1-1 mcgraw-hill/irwin understanding business, 8e © 2008 the mcgraw-hill companies, inc., all rights...
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1-1McGraw-Hill/IrwinUnderstanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Nickels McHugh McHugh
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Marketing: Marketing: Building Building
Customer Customer RelationshipsRelationships
Evolution of Marketing• Production Era - Up to early 1900s
• Selling Era - 1920s-1950s
• Marketing Concept Era - 1950s - 1980s– Customer
– Service
– Profit
• Customer Relationship Era - 1990s+
Marketing Strategies inNon-Profit Organizations
• Find a productive board of trustees (Directors)
• Make marketing the focus; not short-term sales
• Know your mission and review mission strategy regularly
• Practice strategic planning
• Carefully segment target market
• Train & develop volunteers for long-term
• Be frugal- know how to manage finances
Elements in the Marketing Mix
ProductProduct
MarketinMarketing g
ProgramProgram
PlacPlacee
PromotioPromotionn
Buy at Buy at Computers Computers
‘R Us‘R Us
PricPricee
Marketing Process
1. Find Opportunity
2. Conduct Research
3. Identify Target Market
4. Design Product
5. Product Testing
6. Brand Name, Design & Price
7. Develop Distribution System
8. Design Promotional Program
9. Build Relationship With Customer
Product Design
• Concept Test
• Test Market
• Package Design/Brand Name
Pricing Strategies
• Cost-Plus
• Value-Based
• Competitive
• Going-Rate
• Skimming
• Discount
• Loss-Leader
• Psychological
Source: Perdue University, May 2005
Other Things To Keep In Mind With Price
• Payment Period• Allowances
– Regular– Seasonal
• Bundling• Trade Discounts• Price Flexibility• Credit Terms
• Price Differences– Target Customers– Geographic Areas
• Volume Discounts and Wholesale Pricing
• Cash and Early Pmt Discount
Source: Perdue University, May 2005
Place Decisions
• Direct Sales
• Reseller Sales
• Market Coverage– Intensive – Selective– Exclusive
• Inventory Size
• Logistics
Source: Perdue University, May 2005
Market Research Process
• Define the Question
• Collect Data
• Analyze the data
• Choose the best solution and implement
Marketing Data: Least Error Method
1. Put someone in charge.
2. Give everyone a method of collecting data.
3. Identify the right data.
4. Centralize the data.
5. Use the Data.
Source: cmomagazine.com, September 2004
Sources for Marketing Research Information
Secondary Data
• Government Publications
• Commercial Publications
• Magazines• Newspapers• Internal/General
Sources
Primary Data• Surveys• Focus groups• Interviews• Observation• Online surveys• Questionnaires• Customer comments
The Marketing Environment
EconomicEconomic
SocialSocial
TechnologTechnologyy
GlobalGlobal
CustomeCustomerr
CompetitivCompetitivee
Different Markets
• Consumer• Niche• One-to-One
• Business-to-Business (B2B)
Market Segmentation
• Target Marketing
• Geographic• Demographic• Psychographic• Benefit• Volume
Influences onConsumer Behavior
CultureCulture
SubculturSubculturee
Reference Reference
GroupGroup
Cognitive Cognitive
DissonanceDissonance
CustomeCustomerr
LearningLearning
Consumer Decision Making
Marketing mix
•Product
•Price
•Place
•Promotion
Marketing mix
•Product
•Price
•Place
•Promotion
Psychological
•Perception
•Attitudes
•Learning
•Motivation
Psychological
•Perception
•Attitudes
•Learning
•Motivation
Situational
•Type of Purchase
•Social surroundings
•Physical surroundings
•Previous experience
Situational
•Type of Purchase
•Social surroundings
•Physical surroundings
•Previous experience
Sociocultural
•Reference groups
•Family
•Social class
•Culture
•Subculture
Sociocultural
•Reference groups
•Family
•Social class
•Culture
•SubcultureDecision-Making Decision-Making ProcessProcess
•Problem RecognitionProblem Recognition
•Information SearchInformation Search
•Alternative evaluationAlternative evaluation
•Purchase decisionPurchase decision
•Postpurchase evaluationPostpurchase evaluation • (cognitive dissonance)(cognitive dissonance)
Planning For More Business
• What do we do well-and not do well?
