The Wall Street Journal Education Program
Weekly Review & Quiz
Covering front-page articles from July 21-27 , 2007
Professor Guide with Summaries Summer 2007
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 12 from The First Section, Section A
Tech Sales Surge, But Low Pricing Cuts Into Profits
By DON CLARK in San Francisco and WILLIAM M. BULKELEY in Boston
July 21, 2007; Page A1
http://online.wsj.com/article/SB118498098077873706.html
Technology demand is showing an unexpected surge, driven by rapidly falling prices for
components such as computer chips and disk drives, business spending and a rush by
people around the world to get on the Internet.
Strong sales of computers and related products, reflected in earnings reports from large
tech companies this week, came as a surprise in a quarter that is typically among the
weakest.
"We've never seen the volumes go up in the second quarter like they have this year," said
Dean McCarron, an analyst at Mercury Research who tracks the chip market. "A lot of
people, myself included, have egg on their faces for their forecasts."
The news isn't all good for technology suppliers, though. Fierce competition that is
driving down prices for such key components as microprocessors and data-storage chips
has squeezed many suppliers' profit margins -- especially those of hardware makers.
But suppliers' revenues are at least getting support as attractive component prices drive
new demand for products such as cellphones, music players and other devices, especially
in emerging economies. At the same time, people around the world have never had more
reason to buy the products and services needed to be active on the Internet. Besides
gathering information and shopping, Web access has become essential for new networks
that people use to socialize, and for such entertainment purposes as playing music and
videos.
Bill Watkins, chief executive officer of Seagate Technology, the biggest maker of disk
drives, says the rush to the Internet and the demand for products such as personal
computers, iPods and digital-video recorders has for the first time pushed the total
capacity of disk drives in homes beyond that of businesses. "Consumers are just gobbling
it up," he says.
Pricing issues have been a cloud over tech stocks for some time. But many investors
appear to be betting that prices and profit margins have bottomed, though, driving up
share prices in recent sessions. Some apparently moved to take profits on Friday, after
Google Inc. and Caterpillar Inc. failed to meet quarterly-earnings expectations. The Dow
Jones Industrial Average fell 149.33 to 13851.08, a day after closing above 14000 for the
first time, while the tech-heavy Nasdaq Composite Index lost 1.2%, or 32.44 points, to
close at 2687.60.
While consumer spending on technology has been strong for some time, businesses now
also are getting into the act. Total information-technology spending should grow at 7% or
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 1 of 35
so this year, about the same as last year, estimates Stephen Minton, an analyst at marketresearcher IDC who follows the tech economy. But spending within that sector is
increasingly shifting to software-based development projects and related services, helping
companies such as International Business Machines Corp., Microsoft Corp., Oracle Corp.
and SAP AG.
Mr. Minton within a couple of weeks plans to publish a revised estimate of growth in the
U.S. software market, predicting 9% growth for this year -- up from his previous
projection of 8.7% -- compared with 8.7% growth last year when the market reached
$131 billion.
"People were a little anxious at the start of the year, and some companies put projects on
hold, but now those are being released," Mr. Minton says. He said services spending also
is "gathering momentum from where it was 12 months ago."
Buell Duncan, vice president of marketing for IBM's software group, said a lot of the
growth in services and software comes from customers "trying to connect disparate
applications that were never meant to be connected." Many companies want to let
customers track orders or employees manage their own benefits, which has required new
software.
"We've outgrown the apps that we had," says Geoff Endris, chief technology officer at
Capital Assurance Corp., a closely held insurance company based in Prospect, Ky. "We
are buying more-sophisticated software, so in that way we are spending more money on
technology."
Customers also are increasingly focused on automating their data centers and the
management of the computers they have. Chief information officers, who have seen 70%
or more of their budgets consumed by paying their own staffers to manage and upgrade
their existing systems, are trying to automate the processes with software. They are also
trying to reduce outlays for buying and operating server systems, by moving to
inexpensive new models that consume less power and so-called virtualization software
that helps machines make greater use of their capacity.
In its quarterly earnings report on Wednesday, IBM said four of five major sectors
boosted spending: financial services, the public sector and communications all grew by
11% or better in the second quarter, while the distribution sector grew 8%. Only
industrial customers' spending didn't grow, primarily due to auto companies' woes.
1. Technology demand is showing _______.
a. a surprise in a quarter that is typically among the strongest
b. an expected decline
c. an unexpected decline
d. an unexpected surge Correct
2. Total information-technology spending should grow at _____ about the same as last
year, estimates Stephen Minton, an analyst at market-researcher IDC who follows the
tech economy.
a. 2%
b. 4%
c. 5%
d. 7% Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 2 of 35
Cuban Migrants Confront Harsher U.S. Tactics at Sea
By ROBERT BLOCK
July 23, 2007; Page A1
http://online.wsj.com/article/SB118514584100774416.html
KEY WEST, Fla. -- Agustin Uralde could barely hear his wife above the roar of the
smuggler's speedboat last summer as it tried to outrun two U.S. Coast Guard vessels and
a helicopter, bearing down with sirens wailing. Huddled around the couple were 27 other
wet and frightened Cubans. "She said, 'Pray for me, my love, because I am praying for
you,'" Mr. Uralde recalls.
Moments later, a Coast Guard gunner shot two copper slugs into one of the boat's
engines, forcing it into a hard left turn before it groaned to a stop. Mr. Uralde says the
abrupt motion threw his wife headfirst into the side of the boat. By the time the Coast
Guard had brought her ashore for treatment two hours later, following a long debate over
whether she was really badly hurt, Anay Machado Gonzalez, 24 years old, was dead. She
was the third Cuban migrant in just over a year to die of traumatic head injuries after a
high-speed ocean chase.
For nearly 13 years, Coast Guard and Border Protection agents have been chasing human
smugglers around Florida. In 1994, President Clinton changed U.S. policy to allow only
Cubans who physically made it to U.S. soil to stay in the country, while those caught at
sea were returned to their Communist island. Before that the Coast Guard simply plucked
Cuban migrants off homemade rafts and brought them to Miami as refugees.
Now amid a heated national debate over illegal immigration, and growing concerns about
terrorism and border security, federal agents are adopting ever-harsher interdiction
methods at sea, colliding -- sometimes tragically -- with the vagaries of U.S.-Cuba policy.
While the law offers permanent escape to Cubans who make it here, current terrorism
policies compel agents to stop migrants almost any way they can. High-speed boat chases
at speeds over 45 miles an hour in rough seas are commonplace. Many chases now end
with federal agents firing live ammunition -- a technique developed for drug traffickers -at boats filled with migrants.
Since March 2003, half of the estimated 50 cases of customs agents shooting out engines
of fleeing boats took place in the bustling sea lanes off Florida and involved illegal-alien
smuggling from Cuba, according to U.S. government figures. The rest involved mostly
drug traffickers. A recent Coast Guard report shows that four of eight deaths and all of
the 13 injuries to Cubans who tried to enter Florida illegally in 2005 and 2006 involved
high-speed chases with Coast Guard or Customs and Border Protection vessels. In some
cases, enforcement agents were also hurt.
Homeland Security officials and the Coast Guard say they're enforcing the law and accept
no responsibility for the casualties. The U.S. Attorney's office in South Florida blames
the human traffickers, who it says dangerously overload their boats. All deaths are added
to charges filed against the smugglers.
In the case of Ms. Machado, two Cubans living legally in Florida who were accused of
driving the boat pled guilty to accidentally killing her when they failed to heed Coast
Guard orders to stop. A third was acquitted of any role in Ms. Machado's death but
convicted of being part of the smuggling conspiracy. All three were sentenced to 12 years
in prison.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 3 of 35
'It's Madness'
Mr. Uralde, Ms. Machado's widower, puts equal blame on America's Cuba policy and the
methods employed by the Coast Guard. "It's madness," says Mr. Uralde, who is now
living legally in the U.S.
The "wet-foot, dry-foot" policy has its roots in the 1966 Cuban Adjustment Act, the
legislation underpinning Cubans' right to remain in the U.S. after defecting. Cuba had
long complained about the act, and in 1994 President Fidel Castro opened his island to
mass emigration. Some 33,000 took to rafts and headed to Florida, leading to howls of
outrage from U.S. politicians. So in exchange for Cuba closing its beaches to rafters, and
to placate U.S. politicians who didn't want to change the 1966 act, but at the same time
opposed Castro's use of mass emigration, "wet-foot, dry-foot" was born.
Cuban-Americans are divided over the issue. Some support the right of all Cubans who
gain freedom to stay, while others feel the policy is reckless. Many Coast Guardsmen and
Homeland Security agents say they want "wet-foot, dry-foot" abolished, but there's no
movement in Washington to change it. U.S.-Cuban policy is a sensitive subject governed
by strong emotions and Cold War sensibilities. Instead, the government is focused on
expanding the tactics used in Florida's waters as it exerts more control over the Southwest
border with Mexico.
"The Coast Guard is building plans to deal with the possibility that we will see more
movement around the coast as we seal the border more," says Homeland Security
Secretary Michael Chertoff. Shooting at a boat's engines is just one option. Other tactics
include dropping cables to entangle boat propellers and ramming a boat off course, a
technique called "shouldering." They all became standard operating procedure in 2003,
when the Coast Guard and Customs became part of the newly created Department of
Homeland Security.
There's no evidence the harsher methods result in greater success: According to U.S.
government figures, more than half the Cubans who attempt to sneak into the U.S. make
it, with 3,076 Cubans arriving in Florida in fiscal year 2006, compared with 2,530 who
reached the state during the same period in 2005.
Nonetheless, there are moves to grant federal border protection agencies the same
aggressive powers on land that they have at sea. Congress last year extended authority to
land agents to shoot at fleeing vehicles. The Department of Homeland Security is
studying how to adapt the Coast Guard's interdiction techniques to roads and highways.
In most cases, sirens, loud hailers and the occasional shot across the front of a boat are
sufficient to make vessels stop. Not in Florida, where the promise of safety to all Cubans
who land successfully has given rise to a multimillion-dollar-a-year smuggling industry.
Smugglers charge passengers as much as $10,000 a head to board $350,000 speedboats
mounted with as many as four engines that can reach speeds of 65 miles a hour.
Mr. Uralde and his wife's ill-fated journey was pieced together from Coast Guard videos
and radio transmissions of the July 8, 2006, chase, as well as court documents and
interviews with U.S. agents, Mr. Uralde, and several migrants who were on the boat with
Mr. Uralde and his wife.
Working at his dad's Havana cafe, Mr. Uralde met his future wife through mutual friends
seven years ago. She was a waitress, and the pair hit it off immediately. They shared the
same taste in music and their love of the beach. They married in 2002.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 4 of 35
But in 2005, Cuban tax authorities accused Mr. Uralde's father of tax evasion and
shuttered the cafe. Later that year, Mr. Uralde's father boarded a smuggling boat for
Miami. Mr. Uralde says bills piled up, and the government punished the family for the
father's defection. In the meantime, letters from Mr. Uralde's father arrived boasting
about Miami life. The couple began discussing leaving the island, too. Mr. Uralde says
his wife didn't want to leave her mother, but later relented.
