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Friday, August 28, 2009

Good Service Vital During Downturn

By The Wall Street Journal

People are dining out less, so the occasion is more dear when they do. Someone who may have gone to four or five places a month may be going twice. There is a lower tolerance for service shortfalls, so make sure you operate better than you might normally. That's how you hold your own in a competitive industry susceptible to recession.

Few companies escape recession, especially those selling something consumers can cut, such as dining out. Restaurant industry sales are down, but sales at Darden Restaurants' Olive Garden and Red Lobster have held firm. Darden CEO Clarence Otis, 53, spoke to USA TODAY corporate management reporter Del Jones about gaining market share as the pie shrinks. Following are excerpts, edited for clarity and space.

Q: How are you holding your own in a competitive industry susceptible to recession?

A: People are dining out less, so the occasion is more dear when they do. Someone who may have gone to four or five places a month may be going twice. There is a lower tolerance for service shortfalls, so make sure you operate better than you might normally.

Q: Every company should focus on service?

A: Yeah. A server Relevant Products/Services or a manager, regardless of what's happening at home, must walk into a unit and put on a smile. It's more important now when people are experiencing more anxiety than they might normally.

Q: Have consumers been changed forever? Will they stay frugal when things improve?

A: Habits and behaviors change pretty slowly, so there won't be a radical change in behavior. A lot is temporary. There will be structural changes. Credit cards will be harder to get, the limits on credit cards will be lower. It will take a bigger down payment to buy a house. Absent those structural, institutionally driven changes, I'm not so sure there would be a lot of change, but credit will affect how people behave.

Q: What companies do you pay close attention to outside the restaurant industry?

A: Many. I think about Wal-Mart's support platform Relevant Products/Services and supply chain. They are innovative and world class. Marriott has a number of brands that are positioned differently. They do a great job as a multibrand operator, and are focused on sharing much of the back end, such as their reservations technology, without it being obvious to the customer Relevant Products/Services and muddying the brands.

Q: If cost cutting is done so customers don't notice, does that mean pressuring suppliers or cutting employee benefits such as health insurance?

A: We tend not to go to benefits because they are valued by our people. Our suppliers are long-term partners. We cut things like travel. We are automating key steps. We've centralized purchasing to take advantage of scale and qualify for better terms from suppliers, because they can count on us for volume. Companies in more distressed situations cut to the core, but we've made sure that we've got financial flexibility Relevant Products/Services.

Q: At least it's easy to find good employees in times of high unemployment.

A: We're able to keep our good people, so turnover is lower. That's important, because these are people with basic training, and you can layer on advanced training and development.

Q: When competitors lose market share, they often turn to coupons and other forms of discounting. How do you avoid a race to the bottom?

A: Be prepared for cyclical downturns by offering a range from value to premium. When appropriate, emphasize the value offerings. The auto companies that have a range of models from entry-level to midtier have held up better. Those unprepared had to rely heavily on discounting.

Q: Do you lose business when you don't match a competitor's coupon for $2 off lunch?

A: It has no major impact. There is a lot of risk to putting your brand on heavy sales. It reinforces what it's worth, and it is challenging to get back normalized pricing after an extended period of time. You see it in consumer packaged goods that get supported by coupons. They lose their ability to command a premium.

Q: You must be operating each restaurant with one fewer employee?

A: No. That gets to the quality. When you reduce staffing, the customer experience gets eroded. You breach trust at a time when their restaurant visits are more dear than they've ever been.

Q: Surely Darden has made mistakes in this bad economy. What has failed or backfired?

A: We underestimated last summer the depth of the slowdown. Fuel prices were a big problem, and we didn't see that coming. We weren't as conservative as we needed to be.

Q: What is the smartest thing Darden has done?

A: Work as hard as we can to protect our people. A lot of companies saw the opportunity to take reductions. That breaks the bond with employees, and as things recover, you can pay.

Q: Did you get rid of weaker employees and replace them with good ones?

A: No. Our talent evaluation process is a good one. We didn't feel like we had many low performers, because we had been pretty disciplined.

Q: Based on your most recent data Relevant Products/Services, what is happening with the economy now?

A: It's stabilized, but at a low level.

Q: What should companies do differently once the economy turns and consumers spend more?

A: Companies that will win are working right now to better position themselves to serve their customers, strengthen their offer, improve the business model. They will be able to move faster. They need to be investing in people, in the skill set. Look at the financial services. It's been under stress, but there are firms that have taken steps to get better, and you're seeing them perform better even before the economy turns.

Furniture Retailers Look to Trim Costs

By The Wall Street Journal

Home furniture retailers are bracing for continued tough times by consolidating manufacturing and adopting new sales and lower-cost production strategies.

Some of the biggest, including Furniture Brands International Inc., Ethan Allen Interiors Inc., Bostontec and La-Z-Boy Inc., have closed plants, adopted new manufacturing systems and rejiggered product lines to stay afloat.

The cost-cutting appears to be working. La-Z-Boy, the Monroe, Mich., company known for its cushy recliners, reported a profit of $2 million Tuesday, only its second in six quarters, on an 18% drop in sales. Results compared to a loss of $8.5 million a year ago.

Arm-Chair EconomicsThese retailers have been pummeled by a decline in the housing market and credit, which is used for roughly 70% of home furnishings and furniture purchases, said Jerry Epperson Jr., of investment firm Mann, Armistead and Epperson Ltd. Retailers filing for bankruptcy protection this year include Door Store and Gottschalks.

Demand for home furnishings and furniture isn't getting better, however, automotive manufacturer are looking to purchase Height adjustable workstations and indoor work benches. Sales fell 12.9% in July from a year earlier even though furniture makers felt the downtown early, according to Commerce Department figures. That July decline compares to a falloff of 7.6% for apparel sales.

For consumers, store closings mean fewer outlets to shop, a smaller collection of ready-to-buy pieces, less store-credit and longer wait times for custom pieces. But the downturn is also ushering in lower entry prices and, occasionally, free interior design services.

The housing sector has started showed signs of recovery, with housing starts up 3.6% in June from May, according to the U.S. Department of Housing and Urban Development.

La-Z-Boy is relocating its cutting and sewing operations from five domestic plants into one centralized facility in Mexico, instead of preparing the fabric for the upholstered furniture in the same factory where the pieces are assembled. The company estimates the move will save more than $20 million a year.

In June, La-Z-Boy combined two of its North Carolina hardwood furniture facilities into one and quit a leased warehouse. Those moves, along with layoffs, will save La-Z-Boy about $5 million annually, the company said.

Ethan Allen Interiors is taking a new approach to its production. The company said last week that it would consider manufacturing some new products such as laboratory cabinets on an as-ordered basis. Pieces will take up to two weeks longer to be delivered, the company said, on top of the current three- to four-week delivery time. It plans to expand the practice to all of its hardwood furniture.

The new approach will reduce inventory costs.

Despite recent cost-cutting steps, the Danbury, Conn., company has struggled. It last week posted a loss of $16.9 million as sales slid 41%, to $138.7 million, for the fiscal fourth-quarter, ended June 30.

Furniture Brands has also been aggressive in its restructuring. The St. Louis company has spent the last 18 months consolidating facilities, including combining its five Broyhill upholstery manufacturing and warehouse sites into one North Carolina facility last fall. It has also eliminated two of the four manufacturing facilities at its Lane brand.

Although the demand for storage cabinets has risen, Furniture Brands doesn't expect to realize all the savings until later this year, cost-cutting is helping. Despite a 36% drop in sales for the second quarter, ended June 30, the company's loss narrowed to $15.9 million from $23.9 million a year earlier.

Pulte Buys Centex, Tries Branding Strategy

By The Wall Street Journal

Pulte Homes Inc. succeeded in its quest to become the largest home builder in the U.S. by acquiring Centex Corp., but it already faces a challenge: Can it use brand marketing to win over home buyers?

On Tuesday, shareholders of Pulte and Centex approved Pulte's plan to buy Centex for $1.4 billion in stock. By acquiring Centex, Pulte gets to beef up its offerings of lower-priced homes, the sector's strongest segment.

