VOL. XXVI NO. 139 MONDAY, AUGUST 18, 2008 Œ2.90 Œ2.90 Michael Phelps’s future - Spain

- France looks to go swimmingly BEIJING OLYMPICS 2008 | PAGE 12 Dollar revival reaps roses Œ3.20 Sk 100/Œ3.32

- Finland A flagpole builder hits new - Slovakia Œ3 Dkr 22 heights in Central Asia and thorns for investors ON OTHER FRONTS | PAGE 32 - Portugal - Denmark U.S. stocks could rise Zl 10.50 Kc 110 on profits, mergers; - Poland commodities caution Nkr 27 What’s News— - Czech Republic By Jeff D. Opdyke 7 7 - Norway Business&Finance World-Wide And Craig Karmin HRK 20

Œ2.90 The dollar’s resurgence could Medvedev said Russia will be- ease U.S. inflation and help curb gin pulling troops out of Georgia Suddenly, it is all about the U.S.

- Croatia commodity prices, but it also Monday, under rising U.S. and dollar. But it won’t necessarily get threatens to slow the U.S. export - Netherlands European pressure, but he pro- any easier to make a buck. Œ2.90 boom and add to earnings pres- vided no firm deadline for the After struggling for several Dh 24 sure on multinationals like GE. completion of any withdrawal. years, the dollar is back in vogue. It - Belgium £1.40 Friday, the dollar hit a six-month Moscow’s occupying actions has gained 8% against the euro in Œ3

- Morocco high against the euro and rose have sent a brutal message. the past month. On Friday, the dol- against the yen. Pages 1, 21 Merkel said NATO could help lar rose again and now one euro Œ2.90 - Austria n A drop in commodity prices with reconstruction once Russia equals $1.4673. Last month, a euro Pages 1, 2, 3, 16, 17 – United Kingdom is raising hopes that inflation withdraws.

$2 is peaking in many parts of the n Russia’s war in Georgia has be- Lk 370.00 - Luxembourg The buck is back Dubai the sheikh’s businesses. meters. (The pole flies the flag of developing world. Page 1 come a source of support for big AVID Chambers builds Mr. Chambers doesn’t have an en- the Arab revolt, during which Aqaba U.S. weapons programs that have Dollar’s gains may quell inflation L£ 4000 n Lehman Brothers is likely to the tallest flagpoles in gineering background, but he was captured from the Ottoman Em- had to battle for funding. Page 3 and curb U.S. export boom.21...... Guy Chazan/WSJ the world. His current cli- quickly pulled together a team and pire in 1917.) report another big quarterly loss, analysts say, raising the n A coastal guard car was hit during a Russian bombing raid targeting a large - Lebanon Pakistan’s ruling coalition

ent wants him to stop. sketched out a plan. In July 2001, Trident manufactures the steel - U.S. Military (Eur) commercial port in Poti, a Georgian town on the Black Sea coast. This month, Mr. Cham- the group raised its first record segments of the poles in a fabrica- prospect it will need to raise stepped up pressure on Presi- was worth $1.60, and bullish ana- Œ2.90 Page 7 Dbers is erecting a pole in the wind- holder, at about 123 meters. tion yard in Dubai. Then it ships additional capital. dent Musharraf to resign, as lysts say a euro could be worth just YTL 4.25 swept Azerbaijan capital of Baku. At He left his employer shortly af- them to their future home. Using gi- - Italy n The sale of Reed Elsevier’s his legal team prepared to chal- $1.40 by next summer. The dollar lenge his impeachment. Page 11 almost 162 meters, it will be the tall- ter to start up his own company, Tri- ant cranes, Mr. Chambers’s team Œ2.90 trade-magazine division enters has rallied the same amount against

- Turkey As pressure rises, Russia est flagpole on record. Azerbaijani dent Support Corp. In addition to re- hoists them on top of each other and a crucial phase, with the com- n India’s prime minister said the British pound and a bit less against the yen. officials, eager to savor the feat, ally tall flagpoles, the firm manufac- bolts them together. The price tag pany’s bankers asking bidders Friday the peace process with have asked him to hold off building a tures smaller ones, along with cell- can stretch to several million dol- S£ 150 to submit second offers. Page 6 Behind the surge: slowing econo-

- Ireland (Rep.) Pakistan was in danger of failing taller pole for a year, he said. phone towers and stadium lighting. lars. n mies across Europe. Data released to begin leaving Georgia - Syria Auto makers are angling to because of attacks like the bomb-