Like most immigrants who hire smugglers, Mr. Uralde won't describe how the trip was
arranged. Cuban smuggling chains usually start in the U.S., with family members in
Miami finding smugglers through word of mouth at Cuban coffee shops. Smugglers
depart South Florida, pick up passengers at Cuban beaches, and deposit them in remote
areas of the Florida Keys or south Miami-Dade County.
Late on July 7, 2006, Mr. Uralde says he got a phone call with instructions to go to a
"party" at a beach an hour's drive east of Havana. Just after 3 a.m., a boat with three
powerful Mercury engines drifted into shore. According to a federal indictment, the
drivers had a global-positioning system with exact coordinates of the landing site.
"When the boat came," Mr. Uralde recalls, "Anay took my hand and said, 'Love, this is
really happening. We are really going to America. We are going to make it.'"
The drivers told the group the trip should take about three hours. Everyone knew the drill:
Get to land, call your families and then call the U.S. Border Patrol. The Border Patrol
would pick up the group, process them, and then release them to their families within a
few days. Under the 1966 Cuban Adjustment Act, everyone would be able to apply for
permanent residency a year and a day later.
What the group didn't know was that it was being monitored by Cuba's border guard,
which followed the boat out of Cuban waters and sent a fax alerting the Coast Guard at
3:54 a.m. Cuban authorities usually leave interdiction to the U.S., in part because they
lack the capabilities to chase the fast boats.
3. The ______ policy has its roots in the 1966 Cuban Adjustment Act, the legislation
underpinning Cubans' right to remain in the US after defecting.
a. sea to land
b. swim away
c. wet-foot, dry-foot Correct
d. high-foot, low-foot
4. In 1994 President Fidel Castro opened his island to mass emigration and some ___
persons took to rafts and headed to Florida, leading to howls of outrage from US
politicians.
a. 300
b. 3300
c. 33,000 Correct
d. 330,000
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 5 of 35
Copter Contract Gives Lockheed Choppy Ride
By JONATHAN KARP and SCOT J. PALTROW
July 24, 2007; Page A1
http://online.wsj.com/article/SB118523289611175502.html
OWEGO, N.Y. -- The official presidential helicopter, Marine One, makes the journey
from the White House lawn to nearby Andrews Air Force base in just 11 minutes. Does
the president need state-of-the-art videoconferencing, broadband access and other hightech gear to be at his disposal for such short hops?
That question is at the center of a fight that has boiled into view in recent months over the
design and construction of a new fleet of Marine One helicopters. A Navy program to
replace today's aging fleet of presidential choppers was accelerated after the 9/11 terrorist
attacks, with the White House arguing that extra communications, electronics and
security gear, such as the latest antimissile defenses, are necessary to protect the president
during an age of terrorism.
But adding all the bells and whistles has added cost and complication to the prestigious
$6.1 billion contract that Lockheed Martin Corp. landed in 2005. Lockheed's bid beat out
Sikorsky Aircraft Corp., the United Technologies Corp. unit that had made every Marine
One since the early 1960s. Yet early delays in the helicopter program eventually gave
Lockheed, the nation's biggest defense company, a black eye that cost it a much larger
chopper contract.
As soon as Lockheed won the contract, it was besieged with government requests to add
features that would turn the new helicopters into the hovering equivalent of Air Force
One, the presidential jumbo jet. That means taking a plush executive aircraft and
outfitting it with much more electronics and communications gear that offer features from
telephone handsets at each seat to bolstered defenses against a nuclear blast.
The upshot is that Lockheed is hard-pressed to meet its schedule in a program that
illustrates some of the problems that persistently bog down big defense contracts. The
project's first phase, which Lockheed's bid said would cost $1.8 billion, actually is
costing almost $2.4 billion, the Navy says.
The Marine One saga reflects the difficulties the Pentagon often encounters when it tries
to marry new technology to existing aircraft and weapons designs. David Walker, the
U.S. comptroller general and head of the Congress' General Accountability Office, says
the Defense Department often contracts for major projects requiring advanced technology
that hasn't yet been developed or tested. It then regularly makes so many changes in
demands as the projects unfold that costs multiply and delays extend to years. (Leadintegrator contracts that give defense companies sweeping responsibilities to oversee
military programs are coming under fire. See article on Page A11.)
'Mission Creep'
Richard Aboulafia, an aerospace analyst at Teal Group, a consulting firm, calls the new
Marine One project "a classic case of mission creep." With all of the added features, "It's
a helicopter being devoured by its own contents," he says. He estimates the overall
program cost now is approaching $7 billion, not the $6.1 billion originally thought. The
Navy, which oversees the program, says it won't have an updated estimate of the total
cost until later this year.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 35
Over the past two-and-a-half years, the plan for the helicopter grew so overloaded with
requests that the Navy recently conceded that the chopper must be fundamentally
redesigned.
Yet the White House is still in such a hurry to get its hands on the new birds that it will
take delivery of the first five in 2009, even though they will not have all of the
capabilities of later versions. The first five Marine Ones will then be removed from
service when redesigned models arrive in 2015.
"They're trying to create essentially a flying tank with every known technology to defend
it," says Anthony Cordesman, a defense expert at the Center for Strategic and
International Studies, a Washington think tank.
Pentagon officials and people involved in the Marine One program counter that the
commander in chief must be secure and connected at all times. "The world had changed
on Sept. 11," says Andrew Card, the former White House chief of staff. "It was critically
important that the president be safe and able to communicate in any venue virtually
instantaneously."
The Navy says the current 19 presidential choppers are safe, but the new Marine Ones
will be even more capable. In the meantime, the Navy is spending more than $100
million to continue to upgrade the existing fleet.
It was Mr. Card who, in the wake of the Sept. 11 attacks, urged the Pentagon in 2002 to
accelerate its plans to replace the aging Marine One fleet. Since Dwight Eisenhower flew
in the first White House helicopter in 1957, Marine One has been an emblem of the
presidency. Historic images are embedded in the national consciousness, such as Richard
Nixon leaving the White House for the last time on Aug. 9, 1974, turning to flash "V" for
victory signs as he boarded Marine One.
Some of the iconic green-and-white choppers are now 30 years old. And after 9/11, so
much safety equipment and electronics were loaded on, in piecemeal fashion, that the
larger of two models, designed for 16 passengers, was reduced to carrying 10. The new
helicopters will carry up to 14 passengers.
From the start, the new Marine One was destined to be one expensive bird. Meant to be a
flying Oval Office, each chopper was originally pegged at about $270 million -- which,
even adjusted for inflation, is more than the government paid in 1990 for each of two
modified Boeing 747 Air Force Ones. Under fixed-price contracts that were more
common then, Boeing Co. had to eat big cost overruns on the jets -- though since 9/11,
the government has spent millions of dollars installing broadband and other
communications equipment.
By Pentagon standards, where weapons development can take decades, the Marine One
program would be a furious sprint to deliver the first helicopters by 2009. The only
chance of meeting such an ambitious schedule was to adapt an existing helicopter model
rather than start from scratch.
In an upset, Lockheed beat out Sikorsky. Lockheed hadn't actually built choppers, but it
had experience integrating electronic systems into them. For Marine One, Lockheed
proposed a model made by AgustaWestland, an Italian-British unit of Finmeccanica SpA.
About 100 of the helicopters already were in use by several countries' armed forces. Its
cabin was bigger than Sikorsky's, and it had three engines to the Sikorsky's two, which
Lockheed said enhanced safety in case an engine failed.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 35
Lockheed won the contract in January 2005 because "our assessment was Lockheed
could do it with less modification in less time and at less cost than their competitor," says
William Balderson, deputy assistant Navy secretary in charge of the Marine One
program.
Top-Secret Equipment
Lockheed executives say they were stunned when within days, the Navy unveiled a long
list of White House-required top-secret equipment that wasn't in the contract and which
would add weight and cost.
Most details of Marine One's equipment are classified. At Lockheed's Owego plant
recently, a full-scale painted mock-up of the helicopter's cabin had its window shades
drawn and doors locked to prevent visitors from peering inside. The only test accessories
on view were telephone handsets like those found on airliners, with a groove for swiping
credit cards.
What's known is that beyond reclining seats and an executive restroom, the new Marine
One will be armored and wired to the hilt. It is to have electronic devices to jam the
guidance systems of missiles, flares to confuse heat-seeking missiles, broadband
connectivity and encrypted wireless communications to prevent eavesdropping.
Lockheed has built a room resembling a massive acoustic chamber, in which each
helicopter will be blasted with electromagnetic energy to test operations in a nuclear
explosion, among other scenarios.
The ambitious program has faced doubts. David Duma, the Pentagon's top weapons
tester, warned Congress in 2006 that the project was being rushed so much that new
helicopters would be delivered without necessary testing, potentially jeopardizing the
safety of its important passengers. Last year, Congress threatened to withhold money
unless the Navy secretary assured adequate testing.
The Navy and Lockheed locked horns over how to get all the work done. The Navy's Mr.
Balderson says Lockheed initially wasn't fulfilling key specifications, such as the crashworthiness of the fuel system. The two sides even argued over how to ensure the
chopper's safety in the event it flew into a flock of birds. He says that the initial problems
weren't related to significant additional requirements but to differing interpretations and
more misunderstandings "than we normally have and that caused schedule slides in the
first year."
Lockheed executives bridled at some Navy demands for structural reinforcements and
additional flight tests it felt were redundant. Until mid-2006, there "was a very difficult
pushing back and forth on what you really need and what we can do versus a very timepressured schedule," says Jeff Bantle, Lockheed's third Marine One program manager,
who was brought in to smooth relations with the Navy.
Lockheed and the Navy had to make bigger than anticipated trade-offs on the first batch
of helicopters in order to reduce weight. Among other things, the choppers initially won't
come with devices that deflect engine exhaust, a feature to help defend against heatseeking missiles. Videoconferencing gear has been deferred.
A harsh Navy report on Lockheed's early performance cost the company later. The Air
Force cited the report as an important factor in its decision not to award Lockheed a 2006
contract for a search and rescue helicopter. Lockheed "could not reliably meet important
schedule requirements and had difficulty in systems engineering" and coordinating with
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 8 of 35
contractors, according to the nonpublic Navy assessment, which was quoted early this
year in a public Government Accountability Office document.
Lockheed says that criticism was "no longer current" because it had overcome the firstyear challenges of the Marine One program.
It soon became clear that the plan to adapt an "off-the-shelf" helicopter wouldn't work.
One reason was that the airframe and engines just couldn't carry all of the required
equipment and passengers as far and as fast as the White House wanted. The plan has
been overhauled in favor of building what is essentially an all-new helicopter, meaning
lots of fresh design work and flight tests before it is safe enough for the president.
To carry a full suite of electronics and extend the helicopters' range to 350 miles will
require more powerful and still-untested engines, a new transmission, a new main rotor
lengthened by 3 feet, and a new, longer tail section to accommodate the bigger rotor.
