Samsung and the Theme Park Essay Example for Free

Samsung and the Theme Park Essay Charles Dhanaraj and Young Soo Kim prepared this case under the supervision of Professor Paul Beamish solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. SAMSUNG has the right to reproduce and use this case for its educational purposes. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. This material is not covered under authorization from CanCopy or any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [emailprotected] uwo. ca. Copyright  © 1996, Ivey Management Services and Samsung HRDC Version: (A) 2002-11-22. In October 1994, Her Tae-Hak, President of Samsung’s Joong-Ang Development Company was driving to his office, past the â€Å"Yongin Farmland† (Farmland), an amusement complex sprawling over 3,700 acres in the Yongin valley. Her was spearheading a major drive within the company to position the theme park as one of the world’s leading vacation resort towns. His master plan called for an investment of about US$300 million over the next five years, to be internally funded by the Samsung Group. Despite the booming Korean economy and the increasing demands for leisure attractions, the global competitive environment of the theme park industry raised several concerns. Should Samsung invest in such an aggressive expansion plan for Farmland? Was this an attractive industry for investment? Her was scheduled for a meeting with the Chairman of the Samsung Group for a formal presentation of the proposal at the end of the month. THE GLOBAL THEME PARK INDUSTRY The early 1990s saw the emergence of theme parks as a major source of family entertainment, not just in the United States but around the world. The earliest evidence of a business where people â€Å"paid money to be terrified† was in the early 1600s when several Russians operated a sled ride with a 70-foot vertical drop. In the late 1800s, several theme parks were set up in Coney Island (New York) in the United States. The first roller coaster was set up in 1884, followed by an indoor Page 2 amusement park, Sealion Park. In the 1930s, the amusement industry had to contend with alternative entertainment offered by the movie houses as well as setbacks due to economic depression. However, with the Disneyland Park opening in 1955 in California, the industry was revived and Walt Disney was credited with raising the profile, as well as the profitability, of the industry to a new height. There was a variety of parks and attractions, each with a different approach to drawing crowds and showing them a good time: Cultural and Education Parks were a remnant of the old-fashioned type of European park. Such parks featured formal greens, gardens, and fountains. Generally they incorporated historical and educational exhibits. Outdoor Amusement Parks were small parks that served a metropolitan or regional market. These parks featured traditional thrill rides, carnival midways, and some entertainment. Most amusement parks did not have a theme to the architecture, rides, and entertainment. Theme Parks were generally family-oriented entertainment complexes that were built around a theme. Theme parks were larger and had a greater variety of rides and attractions than amusement parks. Water Theme Parks were a recent phenomenon, a special type of theme parks centered on water activities. Large water parks featured wave action pools, river rides, steep vertical drop slides, and a variety of twisting flume slides. Most of the theme parks were members of the International Association of Amusement Parks and Attractions, which tracked the attendance at various theme parks. In 1993, North American parks accounted for 48 per cent of the worldwide attendance, Asian parks 33 per cent, European parks 14 per cent, and Central and South American parks four per cent (see Table 1). North America The Walt Disney Company was the largest park chain in the world with three major theme parks in the United States. Time Warner’s Six Flags Corporation was the second largest with seven parks spread out in the United States. Paramount, Anheuser Busch and Cedar Fair were some of the other conglomerates who owned theme parks. In mid-1993, Paramount bought Canada’s Wonderland theme park originally developed by Taft Broadcasting Company in 1981. Despite the mature nature of the industry in the United States, a number of theme parks were investing heavily in upgrading their facilities, and extending the theme parks’ services. 9A96M006 Page 3 Europe In 1980, Alton Towers, a 60-year old park in North Staffordshire (England), comprised primarily of historic gardens, repositioned itself as a theme park by adding a roller coaster and some other attractions. The park was extremely successful within a very short span of time. The success of Alton Towers led to a number of new theme parks in the late 1980s and the early 1990s, including Blackpool Pleasure Beach (England) that featured the world’s tallest roller coaster. In France alone, three major theme parks emerged in the early 1990s: Walt Disney’s $3 billion Euro Disney, the $150 million Parc Asterix located northeast of Paris, and the $110 million Big Bang Schtroumpf (Smurfs) theme park just north of Metz. Six Flags Corporation and Anheuser-Busch both recently opened new theme parks in Spain coinciding with the 1992 Barcelona Olympics. Asia Tokyo Disneyland was opened in 1983 by Walt Disney as a joint venture with the Oriental Land Company (OLC). The success of Tokyo Disneyland set off a wave of theme park developments in Asia. OLC and Disney had agreed to open a second theme park, â€Å"Tokyo Disney Sea† in 2001. Ocean Park in Hong Kong, started in 1977, was the largest water park in Asia with an annual attendance of 3. 2 million. Jaya Ancol Dreamland, located in North Jakarta, Indonesia, was one of the largest recreation complexes in south east Asia. Dreamland had a theme park (Dunia Fantasi), a waterpark complex, an oceanarium, a golf course, a beach and several hotels. China was a major growth market. Beijing Amusement park, started in 1981, reported that between 1990 and 1993 revenues increased over 2,000 per cent and earnings before interest and taxes were up 200 per cent. Over the next five years, six regional theme parks were to be developed with a total investment of over $100 million. FINANCIAL ISSUES. The theme park business required a large-scale initial investment, typically ranging from $50 million to $3 billion. Depending on the real-estate markets, the cost of the land value itself could be very high. Theme parks required over 50 acres of land for a full scale development, with some of the theme parks utilizing 10,000 to 30,000 acres. Since accessibility of the park location was a key success factor in the industry, theme park developers chose land sites in a central area which was relatively expensive. Alternatively, they could choose a remote area at a low cost and develop the transportation network. In either case, the land development costs constituted nearly 50 per cent of the overall investment. The amusement machinery constituted 20 to 30 per cent of the total investment, and the working capital requirements took up the remaining 20 to 30 per cent of the investment. The amusement equipment required for the park was also expensive, most of it 9A96M006 Page 4 9A96M006 going from $1 million to $50 million. Businesses which had an in-house land development expertise or equipment technology had better control of these costs. Many parks periodically added new attractions or renovated existing ones to draw repeat customers. The parks typically reinvested much of their revenue for expansion or upgrading purposes. The economies of scale and scope were significant in the industry. Increasingly, parks got larger and larger to generate more operating revenues. Also, companies had multiple parks to take advantage of the learning curve effects in the management of theme parks and the increased economies of scope. Most of the operating expenses for theme parks (about 75 per cent) were for personnel. Admission fees1constituted over 60 per cent of the total revenues of a theme park, while the rest came primarily from food, beverage, and merchandise sales. To handle the admissions revenue a centralized ticket system was generally preferred. An all-inclusive admission price entitled customers to as many rides and shows as they desired. This approach led to longer stays at parks resulting in increased food and beverage sales. Another centralized admission method was to sell ride/show tickets in sets or coupon books (i. e. , five coupons for $5, but 12 coupons for $10). Both approaches to centralized ticket sales minimized the number of employees handling money throughout the park resulting in improved efficiency and control. Walt Disney Company’s financial profile was generally used to assess the return on investment within the industry. The revenues for the theme parks segment of the Walt Disney Company were at US$2. 042 billion in 1988 and grew to US$3. 4 billion in 1993. Operating income was pegged at US$565 million in 1988 and US$747 million in 1993. The return on equity for the Walt Disney Company was pegged at 17 to 25 per cent. One of the analysts remarked on the theme parks segment of Walt Disney: Theme parks are going to become increasingly stable and annuitylike, with the ability to generate $700 to $750 million in cash flow a year. There were signs of declining profitability in the U. S. operations, since the market was maturing and the competition was getting more intense. Tokyo Disneyland, the Japanese operation, was growing and profitable. However, EuroDisney, the European theme park, was a disaster for the company with huge losses since operations began in 1992. The company was expecting a break-even in 1995. 1. Admission fees varied from $5 to $25 depending on the location and reputation of the park. Page 5 9A96M006 MARKETING AND SOCIAL ISSUES The traditional appeal of theme/amusement parks was to preteens, teens, and young adults. Changing demographics were causing most parks to think in terms of a broader market, particularly families, corporate groups, and even senior citizens. There were five major market segments for theme parks: Local Families — people within a day’s drive who visited mostly on weekends. Most parks focused exclusively on this segment, which generally constituted 60 to 75 per cent of the attendance. Children’s Groups — schools, churches, recreation agencies, scouts, and other groups who traveled in buses on summer weekdays. The Evening Market — teens and young adults who came for entertainment, concerts, and romancing at night. Corporate Groups — included consignment sales and group parties. Tourists — a substantial market for large theme parks in destination areas such as Florida. Customer satisfaction was a critical issue in theme parks management. Successful park managers used extensive marketing research to understand their customers and also spent a lot of effort in promoting the park. To reach the diverse groups, parks emphasized increased beautification and the range of entertainment and food services offered. Theme park managers were working with tour operators and government tourist promotion boards to draw the tourist crowds to their parks. Theme parks spent about 10 per cent of their annual revenues for advertising. Radio, newspaper, yellow page (telephone book) advertisements, family and group discounts, and direct mail were the most common promotional methods. Among large theme parks, television advertising was an excellent visual medium to capture the excitement. Some parks expended a major portion of their advertising budget for television promotion. An issue for the theme parks industry was the seasonal and intermittent nature of the business. Theme parks’ attendance peaked in the spring/summer and in the school holidays. Even in the holiday season, bad weather could adversely affect the attendance. The seasonal fluctuations put a lot of strain on the theme parks’ management. During the peak season, the requirement for employees shot up; quite often the management had to find employees beyond the domestic territory and provide housing for out-of-town employees. The sudden surge in demand often choked the service systems such as transportation, building management, etc. It was the availability of leisure time and a high discretionary income that drove the commercial recreation industry. Economic downturns had a severe impact on industry revenues. Also, consumers could substitute a visit to theme parks with other modes of entertainment. Consumers substituted products/services in order to try something new, different, cheaper, safer, better, or more convenient. Free Page 6 admission parks and beaches, camping trips, or even video-movies at home were competing options for leisure time. REGULATORY ISSUES Government regulations were quite strict because of the extensive land use, and the potential for serious accidents. Licensing requirements and methods of ascertaining operational expertise to ensure visitors’ safety varied from country to country. In some countries, where land was scarce, governments limited the area of the land that the developers could take up for theme parks. Park administration was dependent on the government for utilities such as power, gas and water. A typical period required for arranging government approval for a theme park could be as high as two to five years, depending on the country. A related issue was insurance premiums. Given the likelihood of accidents in the amusement parks and the possibility of serious injury, 100 per cent insurance coverage was a must in the industry. Although safety records in the industry were very good, the insurance premiums were extremely high in some parts of the world, particularly in the United States. However, the large premiums often drove the small players in the industry out of business. Countries in Asia did not have this handicap. TECHNOLOGY ISSUES The theme park industry had three classes of inputs: the building and construction services that provided landscaping and architectural support; the hardware providers that supplied amusement machinery; and the software providers that supplied management know-how. The amusement machinery industry had grown over the years. Most of the large drives, such as the Hurricane or the Giant Wheel, were manufactured in Japan, Europe or the United States. There were fewer than 10 suppliers who were capable of developing quality machinery, such as DOGO of Japan, HUSS of Germany, and ARROW of the United States. Most of these suppliers worked globally, and the machinery were custom designed and made to order to fit the particular market and environment conditions. There were a large number of suppliers for the smaller machines, and quite often, they could be manufactured domestically. Special simulators for amusement purposes using proprietary technology were being developed by technology-intensive companies such as Sega Japan and Simex Canada. The park management expertise commonly referred to as the â€Å"software† in the industry was not easily available. Leading theme park companies, such as Walt 9A96M006 Page 7 9A96M006. Disney Company, charged huge licensing fees which were over 10 per cent of the revenues. Also, they were very selective in choosing joint ventures in other countries. Disney went through an extensive market analysis and partner profile analysis for over three years in Europe before finalizing the venue in France with the joint venture partner. Mr. Yu, director-in-charge of the Farmland project, commented: We wanted to go for a joint venture with Walt Disney Corporation. But they somehow were not interested in Korea. So we had to go it alone. It takes a long time for theme park managers to develop service delivery of world class quality. Although Walt Disney offered a number of educational programs to train other managers in the â€Å"Disney Management† style, the