The Wall Street Journal Education Program
Weekly Review & Quiz
Covering front-page articles from September 12 – 16, 2005
Professor Guide with Summaries Fall 2005 Issue #4
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 12 from The First Section, Section A
Opinion Maker A Young Lawyer Helps Chart Shift In Foreign Policy
By PAUL M. BARRETT
September 12, 2005; Page A1
http://online.wsj.com/article/0,,SB112649010425437670,00.html
In June, about 100 people gathered at the American Enterprise Institute, a conservative
Washington think tank, to hear a lecture by John Yoo on "fighting the new terrorism."
Mr. Yoo recommended an unusual idea: assassinating more suspected terrorists.
A law professor at the University of California at Berkeley, he said his proposal would
require "a change in the way we think about the executive order banning assassination,
which has been with us since the 1970s." Such a change is needed, he said, because it is
wartime: "A nation at war may use force against members of the enemy at any time,
regardless of their proximity to hostilities or their activity at the time of attack."
Mr. Yoo, 38 years old, is no ordinary ivory-tower theorist. During a two-year stint at the
Justice Department from 2001 through 2003, he wrote some of the most controversial
internal legal opinions justifying the Bush administration's aggressive approach to
detaining and interrogating suspected terrorists.
Some of those memos have become public, but not all of them. Asked after his AEI talk
whether there is a classified Justice Department opinion justifying assassinations, Mr.
Yoo hinted that he'd written one himself. "You would think they -- the administration -would have had an opinion about it, given all the other opinions, wouldn't you?" he said,
adding, "And you know who would have done the work."
A spokesman for the Justice Department declined to comment.
Mr. Yoo is playing an instrumental role in redefining the murky area where law intersects
with foreign policy. The change underpins President Bush's claim that he possesses the
sort of far-reaching emergency powers exercised by past presidents during conventional
wars.
Mr. Yoo, like others in the academic clique known as "sovereigntists," is skeptical of
international law and the idea that international relations are ever based on principle, as
opposed to self-interest. Mr. Yoo argues that the Constitution gives Congress limited
authority to deter presidential actions in foreign affairs. The judiciary, he says, has almost
none.
At the Justice Department, Mr. Yoo crafted legal arguments for the president's power to
launch pre-emptive strikes against terrorists and their supporters. He molded a theory for
not applying the Geneva Conventions to captured terrorist suspects. And he interpreted
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WSJ Professor Guide: Page 1 of 28
the federal antitorture statute as barring only acts that cause severe mental harm or pain
like that accompanying "death or organ failure."
In the wake of the Abu Ghraib prisoner-abuse scandal, the Bush administration has
backed away from Mr. Yoo's most extreme ideas about interrogation. But that hasn't
discouraged him from waging an intellectual offensive in speeches, articles and a
forthcoming book to be published by the University of Chicago. His claim is that
American law permits the president to go to almost any lengths in the name of fighting
terrorism.
The Yoo Doctrine, as it might be called, fits with the broader Bush-administration view
that pursuing American interests is best for the country and the rest of the world. Before
9/11, Mr. Yoo helped lay legal groundwork for some of the president's high-visibility
withdrawals from treaties, including the antiballistic missile pact with Russia and the
agreement underpinning the International Criminal Court in the Netherlands, established
in 1998 to deal with the gravest international crimes.
Another illustration of the Bush mind-set was the president's recess appointment last
month of John Bolton as U.S. ambassador to the United Nations, an institution Mr.
Bolton had derided as largely superfluous.
Not surprisingly, Mr. Yoo is reviled on the political left. Students at Berkeley last year
circulated a petition demanding that he recant his Justice Department work or resign his
professorship. (He has done neither.) Human-rights advocates suggest he might be a war
criminal and compare his memos with Nazi legal documents. Amnesty International
urged in May that state bar associations consider sanctions against Mr. Yoo and others.
Within the Bush administration, former Secretary of State Colin Powell warned in 2002
in an internal memo that Mr. Yoo's ideas about treatment of detainees would "undermine
the protections of the law of war for our troops." In July, senior uniformed military
lawyers deplored his analysis in Senate testimony.
In person, the academic is disarmingly mild and defends his views calmly. He has had
plenty of practice, and not just in media interviews and on campus. His wife, Elsa Arnett,
he says, disagrees with almost everything he believes about politics and policy. "We have
some heated discussions," he says. "I welcome it. It keeps me honest."
Mr. Yoo has always enjoyed being a conservative fly in the liberal soup. He met his
future wife when they were both Harvard undergraduates on the staff of the campus
daily, where he relished the role of token right-winger. She is the daughter of veteran war
correspondent Peter Arnett. "Elsa was always a smart, interesting person, and that was
attractive to John, even though they disagreed about everything political," says David
Lazarus, a friend since college who affectionately refers to Mr. Yoo as "the evil one." Ms.
Arnett, a writer, declined to be interviewed.
1. In June, about 100 people gathered at the American Enterprise Institute, a
conservative Washington think tank, to hear a lecture by John Yoo on "fighting
the new terrorism." Mr. Yoo recommended an unusual idea: _____________
suspected terrorists.
a. assassinating Correct
b. employing
c. training
d. give money to
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WSJ Professor Guide: Page 2 of 28
2. Mr. Yoo, like others in the academic clique known as "____________," is
skeptical of international law and the idea that international relations are ever
based on principle, as opposed to self-interest.
a. terror teachers
b. royalist
c. terror professors
d. sovereigntists Correct
Congress Delays Plans To Extend Bush's Tax Cuts
By BRODY MULLINS
September 13, 2005; Page A1
http://online.wsj.com/article/0,,SB112657392052038873,00.html
WASHINGTON -- In a major shift of priorities after Hurricane Katrina, Republican
leaders in Congress have delayed plans to extend dividend and capital gains tax cuts and
may shelve them for the rest of the year.
The House and Senate had planned a fall legislative agenda around a massive budget bill
that extended to 2010 the 15% tax rate on dividends and capital gains signed by President
Bush two years ago. The cut was one of the president's signature initiatives and is seen
inside the White House as a key part of his economic legacy.
The 15% rate isn't scheduled to expire until the end of 2008 -- meaning there's still time
to push an extension through. But Republicans, chastened by the costs of rebuilding the
Gulf Coast and negative public assessments of Washington's initial response to the
hurricane, have decided that taking any action on the bill is politically untenable at least
until late October in the suddenly changed political and budgetary environment.
"Events have consequences," said Bill Hoagland, the top budget aide to Senate Majority
Leader Bill Frist of Tennessee. "The overall environment here has been shaped by the
large [Katrina] spending bills and I'm starting to sense that some people are getting a little
nervous about the deficit."
In recent days, Congress has approved $62.3 billion in emergency aid for Katrina, and
yesterday Senate Budget Committee Chairman Judd Gregg of New Hampshire said the
Bush administration is likely to request another $50 billion within a month.
Also in question with the delay are prospects for significant new curbs on Medicaid, the
joint federal-state health-care program for the poor. The budget bill would cut $10 billion
from the program over the next five years, but a bipartisan group of senators is calling
such cuts inappropriate at a time when tens of thousands of poor people have been
displaced from their homes.
Lawmakers do appear likely to approve a temporary measure exempting millions of
middle-income taxpayers from paying the so-called Alternative Minimum Tax, which has
increased the tax burden for a growing portion of Americans in recent years. Without
such action, which enjoys strong support among senators of both parties, those middleincome taxpayers would face a significant tax increase next year.
Tax-writing committees on Capitol Hill also are looking to act quickly on new, targeted
tax relief to help residents and businesses in storm-stricken areas get back on their feet.
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WSJ Professor Guide: Page 3 of 28
Finance Committee Chairman Charles Grassley of Iowa and ranking Democrat Max
Baucus of Montana yesterday unveiled a $5 billion to $7 billion package of tax relief for
individuals that would make it easier for victims to get access to cash.
Moreover, congressional Republicans and the White House remain in favor of ultimately
extending the dividend and capital gains tax cuts, which they see as a boon to economic
growth.
Still, a delay in extending tax cuts, coming at a time when President Bush's popularity has
dropped in polls, could introduce new doubts about whether the president's tax cut will
outlast his presidency. The White House has considered the early part of the president's
second term its most auspicious window for action. Next year, Congress will be
enmeshed in midterm election pressures. After that, the president faces the prospect of
seeing his influence ebb as a lame duck with the nation looking toward the election of his
successor in 2008.
A separate, 17-point bill that congressional leaders hope to usher through the Senate this
week would allow flood victims to withdraw funds from retirement plans without
penalty, give them more time to pay their taxes and give businesses tax credits for
employing workers from affected areas and enhanced deductions for donations of food
and books. "We want to give the proper tools to businesses that will be hiring displaced
workers to create new jobs," Sen. Baucus told reporters.
