Chapter 18(Attached) presented special risk management issues with Blue Wood Chocolates, and chapter 19(Attached) presented various financial risks at Kilgore Custom Milling. If Blue Wood Chocolate an

ITS 835 Chapter 19

Kilgore Custom Milling Enterprise Risk Management

Introduction

• Background
• The management team
• The company
• The new contract
• The financial risk management meeting

Background

• Kilgore Custom Milling
• Small private manufacturer

• Power window assemblies
• Based in southern Ontario, Canada

• Pursued contracts to supply plants in the U.S.
• Successful in negotiating a contract with Japanese manufacturer

• Previous international contracts resulted in loss

• Due to currency volatility

The Management Team

• Owner and CEO
• Steve MacLinden
• Left day-to-day operations for the rest of the team

• Manufacturing and Plant operations

• Rory Sullivan

• Sales and Client relationships

• Casey Dobblestyn

• Treasurer and CFO

• CathyWilliams

The Company

• Privately owned
• 100% by Steve MacLinden
• Planning to retire in 5 – 10 years

• Main focus is cash flow management

• Concerns with currency related cash flow issues

• Additional concern about inflation differences

• Between U.S. and Canada

The New Contract

• Dramatically increase sales

• Over 100% for 5 years

• Complex and exacting specifications

• All proceeds in U.S. dollars
• Kilgore must manage financial risk

• Contract could be extended for 3 years
• But at the same price, benefitting the buyer

The Financial Risk Management Meeting

• U.S. and Canadian dollars near par

• Caused concern over U.S. competition

• Multiple options to deal with currency risk

• Long term swap contracts

• Short term forward contract

• Currency options

• Management team lack understanding of the options

• More open questions than answers
• Lots more to do ...