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The Wall Street Journal Education Program Weekly Review & QuizCovering front-page articles from January 21 – 27, 2006Professor Guide with Summaries Spring 2006 Issue #3Developed by: Scott R. Homan Ph.D., Purdue University

Questions 1 – 12 from The First Section, Section A

Funny BusinessBy JOE HAGANJanuary 21, 2006; Page A1http://online.wsj.com/article/SB113780591132252612.html

Kelly Gould, 7 years old, has a big part in a new HBO sitcom. But on a recent afternoon, the young actress was made to wait outside a Los Angeles TV studio with her mother while her colleagues rehearsed inside. At that precise moment, one of Kelly's adult co-stars was reading lines so profane that even the grown-up actors and producers shifted awkwardly in their seats.Traditional sitcoms like "I Love Lucy" are the most family-friendly of genres. But this show, "Lucky Louie," might be the first one that children will be barred from seeing. "We'll TiVo it...and let her watch the stuff she's in," says Valerie Gould, Kelly's mother.Having pushed the boundaries of sex, violence and realism with programs such as "Sex and the City" and "The Sopranos," HBO has set out to revamp network TV's most enduring and fatigued format: the situation comedy. But this time, HBO has learned that some television conventions are tough to puncture.The coarse language the show uses to depict realism has been jarring at times. Moreover, the phenomenon that helped HBO prosper -- no advertising breaks -- has been a major creative headache. Commercials are part of a sitcom's DNA, providing curtain-like intermissions to a story. HBO executives found the back-to-back scenes in "Lucky Louie's" early episodes unrelenting and sent the producers scrambling for a fix. Even now, executives at HBO, a unit of Time Warner Inc., aren't sure they've found a winner.HBO's point man in this endeavor is a stand-up comedian and comic writer named Louis C.K., 38 years old. He changed his last name to the phonetic approximation of his actual name, Szekely. His goal is to pay homage to the social comedies of the 1970s and their storied predecessors. He modeled the show's primary set, for example, a tiny, unadorned kitchen, on one featured in "The Honeymooners."Mr. C.K. sold HBO on the premise that modern sitcoms have strayed from their roots. They borrow too heavily from movies, with elaborate sets and on-location shoots. He says he plans to adhere to the classical sitcom form, using video that looks like TV news, while raising issues such as racism and poverty using startlingly frank language. Mr. C.K., who is writing and producing the show, stars as a muffler repairman grappling with marriage and fatherhood.

1. A new situation comedy set to air on HBO _______.a. is very similar to classic TV comedies such as “The Honeymooners” and “I Love Lucy” b. uses such extensive profanity that child actors are not allowed on the set during certain scenesc. is trying different techniques to break up the relentlessness of having no commercial breaksd. Both b and c Correct

2. Television programs that show on cable networks like HBO ______.a. do not have commercial breaksb. are unbound by the rules constraining broadcast networks and ad-supported cable channels.c. The Federal Communications Commission has no jurisdiction over its outputd. All of the above Correct

How Amazon's Dream Alliance With Toys 'R' Us Went So SourBy MYLENE MANGALINDAN January 23, 2006; Page A1

© Copyright 2006 Dow Jones & Company, Inc. All rights reserved.

WSJ Professor Guide: of 20

http://online.wsj.com/article/SB113780591132252612.html


In August 2000, Amazon.com Inc. and Toys "R" Us Inc. signed a groundbreaking agreement: For 10 years Amazon would devote part of its Web site to Toys "R" Us's toy-and-baby-products. The toy retailer would choose the hot products to stock and buy the inventory for the virtual shelves.The pact was widely heralded as an example of how young Internet companies like Amazon would soon be tying up with "bricks and mortar" retailers to mutual benefit. Instead, the deal has turned into a case study of how quickly promising alliances can turn into acrimonious business disputes as companies adjust to the shifting realities of the Web.Amazon and Toys "R" Us are facing off in Superior Court in Passaic County, N.J., each claiming it was deceived by the other. Toys "R" Us alleges Amazon violated its promise that Toys would be the sole seller of toys, games and baby products on Amazon's Web site. Amazon claims Toys failed to deliver on its promise to maintain a certain selection of toys."We are at a point in the relationship with Amazon where we have no trust whatsoever in dealing with this organization," testified John Eyler, Toys "R" Us's then-chief executive, in the trial, which began last September. Amazon, for its part, argued in the trial that Toys has a different interpretation of what "exclusivity" means.A ruling is expected shortly. The spat goes to the heart of Amazon's two-pronged strategy. Amazon derived more than 90% of its nearly $7 billion in 2004 revenue from selling books, CDs and other products, shipping them from its own warehouses, analysts say. But analysts figure it gets nearly a third of its profit from money it collects from a host of other retailers it has lined up to establish shops on the Amazon site. The dual strategy aims to make Amazon a one-stop shopping mall for consumers.More than one million merchants, from national retailers to part-time one-man operations, now sell on Amazon's site, up 29% from a year ago. Guess? Inc., Eddie Bauer and J&R Music and Computer World have recently agreed to extend their agreements to keep shops on Amazon. "We've been very successful in re-signing merchants who are adding value to the platform," says Cayce Roy, Amazon's vice president of services.Some retailers suggest that conflicts like the one with Toys "R" Us are inevitable on Amazon's site. Unlike Amazon, other Web shopping malls, such as those of Google Inc. and Yahoo Inc., don't peddle their own wares in competition with the tenants."Before anyone gets into bed with them, they need to think about whether they're a successful business, because Amazon or one of its partners one day will compete with them," says Pinny Gniwisch, executive vice president of online jeweler Ice.com.Ice.com began selling jewelry through Amazon's site in April 2002. In 2004, Mr. Gniwisch says, Ice.com executives noticed that Amazon itself had begun selling pearl necklaces and diamond earrings -- some of Ice.com's best-selling products. Ice.com still generates revenue from its presence on Amazon, but Mr. Gniwisch says it's possible that his company will terminate its relationship some day.Circuit City Stores Inc. ended a pact with Amazon in February 2005, saying in a statement it wanted to focus on its own Web site rather than on "the small amount of sales the relationship with Amazon.com has generated." A Circuit City spokesman declined to comment further. A former Circuit City executive, who was involved in internal discussions about the Amazon partnership, says that, after placing a store on Amazon in 2001, the electronics retailer found itself competing with Amazon's own electronics store on the site.Amazon's Mr. Roy declines to comment on individual merchants. Conflicts and competition on the Web and Amazon's site are no different than in conventional retailing, he says.Under AssaultKeeping merchants on the site is crucial for Amazon. Its retail business is under assault from online rivals, as companies such as Wal-Mart Stores Inc. improve their Web sites. Meanwhile, companies like Google increasingly offer technology for Web merchants. Amazon's profit-growth rate, excluding one-time items, has fallen to 22.7% in the third quarter of 2005 from 52% in the year-ago period, according to Piper Jaffray analyst Safa Rashtchy. Its third-quarter 2005 operating margins, excluding items such as amortization, fell to 6.5% from 7.5% in the second quarter of 2005, he says.

3. The deal between Toys R Us and Amazon.com began in 2000 was supposed to be for ____yearsa. 2b. 5c. 10 Correct d. 15




4. Toys R Us lost its title of #1 toy retailer to which company?a. Targetb. Kmartc. Walmart Correct d. KBToys

Ford Will Shed 28% of Workers In North AmericaBy JEFFREY MCCRACKEN and JOSEPH B. WHITE January 24, 2006; Page A1http://online.wsj.com/article/SB113790673672053002.html