Lawmakers in both chambers also plan further measures to allow displaced students to
deduct room and board from their taxable income, and to spur rebuilding efforts through
the issuance of tax-exempt bonds and acceleration of capital expensing and depreciation
for companies involved.
"These provisions will help revitalize business activity and employment in the affected
areas, restore the states' ports and trade capacity and rebuild the energy infrastructure,"
said House Ways and Means Chairman Bill Thomas of California and top Democrat Rep.
Charles Rangel of New York in a joint statement.
Meanwhile, the administration announced it would consider cutting tariffs on lumber
from Canada and cement from Mexico to guard against price spikes that might
accompany the post-Katrina rebuilding effort. The tariffs have been in effect for years
amid complaints from domestic producers about dumping of low-priced goods from
across the border. But a Treasury spokesman said the administration can adjust the tariffs
under special circumstances.
3. In a major shift of priorities after Hurricane Katrina, Republican leaders in
Congress have delayed plans to extend dividend and capital gains __________
and may shelve them for the rest of the year.
a. income cuts
b. tax cuts Correct
c. tax rules
d. benefits
4. The House and Senate had planned a fall legislative agenda around a massive
budget bill that extended to 2010 the __________ on dividends and capital gains
signed by President Bush two years ago.
a. 10 % tax rate
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WSJ Professor Guide: Page 4 of 28
b. 15 % tax rate Correct
c. 40 % tax rate
d. 45 % tax rate
How Mr. Kong Helped Turn China Into a Film Power
By GEOFFREY A. FOWLER and KAREN MAZURKEWICH
September 14, 2005; Page A1
http://online.wsj.com/article/0,,SB112666073185139985,00.html
SHANGHAI -- Movie producer Bill Kong was cutting a distribution deal in the back seat
of a car speeding to the set of his fourth film in five years. He's a Hollywood hit maker,
with movies grossing $500 million to his name. But he's never produced a picture in Los
Angeles, or in English.
Mr. Kong was shuttling a vice president from Universal Pictures to the outskirts of
Shanghai, where he had constructed a replica of an ancient port town and makeshift
soundstage on a barren field. "I thought they took the wrong turn when they went on this
back road," said Michael J. Joe, the visiting Universal executive, who has since signed up
to distribute the new film in Europe and the U.S. The film, titled "Fearless," comes out
early next year.
When Mr. Kong, 52 years old, produced his first film "Crouching Tiger, Hidden
Dragon," he spent a year wooing Hollywood to front half of the $15 million budget. It
became America's best-selling foreign-language film ever, until topped by Mel Gibson's
"The Passion of the Christ" in Aramaic.
Today, Hollywood comes to Mr. Kong. Mr. Joe is one of five Los Angeles executives
who made the pilgrimage this year. Mr. Kong whisked him around the set, showing off
detailed lattice windows and wine jugs smashed during a fight scene. "If this film was
shot in an American back lot five days a week, it would cost $60 to $70 million," said
Mr. Kong. "Here we can shoot six days a week, and we've done it in four months for $30
million."
The economics that made China a global production and consumption powerhouse in
autos, textiles and consumer products have now hit Hollywood. In just five years, China
has become what Hollywood considers the world's most important producer of foreignlanguage blockbusters, catapulting beyond France, Spain or India in global box-office
receipts. Low costs help. But the main reason is bigger: Chinese filmmakers have found a
formula of movie-making -- with high-quality productions, exotic settings, gorgeously
choreographed action and universal themes -- that sell equally well in Boston and
Beijing.
In response, financiers and filmmakers from Hollywood, Hong Kong and China have
teamed up and even have brought on board some unlikely allies -- China's cantankerous
regulators and intrepid DVD pirates. The new paradigm has allowed the Chinese film
industry to duplicate Hollywood's long-successful formula: Earn enough money
domestically to cover the costs of making a film and then generate big profits through
distribution abroad.
Frequently, the low-profile Mr. Kong is the matchmaker. "Bill is the first guy to bring
together creative filmmakers in China, Hong Kong and Hollywood," says Mr. Joe of
Universal, a unit of General Electric Co.'s NBC Universal.
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WSJ Professor Guide: Page 5 of 28
After releasing "Crouching Tiger" in 2000, Mr. Kong went on to produce "Hero," a
thought-provoking action flick that topped the U.S. box office for its first two weeks.
"Hero" also trumped Hollywood fare at Chinese cinemas, which had been dominated by
imports for a decade. He followed with "House of Flying Daggers" last year, which,
along with Columbia Pictures' "Kung Fu Hustle," also became an international hit.
"What other country has produced four films in the same number of years that have
reached $100 million?" Mr. Kong asks.
This year, there are more than 200 films in production on the mainland, up from 140 in
2003. When Mr. Kong made "Crouching Tiger" in 1999, China didn't even have trailers
to house stars on set. Today, there's a huge studio lot here, dubbed "Chinawood," that has
become a money-making tourist attraction in its own right. Hengdian World Studios, a 9square-mile complex owned by a manufacturing giant, features a full-scale replica of the
massive Forbidden City. Last year, Hengdian inked a joint venture to make Chineselanguage pictures with Time Warner Inc.'s Warner Bros. and has plans for a public stock
offering.
Miramax founder Harvey Weinstein is setting up a Chinese film fund. Action director
John Woo, who left Hong Kong in 1993 to direct Hollywood blockbusters like
"Face/Off," is now set to direct a big-budget Chinese-language "Battle of the Red Cliffs."
To be sure, even the total box-office take of the biggest Chinese hits can't compete with a
single weekend of receipts from an American blockbuster like "Shrek." And the Chinese
movie audience, while potentially the world's largest and growing, is still limited by the
masses of people who can't afford a $3 movie ticket.
The market is also one of the world's most tightly regulated. For years, the Motion
Picture Association of America has lobbied against China's decision to distribute only 20
imported films per year, with state-owned companies claiming most of the box-office
revenue. What's more, all films shot in China must have their scripts and final edits
approved before they can be released. Forbidden themes include Tibetan independence,
corrupt police, ghosts and other things deemed bad for "socialist advanced culture."
But now, with the U.S. box-office take shrinking each year, China offers Hollywood
studios a growing audience. China's domestic box office grew 50% in 2004, to nearly
$190 million. While China didn't completely open its film industry when it joined the
World Trade Organization in 2001, it did open a loophole. Hollywood heavyweights can
now gain access to the mainland market by co-producing local Chinese-language films
along with Chinese partners.
That's a big shift for Hollywood, which has only rarely sought entree to foreign markets
by going local. "Most studios don't care what is going on outside of the 310 area code,"
says Barbara Robinson, the managing director of Sony Corp.'s Columbia Pictures Film
Production Asia. But late last year and this year, "Kung Fu Hustle," a martial-arts
comedy she co-produced with Chinese partners, brought in $20 million in China and
$100 million globally. It cost a total of only $15 million to make. "This works so much
better," Ms. Robinson says.
Chinese cinema has come full circle. In the roaring '20s and '30s, Shanghai took on
Hollywood with starlets like Butterfly Wu and Ruan Lingyu, the "Garbo of China,"
whose tragic death and funeral made the cover of Life Magazine. The Shanghai studios
invented a genre all their own -- kung fu -- and at their height churned out 200 movies a
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 28
year. Warner Bros. owned a Shanghai cinema, and the film department of British
American Tobacco shot films in the city.
But when the Communist Party took over in 1949, it turned cinema into propaganda. By
the time of the Cultural Revolution in the late 1960s, films were under the control of Mao
Zedong's wife, Jiang Qing, who filmed revolution-themed operas such as "Taking Tiger
Mountain by Strategy." That dreary era ended as art-house directors turned experimental
in the 1980s, but their state funding placed strict limits on content and eventually
audiences dried up. In the 1990s, China's film industry nearly collapsed as soap operas
and pirated foreign DVDs kept audiences at home.
What kept Chinese cinema alive was a group of directors including Zhang Yimou and
Chen Kaige who were wowing the festival circuit with art-house films such as "Raise the
Red Lantern" and "Farewell My Concubine."
5. Movie producer Bill Kong was cutting a distribution deal in the back seat of a
car speeding to the set of his fourth film in five years. He's a Hollywood hit
maker, with movies grossing $500 million to his name. But he's never produced a
picture in Los Angeles, or in __________________.
a. Spanish
b. English Correct
c. Chinese
d. Japanese
6. This year, there are more than _______ films in production on the mainland of
China, up from 140 in 2003.
a. 150
b. 200
c. 350
d. 400
Delta, Northwest See Bankruptcy As Key to Revival
By EVAN PEREZ and SUSAN CAREY
September 15, 2005; Page A1
http://online.wsj.com/article/0,,SB112671083630940483,00.html
Two more bankruptcy filings by big airlines -- Delta Air Lines and Northwest Airlines -underscored how old-line carriers increasingly see court protection as the preferred route
to revival amid the industry's biggest crisis in decades.
