Spanning the Globe: Finding the right fit in International TreasuryBeverly FowlerTreasury Manager, Global Cash & Investments

Michalegne BorowskeDirector, Global Cash Management and Accounting

Denise CarusoDirector, Global Treasury, Pensions and Risk Management

Spanning the Globe - PanelistsBeverly Fowler

– Treasury Manager, global cash and investments– Responsible for all aspects of the U.S. cash management, investing and

cash forecasting– Prior to joining Lubrizol, Beverly worked in finance and accounting at various

multinational manufacturing companies

Specialty chemicals industryFounded in 1928Berkshire Hathaway company2016 Revenues: $6.5 billionEmployee Count: ~ 8,300Headquarters: Wickliffe, Ohio, USACompany Locations Around the World: 137Countries in Which We Sell: > 100

Michalegne Borowske– Director, global cash management and treasury accounting– Responsible for the daily cash operations for the U.S. and Canada and provides

oversight, guidance, and leadership for the global cash teams and initiatives. Also manages the accounting activities of Goodyear’s corporate treasury team

– Prior to joining Goodyear, Michalegne was an Audit Senior Manager with KPMG and maintains her CPA license

Spanning the Globe - Panelists

Founded in 1898One of the world’s largest tire companies; also produces additional rubber products and polymers2016 Revenues: $15 billionEmployee Count: ~ 65,000Headquarters: Akron, Ohio, USACompany Locations Around the World: 47Countries in Which We Sell: > 100

Spanning the Globe - PanelistsDenise Caruso

– Director, global treasury, pensions and risk management– Responsible for managing global treasury operations including cash management

strategies, risk management solutions, defined benefit and defined contribution retirement assets, global payroll, shared services, and various card programs

– Prior to joining Cliffs, Denise’s experience includes Treasury roles at Invacare Corp. and the Sherwin-Williams Company

Founded in 1847Largest and oldest independent iron ore mining company in the U.S. 2016 Revenues: $2.1 billionEmployee Count: ~ 2,900Headquarters: Cleveland, Ohio, USAAustralian-based Asia Pacific operations export to China, Japan, Korea, and Taiwan

• Host-to-Host Processing• Cash Funding Strategies & Liquidity• Risk• Compliance & Documentation

Spanning the Globe – Discussion Points

Host-to-Host Processing

Single Instance ERP Worldwide

(ERP=enterprise resource planning)

• European Region– Physical Pooling (ZBA)

• Americas North America & Latin America– Physical Pooling USA only (ZBA)

• Asia – Physical Pooling (No ZBA)

Centralized Control – Regional Treasury Centers

Host-to-Host ProcessingConcentration

**

Subsidiary 1

Subsidiary 2

Subsidiary 3

Subsidiary 4

Subsidiary 5

• Physical cash pool structure USA & Europe

• USA utilizes a lockbox structure

• Zero balance account (ZBA) per subsidiary below parent company

** Chart for illustrative purposes only

Wires, ACH, SEPA & Checks

Receivable Processing

Host-to-Host ProcessingPOBO – “pay on behalf of”

Concentration USA**

USA Subsidiary 1

USA Subsidiary 2

USA Subsidiary 3

USA Subsidiary 4

USA Subsidiary 5

• USA Pilot program – Pay on behalf of or POBO

• Zero balance account (ZBA)

• ERP structure set up per legal entity

• Pay on behalf considerations

• Legal entity structure

• Country

• Currency

** Chart for illustrative purposes only

Host-to-Host Processing

• Daily automated host-to-host file transmission from the bank through a secured channel to ERP

• Daily automated XML & BAI file transmission to ERP

• Full bank statement posted automatically by legal entity

• Wire transfers & miscellaneous transactions data loaded directly into ERP and posted to the corresponding general ledger codes

ERP

ERP Treasury Workstation

– Maximum cash utilization and visibility– ERP treasury workstation, with daily cash position– Real-time rolling 13-week global cash forecast– Customized dashboard and weekly cash forecast by

region and legal entity

Host-to-Host ProcessingGlobal Liquidity Forecast

• Host-to-Host Processing• Cash Funding Strategies & Liquidity• Risk• Compliance & Documentation

Spanning the Globe – Discussion Points

Funding Plan - Capital Structure StrategyProactively address near term maturities while optimizing overall profile

Manage leverage ratio to achieve credit rating target

Increase access to committed credit globally and lower overall cash balance

Reduce costs through opportunistic actions and / or structural improvements (i.e. credit ratings)

Reduce secured debt, target fewer covenants, investment grade “fall away” collateral provisions, and prepayment flexibility

Maturities

Leverage

Liquidity

Cost of Capital

Flexibility

Define your company’s strategies by defining what these mean to you

Capital Structure Strategy - Maturities

Note: Based on June 30, 2017 balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt.(a) At June 30, 2017 the amounts available and utilized under the Pan-European securitization program totaled $160 million (€140 million).(b) At June 30, 2017 there were $245 million (€215 million) of borrowings outstanding under the €550 million European revolving credit facility and no letters of credit were issued.(c) At June 30, 2017 our borrowing base, and therefore our availability, under the U.S. revolving credit facility was $348 million below the facility’s stated amount of $2.0 billion. At June 30, 2017 we

had $420 million of borrowings and $37 million of letters of credit were issued.