DETROIT -- Ford Motor Co. has made it official: Detroit is ditching its business model of the 1990s, and the cost now totals more than 60,000 jobs at Ford and rival General Motors Corp.Ford yesterday announced plans to close 14 North American factories, including seven assembly plants, and slash up to 34,000 North American jobs over the next six years. About a month ago, GM rolled out plans to cut almost as many jobs by 2010. Both companies will emerge from these retrenchments smaller, slugging it out in a crowded U.S. auto market. Underscoring the gravity of the situation, Ford yesterday also announced a $1.55 billion loss at its North American operations for 2005.The question now is whether the cuts at Detroit's giants are the beginning of a new, more competitive era, or just the beginning of the end. "We cannot play the game the old way," Ford Chairman William Clay Ford Jr. said in an interview.For years, Ford and GM relied on making a lot of money on a few products -- mainly large pickup trucks and sport-utility vehicles -- to cover losses or bolster slim profits on small and midsize cars. The old way, as Mr. Ford said, took the approach that "if you build it, they will buy it." That meant building vehicles even when sales were slow simply to keep factories running and avoid paying wages to idled workers, as required by union contracts."Our product plans for too long were defined by our capacity," Mr. Ford said in a speech to investors, reporters and Ford employees gathered in a Ford design studio yesterday. "From now on, our vehicles will be designed to satisfy the customer, not just fill a factory."For both companies, the transition will be painful and expensive -- but essential. The overall U.S. auto industry remains relatively robust, with sales close to record levels and employment at about one million people, roughly the same as in 1990, according to a recent Congressional Research Service report. The difference between then and now: About a fourth of all U.S. auto jobs are now with foreign-owned manufacturers, the report found.Indeed, the restructurings highlight the divide between Asian and European manufacturers, which are profitable and adding jobs in the U.S., and GM and Ford, which are struggling with the cost burdens piled on over decades during which they had little real competition. Now, as GM and Ford resize for profitability, Japan's Toyota Motor Corp. stands ready to push past GM to become the world's No. 1 auto maker in terms of world-wide vehicle sales, perhaps as soon as this year.Ford estimates that the "Way Forward," as its restructuring is dubbed, will cost $470 million this year as it buys out worker contracts and writes off closed plants. Ford Chief Financial Officer Don LeClair said the company could incur $500 million in additional costs this year for other buyouts, including workers at auto-parts plants that were part of Ford's former Visteon Corp. unit.Costs will also rise as Ford adds more workers to the JOBS Bank -- a program negotiated with the United Auto Workers union under which workers receive full pay and benefits if their jobs are eliminated. Ford has about 1,100 workers in its JOBS Bank already, and the company estimates that each UAW member in the JOBS Bank costs it about $130,000.Of the 14 plants that Ford said it will close by 2012, five were named and slated to be closed soon: vehicle-assembly plants in St. Louis, Atlanta, and Wixom, Mich.; an engine-parts plant in Windsor, Ontario; and a transmission plant in Batavia, Ohio. In addition, a Ford assembly plant in St. Thomas, Ontario, will lose one shift. Ford plans to close two more assembly plants by the end of the year, but will build one "new, low-cost" manufacturing site in North America. It didn't say where or when.Ford said it also will immediately begin cutting 10% of its white-collar work force in North America, or about 4,000 salaried positions, through buyouts, attrition, layoffs and reductions of contract or agency workers. Ford said it will trim its executive ranks by 12% in the first quarter. It will announce specific executive departures Tuesday, including that of Ford sales chief Steve Lyons, according to people close to the company. All told, Ford will reduce its North American work force by nearly 28%.




Announcing its latest financial results yesterday, Ford said the $1.55 billion loss at North American operations last year will widen so much this year that it will overtake the automotive profits Ford expects to earn in Europe, Asia and elsewhere. Overall, net income last year dropped 42% to $2 billion, or $1.04 a share, from $3.5 billion, or $1.73 a share, a year earlier. Ford said fourth-quarter net income rose 19% to $124 million, or eight cents a share, from $104 million, or six cents a share, a year earlier. But in its North American operations, Ford posted a pretax loss of $143 million for the quarter.Ford, like GM, is selling some nonautomotive assets -- like its Hertz car-rental business -- with the proceeds going in part to fund restructuring. Still, Ford said gross cash on hand, at $25.1 billion at the end of 2005, could fall closer to $20 billion by the end of this year. The auto maker said the restructuring will return its North American automotive operations to profitability "no later than 2008."Ford's efforts to shrink and regain profitability in North America mirror those of crosstown rival GM, which is expected to report a huge loss when it announces fourth-quarter results later this week. Late last year, GM announced plans to eliminate about 30,000 jobs and close nine plants.If Ford and GM can cut capacity to match demand, while also making their factories and their labor contracts more flexible to meet changing consumer tastes, they could ultimately be able to charge more for their vehicles. Both auto makers have been hurt in recent years by their reliance on profit-eating consumer incentives such as no-interest financing. Ford's restructuring will reduce its current vehicle-making capacity of 4.55 million units in North America to about 3.35 million by 2008, or nearly in line with the 3.3 million vehicles it sold in the U.S. and Canada in 2005.Wall Street remains skeptical that the two auto makers can pull it off. Ford's credit ratings sank deeper into junk-bond territory earlier this month, even after Standard & Poor's Corp. and other rating agencies got early glimpses of the restructuring plan. Their shares have also continued to trade lower. In 4 p.m. composite trading on the New York Stock Exchange yesterday, Ford shares were at $8.32, up 42 cents on the day, but down from $13.46 a year ago.A major challenge for both will be restructuring their relationships with the UAW, specifically the JOBS Bank program, which many industry watchers think the auto makers will try to eliminate when the current four-year UAW national agreement expires in September 2007.

5. The typical manufacturing approach at Ford was to_______.a. stop production during slow demandb. build vehicles even when sales were slow c. keep factories running and avoid paying wages to idled workers, as required by union contractsd. Both b & c Correct

6.Ford said it’s restructuring plan will return its North American automotive operations to profitability "no later than _____."a. 2008 Correctb. 2010c. 2012d. 2015

In Patent Disputes, A Scramble to Prove Ideas Are Old HatBy ANNE MARIE SQUEO January 25, 2006; Page A1http://online.wsj.com/article/SB113815877559155594.html

Research in Motion Ltd., facing the threat that its popular BlackBerry service would be shut down in the U.S. over a patent dispute, got a tip early last year from a high-tech industry official: Check out a library in Norway.At a university in Trondheim, a city about 310 miles from the Arctic Circle, the company found eight Norwegian Telecommunications Administration reports going back to 1986 and 1989. The reports described a wireless-email messaging system similar to that used by BlackBerry.The reports, it turned out, helped RIM fire back at a company waging a patent war against it. The company, NTP Inc., says RIM infringed on patents it holds. RIM argued the Norway reports show NTP's patents weren't entirely original. Although RIM is making progress at the U.S. Patent and Trademark Office, the fight is still mired in court. Patent battles across the country are sending lawyers scrambling for finds like the Norway memos: published evidence that a patent is invalid because the idea was already in the air. The legal term for such documents is "prior art." When it's used successfully to fend off a patent-infringement claim, lawyers sometimes call it "killer art."




A cartoon strip by Rube Goldberg and a 1978 issue of Mad magazine have both successfully been cited as prior art in patent cases. The Patent Office late last year cited the Norwegian reports in preliminary decisions rejecting NTP's patents. "All you need is one reference that was publicly available, and that's sufficient to invalidate a patent," says Dennis Crouch, a Chicago patent attorney.It used to be a lot harder than it is now to find such offbeat references. Up until the mid-1990s, the U.S. Patent and Trademark Office still did much of its patent-examination work manually. Patent examiners would sift through boxes called "shoes" (because they looked like shoe boxes) for old patents and articles from the likes of Popular Science and trade magazines that might undermine the supposed novelty of a patent claim. (Patent claims are the statements that bolster a patent application spelling out how the invention is unique.)Don Kelly, a Virginia consultant who worked for the patent office for 37 years, remembers spending days looking through those shoes, investigating a single patent claim. On one application, he decided that a drawing by Mr. Goldberg, famous for his cartoons depicting complicated ways to perform simple tasks, represented prior art. The patent being sought was for a dog-food dispenser that attached to a dog's collar and dumped food when the dog jerked the chain. In searching for prior art, Mr. Kelly found a cartoon by Mr. Goldberg dubbed "Teeing Up a Golf Ball" that worked on the same premise; it even featured an animal with a collar attached to a chain that helped move the ball toward the tee. The company, whose name Mr. Kelly can't remember, narrowed its patent claims to avoid a rejection, he says.These days, computerized databases and the Internet have made the task a lot easier. There are Web sites devoted solely to finding prior art. Archived materials at university libraries, out-of-print textbooks and international patent filings all are now easily accessible, opening up a world of possibility to those trying to fend off patent-infringement suits.The Norway find isn't the first time David Long, RIM's patent attorney at Washington-based Howrey LLP, has hit upon potential killer art. In 2000, Mr. Long was representing the National Retail Federation and International Mass Retail Association in a case involving infringement claims by the estate of an inventor named Jerome Lemelson. The estate alleged that companies selling and using bar-code technology were infringing on patents Mr. Lemelson had obtained and updated between the mid-1950s and 1990s. Mr. Long's client countered by seeking to prove "that the bar code has been part of Americana for years," he says. In other words, the technology has been widely available for so long it's too late now to cite a problem with it.Mr. Long recalled from his childhood an issue of Mad magazine with a big black bar code on the cover denouncing the technology. "But I didn't preserve it, because I didn't know I'd need it for litigation someday," jokes Mr. Long.Thanks to eBay, the online-auction site, Mr. Long found a copy of the April 1978 issue and included the reference in an appeals-court filing for his client. A federal judge last year threw out the estate's claims and an appeals court upheld that decision, citing the bar code's widespread acceptance and years of delay by Mr. Lemelson in seeking redress for any patent infringement.Those seeking patents are required to search for prior art and bring it to the attention of government examiners when filing applications. Likewise, the patent office also looks for prior art in deciding whether to grant a patent. But because of a heavy backlog, examiners usually don't spend more than 20 hours per filing, so it isn't likely that they will turn up truly obscure examples.Thorough searches like the one in Research in Motion's case tend to be done only in high-stakes court cases where major money is on the line. The hunt for art in those situations helped spawn a Web-based service in 2000 called BountyQuest. Subscribers to the service would post a patent on the site and offer a $10,000 reward for anyone who found published materials debunking it. The site, now defunct, was partially funded by Amazon.com founder Jeff Bezos, who at the time was trying to keep Barnes & Noble's Web site from using one-click technology that Mr. Bezos argued violated Amazon's patent.Though that case was settled out of court for undisclosed terms, Charles Cella, a Boston patent attorney and the former chief executive of BountyQuest, says they did turn up some prior art that could have proved useful in that case. For example, one submission was a 1980s software program mailed to customers by the Bank of Montreal that allowed people to re-order personal checks with a single click. "As far as we know, that's the first evidence of one-click shopping," says Mr. Cella.In the end, though, the company couldn't make enough money and shut down its service in late 2002.Companies fighting patent suits often get help from others in the industry, sometimes anonymously. In RIM's case, they know who their tipster is, but have declined to name the person beyond saying it's an industry official. But the suggestion that RIM search through the Norwegian library has turned out to be a potential lifesaver for the company. The Norwegian reports were issued at least two years before NTP's earliest patent was filed, and the patent office already has cited the documents in preliminary decisions invalidating at least four of the five NTP patents involved in the case. It could take another year for the patent office to finalize its decision.