know-how seemed to be too sophisticated for the competitors to emulate. Virtual reality (VR) was increasingly becoming a highly lucrative mass-market entertainment phenomenon. A new entry that was due to open in July 1994 was Joypolis, a $70 million interactive theme park owned by Sega Enterprises, with projected revenues of $37 million per annum. Sega had plans to open 50 such parks in Japan, and was negotiating with Universal Studios, California, for its first U. S. installation of a VR theme park. YONGIN FARMLAND Yongin Farmland (Farmland), opened in 1976, was the first amusement park in Korea. It was managed by Joong-Ang Development Company, one of the wholly owned subsidiaries of Samsung with a mission to provide a better quality of life through healthy open-air leisure activities. In addition to the Farmland management, Joong-Ang was responsible for the building maintenance at all Samsung’s offices, as well as maintaining two golf courses. Farmland was located about an hour south of Seoul, and was owned by the Korean conglomerate, the Samsung Group (see Exhibit 1). The 3,700-acre attraction began as an agricultural center to demonstrate how mountainous land could be used productively for growing food products. Mr. Lee of Joong-Ang said, At that time, we had trouble raising enough food for our country. We created a model farm of how to work with an abandoned mountain by building a pig farm and planting fruit orchards. We changed the land use gradually through the years as we added entertainment elements. The Wild Safari was opened in 1980, and the Rose Festival, an impressive rose garden filled with 6,000 rose bushes of 160 different varieties arranged according. Page 8 9A96M006 to various themes, opened in 1985. To provide for winter entertainment, the Sled Slope was opened in 1988. A drastic departure from the traditional theme parks was taken when Yongin Farmland opened a Motor-Park in late 1993. The motor park operations incurred a loss in the first year of operations (see Table 2 for the profit and loss statement). In November 1993, Her took over as the President and Chief Executive Officer of the Joong-Ang Development Company. Prior to his assignment to Joong-Ang, Her was the CEO of Cheju Shilla, a luxury hotel on Cheju Island in Korea. Her was credited with developing a world-class sea resort at Cheju Shilla which surpassed in customer service established hotel chains such as Hotel Hilton. Since taking over the reins of the company, Her had focused on improving the customer satisfaction level at Farmland, and had also been developing the plans for Farmland’s expansion. One of the major challenges was to see how the expansion plans for Farmland would match with the corporate strengths of the Samsung group. Her was aware that earlier attempts by previous management to expand Farmland had not met with the approval of the group’s Chairman. There were concerns in many quarters that the theme park industry did not fit well with the â€Å"high-tech† and the â€Å"global† image of the Samsung Group, and also that the profitability might be very low. The theme park industry was still in its early stages in Korea, and had a history of less than two decades. However, indications were that the industry was growing globally, with more players entering. Nevertheless, some of the managers did not see profitable growth opportunity in the theme park industry. One of the managers in Joong-Ang said: Theme parks may be a growing industry worldwide. That does not mean that it should be so in Korea. In Korea, we work five and a half days a week and we have annual vacation of only four to five days a year. Where do Korean people have time for theme parks? FARMLAND CUSTOMERS Traditionally, Farmland focused on the local customers. Most of its customers came from surrounding areas within two hours’ drive (see Table 3). The economic growth in Korea had been a major driving force in industry growth (see Exhibit 2). Despite the early stage of growth in the Korean leisure industry, there were six theme parks in the Seoul area including Farmland. Most notable among these were Lotte World and Seoul Land. Lotte World, started in 1989, prided itself on having the world’s largest indoor theme park with adjoining hotel, department store, shopping mall, folk village and sports centre. Commenting on Lotte’s strategy, one of the managers at Lotte World said: Page 9 9A96M006 We focus on a segment different from Farmland. Since we are located downtown, we cater to a clientele who want to drop by for a shorter period. Typically, we get office people who want to relax after a hard day’s work or couples who would like to spend some time in a romantic environment. Seoul Land, located near Seoul at Kyungkido, was also a key competitor to Farmland. With attendance at 3. 37 million, Seoul Land ranked 23rd in the â€Å"Top 50 theme parks worldwide. † Mr. Woon, one of the managers at Seoul Land, remarked: The park has a good reputation for quality special events and the people enjoy coming to the park because of its fresh air, beautiful scenery, and easy access. Despite the competition from other parks, Farmland had the highest growth rate within the Korean industry (Table 4). The seasonal nature of the theme park industry affected all the competitors, not necessarily in the same pattern (Table 5). PRICING Farmland was also going through a major change in its pricing structure. The pricing strategy in place (Table 6) was a combination of â€Å"pay-as-you-go† and â€Å"pay-one-price† system. Users had the option of paying the admission fees and buying separate tickets for rides (pay-as-you-go), that were available as coupons (Big 5 for five rides). Membership in the park was available for a price, which provided free admission for a year. The other option was to buy a â€Å"passport† (termed as â€Å"pay-one-price†) that provided admission as well as unlimited rides for one full day. The passport users were estimated at 17. 4 per cent of the attendance in 1993, and the membership holders were estimated at 75 per cent. Farmland wanted to switch gradually to the pay-one-price scheme, which was the most common pricing scheme in the leading markets. The prices across the major competitors were comparable. In 1993, average admissions and ride fee per person was 6,667 Won in Farmland, 7,279 Won in Lotte World, and 6,494 Won in Seoul Land. Theme parks also monitored the amount a visitor spent on food, beverages, and souvenirs. In 1993, average percapita expenditure on food and beverage in the three parks was 2,874 Won in Farmland, 2,017 Won in Lotte World and 1,804 Won in Seoul Land and merchandise sales per capita were 996, 1,319, and 722 Won, respectively. Page 10 9A96M006 OPERATIONAL ISSUES While there was some indication that the Samsung Group would be willing to consider a proposal for expansion of the Farmland, Her had to contend with a number of operational issues at Farmland. Based on discussions with a number of managers and customers, Her had some idea of the various issues involved in the operation of Farmland. Transportation One major issue was accessibility to the park. Yongin was 60 kilometres south of Seoul, and during peak hours, it took as long as two hours to drive from Seoul to Farmland due to traffic jams. One resident who lived very close to the Yongin area said: Actually, it should take only 15 minutes to drive from my home to Farmland. But the traffic jam is so intense that if I go to Farmland, it may take almost an hour of crawling in the traffic. That’s one main reason why I have not visited it so far. One of the managers in the marketing group commented on the critical nature of this problem: In Korea, we work five and a half days a week. Most of the time on the working days the travel time is long. All the house chores have to be done only on the weekends. Given this fact, it is only to be expected that Korean customers would not be so keen to travel on a Sunday or on a holiday if the traffic is heavy. However, many managers in Joong-Ang believed that the accessibility problem was only a temporary issue. Mr. Yu, Director of Personnel at Joong-Ang, commented: Travel difficulties are part of our life in Korea, given the small land and the large number of people. The government has plans to bring the subway up to Yongin, in which case Farmland would have a subway terminal, which will provide a lot of convenience to our people. This was echoed by one of the visitors to Farmland, who commented: I hate sitting inside my house all day. I have to get out somewhere. Seoul is too crowded and I would like to go to some place to breathe some clean air. Beaches are closed most of the season, and Page 11 9A96M006 if I want to go for some mountains or Pusan, it is too far away. So, I don’t mind driving down to Yongin to spend a relaxed day. I will skip the rush hour by leaving early from the park. Parking Another related issue was parking. Farmland had ample parking space for about 8,000 cars at one time around the four sides of the park. One of the managers who conducted an extensive analysis of the parking space said: What we have now is more or less enough for the time being. We have enough space for about 8,000 cars and at four people per car we can accommodate about 32,000 people. If we assume the lot turning over at 1. 7 times a day (at an average stay of six to eight hours), we can handle a peak attendance of 52,000. But the real problem is the seasonality. On peak days, we may get more visitors and quite often people may spend more time. If we are going to expand, this will be a major bottleneck. Part of the expansion plan included augmenting the parking spaces and also providing a â€Å"Park and Ride† scheme for visitors so that they could travel comfortably from the various car parks to the entrance. Environmental Issues Expanding Farmland meant taking over more of the land mass available in the Yongin valley. A farmer living in the Yongin valley, who was vehemently opposed to the expansion ideas, said: They (Samsung) just want to expand their business. But they don’t realize that one of the problems with cutting down the trees and leveling the ground will cause potential flooding in the surrounding region. This will damage all our crops. How will they compensate us? Organizational Inertia It was also a challenge to introduce a dynamic environment within the Farmland organization. In order to succeed in the industry, Farmland had to go through a major reorientation in its organizational style. Farmland had initiated customer satisfaction surveys recently and it was brought to the attention of the management that the customer satisfaction levels were lagging behind the key competitor, Lotte World. As one of the marketing managers noted: Page 12 9A96M006. Repeat business is very important to our survival. If we don’t satisfy our customers, they won’t come back and we won’t have any business left. But, it is not in our Korean nature to smile at strangers. We are very serious people. So it becomes all the more difficult to get the type of service you can see at Disneyland. Mr. Yu, who had pioneered a number of changes within the organization, recalled one event which demonstrated the type of organizational inertia the management had to deal with: Previously we had the head office at Seoul and we were managing the Farmland by ‘remote control. ’ We were faxing information and directives up and down. But I somehow did not see that this would be the best way to work. I insisted that the head office had to be located where our products are and only after much persuasion could we move to this place. Among other things, management was also considering a change in the recruitment process. Traditionally, Farmland had gone after the â€Å"academically best† graduates and students, which was the standard practice at Samsung. The management felt that they needed more service oriented people. The management wanted to recruit more female workers, the level of which at that time was below 25 per cent, but anticipated problems since most Korean women stopped working after marriage. Mr. Yu said: I think times are changing. For that matter, even if we have a high turnover, it may be good for us since fresh blood always brings in fresh ideas and we would be able to preserve some dynamism in our organization. THE MASTER PLAN Based on a detailed survey (Table 8) and tentative analysis, the management had put together a master plan to invest about $300 million in revamping Farmland. There were also suggestions of changing the name to provide a better image of the company. A master plan, for a phased investment of about $300 million dollars over the next two years, was being developed. Everland, Green Country, and Nature Land were some of the names proposed for the new â€Å"mountain resort. † Included in the master plan were: A waterpark to be built adjacent to the existing theme park, at an estimated cost of US$140 million, with a Caribbean theme. A Global Fair, a fun-fair indicative of the major countries in the world, at an estimated cost of $85 million. Page 13 9A96M006 Expansion of existing zoo, and parks including a night time laser show and a fable fantasy garden at an estimated cost of $50 million. The funding would come mainly from the parent, Samsung Group, and also through corporate sponsorship of the other companies within the Samsung Group. The master plan also indicated that if the first phase was successful, a second phase of developing a resort town in Yongin, with luxury hotels, golf courses, and resort accommodations would occur. (Exact budget for the second phase was not available at that stage.) A number of managers within the company who were closely involved in developing the master plan felt strongly that the theme park expansion was not only a priority but also would be a profitable venture. The General Manager of the planning group commented: What we want to create is a destination resort town and a residential community where people can come, relax and enjoy themselves in a low-stress environment. Samsung employs more than 180,000 people here in Korea. This will give them a place to come and be proud of. There will be plenty here for all members of the family as they grow. We feel it is time to change from a farm-oriented name to a name which represents our new mission, which is to create a zeal for long-lasting life that is combined with the harmony of nature. If this plan is approved, we will become the prototype destination resort town in the entire world. We have visited them all, and when we’re finished, there won’t be any better! Her wanted a comprehensive analysis of the theme park industry to ascertain the profitability of the industry. He wanted to present to the chairman of the Samsung Group a clear rationale why Samsung should invest in this industry. The Richard Ivey School of Business gratefully acknowledges the generous support of The Richard and Jean Ivey Fund in the development of this case as part of the RICHARD AND JEAN IVEY FUND ASIAN CASE SERIES. Page 14 9A96M006 Table 1 TOP 50 AMUSEMENT/THEME PARKS WORLDWIDE (1994) Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Park Location Tokyo (Japan) DISNEYLAND MAGIC KINGDOM of Walt Disney World, Florida, United States DISNEYLAND, Anaheim, California, United States JAYA ANCOL DREAMLAND, Jakarta, Indonesia. EPCOT at Walt Disney World, Florida, United States EURO DISNEYLAND, Morne La Voltee, France YOKOHAMA (Japan) HAKKEIJIMA SEA PARADISE, Japan DISNEY-MGM STUDIOS, Walt Disney World, Florida, United States UNIVERSAL STUDIOS FLORIDA, Orlando, Florida, United States BLACKPOOL (England) PLEASURE BEACH, England YONGIN FARMLAND, Kyonggi-Do, South Korea UNIVERSAL STUDIOS HOLLYWOOD, California, United States SEA WORLD OF FLORIDA, Florida, United States LOTTE WORLD, Seoul, South Korea CHAPULTEPEC, Mexico City, Mexico HUIS TEN BOSCH, Sosebo, Japan TOSHIMAEN AMUSEMENT PARK, Tokyo, Japan KNOTT’S BERRY FARM, Fuona Park, California, United States SEA W.

