The Wall Street Journal Weekly Quiz

The Wall Street Journal Education Program
Weekly Review & Quiz
Covering front-page articles from September 17 – 23, 2005
Professor Guide with Summaries Fall 2005 Issue #5
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 12 from The First Section, Section A
Looking Upscale, Wal-Mart Begins A Big Makeover
September 17, 2005; Page A1,,SB112690809217043498,00.html
Wal-Mart Stores Inc. has begun a fundamental rethinking of the formula that made it the
world's largest retailer. Wal-Mart grew enormous by cramming its shelves with
merchandise at the lowest prices possible. Now, responding to big shifts it sees in the
American economy, it is changing the way it does business to reach out to more upscale
shoppers. This month, Wal-Mart unveiled an eight-page advertising spread in Vogue that
uncharacteristically emphasized fashion, such as a leopard-print tank top with pink lace,
instead of price. On Monday night, the huge public screen in Times Square will display
video from Wal-Mart's first New York fashion show. The Bentonville, Ark., company
even has a trend-spotting outpost now in the U.S. fashion capital. Wal-Mart has created a
store prototype with wider aisles, lower shelves and more elegant displays of pricey
products. The retailer once prided itself on selling the first DVD player under $100. Now
it also offers 42-inch flat-panel plasma TVs for $1,648 to $1,998. It's a significant
gamble, because lower-income rural shoppers have always been the core customers of
this nearly $300 billion-a-year company -- bigger than any other non-oil company,
measured by sales. In 2004, Wal-Mart sales represented 7.58% of all non-auto U.S. retail
sales. William Cody, managing director of the Baker Retailing Initiative at the University
of Pennsylvania's Wharton School, says Wal-Mart is the most dominant retailer in U.S.
history in terms of sales as a percentage of gross domestic product. But Wal-Mart needs
to shake things up. Its sales at stores open at least a year, a key measure of retailing
performance, have been lagging. Over the past year, such sales at more fashionable
Target Corp. have been rising twice as fast as those at Wal-Mart. Wal-Mart's share price,
which hit a 52-week low yesterday, is down 17% in the past year, while Target's has risen
18%. The sense of crisis sank in last holiday season. During December, Wal-Mart stores
were instructed to display items under $2 in the prominent places at the end of aisles, in
an appeal to financially squeezed shoppers. But sales were disappointing. "We went the
wrong direction," Wal-Mart Chief Executive Lee Scott told analysts this June, reflecting
on the failure. "You can't just spend all your time chasing a customer who is going
through that economic cycle." Across its 3,100-store empire, Wal-Mart is deploying a
340-person squad to enforce new "rack rules." In a Wal-Mart supercenter in Cullman,
Ala., Joel Ewing recently snatched a group of peach-colored, beaded tunics from a
circular rack and put them on a rack with four outspread arms.
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WSJ Professor Guide: Page 1 of 26
The four-way racks hold fewer items but allow shoppers to glimpse a garment's style and
detail. "Putting out less merchandise can translate into more sales, because customers can
really see what you have," explained Mr. Ewing as he surveyed departments with the
store manager in tow. "But here, that is not an easy lesson to teach." Wal-Mart's
predicament reflects broader changes in the U.S. The country's uneven economic
recovery over the past couple of years has benefited high-income Americans more than
the traditional Wal-Mart customer, who values price over image. Even before Hurricane
Katrina pushed gasoline over $3 a gallon, rising pump prices were having a
disproportionate effect on working-class Americans because fuel represents a much
bigger slice of their budgets. Executives now say Wal-Mart needs to appeal to the
shopper who loves a great deal on socks but also can splurge on merchandise with fatter
profit margins, such as 400-thread-count sheets or a stereo. Where Wal-Mart's mantra
was once "stack it high, watch it fly," its fashion police have a new set of rules. There's
the "one-hand rule": Racks shouldn't be stuffed so full that shoppers have to tug at a
hanger with both hands. All racks should be 4-feet, 6-inches tall, so shoppers can see over
them to apparel hanging on the walls. Thirty-six inches should separate one rack from
another. After surveying its customers and concluding they were "starved for fashion,"
Wal-Mart has started to bring in more stylish merchandise. The company still does all its
apparel buying out of Bentonville. But two years ago, it opened the New York office,
located on Fifth Avenue near the Empire State Building, to spot hot styles. Last year, the
office persuaded headquarters to take a chance on long, patterned skirts embellished with
sequins. They sold out in all stores within weeks. "Fashion and creativity are not centered
in Bentonville," says Celia Clancy, a Wellesley College graduate and former employee of
Filene's Department Store, who runs strategic planning for the New York office. "To
excel and be credible in apparel and home furnishings, this had to happen."
1. Wal-Mart’s recent emphasis on clothing has been it’s:
a. Quantity
b. cheapest price
c. stylish fashion sense Correct
d. range of sizes
2. As opposed to the old “stack it high, watch it fly” concept, Wal-Mart’s “new rack
rules” make sure that:
a. high end merchandise is kept strictly separate from inexpensive items
b. there is easy viewing and removal of clothing merchandise from display racks Correct
c. 4-way racks hold as much as possible without falling over
d. displays should be as close together as possible to ensure the customer sees everything
and can grab items from two separate displays at the same time.
Split Decision Reforms in Doubt As Germany's Vote Brings Deadlock
September 19, 2005; Page A1,,SB112703080655844209,00.html
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 2 of 26
BERLIN -- Germany plunged into political turmoil as its election produced no clear
winner, raising the specter of weeks of wrangling over the formation of a new
government and delays in measures to lift the long-struggling economy. Angela Merkel's
center-right opposition won 35.2% of the votes, edging out incumbent Chancellor
Gerhard Schroeder's center-left government with 34.3%. Each side was too weak to form
an immediate majority in the German parliament. Both candidates are claiming the right
to be the next leader of the world's third-largest economy and both say they have a
mandate to round up enough votes from other parties to form a working majority. The
results may force Mr. Schroeder and Ms. Merkel, bitter rivals, to collaborate and form a
coalition together. That in turn could produce an unstable government and possibly
another election soon. Ms. Merkel, seeking to be the first eastern German and first
woman to lead Germany, has long been an outsider willing to introduce radical
departures from Germany's economic traditions. She wants to deregulate the country's
labor market, simplify the tax system and cut the burden on businesses of paying for the
welfare state. German businesses and investors mostly rooted for a clear Merkel victory.
They hoped it would lead to new measures to address an aging population and rising
world-wide competition for jobs. The German DAX stock-market index has risen about
14% since the election was scheduled. Advocates of freer markets in the rest of Europe
hoped for a decisive vote that would influence the entire continent, which like Germany
is struggling to escape slow growth and high unemployment. German unemployment
stands at 11.4%, close to a postwar record rate. Ms. Merkel's failure to win a majority,
although partly due to campaign mistakes, shows the difficulty of winning elections in
Western Europe on a platform of potentially traumatic economic medicine. That may
chill any drive for change in other countries, such as France, where tentative efforts have
met with similar opposition. Many analysts were expecting both the German stock
market and the euro to dive at least initially today because of the uncertain outcome.
"This was clearly a vote against reform. It's clear that Germans are unwilling to embrace
this," said Gary Smith, head of the American Academy in Berlin. Ms. Merkel's showing
was one of the worst by a Christian Democratic leader since World War II. Her campaign
blew a wide early lead after a series of missteps. Ms. Merkel, a former physicist,
stumbled in television appearances -- confusing gross and net income, stuttering in a
panel discussion and appearing wooden in a TV duel with Mr. Schroeder. She left many
voters fearing that her proposals would bring much pain but no gain for average wageearners. Europe, especially the 12-nation euro currency area, has become the missing
engine behind the global economy in recent years. While China and India industrialize at
high speed and the U.S. expands its lead in new technologies, much of Western Europe
has struggled to come to terms with the competition. The traditionally dominant
economies on the Continent -- Germany, France and Italy -- have only made limited
changes to generous welfare entitlements and labor protections that weigh down
businesses and constrict job creation. Amid Germany's economic stagnation and mass
unemployment, most analysts considered Chancellor Schroeder doomed to defeat. Early
polls put him more than 20 percentage points behind. But he roared back in the final
weeks, and the official tally from 298 of 299 districts put his party less than a percentage
point behind Ms. Merkel's. (The final district will vote on Oct. 2.)