That's on top of a new tail rotor to fix a long-known cracking problem that has played a
role in a handful of crashes. Concerns about cracking in the tail rotor of the same model
aircraft briefly grounded British navy choppers after a 2004 crash and led Canada to
impose some flight restrictions on its fleet. Lockheed's Mr. Bantle says, "We don't have a
full definitive" solution to the tail-rotor problem yet. AgustaWestland says a new tailrotor design has undergone 50 hours of flight tests.
5. The official US presidential helicopter is called ____.
a. Andrews One
b. Andrews Eleven
c. Lockheed One
d. Marine One Correct
6. Recently ___________ landed the prestigious $6.1 billion contract to produce a new
US presidential helicopter fleet.
a. Sikorsky
b. Lockheed Martin Correct
c. United Technologies
d. AgustaWestland
Coal's Doubters Block New Wave Of Power Plants
By REBECCA SMITH
July 25, 2007; Page A1
http://online.wsj.com/article/SB118532834584277100.html
From coast to coast, plans for a new generation of coal-fired power plants are falling by
the wayside as states conclude that conventional coal plants are too dirty to build and the
cost of cleaner plants is too high.
If significant numbers of new coal plants don't get built in the U.S. in coming years, it
will put pressure on officials to clear the path for other power sources, including nuclear
power, or trim the nation's electricity demand, which is expected to grow 1.8% this year.
In a time of rising energy costs, officials also worry about the long-term consequences of
their decisions, including higher prices or the potential for shortages.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 35
As recently as May, U.S. power companies had announced intentions to build as many as
150 new generating plants fueled by coal, which currently supplies about half the nation's
electricity. One reason for the surge of interest in coal was concern over the higher price
of natural gas, which has driven up electricity prices in many places. Coal appeared
capable of softening the impact since the U.S. has deep coal reserves and prices are low.
But as plans for this fleet of new coal-powered plants move forward, an increasing
number are being canceled or development slowed. Coal plants have come under fire
because coal is a big source of carbon dioxide, the main gas blamed for global warming,
in a time when climate change has become a hot-button political issue.
An early sign of the changing momentum was contained in the $32 billion private-equity
deal earlier this year to buy TXU Corp. To gain support for the deal, the buyers decided
to trim eight of 11 coal plants TXU had proposed in Texas. Recent reversals in Florida,
North Carolina, Oregon and other states have shown coal's future prospects are dimming.
Nearly two dozen coal projects have been canceled since early 2006, according to the
National Energy Technology Laboratory in Pittsburgh, a division of the Department of
Energy.
It's hard to say how many proposed plants will never be built. Some projects suffer public
deaths when permits are denied. Many more simply wither away, lost in the multiyear
process of obtaining permits, fending off court challenges and garnering financing.
In the wake of the fading coal proposals, and others that are expected to follow, Citigroup
downgraded the stocks of coal-mining companies last week, noting that "prophesies of a
new wave of coal-fired generation have vaporized." On Monday, Steve Leer, chief
executive of Arch Coal Inc., said some of the power plants he had expected to be built
"may get stalled due to the uncertainty over climate concerns."
For now, coal companies haven't taken steps to ratchet back production or big projects
because of coal-plant delays. They believe that in a time of global energy concerns, U.S.
coal supplies will be seen as too important to dismiss. The U.S. has the world's largest
coal reserves and is sometimes called "the Saudi Arabia of coal" by energy-industry
observers.
"It would be quite foolish and quite unthinkable not to have coal play an important role,"
says investor Wilbur Ross, who has increased his coal holdings and is nonexecutive
chairman of International Coal Group Inc. He predicts cleaner-coal technology will
improve enough to become viable.
Roadblocks for coal put greater attention on other sources. The U.S. power industry is
exploring building more nuclear power plants. But those plans are several years away,
and nuclear power currently provides only about a fifth of U.S. needs. Other sources, like
wind, don't provide around-the-clock energy, while solar is relatively expensive and isn't
yet capable of producing large amounts of electricity.
That puts the focus on natural gas. "Gas is the bridge fuel" that will step in if coal
stumbles, says Marc Spitzer, a member of the Federal Energy Regulatory Commission,
regulator of the nation's wholesale gas and electricity markets.
Currently, clean-burning gas provides roughly a fifth of the nation's power needs. But the
nation's gas production has been flat, and other industries are increasingly using it as a
fuel or raw material. Mr. Spitzer says that the nation needs more facilities to accept
liquefied natural gas, which is gas cooled into a liquid that can be imported from
overseas.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 10 of 35
The rapid shift away from coal shows how quickly and powerfully environmental
concerns, and the costs associated with eradicating them, have changed matters for the
power industry. One place where sentiment has swung sharply against coal is Florida.
Climate change is getting more attention there because the mean elevation is only 100
feet above sea level, so melting ice caps would eat away at both its Atlantic and Gulf of
Mexico coasts.
In mid-July, Florida Gov. Charlie Crist convened a climate-change summit to explore
ways the state could improve its environmental profile. In June, he signed into law a bill
that authorizes the Florida Public Service Commission to give priority to renewable
energy and conservation programs before approving construction of conventional coalfired power plants.
The law was bolstered by a recent report from the nonprofit American Council for an
Energy Efficient Economy that found Florida could reduce its need for electricity from
conventional sources, like gas and coal, by 29% within 15 years if it implemented
aggressive energy efficiency measures.
On the eve of the governor's summit, backers of a major power-plant proposal said they
would suspend development activities for an 800-megawatt coal-fired plant proposed by
four city-owned utilities including the one serving the state capital, Tallahassee. (One
megawatt can power 500 to 1,000 homes.) The backers cited environmental issues.
That decision followed the rejection by the utility commission of a proposal by Florida
Power & Light Co., a unit of FPL Group Inc., to build a 1,960-megawatt coal plant in
Glades County, Fla. The commission found that the plant was cost effective in fewer than
half the scenarios examined. One reason for its poor showing is uncertainty about the
future cost to curb carbon dioxide pollution. Coal plants emit more than twice as much
carbon dioxide per unit of electricity produced as natural-gas-fired plants, but there's no
cheap, easy way to capture and dispose of the greenhouse gas.
Even proposals to build so-called "clean coal" plants have been met with skepticism. This
new technology, which primarily involves converting coal into a combustible gas for
electricity generation, has been touted as a solution to coal's global-warming problems.
A hearing judge at the Minnesota Public Utilities Commission is urging commissioners to
reject a plan for Northern States Power Co., a unit of Xcel Energy Inc., Minneapolis, to
buy about 8% of its electricity from a coal-gasification power plant that was proposed by
Excelsior Energy Inc., Minnetonka, Minn. The judge concluded the 600-megawatt
Excelsior plant wouldn't be a good deal for consumers.
The judge concluded it would cost an extra $472.3 million, in 2011 dollars, to make the
power plant capable of capturing about 30% of its carbon dioxide emissions, and another
$635.4 million to build a pipeline to move the greenhouse gas to the nearest deep
geologic storage in Alberta, Canada. Thus, $1.1 billion in pollution controls had the
potential to inflate the cost of power coming from the plant by $50 a megawatt hour,
making electricity from Excelsior twice as costly as power from many older coal-fired
plants that simply vent their carbon dioxide. The recommendation will be considered by
the commission on Aug. 2.
In the West, Washington has followed California in prohibiting utilities from entering
into arrangements to obtain electricity from plants that aren't as clean as modern gasburning plants. The intent is to discourage construction of conventional coal-fired plants
anywhere in the region.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 35
In January, Oregon utility regulators blocked PacifiCorp., a unit of Berkshire Hathaway
Inc., from a plan to charge Oregon consumers for part of the cost of building new coal
plants outside the state, saying Oregonians didn't need the power.
Even in states where coal projects are going forward, they are happening more often with
a nod to environmental concerns. Xcel Energy, through its Public Service of Colorado
unit, has agreed to obtain 775 megawatts worth of wind power to supplement the power
that will come from a 750 megawatt coal plant it is building near Pueblo, Colo. It also has
agreed to install more pollution controls at existing units, and to cut energy demand by
more than 300 megawatts in coming years.
"It will change their portfolio in a fundamental way," says Vickie Patton, senior attorney
for environmental group Environmental Defense in Colorado.
Rising construction costs are another reason that the future looks murky for big coal
burners. Duke Energy Inc. created a stir eight months ago when it announced that the
expected cost of a new twin-unit power plant in North Carolina had ballooned to about $3
billion, up 50% from about 18 months earlier. That run up in cost and other factors
compelled the North Carolina Utilities Commission to nix one of the two proposed units.
7. From coast to coast, plans for a new generation of ____ power plants are falling by the
wayside as states consider the issues.
a. photocell
b. wind
c. nuclear
d. coal-fired Correct
8. The nation's electricity demand, is expected to grow ______ this year.
a. 1.8% Correct
b. 2.8%
c. 4.8%
d. 8.8%
U.S. Tracks Saudi Bank Favored by Extremists
By GLENN R. SIMPSON
July 26, 2007; Page A1
http://online.wsj.com/article/SB118530038250476405.html
JIDDA, Saudi Arabia -- In the 1940s, two Bedouin farm boys from the desert began
changing money for the trickle of traders and religious pilgrims in this then-remote and
barren kingdom. It was a business built on faith and trust, Sulaiman Al Rajhi once told an
interviewer, and for many years he would hand gold bars to strangers boarding flights in
Jidda and ask them to give the gold to his brother on their arrival in Riyadh.
Today, Mr. Al Rajhi is a reclusive octogenarian whose fortune is estimated at $12 billion.
And Al Rajhi Bank grew into the kingdom's largest Islamic bank, with 500 branches in
Saudi Arabia and more spread across the Muslim world.
Following the Sept. 11, 2001, attacks, the bank also set off an intense debate within the
U.S. government over whether to take strong action against its alleged role in extremist
finance. Confidential reports by the Central Intelligence Agency and other U.S. agencies,
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 35
reviewed by The Wall Street Journal, detail for the first time how much the U.S. learned
about the use of Al Rajhi Bank by alleged extremists, and how U.S. officials agonized
over what to do about it.
After 9/11, the Saudi monarchy pledged its full support in the fight against global
terrorism. And following violent attacks inside the kingdom in the next two years, the
Saudis did launch major strikes against militants operating on their soil. But the Saudi
government has been far been less willing to tackle the financial infrastructure essential
to terrorism. U.S. intelligence reports state that Islamic banks, while mostly doing
ordinary commerce, also are institutions that extremism relies upon in its global spread.
As a result, the Bush administration repeatedly debated proposals for taking strong action
itself against Al Rajhi Bank, in particular, according to former U.S. officials and
previously undisclosed government documents. Ultimately, the U.S. always chose instead
to lobby Saudi officialdom quietly about its concerns.
The U.S. intelligence reports, heretofore secret, describe how Al Rajhi Bank has
maintained accounts and accepted donations for Saudi charities that the U.S. and other
nations have formally designated as fronts for al Qaeda or other terrorist groups.
In addition, Mr. Al Rajhi and family members have been major donors to Islamic
charities that are suspected by Western intelligence agencies of funding terrorism,
according to CIA reports and federal-court filings by the Justice Department.