Gainesboro Machine Tools Corporation Essay Example for Free

Gainesboro Machine Tools Corporation Essay Kendle International Inc. We looked at the competitive landscape and, based on what was happening, knew we were either going to sell Kendle, grow or disappear. It was May 1997, and Candace Kendle, the chairman and chief executive officer of Kendle International Inc. (Kendle), and her husband Christopher C. Bergen, the president and chief operating officer, were reviewing the strategic options for their Cincinnati, Ohio based company. Kendle, a business they had founded over 15 years previously, conducted clinical trials for pharmaceutical and biotechnology companies to test the safety and efficacy of their new drugs. The company had grown successfully to $13 million of sales and had attracted significant business from major pharmaceutical and biotechnology companies. Kendle was competing, however, with several larger contract research organizations (CRO), many of which had an international presence that allowed them to do clinical studies outside the United States and gave them an advantage when competing for major projects. To compete more effectively, Candace and Chris had embarked on a plan to grow through acquisition, particularly internationally, and to finance this growth through a public offering of equity. Toward this end, by the spring of 1997 Kendle had lined up two potential European acquisitions—U-Gene, a CRO in the Netherlands with 1996 sales of $12.5 million, and gmi, a Germanbased CRO with $7 million in sales. To finance these acquisitions, Kendle had worked out possible debt financing with Nationsbank and was working with two investment banks on an Initial Public Offering (IPO) that would repay the bank debt if successful and provide the equity base for future acquisitions. It was now time to decide whether to go ahead with the full program of two acquisitions, a large debt financing and an equity issue. Kendle History Candace and Chris met in 1979 while working at The Children’s Hospital of Philadelphia. Candace had received her doctorate in pharmacy from the University of Cincinnati, then taught in North Carolina and Pennsylvania. Her scientific specialty was virology. At the Children’s Hospital, Candace was serving as the director of pharmacy, working as an investigator on a study of an antiviral drug for the pharmaceutical company Burroughs Wellcome. Chris, a Wharton MBA, was a senior administrator at the hospital. Research Associate Indra A. Reinbergs prepared this case under the supervision of Professors Dwight B. Crane and Paul W. Marshall as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright  © 2000 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1 Looking for something new, Candace and Chris began to discuss the idea of going into business together. One day in early 1981 Candace received an unexpected visit from a new physician, replacing the usual medical monitor for her project with Burroughs Wellcome. This physician was a pioneer in the  contract clinical research business. As he described how his business worked, Candace became more and more intrigued. When he left that day, she immediately called Chris and said, â€Å"I’ve got a business idea!† The concept was to set up a small research consulting firm that would take on outsourced research and development (RD) work on a contract basis from large pharmaceutical and biotechnology companies. Based on the positive response she received from potential clients, Candace left her job at the hospital in June 1981 and Chris left his job in December 1981. Kendle International Inc. was incorporated in Cincinnati, Ohio in 1981, with Candace taking 55% of the shares, and Chris 45%. Candace had strong ties to the Cincinnati area. Her grandfather, a coal miner, had moved there from Appalachia, and the clan had grown to about 140 members, including Candace’s two sons from a previous marriage. By January 1982, Candace and Chris were working from Candace’s parents’ home. Kendle started as a small company with a few contracts, and business grew slowly through referrals from professional colleagues. Kendle suffered the usual bumps of a start-up business, particularly in the late 1980s when it suffered a loss for two years and ran up $1 million in bank debt on a $250,000 line of credit. Afraid that its bank would call the loan, the company went through a bankruptcy scare. Fortunately, Kendle succeeded in attracting business from a new client, the pharmaceutical company G.D. Searle Co. (Searle). By the early 1990s, the company was turned around and it generated annual sales of about $2.5 million. Candace and Chris were married in 1991. The Pharmaceutical Lifecycle The clinical research process was influenced by government regulations that required drugs to pass through a series of steps before they could be marketed for public use. In the United States, the Food and Drug Administration (FDA) regulated pharmaceuticals. To receive FDA approval, a drug had to meet safety and efficacy standards for a specific indication (medical diagnosis). A drug for hypertension, for example, would have to lower blood pressure by a certain statistically significant amount without  producing unacceptable side effects. The entire FDA approval process could take from 8 to 15 years and involve several thousand patients.1 After a pharmaceutical company discovered a new drug and completed pre-clinical testing on animals in the laboratory, an Investigational New Drug application was filed with the FDA. The drug then passed through three phases of clinical testing on humans. Before beginning each subsequent phase, the drug company had to submit additional regulatory information to the FDA. Phase I Phase I studies were primarily concerned with assessing the drugs safety. This initial phase of testing in humans was done in a small number of healthy volunteers (20 to 100), such as students, who were usually paid for participation. Phase II Once Phase I testing had proven the drug’s safety, Phase II tested its efficacy in a small number of patients (100 to 300) with the medical diagnosis. It was specifically designed to determine the likely effective dose in patients. Phase III In a Phase III study, the drug was tested on a larger patient population (1,000 to 3,000) at multiple clinical sites. The purpose was to provide a more thorough understanding of the drugs effectiveness, benefits, and the range of possible adverse reactions. Most Phase II and Phase III studies were blinded studies in which some patients received the experimental drug, while control groups received a placebo or an already approved drug. Once a Phase III study was successfully completed, a pharmaceutical company requested FDA approval for marketing the drug by filing a New Drug Application, which averaged about 100,000 pages. †¢ 200-033 Phase IV Post-marketing testing (of at least 300 patients per trial) was sometimes conducted for high-risk drugs to catch serious side effects (liver toxicity) and monitor them for long-term effectiveness and cost-effectiveness. The pharmaceutical companies traditionally designed and conducted their own clinical trials. They selected the research sites and recruited investigators to conduct the trials of the new drug. Investigators were often medical school professors at teaching hospitals, but they could also be professional investigators who conducted clinical trials at dedicated centers or occasionally regular physicians who ran trials, particularly Phase IV trials, out of their private practices. These investigators then recruited patients, sometimes with the help of the pharmaceutical company, to participate in the study. After patients were recruited, there was a considerable amount of data collection by the investigators, monitoring of the process and data retrieval by the pharmaceutical company, and analysis of the data to determine whether the statistical criteria for safety and efficacy were met. Finally, there was the complicated process of compiling the data and preparing the long report for the FDA. The Contract Research Business In the 1970s, large pharmaceutical concerns in the United States began to look for ways to outsource their clinical testing work as their RD budgets grew. At the beginning, contract research was a small cottage industry and the work was awarded on a piecemeal basis. As Chris recalled, â€Å"For years, there had been companies conducting animal testing and Phase I, but there was no one managing the entire research and development process. The acronym ‘CRO’ (contract research organization) did not exist, pharmaceutical companies gave out only small contracts, and did not have much confidence in for-profit research managers.† The growth of the CRO industry was stimulated by pricing pressures on drug companies that led them to try to transfer the fixed costs of clinical research into a variable cost through outsourcing. As Chris described, The general problem that drug companies face is balancing a variable workload with a fixed workforce. The problem is that you don’t know when the guy in the white lab coat will come running down the hall, beaker in hand, shouting, ‘Eureka, I’ve got it, it’s going to cure disease X’. When he does that, you know your workload is going to spike. Your workload is impacted by the rate of discovery, the number of projects killed in vitro and, subsequent to that, how many studies get cancelled due to safety or efficacy problems in human testing. Pure CROs like Kendle derived their income solely from the outsourced portion of the RD budget of pharmaceutical clients. In theory, any part of the clinical testing process could be outsourced. While most pre-clinical discovery was conducted in-house by drug companies, the trend in the 1990s was for CROs to receive contracts to manage the entire clinical research piece, especially 3 Phases II and III. The whole process was an incredible race against time, as every day for which FDA approval was delayed could cost the pharmaceutical client over $1 million in lost revenues. Pharmaceutical contracts ranged in duration from a few months to several years. For multi-year contracts involving clinical trials, a portion of the contract fee was paid at the time the trial was initiated, with the balance of the contract fee payable in installments over the trial duration, as performance-based milestones (investigator recruitment, patient enrollment, delivery of databases) were completed. Contracts were bid by CROs on a fixed-price basis, and the research was a labor-intensive business. The contract bids depended on careful estimation of the hourly labor rates and the number of hours each activity would take. The estimation process involved statistical algorithms, which took into account the length of the study, frequency and length of site visits, the number of sites involved, the number of patients involved, and the number of pages per report form. A premium would be added for more complicated therapeutic testing. As the chief financial officer Tim Mooney described the business, The way that Kendle makes money is like any professional service firm—We focus on maximizing labor utilization, especially at the operational level. We assume a 65% to 70% utilization rate, so profit margins are higher if we have a higher utilization rate of personnel. We have the same assumed profit margin on all levels of people, but we can charge higher rates for contracts where we have specific therapeutic expertise that is in demand. Margins can also be higher on some large projects when we can share overhead costs across more sites. The business of contract research entailed several types of business risk. With contracts running at an average of $1 million for companies of Kendle’s size, client dependence was a major risk. Project cancellation by the client and â€Å"change orders† to reduce project costs were also increasingly frequent in the CRO industry, as healthcare cost pressures intensified. On the other hand, product liability for medical risks was borne by the pharmaceutical company. Competition in the 1990s By the mid-1990s, contract research had evolved into a full-service industry, recognized by both the pharmaceutical/biotech industries and the financial community. In 1995, worldwide spending on RD by pharmaceutical and biotechnology companies was estimated at $35 billion, with $22 billion spent on the type of drug development work that CROs could do. Of the $22 billion, only $4.6 billion was outsourced to CROs in 1995. While RD spending by pharmaceutical companies was growing at 10% a year, CROs were growing at twice that rate.2 Specialized CROs could manage increasingly complex drug trials—in the previous decade, the number of procedures per trial and average number of patients per trial had doubled—far more efficiently than their pharmaceutical clients.3 Kendle participated in this growth in clinical research. Its net revenues grew 425% from $2.5 million in 1992 to $13 million in 1996. From a loss of $495,000 in 1992, its net income rose to $1.1 million by 1996. By 1996, Kendle had conducted clinical trials for 12 of the world’s 20 largest pharmaceutical companies. Kendle’s three largest clients were G.D. Searle, Procter Gamble, and Amgen, which generated 48%, 19%, and 13% of Kendles 1996 revenues, respectively. (See Exhibits 1 and 2 for Kendle’s income statements and balance sheets.) 2 J.C. Bradford Co., analyst report, January 15, 1998, pp. 5-6. 3 The Economist, â€Å"Survey of the Pharmaceutical Industry,† February 21, 1998, p. 4.200-033 The contract research industry was very fragmented, with hundreds of CROs worldwide. In the 1990s, in response to the increased outsourcing of pharmaceutical RD, and a demand for global trials, consolidation among the CROs began. A few key players emerged and went public, creating a new industry for Wall Street to watch. Many CRO start-ups were founded by former drug company executives who decided to form their own operations. After a period of internal growth, some of the start-ups began growing through a financial â€Å"roll-up† strategy. An industry publication listed 18 top players in North America, with total contract research revenues of $1.7 billion. The top five public companies, ranked by 1996 revenues, were Quintiles Transnational Corp. ($537.6 million), Covance Inc. ($494.8 million), Pharmaceutical Product Development Inc ($152.3 million), ClinTrials Research Inc. ($93.5 million), and Parexel International Corp. ($88 million).4 (See Exhibit 3 for recent sales and pr ofit data on CROs.) With its talent pool of scientists at the Research Triangle and U.S. headquarters of the pharmaceutical giants Glaxo and Burroughs Wellcome (later merged as Glaxo Wellcome), the state of North Carolina quickly became the center of the burgeoning CRO industry. Two of the â€Å"big five† companies, Quintiles and Pharmaceutical Product Development, were started there by academic colleagues of Candace’s. Quintiles Transnational was considered to be the †gold standard of the industry.