• What are we really selling?
• To whom do we sell?
• How do we reach our target group?
• How can we break through the clutter?
Source: Investor’s Business Daily, February 9, 2004
Business-to-Business (B2B)
1. Number
2. Size
3. Geographic Concentration
4. Rational
5. Direct Sales
6. Personal Selling
1-20McGraw-Hill/IrwinUnderstanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Nickels McHugh McHugh
**
Financial Management
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Finance & Managers
• What is Financial Management?
–Finance
–Financial Manager
• Importance of Finance
Most Important Skills Needed by CFOs
75%
55%
10%
51%
38%
19%
27%
26%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Analytical Thinking
Strategic Planning
Leadership
Objectivity
Creativity
Communication Skills
Building Relationships
People Development
Source: Source: CIO Enterprise
Women CFOs
• As of May 2006, 35 of the 500 largest companies in the US had a female CFO
• Five largest companies with female CFO: Citigroup, Home Depot, Verizon, Marathon Oil, and Medco Health Solutions
• Top 3 reasons that helped women achieve their current position: Supportive boss, Supportive spouse, and culture of the organization
Source: : cfo.com, June 1, 2006
Non-Finance Functions of CFOs
1%
2%
5%
25%
53%
18%
39%
49%
60%
0% 10% 20% 30% 40% 50% 60% 70%
Marketing
Sales
Other Skills
HR & Admin.
Revenue Growth
Reengineering
MIS
P & L Responsibility
Business Development
Source: CIO Enterprise
What Financial Managers Do
Where CFOs Get Their Financial Information
Radio5%
Magazines9%
Newspaper47%
Colleagues15%
Television12%
Internet11%
Don't Know1%
Source: : USA Today
Financial Managers: Ask Your Clients
1. What are the client's goals in areas like lifestyle, retirement, saving for college education and their health care as well as that of their dependents?
2. When do they want to reach their goals?
3. What steps have they already taken toward achieving their goals?
4. How do they feel about taking investment risks for a potential higher rate of return?
5. How involved do they want to be in monitoring their progress toward their goals?
Source: : Fpanet.org
Financial PlanningFinancial
Plan
Operating Budget
Financial Controls
Cash Budget
Capital Budget
Long-term Forecasting
Short-term Forecasting
Feedback Feedback
Budget Process
• Financial Plan- Financial Statements
• Types of Budgets– Capital
– Cash
– Operating (Master)
• Financial Controls- Feedback
Need for Operating Funds
• Manage Daily Operations
• Controlling credit operations
• Acquire Inventory
• Capital Expenditures
Why Firms Need FundsShort-Term Funds• Meeting monthly
expenses• Unanticipated
emergencies• Cash-flow problems• Expanding current
inventory• Temporary promotional
programs
Long-Term Funds• New product
development• Replacing capital
expenditure• Mergers or acquisitions• Expansion into new
markets• Building new facilities
Sources of Funds
Short-Term• Trade Credit• Promissory Notes• Family/Friends• Banks, etc.
– Secured Loan– Unsecured Loan
• Factoring• Commercial Paper• Credit Cards
Long-Term• Debt
– Term-Loan– Bonds
• Secured• Unsecured
• Equity– Stock– Retained Earnings– Venture Capital
1.1.Federal, state, and local Federal, state, and local governmentsgovernments
2.2.Federal government Federal government agenciesagencies
3.3.CorporationsCorporations
4.4.Foreign governments and Foreign governments and corporationscorporations
Who Can Issue Bonds?