Still, the lawsuit is moving ahead much more quickly, with a federal judge in Virginia already ruling against RIM and threatening to shut down BlackBerry service in the U.S. as early as next month. While it might be too late for the judge to consider the Norwegian reports in his decision, they almost certainly will play a role in any appeals by RIM.

7. The legal term for Published documents serving as evidence that a patent is invalid because the idea was already in the making is ______.a. “shoe art”b. “Mad art”c. “bar code”d. "prior art" Correct

8. According to Dennis Crouch, a Chicago patent attorney sometimes all you need is ___ reference(s) that was publicly available to invalidate a patent.a. 1 Correct b. 3c. 10d. 15

As It Adapts to Information Age, Lockheed Fumbles Key ProjectBy JONATHAN KARP January 26, 2006; Page A1http://online.wsj.com/article/SB113824558144256737.html

BETHESDA, Md. -- In 2004, Lockheed Martin Corp. won an Army spy-plane contract that broke with the past. Lockheed, the maker of such legendary surveillance planes as the U-2, wouldn't actually build the new model. Instead it would serve as the "lead integrator" -- stuffing somebody else's hardware with high-tech eavesdropping gear.The spy plane was supposed to symbolize Lockheed's skill at harnessing information-age technology for the battlefield, a big goal at the Pentagon these days. But Lockheed engineers proved unable to load the airframe they were buying from Brazil with the equipment the Army wanted. Earlier this month, the Army scrapped Lockheed's contract.The debacle is a setback for Chief Executive Robert Stevens and his young "integrated solutions" division, which he has put at the center of Lockheed's effort to recast itself for a new era. It's also a signal for the entire defense industry that de-emphasizing old-style hardware in favor of software and systems management isn't a sure path to success. The speed with which Lockheed's new spy plane crashed indicates how little margin there is for error as the Pentagon comes under pressure to pare weapons spending because of Iraq war costs and the rising federal deficit.The Army, which sent mixed signals about what it wanted in the spy plane, shares some of the blame for the contract's demise, and Lockheed wasn't formally cited for performance shortfalls. In an interview while Lockheed was still scrambling to save the spy plane, Mr. Stevens said he was "personally disappointed" about the design problems but called them a reminder of the risks in projects that "push the state of the art."Lockheed, the biggest U.S. defense contractor, isn't alone in trying to transform itself from manufacturer to integrator. Companies that used to boast about their planes, ships and tanks now talk about operating systems and communications networks. The shift reflects the fact that across all technology markets, the biggest profits often lie in designing software and making products work together. Meanwhile manufacturing hardware is becoming a lower-margin business.Boeing Co. won a contract as lead integrator for the Army's program to modernize its ground forces, whose ultimate cost may top $150 billion. The Chicago plane maker will develop the software blueprint for the program, but it isn't making any of the 18 new vehicles. General Dynamics Corp., best known for its ships and tanks, is designing a battlefield communications network to keep moving troops linked to satellites.Mr. Stevens has moved aggressively to seize opportunities in what he calls the "evolution from the Industrial Age to the Information Age." Besides the spy plane, Lockheed has other high-profile integration projects where the company acts as chief architect to make software, electronics and other systems work together with hardware. Though not a helicopter maker, Lockheed won an upset victory last year to develop the next Marine One presidential chopper fleet by teaming with a foreign helicopter maker, Italian-owned AgustaWestland. Lockheed




also gained a share of a Navy program for small, stealthy warships, though it owns no shipyard. The company is even building a digital database for the National Archives.Mr. Stevens hopes the growth will make up for a possible slowdown in Lockheed's traditional mainstay of plane manufacturing. Budget challenges could curtail two huge programs led by Lockheed: the Joint Strike Fighter, which carries an estimated lifetime price tag of $240 billion, and the F-22 supersonic stealth fighter, which was officially deployed this month. Space, another Lockheed mainstay, could also face pressure as military-space programs undergo restructuring.

9. The biggest U.S. defense contractor is _______.a. Boeingb. General Dynamicsc. Lockheed Correct d. AgustaWestland

10. Many U.S. defense contractor’s, are trying to transform from manufacturers to ______.a. Stock holding firmsb. integrators Correct c. assemblersd. solo project managers

Growing Role for Lobbyists: Raising Funds for LawmakersBy BRODY MULLINS January 27, 2006; Page A1http://online.wsj.com/article/SB113833211218157895.html

WASHINGTON -- Nearly three years ago, Gregg Hartley left his job as a top aide to Republican Rep. Roy Blunt of Missouri to become a lobbyist. Mr. Hartley began helping companies like BellSouth Corp., Wal-Mart Stores Inc. and Viacom Inc. get audiences with Mr. Blunt and other top House Republicans and win some important legislative battles.At the same time, Mr. Hartley was helping his old Capitol Hill boss raise campaign money and offering him political advice. Mr. Hartley is now assisting Mr. Blunt in his bid to succeed Rep. Tom DeLay as House majority leader. For the last three weeks, the lobbyist has offered strategic advice during regular visits to Mr. Blunt's office in the U.S. Capitol, according to people familiar with the meetings.Mr. Hartley's dual roles highlight a practice that is becoming more common in Washington: Lobbyists are serving as principal fund-raisers for lawmakers they're trying to sway. Bruce Gates, the top political strategist for Mr. Blunt's main rival to become Majority Leader, Rep. John Boehner of Ohio, also is a lobbyist for private clients. William Oldaker, a lobbyist with numerous health-care clients, oversees fund raising for two dozen Democratic lawmakers, including Senate Minority Leader Harry Reid of Nevada and Sen. Ted Kennedy of Massachusetts.The Justice Department public-corruption and bribery case against lobbyist Jack Abramoff and a half-dozen members of Congress has refocused attention on the financial ties between lawmakers and lobbyists. While Mr. Abramoff's lobbying activities crossed the line into illegality, the practice of lobbyists raising large amounts of money for lawmakers is both legal and commonplace in Washington today.Federal Election Commission records show that 71 lawmakers now list lobbyists as treasurers of their re-election or political action committees. In 1998, the number was just 15, according to a review of FEC reports by the Center for Public Integrity. Lawmakers attribute the change to the sharply rising costs of running campaigns.In the long-running debate about whether lobbying money corrupts politics, Mr. Hartley's relationship with Mr. Blunt shows how deeply the financial ties run between Capitol Hill and the lobbyists on K Street. Advocates of change argue that lawmakers who rely on lobbyists become unduly beholden to them, and thus more willing to help their clients."By putting a lobbyist in charge of your political operations, you are conflicted from the start," argues Alex Knott of the nonpartisan Center for Public Integrity, which favors reducing the role of money in politics.A spokeswoman for Mr. Blunt says there's nothing wrong with the congressman's close relationship with the lobbyist. In the leadership race, says his spokeswoman, Jessica Boulanger, the only involvement of Mr. Hartley "has been in the capacity of an old friend." Mr. Hartley hasn't called other members of Congress on Mr. Blunt's behalf, she notes. Mr. Blunt declines to comment. Mr. Hartley declines to discuss his fund-raising activities.