3. Germany is the world's ______________________ economy.
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WSJ Professor Guide: Page 3 of 26
a. fifth - largest
b. third - largest Correct
c. third - smallest
d. sixth - largest
4. Ms. Angela Merkel's is seeking to be the first ______________ to lead Germany.
a. citizen from Switzerland
b. non-native
c. person under 25 years old
d. woman Correct
Boeing, Airbus Foresee Peak Year For Orders Despite Airline Woes
September 20, 2005; Page A1,,SB112717774446345667,00.html
Even as the global airline industry faces losses of as much as $8 billion this year amid
soaring fuel prices, Boeing Co. and Airbus are cruising toward a banner year for plane
orders. Coming back strongly from the worst aviation slump on record, the two
manufacturers together have booked contracts for almost 1,000 planes and have
commitments for several hundred more. With continuing campaigns to sell to carriers
including Singapore Airlines, Qantas Airways of Australia and Dubai's Emirates Airlines
-- the two combined may top their best year on record, 1989, when they announced 1,528
new orders. John Leahy, chief operating officer and top airplane salesman at Airbus,
acknowledged that it was shaping up "to be a record year in terms of orders." Aerospace
executives caution that orders are essentially promises to buy planes in the future, often
cemented by a deposit of about 10% of an airplane's price, and don't constitute significant
sales revenue. Boeing and Airbus receive full payment only as planes are built and
delivered over the duration of a contract. In the past, many orders have quietly evaporated
or been postponed, or later switched to other models. After the rush for orders, the next
few years may be comparatively slow for sales teams, because carriers that sign big deals
today are unlikely to make substantial purchases again soon. Some of the recent orders
have exceeded 100 planes, many of which will be delivered over periods as long as 10
years. Mr. Leahy of Airbus noted that a market peak in the late 1980s was followed by
several slow years as sales dried up. Still, orders provide a barometer of how airline
managers view their prospects. A record order book indicates they are looking beyond
today's problems to significant future growth. Moreover, the resurgence in demand hasn't
been affected by a simmering trade dispute between the U.S. and the European Union
over subsidies for the two companies. A machinists strike at Boeing since the beginning
of September has shut down the assembly line and could delay future deliveries, but
carriers place orders with a long view that isn't likely to be much affected by the current
strike. The boom in orders partly represents demand that built up after the airline industry
went into a nose dive in mid-2001. It also comes as airlines replace fuel-guzzling old
planes with more-efficient new models. Many of the new orders are for planes still under
development -- the Boeing 787 "Dreamliner" and the competing Airbus A350 -- which
won't be delivered for almost three years. Many of the purchases are coming from airlines
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 4 of 26
outside the U.S., which are in generally better shape than American carriers. Two giant
U.S. airlines went into bankruptcy proceedings recently amid surging prices for jet fuel.
Boeing's top airplane salesman, Scott Carson, said the main factors driving the current
resurgence are a strong recovery in the demand for cargo aircraft and tremendous growth
in China and India. In India alone, airlines have announced orders for more than 200
planes this year as they scramble for market share after the recent deregulation of the
aviation market. Even airlines from struggling economies in Africa and Latin America
are placing orders for new planes rather than turning to the used-airplane market as they
have in the past. Mr. Carson said the health of U.S. airlines will determine whether
airplane sales remain strong next year. If U.S. carriers don't recover, he said, the order
books at Boeing and Airbus "will be smaller, but not Death Valley." For U.S. carriers, the
most recent challenge is fuel prices. The International Air Transport Association
estimates that at an average fuel price of $57 per barrel of Brent North Sea crude oil this
year, North American airlines will lose a combined $8 billion. European carriers should
break even at that price, and Asian airlines together should post a profit of about $1
billion. Most of the U.S. losses are at six major carriers. As Tropical Storm Rita gained
strength yesterday, threatening Gulf Coast oil production and refineries, the price of U.S.
benchmark crude-oil futures for October delivery shot up $4.39 a barrel on the New York
Mercantile Exchange, settling at $67.39. In London, benchmark Brent futures for
November rose $3.80 to $65.61. (See related article.1) The challenge for Airbus and
Boeing in coming years will be to turn the peaks and troughs of orders into a steady flow
of deliveries. Some people in the industry warn that a surge in orders could prompt the
rivals to accelerate production too quickly, setting themselves up for a sharp drop in
deliveries when the market deteriorates.
5. Coming back strongly from the worst aviation slump on record, Boeing Co. and Airbus
have booked contracts for almost _________________ planes.
a. 100
b. 1,000 Correct
c. 10,000
d. 100,000
6. Even as the global airline industry faces losses of as much as _______ this year amid
soaring fuel prices, Boeing Co. and Airbus are cruising toward a banner year for plane
a. $8 billion Correct
b. $8 million
c. $80 billion
d. $80 million
Fed Keeps Focus On Inflation And Raises Rate
September 21, 2005; Page A1,,SB112721762582246026,00.html
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 5 of 26
WASHINGTON -- The Federal Reserve raised interest rates for the 11th consecutive
time, concluding that Hurricane Katrina's impact on inflation is more worrisome than its
effect on growth. The Fed raised its short-term interest-rate target to 3.75%, from 3.5%. It
indicated that it expects to raise the rate further at a "measured" pace, which has come to
mean an increase of one-quarter percentage point at each meeting of Fed policy makers.
The decision to raise rates and to signal more ahead amid the uncertainty created by
Katrina as well as some political pressure to take a break attests to the Fed's mounting
concern over inflation. Fed Chairman Alan Greenspan appears more willing to risk
slowing the economy down by raising rates too much, then to risk letting inflation rise
further by raising them too little. Tuesday's increase wasn't wholly expected: A minority
of economists thought the Fed would pause to assess Katrina's impact. And some Fed
officials wanted to do so. Fed Governor Mark Olson cast the lone dissent Tuesday,
breaking a two-year stretch of unanimous votes. In a statement, the Fed acknowledged
Katrina's "tragic toll," but predicted it wouldn't derail the economy's expansion, and may
aggravate inflation. "The widespread devastation in the Gulf region, the associated
dislocation of economic activity, and the boost to energy prices imply that spending,
production, and employment will be set back in the near term," the Fed said. "While these
unfortunate developments have increased uncertainty about near-term economic
performance, it is the [Fed's] view that they do not pose a more persistent threat."
Economic growth, it said, would be supported by still-low interest rates and brisk
productivity growth, while "higher energy and other costs have the potential to add to
inflation pressures." It did say that underlying inflation is "relatively low" and longerterm inflation expectations are "contained," but this was less sanguine than the statement
following its Aug. 9 meeting, which called such expectations "well contained." In June of
last year, the federal funds rate, charged on overnight loans between banks, stood at a 46year low of 1%. The Fed's goal since then has been to return rates to a "neutral" level that
neither fuels inflation nor restrains growth. Estimates of neutral range from 3% to 5.5%.
Financial markets now expect only one more quarter-point rate increase during the three
remaining meetings before Mr. Greenspan's term ends Jan. 31 -- and possibly one more
by next summer. In response to the Fed move, commercial banks raised their prime
lending rate, a benchmark for many short-term business and consumer loans, to 6.75%
from 6.5%. Longer-term lending rates will be little affected, however, as bond markets,
where long-term rates are set, had anticipated Tuesday's action and showed little
7. The Federal Reserve ____________________________ for the 11th consecutive time,
concluding that Hurricane Katrina's impact on inflation is more worrisome than its effect
on growth.
a. adjusted interest rates down
b. raised interest rates Correct
c. lowered interest rates
d. eliminated interest rates
8. The Fed short-term interest-rate is ________________.
a. 3.75 % Correct
b. 6.75 %
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 26
c. 9.75 %
d. 13.75 %
Hip Check American Express Tries to Find Its Place With a Younger Crowd
September 22, 2005; Page A1,,SB112735069286048131,00.html
American Express Co., the 155-year-old financial-services firm long known for catering
to gray-haired executives with expense accounts, is offering its customers some unusual
new perks: free chocolate martinis, discount passes to New York's head-thumpingly loud
Crobar, and the chance to be a disc jockey at a dance club overlooking Times Square.
The offers are part of an ambitious effort by American Express to tackle a serious
problem at the core of its business. The U.S. market is saturated with nearly 900 million
credit, charge and debit cards. The glut has started to slow several years of rapid industry
growth. Credit-card payments increased at an annual rate of 6.7% between 2000 and
2003, but the growth rate is now expected to taper off, according to the Federal Reserve.
