The Wall Street Journal Education Program Weekly Review & Quiz Covering front-page articles from Feb 3-9, 2007 Professor Guide with Summaries Spring 2007 Issue #1 Developed by: Scott R. Homan Ph.D., Purdue University Questions 1 – 12 from The First Section, Section A In Billboard War, Digital Signs Spark a Truce By SARAH MCBRIDE February 3, 2007; Page A1 http://online.wsj.com/article/SB117046875975697053.html CLEVELAND -- For years, Clear Channel Communications Inc., a giant of the U.S. billboard business, often won the right to put up big signs by dragging cities and community groups into court. But in Cleveland, one of those court fights allowed Clear Channel to soup up its signs and win over residents at the same time. The reason: In a settlement, Clear Channel won permission to put up lucrative new digital billboards along highways in return for taking down some old-fashioned inner-city billboards. The new signs flash a sequence of ads from seven different companies, multiplying Clear Channel's revenue. All over the country, billboard companies are racing to transform venerable road signs into these high-tech moneymakers. As they do, they are changing the dynamics of civic battles that date back more than a century. "It's actually a huge change," says Mark Mays, chief executive of Clear Channel, the No. 1 player by revenue. It has 75,000 billboards in the U.S. "Historically, we've had an adversarial relationship with them," says Mr. Mays. After decades of slow gains, outdoor advertising is now the fastest-growing ad category after the Internet. In the age of digital-video recorders, which allow viewers to skip television ads, advertisers are turning back to old-fashioned billboards, which still have a captive audience. Outdoor ads brought in an estimated $6.9 billion in the U.S. last year, up 9% over the year before. In late 2005, Clear Channel took public a 10% stake in its outdoor unit, in part because the unit's growth rate was far outpacing its parent's radio business. (The parent is currently lobbying shareholders to agree to a plan to take the company private.) Today some 500 of the nation's billboards are digital, a figure expected to grow by several hundred a year over the next few years, according to the Outdoor Advertising Association of America Inc. The $500,000 cost of installing an electronic billboard is more than outweighed by the ability to sell one space to multiple advertisers at the same time. In some communities, they are also sparking a new round of criticism because they can distract highway drivers. Companies and communities have sparred over the size, shape and amount of outdoor advertisements in U.S. cities since at least the early 1900s, when municipalities began legislating against them. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 1 of 29 Those fights were just the warm up for legal battles in the 1950s, when interstate highways began to crisscross the country, followed closely by signs for Burma Shave, cigarettes and more. While some today remember these vintage placards as quaint bits of Americana, at the time they irritated many drivers who were fed up with advertising's encroachment on the countryside. In the 1960s, some local activists took to cutting down boards in the middle of the night. Eventually, Lady Bird Johnson spearheaded a campaign to reduce the number of billboards on U.S. highways. The Highway Beautification Act was signed into law in 1965, calling for a reduction in the number of billboards. But funds to pay owners to take down rural boards soon ran out. The law still exists, but is replete with exceptions that have resulted in an estimated 500,000 billboards lining America's highways, according to the anti-billboard advocacy group Scenic America. That's a 50% jump compared with the 326,000 highway ads that were around in 1975, a few years after the Highway Beautification Act went into effect. The industry disputes these figures and says the total number of billboards, including highways and cities, is 450,000. One recent challenge for anti-billboard forces has been the shift in billboard ownership from a hodgepodge of regional players into a handful of media titans, including Clear Channel. With deep pockets and teams of lawyers, the companies frequently haul communities into court, citing First Amendment protections of free speech. Often, the municipality backs down. One of Cleveland's longtime billboard foes is community activist Tony Brancatelli, 49. He has worked most of his life to clean up his working-class neighborhood of Slavic Village, plagued by boarded-up buildings and suburban flight. One big goal: tearing down the billboards littering Broadway, a major local artery. For years, he tried to help property owners find a way to nullify their billboard contracts, which sometimes had decades-long terms. That often meant sparring with executives working for billboard concern Eller Media. The contracts usually held. When Clear Channel acquired Eller in 1997, Mr. Brancatelli feared the acquisition would only make his adversaries more formidable. Two years later, in February 1999, the company took the city of Cleveland to court twice. First it challenged a city ordinance banning alcohol advertising, and then it accused Cleveland of unfairly targeting its billboards in a city inspection that cited hundreds of boards for code violations. The city lost the first case. A settlement in the second case, among other things, created legislation allowing digital boards. Like traditional boards, each new digital board had to first be approved by city government. Mr. Brancatelli's worst tussle with Clear Channel came in 2001. He says he and his lawyer repeatedly asked Clear Channel to take down a billboard that was blocking construction of a Boys & Girls Club. Under the original contract, the billboard could be removed if construction was planned on the land where it stood. Mr. Brancatelli says company representatives spent months dithering and kept demanding a new location to put up a new board, even though the contract made no provision for a replacement. Clear Channel says Slavic Village misinterpreted the contract. Fed up, Mr. Brancatelli headed to the billboard, grabbed a saw and attacked, say people familiar with the matter. With construction equipment idling just feet away, Mr. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 2 of 29 Brancatelli sawed at the metal pins holding the board in place until it collapsed, these people say. "I will never admit to taking down a billboard," Mr. Brancatelli now says. "I will admit to evicting them off our real estate." Clear Channel says it has worked with Mr. Brancatelli in the past, donating billboard space over the years to Slavic Village as well as other Cleveland groups. 1. Outdoor ads brought in an estimated _______ in the U.S. last year, up 9% over the year before. a. $4.9 billion b. $5.9 million c. $6.9 billion Correct d. $7.9 million 2. The __________ was signed into law in 1965, calling for a reduction in the number of billboards. a. Outdoor Advertising Act b. Highway Beautification Act Correct c. Billboard Reduction Act d. Highway Billboard Act Tired of Laughter, Beijing Gets Rid Of Bad Translations By MEI FONG February 5, 2007; Page A1 http://online.wsj.com/article/SB117063961235897853.html BEIJING -- For years, foreigners in China have delighted in the loopy English translations that appear on the nation's signs. They range from the offensive ("Deformed Man," outside toilets for the handicapped) to the sublime (on park lawns, "Show Mercy to the Slender Grass"). Last week, Beijing city officials unveiled a plan to stop the laughter. With hordes of foreign visitors expected in town for the 2008 Summer Olympics, Beijing wants to cleanse its signs of translation nonsense. For the next eight months, 10 teams of linguistic monitors will patrol the city's parks, museums, subway stations and other public places searching for gaffes to fix. Already, fans of the genre are mourning the end of an era, and some Web sites dedicated to it have seen traffic spike. The bewildering signs were "one of the great things we want to show people visiting us," says financial-services consultant Josh Kurtzig, a Washington native who lives in Beijing. Correcting them is "really taking away one of the joys of China." Stuck in Beijing traffic recently, Mr. Kurtzig noticed workers replacing one of the classics: "Dongda Hospital for Anus and Intestine Disease Beijing." The new sign: "Hospital of Proctology." He grabbed his BlackBerry and emailed the news to friends around the globe. Their reactions, he says, were swift, and mostly unfavorable. "Nooooooooooo," read an email from one friend. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 3 of 29 Not many locals share this sense of loss. "We cannot leave [these signs] up just for the amusement of foreigners," says Olive Wang, marketing manager for a major sportswear company. Many in China regard the Olympics as the nation's coming-out party -- a milestone in its ascent as a global power. Anticipation of the Games is fueling a surge of national pride, and has sparked campaigns to make people smile more and embrace better etiquette. The sign initiative is the latest part of a campaign to improve English translations in public, including on restaurant menus. The group behind the effort, called the Beijing Speaks Foreign Languages Program, is headed by Chen Lin, an elderly language professor who acts as its language police chief. "We want everything to be correct. Grammar, words, culture, everything," says Prof. Chen, whose formal English enunciation would befit a Shakespearean actor. "Beijing will have thousands of visitors coming," he says as he flips through pictures of poorly translated signs on his dictionary-covered desk. "We don't want anyone laughing at us." The sign police will conduct spot checks "to see if the signs are right," says Beijing Vice Mayor Ji Lin. China hardly has a monopoly on poor translation. In the U.S., the popularity of Chineselanguage tattoos during the past decade has left lots of hipster skin marked with nonsensical character combinations. In anticipation of the Games, Prof. Chen set up his group in 2002 with backing from the Ministry of Foreign Affairs. The group's efforts, he says, will pick up over the next 1½ years and will likely involve thousands of city employees and volunteers. Already, the city has replaced 6,300 road signs that carried bewildering admonitions such as: "To take notice of safe: The slippery are very crafty." (Translation: Be careful, slippery.) Replacing signs will cost the city a substantial amount of money, although it isn't clear how much. Some of the faulty ones, Prof. Chen notes, are decades old and are carved in marble. The son of a government official and a teacher, Prof. Chen got hooked on English in high school by reading simplified versions of Shakespeare. His interest made him a target during the decade-long Cultural Revolution that began in 1966, when associations with the West were a liability. He was sent off to do hard labor in the countryside. In 1978, as China began embracing a policy of economic reform and openness, Prof. Chen hosted the country's first television program teaching English. He became a minor celebrity. "Everywhere I went, even in winter, I had to wear sunglasses," he recalls. Through the 1980s and 1990s, the popularity of the English language grew faster than the nation's proficiency in it. English words were used on billboards and on clothing to denote exoticism and sophistication -- but the words often made no sense. Prof. Chen says that municipal departments sometimes would leave it to employees with only rudimentary English skills and a dictionary to handle translations of public signs. At some of Beijing's most famous historic attractions, tourists were left puzzling over incomprehensible signs. Prof. Chen's Beijing Speaks committee set up a Web site to solicit volunteer translators, part of a parallel effort to provide standardized translations for Chinese menus. In a little over two months, it drew more than 7,000 responses. "People really want to get involved," he says. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 4 of 29 These days, Prof. Chen regularly cruises the city looking for faulty signs, often in the company of David Tool, a retired U.S. Army colonel and longtime resident of China. Sometimes, a Beijing television crew accompanies them, documenting the results. (Two programs on the topic have already aired.) Some of the many Westerners living in Beijing view the disappearance of China's lost-intranslation signs as part of a broader modernization drive that is causing Beijing to lose some of its character. Other foreigners lament the loss of a source of amusement. Tourists and expatriates have been posting photographs of what has come to be known as "Chinglish" on Internet sites such as chinglish.de. Beijing's sign-improvement efforts appear to be boosting contributions and visitors to the sites. In recent months, for example, the number of daily visitors to the Chinglish page of software engineer Everett Griffith's Web site, pocopico.com -- it includes a photo of a restroom sign that reads "Genitl Emen" -- has jumped by 25% to 500, he says. Some foreigners question whether Beijing authorities should devote such effort to changing signs, given other pre-Olympic concerns such as traffic and pollution woes. Says longtime resident Jeremy Goldkorn, a South African: "Frankly, I prefer clean toilets to correct English." 3. The Chinese government has made an effort to make sure signs are a. amusing to tourists b. translated into approximate English c. incomprehensible d. translated into comprehensible and correct English Correct 4. The effort to make changes to signs is motivated by a. the preparation for the 2008 Olympics Correct b. wanting to appear unsophisticated c. a new form of language called “Chinglish” d. public employees learning English Corruption Crackdown Targets Shanghai Inc. By JAMES T. AREDDY February 6, 2007; Page A1 http://online.wsj.com/article/SB117072475510299033.html SHANGHAI -- With its gleaming towers and explosive growth, this city has helped inspire dreams of a China century. Governed for four years by a British-educated architect named Chen Liangyu, Shanghai exuded a can-do attitude that welcomed foreign investment and showcased China's emergence on the world stage. But underneath the boom and glitter, Communist Party leaders in Beijing say, lay a secret: massive corruption. Last fall, the party fired Mr. Chen, alleging mismanagement and theft at a city pension fund, influence peddling and other misdeeds. It detained him at an undisclosed location. There, he has made no public comment. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 5 of 29 The fall of Mr. Chen, who not only ran the city but sat in China's ruling Politburo, was China's biggest political shakeup in a generation. But more than the ouster of one official, it amounted to an indictment of the business model known as Shanghai Inc. Key to that model, according to company and government statements: Giant construction projects got funded from public coffers; choice assets moved out of state hands in elaborate transactions; and plum contracts went to the well-connected. The crackdown is a reminder that China's system leaves great power in the hands of local Communist leaders, whose decisions can ripple unchecked through the economy. Now that the party has stepped in to take its Shanghai leader out of action, approval for the flashy big development projects for which Shanghai is famed has slowed to a crawl. The party, which says its biggest threat is corruption within its ranks, has sent investigators sniffing for official graft in other Chinese cities as well. The Chinese have a saying: Kill a chicken to scare the monkeys. Mr. Chen's ouster is a reminder to local leaders, as well as to foreign investors, that roaring Shanghai-style growth is no longer Beijing's priority. If officials elsewhere take Mr. Chen's fate as a warning, one result could be to tap the brakes on China's booming economy. That would bolster a goal of moderation that Beijing has so far pursued to limited success by jawboning and curbing bank lending. Mr. Chen's post as party secretary for Shanghai gave him vast power: control over 45% of the city's industry, from manufacturers to banks and property developers. The portfolio reflects the Communist Party's core position in Chinese business. A party-appointed secretary sits at the helm of many business groups in the country, including some joint ventures with foreigners. In Shanghai, party officials all answered to Mr. Chen. After his September ouster, dozens fell along with him, from a pension-system chief to a mutual-fund executive to Mr. Chen's son and brother-in-law. The detentions have placed power in the hands of officials who are extra-careful in granting licenses and making other approvals needed to do business in Shanghai, say investors. A subway expansion under way has been called into doubt, as has privatization of a water utility. Museum projects, including a Shanghai branch of France's Centre Georges Pompidou, are held up, as is approval for a Saks Inc. store on the classy waterfront district known as the Bund. The city has put on ice a campaign to lure a Walt Disney Co. theme park and a plan for the world's tallest Ferris wheel, officials say. Saks says it has pushed back the planned opening of its store to 2009 from 2008, while Disney says its China strategy is broader than a Shanghai theme park. The 60-year-old Mr. Chen was fond of tennis, and a few years ago, Shanghai spent $300 million to build an arena to host the Tennis Masters Cup. Future tournaments are uncertain without their No. 1 fan: Mr. Chen. Shanghai still has plenty of sizzle. For 2006, it reported its 15th straight year of doubledigit economic growth, 12%. But expansion in fixed-asset investment such as property development, while still robust at 11%, was far below the rate of two years ago. And there are some signs the city is losing its legendary magnetism. The government recently gave permission to the northern city of Tianjin to adopt looser foreign-exchange regulations, not to the traditional banking center of Shanghai. Some foreign developers say it makes sense now to seek opportunities in other Chinese cities rather than Shanghai. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 6 of 29 The scandal is a reminder of the role corruption long played in Shanghai's history. Though the city was famed early last century as the East's richest banking center, and opulent Art Deco buildings sprang up on the Bund, government-tolerated opium and prostitution rings also earned the city the label Whore of the Orient. Its very name came to stand for trickery, as in getting "shanghaied" into working on a ship. The Communist Party was founded in Shanghai and rose partly on a wave of resentment against the corruption of the ruling Nationalists. Decades later, the city was identified with Mao's Cultural Revolution and then the policies of "capitalist roader" Deng Xiaoping. Mr. Chen arrived in Shanghai as its transformation to a futuristic city was beginning. After studying architecture at an army institute, he joined the Communist Party in 1980. It put him in charge of Shanghai Electric Group Co., a massive machinery maker sometimes called China's General Electric. Later, his party jobs included overseeing sports programs, old cadres' retirement and transforming the historic Bund district. 5. The crackdown in Shanghai is a reminder that China's system leaves great power in the hands of__________, whose decisions can ripple unchecked through the economy a. local governments b. local Communist leaders Correct c. business leaders d. foreign developers 6. The Chinese have a saying: Kill a _____ to scare the monkeys. a. chicken Correct b. pig c. cow d. dream Jobs's New Tune Raises Pressure On Music Firms By NICK WINGFIELD and ETHAN SMITH February 7, 2007; Page A1 http://online.wsj.com/article/SB117079215903499929.html A movement to pressure the music industry to drop its primary weapon against online piracy has gained a high-profile convert: Steve Jobs, the man who helped build the market for selling music via the Internet. In an 1,800-word online essay, Apple Inc.'s chief executive said the world's major music companies should consider allowing Apple and others to sell songs unfettered by anticopying software that prevents them from being shared or played however a consumer chooses. Mr. Jobs contends that the recording industry isn't solving piracy with the technology, and could spur the market further if music lovers could buy music online without the restrictions. Many consumers resent the curbs on how they can listen to what they buy from online stores. Songs from one company's catalog, for example, won't work on another company's player -- a gridlock that has frustrated some consumers. Getting rid of © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 7 of 29 the antipiracy software could make downloaded music as widely compatible with digital players in the market as compact discs are with CD players. While Mr. Jobs is positioning his proposal as a consumer-friendly step, it isn't clear whether the biggest music companies -- Warner Music Group Corp., EMI Group PLC, Vivendi