Clients “always tell us they want He also provides the flags— Ft 530 last week show the euro-zone econ- Meanwhile, officials in the court carve out their own niches in ing of its embassy in Afghanistan. this to be the last record,” Mr. Cham- some of the world’s largest, measur- omy contracted 0.2% in the second Under rising pressure from Eu- safe here if it isn’t under their con- of King Abdullah II of Jordan fuel-efficient design with new n Indian police arrested the al- bers said from his small office in started looking for someone to ing about three-quarters the length SF 4.80 quarter, the first decline since be- rope and the U.S., Russian President trol,” said Georgian Economy Minis- - Hungary offerings in the U.S. Page 6 leged leader and eight others in a Dubai’s sprawling port. “But they build a super-tall pole in the capital, of a football field. Trident trains fore the euro’s introduction in 1999. Dmitry Medvedev Sunday said he ter Yekaterina Sharashidze. “The n group they say was behind blasts know, in general, that we’re on a Amman. “His majesty knew that the teams to raise and lower the giant Œ2.90 The recent steep rebound by Falling oil prices have helped, too, will begin pulling his troops out of goal is to create an economic and hu- small-cap U.S. stocks belies fun- that killed over 50 people in roll, and we’re gonna build more flags and to repair damage. - Switzerland Georgia Monday but provided no manitarian disaster that will re- highest one was in Abu Dhabi,” a Ahmedabad last month. Page 11 Please turn to page 31 poles.” Last fall, the Azerbaijani govern- - Greece damentals and shows why firm deadline for the completion of bound on the government” and top- Œ3 A monster-flagpole building ment ordered a flagpole measuring kr 27 many are having a hard time n Obama raised over $51 mil- any withdrawal. ple it. boom is sweeping across Central 150 meters, enough to break the picking market winners. Page 19 lion last month, more than But even if Russian forces now Events in Poti, a Georgian town on Germany For information or to subscribe, visit www.services.wsje.com or call +32-2-741-1414 — Albania Asia and the Middle East, and Mr. Aqaba record with plenty of pole to 86-meter pole in Vancouver, British Sweden n U.S. Treasurys are near lev- McCain’s $27 million, but he start to withdraw, Moscow’s actions the Black Sea coast, highlight the way Chambers, an American entrepre- spare. But midway through con- Columbia, made an appearance in els they haven’t breached for spent several million dollars Easing prices Russia has used the conflict to draw a neur, is at the center of the frenzy. In struction, Mr. Chambers got a call the record books. It wasn’t techni- several months, but more gains more than he took in. Page 9 By Guy Chazan in Poti, Georgia, noose around Georgia’s economy. the past eight years, he and his from Baku. cally a flagpole, though. It sup- will be hard to come by. Page 21 and Marc Champion in Gori, Though hundreds of miles from the small company have built the He says he was told the country’s ported a 62-meter ice-hockey stick. n Clashes in Afghanistan killed of commodities Georgia fighting in Georgia’s separatist prov- n Gold futures have given up world’s four tallest “unsupported,” president wanted to top North Ko- Since his Abu Dhabi pole went up 73 Taliban fighters and nine pri- ince of South Ossetia and clearly not a all their gains for this year, and or freestanding, flagpoles. The Baku rea’s 160-meter-tall flagpole, near in 2001, Mr. Chambers has domi- vate security guards over the over the past week—occupying military asset, Poti’s huge commercial silver has fallen harder as the pole will top all of them. the border with South Korea. It sits nated the category. He thinks the weekend, while a roadside blast soften worries chunks of Georgia’s territory, stran- port was targeted 10 days ago in a Rus- dollar’s advance has caught in- “He pretty much has a monop- atop a tower—so it doesn’t qualify highest flagpole he can build would killed 10 policemen, officials said. gling its economy, cutting transport vestors off guard. Page 21 sian bombing raid. The town itself has A sharp drop in commodity links and damaging key investment oly,” says Craig Glenday, editor-in- for Guinness’s “unsupported” cate- probably be some 220 meters tall. n A suicide bomber in Baghdad seen daily incursions by Russian That’s only because of the current n BHP is likely to report strong prices is raising hopes that inflation projects, while the authorities in chief of London-based Guinness gory. But Azerbaijani officials killed a deputy district leader of troops who have looted stores, size of cranes used to lift pole seg- earnings, but the miner still is peaking in many parts of the devel- Tbilisi stood by helplessly—have World Records Ltd., which keeps wanted to beat it anyway. (The presi- Sunni security volunteers who trashed offices and systematically de- track. ments into place. could face increased hurdles in oping world, especially in Asia, pro- sent a brutal message. dent’s office said a spokesman had turned against al Qaeda stroyed military infrastructure, ac- Delegations from Turkey, Ka- wasn’t available to comment, and of- With that constraint in mind, he its bid for rival Rio Tinto. Page 6 viding welcome relief for the fragile and six of his bodyguards. “They want to show nothing is Please turn to page 4 zakhstan and Tajikistan—all inter- ficials didn’t respond to emailed says, he will now only agree to build n Wachovia is buying back as global economy. ested in their own poles, Mr. Cham- questions.) new poles just one meter higher much as $8.8 billion in auction- n Israel’s cabinet approved the Lofty prices for oil, food and bers says—flew in to see him in late Earlier this year, Turkmenistan than the previous record. Potential rate securities under a settle- release of 200 Palestinian pris- other essentials remain a big chal- July in Turkmenistan, where in cut a deal for its own tall pole. Mr. clients don’t like that, but Mr. Cham- ment with regulators. Page 8 oners as a goodwill gesture to lenge, especially for poor develop- June he raised the current record Chambers agreed to build one bers says it will stretch out his or- the Palestinian government of ing countries such as Haiti, Egypt n Apple is working holder, at just more than 133 meters. smaller than the Azerbaijani pole, ders. on a soft- President Mahmoud Abbas. and India, where earlier this year more energy. fewer emissions. (The Statue of Liberty, by compari- which was already under construc- He may have competition, how- ware fix for its new iPhone 3G n son, is 93 meters tall.) tion. But he said he’d finish it ever. A Beaumont, Texas, company to remedy dropped calls that Southern African leaders con- By Patrick Barta in Bangkok Several clients in the oil-rich Per- quicker. is negotiating with a client to build a users are experiencing. Page 8 cluded their summit, but a key and John Lyons in São Paulo with technology, we can sian Gulf—including the govern- That way, Turkmenistan could 168-meter pole, according to Jarred n The Persian Gulf is suffering committee will continue talks ments of Saudi Arabia, Kuwait, hold the record for at least a few Romanos, the sales manager for the its own credit crunch as demand on Zimbabwe’s political crisis. soaring costs triggered violent do both. learn how Oman and Qatar—are also talking to weeks. They got a discount because firm, U.S. Flag & Flagpole Supply from expanding businesses out- n Two bombs blamed on Basque street protests, transport strikes and other unrest. him, he says. But the Middle East cli- their record won’t last, Mr. Cham- Inc. strips the supply of cash. Page 22 separatist group ETA exploded we’re addressing But recently, many of those prices ents all want to be last on his list, in bers says. Turkmenian officials In 1999, U.S. Flag erected a at resorts in southern Spain, but have fallen significantly. Oil fell $1.24 hopes they can hold on to the record don’t seem disappointed that it will 61-meter pole in Panama. It also Markets no injuries were reported. the global energy longest. be short-lived. helped Mr. Chambers with design NET PCT a barrel on Friday to close at $113.77, “They’re waiting for the dust to “They are really proud of their and engineering work for three of MARKET CLOSE CHG CHG n Iran test launched Saturday 22% below its record price earlier challenge at settle,” Mr. Chambers says. new flagpole right now,” says Bathu- his five record-breaking poles, DJIA 11659.90 +43.97 +0.38 a rocket it plans to use to carry this year. Rice, a staple for the devel- In the late 1990s, Mexico’s army royal spokeswoman says. So, the ran Arslan, an executive for a pri- both companies say. Nasdaq 2452.52 -1.15 -0.05 a research satellite into orbit, oping world, is down about 40% since erected a series of super-tall flag- Royal Hashemite Court hired Mr. vate Turkmenian company that bro- Mr. Romanos says his potential DJ Stoxx 600 287.25 +1.34 +0.47 state television reported. May, while palm oil, a source of cook- exxonmobil.com poles across the country. Inspired Chambers to build one about 126 kered the deal between the govern- client is somewhere in the Middle FTSE 100 5454.8 -42.6 -0.77 ing oil, is down a similar amount by the effort, a prominent sheikh meters. ment and Mr. Chambers. “All East but doesn’t want to be identi- DAX 6446.02 +3.81 +0.06 Editorial&Opinion since peaking in March. Wheat, cop- and government minister in Abu After that one went up in May records will be broken some day.” fied until construction starts. That’s CAC 40 4453.62 +32.71 +0.74 per and a host of other commodities Dhabi, the capital of the United Arab 2003, the king’s office called again. The earliest record Guinness has to keep neighbors from planning Keeping Russia out also have seen sizable drops. Emirates, decided his city needed “We gotta have another one,” Mr. of a really tall flagpole is a 65-meter their own, taller poles. Euro $1.4695 -0.0202 -1.36 With economic growth slowing Nymex crude $113.77 -1.24 -1.08 What NATO foreign ministers one, too. To get the job done, he Chambers says a court official told wooden flag staff erected in 1919 in “It’s important that they keep can do to contain Moscow. across the world, including in China, turned to Mr. Chambers, at the time him. The next year, he raised a pole England’s Kew Gardens, according the record as long as they can,” Mr. Money & Investing > Page 19 Page 15 and demand for raw materials eas- working as a contractor for one of in Aqaba, Jordan, measuring 131 to Guinness’s Mr. Glenday. In 1985, a Romanos says. “It’s a pride thing.” Please turn to page 31 2 MONDAY, AUGUST 18, 2008 THE WALL STREET JOURNAL. THE RUSSIA-GEORGIA CONFLICT Ethnic Georgians endure Ossetian prison with a Russian military escort. He the crowded jail. Civilians are held said the authorities also were hold- In his office in a crumbling, low- ing nine Georgian prisoners of war. slung whitewashed building, Mr. amid martial law; Ossetian authorities refused to Khugayev said he was investigating show reporters the conditions in “war crimes” against Ossetian civil- ‘we want to go home’ which the civilian captives are being ians committed by Georgian forces held in Tskhinvali. Instead, after during the roughly 24 hours be- By Andrew Osborn much persuasion, they agreed to let tween their initial arrival and being Mr. Barbikadze speak with a pair of forced out by Russian forces. Geor- TSKHINVALI, Georgia—Tamaz Western reporters for five minutes. gian forces deny targeting civilians. Barbikadze tip-toed out of South Os- Mr. Barbikadze said the condi- Mr. Khugayev, unshaven but setia’s Interior Ministry Sunday tions in which he is being held are dressed in a gray suit and wearing a flanked by three armed guards. A “normal.” Yet his trousers were cov- large, shiny watch, said he had frail man of 69 years, he was given ered with grime and a strong smell of opened 200 criminal cases, having five minutes to describe to two re- urine emanated from him. He said positively identified 200 civilian porters how he and more than 100 about 150 prisoners are being held corpses. He gave the example of six other civilians had been rounded up with him, a mixture of women, chil- young girls he said had been ab- 10 days ago and thrown into prison. dren and old people. A guard listening ducted and raped by Georgian As he spoke, one of his Ossetian cap- to the conversation said the youngest forces in the village of Khetagurovo. tors casually shifted his Kalashnikov prisoner was a 12-year-old boy. He said that witnesses had seen from knee to knee. Press Associated Asked whether the Ossetians them being forced into tanks on Mr. Barbikadze’s crime: He is A man stands near a damaged building in South Ossetia’s capital. With the Georgian had beaten the Georgian prisoners, Aug. 8 and that they hadn’t been Georgian. In South Ossetia, Geor- assault crushed by Russian troops, ethnic Georgian villages have paid the price. Mr. Barbikadze answered only for seen again. However, he said items gians are regarded with visceral ha- himself. “No, no, no,” he said, glanc- of female lingerie had been found in tred after Georgian tanks rolled into ing nervously at his guards. “No- several tanks abandoned by the this tiny pro-Russian separatist re- said the plan is to exchange the Geor- A cinema, pharmacy and commercial body laid a finger on me.” Asked Georgians. public fewer than two weeks ago. gians for Ossetians whom the au- center all had their glass facades whether his fellow captives had “We suspect that they gathered Mr. Barbikadze, an engineer who thorities here believe the Georgians smashed. No movement could be dis- been physically abused he mumbled up the young and beautiful girls,” he says he once helped build a sports cen- are holding. cerned in the destroyed houses, and that he was “not sure” and winked. said. Prosecutors had found a car ter in the city, said that he and about For centuries, Georgians and Os- only a handful of civilians could be Mr. Khugayev said that so far the packed with “dozens” of shovels in a 150 other ethnic Georgians had been setians have shared this mountain- seen in what was once a bustling Georgian authorities haven’t re- field outside the village. That, he locked up in the squat Interior Minis- ous region, often tensely. In the Georgian enclave. sponded to his efforts to broker a said, suggested they were planning try building since Aug. 8, the day the early 1990s, warfare broke out when Russian officials have said they prisoner swap. “They have aban- a mass burial. tanks entered the city. Appearing ter- Georgia tried to revoke the auton- see no way South Ossetia, along doned their citizens,” he said. “Georgia wants South Ossetia,” rified, he said he didn’t understand omy that South Ossetia had enjoyed with nearby separatist region Abk- Witnesses say they have seen he said. “But without the Osse- why he had become a “hostage.” under Soviet rule. South Ossetian hazia, could return to Georgia. Edu- Georgian prisoners clearing rubble tians.” “We are not fighters, we are forces crushed the Georgian attack, ard Kokoity, the Russian-backed and rubbish from the streets of Tskh- peaceful people,” he said. “We want and Russian troops have helped president of South Ossetia, told a invali, which is now completely un- to go home.” keep an uneasy peace since then. Russian newspaper Friday that der the control of Russian forces. CORRECTIONS & The only time he and the other But that broke down when Georgian “we’ve practically leveled every- Mr. Khugayev denied making the AMPLIFICATIONS Georgians see natural light is when troops attacked Tskhinvali in the thing” in the Georgian villages. “We prisoners work. They had helped they are forced to help clean up early hours of Aug. 8. don’t intend to let anyone back bury the bodies of Georgian soldiers Tskhinvali’s dusty debris-strewn With the Georgian assault there,” he said. the previous day, he said, but “no- An article Thursday detailing a streets, he says. crushed by Russian troops, a string Ossetian forces, he said, had cre- body forced them to do this.” study critical of a temporary U.S. Se- South Ossetia’s prosecutor gen- of ethnic Georgian villages between ated a “humanitarian corridor” for A guard at the Interior Ministry curities and Exchange Commission eral, Taimuraz Khugayev, put the the Russian border in the north and Georgians to escape. contradicted his account. The guard order barring a certain type of short number of Georgian civilian cap- Tskhinvali have paid the price. Mr. Khugayev, the prosecutor, said Georgian prisoners had been selling omitted a comment from the tives at 131. They have been locked A Wall Street Journal correspon- said an additional 40 Georgian civil- out clearing the downtown area on agency’s spokesman. SEC spokes- up under martial law “for their own dent counted at least 200 roofless, ians who lived in South Ossetian vil- Saturday and that some of them man John Nester said: “The emer- safety,” he added. One of his guards burnt-out Georgian homes Sunday. lages had been dispatched to Georgia were now clearing other parts of the gency order’s purpose was not to ar- city. Mr. Barbikadze also confirmed tificially prop up prices or restrict le- that the prisoners were being put to gitimate short sales, but to protect work, saying younger Georgian pris- against illegal distort-and-short INDEX TO BUSINESSES oners had volunteered to help clear schemes that could have threatened the city’s streets of detritus because fair and orderly markets at the time This index of businesses mentioned in today’s issue of The Wall Street Journal Europe is intended to include all significant references to compa- it was an opportunity to get out of of the order.” nies. First reference to these companies appear in boldface type in all articles except those on page one and the editorial pages.