Yesterday's filings by the nation's third- and fourth-largest airlines, both of which came in
U.S. Bankruptcy Court in New York's Southern District, mean that four of the nation's
seven biggest carriers as measured by passenger traffic now are operating under Chapter
11 protection. Including UAL Corp.'s United Airlines and US Airways Group Inc., more
than half the capacity of the nation's top 12 airlines now belongs to companies in
bankruptcy.
All four are legacy carriers -- those airlines born before the era of industry deregulation
that have been unable to shed costs such as pensions amid competition from low-cost
startups. Bankruptcy gives them at least the chance to leave financial baggage -- labor
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 28
costs, pension obligations, aircraft orders -- at the courthouse door and emerge months
later as leaner companies better able to absorb high oil prices, competition and other
turbulence.
Many legacy carriers "have already used the bankruptcy process to achieve changes in
their cost structures," Northwest Chief Executive Doug Steenland said yesterday. That
has helped them compete, he said, with "newer, low-cost carriers which have much lower
labor and operating costs than legacy carriers."
Airlines have faced a brutal environment in recent years with high labor costs, soaring oil
prices and competition. With two more in bankruptcy -- and not having to pay many of
their bills -- pressure could rise on other old-line carriers such as Continental Airlines,
which sought cost cuts earlier this year, and AMR Corp.'s American.
A bankruptcy filing is no guarantee of success. More than 100 airlines have filed for
bankruptcy in the last quarter-century. Several, including US Airways and Continental,
have done so more than once.
Delta's filing came despite a year-long push by executives to avoid bankruptcy by
transforming the airline into a carrier that could go head to head with Southwest Airlines
and the upstart new carriers such as JetBlue Airways that have spread bargain-basement
fares across the country. Though it has tallied nearly $10 billion in losses since the start
of 2001, Atlanta-based Delta has cut operating costs by more than $4 billion a year -about 28% of its operating expenses in 2002.
Yesterday, executives expressed the hope that their efforts will leave Delta poised to
emerge from court protection stronger than at least some of its major-airline rivals. It
expects to face fewer court battles with workers and creditors, now owed more than $28
billion, to bring costs further in line.
Delta has a "well-planned, well-executed" restructuring plan that will continue to serve
the company even in bankruptcy, said Chief Executive Gerald Grinstein in an interview.
"Everyone is going to have to work harder, for less money," he said. "But we're
convinced we can produce an outstanding airline here."
7. Two more bankruptcy filings this week by big airlines -- _______________ -underscored how old-line carriers increasingly see court protection as the
preferred route to revival amid the industry's biggest crisis in decades.
a. Southwest and Northwest Airlines
b. US Airways and Northwest Airlines
c. Delta Air Lines and American West Airlines
d. Delta Air Lines and Northwest Airlines Correct
8. Yesterday's filings by the nation's third- and fourth-largest airlines, both of
which came in U.S. Bankruptcy Court in New York's Southern District, mean that
four of the nation's seven biggest carriers as measured by passenger traffic now
are operating under ____________________ protection.
a. Chapter 11 Correct
b. Chapter 17
c. Chapter 27
d. Chapter 41
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WSJ Professor Guide: Page 8 of 28
A Hot Designer Can Generate Buzz But Not Profits
By TERI AGINS
September 16, 2005; Page A1
http://online.wsj.com/article/0,,SB112683463725242550,00.html
After only three years in business, designer Derek Lam seems well down the road to
high-fashion stardom.
He's a darling of influential fashion publications such as Vogue and Women's Wear
Daily. In June, he won a prestigious award for new designers. Celebrities such as
actresses Hilary Swank and Natalie Portman and First Daughter Barbara Bush don his
luxurious silk and cashmere clothes. Influential retailers from Barneys New York to
Neiman Marcus to Saks Fifth Avenue stock his creations.
But despite his glamorous, downtown New York image, he is still struggling to make a
buck. He and his business partner, Jan-Hendrik Schlottmann, who are both 39 years old,
draw no salary. They live in a one-bedroom apartment off income-tax refunds from their
company's losses. Mr. Lam's eight full-time employees work at below-market rates, as
does his publicist. At his runway show today, on the last day of New York's Fashion
Week, models will be paid in clothes rather than money, and sponsors such as crystal
maker Swarovski and cosmetic firm Shiseido will pick up the tab for hairstylists and
makeup artists.
Mr. Lam has built a $4.8 million-a-year business but it has yet to reach the critical mass
necessary to operate profitably and efficiently. Derek Lam Co. will lose money this year,
as it has every year since it was formed in 2002, although Mr. Schlottmann declines to
say how much.
Mr. Lam is part of a new generation of rising fashion stars struggling to follow the path to
financial success blazed by American fashion icons such as Donna Karan, Calvin Klein,
Oscar de la Renta, and Bill Blass. Handicapped by broad changes in retailing and
manufacturing, these young designers are finding it difficult to capitalize on industry
acclaim and turn a healthy profit.
Consolidation of the retail industry, coupled with the shifting merchandise preferences of
department stores, is only part of the problem. The rise of the euro against the dollar has
made it far more costly for American designers to rely on Italian manufacturers long
favored by the fashion elite.
Together with Mr. Lam, designers such as Zac Posen, Proenza Schouler, Peter Som and
Behnaz Sarafpour have been labeled the new Young Turks of fashion. They appear in
fashion magazines, dress movie stars, and enjoy a following among trendy shoppers. But
few of them are making any money and it will be difficult for some to ever turn a profit.
"This is a big talented group of high-end designers. They are meant to be the best of the
best. But it remains a problem -- how are they going to move forward," says Peter
Arnold, former director of the Council of Fashion Designers of America, the industry
trade group that awarded Mr. Lam its emerging talent award. "I just don't think there is
room enough for most of them to make it."
When Donna Karan launched her business in 1985, she too won acclaim for her
expensive, Italian-made fashions. But she had more retail options. Pace-setting
independent boutiques such as Martha and Charivari in New York were flourishing.
Mainstream department stores such as Bloomingdale's carried expensive designer
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 28
fashions in hundreds of their branches. Store buyers were eager to generate buzz by
stocking high-end fashion.
With a broad revenue base, Ms. Karan was able to expand within four years. In 1989, she
rolled out DKNY, a mid-priced women's sportswear line, to hundreds of department
stores. DKNY became the cash cow that enabled Ms. Karan to move into menswear,
accessories, cosmetics and factory outlet stores. In 1996, when Donna Karan
International went public on the New York Stock Exchange, the company had sales of
more than $510 million.
Changing Landscape
9. Mr. Derek Lam has built a $4.8 million-a-year business but it has yet to reach
the critical mass necessary to operate efficiently. Derek Lam Co. will
_______________ this year.
a. earn record profits
b. earn 300,000.00 in profit
c. earn 500,000.00 in profit
d. lose money Correct
10. The rise of the ________________ has made it far more costly for American
designers to rely on Italian manufacturers long favored by the fashion elite.
a. Euro against the U.S. Dollar Correct
b. Lira against the U.S. Dollar
c. price of cotton
d. price of gasoline
Google IPO Revisited: Insiders Got Choice Other Sellers Didn't
By KEVIN J. DELANEY
September 16, 2005; Page A1
http://online.wsj.com/article/0,,SB112682702496942327,00.html
When Google Inc. announced plans to go public last year, its founders stressed that this
was no conventional company. Its official philosophy was "Don't be evil." It aspired to
"make the world a better place." And Google would use an unusual auction process that it
said should result in more-equal treatment of small investors.
But some investors selling shares in the offering were more equal than others.
Shortly before the August 2004 initial public offering, when demand proved less than
anticipated, Google slashed the expected offering price range. Some insiders who had
large stakes in the business and seats on its board decided to cut the number of shares
they planned to sell -- in some cases not to sell any at all. Now, with Google stock up
256% since the offering, the value of the shares they held onto is up about $1.7 billion.
Some early Google investors didn't get this same opportunity to reduce their share sales.
Indeed, several were told they had to make an even bigger share sale than Google had
scheduled them for, at the diminished price, according to people familiar with the matter.
Two investors in that group, Stanford University and the venture-capital firm Angel
Investors LP, protested, and Google backed off. Google allowed Stanford to drop out of
the IPO altogether. And Google hastily struck a deal with Angel, compensating its funds
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 10 of 28
for some of the gains they had foregone by selling so many shares at the reduced IPO
price, according to people familiar with the matter.
An individual investor wasn't so lucky. A Stanford professor, David Cheriton, tried to
pare back his share sales after Google set the lower price, but a Google lawyer held firm.
Another investor is unhappy about it but didn't lodge a complaint, unaware that others
had been allowed to hold back shares. That investor's view today is that "only the
suckers" sold all the shares they were slated to at the sharply reduced IPO price.
Google, which did a follow-on offering of 14.2 million shares this week, declined to
make any executive available to discuss the IPO. A spokesman for the Web search and
advertising colossus wouldn't comment except to say: "We're pleased overall with the
results of the IPO and we have many happy shareholders. We're especially proud of the
auction we conducted because it allowed anyone, and not just a select few, to participate
in it."