More alarming for American Express: Young shoppers are shifting to debit cards.
Particularly popular among people on a budget, debit cards draw directly from a person's
bank account, with no annual fees or monthly balances. Debit-card charges now represent
60% of transactions processed by Visa USA Inc. But American Express has never offered
a debit card, and executives say it doesn't plan to. Even its venerable gold and platinum
charge cards are under assault. Visa and MasterCard International Inc. are both
promoting credit cards with premium perks like concierge services that help customers
buy hard-to-get tickets to concerts and shows. Some Wall Street analysts think American
Express may have to lower the fees it charges merchants for accepting its cards. Those
fees, which average about 2.54% of each transaction, have long been the highest in the
card industry. Rates set by Visa and MasterCard averaged 1.78% last year, according to
the Nilson Report, a publication that tracks the industry. So now American Express is on
a high-stakes hunt for young customers, forcing the company to learn the byways of an
unfamiliar new marketplace. At the center of its quest is a new series of no-fee credit
cards for urbanites who are single, age 25 to 35, dine out often, like to drink and aspire to
be hip. In ads, American Express dubs this "the über-glam lifestyle you'll easily become
accustomed to." Last year it launched the first city card, dubbed "In:NYC," and aimed at
New Yorkers. Earlier this week it followed with "In:Chicago," and "In:LA" is coming out
later this year. To develop the cards, American Express's executives have been scouring
city hotspots trying to divine the tastes of the often fickle urban crowd. They grilled
company interns about what restaurants and trends were cool, and found themselves
soliciting customers well after midnight on Manhattan's streets. The result is a card
promising "access" to a lifestyle American Express hopes is desirable. Instead of earning
golf clubs or frequent-flier miles, points accumulated on the In:NYC card can be
redeemed for a private booth at Underbar, a candle-lit lounge below Union Square's W
Hotel, or to get discounts at Suba, a tapas restaurant where diners sit surrounded by a
pool of rippling water. The push for new customers comes at a critical time for American
Express. The company has posted 14 consecutive quarters of double-digit earnings
growth, and at $57 its shares are trading at their highest point in nearly five years. In
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 26
2004, American Express earned $3.4 billion, and Chief Executive Kenneth Chenault has
set long-term goals for 12% to 15% earnings per-share growth. "I happen to have a lot of
confidence that our growth in payments is sustainable," Mr. Chenault told investors
during a meeting last month. American Express has thrived so far by driving up spending
on its cards. After widening its network of merchants, the company has successfully
encouraged its cardholders to charge more everyday purchases, like gasoline and
groceries, on its cards. Such daily purchases now account for more than 60% of spending
on its cards, up from 35% in 1990. Company executives are also looking to expand
American Express's reach in new areas. American Express has started processing
payments for a general consumer credit card being issued by MBNA Corp., and it expects
to field a similar card with Citigroup Inc. next year. American Express has even rolled
out a technology in some drugstores that lets consumers save time shopping by simply
waving their cards in front of an electronic reader. The In:NYC card is the most visible
example of American Express's strategy to attract new business. Don Chapman, the
company's head of business development, says he and two colleagues first came up with
the idea for a New York card in 2002 during a two-week brainstorming session at
American Express's lower Manhattan headquarters. Mr. Chapman's team wanted to
capitalize on the popularity of lifestyles depicted in television shows such as "Sex and the
City" and "Friends." Company data showed these young adults were less likely to already
have an American Express card. Market data also suggests they spend heavily at
businesses that accept cards. Residents of Manhattan between the ages of 25 and 34 are
36% more likely than people of the same age elsewhere in the country to go to bars,
nightclubs or out dancing, according to Simmons Market Research Bureau, a unit of
Experian Inc. "They go out all the time, they don't have big kitchens, they like being
social and their apartments are just a place where they sleep," Mr. Chapman says.
Reaching Out for Help Mr. Chapman, a 41-year-old father of two and a Led Zeppelin fan,
realized early on that American Express would need help courting customers as much as
a generation younger than its typical cardholders. The company organized focus groups
and Mr. Chapman began bouncing ideas off American Express's newer staff members
and interns. "I'd pick out the youngest, hippest person in the office and ask their opinion,"
he says. One idea that played badly with the younger set: emblazoning the card with a
New York landmark. Destinations like the Statue of Liberty seemed touristy, not
fashionable. Pictures of neighborhoods, park benches and pigeons also fell flat. American
Express's internal art department eventually designed a sleek black card with the letters
"In:NYC" printed on a window of clear plastic. Young New Yorkers also told American
Express they coveted access to social opportunities viewed as off-limits, such as
invitations to an exclusive party or sitting in the VIP area at popular nightclubs.
Once the card's basic idea was established, Mr. Chapman handed the project over to a
group of about a dozen American Express employees, including E-Bai Koo, a 33-yearold executive put in charge of signing up card customers. A native New Yorker who
attended the exclusive Dalton School and likes Ferragamo shoes, Mr. Koo fit squarely in
the card's target market.
9. Credit-card payments increased at an annual rate of 6.7% between 2000 and 2003, but
the growth rate is now expected to _______________, according to the Federal Reserve.
a. increase 12.5 %
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 8 of 26
b. triple
c. double
d. taper off Correct
10. The traditional American Express gold and platinum cards are _______ cards.
a. restaurant club
b. debit
c. credit
d. charge Correct
Battling Google, Microsoft Changes How It Builds Software
September 23, 2005; Page A1,,SB112743680328349448,00.html
REDMOND, Wash. -- Jim Allchin, a senior Microsoft Corp. executive, walked into Bill
Gates's office here one day in July last year to deliver a bombshell about the next
generation of Microsoft Windows. "It's not going to work," Mr. Allchin says he told the
Microsoft chairman. The new version, code-named Longhorn, was so complex its writers
would never be able to make it run properly. The news got even worse: Longhorn was
irredeemable because Microsoft engineers were building it just as they had always built
software. Throughout its history, Microsoft had let thousands of programmers each
produce their own piece of computer code, then stitched it together into one sprawling
program. Now, Mr. Allchin argued, the jig was up. Microsoft needed to start over. Mr.
Gates resisted at first, pushing for Mr. Allchin's group to take more time until everything
worked. Over the next few months, Mr. Allchin and his deputies would also face protests
from programmers who complained he was trying to impose bureaucracy and rob
Microsoft of its creativity. "There was some angst by everybody," says Mr. Gates of the
period. "It's obviously my role to ask people, 'Hey, let's not throw things out we shouldn't
throw out. Let's keep things in that we can keep in.' " Ultimately, Mr. Allchin's warning
proved cathartic and led to what he and others call a transformation in Microsoft's most
important product. A key reason: the growing threat from rivals such as Google Inc.,
Apple Computer Inc. and makers of the free Linux operating system. In recent years
these companies have been dashing out some software innovations faster than Microsoft.
Google has grown particularly effective at introducing new programs such as email and
instant messaging over the Internet, watching how they perform and regularly replacing
them with improved versions. Microsoft's Windows can't entirely replicate that approach,
since the software is by its nature a massive program overseeing all of a computer's
functions. But Microsoft is now racing to move in that direction: developing a solid core
for Windows onto which new features can be added one by one over time. As always,
Microsoft's great fear is that it will lose its near-monopoly on computer operating systems
and basic office software. In the short term, there is little danger of that. But the more
Google and other software makers encroach on Microsoft's turf, the greater the chance
that someday computer users will wake up and find Microsoft Windows superfluous.
"What happened when the American car companies failed to update their manufacturing
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 26
lines? There was a more efficient way to bring cars to market for a lower price and they
lost their market," says Microsoft Vice President Chris Jones. "We're in a little bit of a
different industry but it's the same thing." Microsoft's holy grail is a system that cranks
out a new, generally bug-free version of basic Windows every few years, with frequent
updates in between to add enhancements or match a competitor's offering. The Longhorn
crisis helps explain the sweeping restructuring that Microsoft Chief Executive Steve
Ballmer announced this week to organize the company into three major business units. A
key goal is to force Microsoft to be more nimble in producing and delivering software.