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Wyss, David.31...... & Co. © 2008 Dow Jones & Company All rights reserved. ILC Dover.7...... (Group) Co. of China.8 . .6...... Glass, Gary.24...... Nordvig, Jens.21...... Yamamoto, Masafumi . 25 Editeur responsable: Daniel Hertzberg M-17936-2003 Indicus Advisors.23...... Poti Sea Port.4...... Zijin Mining Group.25.... . Glenday, Craig.32...... Page, Larry.30...... Zhang, Henry.29...... THE WALL STREET JOURNAL. MONDAY, AUGUST 18, 2008 3 THE RUSSIA-GEORGIA CONFLICT Tales of killings emerge ternational humanitarian aid. and phone lines are also cut off. In occupied areas, Not so in a large swath of Georgia Signs of destruction became proper between the city of Gori and more frequent—and survivors a roadtrip reveals the breakaway Russian-backed prov- harder to find—in the next village, ince of South Ossetia. These areas of Karaleti, which once housed some lawlessness, carnage the Russian-occupied zone, a road- 3,000 people. trip on Sunday showed, remain Umari Ninikashvili, a small, wrin- By Yaroslav Trofimov spooky, depopulated badlands. Here, kled 67-year-old man with missing shooting still erupts, and even Rus- teeth, cautiously trod on Karaleti’s TKVIAVI, Georgia—As armored sian soldiers caution about the pres- back street. A white armband of the columns rumble by, the body of ence of roaming bands of marauders. kind worn by Ossetian militiamen was Shamil Okroporidze is rotting for Russian troops manning a road- tied around his checkered shirt sleeve. the fifth day in his garden, just two block on the main highway north of “The Russian soldiers told us steps off the main north-south high- Gori said they have orders not to let that everyone who lives in our vil- way that bisects this village deep in reporters across; villages like Tkvi- lage must absolutely wear these Russian-occupied Georgia. avi could be visited only after by- armbands, for our own safety,” he Journal Street Wall Trofimov/The Yaroslav Mr. Okroporidze, a middle-aged passing Russian checkpoints on an said. In the Russian-occupied village of Karaleti, Russian soldiers told Umari Ninikashvili farmer, made the mistake of coming unpaved backroad. Tzisnami Aduashvili, 54, said and other villagers to wear a white armband of the kind worn by Ossetian militiamen. within sight of one such convoy. In one of the first villages north she saw a neighbor shot dead by Os- “They shot him just like that,” said a of Gori, a hamlet named Garedzh- setian militiamen on Friday. She neighbor, Ruisa Kapanadze, who vari, former policeman Valeriy Peri- also heard of at least two young the village—all left to rot like gar- shed used to keep pigs. emerged from her hideout on Sun- ashvili pointed at the carbonized Karaleti men taken away by these bage,” says a local pharmacist who “The gunmen go after the big, day to guide a reporter through Tkvi- carcass of the Greek-style mansion gunmen as prisoners. Russian would only identify herself by her rich houses, so we chose the small- avi’s deserted streets of torched owned by his cousin. Ossetian irreg- troops, who kept a position in her or- first name, Fatima. est, least conspicuous building,” she houses and looted stores. ulars, he said, came into the village chard, didn’t interfere, she said. A resident of Gori, Fatima fled says. They stayed there four days, “I am scared, scared, scared,” on Friday, choosing the best homes “The Russians themselves are with her daughter Diana to her occasionally raiding a nearby or- she kept muttering, nervously glanc- as their targets. The Ossetian gun- not harming us—they just drive mother’s home in Tkviavi after Rus- chard for peaches and nuts. ing around. It was only after realiz- men wore white armbands atop their tanks and trucks up and down sian planes started bombing that This past weekend, they spent ing that the visitors were unarmed their camouflage uniforms. the road,” she said. Russian ar- city on Aug. 9. Once the Russians that more than a dozen other Tkvi- After torching the house, the mi- mored personnel carriers—trans- crushed Georgian defenses and the daylight hours hiding inside the vil- avi women came out, gathering to litiamen tried to steal the Volvo 960 porting both regular troops and mili- Georgian army began to pull back or lage—but moved out to nearby or- tell of many other bodies scattered sedan parked in the garage, but tiamen wearing white armbands— surrender in following days, the chards and forests after dark. throughout the village. failed to jump-start the engine, he clogged the road from Karaleti to bombing here stopped. Fatima says “At night we hear shooting, ev- “There are only women left says. A reporter saw yanked-out ig- Tkviavi on Sunday afternoon. she assumed the war was over. ery night. You never know when here,” said Zoya Razmadze, 50 nition wiring, and counted 17 bullet On the roadsides, broken glass, But, after venturing onto the they can come,” explained 73-year- years old. “The men have gone into holes through the windshield and twisted wires and unhinged doors main road, she came face to face old Mediko Chikhladze. Fatima says hiding in forests because they are be- the hood. marked what had been grocery with militiamen who followed Rus- she was particularly apprehensive ing shot dead on sight.” Across the road, books, clothes stores. Not a single living being sian tanks into Tkviavi. Some of because her daughter Diana was the The Russian-occupied part of Geor- and medicines discarded by looters could be spotted on Tkviavi’s main them were wearing ski masks. One only girl still left in the village. gia includes many villages like Tkvi- were piled up in the ransacked liv- street. Deeper inside the village, the started to shout “Kill her, kill her,” Clutching her possessions in a trans- avi, gutted by Russian-backed Osse- ing room of 83-year-old Arsen Mura- few women who came out of hiding as he pointed at Fatima his Kalashni- parent plastic bag, Fatima asked for tian militiamen and other irregulars dashvili, a retired agronomist. to speak to a reporter recounted the kov assault rifle, she says. a ride out of the war zone for herself who followed Russian tanks on their “Four men came up here, and killings they had witnessed. “No, we only kill men,” inter- and Diana in a Wall Street Journal way south, driving away most of the knocked down the door with their ri- Ms. Kapanadze said that, shortly rupted another militiaman, she vehicle. Fatima’s mother stayed be- area’s ethnic Georgians. fle-butts,” he said. The irregulars after gunmen sprayed Mr. Ok- says. At this moment, the gunmen hind—one reason why she asked her Since then, relative order has took away Mr. Muradashvili’s ste- roporidze with automatic fire, they spotted a group of Georgian youths surname not to be used. been installed in Georgia’s biggest reo, bed sheeting and carpets, but shot a young man who died in her down the road and opened fire in Russian-occupied city, Gori, where didn’t bother with his 10-year-old arms. By then, most of the villagers their direction. On the checkpoint-studded road about one-fifth of the prewar popula- television set, he said: “I was forced had fled through the forests and “I know they hit some of them be- to Tbilisi late Sunday afternoon, Fa- tion has stayed behind. In that city, to carry it all down to the courtyard mountains toward Georgia’s capi- cause I heard the screams of the tima warily stared through the wind- there is still running water and elec- for them myself.” tal, Tbilisi. One younger man helped wounded,” Fatima said. Escaping shield, looking out for Russian tricity. Russian soldiers are keeping Like most Georgian villages her drag Mr. Okroporidze’s cadaver amid this commotion, Fatima says troops. Whenever she noticed them, looters away, are permitting the north of Gori, Garedzhvari has re- inside the garden, and covered it she grabbed her daughter, a perky she pushed down Diana’s head, try- Georgian civil administration to func- ceived no food supplies since the Rus- with a rug before escaping himself. 9-year-old with a black pony tail, ing to make her child invisible to the tion and are giving some access to in- sian takeover, residents say. Power “There are many other bodies in and headed for a small concrete many men with guns. Fighting gives a lift to big-ticket U.S. weapons programs By August Cole prise of the Cold War. He did make clear,however,thatRussiaappearsto Russia’sattackonGeorgiahasbe- be punishing Georgia, which has come an unexpected source of sup- flirted with North Atlantic Treaty Or- port for big U.S. weapons programs, ganization membership, for aligning includingflashyfighterjetsandhigh- itself with the West and is warning techdestroyers,thathavehadtobat- other former Soviet states. tle for funding this year because Until now, Mr. Gates has been the theyappearobsoletefortoday’scon- central focus of a pitched battle flicts with insurgent opponents. over where the U.S. should spend its Defense Secretary Robert Gates defense funds: on conventional hasspentmuchoftheyearattempting weapons needed for traditional op- to rein in some of the military’s most ponents or preparing to fight insur- expensiveandambitiousweaponssys- gent groups and terrorists. tems—like the $143 million F-22 Rap- At an event in Colorado this year, torjet—becausehethinkstheyareun- Mr.Gatescomplainedthatthemilitary suitable for the lightly armed and services have “too much of a tendency hard-to-findmilitias,warlordsandter- towards what might be called “Next- rorist groups the U.S. faces in Iraq and War-itis”—the propensity of the de- Afghanistan. He has been opposed by fense establishment to be in favor of an array of political interests and de- U.S. Navy (3) what might be needed in a future con- fense companies that want to pre- Whether high-tech weapons like the Zumwalt class destroyer, left, and the F-22 Raptor, center, lose priority to lower-cost flict.” In response, he has led an effort serve these multibillion-dollar pro- alternatives such as destroyers exemplified by USS Arleigh Burke, right, could depend on Georgia. toseekorconsiderreductionstoalong grams and the jobs they create. listofprogramsthatseemedgearedto- When Russia’s invading forces ward the wars of the past. choked roads into Georgia with col- nies to ensure the long-term fund- are taking on the U.S. military. make bullish calls on the defense sec- The change in administration umns of armored vehicles and ing of their big-ticket items. “We’ve spent so many resources tor.AreportfromJSAResearchinNew- comes at a time of record profits and struck targets from the air, it in- For example, the powerful chair- and so much attention on Iraq that port, R.I., last week called the invasion sales in the industry, reflecting his- stantly bolstered the case being man of the House Appropriations we’ve lost sight of future threats “a bell-ringer for defense stocks.” toric highs in defense spending. Yet made by some that the Defense De- Defense Subcommittee, Pennsylva- down the road. The current conflict Mr.Gateshimselfsaidthenewcon- budgetpressureisalreadyundeniable. partment isn’t taking the threat nia Democratic Rep. John Murtha, between Russia and Georgia is a per- flict will cause the U.S. to rethink its Now, the Russian situation makes from Russia and China seriously quickly seized on the Russia situa- fect example,” said Rep. Murtha dur- strategic relationship with Russia. At the debate over the equipping of the enough. If the conflict in Georgia tion last week, saying that it indi- ing a recent visit to his district. abriefing onThursday,Mr.Gates said U.S.militaryafront-burnerissue.“The continues and intensifies, it could cates the Russians see the toll that Some Wall Street stock analysts the U.S. has no intention of using threat always drives procurement,” make it easier for defense compa- operations in Iraq and Afghanistan early on saw the invasion as reason to force in Georgia, nor does it seek a re- said a defense-industry official. 4 MONDAY, AUGUST 18, 2008 THE WALL STREET JOURNAL. THE RUSSIA-GEORGIA CONFLICT Poland missile-defense pact angers Moscow U.S. Secretary of State Condo- months of negotiations, is a sign of The White House touted the “It is this kind of agreement, not Talks with the U.S. leezza Rice said on “Fox News Sun- how Russia’s invasion of Georgia last deal, describing it as central to sta- the differences between the U.S. day” that that she will go to Poland week has unnerved its neighbors and bility in Europe. “We believe that and Russia over South Ossetia, accelerated following this week to sign the deal after at- unsettled the geopolitical picture. missile defense is a substantial con- which could lead to a real rise in the tending a NATO meeting in Belgium Polish officials stressed the need tribution to NATO’s collective secu- tension in Russian-American rela- crisis in Georgia on Tuesday, Reuters reported. for such security guarantees, accord- rity,” presidential spokeswoman tions,” he said. A top Russian military officer ing to U.S. officials. Russia’s invasion Dana Perino said. In another spillover from the By Jay Solomon said over the weekend that the of Georgia “pushed the Poles, to be The missile-defense pact raised im- Georgian conflict, Ukraine Thurs- agreement put Poland at risk of at- very frank,” said one U.S. official. “It mediate hackles in Russia, with some day announced Moscow would need WASHINGTON—In a move that tack, perhaps with nuclear weap- sends a signal to Moscow that people Russian lawmakers saying it could to seek approval before moving its will further stoke U.S.