The acquisition is a gamble that the worst U.S. housing downturn in decades is approaching an end and that a company catering to everyone from entry-level buyers to retirees can outperform the competition as the battered sector inches toward recovery.

A key part of Pulte's strategy is to use branding in a bid to stand out in a Chapel Hill homes where few buyers can distinguish one builder from the next. In doing so, Pulte hopes to capture the recognition so far only obtained by Toll Brothers Inc., a builder of high-end homes, and Pulte-owned Del Webb's retirement communities.

Pulte's "Centex" moniker will target entry-level Wilson NC Homes and home buyers, with marketing focused on value and monthly payment. "Pulte" will be the name used for those looking to trade up, while "Del Webb" will remains reserved for buyers 55 and older.

A brand can make a difference, assuming you're credible in terms of the claims you make. They can't just say they're good; they have to prove they're good.

Other analysts remain unconvinced that brands will drive sales in an industry where price and location are paramount. It's especially tricky in the lower-end, where shoppers are more likely to seek the lowest monthly payment.

It could take several years to determine whether the branding strategy works out for Pulte. The more immediate goal is returning to profitability. Pulte, which has lost money since late 2006, expects to save about $350 million a year after layoffs and combining overlapping operations, including Centex's Dallas headquarters.

About $100 million comes from interest savings on retiring up to $1.5 billion in debt. It also will be able to muscle better purchasing deals -- a benefit because most builders, who have already done everything they can to conserve money, can't make further cuts without exiting markets.

Post-merger, Pulte will control 190,000 housing lots across 29 states and Washington, D.C., transforming it into one of the leading builders in half of the nation's top 50 markets, including San Antonio, Minneapolis, and Charlotte and Raleigh, N.C.

Part of Centex's appeal was its entry-level products such as vacation homes Atlantic Beach NC, which has benefited as price cuts and low mortgage rates make the cost of monthly mortgages comparable with renting. Federal tax credits of up to $8,000 for first-time buyers before Dec. 1 have boosted sales.

While the announcement of a Pulte-Centex deal surprised the industry in April, many analysts now consider the timing smart because several housing indicators have shown improvement. Sales of existing homes continue climbing, while home prices no longer seem to be in freefall.

Pulte is taking a risk that it still could have to take additional charges on its land. Its markets include the boom-to-bust areas such as Chapel Hill homes, Phoenix, Las Vegas and Riverside, Calif.

But, their also creating other new unique developments such as assisted living Raleigh and assisted living Dearborn, should improvement continue, the beefed-up lot supply could give it an advantage over builders waiting to buy land lots from lenders.

The new company, with 2008 pro forma revenue of $11.6 billion, will continue to trade on the New York Stock Exchange under the ticker symbol "PHM."

ACT Study Shows Students Unprepared

By The Wall Street Journal

Only about a quarter of the 2009 high school graduates taking the ACT admissions test have the skills to succeed in obtaining a bachelors business degree, according to a report on the exam that shows little improvement over results from the 2008 graduating class.

The Iowa City, Iowa-based ACT said 23% of this year's high school graduates had scores that indicated they were ready for college in all four ACT subject areas, or had at least a 75% chance of earning a grade of C or better during their pursuit of a undergraduate forensics degree. Last year, a similar ACT analysis found that 22% of the class of 2008 was college-ready.

act bachelors degreeAbout 1.48 million of the 3.3 million members of the high school class of 2009 took the ACT, typically in their junior year. ACT said its report was based on comparing students' ACT test scores in English, reading, math and science with the grades they earned in related courses during their first year in college.

The report comes as budget concerns are forcing many state universities to cut back on slots for new students and raise admission standards. Many are also eliminating remedial courses, making it tougher for unprepared students to stay in school.

Observers said the report is likely to intensify calls for Congress to stress high-school improvement when it debates re-authorization of the federal No Child Left Behind law, perhaps as early as this year. Passed in 2001, the law's primary emphasis so far has been on boosting achievement in the lower grades.

Among single subject areas, the level of preparedness was worst in science, where only 28% of students were ready for college-level biology. Another problem was math, where 42% were deemed prepared for college algebra.

Some education experts said that even a slight improvement in combined college readiness rate, to 23%, is a good sign, given that five states now require all students -- not just those planning to attend college -- to take the ACT.

High school students from Colorado, Illinois, Kentucky, Michigan and Wyoming are all required to take the ACT, previously a test generally limited to college aspirants. Combined, they accounted for a little less than 25% of the 2009 graduates who took the test.

Recent studies have shown that while younger students have made some progress in recent years, boosting results at the high school level has been difficult. A Department of Education report in April on the results from the National Assessment of Education Progress -- a key federal test -- found that U.S. high school students haven't made any significant progress in reading or math for nearly four decades.

The troubles are also reflected in results from the 2009 ACT, which is graded on a 1-to-36 point scale. Students averaged 21.1 points this year, flat compared with 2008 and only 0.2 points higher than in 2005.

ACT said about 40% of 2009 test-takers were unable to use the correct adverb or adjective to form a sentence, or couldn't use the correct preposition in a phrase. The same proportion couldn't solve multi-step math problems involving percentages and fractions.

In a bid to improve printing degree graduation rates, President Barack Obama is offering states, public schools and colleges additional federal funds to launch new initiatives.

Thursday, August 27, 2009

DirecTV recruits football fans

DirecTV will intensify its rivalry with cable Monday by giving cable subscribers in Manhattan first crack at buying the satellite company's exclusive NFL Sunday Ticket games to view via broadband.

"Sunday Ticket is a big part of what DirecTV is all about — it's a core piece of our franchise," says Jon Gieselman, senior vice president for advertising and public relations. "There's a big business there, and we want this to be a complement to that."

About 2 million of DirecTV's 18.3 million subscribers pay $299 a season to watch Sunday Ticket games on TV. For an additional $100 subscribers get a Superfan package that includes broadband.

The NFL wanted to expand the arena of fans who could watch the games and added the broadband-only provision to the $4 billion contract it signed with DirecTV in March. It runs through 2014.

The New York offering is a test for the program that will kick off nationally next year.

Customers here will pay $349 to watch any Sunday game on broadband during the regular season. But it will be available just to people who can't receive the satellite signals.

That makes New York an ideal market. DirecTV has few customers here because skyscrapers block signals coming from satellites orbiting the equator. Also, many landlords and co-op boards don't allow residents to get a satellite service.

"A lot of the buildings (that can't get DirecTV) we already have in databases because they've got exclusive contracts with cable guys," says Derek Chang, executive vice president for content strategy and development.

To see the games, broadband customers will download a special video player and punch in a code. Users can install the software on multiple computers, but only one will be able to stream the games at any particular time.

Games with New York's Jets and Giants, which air on broadcast TV, will be available only when the customer's computer is outside the New York area.

Cable operators won't just play defense in the battle for football fans. Comcast will announce today that it will offer the NFL Red Zone Channel to customers of its Sports Entertainment Package. On Sundays, the channel will display football statistics with audio from Sirius XM Radio's program "Around the League" — and go live to certain games when the ball is within 20 yards of the goal.

WakeMed's network grows

WakeMed has won regulatory approval to expand its North Raleigh facility and build new medical centers in Garner and Raleigh's Brier Creek area.

Officials with Wake County's largest hospital system are betting on increasing demand as the economy recovers and the region's population grows.

Expansions by other Triangle health systems also are continuing during the downturn, as UNC Health Care System and Duke University Health System request state approval to add services and win new customers. UNC in April proposed a $227 million, 68-bed hospital in Hillsborough.

"Health care is a strong and growing segment of the economy," WakeMed CEO Bill Atkinson said.

"We're trying to balance where we spend time and energy and figure out where we need to be."

Despite the global recession, the Raleigh metropolitan region is holding up relatively well, bolstered by its base of universities and state government.

"To remain successful in our ability to uphold our mission for years to come, we must continue to grow with the community," Atkinson said.