A 2003 CIA report claims that a year after Sept. 11, with a spotlight on Islamic charities,
Mr. Al Rajhi ordered Al Rajhi Bank's board "to explore financial instruments that would
allow the bank's charitable contributions to avoid official Saudi scrutiny."
A few weeks earlier, the report says, Mr. Al Rajhi "transferred $1.1 billion to offshore
accounts -- using commodity swaps and two Lebanese banks -- citing a concern that U.S.
and Saudi authorities might freeze his assets." The report was titled "Al Rajhi Bank:
Conduit for Extremist Finance."
Al Rajhi Bank and the Al Rajhi family deny any role in financing extremists. They have
denounced terrorist acts as un-Islamic. The bank declined to address specific allegations
made in American intelligence and law-enforcement records, citing client confidentiality.
In 2002, the bank sued The Wall Street Journal Europe after an article said Saudi
authorities were monitoring some Al Rajhi Bank accounts at U.S. request, in a bid to
prevent them from being used, wittingly or unwittingly, for funneling money to terrorist
groups. The bank dropped the suit in 2005 and the Journal published a statement saying
its article hadn't reported any allegation that the bank supported or financed terrorism.
Also in 2005, a U.S. judge dismissed Al Rajhi Bank from a lawsuit filed by relatives of
Sept. 11 victims. The ruling said banks couldn't be held liable for providing routine
services to people who turned out to be terrorists. In a statement in response to questions
about suspected terrorists among its clients, the bank noted that "Al Rajhi Bank has a
very large branch network, and a very large retail customer base."
U.S. law-enforcement and intelligence agencies acknowledge it is possible that extremists
use the bank's far-flung branches and money-transfer services without bank officials'
knowledge. The U.S. has never obtained proof that the bank or its owners knowingly
facilitate terrorism, according to documents and former officials, despite what they
describe as extensive circumstantial evidence that some executives are aware the bank is
used by extremists. The 2003 CIA report concluded: "Senior Al Rajhi family members
have long supported Islamic extremists and probably know that terrorists use their bank."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 35
Most major banks around the world are bound by a patchwork of treaties and agreements
that, in effect, require them to know their customers and report any suspicious activities
to regulators. The rules are designed to fight terrorism, money laundering and narcotics
trafficking. It's generally acknowledged that Saudi banks are bound by these rules,
although experts differ on when compliance became mandatory.
9. US intelligence reports state that _____, while mostly doing ordinary business, also are
institutions that extremism relies upon in its global spread.
a. Western banks
b. internet auctions
c. charities
d. Islamic banks Correct
10. The Saudi Arabia kingdom's largest bank is ______.
a. Citi Bank
b. Qaeda Bank
c. Saudi Bank
d. Al Rajhi Bank Correct
How a Blackstone Deal Shook Up a Work Force
By IANTHE JEANNE DUGAN
July 27, 2007; Page A1
http://online.wsj.com/article/SB118549984636779837.html
CENTENNIAL, Colo. -- Not long after the Blackstone Group bought Travelport Ltd.
last August, workers at the company's office campus here began feeling the squeeze.
Two months after the deal closed, scores of employees were lugging boxes of personal
belongings to their cars, having lost their jobs. Under Blackstone's ownership, the travelreservations conglomerate has laid off 841 people, about 10% of its work force.
Blackstone, a private-equity firm, has already recouped all of the money it invested in
Travelport.
Similar scenes have been unfolding at companies around the nation, a human toll of the
corporate-buyout boom. Private-equity firms, which say they bring sorely needed
financial discipline to poorly run companies, have been slashing costs and extracting
profits at warp speed. As the cycle of buying and selling companies has intensified, life in
the trenches can be unstable and traumatic.
By the end of 2007, Travelport expects to slash costs by $150 million. Last week, it
brought public its online reservations unit, Orbitz Worldwide Inc., using the proceeds to
pay off debt. Its Galileo unit, which feeds airline information to travel agents, is the focus
of much of the overhaul. Many of the job cuts have occurred at the company's dataoperations center here outside Denver, where some jobs have been outmoded by shifts in
technology and in the way people buy airline tickets and rent cars, executives say.
John Kliegel, 41 years old, a computer-systems analyst, and his twin, Russell, a technical
writer, were both laid off. They're selling the house they share because they can no longer
afford it. Don Kleppinger, a 46-year-old software engineer with five sons, lost his job,
leaving him without health insurance for several months. Grace Covyeau, 63, who lost
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 35
her job as a telecommunications engineer, took a part-time job last month making
sandwiches and coffee at King Soopers grocery store.
"It came as a shock," says Michael Berson, 49, who lost his job as a data engineer in
October, three years after receiving a "Super Star" award for saving the company $1.2
million on telecommunications costs. Mr. Berson has moved to Tulsa, where he is
looking for a new job.
11. Blackstone Group bought Travelport Ltd last August. Under Blackstone's ownership,
the travel-reservations conglomerate has laid off about _____ of its work force
a. 2%
b. 5%
c. 10% Correct
d. 25%
12. _______ firms, say they bring sorely needed financial discipline to poorly run
companies.
a. Stock-equity
b. Public-equity
c. Private-equity Correct
d. New-equity
Need a Lawyer? Online Services Speed the Search
By PAUL DAVIES
July 21, 2007; Page B1
http://online.wsj.com/article/SB118497792992473617.html
A slew of new services is making it easier to find a decent lawyer.
Traditionally, consumers were left in the dark when seeking an attorney to handle the
basics -- say, buying a house, fighting a traffic ticket or bulletproofing a will.
Now, however, online services like Nolo.com4 and Lawyers.com5 make it easier to be an
informed consumer. At the same time, states have passed rules designed to curb some of
the more outrageous attorney advertisements, though free-speech groups (and some law
firms) oppose the movement.
Just last month, avvo.com6 launched a service ranking thousands of attorneys by a score
of 1 to 10. It covers only a handful of big states so far, but plans to expand. Days after its
launch, it was sued in federal court in Seattle by a lawyer who claims the information is
inaccurate and misleading. Avvo co-founder Paul Bloom says the suit is "an attempt to
bomb" consumers "back to the stone ages."
While all of this is causing a stir in the industry, it's making it increasingly possible for
consumers to do due diligence on lawyers and even get basic price comparisons.
The first step is to decide if you even need an attorney. Some services, such as preparing
a will, can be done by a paralegal or by yourself. A basic will prepared by an attorney can
cost anywhere from $150 to more than $600.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 35
For do-it-yourselfers, Quicken's WillMaker Plus computer software lists for $79.99, but
you can find it for less. LegalDocs.com's legal forms go for $6.95 to $349. The American
Bar Association at abanet.org has a free online guide to wills and estates.
If you decide to go the lawyer route, state and local bar associations provide referral
services that match clients with lawyers, though in some cases, lawyers pay a fee to
participate in the referrals.
Most bar association Web sites also allow searches of individual attorneys to see if he or
she is in good standing, or has faced disciplinary action.
The ABA at abanet.org/barserv/stlobar.html7 provides links to state associations.
The Martindale Hubbell Law Directory has been the reference bible for locating lawyers.
Martindale.com8 provides peer-review ratings of individual attorneys -- in other words,
lawyers rated by lawyers -- based on their legal ability and professional ethics.
Nolo.com provides a basic guide to finding a lawyer by state or city and specialty
practice, along with in-depth profiles and verification the attorney is in good standing.
LawyerRatingz.com9 rates attorneys on a scale of 1 to 5 on categories including
"knowledge," "tenacity" and "work quality." The reviews also contain written comments
by consumers.
Once a lawyer is found, the other key is making sure you get a fair price. Legal costs can
vary widely. Costhelper.com10 provides guideposts to ensure you are in the ballpark. For
example, an uncontested divorce can cost anywhere from $1,000 to $10,000, according to
Costhelper.com, depending on the complexities.
13. Just last month, avvo.com launched a service ranking thousands of ____ by a score of
1 to 10. It covers only a handful of big states so far, but plans to expand.
a. accountants
b. attorneys Correct
c. dentist
d. medical doctors
Now, It's Business By Data, but Numbers Still Can't Tell Future
By SCOTT THURM
July 23, 2007; Page B1
http://online.wsj.com/article/SB118514369308274339.html
We've had management by objective and total quality management. Now it's time for the
latest trend in business methodology: management by data.
The success of enterprises as diverse as Harrah's Entertainment, Google, Capital One
Financial and the Oakland A's has inspired case studies, books and consultants promising
to help executives outpace rivals by collecting more information and analyzing it better.
There is much to be said for the approach. Guided by Chief Executive Gary Loveman, a
former Harvard Business School professor, Harrah's rethought customer incentives,
adjusted slot-machine payouts, and poured money into hiring and retaining top-notch
employees. Its shares are up more than fourfold in the past decade and the company has
agreed to a $17 billion buyout by private-equity firms.
Google has outdistanced Yahoo, Microsoft and others by tweaking both its Internetsearch algorithm to provide better and faster results, and its formula that determines what
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 35
ads are displayed alongside search results. This virtuous circle draws both more Web
surfers and more advertisers.
In many cases, analyzing data would be an improvement over prior management
techniques, which Stanford business professor Robert Sutton derides as "faith, fear,
superstition and mindless imitation." Mr. Sutton is co-author of "Hard Facts, Dangerous
Half-Truths & Total Nonsense," one of several recent tributes to the data-driven
enterprise.
Running a complex enterprise can't be reduced to a spreadsheet, however. Even the most
detailed statistical analysis has limitations, as Mr. Sutton acknowledges.
For one, conditions may change, rendering the analysis misleading. Thomas H.
Davenport, a management professor at Babson College and co-author of "Competing on
Analytics: The New Science of Winning," says such change helps explain why so many
sophisticated lenders and investors have gotten burned by the downturn in subprime
mortgages. For years, default rates followed a predictable pattern based on the borrower's
credit score. Last year, that pattern changed slightly and many lenders didn't adjust.
Jeffrey Pfeffer, Mr. Sutton's colleague and co-author, offers a more insidious pitfall:
Managers can be so focused on perfecting today's business that they lose sight of
tomorrow's.
The tension between the short term and the long term is familiar to managers. Other
research suggests that quality-focused approaches may reduce defects, but hamper
innovation.
That helps explain why companies seem invulnerable one minute and aimless the next.
For a decade, Dell captured an increasing share of sales and profits in the PC industry by
mastering supply-chain logistics. But Dell couldn't diversify its business, making it
vulnerable once Hewlett-Packard matched its expertise.
The real trick, then, is to combine these skills, gaining advantage by analyzing today's
problems while looking creatively for tomorrow's opportunities.
Google, the company that tracks every user keystroke on its Web site, also frees its
engineers to spend 20% of their work time on self-directed projects. That has given birth
to such programs as Google News, Gmail and, most significantly, AdSense for content,
which places Google-brokered ads on other Web sites.
Dave Girouard, vice president and general manager of the Google unit building software
for businesses, encourages his several hundred employees to use their self-directed time.