-Russian ten- ons. U.S. Defense Secretary Robert are not going to be intimidated.” cause worse frictions than the Geor- Black Sea Fleet in or out of the cru- sions, President George W. Bush’s Gates dismissed the statement as Moscow’s action has unnerved gia dispute. Polish officials said that cial Crimean port of Sevastopol. administration and Poland reached “empty rhetoric,” Reuters reported. the leaders of many former Soviet soon after the agreement’s announce- Ukraine controls the port but al- an agreement to base American mis- “Russia is not going to launch nu- states and raised the call in Eastern ment Thursday, Russian Foreign Min- lows Russia to use it as the fleet’s sile interceptors on the Central Eu- clear missiles at anybody,” Mr. Gates Europe for greater cooperative de- ister Sergei Lavrov canceled a visit to home port under a 1997 agreement. ropean country’s soil. said on ABC News's “This Week.” fense against Russia’s renewed re- Warsaw scheduled for next month. Moscow dismissed the Ukrainian The missile-defense pact, de- “The Poles know that. We know it.” gional ambitions. “We have Konstantin Kosachev, chairman statements, saying that Russia’s navy scribed Thursday by U.S. and Polish of- The U.S. for years has wanted to crossed the Rubicon,” Polish Prime of the International Affairs Commit- would come and go as it pleases. ficials, includes Washington’s commit- build a system aimed at knocking Minister Donald Tusk told report- tee in Russia’s Parliament, told the Other former Soviet states have ment to deploy Patriot missile batter- down a long-range missile from Iran ers in Warsaw Thursday, in describ- Interfax news agency that “the main been rattled by Russia’s actions. Es- ies in Poland. It goes beyond the North or elsewhere. But Russia has long re- ing the deal. “Poland wants to be in target” of the missile-defense sys- tonia flew 50 military officers to Atlantic Treaty Organization’s “mu- sisted the proposal as a threat to its alliances where assistance comes tem would be Russia’s nuclear deter- Tbilisi on Thursday. tual-commitment” provisions to pro- own strategic deterrent. That the in the very first hours of—knock on rent, not possible threats from —Gregory L. White and Neil King Jr. tect Warsaw from outside aggression. deal was hammered out so fast, after wood—any possible conflict.” rogue states like Iran. contributed to this article. Russia plans to begin withdrawing troops from Georgia Continued from first page gram will likely require external aid away region, Abkhazia, have moved uty mayor, approached the Russian As panic spread throughout Poti, cording to Georgian officials. on a massive scale. Georgian offi- south to grab a big hydroelectric commander, who told him they had city authorities wondered whether The Russian military interven- cials have only just started drawing power station near the Inguri river. orders to eliminate all Georgian mili- they should leave the town and set tion that began Aug. 8, after Georgia up estimates for the cost of repair- Russian planes have also dropped tary facilities in Poti. He also issued up elsewhere. They discussed evacu- launched an assault on South Osse- ing damage inflicted by the Russian bombs on the Heidelberg cement a warning. “He said if any of you ating all women and children to tia, has since broadened. The Rus- military. The final figure will be $1 factory near Gori, and near the BP touch a hair on any of my soldiers’ nearby villages. In the end they sat sian military this weekend dug in billion “at the very least,” said First PLC-run Baku-Tbilisi-Ceyhan pipe- heads, we’ll flatten the whole town,” tight, hoping the Russians would tanks, armored personnel carriers Deputy Minister of Economic Devel- line, which carries 800,000 barrels says Mr. Khukhia. The commander limit themselves to military targets. and other equipment that fanned opment Vakhtang Lejava. of oil a day to the Mediterranean, ac- couldn’t be located for comment. “We told people, whatever you do, out into hills and villages in a cordon Poti was first targeted Aug. 8, cording to Georgia’s government. The Georgians won one small don’t provoke the Russians,” says Mr. around South Ossetia, creating what when Russian planes bombed the Russia denies targeting them. concession. The Russians said they Khukhia. “They were looking for any amounts to an occupation zone. port area, which contains the head- The Poti port is now back up and had plans to destroy the Georgian excuse to bomb the place.” “What is a fact is that they have quarters of Georgia’s coast guard as running after three days of disrup- coast guard stationed in Poti from In the early days of the Russian been expanding geographically well as a naval base, killing 10 peo- tion. But the war is already inter- the air. Mr. Khukhia persuaded them invasion, troops occupied a Geor- since [Saturday]. I think they will be ple and wounding 40. In the attack, rupting the flow of goods out of Poti to blow it up on the ground, “so as gian military base in Senaki—a trading with us on every inch of the some bombs fell on the adjacent to Georgia and its neighbors. “We not to frighten people.” The twisted showcase that had been Georgia’s territory they are militarily hold- commercial port as well. have 60 trucks waiting—Georgian, hulks of eight coast guard and navy first military base built to NATO ing,” said Kakha Lomaia, secretary “The Russians deliberately tar- Armenian, Azerbaijani,” says Gocha launches now clutter Poti harbor, standards. Senaki, about 40 kilome- of Georgia’s National Security Coun- geted commercial operations to in- Narsia, a Georgian driver sitting leaking gallons of diesel into the ters east of Poti, has since become cil, speaking on a visit to the Rus- flict economic damage on Georgia,” idly in the subtropical heat in Poti’s Black Sea. In Moscow last week, a the main base for Russian opera- sian-held city of Gori Sunday. says Alan Middleton, the English container terminal. “The port is Russian military spokesman said tions in western Georgia. Russian officials deny targeting head of Poti Sea Port Corp. “Drop- working, but we can’t shift the car- vessels of Russia’s Black Sea Fleet Those operations have pene- civilian infrastructure, saying their ping bombs on Poti port, killing peo- goes. We’ll just have to wait till the fired at the coast-guard boats “in trated deep into Georgian territory. forces are working to secure weap- ple—I don’t see how you can con- road opens.” self-defense” when they attacked. Georgia’s government said Russian ons caches abandoned by retreating nect that with South Ossetia.” Poti was built near the site of the Russian troops also ransacked planes had set off forest fires in a na- Georgian forces. But events on the Meanwhile, about eight Russian ancient Greek colony of Phasis, and Poti’s newly built coast-guard head- tional park in the central area of Bor- ground cast doubt on that. ships of the Black Sea fleet, includ- locals say it is the place where Jason quarters, smashing computers, over- jomi that blazed all weekend. Mos- Western officials say their Rus- ing a cruiser, also sailed down the and Argonauts landed in their turning filing cabinets and throw- cow denies the claim. sian counterparts have in private coast and took up position just off search for the Golden Fleece. Long ing furniture out windows before Also on Saturday, three Russian conversations demanded the re- Poti harbor, according to city offi- part of the Ottoman Empire, Russia setting fire to the building. One sol- helicopters landed at Poti airport, moval of Georgia’s pro-Western cials. “They effectively blocked the conquered it in 1858 and built it up dier took a potshot at a portrait of and about 40 paratroopers streamed out and burst into the President Mikheil Saakashvili. Pub- port,” said Merab Kabunia, head of into a flourishing port and the termi- Mr. Saakashvili hanging on one of main administrative building, break- licly, Russian officials deny they set the border-police unit of the Geor- nus of the Caucasian Railway. In So- the walls, scattering shards of glass ing down doors, rifling through doc- such a goal but don’t hide their dis- gian coast guard. “It amounted to an viet times it was a Soviet naval base. around the office. uments and smashing safes, accord- like of the fiercely anti-Russian Mr. economic blockade.” The ships The port went into steep decline They then proceeded to plunder ing to witnesses. Saakashvili. stayed for eight days, he said, ob- in the 1990s, but its fortunes im- a nearby military warehouse, say A similar assault was carried out On Saturday, Georgian officials structing tankers trying to reach proved after Mr. Saakashvili was witnesses. Video filmed by report- on a small military base on the out- said Russian troops blew up an im- the harbor. Russian officials said elected president in 2004. He ers at Poti’s TV station, Ninth Wave, skirts of Poti, where helicopters portant bridge, cutting the east- the ships were there to support the planned to turn Poti into a free eco- show trucks with the insignia of the landed and blew up a radar installa- west rail route that carries oil from ground forces and ensure transit of nomic zone, and sought foreign Russian peacekeeping force in Abk- tion. Soldiers also ransacked the Azerbaijan to Georgia’s Black Sea humanitarian cargoes. backers. They came in the shape of hazia pulling up in the port and load- base’s warehouse. Their choice of port of Batumi. It is also the main “The Russians want to show that the investment authority of Ras Al ing up with stolen supplies—includ- booty surprised the Georgians. route for bringing construction ma- they are lords of the Caucasus,” Khaimah, one of the United Arab ing American-made Rothco military “They cleaned out a store we used terials and container goods from Vano Saginadze, mayor of Poti, said Emirates, which in April this year boots and police batons, Georgian for old clothes—used underwear, old the west to Tbilisi, the Georgian cap- Saturday, as funeral guests gath- bought a 51% stake in the port for army uniforms and electricity gener- socks,” said a Georgian soldier at the ital. Russia denied responsibility for ered outside his office to mourn $80 million. For an additional $4 ators. They also wheeled out inflat- base, who declined to give his name. the explosion, which collapsed a port workers killed in the Russian million, it purchased 400 hectares able dinghies and motor launches “They also took a black-and-white 45-meter section of the 220-meter aerial bombings of the port Aug. 8. of land for an industrial zone and belonging to the Georgian navy, TV set and some tins of motor oil.” bridge. A Russian column had ad- Poti is a key gateway for goods port-expansion program. hooked them onto their trucks and The container terminals of Poti’s vanced toward Tbilisi to just beyond destined for Azerbaijan and Arme- The emirate pledged to spend drove them away, witnesses say. commercial port are now function- the bridge Saturday before pulling nia as well as the landlocked nations more than $200 million on tripling Russian officials denied reports ing normally, but the trading rela- back to its previous position. of Central Asia. Tajikistan imports the port’s capacity and creating a of looting, saying Russian forces tionships that underpin Poti’s suc- Mr. Medvedev’s pledge to with- alumina powder through Poti and new Dubai on the Black Sea. were securing weapons and equip- cess are in peril. The only function- draw troops came as Germany’s exports finished aluminum. Azer- Those plans look doubtful after ment abandoned by retreating Geor- ing road to Azerbaijan and Armenia Chancellor Angela Merkel visited baijan ships in cars and clinker for the Aug. 8 Russian attack. gian troops. “The weapons and ord- via Georgia now is an unpaved dirt Tbilisi on Sunday. In a speech, she cement and exports scrap metal to Fragmentation bombs landed in nance are registered, counted and track through mountain passes and said the North Atlantic Treaty Orga- Turkey, while Kazakhstan exports one of the container berths, punch- sorted,” said Anatoly Nogovitsyn, a hilly farmland southwest of Tbilisi. nization, the Western military alli- grain through the port. Armenia, un- ing holes in concrete walls and nar- spokesman for the Russian General It is impassable for big, articulated ance that the Georgian government able for political reasons to trade rowly missing a huge oil-storage Staff. “A decision on their future use vehicles of the kind that normally seeks to join, could help with recon- through either Turkey or Azer- tank holding thousands of tons of will be taken later. Our task is to pre- ply their trade between Poti and struction and rebuilding Georgia’s baijan, relies almost entirely on aviation spirit. A transformer house vent these arms from spreading out points east. After the weekend military once Russia withdraws—a Georgia’s railway system, which has was hit, cutting off power to the of control across the Caucasus.” bombing, all rail links are cut, too. key signal of support. Ms. Merkel a terminus in Poti. port for 12 hours. Over the next few days, the Rus- Mr. Middleton, who arrived in blocked Georgia’s bid to start NATO But Poti’s port isn’t the only Geor- Two days later, about 700 Rus- sians deployed to all Poti’s military Georgia only in June, admits he has membership talks earlier this year, gian economic asset that has come sian troops trundled into town in installations, systematically de- a tough job on his hands. “Being in a in part because of Russian pressure. under threat. Russian-backed tanks and armored personnel carri- stroying infrastructure and mate- war zone wasn’t part of the job de- But a full reconstruction pro- rebels in the country’s second break- ers. Tengiz Khukhia, the town’s dep- riel and looting stores, officials say. scription,” he says. THE WALL STREET JOURNAL. MONDAY, AUGUST 18, 2008 5 CORPORATE NEWS