Mr. Allchin's reforms address a problem dating to Microsoft's beginnings. Old-school
computer science called for methodical coding practices to ensure that the large
computers used by banks, governments and scientists wouldn't break. But as personal
computers took off in the 1980s, companies like Microsoft didn't have time for that. PC
users wanted cool and useful features quickly. They tolerated -- or didn't notice -- the
bugs riddling the software. Problems could always be patched over. With each patch and
enhancement, it became harder to strap new features onto the software since new code
could affect everything else in unpredictable ways. The 53-year-old Mr. Allchin, who
joined Microsoft in 1990 and is now co-head of the Platform Products and Services
Division, says he always disdained the fast-and-loose culture of PC software. The holder
of a doctorate in computer science, Mr. Allchin craved discipline in code writing. But in
the booming 1990s, when it seemed Microsoft could do no wrong, there was little Mr.
Allchin could do. As soon as Microsoft was done with one version it pushed on to the
next. Mr. Allchin was haunted by what he calls his "little demons." In 2001 Microsoft
made a documentary film celebrating the creation of Windows XP, which remains the
latest full update of Windows. When Mr. Allchin previewed the film, it confirmed some
of his misgivings about the Windows culture. He saw the eleventh-hour heroics needed to
finish the product and get it to customers. Mr. Allchin ordered the film to be burned.
11. Last year Jim Allchin, a senior Microsoft Corp. executive, walked into Bill Gates's
office and told him the new version of Windows software, code-named Longhorn
a. was going to put Apple Computer out of business
b. was going to put Google out of business
c. was so complex its writers would never be able to make it run properly Correct
d. was going to be ready by January 2006
12. In 2001 Microsoft made a documentary film celebrating the creation of Windows XP,
after viewing it Jim Allchin, a senior Microsoft Corp. executive ordered the company to
a. make 1 million copies
b. put it on the web for free distribution
c. send it to Apple Computer
d. burn it (using real fire) Correct
Questions 13 – 18 from Marketplace, Section B
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WSJ Professor Guide: Page 10 of 26
Green Thumb Follow the Money, Frequent Fliers
September 17, 2005; Page B1,,SB112691505517043757,00.html
Passionate collectors of frequent-flier miles are losing out on some of the best deals in the
credit-card industry. The fact that Delta Air Lines and Northwest Airlines joined US
Airways Group and UAL Corp.'s United in bankruptcy court this week should be enough
to give travelers pause. But let's just assume, for the sake of argument, that all the major
airlines will survive. And pretend -- and this is a big stretch -- that you'll be able to
redeem those miles whenever you want to, wherever you want to go. Even so, the miles
you earn from using credit cards are no longer the most valuable reward you can get, in
most cases. The better choice is simple: cold, hard cash refunds. There are currently a
number of cash-back cards slugging it out for supremacy. The Citi Dividend Platinum
Select MasterCard and the new Chase Cash Plus Rewards Visa both give 5% cash back at
gas stations, grocery and drug stores, and 1% everywhere else. Others deliver 3% back on
restaurant purchases or 2% on all purchases as long as the refund goes into a college
savings account. Getting up to five cents back for every dollar charged instead of one
mile for every dollar spent (which is what most of the airline mile cards offer) makes
sense only if a mile is worth less than five cents. Is it? The short answer is, almost
always. Sometimes, in fact, miles are worth only a penny. Here's the math: Most people
redeem miles for domestic plane tickets in coach class. So, if you used 25,000 miles to
book a ticket priced at $250 on the open market, you'd be getting only a penny per mile
of value for that trip. Only if you use your miles for free international seats in first or
business class do you start to see more than a 5% return on your rewards. A first-class
trip to Sydney on United requires 120,000 miles. A round-trip in January could cost over
$16,000, valuing the miles above 13 cents each. Similar logic applies to the Membership
Rewards points from an American Express card. Turn those points into miles, and the
same math applies. Trade them for merchandise and you rarely get more than a penny of
value per point. The best way to exploit card issuers' largesse is to use cash-back cards
only at retailers where rebates are highest. For instance, the Citi and Chase 5% cards
offer the biggest rebates at gas stations, grocery and drug stores. Then, keep using your
miles-earning card for all other spending if you're saving up for a big international trip in
a premium cabin. Or, pull it out if you need just a few more miles to reach a threshold for
a particular ticket.
13. The most valuable reward you can get from credit card point programs is typically
a. merchandise
b. cold, hard cash refunds Correct
c. hotel rooms
d. gas
Stringer Faces First Big Test As Sony's Chief
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 26
September 19, 2005; Page B1,,SB112709038636844473,00.html
TOKYO -- When Howard Stringer first spoke to shareholders in June as Sony Corp.'s
new chief executive officer, one thing left many of his Japanese listeners scratching their
heads: his jokes. Mr. Stringer's ready sense of humor was a sure ice-breaker during the
eight years he headed Sony's U.S. operations. In Japan, where CEOs don't horse around
at shareholders' meetings and English-speakers have to be witty through an interpreter,
much of the fun was lost in translation. One that fell especially flat: In describing how he
got his job offer at a Japanese restaurant that served live, jumping shrimp, Mr. Stringer
quipped, "I didn't know whether to take the job or save the shrimp." Figuring out how to
make Japanese laugh is just one of many things Mr. Stringer is learning as he prepares for
his first big test of leadership on Thursday. He is scheduled that day to unveil his plans
for turning around Sony's struggling electronics business, where flagging profits and
morale prompted Sony's former chief executive, Nobuyuki Idei, to step down in June.
It is an urgent task. Investors and analysts say they are looking for clear, manageable
goals and concrete plans for attaining them -- especially given the wide-ranging
skepticism that greeted Sony's last strategy move, in which Mr. Idei pledged to raise
Sony's operating profit margin to 10% by March 2007. As of March 2005, it was
languishing at around 1.6%. Mr. Stringer has said he will work on narrowing the
company's focus in electronics, streamlining management and reworking the organization
so that it is leaner, faster and more unified. He already has started some of that
streamlining in the upper management levels, reducing the number of top posts available.
Some other options analysts and investors have broached: trimming the low-end Aiwa
brand of electronics or the ultrahigh-end Qualia brand, reducing research spending in iffy
areas like robots, and selling or consolidating some of Sony's many independent business
units. Two units often rumored to be for sale are the financial-holdings unit -- including a
bank and life insurer -- and a unit that operates a communications network in Japan. Sony
previously has said it will list a portion of the shares in each one as early as next year but
denies making plans to sell them off altogether. There are plenty of other units to let go
of: As of March 31, the company had 913 subsidiaries and 56 affiliates. Mr. Stringer's
performance will be doubly watched here, because he is a still-rare example of a relative
outsider brought in to run one of Japan's big corporations. Professional managers may be
the norm in the U.S., but Japanese companies long have been run by hand-picked insiders
-- operations experts who grew up in the company culture, wearing the company badge
and singing the company song. That has been slowly changing in recent years, as
growing numbers of Japanese firms -- particularly troubled ones -- turn to outsiders to fix
problems that insiders haven't been able to tackle. One of Japan's most famous examples
is Carlos Ghosn, the Brazilian-born Frenchman who, as chief executive of Nissan Motor
Co., implemented the kind of sweeping layoffs the car company's previous bosses
couldn't bring themselves to do. This year, companies such as electronics maker Sanyo
Electric Co. and retailer Daiei Inc. also have tapped outsiders -- in both cases, Japanese
women -- to top executive posts.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 26
14. Mr. Howard Stringer, Sony Corp.'s new chief executive officer, is a relatively rare
phenomenon in Japan because _____.
a. he used to be a professional comedian
b. he worked his way up from the entry level of the company
c. he is an outsider brought in to run one of Japan’s biggest companies Correct
d. he staunchly refuses to lay-off any employees
By: Bye-Bye Boomers?
September 20, 2005; Page B1,,SB112718141602545779,00.html
When executives at Platte River Power Authority, an electric company in Fort Collins,
Colo., surveyed its employees 18 months ago, they were stunned by a particular finding:
40% of the company's 200 workers said they intended to retire over the next five years.
With little chance of hiring from other stretched power plants -- and apprenticeships for
technicians typically taking at least four years -- executives faced a stark reality. "We've
got to be moving right now," says Dave Green, human-resource manager. He is
scrambling to hire trainees and recently created a new job -- plant assistant -- to fill
apprenticeships as soon as they open up. Across a wide swath of industries, companies
are starting to address the impending exodus of baby boomers -- the 76 million
Americans born between 1946 and 1964. The oldest boomers will begin turning 60 years
old next year. Just two years later, they can start collecting Social Security benefits.
