Global Business Outlook A joint survey effort between Duke University and CFO magazine 1Global Business Outlook Duke University Winter 2009 John R. Graham D. 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 responses Present results quarterly – Frequent press coverage – MSNBC, WSJ, FT, BW, Wash Post, NPR, podcast, etc. Global Business Outlook Duke University Winter 20092

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 20093

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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

Global Business Outlook Duke University Winter

Global Business Outlook Duke University Winter

Global Business Outlook Duke University Winter

Global Business Outlook Duke University Winter

Global Business Outlook Duke University Winter

Global Business Outlook Duke University Winter

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

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

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

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

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

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

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

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

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

Global Business Outlook Duke University Winter CFO Optimism about own country’s economy, on a scale of 0 to 100 For U.S. firms, CFO Optimism about own firm’s financial prospects also shown (in green) Source:

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 Source:

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 Source:

Global Business Outlook Duke University Winter Plan to acquire entire firm or part of firm in next 12 months (top 4 US industries)

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

Global Business Outlook Duke University Winter Has your company been directly affected by credit crisis? %yes US firms, by credit rating Source:

Global Business Outlook Duke University Winter Among companies affected by credit crisis … how has your company been affected? Source:

Global Business Outlook Duke University Winter Figure 2/3 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis” Actions taken in response to credit crisis 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 Cash holdings and cash burn rate during crisis Figure 4 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis” Unconstrained firms maintained cash balances during 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 Figure 6 Figure 4 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

Global Business Outlook Duke University Winter 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 To what extent have you drawn down your line of credit (as % of maximum)?

Global Business Outlook Duke University Winter Figure 8 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis” Reasons to limit line of credit use during crisis

Global Business Outlook Duke University Winter Figure 10/11 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis” Credit constrained from pursuing NPV>0 projects

Global Business Outlook Duke University Winter Do financial constraints limit ability to pursue attractive (NPV>0) investments? % yes Source:

Global Business Outlook Duke University Winter 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 What happens to corporate investment plans if you can not borrow externally? Figure 12 from Campello, Graham, Harvey, “The Real Effects of the Credit Crisis”

Global Business Outlook Duke University Winter 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 As of December 2009, when do you anticipate domestic employment at your firm to return to year- end 2007 levels? Cumulative Percent

Global Business Outlook Duke University Winter As of December 2009, when do you anticipate domestic employment at your firm to return to year- end 2007 levels? Cumulative Percent

Global Business Outlook Duke University Winter As of December 2009, when do you anticipate domestic employment at your firm to return to year- end 2007 levels? Cumulative Percent

Global Business Outlook Duke University Winter 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 Reason(s) your company would not benefit from the adoption of a national healthcare system

Credit Line Terms – Q vs. Q U.S.A. Europe Asia Source: June 2009 survey. See Campello, Giambona, Graham, and Harvey, 2009 Basis points Basis points Months 50Global Business Outlook Duke University Winter 2009

Interest Rate Markup – Q vs. Q (US data) Constrained Credit vs. Unconstrained Credit Firms Non-Investment Grade vs. Investment Grade Firms Negative Cash Flow vs. Positive Cash Flow Firms Source: June 2009 survey. See Campello, Giambona, Graham, and Harvey Units = basis points 51Global Business Outlook Duke University Winter 2009

Maturity of new lines – Q vs. Q (US data) Constrained Credit vs. Unconstrained Credit Firms Non-Investment Grade vs. Investment Grade Firms Negative Cash Flow vs. Positive Cash Flow Firms Source: June 2009 survey. See Campello, Giambona, Graham, and Harvey Units = months 52Global Business Outlook Duke University Winter 2009

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

Global Business Outlook Duke University Winter Relative to 2008, does your company plan to adjust its target compensation mix for 2010? Net percentage change, 2009Q4 Source:

Global Business Outlook Duke University Winter Relative to 2008, does your company plan to adjust its target compensation mix for 2010? Net percentage change, 2009Q4 Source:

Global Business Outlook Duke University Winter Among companies that have taken action, will you restore these areas to pre-recession levels in 2010? 2009Q4 Source:

Global Business Outlook Duke University Winter Among companies with reduced growth prospects, they are reduced because Q4 Source:

Global Business Outlook Duke University Winter Why are banks less willing to makes loans today vs. Summer 2008 (pre-crisis)? 2009Q4 Source: