Lecture5 ls 2


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  • Hello Students, I will start with a brief overview of the lesson plan for this week. Please read pages 56 through 66 of chapter 4. Also, read duty to bargain in good faith. It is about the employer’s duty to provide financial information. We continue with viewing the Walden bill part 3. I want to emphasize that you are viewing a very realistic type of discussion that takes place at, and away, from the bargaining table. The assignment this week is connected to the presenting financial information chapter. You will complete an income and balance sheet assignment document. Please read the assignment instructions then view the income statement tutorial video followed by the balance sheet video tutorial. You will be using income statements and balance sheets from 3 different corporations. The links to General Motors, Ford Motor Company, and Verizon are available under the assignment resource label. The forum for this week’s discussion will be about the Southern California grocery workers settlement. Associated with the forum are 3 articles published in news sources and they are available under the collective bargaining case study label. Considerations in the lesson plan review the 10 greatest labor strikes in American history. Included is a report by the Bureau of Labor statistics that shows work stoppages in the United States were the lowest since 1947. I hope all of you will take the time to access and read those 2 documents. As we begin our discussion about financial information I recognize that some students become somewhat uncomfortable and may be a little intimidated by lots of financial information and figures. I am not intending, or expecting. to turn you into an accountant or a financial analyst. But it is important to have a basic understanding of negotiation math and finance. Next lesson we will follow-up with some financial calculations on determining profit margins. Then we will leave finances for awhile and discuss other areas related to collective bargaining. But in a few weeks we will come back to finances as a relates to costing out contract proposals. now that I’ve given you an overview of this week’s lesson let’s begin our discussion about financial information. As I previously stated this will be a very short lecture.
  • whether the union is seeking improvements in wages and benefits or pensions or management is proposing concessions that involve wage reductions more contributions by the employee towards their benefits or layoffs it all comes down to financial information. In most cases the union, during their negotiations, are attempting to improve the financial well-being of its members. Management is trying to sustain and improve the financial well-being of his Corporation and in the private sector it’s dividends to its stockholders. While words like fairness are often used in collective bargaining, fairness is relative to the eyes of the beholder. Management’s idea of fairness is most likely different than the union’s idea of financial fairness. It becomes imperative that a union understand which involves research the finances of the party that they’re negotiating. When a union request financial information is looking for specific information to determine the employer’s ability to pay. The union negotiates blindly, and flawlessly, if it does not have knowledge and understanding of the other party’s finances. Therefore it is essential that the union request specific financial information from the company in advance of collective bargaining in order to ascertain be employers it ability to pay. Another way of stating it is does our data demonstrate that the employer can meet the financial demands of union. Does the employer have the ability to improve our wages by 5% if it is a yes great 10 AM prove it by more than 5% maybe not maybe yes once you understand the finances then you can adjust your proposal accordingly both prior to negotiations which is your initial proposal. And during negotiations as you are making counterproposals. The flipside of good news is there may be a financial finding that uncovers an inability to pay or a slight or very slight ability to pay, that may not be consistent with what otherwise would have been a more liberal financial proposal coming from the union. When you do your assignments for this lesson plan you will notice that there were some significant financial problems that General Motors experienced prior to receiving bail out funds from the government. The point here is it’s absolutely necessary for the union to gather, evaluate, analyze, and present the financial data at the bargaining table. It’s crucial that a bargaining team of representatives have the tools in their toolbox to support the justification of a wage or benefit improvement. It is equally important that a union understand the financial status of the company in order to strongly defend and protect the unit members that they represent from wage concessions, benefit concessions, or profit sharing concessions, or pension reduction contributions. essentially comes down to this in a private company looking for the profits the profit margins are where the available monies are for potential wage increases or other monetary improvements. In the public sector you’re looking for the revenue reserves. And that is a very cursory statement when I say revenue reserves. Because cities counties and states and public education entities all have very complex financial tools board determining their financial status. But unlike private sector where they’re trying to increase there profits the public sector is trying to increase their revenues and the revenue reserves so as to have available monies to fund their various operations. Weather you are in the private sector or in public sector when the economy is suffering as it is and has been since 2007 it becomes very difficult 2 improve wages and benefits in a miserable economy. It’s during these times that unions become more defensive then offense of because unions are trying to protect the wages and benefits that are currently the status quo they are trying to keep people and their members employed. In a strong economy when profits of companies are strong when the revenues of the public sector are strong when unemployment is low then unions are more offense of and the stronger the economy the more offenses the unions can be 2 wards improving the wages and benefits of its members.