Securities lawyers say it doesn't appear that Google's behavior in the hectic days around
its IPO violated any regulations. But taken together, the events suggest that when trouble
stirred, some top executives and directors acted in ways that benefited them while leaving
out investors who weren't as well-positioned. The new information offers an unusual
glimpse into the management style at Google and the behind-the-scenes drama of a
historic stock-market episode.
To be sure, the insiders' decision to hold back shares at the last minute helped the IPO to
get off the ground by reducing the number of shares for which underwriters had to find
buyers. Moreover, these insiders couldn't have known they would profit richly by
hanging onto the shares. The price could have fallen instead of surging. They would have
had to sit and watch it fall because of "lockup" provisions that would bar further sales for
a period of months.
11. Some insiders who had large stakes in the business and seats on its board
decided to cut the number of shares they planned to sell -- in some cases not to
sell any at all. Now, with Google stock _______________ since the offering, the
value of the shares they held onto is up about $1.7 billion.
a. up 256% Correct
b. down 256%
c. up 56%
d. down 56%
12. By the week of the IPO in mid-August 2004, Google executives saw that
________________ had put in fewer bids than expected and at lower prices.
a. web surfers
b. employees
c. companies
d. investors Correct
Questions 13 – 17 from Marketplace, Section B
At Wal-Mart, Emergency Plan Has Big Payoff
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 28
By ANN ZIMMERMAN and VALERIE BAUERLEIN
September 12, 2005; Page B1
http://online.wsj.com/article/0,,SB112648681539237605,00.html
The Federal Emergency Management Agency could learn some things from Wal-Mart
Stores Inc.
On Wednesday, Aug. 24, when Katrina was reclassified to a storm from a tropical
depression, Jason Jackson, the retailer's director of business continuity, started camping
out in Wal-Mart's emergency command center. By Friday, when the hurricane touched
down in Florida, he had been joined by 50 Wal-Mart managers and support personnel,
ranging from trucking experts to loss-prevention specialists.
On Sunday, before the storm made landfall on the Gulf Coast, Mr. Jackson ordered WalMart warehouses to deliver a variety of emergency supplies, from generators to dry ice to
bottled water, to designated staging areas so that company stores would be able to reopen
quickly if disaster struck.
Then, when the hurricane knocked out Wal-Mart's computerized system for automatically
updating store inventory levels in the area, he fielded phone calls from stores about what
they needed. He also alerted a replenishment team to reorder essential products, such as
mops and bleach. And by Tuesday, scores of Wal-Mart trucks, some escorted by police,
were setting out to deliver 40 generators and tons of dry ice to company stores across the
Gulf that had lost power.
Katrina is the biggest natural disaster Wal-Mart has ever had to confront. Initially, 126 of
its stores, including 12 in the New Orleans metropolitan area, and two distribution centers
were shuttered because they were in Katrina's direct path. More than half ended up losing
power, some were flooded and 89 have reported damage.
But by this past Friday, all but 15 of the idled stores had reopened. From Boutte, La., to
Pass Christian, Miss., Wal-Mart frequently beat FEMA by days in getting trucks filled
with emergency supplies to relief workers and citizens whose lives were upended by the
storm.
Wal-Mart's speed in responding to Katrina underscores the extent to which it and other
big-box retailers like Home Depot Inc. have become key players in responding to natural
disasters. Whereas FEMA has to scramble for resources, Bentonville, Ark.-based WalMart has it owns trucks, distribution centers and dozens of stores in most areas of the
country. It also has a specific protocol for responding to disasters, and it can activate an
emergency command center to coordinate an immediate response. In the short term at
least, the hurricane has helped boost Wal-Mart's tattered image, damaged by a major sexdiscrimination suit and allegations that it provides workers stingy pay and benefits.
The 33-year-old Mr. Jackson, who has an undergraduate degree in emergency
management and a masters in security management, is effectively the quartermastergeneral in Wal-Mart's efforts to provide supplies -- and quickly revive sales -- in areas hit
by hurricanes, tornadoes or floods.
"People know they can get what they need at Wal-Mart," said Richard Stinson, manager
of the Wal-Mart supercenter in Laplace, La., as he walked the aisles of his packed store
late last week. "It's because of what we can supply, our ability to get the merchandise in
the building, the associates to get it on the shelf." Still, he noted, there are still items --
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 28
mops for flooded floors, paper plates and cups, socks, underwear, air mattresses -- he
can't keep on the shelves.
The store on Highway 61, the main street in Laplace, lost power and water like all its
neighbors in suburban New Orleans. Mr. Stinson's first call from his cellphone was to
Mr. Jackson's emergency center. The center sent six loss-prevention employees, who
helped secure the building and merchandise, assisted by local sheriff's deputies who kept
watch during the first dark nights.
The emergency center also arranged to send generators and got Mr. Stinson's list of
immediate needs. Laplace, which is 30 miles west of New Orleans, suffered
comparatively little flooding and damage, but it became a refuge for evacuees who had.
The center also supplied such goods as cereal, peanut butter, crackers and water to area
shelters.
The store regained power four days after Katrina. Employees showed up for work in
small but growing numbers, two immediately after the storm and 200 by late last week,
out of a total of 407. Some employees came from other Wal-Mart-owned stores,
including Stephen Cortez, an employee at a shuttered Sam's Club in hard-hit Metairie,
another New Orleans suburb.
The store, like others up and down the Gulf Coast, has lines of people waiting to come in.
Late last week, more than 100 people waited in 95° heat for their turn to shop. The store
didn't sell its small supply of ice, keeping it instead to cool water for waiting customers.
Local deputies guarded the line to keep people from cutting in. At the request of local law
enforcement, the store didn't sell alcoholic beverages for the first three days after it
opened.
Edmond Collins Jr., 37 years old, and his wife, Kywana, 29, have come every day to
restock supplies for his family and the 14 people staying at his cousin's house. "We're just
buying food to survive," Mr. Collins says.
After the storm hit, Mr. Jackson also took a call from Brian Boney, a district loss
supervisor from a part of Louisiana that hadn't been hard hit. Mr. Boney volunteered to
inspect stores in ravaged areas of Gulfport and Pass Christian, Miss., spending the night
in his car. He reported back to Mr. Jackson that Wal-Mart needed to dispatch a full trailer
-- 8,000 gallons -- of bottled water and ice for police and emergency workers in the area.
But even as Mr. Jackson continued to reroute trucks and take calls for emergency
supplies in the days after Katrina struck, he also monitored a growing storm off the coast
of Japan, where Wal-Mart owns a controlling stake in the Seiyu retail chain. And this
past weekend, he was glued to his computer again, this time keeping tabs on Ophelia, off
the coast of Florida.
In addition to refilling its stores, Wal-Mart has donated $3 million in basic supplies like
diapers and toothbrushes to relief centers in three states. The National Guard and relief
agencies also "commandeered" 20 trucks filled with water and other merchandise,
according to a federal relief worker who didn't want his name used. The U.S. Department
of Homeland Security will pay Wal-Mart $5 million for that merchandise and has a
contract to be paid for supplying more.
13. Katrina is the biggest natural disaster Wal-Mart has ever had to confront.
Initially, ______________________________, including 12 in the New Orleans
metropolitan area, and two distribution centers were shuttered because they were
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 28
in Katrina's direct path. More than half ended up losing power, some were flooded
and 89 have reported damage.
a. 16 of its stores
b. 62 of its stores
c. 126 of its stores Correct
d. 162 of its stores
Challenges Loom For Management In Katrina's Wake
By CAROL HYMOWITZ
September 13, 2005; Page B1
http://online.wsj.com/article/0,,SB112657794203938951,00.html
Working from a temporary office in Dallas, Marlene St. Amant spent last week and all of
Labor Day weekend processing payroll checks for employees of Standard Co., of New
Orleans. When she felt teary, thinking about her home that is flooded with five feet of
water, or her ailing mother, whom she is now separated from, she went to a cubicle her
boss calls "the cry room."
"I told everyone, 'If you need to cry, go outside or to the cry room, but when you're at
your desk, focus on your work,' " says Anthony Gregorio, president and chief executive
of Standard, a nationwide distributor of coffee and filtered water and a unit of closely
held Wm. B. Reily Co.
A new management challenge is just beginning for businesses in the Gulf Coast. Since
Hurricane Katrina devastated the region on Aug. 29, companies have focused on finding
out if their employees are safe and assessing how badly their property is damaged. But as
they reopen plants, offices and stores, they must help employees who are traumatized by
the storm and an array of personal losses be productive at work.
Many multinational corporations are still mulling when -- and if -- to start doing business
in the Gulf Coast again. Procter & Gamble Co., for instance, is paying 550 employees at
a Folger's coffee plant in New Orleans but won't decide until later this month when to
restart the plant. And Gap, Inc. is giving displaced workers four weeks pay but doesn't
know when it will reopen stores in areas devastated by the storm.