RECRUITERS MASS TRANSIT HEDGE FUNDS 7 7 7 Adecco weighs an offer Deutsche Bahn bids to run Soros Fund Management for U.K.’s Michael Page Stockholm’s subway lines takes bigger Lehman stake WITZERLAND’S ERMANY’S national rail- ILLIONAIRE Adecco SA, the way, Deutsche Bahn AG, George Soros’s S world’s largest G said it is bidding to oper- Bhedge fund re- recruiting company in ate the subway system in the ported raising its stake terms of sales, Friday Swedish capital, Stockholm. in financial firm Leh- said it is still consider- Deutsche Bahn bid in Stock- man Brothers Holdings ing a bid for Michael holm on Friday via its S-Bahn Inc. to 9.5 million Page International Berlin subsidiary, which oper- shares as of June 30

Adecco PLC despite the ates commuter trains in the Ger- from 10,000 shares at smaller U.K. recruit- man capital, senior company March 31. er’s rebuttal of its £1.3 billion ($2.43 billion) indica- official Hermann von der Schu- In its quarterly holdings report filed Thursday

tive offer. The rejection curtails the chances of a Press Associated lenburg said. with the U.S. Securities and Exchange Commission, smooth deal and stalls the latest round of consolida- If successful, Deutsche Bahn Soros Fund Management LLC said the new reported tion in the recruitment sector. would start running the subway, or T-bana, at the end of stake in Lehman is valued at about $187.7 million. Michael Page asked Adecco to walk away if it isn’t pre- 2009. Mr. Von der Schulenberg didn’t give financial de- Based on Lehman’s shares outstanding in its lat- pared to make a formal offer and asked the U.K. Take- tails of the bid. est quarterly report, the fund’s stake amounts to over Panel to set a deadline. Michael Page said it stopped A decision on the bidder to operate the subway, 1.4%. In New York Stock Exchange trading Friday, discussions with the Swiss company as it considers the which has some 3,000 employees, is expected early next Lehman shares fell three cents to $16.17. current indicative valuation too low. —Goran Mijuk year, Deutsche Bahn said. —Associated Press —Bhattiprolu Murti

Investors see opportunitiy in papermakers Nordic papermakers’ most impor- make good on pledges to cut capacity. per industry. Increased competition 52-WEEK SHARE PERFORMANCE Companies revamp tant market, has slowed, bringing Stora Enso shares, which more from Asia as well as plans by Russia as stocks struggle; demand for paper down with it. Losses on paper than halved in value to Œ5.48 to increase tariffs on its wood ex- “They (paper companies) are fac- UPM-Kymmene, Stora Enso ‘R’, ($8.04) in July from Œ11.98 in Au- ports could dilute the retructuring ef- ing challenging times,” said Timo down 24% down 38% gust last year, have surged 36% in forts and prolong volatile share room to improve Sallinen, a Finland-based fund man- SCA ‘B’, Norske Skogindustrier, the past month, closing Friday at movements. Merrill Lynch down- ager at Varma Mutual Pension Insur- down 31% down 63% Œ7.45 Friday. UPM shares have fol- graded Stora Enso shares in June to By Gustav Sandstrom ance Co., which owns a 2% stake in 20% lowed a similar pattern, falling 39% “underperform” from “neutral,” not- And Joel Sherwood Stora Enso, Europe’s largest paper to Œ9.76 in July and have since re- ing that the longer-term outlook for company by sales, and a 3% stake in 0 bounded 21% to Œ11.81 Friday. SCA the European paper industry is very HARES IN EUROPE’S paper third-largest UPM-Kymmene. “Ca- –20 Class B shares closed at 78.25 Swed- challenging. The bank said sustain- companies have had a bad year, pacity must come down; more clo- ish kronor ($12.27) Friday, 16% able improvement is conditional S hit by credit downgrades, ris- sures, that’s obvious.” –40 higher than the stock’s July low and upon long-anticipated restructuring ing costs for energy and raw materi- In the past year, shareholders like –60 the moves are leading some inves- in the industry, which it said isn’t a als as well as a global oversupply of Varma have seen the value of their in- tors to predict that the rises mark a certainty. paper. But even with more chal- vestment in the paper sector dwin- –80 sustained turnaround. For its part, Stora Enso said in Oc- lenges on the horizon, some inves- dle. The Dow Jones Stoxx TMI For- –100 Hans Thrane Nielsen, head of tober it will close mills and cut its an- tors are starting to see an opportu- estry & Paper index, a measure of the Norwegian investments at Norwe- nual paper capacity of 16.5 million 2007 '08 nity because the shares are so cheap. share performance of some of Eu- gian insurance company Store- metric tons by 1.6 million tons. Also, Europe’s major forest, paper and rope’s largest paper companies, has Source: Thomson Reuters Datastream brand ASA, said paper stocks repre- the company last year agreed to a packaging companies, including Fin- fallen 35% compared with a 21% drop sent buying opportunities because $2.52 billion sale of its North Ameri- land’s Stora Enso Oyj , UPM- in the Dow Jones Stoxx 50 index. the fall in share prices makes the sec- can paper business and has signaled Kymmene Oyj and Svenska Cellu- Still, the prospects for investors dropped 21% from records in July. tor attractive with good valuations. more restructuring will come. losa AB of Sweden have been shed- aren’t necessarily bleak. Like any All analysts agree that European Goldman Sachs Group upgraded Similarly, UPM-Kymmene will ding staff and closing mills to adjust other European manufacturer, the paper companies have a long way to ratings on Stora Enso and UPM reach the end of a three-year plan to a paper glut, which has brought paper companies have been suffer- go before they recover a sound finan- shares to “neutral” from “sell” in next year resulting in a 10% cut in its down prices just as the companies ing from the rising price of oil and cial footing. But some are arguing July, noting the companies’ low capacity and the loss of around costs’ are rising. Furthermore, the the strength of the euro and should that recent rises in the share prices gearing and high cash returns 3,600 of its 26,000 staff. companies have lost a major market benefit as those trends reverse. The could indicate that investors overre- would help them withstand tougher SCA is also in the midst of a re- in China, which, having ramped up euro, having climbed more than 35% acted and sent the shares down too economic conditions in the future. structuring program, cutting capac- its own paper production, has be- since the end of 2005, has fallen far. Some are saying the rises could However, a weaker euro and drop ity at its sawmills and packaging and come a net exporter of paper itself. about 6.5% against the dollar since even mark the start of a sustained re- in oil prices aren’t enough on their tissue units. In June it said it will close Meanwhile, growth in Europe, the April. Meanwhile the price of oil has covery, so long as the companies own to restore profitability to the pa- a U.K. containerboard mill by 2010.. Pickens favors drilling ‘every place’ in U.S. for oil, gas By Jeffrey A. Trachtenberg children on $500 a month, which he ers and speculators. If you don’t The hydrocarbon era is shutting have to import. I’m for anything describes “as a pretty good salary” have one, you don’t have a market. down in the U.S. We peaked at 10 mil- American. I’m opposed to only one In his coming book, “The First Bil- at the time. At the age of 26, he That’s how it works. I don’t think lion barrels produced in 1970; today thing: foreign oil. Heck yes, drill. lion is the Hardest,” oilman T. Boone bought a station wagon and went speculators are destructive. They it’s five million barrels. We are fad- There is nothing wrong with drill- Pickens provides a series of vi- into business as a consultant. are an infinitesimal part of the mar- ing. If you are going out of business ing. We haven’t had an oil spill in 20 gnettes that he believes reflect key Two years later, he and ket. Fundamentals make you don’t go down with the ship, years. If you don’t like the appear- turning points—defeats and tri- several investors formed an the market. I’m amused you get another ship. For us it’s natu- ance of rigs, don’t look. umphs—in his business career. oil company that evolved when Congress tries to ral gas. We never felt our back was Mr. Pickens, who today is the into Mesa Petroleum, place the blame on some- against the wall. We didn’t know it WSJ: How can the U.S. lower the which eventually became body but never them- chief executive of BP Capital, a Dal- because our leadership didn’t tell amount of gasoline, and therefore one of the largest indepen- selves. I’ve never heard las-based hedge fund, also has a mes- us. Now we’re placing blame. But imported oil, it uses? dent oil companies in the any of them ever say, “I’ve Mr. Pickens: sage about the U.S.’s reliance on for- what we should have done is closed The answer is natural U.S. made a mistake.” I do. I say gas. We are so fortunate to have an eign oil. He wants the U.S. to cut the door and said, how do we get out Excerpts from an inter- I called it wrong. But they abundance of natural gas. It’s back on imports and invest aggres- of this trap? view: just try to find somebody cleaner, cheaper, and it’s ours. How sively in renewable energy re- to blame. could we ever have imported so sources, particularly wind power. In The Wall Street Journal: WSJ: What are your views on lifting much oil when we have so much nat- May, his Mesa Power LLP placed a BP Capital invests in the T. Boone Pickens WSJ: You’ve become a rep- the federal moratorium on offshore ural gas? The answer is we didn’t $2 billion order for wind turbines. commodity markets. Do resentative for renewable drilling for oil and gas? have leadership. We have 142,000 The 80-year-old Mr. Pickens speculators play a constructive energy, which seems odd for an oil- Mr. Pickens: I’m for drilling every natural-gas-powered vehicles, started out as a geologist at Phillips role? man. Did you have a conversion? place. And I’m for nuclear, and I’m mostly trucks. We sit here like dumb- Petroleum. Before he quit in 1954, Mr. Pickens: When you look at a Mr. Pickens: It’s not a conversion. for ethanol, because it means an- dumbs. We have plenty of natural he was supporting his wife and two commodities market you need hedg- It’s a necessity to save the country. other one million barrels we don’t gas. 6 MONDAY, AUGUST 18, 2008 THE WALL STREET JOURNAL. CORPORATE NEWS Carving out hybrid niche Swatch net declines 9% Car makers travel on investment downturn own paths to design By Martin Gelnar >ZURICH—Swatch Group AG re- Swatch fuel-efficient models ported a 9% drop in first-half net Net income, in Swiss francs profit as the downturn in financial 1.2 billion By Matthew Dolan markets hit its investment portfo- lio, but the company gave a bullish 1.0 Auto makers are angling to carve outlook for the second half. out their own niches in fuel-efficient On Friday, the watch and jewelry Full-year design for the U.S. market, from ex- maker’s shares rose 6.50 Swiss 0.8 pansion of the gasoline-electric hy- francs each to 257.75 Swiss francs brid technology already available in ($234.89). 0.6 the Toyota Prius to the new plug-in hy- The world’s largest watchmaker brid vehicle known as the Volt under in terms of sales and the owner of 0.4 General Motors development by brands such as Breguet and Omega 1st-half Corp. said net fell to 416 million Swiss 0.2 Hot off its success with its Prius se- francs, from 457 million francs a dan, Toyota Motor Co. announced Fri-