  • while income statements contain substantial amount of information, there are 4 specific categories that will allow the parties to determine the financial health of the company this case the private sector. Those categories our income, expenditures, profits, and losses. income represents revenues collected by the company. If you’re General Motors this represents how many cars you sold more cars you sell the greater the income. If you are an owner of a company that builds houses more houses you build the greater your income. And we all know what is going on with the housing market. It has gone down significantly and as a result of that income for these builders have gone down dramatically along with the client and building. Expenditures, this category represents the total amount of money spent violet company 2 operate the company. This includes wages and benefits, and all other expenses associated with running the company. Profits, this is determined by subtracting your expenditures from your income. If your income exceeds your expenditures band it will result in a profit. If your expenditures exceed your income then this results in the last category witches losses. I’m sure you’ve heard comments like the companies operating in the black or the companies operating in the red ink. One the company is operating in the black that means at least they have a balanced budget at a minimum and profits above balance budget in maximum. If the companies expenditures are exceeding their income then they are operating in what is commonly called the red. When you are union representing a group other employees and you review the financial statements you want to see that the company is operating in the black and not in the red. You will see examples of red ink in one of the financial or 2 of the financial statements for your homework assignment. the best case scenario that serves as a positive omen for collective bargaining is a company’s income statement that shows a pattern of 3 to 5 years of emerging and increasing profits. The flipside is a company who’s financial statements show a pattern in the decline of profits over a period of 3 to 5 years. Keep in mind most companies will have a down year at some time but that does not mean that that down year represents a pattern. So to conclude this slide your looking for expenditures to be less than income and resulting in profits.
  • What you’re looking at in this slide, is an income statement for a small but emerging company. What will be taking a look at on this slide is the total revenues, other operating expenses, and net income. Will also look at the trending chart on the far right-hand column of the document. Let’s start with total revenues. This document shows the financial history of the company since 2007 through 2010. Now take a moment and find the column on the left that is in bold that says total revenues. Now look right and under each column beginning with 2007 you will see a number. If you look at these numbers beginning with 2007 and continuing to 2010 this represents company that is growing. Its total revenues have increased every year since 2007. They have gone from 5.1 million to 76.1 million. And as you see the little blue bars that shows trending up. Next come down the left-hand column and find in bold other operating expenses total. Take a moment and locate that column or row. In that row as you look to the right another pattern emerges the operating expenses in 2007 were $5.0 million. But with growth of this company it requires more operating expenses. It’s obvious the more products you produce the more it cost to produce those products. You have to hire more employees goods demand is higher. you have to purchase additional manufacturing equipment because demand is higher. So operating expenses will go up that’s the cost of doing business. But notice that revenues in 2010 significantly exceed total operating expenses. This is a good thing! Next, return to the left-hand side and go all the way down to the bottom and look for net income. It is the last row on the page. Now you will notice that the document shows $-.8 million for the year 2007. This represents loss. Reason there is a loss is that in addition to operating expenses there are other expenses that will reduce net income or profits if you will. So for this year the company had a net loss. If your contract expired and this company was unionized and you were about to renegotiate a new contract in the same year in which this financial situation is occurring it could most likely be very challenging negotiations because there is experience of financial losses in the company. However, as you look further to the right for the years 2008 through 2010 you will notice that this trend reversed and profits or net income continued to rise through December 31, 2010. this is a good thing! This is why it is important to base negotiations more on trends then perhaps an anomalous year. And as you look at the bar on the right you will see trending up verses down and you are seeing a very financially healthy company. this pattern would represent a greater opportunity for a union to negotiate improvements in wages and benefits.