SA's Universal Music Group, and Sony BMG, the joint venture of Sony Corp. and Bertelsmann AG -- will embrace his recommendation. Allowing online music sales without anticopying software would amount to a radical about-face for the recording industry, which several years ago viewed the technology as a remedy to rampant online piracy through file-sharing networks like the original Napster and Kazaa. Music heavyweights have long required Apple and others to use the technology -- known as digital-rights management, or DRM, software -- if they wish to sell their songs online. Nor is it clear whether such a shift would deliver a further blow or a potential boon to the music industry, which has endured a spiral of declining sales and rising piracy since the advent of Internet-enabled copying and transmission of music. According to the Recording Industry Association of America, the value of recorded music shipped to U.S. retailers plunged 16% from a $14.5 billion peak in 1999 to $12.2 billion at the end of 2005 -- a slide the industry blames in part on online piracy. Record companies decided that one way to keep this from worsening was to let legitimate companies sell music in a format whose distribution could be more tightly controlled. Apple quickly took the lead several years ago by selling music through its iTunes Store for 99 cents a song. The digital music files are essentially padlocked by a layer of software that makes them playable only on iPods and on computers using iTunes software. Other companies use competing copy-protection software, though, limiting users of digital-music players to purchasing songs online through compatible song catalogs. Yet for all the limits such software places on copying music, Mr. Jobs said, the technology doesn't effectively deter piracy because more than 90% of music world-wide is purchased on CDs -- which don't contain antipiracy software and are therefore easily copied to a computer and then traded online. In his essay, posted yesterday on Apple's Web site, Mr. Jobs suggests the music industry might see better growth by abandoning its protective approach. "If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players," he wrote. "This can only be seen as a positive by the music companies." Sales of digital downloads have continued to rise, but at a slower rate than in previous years. That, combined with an accelerating downturn in CD sales, has meant the music companies have been harder pressed than ever to find new sales wherever they can. Some executives in the technology and music industries have argued that sales of digital music are being held back by the lack of compatibility between hardware devices and music services. These people believe the market could grow more strongly if iTunes competitors can sell music that can be played on iPods. 7. In an 1,800 word online essay, the chief executive of Apple said the world's major music companies should consider allowing Apple and others to sell songs _____. a. for less than 1 dollar b. to China © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 8 of 29 c. on 2 inch CD’s d. unfettered by anticopying software Correct 8. Music heavyweights have long required Apple and others to use the technology known as ____ if they wish to sell their songs online. a. ADM b. MRD c. DRM Correct d. MDD Behind Antismoking Policy, Influence of Drug Industry By KEVIN HELLIKER February 8, 2007 11:21 p.m.; Page A1 http://online.wsj.com/article/SB117088041013301313.html Michael Fiore is in charge of revising federal guidelines on how to get smokers to quit. He also runs an academic research center funded in part by drug companies that make quit-smoking aids, and he personally has received tens of thousands of dollars in speaking and consulting fees from those companies. Conflict of interest? No, says Dr. Fiore, who has consistently declared that doctors ought to use stop-smoking medicine. He says his opinion -- reflected in current federal guidelines -- is based on scientific evidence from hundreds of studies. Now debate is growing about that evidence, and about who should be entrusted to interpret it. Some public-health officials say industry-funded doctors are ignoring other studies that suggest cold turkey is just as effective or even superior to nicotine patches and other pharmaceuticals over the long run, not to mention cheaper. At stake is one of the most important issues in the nation's public-health policy. Cigarettes kill an estimated 440,000 Americans a year. Helping America's 45 million smokers kick the addiction could save untold numbers of people. The Public Health Service, part of the Department of Health and Human Services, issued guidelines in 2000 calling for smokers to use nicotine patches, gums and other pharmaceutical aids to quit, with a few exceptions such as pregnant women. Dr. Fiore, a University of Wisconsin professor of medicine, headed the 18-member panel that created those guidelines. He and at least eight others on it had ties to the makers of stop-smoking products. Those opposed to urging medication on most quitters note that cold turkey is the method used by the vast majority of former smokers. They fear the federal government's campaign could discourage potential quitters who don't want to spend money on quitting aids or don't like the idea of treating their nicotine addiction with more nicotine. "To imply that medications are the only way is inappropriate," says Lois Biener, a senior research fellow at the University of Massachusetts at Boston who has surveyed former smokers in her state. "Most people don't want them. Most of the people who do quit successfully do so without them." Guidelines Revision The panel is now working on a revision of the guidelines, scheduled for completion early next year. Dr. Fiore, an internist, is again chairman. He says this time only seven of 26 © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 9 of 29 members have industry ties. Karen Migdail, a spokeswoman for the revision effort, says it involves so many voices that "it's hard for one perspective to have an influence on the process." She says Dr. Fiore is "one of the leading experts" in smoking cessation and well-suited to the job. Dr. Fiore says his panel will give a fair hearing to all points of view on smoking cessation. He says the process is sufficiently collaborative to prevent bias, his or anyone else's, from creeping into the final product. He notes that many of the studies questioning the effectiveness of stop-smoking medication arose after the publication of the 2000 guidelines. The panel will scrutinize them closely before reaching any conclusions, he says. David Blumenthal, director of the Institute for Health Policy at Massachusetts General Hospital, questions the government's choice of Dr. Fiore. "The chairman of the committee should be unquestionably impartial," says Dr. Blumenthal, who has published extensively on conflicts of interest. Pharmaceutical companies make several products to help smokers quit. Some give a nicotine fix without a cigarette, such as GlaxoSmithKline PLC's Nicorette gum and nicotine-laced Commit lozenges. Nicotine, the addictive agent in cigarettes, is considered benign relative to the carcinogens in cigarettes. Bupropion, an antidepressant, and Pfizer Inc.'s Chantix -- both pills available only by prescription -- aim to reduce cravings without using nicotine. 9. The Public Health Service, part of the Department of Health and Human Services, issued guidelines in 2000 calling for smokers to use ________ to help stop smoking. a. pharmaceutical aids b. nicotine gums c. nicotine patches d. All of the above Correct 10. The position of Dr. Fiore is somewhat in question because a. he strongly believes “cold turkey” is the only way to quit b. he is still a smoker himself c. he runs an academic research center funded in part by drug companies that make quitsmoking aids Correct d. Both a and b Big Dealer to Detroit: Fix How You Make Cars By NEAL E. BOUDETTE February 9, 2007; Page A1 http://online.wsj.com/article/SB117098933533703281.html Michael J. Jackson, chief executive of the U.S.'s largest chain of auto dealers, wants Detroit to change how it makes cars -- and he may have the clout to succeed. At one AutoNation Inc. location in Delray Beach, Fla., scores of "orphan" vehicles have been sitting on the lot for months. One hulking silver Dodge Ram pickup has languished unsold for 237 days, an eternity by automotive standards. The problem? Chrysler © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 10 of 29 equipped the truck with a V6 engine instead of the V8 requested by most buyers of big trucks. Parked nearby is a red Jeep Grand Cherokee with four-wheel drive, a feature popular in snowy climes but not sunny Florida. One Chrysler Sebring convertible is so loaded with options that its sticker price is $32,000 -- nearly as much as a BMW 3 Series. "No customer would have asked for these vehicles that way, and they never should have been built that way," says Mr. Jackson. "This has to change." One of the toughest problems facing the ailing U.S. car industry stems from Detroit's century-old business model, which dates to Henry Ford's mass production of millions of largely identical Model T's. Rather than build cars to suit customer tastes, U.S. auto makers churn out what makes sense for their plants, and then use incentives and rebates to lure buyers. The thirst for revenue to pay for mounting health-care and pension costs has further encouraged companies to keep plants running regardless of demand. In years past, it was dealers who suffered as this excess inventory -- in the form of unsold cars -- sat idly on their lots. But the rise of powerful national dealership chains, exemplified by Mr. Jackson's AutoNation, has changed the equation. He's pushed Detroit to cut production more than it wants and has cut orders when it hasn't responded. Last year, when DaimlerChrysler AG's Chrysler Group pressured dealers to take thousands of unwanted cars, AutoNation and other chains led a revolt that forced the car maker to backtrack. At the Detroit auto show last month , Mr. Jackson had private meetings with the chiefs of General Motors Corp., Ford Motor Co. and Chrysler -- a dance card few in the industry could match -- and offered to help. Last year, AutoNation began sifting through its trove of data to identify the best-selling configurations of every vehicle on the market. He wants GM, Ford and Chrysler to join the effort and use the information to produce vehicles customers actually want. 11. Rather than build to suit customer tastes, US auto makers churn out ____, and then use incentives and rebates to lure buyers. a. expensive cars with