† Quintiles was founded in 1982 by Dennis Gillings, a British biostatistician who had worked at Hoechst and was a professor at the University of North Carolina, where Candace completed her postdoctoral work. After raising $39 million in a 1994 IPO, Quintiles went on an acquisition spree, adding other professional service businesses. For example, the firm provided sales and marketing services to support the launch of new drug products. By the end of 1996, Quintiles was the worldâ€⠄¢s largest CRO, with 7,000 employees in 56 offices in 20 countries. A typical clinical study managed by Quintiles was conducted at 160 sites in 12 countries, involving 10,000 patients. Quintiles was more diversified than many of its CRO competitors, with about 65% of revenues derived from the  core CRO business and 35% from other services.5 Pharmaceutical Product Development (PPD) was founded in 1989 by Fred Eshelman, a colleague of Candace’s from the postdoctoral program in pharmacy. Like the founder of Quintiles, Eshelman had worked in drug research for several pharmaceutical firms, including Glaxo and Beecham. PPD’s revenues jumped 500% between 1990 and 1994, based on such work as multi-year contracts for AIDS research for the National Institutes of Health. PPD conducted a successful IPO in March 1996, with its stock jumping from $18 per share to $25.50 per share on the first day of trading. PPD bought a U.K. Phase I facility in November 1995, and in September 19 96 merged with another leading CRO. Their combined net revenues exceeded $200 million. Kendle at the Crossroads To Candace and Chris, it was clear that certain competitive capabilities were necessary for companies of Kendle’s size to compete successfully with the major CROs: therapeutic expertise (in specific medical areas) broad range of services (pharmaceutical companies wanted to work with fewer CROs, with each offering a wide range of services across multiple phases of the RD process); integrated clinical data management (the ability to efficiently collect, edit and analyze data from thousands of patients with various clinical conditions from many geographically dispersed sites); 4 â€Å"Annual Report: Leading CROs,† RD Directions, September 1997, pp. 28+. 5 William Blair Co. LLC analyst report, Quintiles Transnational Corp., June 20, 1997, p. 3. international, multi-jurisdictional presence (to speed up drug approval, tests were being launched in several countries at once); With the exception of international presence, Candace and Chris felt comfortable with their ability to meet these criteria. Kendle’s staff had scientific expertise in multiple therapeutic areas, including cardiovascular, central nervous system, gastrointestinal, immunology, oncology, respiratory, skeletal disease and inflammation. The company also had broad capabilities, including management of studies in Phases II through Phase IV. It did not consider the absence of Phase I capabilities to be an issue, since this activity was quite separate. (See Exhibit 4 for a comparison of CRO geographical locations.) To build an integrated clinical data management capability, Chris had directed the development of TrialWare ®, a proprietary software system that allowed global data collection and processing and the integration of clinical data with clients’ in-house data management systems. TrialWare ® consisted of several modules including a database management system that greatly reduced study start-up costs and time by standardizing database design and utilizing scanned image technology to facilitate the design of data entry screens, the point-and-click application of edits from a pre-programmed library, and workflow management (parallel processing). Other modules included a system that coded medical history, medication and adverse event data and a touch-tone telephone system that was used for patient  randomization, just-in-time drug supply and collection of real-time enrollment data. Against the backdrop of a changing industry, Candace and Chris felt the need to develop additional business skills and focus Kendle’s strategy. To clarify their management roles, Candace and Chris switched their existing responsibilities. Chris pointed out, â€Å"Candace became CEO as we realized that her focus was long-range and I took over as Chief Operating Officer to focus on the short-range. In addition, the marketing strength of our competitors was propelling them further and further ahead of Kendle. Candace brought her science background and entrepreneurial skills, while I brought my management. The problem was that we were relatively weak in sales and marketing.† To broaden their skills, Candace went off in 1991 to the Owner/President Management Program (OPM), an executive education program run by Harvard Business School for three weeks a year over three years. Chris followed her to OPM in 1994. After completing the OPM program, Candace assessed the situation, We have to be big enough relative to our competitors to take on large, international projects. When Searle was looking for CROs for international work, all we could do was possibly subcontract it out to small shops. In contrast, Quintiles had six overseas offices of its own. Furthermore, when Searle calls and says, ‘I just got off the phone, Quintiles will cut their price by a million dollars,’ if you’re too small, you’re not going to be able to respond to that. Candace and Chris realized that Kendle could not grow fast enough internally to keep up with its peers and did not have the cash for acquisitions. They entertained the thought of selling Kendle, and were approached several times about a sale. But by nature, they were a competitive, athletic couple. Chris got up to play squash every morning at 7 AM, and Candace was an avid rower, recently winning a gold medal in a Cincinnati regatta. Perhaps not surprisingly, Candace and Chris decided to grow the firm and take it public rather than sell. As Candace described their motivation, â€Å"We were not driven to be a public company as such, but primarily to be bigger, and for this, we  needed public financing to succeed in the new competitive landscape. The whole target was not to let the big guys get too far out ahead of us.† Preparations for Growth By 1994, Kendle had grown to $4.4 million in revenues. Candace, the driving force throughout the IPO process, sought advice from an old college friend, a well-known Cincinnati businessman. He advised her, â€Å"before you go public, practice being a public company.† Candace therefore formulated a plan for Kendle to go public in 1999. Kendle began hiring key managers to build up functional units. Between 1994 and February 1997, new directors of clinical data management, information technology, biostatistics, finance, mergers and acquisitions, regulatory affairs, and human resources were hired. As Chris described, â€Å"the plan was to put this infrastructure in place to look and act like a public company— communications, IT, finance. The idea was hire at the top and they’ll fill in their organization.† Many of these new managers had previously worked together at other companies. To prepare for Wall Street scrutiny, Kendle began issuing internal quarterly fi nancial statements and sharing them with employees in an open-book management style. Candace and Chris tried to make the growing number of employees feel like â€Å"part of the family† in other ways, too. The Kendle â€Å"photo gallery† displayed professional portraits of employees with their favorite hobbies. In 1995 Chris led the development of a corporate mission statement and a document on strategic plans that was shared with all employees. Kendle was organized in a matrix fashion (see Exhibit 5 for organizational chart). Each department was treated as a strategic business unit (SBU) with a director who established standards and carried profit responsibility. At the same time, each research contract was managed by a project manager who assembled a team from across the various SBUs. Clinical trials involved five functional SBUs at Kendle: 1. Regulatory Affairs recruited investigators, helped them with FDA registration forms, and obtained approval from ethics boards. Regulatory Affairs maintained a database of 5,000 investigators. 2. Clinical Monitoring sent clinical research associates (CRA) out to the testing sites (every 4 to 6 weeks) to enforce Good Clinical Practice regulations. The CRAs were typically young, single health care professionals who spent a significant amount of their time on the road. The CRA would collect data from investigators, resolve queries generated by Clinical Data Management, and promote patient enrollment. 3. Clinical Data Management produced a â€Å"locked† database that could be submitted to the FDA. Data from case report forms were input into a computer system and â€Å"cleaned† through a manual review of the forms and an automated check of the databases. The challenge was to lock a database quickly while maintaining data quality. 4. Biostatistics would â€Å"unblind† the locked database and analyze it to determine if the data confirmed that the test results met the criteria for safety and efficacy. Biostatistics also defined the scope of new studies. 5. Medical Writing generated â€Å"the truckload of paper submitted to the FDA† for a New Drug Application, including a statistical analysis, a clinical assessment, preclinical and clinical data, a description of the manufacturing process, and the supporting patient documentation. 1996: The Celebrexâ„ ¢ Study, Filing Preparations, and European acquisitions 1996 was a busy year for Candace, Chris, and Kendle’s new management team. They simultaneously began conducting a major drug study, working with underwriters on IPO preparations, and looking for overseas acquisition targets. In 1996 Kendle managed 62 clinical studies at 4,100 sites involving approximately 20,000 patients. Celebrexâ„ ¢ Study In January 1996, Kendle began working on a major drug called Celebrexâ„ ¢ (celecoxib). Its client Searle was engaged in a neck-and-neck race with Merck, the largest U.S. drug company, to be the first to market a COX-2 inhibitor. A COX-2 inhibitor was a new type of anti-inflammatory drug that promised low incidence of bleeding ulcers in long-term, high-dosage users such as arthritis patients. The Searle-Merck race was closely followed in the business press. Searle awarded the international portion of the Celebrexâ„ ¢ contract to another CRO, since Kendle only had facilities for testing in the United States. However, Kendle did win the contract to conduct all the U.S. Phase II and III trials. The Celebrexâ„ ¢ contract was a â€Å"huge feather in our cap,† recalled the chief financial officer. â€Å"In order to beat Merck, we worked very hard and kept compressing the timelines.† To head the Celebrexâ„ ¢ project, Kendle hired Bill Sietsema, PhD, as assistant director of clinical research. A therapeutic expert in skeletal diseases and inflammation, Sietsema had worked at Proctor Gamble for 12 years. While Sietsema served as overall program director, Chris acted as the operational project manager, meeting with his Searle counterpart in Chicago on a monthly basis. In early 1997, Kendle also set up a new regional office in Chicago, close to Searle headquarters. For Kendle, the Celebrexâ„ ¢ project was a chance to â€Å"show what we could do and to develop a reputation as a leader in the field of skeletal disease and inflammation.† Kendle actively helped investigators recruit arthritis patients, running television advertisements, directing interested volunteers to a call center. Three hundred  investigators enrolled over 10,000 patients, producing over one million pages of case report forms. Most importantly, through close integration of information systems with Searle, Kendle was able to beat an industry standard. Instead of taking the typical six months to one year, the time span between the last patient in Phase II and the first in Phase III, which began in June 1996, was only 22 days. Preparation for SEC Filing By the time the Celebrexâ„ ¢ program rolled around, Candace and Chris felt that they might have to go public earlier than intended because of the competitive landscape. The new chief financial officer, Tim Mooney, took a leading role in the preparations. Prior to joining Kendle in May 1996, Mooney had worked as CFO at The Future Now, Inc., a computer reseller and Hook-SupeRx, a retail drugstore chain. At Kendle, Mooney replaced the controller with an audit manager from Coopers Lybrand to beef up his staff. Mooney also led the building of many of the other financially related departments at Kendle. To act as the lead underwriters on the IPO, in August 1996 Mooney chose two regional investment banks, Chicago-based William Blair Company, L.L.C., which had handled the 1995 IPO of Kendle’s competitor Parexel, and Wessels, Arnold Henderson from Minneapolis. William Blair began putting Kendle through the paces of preparing to file a preliminary prospectus with the U.S. Securities and Exchange Commission (SEC). The process of going public generally took from 60 to 180 days. One of the key steps in the process was the conversion of Kendle from a subchapter corporation to a C corporation at the time of the IPO. (Subchapter S corporations were entities with 35 or fewer shareholders that were treated like partnerships for tax purposes. Corporate income tax was passed through tax-free to the owners who then paid personal income taxes due.) U-Gene In October 1996 Mooney hired Tony Forcellini, a former colleague, as director of mergers and acquisitions (MA). Tony had worked at Arthur Andersen in the tax department, and then as a treasurer at Hook-SupeRx with Mooney. The search for European acquisition targets was mainly conducted by Candace and Tony Forcellini, with back-up support by Tim Mooney and Chris. All the while, Chris and Bill Sietsema were working away on the Celebrexâ„ ¢ program. Forcellini’s first decision was easy—whether to pursue an offering memorandum that landed on his desk shortly after he arrived. The company for sale was U-Gene Research B.V. (U-Gene), a CRO based in Utrecht, the Netherlands. U-Gene was represented by Technomark Consulting Services Ltd. (Technomark), a London-based consulting firm uniquely specializing in the healthcare industry. Technomark had an extensive database on European CROs and was primarily in the business of matching its pharmaceutical company clients’ trial s with appropriate European CROs, but it also had a small investment banking division. U-Gene, a full-service CRO, was an attractive target for Kendle. The venture capitalist owners were actively looking for buyers. With a 38-bed Phase I facility in Utrecht and regional offices in the United Kingdom and Italy, U-Gene could increase both Kendle’s service offering and geographic presence. Since its founding in 1986, U-Gene had served more than 100 clients, including 19 of the worlds largest pharmaceutical companies. In 1996, U-Gene participated in 115 studies at approximately 500 sites involving approximately 4,700 patients and recorded net revenues of $12.5 million, a 37% increase over the prior year, and operating profit of $1.3 million, a 47% increase over the prior year. Because of its U.K. and Italian offices, U-Gene viewed itself as on the way to becoming a pan-European CRO.  (See Exhibit 6 for U-Gene financial statements.) With momentum building, in November 1996, Forcellini seized upon U-Gene as Kendle’s possible entry into Europe and submitted a bid, offering cash and private stock. Unfortunately, Kendle lost out on this bid to a competitor, Collaborative Clinical Research, Inc, as U-Gene’s owners either wanted a full cash deal or stock from a public company. Collaborative was a competitor slightly larger than Kendle ($25.7 million in revenues) that had gone public in June 1996 and had established a software partnership with IBM. Although it had access to investigators outside the United States, Collaborative also viewed U-Gene as the establishment of a European presence. On February 12, 1997 Collaborative announced that it had signed a letter of intent to acquire U-Gene in exchange for 1.75 million newly issued shares. While this put Kendle out of the picture, the prospects of a deal were not completely killed. On the same day, February 12, 1997, Collaborative also announced that its first-quarter 1997 earnings would be significantly below expectations. On the next day, on analyst speculation that a major client contract had been lost, their stock fell by 27.3%, closing at $9.00.6 This put Collaborative’s UGene deal in jeopardy. Underwriter Concerns About two weeks after Collaborative’s announcement, on February 25, 1997, another CRO, ClinTrials, also suffered a drop in stock price. ClinTrials’ stock lost more than half its market value,  dropping 59%, to $9.50 per share. The fall began when an analyst from Wessels Arnold downgraded the ClinTrials stock to â€Å"hold† from â€Å"buy,† citing a number of key management departures, and continued after ClinTrials announced that its first-quarter earnings would be half its year-earlier profit. The reason for the unexpected earnings decline was the cancellation of five projects totaling $37 million, with the possibility of even lower earnings due to an unresolved project dispute with a client.7 ClinTrials’ negative performance began to affect other CRO stocks, including that of Quintiles.8 With client concentration an issue in ClinTrials’ stock performance, William Blair developed doubts about the timing of Kendle’s IPO. Although Kendle was close to filing its preliminary prospectus, on the day after ClinTrial’s stock dropped, William Blair analysts had a meeting with Kendle’s management and told them that they had decided to withdraw as lead underwriters in the IPO. Candace was resolved to keep going. She said, â€Å"There’s no way out of the concentration issue. We can’t buy our way out of it, because we can’t do MA deals until we have a public currency, and every day Searle is bringing us more work, we won’t tell them no.† She then asked Mooney to find new investment bankers, and he thought, â€Å"what am I going to do now?† Hoping for a lead, Mooney called up a former security analyst from Wessels Arnold who had gone to work at Lehman Bros. Although Kendle was smaller than Lehman’s usual clients, Lehman agreed to underwrite Kendle’s IPO, with the reassurance that â€Å"we think we can sell through the client concentration issue.† After an agreement with New York-based Lehman was reached, Mooney searched for a regional firm because, as he decided, â€Å"I didn’t want two New York-size egos. J.C. Bradford, based in Nashville, Tennessee, had a good reputation in the industry, and struck us as a nice regional bank. They were more retail-oriented than institutional-oriented, so they wouldn’t directly be competing with Lehman in types of clientele.† Bradford had managed the IPO of the first large CRO to go public (ClinTrials, in 1993) and Lehman had led the IPO of PPD in January 1996. Gmi and U-Gene revisited At the same time, Forcellini was moving ahead on the acquisition search. In January 1997 he tasked Technomark with using its CRO database to generate a list of possible European acquisition targets that met the following criteria: â€Å"ideally a CRO with United Kingdom headquarters; $5 million to $7 million in revenues; no Searle business; certain types of therapeutic expertise; strong in phases II through IV; and certain country locations.† The initial list had 50 European CROs, which Kendle narrowed down to 14 prospects. Technomark then contacted these 14 prospects to sound out their willingness to sell, bringing the number down to five candidates: three CROs in Germany, two in the United Kingdom, and one in the Netherlands (not U-Gene). To assess the prospects, Kendle used information from Technomark on comparable MA deals. Candace and Tony Forcellini then traveled around Europe for a week visiting the five companies. They decided to further pursue two companies: a small, 15-person monitoring organization in the United Kingdom and one in Germany. The U.K. prospect was quickly discarded because of an aggressive asking price and accounting problems. Kendle then moved on to the German target, a company named gmi. Its full name was GMI Gesellschaft fur Angewandte Mathematik und Informatik mbH. Founded in 1983, gmi provided a full range of Phase II to IV services. gmi had conducted trials in Austria, the United Kingdom, Switzerland and France, among other countries, and had experience in health economic studies and 7 â€Å"ClinTrials Predicts Sharply Lower Profit: Shares Plunge 59%†, The Wall Street Journal, February 26, 1997, p. B3. 8 David Ranii, â€Å"Investors avoiding Quintiles,† The News Observer, Raleigh, NC, February 27, 1997, p. C8. professional training programs. In 1996, gmi participated in 119 studies at multiple sites and recorded net revenues of $7 million, a 32% increase over the prior year, and operating profit of $1.4 million, a 16% increase over the prior year. At March 31, 1997, gmis backlog was approximately $9.6 million. gmi considered itself to be especially good at Phase III trials. (See Exhibit 7 for gmi financial statements.) While Candace and Forcellini were narrowing down European targets, Mooney was hunting for cash. In February 1997 Kendle met at a special lunch with its existing bankers, Star Bank (later renamed Firstar), in Cincinnati. Mooney recalled the conversation vividly: â€Å"After Candace and Chris described their plans, Star Bank’s CEO made a proposal, ‘If you keep Kendle a private company and avoid the hassles of being public, we’ll lend you the money you need for acquisitions.’† With the financing in hand, Candace and Forcellini visited gmi in Munich. While gmi’s owners were willing to talk, they did not have much interest in selling. As Mooney described it, â€Å"gmi was a classic case of having grown to a certain size, had a comfortable level of income, but weren’t interested in putting in the professional systems to grow beyond that level.† After several conversations in March, it was not clear that Kendle and gmi’s owners w ould be able to reach a mutually agreeable price. At this point in early April 1997, the possibility of U-Gene as an acquisition candidate heated up. After the U-Gene deal with Collaborative Research began to collapse, Kendle had initiated a carefully structured inquiry about U-Gene’s interest in renewed discussions. This inquiry led to further discussions and a request in April for Kendle to meet in Frankfurt to try to reach an agreement. With the gmi deal in doubt, Kendle agreed to try to reach closure with U-Gene. After some discussion, both sides agreed on a price of 30 million Dutch guilders, or about US$15.6 million, $14 million of which would be paid in cash, and the remaining $1.6 million would be in the form of a promissory note payable to the selling shareholders.  U-Gene wanted to complete the transaction within the next several weeks, so it would have to be financed at least initially by borrowings. Even if Kendle went ahead with an IPO, the equity financing would not be completed until the end of the summer. Discussions with gmi continued through this period since Kendle was confident about its ability to obtain financing from Star Bank. Ultimately, Kendle’s team was able to agree upon a price with gmi. The owners were willing to accept a price of 19.5 million Deutsche marks, or about US$12.3 million, with at least $9.5 million in cash. They would accept shares for the remaining $2.8 million, if Kendle successfully completed an IPO. The owners were willing to hold off the deal until the IPO issue was resolved. Closing the Deals and IPO Decision To complete both the U-Gene and gmi deals, Kendle would need to borrow about $25 million to $28 million, so financing became critical. Mooney went back to Star Bank to take the bankers up on their promise. He described their reaction: â€Å"Star Bank said they couldn’t lend $28 million to a company that only has $1 million in equity. Nobody did that. They might be willing to finance one acquisition, with the help of other banks, but there was no way that they would provide $28 million.† Mooney was quite angry, but had no choice but to look for other sources of financing. He first tried to get bridge financing from Lehman and Bradford, but they refused, saying that they had â€Å"gotten killed on such deals in the 1980s.† There was also a possibility of financing from First Chicago Bank, but this did not materialize. Finally, in late April 1997, Mooney contacted NationsBank, N.A., which was headquartered in Charlotte, North Carolina and provided banking services to the CRO industry. Nationsbank expressed interest, but only in a large deal. Even $28 million was a small amount to Nationsbank. In 11  a few short weeks, Nationsbank ended up structuring a $30 million credit for Kendle, consisting of a $20 million, three-year revolving credit line and $10 million in five-year, subordinated notes. The interest rate on the credit line was tied to a money market base rate plus 0.50% (currently totaling 6.2%), and the subordinated debt carried a 12% rate. †So NationsBank stepped up in a pretty big way. They could have ended up with Kendle as a private company, with $30 million in debt.† Because of the risk, Nationsbank would also take warrants giving the bank the right to purchase 4% of Kendle’s equity, or up to 10% if the IPO was delayed and Kendle had to borrow the full amount to do both acquisitions. Lehman Brothers was confident about an IPO. The underwriters felt Kendle could raise $39 million to $40 million at a price between $12 and $14 per share, and that Candace and Chris could sell some of their shares as well. Premier Research Worldwide Ltd., a CRO with $15.2 million in 1996 revenues, had raised $46.75 million from its recent IPO in February 1997. Kendle felt they had a much better track record than Premier. Kendle now faced some difficult decisions. It could do the full program, including both acquisitions, taking the $30 million Nationsbank deal, and planning for an IPO in late summer. The successful acquisitions of gmi and U-Gene would establish Kendle as the sixth largest CRO in Europe, based on total revenues, and one of only four large CROs able to offer clients the full range of Phase I through Phase IV clinical trials in Europe. The pricing on the two acquisitions of 8 to 10 times EBITDA seemed in line with recent CRO deals (see Exhibit 8). And, once the IPO was completed, Kendle would have both a cash cushion and stock as a currency to help finance future growth and acquisitions. Assuming an IPO of 3 million new shares at a price of $13.00, Kendle would have a cash position of about $14 million and no debt in the capital structure. (See Exhibits 9 and 10 for pro forma  income statements and balance sheets showing the impact of the acquisitions and the IPO.) A related issue was how many of their shares Candace and Chris should sell if an IPO were done. Their current thinking was to sell 600,000 shares. Thus, a total of 3.6 million shares would be for sale at the time of the IPO, including a primary offering of 3 million shares and a secondary offering of 600,000 shares. This sale would reduce holdings controlled by Candace and Chris from 3.65 million shares (83.1% of the shares currently outstanding) to 3.05 million shares (43.4% of the new total outstanding). Doing the full IPO and acquisition program, however, was unprecedented among Kendle’s peers. â€Å"Nobody does this combination all at once—an IPO, senior- and sub-debt financing, and MA deals,† as Mooney described the situation. Furthermore, the stock prices of public CROs had been falling since last February (see Exhibits 11 and 12 for stock market valuation and price information). If Kendle bought into the full program and the market crashed or the IPO was unsuccessful, the company would have almost $30 million of debt on its books with a very modest equity base. Perhaps it would be better to do just the U-Gene acquisition and use Star Bank to finance it. After completing this acquisition, it could then pursue the IPO. This approach was safer, but of course Kendle might miss the IPO window and miss the opportunity to acquire the second company. Indeed, instead of discouraging Kendle from doing an IPO, the fall in CRO stock prices might be taken as a signal tha t Kendle should forge ahead before the window closed completely.