• Determine optimal levels of operational cash at entity/country level– Identify excess cash and targeted minimum cash balances– Target liquidity solutions (working capital lines) in entity/country to further reduce minimum cash

balances– Considerations for optimal levels include: local borrowing rates, cash deposit returns (i.e. negative

interest rates), alternative funding options (sale of A/R, etc.), and tax considerations

• Pain Point – operating cash versus non-operating cash

• Excess cash levels to be analyzed for repatriation; most efficient use of cash– Intercompany loans or dividends– Repayment of high cost debt in other country– Avoidance of borrowing needs/costs in high cost country– Important to include tax team as part of this analysis

Capital Structure Strategy - Liquidity

Maximize Cash Usage and Preserve Liquidity while Lowering Funding Costs

Capital Structure Strategy - Liquidity

(a) Total liquidity comprised of $903 million of cash and cash equivalents, as well as $2,440 million of unused availability under various credit agreements.

• Identify opportunities for funding sources at competitive market rates– Term loan agreements, revolver debt, AR factoring, vendor financing, other working

capital initiatives, etc.

• Opportunities to lower existing funding costs– Shift from secured to non-secured funding strategies– Move to off-shore debt depending on potential U.S. tax changes

• Improve existing credit agreement restrictions and limit covenant packages

– Market standard clauses – fall away provisions when Investment Grade Ratings– Prepayment options provide added flexibility in reducing debt and cost savings in

future years

Capital Structure Strategy –Cost of Capital and Flexibility

Funding Plan Roadmap• Define your strategy and your optimal capital structure – what’s

important to you?– Achieving a target credit rating?– Deleveraging?– Focus on Interest Expense– Working Capital Initiatives– Currency – F/X

• Considerations should include the following components: current and future credit ratings, tax strategies, funding strategies, interest costs and cost avoidance, debt and liquidity levels, cash flow impact, optimal cash levels

• Establish timeline for objectives– Near-Term (next 12 months),– Medium-Term (12-24 months), or – Long Term (beyond 2 years)

• Analyze data trends and stress test– Peak working capital needs– Average cash balances– Average revolver/debt balances– Market trends

Funding Plan Roadmap

• Host-to-Host Processing• Cash Funding Strategies & Liquidity• Risk• Compliance & Documentation

Spanning the Globe – Discussion Points

De-Risking – Battling the Balance Sheet x

Compliance and Documentation

KYC Compliance Obligations

Corporate Governance – General Financing

Resolutions

Corporate Policies and Procedures ISDAs

License to Operate

Compliance and Documentation• Authorization letters, GFRs, Incumbency Certificate, NDA• Standards in Development• Limit to ask one officer

• Ask for the country/bank’s list first before sending notice or packet

• Maintains one debt compliance database across all countries and companies• Articles of Incorporation, Incumbency Certificates, GFRs, Authorizations, etc.• Requires NDA

• Requires NDA• Legal maintains one HQ software database – Treasury has full access• Standard package of GFR, Incumbency Certificates, Designations, etc.

sent to counterparties• Bank reverts back if additional information necessary

Risk – Managing Principles

Basis for Strategy

Manage Risk vs.

Speculation

SalesMargin

Liquidity Status

BudgetMetrics

Lock in portion of exposure to ensure budget expectations are at or better than Plan

Reduces price volatility and the impact on earnings and cash generation

Decreases debt risk and potentially lowers borrowing costs and provides creditors certainty of debt coverage

Objective of hedging strategy is to minimize risk and volatility not to realize gains

Define Objectives and Disclose Provides price certainty

Reduces price volatility and impact on earnings and cash flow Focus on factors that are within Company’s control

Smooths Earnings Volatility Increases shareholder value by stabilizing cash flow Mitigates pressure on management to meet short-term earnings expectations

Hedging is a risk management tool with key considerations Accounting consideration of trades A successful hedge program includes layering on a rolling basis

Educate Board and Management team that objective is to smooth price volatility over time and not speculate on markets

Spanning the Globe: Finding the right fit in International TreasuryBeverly FowlerTreasury Manager, Global Cash & Investments

Michalegne BorowskeDirector, Global Cash Management and Accounting

Denise CarusoDirector, Global Treasury, Pensions and Risk Management