1

Brief Response

• Why does a corporation sell bonds?• A corporation sells bonds to raise money. – It is a way of borrowing money from people

(investors) to develop and operate the company.

CH 3, Section 2 p. 68Terms: listed in front of section

• Merger• 68 a combination of two or more businesses

to form one firm

+ =

merger

• United Continental.• This merger was to save both airlines from

total bankruptcy and shutting down after the terrorist attacks of 2001.

• To suit both sides in the merger a “new” livery was created.

• Every plane in both fleets had to be repainted. Not a cheap thing to do.

merger

• United Continental Airlines.• EC: On your CN, list two reasons for the

big expense in changing over the livery:–When a plane is not flying, it is not making

money.–Paint crews and materials cost a lot of

money.

Income statement

• 68 a report showing a business’s– Sales– Expenses– Earnings and profits – Over a period of time• Quarterly (3 months)• Annually (12 months)

Net income

• 68 gross income (revenue) minus:– Expenses• Taxes• Cost of goods (inventory)• Wages and salaries• Interest payments

Depreciation

• 69 a non-cash charge the firm takes for the general wear and tear on its capital goods.– May be deducted from taxes if used as part of

one’s business.

Cash flow

• 69 the sum of net income and non-cash charges (depreciation).

• The true amount of profit (cash) made by the company’s operations.

Horizontal merger

• 71 two more firms that produce the same good or service join forces.

• Chase National Bank and the Bank of Manhattan => – Chase Manhattan Bank

– EC: Why is the man crying?– When the companies merge rates for their

services will likely go up (less competition.)

Vertical merger• 71 firms involved in different steps of manufacturing or

marketing join forces• Main motivation is to

– Cut costs– Avoid problems if a supplier

• Goes out of business• Raise prices• Goes in with a competitor

• Andrew Carnegie started US Steel, but– Merged with an iron ore company to gain a cheaper price on iron.– Merged with a rail company to get cheaper prices on transportation

Thinking Back

• Which type of merger was that of Continental Airlines and United Airlines? Why?

• Horizontal • Because both companies do the same type of

business.

Conglomerate

• 71 a firm having at least four businesses making unrelated goods and services

• Diversification:– Ex.: RJ Reynolds (tobacco/cigarettes)• Sea-Land (containerized shipping)• KFC (fast food)• Del Monte (fruit and vegetable processing)• Heublein (wine and distilled spirits)

Other Conglomerates (samples)• Korea

• Samsung Group • GS Group – Hyundai Heavy Industries – Lotte Group

• Japan– Lotte Group – Panasonic – Mitsubishi – Itochu Corporation – Sony – Sega Sammy Holdings

• EU– ThyssenKrupp – Siemens AG – Bayer – Airbus – Contrive Group

• US– Fortune Brands – The Walt Disney Company – Koch Industries – General Electric – Berkshire Hathaway – 4Kids Entertainment

Multinational• 72 aka ‘Multinational Corporation’, MNC’, ‘Transnational’• A business that has manufacturing or service operations in a

number of different countries.– Microsoft, US– Ford, US– Coca Cola, US– Gap, US– Toyota, Japan– Mitsubishi– Sony– Nabisco, UK– British Petroleum (BP), UK– Royal Dutch Shell, The Netherlands

CH 3, Section 3 p. 75Terms: listed in front of section

• Non-profit organization• 75 Operates like a business• Promotes a collective interest of its membership• Does not seek financial gain for its owners from its

operations.– Schools– Churches– Hospitals– Welfare groups– Adoption agencies

Cooperative• 76 aka Co-op• A voluntary association of people formed to carry on

some kind of economic activity that will benefit its members…..– Cut costs by group purchases– Special deals for members

• Goods and services• Types include– Consumer co-op– Service co-op– Producer co-op

Credit union

• 76 A service co-op• Members usually employees in– A similar job field– A government agency– A large corporation

• deposit money in it like a bank– Get easier/faster loan terms and interest

Labor union• 76 an organization of workers formed to represent workers.

– Hears and presents members’ interests in various employment matters.