11. Many lobbyists are serving as principal _____ for lawmakers they're trying to sway.a. advisorsb. cheer leadersc. fund-raisers Correct d. critics

12. Under federal election rules, lawmakers cannot donate more than _____ per election cycle from their own re-election coffers to the campaign of any colleague.a. $200b. $420c. $2,200d. $4,200 Correct

Questions 13 – 17 from Marketplace

'Way Forward' Requires Culture Shift at FordBy JEFFREY MCCRACKEN January 23, 2006; Page B1http://online.wsj.com/article/SB113797951796853248.html

DEARBORN, Mich. – At a meeting in early October at Ford Motor Co.'s big design-center showroom here, an employee asked Mark Fields, then fresh in his job as head of the company's North and South American auto operations, if workers should be worried about their pensions."Yes, yes, you should," Mr. Fields says he replied. "That's a great motivator."For Ford workers, the idea that the family-controlled company, still commonly called "Ford's" by longtime employees, might not pay promised pensions is a shocking concept. "I decided this was a chance to get people moving; to get away from the 'this too shall pass' mindset we've had," Mr. Fields says.As Ford this morning rolls out a sweeping restructuring plan, much attention will be paid to the plants that will be shuttered and the jobs that will be cut. But for Mr. Fields, the 44-year-old executive drafted by company Chairman and Chief Executive Officer William Clay Ford Jr. to lead the company's second big overhaul in four years, the central challenge at Ford is fixing the company's culture, which past and present employees describe with words like "toxic," "cautious," "cliquish," and "hierarchical."Mr. Fields is in charge of a spiritual re-think within the company, dubbed the "Way Forward," as Ford tries to figure out what it stands for and who its customers are and aren't. A priority will be to protect the company's critical base of truck buyers, while wooing more female customers with new passenger cars and crossover wagons. Ford has even given names to groups of consumers who are now uninterested in its vehicles, such as "Maxed Out," people who attend the hottest concerts and spend more time with friends than family, or "Homesteads," who vacation at home and watch a lot of TV.Mr. Fields, a New Jersey native with a master's in business from Harvard University, brings an East Coast edge to this quintessentially Midwestern company. A veteran of a successful turnaround effort at Ford's Japanese affiliate Mazda Motor Corp. and an unfinished one at Ford's European operations, Mr. Fields says Ford's previous North American restructuring plan, launched in 2002, "erred on the side of being a bit too polite."The 2002 plan failed to deliver on promises that Ford would generate by now annual pretax profits of $7 billion. Through the first nine months of last year, Ford's pretax profit was $1.9 billion. Among the reasons why, says Mr. Fields: It was based on predictions of lower gas prices and higher prices for new vehicles. But gas prices soared, and vehicle prices fell under the pressure of the U.S. industry's relentless discount wars.Ford also underestimated Asian competitors like Toyota Motor Corp. and Hyundai Motor Co., and didn't anticipate that General Motors Corp. would use expensive incentives like zero-percent financing or employee-discount plans as aggressively as it did.Mr. Fields faces considerable skepticism among investors and analysts. Debt-rating agencies Standard & Poor's Corp. and Moody's Investors Service Inc. recently downgraded Ford's debt without waiting for formal disclosure of Mr. Fields's restructuring plan. Some analysts have suggested Ford could ultimately be forced to seek bankruptcy-court protection, particularly if GM takes that route to shed its crushing health and pension obligations. GM and Ford executives say bankruptcy court isn't in their plans. But worries that Ford management isn't up to the challenges it faces have weighed down the company's stock in recent months.




Mr. Ford, who is the great-grandson of company founder Henry Ford, didn't respond to email queries for this article. As chairman of the company, Mr. Ford is effectively the chief steward of one of the world's great industrial fortunes.Mr. Fields says he is now trying to rouse and create a sense of urgency in a corporate culture that has withstood repeated efforts at overhauls, ranging from former CEO Alex Trotman's sweeping "Ford 2000" globalization effort, to former CEO Jacques Nasser's dot-com era campaign to remake Ford into a diversified consumer-products company with a strong Internet component.Ford management culture remains very much the top down, militaristic institution created in the 1950s when a team of World War II veterans, including future Secretary of Defense Robert McNamara, was hired to run Ford and earned the nickname the "Whiz Kids," company executives say. For most executive meetings, there is a "pre-meeting" to avoid surprises. The company's U.S. vehicles, with a few exceptions, reflect a play-it-safe approach that worked for Ford in the past but has more recently caused Ford to drop off the shopping lists of large groups of consumers.Mr. Fields, who says his goal is to create "a sense of crisis, but not panic," among Ford employees, believes this cultural shakeup will work where others failed because fear is a good motivator. He is fond of using the phrase "change or die" in meetings.

13. As a part of understanding its customer base, Ford has even given names to groups of consumers who are now uninterested in its vehicles, such as : a. “Whiz Kids” b. “Way Forward”c. “ Homesteads” Correctd. “Toxic Cliques”

Blacks vs. Latinos at WorkBy MIRIAM JORDANJanuary 24, 2006; Page B1http://online.wsj.com/article/SB113806810629254273.html

LOS ANGELES -- Donnie Gaut, an African-American with 12 years of warehouse experience, applied for a job in 2002 at Farmer John Meats, a large Los Angeles pork processor. When he was turned down for the position, a job stocking goods that paid $7 an hour, Mr. Gaut decided the problem wasn't his résumé -- it was his race. He filed a complaint with the U.S. Equal Employment Opportunity Commission, the federal agency that enforces antidiscrimination laws in the workplace.Last October, the EEOC secured a $110,000 settlement from the company to be shared by Mr. Gaut and six other black applicants who were rejected for production jobs at Farmer John based on their race, according to the agency.The EEOC says it found that the pork packer, owned by Clougherty Packing Co., had been almost exclusively hiring Hispanics for warehouse, packing and production jobs. Clougherty was acquired by Hormel Foods Corp. in 2004.In response to questions, Clougherty Packing said in a statement that settlement of the case "in no way suggests the company did anything wrong." It said the packer wanted to avoid "what would have been costly and protracted litigation."A new wave of race-discrimination cases is appearing in the workplace: African-Americans who feel that they are being passed over for Hispanics.This kind of case marks a shift from years past, when blacks were likely to seek legal action against employers who showed preferential treatment toward whites. The cases highlight mounting tension between Hispanics and blacks as they compete for resources and job opportunities.Recently, the federal agency announced it also secured a $180,000 settlement from Zenith National Insurance Corp., a national workers-compensation specialist, to be divided among 10 blacks who applied for a mailroom job at its headquarters in Woodland Hills, Calif. The job was offered to a Latino man with no mailroom experience, according to the EEOC.Henry Shields, an attorney for Zenith, said the insurance company had adopted EEOC recommendations for improving its hiring practices "as a means of furthering its goals of equal opportunity." Mr. Shields declined to comment on the specifics of the case."There used to be a reluctance to bring cases against other minorities," says Anna Park, the EEOC regional attorney who oversaw both the Zenith and the Farmer John cases. "It's no longer a white-black paradigm. This is a new trend."




The situation is exacerbated by strong stereotypes that have set in among some employers about the pluses and minuses of hiring from each pool of minority workers. "There is a perception that Latinos closer to the immigrant experience might work harder than black persons," says Joe Hicks, who is African-American and vice president of Community Advocates, a nonpartisan group that aims to advance interracial dialogue.John Trasvina, vice president for law and policy at the Mexican-American Defense League, an advocacy group that works on civil rights issues, says that some Latinos may be viewed as "preferred applicants." He believes there is a feeling among some employers that Latinos can be exploited because, in their view, they tend to be immigrants who are more likely to accept low wages and be less aware of their rights than blacks. Says Mr. Trasvina: "Employers sometimes pit one group of employees against the other."California -- where Hispanic immigrants have been moving into black working-class pockets of the state's cities for decades -- is at the leading edge of this growing trend. As Latinos migrate eastward, to such states as Louisiana, Georgia and North Carolina, the competition with blacks for blue-collar jobs is likely to grow.Hispanics have become the second-largest population group in the U.S. -- ahead of African-Americans but behind Caucasians -- thanks to the influx of immigrants from Latin America. In some cities, like Los Angeles, collaboration between African-American and Latino leaders is on the rise when it is mutually beneficial.But as Latinos grab the attention of marketers and gain political clout, many African-Americans feel that their influence is waning, and that the decline is disproportionate and unfair.Tension has spilled into the workplace. In New Orleans, city officials have raised concerns that employers are hiring Latino immigrants for low wages to do the hurricane cleanup instead of tapping the native-born, mainly black, work force. Last October, New Orleans Mayor Ray Nagin asked local business leaders: "How do I ensure that New Orleans is not overrun by Mexican workers?"Workers from all backgrounds -- whites, blacks, Asians and others -- use networks within their ethnic groups to find employment. Hispanic workers often bring in other family members or people from their neighborhoods or home regions to join them on a job. In sectors like construction, this can be an aid to employers who can tap their workers to help them find a fresh supply of laborers.The flip side is that employers can become vulnerable to lawsuits if it's determined that they have been shutting out qualified applicants based on their race.In the Zenith National Insurance case, Charles Dennis, who applied for a mailroom job he spotted in a newspaper's classified section in 2001, says his interview with a Hispanic manager "went great." He first became suspicious that something wasn't right when, in a follow-up call, the company told him the $10-an-hour position was put on hold.Then, a few weeks later, Mr. Dennis -- who had worked in another large insurer's mailroom -- got a call from an employment agency telling him they had "the perfect job" for him, he recalls. It turned out to be the same position. He says the agency then called back and told him that Zenith "just didn't want to go with me."Mr. Dennis took his case to the EEOC, which began to investigate. It found that Mr. Dennis and several other black applicants with relevant experience were passed over in favor of a Latino candidate, whose previous work amounted to mainly "swabbing decks on aircraft carriers" in the Navy, according to Ms. Park, the EEOC attorney.In the case of Farmer John Meats, the EEOC said that it found that the employer had an all-Hispanic hiring staff and recruited new hires by word of mouth.One of the Latinos hired to work in Farmer John Meats instead of the black candidates had been a gardener, according to Ms. Park. Both discrimination lawsuits were brought against the employers under Title VII of the Civil Rights Act of 1964. The message for employers is that "all individuals deserve to compete for jobs on a level playing field," she says.

