Copyright 2010 FiREapps.

AGENDA

Introduction– Wolfgang Koester, CEO, FIREapps

The Euro Crisis: how did we get here?– Professor John Mathis, Thunderbird School of Global

Management

FX Impact on Corporations– Wolfgang Koester

Your Corporation: how this impacts You– Corey Edens, Chief Product Officer, FiREapps

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CONGRATULATIONS! Your company survived the biggest economic downturn since the great depression.

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YOU MADE CUTS

… and are doing more with less

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THEN ALONG COMESTHE EURO CRISIS

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NOW WHAT?

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THE EURO CRISIS

How did we get here?Dr. F. John Mathis, Thunderbird School of Global Management

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JANUARY 1, 1999: BIRTH OF THE EURO AND EMU

Fundamental structural issues with the euro set the stage for today’s crisis

ConflictsMonetary vs. Fiscal Policy

European Central Bank (ECB) has responsibility for monetary policy; individual central banks retained fiscal policy responsibilities

Problem No authority to:

• Tax• Spend• Enforce actions/impose penalties for non-compliance

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ACTIONS SPEAK LOUDER THAN WORDS

Original Euro Zone Member BreachesCountry Past breach periods

for deficitPast breach periods for debt

Austria 2003-09

Germany 2003-06 2003-09

France 2003-04 2003-09

Italy 2003-09 2003-09

Luxembourg

Netherlands 2004-05

Belgium 2003-09

Spain 2008

Portugal 2002; 2005-06 2005-09

Finland 2005-2007

Ireland 2008

Greece 2003-08 2003-09Source: 2009 CIA World Fact Book

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WHERE DID WE COME FROM?

10/31/07 - Euro climbs above $1.45, for first time. U.S. Fed announces a 25 basis point cut in its key interest rate to 4.5%.

7/15/08 - Euro sets record high of $1.6038 after U.S. government support for Fannie Mae & Freddie Mac fails to quell concerns about wider U.S. financial stability.

Oct 2009- US headlines discuss ‘demise of the US Dollar’ as a world currency

April 2009- Greek debt crisis turns speculation to Euro decline and break-upOct 2008- ‘Flight to safety:’ US

dollar rallies as financial crisis goes global

Dec 2008- ECB Expected to lower interest rates by 50 bhp

A Bumpy ride… euro’s limitations are stressed, but the euro survived.April 2009 Greek crisis pushes the euro to a breaking point.

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THE TURNING POINT:SEPTEMBER, 2008

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Original Euro Zone Member Breaches

2008 EUROPE STARTED FACING THE BIGGEST GDP DECLINE SINCE THE GREAT DEPRESSION

Source: Association for Finance Professionals, May 2009

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Original Euro Zone Member Breaches

EURO GOVERNMENTS STEP IN TO STABILIZE THE FINANCIAL SECTOR, INCREASING DEBT

“Less than half of the total amounts committed [to stimulus] had been effectively used” – ECB, April 2010

Source: European Central Bank, OCP N109, April 2010

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Original Euro Zone Member Breaches

GREEK’S DEFICIT AND DEBT FORCE THEEUROZONE TO TAKE ACTION

Source: Association for Finance Professionals, March-April 2009

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Original Euro Zone Member Breaches

PIIGS* IN DEBT:A TANGLED WEB THAT TRAPS ALL OF EUROPE

Source: New York Times, May 1, 2010

* Portugal, Italy, Ireland, Greece and Spain

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Original Euro Zone Member Breaches

RESULTING IN DEBT AND DEFICITS ACROSS THE EURO ZONE

Euro deficit limit: 3% ● Euro debt to GDP limit: 60%

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“The euro zone deficit will climb to 7% in 2010”

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“…by then, all euro countries will exceed the 3% deficit limit”

EVEN THE ECB SEES IT GETTING WORSE

Source: European Central Bank, OCP N109, April 2010

Original Euro Zone Member Breaches

A VICIOUS CYCLE OF GROWING DEBT AND DECLINING GDP, EXACERBATED BY GROWING LIABILITIES

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KEY THEMES

ECB has no authority

EU Members have different agendas

European? Yes. Union? No.No common Purpose/Identity/Language/Culture

Increasing debt becomes a vicious cycle

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OUR TAKE

ECB lacks authority to solve the problemToo late to address structure when the house is on fire