Poverty: Individuals And The Wider Community

Poverty: Individuals And The Wider Community This essay will discuss what is meant by the term Poverty, how it affects individuals and the wider community as well explaining why it is important for Social Workers to have a clear understanding of these issues. By looking at the organisations in place in the UK, in areas such as education and health and social care establishments; this essay will demonstrate how the structures of these organisations both help and hinder Social Workers in their role and how it affects the workings of daily practice. The UK has the oldest and biggest National Health Services in the world, so this essay will also go on to compare the provision in this country with that in the USA. As a first world country, the USA has an economy and culture not vastly different from that in the UK, which makes for some interesting comparisons of the care they both provide. Both the UK and the USA spend the same proportion of their annual budget on social services and education and have a similar rate of poverty. Poverty is a common term which many people would define as simply being a lack of financial resources. This is a very constricted view which makes it difficult to determine how many people live in poverty because the definition is vague and subjective. To understand and measure poverty and its impact upon individuals and the community, it is important to define it further. Instead of one main definition for poverty, sociologists have agreed there are two main types; absolute and relative poverty, as described by Giddens (2009). Absolute poverty is used to describe the inability to provide the basic human needs; food, accommodation and clothing, on a budget of around $1 US dollar per day. The idea of absolute poverty is a global one which can be applied regardless of country or culture and applies equally to people of similar ages and abilities. According to a recent study by UNDP (2010), as many as a third of the worlds population live in absolute poverty. Due to the modern welfare state and benefit system in place in the UK today, no one is expected to survive on $1 per day. However, figures provided by The Poverty Site (2010) show that approximately 9% of the population in the UK have an income which equates to only 40% of the national median income. This has risen almost 7% in just over 20 years and suggests that poverty is on the increase in the UK. These statistics would also suggest that people living in the UK are affected by relative poverty as opposed to absolute poverty. Relative poverty compares the income of individuals to the national or local average, and where it falls below 40-60% of that average, the individual is said to be living in relative poverty. There is still some debate about where the percentage rate should fall but many agree it should be 60% of the national median income (Giddens, 2010). This is referred to as the poverty line; those below this line live in relative poverty. Certain groups of people are more likely to find themselves living in poverty, these include; children, women (particularly single mothers), people with disabilities, ethnic minorities and the elderly. Cunningham Cunningham (2009), Giddens, (2010) and Llewellyn, et al (2008) all agree the reason these groups are more likely to suffer from poverty than other groups is a direct result of social exclusion. Social exclusion is a term which grew in popularity in 1997 when New Labour was re-elected into government. Part of the pre-election campaign of New Labour was to tackle the root causes of the issues affecting those who were marginalised by main stream society (The Poverty Site, 2010). People, who for reasons including; age, race, gender and class are often denied access to service and opportunities making it easier to exclude them from society. This was evident when the BBC undertook a survey, and found that when considering job candidates, whose qualifications and experience were almost identical; those with a name traditionally given to people from non-white backgrounds were far less likely to be called to interview, proving that racism is still present in the workplace, (Cunningham Cunningham 2009). To tackle some of the inequalities present in mainstream society, New Labour introduced a number of initiatives and policy changes to improve the standard of life, these included; The introduction of Tax Credits for families and individuals on low incomes, Every Child Matters a 5 point framework to improve the quality of life for all children, Connections an easily accessible advice point on a range of topics for young adults ages 13 19yrs, SureStart aimed at giving babies and young infants the best start in life by providing advice, drop in centres and child care for their parents. People who face social exclusion often live in the same locality; council house estates for example, which tend to have a higher proportion of single parents and high rates of unemployment. These groups of people are frequently given negative labels, which over time can become self-fulfilling. For example, a young child growing up in a single parent family on an council estate as indicated above is more likely to be viewed negatively and given such labels as; trouble, lazy, good for nothing, which over time can have a detrimental effects upon the child who will begin to view themselves as the labels placed upon them (Llewellyn et al, 2008). This negativity can lead to an increase in truancy, which in turn will lead to a poor education and employment prospects, thus setting up a life in poverty (Mail Online, 2007). According to Bebbington and Miles (1989), children from an impoverished background are 700 times more likely to be involved with social services than children from a wealthy background. This statistic alone shows how vital it is for social workers to have a strong understanding of the impact and experiences living in poverty can have. It is argued by Cunningham and Cunningham (2009) that many professionals in the social work field feel overwhelmed by the structural inequalities faced when tackling poverty, this tends to mean that poverty is dealt with on an individual case basis. Changes in policy, both at national and at local level can have an impact on poverty by the way services are implemented and delivered. As social workers are present at both the point of service and within the organisations where policies are made, it puts them in a prime position to affect change. Understanding and recognising the factors that cause and keep poverty part of modern society will allow a social worker to understand how they can interrupt the poverty cycle encouraging positive change. Placing some of the responsibility for poverty on society and within the structural inequalities that exist, can sometimes be viewed as taking responsibility away from the individual and the choices they have made, making them less accountable. A social worker should always maintain a positive and optimistic outlook and believe that despite the inequalities that exist, change is still possible regardless of the situation. It is important to understand how the education system and health and social care organisations are set up in the UK to recognise how this can impact the access to care. Responsibility for education in the UK has become a devolved matter for each individual country and overseen by their own government. The Department of Education and The Department for Business, Innovation and Skills predominately oversee the education system in England, with involvement from Local Authorities. Since 2005/2006, Local Authorities are given a grant which is ring fenced for the purpose of education and with consultation from all schools under the Local Authorities control, the finance is distributed, (Department for Education, 2010). There are approximately 20,000 public schools in the UK; a growing number of these are faith schools, almost 7000 at present. In addition to these state schools, there are a growing number of independent schools, almost 2600; responsible for the education of 7% of the population, (Independent Schools Council, 2010). There schools are funded primarily through tuition fees and in some faith schools, donations from the associated church. A large proportion of these schools are faith schools who do not take children outside the designated faith of the school within their catchment area. Historically, health and social care has been provided by the private and voluntary sector. Until the introduction of the Poor Law Act 1930, the majority of care for those in need was provided by charities and the work houses. People who lived in poverty had to rely on hand-outs, if they were deemed worthy of charity, or would have to pay at the point of service. Often it was those most in need of the service that were unable to pay forcing them to go without. The Poor Law Act 1930 moved the responsibility of care from these sectors to the Local Authorities, who began to take over the work houses and Poor Law hospitals (Spicker, 2010). The National Health Service was established in 1948 with the ideology that everyone should be entitled to the same level of health and social services which were free at the point of service. Todays modern National Health Service is overseen by the Department of Health. The country is split into 10 Strategic Health Authorities who control the care provided by the trusts in its area. Care is split into two main areas, Primary and Secondary care. Primary care services include; GPs, Opticians, Dentists and NHS Direct. Secondary care is acute health care and normally only accessed in emergency or extreme situations and includes; The Ambulance Trust, Emergency and Urgent Care Units, Mental Health, Care and NHS Trusts. (NHS, 2010). The National Assistance Act 1948 called for Local Authorities to set up Health and Welfare comities, providing the first form of residential care. In 1970, The Local Authority and Social Services Act of the same year created the first Social Services departments including; childrens, welfare and mental health. (The National Archives, 2010). The National Health Service remained largely unchanged until 1990 when the first major reforms took place. With the general population living longer, the cost of providing care was increasing and becoming unviable. The organisation of the National Health Service had also become unproductive and unyielding to those it was meant to help. Bureaucracy and red tape became the norm when trying to access any services or treatment. The National Health Service and Community Care Act 1990 was the first step in the reforms to the health and social services departments. The introduction of the Purchaser/Provider split meant for the first time since the establishment of the National Health Service, government departments were no longer responsible for the provision of all services (Kirkpatrick et al, 1999). The reason for this was threefold; firstly, to lessen the financial responsibility of care provision, secondly, removal of public provision would allow the private and voluntary sectors to grow and expand, making the care market more competitive, and thirdly, to increase choice for service users. This act was also the start for a number of large care homes and institutions being closed and the care provided in the community. The principles behind these changes were well intentioned; allowing people to be cared for within the community promoting independence and control over personal care. However, in reality what was offered were standard care packages and limited resources which did not deliver the true freedom of choice that was promised, (Llewellyn et al, 2008). To supplement the care provided for under the new system, many people have turned to charities to help fill the gap left by the lack of financial assistance. Providing people with the finances to pay for their own care, rather than provide the care itself, has meant people are able to choose how and by whom the care is provided. Many people have chosen to pay friends and relatives for the provision of care rather than rely on agencies and strangers. For Social Workers, this gives an opportunity to think outside the box when producing care plans with individuals. In communities, people are now able to form groups and committees to address and tackle problems and difficulties to provide a tailor made solution. This not only gives people control over their own care but also encourages the community to take action and to help itself. Although the UK has the biggest National Health Service in the world (NHS, 2010), the change in direct care provision and growing reliance on the private and voluntary sectors is more in line with the health and social care services in the United States of America (USA). The USA has a minimalist National Health Service which provides the most basic of health care; caring for those on very low incomes and or in emergencies. Many people living in poverty will be eligible for Medicaid which is a healthcare programme paying for the whole cost of care, but poverty alone is not an automatic eligibility criteria. Many older people, 65yrs and over, are reliant on the Medicare system, which only covers 80% of the cost of care, the remaining 20% must be funded by other means. Anyone who is outside the eligibility for these benefits must pay for private health care insurance, unless it is provided for through employment, (US Department of Health Human Services, 2010). Another benefit provided by the USA government is food stamps; however this is being phased out and replaced by Temporary Assistance for Needy Families, which is a short term benefit aimed at getting families back on their feet, (US Department of Health Human Services, 2010). The health and social care system in the USA is structured much the same as the UK, in that the government provides each state (Local Authority) with a budget to spend on care. In addition to this, states in the USA are allowed to set its own tax rates on things such as Income Tax, Sales Tax and House Tax. The proportion of money put back into care differs between states, some providing a higher level of benefits than others. The USA has a much higher dependency than the UK on voluntary organisations, namely the church; who provide care and financial assistance to those in their communities. Comparing the UK and the USA, there seems to be a different attitude towards the provision of care. The UK system is geared up to help prevent poverty and social exclusion, whereas the USA system is designed to help people get out of poverty but placed a bigger reliance on the individual helping themselves. Both systems are becoming more reliant on the community, voluntary organisations and the private sector for the provision of care; lessening the financial burden on the state in the face of an ever aging population. Both countries seem to be unified in the attitude that people should help themselves out of poverty. Although the role of the Social Worker will always be required, there is a strong shift in the role from the provision of direct care to one of care co-ordination. To provide the best possible level of care for both individuals and the community, Social Workers must maintain a high level of knowledge of both statutory and non-statutory providers of care and how best to access them. This essay has demonstrated that poverty is a global problem which is maintained by the way society works by socially excluding people and keeping them impoverished. It has also shown how two similar countries differ in their approach to care; the UK government provides the majority of care with assistance from charities and the private sector, whereas the USA government provides only the most basic forms of assistance which a strong reliance on the church, charities and the public sector. Both countries are in agreement that with an increasing older population, each government needs to do more to lessen their contribution to the provision of care. During this time of change, Social Workers will need to find a way of providing the best possible care for those in their charge.