In North Raleigh, Wake Med plans to add 41 beds to its facility that opened in 2002, creating a new full-service hospital and the county's only women's hospital.

Moving ahead with that $34 million project became possible when Novant Health of Winston-Salem recently dropped its appeal of state regulators' January decision to award WakeMed the beds. Novant had filed a certificate of need application to build its own hospital in Holly Springs but was denied.

"Given the complexity of this case, getting the decision overturned and in our favor is near impossible," Novant spokeswoman Kati Everett said in a prepared statement.

"While we strongly believe the residents of Southern Wake County need a community hospital, it is clear our application for Holly Springs Hospital isn't going to win this time."

Holly Springs officials last month filed their own request with state regulators to add 42 hospital beds in Wake County.

WakeMed's strategy centers on adding satellite medical centers in fast-growing suburbs that can serve local patients close to home and send more serious cases to its main hospitals.

WakeMed had applied with state regulators nearly two years ago to build a $26.4 million facility in Garner. The project was initially rejected, but WakeMed appealed and supplied additional data supporting the need for the facility, said Stan Taylor, Wake Med's director of market development.

Hospital officials are still deciding where that facility would go, but one option is at Jones Sausage Road and U.S. 70, near the White Oak shopping center.

WakeMed will build a $36.8 million complex and is considering several parcels of land in the Brier Creek area. Both facilities would include emergency departments, outpatient services and more.

"We're trying to find land that meets all our needs," Taylor said.

"We need to close on land and get the sites nailed down. It's our desire to get these projects moving as quickly as possible."

It will likely be at least late 2010 before any of the new facilities open.

Google's Big IPO, Five Years Later

Five years ago this week, shares of Web-search engine Google Inc. began trading for the first time, and predictions began to fly about the sales format it adopted: an auction IPO.

Some said the auction of Google's shares was a confusing mess, and no one else would attempt another; others said Google's high-profile IPO would encourage more companies to follow in its footsteps.

What actually happened was a lot less extreme. The number of initial public offerings that went the auction route after Google -- including some prominent players such as NetSuite Inc. and stock and mutual-fund research firm Morningstar Inc. -- increased, though not at a breakneck pace. More large investment banks tried their hands at auctions, including Credit Suisse Group and Goldman Sachs Group Inc., although the majority of deals were handled by a single boutique, W.R. Hambrecht & Co. And just when Hambrecht's founder thought they would see more auctions in 2008, the bottom fell out of the IPO market.

"It's a niche product, but a slightly larger niche," says Jay Ritter, a University of Florida professor who calculates that, before Google, about 1% of IPOs were done through auction. Since then, the market share has grown to about 2%. "Google set the precedent for other underwriters to run auctions, in addition to Hambrecht."

The ideological battles over the best way to manage an IPO remain unchanged since Google, however. Defenders of traditional IPOs -- in which investment banks retain control over both the size and the recipients of share allocations -- say it's the best method to ensure a smooth entry into the market and to place shares in the hands of long-term holders.

Proponents of auctions say they divvy out shares fairly instead of to select investors and ensure that the companies going public raise the most capital possible, instead of "leaving money on the table" when the stock pops on the first day of trading.

Google's decision to go the auction route was heavily influenced by the company's founders, Sergey Brin and Larry Page, and in the years since, the companies most likely to consider taking that route have tended to also be dominated by entrepreneurial individuals who own major stakes in their firms. Morningstar originally registered to do a traditional IPO, and switched to an auction format after founder and Chief Executive Joe Mansueto observed Google's deal.

"I think without Google, it would have been a lot harder to do the auctions we did get accomplished," says W.R. Hambrecht's founder, Bill Hambrecht. "It certainly had an impact."

W.R. Hambrecht had a relative banner year in 2007, completing three auction IPOs, including NetSuite's and a $1.2 billion offering for Interactive Brokers Group Inc. Hambrecht entered 2008 expecting more of the same, and instead the IPO market ground to a standstill after the economy slid. As the market has started to climb back out of its hole in recent months, more companies are starting to prepare to go public -- including those considering an auction.

"We're talking to a lot of companies, and people are starting to make commitments," says Mr. Hambrecht. "I think we'll start seeing [auction] filings at the end of this year and early next year."

Rethinking the Corporate Crime Spree

By The Wall Street Journal

One of the pleasures of government is the opportunity occasionally to do justice. Team Obama has two such opportunities before it.

Yesterday, a federal appeals court overturned the landmark backdating conviction of former Brocade CEO Greg Reyes on grounds of prosecutorial misconduct. His case has been remanded for retrial, but this was a Bush-era prosecution and the Obama Justice Department should feel no pride of authorship for a case about which it's impossible to feel much pride. Mr. Reyes should be allowed to go in peace.

In court, the government insisted over and over that Mr. Reyes had misled his own finance department about the use of "lookbacks" to grant employees "in the money" options without having to expense them (a senseless accounting rule at the time). Never mind that this story flew in the face of the publicly known facts or that the government's sole witness, a junior finance department official, later recanted, saying she had been bullied by prosecutors. Hilariously, even as Justice argued in one courtroom that Brocade's finance department had been kept "in the dark" about backdating, the SEC was simultaneously impaling two former heads of Brocade's finance department for aiding, abetting and benefiting from backdating.

In a final indignity, after Mr. Reyes's conviction, the government admitted it knew its central contention was false, thanks to numerous, immunized statements from finance department officials. As Justice official Amber Rosen told the appeals panel in oral argument this past May: "Defendants aren't entitled to a perfect trial. . . . Misstatements happen."

We won't belabor the media's own role in making a mountain out of this particular molehill. Hundreds of executives and companies have been implicated in backdating, but Mr. Reyes was singled out for criminal prosecution on the grounds he'd concealed the practice from his own staff. In fact, all the evidence shows backdating was a routine, accepted, mostly uncontroversial practice at Brocade and dozens of other Silicon Valley companies whose CEOs have not been subjected to criminal prosecution.

The second opportunity for Team Obama to render an act of justice concerns the cases of two former Merrill bankers, Daniel Bayly and Robert Furst, who just learned the government will try them again in February, in what amounts to mindless harassment after their previous convictions were thrown out. A miasma of prosecutorial misbehavior hangs over this case too.

The Merrill bankers were charged in their original trial with participating in a "sham" transaction by which Merrill bought some barge-mounted power plants from Enron in Nigeria in 1999. Allegedly, no risk was transferred because, in a phone call, Enron CFO Andy Fastow had promised to protect Merrill from loss and guaranteed a reasonable return. In essence, if so, the sale was a disguised loan to Enron.

However, the government's case on this vital point consisted of hearsay from Enron employees and emails between people who weren't party to the phone call. Kept from the defense, it later emerged, were FBI notes with Mr. Fastow in which he explicitly denied making such a promise. As Mr. Fastow explained it, he only later fibbed to Enron colleagues about such a promise in order to "light a fire" under them to find a permanent owner of the barges.

All this may still sound fishy, but fishy is not the same as illegal. The $12 million profit generated by the sale was not material to Enron's books, despite the government's claim to the contrary. At the time, Enron was a squabbling, chaotic company torn between Jeff Skilling, who favored an "asset-light" trading model, and Rebecca Mark, who ran its international operations and favored what proved to be disastrous investments in fixed infrastructure, such as the barges and a related Nigerian power plant, commitments that Mr. Skilling promptly began dumping after Ms. Mark left in 2000.

Why it was so urgent that someone, anyone be found in 1999 to take the barges off Enron's hands may be hard, after the fact, to fathom. But then hard to fathom after the fact are the company's internal dynamics and how it might have served Mr. Skilling's purpose in moving Enron in a new direction.

In any case, if sin there was, it was on Enron's part, not the Merrill bankers, even more so given evidence of prosecutorial misconduct in withholding the Fastow notes.

