ERM
Chapter19
Kilgore Custom Milling
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
Cathy Williams
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 …