• Collective bargaining• Union negotiates with company over member’s issues,

including…..– Pay– Work hours– Health care coverage– Life insurance– Vacations– Job related matters

Professional association

• 77 a group of people in a specialized occupation that works to improve the– Working conditions– Skill levels– Public perception of the profession

• Samples include:– American Medical Association– American Bar Association– American Federation of Teachers

Chamber of commerce

• 78 promotes the welfare of its members (business) and of the community

• national, state, and local• Activities include:– Promotion of business

• Opportunities• Generation

– Education– Neighborhood charity/assistance– Lobbying government for favorable business legislation

Better Business Bureau

• 78 a non-profit organization sponsored by local businesses

• Provides general information on companies• Maintains records on – Consumer questions– Consumer complaints

• Sometimes offers consumer education programs

Public utility• 79 Any company that offers vital products or services to the public

– Privately owned– Municipal-owned

• Include:– Water, – Natural gas– Electricity– Public transportation– telephone

• Are regulated by the government to assure:– Smooth, efficent operation– Availability to all members of the public– Reasonable rates

• Lower costs to low-income members

Hwk Assessments, Class Work, to Know

CH 3 sect 2 Assessments: Checking for Understanding

• 1• Mergers can diminish costs and increase

buying power

Assessments

• 3• A firm can reinvest revenue from sales into the

company:– New plants– Equipment– technologies

Assessments

• 4• Grow faster• Increase efficiency• Acquire new product lines• Eliminate rivals• Change corporate image

Assessments

• 5• Horizontal:– Two or more firms that produce same product or

service merge• Vertical:– Firms in different steps of manufacturing or

marketing merge

CH 3 sect 3 Assessments: Checking for Understanding

• 1• Consumer:– Buy goods/services in bulk– Offer members reduced prices

• Service:– Provide only services instead of goods

• Producer– Help member promote/sell products

Assessments• 3• Community/civic organizations:– Provide goods/services,– Promote the common good

• Cooperatives:– Carry on activities that benefit members

• Labor, Professional, and Business organizations:– Promote interests of members

• Government:– Regulate the economy

Assessments

• 4• Direct:– Police and fire protection– Schools– Court systems

• Indirect:– Regulation of public utilities– Regulation of quasi-monopolies– Subsidies

Images, p. 69

• question:• The cash flow• + what does it make possible for the company?– Investment in

• new plant• Equipment• technologies

• + what does that help generate for the company?– Sales and services– earnings

Images, p. 72• Question• + Can a multinational BE a conglomerate (and vice versa)?

Explain.• Conglomerate:

– has at least four business• Multinational

– Has manufacturing or service organizations in a number of different countries.

• Yes– If the conglomerate makes goods and services in other nations– If the multinational makes diversified goods and services.

Concepts

• Define a vertical merger and a horizontal merger.– A horizontal merger – is when two or more firms that produce the same

kind of product join forces. – A vertical merger – takes place when firms involved in different steps

of manufacturing or marketing come together

Which term best suits Berkshire Hathaway? Explain (use your sheet if you have room)

• Horizontal merger• Vertical merger• Conglomerate

• Answer:• Conglomerate, as it owns many unrelated

businesses with vastly disparate products and services.

Image, p. 76

• Question• Consumer cooperative– Buys bulk goods on behalf of members

• Service cooperative– Offers members various services at lower costs

• Producer cooperative– Helps members promote or sell their products and

services

Image, p. 77

• question• Because a co-op buys goods in bulk, it can

offer its members reduced prices.• + Name a well-known consumer co-op in your

city…..(remember, members pay a membership fee)

• Costco• Sam’s Club

Brief Response

• Why do businesses merge? (2)

EC Project: due in two weeks • You and up to one partner create a company around a real

type of business. (26 EC possible)– Company name– ID product– Incorporate the graphic organizer on p. 64 with your own information.

• write how each department would be involved in the product.

– Make up circumstances, but be accurate and appropriate. • Ex.: • Peach Corporation (2)• Laptops (2)• In one box (there are 11 (x2 pts) : Payroll -- cuts pay and bonus checks to

various employees– This example, so far, just earned 6 EC points for the individual/pair of

students