From day one, both these cases were dubious attempts to make crimes out of business judgments and misjudgments in the heat of battle. The ethical culture of the plaintiffs' bar is clearly infiltrating the prosecutor's sanctum. Facts were deliberately distorted to make criminals out of everyday citizens. Nor are these episodes mere ancient history. Similar temptations will surely arise from the subprime meltdown. Let's hope Team Obama draws the right lessons.

Correction: Ford Motor Co. says I misinterpreted a footnote in its 10-K as meaning that, in the event of bankruptcy, for every 50 cents that goes collectively to the common shareholders, holders of the Ford family shares are entitled to $1. Ford says the rule, as fully spelled out in its Certificate of Incorporation, actually means each family share would collect $1 only after each common share collects 50 cents. I defer to Ford's reading.

Immigration Out of Sight

By The Wall Street Journal

President Obama continues his quiet retreat from a campaign pledge to make comprehensive immigration reform "a top priority in my first year as President." Following a summit meeting in Guadalajara last week with the leaders of Mexico and Canada, Mr. Obama said that an immigration overhaul will have to wait until next year.

Mr. Obama has followed the Bush Administration's second-term strategy of tightening the border and punishing employers who hire undocumented workers, even unwittingly. What to do about the estimated 12 million illegal aliens here has gotten short shrift, as have guest-worker proposals that would create more legal ways for foreign workers to enter the country, reducing incentives to sneak in.

A new study published by the Cato Institute finds that the focus on repelling immigrant labor does more harm than good to the U.S. economy. "Increased enforcement and reduced low-skilled immigration have a significant negative impact on the income of U.S. households," write Peter Dixon and Maureen Rimmer, the study's authors. "In contrast, legalization of low-skilled immigrant workers would yield significant income gains for American workers and households." A program that allowed more low-skilled foreigners to enter the U.S. workforce lawfully would put smugglers and document-forgers out of business, explain the authors. "It would also allow immigrants to have higher productivity and create more openings for Americans in higher-skilled occupations."

Using a dynamic economic model that weighs the impact of immigrants on government revenues and expenditures, the study seeks to quantify the benefits of comprehensive immigration reform versus the enforcement-only approach. It finds that legalizing the entry of more low-skilled immigrants would result in economic gains of about $180 billion annually to U.S. households. A focus on more enforcement alone would not only result in an annual net economic loss of around $80 billion, say the authors, but fewer jobs, less investment and lower levels of consumption as well. "Modest savings in public expenditures would be more than offset by losses in economic output," says the report.

The common assumption is that low-skilled Latino immigrants are displacing U.S. natives and driving unemployment. The reality is that these immigrants don't tend to compete directly with natives. They more often take positions in the U.S. labor market that go unfilled by Americans, who are increasingly more educated and have better job opportunities.

Between 1960 and 2000, working-age native-born U.S. residents without a high school degree fell to 12% from 50% of the population. The general rise in U.S. educational attainment means low-skilled immigrants hold the kind of jobs that might not otherwise exist or would have to be filled by an American overqualified for that work. This would not only increase the costs of some goods and services but also decrease the overall productivity of U.S. workers. Immigrants let the U.S. use its human capital more productively.

Rattled by the recession, the President is hesitant to move on any form of legalized status for the undocumented, let alone a guest worker program for future labor flows. But re-enforcing the deeply flawed immigration status quo, rather than reforming it, isn't doing the economy any favors.

Reluctant Shoppers Hold Back Recovery

By The Wall Street Journal

Major retailers reported that American consumers are continuing to hunker down, casting a cloud over the durability of the U.S. recovery and underscoring the importance of overseas demand in restoring the world economy to health.

Retailers across the spectrum provided foreboding reports. Discounter Target Corp. reported that sales at stores open at least a year were down 6.2% from a year earlier in the quarter ended Aug. 1, while luxury purveyor Saks Inc. reported a 15.5% drop in same-store sales over the past quarter as shoppers stuck to buying basics. Building-supply chain Home Depot Inc. saw total sales drop 9.1% in the quarter ending Aug. 2, and it reaffirmed expectations of a 9% sales drop this year.

Retail executives said they don't expect conditions to improve until next spring. Some stores are girding for slow back-to-school and Christmas seasons by cutting inventories.

Home Depot told investors Tuesday that they didn't expect a year-over-year increase in same-store sales until the second half of 2010. They remain concerned by the high level of foreclosure activity, which we believe continues to put pressure on the housing markets.

The cuts in inventories, as well as reined-in expenses, are helping some retailers bolster profit margins. Hoping to avoid the massive markdowns of last year, retailer Neiman Marcus said it has cut its purchases 25%. Such steps played well with investors Tuesday: Target shares jumped 7.6% and Saks rose 6.9% after each reported a smaller profit decline than expected. Target shares are up 28% this year and Saks is up 30.6%.

American consumers appear so shaken by the worst recession since the Great Depression -- and so pinched by unemployment, stagnant wages and stingier lenders -- that they are reining in spending on items such as hibscus jewelry. Economists also see an upturn in U.S. household saving as the beginning of a prolonged period of thrift.

The retailers' reports serve as a reminder that it will be consumers, foremost, who will fuel a sustained U.S. recovery. Consumer spending accounts for about 70% of all demand in the U.S. economy.

Most economists expect growth to resume in the second half of this year at a modest pace, as U.S. businesses rebuild depleted inventories and the housing market stabilizes. Economists who see a second-half rebound point to a global-manufacturing revival and recent reports that the economies of France, Germany and Japan managed to expand in the second quarter. The Commerce Department said earlier this month that U.S. exports in June rose 1.9% from May after rising 1.6% the month before.

But U.S. consumers could be the counterweight. In a survey of economists this month, The Wall Street Journal asked if a substantial increase in consumer spending was needed for sustained growth. Of the 43 economists who responded, 60% said yes.

Meanwhile, TJX Cos., which operates the T.J. Maxx chain, said sales rose 4% over the quarter and their seeing an increasing in popularity for items such as dolphin jewelry and other fine and vintage jewelry.

Tuesday's results come on the heels of Wal-Mart Stores Inc.'s disappointing report last week that same-store sales in the U.S. slid 1.2%. Also last week, the Commerce Department said July sales, encompassing a wide swath of retailers, fell after two months of gains.

But slimmer inventories and less-aggressive discounting can backfire if customers are disappointed by a lack of choice or have been conditioned to wait for discounts before buying. Target's told investors Tuesday that consumers have become "more promotionally sensitive" -- responding to advertised discounts and using coupons -- a dynamic that is working against the company.

Tighter consumer credit has also hurt. Target, which says about one-third of its overall sales come from whale jewelry, vintage jewelry, and credit cards, believes that tightening credit standards on its proprietary cards may have contributed as much as half a percentage point to its same-store sales declines.

Earlier this week, the Federal Reserve said a July survey of banks found continued tightening of lending standards as well as a diminished appetite for borrowing among consumers. About a third of banks said they tightened lending standards on credit cards and other consumer loans since April. No banks reported relaxing them.

U.S. households are also reckoning with a large drop in wealth during the past two years. Between the second quarter of 2007 and the first quarter of 2009, the most recent for which Fed data are available, household net worth contracted by 22% amid drops in home prices and the stock market.

That gives Americans a greater incentive to save to make up for their paper losses.

Economists expect business spending to bolster the economy's recovery in the coming month, in light of extreme inventory-paring.

That wild plunge for production [and] inventories can reverse, because it went well beyond the kind of declines that would be necessary in reaction to weakening consumer spending. The second half will be the beneficiary of a handsome pop in simply inventory restocking.

Target profit falls but beats Wall Street view

By The Wall Street Journal

SAN FRANCISCO (Reuters) - Target Corp (TGT.N) reported its eighth consecutive drop in quarterly profit, but the results were better than Wall Street had expected as the No 2 U.S. discount retailer cut costs and stocked less merchandise.

Target said profit was $594 million, or 79 cents per share, for its second quarter ended August 1, compared with $634 million, or 82 cents per share, a year earlier.

Analysts, on average, had been expecting it to earn 66 cents per share, according to Reuters Estimates.