few options b. expensive trucks with lots of options c. expensive SUVs with few options d. what makes sense for their plants Correct 12. Due to _____ companies often feel the need to keep plants running regardless of demand. a. global competition b. union contracts c. mounting health-care and pension costs Correct d. seasonal changes in consumer tastes © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 11 of 29 Questions 13 – 17 from Marketplace Manager Shortage Spurs Small Firms To Grow Their Own By ERIN WHITE February 5, 2007; Page B1 http://online.wsj.com/article/SB117063558473797776.html MARSHALL, Minn. -- Kristy Griffin was a manager in a Kansas frozen-pizza factory when her bosses decided she was destined for greatness. In 2002, executives at Schwan Food Co., maker of Mrs. Smith's pies and Red Baron frozen pizzas, invited Ms. Griffin to join an intensive development program for "highpotential" managers. Since then, she's earned her M.B.A., moved her family twice, helped engineer an acquisition, and taken posts in marketing and research, in which she'd had no prior experience. Schwan is one of many U.S. companies paying more attention to grooming their next generation of leaders. Selected employees typically enter multi-year programs involving management classes, coaching sessions and so-called stretch assignments that throw them into big, unfamiliar challenges. Such programs are old hat at corporate giants such as General Electric Co., PepsiCo Inc., and Bank of America Corp. Now, smaller companies, like closely held Schwan, with annual sales of about $3.5 billion, are also adopting or expanding such programs in the face of a shortage of seasoned managers. Management consultants cite several reasons. The tight labor market puts a premium on retaining top talent and raises the cost of outside hires. And leaner corporate structures make it harder for managers to naturally hone their skills through incremental steps up the ladder; companies must instead formally teach them. Demographics play a role, too: The looming retirement of baby boomers is forcing companies to think about replacements. "There's a huge shortage of leaders," says Ravin Jesuthasan, a managing principal at Towers Perrin, the consulting firm. For smaller companies in a fierce competitive landscape, "growth rates and expectations for growth have ratcheted up, requiring you to be much more diligent and proactive and structured in how you manage the flow of talent." Mr. Jesuthasan says that he has seen smaller companies in the energy, software, pharmaceutical and consumer-products industries begin or expand programs to identify and develop strong managers. 13. Smaller companies have adopted intensive management training programs because a. retiring baby boomers need to be replaced b. it helps retain their top talent c. it is difficult to hone skills in a lean corporate structure d. all of the above Correct Kodak's Strategy For First Printer -- Cheaper Cartridges By WILLIAM M. BULKELEY February 6, 2007; Page B1 © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 12 of 29 http://online.wsj.com/article/SB117073503026399219.html In a move that could shake up the $45 billion-a-year ink oligopoly, Eastman Kodak Co. unveiled its long-awaited inkjet printer, with ink cartridges priced far less than its competitors. Printer makers, led by Hewlett-Packard Co., have long used the razor-and-blade pricing model, in which the hardware is sold for little or no profit. They derive most of their profits from ink, which is priced at more per ounce than perfume or caviar. Indeed, annual sales of inkjet printers and multifunction devices world-wide are less than onequarter the annual sales of consumable ink and paper. Kodak, which is led by several veterans of H-P's printer group, plans to modify that model by making more money from hardware and accepting lower profits from the ink. It says it will use a combination of new technology and alternative pricing to slash ink prices by about 50% per page. On Tuesday, it unveiled new inkjet-based multifunction devices that print, scan and copy documents, Web pages and photos. The printers, primarily intended for home rather than business use, will be priced at $150 to $300, depending on whether they have color displays and slots for camera memory cards. Analysts said the prices are each about $50 more than comparable multifunction devices now on the market. Each of the Kodak printers will use a $10 black-ink cartridge and a $15 color-ink cartridge -- about half the prevailing ink prices. Kodak says consumers who buy highvolume paper packages will be able to print 4-inch-by-6-inch snapshots for as little as 10 cents apiece -- compared with 29 cents on typical home printers and well under common retail-store prices of 19 cents each. Some industry watchers who have been briefed on the products think Kodak's strategy spells trouble for inkjet-printer makers, especially second-tier vendors like Epson, a unit of Seiko Epson Corp., and Lexmark International Inc. "This will be the year the razorand-blade model breaks," says Charles LeCompte, president of Lyra Research, a Newton, Mass., market-research firm. He says Kodak's low-price strategy for ink is "such a dramatic message that someone will have to respond." The success of cartridge-refill companies, which cater to customers seeking cheaper ink rather than original cartridges and have grabbed about 30% of the world-wide ink market, shows that consumers are likely to welcome Kodak's approach, he says. "This is going to change the industry," predicts Kodak's Philip J. Faraci, head of its digital imaging consumer group. Mr. Faraci, who was once senior vice president for inkjet systems at H-P, says: "For people who print a lot, we're offering a really great solution." Mr. Faraci says Kodak expects the lower price ink to be especially appealing to the top 20% of people who print at home and buy more than the average customer's 4.6 cartridges per year. 14. Printer makers, led by Hewlett-Packard Co., have long used the razor-and-blade pricing model in which a. the ink is sold for little or no profit b. the hardware is sold for little or no profit Correct c. the paper is sold for little or no profit d. the blade is sold for little or no profit © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 13 of 29 Internet Technology Tests AT&T's Bid For TV Subscribers By PETER GRANT February 7, 2007; Page B1 http://online.wsj.com/article/SB117080773641100240.html AT&T's big bet on using Internet technology to vault ahead of rival cable operators in the television-distribution business is beginning to look more like a long shot. The telecom giant says it has rolled out its so-called U-verse service in 11 cities. But that's four fewer than promised, and the technology seems to remain mostly in the trial phase. AT&T executives acknowledge they aren't fully marketing U-verse because the service can't yet handle a surge of customers. AT&T counted just 3,000 customers at the end of the fourth quarter, unchanged from three months earlier. Meanwhile, AT&T executives last month admitted for the first time that there were problems with the software for U-verse provided by Microsoft, its primary vendor on the project. That's a concern not just for AT&T, but for telecom companies world-wide that bought Microsoft technology to run TV services using Internet protocol, or IP, to transmit signals. It isn't clear how serious the problems are because AT&T and Microsoft executives won't discuss them. An AT&T spokesman attempted to play down the situation, calling it "a little fine tuning." A Microsoft spokesman said the technology was "on track." But the delays plaguing U-verse have fed criticism that AT&T and Microsoft overreached, trying to get more out of Internet technology than it's capable of delivering at this time. The skeptics include vendors, former employees and competitors. Surprisingly, one of the challenges they believe has tripped up AT&T is something the earliest TV sets could do easily: switch channels instantaneously. If AT&T did overreach, it was out of necessity. The company faces pressure to get into the TV business from cable companies that are luring away tens of thousands of customers with their "triple play" offers of phone, TV and high-speed Internet services. AT&T wants to sell similar packages without investing billions of dollars in fiber-optic cables to customers' homes, like Verizon Communications is doing. Internet technology is an intriguing alternative. It doesn't require as much bandwidth as cable because it doesn't deliver all broadcast channels to the TV set at once. Rather, it sends them one at a time, similar to the way Web pages are sent to computers. That means the signals technically could be sent along existing copper wires to customers' homes. 15. AT&T's U-verse service provides _______ in 11 cities. a. discounted cell phones b. free cell phones c. satellite radio d. television Correct The Magic Kingdom Looks to Hit the Road By MERISSA MARR February 8, 2007; Page B1 © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 14 of 29 http://online.wsj.com/article/SB117090283470501808.html Ever since Walt Disney opened Disneyland in 1955, Walt Disney Co. has rarely strayed from his original vision of what a theme park should be. But at a top-secret development unit these days, the company is plotting a new spurt of theme park expansion that goes well beyond its traditional model of luring people to Disney resorts in Florida or California. Disney is hatching plans to take its theme-park experience to the masses, rather than the other way around. Instead of building more big parks, the company is sketching out a string of niche resorts and attractions around the world. That could include such things as stand-alone, Disney themed hotels in cities and beach resorts, Disney branded retail and dining districts, and smaller, more specialized parks. In the near term, the company is using the Disney name to expand in other areas of the travel business. For example, it is ramping up an operation called "Adventures by Disney," in which travelers pay for guided Disney tours to popular destinations including Italy and Ireland. The company also plans to build its presence in time-share vacation homes in places like the Caribbean. And it is bulking up its popular cruise line, with more Disney ships in the cards. "Instead of saying where will the next Disneyland be, we need to think more in terms of where around the world we can deliver an immersive experience appropriate to the size of the market," says Jay Rasulo, chairman of Disney's theme park and resorts business. "Not every market can support a full-on Disney