April 26, 2016 Foreign Exchange Risk Management Panel Discussion

Panelists: Neil Brenner - Bannockburn Global FOREX Sherry Bridell - St. Jude Medical Max Marcy - HB Fuller Tom Wallace - Katun Corporation

Oil - 1 Year

CNY - 1 Year

10-Year Yield

GBP Volatility Index

Dollar Index

Minnesota's Export Growth Wiped Out by Dollar's Strength

OVERSEAS SALES HAVE PLUNGED, DEALING A BLOW TO MAJOR COMPANIES' BOTTOM LINES.

“A lot of our systems are over a million dollars apiece. That’s real money,” said Richard Bahr, president of the company, whose machines are installed in 27 countries. “When you’re talking $200,000, $300,000, $400,000, that raises some eyebrows. You’ve got to explain yourself.” That equation has delivered a punishing blow to American exporters. International sales fell 7 percent last year in both Minnesota and the United States, dropping to 2010 levels and creating a drag on economic growth. The dollar’s rise stems partly from steady domestic U.S. economic growth. Another factor is tightening monetary policy at the Federal Reserve, which last year ended a bond purchasing program and took a first step to lift interest rates from ultralow levels. This contrasts with other central banks — including those in Japan and the European Union — that have kept interest rates lower or even dropped them into negative territory. The dollar has fallen slightly as the Fed has delayed raising rates, offering some hope of relief, but the export decline is a case study in state government’s limits in the face of hard-to-predict global shifts. In 2012, Gov. Mark Dayton announced an initiative to double Twin Cities exports by 2017. State exports have declined since 2012.

MGS Machine, a Maple Grove maker of high-dollar equipment that packages pharmaceuticals and medical devices, won exporter of the year in Minnesota in 2013, when foreign sales accounted for nearly a quarter of the firm’s revenue. Since then exports have plunged. Competitors in Germany and Italy, powerhouses in the packaging industry, have gained an edge over firms like MGS Machine in the past two years: the strength of the dollar. The dollar has risen about 25 percent against the euro since the end of 2013, which means American products are suddenly 25 percent more expensive than European goods for many global customers.

Source: Adam Belz, Star Tribune April 2, 2016

• Global manufacturer of innovative, cost-effective medical devices.

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St. Jude Medical Company Overview

• $5.5B in annual revenue • ~18,000 employees globally • $15.4B market cap

• United States - 51% • EMEA - 25% • Japan - 8% • All other - 16%

Business Summary

Footprint

• ~ 40 currency pairs • 12 pairs > $10M • Main: EUR, JPY, CNY

Exposure Summary

St. Jude Medical Hedging Program

• Centralized derivative execution • Decentralized P&L management • Balance sheet hedging program

– Hedging non-functional currency balances; mainly intercompany

– No minimum level decision criteria – 9 currency pairs hedged using 1 month rolling forwards

• Cash flow hedging program – Hedging forecasted intercompany purchases – EUR.USD and USD.JPY – Hedges placed quarterly – Layering forwards out 21 months

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Katun Company Overview

• World’s second largest

supplier of OEM-compatible

imaging supplies for

copiers, printers, and multi-

function devices

• $250M in annual Revenue

• ~360 employees globally

• Privately held

• North America – 27%

• Latin America – 16%

• EMEA – 56%

• Asia Pacific – 1%

Business Summary

Footprint

• EURUSD

• EURGBP

• EURCHF

Exposure Summary

• USDARS

• USDMXN

• USDBRL

• USDJPY

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Katun Company Hedging Program

• Centralized derivative execution

• Decentralized P&L management

• Cash flow hedging program – Hedging net forecasted non-functional A/R or

A/P balances

– Balances over USD 500K equivalent are hedged with rolling and layering 12 month forwards

– Goal is to mitigate P&L volatility

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• Global manufacturer of industrial adhesives focused across nearly all geographies and end-markets

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H.B. Fuller Company Overview

• $2.1B in annual Revenue • ~4,000 employees globally • $2.5B Market Capitalization

• North America – 44% • Latin America – 8% • EIMEA – 29% • Asia Pacific – 20%

Business Summary

Footprint

• EURUSD • EURGBP • AUDUSD • EURCHF • USDCAD

Exposure Summary

• EUREGP • USDARS • USDCOP • USDBRL • USDCNY

H.B. Fuller Company Hedging Program

• Centralized derivative execution • Decentralized P&L management • Balance sheet hedging program

– Hedging “known” non-functional currency balances of cash, AR, AP and debt

– Balances over USD 100K equivalent are hedged with rolling 1 month forwards

– Non-deliverable currencies are analyzed for viability and if hedged, are taken out for 3-6 months

– Many non-G10 positions are managed through natural hedging strategy (local debt or cash to offset long-term receivable or payable position)

– Goal is to manage P&L to $0 in FX impacts

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