Bankruptcy Law :: Papers

Bankruptcy Law The federal statute for the form of bankruptcy commonly known as Chapter 13 is cited in legal briefs as 11 USC CHAPTER 13 - ADJUSTMENT OF DEBTS OF AN INDIVIDUAL WITH REGULAR INCOME. Section 1301 this code not only relieves the bankrupt debtor, but it also relieves the codebtor. US Code as of: 01/23/00 Sec. 1301. Stay of action against codebtor (a) Except as provided in subsections (b) and (c) of this section, after the order for relief under this chapter, a creditor may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor, or that secured such debt, unless - (1) such individual became liable on or secured such debt in the ordinary course of such individual's business; or (2) the case is closed, dismissed, or converted to a case under chapter 7 or 11 of this title. (b) A creditor may present a negotiable instrument, and may give notice of dishonor of such an instrument. (c) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided by subsection (a) of this section with respect to a creditor, to the extent that - (1) as between the debtor and the individual protected under subsection (a) of this section, such individual received the consideration for the claim held by such creditor; (2) the plan filed by the debtor proposes not to pay such claim; or (3) such creditor's interest would be irreparably harmed by continuation of such stay. (d) Twenty days after the filing of a request under subsection (c)(2) of this section for relief from the stay provided by subsection (a) of this section, such stay is terminated with respect to the party in interest making such request, unless the debtor or any individual that is liable on such debt with the debtor files and serves upon such party in interest a written objection to the taking of the proposed action.

Schizophrenia and The Strange Case of Dr. Jekyll and Mr. Hyde :: Strange Case of Dr. Jekyll and Mr. Hyde

Schizophrenia and The Strange Case of Dr. Jekyll and Mr. Hyde The name schizophrenia is derived from "schizo", which means splitting of the mind (Tsuang 11), and "phrenia" which is derived from the phrenic area which is just above the kidneys where the diaphragm is located. It is a structure innervated by the phrenic nerve. The Greeks and others assumed that the phrenic area was the seat of thought or at least feelings (Berle 12). Up to the 1600s, people with psychotic disorders were sent off in "ships of fools", locked in cages, "flogged into reason", or killed. The care for the insane at this time was the responsibility of nuns and monks (Noll, xviii). In the 1700s, "mad doctors" or doctors specializing in the mentally ill. "They began to devise their own unique classification system for mental disorders. Many cases of what we would now call schizophrenia were probably classified under one or more of these early attempts to devise a more scientific method of understanding mental illness"(Noll, xix). Doctors at this time described the symptoms of schizophrenia somewhat differently (Berle, 14). In 1809, the first clinical descriptions of schizophrenia were written by J. Haslam, however, later it was found that he described a disease called hebephrenia. Some symptoms he included were: loss of memory, more prevalent in females, sensibility blunted, onset at puberty, unconnected with heredity, cyclic, no affection towards parents, inactivity, apathetic, inattention to cleanliness, etc. (Berle 4,5). There is still no unanimously accepted definition of schizophrenia, and appreciable differences exist between the narrowest and widest definition (Tsuang 13). It is a disease that includes a disturbance in cognition that renders the individual "out of touch with reality". Emotions are distorted in schizophrenia and they are typified by being socially withdrawn (Lahey 555). The characteristic symptoms start between the age of 18 and 30. Symptoms include hallucinations and/or delusions. Hallucinations can have various modes. Auditory hallucinations are the most common. These may involve hearing a voice or voices talking to each other and/or to the patient. Visual hallucinations are less common and involve the patient believing they see an object that is not present. Tactile hallucinations are the least common and involve the patient thinking that someone or something is touching them (Nienhuis). Delusions are false or irrational beliefs that are firmly held despite obvious evidence to the contrary. Most common are persecutory, grandiose, and religious delusions.

College Athletes Must be Held to the Same Standards as Full-Time Studen

Despite a tendency for institutions to be lenient with college athletes, as they enjoy the benefits of full-time-student status, they must be held to the same standards as non-athlete students. Every institution has an obligation to set attendance rules; students who attend these institutions have an obligation to abide by them, however, in actuality, professors chose whether or not they’re enforced. This may cause significant problems between other students targeting a player, rather than who is responsible, the Professor. Although institutions want their students equally treated, diversity is well accepted. Existence as a college athlete contributes to diversity as well as a substantial amount of favoritism. Issues arise pertaining to how one may view an institution as well as the institution itself, due to an athlete’s gift. Though athletics contribute to a decrease in anxiety and stress, in some cases, facts show otherwise. Furthermore, every institution has a set o f rules pertaining to attendance policies, that every student, including athletes need to follow. Most institutions have similar attendance polices. Their policies include: attending regular classes on time, fully comprehending the syllabus for every class, prompt notice to instructor regarding absences due to competition and/or travel, once a certain amount of days have been missed the student is dropped, and failure to properly communicate with instructor may result in a failing grade. Policies have acknowledged the student-athlete is fully responsible for communicating with their professors regarding their attendance. They have also acknowledged students are not entitled to a certain number of absences. Most importantly, policies have stated the importance of in... ...Q Educause Quarterly.NDP. Web. 28 November 2011. Educause Quarterly Magazine, Volume 30, Number 2. 2007. www.educause.edu/EDUCAUSE+Quarterly/EDUCAUSEQuarterlyMagazineVolum/clickerintheclassroomanactive/157458 Pros, Cons on pay for play: yahoo. USA Today. 31 August 2004. Web. 25 November 2014. www.usatoday.com/sports/2004-08-31-pros-cons-pay_x.htm Taylor, Donald L. "A Comparison Of College Athletic Participants And Nonparticipants Of Self-Esteem." Journal Of College Student Development 36.5 (1995): 444-51. ERIC. Web. 12 Dec. 2014. Student Athlete Class Attendance Policy: JEFFCO. Viking Intercollegiate Athletics. 14 October 2011. Web. 25 November 2014. Jefferson College Policy. www.jeffco.edu.edu/athletics/inex.php?option=com_content&task=view&id=287&Itemid=256 Worsnop, Richard L. "College Sports." CQ Researcher 26 Aug. 1994: 745-68. Web. 12 Dec. 2014.

Regent Park

Chapter 7 Essay Q’s 1. ABC Corporation, a Canadian firm, wants to float a bond issue in the United Kingdom. Which choices does the company have? Discuss the main characteristics of each option. What do you recommend? Answer: ABC Corporation can issue foreign bonds (Bulldogs) or Eurobonds. Foreign bonds are bonds issued by a foreign borrower in a national market, in the national currency, and subject to the national securities regulations. Eurobonds are bonds sold in countries other the country that issued the denominating currency.Foreign bonds tend to be registered bonds and subject to the local regulations while Eurobonds tend to be bearer bonds. Generally, foreign bonds are more costly than Eurobonds. Therefore, Eurobonds are likely the better option. page: 157-158 2. A- Canada Inc. has issued a dual-currency bond that pays $555. 10 at maturity per SF1,000 of par value. The company’s cash flows are exclusively in Canadian dollars. a) What is the implicit $/SF exchang e rate at maturity? b) Will the company be better or worse off if the actual exchange rate at maturity is $0. 6123/SF? Answer: a) $555. 10/SF 1,000 = $ 0. 5551 b) The company will be better off.Page: 175, problem 3 3. ZZZ Corp. wants to issue zero-coupon bonds with a 10-year maturity. The implied yield to maturity on these bonds is 5% and ZZZ Corp. wants to raise $10,000,000. (Assume no transaction costs). How much money will ZZZ Corp. have to pay at maturity of the bond? Answer: 10,000,000 (1. 05)10 = $16,288,946. 27 4. Assume Bank of Montreal has two zero-coupon bonds outstanding, each for a face value $100,000,000. Bond A matures in 10 years and sells at a discount of 35% off face value and bond B matures in 20 years and sells at a discount of 60% off face value. Calculate the implied yield to maturity of each bond.Answer: Bond A: 650,000,000(1 + i)10 = 100,000,000 i = 4. 4% Bond B: 400,000,000(1 + i)20 = 100,000,000 i = 4. 67% 5. What happens to the present value of the bonds in 4. , if the implied yield to maturity increases by 1%? Answer: Bond A: 100,000,000/(1. 054)10 = 59,100,872. 35 The present value of the bond decreases by 65,000,000 59,100,872. 35 = 5,899,127. 65 Bond B: 100,000,000/(1. 0567)20 = 33,186,836. 18 The present value of the bond decreases by 40,000,000 33,186,836. 18 = 6,813,163. 82 Chapter 8 [Question] 1. Assume that Nestle shares are trading at SF 300 in Zurich and $ 51 in New York. Each share equals 4 ADRs.The current exchange rate is SF1. 5/$. In the absence of transaction costs, can you make an arbitrage profit? Answer: Yes. Buy one share in Zurich for SF 300 or $ 200 (300/1. 5), exchange to ADRs and sell the ADRs for 4*51 = $204; profit $4 [Question] 2. Assume that Nestle shares are trading at SF 300 in Zurich and $ 51 in New York. Each share equals 4 ADRs. The current exchange rate is SF1. 5/$. If transaction costs are $1 per ADR, can you make an arbitrage profit? Answer: No, transaction costs = potential profit Potential profit in the absence of transaction costs: Buy one share in Zurich for SF 300 or $ 200 (300/1. ), exchange to ADRs and sell the ADRs for 4*51 = $204; profit $4 [Question] 3. What factors go into the decision to cross-list on a foreign exchange? Answer: When deciding whether to cross-list shares on a foreign exchange, the firm has to consider the expected benefits and costs. The benefits may be: to establish a broader investor base for its stock, to establish name recognition in foreign capital markets, thus paving the way for the firm to source new equity and debt capital from investors in different markets, and to expose the firm’s name to a broader investor and consumer groups.The costs include: listing fees, reconciliation of the accounting standards of two countries, compliance with the regulations of the foreign exchange, and investor relations. page: 187. [Question] 4. Assume that Accor shares are trading at A$2. 5 in Sydney and $28 in New York. Each ADR equals 20 shares. The current exchange rate is A$1. 5/$. In the absence of transaction costs, can you make an arbitrage profit? Answer: Yes. Buy one ADR in New York for $28 (or A$42), exchange to shares and sell the shares for A$50; profit A$8 [Question] 5. Assume that Accor shares are trading at A$2. 5 in Sydney and $28 in New York.Each ADR equals 20 shares. The current exchange rate is A$1. 5/$. At what transaction cost per share would there be no profit opportunity? Answer: A$8/20 = A$0. 4 Buy one ADR in New York for $28 (or A$42), exchange to shares and sell the shares for A$50; profit A$8 less transaction cost of 20*. 4 = A$8; profit = 0 Chapter 9 – I don’t believe there will be anything from here tho Chapter 10 [Question] 1. The following information is given: Both parties want to engage in an interest rate swap. Assume that S Bank will arrange for an interest rate swap between X Company and Y Company for 0. % . Also, assume that X Company gets 2/3 of the interest savings available. a) Which company has a better credit rating? b) What is the quality spread differential? c) What is X Company’s preferred type of debt? What rate of interest does it pay on this debt after the swap? d) What is Y Company’s preferred type of debt? What rate of interest does it pay on this debt after the swap? e) Illustrate the cash flows from this swap. Assume that X Company pays LIBOR to S Bank. Answer: a) X Company b) QSD = 2 1. 3 = 0. 7 c) Floating LIBOR . 4 d) Fixed 6. 8% e) [Question] 2.The following information is given. ABC Inc. and XYZ Inc. have agreed to swap their debt payments so that each firm gets its preferred debt terms. They can arrange an interest rate swap through Big Bank. Big bank charges 0. 15% for its services. The remaining savings from the interest rate swap are equally shared by A and B. QSD: 1% . 25% = . 75%; after bank fees: . 75% . 15% = . 