location." The expansion comes after a long stretch of rebuilding in the wake of 9/11. Only recently has Disney's theme park business returned to the 20% margins seen before 2001. After the success of last year's global campaign pegged to the 50th anniversary of Disneyland, a big question has been what the theme parks will do next. Mr. Rasulo says his strategy is aimed at tapping into a burst of growth in the travel market, particularly in the Asia-Pacific region. Branching outside of Walt Disney's theme park vision isn't without risk. Disney has tried it before and in some cases, failed. It closed an indoor, interactive theme park project called Disney Quest in 2001 that drew sparse crowds in Chicago. Its children's play center, Club Disney, shuttered two years earlier after failing to sustain an initial burst of interest. Mr. Rasulo, who took over as head of the parks in 2002, says his division learned an important lesson from those ventures: they made the mistake of trying something that didn't already have an established consumption pattern. As Disney began thinking about a new strategy, it conducted research on why people go to Disney's parks. Among the conclusions: people wanted to experience Disney in places other than the parks. Disney set to work sketching out some ideas. One concept is to create stand-alone versions of the Downtown Disney dining and shopping districts or resorts like the BoardWalk at Walt Disney World, which includes a hotel, clubs, arcades and other entertainment. An alternative is building a resort around an attraction like an indoor water-park or a theme like pirates or princesses. Another approach is building a family version of a casino, without the gambling. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 15 of 29 A big focus will be Asia. Japan, for instance, has an insatiable appetite for everything Disney but already has two parks. While a third park in another part of the country is unlikely, adding a boutique attraction could theoretically be possible. One issue is how to avoid cannibalizing existing parks with such attractions. Disney says the goal is to give guests in new markets a taste of Disney with the hope of driving them to the bigger parks. With guests at the domestic parks visiting on average every four years, the thinking is that the smaller attractions will also serve existing guests between visits. Another challenge is tailoring the niche attractions to local markets while keeping the Disney brand intact, something that has proved challenging with Hong Kong Disneyland. Mr. Rasulo says there are no firm plans for any projects yet, with such ideas still in the conceptual or "blue sky" stage. More concrete are plans for the cruise lines. Mr. Rasulo says that business could double in the next few years, with a "few more cruise ships." Disney has been waiting for better contract terms and prices before going ahead with more ships, although it is likely to approve some soon. Disney Cruise Line now accounts for between 5% and 8% of the division's $10 billion annual revenue. After quietly experimenting in the guided-tour business, "Adventures by Disney" is meanwhile rolling out 12 itineraries in North/Central America and Europe, with two guides leading groups of up to 40 people. "It's not Mickey Mouse goes to the mountains," says Ed Baklor, who heads the Adventures business. "Instead we're telling a local story with local characters." The "Spirit of America" tour of Philadelphia, Washington, D.C., and Williamsburg, Va., for instance, includes meetings with local characters like Benjamin Franklin. The trips also try to entertain both adults and kids: On the Tuscany trip, adults go on a wine tasting while kids do a gelato tasting. The "Adventures" project raises a question: if the tours don't feature Mickey Mouse, why will families want to go on them? Scott Lerman, CEO of brand consultancy Lucid Brands says a big part of what guests expect from Disney is "fantasy," rather than "authenticity" and "reality." Disney says it believes its selling point is offering a family vacation with the safety and quality of the Disney brand as well as Disney-quality guides. They argue the story doesn't need to be Disney to be "immersive." Mr. Baklor notes that each trip includes some Disney "magic." One of example of that is on the London/Paris trip, which includes VIP tickets to Disney's "Mary Poppins" stage show and a backstage tour afterward. Disney's time-share business, Disney Vacation Club, is also plotting new locations. Outside of Florida, the company may consider locations such as California, Mexico and the Caribbean, says Mr. Rasulo. It could take several years for such new ventures to really move the needle, however. Disney will work its traditional theme parks harder. It has a second, full-scale park in China in its sights. That won't happen before 2012, though. Recent changes in local government have slowed discussions in Shanghai, and Mr. Rasulo says they are "waiting to re-engage when a new government is appointed." 16. Disney plans on expanding in the following ways a. adding ships to the cruise line © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 16 of 29 b. create stand-alone versions of the Downtown Disney dining and shopping districts c. "Adventures by Disney" in which travelers pay for guided Disney tours to popular destinations d. All of the above Correct Spit's Out, Polish In As Beijing Primps For the Olympics By MEI FONG February 9, 2007; Page B1 http://online.wsj.com/article/SB117097099735302784.html BEIJING -- China wants to lower great expectorations before the Olympics. On the streets of the country's capital, spitting -- often complete with loud throat-clearing, gurgling and an arc of phlegm -- is a frequent occurrence. The deeply ingrained habit is found among young and old and crosses class lines. Now Chinese officials are mounting a renewed campaign to abolish this custom and other less-than-appealing practices -- including cutting in line and littering -- all to get the city camera-ready for the 2008 Games. This week, Beijing city authorities announced they will step up efforts to fine spitters as much as 50 yuan, or $6.45, when they are caught doing the act in public -- a hefty sum by Beijing standards and equivalent to a day's wages for many laborers. Laws against spitting have existed for years, but haven't been strictly enforced. At the same time, municipal authorities also announced Queuing Day. On the 11th of each month, city residents will be encouraged to stand in line at subway stops, post offices and various other public places. (The 11th was chosen because the two "1"s look like they are standing neatly in line.) Until relatively recently, China's history of scarce resources discouraged people from waiting their turn in line. Crowds fighting to get onto buses and subways are a common sight, as are drivers abruptly cutting into different lanes. Many Chinese people are afraid of fighting back against line-jumpers. "You never know when that person might be some important official," says Beijing resident Jason Chang, a 20-something teacher and Beijing resident. "Fighting for your rights -- it's still new in China." For decades, public etiquette campaigns have periodically surfaced, sometimes spurred by concerns about health dangers of practices such as spitting. However, this latest push reflects Beijing's high hopes for the Olympics Games next year -- widely seen as China's coming-out party -- and its fear that rude habits could mar its chance to prove it is a world-class city. These initiatives are "an urgent demand to build a more civilized city, and to improve people's behavior," says Zhang Huiguang, director of the Capital Ethic Development © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 17 of 29 Committee, an etiquette group in the Beijing government that is focused on readying the city for the Olympics. Ms. Zhang, who has been dubbed Beijing's "Miss Manners" by local media, came to the group in 2002 from her previous post as vice director of the Chinese government's "Anti-Obscenity and Anti-Illegal Acts Department." To raise Olympic spirits, the etiquette committee has created a slogan: "I participate, I'm devoted, and I will be happy!" Activities will include poetry competitions and the selection of goodwill ambassadors who will be lauded as "Top 10 Stars with high social morality." The anti-spitting initiative targets a long-held habit in Beijing. The city's dry desert air and high levels of pollution can cause a rapid buildup of stringy phlegm, which is almost as swiftly deposited on sidewalks, drains and just about anywhere. That's partly because traditional Chinese medical philosophy -- centered on ideas of balancing "hot" and "cool" elements in the body -- encourages expectoration as a healthy habit, as it theoretically removes a "hot" element from the body. Even the etiquette police don't go as far as recommending people swallow, not spit. Instead, they recommend discreet deposits on tissues or scraps of paper -- rather than on the ground or someone's shoe. 17. On the streets of China _______ is a frequent occurrence. a. nudity b. selling hot dogs c. cursing out loud d. spitting Correct Questions 18 – 23 from Money & Investing Despite Recent Oil-Price Rally, Stock Investors Hold On By PETER A. MCKAY February 3, 2007; Page B1 http://online.wsj.com/article/SB117046081888596783.html If stock investors could spare a blanket, they might want to throw it on crude-oil prices, which are rising again. For now, they seem to be using their blankets to keep warm. After a selloff in crude to begin 2007, colder weather throughout much of the U.S. has sent the commodity surging anew, up nearly 17% from its mid-January lows. But while higher oil prices usually hurt stocks because of the impact of energy costs on businesses and consumers, this oil rally hasn't sent investors into a panic. Even after a small decline Friday, the Dow Jones Industrial Average is up 1.5% for the year after closing at a record Thursday. Investors figure at less than $60 a barrel, off 23% from the midsummer high, oil prices aren't so bad. Still, they are paying attention to oil again, wary that if crude's rise continues, it could eventually hurt corporate profits. