Euro Dissolution Panel Discussion: Giving Treasury the Tools to Take the Lead

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Panel Discussion was presented at Peninsula Treasury Management Association Monthly Luncheon. The following presented: Helen Kane, President, Hedge Trackers; Laura Langone, Director Global Risk Management, Juniper Networks; Guillermo Gualino, Assistant Treasurer, Agilent Technologies; Tamara Anthony, Director of Treasury, Lam Research.

They discussed the risk factors and the due diligence performed by your treasury peers to address the possibility of one or multiple countries defecting from the Euro. All areas of treasury are contemplated including operational cash management, currency hedge programs, counter-party risk and enterprise risk. We will also discuss how other treasury groups and peer organizations are raising awareness, how best to educate senior management and how to identify potential tax and legal implications.

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Euro Dissolution Panel Discussion: Giving Treasury the Tools to Take the Lead

  1. 1. 1Euro Dissolution Panel Discussion--Giving Treasury the Tools to Takethe Lead Peninsula Treasury Management Association March 28th, 2012
  2. 2. 2Agenda• Introductions• Latest news• Creating a framework for risk• Actions Taken• Communication and Disclosure• Questions• Conclusion
  3. 3. 3Panel Introductions • Tamara Anthony Lam Research • Guillermo Gualino Agilent Technologies • Laura Langone Juniper Networks • Helen Kane Hedge Trackers
  4. 4. 4The New NormalNot will it or won’t it But….. If it does will you be ready (Greece or general contagion)
  5. 5. 5In the News Dow off over 200 points as economy, Greece hit Wall Street Reuters, March 6, 2012 EUs Van Rompuy warns over complacency in euro debt crisis Reuters, March 4, 2012 European Focus Shifts to Crisis Firewall Ahead of Summit Bloomberg, February 27, 2012 Chance of Greece default remains high, says Moody’s Business Times, February 28, 2012
  6. 6. 6In the News A new €130 billion ($172 billion) bailout deal "binds Greece to euro" and will shield the country from default, the finance minister Evangelos Venizelos said Wednesday. AP, February 22, 2012 Chancellor Angela Merkels conservative Interior Minister became the first member of her centre- right government to openly call for Greece to leave the euro zone. Reuters, February 25, 2012
  7. 7. 7Starting Point• How did Treasury get involved?
  8. 8. 8Create a Framework to Understand RiskDirect or indirect exposure to the Euro-Zone within Treasury and CompanyContractual exposuresBusiness continuity plans of direct and indirect counterpartiesBusiness systems preparednessSupplier risks (i.e., credit exposure, supply issues, etc…)
  9. 9. 9Commonalities in Approach• Identify company financial assets at risk ▫ Cash ▫ Debt ▫ Financial instruments• Identify enterprise risk ▫ Supply chain ▫ Customers ▫ Employees
  10. 10. 10Risk ScenariosHighlight Summary1. Status Quo – Highly likely the status quo will continue with some degree ofContinued Market closer fiscal cooperation required to enforce fiscal policiesTurmoil Similar Continued extreme volatility on macro-economy and FX riskto Past 6 Months High likelihood of Euro-zone recession impacting growth2. Weakest Moderate risk Member Creates risk of “exit contagion” particularly if Greece is pushed Exits /Greece out Exiting member state’s currency to legacy currency redenomination3. Euro Zone Highly unlikely due to catastrophic economic consequences Break- Highly uncertain FX dynamics for both strong and weak up/German currencies Exit Significant interruptions in banking and clearing infrastructure
  11. 11. 11Actions Taken
  12. 12. 12Agilent- Top Preventive Actions• Counterparties: Monitor banks, limit exposure to banks with significant activity in high-risk countries ▫ Centralize sovereign countries’ liquidity with global banks and offshore MMF• Natural Hedges: Increase matching of IC AP/AR, dividends, cash conversions, etc.• Convert EUR to USD: Change the underlying risk while maintaining the same FX risk profile• Debt: Refinance soon-to-mature debt, taking advantage of favorable market windows• Contracts: Review material contracts (credit, derivatives, etc) for currency indemnity provisions and events that could trigger MAC clauses
