Of those that foresee M&Aactivity, 91% plan to be the acquiring company. The three segments that aremost likely to beinvolved in a mergeror acquisition arelarge companieswith revenues of $500 million to$2 billion (39%),businesses that sellto both consumersand businesses

(38%), and publiccompanies (33%).


Anticipated M&A Activity

No 70%

Yes 26%

Dont Know/No Answer 3%

91% will be making the acquisition4% will be acquired by another company[ ]

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T rgets rem in ttr ctive

Overall, 55% of CFOs report that there are more businesses available atlower prices than there were one year ago. Twenty-seven percent do notthink more businesses today are attractively priced.

In the aftermath of the global nancial crisis, there was a surge inmanufacturers reporting that more businesses were available at lowerprices (49% in 2008 and 71% in 2009). At 55%, CFOs today still feelas though there areattractively pricedacquisition targets, andyet the level of mergerand acquisition activityhas remained steady.

ME E A ACQ I ITIO

Q:

Are there morebusinesses

v il ble at lowerprices compared toa year ago?

CFOs today still feel as though there areattractively priced acquisition targets.


More Businesses Available at Lower Prices

Yes 55%

No 27%

Dont Know/No Answer 18%


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Manu acturing

Most likely participants: Manu acturers who sell their products to both consumers and businesses (43%),

companies with revenues between $500 million and

$2 billion (39%), companies in the Midwest region (33%),

and publicly-owned companies (32%).

Sees more attractive targets: Corporations that sell to both

consumers and businesses (83%) and small companies

with sales o $25 million to $74 million (61%).

Expecting above-average price increases: Companies that

predict sector expansion (45%), companies that predict

U.S. economic expansion (41%), companies expecting

increases in international sales (41%), and companies

in the Midwest region (39%).


Most likely participants: Companies with revenuesbetween $500 million and $2 billion (38%), companies

in the Northeast region (38%), companies expecting

increases in international sales (38%), and publicly-

owned companies (35%).

Sees more attractive targets: Small companies (64%) and

private corporations (62%) are most likely to report that

businesses are more a ordable today.

Views on purchase price multiples: The outlook is

consistent across all regions, sales segments and

company types, with 30% anticipating an increase and

almost hal predicting no changes. The only noteworthy

segments orecasting above average increases in

purchase prices are companies expecting oreign sales

growth (44%) and those with oreign operations (42%).


T E POTTI : ME E A ACQ I ITIO

Q:

Will thepurch se price for companiesin your industryas a multiple of EBIT a increase,decrease or staythe same?

Purch se price multiples to rem in const nt

early half of all CFOs surveyed expect the purchase price for companies intheir industry as a multiple of earnings before interest, taxes, depreciationand amortization (EBIT A) to stay the same in 2011. Of the remainingCFOs, 31% report pricing increases and 18% expect purchase prices todecline. These predictions are consistent among both manufacturers andservices and commodities companies.

For manufacturers, this represents growing optimism after two years of anticipated declines in the purchase price for companies in their industryas a multiple of EBIT A (45% in 2009, 24% in 2010, and only 17%in 2011).

ME E A ACQ I ITIO

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International

Trade


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Going global has traction

Momentum in Asia driving growth

Q:

o you sell to,buy from, or haveoperations inforeign countries ?

I TE ATIO AL T A E

Foreign m rkets re f mili r territory

The overwhelming ma ority of . .manufacturers (85%) report someinvolvement in foreign markets, downonly slightly from 88% year-over-year.

peci cally, 75% of . . manufacturersbuy from foreign markets, 68% selltheir products overseas, and 38%have operations in a foreign country.In comparison, 51% of services andcommodities companies do businessinternationally, with 38% buying, 29% sellingand 24% reporting international operations.

Overall, about half of all . . companiessurveyed buy from or sell to foreign markets. Of the remaining, 31% haveoperations in foreign countries and 32% have no foreign involvements.

Intern tion l s les expected to rise

Among all . . companies surveyed, six in 10 are expecting theirinternational sales to increase. Another one-third is reporting that theirsales to foreign markets will stay the same, while only 5% expect adecrease.

The segments that are expectingabove-average international salesin 2011 are manufacturers withrevenues between $500 million and$2 billion (74%), companies planningto hire contract employees (74%),publicly-owned companies (72%), andcompanies expecting merger andacquisition activity (71%).

Q:

Will your companyss les to foreignm rkets increase,decrease or staythe same?

