Recently, the Board of directors made the decision to purchase Quarry Company and Landscaping Company - these large and significant acquisitions were financed through an increase in Border Pool's debt. This debt was negotiated with the company's bank by the Board of Directors. The Board meets on a semi-annual basis.Background Border Pools is a medium sized swimming pool and landscaping company located in a midsized city on the Canadar'USA border. Border Pools recently acquired two longtime suppliers: a supplier of stone {Quarry Company), and a supplier of plants and landscaping services {Landscaping Company}. As a result of these acquisitions, Border Pools reorganized into three separate divisions (Pools, Ouarry and Landscaping). Eachdivision is l% owned by Border Pool s. {see Appendix A for the overall corporate structure}. Details about the parent company and each division are as follows {see Appendix B for nancial information): Border Pools {Parent} Border Pools Company was founded by the Wright brothers many years ago. Subsequent generations of family members have managed the organization, but their involvement has significantly decreased over th years. Border Pools is lz' privately owned by various members of the Wright family. Border Pools is the parent company. As a result of the recent acquisitions and reorganization, Border Pools owns lz' of the subsidiaries: Pool Company, Ouarry Company and Landscaping Company. Border Fool's office is located downtown Most employees work for one of the three subsidiaries. Border Pool s only has 1' employees: the company President, Chief Financial Officer {CFO}, two administrative assistants, three divisional controllers. Border Pools is run by the President and CFO. The President of Border Pools is responsible for overall corporate strategy. All the divisional managrs directly report to the President of Border Pools. The Divisional Managers have a lot of autonomy, and the Divisional Managers are responsible for setting performance targets and bonuses for their respective employees. The President is responsible for the approval of compensation of everyone else, including the Divisional Managers. The Chief Financial Officer {CFO} is responsible for overall financial reponing and tax filings {the tax rate is higher in Canada). While members of the Wright family had been active members of the board in prior years, for the last several years the only members of the board are the President and CFO. The President and CFO are paid a salary of S lil and Sl, respectively. As well, they are paid an annual bonus based on their performance. The range of the bonus has increased in the last few years, and is now between 2U% to 60% of their salary. The bonus is approved by the Board of Directors. The divisional controllers are colocated with each division and report to the CFO. They are responsible for assisting the Senior Managers of each division with financial management issues and for segmented financial reporting. They are paid between $6, and $9EI,CICICI per year based on the complexity of each division. Recently, the Divisional Managers have collectively requested that the Divisional Controllers no longer repor1 directly to the CFO, but instead repon to each of them respectively. The Quarry Company Located in the USA on the other side of the international border, The Quan'y Company is a producer of several kinds of unique decorative rocks and stones used in Landscaping. [(10% of this company was recently acquired by Parent for SLS million above its book value. The reason for the premium was because the fair market value of the quarry construction equipment was undervalued due to a very shon depreciations periods that were in excess of the actual useful life. As well, middleaged people really go wild over decorative rocks, and these rocks often convince people to purchase additional landscaping. In recent years, sales have slowed and Border Pools has become their largest and only significant customer accounting for more almost all of Quarry Company's sales. Going forward, Quan'y Company will sell almost all of its decorative rocks and stones to the Border Pools family of companies with the exception of a few sales made from time-to-time on-site at the quarry to existing customers who are looking for small amounts of matching decorative rocks. These onsite sales are estimated to herds4% of the total value of decorative rocks harvested. It is unclear as to how the Quarry Company should price its sales to its sister companies. Two of the options being considered are Full Absorption Cost ($130 per ton) and Variable Cost plus 10% profit ($1 10 per ton). While there is not consensus between the Quarry Company and the Swimming Pool Company as to the optimal selling price per ton, there has been agreement by both the Canada Revenue Agency and the Internal Revenue Service that they would accept Full Absorption Cost or Variable Cost plus 10%. The only employees located at the Quarry are the Divisional Manager, Divisional Controller and five Equipment Operators. Before the acquisition, the Divisional Manager and equipment operators were paid salary plus a bonus based on ROI (Net Income before tax / Net Book Value of Assets). This has remained unchanged.Swimming Pool Company Number of employees: 30-60 employees (Divisional Manager, Divisional Controller, two admin assistants, six site managers, 20 year-round labourers and up to 30 seasonal labourers). The Swimming Pool Company operates out of an industrial park on the edge of the city. The main purpose of the Swimming Pool Company is to install in-ground and above-ground swimming pools. While there are competitors, there always seems to be enough work to go around for everyone in the local market, and the market is very stable for these products With the assistance of the Divisional Controller, the Divisional manager is responsible for all customer relations, including the sales of swimming pool installations and selling other services such as landscaping. The Site Manager is required to negotiate prices with customers. Each installation is unique (different size, complexity, inclusion of extras like heaters, stairs and diving boards, landscaping etc.). The Divisional Manager is paid $90,000 per year plus 10% of before-tax profit. The Site Mangers and two admin assistants report to the Divisional Manager. The labourers report to the Site Managers and are divided into teams. Site Managers are paid $60,000 per year and are responsible for supervising the installation of pools. Labourers are paid $25/hour. Some of the labourers work year-round, while the rest tend to be students that are only with the company for a single summer. The Site Managers are Labourers are paid a bonus at the end of each summer based on several factors, including: . Number of jobs completed on time. This is measured by a standard number of labour hours to install a pool. These numbers tend to be in line with industry averages and there is little variation in complexity from one installation to the next. Employee turn-over. This is measured based on overall employee turnover for the Swimming Pool Company. Given the seasonal nature of the work and transient nature of the workforce, the average turnover is 60% per year. . Number of safety incidents. This is based on the number of safety incidents reported. These factors are combined into a formula and result in bonuses up to 5% their base compensation. Very often, customers will have landscaping work done when a pool is installed. This involved the purchase of services from the Landscaping Company and decorative rocks from the Quarry Company. Prior to the acquisition of the Landscaping Company and the Quarry Company by Border Pools, the customer was simply quoted the price negotiated between the Pool Manager and the Quarry company plus a markup of 10%