  • balance sheets serve as another resource for determining financial health other company. Assets represent the total value of what we own, how much money is in the bank. Let’s put this in more personal terms. If you have a savings account with money in it that’s asset. If you have a checking account with money in it that’s an asset. If you own your automobile then the value of your automobile is asset. If you own your automobile and the value exceeds the amount that you still owe your asset is the difference between value of the car and the remaining loan balance. If you own your home that’s an asset. If you still own money on your home but the value of the home exceeds what’s remaining to be paid on the mortgage the difference between the 2 is an asset. I think you get the picture as it relates to assets. The same is true for companies they own buildings, equipment, and they will have cash and stock investment value that is an asset. Liabilities represent what is owed. If you take out a loan on a car the loan is a liability. If you owe money on credit cards the money you owe is a liability. Again the same is true for companies day to have liabilities date borrow money therefore they owe money. Money they owe and the financial obligations that they have are considered liabilities. Weather it be our personal finances or a company’s finances financial health is determined by the value of your net worth. Greater your net worth the more financially healthy you are. Families and companies pursue financial strategies to ensure that their net worth is greater and it is in the black and not in the red ink. So again in order for your net worth to be healthy your assets must be greater then your liabilities. Just like on the income sheet where you look for a positive net income or also known as profit, you also look for net worth to be positive and that the assets exceed liabilities therefore allowing the net worth 2 occur. So the best case scenario when you look at the financial health of a company is after reviewing the income she and the balance sheet that a trend shows that net profits are trending up as well as on the balance sheet net worth is trending up. If the net worth and the net profits are trending down then different call negotiations can be expected as a relates to financial matters. If net worth and net profits are trending up, and while all negotiations even in a trending up are challenging, trending up circumstances certainly reduce level of challenge. I want to comment on what I just said about challenge. Even if the financial health of a company word organization is very healthy that does not mean that negotiations are going to simply be easy. They will not. Why? It is because companies want to see their profits and their net worth grow. Unfortunately it seems we live in a time that companies appear not to want to share this fruits of even the good times. In fact an indicator of this statement just made is the fact that CEOs in the United States average approximately 340 times a greater income then the median wager other worker in America. That’s right 340 times is the average at this time. Looking back around 1970s it was approximately 40 types. Again I emphasize it is essential that union representatives understand some basic financial indicators. And understand those financial indicators is to have access to the information to determine the likelihood other companies ability to pay.
  • Income statement that you are looking at now is the statement for Safeway. I am sharing this income statement since I think that it is timely as it relates to the recent negotiations that took place between the owners of Vons Albertsons and Ralphs grocery stores. Vons is owned by Safeway. Since economics was the largest factor keeping the parties from reaching agreement thought it would be helpful to show you an example of the Safeway Incorporated financial statement for the last 4 years. As you can see looking at total revenues these revenues have remained relatively flat and have actually declined somewhat from the period ending in 2007. looking at total revenues there is nothing remarkable. If you look at the other operating expenses you will notice that they too are somewhat flat meaning they’ve remained relatively the same since 2007. Looking down at the bottom of the page at net income you will notice that the net income or profits have declined substantially. In 2010 profits sunk dramatically but did recover in the next reporting year. Based on the income sheet this demonstrates the company is experiencing moderate financial difficulties. If Vons as a company owned by Safeway is a reflection of the financial condition of its parent company, Safeway, this would explain difficulties that occurred with financial issues during the recent negotiations with UFC W. As you can see based on 2 different financial income sheets one from the previously shown company which I had not identified and another company which I have identified more specifically Safeway. Having these income statements provides the negotiation representatives with important tools to negotiate financial proposals. now let’s take a look at balance sheets.