Sipa/Associated Press Sipa/Associated year earlier, after a 120 million- 0 day that it would make hybrid engine franc write-down on its portfolio of 2005 ’06 ’07 ’08 Toyota’s new rechargeable Prius hybrid prototype being charged at one of Paris’s systems available on all of its models stocks and bonds. by 2020. charging stations. Source: the company An estimated 47 million francs of Ford Motor Co., which has few hy- the charge was tied to Swatch brid options among its vehicles, plans Group’s 8% stake in Chinese retailer to double its hybrid-vehicle lineup small gas tank that would recharge assumed to lose money on hybrids, measured in local currencies, Mr. Xinyu Hengdeli Holdings Ltd., its and production next year. And Honda the battery if necessary. Consumers Toyota’s Bob Carter, head of North Hayek said. He added the recent re- single-biggest financial investment. Motor Co. said last week at an indus- would be able to recharge the vehicle American sales, said in an interview covery in the dollar against the Hengdeli stock lost around 30% of try conference in Traverse City, Mich., at home using a conventional house- that his company makes a profit on its Swiss franc also improves prospects its value in the first half amid the that in 2009, it will import a new hy- hold outlet. Prius hybrids, which recently ex- for the second half. market downturn. brid to compete directly against the The auto industry has scrambled ceeded sales of one million units glo- Swatch expects to continue to Prius in the U.S. market—and at a to meet shifting U.S. consumer de- bally. First-half sales increased 8.6% to benefit from a higher profile in lower price. mand toward small, fuel-efficient In another sign of the shifting mar- 2.82 billion Swiss francs from 2.6 bil- China, where Omega is an official The Chevrolet Volt still is sched- cars and away from trucks and sport- ket demand away from trucks, Toyota lion francs and the operating mar- sponsor of the Olympic Games, Mr. uled to go on sale in 2010, and its chief utility vehicles. Even though gasoline confirmed last week that the Japa- gin rose to 21% from 19.6% in the Hayek said. designer, Bob Boniface, gave the Cen- prices have recently retreated from nese auto maker abandoned its plans year-earlier period. Citigroup cited prospects for ter for Automotive Research’s man- above $4 a gallon, most auto makers to resume pickup-truck production at Chief Executive Nick Hayek said higher prestige-watch margins as one agement briefings seminars an early have said they consider the shift to- its plant in Indiana this fall. Originally, he was optimistic about the second of Swatch’s edges over its peers. look at the most recent styling ward small cars to be more or less a the company planned to restart pro- half, citing strong demand in July Swatch Group last month acquired a changes adopted to create a sleeker permanent change in the overall mix duction of its Tundra pickup there in and August, favorable exchange stake in Dubai-based luxury-goods re- front end and to extend its range on of vehicles customers want. And the November after a suspension earlier rates and prospects for a stabiliza- tailer Rivoli Group, which operates battery power through better aerody- companies intend to build them. this year. Production instead will be re- tion of financial markets. more than 245 retail outlets in Persian namics. Toyota and Ford have said they vived only at its Texas facility this fall, Swatch Group sales so far this Gulf countries. Terms weren’t dis- The Volt will be able to go at least haven’t been able to build enough hy- and the plant in Princeton, Ind., will month show a double-digit increase closed. 40 miles on its lithium-ion battery, brid vehicles to meet consumer de- take on production of the Sequoia and but the vehicle also will contain a mand. Though most auto makers are Highlander, which are both SUVs. Healthy BHP may still find Bids sought for Reed Elsevier unit Rio Tinto harder to acquire By Dana Cimilluca whittle down the list further, the EquityPartnersInc.andApolloMan- people said. A final round of offers agement LP,the people said. U.S. pri- By Robert Guy Matthews already given preliminary ap- The sale of Reed Elsevier’s trade- will likely be due in early October. vate-equity firms are the strongest proval, and the European regula- magazine division will enter a cru- The auction, dominated by pri- contenders because they have a On Monday, BHP Billiton, the tors—the biggest hurdle in the pro- cial phase as early as Monday, with vate-equity firms, is being closely greater level of visibility into the U.S. world’s largest miner, is expected posed deal—aren’t expected to the company’s bankers at UBS AG in- watched not only because the busi- portion of the business, which is to shatter its own earnings record rule until early next year. At issue viting bidders including Bain Capi- ness includes well-known titles knownasReedBusinessInformation, for the fiscal year as it rakes in is whether the combined company tal LLC and McGraw-Hill Cos. to sub- such as Variety, the Hollywood one of the people said. RBI’s revenue cash from historically high prices would control too much of the mit their second round of offers, trade magazine, but for clues as to is split roughly evenly between the for petroleum, iron ore, copper world’s iron ore, a main ingredient people familiar with the matter say. the health of the private-equity mar- U.S., the U.K. and the rest of Europe. and coal. in the making of steel, and result An initial round of bids for the ket, which has been ailing ever since Reed’s chief executive, Sir Crispin Its rival and acquisition target, in yet higher prices. Anglo-Dutch company’s division, the credit bubble popped last year. Davis, has said the trade-publication Rio Tinto, is also expected to post On the earnings front, BHP is due Aug. 11, value it at between Therelativelylargenumberofbid- unit is growing too slowly and is too very strong earnings when it re- benefiting from higher iron-ore £1 billion and £1.25 billion ($1.87 bil- ders bodes well for Reed’s desire to reliant on advertising revenue. ports on Aug. 26 because of high contract prices, which jumped lion to $2.33 billion), the people sell the hundreds of titles in one Officials for the bidders declined commodity prices. Unlike U.S. more than 80% in April, and oil said. With many of the 12 or so bids batch. Still, one person briefed on the to comment or couldn’t be reached. companies, which report earnings prices, which have fallen recently clumped around the same level, a auction said the bidders have been Reed officials declined to comment. quarterly, the Melbourne, Austra- but remain high. BHP has oil and majority of the suitors will be asked given relatively little information so —Aaron O. Patrick lia-based BHP reports earnings ev- gasexplorationandproductionop- to rebid in coming weeks in order to far.OtherbiddersincludeProvidence contributed to this article. ery six months. erations in the U.S., U.K., Australia A strong earnings performance and elsewhere. by both companies may actually Last month, the miner said it work against BHP’s proposed had record production for several $131.28 billion bid for Rio. Many in- of its commodities, including iron Failinggrade for ETS kills testing deal vestors own shares in both compa- ore, copper, manganese and alu- nies and may think a linkup isn’t mina. That bodes well for the bot- By David Armstrong thority, the government agency still haven’t received the scores. necessary since both are doing well tom line because the selling prices overseeing the testing program. Mr. Ewing said 99% of the results on their own. Rio has rejected BHP’s for many of its metals and miner- The U.S. testing company that ad- The move comes just one year for 11-year-olds have been delivered offer, saying the price is too low. als were at or near their peaks dur- ministers the SAT exam has lost a into what was to be a five-year deal to the schools while 95% of the tests “Actually, this could put Rio a ing the first six months of 2008. big contract in England after it valued at about $291 million. for the older students have been little further out of reach,” said For example, prices of iron ore are missed a deadline for scoring more ETS won the contract to score sent. He said he was prohibited by mining analyst Damien Hackett of about 70% higher than year-ago than a million standardized tests for the national curriculum tests in Feb- contract from discussing the reasons Canaccord Adams. He noted that levels, while copper prices are British schoolchildren. ruary 2007. The exams are given to for the grading snafu. A government strong earnings for both compa- 20% higher. The early termination of the Brit- 11- and 14-year-olds in England and spokesman said the delays were nies puts Rio in a better position “Clearly, we will have record- ish contract comes at a time when cover three subject areas: English, caused by a combination of issues, in- to demand more money from BHP, breaking numbers from BHP,” said Educational Testing Service,of science and math. cluding computer problems and a which is hoping to win regulatory Charles Cooper, a mining analyst Princeton, N.J., has made interna- The test results were slated to be lack of support for graders who had approval in various countries by for Evolution Securities. tional expansion a priority. The pri- delivered to schools by July 8, but questions on how to score the exams. the beginning of 2009. BHP,Rio and other mining com- vate testing and assessment com- ETS didn’t make the deadline. An The botched exam scoring has BHP’s bid for Rio faces other panies have been ramping up pro- pany said the “dissolution of the con- ETS spokesman, Thomas Ewing, said prompted calls for the resignation hurdles. Earlier this month, Aus- duction to take advantage of in- tract was entirely mutual and agree- that the company had graded about of some education officials in Eng- tralia’s competition regulator de- creased industrial demand, partic- able.” It made the announcement in 90% of the exams, but that the govern- land, as well as for government in- layed its ruling on the proposed ularly in China. China’s industrial a joint press release with Britain’s ment decided it didn’t want to de- quiries to determine what went takeover, saying it needed more in- production rose about 16% in the Qualifications and Curriculum Au- liver partial results. Some schools wrong. formation from BHP. The U.S. has first six months of 2008. THE WALL STREET JOURNAL. MONDAY, AUGUST 18, 2008 7 CORPORATE NEWS Spacesuit pact in doubt American Airlines faces NASA seeks to end FAA fine of $7.1 million By Paulo Prada las MD-80 aircraft on several flights contract due to error And Andy Pasztor with a malfunctioning autopilot. The agency alleges that even af- in evaluating costs The U.S. Federal Aviation Admin- ter an FAA inspector alerted the air- istration, proposing one of its big- line about the problem, the airline By J. Lynn Lunsford gest penalties ever, said it plans to used the plane to carry passengers fine AMR Corp.’s American Airlines on 10 more flights before it was Officials of the