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 18 of 29 "More than anything else, the effect of the oil price is very psychological," for both investors and consumers, says analyst Fadel Gheit, of brokerage firm Oppenheimer & Co. He says a return to retail gasoline prices over $3 a gallon could set off more conservation by consumers and possibly a stock selloff. For now, that scenario doesn't seem much of a risk. After a rally in oil prices Friday, prices at the service station could be on the way up. Forecasts for cold weather and buying by traders who often like to guard against adverse news over the weekend sent crude prices up $1.72, or 3%, to $59.02 a barrel -- the highest finish so far this year. That trimmed oil futures' decline for 2007 to 3.3%. The rally helped push the Dow lower Friday, though it had its best week in more than two months. The average fell 20.19 points Friday, or 0.2%, to 12653.49, up 1.3% for the week. Higher energy prices generally concern investors because they believe that when consumers spend more at the pump, it leaves fewer dollars to spend on other products and services. Other stock indicators rose Friday. The Standard & Poor's 500-stock index edged up 0.2%, or 2.45 points, to 1448.39, a six-year high and up 2.1% on the year. It rose 1.8% for the week. The Nasdaq Composite Index gained 0.3%, or 7.50 points, to 2475.88, up 1.7% for the week and 2.5% on the year. Stocks were also held in check by the Labor Department's release of weaker-thanexpected weekly employment data. Other economic signals were more upbeat. Measures of both consumer confidence and factory orders were up for December. "The economy is stronger than most people think," says strategist James Paulsen of Wells Capital Management. "I don't think oil is down from [its summer highs] near $80 because the economy has slowed. If anything, it's accelerated." 18. _____throughout much of the US has sent crude-oil prices surging anew, up nearly 17% from its mid-January lows. a. Strong SUV sales b. Strong auto sales c. Colder weather Correct d. Extensive winter vacation travel Living High on the Hog By KAREN RICHARDSON February 5, 2007; Page C1 http://online.wsj.com/article/SB117063639186397804.html Riders of Harley-Davidson Inc. motorcycles tend to be a loyal bunch, with many sporting matching Harley-logo tattoos and traveling for days to attend far-flung bike rallies sponsored by the company. The 103-year-old Milwaukee company's management team, however, has shown less fidelity, judging by its recent history of selling shares. Together with a slowdown in Harley's U.S. motorcycle sales and its aging leather-clad customer base, the trend of insider-selling may be a reason to gear down expectations for the company's high-octane stock price. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 19 of 29 An American icon and one of the world's most recognizable brands, Harley has seen its earnings and shares climb steadily since the company went public in 1986. Despite a walkout by union members at its largest manufacturing plant, in 4 p.m. trading Friday on the New York Stock Exchange, Harley shares closed at $70.10, up $1.34, or 1.95%. While that is below its record close of $75.87 in November, the stock, which trades under the symbol HOG, is up 129% over the past five years, leaving the S&P 500 choking on its exhaust fumes. Harley has a market value of more than $18 billion. That is rich for Wall Street. "We would become more aggressive with the stock in the mid-$60s," says Craig Kennison, a research analyst at Robert W. Baird & Co. Like 18 of the 20 analysts who cover Harley, he has a hold rating on the stock. One analyst has a sell and another has a strong sell. Mr. Kennison says he doesn't own any Harley shares, nor does his employer. Apparently, the share price also is rich for Harley's management. As the stock rocketed to dizzying levels in October and November, seven executives -- including Chairman Jeffrey Bleustein, Chief Executive James Ziemer, the general counsel and the chief accountant -- sold a record number of shares, which represented the highest amount of insider selling in dollar value in Harley's history. In several days over those two months, Harley insiders sold 1,517,760 shares valued at $101.3 million. On the same day or a few days earlier, those insiders exercised options to buy 1,402,266 shares at prices that valued their purchases at $55.4 million. That means the insiders made net profit of $45.9 million, or a gain of 83%. Harley's Mr. Ziemer said that "half the sales were for a retired CEO," referring to Chairman Bleustein, whose deadline to cash in his shares was approaching. Mr. Bleustein on two days sold 960,000 shares valued at $62.3 million. As for the other sales, which in total exceeded the amount of stock bought through options, Harley spokesman Robert Klein said they were prompted by "financial planning and other reasons." Mr. Ziemer, who owns three Harley bikes, sold $7.7 million in shares in 2006. He continues to directly or indirectly own at least 285,000 shares. Still, the cluster of sales around the stock's record share price raises some eyebrows. "When you have consensus-selling, it's definitely more telling of how investors should play the market than when just a few insiders sell," says Jaseem Hasib, a senior research analyst in New York at Thomson Financial. The recent insider selloff is the latest in an interesting trend, says Mr. Hasib. During three periods in 2001 and 2004, insider sales at Harley occurred after run-ups in share price, and preceded periods of either flat performance or a fall in share price. For example, in April 2004, four insiders sold $25.6 million in shares; the stock had risen about 18% from the start of the year through the end of April and was up more than 50% over the previous 13 months. In July, six insiders sold $55.4 million in shares. 19. In October and November, seven executives of Harley Davidson ___. a. retired b. toured China for new plant locations c. purchased a record number of stock shares d. sold a record number of stock shares Correct Help Wanted: Bank Officials To Watch Cash © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 20 of 29 By CLINT RILEY February 6, 2007; Page C1 http://online.wsj.com/article/SB117071792938998839.html Years ago, as U.S. Army Sgt. Jon Elvin scoured the Arizona desert for signs of narcotics traffickers, one of the last places he expected to end up was working at a bank in Pennsylvania. While his closely cropped haircut and gait give away his military background, the Army reservist has spent many of his waking hours since early 2004 making sure crooks, shady businessmen and terrorists aren't moving tainted money through PNC Financial Services Group Inc. Mr. Elvin is a vice president at PNC, overseeing the Pittsburgh-based bank's anti-moneylaundering efforts. Using instinct, sophisticated global databases and social-networking software, he and his team can tell if a would-be checking-account holder is the family member of a corrupt dictator or a suspected terrorist on an international watch list. The 39-year-old Mr. Elvin is among the financial-services industry's growing army of front-line soldiers during a time when bad guys move money in ever-changing ways and regulators are passing out multimillion-dollar fines to financial institutions that fail to keep diligent watch. His talents and those of other analytical types like him are in great demand at banks and other financial institutions, many of which now consider not having a strong compliance operation a threat to their bottom lines and reputations. 20. Mr. Elvin is a vice president at PNC, overseeing the Pittsburgh based bank's ______ efforts. a. anti terrorism b. anti counterfeit laundering c. anti money laundering Correct d. takeover Time to Fret Over Slowdown In Earnings? By JUSTIN LAHART February 7, 2007; Page C1 http://online.wsj.com/article/SB117080711634800217.html It's been a long time since American businesses failed to produce a quarter of doubledigit earnings growth. The fourth quarter is shaping up to be a close call. Combining results from companies that have already reported with analyst estimates for companies that haven't, Thomson Financial estimates earnings per share for companies in the S&P 500 were 10.4% higher in the fourth quarter than a year earlier. Reuters Estimates puts that number at 9.9% and says it could exceed 10% once all the results are in. Standard & Poor's number is 9.8%. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 21 of 29 The three firms have slightly different views about what qualifies as earnings. Each uses a different version of "pro forma earnings," which exclude certain expenses that are counted under generally accepted accounting principles. Thomson depends on the consensus of analysts. Reuters asks analysts to provide estimates that count employee stock options as an expense, though for some companies -including tech heavyweights Cisco, Google and Oracle -- the majority of analysts won't give in. S&P uses its own analyst estimates, allowing it to uniformly include option expenses. S&P is also more stringent about excluding "nonrecurring charges," such as CEO retirement packages. Now analysts are moving the chains, and looking for earnings to fall short in the first quarter. Thomson, which put the biggest smiley face on the fourth quarter, will probably put the biggest frowny face on the first quarter. Thomson analyst John Butters says current estimates put first quarter earnings growth at just 4.9%, versus Reuters's 8.2% and S&P's 7.3%. Thomson's numbers might be lower in part because some analysts are only now starting to provide it with numbers accounting for options expenses. Arguably, that means that the earnings slowdown won't be as severe as Thomson's figures suggest. But Wall Street leans toward the Thomson numbers, so let the fretting begin. Last year, credit-ratings firm Moody's Corp. looked like it was on the ropes. Its Moody's Investors Service unit rates the publicly traded debt of companies, municipalities and just about anyone else who wants to borrow. The housing market was slowing, and one of its main business lines, ratings of residential mortgage-backed securities, seemed certain to slow. Now, Moody's stock is testing its highs. Shares of Moody's hit a record of $73.29 in April 2006, dropped by almost a third to below $50 by midsummer and have climbed back to $72.61. Investors got the housing slowdown right, but underestimated the surging appetite for debt among corporations, which borrowed record sums in the second half of last year. A lot of the debt companies took out was repackaged into derivatives that also required credit ratings, making the corporate borrowing boom "doubly-nice" for Moody's, noted Bear Stearns analyst Michael Meltz in a recent report. Today, Moody's reports fourth-quarter results. Analysts expect it to chalk up 15% to 20% growth in revenues and earnings, excluding one-time gains. But beware. Just like the debt it rates, Moody's is at an uncomfortable point in the credit cycle. After so many good years, one has to wonder how