Sources of Equity Financing
Equity Equity CapitalCapitalEquity Equity CapitalCapital
Internal Internal SourcesSourcesInternal Internal SourcesSources
External External SourcesSourcesExternal External SourcesSources
Retained Retained EarningsEarnings
Retained Retained EarningsEarnings
Owner Owner ContributionContribution
ss
Owner Owner ContributionContribution
ssSale of Sale of
PartnershipsPartnerships
Sale of Sale of PartnershipsPartnerships
Venture Venture CapitalCapital
Venture Venture CapitalCapital
Public Sale of Public Sale of StockStock
Public Sale of Public Sale of StockStock
IPO
Summer of 2006• 89 companies filed plans to raise money through
IPO – looking to raise $16.3 billion• 17 companies withdrew their plans to proceed
with their IPO – were hoping to raise $3.89 billion
• Withdrawing – Go Daddy Group and PNY Technologies
• Filing – Double-Take Software and Hansen Medical
Source: : redherring.com, August 18, 2006
Google IPO
• Launched – August 2004• IPO Price -- $ 85 per share• Seeking to raise $2.7 billion• Unusual auction-style offering • With IPO, the company must
shed light on the inner workings • Key competitors – Yahoo and Microsoft• As of March 31, 2004 Google employed
about 1,900 employeesSource: : cnet news.com, April 30, 2004; Forbes, September 17, 2004
Venture Capitalists
• Finance new and rapidly growing companies• Purchase equity securities• Assist in the development of new products or
services• Add value to the company through active
participation• Take higher risks with the expectation of higher
rewards• Have a long-term orientation
Source: : NVCA.com
1-38McGraw-Hill/IrwinUnderstanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights
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Nickels McHugh McHugh
**Securities Securities Markets: Markets:
Financing and Financing and Investing Investing
OpportunitiesOpportunities19
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Functions of Securities Markets
• Long-Term Funding for Businesses
• Place to Buy/Sell Securities (Investments)
Capital Markets
• Primary Markets (IPO's)
• Secondary Markets
Investment Banker
• Assist Sale/Issue of New Securities
• Underwrite issues
• Sells to Institutional Investors
• Coupon/Interest Rate
• Denomination ($1,000)
• Principal
• Maturity Date
• Classes
• Unsecured/Debenture
• Secured
Bond Market
BondsAdvantages
• No Vote
• Interest is Tax-Deductible
• Temporary Source of Funds
• Can be repaid before maturity with call provision
Disadvantages• Increase Debt
• Legal Obligation to Pay Interest
• Repaid on Maturity Date
Special Bond Features
• Sinking Fund
• Callable
• Convertible
Equity Financing
• Preferred or Common
• Investment never has to be repaid
• Not legally obligated to pay dividends
Debt Financing
• Secured or Debenture
• Must be repaid on maturity date
• Interest must be paid whenever specified
Debt vs. Equity Financing
What is Stock?
• Ownership
• Certificate
• Par Value
• Dividends
• Common vs. Preferred
Stock
Advantages• No Repayment
• No Legal Obligation
• Does Not Create Debt
Disadvantages• Voting Rights
• Dividends not Tax-Deductible
• Management Works to Keep Stockholders Happy
Organized Securities Exchanges
• New York Stock Exchange (NYSE)
• American Stock Exchange (AMEX)
• Over-the-Counter (OTC)
• NASDAQ
Investment Criteria
• Risk
• Yield
• Duration
• Liquidity
• Tax Consequences
Investing in BondsCorporate
BondsMunicipal
BondsUS Treasury
Bonds
From 1 to 20 years From 1 to 40 years From 2 to 30 years
Taxable
Exempt from federal taxes and some state
and local taxes
Exempt from state and
local taxes
May be riskier than government bonds, but may have higher
yields
Attractive to investors
in high tax brackets
Government backing
provides maximum
safety
S & P’s Top Credit AAA-Rated Companies
1. Automatic Data Processing
2. Exxon Mobil
3. General Electric
4. Johnson & Johnson
5. Pfizer
6. United Parcel Service
Compared to having 32 Top Companies in
the ’80s
Source: Business Week, 2006
Investing in Stock
• Growth vs. Income– Capital Gain vs.