U.S. space pro- $7.1 million for allegedly violating taken out of service. In total, the gram want to reopen the competi- employee drug- and alcohol-testing FAA said American flew passengers tion for next-generation spacesuits procedures and knowingly flying air- on 58 flights in aircraft that weren’t after determining they made a mis- planes that broke maintenance regu- fit for service. take in evaluating costs when chos- lations. The FAA also alleged that Ameri- ing to unseat incumbent Hamilton The fines, unrelated to the can operated more than 320 flights Sundstrand last month and go with groundings of American jetliners in 2005 and 2006 without doing another company. earlier this year, are the latest in a mandatory checks of emergency The move is an apparent effort series of clashes between airlines cabin-floor lighting at the proper to head off a similar decision by the and the agency that oversees them. times. The FAA also said that be- U.S. Government Accountability Of- The latest problems aren’t consid- tween 2005 and 2007 the airline fice, which was already considering Press Associated ered to have been serious threats to failed to properly oversee drug tests a protest by Hamilton’s parent, NASA wants to reopen bidding for its next-generation spacesuits. Astronaut aviation safety, but they reflect per- for flight attendants and a smaller United Technologies Corp., and its Ronald Garan Jr. during a June spacewalk on the International Space Station. sistent problems in supervising and number of mechanics. In some partner, ILC Dover. The GAO still documenting maintenance work. cases, employees knew beforehand must approve a recommendation by The fine proposed Thursday cov- that they would be tested, the the National Aeronautics and Space cause they disagreed with the way have become more scarce, adding ers four different enforcement ac- agency said. Administration to partially reopen NASA evaluated costs. According to an incentive for companies to com- tions by the agency. The largest por- In a statement, American said, the competition. people familiar with the bids, NASA plain, especially when they feel they tion of the fine, amounting to $4.1 “We do not agree with the FAA’s NASA declined to discuss details officials added $300 million to the haven’t been offered a full account- million, stems from allegations that findings and characterizations of but said that “a compliance issue” United Technologies team’s cost esti- ing of how the award was made. American’smechanicsfailedtoprop- American’s action in these cases. requires it to terminate its contract mates because they didn’t believe United Technologies in recent erly identify and fix certain prob- We believe the proposed penalties with winner Oceaneering Interna- the spacesuit maker’s figures. NASA months disputed the Pentagon’s lemswithmalfunctioningautopilots are excessive.” In line with FAA pro- tional Inc. added roughly $100 million to Ocean- award of an Air Force search-and- and other systems in December cedures, the airline said it would The Wall Street Journal, however, eering’s estimates, giving Oceaneer- rescue contract to Boeing Co., forc- 2007. In the most serious instance, meet with agency officials to dis- reviewed a letter in which NASA in- ing an edge. ing a new competition. And Boeing the airline used a McDonnell Doug- cuss the issues and proposed fines. formed the GAO that NASA had failed Friday, Hamilton Sundstrand— won a new contest after it protested to request a “cost-accounting stan- speaking on behalf of Exploration the Air Force’s decision to award a dards disclosure statement” from Systems & Technology, the joint ven- $40 billion contract for aerial-refu- Oceaneering during its deliberations. ture it formed with ILC Dover—said eling tankers to Northrop Grum- “The agency must re-examine both of- it was concerned that NASA’s pro- man Corp. and European Aeronau- ferors’ cost proposals,” the letter posal to reopen the competition in a tic Defence & Space Co., parent of says. “To the extent that any irregu- limited way “may not provide any Boeing rival Airbus. larities are identified, appropriate re- opportunity to correct the signifi- The spacesuit contract is valued evaluation must be made.” cant errors and deficiencies” that at an initial $184 million for design Hamilton and ILC Dover had the team identified in its protest. and development through Septem- been the sole suppliers of spacesu- “It is surprising that NASA ber 2014. Subsequent options to its since the Apollo missions in the would allow our competitor to re- make a variety of the suits for use in 1960s and 1970s, making the signa- vise its proposal to cure a disqualify- orbit and on the moon could add ture white suits seen in the moon ing legal deficiency, without afford- roughly $562 million to that total, walks. While the contract isn’t large ing EST—which was determined to stretching through 2018. in terms of dollars, providing the be fully eligible for award of the con- Oceaneering teamed up with spacesuit has long been a point of tract—to address any lesser issues.” David Clark Co. to win the spacesuit pride. Officials at Oceaneering didn’t re- competition. David Clark has a long Both United Technologies and turn a phone call seeking comment. history of providing equipment to ILC Dover protested NASA’s decision Challenges such as this have NASA, including the orange pres- to chose Oceaneering, in part be- picked up as government contracts sure suits used by astronauts. Getty Images The reunion tour of the Police, a Live Nation production, took in $360 million. Lehman faces another big loss For Ticketmaster, big client By Randall Smith person familiar with the matter. If it are falling with no end in sight. For and Susanne Craig does, it will give investors a window example, Lehman holds $10.2 billion into any losses. of Alt-A mortgages, or loans made set to become big competitor Lehman Brothers Holdings Inc. In the past few months, Lehman to borrowers who didn’t fully docu- has been taking its time as it wres- officials have examined an array of ment their income. The firm has an By Ethan Smith national expansion and cost cutting. tles with how to escape the prob- options to bolster the company’s fi- additional $11.5 billion in exposure Ticketmaster is one of four units lems haunting the investment bank. nancial position, ranging from sell- to leveraged-buyout financing. On Thursday, Ticketmaster, a di- being spun off by IAC in an attempt It probably can’t wait much longer. ing of troubled real-estate assets at David Trone, an analyst at Fox- vision of Barry Diller’s IAC/Inter- to jump-start the parent company’s With the end of the New York a discount to divesting a piece of Pitt, Kelton, predicts that Lehman ActiveCorp, begins trading as a share price. Ticketmaster, of West company’s fiscal third quarter less profitable asset-management unit will write down its Alt-A portfolio standalone company—just as the Hollywood, Calif., last summer ac- than two weeks away, some ana- Neuberger Berman, according to by about $1.7 billion, or 17%, at the ticketing giant faces one of its big- quired Paciolan, which sells tickets lysts are girding for a loss of $1.8 bil- people familiar with the matter. end of the current quarter. gest challenges. to college sports events; in January lion or more, instead of the modest Another stock offering would be J.P. Morgan Chase & Co.’s write- Ticketmaster’s biggest client, it bought two big resale services, profit they previously expected. If hard to pull off without angering ex- down of $1.5 billion in Alt-A and Live Nation Inc., plans to launch its TicketsNow Inc. and Get Me In Ltd. the dour projections come true, Leh- isting shareholders, largely because other mortgages, disclosed in a secu- own ticketing business in January, The company hopes this sum- man’s losses since the start of the tidal wave of common shares rities filing last week, also prods after their current 10-year contract mer’s Olympic Games will serve as a March would total at least $4.5 bil- floated in June has since plunged in Lehman to take its own haircut on expires. Live Nation concerts last springboard to an expanded pres- lion—or more than the firm value by 42%. On Friday, Lehman home-loan exposure. Mortgage year represented 14% of Ticketmas- ence in China. Ticketmaster is part churned out in profit during fiscal stock slipped three cents, or 0.2%, to write-downs also might be trig- ter’s $1.2 billion in revenue, and of a joint venture that has an exclu- 2007. $16.17 in New York Stock Exchange gered by price levels in sales related Live Nation has made no secret of its sive contract to sell Olympics tick- The likelihood of back-to-back composite trading at 4 p.m. to the recent restructuring of struc- desire to compete with Ticketmas- ets, and is also a partner in Emma quarterly losses, fueled by widely Lehman has been working hard tured investment vehicles such as ter for other clients in the future. Ticketmaster, which stages con- anticipated write-downs in a portfo- to reduce its exposure to assets caus- Cheyne Finance PLC. Among Live Nation’s productions certs by Western acts in China. lio saddled with more than $50 bil- ing it big headaches, and the firm’s Mr. Trone expects Lehman to this year was the reunion tour by the The company hasn’t offered ana- lion in risky real-estate and mort- balance sheet shrank 19% to $639 bil- pile up overall write-downs of $3.6 Police, which took in $360 million at lystsprojectionsonearningsinChina gage assets, puts even more pres- lion in the fiscal second quarter billion, offset by $800 million in theboxoffice,accordingtotrademag- or other new markets including Ger- sure on Lehman Chairman and Chief ended May 31. Lehman is aiming to hedging gains. While that obviously azine Billboard, making it the third- many,Turkey and Spain. Chief Finan- Executive Richard S. Fuld Jr. to further winnow its exposure to would be painful, it is “not meaning- highest-grossing tour yet, behind cialOfficerBrianRegansaidinrecent show the losses won’t keep piling risky assets by at least 20% per quar- ful enough, in our view, to necessi- tours by the Rolling Stones and U2. years, Ticketmaster’s international up. If they do, Lehman could need to ter, two Wall Street analysts said tate additional capital raises,” Mr. Ticketmasterhasspentmorethan business has grown faster than the raise additional capital beyond the last week. But those moves aren’t Trone concluded. He expects Leh- a year preparing for the split from company overall. International reve- $6 billion it got in June. Lehman is coming fast enough to offset the mis- man to post a net loss of $1.8 billion, Live Nation, aggressively looking for nue has grown an average 30% a year, considering pre-announcing its ery caused by continuing stress in far worse than his previous esti- ways to offset the effects of the lost comparedwith14%ayearforthecom- earnings this month, according to a the housing market, where prices mate of a $250 million profit. revenue through acquisitions, inter- pany as a whole, he said. 8 MONDAY, AUGUST 18, 2008 THE WALL STREET JOURNAL. CORPORATE NEWS GLOBAL BUSINESS BRIEFS

