How Hollister Incorporated Manages Foreign Exchange

1. How Hollister Incorporated Manages Foreign Exchange Presented By: Kyle Heintz Manager, Treasury Operations Tami Brzezinski Manager, Corporate Accounting

2. 2 Agenda Hollister Incorporated Overview Treasury Systems Derivative Policy Balance Sheet Hedging Cash Flow Hedging Reporting & Analysis Putting It All Together

3. 3 Hollister Incorporated - Overview Privately held, global company that develops, manufactures and markets healthcare products, servicing over 90 countries Headquarters in Libertyville, Illinois Manufactures in United States, Ireland, Denmark and India Treasury staff of 7 to oversee global cash management, foreign exchange, insurance risk management, credit, real estate and company stock program

4. 4 Hollister Incorporated - Products

5. 5 Hollister Incorporated – Primary FX Exposures

6. 6 Hollister Incorporated – Interesting Items to Note Have had hedging program in place for over 20 years FX Concentrated at plant level Limits entities that have exposure Hedge both balance sheet and cash flow at a consolidated level USD functional subsidiary in the Netherlands provides a USD transactional leg in most currencies Have implemented technology with an emphasis on straight through processing

7. 7 Hollister Treasury Systems

8. 8 Derivative Policy Company Hedging Objectives Guidelines and Strategy Documentation Authorizations & Types of Derivatives

9. 9 Derivative Policy – Company Hedging Objectives Reduce the volatility of foreign exchange translation adjustments on Balance Sheet exposures. The target is to manage to a zero P&L gain/loss at a reasonable cost. Mitigate the cash flow effect of FX Impact on Earnings in the current year. The target is to manage to a 50% FX Impact at a reasonable cost.

10. 10 Hollister Incorporated - Product Flow Example

11. 11 Derivative Policy – Guidelines Balance Sheet Duration of 1 – 3 months FX Forward Only hedge relative to the USD Authorization: Manager, Treasury Operations Cash Flow Duration up to 18 months If FX Forward, must qualify for hedge accounting FX Options or Zero Cost Options allowed when not qualifying for hedge accounting Authorization: Vice President & Treasurer, Vice President & CFO

12. 12 Derivative Policy - Documentation For derivative hedging activities to qualify for hedge accounting, the following documentation is required at the inception of each hedge: A description of the hedged item, hedging instrument, relationship between the two, and nature of risk For cash flow hedges also need documentation on hedging instrument’s effectiveness and how it will be measured, expected market price, and how the amounts in OCI will be reclassified into earnings

13. 13 Balance Sheet Hedging Strategy Exposures greater than $500k Hedges settle on second business day of subsequent month Allows for spot trading on last business day of the month Balance sheet spot rates become subsequent month’s average P&L rates Do not currently hedge monthly intercompany payments

14. 14 Balance Sheet Hedging Process Pre – Close Governance Meeting (Both) Potential Issues / Future Events Currency Movement Gather Balance Sheet Positions (Treasury) Upload and post entries in SAP (Both) Revalue Balance Sheet (Accounting) Prepare report on FX activity for month (Accounting) Financial Close Governance Meeting (Both) Investigate any irregularities

15. 15 Balance Sheet Hedging Considerations Have a policy in place with clear expectations Understand where exposures lie on the balance sheet and if they offset Understand what could change your assumptions – payment flow, purchases, etc. Constant cross-functional communication

16. 16 Cash Flow Hedging Strategy Use FX Forwards with a duration of 16 months Validated program and method with help from outside consultant Hedge all currencies where we can qualify for hedge accounting Use average hedged rates to set ensuing year’s plan rates If plan is accurate, 50% of earnings will be locked in Discretion on timing

17. 17 Cash Flow Hedging Process Obtain expected operating earnings data from FP&A Enter into hedge Prepare documentation Upload into hedge software Month End Obtain MTM calculation Record accounting entries Gain/Loss of closed contracts recorded in Non-Op Post – Close Provide portfolio reporting to Treasurer and CFO

18. 18 Cash Flow Hedging Considerations Have a policy in place with clear expectations and goals of the program When starting a hedging program, review with auditors on how transactions will be recorded Develop close relationship with operations and FP&A to understand when material changes have occurred Educate finance staff, and entire company if necessary, on foreign exchange Understand the cyclical nature of the business

19. 19 Reporting & Analytics – Balance Sheet FX Gain / Loss Report Monthly Hedge Trends Controllable Gain / Loss

20. 20 Reporting & Analytics – FX Gain / Loss Report

21. 21 Reporting & Analytics – Monthly Hedge Trends

22. 22 Reporting & Analytics – Controllable Gain / Loss

23. 23 Reporting & Analytics - Counterparty Trade Value by Counterparty Counterparty Competitiveness Analysis Trade Volume Analysis

24. 24 Reporting & Analytics – Total Trades by Counterparty

25. 25 Reporting & Analytics – Bank Competitiveness Analysis

26. 26 Reporting & Analytics – Trade Volume Analysis

27. 27 Putting It All Together

28. 28 Thank You!