This is the 11th 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 13, 2008 through October 16, 2008, an independent market research firm completed phone interviews with 604 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 Major Findings:
Economy
■ Not surprisingly, manufacturing company CFOs view the current state of the U.S. economy quite negatively, giving it an average score of “46” a significant drop from last year’s score of “64” on a scale ranging from 0 (extremely weak) to 100 (extremely strong).

■ Only 31% of all manufacturing company CFOs believe the U.S. economy will expand in 2009, down from 44% in 2008 and representing the lowest level of optimism in the history of the survey.

■ Consistent with this negative view, only 25% of CFOs forecast expansion in the manufacturing sector in 2009, down from 30% in last year’s survey. The remaining CFOs are almost evenly split between no change (38%) and contraction (36%).

■ Thirty percent of CFOs surveyed believe that the U.S. economy will outperform the world economy in 2009, a significant increase from 22% in 2008, but a decline from 39% in 2007, 46% in 2006 and 58% in 2005.

■ Ninety-two percent of CFOs believe the credit crisis will have the greatest impact on the economy in 2009. This is followed closely by the impact of the housing market, oil prices and the strength of the U.S. dollar, all at 85%.

■ There does appear to be some increased confidence in Fed actions with 64% of CFOs believing that the actions taken by the Federal Reserve Board are helping the economy. This is up from 58% in last year’s survey.

■ Nearly four in ten CFOs (38%) surveyed report that the current state of the U.S. economy will cause them to delay or cancel their growth plans, primarily due to financial market conditions. Only 9% plan to accelerate their growth plans and 52% say that the state of the economy will have no impact on their growth plans.

■ Fifty percent of CFOs surveyed expect revenue growth in 2009, down considerably from 70% in 2008. Thirty-seven percent are expecting an increase in profit margins compared to 45% in 2008.

■ Only 20% of CFOs expect their level of capital expenditures to increase in 2009, the lowest percentage in seven years.

Financing
■ The top three financial concerns shared by manufacturing company CFOs are the cost of materials excluding energy (81%), energy costs (73%) and healthcare costs (67%).

■ Twenty-three percent of CFOs expect their borrowing needs to increase in 2009, up slightly from 21% in 2008. The majority of CFOs (57%) report that their level of borrowing will stay the same in 2009.

■ With the considerable tightening in the credit markets, it is not surprising that 42% of CFOs forecast an increase in the cost of capital, up significantly from 26% in last year’s survey.

■ Fifty-nine percent of manufacturing companies are considering financing in 2009, on par with 58% in last year’s survey. The top reasons for financing are capital expenditures (31%), working capital (30%), U.S. expansion (17%) and acquisition (15%).

■ Fifty-four percent of manufacturing company CFOs plan to use internal sources as a means of financing in 2009. Other types of commonly-used financing include cash flow financing (45%), asset-based financing (42%) and leasing (31%).

■ Of the various products and services offered by lenders, Cash Management (63%) and Letters of Credit (59%) continue to be the most used by manufacturing companies. These are followed by Foreign Exchange (36%) and Retirement Plan Services (36%).

■ Thirty-two percent of CFOs report that their lender has restricted credit availability, up significantly from 10% in last year’s survey.

Labor Costs and Product Pricing
■ Fifty-six percent of CFOs expect their labor costs to increase in the coming year, consistent with the 55% reported in last year’s survey.
■ Nearly seven in ten CFOs (69%) surveyed in 2008 expect to raise the price of their products in 2009. This is significantly greater than the 56% predicting product price increases in last year’s survey.
■ Eighty-three percent of CFOs surveyed expect rising energy costs to impact their product pricing in 2009. Eighteen percent expect energy costs to have a significant impact on their product pricing, up from 9% in 2008.

Mergers and Acquisitions (M&A)
■ Twenty-three percent of manufacturing company CFOs expect to participate in a merger or acquisition in 2009, the same as reported in last year’s survey.
■ Among those companies anticipating M&A activity, 85% report that they will be making the acquisition, while only 10% say they will be acquired by another company.
■ Forty-nine percent of CFOs believe that there are more companies available at lower purchase price multiples in 2008 than in 2007. This is up significantly from 29% in last year’s survey.
■ Forty-five percent of CFOs think the purchase price of companies as a multiple of earnings will decrease in 2009, while only 17% feel it will increase.

International Outlook
■ Eighty-three percent of manufacturing companies surveyed conduct business internationally. Sixty-two percent of companies are currently selling to foreign markets, 66% are buying from foreign suppliers and 36% have operations outside the United States. These are all relatively consistent with responses from last year’s survey.
■ Looking ahead, however, projections for international sales growth in 2009 are the lowest in the past five years of the survey. Fifty-six percent of companies that sell to foreign markets expect sales to increase in 2009, compared to 71% in 2008.
■ Although sales growth expectations in Asia (57%) remain constant from last year’s survey, only 45% of CFOs are expecting growth in Europe in 2009 down from 54% in 2008. Sixteen percent of CFOs surveyed expect sales to increase in the Middle East in 2009, compared to only 2% in 2008.

Other
■ Despite tough times, nearly two-thirds of CFOs surveyed report that their company has an environmental management plan and nine in ten say their level of funding for their plan will either stay the same or increase in 2009.

Download 2009 CFO Outlook: A Survey of Manufacturing Company CFOs

PDF format, 473KB, 39Pages.

About Bank of America
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To learn more visit www.bankofamerica.com/corporate

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For more information call 1.888.223.1181 or visit www.bankofamerica.com/businesscapital71.

Additional Resources
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