"A lot of analytical stuff will give you incremental improvement, but it won't give you a
big leap," he says. "You can't time or plan for innovation. It can't come from customer
data. It has to come from the heart of somebody with an idea."
Gil Cloyd might quarrel with that notion. Mr. Cloyd is chief technology officer of Procter
& Gamble, one of the world's largest consumer-product makers. P&G monitors supply
chains and market-research data as closely as any company. Its in-house technology
group is called "information and decision solutions."
But P&G also needs new products, and improvements on old products, to survive. After
an earnings slip sent its shares plunging by half in early 2000, P&G set out to revive and
refashion its innovation pipeline. Among other changes, the company looked more
aggressively to outsiders.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 35
To Mr. Cloyd, innovation should be measured the way P&G evaluates other parts of its
business. He monitors the investment return on P&G's research spending, and compares
research spending to company sales.
Just as there's no universal approach to innovation, it seems, there's no single formula for
business success.
14. The latest trend in business methodology is called:
a. harrah
b. total quality management
c. management by objective
d. management by data Correct
Instant Messaging Invades the Office
By CAROLA MAMBERTO
July 24, 2007; Page B1
http://online.wsj.com/article/SB118523443717075546.html
During the pre-holiday crush last December, a computer maker asked staffing company
Adecco SA for 300 additional factory workers -- immediately. Using an instantmessaging program, Senior Vice President Steve Baruch tapped managers in three states
to line up the workers within hours. If he had relied on email and phone calls, Mr. Baruch
says, the same process could have taken him as long as three days.
Instant messaging is invading and changing the workplace. Employees started to sneak
instant messaging into the office in the late 1990s, but now more companies are
endorsing it. Faster and more casual than email, instant messaging can foster broader
collaboration among employees even as it further blurs the boundaries between work and
life.
Instant-messaging programs allow users to organize contacts into "buddy lists" and see
who is online and available to chat at any given moment, world-wide. With most IM
programs, users can start real-time conversations with one or more contacts, including
multiple participants simultaneously. Sending a message opens up small windows on the
participants' screens where users can type their chats. Most programs also offer filesharing, voice and video features. IM can be used on computers and on wireless devices
like cellphones. Many employees use popular consumer-level IM applications, such as
AOL Instant Messenger and Yahoo Messenger. But some companies have opted to buy
more secure, customized systems that offer such features as archiving.
Roughly one-third of U.S. employees use instant messaging at work, many without the
knowledge of their employers, according to a 2006 survey by the American Management
Association and the ePolicy Institute. Many employers remain reluctant to endorse it
officially fearing security breaches and distracted employees. But tech consultant Gartner
Inc. projects that instant messaging will be the "de facto tool for voice, video and text
chat" for 95% of employees in big companies within five years.
Unlike email, instant messaging offers "presence" -- a snapshot of which colleagues are
available at a given moment, world-wide. Together with allied Internet technologies such
as blogs and wikis, it is "changing the way people collaborate," says Andrew McAfee, an
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 35
associate professor at Harvard Business School. Companies "increasingly react to
situations and problems on the fly, not solely by hierarchy," he says.
Instant messaging can "scare managers who were taught they need to be in control," says
Marty Anderson, a professor at the Olin Graduate School of Business at Babson College.
But others embrace the technology.
Suzanne Gordon, chief information officer for software maker SAS Institute Inc., Cary,
N.C., "chats" daily via instant message with overseas staffers two or three rungs below
her on the organizational chart. During one such session, a manager in France pointed out
a flaw in technology support. Canvassing other employees by instant message, Ms.
Gordon concluded the problem was serious enough for her to appoint a U.S.-based
manager to help. "Sometimes through proper channels you don't always get the truth,"
she says.
Ms. Gordon recently "pinged" Philip Busby, a 23-year-old software developer three
levels below her, to ask about his iPhone. Mr. Busby says he was surprised that Ms.
Gordon, who oversees 350 employees, knew he had just bought the Apple Inc. device.
But "it felt natural to chat with her, it happens all the time," he says. Ms. Gordon says she
was curious whether the iPhone would be useful at SAS.
Paul Tidball, an SAS product manager who works from his home in Oregon, says instant
messaging makes him feel less isolated. Through IM, Mr. Tidball finds it easier to
collaborate remotely on projects and find co-workers around the clock. He sometimes
limits their ability to find him, however, by signing off the instant messenger program.
"At some point you just have to put the mouse down," he says.
Connecting people across job categories and time zones can be both the strength and the
weakness of the technology. Tim Waire, vice president for information technology in the
generation unit of Constellation Energy Group Inc., "tags" colleagues who are not at their
computers so he is notified when they start using their computer again. "Because you're a
24-hour company, you expect people to be available 24 hours," he says. "There's no
excuse anymore for not being available."
Mr. Waire's boss, Beth Perlman, is more cautious. She is Constellation's chief
information officer, and she limits her "buddy list" -- those who can see whether she is
online -- to 27 people. But she can still feel overwhelmed. During a recent computersecurity investigation, Ms. Perlman traded instant messages with two managers while
talking to a third on the phone. "The only place I can't be reached is on a plane," Ms.
Perlman says. "That's why I like flying."
Ms. Gordon of SAS agrees. "You cannot let technology control you," she says. "You
need to use it to your own advantage."
Consider how Andrew Fano, global director of research at Accenture Technology Labs,
seeks control. Mr. Fano knows instant messaging is distracting. When he's in charge of a
meeting, he sometimes bans laptops. But he also considers it indispensable, and he says
that he, too, sometimes uses it during meetings. He has even used it to advise colleagues
when to speak up and to suggest points for them to make.
Fans maintain the benefits outweigh the drawbacks. Knowing when others are available
can generate unexpected paybacks, says Greg Vigil, director of the PowerGrip unit at
Gates Corp., a Denver maker of automotive and industrial rubber belts and hoses. During
a product-development meeting in Scotland last January, Mr. Vigil saw in the corner of
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 35
his laptop screen that the company's technical director for Asia, Guenther Heinz, had
become available via instant message and asked if he would join the meeting.
It was late in the evening in Tokyo, but Mr. Heinz agreed to join the discussion by
telephone, outlining products and technologies his team was developing in Asia, Mr.
Vigil says. That spurred ideas for products in Europe and North America. Following up
on the chance interaction, Mr. Vigil will soon travel to Japan and China to meet Mr.
Heinz and talk further.
Artists at San Francisco-based Industrial Light & Magic, a division of Lucasfilm Ltd.,
used to crowd a screening room for up to two hours each morning to review the prior
day's work. Now, supervisors feed suggestions to the artists over a custom-built instantmessaging system in which each participant can see others' comments. "Artists are able to
get feedback more quickly and continue to work" without leaving their desks, says
visual-effects supervisor Tim Alexander, whose latest work includes "Harry Potter and
the Order of the Phoenix."
15. During the preholiday crush last December, a computer maker asked staffing
company Adecco SA for 300 additional factory workers -- immediately. What did Senior
Vice President Steve Baruch use to tap managers in three states to line up the workers
within hours.
a. blogs
b. phone calls
c. email
d. instant-messaging Correct
Web Radio Battles Efforts to Expand Royalties for Music
By LEE GOMES
July 25, 2007; Page B1
http://online.wsj.com/article/SB118530628850576526.html
Even President Bush's toughest critics would forgive him his confusion when, at a forum
in Nashville, Tenn., last week, he was asked if he would support the payment of "a
statutory royalty to the performing artists for radio and television airplay," in the process,
"changing our laws to align with the rest of the world."
"Help!" the president gulped, to abundant laughter. "I have no earthly idea what you're
talking about."
Neither do most citizens who aren't employed in the entertainment, broadcasting or
digital-media industries. The manner in which music gets licensed in this country -- the
topic of the above question -- is almost as complicated as the technology used to send that
music over the Internet.
As music has spilled out onto the Web, so have disagreements about how to license it.
The latest of what may be many such disputes took place last month, when an estimated
30,000 Internet radio stations held a "day of silence." They were protesting new royalty
rates proposed by the Copyright Review Board, a panel of three judges charged by
Congress with settling on rates that would be fair to both sides.
The standoff involves proposed royalties to music labels and musicians. Smaller Web
companies say the new rates would put them out of business.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 35
The talks now under way involve only labels and musicians. Composers and songwriters,
along with the publishers who represent them, get paid via an entirely separate royalty
system. Next year, they will get their turn to have new Web royalty rates determined by
the copyright board. We may see a rerun of the current controversy and a day of silence
by a slightly different cast of characters.
Yet another standoff is in the cards involving satellite radio, which has its own set of
agreements between the labels and musicians. That issue goes before the copyright board
as soon as the current Web-radio impasse is resolved.
Every piece of recorded music is covered by two separate copyrights. The first involves
the musical composition itself and is usually handled by music publishers on behalf of
composers and songwriters. The other is for a specific recording of the song, which is
owned by record labels and musicians.
Those two copyrights are nearly as old as recorded music itself. They have spawned huge
organizations to represent the various parties, including the Recording Industry
Association of America, which speaks for record labels, and ASCAP and BMI, which are
music publishers that represent songwriters. Web-radio companies, including big Internet
broadcasters such as Yahoo, are banded together through the Digital Media Association.
Often, interests on the content-creation side of the music business are aligned, as when
they join forces to fight music piracy. But record labels and musicians typically can
negotiate royalties, while songwriters and composers are usually forced to take a fixed
amount -- one established via a legal proceeding set up by Congress. The publishers
representing the songwriters one day would like to change that to gain flexibility in
negotiations.
The more immediate prospective change involves the issue with which Mr. Bush was
confronted. It involves whether record labels and performers should be paid a royalty
whenever their songs are aired on the radio. In the U.S., unlike most of the world, they
aren't. Songwriters, however, are.
The exemption is decades old, and has saved radio stations billions of dollars in royalty
payments over the years. Its existence is generally credited to the clout of the U.S.
broadcasting industry. As music attorney Chris Castle says, "Every congressional district
has a radio station, but only three of them have record labels."
The broadcasters have justified the exemption by saying radio play increases sales.
Labels and musicians respond that the Internet is changing all of the old rules about the
economic realities of music, and they have begun a push to abolish the exemption. The
question to President Bush was part of the new PR offensive.
Music fans on the Web are at the forefront of the disputes over digital rights. For
example, a music sale via a service like iTunes is considered the same as the sale of a
physical CD, in terms of royalties. But when you stream a piece of music, that is
considered a "performance" of the song and an entirely distinct set of royalties kicks in.
This distinction works to the disadvantage of songwriters, who are fighting to get music
downloads categorized as performances and not sales. Court rulings, though, have so far
been against them.
Most lay people surveying this terrain quickly conclude that it would be more efficient to
have everyone involved in music creation, be they record labels or songwriters, aligned
on one side and negotiating together, with the same occurring across the table with music
users, be they radio stations or Web broadcasters.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 21 of 35
But there is little chance of that happening. The legal, financial and institutional interests
all diverge. The best any music fan can do as future disputes crop up -- and they will -- is
to keep score of who is negotiating with whom and over what, and hope for the best.