14. A new wave of race-discrimination cases is appearing in the workplace: African-Americans who feel that they are being passed over for_______ a. Chineseb. Latinosc. Hispanics d. Both b & c Correct

Pixar Executive Played Key Role In Disney DealBy NICK WINGFIELD and MERISSA MARR January 25, 2006; Page B1http://online.wsj.com/article/SB113814919560755362.html




During their decade-plus partnership, relations between Pixar Animation Studios Chief Executive Officer Steven P. Jobs and Walt Disney Co.'s former chief, Michael Eisner, were as topsy-turvy as a roller-coaster ride at Disneyland. But even as animosity between the two men came close to destroying one of the most lucrative relationships in the film industry, a key Pixar executive -- John Lasseter -- held an emotional connection to Disney.In the $7.4 billion agreement by Disney to acquire Pixar announced yesterday, Mr. Lasseter -- Pixar's top creative executive -- played an important role and now stands to assume an even more influential position: chief creative officer of Disney's animation studios and principal creative adviser of Walt Disney Imagineering, where he will work on designing new theme-park attractions.While Mr. Jobs, with just over 50% of Pixar's stock, ultimately made the decision to sell the company, Mr. Lasseter's blessing of the deal was crucial to making it happen, according to people familiar with the matter.How this will play with the Disney people is anybody's guess at this early stage. This much is certain: A former Disney employee himself -- both as a young artist and as a theme-park employee -- Mr. Lasseter never lost his love for all things Disney, or his desire to reunite with the company that played such a large role in his life."This deal would not happen if John didn't want it to happen," says former Disney studio chief Peter Schneider, part of the team that negotiated Disney's original deal with Pixar to distribute and co-finance its films.Mr. Jobs said the support of Mr. Lasseter and Pixar's president and co-founder, Edwin Catmull, was key to making the deal work. "This wasn't my decision alone -- this was really Ed and John and me," Mr. Jobs said in an interview. "If any of the three of us hadn't wanted to do this, we wouldn't have done it."

15. In the $7.4 billion agreement by Disney to acquire Pixar, Mr. John Lasseter -- Pixar's top creative executive -- played an important role and now stands to assume an even more influential position as ______. a. chief creative officer of Disney's animation studiosb. principal creative adviser of Walt Disney Imagineeringc. President of the Mouseketeersd. Both a & b Correct

Detroit Stuck in NeutralBy KAREN LUNDEGAARD January 26, 2006; Page B1http://online.wsj.com/article/SB113824197110156627.html

At the recent auto show in Detroit, General Motors Corp. executives surrounded themselves with cute kids as the company unveiled its first major hybrid vehicles. DaimlerChrysler AG used dancers with willowy scarves to introduce what it's calling the "cleanest diesel on the planet." And Ford Motor Co. used its stage at the Washington auto show this week to unveil an Escape sport-utility hybrid concept that's capable of running on up to 85% ethanol, a corn-based fuel difficult to find at filling stations in most of the country.But for all the big talk, most of these vehicles won't be on the market for months, if ever, leaving Detroit's auto makers stuck with strategies that depend heavily on gas-thirsty sport-utility vehicles and pickup trucks just as prices at the pump are climbing again. For the near-term, Detroit risks being caught flat-footed, unable to quickly change production plans scheduled years ago if consumers once again turn their backs on low-mileage models."You sort of live with what you've got," says longtime industry analyst David Cole, chairman of the Center for Automotive Research. The companies will try to create "a little marketing pizazz, but you're kind of stuck with living in the old world for a long time."The recent volatility in the oil market highlights a big risk for GM and Ford as they try to restructure and regain profitability in North America. Though crude prices eased a bit this week, they are close to last summer's record levels and gasoline has jumped an average of 18 cents a gallon since early December.GM's most important and highest-volume product launch this year is its new generation of large, V-8 powered sport-utility vehicles. The decision to make the new Chevrolet Tahoe and Cadillac Escalade SUVs the showcase models for 2006 was made several years ago, when gas was under $2 a gallon and these vehicles were among GM's highest-profit, hottest-selling offerings.GM used the Detroit show to unveil its first major hybrids, the Saturn Vue Green Line and a hybrid Chevrolet Tahoe. The Vue, will start at about $23,000, just $2,000 more than the conventional-engine version of the small SUV, and will be available this summer. GM is mum on how many it expects to sell. The hybrid Tahoe won't hit showrooms until 2007.When pressed on the topic of fuel efficiency, Ford executives tout their lineup of cars and car-like SUVs, called crossovers, that will be more fuel efficient than a similar-sized SUV based on a pickup-truck chassis.




It does have two hybrids on the market, sister small SUVs, the Ford Escape and Mercury Mariner. But in the case of the Escape, which was available all of last year, hybrids accounted for just 10% of sales. Meanwhile, Ford is trying to resurrect sales of its Explorer SUV, which got a makeover last fall that included improved gas mileage -- just in time for the post-Hurricane Katrina gas-price surge to clobber demand for traditional truck-based SUVs. Explorer sales fell 24% in December compared with the same month in 2004 and were down 29% for all of 2005.Ultimately, domestic auto makers are counting on American consumers not to change their buying habits too much. Americans' need for space and speed will continue to drive sales, say executives, even if they do care about fuel economy.To be sure, all auto makers are dependent on the tried-and-true gas engine. Even Toyota Motor Corp. and Honda Motor Co., which many consumers perceive to be the greenest of the car companies, sell relatively few hybrid vehicles. They've also been criticized for using the hybrid technology to boost horsepower, instead of making the vehicles go farther on a gallon of gas. Other auto makers, though, haven't been as reliant on SUV profits as Detroit.But global unrest means Detroit looks unlikely to get a reprieve from higher oil prices soon. Since Jan. 1, crude-oil prices have risen as high as $68.35 a barrel, close to the record close of $70.85 a barrel Aug. 30, just after Hurricane Katrina damaged Gulf of Mexico oil facilities. Among the factors unsettling energy markets: militants in Nigeria threatening to broaden attacks on foreign oil operations, and uncertainty over Iran.Traders appeared at least for now to expect high prices for the foreseeable future. On the New York Mercantile Exchange, oil futures were trading at $67.44 a barrel in intraday trading through December 2007. Futures as far out as December 2012 traded at $61.87.16. Ford Explorer sales were _______ for all of 2005.a. down 29% Correct b. up 29%c. down 9%d. up 9%

Tobacco Firms Trace Fakes To North KoreaBy GORDON FAIRCLOUGH January 27, 2006; Page B1http://online.wsj.com/article/SB113830654895857392.htmlIn Philip Morris USA's ongoing war against counterfeiters, it was a fairly simple operation: Buy a pack of Marlboros from a corner bodega on Manhattan's Upper East Side to follow up on a tip about contraband cigarettes.But it took until 2005, the year after the pack was purchased, company officials say, before they could trace the artfully counterfeited smokes to one of the world's most isolated countries, North Korea.The communist nation has become a leading source of counterfeit cigarettes -- with the capacity to churn out more than two billion packs a year, tobacco companies say. Philip Morris, a unit of New York-based Altria Group Inc., says over the past several years it has discovered North Korean-made knockoffs of its Marlboro brand in more than 1,300 places, from New York to Oklahoma City, Seattle and Los Angeles.Big cigarette companies, facing billions of dollars in lost revenue, have hired former intelligence and law-enforcement officials, recruited informants inside Asian crime syndicates and even sent agents into North Korea in an effort to stem what they say is a flood of illicit exports.Andre Reiman, a senior vice president of Philip Morris International whose oversees antismuggling programs, said his company is "very concerned to find organized counterfeiting of our products in the Democratic People's Republic of Korea."The scale of the distribution network -- believed to include fleets of ships owned by global organized-crime groups -- has the U.S. government taking a more active role after years of industry pleas to crack down on counterfeit cigarettes.U.S. authorities seized more than a billion fake smokes, many allegedly from North Korea, in California last year as part of an undercover operation targeting Asian smugglers. Millions more packs of bogus Marlboros, Mild Sevens and other cigarettes made in North Korea have been confiscated in Taiwan, the Philippines, Vietnam and Belize.In a little-publicized 2004 case, three Asian men pleaded guilty to conspiring to smuggle counterfeit goods and currency, in connection with a scheme to send fake cigarettes, forged $100 bills and knockoff Cialis, an erectile-dysfunction drug made by Lilly ICOS LLC, into the U.S. The cigarettes, a U.S. official says, were made in North Korea.The case started when an undercover investigator working for Philip Morris posed as a buyer looking for counterfeit cigarettes, according to papers filed by the government in federal court in Washington last year. The men took the investigator to a cigarette-making plant on the east coast of North Korea. They also offered to sell the investigator




forged U.S. currency, prompting Philip Morris to alert the U.S. Secret Service. In all, the men accepted payments of more than $400,000 for counterfeit cigarettes and currency, prosecutors say.Supplying counterfeit cigarettes has cemented North Korea's ties to crime organizations, giving the country access to a vast smuggling network that could allow it to move almost anything -- from forged U.S. banknotes to weapons -- in or out of the country, U.S. officials say."Much more dangerous things than cigarettes can flow along these same routes," warns a senior Bush administration official. "The North Koreans could import technology and export strategic goods and weapons. It's a big deal."North Korea has long been accused of counterfeiting U.S. currency. In a press conference yesterday, President Bush said the U.S. was moving aggressively to halt Pyongyang's forgers. "When somebody's counterfeiting our money, we want to stop them from doing that," Mr. Bush said.Washington's efforts, however, have drawn criticism from other capitals, which worry that U.S. moves will keep North Korea from rejoining multilateral talks aimed at ending its nuclear-weapons programs.North Korea denies it engages in counterfeiting or other illicit acts. Its official news agency said last month that "such illegal activities are unimaginable in the DPRK."17. In Philip Morris USA's ongoing war against counterfeiters, company officials say they could trace the artfully counterfeited smokes to one of the world's most isolated countries _______.a. Chadb. Timbucktooc. Norwayd. North Korea Correct