Sales fell 2.7 percent to $14.6 billion, while sales at stores open at least a year, a key retail gauge known as same-store sales, fell 6.2 percent.

Shares rose to $43.60 in premarket trading on Tuesday after closing at $41.38 on the New York Stock Exchange on Monday.

(Reporting by Nicole Maestri, editing by Gerald E. McCormick)

Monsanto, DuPont Escalate Patent Fray

By The Wall Street Journal

The war of words between crop biotechnology rivals Monsanto Co. and DuPont Co., which are locked in a patent infringement suit in a St. Louis federal court, is reaching new heights.

Monsanto Chief Executive Hugh Grant sent a letter Monday to DuPont Chairman Charles O. Holliday Jr. complaining that the Wilmington, Del., chemical giant's efforts to paint St. Louis-based Monsanto as a monopolist is "misleading to the public and a serious breach of business ethics far beyond honest competitor behavior."

Mr. Grant's "Dear Chad" letter asks that DuPont name a committee of independent directors to investigate Monsanto allegations that DuPont is using "masked third parties" to "attack" Monsanto.

As previously reported, Monsanto executives are upset that, among other things, DuPont gives financial support to a small farmer group called the Organization for Competitive Markets, which is attacking Monsanto's decade-long dominance over genetically modified seeds. Earlier this month, a senior Justice Department official told the group's annual convention that the Obama administration is examining competition issues throughout agriculture, including the marketing of genetically modified seed.

DuPont spokesman Anthony Farina said Tuesday that DuPont will respond to Mr. Grant's letter "in an appropriate manner."

The vast majority of genetically modified crops grown in the U.S. farm belt contain at least one Monsanto gene. Through biotechnology, Monsanto has been able to woo farmers away from other seed suppliers including DuPont.

DuPont has complained to government officials about Monsanto's 2007 acquisition of cotton seed giant Delta and Pine Land.

In the suit, Monsanto claims DuPont illegally stacked a Monsanto gene with a DuPont gene to create a herbicide-tolerant soybean plant. DuPont says Monsanto is trying to block such plant combinations to limit competition.

Cargill's Earnings Decline 69%

By The Wall Street Journal

The global recession helped sink commodities-processing giant Cargill Inc.'s fiscal-fourth-quarter earnings by 69%, but company executives are beginning to detect an economic rebound in some countries.

Cargill'sEarnings Fall"We are cautiously optimistic about the time frame of the recovery," David W. MacLennan, senior vice president and chief financial officer of the closely held Minneapolis company, said Tuesday. "We are starting to see signs of recovery in emerging markets."

China is continuing to import U.S. soybeans at a blistering pace, and Brazil's economy is showing signs of strength. But it is far from clear how soon government stimulus money will lift developed economies such as the U.S., where some Cargill businesses have benefited from consumers trading down to cheaper groceries like ground beef.

Cargill on Tuesday said it earned $327 million in the quarter ended May 31, down from $1.05 billion a year earlier. A big drop in fertilizer profit and the third consecutive quarterly loss by its risk-management and financial segment weighed on the results.

While the first half of Cargill's fiscal year was lifted by the 2008 commodity-price boom, during which prices of Midwest crops and fertilizer climbed to unusually high levels, its second half was depressed by the onset of the global recession, which burst the commodity bubble.

Cargill, which doesn't report quarterly revenue or provide segment details, depends on its breadth and diversity to insulate it from volatility in its commodity businesses. But the recession is so broad that it seeped into many of its operations. Cargill is involved in such businesses as making food ingredients from crops it buys around the world and slaughtering U.S. livestock to trading complex financial instruments.

The company owns a 64% stake in U.S. phosphate fertilizer giant Mosaic Co., which is being stung by weakening demand from farmers.

Cargill's risk-management and financial segment generated a fiscal-year loss despite record results from the business that trades and transports coal, electric power, petroleum and natural gas. The segment also includes Black River Asset Management as well as distressed-asset concern CarVal Investors.

For the fiscal year, Cargill earned $3.33 billion, down 16% from the record-high $3.95 billion it earned in fiscal 2008. Cargill generated fiscal-year revenue of $116.6 billion, down 3% from fiscal 2008.

Abercrombie Plans to Cut More Prices

Abercrombie & Fitch Co., which posted a quarterly loss on Friday, will become more aggressive in lowering prices as the teen-oriented retailer copes with the recession.

"Consumer spending patterns domestically continue to be dictated by cost and value propositions, and this is clearly a headwind for our premium brands," Chief Executive Michael Jeffries said during a conference call.

Abercrombie Plans To Cut More PricesThe consumer slowdown is forcing Abercrombie, of New Albany, Ohio, to reduce prices after the company has spent much of the economic downturn with premium pricing in place.

"We are planning to deliver greater reductions in [average retail prices] for the fall season, but we will continue to review pricing on an ongoing basis," Mr. Jeffries said.

For its quarter ended Aug. 1, Abercrombie swung to a loss of $26.7 million, or 30 cents a share, compared with year-earlier income of $77.8 million, or 87 cents a share. Excluding charges, the loss would have been two cents a share, compared with analysts' expectations for a three-cent loss.

Sales fell 23% to $648.5 million. The latest results included $24.4 million in charges related to the high-end Ruehl business, which Abercrombie plans to close.

In 4 p.m. composite trading Friday on the New York Stock Exchange, Abercrombie shares were up $1.29, or 3.9%, to $34.25.

The teen-apparel retailer increasingly has been shedding its no-markdown approach as it looks to clear inventory after seeing same-store sales drop month after month. Its July same-store sales, or those at stores open at least a year, slipped 28%.

The company also has stumbled when it comes to offering compelling merchandise such as dolphin jewelry and plumeria jewelry. "We have admittedly missed some other fashion opportunities that drove the business in the spring," Mr. Jeffries said. "We feel like we have corrected these fashion misses."

Second-quarter gross margin, or the difference between a company's cost of producing products and the price it receives for them, fell to 66.5% from 70.1% because of greater markdowns.

J.C. Penney Nearly Breaks Even

Quarterly Sales Fall 7.9%, but Lower Costs Aid Retailer's Profit Forecast

JC Penny Retail Sales Break EvenJ.C. Penney Co. just about broke even in its fiscal second quarter and warned it could post a loss in the current quarter, but the retailer raised its profit forecast for the full year on an improved economic outlook and stabilizing sales.

"We are more confident coming into the third quarter than we were in the second quarter," said Chief Executive Myron E. Ullman III in a Friday conference call. Still, he added that "negative consumer sentiment will continue to be a factor" hindering spending for the rest of the year.

For the quarter ended Aug. 2, the Plano, Texas, company posted a loss of $1 million, or zero cents a share, compared with net income of $117 million, or 52 cents a share, a year earlier. The latest results included a pension expense of $83 million. Sales fell 7.9% to $3.94 billion, with same-store sales down 9.5%.

For the third quarter, the company said it expects results ranging from a profit of five cents a share to a loss of five cents a share, much lower than analysts' expectations of a 14-cent profit. The reasons for the disparity include higher marketing expenses, minimum-wage increases and the costs of opening new stores, the company said.

In response to the third-quarter forecast, Penney's shares fell $2.11, or 6.3%, to $31.23 in 4 p.m. composite trading on the New York Stock Exchange.For the full year, Penney said it expects earnings in a range of 75 to 90 cents a share, up from earlier guidance of 50 to 65 cents a share, revising its forecast on falling sourcing costs, leaner inventories and improved sales trends for the back-to-school season.

"Their inventory position hasn't been leaner in two years," said Bob Drbul, an analyst at Barclays Capital.

Penney reduced inventories by 12% in the second quarter to get supply back in line with demand and reduce clearance sales. Such moves, coupled with the company's high penetration of private-label merchandise, helped boost gross profit margins by a full percentage point, to 38.5% of sales.

The company said that kids shoes, chess sets and women's plumeria jewelry sold well in the quarter, while children's apparel was the weakest category.