Many company retirement benefits kick in around the same time: most workers in
traditional, defined-benefit pension plans become fully vested between the ages of 55 and
62. And those with 401(k)s or other defined-contribution plans can tap them with no
restrictions starting at age 59½. Many baby boomers, of course, may decide to stay on the
job longer than previous generations -- particularly to shore up savings. Still, the number
of potential retirees is stark: more than 40% of the U.S. labor force will reach the
traditional retirement age by the end of this decade, according to a new study by the
Conference Board, a New York research organization. In the next seven years, the
number of U.S. workers between ages 55 and 64 will grow 51% to 25 million, meaning
the fastest-growing portion of the work force is the one at most risk of retiring soon. At
the same time, the number of workers between ages 35 and 44 is expected to shrink by
7%. Some sectors could be particularly hard-hit. About half the country's 400,000
electric-utility workers, such as those at Platte River, will be eligible to retire in the next
five years, says Michael Ashworth, a researcher at Carnegie Mellon University in
Pittsburgh. Half the U.S. government's civilian work force will also be eligible to retire in
the same time period. And 40% of the manufacturing work force is expected to retire in
the next 10 years, the National Association of Manufacturers warns. Overall, that could
leave a shortage of five million skilled workers between 2010 and 2012.
15. According to a new study by the Conference Board, a New York research
organization, more than __________ of the U.S. labor force will reach the traditional
retirement age by the end of this decade.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 26
a. 10%
b. 20%
c. 40% Correct
d. 70%
Marshall Field's Becomes Macy's as Era Ends
September 21, 2005; Page A15,,SB112723394240646256,00.html
In 1896, as legend has it, the wife of U.S. President-elect William McKinley called on
Marshall Field's Chicago department store to create her inaugural gown.
"Give the lady what she wants," store founder Marshall Field responded, a command that
became the retailer's motto for more than 100 years. Beginning next year, the iconic
script nameplate will cease to exist. Federated Department Stores Inc., which acquired
Fields' parent, May Department Stores Co., earlier this year, announced yesterday that it
would convert all of the 62 Field's stores to the Macy's name. Federated also plans to cut
as many as 6,200 jobs, or about 5% of May's work force, next year as it embarks on a
massive integration effort to combine the two companies. The $11.9 billion deal,
completed in August, creates a department-store behemoth of about 950 stores
nationwide and more than $30 billion in sales. The decision provoked a storm of outcry
in Chicago, where generations of shoppers grew up having afternoon tea in Marshall
Field's famous Walnut Room, admiring its annual Christmas tree and buying its ownbrand Frangos mints. More than just a retailer, Marshall Field's has long been
synonymous with Chicago, where Mr. Field, the founder, and his heirs were among the
city's most prominent philanthropists, helping fund some of the city's landmarks
including the Field Museum, the University of Chicago and the Merchandise Mart.
"I think it's a crime," said Ashley Corotis, a 28-year-old Chicago lawyer, echoing a
widespread sentiment. "I bought my wedding dress there. It's a shopping institution. They
are losing that history." The end of Marshall Field's is just the latest in a long string of
moves by Federated to create a national department store brand. Faced with competition
from retail giants like Wal-Mart Stores Inc. on the low end and specialty stores owned by
Neiman Marcus Group Inc. on the high end, Federated has said that a unified national
chain under a single umbrella brand is the only way it can compete. "Certainly in the
Chicago market there is emotion with the name of Marshall Field's, and we have a lot of
respect for that -- these are hard decisions," Federated Chief Executive Officer Terry
Lundgren said in an interview yesterday. "But where can you take that business, how do
you expand it, how do you grow it? It didn't have national potential." Federated worked
with marketing and consumer-research experts before making its decision, Mr. Lundgren
said. It conducted mall surveys, a phone campaign and focus groups to determine that
folding the storied chain into the larger Macy's business made sense. A key
consideration: The Macy's shingle permits the 62 Field's locations to participate in
Federated's plans to significantly increase Macy's national advertising presence. "It would
have been a missed opportunity for Chicago to not be a part of this," Mr. Lundgren said.
With the exception of its upscale Bloomingdale's division, Federated earlier this year
converted all of its chains -- including Rich's, Burdine's and Goldsmith's -- to the Macy's
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 26
nameplate. Yesterday, Federated reiterated its intention to convert the rest of May's longtime nameplates to Macy's, including the Filene's, Hecht's and Robinson-May chains.
Lord & Taylor could also disappear: Federated said it intends to study the division and
determine its future by the end of its fiscal year in January.
16. Marshall Fields, which will soon take on the name Macy’s has long been associated
with which major city?
a. New York City
b. Chicago Correct
c. Los Angeles
d. Dallas
New Search Engine From Microsoft Gets Cool Welcome
September 22, 2005; Page B1,,SB112735486532848253,00.html
With the major reorganization it announced this week, Microsoft Corp. is trying to move
more quickly and aggressively against Google Inc. and other nimble competitors. But the
recent experience in the Web search realm by Microsoft's MSN unit -- regarded as one of
the more agile parts of the software giant's empire -- suggests that even Microsoft's best
efforts can face a tough time gaining ground on Internet rivals. Microsoft in February
switched the search function on its Web sites from technology provided by Yahoo Inc. to
Microsoft's own search engine. Since then, Microsoft's share of Web search queries in the
U.S. has slipped, according to several research groups. A study conducted earlier this
year concluded that more consumers found MSN's search results to be less relevant to
their queries following the switchover, say people familiar with the matter. Meantime,
MSN executives say they have been surprised at how quickly Google has increased the
average ad revenue it generates for each consumer search. Within the MSN unit,
Microsoft is pushing hard to increase the relevance of the results it returns to users. And
it is planning an ambitious marketing campaign to bolster the MSN brand against Google,
which commands the leading share of search queries despite buying almost no
advertising. In another challenge to Google, next month in the U.S. Microsoft plans to
open a test version of an automated system that will sell search advertising directly.
Currently, most of the search ads on Microsoft sites are sold by Yahoo. Microsoft says
some research actually shows it is gaining ground on competitors. "It couldn't be further
from the truth than to say that we haven't made fast progress," says Yusuf Mehdi, a
Microsoft senior vice president who is heading the search effort. "We are very close to
closing the gap" in the relevance of MSN's results versus those of Google, he adds.
17. With the major reorganization it announced this week, Microsoft Corp. is trying to
move more quickly and aggressively against _______ and other nimble competitors.
a. Google Correct
b. Apple
c. Wal-mart
d. Sears
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 26
Managing a Hurricane -- Differently
September 23, 2005; Page B1,,SB112743093217349228,00.html
The federal preparations now under way for Hurricane Rita are very different from the
efforts before, during and after Hurricane Katrina. And the differences start at the top.
The Department of Homeland Security, which oversees the Federal Emergency
Management Agency, has taken a much more central role in preparing for a potential
disaster than it did for Katrina and its aftermath. Among its early actions: naming a
"principal federal officer" to coordinate the national response to the hurricane bearing
down on the Texas coast, in this case Rear Admiral Larry Hereth, a Coast Guard officer.
Adm. Hereth reports directly to Homeland Security Secretary Michael Chertoff. With
Katrina, Coast Guard Vice Admiral Thad Allen wasn't appointed to head up relief efforts
until almost two weeks into the disaster.
R. David Paulison, the new acting director of FEMA, said yesterday that his agency was
seeking to have essential commodities such as ice, water and food in place in potentially
affected areas such as Texas and Louisiana by the end of the day. In all, 45 truckloads of
water and ice and 25 truckloads of meals will be ready in staging areas at federal facilities
in Texas, Mr. Paulison said. More than 400 medical-team personnel and 14 Urban Search
and Rescue Task Forces, meanwhile, are also staging in Texas, FEMA said.
FEMA official Gary Jones, second in command to Adm. Hereth in leading the federal
effort in Texas, said there were 100 tractor-trailers filled with tarps, generators and ice at
Ft. Sam Houston in San Antonio, ready to be deployed as soon as roads were open. A
similar convoy is being put together at a federal warehouse in Fort Worth, said Mr. Jones.
"We're very concerned that we lean forward and have the resources to deal with whatever
comes up," said Adm. Hereth. "We need to establish what we need and then build some
excess capacity." The military also is being mobilized more quickly than it was for
Katrina. Texas Gov. Rick Perry said he asked President Bush for 10,000 federal troops on
Thursday morning; by the early afternoon, the Pentagon had approved the request. The
troops will be available to do "everything short of law enforcement," said Adm. Hereth,
who has been dispatched to Texas from his usual post in Portsmouth, Va., where he is the
Fifth District Commander. The changes in crisis-management are largely a result of the
criticism for FEMA's bungled management in the aftermath of Katrina. The shifts are
also a recognition of the effective role the Coast Guard has played during the Katrina
recovery, when its ships and helicopters were the first on the scene to rescue stranded
residents from rooftops and floodwaters. Mr. Chertoff also chose the Coast Guard over
FEMA to be the public face of the federal response last week when the much milder
Hurricane Ophelia hit the North Carolina Coast. The new alignment also raises Mr.