Questions 18 – 23 from Money & Investing

The Have-MoresBy JUSTIN LAHARTJanuary 23, 2006; Page C1http://online.wsj.com/article/SB113797780365453213.html

When the rich go shopping, they take their AmEx cards. American Express Co. has been doing very well as a result.In recent years, a great division has emerged among retailers, depending on what sorts of shoppers they cater to. Discounters, like Wal-Mart, have seen sales grow at a lowly rate, while high-end stores such as Tiffany and Neiman Marcus have seen big sales gains.The reason? The job market was slow to recover after the last recession, and when it did, earnings for most Americans increased only gradually. The exception was the top tier of earners, who have seen big pay gains and bonuses. The well-heeled also have been among the biggest beneficiaries of booming housing prices -- the richer you are, the more likely you are to own a home (or several of them). Finally, because poorer consumers have less of a cash cushion to draw on, rising energy and health-care costs make a deeper cut into their spending on other items.Richer Americans' higher propensity to spend should show up in today's results from American Express, whose cardholders tend to be better off.Lehman Brothers analyst Bruce Harting has found that historically, U.S. credit-card transaction volumes for American Express and Visa USA Inc. grew at a similar rate. But starting in late 2002 -- around the time that the difference in spending habits between rich and poorer shoppers began to be marked -- American Express's volumes began to grow twice that of Visa's.Visa reported that the overall sales volume on Visa-branded cards during the Oct. 31 to Jan. 1 holiday sales season was 16.1% higher than the year-earlier period. This suggests that American Express, which pulls more than half of its revenue and income from its U.S. credit-card unit, did very well in the fourth quarter.But with signs that the housing market has begun to slow, the year ahead could be more challenging for the company. If well-heeled shoppers are less certain the prices of their homes will continue to rise, they may be less willing to plunk down their AmEx cards.

18. When the rich go shopping, they take their _____ cards.a. AmEx Correct b. Debitc. Goldd. Platinum




Party Tab: Wall Street To Set Limits on GiftsBy SUSANNE CRAIG January 24, 2006; Page C1http://online.wsj.com/article/SB113807475668954458.html

Securities regulators have given a gift to Wall Street, opting not to put a price tag on what constitutes excessive client entertainment.Instead, the National Association of Securities Dealers and the New York Stock Exchange will ask Wall Street firms to set their own limits, which will be reviewed by regulators. The proposal follows a series of regulatory investigations last year over alleged entertainment-related infractions, and a subsequent debate on exactly what constitutes over-the-top entertainment.There is a lot more detail now around our expectations," said Mary Schapiro, the NASD's incoming president. "This lays out clearly that entertainment should not interfere with duty to the customer."For more than a year, regulators at the NASD and Securities and Exchange Commission have been looking at whether Wall Street firms have been lavishing excessive gifts and entertainment on mutual-fund companies and other money managers in an attempt to woo trading business.At the heart of the issue: Mutual funds are supposed to send their stock trades to whichever firm offers them -- and their customers -- the best price and service, largely because commissions on those trades are paid from shareholders' money. They shouldn't be swayed by lavish gifts or parties.The NASD bars the giving of gifts valued at more than $100 and allows "ordinary and usual business entertainment" so long as it is "neither so frequent nor so extensive as to raise any question of propriety." Regulators don't plan to tinker with the gift-giving rule but want firms to set dollar limits, or establish guidelines for expenses that would require advance written approval. Among the other changes, firms will be allowed to set different standards for educational and charitable events.The NASD is seeking comment on its proposed change regarding entertainment rules. The NYSE is finalizing its draft. Any changes will require Securities and Exchange Commission approval.The regulatory probe into gifts and entertainment, which is continuing, uncovered a number of instances of over-the-top entertaining. In one high-profile case, regulators investigated a bachelor party for a Fidelity Investments trader, paid for in part by Wall Street brokerage firms competing for the big mutual fund company's business. The party included private jet travel, female companionship and rooms at Miami's Delano Hotel, all paid for by Wall Street firms. It also featured tossing of dwarf Danny Black, who declined to comment on who paid for his services. Some experts believe new regulatory limits are needed to curb abuses. Jill Fisch, a professor at Fordham University said firms have clearly "fallen down on the job," when it comes to policing their staff on client entertainment."There is always a problem where firms were supposed to be monitoring behavior but weren't or they were and thought behavior that clearly isn't OK was OK. Nothing in this proposal provides a standard," she said.Regulators considered coming up with dollar figures that would define what is excessive, said Ms. Schapiro and Grace B. Vogel, the NYSE's executive vice president of member firm regulation -- but brokerages are simply too diverse, and what is excessive in one city may be fine in another. "What is lavish in Memphis may not buy you a decent dinner in NYC," said Ms. Vogel.The decision not to place firm dollar limits on spending followed some intense lobbying from groups as diverse as the Professional Golf Association to the Securities Industry Association, Wall Street's lobby group, which met with officials from NASD and NYSE numerous times over the past year to make its case.Ira Hammerman, the general counsel of the Securities Industry Association, said while the changes aren't official, they are "so far consistent" with the SIA's discussions with the two regulators. "We are pleased with the principled approach that leaves it up to the firms to set guidelines," said Mr. Hammerman, the association's general counsel. "It recognizes there are different models."Mr. Black, the dwarf who attended the Fidelity bachelor party in 2004, is hopeful he will still find employment at Wall Street parties."These are guys who know how to play with numbers and work the rules," he said. "Or maybe it will be acceptable to just put a $3,000 cap on what you can hire a dwarf for."

19. According to Securities regulators excessive client entertainment expense is ______.a. anything over 100 dollars per personb. anything over 300 dollars per personc. anything over 3000 dollars per persond. best determined by individual firms Correct




Union-Made, Union-Owned? A Plan for GMBy JESSE EISINGER January 25, 2006; Page C1http://online.wsj.com/article/SB113815442445055498.html

In the sad decline of the American automotive industry, we have reached the serial restructuring stage.Every few months Wall Street flirts with hope as Ford Motor or General Motors presents a new plan to cut workers, close plants and rejigger benefits. But the moment is fleeting, as investors revert back to pessimism.The plant closings and job cuts are unlikely to save the companies, particularly GM, which is in more serious straits than Ford. The two Detroit mainstays could solve their problems by selling better cars, of course. But winning back customers will take years, a luxury GM doesn't have.What's needed is a radical solution that breaks the restructuring cycle and saves GM. The United Auto Workers union says a national health-care plan would solve a big chunk of the auto industry's cost problems. But such a solution is highly unlikely in the current political climate.So here's another idea: Transform GM's workers and retirees into owners in exchange for benefit givebacks.Rod Lache, an analyst for Deutsche Bank, has been mulling over such a plan to save GM. Here's how it would work:GM had a pension liability of about $90 billion at the end of 2004. Mr. Lache estimates GM has health-care liabilities of about $65 billion.That's $155 billion in liabilities. The vast amount, but not all, is attributable to hourly, unionized workers.Now let's look at the assets supporting those obligations. The pension plan had assets of almost $90 billion at the end of 2004. GM says that after investment gains of 13% last year, the plan is overfunded by $6 billion. The health-care obligations are underfunded to the tune of $50 billion. (For the purposes of this exercise, we assume simply that the pension fund is adequately funded. When GM reports 2005 year-end results tomorrow, it will be easier to assign more-accurate numbers to all of these.)Mr. Lache proposes to give the money that is socked away for pensions and health care to the auto workers. Then, he proposes that GM transfer GMAC, the financing unit, to the workers. GMAC has about $23 billion in book value. Add that to the existing $15 billion long-term health-care trust, which employees then manage. The pension plan becomes an employee-run retirement plan.OK, that amounts to $128 billion in assets, leaving workers far short of the $155 billion in estimated liabilities. The plan needs a sweetener: Give the workers $20 billion in GM equity. But GM's market value is just $11 billion today. So, how is that possible?After getting out from under the benefit costs, GM would be a nimbler competitor. And it would throw off plenty of cash. Indeed, Mr. Lache estimates that GM would generate a little less than $13 billion in earnings before interest, taxes, depreciation and amortization a year under his plan.The market would give the company a multiple of five times that cash flow, Mr. Lache estimates, for an enterprise value (market capitalization plus gross debt) of about $63 billion. GM would have about $32 billion in debt remaining. There is other cash, but for this exercise, we allocate the cash and other things like the short-term health-care trust to cover restructuring costs. There would be $31 billion of equity value at the newly restructured company.The shareholders sacrifice the potential upside from a restructuring but would avoid a bankruptcy filing. Thus, with GM's market cap growing to $31 billion from $11 billion, they can let the workers have the remaining $20 billion in additional value created by the radical restructuring