  • You are now looking at a balance sheet for Safeway Incorporated. Will take a look at assets and liabilities and trends. Scan down the document unto you see total assets. As you look at total assets UC that the assets are trending down. In 2007 they were about $17 billion. The trend downward continued the following year 2008 went down remarkably in 2009 to about $14 billion. Actually looks like it’s closer to $15 billion. And in 2011 the assets show a slight increase. Between 2007 and 2010 assets have declined by about 2 ½ billion dollars. that’s not chump change. Now let’s take a look at total current liabilities. As you can see in 2007 liabilities were $5 billion. In 2011 liabilities are $4.3 billion. Looking at a trend liabilities are declining and have been for 3 years since 2007 that’s a good thing. But at the same time while liabilities was going down so was the assets. Both trends for assets and liabilities indicate the company attempting to remain proportionate 2 its assets versus liabilities each year. At disturbing trend would be viewing this document and seeing that liabilities work going up while assets were coming down. This does not appear to be what is happening with Safeway Incorporated. Just like our personal finances we may have a good year we may have a poor year. For instance my assets may be quite comfortable but but then the rainy season comes and I find I need a new roof because rain is pouring in to my living room. A roof is expensive. I did not anticipate that I would need new roof perhaps I didn’t plan or save for a new roof. Because I did not save I now require alone to pay for my new roof. My asset remains the same because I still have my house but my liability just increased because I just took out a loan. If I had saved and did not require a loan and use money out of my savings account to pay for the roof then my savings account would be diminished and my assets would go down. The key is to ensure that my assets will always exceed my liabilities. Differences I had very little savings and I had to take out a loan and I used up what savings I had to pay towards a down payment on a new roof I could have illuminated my savings account and a checking account and has 0 assets while still having for instance a $25,000 loan. Now I’m deeply in the red because I/O a lot more money them what I have on hand. So continuing this personal application because sometimes it’s easier understand it that way since we all have our personal finances that is perhaps to get into corporate application. Let’s say my daughter comes to me and requests money towards a down payment on a car. Remember my assets do not exceed my liabilities based on example I just gave you. I just had to pay for a roof and use up my savings and my checking and take out a loan. I simply do not have money to give to my daughter. I could assist my daughter would be to takeout alone but that would further deepen me. in liabilities. Therefore the burden shifts to my daughter to satisfy her needs independent of my financial requirements. Same principles apply when the union is negotiating with the company. If a company is financially unhealthy it will attempt 2 shift its burden on to the employees. This can come in the form of reduced wages, layoff, reduction in pension contributions, cost shifting of benefit contributions back to the employees.
  • To know the company’s or organizations financial condition is to have access 2 the essential financial information. Not all companies our public and not all organizations are private. For instance if I needed information about Vons conditions specifically I would not find it on the Internet because Vons is a subsidiary of Safeway Incorporated. While I can get an overall view of the financial health of Safeway as a total Corporation I’m still left without the essential information related to Vons specific condition. Sense this information may not be easily accessible it will require a formal request for information to the responsible parties advise to get the information that I seek. As a reminder please remember to read the duty to provide information. This will outline the rights that unions have in order to possess that information. with the availability of the Internet access to financial information is greater and more convenient than ever. There are so many sources that are available to access public company documents. Now you can access income and balance sheet statements for public companies through Google finance, Yahoo finance, Bloomberg, Moody’s, MSN, the list is lengthy. Reports are available from the security exchange commission website which is the SEC. Much of what was mentioned in the book about resources are now available online. Public entities are required to submit their respective financial statements to the County and/or state. Many of these documents are available online. Finally another great resource to access financial information about a private company is the annual stockholders report. This can often be found online.
  • Lecture5 ls 2

    1. 1. Jim Walker-LATTC Labor Studies
    2. 2. Importance of Financial Data <ul><li>Demonstrates ability to improve wages and benefits </li></ul><ul><li>May also demonstrate an inability or risk to improve </li></ul><ul><li>Necessary to gather evaluate and present data </li></ul><ul><li>Profits may justify advances in compensation </li></ul>Jim Walker-LATTC Labor Studies
    3. 3. Annual Income Statements <ul><li>Income </li></ul><ul><li>Expenditures </li></ul><ul><li>Profits </li></ul><ul><li>Losses </li></ul>Jim Walker-LATTC Labor Studies
    4. 4. Jim Walker-LATTC Labor Studies
    5. 5. Balance Sheet <ul><li>Assets </li></ul><ul><li>Liabilities </li></ul><ul><li>Net worth </li></ul><ul><li>(see links under lecture resource label) </li></ul>Jim Walker-LATTC Labor Studies
    6. 6. Jim Walker-LATTC Labor Studies
    7. 7. Jim Walker-LATTC Labor Studies
    8. 8. Financial Resource <ul><li>Request specific reports from local operation </li></ul><ul><li>Request local auditors report that certifies finances </li></ul><ul><li>Internet resources </li></ul><ul><li>Security Exchange Commission (SEC) </li></ul><ul><li>Annual stockholders report </li></ul>Jim Walker-LATTC Labor Studies