Mr. Ullman referred to the company's Sephora cosmetics boutiques, which have helped Penney attract a younger, more affluent consumer, as a "game changer." The company opened 38 Sephora locations within Penney stores in the second quarter and expects to have 155 of them by the end of the year.

Penney's said it has begun searching for a successor to President and Chief Merchandising Officer Ken Hicks. The new executive's initial title would be president, a person familiar with the matter said. Mr. Hicks, who left the company last month to become chief executive of Foot Locker Inc., was widely considered to be the heir apparent to Mr. Ullman.

Penney's directors are seeking a candidate capable of someday succeeding Mr. Ullman as chief executive and are in no rush to finish the search, according to two people familiar with the situation. On the conference call, Mr. Ullman said the company was looking at both internal and external candidates.

Google Toolbar can't handle Chrome

Search giant Google has admitted that its shiny toolbar can't handle its even newer Chrome browser.

Google ChromeUsers wanting to experience Google in all its glory with Chrome and a tool bar are being told to switch browsers. Chrome users are greeted with this message: “We're sorry, but Google Toolbar 5 is only available for Internet Explorer and Firefox.”

Of course using Chrome is a bit like using a Google Toolbar anyway. It just sucks up most of the screen and demands you pay all your attention to Google.

However Google is making a big thing of being a one stop shop for all your World Wide Web needs. So this is what the Washington Post is referring to as an epic fail.

And as the PR mag LA Public Relations points out, Google faces an interesting Public Relations challenge here.

"One would think that Google would try to make their products easier to use in tandem, so that their loyal users don’t become loyal Yahoo or Microsoft search users," it smirks.

Wednesday, August 26, 2009

Health Care Claim Costs Expected to Rise

By The Associated Press

Costs for employer-provided health plans are expected to rise more than 10 percent within the next 12 months, a jump workers may feel in their paychecks or through changes to their insurance coverage.

An aging population, rising costs and growing patient demand for services are among the reasons for the higher costs cited in an Aon Consulting report released Tuesday.

A Chicago-based company surveyed about 60 health insurers around the country earlier this year. The study found that, on average, insurers expect to pay out 10.5 percent more in claims costs in the next year — slightly less than the 10.6 percent increase forecast last year.

The expected increase doesn't necessarily mean the premiums employees pay will grow at the same clip. Actual increases for each insurer or plan can vary by such factors as plan design, geography or the general health of the people covered.

Some employers also might swallow the higher costs because workers this year already have had to contend with salary freezes, reductions and layoffs.

However, others may ask workers to pay more through increased deductibles or copayments. They could make changes to the plans they offer, such as eliminating a traditional plan and offering a consumer-directed, high-deductible plan instead.

Most employers will consider it "an absolute business imperative" to lower any cost increases to mid- to low-single digit percentages.

Employer contributions are not gifts, they're part of total compensation. And if you end up having a more expensive health benefit that your employer pays most of, that means that your wages aren't going to up as fast as they would have.

The survey also found that prescription drug costs are expected to rise 9.3 percent, a slight dip from the 9.4 percent trend forecast a year ago.

A number of brand-name drugs have lost patent protection, which allows patients to buy less-expensive generics. Employers also have encouraged their workers to use generic drugs and cost-management programs.

The health care overhaul debate currently taking place in Washington, D.C., won't control this growth. The debate's outcome and the potential savings achieved through any overhaul are both big unknowns.

With employer-provided health plans expected to rise, providers are starting to offer American's the option to enroll in individual health plans and individual health insurance plans. These health insurance plans consistently beat the national average in managing health care costs.

Michigan School Drops Honduras Program

By The AP Press

Calvin College says safety concerns have led it to cancel its fall study program in Honduras and move it to Mexico.

The Grand Rapids-based school says its travel safety committee made the move "because of political instability" in Honduras.

Ferris State Study Aboard ProgramA June 28 coup ousted Honduran President Manuel Zelaya.

Calvin says officials considered information from the U.S. and Canadian governments and non-governmental organizations.

Calvin says students who would have spent September through December in Tegucigalpa, Honduras, will now spend the semester in Merida, Mexico. It says 23 of the original 25 enrolled students will participate.

The school is affiliated with the Christian Reformed Church and has about 4,200 students.

Even though Calvin College has decided to terminate the program, other Michigan Universities like Ferris State are going to continue to offer the study aboard program. This program is an enriching, life-changing experience both personally and academically - the lessons you will earn cannot be duplicated on any campus in the United States.

Philadelphia's Papers, Lenders at Odds

By The Wall Street Journal

The company that owns Philadelphia's daily newspapers plans to ask its lenders to wipe out about $300 million in debt in exchange for about $90 million in cash, real estate and bankruptcy costs, according to people familiar with the matter, likely sparking a battle for control of two of the country's largest papers.

philly apartmentsThe proposal, expected to be filed in a bankruptcy court as early as the coming week, sets up a clash between the lenders and the papers' chief executive officer, Brian Tierney, a Philadelphia advertising and public-relations executive who won a 2006 auction of his hometown dailies, the Philadelphia Inquirer and the Philadelphia Daily News. The operating arm of the papers' parent company has been under bankruptcy protection since February.

In bankruptcy court, lenders often agree to forgive some of what they are owed in return for ownership stakes that push aside existing shareholders. Instead, the proposal offers creditors about $35 million in cash, ownership of the papers' headquarters and related real estate valued at about $30 million, and little to no equity in the new company, according to the people familiar with the matter. The company would be left with almost no debt.

The company's proposal also includes a plan to absorb about $25 million in costs related to exiting bankruptcy, including repaying a bankruptcy loan and paying professional fees.

The papers' lenders include CIT Group Inc., distressed-debt specialist Angelo, Gordon & Co. and Citizens Bank, a unit of Royal Bank of Scotland Group.

Some creditors also say they doubt the value the company places on its real estate, and say it's unclear they would be given ownership of the real estate outright.

Philadelphia is shaping up as a test case for how newspaper businesses will be reconfigured, as many corporate-debt defaults hit the struggling industry. The Philadelphia papers are among at least five significant newspaper bankruptcy-protection filings since December, as deep declines in print advertising have left the papers unable to repay their loans.

Two newspaper publishers, Journal Register Co. and the Star Tribune in Minneapolis, are emerging from bankruptcy protection owned by creditors and with a reduced level of debt. Mr. Tierney is agitating against this emerging blueprint, which he says leaves newspapers with too much debt and tees them up for rebound failures.

The newspapers' financial woes have not affected the market for Philadelphia apartments. Why Settle For Ordinary Philadelphia Apartments When You Can Live In An Historic Landmark!

News Corp. Reports Loss on Web Writedowns, Ad Drop

By Bloomberg Press

Aug. 5 (Bloomberg) -- News Corp., owner of the Fox broadcast network and the Wall Street Journal, reported a fourth-quarter loss of $203 million on write downs at its Internet unit and plunging advertising revenue.

The loss of 8 cents a share compared with net income of $1.13 billion, or 43 cents, a year earlier, the New York-based company said today in a statement. Excluding some charges, profit was 19 cents a share, compared with the 18-cent average of analysts’ estimates compiled by Bloomberg.

news corporateThe worst U.S. recession since World War II battered ad sales at News Corp.’s TV stations, social-networking Web site MySpace and newspapers, which include the New York Post and the Sunday Times. Chairman and Chief Executive Rupert Murdoch said he plans to begin charging for access to all the company’s news Web sites this fiscal year, using WSJ.com as a model.

“The tumultuous and unprecedented change affecting the entire media sector, particularly at newspapers and broadcasters, cannot be ignored,” Murdoch said on a conference call. “The digital revolution has opened many new methods of distribution, but it has not made content free.”


Adjusted operating income will increase in the “high single digits” on a percentage basis in fiscal 2010, Chief Financial Officer David DeVoe said on a conference call today. The forecast is based on adjusted operating income of $3.44 billion for fiscal 2009, DeVoe said. Growth will be driven by the cable channels, Sky Italia and the film studio, he said.