much longer it will last. 21. Combining results from companies that have already reported with analyst estimates for companies that haven't, Thomson Financial estimates earnings per share for companies in the S&P 500 were ______ in the fourth quarter than a year earlier. a. 9.9% lower b. 9.9% higher c. 10.4% lower d. 10.4% higher Correct Here's a Tip: Ignore Advice On Sector Moves By JUSTIN LAHART © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 22 of 29 February 8, 2007; Page C1 http://online.wsj.com/article/SB117089774768301697.html The next time you hear advice from an investment expert about a hot sector, the best strategy might be to ignore it. Analysts and fund companies like to advise investors to "overweight tech" or "underweight energy." In plain English, that means they are saying to put extra cash into technology shares or less of it into energy stocks. And over the years, they have come up with a well-worn set of terms and guidelines. If the economy is heading for a rough patch, for instance, it is time to buy "defensive" stocks; if it is pulling itself out of the doldrums, it is time to buy "early cyclicals." The problem with well-worn ideas in financial markets is they tend to stop working, and that might be happening with sector pickers now. Lately, the difference between the best- and worst-performing sectors hasn't been nearly as stark as it used to be, said Julius Baer Investment Management portfolio manager Brett Gallagher. The difference in annual returns between the top and bottom sectors in MSCI Barra's world stock-market index has averaged a little more than 30 percentage points over the past three years. Over the five-year period that ended in 2002, that average was about 60 percentage points. While tech's boom and bust was a big part of that, Mr. Gallagher said the annual-return difference between the second-best- and second-worst-performing sectors similarly narrowed. 22. The next time you hear advice from an investment expert about a hot sector, the best strategy might be _______. a. to ignore it Correct b. to overweight it c. to underweight it d. to fund it Cox's 'Independent' Day By KARA SCANNELL and TOM LAURICELLA February 9, 2007; Page C1 http://online.wsj.com/article/SB117098971972203291.html Though the Securities and Exchange Commission remains undecided over whether to require mutual-fund boards to be led by independent directors, the agency's chairman is committed to finding a compromise rule to accomplish the goal, people familiar with the matter said. The SEC first proposed and passed the independent-chairman rule in 2004, but a federal appeals court sent it back for reconsideration. The industry had expected SEC Chairman Christopher Cox -- who took over in the fall of 2005 -- to let the issue die. But people familiar with his thinking said he wants to strengthen independent fund directors' role and believes the commission should stand its ground by passing a version of the rule, given that it had voted for a previous iteration, albeit 3-2. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 23 of 29 The issue will test Mr. Cox's consensus-building skills. Appointed by President Bush, the former Republican congressman has managed to corral the panel's two Democrats and two Republicans into unanimous votes for other rules. The rule passed by the SEC in 2005 under then-Chairman William Donaldson required the chairman of each fund board and 75% of its members be independent, up from a majority. Two Democratic commissioners and Mr. Donaldson, a Republican, voted for it. The remaining two commissioners, both Republican, opposed it. The challenge for Mr. Cox will be appeasing the old rule's opposing factions. The two commissioners who voted on that rule and remain in office are steadfast: Republican Paul Atkins opposes it and Democrat Roel Campos favors it. The two other commissioners -Republican Kathy Casey and Democrat Annette Nazareth -- haven't publicly stated positions. Observers expect the SEC to keep the 75% requirement. Opposition to that rule is more muted because the majority of the fund industry has moved in that direction. About 80% of fund companies that responded to a 2005 Investment Company Institute survey said they met the 75% standard. Bridging the divide over the independent-chairman requirement will be trickier, even though more boards have independent leadership now, either voluntarily or forced by regulatory settlements stemming from fund-industry abuses that helped prompt the SEC rule. The ICI survey found that 52% of the boards had an independent chairman, a percentage industry experts said likely is higher today. Instead of requiring independent chairmen, the SEC could force fund boards to designate a lead independent director and give that person substantive responsibilities, such as the power to set agenda items for board meetings. "That would address some of the reasons why the SEC thought an independent chair would be of use," said Julie Allecta, a mutual-fund industry attorney. Philip Khinda, also an industry attorney, said another possible compromise would require prominent disclosure of whether funds have independent chairmen. That would encourage funds to move in that direction, lest competitors seem more reform-minded to potential investors. "The SEC [could] say that they haven't imposed a standard but still have done something that will affect behavior," Mr. Khinda says. The original rule was crafted in the wake of revelations that some large mutual-fund companies had allowed big investors to profit from trading strategies that violated their fund rules and sometimes securities laws, to the detriment of other investors. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 24 of 29 23. The SEC first proposed and passed the ________ in 2004, but a federal appeals court sent it back for reconsideration. a. dependent chairman rule b. independent chairman rule Correct c. independent observer law d. dependent observer law Questions 24 – 26 from Personal Journal, Section D How Plans to Expand Health Coverage Could Affect Insured By LAURA MECKLER February 6, 2007; Page D1 http://online.wsj.com/article/SB117072547140699043.html New prescriptions to help the uninsured are proliferating by the day, but some of the proposals would have a big impact on another group -- people who already have health insurance. Yesterday, Democratic presidential hopeful John Edwards became the latest entrant in the health-overhaul derby, announcing that he would raise taxes to expand coverage. (See related story.1) His plan, like those of many states working to expand coverage, would require employers to "play or pay" -- meaning cover their workers or pay a new tax. He would also require most Americans to have insurance, helping middle-and lower-income people by offering tax credits. Both the uninsured and those who already have insurance through work would have the option to get coverage through new public pools called Health Markets. The states have a better chance of quick action, with Democrats and Republicans working to find consensus. In Massachusetts, a plan has already been passed and is being implemented. Here's a look at how the plans work, and some potential winners and losers: PRESIDENT BUSH'S PLAN: Under the Bush plan, employer-provided health insurance, now excluded from workers' taxable income, would be subject to income and payroll tax. As a tradeoff, all taxpayers with insurance would get a standard deduction of $15,000 for a family and $7,500 for an individual. Among the winners would be those whose coverage costs less than $15,000 a year -- or about 80% of workers who have job-based insurance, the White House says. For example, a worker with a family policy costing him and his employer $10,000 a year would still be able to take the full deduction of $15,000. Losers would include people with family policies worth more than $15,000, including executives with generous benefits and some union workers who have traded wage increase for better health coverage. They would be taxed on the amount that exceeds the deduction. But winners could turn into losers with time. Even people with policies under the cap could eventually hit the ceiling as health costs rise. That's because the cap would be indexed to general inflation -- not health-care inflation, which has risen more rapidly in recent years. Clear winners would be the 17 million people who buy insurance on the open market. Currently, they don't get any tax break for purchasing health insurance. But like any tax © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 25 of 29 deduction, the one for health-insurance would be most valuable in dollar terms for people with high incomes who pay the most taxes. Low-income people who don't owe any income tax wouldn't be able to use the deduction -- they would have their payroll taxes reduced instead. But that could cause a serious, unintended problem: Since those taxes go into the Social Security coffers, people paying in less would get lower benefits in retirement. "This could translate into a very substantial drop in retirement living standards," concluded an analysis by the Tax Policy Center, a joint venture of two liberal-leaning think tanks, the Urban Institute and the Brookings Institution. The White House acknowledges that changing the tax treatment of insurance would reduce the number of uninsured by only three million to five million. It has proposed a separate initiative that would redirect federal funds from hospitals that provide indigent care to help states expand coverage to the uninsured. Some experts see another potential problem: If younger, healthier employees use the tax deduction to buy insurance on their own, rather than through their employers, then employer health plans could end up with mostly older, sicker workers, resulting in higher premiums. "It's good for you if you're a healthy person who will do well on your own," says Paul Fronstin, director of health research and education programs at the Employee Benefit Research Institute. "It's bad if you are not." But Joseph Antos, a health-policy expert at the conservative American Enterprise Institute, doubts many people would jump into the open insurance market, considering it's so much easier to stay in an employer plan. "It takes a lot to get people to move," says Mr. Antos. SEN. WYDEN'S PROPOSAL: Sen. Wyden's plan, in many ways, is the most radical one on the table. He would sever the link between employment and insurance altogether and require everyone to buy coverage directly from insurance companies, much like people now buy auto insurance. He initially would require that employers pay their workers the cash that they had been spending on health insurance. He argues that employers would ultimately continue the practice, even when no longer required, to keep the best workers. Beyond that, he would provide a tax break to help people pay their insurance premiums, and give low-income Americans direct subsidies for coverage. A new tax on employers would help pay for the program. New rules would require insurance companies to cover anyone who applied for insurance, even ones with existing medical conditions, and would bar the companies from charging sick people higher premiums. 