Smaller companies can't afford to wait, if they want to stay alive. Some with headquarters
and deep roots in New Orleans also believe the best aid they can offer employees is to get
them back to work quickly and assure them that they at least have job security. But for
now, in many cases employees are being relocated to temporary offices around the nation
and assigned new, emergency duties.
Hurricane Katrina knocked out Standard's headquarters and a distribution center. But
most of its 650 employees, including 160 from New Orleans, were at work a few days
after the storm at IBM Corp. business-recovery offices in Dallas; Lubbock, Texas; and
Boulder, Colo.
One day before the storm hit, Standard transferred its computer system and call center to
a backup location in Boulder. By the time New Orleans began flooding, Mr. Gregorio
and a half-dozen employees were in Dallas. Jolene Margiotta, who normally does priceand cost-assessment, was assigned to find the rest of the work force. With phone lines
dead, she relied on text messaging, in some cases sending 80 or more messages to a
single employee until making contact.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 28
Jefferson Gillane, a financial analyst, became the information coordinator. He found
office supplies, procedures for filing insurance claims, local doctors, schools in Dallas
that were willing to enroll students from New Orleans, charities that could supply
clothing. He launched a daily newsletter with information along with news about New
Orleans sports teams.
As more staff arrived in Dallas, Mr. Gregorio realized he had to be "a priest, counselor, akicker and nursemaid," he says. Many were still trying to locate relatives, or felt anxious
about spouses who'd lost jobs. Others felt guilty that they had come through the storm
with fewer losses. Concerned about stress, Mr. Gregorio hired crisis counselors to talk to
employees on Friday.
When employees heard on the news that they might be able to return briefly to New
Orleans to check on their homes and gather some possessions, many wanted to go right
away. Mr. Gregorio told them if they all left at once, no work would get done and they
might lose their jobs as well as their homes. "We're in a lifeboat here, and I need
everyone rowing with as much energy as possible, or you'll be thrown overboard," he
said.
By yesterday all but seven employees had been located and tech, sales accounting and
other operations were running smoothly. Delivery trucks were rerouted from New
Orleans to distribution centers in Lubbock and Knoxville, Tenn.
But employees still aren't sure when they'll feel normal again. Mary Barbarin, a tech
staffer who put in 14-hour days to get employees' laptops running, worries about her
husband, who lost his job and hasn't yet located his parents. "I'm so grateful to have my
job but I'm running on adrenaline, exhausted and not sleeping well," she says.
Executives at Hibernia Corp., the big New Orleans bank, have similar concerns. The
bank has all its critical systems operating, including online banking, and all but about 60
of its 320 offices have reopened. It has guaranteed jobs to 3,000 employees displaced by
the hurricane, or nearly half its work force of 6,400. But it is still trying to locate some
900 people.
"We need the efforts of all employees," says Hibernia president and CEO Herb Boydstun.
He spent the past two weeks visiting branches to talk with customers and employees,
while renegotiating Hibernia's acquisition, announced in March, by Capitol One
Financial Corp, the Maclean, Va., credit-card concern. Capitol now will acquire 135year-old Hibernia for about $5 billion, a 9% reduction from what it offered before the
hurricane; the deal is expected to close in the fourth quarter.
14. Working from a temporary office in Dallas, Marlene St. Amant spent last
week and all of Labor Day weekend processing payroll checks for employees of
Standard Co., of New Orleans. When she felt teary, thinking about her home that
is flooded with five feet of water, or her ailing mother, whom she is now
separated from, she went to a cubicle her boss calls "________________."
a. the water room
b. the flood room
c. the time out room
d. the cry room Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 28
Storm Survivors Long For the Normal Hassles of a Day on the Job
September 14, 2005; Page B1
By JARED SANDBERG
http://online.wsj.com/article/0,,SB112664850078439663,00.html
Tony DiCarlo was having a good year. He got married, a license to practice law and a job
at a firm in his old neighborhood of St. Bernard Parish in New Orleans. Then Hurricane
Katrina mowed through the Gulf Coast -- and through his best laid plans.
He fled the storm to Little Rock, Ark., and the first thing he did was look for work. "I got
here at two o'clock on Wednesday and by three o'clock I was looking for a job."
Rather than just a salary, he was searching for a sense of purpose. After borrowing
clothes, Mr. DiCarlo began work this past Monday, albeit as a law clerk. "It's just nice to
be in an environment where I can be productive and not just sitting at home," he said
after his first day.
The will to work is one of the few things Katrina didn't destroy. It's one of the things the
survivors are trying to do to reclaim some semblance of normality. But it won't be easy
for many. Economists estimate that as many as one million people are out of jobs in the
affected areas. Some companies still can't find their employees, and their employees still
don't know whether there is a job to go back to.
Nancy Martinsen, executive director of the Staffing Association of Arkansas and one of
the countless good souls trying to help Katrina's victims find work, says work may be the
only source of stability and identity for them. "A lot of who they are is in the swamp
water in New Orleans and the Gulf," she says.
Susan Johnson, a legal administrator who fled New Orleans with 10 members of her
extended family, has been trying to get her kids in school without documentation and
take care of her invalid mother while worrying about her nephew, a New Orleans
policeman, and about medical insurance, because her husband was told by his company
his insurance would run out.
She would give just about anything to have to deal with the little hassles of her job, like
having to redo old documents that grew stale. "Right now I'd love to be able to reprint
those jobs again," she says of her bosses' work. "I worked for lovely people."
Brandy Wilkinson, a high-school physics teacher from Metairie, La., crammed into her
friend's apartment -- along with six other people -- in Tupelo, Miss. She's talking to local
schools. "I really hate grading papers and I hate grading homework," she says. "But I'd
grade every paper in the world just to be back there."
Work also seems to ease a sense of indebtedness that thousands of people feel as perfect
strangers in newly adopted towns across the country have given aid. The outpouring of
help breaks up Troy Fink, who evacuated his family from their Chalmette, La., home on
Aug. 28 and headed north, landing in a hotel in Tupelo, Miss. The plumber rented a
modest home for his family and suddenly the man from the bank he visited brought some
furniture. When he visited the staffing firm Manpower, a woman there pulled a television
and microwave out of the offices and gave it to him. "She said, 'If you don't bring it back,
that's fine,' " he recalls.
15. The ______________ is one of the few things Katrina didn't destroy.
a. need to work
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 28
b. plan to work
c. will to work Correct
d. need for money
Verizon's Fios Service Moves U.S. Internet Beyond a Snail's Pace
September 15, 2005; Page B1
By WALTER S. MOSSBERG
http://online.wsj.com/article/0,,SB112673750976441038,00.html
High-speed Internet connections have finally gone mainstream in the U.S. But there's a
problem: What passes for high speed in this country is pathetically slow compared with
Internet service in some other countries.
For instance, Verizon's entry-level DSL service, at 768 kilobits per second for downloads
and 128 kilobits per second for uploads, is considered high-speed here. But in Japan and
Korea, families can buy moderately priced Internet service measured in the tens of
megabits per second. They get a race car, while Americans are stuck with a bicycle.
A megabit per second (mbps) connection moves about 1,000 times as much data every
second as a kilobit per second (kbps) connection. A service running at 10 megabits per
second is more than 13 times as fast as Verizon's base DSL service. All such services
have two modes: downstream, for downloading Web pages, email and files; and
upstream, for uploading email or files. Generally, Internet providers offer much faster
downstream speeds than upstream speeds.
Even the faster common U.S. broadband offerings, like Comcast's $42.95 a month basic
cable-modem service, which delivers 6 mbps downstream and 384 kbps upstream, are
ridiculously slow compared with the Asian offerings.
But now, Verizon is offering Americans in certain parts of the country a new, much faster
Internet service for only a little more than Comcast charges for its basic service. This new
product, called Fios, offers 15 mbps downstream and 2 mbps upstream for $50 a month,
or $45 a month if you use Verizon for your telephone service.
There are also two other Fios plans: 5 mbps downstream and 2 mbps upstream for $40 a
month; and 30 mbps downstream and 5 mbps upstream for $200 a month. Both also are
discounted if you also use Verizon phone service.
16. High-speed Internet connections have finally gone mainstream in the U.S. But
what passes for high speed in this country is _________________ compared with
Internet service in many other countries.
a. ultra fast
b. fast
c. kind of slow
d. pathetically slow Correct
How Sony Courted Christian Audiences For 'Emily Rose'
By KATE KELLY
September 17, 2005; Page B1
http://online.wsj.com/article/0,,SB112682318275042240,00.html
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 28
How does a movie that features a jailed priest, a young girl's convulsions, and a martiniswilling lawyer become a hit among churchgoers?
