Colleen Mansfield UGG Case 1.

UGG estimated that it would need C$150 million to build the high-throughput elevators, upgrade existing elevators, and fund the expansion of the Crop Production Services and Livestock Services divisions. The potential dollar savings would be about 1.22% of grain handling per year. 2. They wanted to secure a more certain source of income because grain can be so volatile. We could plot returns. I think it is likely that this is a form of risk management for the company, because it is not fully outside of UGGs realm of expertise. Investors would be hard put to become shareholders in companies that provide the services UGG diversified with. 3. Yes, C$150 M is a lot of money to UGG. It is nearly 8% of their total sales revenue in 1998 and three times the total operating income in the same year. It is nearly equal to the amount already spent on initiatives and the company could raise less than a third of it through stock. UGG would need C$111 million in loans, until they began using securitizing. 4. Weather would affect revenues (less product to sell) and cost/ability to raise financing. Environmental issues would affect operating costs (having to operate more efficiently is costlier), extraordinary costs, working capital, investment needs, and the cost/ability to raise financing. 5. I think an insurance company would be more willing to write a contract with UGG that pays if Canadian grain volumes are below a certain level. Nationwide grain levels would be much less subjective and prone to manipulation than profits, which would factor in the volume of grain through its cost anyway.