Banca

1. UGG estimated that it would need C$150 million to carry out its strategic plans over the coming two years. Will its internal resources provide reliable funding for this program? How much external funding might it need?

They want to spend in order to reduce costs and increase revenues;

According to the exhibit 3A is not possible to carry out this strategic plan only using internal resources, and this fact is well known by the company, because during the tears the company profits have not been high enough. These large investment requires more capital than the UGG could internally generate. 1998 net income of the company was $16.3 millions and this is very relevant fact showing that UGG is not prepare to assume such an investment only with internal capital.

In 1993 UGG was looking for an external financing, so they decided to did a Initial Public Offering of 1.22 million shares at $8.00 each that generates revenues of $9.3 million, then another two subsequent sales were carried out in order to increase this income, which became $39 million in total. This amount of capital was not enough because considering the market instability and high risks the stock price was low only one analyst followed the company.

As it can be seen in the exhibit 3B, cash flows could support a debt to asset leverage of 55%, and increase the funds through debt. So in 1995 the company received a loan of $100 million with an effective interest rate of 8.87%.

Another method, used by the company in order to increase cash in the cooperative, was called ‘’securitizing’’ which consists of UGG selling amounts receivable due from the CWB and receivables; in 1998 securitized $173 million and in 1996 $ 204 million.

The company may need, probably, the most of the total capital required, as it was done previously and so afford the payment with the revenues.

2a) Like most firms, UGG faces a variety of risks. How could they be categorized? What elements of the business (examples: revenues, investment needs, etc.) might be affected by weather risk or environmental liability, and how?

The list of risks the company faces is the following:

• Weather

• Environmental Liability

• Counterparty

• Credit

• Inventory

• Commodity

Weather The effect of this risk directly affects the harvest. Its effect on grain volume would disturb the Business. When loss is produces, revenues are affected by increasing financing needs, looking for covering variable costs (these are modified according the volume of production or activity level). Unfortunately climate risk could not be administrated because there were no financial products that may reduce this risk.

Environmental liability: If the company reaches to damage the environment, fines and penalties can directly affect the profits after tax. This risk is controlled

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