Dividend
• Blue Chip vs. Penny
• Market Order
• Limit Order
• Stock Split
How Stock Splits Work100 shares of 100 shares of
ABC stock ABC stock selling at selling at
$80$80
100 shares @ 100 shares @ $40$40
100 shares @ 100 shares @ $40$40
100 shares 100 shares @ $45@ $45
100 shares 100 shares @ $45@ $45
2 for 12 for 1 Stock Split Stock Split
DeclaredDeclared
Lower Price Lower Price increases increases DemandDemand
Increased Increased demand demand
increases priceincreases price
How Much Profit Has Been How Much Profit Has Been Made?Made?
Return From Most Widely Held Stock
Rank Price One Year Total Return
General Electric $34.66 -2.2%
Microsoft 27.97 4.1
Pfizer 21.35 -21.0
ExxonMobil 57.38 17.0
Cisco Systems 17.37 -11.1
Johnson & Johnson 63.34 5.6
Intel 25.11 4.6
Citigroup 47.94 7.6
Source: Money, January 2006
Mutual Funds• Pool Investors’
Money
• Best for Small Investors
• Index Fund
• Diversification
• No-Load vs. Load
• Open-End vs. Closed-End
Sales of Mutual Funds Worldwide
Q4, ’03 Q2, ’04 Q4, ‘04 Q2. ‘05
All Funds $73 $22 $166 $166
Equity 116 75 100 65
Bond -4 -12 43 49
Money Market -67 -58 -10 *
Balanced/mixed 23 4 24 26
Other 5 13 8 25Source: USA Today, 10/16/2000
Source: Investors Business Daily, February 10, 2006
(In Billions)
Types of Investments
Traditional– Stocks/Bonds
– Gov’t Securities/CDs
– Money Market or Mutual Funds
– Real Estate
High-Risk– Stock on Margin
– Junk Bonds
– Commodities
Components for Optimal Portfolio Performance
• Diversification
• Timelines
• Safety & Risk
• Income & Total Return
Do Corporations Provide Enough Information?
80%
15%
5%
NOYESNOT SURE
Source: USA Today
How does Buying Stock on Margin work?
Step 1Step 1
An investor An investor wishes to wishes to buy 100 buy 100
shares at shares at $100 per $100 per
shareshare
Step 2Step 2
However, the However, the investor has investor has only $4,000 only $4,000 available to available to
investinvest
Step 3Step 3
The investor The investor finds he is finds he is able to buy able to buy the stock the stock
with a 40% with a 40% marginmargin
Step Step 44
The investor The investor puts up puts up
$4,000 and $4,000 and borrows borrows
$6,000 from $6,000 from the brokerthe broker
Measures of Investment
• Stock Quotations
• Bond Quotations
• Mutual Fund Quotations
Stock Quotes
• % Change in YTD Price
• High/Low Price
• Company Name & Stock Symbol
• Last Dividend Per Share
• Dividend Yield
• P/E Ratio
• # of Shares Traded
• Closing Price
• Net Change- Price
Mutual Fund Quotations
• Fund Name
• Net Asset Value (NAV)
• Net Change in NAV
• YTD Return
• Long-Term Return
Original 12 Dow Stocks (1896)
• American Cotton Oil
• American Sugar Refining Co.
• American Tobacco
• Chicago Gas
• Distilling & Cattle Feeding Co.
• General Electric Co.
• Laclede Gas Light Co.
• National Lead
• North American Co.
• Tennessee Coal, Iron, & Railroad Co.
• U.S. Leather
• U.S. Rubber Co.
How Much Have They Grown?