16. Last month, an estimated 30,000 _______ held a "day of silence." They were
protesting new royalty rates proposed by the Copyright Review Board, a panel of three
judges charged by Congress with settling on rates that would be fair.
a. ring tone down loaders
b. Internet radio stations Correct
c. TV stations
d. AM radio stations
Now, It's a Picnik To Edit Your Photos Using a Web Program
By WALTER S. MOSSBERG
July 26, 2007; Page B1
http://online.wsj.com/article/SB118539900300778055.html
One of the most important recent developments in consumer technology has been the
dramatic improvement in Web-based applications. These are software programs that
aren't installed on your own PC, but live on a company's server and are accessed using a
Web browser.
Such Web-based software has existed for years, but it was clumsy, slow and simplistic -no match for locally installed software. Common techniques, such as dragging items
around the screen, were impossible. Seeing the results of an action often required the
Web page to reload.
Now, developers are churning out Web-based applications that are so fast, rich and
smooth they can hardly be distinguished from standard programs. And because they live
online, these Web applications can be constantly updated; can run on both Windows and
Mac computers; and can be easily integrated with other Web sites and services.
One of the best examples of these slick new Web-based application is Picnik, a
sophisticated, photo-editing application offered free of charge at picnik.com1. I have been
testing Picnik and I like it a lot. It's a fast and impressive program for tweaking and
improving your photos, then posting them to popular photo Web sites, saving them to
your own computer, emailing them, or even printing them.
Picnik, which comes from a small Seattle company called Bitnik, isn't meant to compete
with Adobe Photoshop, or to serve professional photographers or dedicated hobbyists.
Instead, it's for the same casual photographer who would use the limited editing tools in
Apple's iPhoto or Microsoft's Windows Vista Photo Gallery.
Picnik isn't a place to store your pictures, or a way to organize them -- yet. The company
says it will consider adding these features down the road. For now, it is focused on being
an editing complement to popular Web services -- such as Yahoo's Flickr, Google's
Picasa Web Albums, and the independent Facebook -- that already allow for storing and
organizing photos. You could also easily use it as the main editor for photos you store on
your hard disk.
The program is currently in beta, or test, phase, though in my tests it worked smoothly
and surely. During this beta period, all of its features are offered for free. Later this
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 22 of 35
summer, the company expects to end the beta period and begin charging something like
$20 or $25 a year for access to some of the more rarified special effects that Picnik offers,
though the core editing and sharing functions, and some of the effects, will remain free.
In my view, Picnik has a beautiful and responsive user interface that worked perfectly on
the multiple Windows and Macintosh computers I used to test it. It worked equally well
in the latest versions of the three best-known Web browsers: Microsoft's Windows-only
Internet Explorer, Mozilla's Firefox (on both Windows and Mac) and Apple's Safari (on
both Mac and Windows.)
Picnik uses a simple tabbed interface across the top to navigate among its major
functions. Edits and changes are previewed in real time, instantly, without the need for a
page refresh or reload. Actions are confirmed with translucent messages that pop up on
the screen and fade gracefully.
Any edit or special effect can be undone or redone instantly, all the way back to the
original version of the picture, which Picnik retains on its servers during the editing
process.
For example, you can zoom in or zoom out on a picture with a slider that works just as it
would in a local program -- the effect is immediate, with no jerkiness. If you wish to crop
a picture, a pane representing the region to be included in the crop is superimposed on the
photo. Everything inside the pane is sharp and clear, and everything else is faded a bit.
This pane can be dragged, or resized, in real time.
Another example: If you want to tint a picture, the program shows you a color palette
with a white dot you can move around the palette to pick your tint. As you do this, or
move a slider that controls the intensity of the tint, the changes are instantly previewed in
the picture.
None of this is unusual for a standard photo program installed on your computer, but it is
impressive to see these effects happen so quickly and interactively in a program
functioning over an Internet connection.
17. Now, developers are churning out Web-based applications that are so fast, rich and
smooth they can hardly be distinguished from standard programs. One of the best
examples of these slick new Web-based application is _______, a sophisticated, photoediting application offered free of charge.
a. Pictic
b. WebPic
c. Picnik Correct
d. WebPicture
Avid Boarders Bypass Branded Gear
By PAUL GLADER
July 27, 2007; Page B1
http://online.wsj.com/article/SB118549628157679731.html
Sixteen-year-old Matt Hiemstra should be the $5.2 billion-a-year skateboard industry's
ideal customer.
During the summer, he skateboards daily, and between the end of one school year and the
beginning of the next, he breaks about eight boards doing jumps and other tricks. He also
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 23 of 35
knows all about skateboards, including the names of the leading brands and the pros who
endorse them.
But none of that knowledge really influences what he buys. "When it comes down to it, a
skateboard is a skateboard," says Mr. Hiemstra, who placed second and third at local
competitions last year at Kuehn skate park in Sioux Falls, S.D. "It doesn't matter that it
has fancy stuff. When you go through so many in a summer, it's too costly to buy
expensive new ones."
Some 12 million teenagers skateboard -- more than play baseball in the U.S. today,
estimates American Sports Data, a research firm based in Cortland Manor, N.Y. But Mr.
Hiemstra and other skateboarders like him present an interesting marketing challenge.
They are the industry's prime customers, both devoted to the sport and savvy. And when
they started out, most of them invested in premium boards and other branded gear. But as
they got more serious about boarding, many decided they just didn't care whether they
used the industry's top products, including the pro skateboard "decks" with graphics and
branding that can cost between $40 and $70 without the wheels and the axles known as
"trucks."
In more mainstream sports like baseball, basketball and soccer, young athletes tend to
respond to marketing by Nike Inc., Adidas AG and Under Armour Inc., paying top dollar
for gloves, balls, shoes and other gear endorsed by their favorite stars. But many boarders
think it's just fine to buy "blank decks," the plain, seven-ply wood boards that cost only
$15 to $30, often come from overseas, and are being sold by big discounters, on eBay
and at some skateboard specialty shops.
Mike May, a spokesman for the Sporting Goods Manufacturers Association in
Washington, D.C., agrees that skateboarders can be a tough sell. "I think skateboarding is
sort of in a class by itself in that respect," he says. "There are some free spirits and
independent thinkers in the skateboarding industry."
Serious skateboarders also have big expenses. On average, those who execute tricky
jumps, spins and slides break their boards once a month. "For a young kid, every couple
dollars count," says Issa Sawabini, a partner in Fuse, a Vermont-based youth sports
marketing company.
18. Many skate boarders think it's fine to buy _____.
a. blank decks Correct
b. specialty decks
c. ebank decks
d. fiber decks
Subprime Mess Is New Challenge For Regulators
By JON HILSENRATH
July 23, 2007; Page C1
http://online.wsj.com/article/SB118514929998174511.html
The mess in the subprime mortgage market is shaping up as an important test of the
globe's new financial architecture.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 24 of 35
A generation ago, when the U.S. real-estate market seized up in places like California and
Texas, banks and savings and loans felt the pain. The government fixed the problem at a
huge cost to taxpayers. Since then, financial markets have replaced banks and regulators.
Mortgages get bundled into products with strange names -- like collateralized debt
obligations or residential mortgage-backed securities -- and sold to investors around the
world.
Because the risk gets spread so widely, regulators can do little but watch and try to
reassure everybody it is all under control.
This shift to a markets-oriented architecture has been going on for a long time. But it is
hard to overstate how dramatically it has changed in the past decade. During the 1997
Asian financial crisis, Thai and Korean banks were at the center of the problem. The
International Monetary Fund and U.S. Treasury pushed them to write off bad loans and
get cash. When Long Term Capital Management collapsed in 1998, the Federal Reserve
called a handful of banks to the carpet to fix the problem.
Whom do you call today? Subprime problems are popping up all over the place: an
Australian hedge fund, a little-known investment unit of Bear Stearns, European banks.
In many ways, this is the beauty of the system. Risky investments are dispersed around
the globe the way a sprinkle system distributes droplets of water around a lawn. In
theory, when trouble hits, the risk is evenly divided and the overall financial system
remains stable.
It seems to be playing out that way so far. Subprime losses could hit $100 billion, yet the
Dow Jones Industrial Average reached records last week. "The fears about the kind of
spread of this to other markets hasn't really occurred," says Wharton School finance
professor Gary Gorton.
But there are worrisome downsides to this financial architecture. The system hides risk
and concentrates it in hedge funds that regulators and other investors don't understand.
The hedge funds have access to huge amounts of debt, allowing them to make big bets on
investments that can go wrong very quickly.
"We don't really know where the bodies are buried until after the fact," says Andrew Lo,
an MIT professor who also runs a hedge fund.
A system designed to distribute risk also tends to breed it. At their core, subprime loans
and other mortgage innovations -- 'piggyback' loans, Alt-A mortgages, 'no-doc' loans -brought credit to people who wouldn't otherwise have gotten it. Few of these products
would have become so popular if they hadn't been packaged into securities and sold
widely to investors.
Something similar happened in the corporate-debt market. It saw an explosion of loans
with few performance requirements for borrowers, known as covenant-lite loans. Like
subprime mortgages, covenant-lite is essentially debt with borrower-friendly terms. And
like subprime mortgages, Wall Street bundles and distributes them to investors around
the globe.
The corporate takeover boom has been financed by such things. How will it play out?
Watch the subprime story unfold, and you might get some clues. You can be sure that's
what they're doing at the Fed.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 25 of 35
19. The mess in the ______ market is shaping up as an important test of the globe's new
financial architecture.
a. automobile mortgage
b. prime mortgage
c. subprime mortgage Correct
d. fixed mortgage
GM's Allison Hits a Financing Snag
By SERENA NG and GINA CHON
July 24, 2007; Page C1
http://online.wsj.com/article/SB118522569482475410.html
Allison Transmission, a highly profitable unit of General Motors Corp. based in
Speedway, Ind., has gotten stuck in a traffic jam in the debt-financing market.
Wall Street firms postponed a sale of $3.1 billion in loans that would pay for the
leveraged buyout of Allison by private-equity firms, said a person familiar with the
matter. While the sale of Allison to Carlyle Group LP and Onex Corp. is highly likely to
proceed, the trouble raising debt from investors complicates matters for the company and
its bankers.
The snag reflects difficult conditions in the market for risky corporate loans and bonds
and raises questions about the prospects of other buyout-related debt financings that need
to be completed this summer. That includes a $20 billion loan deal for Chrysler Group.
Cerberus Capital Management has agreed to buy a majority stake in the auto maker from
DaimlerChrysler AG.
The Allison debt deal wasn't the only one sidetracked yesterday. Expedia Inc., the online
travel agency, drastically scaled back share buyback plans because it couldn't borrow the
funds it needed for the buyback at acceptable terms. (See related article1 and
commentary2.)
Underwriters last month called off a $3.6 billion sale of loans and bonds for Ahold NV's
U.S. Foodservice as well as a $1.15 billion sale of junk bonds for ServiceMaster Co. The
Wall Street firms ended up financing both those deals directly through bridge loans.