That's the question some Hollywood executives are mulling as they watch the blossoming
box-office receipts for "The Exorcism of Emily Rose" from Sony Corp.'s Screen Gems
label. Based on the true story of a young German girl who died in the 1970s after
undergoing numerous Catholic exorcisms, the picture raked in a surprising $30 million at
the U.S. box office this past weekend -- soundly beating movie-industry expectations and
making it the most successful opening of a small-budget film so far this year.
The $19 million project is a hit in part because Screen Gems deliberately courted an
audience that it might not have counted on for a typical horror flick: religious
conservatives. While "Emily Rose" does not sport the outlandish gimmicks that made
1973's "The Exorcist" a cult classic, it is an edgy and violent portrayal of demonic
possession that features a bug-eating girl, a hard-drinking woman lawyer and a priest who
is attacked by his community.
Studio executives figured that horror movie-loving teens would flock to the picture,
which stars Tom Wilkinson as the priest who is put on trial for allegedly causing the girl's
death and Laura Linney as the spiritually conflicted lawyer who defends him. But Screen
Gems worked hard to attract a spiritually-oriented audience as well. It conducted an
online poll asking participants if they believed in demonic possession (66% did) and
issued a promotional mini-newspaper that reprinted articles from recent years about the
Vatican's views on Satanism and incidences of real-life exorcisms.
"We tried to get people thinking about the fact that this exists in the world," says Valerie
Van Galder, who handled the marketing of the film. "We tried to make exorcisms
newsworthy."
The studio also courted the Christian media with screenings and interviews with director
Scott Derrickson, pointing out that he is a churchgoing Christian.
The result: some religious writers recommended the movie in their publications. The film
"is a well-crafted and intelligent movie that aspires to engage heads and not just spin
them," wrote the Catholic News Service in a dig on "The Exorcist," which featured a
possessed girl's head spinning around. "Emily Rose," by contrast, "tells a story of faith
and compassion," read a review on "Plugged In," the cultural guide published by the
conservative Christian group Focus on the Family.
Bob Waliszewski, who oversees media reviews for that organization, says his 18-year-old
daughter, Kelsey -- a freshman at evangelical-based Oral Roberts University in Tulsa,
Okla. -- was surprised when he recommended "Emily Rose" to her. Her response?
"You're kidding, Dad." (Exit polls from opening weekend showed that 57% of the
audience was under 25.)
Mr. Derrickson and Paul Harris Boardman, who began writing the screenplay for "Emily
Rose" after coming across some history on the 1976 case of a young epileptic in
Germany named Anneliese Michel, said their aim was to present exorcism in an
evenhanded way, blending its horrors along with legal issues in a courtroom setting.
"It's a great topic for genre filmmaking," says Mr. Derrickson, who directed several
previous horror movies like "Hellraiser 5: Inferno." "It is also something that a lot of
people believe in, and a lot of people don't," he says. "That makes it interesting as well."
The film's breakout success shows that religious audiences can unexpectedly boost a film
-- most spectacularly with last year's blockbuster, "The Passion of the Christ." Religious
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 28
conservatives recently praised the nature documentary, "The March of the Penguins,"
arguing that it promotes family values -- the penguins protect their breeding ground amid
freezing temperatures.
Mr. Boardman says he knew they had hit home with "Emily Rose" when he saw the
feedback from a prerelease screening audience. The movie got good marks from
Catholics, proclaimed agnostics, and even a self-described Wiccan. "We had positive
responses to the movie ... from a completely disparate group of people," he says.
17. “The Exorcism of Emily Rose" from Sony Corp.'s Screen Gems label is based
on the true story of a young German girl who died in the 1970s. The picture raked
in a surprising ______________________ at the U.S. box office this past
weekend -- soundly beating movie-industry expectations and making it the most
successful opening of a small-budget film so far this year.
a. $10 million
b. $20 million
c. $30 million Correct
d. $40 million
Questions 18 – 22 from Money & Investing, Section C
Firms That May Help Rebuild New Orleans Draw Growing Focus
By GREGORY ZUCKERMAN
September 12, 2005; Page C1
http://online.wsj.com/article/0,,SB112648883750537648,00.html
The reconstruction of New Orleans hasn't yet begun, but smart investors already are
putting their money on companies that might profit by helping the city rebuild. Some of
these stocks now look pricey, but other companies that could see significant profit remain
attractive, some investors argue.
In the aftermath of Hurricane Katrina, investors have scooped up shares of companies
including: engineering and construction concern Shaw Group Inc.; copper producer
Phelps Dodge Corp.; Halliburton Co., which provides energy and construction services;
and heavy-equipment maker Caterpillar Inc. -- sending these stocks up between 5% and
40% in the past two weeks.
These companies likely will profit from the reconstruction efforts: Shaw already has
received a contract from the Federal Emergency Management Agency valued at as much
as $100 million for providing emergency housing and to help with the rebuilding; a
Halliburton unit is doing repair work at three Navy facilities in Mississippi.
But some say these stocks are expensive now. Others note that it will be many months
before the city is drained and reconstruction begins, and it isn't clear yet how much of the
city will be rebuilt.
"It could be the first or second quarter of 2006" before the major rebuilding effort begins,
notes Seth Tobias, general partner of Circle T Partners LP, a $400 million New York
hedge fund. Mr. Tobias says he already has taken profits off the table by selling shares of
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 28
Georgia-Pacific Corp. and Illinois Tool Works Inc. after they saw some post-storm
buying.
But other big companies -- such as General Electric Co., which markets products for
electricity generation; water-treatment company Suez SA; and ITT Industries Inc., which
makes pumps and other water-control systems -- are more attractively priced, argues
Richard Tullo, an analyst at Liberum Research, an independent research firm in New
York.
And a number of smaller companies could see greater benefits as the Gulf Coast region is
rebuilt. Indeed, revenues from the reconstruction efforts likely will have more impact on
these companies than on the giants with broad businesses.
18. In the aftermath of Hurricane Katrina, investors have scooped up shares of
companies including: engineering and construction concern Shaw Group Inc.;
copper producer Phelps Dodge Corp.; Halliburton Co., which provides energy and
construction services; and heavy-equipment maker Caterpillar Inc. -- sending
these stocks ________________________________ in the past two weeks.
a. up between 1% and 2%
b. up between 5% and 40% Correct
c. down between 1% and 2%
d. down between 5% and 40%
Adjusting to Disaster
By THEO FRANCIS
September 13, 2005; Page C1
http://online.wsj.com/article/0,,SB112656819612238712,00.html
BAY ST. LOUIS, Miss. -- Dian Carpenter arrives at James and Lynn Lewallen's 1930s
frame house in a once-tree-lined neighborhood here. She finds Mr. Lewallen wearing a
dust mask and hauling garbage sacks bursting with putrid food.
Siding, asphalt shingles and pecans litter the yard, as do four massive trees, roots splayed
in the air, the wreckage of Hurricane Katrina. "Don't go in the house," Mrs. Lewallen
says apologetically, as if to a neighbor stopping for a chat. "It's bad."
But Ms. Carpenter's job is to go in the house, with a visit that could prove anything but
cordial. She is an adjuster for State Farm Insurance Cos., the biggest home and auto
insurer along the Gulf Coast and the nation. She is part of an army that slowly is fanning
into the hardest-hit areas to detail the damage to hundreds of thousands of homes in
Louisiana, Mississippi and Alabama.
Over the coming months she and her counterparts will determine how much money the
storm's victims receive from the private sector. All told, private insurers are expected to
shell out as much as $60 billion, a price tag that would make Katrina nearly three times as
expensive as the previous worst storm, Andrew in 1992 in southern Florida.
Claims adjusting is a job defined by tensions. Homeowners want the most generous
possible settlement; insurers say they can't pay any more than required. In the wake of
Katrina, those pressures have only grown. Government officials, including Mississippi's
insurance commissioner, have called on insurers to give policyholders the benefit of the
doubt, particularly given widespread flood damage that, many fear, was underinsured, if
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 28
insured at all. Standard homeowners' policies exclude costs from flooding, a policy
provision that leaves payment of billions of dollars of damage in question.
Already, Ms. Carpenter has told at least one Gulf Coast family that their federal flood
policy isn't enough to cover the full damage to their home from Katrina's storm surge.
"Having to tell them [that] this is as much as I can pay -- it was heart-wrenching to watch
them break down," she says. "You can't say. 'I know how you feel.' ... All you can do is
say, 'I'm sorry.' " She steers underinsured policyholders to federal-disaster and Red Cross
aid.
Throughout the Gulf Coast, State Farm and other major insurers have established
beachheads in strip-mall parking lots. Typically, these are tents with satellite links, where
they collect basic damage reports from customers still without electricity and phone
service. By Ms. Carpenter's Friday afternoon stop at the Lewallens, State Farm had
received more than 213,000 home and 61,000 auto claims from Louisiana, Mississippi,
Alabama and Florida. (Through Sunday, home claims had risen to more than 223,000 and
auto claims to more than 64,000.)