1955 2003/2004
S&P 500 45.48 1126.21(’04)
NYSE $207.7 Billion $17.8 Trill (’03)
Mutual Fund Industry
1 Million 250 Mill (’03)
100 8,000
$2.5 Billion $7 Trill
accounts
funds
assets
Source: Fortune, 2004
What Adults Believe About Wall Streets’ Key Players
40 45 50 55 60 65 70 75
Essential to theEconomy
Only Want to Make $
Most Firms Would Breakthe Law to Make More $
Dominated by Greed
Most are Honest
Successful OnesDeserve High Pay
Good for USA
% Adults That % Adults That Agree With the Agree With the
StatementStatement
Source: Source: USA Today
1-67McGraw-Hill/IrwinUnderstanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights
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Nickels McHugh McHugh
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Ethical Ethical Behavior Behavior
and Social and Social ResponsibilityResponsibility4
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Ethics
• More Than Legality
• Standards are Fundamental
• Ethics begins with each Ethics begins with each of usof us
Top U.S. Ethical Issues
0% 10% 20% 30% 40% 50% 60%
Producing Low-quality or Unsafe Products
Discrimination
Securities and/or Bank Fraud
Unfair Treatment of Employees/Customers
Bribes and Kickbacks
Lack of Public Trust in Corporate America
Dishonesty with Customers
Lying on Reports/Falsifying Records
Conflicts of Interest
Deceptive Sales/Marketing Practices
Improper Accounting Practices
Source: CMO Magazine, October 2004
Ways to Prevent Unethical Behavior
Source: CMO Magazine, Oct. 2004
0% 10% 20% 30% 40% 50% 60% 70% 80%
New Laws
Adding Ethics Classesto College Programs
A Code of Conduct
Publicity About ThoseBeing Punished
Employee EducationPrograms
Increasing Penaltiesfor Offenders
Most Popular Ways to Monitor Employees
• Internet (74%)
• Background Exams (62%)
• Store and Review Email (43%)
• Store and Review Computer Files (31%)
• Videotape Employees (18%)
Source: USA Today
Ethics Check Questions:
• Is It Legal?
• Is It Balanced?
• How Will It Make Me Feel AboutHow Will It Make Me Feel About
Myself?Myself?
Why Don’t We Trust Corporations?
Source: USA Today
Factors Influencing Managerial Ethics
IndividualIndividual OrganizationalOrganizational EnvironmentalEnvironmental
• ValuesValues
• Work Work BackgroundBackground• Family StatusFamily Status
• PersonalityPersonality
• Top Level Mgmt. Top Level Mgmt. PhilosophyPhilosophy
• The Firm’s The Firm’s Reward SystemReward System
• Job DimensionsJob Dimensions
• CompetitionCompetition
• Economic Economic
ConditionsConditions
• Social/Cultural Social/Cultural
InstitutionsInstitutions
Codes of Ethics
• Compliance-Based
• Integrity-Based
Steps to Improve U.S. Business Ethics
1. Top management support
2. Employees’ understanding
3. Managers’ training
4. Ethics Office
5. Outsiders must be informed
6. Enforcement of ethics code
Levels of CorporateLevels of CorporateSocial ResponsibilitySocial Responsibility
Societal ResponsibilitySocietal Responsibility
Stakeholder ResponsibilityStakeholder Responsibility
Profit ResponsibilityProfit Responsibility
Owners/StockholdersOwners/StockholdersGeneralGeneral
PublicPublic
CustomersCustomers
EmployeesEmployees
Suppliers/DistributorsSuppliers/Distributors
EcologicalEcological
EnvironmentEnvironment
Public Interest GroupsPublic Interest Groups
Source: Source: MarketingMarketing, 5/E by Berkowitz, Kerin, Hartley, and Rudelius., 5/E by Berkowitz, Kerin, Hartley, and Rudelius.
Corporate Responsibility(Percent of country’s top 100 companies that publish
separate CR reports)
Source: Source: Financial Times,Financial Times, June 15, 2005 June 15, 2005
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Spain
Italy
US
Germany
France
UK
Japan
Social Audit
• Company
• Outside Groups that serve as watchdogs:– Socially-Conscious Investors– Environmentalists– Union Officials– Customers
International Ethics and Social Responsibility
• Ethical problems are Not Unique to the U.S. managers
• Demand for Socially Responsible Behavior from Global Suppliers
• Joint Initiative on Corporate Accountability and Workers’ Rights
• Inter-American Convention Against Corruption
Best Company Reputation
• Johnson & Johnson (80.6)
• Coca-Cola (79.7)
• Google (79.5)
• UPS (79.4)
• 3M (78.8)
Source: USA Today
Most Admired Global Companies
1. General Electric
2. Toyota
3. Procter & Gamble
4. FedEx
5. Johnson & Johnson
6. Microsoft
7. Dell
8. Berkshire Hathaway
9. Apple Computer
10. Wal-Mart
Source: Fortune, 2006
1-83McGraw-Hill/IrwinUnderstanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights
Reserved.