20. Rod Lache, an analyst for Deutsche Bank, estimates GM has health-care and pension liabilities of about $__________.a. 31 billionb. 65 billionc. 90 billiond. 155 billion Correct

GM's Struggles Cloud View for Suzuki MotorBy JATHON SAPSFORD January 26, 2006; Page C1http://online.wsj.com/article/SB113824132234556610.html





TOKYO -- The financial turmoil at General Motors Corp. is clouding the outlook for Suzuki Motor Corp., one of Japan's scrappiest car makers.GM holds a 21% stake in Suzuki, which is doing a brisk business making affordable cars for tough but lucrative emerging markets such as India and Eastern Europe. Suzuki has performed well for its shareholders in the past five years, consistently increasing profit and revenue and doubling its stock price since 2001.On the Tokyo Stock Exchange yesterday, Suzuki's shares ended down 1.6% at 2,165 yen ($18.89), giving the company a market value of about $10 billion.Few see that success having anything to do with Suzuki's alliance with GM, the struggling U.S. car maker and the world's largest auto producer. The two companies produce cars together in Canada and cooperate on distribution arrangements, but, beyond that, critics question whether any significant value is created through the affiliation. Moreover, mounting shareholder pressure on GM may force it to unload shares in Suzuki and use the proceeds to shore up its money-losing operations in North America.Jerome York, a lieutenant of big GM shareholder Kirk Kerkorian, fanned the pessimism at the North American International Auto Show in Detroit this month when he called on GM to take more painful measures to restructure. Mr. York grabbed headlines with calls for dividend cuts and less pay for GM executives.Yet what rattled investors was Mr. York's criticism of GM's strategy of forming alliances with car makers throughout the world. GM bailed out of two alliances at a loss, one with Fiat SpA, of Italy, and one with Fuji Heavy Industries Ltd., of Japan, maker of the Subaru brand."We know that Fiat was a $2 billion debacle, and the Fuji Heavy Industries investment resulted in a $750 million write-down," Mr. York said. "But what about the other foreign alliances? Are they making money? Are they generating cash? We don't know because GM doesn't disclose sufficient information to tell."GM is affiliated with Saab and Opel, and it has a 7.9% stake in Japanese truck maker Isuzu Motors Ltd. It also has invested heavily in Korean auto maker Daewoo, now known as GM Daewoo Automotive & Technology Co.By all accounts, the Daewoo deal is a clear success for GM, a venture through which GM develops economical cars that it sells throughout the world. Suzuki also is an investor in the Daewoo alliance, holding an 11% stake in the car maker.Suzuki's tie-up with GM may not have added much value for Suzuki. But Suzuki has done well with its own ventures, and any move now by GM to sell could pull the rug out from under Suzuki's share price, which is hovering near record highs after years of strong performance.Christopher Richter, an automotive analyst at CLSA Asia-Pacific Markets, says GM's 21% stake in Suzuki is valued at about $2 billion, far too big to be absorbed into the market without causing significant downward pressure on Suzuki's stock price. (Mr. Richter doesn't have a position in Suzuki stock, while CLSA seeks business with the companies its analysts cover.)Suzuki itself has little spare cash to buy back any of GM's stake, since it is investing heavily in expanding operations in such markets as India, where it has a venture with Maruti Udyog Ltd.Some industry experts say that, if GM sells Suzuki's shares, one possible buyer of the stake could be Nissan Motor Co. Nissan wants to produce cars in India, and it has an arrangement to sell 55,000 Suzuki-made cars annually in Japan under the Nissan brand. Nissan says it is always looking for "win-win" deals but declined to comment further. Suzuki declined to comment.21. Some industry experts say that, if GM sells Suzuki's shares, one possible buyer of the stake could be a. Subaru Motor Co.b. Nissan Motor Co Correctc. Honda Motor Co.d. Saab Motor Co.

Product PlacementBy JUSTIN LAHART January 27, 2006; Page C1http://online.wsj.com/article/SB113832613491557748.html

Often, the way traders see something is more about how they feel than it is about the thing itself. With the stock market's recovery from Friday's big drop, it seems they're feeling pretty good.The upshot: Even though today's fourth-quarter gross-domestic-product report will likely show the economy was at its weakest in nearly three years, Wall Street may view it kindly.Economists polled by Dow Jones Newswires and CNBC estimate that GDP grew at an annual rate of 2.6% last quarter. The economy hasn't had a below-3% quarter since the first quarter of 2003, when it grew 1.7%.




Much of that weakness comes down to car sales, which fell sharply in October after General Motors and Ford Motor cut back on the incentive and discount programs that buoyed sales in the third quarter. Most economists expect that GDP will rebound in the current quarter, and it's hard to see how that can't help but happen. Even though car sales have started the first quarter on a weak note, they're still looking better than the fourth quarter, when the October plunge pulled down the monthly average.Given those expectations for a rebound, it may be easy for investors to shake off the GDP report even if it is weaker than expected. A weak report might even be welcomed on the view that it might prompt the Federal Reserve to stop raising interest rates sooner.But signs that the housing market is slowing pose a challenge for the economy in the year to come. Besides boosting the economy directly, through residential investment, housing's strength has given many consumers the wherewithal to spend more than their income alone would normally allow. All told, by UBS Securities economist James O'Sullivan's reckoning, the strength in housing has added about a percentage point's worth of annual growth to GDP over the past two years.Wall Streeters have recently become hopeful that improved trade with other countries and increased spending on new equipment and labor by U.S. companies will be enough to take up the slack from housing. But the reasons for this belief -- some good economic reports overseas, a stronger-than-expected orders report in the U.S. yesterday -- seem slim.This scenario really could play out like investors think. But before it does, their belief in it will almost surely be tested.

22. Economists polled by Dow Jones Newswires and CNBC estimate that GDP grew at an annual rate of ______ last quarter.a. 1.6%b. 2.6% Correct c. 3.6%d. 4.6%

When Mom & Dad Are the BankBy DIYA GULLAPALLI January 21, 2006; Page B1http://online.wsj.com/article/SB113781542196652792.htmlNew-home buyers are increasingly turning to mortgage lenders so close to home that they have actually lived with them -- their parents.Mixing family and finance sounds like a recipe for disaster, but as real-estate prices hover near record levels, relatives are ponying up more cash to help their kids get into a new house. Last year, about one in four first-time buyers received a gift from a relative or friend to make a down payment on a home, up from one in five more than a decade ago, according to a National Association of Realtors survey released this week.Along the way, they are finding new ways to maximize the tax and estate-planning advantages. Rather than simply handing over cash, more families are setting up structured, secured loans that mirror bank mortgages, complete with filings at the county clerk's office.The upshot: What once was an informal practice -- a gift or loan of a few thousand dollars here or there, with a promise to pay it back -- is getting trickier.Known as intrafamily mortgages, transactions like these were once the domain of wealthy families who could afford the advisory services necessary to structure the loans. However, that is changing as a small industry of financial advisers and mortgage experts springs up to help parents step in as mortgage bankers for their children.Asheesh Advani, president of CircleLending Inc. in Waltham, Mass., a loan-administration company that cropped up in part to navigate the tax and administrative nitty-gritty involved in transactions like these, reports that 65% of his 1,000 clients have investable assets of $100,000, putting them squarely in the middle class. Matthew Tuttle, a financial planner in Stamford, Conn., says about 10% of his 60 clients, with average household assets of about $1.5 million, have set up intrafamily mortgages recently.Financial advisers at U.S. Trust, Deutsche Bank Private Wealth Management and other private banks can also consult broadly on the benefits of such options. Intrafamily mortgages are "fabulous tools for wealth transfer, but have to be done properly," in terms of taxes and interest payments, says Sally Mulhern, an estate-planning attorney in Portsmouth, N.H.Otherwise, parents could get hit with big gift taxes, and children could miss out on tax-deductible interest.




The main issue with simply handing over a pile of cash to your offspring is that the Internal Revenue Service might frown on the practice. Gifts of more than $12,000, for example, can be subject to gift tax.23. Last year, about _________ first-time buyers received a gift from a relative or friend to make a down payment on a home.a. one in four Correct b. one in fivec. one in tend. one in twenty

Questions 24 – 26 from Personal Journal, Section D

The Next Big Thing In SearchingBy JESSICA E. VASCELLARO January 24, 2006; Page D1http://online.wsj.com/article/SB113806759772854262.html

Americans conduct nearly 200 million Internet searches every day. Now, several companies want to make that process better by transforming the way people look for and store information they find online.The new method, dubbed "tagging," addresses a common complaint of many Internet users -- that searching is often clumsy and inefficient. Web surfers often must sift through multiple pages of search results to find what they are looking for. And retrieving the best sites a second time often means redoing the search or trolling through an unorganized list of sites that you have haphazardly saved in a "favorites" folder.Tagging, however, can cut through the online clutter to deliver more relevant bits of information. That is because many versions allow users to search only sites that other people have already deemed useful. It also makes it easier to find desired information again. Users says tagging services can simplify online endeavors like shopping for a new road bike or acoustic guitar because they allow a prospective buyer to quickly access saved information.