GM in June agreed to sell Allison, which builds transmissions for heavier trucks, for $5.6
billion. The deal is being financed by $3.5 billion in corporate loans and another $1.1
billion worth of junk bonds.
Underwriters, including Citigroup Inc., Lehman Brothers Holdings Inc. and Merrill
Lynch & Co., were planning to sell, or syndicate, $3.1 billion of the loans to investors
around the globe. The bankers met resistance. Investors have been shying away from
sales of junk bonds and similarly rated corporate loans for several weeks.
Investors have been spooked the huge amount of money that is being raised for buyouts.
Debt investors have become more cautious after seeing the losses that have struck bonds
backed by risky subprime mortgage debt.
Debt investors have been skittish in recent weeks as prices of many junk bonds and loans
have plunged, partly because of a spillover of negative sentiment from troubles in the
market for bonds backed by subprime mortgages. Investors have been pushing back
against many new corporate-debt sales, demanding significantly higher interest rates or
better terms before they will consider buying the debt.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 26 of 35
A person familiar with the matter said with today's postponed sale, the Wall Street firms
will now try to distribute the loan among a small group of banks. The junk bonds,
meanwhile, hadn't been offered to investors yet. The outlook for that sale couldn't
immediately be determined.
The buyout itself still is on track to be completed in the third quarter. If the debt hasn't
been distributed to investors by then, the deal may be financed directly by the
underwriters, which can still try to sell the loans and bonds afterward if market conditions
improve.
In several other cases recently, banks have been forced to make loans directly to
companies, or to hold bonds on their own books, after investors declined to participate.
Allison is expected to have debt that represents about seven times its annual cash flow,
according to Standard & Poor's Leveraged Commentary & Data.
The Big Three U.S. auto makers have been banking on financing from the private-equity
community to fund restructuring efforts, including money for a possible deal with the
United Auto Workers aimed at easing the burden of retiree health-care liabilities.
GM, Ford Motor Co., and others have been putting their prime assets for sale and private
equity has become an eager buyer. If debt financing for private-equity deals dries up, that
could spell trouble for the Big Three as they kick off negotiations with the UAW for a
new contract.
The Chrysler financing, in particular, is at a critical juncture as it is being sold to
Cerberus. In late June, it launched a sale of $20 billion in loans and bonds. The deadline
for closing the deal has been put off to give investors more time to analyze the deal.
Moreover, Chrysler's bankers have had to sweeten the terms of the loan package for
investors.
GM, meanwhile, is in the midst of a restructuring of its North American operations as it
tries to improve cash flow and restore profitability in the region. Allison's transmissions
have a dominant share of some of the major sectors of the heavier-duty truck markets.
The company posted $2.3 billion in revenue last year and posted an operating profit of
nearly $350 million, making it one of GM's highest-margin divisions.
20. Wall Street firms postponed a sale of $3.1 billion in loans that would pay for the
leveraged buyout of _____ by private-equity firms, said a person familiar with the matter.
a. Chrysler
b. Ford Motor Co
c. Allison Transmission Correct
d. GM
Chrysler's Bankers May Take On Debt
By SERENA NG and GINA CHON
July 25, 2007; Page C1
http://online.wsj.com/article/SB118532697032777070.html
Chrysler's attempt to tap debt markets for $20 billion hit a critical juncture as bankers
began discussing the likelihood that they will have to step up with a large part of the
money because investor demand hasn't been strong enough.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 27 of 35
The financing is being watched closely in Detroit because the Big Three and a horde of
auto-parts suppliers have depended on tapping debt markets for low-interest loans and
bonds in a wave of restructuring and asset sales.
"Low interest rates and plentiful capital are the key enablers to Detroit's restructuring,"
said John Casesa, managing partner of the Casesa Shapiro Group, which advised a
consortium of investors on Ford Motor Co.'s sale of Aston Martin in a $848 million deal
that closed this year.
It's an especially sensitive time because Chrysler and its Detroit counterparts are kicking
off contract negotiations with the United Auto Workers.
Chrysler Group is being acquired from DaimlerChrysler AG by New York hedge fund
Cerberus Capital Management. The $20 billion will be used to fund Chrysler's auto
operation and its finance unit after it is separated from Daimler in the coming days.
The struggle to raise money from investors was the latest sign of how inhospitable debt
markets have become recently. Private-equity firms and debt investors have played a key
role in supplying financing to Detroit. The cash-raising strategies have worked for much
of the past two years, with Ford and General Motors raising billions of dollars from
selling debt and assets.
Chrysler's bankers -- including J.P. Morgan Chase & Co., Goldman Sachs Group Inc.,
Citigroup Inc., Bear Stearns Cos. and Morgan Stanley -- have spent the past month trying
to convince investors to buy $12 billion in loans for Chrysler's auto business and $8
billion in loans for its financial arm.
The underwriters of the debt sale were yesterday discussing plans to take a half or more
of a $10 billion piece of the Chrysler auto loan, people familiar with the matter said.
The debt to be held by the banks would bear the first losses if Chrysler has problems
repaying. Investors who own the rest of the loan would be given priority over Chrysler's
assets if the company ends up in default. Another $2 billion piece of the Chrysler auto
loan is likely to be offered at a higher interest rate.
The $8 billion loan sale for Chrysler Financial, meanwhile, is still on track to be
completed this week, though the company has had to increase the amount of interest it
would pay on the debt.
It also needs to raise $42 billion, much of it to compensate Daimler for existing Chrysler
debt it still holds. That sale isn't expected to be as difficult, because much of it will be
backed by healthy Chrysler auto loans.
The mood of the debt market could also influence Ford's asset sales, including its effort
to eliminate the Jaguar and Land Rover brands from its portfolio. Ford tapped the debt
markets for $23 billion last year, but is still looking to raise cash. Parts suppliers, such as
Delphi Corp., are also in the process of being sold.
In a written commentary this week, Bill Gross, managing director of Pacific Investment
Management Co. pointed to the Chrysler deal as a landmark for the debt markets, saying
it was a sign to investors "their world has suddenly changed."
Earlier this week, Wall Street firms postponed a $3.1 billion loan sale that would pay for
the buyout of Allison Transmission, a unit of GM, due to difficult market conditions.
They are now planning to distribute the loans among a smaller group of banks.
Treasurys Market Rises
Treasurys did well yesterday, as a series of poor second-quarter earnings reports turned
investors on to government paper.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 28 of 35
The safety bid was behind a marked drop in yields, which move inversely to prices. The
10-year is now hovering around the 4.92% threshold that could beckon a further drop.
The benchmark 10-year note was up 5/32 point, or $1.5625 per $1,000 face value, at 96
19/32. Its yield fell to 4.944%. The 30-year bond was up 2/32 point to yield 5.062%.
21. Chrysler is attempting to tap debt markets for ____ to fund Chrysler's auto operation
and its finance unit after it is separated from Daimler in the coming days.
a. $3 billion
b. $3.1 billion
c. $20 billion Correct
d. $200 billion
Prime Problem: Home Prices That Are Falling
By SCOTT PATTERSON
July 26, 2007; Page C1
http://online.wsj.com/article/SB118541011252378354.html
Many subprime mortgages that have gone bad never should have been made at all. Some
of the prime loans that are starting to go bad should have been made only if the lenders
could guarantee that housing prices would keep going up.
They didn't, and that contributed to Countrywide Financial's 33% drop in quarterly
earnings and 10% stock drop on Tuesday. The culprit, the company said, was a surprising
jump in delinquencies by prime borrowers who had taken out home-equity loans.
When prices were rising, homeowners were able to wiggle out of mortgages by
refinancing or selling.
Now, amid tighter lending standards, air is seeping out of the bubble, and the escape
hatch for troubled borrowers has slammed shut.
"The challenge now is going to be for people who would like to refinance, but the value
of the property is materially lower than their existing loan," said housing economist
Thomas Lawler.
That means more prime-loan defaults are likely on tap. Today's report on June new-home
sales could show how aggressively home builders have been cutting prices. Sales of
newly built homes in April surged 12%, in part due to an 11% drop in the median sale
price. Prices fell just 1% in May and sales fell again.
Another clue could come from D.R. Horton, which reports fiscal third-quarter earnings
today. The home builder said earlier this month that net home orders had tumbled 40%
from a year ago. The question is will the company slash prices to get sales moving again?
(More on the housing market, page D1.)
Citigroup May Be Hit Hard by Tightening Debt Market
With the wheels coming off the $12 billion auto loan backing the leveraged buyout of
Chrysler, J.P. Morgan Chase, the lead arranger of the deal, has a bit of egg on its face.
But the bank's archrival, Citigroup, may look just as bad as leveraged-debt investors
refuse to part with their money.
Citigroup was a lead arranger of $24.6 billion of U.S. loans and bonds yanked from the
market, according to Reuters Loan Pricing. Besides Chrysler, it was one of three leads on
Allison Transmission, a $3.1 billion loan deal pulled earlier this week. That total doesn't
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 29 of 35
include deals like Dollar General, where underwriters including Citigroup and Goldman
Sachs Group sacrificed fees to get them sold.
Citigroup's shares have fallen about 10% since the beginning of last month, while J.P.
Morgan's are down 13%. Falling prices for loans in the secondary market could hurt
banks' results if they're forced to sell them at a discount. The company is comfortable
with the credit it has extended, Gary Crittenden, Citigroup's finance chief, said last week.
"There's a lot of uncertainty," says Jeffrey Harte, analyst at Sandler O'Neill & Partners.
Citigroup has a role in the largest deals in the pipeline, too: TXU, First Data., Alltel and
Clear Channel Communications. Recently, Charles Prince, Citigroup's chief executive,
said the company was still willing to finance buyouts. "As long as the music is playing,
you've got to get up and dance," he said. Were he asked now, would he still be dancing?
22. Some of the prime loans that are starting to go bad should have been made only if the
lenders could guarantee ___.
a. that housing sales would keep going up
b. that housing sales would go down
c. that housing prices would keep going up Correct
d. that housing prices would go down
'Between Fear and Greed': Fund Managers Share a View
By TOM LAURICELLA, SHEFALI ANAND and KAREN RICHARDSON
July 27, 2007; Page C1
http://online.wsj.com/article/SB118549709042579755.html
Although there were few havens during yesterday's stock-market rout, investors voiced
optimism that strength in the global economy would cushion any challenges in the U.S.
"Whenever a bull market runs as long as this one, volatility always increases as time
moves along," said Lou Morrell, who oversees the $1.2 billion endowment at Wake
Forest University in Winston-Salem, N.C. "Investors are repricing investments based on
their reduced appetite for risk, which is just another sign of their tendency to move back
and forth between fear and greed."
Yesterday morning, as stocks were sliding, his group moved some money out of the U. S.
to Canada and overseas markets in Europe and Asia. "The fundamentals remain strong,
given the strength in the new global economy," Mr. Morrell said.
Others said the declines were largely a response to air coming out of the buyout bubble
and a renewed focus on problems in the U.S. housing market that have been around for
months. They saw no reason to run headlong out of stocks.