Nickels McHugh McHugh
**
Managing Risk
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Riskiest Jobs
0 20 40 60 80 100 120 140
Fishing
Logging Workers
Pilots & Flight Engineers
Structural Metal Work
Refuse Collectors
Farmers & Ranchers
(Source: Bureau of Labor Statistics)
Workplace Deaths
0
500
1.000
1.500
2.000
2.500
Wo
rkp
lace
dea
ths
Transportation Assualts and violence Exposure to harmfulsubstances/environments
Cause
(Source: www.iii.org)
2005 numbers
Managing Risk
• Types of Risk
• Reduce/Avoid Risk
• Loss-Prevention Program
• Risk Management Strategy
• Self-Insure
• Buy Insurance
– Uninsurable Risk
– Insurable Risk
– Law of Large Numbers
– Rule of Indemnity
– Sources of Insurance
Types of Risk
Pure Risk• Potential for Loss with no Potential for Gain
Speculative Risk• Potential for Loss with
Possibility for Gain
Options After Risk is Identified
• Reduce the risk
• Avoid the risk
• Self-insure against the risk
• Buy insurance against the risk
Self-Insuring Against Risk
• Many companies and municipalities have turned to self-insurance.
• Companies turn to this option because they either can’t find or can’t afford conventional property/casualty policies.
• Firms set aside money to cover routine claims and buy only “catastrophe” insurance policies to cover big losses.
Costliest Disasters
0,0 10,0 20,0 30,0 40,0 50,0
Hurricane Frances '04
Hurricane Hugo '89
Hurricane Ivan '04
Hurricane Charley '04
CA Quake '94
11/09/2001
Hurricane Andrew '92
Hurricane Katrina '05
(Source: Insurance Information Estimates)= projection
Worst Terrorist Acts
1. September 11, 2001 (U.S.): Hijacked airliners crashed into the World Trade Center and the Pentagon caused $20.7 billion insured property losses.
2. April 24, 1993 (U.K.): Bomb exploded near NatWest tower in the financial district caused $974 million insured property losses.
(Source: www.iii.org)(Source: www.iii.org)
Types of Uninsurable Risk
Market Risk
Political Risk
Personal Risk
Operational Risk
Guidelines for Evaluating if Risk is Insurable
1. The policymaker must have an insurable interest.
2. The loss should be measurable.3. The chance of loss should be measurable.4. The loss should be accidental.5. The risk should be dispersed.6. The insurance company can set standards
for accepting the risk.
Rule of Indemnity
The rule of indemnity says that an insured person or organization cannot collect more than the actual loss from an insurable risk.
Types of Insurance
• Health• HMO
• PPO
• MSA
• Disability
• Workers’ Compensation
• Liability
• Other Business Insurance
• Life Insurance for Business
• Home-Based Business
Types of Property & Liability Insurance
• Fire• Automobile• Homeowner’s• Computer coverage• Professional liability• Business interruption• Nonperformance loss protection• Criminal loss protection• Commercial credit insurance• Title insurance
Average Expenditures for Auto Insurance in the U.S.
$0,00$100,00$200,00$300,00$400,00$500,00$600,00$700,00$800,00$900,00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Avera
ge e
xp
en
dit
ure
Source: www.iii.org
Types of Life Insurance
• Group life insurance
• Owner or key executive life insurance
• Retirement and pension plans
• Credit life insurance
Insurance Industry
• World insurance premiums totaled $3.4 trillion in 2005 according to Swiss Re.
• The Highline/National Association of Insurance Commissioners data show U.S. insurance premiums totaled $947.9 billion in 2005.
• In 2005, five hurricanes (Katrina, Wilma, Rita, Ophelia and Dennis) caused $57.3 billion in damages, or 94% of total 2005 losses.
Source: www.iii.org