• Creating a federalized fiscal union in Sept 08 would have addressed this issue

Only the strongest countries can address the

structural issues by pulling out of the euro• Lacking the ability to eject PIGS

Trigger Event for Structural Euro Change • Greek non-compliance in 12-18 months

• Spain bailout deemed too expensive

• …

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THE EUROPEAN PROBLEM ISBECOMING GLOBAL

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Original Euro Zone Member Breaches

GLOBAL EXAMPLES…

Debate over Chinese Yuan peg continues…

… May 2010 Thai Bhat falls to 8-month low

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Original Euro Zone Member Breaches

INCREASED VOLATILITY & SUDDEN CURRENCY SHIFTS ARE THE NEW NORM

USD Volatility DEC 2007 – May 2010

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FX IMPACT ON CORPORATIONS

Where are we now?Wolfgang Koester, CEO, FiREapps

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FX IMPACTS CORPORATE FINANCIALPERFORMANCE THROUGHTOUTTHE INCOME STATEMENT

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MULTINATIONALS ARE INCREASINGLY SUSTAININGEPS IMPACTS DUE TO FX VOLATILITY

Companies reporting unexpected FX gains or losses in Q1 are signaling

+ Lack of risk management expertise

+ Less predictable margins

+ Less predictable net income

= Lack of EPS predictability, resulting in decreased shareholder value

Q2 earnings releases report significant FX impacts• Corporate stocks already starting to devalue

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THE MARKET IS ALREADY REACTING

Stock down 14% on Q2 guidance due to declining euro despite strong Q1 revenue and profit growth

Other suspects

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Original Euro Zone Member Breaches

MOST HAVE REPORTED MATERIAL FX IMPACTS

*2010 FiREapps/SunGard FX Exposure Management Practices Survey

59% of companies surveyed experienced a material FX gain/loss in 2009* (45% increase)

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Original Euro Zone Member Breaches

THEY DON’T KNOW WHAT THEY DON’T KNOW

*2010 FiREapps/SunGard FX Exposure Management Practices Survey

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YOUR CORPORATION

How This Impacts YouCorey Edens, Chief Product Officer, FiREapps

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Original Euro Zone Member Breaches

UPS & DOWNS ALWAYS OCCUR

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Original Euro Zone Member Breaches

THIS IS DIFFERENT

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Original Euro Zone Member Breaches

THERE IS NO LONGER A “FREE PASS” FORUNANTICIPATED FX IMPACTS

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FX WILL HAVE A SIGNIFICANTLY GREATER IMPACT ONCORPORATE FINANCIAL PERFORMANCE THAN IT HAS IN THE PAST

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…meaning that corporate risk managers have to work smarter and harder

MAINTAINING CURRENT COURSE

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…is ill-advised

SOLUTION: UNDERSTAND YOUR TRUE ECONOMIC AND ACCOUNTING EXPOSURE

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Income Statement

Revenue

COGS

Operating Expense

Operating Income

Other Income/Expenses

FX Gain/Loss

Net Income

EPS

MOTHERHOOD & APPLE PIE:THE STANDARD EXPOSURE MANAGEMENT PROCESS

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KEYS TO SUCCESS:WORKING SMARTER REQUIRES AN ENGINE (NOT A PADDLE)

Process Automation enables companies to reduce the cost and risk of foreign exchange

Data Process Analytics

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Look at past results– Double your worst Quarterly FX loss in the last two years– Is that result acceptable?– If so, there’s no need for concern

Otherwise– Dig in to understand above-the-line and below-the-line exposures

Take definitive action to protect yourself– Structural– Operational– Financially (e.g. derivatives)

KEY TAKEAWAYS

We’re entering a new era of FX unpredictabilityThe old rules no longer applyThe old tools (systems and processes) aren’t good

enoughTo survive, companies must understand their

FX exposure & manage their risk• Complete data, timely analysis & transparent processes

Take definitive action • Structural, operational and financial

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