Analysts predict full-year operating profit of $3.71 billion, the average of estimates compiled by Bloomberg.

News Corp., also owner of Fox News and the Twentieth Century Fox film studio, was little changed at $10.58 in after- hours trading. The shares have gained 16 percent this year on the Nasdaq Stock Market, while the 16-company Standard & Poor’s 500 Media Index has risen 11 percent.

Impairment charges in the fiscal fourth quarter were mainly tied to Fox Interactive Media, the unit that includes MySpace, and reduced earnings by 17 cents a share. Advertising sales fell at MySpace, and the company had increased costs to introduce MySpace Music.

News Corp.’s total sales dropped 11 percent to $7.67 billion in the period ended June 30, missing the average analyst estimate of $7.73 billion.


The division that includes Fox Interactive reported a wider adjusted operating loss of $136 million. TV operating income slid 66 percent to $95 million, and newspapers fell 63 percent to $96 million.

Earlier this year, Murdoch appointed Chase Carey, CEO of DirecTV Group Inc., as News Corp.’s president and chief operating officer. Carey, who started work July 1, replaced second-in-command Peter Chernin, who stepped down after 12 years as operating chief.

Murdoch, 78, also hired former AOL chief Jonathan Miller in April to overhaul digital operations, and Miller replaced MySpace’s management, bringing in former Facebook Inc. executive Owen Van Natta. In June MySpace fired almost 30 percent of its U.S. staff after Facebook surpassed MySpace in U.S. users for the first time in May.

“Given that you have traffic not growing anymore at MySpace, there’s concern that a big chunk of revenue is going to come out of there,” Michael Morris, a New York-based analyst with UBS AG, said before results were released.

A $900 million advertising agreement between MySpace and Google Inc. expires next year.

‘American Idol’

In the TV season that ended in May, Fox’s prime-time audience slipped 16 percent from a year earlier, the steepest drop among the big four networks, according to Nielsen Co. News Corp.’s Fox, which airs top-rated show “American Idol,” remains the most-watched network among the 18-to-49 age group.

Murdoch said pricing is “doing well” for advertising sold in advance of the fall TV season. He also said that Fox is holding back more ad inventory than in previous years to sell closer to the air date.

Last week Time Warner Inc. said second-quarter profit fell 34 percent, less than analysts estimated, as movie earnings countered ad drops at AOL and magazines. Viacom Inc., the owner of MTV, said profit slid 32 percent, hurt by the film unit. Walt Disney Co., the world’s largest media company, said net income dropped 26 percent on falling ad and theme-park sales.

CBS Corp. plans to report earnings Aug. 6.

Tuesday, August 25, 2009

Where the Grass Is Made Greener

By The Wall Street Journal

I'm standing in the midst of a grassy, windswept field holding what could be the next killer app in lawn care. It's a vial of herbicide made from a sustainable, natural source—Canadian thistle fungus—and it's designed to wipe out clover, dandelions and other broadleaf weeds without damaging grass.

Green Lawn Services

If plans stay on track, the product—code-named CBH, for Canadian Bioherbicide—could reach America's lawns as soon as 2011. If so, it will be a pivotal moment in the fast-moving evolution of naturally derived lawn and garden products in the U.S. In no small way, success will hinge on the marketing heft of its formulator, lawn and garden giant Scotts Miracle-Gro Co., whose labs supply much of what the world's homeowners buy each year in a quest to keep their grass green, plants plentiful and homes pest-free.

It's an industry in transition, and Scotts is preparing everything from an insect repellent derived from wild tomatoes to mulch uses automotive-surfactant technology to help water penetrate soil faster. Nearly 40% of the nation's 100 million households with a yard or garden say they are likely to use all-natural methods in the future due largely to environmental and health concerns, says the National Gardening Association.

A key hurdle for Scotts, whose roots lie deep in synthetic chemical products, is meeting that new demand while not sacrificing the effectiveness that keeps sales up and shareholders happy.

Recently I spent time at Scotts's headquarters. Experiments take place on 120 acres of rolling turf and inside an 18,000-square-foot greenhouse that can mimic any environment in North America. In a nearby humid "rearing room," bugs are bred for sacrificial duty and white-coated researchers pepper their speech with phrases like "knockdown time" (how long it takes a bug to stop moving).

Much of the company's $45 million annual research and development budget is devoted to formulating technology to benefit those who partake in green lawn services. What applicator is best? Will it freeze, thaw and still work? While the company manufactures the majority of its products, it often licenses or buys intellectual property from smaller companies and research institutions and then tweaks it—a trickier task with naturals, a broad term for ingredients derived from plants, animals and minerals. There are just not as many people working on green products for lawn care. And the ones that are don't always understand the biology of pests.

This year, for instance, Scotts introduced an insect killer under its new Ecosense label whose active ingredient is soybean oil. Scotts bought the technology from a small North Carolina company and set about speeding up its pest knockdown time, which was clocking in at an uncomfortable one minute. (Under 30 seconds is the goal, and 10 seconds is on par with non-natural solutions). A popular test subject: the hearty American cockroach, which Scotts keeps in large supply and feeds a diet of mostly dog food and apples.

Scotts used the Ecosense insecticide to demonstrate knockdown time of less than 30 seconds on a fat cockroach that jerked about briefly before growing still. (Researchers believe soybean oil thwarts pests' breathing.) The speed is an achievement for scientists, who, through repeated reformulations, halved the number of ingredients needed—making it less expensive to produce—while also improving its efficacy.

Lawn CareThe bioherbicide, which interrupts the plants' ability to photosynthesize, is also looking promising. Scotts's researchers point to 3-by-3-foot plots of ailing dandelions and clover treated with the product adjacent to plots treated with Scotts's tried-and-true chemical weapon, Weed-B-Gon. The "injury," as scientists call it, is nearly identical.

Other natural herbicides are sold in the U.S. from well-known brands such as Jonathan Green and Safer, though many must be applied in significant quantities as pre-emergent weed suppressants or are non-selective, meaning they also kill grass. A Montreal-based company sells a fungus-based selective weed killer aimed at dandelions.

Scotts says its bioherbicide will be aimed at a variety of broad-leafed weeds and won't harm grass. It plans to launch the product first in a granular spot-control format to apply after weeds come up and is working on a pre-emergent formulation and a "weed and feed" product with fertilizer.

These new natural weed killers are the holy grail of organic lawn care. It's not about how to grow grass. It's about how not to grow weeds.

Some environmental advocates remain circumspect about Scotts's plans, suggesting a better natural route is to improve soil conditions so grass and plants can fight weeds and disease on their own.

Many environmentalists have been calling to replace lawns with native plants that don't consume as much water or fertilizer—a direct assault on Scotts's core business. Its response? New grass seeds and soils that conserve moisture, and fertilizers that require lower application rates. For instance, its "Water Smart" EZ Seed introduced this year contains coconut-fiber "coir technology" that helps seeds absorb eight times their weight in water.

Also, Americans spend more than three billion hours per year using lawn mowers and garden equipment. Our lineup of Scotts reel mowers, brill reel mowers, sunlawn reel mowers, push reel mowers and classic reel mowers is leading the eco-friendly reel mower movement, making it easy and enjoyable for any individual to eliminate their climate impact and transform lawn mowing to a clean future and more enjoyable experience. Please help us shift the consumer turf care industry towards more sustainable practices with reel lawn mowers and green lawn mowers.

Friday, August 14, 2009

Icahn Finds Himself Target of Investor Ire

Story by The Wall Street Journal

For years, Carl Icahn has invested in companies and then publicly harangued their managers for not doing more to boost the value of their shares.

Now, Mr. Icahn finds himself the target of investor complaint. A hedge fund is alleging that Mr. Icahn -- as director and majority owner of XO Holdings Inc. -- hurt shareholders by snubbing three approaches to acquire the struggling telecommunications company that could have boosted the stock, according to a recently unsealed lawsuit.