The Lewallens are just one of 75 Hurricane Katrina claims Ms. Carpenter currently is
assigned, in addition to the local State Farm agent's damaged storefront. She figures 80%
of these rank as "severity 1," meaning that "the house is either gone or it's uninhabitable,"
she says. "I know I have claims that are just slabs."
A few days after Katrina hit, Ms. Carpenter drove 1,300 miles from her home in
Monument, Colo., to Birmingham, Ala., where she joined other State Farm adjusters for a
rundown of matters including the federal flood program.
19. ____________________ is a job defined by tensions. Homeowners want the
most generous possible settlement; insurers say they can't pay any more than
required. In the wake of Katrina, those pressures have only grown.
a. Claims adjusting Correct
b. Claims processing
c. Construction bidding
d. Construction adjusting
Lampert Faces a Long Shot In Reviving Sears
September 14, 2005; Page C1
By JESSE EISINGER
http://online.wsj.com/article/0,,SB112665984920439965,00.html
It is tempting to root for the Eddie Lampert experiment.
Mr. Lampert, the hedge-fund manager who controls Sears Holdings and engineered
Kmart's acquisition of Sears, wants Wall Street to rid itself of its addiction to
management earnings forecasts, so Sears doesn't give any. He wants to run a retailer that
is more interested in profits and cash flow than sales growth for growth's sake. Sears
doesn't give investor presentations; there are no earnings conference calls. The executives
run the business for the long term, figuring the stock should take care of itself.
Finally, the dog is wagging the tail.
Alas, what a dog it is.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 21 of 28
The problem is that Mr. Lampert, who successfully steered Kmart out of bankruptcy, isn't
simply experimenting with investor relations. He has embarked on a plan to make what is
arguably the toughest turnaround in retailing history. Sears and Kmart outlets are getting
shellacked by the likes of Wal-Mart Stores and its ilk. As compelling as it is to profess
the long-term management vision thing, the latter endeavor is in a race against time.
The bulls on Sears, which include several major hedge funds, have much going in their
favor. For one, they have been right. After a huge pre-acquisition year for both stocks in
2004, Sears Holdings is up nearly 32% this year. (In the interest of accountability, I
should note here that I have periodically written bearish items on Kmart since May 2004
and on Sears since March 2003 and have been consistently wrong.)
20. It is tempting to root for the Eddie Lampert experiment. Mr. Lampert, the
hedge-fund manager who controls Sears Holdings and engineered Kmart's
acquisition of Sears, wants Wall Street to rid itself of its addiction to
____________________________, so Sears doesn't give any.
a. morning donuts
b. morning coffee
c. management earnings forecasts Correct
d. final earnings accounts
Buying Bluestar
September 15, 2005; Page C1
By JUSTIN LAHART
http://online.wsj.com/article/0,,SB112673975440541134,00.html
One might think that when a company was dancing along the threshold of bankruptcy,
Wall Street analysts would be anxiously telling clients to sell.
In the case of Northwest Airlines, one would be wrong.
Northwest's shares plunged Tuesday, after the New York Times reported on its Web site
that the company was close to filing for bankruptcy protection. The Wall Street Journal
later reported that Northwest's directors would meet yesterday to consider whether to file
immediately or hold off in hopes that its unions would make concessions the St. Paul,
Minn., airline said it needed to remain solvent.
After the market closed yesterday, Northwest announced that it will file for bankruptcy.
When a company goes into bankruptcy its stock may trade at pennies as an OTC Bulletin
Board issue for sometime afterward, but in the end it essentially is worthless. Northwest's
share price was more than halved to $1.57 on Tuesday -- a price that investors who sold
reckoned was better than the nothing they might end up with.
But yesterday, with the threat of bankruptcy hanging over Northwest, just one Wall Street
analyst cut his rating on the airline. David Strine of Bear Stearns took his rating on the
company to "underweight" from "overweight," saying he thought the risk of the company
going into bankruptcy had risen sharply.
Analysts from Morgan Stanley, Merrill Lynch, J.P. Morgan Securities and Prudential
Equity Group, all of whom have "overweight" or "buy" ratings on Northwest, also put out
notes on the company. None of them lowered his rating.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 22 of 28
Ignoring (but not forgetting) that investors would have been better served if the analysts
had cut their Northwest ratings weeks or months ago, the analysts had some justification
for not cutting their ratings late in the game.
21. One might think that when a company was dancing along the threshold of
_____________, Wall Street analysts would be anxiously telling clients to sell.
a. bankruptcy Correct
b. flood waters
c. profitability
d. a management turnover
Why Were Savvy Investors In Delta, Northwest?
By GREGORY ZUCKERMAN
September 16, 2005; Page C1
http://online.wsj.com/article/0,,SB112682770280342368,00.html
Who would be foolish enough to buy up the shares and debt of struggling Delta Air Lines
and Northwest Airlines? Some of the smartest investors on Wall Street, that's who.
In recent months, hedge funds including Ziff Brothers Investments LLC and Kingdon
Capital Management LLC, as well as money managers like Charles Schwab Corp.'s U.S.
Trust Corp., Wellington Management Co. and Deutsche Bank AG all piled into shares of
the airlines, according to regulatory filings. And in recent days, a rush of hedge funds
bought up Northwest's debt, betting that the airline would avert a bankruptcy filing.
Bad call. Northwest and Delta both made voluntary Chapter 11 filings Wednesday.
Delta's shares, which hit $4 in June, yesterday were at 75 cents, up 5.6%, in 4 p.m.
composite trading on the New York Stock Exchange. Northwest tumbled 53% yesterday
to 88 cents in 4 p.m. composite trading on the Nasdaq Stock Market, after trading above
$6 in June.
New York-based Ziff reported Aug. 10 that it had built a new position of almost 5.3
million Northwest shares, or about 6% of the airline's outstanding shares. For its part,
Wellington established a new position in Delta during the second quarter of this year,
buying up 5.3 million shares, though the Boston-based firm reduced its position in
Northwest to 2.4 million shares from about 5.1 million in the first quarter, according to
regulatory filings.
Others got out in the nick of time, though not without having losses. On July 28, large
hedge fund SAC Capital Advisors LLC said it had added 2.8 million shares to an existing
2.1 million-share position in Northwest, while on July 14 SAC reported that it added 5.8
million shares to a 3.7 million stock position in Delta, according to FactSet Research
Systems Inc. People close to the firm say SAC exited these big positions a few weeks
ago, selling Northwest stock when it was still around $3 a share, avoiding some of the
pain. But SAC still lost money on the trades.
Regulatory filings provide a snapshot of holdings on a certain date, of course, and the
investors may have adjusted their positions, or offset them with other trades. Still, all the
buying is surprising because it came in the face of persistent worries about the impact on
airlines of hefty fuel and labor costs, onerous pension obligations, strained union
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 23 of 28
relations, brutal competition and a history of well-regarded hedge funds getting burned
by betting on airlines.
Representatives of Ziff, Kingdon, Deutsche and Wellington declined to comment.
So what were these guys thinking? Some of these investors say they were hopeful that
Northwest could forge a closer relationship with it unions, helping to send shares close to
$10. Others viewed the investments as inexpensive ways to bet that oil prices would fall.
Had jet-fuel prices dropped, instead of soaring after Hurricane Katrina, the airlines would
have been much healthier, and the stocks likely would have climbed. Indeed, shares of
other airlines, such as AMR Corp. and Continental Airlines rose over the summer as
business travel picked up.
The days leading up to Northwest's bankruptcy have seen particularly strong buying of
the airline's debt, traders say. One reason they had hope: Northwest never arranged
debtor-in-possession financing from creditors, usually a precursor to a bankruptcy filing,
suggesting to the investors that the airline wasn't about to file. Northwest has said that it
decided against a DIP because it believes it has sufficient cash and most of its assets
already are pledged.
Some sophisticated investors are trying to establish large positions to gain a seat at the
table when the airlines' fates are negotiated. Still others are hoping that the airlines could
end up merging with rivals or think Congress will step in to provide pension relief.
Yesterday, trading in the debt was heated, as some traditional money-management firms
and mutual funds sold bonds, while some investors covered short positions, or bets
against the price of the bonds, by buying back the debt. In recent weeks, others traded
"recovery swaps." These new instruments are an obligation to buy the cheapest bond
within 30 days of a default, an attractive investment for those convinced that the value of
the debt will rise during the bankruptcy process.
Northwest's most heavily traded bonds, those maturing in 2008, traded at about 24 cents
on the dollar yesterday, down from 26 cents late Wednesday and from about 34 cents last
week. Though the equity of the airlines likely will be wiped out, there likely is some
value to the bonds at these levels, some say, because the bonds will be converted into
equity in the airlines when they emerge from Chapter 11.
"I can't guess the value of jet fuel in 18 months when the airlines emerge, but there is
some value to the bonds at these levels," said David Feinman, managing director at
Havens Advisors LLC, a New York hedge fund. He says he hasn't yet purchased debt of
the airlines, though he has wagered against the shares of the carriers. "But you better have
a strong stomach and a lot of patience to get involved at this point."