Chertoff's power and profile. A former judge and federal prosecutor, he is not well versed
in emergency management. But his supporters say that he is an excellent manager and
that his stewardship of the department and FEMA since Katrina has provided clear and
strong leadership.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 26
Inside FEMA, meanwhile, officials see the plans taking shape for Rita as a symbol of
their diminishing authority. While FEMA officials are still charged with coordinating
federal assets from a myriad of departments and agencies during a disaster, they say
decisions are being made now by senior Homeland Security officials. FEMA is largely
being told what to do.
For their part, Texas state officials have made clear that they don't intend to repeat
mistakes made during Katrina. Gov. Perry, who activated 5,000 National Guard troops
and deployed 1,000 state police, said he expected the combined force would create a
"show of authority" in storm-devastated regions. On Monday, the governor recalled
Texas National Guard members and other emergency response officials from Louisiana
to prepare for Rita.
18. Rear Admiral Larry Hereth has been appointed the "principal federal officer" to
coordinate the national response to the hurricane bearing down on the Texas coast.
Admiral Hereth is part of the _______________ which has increasingly been deployed to
assist citizens in times of national crisis.
a. U.S. Coast Guard Correct
b. Texas National Guard
c. U.S. Navy
d. Texas Ranger Sea Guard
Questions 19 – 23 from Money & Investing, Section C
Hammer Time
September 19, 2005; Page C1,,SB112708228717044348,00.html
Last week President Bush pledged that the U.S. government would launch "one of the
largest reconstruction efforts the world has ever seen" in the hurricane-battered Gulf
But in an odd twist, rebuilding the homes and businesses that Katrina destroyed could
constrain the supply of materials and labor in the rest of the country, spelling trouble for
real-estate markets all over. Average prices for framing lumber (think two-by-fours),
which had been falling before Katrina, have risen by 14% since the hurricane hit,
according to Shawn Church, editor of lumber-industry newsletter Random Lengths.
Average structural panel (plywood) prices have risen 38% over the same period.
Those price increases came about because Katrina suddenly put lumber in short supply,
says Mr. Church. The hurricane knocked out Southern production and destroyed millions
of board feet of lumber and square feet of plywood that was sitting in Gulf ports at a time
retailers and distributors were keeping inventories lean. The impact of reconstruction on
the prices of lumber and other important building materials, like cement and gypsum
board, hasn't been felt yet. That won't hit until rebuilding begins in earnest. According to
mortgage lender Freddie Mac, construction materials account for about one-third of the
cost of a new home.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 26
Carpenters, plumbers and other skilled workers may soon be in short supply in many
parts of the U.S. as they flock to the Gulf to take part in rebuilding efforts. "You've
already got a very tight construction business nationally," says Lehman Brothers
economist Ethan Harris. "This just adds a new layer of pressure on the industry."
Home builders may have a hard time pushing higher costs onto buyers. Higher home
prices and an increase, although meager, in long-term interest rates pushed home
affordability to a 14-year low in July, according to Raymond James analyst Rick Murray.
19. Hurricane Katrina has caused the price of which building supply to increase
a. nails
b. hammers
c. lumber Correct
d. bricks
Tyco Figures Will Be Jailed at Least 7 Years
September 20, 2005; Page C1,,SB112713469282444807,00.html
NEW YORK -- In an ignominious end to their once-glittering careers, Tyco International
Ltd.'s two former top executives were led away from a Manhattan courtroom with their
hands cuffed behind their backs, after a New York state judge sentenced them to serve 8
1/3 to 25 years in prison for looting their former company. The lengthy prison sentences,
although less than the 15-to-30-year maximum that could have been imposed, are the
latest example of relatively harsh punishment being meted out to top executives in the
recent wave of corporate-fraud trials. The two men were ordered to pay fines and
restitution totaling about $240 million. L. Dennis Kozlowski, Tyco's former chief
executive, and Mark H. Swartz, the company's former finance chief, each were convicted
in June of 22 criminal charges related to looting their former employer of more than $150
million. The pair had once been among the most powerful and best-paid executives at an
American company, helping build Tyco into a conglomerate with $36 billion in annual
revenue. Tyco has been under new management since mid-2002. Under New York state
law, they will have to serve nearly seven years at minimum: specifically, at least six
years, 11 months and nine days before being eligible for parole, subject to good behavior
and other factors. Both defendants have said they will appeal. Mr. Kozlowski's lead
attorney, Stephen Kaufman, said immediately after the sentencing hearing that he will be
applying for bail for his client pending appeal. Charles Stillman, the lead attorney for Mr.
Swartz, said he will be "pursuing appropriate remedies for Mark's situation." In New
York, defendants can choose to bring bail applications before any judge, and often try to
choose judges known for their leniency. In New York, inmates with more than six years
to serve until they are eligible for parole are usually sent to one of the state's maximumsecurity prisons, which house 22,000 mostly violent offenders, said Linda Foglia, a
spokeswoman for the New York State Department of Correctional Services. Prisoners in
such facilities are housed in cells, and work six hours a day at tasks like sweeping,
painting, or working in the library, she said, adding that inmates generally are paid $1.05
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 26
a day. Separately, Tyco is close to an agreement to pay $50 million to settle Securities
and Exchange Commission fraud charges related to accounting misdeeds during the
period when Messrs. Kozlowski and Swartz were in charge, according to a person
familiar with the matter. Lawyers at yesterday's sentencing hearing first revealed the
likely SEC charges, with a prosecutor saying the SEC staff was recommending that Tyco
be charged with inflating its income by about $1 billion.
20. In an ignominious end to their once-glittering careers, Tyco International Ltd.'s two
former top executives were led away from a Manhattan courtroom with their hands
cuffed behind their backs, after a New York state judge sentenced them to serve
____________________in prison for looting their former company.
a. 8 to 25 days
b. 8 to 25 weeks
c. 8 to 25 months
d. 8 to 25 years Correct
Making Sense of 'Dollar Stores'
September 21, 2005; Page C1,,SB112726891431347030,00.html
The red-hot growth of "dollar stores" is cooling.
In recent years, these stores have sprouted like wildflowers as customers and investors
alike embraced the novelty of stores pitching everything from candy to apparel at prices
as low as 99 cents. The number of dollar stores operated by publicly traded companies
jumped nearly 50% to 17,000 since 2001, according to a Citigroup Inc. analysis.
But this year has brought a slowdown as the stores face tougher competition from
traditional retailers such as Target Corp. and grocery chains, which have added dollar
aisles and made other tweaks. At the same time, dollar-store customers have felt their
wallets pinched by soaring prices at the gasoline pump. The result: The dollar-store
industry's same-store sales -- a key measure of year-over-year sales growth at stores open
at least a year -- tumbled to an average rate of 0.4% in the first half of this fiscal year,
down from 1.4% for all of 2004 and 4.1% as recently as 2003, according to SunTrust
Robinson Humphrey analyst Patrick McKeever. Market-research firm Retail Forward
predicts that the industry's overall sales -- from new and older stores -- will slip to
average annual growth of 5.4% over the next five years from 6.2% in the past five.
The slowdown signals that dollar stores are entering a new phase. As its rapid momentum
slows, the industry must draw more of its growth from improving the performance of its
existing stores. "I wouldn't yet characterize the [industry] as mature -- but probably at the
peak of its growth cycle and on the cusp of maturity," said Sandra Skrovan, a Retail
Forward vice president. Investors have mostly voted with their feet so far. Share prices of
Fred's Inc. have swooned to $12.04 at yesterday's close on the Nasdaq Stock Market from
around $30 in early 2004. The stock of 99 Cents Only Stores sunk to $10.11 a share on
the New York Stock Exchange from the high $20s in the same span. Dollar Tree Stores
Inc. closed at $22.97 yesterday on Nasdaq, down from the low $30s. Family Dollar
Stores Inc. closed yesterday on the Big Board at $20.49 a share, down from the high
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 26
$30s. Even the industry's largest and strongest company, Dollar General Corp., has seen
its stock price, which closed yesterday at $18.77, mostly flat since early 2004.