"Concerns about credit quality and corporate borrowing have taken a prop away from the
market," said Robert Doll, chief investment officer at BlackRock Inc. Mr. Doll said
investors should put the decline in the context of big gains. "So we were up 25%, and
now we're down 5%," he said. "I'll take that as long as you want to feed it to me."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 30 of 35
23. Although there were few havens during yesterday's stock-market rout, investors
voiced optimism that strength in _______ would cushion any challenges in the US.
a. the bonds market
b. the international blue chip sector
c. the technology sector
d. the global economy Correct
Bumped Fliers May Get a Better Deal
By SCOTT MCCARTNEY
July 24, 2007; Page D1
http://online.wsj.com/article/SB118523245975475487.html
For the first time in 29 years, the Department of Transportation is considering raising the
compensation that airlines have to pay customers bumped from overbooked flights.
The federal agency is asking travelers to weigh in on the issue and will take comments
from the public until Sept. 10. After that, it will propose a new rule, which would likely
be effective next year.
Airline bumping, when passengers with confirmed reservations get left behind because of
overbooking, is on the rise. In the first quarter this year, 1.45 of every 10,000 passengers
were involuntarily bumped from flights on U.S. airlines, up 11% from 2006. That's a
higher rate than even the late 1990s when airline service deteriorated under crowded
flights and long delays, and the increase caught the DOT's attention.
"This year things have really gone in a different direction, and this is one of several
consumer issues we're dealing with," said Andrew Steinberg, the DOT's assistant
secretary for aviation and international affairs. Among the issues under study: congestion,
delays, and passengers kept on grounded planes for extended periods.
With all the delays, cancellations and disruption of this summer, overbooking becomes a
bigger problem for travelers. Flights are full and passengers with tickets but not seats on a
flight may end up competing for seats with people from canceled or delayed flights. The
competition for boarding passes grows more intense.
One factor in overbooking is that the penalty for airlines is small, yet the inconvenience
to travelers can be huge. In fact, overbooking can often be a bit of a windfall for an
airline. Sell an expensive last-minute ticket on a full flight to a business traveler and then
bump a cheap-fare vacationer, and the airline increases revenue because the
compensation paid to the vacationer is so small.
Under current rules -- which were set in 1978 -- consumers can get a maximum
compensation of just $200 if the passenger gets re-accommodated on a flight that is
scheduled to arrive within two hours of the original arrival time for domestic trips or four
hours for international flights. If the passenger gets rebooked on flights that can't meet the
two-hour domestic or four-hour international window, the compensation jumps to a
maximum of $400. (The airline has to compensate an involuntarily bumped passenger
with 100% of the value of his or her ticket for that flight -- the one-way portion, not
round-trip -- but only as much as the maximum cap.) If you agree to voluntarily give up
your seat, you will likely get the compensation in the form of a voucher for future travel.
But if you're bumped involuntarily, you can demand cash.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 31 of 35
The DOT has been under pressure to raise the caps as overbooking worsened in the past
year. Earlier this month, the DOT proposed several options, including raising the caps to
fully account for inflation or just eliminating them, forcing airlines to pay the price of the
ticket, no matter how expensive.
Already, some travelers who have heard about the proposal have fired off comments to
the DOT, all expressing anger and outrage at overbooking.
"Where else do you get to do this? A theater can't sell 20 more seats than it really has,"
said Louise Helland of San Martin, Calif., still angry about being bumped from a flight
from Boston with an infant in her arms 16 years ago. "The cost to them doesn't equal the
inconvenience to passengers," she said in an interview.
Dan Hepler, a retiree in Pittsburgh, urged the DOT to eliminate overbooking, period. "It's
like a giant sword hanging over the heads of travelers," he said in an interview.
John Negron, a frequent business traveler from New York, also hates overbooking
because flights are often delayed while gate agents try to enlist volunteers to give up
seats. "You've got a confirmed ticket and they try to take it away. The practice should be
limited at best, and they should be made to pay," he said.
There is some benefit to consumers in airline overbooking. By selling more seats than are
actually on a particular plane, airlines can accommodate customers otherwise left behind.
A last-minute traveler who might be told the flight is sold out if airlines didn't overbook
can, in fact, get onboard. That's because people still don't show up for flights, even
though most airline tickets these days are nonrefundable, or jump on different flights. By
selling more tickets than there are actual seats on the plane, the DOT says overbooking
probably helps hold down ticket prices. Take away overbooking and fares would likely
rise.
What's more, some people like to volunteer to give up seats on overbooked flights to snag
vouchers for future trips. Airlines are required to ask for volunteers before involuntarily
bumping customers, and if you aren't in a hurry, it can pay to perhaps pocket a $200
voucher toward your next ticket. Those vouchers, however, come with strings attached
such as restrictions blocking their use on ultra-cheap fares or popular travel dates. Couple
that with longer waits to get on another flight because planes are booked so full these
days and volunteering isn't as enticing as it used to be.
In the first quarter this year, the rate of voluntary bumps dropped by 15% while the rate
of involuntary bumping was on the rise. Either fewer people wanted to volunteer for
vouchers, or airlines were getting chintzier with their offers to volunteers.
The DOT offered up several options in an "Advance Notice of Proposed Rulemaking."
One option is to fully account for inflation since 1978. That would more than triple the
penalties to a maximum cap of $624 from $200 and $1,248 from $400.
Another option is to tie the increase to the rise in airfares, which have increased at a
much, much slower rate than inflation because of increased airline competition and lowcost competitors. Using the average price travelers pay to fly one mile as the measure, the
caps would bump up to $290 from $200 and $580 from $400.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 32 of 35
24. Under current airline rules -- which were set in 1978 -- consumers can get ____ if the
passenger gets re-accommodated on a flight that is scheduled to arrive within two hours
of the original arrival time for domestic trips or four hours for international flights.
a. minimum compensation of $200
b. maximum compensation of $200 Correct
c. minimum compensation of $400
d. maximum compensation of $400
PC Shopping: Online vs. In the Store
By CHRISTOPHER LAWTON
July 25, 2007; Page D1
http://online.wsj.com/article/SB118531981950876847.html
Web sites that sell personal computers want their customers back.
With more people opting to buy their PCs in stores, online retailers are going to new
lengths to try to make shopping on their sites easier, more informative, and more
engaging. So far this year, online PC retailers such as Buy.com Inc., Newegg Inc. and
TigerDirect Inc. have launched new ad campaigns and redesigned their Web sites by
adding features such as online video and community forums. The online retailers have
also made their sites easier to navigate by adding price-comparison features and reducing
the number of pages users have to click through to check out.
PC vendors aren't sitting on their hands either. Dell Inc., the top online destination for
PCs, earlier this year launched online videos about its computers and other topics and
created an online forum to get customer feedback. Dell also started letting users post
reviews of its PCs on its Web site. And rival Hewlett-Packard Co. in January updated its
online store by replacing text and technical information with more product shots and
graphics. The company has also created a click-to-call service that allows surfers to get a
call from an H-P representative within minutes of clicking online.
For PC buyers, the changes mean richer shopping resources on the Web. But it isn't clear
whether they will be lured back.
For years, consumers were happy to buy their PCs online. But as laptops have become
more popular, people have increasingly sought to touch and test out their computers
before buying. Laptop customers, planning to carry their PCs around with them, pay
more attention to styling, shape and weight.
Also, the Web sites' price advantage has evaporated. Once, it was easy to find the best PC
prices online, but as average selling prices in the industry have declined, the price
differences have become negligible.
All this has taken a big bite out of online PC sales. During the first five months of this
year, 60% of PCs sold to consumers were bought in a store -- the highest share this
decade -- up from just under 53% two years ago, according to NPD Group Inc.
In revamping their sites, online vendors are trying to take advantage of the fact that many
consumers research their PC purchases online. According to a May study from Forrester
Research, 66% of PC sales in stores are influenced by online research.
Online vendors say they don't want to compete on price. Instead, they aim to enhance the
online-shopping experience, making it feel more like the PC is right in front of the
shopper and can be bought instantly. TigerDirect.com1, for instance, has added video
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 33 of 35
product reviews, so consumers can see the PCs in use. It has also launched a single-page
checkout feature, reducing the number of pages to click through from three. Buy.com2
has started letting users upload their own one-minute video review of PCs and other
products.
Meanwhile, Newegg.com3 in June started an online community for its customers,
complete with blogs, forums and a newsletter. Amazon.com Inc. also redesigned its PC
page this month to focus on the most popular notebook and desktop offerings, as opposed
to a more general list of its stock.
The revamps are aimed at consumers like Cassandra Owens. Ms. Owens, 32 years old,
wants a powerful computer to play PC games and started her research last month by
visiting local big-box retailers around Louisville, Ky. "Normally I would only purchase
things hands-on," she says.
Not finding what she wanted, however, Ms. Owens checked out the Web and came
across video reviews of keyboards and mice on TigerDirect.com. She soon started
emailing with the TigerDirect employee who made the video, asking questions about
some products. Now Ms. Owens says she may buy the new computer, as well as PC
accessories such as a monitor, from TigerDirect.
The online retailers are trying to bring the product to life, says Laura Broderick,
consumer online director for Dell. "It makes [customers] feel better about their purchase
without having to go to a store to do it."
25. More people are purchasing new personal computers ___.
a. at the airport
b. via PDAs
c. via online retailers
d. in stores Correct
The Job That Follows You Wherever You May Roam
By SUE SHELLENBARGER
July 26, 2007; Page D1
http://online.wsj.com/article/SB118541140302878394.html
When Vera Davison packs up her household to move to Greece from Washington, D.C.,
next week for her husband's job, she'll be taking along a hard-won new asset: her
language-translation business.
While moving five times throughout Asia and South America for her husband's career as
a foreign-service officer, Ms. Davison gave up her own career as an attorney to create a
portable job for herself. Her clients, she says, stick with her via the Internet.
As the relocation season peaks this summer, more transferees' spouses are avoiding their
traditional fate -- unemployment or underemployment -- by building virtual businesses
that can move right along with them. Experts on so-called trailing spouses say these
entrepreneurs are multiplying fast, ranging from accountants and Web site designers to
administrative "virtual assistants." Their stories show what it takes to build a business
that is portable, but also financially and psychologically rewarding.
Some 12.1% of sole proprietors are engaging in e-commerce, up from 9.4% in 2005, says
a survey of 1,235 businesses this year by IDC, a Framingham, Mass., market-research
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 34 of 35
concern. For many, says IDC analyst Ray Boggs, the Internet "is what's making it
possible for them to do business."
These itinerant entrepreneurs must have all the usual assets for starting a business -- a
profitable niche, risk tolerance and marketing and financial skills. Beyond that, they also
need to be unusually nimble and persistent in marketing, savvy with technology and
skillful at building relationships online. They also must be able to comply with local
immigration, tax, visa and work-permit requirements for international transfers, and with
varying state professional-licensing requirements for moves within the U.S.
26. Some _____ of sole proprietors are engaging in e-commerce, up from 2005, says a
survey of 1,235 businesses this year by IDC.
a. 2.1%
b. 5.1%
c. 12.1% Correct
d. 21.1%
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 35 of 35