That hedge funds continue to place big bets on airlines is somewhat surprising given the
poor track record many of the best in the business have in divining the future of this
notoriously challenging business. Legendary investors Michael Steinhardt and Julian
Robertson both suffered big losses from stakes in US Airways Group. Warren Buffett
made money investing in US Air but not before writing off 75% of its value and calling it
a "mistake." Carl Icahn had a difficult ride after gaining control of Trans World Airlines
in 1986. In all, more than 100 airlines have filed for bankruptcy in the past 25 years.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com1
22. More than _____ airlines have filed for bankruptcy in the past 25 years.
a. 100 Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 24 of 28
b. 500
c. 1000
d. 1500
Questions 23 – 25 from Personal Journal, Section D
An Old SUV Maker Tries Some New Tricks
By NEAL E. BOUDETTE
September 13, 2005; Page D1
http://online.wsj.com/article/0,,SB112657452105438880,00.html
Jeep, the maker of the first must-have sports-utility vehicle, largely missed the SUV sales
boom of the past decade. Now the brand that invented the category is trying to retool
itself in a bid to reconnect with drivers.
In recent years, Jeep's traditional boxy, rugged look has turned off many SUV buyers:
younger, wealthier urbanites and soccer moms. Jeep didn't help matters by sticking to a
product line of just three models while Toyota Motor Corp., Honda Motor Co. and others
came out with SUVs in new shapes and sizes that offered a "softer," more carlike ride.
Now Jeep, part of DaimlerChrysler AG's Chrysler division, is trying a new look designed
to increase its sales and profits. In an unusual move, Jeep is coming out with two distinct
product lines -- one featuring the classic Jeep look, and the other featuring sportier
models.
The strategy was outlined yesterday at the Frankfurt auto show, when Jeep unveiled two
new compact SUV concepts that will be launched next year as 2007 production models.
Jeep is aiming the new models at a segment of the category that has yet to be affected by
higher gas prices. Although sales of big SUVs have begun declining, and rising gasoline
prices have accelerated the trend, sales of luxury, midsize and compact SUVs like the
BMW X3, Honda Pilot and Ford Escape are still rising. Small SUVs like the Toyota
RAV4 get about 22 miles per gallon in the city and 27 on the highway -- almost twice as
much as big SUVs like the Chevrolet Suburban.
Still, fuel economy is a sensitive issue for companies that make SUVs, and the new Jeeps
will come with a 2.4-liter engine designed to improve gas mileage. As an option, Jeep
will offer a continuously variable transmission, which uses cables and pulleys instead of
gears to shift faster and more smoothly and also improves gas mileage. CVTs have been
available in sedans, but Jeep will be among the first to offer them in SUVs.
23. _____________________ is a sensitive issue for companies that make SUVs.
a. Interest rates
b. Fuel economy Correct
c. Changing roles of women at work
d. Changing roles of men at home
The Next Generation Of Price-Comparison Sites
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 25 of 28
By MYLENE MANGALINDAN
September 14, 2005; Page D1
http://online.wsj.com/article/0,,SB112666188907540017,00.html
Sites that scour the Web for the cheapest prices on everything from television sets to
mortgages are one of the most-popular features of the Internet.
Now, a new crop of start-ups is pushing the price-comparison concept even further,
offering extra discounts, greater convenience and protection from fraud by shady
vendors, which has become an increasing problem as e-commerce has soared.
The growing traffic on these sites has sparked a buying spree by companies, including
eBay Inc. and E.W. Scripps Co., which are eager to get into the business. The two
companies recently spent more than $500 million each to acquire rival price-comparison
search sites.
The more-established sites are adding new features to remain competitive in the face of
the well-financed competition. Smarter.com, owned by the private company MeziMedia
Inc., now includes coupons and additional retailer discounts in its price results. In the
past, consumers would have had to click deep into a retailer's site to find out about these
additional savings.
Vendio Services Inc. recently introduced a toolbar that people can download. If a person
is on the Web page of a particular product -- whether it's an iPod or a Canon digital
camera -- the toolbar flashes a blinking alert when it finds a lower price for that same
item somewhere else. The person can then open a window on the side of the site to learn
the details of the cheaper price -- or, simply ignore the alert.
BuySafe Inc. introduced a Web site last month that lets consumers search among about
1.5 million products that are backed by antifraud guarantees. If a buyer purchases one of
the items and the seller fails to deliver, the buyer can get reimbursed for the full cost up
to $25,000. Merchants on the site include those that sell on eBay and Overstock.com.
As shopping-comparison sites have become more popular, big Internet search engines
like Google Inc. have launched their own specialized retail sections. But the newer
companies reflect a growing belief among some Internet entrepreneurs and venture
capitalists that the search engines don't always offer the level of detail that consumers
want when they shop. "People are becoming more sophisticated as searchers," says Chris
Sherman, editor of SearchDay, a daily newsletter from SearchEngineWatch.com, a Web
site devoted to tracking the Web-search industry. "They realize Google and Yahoo aren't
always the best places to go."
Shopping-comparison services, which aggregate prices from hundreds of different sites,
have been around for almost a decade. Early versions focused on items such as computers
and digital cameras. In the late 1990s, when many e-commerce ventures crashed,
comparison-shopping sites survived, in some cases, by combining forces with their
competitors. Amazon.com Inc. bought Junglee in 1998, while Internet portal Excite Inc.
bought Jango, and CNET Networks Inc. bought MySimon, which now offers detailed
information on consumer electronics.
As they evolved, the sites also managed to add new product categories such as mortgages
and insurance, and new wrinkles like email alerts for lower prices and the ability to
compare features on two different models of a certain product.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 26 of 28
Use of these sites has boomed in the past few years as people have become more reliant
on the Web both as a research tool and as a place to shop. Visits to comparison-shopping
sites increased 28% to 70 million in June, compared with the same period a year ago,
according to Nielsen//NetRatings, an Internet market-research firm.
About 60% of consumers have used a comparison-shopping Web site, according to
Jupiter Research, a New York market-research firm.
24. Sites that scour the Web for the cheapest prices on everything from television
sets to mortgages are one of the __________________ features of the Internet.
a. most-popular Correct
b. most-abused
c. least-popular
d. most unused
The Quest to Make Tupperware Chic
By CHERYL LU-LIEN TAN
September 15, 2005; Page D1
http://online.wsj.com/article/0,,SB112674839071041390,00.html
At the Cynthia Rowley fashion show of spring clothes in New York yesterday, the
accessories were attention-grabbing: fat orange-plastic hairbands and futuristic leather
ballerina shoes with 2.5-inch plastic heels.
What really stood out, though, was the label: Tupperware.
Tupperware Corp., known through the generations for selling plastic food-storage
containers through staid living-room "parties," is trying to become cool. In an effort to
generate buzz, the 59-year-old company is throwing high-profile Tupperware parties with
stars like Naomi Watts and actor-rapper Ice-T on the guest lists. At this season's Fashion
Week, the company managed to get its wares in a gift bag for celebrities, along with such
coveted items as a $600 faux crocodile Dooney & Bourke.
Over the past year, the company has been quietly rolling out edgier products. Consumers
now can buy a Tupperware ice-cream scoop with a stainless-steel head, a $25 Lil'
Chopper, which chops small amounts of food, and the Heartbreaker, a utensil that cracks
shells and removes pits. In November, it plans to start selling wine glasses made of its
trademark plastic.
The classic Tupperware storage containers are also getting a makeover, turning up in
colors like amethyst and ruby and in accordion-like versions that can be flattened out for
easy storage.
While the plastic headbands were made just for Cynthia Rowley's show, the designer
plans to sell the Tupperware shoes she designed with her clothing collection next spring.
("I'd love to call them 'Tupperwear!' " she says.) The shoes will likely retail for at least
$300.
The revamp is aimed at resuscitating Tupperware's U.S. division after two years of
disappointing sales. Tupperware reported a loss in North America of $31 million last
year, after reporting a $22.4 million loss in 2003. (Its Europe, Asia and Latin America
divisions -- which account for 75% of its total business -- have posted profits every year
since 2001.)
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 27 of 28
Tupperware's troubles stem in part from a sales experiment it conducted in the fall of
2001 when it started placing its products in some Target stores. The idea was to
supplement its signature Tupperware parties and become as accessible to customers as
rivals such as Newell Rubbermaid Inc. and Clorox Co.'s GladWare, both of which are
easily found in grocery and housewares stores.
25. At the Cynthia Rowley fashion show of spring clothes in New York
yesterday, the accessories were attention-grabbing: fat orange-plastic hairbands
and futuristic leather ballerina shoes with 2.5-inch plastic heels.
What really stood out, though, was the label: ___________________________.
a. Tupperware Correct
b. Kmart
c. Walmart
d. Made in Canada
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 28 of 28