The news isn't getting any better. Some dollar-store operators revised their earnings-pershare forecasts late last month for their current fiscal year. Dollar Tree, of Chesapeake,
Va., lowered its forecast to $1.57 to $1.66 from $1.77 to $1.87. Fred's, of Memphis,
Tenn., which offers pharmaceuticals as well as discount goods, lowered its forecast to 74
to 79 cents from 84 to 89 cents due to high gasoline prices and cuts in its home state's
Medicaid program. "We expect our core customer's discretionary spending to continue to
be pressured by high gasoline prices and unemployment," David Perdue, chairman and
chief executive of Dollar General, told investors in an Aug. 25 conference call.
21. The red-hot growth of "dollar stores" is ________________.
a. getting hotter
b. doubling
c. going global
d. cooling Correct
How American Lenders Shelter Themselves
September 22, 2005; Page C1,,SB112734382557847947,00.html
Big U.S. mortgage lenders are selling most of the riskier loans they have been making,
and some are finding other ways to protect themselves from the possibility of a surge in
defaults once the housing market simmers down. Lenders have long sold all or most of
their standard mortgage loans to packagers of securities backed by these assets. But when
it comes to riskier loans, some investors like to see lenders retain a large amount of
exposure, so that both lenders and investors have skin in the game. One of the fastestgrowing and riskiest types of home loans is the option adjustable-rate mortgage, or option
ARM. These loans give borrowers several payment choices each month. Borrowers who
elect to make the minimum payment can see their loan balance rise, a process known as
"negative amortization." Bank regulators have been raising questions about the risk of
these option ARMs. One danger is that some borrowers taking advantage of low monthly
payments now -- sometimes as a way to get into homes they couldn't otherwise afford -won't be able to meet the much-higher payments required later to pay off the loan.
Until a year or so ago, option ARMs were a niche product aimed at sophisticated and
well-heeled borrowers who wanted flexibility. Now they have gone mainstream.
Countrywide Financial Corp., the nation's largest mortgage lender, says about a fifth of
the home loans it made in this year's first half were option ARMs. In the second quarter,
Countrywide has disclosed, it sold about three-quarters of the option ARM loans it
originated and retained the rest. Angelo R. Mozilo, Countrywide's chief executive,
acknowledged during a July conference call with investors that it isn't clear how
successful borrowers ultimately will be in paying off their option ARMs. So far,
borrowers are doing very well in meeting their payments, Mr. Mozilo said, but "you have
to wait some time for loans to mature, a year or two years, even three years, to determine
how they're going to perform."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 26
Another large lender, Washington Mutual Inc., told analysts during its latest quarterly
conference call that it, too, was selling about three-quarters of its option ARMs. In
addition, in the second quarter, Washington Mutual transferred $2.9 billion of option
ARMs out of its long-term portfolio and into the category of loans available for sale.
22. One of the fastest-growing and riskiest types of home loans is the ______.
a. option ARM Correct
b. ARM
c. ATM
d. option CAM
In China, That Ivy League Degree Isn't Gold
September 23, 2005; Page C1,,SB112743461612349380,00.html
SHENZHEN, China -- China still is a magnet for ambitious, Western-educated
entrepreneurs coming home to start high-tech companies and cash in on China's
economic boom. Take Charles Zhang, the Massachusetts Institute of Technology-trained
founder of Web portal Inc., and Edward Tian, who earned a doctorate in the
U.S. and once charmed Rupert Murdoch into joining the board of his Beijing
telecommunications company. But this favored class isn't looking quite so favored, at
least in the eyes of venture capitalists looking to invest in China. The trend is largely
anecdotal, but for many "seed capitalists" poking around Beijing and Shanghai, slick
Westernized returnees are out. Local, rough-around-the-edges entrepreneurs are in.
"The less English you speak, the better," says David Zhang, a venture capitalist in Beijing
with San Francisco's WI Harper Group. He and other investors say locally trained
executives often are more thrifty with cash and better understand local Chinese markets -and businesses that know how to tap them -- than people who have been abroad for years.
"A lot of the returnees, actually, they have lost touch with China," agrees Vincent C.H.
Chan, a managing director at Jafco Asia, part of Jafco Co. of Japan. Instead of courting
Ivy League graduates with slick business plans, Messrs. Zhang and Chan are plowing
money into no-frills Chinese start-up businesses such as wireless-services provider China
Broad Media Corp. The company, funded by WI Harper, is the brainchild of Tian Song,
an entrepreneur who went to college in Beijing and toiled in the state-owned
telecommunications sector there. He says, through a translator, that his only visit to the
U.S. was a brief trip to Las Vegas. Jafco has helped to finance such entrepreneurs as
Zhou Hongyi, who founded Chinese Internet search-engine concern 3721 Network
Software Inc. Yahoo Inc., intrigued by Mr. Zhou's technology -- it enables people to use
Chinese characters to search the Web -- bought the company nearly two years ago for
$120 million. Some returnees may have "studied in a good school," says Andy Yan,
managing partner of Hong Kong investment firm SAIF Partners. But "when they come
back, they think they know everything." One of Mr. Yan's favorite home-grown success
stories is Hu Xiang, a founder of SAIF portfolio company Mobile Antenna Technologies
(Shenzhen) Co. Mr. Hu, 52 years old, is about as far from a polished returnee as one can
get in China: He doesn't speak English and missed nearly 10 years of schooling during
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 21 of 26
the Cultural Revolution that began in the 1960s. Mr. Hu dug tunnels and later was a lowlevel factory worker, sometimes going hungry. That Mr. Hu suffered during the Cultural
Revolution and had to work so hard for his success, instead of leading a more
comfortable life abroad, appealed to Mr. Yan. "We've been through so much," says Mr.
Yan, who had similar experiences. "The challenges now don't seem so big."
23. Vincent C.H. Chan, a managing director at Jafco, Asia thinks many Chinese returning
from western educations have ______________________.
a. great new ideas
b. great technical skills
c. great financial skills
d. lost touch with China Correct
Questions 24 – 26 from Personal Journal, Section D
The Holidome Returns: Slumping Holiday Inn Expands Water Parks
September 20, 2005; Page D1,,SB112718145162545781,00.html
Holiday Inn, in a bid to freshen up its fusty image, is bringing back an idea that was a hit
with travelers during the Ford administration. The oldest major hotel chain in the U.S.
will announce today that it plans to revive the Holidome, its cavernous atrium hotels with
indoor swimming pools that served as cheap getaways for families in colder climates.
Holiday Inn has teamed up with a water-park designer to create indoor pools with 32-foot
enclosed slides, aquatic basketball, and "mini-geysers." The water parks will mostly be
only in newly built Holidomes -- the company is planning to open six by next year in
cities including Chicago-Elmhurst, Ill., Coleraine, Minn., and Stevens Point, Wis. At the
same time, all 130 existing Holidomes, which typically have regular pools and in some
cases mini golf, will get additional water features by 2007. As part of its makeover,
Holiday Inn will also rejigger its Select brand to appeal to thirtysomething travelers, who
make up an increasingly large percentage of travelers but tend to gravitate to trendier
hotels. Starting next year, the 81 Select hotels will feature a Sporting News Grill
restaurant, MP3 clock radios in rooms, Wolfgang Puck coffee -- and feng shui throughout
the building to create a "balanced, calming and inviting stay." Even the employee
uniforms are getting an upgrade. These moves come as leisure travelers will for the first
time this year book more rooms than business travelers, travel consultant D.K. Shifflet &
Associates predicts. While nonconvention business travel still hasn't recovered from its
2000 levels, leisure travel has been growing steadily. For Holiday Inn, reviving the
Holidome is an attempt to capitalize on the surge in the popularity of hotels with indoor
water parks, many of which are located in cities where it's too chilly for outdoor
swimming most of the year. Great Wolf Resorts Inc., which went public late last year,
has seven huge indoor water-park resorts in the Midwest and Virginia. It is currently
building five more, one of which will open next month in Pennsylvania's Pocono
Mountains. "There is a lot of demand from consumers for these waterparks," says Will
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 22 of 26
Marks, an analyst with JMP Securities in San Francisco. There are some signs that the
field of hotels with water parks may be getting crowded. Great Wolf's shares have
tumbled recently on concerns of unexpected competition in some of its markets. But
Holiday Inn says it is sees opportunity. A study commissioned by the chain found that
hotels with indoor water parks have occupancy rates up to 20 percentage points higher
than those without them, and with rates that are $28 higher. Holiday Inn founder
Kemmons Wilson launched the roadside-motel chain in the early 1950s just as a newly
flush American middle class was taking to the road on the burgeoning interstate-highway
system that revolutionized motor travel in the U.S. At a time when most motels were
mom-and-pop operations, Mr. Wilson's idea was to make every Holiday Inn the same so
travelers would know what to expect. To attract families with children, one of the
standard features was a swimming pool.