24. John Edwards became the latest entrant in the health overhaul derby, announcing that he would _____ to expand coverage. a. raise taxes Correct b. force companies c. force individual doctors d. require states Rating the New Instant-Messaging Programs By KATHERINE BOEHRET February 7, 2007; Page D1 http://online.wsj.com/article/SB117081305432500339.html © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 26 of 29 Since it was popularized by America Online in the 1990s, instant messaging has changed the way people communicate. In the office, IM lets colleagues chat with faster responses and fewer formalities than phone conversations or email. Casual users can keep tabs on one another's lives. Friends who haven't spoken in years easily strike up IM conversations. IM even introduced us to a new language of acronyms like BRB (be right back), TTYL (talk to you later) and LOL (laughing out loud). But over time, instant messaging didn't really change. Some newer versions of IM programs actually got worse, mucking up screens with too many advertisements and an overload of irrelevant content that diminished the real purpose of instant messaging: communicating. Thankfully, within the past few months, instant messaging has woken up. The three big kahunas of the IM world -- AOL, Yahoo and Microsoft -- have each released new, muchimproved versions of their free programs. This week, I tested AIM 6.0 (AOL Instant Messaging) www.aim.com1, Yahoo Messenger 8.1 www.messenger.yahoo.com2 and Windows Live Messenger 8.1 http://messenger.live.com3 to judge the usability of new features. Sharing digital files, especially photos, is now a cinch using any of these programs and making calls using your computer is simple, too. Video chatting can be done with help from a Webcam. In the end, AOL came out on top. It offers tabbed messaging, a neat way to organize numerous conversations into one window; and "notifications" or brief summaries of messages that appear on-screen when the chat window isn't opened. Neither AOL nor Microsoft restricts the size of photos or files that you can share; Yahoo does. And I had a hard time getting video chatting to work with Yahoo Messenger. Of course, competitors abound. These include Apple Inc.'s iChat, which comes preloaded on Macs and works with a .Mac or AIM account, and Google Inc.'s Google Talk, which is rudimentary compared with the leaders. If you're interested in a specific type of instant messaging, Skype Limited and SightSpeed Inc. offer IM programs that specialize in phone and video capabilities, respectively, though they both allow text messaging as well. And products like Meebo and Trillian let you log into numerous IM accounts simultaneously. AIM 6.0 simplifies everything, starting with the way your buddy list looks. At the top, below an advertisement (all three programs have ads) is a search box for finding buddies. Your screen name appears below this, along with a drop-down Set Away menu that lets you quickly display an away message instead of digging through menus to do so. Three boxes below your buddy list let you send IMs, set up your buddy list or decide how you want to communicate with a buddy. Four discreet, round icons below these boxes direct you to phone options, as well as links to AOL's radio and video offerings. AIM's best feature gets going when you start chatting with more than one buddy at the same time. The left side of your chat window automatically turns into a list of tabs with buddy screen names in order of who messaged you first. If someone sends you an IM while you're chatting with someone else, a green exclamation point appears beside the sender's screen name. To swap from one buddy to the next, select a screen name on the left-hand side and type away. 25. A product like Trillian lets you _____. © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 27 of 29 a. log into numerous email accounts simultaneously b. log into numerous IM accounts simultaneously Correct c. brush teeth faster d. listen to phone messages over the internet How Fashion Makes Its Way From the Runway to the Rack By VANESSA O'CONNELL February 8, 2007; Page D1 http://online.wsj.com/article/SB117089461212701622.html In a quiet, windowless conference room in Plano, Texas, Cyndie Washburn-Nester huddles over a computer screen, scrutinizing designer clothing on the New York runways more than 1,500 miles away. Focusing on trends for fall 2007, she zeroes in on women's turtlenecks. "When you look at the fall runway, there are a few cardigans," she says, scrolling through style Web sites showing images of runway models at New York fashion week. After looking through collections by designers such as Nanette Lepore, Oscar de la Renta, Abaete and Alice Roi, Ms. Nester sees a definite trend: "Certainly, it is all about the turtleneck." Ms. Nester is trend director for women's apparel at J.C. Penney Co., the country's thirdlargest department store with $17 billion in revenue last year. Her observations of trends from New York's eight-day Fashion Week are an important link in the fashion food chain. It's Ms. Nester's job to filter out all the high-fashion noise, and figure out which styles will play to the mainstream, middle-income shoppers at Penney's 1,037 stores. "These cute jumper dresses we're seeing on the runway, with so many pinafores -- the turtleneck really looks cute under all of those styles," she says. Trend spotters at Penney rivals such as Dillard's Inc., Kohl's Corp., Wal-Mart Stores Inc. and Target Corp. are also monitoring New York's runway shows this week to see where styles are heading. Because they don't buy designer collections, these mass-market apparel stores generally aren't invited to see the designer runway collections live in New York. Instead, they comb through style Web sites, from Style.com to New York Magazine's nymag.com, to see the trends in real time. Next week, Penney's trend forecasters will more-closely review the runway looks, using two online sites, WGSN and Style Sight. The sites allow them to screen all clothing of a particular type that was shown on the runways, and lets them zero in on, say, every jumpsuit, jean and jacket that appeared on the runway. Monitoring runway trends has become increasingly important for mass retailers as consumers have become more fashion savvy and demanding and retailers compete to grab a bigger slice of the upper-middle fashion market with "cheap chic" looks. As recently as 10 years ago, Penney and other mass retailers waited as long as two years after runway fashions arrived in department stores before their customers would expect to see similar looks. But the Internet and the arrival of fast fashion retailers such as Swedish clothier Hennes & Mauritz AB, known as H&M, and Zara in the U.S. has forced American retailers to speed up the entire fashion cycle. Penney's goal now is to have its © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 28 of 29 own stylish goods in stores at the same time as corresponding runway looks are sold in exclusive boutiques. Under CEO Mike Ullman, Penney has made shortening its turnaround time from sketch to store delivery a priority. If it pushes hard, it can get new fashion-inspired merchandise into its stores in as little as 60 days. More typically, its turnaround time is 40 weeks. Penney's goal is to get the average cycle down to 17 weeks, the average for fast-fashion retailers such as H&M. Last year, Penney doubled the number of its in-house designers to 100. It also created a trend team: In June, it recruited Ms. Nester, former fashion director at Retail Brand Alliance, the parent company of Brooks Brothers and Adrienne Vittadini. And a year ago it hired Karolyn Wangstad, a 30-year fashion veteran who pioneered the trend effort at Target and spent the last five years at Saks Inc. The chain now creates roughly 35,000 items of clothing a year -- roughly half for women. The stakes are high. Penney says 45% of its revenue now is from sales of apparel and other goods it creates in house. The consequences of misreading a trend mean bigger markdowns on clothing and lower margins. Some large retailers are putting 5% to 10% of their clothing on a fast fashion cycle, hoping it will move quickly. But "it is more expensive to deliver, and you can run into a problem bringing in the wrong trend," says Erika Serow, partner at Bain & Co. consultancy in New York. This week, Penney was putting finishing touches on its early fall 2007 clothing, which will ship to stores in August. The company had already made the risky bet that turtlenecks would reign over crewnecks and other shirt styles as the quintessential layering piece for fall. It is planning to present the style in a multitude of colors, with prominent floor space and plenty of plugs online. But Monday, a top Penney executive asked Ms. Nester for confirmation that turtlenecks would appeal to shoppers, even in a warm month like August. "We do a very limited number of styles and buy them in a big way. It really needs to be right," Ms. Nester says. She and Ms. Wangstad stayed glued to the Internet to get clues from the shows. If they were wrong about turtlenecks, there was still time to make adjustments for the second round of fall clothing that will hit stores in October. "We really have to pick our shots," Ms. Nester says. "What are the most important things? What can we capitalize on?" Penney's initial hunch that turtlenecks might be big for fall 2007 came last August, when Ms. Nester and Ms. Wangstad surveyed trend services such as ESP Trendlab and Doneger Group, as well as their own "runway recap" book, which showcase key runway looks for fall 2006. The recap photos are arranged in terms of colors and styles, and mix looks from DKNY, 6267, Chaiken and Jeremy Laing, among others, as well as styles shown on the runways in New York, Milan and even Brazil. 26. Monitoring _____ has become increasingly important for mass retailers as consumers have become more fashion savvy. a. blog sites b. beach attire c. runway trends Correct d. television commercials © Copyright 2005 Dow Jones & Company, Inc. All rights reserved. WSJ Professor Guide: Page 29 of 29