While tagging is still new and the method does have limitations, analysts are predicting further growth in "the tagosphere" as new companies crop up to grab a share of the nearly $15 billion online-advertising market. Tagging sites are free to use, but some run advertisements which display small snippets of ad text targeted to the terms a user is searching for or other words on the page.Tagging sites are increasingly transitioning beyond places individuals go to for retrieving their favorite Web pages to sites they visit first when they want to search the Internet. That means they are beginning to compete directly with search behemoths such as Google and Yahoo. A Google Inc. spokesman says the company doesn't comment on its competition. "These systems are really coming into the mass market," says Caterina Fake, director of Yahoo Search technology.Demand for the new sites reflect many Web surfers frustration with current search technology. The major search engines are all built around different algorithms that attempt to determine the most relevant sites for a particular search. But only 17% of Internet users say they always find what they are looking for when they use a search engine, according to a 2005 report from the Pew Internet & American Life Project. In November, Americans conducted more than five billion online searches, up 9% from the previous year, according to comScore Networks.Tagging services have multiple uses. First, they allow Web surfers to save hundreds (or even thousands) of favorite Web pages under key words. The technology is named after the keyword "tags" users associate with each page they want to save. (For example, a Web page featuring ski goggles could be saved under the tag, skiing.) For individual users, tagging makes their own favorite pages easy to search and retrieve. Unlike storing addresses in a "favorites" folder on your computer, tagged pages are stored on the Web and accessible from any computer. A tagging site also lets you search among all your stored pages by key word, eliminating the need to scroll through dozens of sites and remember the order in which your links are saved.

24. Unlike storing addresses in a "favorites" folder on your computer, tagged pages _____.a. lets you search among all your stored pages by key word, eliminating the need to scroll through dozens of sites b. often means redoing the searchc. are stored on the Web and accessible from any computerd. Both a & c Correct

Imagining a Day Without BlackBerrys




By JANE SPENCER and JESSICA E. VASCELLARO January 25, 2006; Page D1http://online.wsj.com/article/SB113815273330355453.html

The latest development in the legal battle involving BlackBerry hand-helds is forcing millions of people to confront an unsettling question: What would life be like without a BlackBerry?While the possibility of a disruption in BlackBerry service is still extremely remote, the Supreme Court's decision not to hear an appeal by BlackBerry maker Research In Motion Ltd. on Monday has triggered new concerns that BlackBerrys -- the wireless email gadgets often dubbed crackberries because their users are so devoted -- could go dark.The BlackBerry started out seven years ago as a device for high-ranking corporate types, but it has quickly become a verb, a source of marital discord, a safety hazard for those who cross busy streets while responding to email, a status symbol (Will your company give you one?) and even a pick-up tool. (Michael L. Romero, a 27-year-old systems administrator in Phoenix, says his friends email him on his BlackBerry to point out "cute girls" at nightclubs.) The BlackBerry has been responsible for many an interrupted vacation and dinner hour, but it's also integral for keeping the wheels of commerce, government and even law enforcement moving. So even the inkling of a possibility that it could shut down has sent people scrambling to arrange backups.Information-technology professionals at dozens of big companies -- including Citigroup Inc. and Boeing Co. -- are drafting contingency plans. Law firms such as White & Case LLP, a New York-based firm, are stockpiling alternative wireless email devices like the Palm Treo 700w. And dozens of government agencies -- including the Los Angeles Police Department -- are contemplating how they would operate without BlackBerrys, which are currently used to alert police captains in the field about homicides.Roughly four million Americans have a BlackBerry device, and RIM controls about 50% of the market for wireless email devices, according to Gartner. "A stoppage of BlackBerry would cause major havoc," says Bob Egan, director of emerging technology at the research firm Tower Group. "CEOs use them, doctors use them, Wall Street guys use them."But for the many BlackBerry victims, the prospect of a blackout is liberating. Patrick Blanchfield, who works for a New York-based nongovernmental organization, says it would prevent his boss from sending him emails at all hours of the night.And Debra Lucas, an office manager in Ashburn, Va., says her husband is constantly checking the device, and she has banned it from the bedroom and restaurants. Still, she says she sometimes finds him hiding in the foyer, huddled up with the device. "It's like there's another woman -- but it's really just the BlackBerry," she says.Some companies have put off purchasing BlackBerry upgrades. Law firm Hogan & Hartson has delayed an upgrade for the company's 1,000 lawyers until RIM's legal issues are resolved. In addition, the company is considering teaching lawyers how to use text messaging on their cellphones and looking at text-to-speech companies, including iHello and jConnect, that would allow lawyers to call in and have their email read to them over the phone by a computer.

25. Approximately ________ Americans have a Blackberry device.

a. 1 millionb. 4 million Correctc. 10 milliond. 25 million

A Cheaper Way To Refill Your PrinterBy PUI-WING TAM January 26, 2006; Page D1http://online.wsj.com/article/SB113824943570356785.html

Even as computer prices have steadily dropped, the cost of one high-tech necessity has remained stubbornly high. Printer cartridges are so costly that printer giant Hewlett-Packard Co. has long made more than two-thirds of its profit from selling them.Now, in a move that could save consumers hundreds of dollars in replacement costs, several major retailers are starting to offer speedy refill services that replace the ink rather than the entire cartridge.





Early next week, drugstore chain Walgreen Co. plans to announce an ink-refill service -- at less than half the cost of buying new cartridges -- in 1,500 of its stores, with the rollout starting in mid-March. With an eye toward launching a national service, office-supply chain OfficeMax Inc. is pilot-testing an ink-refill service in 40 stores in the Chicago area. And Office Depot Inc. is also testing an ink-refill service in 15 stores in Minnesota and North Carolina. In addition, smaller ink-refill services are planning to open more storefronts in malls and hotels.The new services allow consumers to get their cartridges refilled quickly while they shop, rather than having to fill the cartridges themselves as the do-it-yourself kits on the market require. Matt Davidson, 46 years old, a pharmaceutical salesman in Norwalk, Iowa, says he has been going to a Walgreens store that has pilot-tested ink refills for the past six months. The drugstore, located a mile from Mr. Davidson's home, refilled his black-ink H-P cartridge within minutes at "half the price it would normally cost me for a new cartridge," he says. "It was easy." Mr. Davidson says he has returned for four other ink refills and has stopped buying new H-P cartridges.The cost of ink has long been a source of frustration for computer users. The price of ink per milliliter from big printer manufacturers has been rising at about 1% a year, according to market watcher Lyra Research. Many of the big printer makers are also getting stingier with the amount of ink in a cartridge. For example, while a popular older H-P black-ink cartridge, the 45A, cost $29.99 and had 42 milliliters of ink, its newer counterpart, the H-P 96, costs the same but has only 21 milliliters of ink.The new services strike a blow at a major profit center for companies such as Lexmark International Inc. and H-P, which rely heavily on ink for recurring revenue and profits. Indeed, H-P actually loses money on its printers -- money that it recoups through new ink and toner sales. H-P won't say what its margin on cartridges is, but analysts estimate the margin to be at least 60% on both ink and toner cartridges.Each year, about 1.3 billion ink cartridges are sold world-wide, according to Lyra. Such sales generated $30.1 billion in revenue in 2005. But the market share of refilled and re-engineered ink cartridges is now projected to hit nearly 29% in North America by 2009, up from 23% in 2005, according to Lyra.Tuan Tran, an H-P vice president of ink and toner supplies, says the Palo Alto, Calif., technology giant is "closely monitoring" the new retail refill services. Mr. Tran says consumers should be wary of refills, however.Since H-P designs its printers and its ink cartridges to work together as one seamless system, a refilled cartridge may not be as reliable and can cause streaking on printouts, he says. With a refilled cartridge, "there's a big sacrifice in terms of quality," Mr. Tran says. Consumer Reports magazine, for one, has said that consumers should "be wary of off-brands" and has "found brand-name cartridges to have better print quality overall." A 2003 study by research firm QualityLogic Inc. found that 54% of the remanufactured cartridges it tested had problems, compared with just 1% of H-P color-ink cartridges and 6% of H-P black-ink cartridges.Walgreen is offering a 100% satisfaction guarantee for its ink-refill service.At Walgreens stores, consumers can drop off their empty cartridge while they shop and get a refill within 15 minutes, says John Sugrue, Walgreen's general manager of photofinishing. The stores will charge $12.99 to $14.99 for a black-ink refill, around 60% less than the price of some black-ink cartridges from H-P, Canon Inc. and others.

26. At Walgreens stores, consumers can drop off their empty cartridge while they shop and get a refill within 15 minutes. The stores will charge $12.99 to $14.99 for a black-ink refill around___________of some black-ink cartridges from H-P, Canon Inc. and others.a. 25% more than the priceb. 25% less than the pricec. 60% less than the price Correctd. 75% less than the price



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