Percent Manufacturing CFOs Responding

Foreign Market Involvement

Have Operations

Buy from

Sell to

None 15%

75%

38%

68%


Foreign Sales Expectations

Increase 61%

Stay the Same 33%

Decrease 5%

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I TE ATIO AL T A E

Chin t the center of growth picture

Among all . . companies predicting foreign sales to increase in 2011,the top four international markets are Asia (67%), Latin America (59%),Europe (56%) and Canada (50%). Overall, the vast ma ority of growth inthe Asian market can be attributed to China (74%), followed by japan(28%) and India (21%).

In general, both manufacturers and services and commodities companies areforecasting growth in the same foreign markets. owever, manufacturersare signi cantly more likely than services and commodities companies topredict growth in Latin America (64% vs. 51%). China is most importantto both sectors, but japan is a much closer second among services andcommodities companies.

Q:

eographically,where do youexpect thatintern tion lgrowth to occur?

Manu acturing

Fewer oreign operations: The 7% year-over-year decline(38% vs. 45%) is one to watch or signs o an emerging

trend toward consolidating oreign operations and limiting

production to U.S. acilities.

Similar sales growth projections: 59% o manu acturers

selling to oreign markets expect international sales to

increase in 2011 on par with last years 58%.

Asia gains momentum: This years increase in Asia

represents two consecutive years o signifcant growth

(65% in 2010 and 57% in 2009).

Most optimistic: Large companies with revenues o $500 million to $2 billion (75%), publicly-owned

companies (72%) and those expecting M&A activity

(71%).


Most oreign involvement: O the 51% o services andcommodities companies doing business globally, large,

publicly-owned companies and those selling primarily to

businesses are predominant.

Sales optimism reigns: 64% o those that are involved are

expecting their sales to oreign markets to increase

in 2011.

Most optimistic: Mid-size companies with sales o

$75 million to $199 million (80%) and businesses

in the Northeast region (74%).

Japan more prominent: Nearly twice as many servicesand commodities companies predict growth in Japan in

comparison to manu acturers (40% vs. 23%).


T E POTTI : I TE ATIO AL T A E

2011 CFO Outlook


29


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Representing Americas fnancial decision-makers

A cross-section of companies and regions

E EMO AP IC

All participating companies Manu acturing Services and commodities

Ownership 73% Privately-owned

22% Publicly-owned

3% Majority privately owned with

some public debt

72% Privately-owned

25% Publicly-owned

3% Majority privately owned with some

public debt

75% Privately-owned

20% Publicly-owned

3% Majority privately owned with some

public debt

Sales 42% $25 million to $74,999,999

33% $75 million to $199,999,999

15% $200 million to $499,999,999

10% $500 million to $2 billion

46% $25 million to $74,999,999

33% $75 million to $199,999,999

12% $200 million to $499,999,999


39% $25 million to $74,999,999

33% $75 million to $199,999,999

17% $200 million to $499,999,999


Products 17% Consumer goods

72% Business goods

10% Both consumers and

business goods

6% Consumer goods

84% Business goods

10% Both consumers and business goods

28% Consumer goods

60% Business goods

10% Both consumers and business

goods

U.S. region 30% South (Alabama, Arkansas,

Delaware, District o Columbia,

Florida, Georgia, Kentucky, Louisiana,

Maryland, Mississippi, North

Carolina, Oklahoma, South Carolina,

Tennessee, Texas, Virginia, West

Virginia)

26% Midwest (Illinois, Indiana, Iowa,

Kansas, Michigan, Minnesota,

Missouri, Nebraska, North Dakota,

Ohio, South Dakota, Wisconsin)

21% Northeast (Connecticut, Maine,

Massachusetts, New Hampshire,

New Jersey, New York, Rhode Island,

Pennsylvania, Vermont)

23% West (Alaska, Arizona, Cali ornia,

Colorado, Hawaii, Idaho, Montana,

Nevada, New Mexico, Oregon, Utah,

Washington, Wyoming)

30% South (Alabama, Arkansas,


Florida, Georgia, Kentucky, Louisiana,

Maryland, Mississippi, North

Carolina, Oklahoma, South Carolina,

Tennessee, Texas, Virginia, West

Virginia)













31% South (Alabama, Arkansas,


Florida, Georgia, Kentucky,

Louisiana, Maryland, Mississippi,

North Carolina, Oklahoma, South

Carolina, Tennessee, Texas, Virginia,

West Virginia)













Gender 86% Male

14% Female

86% Male

14% Female

86% Male

14% Female


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bofa cfo outlook (2011)

Documents