24. Holiday Inn, in a bid to freshen up its fusty image, is bringing back the
a. in-door play ground for young children
b. in-door roller rink
c. Astrodome
d. Holidome Correct
An Early Look At Next Year's Taxes
September 21, 2005; Page D1
By TOM HERMAN,,SB112726556478946940,00.html
An early look at income tax changes for next year shows that most Americans will get
some modest relief. Each year the Internal Revenue Service adjusts its tax tables and
many other items to take inflation into account. The IRS doesn't typically issue the
official revisions until later in the year, but calculations by three tax specialists, making
use of new inflation data from the government, indicate that taxpayers will benefit from
slight increases in the basic standard deduction, the personal exemption and other key
items. The changes will apply to income received in 2006. On top of the inflation
adjustments, millions of upper-income taxpayers will get additional breaks next year,
when parts of President Bush's tax cuts are scheduled to take effect. The changes, enacted
by Congress in 2001, will allow many high earners to take more itemized deductions and
personal-exemption amounts than under current law. For many taxpayers, another
important adjustment is an expected change in the gift-tax exclusion. The annual gift-tax
exclusion for 2006 is likely to rise to $12,000, according to the tax specialists, after
having remained stuck at $11,000 from 2002 through this year. Generally, this represents
the maximum amount you can give away to another individual without having to report it
to the IRS. The increase would be welcome news for people seeking to reduce the size of
their estate by making tax-free gifts to children or grandchildren, or other recipients.
How much savings individual taxpayers get from the inflation adjustments depends on
their income, deductions and other key details of their returns. But a hypothetical married
couple filing jointly, with total taxable income in 2006 of $100,000, will probably pay
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 23 of 26
$215 less in federal income tax than on the same income for 2005, according to CCH Tax
and Accounting. This is a bigger tax saving than last year, when inflation adjustments
reduced federal income tax for the same hypothetical couple by $145. Still, what relief
there might be for many taxpayers could be undone if Congress doesn't act to curb the
growth of the alternative minimum tax. The AMT, originally designed to prevent a small
number of high-income individuals from avoiding paying taxes, has hit a growing
number of middle-income earners because the levy isn't indexed for inflation. If Congress
does nothing, the AMT will hit more than 20 million Americans in 2006, up from about
3.8 million this year. Many tax advisers believe lawmakers will enact at least a temporary
patch to slow the AMT's growth. The inflation adjustment calculations were done by
George Jones of CCH, William E. Massey of RIA, and James C. Young, associate
professor of accounting at Northern Illinois University. RIA, of New York, and CCH, of
Riverwoods, Ill., sell tax and other business information. Their projections have proven
highly reliable in the past, and they may help many people with tax-planning strategies.
The annual changes are based on consumer price index figures from the Labor
Department for the 12 months through August, released last Thursday. The official IRS
numbers could differ from the projections if the Labor Department revises its report.
The basic standard deduction for married couples filing jointly is expected to rise for
2006 to $10,300 from $10,000 for 2005, according to the tax specialists. For most singles
and married taxpayers filing separately, the basic standard deduction will increase to
$5,150, up $150, they say. The personal exemption amount will rise to $3,300 from
25. A hypothetical married couple filing jointly, with total taxable income in 2006 of
$100,000, will probably pay $_________ in federal income tax than on the same income
for 2005.
a. 215 less Correct
b. 215 more
c. 2150 less
d. 2150 more
Beyond the Prenup
September 22, 2005; Page D1,,SB112735445722148247,00.html
Wealthy families and individuals are increasingly looking beyond prenuptial agreements
to shield property from future divorce claims. The main goal is to make sure inheritances,
and other assets accumulated before marriage, are kept separate from marital property,
which a judge can divvy up if a couple divorces. Protecting wealth from the financial
ravages of divorce has long been a key concern of families, who often enlist lawyers to
draft a detailed prenup spelling out what's his and hers before the wedding invitations are
sent out. But wealth managers are increasingly trying other strategies -- especially the
creative use of trusts, which can be effective in sheltering assets a spouse has earned
before the marriage or will inherit. Using multiple, premarital asset-protection
techniques, including trusts and prenups, can also be helpful if one of the strategies falls
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 24 of 26
through. And since divorce judges have wide discretion in carving up property, that's
always a danger. Legal advisers say parents of prospective brides and grooms often show
the most interest in premarital trusts, because they don't want to see family wealth
dissipate because of divorce. Families have also grown more comfortable in recent years
with using trusts for tax planning and asset-protection purposes. Also, a growing number
of states have loosened their trust laws to allow trusts to last longer and be better shielded
from creditors. A chief attraction of premarital trusts, lawyers say, is the fact that they can
be set up without the future spouse's knowledge. Many wealthy individuals choose to
forgo a prenup altogether, for fear that it will dim the ardor of romance -- and for them a
premarital trust is a good alternative, says Mario Mata, a lawyer with Cantey & Hanger in
Dallas. He says the majority of prenups he drafts for clients are never even signed. "They
never take it out of the envelope," he says. "They didn't have the guts." Premarital assetprotection tactics can be as simple as scrupulously maintaining separate bank and
securities accounts. They can also be mind-numbingly complex, such as combining
offshore family limited partnerships, which are popular estate-planning tools for family
businesses, with offshore asset-protection trusts, located in places with special laws that
make it tough for U.S. creditors to reach trust assets. The cost of setting up these morecomplicated offshore plans ranges from about $45,000 to $125,000, says Chicago lawyer
Thomas J. Handler, who says he has set up such structures for a growing number of his
wealthy clients. On top of that are administration and accounting fees that can run several
thousand dollars annually, and asset-management fees of about 1% on the assets placed
in trust. A domestic trust can cost less -- typically about $5,000 to $10,000 in attorney's
fees, depending on the complexity of the arrangement, plus annual fees. The cost of a
prenup varies widely, depending on the type of assets involved and the extent of
negotiations. A simple agreement starts at about $1,000, but prenups involving
complicated family businesses and multiple residences can end up costing tens of
thousands of dollars in lawyers' and appraisers' fees. Of course, no strategy to protect
property from divorce is bulletproof. Divorce and trust laws vary markedly by state, a
particular problem as families move or maintain different residences. What's more,
family court judges often have wide latitude in dividing up marital property. For instance,
one spouse's trust holdings could influence a judge to award more support or a greater
share of assets to the other spouse. In some cases, a judge also could tap trust assets for
alimony payments.
'Belts and Suspenders' Approach
The safest bet, say advisers, is to combine asset-protection structures with prenuptial
agreements -- what lawyers call the "belts and suspenders" approach. While trusts may
shield premarital assets or money that comes from a spouse's parents or grandparents,
they may be less effective in divvying up property earned or acquired during marriage.
Prenups, in turn, spell out exactly how assets, especially what's obtained after marriage,
should be divided in case of divorce or death. They also have the advantage of promoting
open discussion among couples about finances. But prenups might not hold up in court if
drafted improperly or if the couple's circumstances change greatly after being signed.
Premarital planning tactics vary depending on whether the assets in question were
generated by the bride or groom or their parents. If it's the parents that are wealthy,
advisers recommend that they leave gifts or inheritances to their children in trust, rather
than outright. In general, inherited property and gifts, even those received during
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 25 of 26
marriage, are considered out of the marital estate, but income and appreciation may not
always be. When parents transfer family wealth into trusts, that property is segregated
into its own bucket, clearly outlining what's inherited or given and what's not. By
contrast, says New York lawyer Arlene Dubin, a gift or inheritance deposited into a bank
account runs the risk of being subject to division at divorce, if it's commingled with
marital assets such as a joint tax refund or even a paycheck.
26. Many wealthy individuals choose to forgo a prenup and instead setup a(n)
__________ as they can be set up without the future spouse's knowledge.
a. premarital trust Correct
b. Post Nup Plan
c. Anti PreNup Plan
d. premarital savings 501 plan
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 26 of 26
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