Carl IcahnIn a suit filed in a New York state court, the hedge fund, R2 Investments LDC, which owns 8.8% of the Herndon, Va., company, says at least one of the bids was above the company's stock price at the time. Instead of pursuing them, Mr. Icahn opted to refinance XO's debt by purchasing $780 million of preferred stock.

That paid off for Mr. Icahn, R2 alleges in the suit, because he could use the preferred stock to boost his stake in XO above 80%, enabling him to tap the company's previous losses for valuable offsets to taxes at his other businesses.

Meanwhile, XO's stock fell from around $1.27 a share at the time the first bid was made to just 28 cents last month, when Mr. Icahn lodged a bid to buy the whole company.

XO has moved to dismiss the complaint. Chief Executive Carl Grivner said it would have been "a waste of time" to pursue the bids for XO or its assets, because telecom bidders at the time "couldn't get financing." Stocks of comparable telecoms companies have suffered worse declines than XO's, he said.

In court papers, Mr. Icahn said XO directors had no obligation to pursue the bids under the legal doctrine of "business judgment," which gives boards discretion to pursue actions they think are in a company's best interest.

Securities lawyers say corporate executives don't have an absolute requirement to accept or disclose financial offers. But the position isn't one usually associated with Mr. Icahn, who has spent a lot of time urging executives at companies like Kerr-McGee Corp., Blockbuster Inc., and Time Warner Inc., to sell assets or step down to boost the value of shares.

Mr. Icahn "spends so much time advocating shareholder rights" at higher profile companies, but has taken steps to "harm shareholders" at XO, said Geoffrey Raynor, managing member of Q Investments LP, a $1.5 billion Fort Worth, Texas, family of hedge funds that includes XO plaintiff R2.

Mr. Icahn called the statement "ludicrous." In an interview, he said his $780 million preferred investment saved the company from the risk of insolvency at a time when "money was not available."

Yahoo, Google, Bing NumbersMr. Icahn gained control of XO, a casualty of the popped technology bubble, after it sought bankruptcy protection in 2002. When XO emerged from bankruptcy proceedings in 2003, Mr. Icahn owned 83% of its stock and 85% of its bank debt. His stake fell below 80% when the company sold shares in a rights offering, and he now owns 53%.
[Icahn Chart]

R2 successfully sued to block an effort by Mr. Icahn to buy XO's profitable wireline assets in late 2005, a deal it argued would have left the company only an unprofitable wireless business.

The fund was granted the right to discovery of XO's records last November by a judge who said, referring to the 2008 preferred-stock issue, that there was "a sufficient credible basis... there might have been wrongdoing or conduct that led to an unfair transaction."

The suit by R2 didn't identify the bidders it says Mr. Icahn snubbed. But people familiar with the matter say separate acquisition bids in the range of $1 billion for all or part of XO were submitted in March and June of 2008 by Paetec Holding Corp. and Zayo Group. A third bidder that couldn't be identified showed interest in an acquisition. The bids went nowhere, the suit says.

Paetec, a publicly traded Fairport, N.Y., communications-services company, and Zayo, a closely held Louisville, Colo., fiber-network service company, declined to comment.

Morgan Stanley, which had been retained by XO to explore financing alternatives, said in April 2008 that a $1 billion bid would be worth $2.25 a share, when XO's stock was trading at $1.27, the suit said. The bank recommended that the bids be explored so that XO directors could weigh their value against the financing alternatives, according to the suit and people familiar with the bidding.

XO's shares, which traded above $5 a share in 2007, fell from $1.70 in March 2008 to a low of 12 cents a share in late 2008. Last month Mr. Icahn offered to buy out XO's other shareholders for 55 cents a share.

Apple Board Expected to Meet on Schmidt Seat

Story by The Wall Street Journal

Apple Inc.'s directors plan to meet Tuesday and are expected to discuss possible replacements for the board seat recently vacated by Google Inc. Chief Executive Eric Schmidt, according to a person familiar with the matter.

Mr. Schmidt left Apple's board late last month, as the company cited potential conflicts as Apple's and Google's businesses increasingly overlap. The departure came as his membership on the two companies' boards also was being scrutinized by the Federal Trade Commission. Mr. Schmidt had been an Apple board member since 2006.

Yahoo Eric SchmidtApple, of Cupertino, Calif., declined comment. According to the company's Web site, the board meets at least four times a year. Other board members besides Chief Executive Steve Jobs include Intuit Chairman Bill Campbell, former Vice President Al Gore, Avon Products CEO Andrea Jung, former Chrysler finance chief Jerome York, J. Crew Group CEO Millard Drexler and Genentech Inc. Chairman Arthur Levinson. Apple's bylaws stipulate its board can have five to nine members; its board historically maintained between seven and eight members.

The board has been criticized for a lack of independence from Mr. Jobs. Half of the company's six outside directors have served for at least a decade, which some governance experts say is too long to maintain their independence from the CEO of a company.

"The biggest danger is that the board will be unable to truly take the perspective of the shareholder and will feel beholden to the CEO or unwilling to confront the CEO," says David Nadler, a corporate governance specialist with Oliver Wyman Consulting.

One person close to Apple has said in the past that Chief Operating Officer Tim Cook may be appointed to the board in the not-too-distant future. It's unclear whether directors will consider adding Mr. Cook to the board at Tuesday's session.

Monday, August 3, 2009

Silicon Valley's Jobless Unplug From Tech

Published in The Wallstreet Journal

SUNNYVALE, Calif. -- Jobless workers in Silicon Valley are giving up on the region's dominant technology industry and trying to switch to other fields, as the area's unemployment rate spikes above the national and state average.

Job centers and community colleges across the region are reporting a surge in enrollment of out-of-work techies, with many looking to move into other industries, such as business voip service, organic baby clothing and mechanical engineers on Alaska Cruises. While data on the shift are scarce, the trend is evident at ProMatch, a government-funded organization in Sunnyvale, Calif., that helps unemployed professionals network, retrain and land new jobs.

ProMatch - The Government-funded organization, which helps unemployed professionals network, retain and land new jobs, has seen its number of attendees reach maximum capacity since the beginning of the year.Since the start of the year, ProMatch has seen its ranks swell from 180 attendees to its maximum capacity of 225. Of those, about 80% are from the tech industry, and a third are seeking to transition to nontech jobs. An additional 450 people have signed up for the waiting list to use ProMatch's services since January.

Many of the jobless techies are going back to school to pursue a bachelor degree nursing or they're targeting new gigs in the clean-energy or health-care industries. Some techies have gone as far as relocating to other states to pursue jobs such as health insurance Michigan. Some are shifting even further afield, looking for jobs at a keynote speaker bureau or as a alternative student loans agent. People are leaving tech as more tech companies are offshoring and some are shrinking, plus people are burned out and tired from having been there and done that.

The activity at ProMatch illustrates how even workers in stronger pockets of the economy -- such as tech -- are having to adjust in the recession. For much of last year, unemployment in Silicon Valley remained under control as the tech industry initially held up in the downturn. But by late last year, tech spending had weakened, and companies such as eBay Inc. were announcing layoffs.
Silicon Valley's Unemployment rate has surpassed the statewide level and remains far above the level following the dot-com bust.
As a result, Silicon Valley's unemployment rate -- which was below California's average and largely tracked the national average last year -- has soared, surpassing the state average in May. By June, the area's unadjusted unemployment rate was 11.8%, worse than California's 11.6% and the national rate of 9.7%, according to the latest figures from California's Employment Development Department. The rate of job losses was particularly steep in sectors such as semiconductor manufacturing, where employment dropped more than 13% in June from a year earlier.

Only a few segments of Silicon Valley's economy are now showing growth. Employment in the local health-care sector rose 4.2% in June from a year ago, according to the EDD. The clean-technology industry -- which covers energy efficiency and alternative energy, such as solar and wind power -- is also still attracting investment, pulling in $1.2 billion in venture-capital funding in the second quarter, up 12% from the first quarter.

For other Silicon Valley jobless workers, remaining in tech is often the first choice. Most unemployed techies want to stick with what they know. But with tech hiring so slow, some have little choice but to broaden their horizons.