  13. 13. 13Juniper Networks: Potential impact Key Issues Potential Impact to JuniperInvestments Potential indirect sovereign risk exposure Weekly monitoring of global counterpartiesLiquidity Monthly bank holdings in EMEA and those denominated in EUR Interruptions in local banking and clearing infrastructure Potential impact on intercompany funding as balances would be redenominatedDerivatives EUR OPEXLegal Potential contract unenforceability Non-Payment and insolvency of customers Temporary government regulationsSupply Chain Potential risk from credit exposures to customers and obligations to suppliers Smaller suppliers and distributors may be hit with hard costs and currency conversion risk
  14. 14. 14 Juniper Networks: Actions/Contingency Plans Key Issues Juniper Actions / Contingency PlansInvestments No direct sovereign investments as of Q1-11 Monitor and take action on indirect exposureLiquidity Diversify EUR bank balances to stronger member state banks (i.e., Netherlands and Germany) Positively positioned with banks in EMEA with European-wide capabilities Confirm bank business continuity 1-day post eventDerivatives Monitor FX volatility Evaluate EUR-centric documentation for cash flow hedges Evaluate ISDAs for FX redenominationLegal Legal evaluating other key contract provisions Negotiate payments in EUR and/or USDSupply Chain Identify potential customers at risk Explore potential trade credit and financing solutions
  15. 15. 15Lam Research – Actions/ConclusionsFinancial Risk Assessment Euro-zone Countries Euro-zone Countries With no Lam Presence With Lam PresenceBanking Relationships NA Risks Low – identified banks /assessed counter party risksCash Assets Risk Low – MMF’s Risks Low - bank balances, deposits, * Deposits, investments (include MMF holdings) * InvestmentsForeign Exchange NA Risks Low - FX - notional/MTMDebt & Lines of Credit NA Risk Low - identified exposures by financial institution/countryTrade Finance NA Risks LowEnterprise Wide Risk Assessment Euro-zone Countries Euro-zone Countries With no Lam Presence With Lam PresenceNumber of Employees NA Risk Low - identified employees by country and assessed riskBuildings NA Risk Low - exposures in various countries (owned/leased)Customers - AR NA Risk Low - assess and monitor customers by domiciliation & by global accountSupply Chain Supply Chain – BCP planning for Supply Chain – BCP planning for disruptions disruptions
  16. 16. 16Hedge Accounting Implications• Impact on natural hedge relationships• Cash Flow Hedges ▫ Probability ▫ Documentation Layering Defining countries of exposure• ISDAs• Net Investment Hedging
  17. 17. 17Communication & Disclosure Internal Get stakeholders “on the bus” Who Preparedness Senior management, SOX Bus’n continuity planning committee External Disclosures (10K/10Q) Preparation for analyst calls/road shows
  18. 18. 18Lam 10K DisclosureOur Future Success Depends Heavily on International Sales and the Management of Global Operations We are subject to various challenges related to international sales and the management of global operations including, but not limited to……… ▫ Global economic and political conditions, including the ongoing macroeconomic challenges associated with debt levels in certain Euro-zone countries and the financial contagion to global markets;
  19. 19. 19Your Thoughts and Questions
  20. 20. 20Conclusion• Regardless of where Greece ends up our new normal is more global risk planning• Create a framework for identifying key risk areas• Work with stakeholders across company• Have a plan for different scenarios• Communicate internally and externally
  21. 21. 21Contact Information• Tamara Anthony: Tamara.Anthony@lamresearch.com• Guillermo Gualino: Guillermo_gualino@agilent.com• Laura Langone: langone@juniper.com• Helen Kane: hkane@hedgetrackers.comAdditional resource • A Primer on the Euro Breakup (Variant Perception) http://www.scribd.com/doc/82034180/VP-February-2012-Eurozone-Breakup-Summary

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