60% savings available a) Does ABC Inc. prefer fixed or floating rate debt? What rate does it pay on its p referred debt? b) Does XYZ Inc. prefer fixed or floating rate debt? What rate does it pay on its preferred debt? ) What are the total interest savings available in this interest rate swap? d) Which company has a better credit rating? Answer: a) ABC Inc. prefers floating and pays LIBOR + . 2 b) Interest Savings: 0. 6%. QSD bank fees = (6 5) (LIBOR + . 75 LIBOR + 0. 50) 0. 15 c) XYZ Inc. prefers fixed and pays 5. 7% d) Company ABC has a better credit rating [Question] 3. The following information is given. Boeing and Airbus have agreed to swap their debt payments so that each firm gets its preferred debt terms. Each firm will save the same amount in percentage terms. ) Does Boeing prefer fixed or floating rate debt? What rate does it pay on its preferred debt? b) Does Airbus prefer fixed or floating rate debt? What rate does it pay on its preferred debt? c) What are the total interest savings available in this interest rate swap? d) Which company has the advantage in fixed rate debt? Answer: a) Boeing prefers floating and pays LIBOR + 0. 05%. b) Airbus prefers fixed and pays 5. 5%. c) Interest Savings 0. 4%. d) Boeing has the advantage in fixed dollar debt. [Question] 4. ABC Corporation has entered into a 10-year interest rate swap with a swap bank. ABC Corp. ays the swap bank a fixed-rate of 6 percent annually on a notional amount of EUR100,000,000 and receives LIBOR – ? percent. What is the price of the swap on the seventh reset date, assuming that the fixed-rate at which ABC can borrow has decreased to 5%. Answer: PV of a hypothetical bond issue of EUR100,000,000 with three remaining 6 percent coupon payments at the new fixed rate of 5 percent is EUR100,000,000/1. 1576 = EUR86,385,625. 54 PV of the three coupon payments is: (6,000,000/1. 05) + (6,000,000/1. 1025) + (6,000,000/1. 1576) = EUR 16,339,488. 18 PV of the Bond and its coupon is = 102,725,113. 1 Therefore, the price of the swap = 100,000,000 102,725,113. 61 = 2,725,113. 61 [Question] 5. Canada Corporation enters into a 2-year interest rate swap with Bank A in which it agrees to pay the swap bank a fixed-rate of 5 percent annually on a notional amount of US$1,000,000 and receive LIBOR – 1 percent. Determine the price of the swap on the first reset date, assuming that the fixed-rate at which Canada Corporation can borrow has stayed unchanged. Answer: PV of a hypothetical bond issue of US$ 1,000,000 with one remaining 5 percent coupon payments at the fixed rate of 5 percent is US$1,000,000Therefore, the price of the swap = 1,000,000 1,000,000 = 0 Chapter 11 [Question] 1. A US investor bought shares in ABC Inc. on the Frankfurt Stock Exchange 2 years ago for EUR 10,000. The exchange rate at that time was EUR 1. 20/USD. Currently, the shares are worth EUR 11,000 and the exchange rate is EUR 0. 80/$. Calculate the investor’s annual percentage rate of return in terms of the U. S. dollars. Answer: The annual percentage rate of return is: 28. 45%. 2-year rate of ret urn = (11,000/0. 8 10,000/1. 2)/(10,000/1. 2) = 0. 65 (1 + r)2 = 1. 65 r = 0. 2845 [Question] 2. A US investor bought shares in ABC Inc. n the Frankfurt Stock Exchange 2 years ago for EUR 10,000. The exchange rate at that time was EUR 1. 20/USD. Currently, the shares are worth EUR 11,000 and the exchange rate is EUR 0. 80/$. The investor had sold EUR 10,000 (the principal investment amount at the same time that the stock was purchased) forward at the forward exchange rate of EUR 1. 15/$. What is the dollar rate of return? Assume that the unhedged portion of the investment is exchanged at the current exchange rate. Answer: The annual dollar rate of return is 9. 25%. 2-year rate of return = (10,000/1. 15 + 1,000/0. 8 10,000/1. )/(10,000/1. 2) = 0. 1935 (1 + r)2 = 1. 1935 r = 0. 0925 [Question] 3. In May 2003 when the exchange rate was Yen 110/$, Nissan Motor Company invested ? 1,100,000,000 in pure-discount U. S. bonds and liquidated the investment one year later when the exchange rat e was Yen 105/$. The Yen rate of return earned on this investment was 10%. a) Calculate the dollar amount that the bonds were sold at. b) Calculate the dollar rate of return of this investment. Answer: a) The dollar amount that the bonds were sold at is: $11,523,809. 0. 1 = (X*105 1,100,000,000)/1 ,100,000,000) b) The dollar rate of return is:15. 4%. (11,523,809 10,000,000)/10,000,000 = . 1524 [Question] 4. A Canadian investor buys shares in DaimlerChrysler on the New York Stock Exchange when the stock’s price and the exchange rate were US$ 40 and US$0. 70/C$ respectively. One year later the investor sells the shares for US$ 41 and the exchange rate is US$0. 80/$. a) Calculate the investor’s annual percentage rate of return in terms of the U. S. dollars. b) Calculate the investor’s annual percentage rate of return in Canadian dollars. Answer: a) Rate of return: (41 40)/40*100 = 2. 5% b) Purchase price in Canadian dollars = 40/. 70 = 57. 4 Selling price in Canadi an dollars = 41/. 80 = 51. 25 Therefore, the Canadian dollar rate of return is: R(C$) = [(51. 25 57. 14)/51. 25] 100 = 10. 313% Chapter 12 1. How can operating exposure be managed? Answer: The object of managing operating exposure is to stabilize cash flows when exchange rates are fluctuating. There are a number of ways in which operating exposure can be managed: (1) selecting low cost production sites (2) using a flexible sourcing policy (3) diversification of the market (4) product differentiation and R&D efforts (5) financial hedging page: 302-304 [Question] 2.Banff Inc. is headquartered in Calgary and produces high-end living room furniture. The firm has a subsidiary in Germany. The wooden frames of the sofas are made in Calgary by an independent contractor and then shipped to Germany. The German subsidiary then upholsters the sofas using Belgium fabrics. Each frame costs the subsidiary C$1,500. The materials and labour for the upholstery amount to euro 2,000 per sofa. Fixed ove rhead costs are euro 1,500,000 for the subsidiary. Banff Inc. expects to be able to sell 3,000 Sofas for 5,000 euros each. The firm can depreciate 1,000,000 euros per year.The German income tax rate is 40%. The current exchange rate is C$1. 5/euro. How would the operating cash flows (expressed in Canadian dollars) change if the exchange rate is C$1. 6/euro, all else equal? Answer: The operating income would increase by C$340,000. [Question] 3. Banff Inc. is headquartered in Calgary and produces high-end living room furniture. The firm has a subsidiary in Germany. The wooden frames of the sofas are made in Calgary by an independent contractor and then shipped to Germany. The German subsidiary then upholsters the sofas using Belgium fabrics.Each frame costs the subsidiary C$1,500. The materials and labour for the upholstery amount to euro 2,000 per sofa. Fixed overhead costs are euro 1,500,000 for the subsidiary. Banff Inc. expects to be able to sell 3,000 Sofas for 5,000 euros each. The firm can depreciate 1,000,000 euros per year. The German income tax rate is 40%. The current exchange rate is C$1. 5/euro. How would the operating cash flows (expressed in Canadian dollars) change if the exchange rate is C$1. 4/euro, all else equal? Answer: The operating income would decrease by C$ 340,000. [Question] 4. Banff Inc. s headquartered in Calgary and produces high-end living room furniture. The firm has a subsidiary in Germany. The wooden frames of the sofas are made in Calgary by an independent contractor and then shipped to Germany. The German subsidiary then upholsters the sofas using Belgium fabrics. Each frame costs the subsidiary C$1,500. The materials and labour for the upholstery amount to euro 2,000 per sofa. Fixed overhead costs are euro 1,500,000 for the subsidiary. Banff Inc. expects to be able to sell 3,000 Sofas for 5,000 euros each. The firm can depreciate 1,000,000 euros per year.The German income tax rate is 40%. The current exchange rate is C$1. 5/e uro. How would the operating cash flows (expressed in Canadian dollars) change if the exchange rate is C$1. 4/euro, the German inflation rate is 3% but the firm will not be able to raise the price for its products and due to new competition from the Russian market (with a more favorable exchange rate) unit sales drop to 2,500? Answer: The operating income would decrease by C$ 1,276,000. [Question] 5. ABC Inc. , a Canadian paper manufacturer, has a subsidiary in the United States which sources its wood from Canada.The US dollar depreciates rapidly. Discuss the likely competitive and conversion effects of the depreciation of the US dollar. Answer: The depreciation of the US dollar may alter the firm’s competitive position in the US market place. First of all, the input costs of the subsidiary in terms of US dollars are increasing. If the competitors source their raw materials in the United States, the competitive position of ABC Inc. ’s subsidiary will be eroded. The con version effect implies in this case that the US dollar operating cash flows will be translated into a lower Canadian dollar value. page: 297-298Chapter 13 1. Sonnenschein A. G. , a German retailer of solar panels just bought panels for US $ 100,000 to be paid in 120 days. As the financial manager, you are responsible for making a recommendation on the best hedging choice available to Sonnenschein A. G. You check with your banker and find out the following: The spot bid and ask rates are USD 1. 1001/EUR and USD 1. 0953/EUR respectively and the 120-day forward rates are EUR 0. 8850/USD and EUR 0. 8950/USD. Determine the net payables if Sonnenschein uses a forward hedge to manage its payables. Answer: US$ 100,000*0. 8950 = EUR 89,500 Question] 2. Pile-of-Bones Inc. , headquartered in Regina, just bought snowblowers for US $ 100,000 to be paid in 90 days. As the financial manager, you are responsible for making a recommendation on the best hedging choice available to Pile-of-Bones Inc. You check with your banker and find out the following: The current spot rate is C$ 1. 35/US$ and the 90-day forward rate is C$1. 36/US$. The interest rates are 5% in the United States and 6% in Canada. a) What are the net payables if Pile-of-Bones uses a forward hedge? b) What are the net payables if Pile-of-Bones uses a money market hedge? ) Which type of hedge should Pile-of-Bones use? Answer: a) 100,000*1. 36 = 136,000 b) 100,000/(1 + . 05/4) = 98,765. 43 98,765. 43*1. 35 = 133,333. 33 133,333. 33*(1 + . 025) = 136,666. 67 c) Pile-of-Bones should use forward hedge. [Question] 3. Soleil Inc. , a French manufacturer of sunscreen, has agreed to sell sunscreen to a Danish retailer for 2 million Danish kroner to be received in 180 days. The current spot rate is DKR5. 02/EUR and the 180-day forward rate is DKR5. 23/EUR. The current interest rates are 5% in Denmark and 4% in France. Should the firm use a forward hedge or a money market hedge?Explain. Answer: The net proceeds from a forw ard hedge are: 2,000,000/5. 23 = 382,409. 17 The net proceeds from a money market hedge are: 2,000,000/(1. 05) = 1,903,761. 90 1,903,761. 90/5. 02 = 379,434. 64 379,434. 64*1. 04 = EUR394,612. 02 Since the net proceeds from the money market hedge are higher than from a forward market hedge, Soleil should use the money market hedge. [Question] 4. Quebec Inc. , manufactures prefabricated houses in Quebec and sells them all over the world in local currencies. The firm has just received an order from China for renminbi 8,280,000 to be paid at delivery in 1 year.The Chinese renminbi is pegged to the US dollar at an exchange rate of 8. 28 per dollar. Does Quebec Inc have a transaction exposure? Explain. Answer: Quebec Inc is exposed to exchange rate risk. First of all, the Chinese government may choose to change the exchange rate at which the renminbi is pegged or drop the peg altogether within the next year. Even if the government does not intervene, Quebec Inc. is exposed to the US doll ar-Canadian dollar exchange rate since the renminbi is pegged to the US Dollar and not the Canadian dollar. [Question] 5. Fashion Shoes Inc. anufactures its shoes in Milano, Italy. The company just received an order from the United States for USD 1 million to be received in one year. The current spot rate is EUR 1 /USD and the 1 year forward rate is EUR 1. 01/USD. The current interest rates are 4% in the United States and 5% in Italy. A call option on the US dollar is available with a strike price of EUR 1. 01/USD and a premium of EUR 0. 03 and a put option is available with a strike price of EUR 1/USD and a premium of EUR 0. 025/USD. Determine the net proceeds from a forward hedge and an options hedge. Which option should Fashion Shoes use?Answer: Forward hedge: USD 1,000,000*1. 01 = EUR 1,010,000 Option hedge: Use the put option on the USD. Net proceeds from the options hedge: Strike price: USD 1,000,000*1 = EUR 1,000,000 Less premium in year 1 euros: 1,000,000*0. 025(1 + . 05) = 26,250 net proceeds: 1,000,000 26,250 = 973,750. The choice of the hedging strategy depends on exchange rate expectations. The option will provide a minimum of EUR 973,750 but if the dollar strengthens (i. e. the spot rate in one year is greater than EUR1. 03625/USD) the option will provide higher cash flows than the forward hedge.