Harmony Gold Mining Co. Vodafone Group PLC J.C. Penney Co. Apple to correct problem Loss narrows amid sales rise Vodafone Group PLC of London J.C.PenneyCo.saidsecond-quar- Sunday said it has completed the ac- ter profit fell 36%, but the retailer’s and drop in production costs quisition of a 70% stake in state-con- sharesmovedhigheroncostcontrols Harmony Gold Mining Co., trolled fixed-line and mobile opera- and inventory management. Penney of iPhone’s dropped calls which has been selling off assets and tor Ghana Telecom for $900 million also gave a third-quarter earnings cutting jobs since the departure of on a debt-free basis. Last week, the forecast that missed analysts’ esti- ness. But the effectiveness and its chief executive a year ago, said its Ghanaian Parliament approved the mates as it expects back-to-school Software fix coming speed with which Apple comes up fourth-quarter loss narrowed. The sale, despite criticism from the op- sales to be weaker than last year’s with a solution for the dropped calls Johannesburg company reported a position party, whose members be- and to occur later. Even so, the Plano, for version of device could affect the long-term success net loss of 71 million rand ($9 mil- lieve the shares are undervalued Texas, retailer’s shares rose Friday. of the iPhone, an important growth lion) for the quarter ended June 30, and say the deal isn’t in the national Net income fell to $117 million, or 52 released last month market for the company. compared with a 636 million rand interest. Ghana Telecom is the lead- cents a share, in the three months “It’s not about whether you have loss a year earlier. An impairment ing fixed-line operator in Ghana, endedAug.2,from$182million,or81 By Nick Wingfield problems or don’t have them,” said charge of 316 million rand following with a 17% share of the mobile mar- cents, a year earlier. The company And Amol Sharma Ken Dulaney, a mobile analyst at re- the reassessment of certain assets, ket, which Vodafone intends to in- said last week that sales dropped search firm Gartner Inc. “It’s how as well as higher taxes and the cost crease to 25%. 2.5% to $4.28 billion in the quarter. Apple Inc. is working on a soft- quickly you address them that mat- of job losses and restructuring ef- Penney said it expected per-share ware fix for its new iPhone 3G to ters. If Apple addresses them, peo- forts, hit the bottom line. Revenue Cadence Design Systems Inc. profit to be 70 cents to 75 cents a remedy dropped phone calls that ple will cut them slack.” rose 39% to 2.62 billion rand, al- share for thethird quarter,with sales some users are experiencing, ac- New iPhone software aimed at though production fell 29%. Produc- Cadence Design Systems Inc. forecast to decline at a rate in the low cording to people familiar with the addressing the problem is expected tion costs dropped 12%; however, withdrew its $1.49 billion proposal single digits. It said it wasn’t provid- matter. to be made available in the coming production improved 13% from the to acquire Mentor Graphics Corp. af- ingafull-yearoutlookbecauseofeco- The move by Apple could help ad- weeks to iPhone 3G users, who will previous quarter, when power short- ter being rebuffed by the rival semi- nomic uncertainty. dress a chorus of online complaints be able to download and install it ages forced South African miners to conductor-design-software compa- from users who have said the device through Apple’s iTunes Store. suspend operations for five days. ny’s board and management. After Abercrombie & Fitch Co. suffers from an unusually high num- Apple believes the problems are the withdrawal, Mentor shares fell ber of phone calls that are dropped related to a chip inside the iPhone Hennes & Mauritz AB 26% to $10.33 Friday. Cadence U.S. apparel chain Abercrombie in midconversation. 3G made by Germany’s Infineon shares rose 6.7% to $7.64. In June, & Fitch Co. said its fiscal second- A spokeswoman for Apple de- Technologies AG, people familiar Sweden’s Hennes & Mauritz AB Cadence offered $16 a share for Men- quarter profit fell 4.2%, hurt by con- clined to comment. Michael Coe, a with the matter say. According to reported a 15% rise in July sales, de- tor, a 30% premium over what the sumers cutting back on discretion- spokesman for AT&T Inc., Apple’s the preliminary findings of a dissec- fying an economic slowdown as cost- shares were trading at before the ary purchases, and it gave a weaker- wireless-carrier partner in the U.S., tion of the iPhone 3G by Gartner, Ap- conscious shoppers appeared to fa- deal was announced. At the time, Ca- than-expected full-year outlook.Ab- said the iPhone 3G, like all devices it ple appears to be using a custom- vor its moderately priced clothes. dence Chief Executive Michael Fis- ercrombie sales have been curtailed carries, has varying performance made Infineon chip as the “base- Europe’s second-largest fashion re- ter said the deal would allow by a slowdown in mall traffic and by based on factors like the proximity band processor,” a component that tailer by revenue, behind Spain’s In- greater integration of its product consumers who have curbed spend- of the user to a cell tower and inter- handles the connections between ditex SA, said sales from stores line, which focuses on initial steps ing or turned to lower-cost rivals ference from buildings and trees. the device and cellular networks. open longer than a year increased in designing semiconductors, with such as Aeropostale Inc., analysts Mr. Coe wouldn’t say whether the Mr. Dulaney said that decision to 3%. In June, sales in established Mentor’s software, which special- said. Net income in the quarter iPhone is more prone to dropped use a custom chip, rather than a stores dipped 2% as economic izes in steps associated with manu- ended Aug. 2 fell to $77.8 million, or calls than other phones on the com- more standard part, could be re- gloom weighed on the retail sector. facturing. Mentor responded to the 87 cents a share, from $81.3 million, pany’s network. lated to the iPhone’s dropped calls. The gains came despite recent down- withdrawal saying that it was incon- or 88 cents, a year earlier. . Sales rose Glitches are common for new en- An Infineon spokeswoman beat news from Germany, H&M’s big- sistent with Cadence’s recent com- 5.1% to $845.8 million. Comparable- trants in the mobile-phone busi- didn’t return calls for comment. gest market, where total clothing munications with the company. store sales dropped 4%. Abercrom- sales were down 2% according to in- bie forecast full-year profit of be- dustry data—still better than the Hershey Co. tween $4.95 and $5 a share, with the 11% slump in June. In Sweden, one of low end of the outlook reflecting a 7% H&M’s other key markets, July cloth- Hershey Co. again raised whole- decline in same-store sales. Wachovia joins other banks ing sales fell 7.7%, according to the sale prices, this time nearly 10%, to Swedish Trade Federation, com- offset rising raw-material and fuel Hynix Semiconductor Inc. pared with a 12.2% decline in June. costs. The U.S. company also voiced in buying back securities some near-term pessimism. “Com- Hynix Semiconductor Inc. will pur- GlaxoSmithKline PLC modity costs have been volatile over chase a smaller-than-expected stake By Dan Fitzpatrick marketed the complex securities. the last several years and continue in rival ProMOS Technologies Inc. for Mr. Cuomo said J.P. Morgan GlaxoSmithKline PLC said re- to remain at levels that are well 25%lessthanoriginallyplanneddueto Wachovia Corp.is buying back as would pay $25 million in civil penal- sults from a trial studying Advair above historical averages,” said recent declines in the Taiwan compa- much as $8.8 billion in illiquid auc- ties while $35 million in penalties for the treatment of chronic obstruc- David J. West, president and chief ex- ny’sshareprice.ProMOSTechnologies tion-rate securities, but the decision will be paid by Morgan Stanley. The tive pulmonary disease, or COPD, ecutive. “Market prices for ingredi- said it will now sell 576 million shares should have minimal impact on the penalties will be divided between suggest the asthma inhaler can slow ents such as cocoa, corn sweeteners, at six New Taiwan dollars (19 U.S. Charlotte, N.C., bank as it works its New York, which will get about $25 progression of the disease, which ac- sugar and peanuts are up 20% to cents) each to Hynix, down from 640 way through more-serious head- million, and members of the North counts for more than three million 45% since the beginning of the year.” million shares at NT$7.96 each that aches relating to the U.S. mortgage American Securities Administra- deaths world-wide each year. This is Hedging strategies for 2009 will add they agreed in mid-June. The transac- rout, analysts said Friday. tors Association, which is made up the first time a treatment has been $10 million to $12 million, or three tion was approved by ProMOS’s board Under an agreement between the of state securities regulators. shown to slow the decline in lung cents a share, to its original esti- Friday, ProMOS said. The transaction U.S.’s fourth-largest bank by assets, Morgan Stanley had previously function and progression of the dis- mate for a $100 million increase in will be valued at NT$3.46 billion theSecuritiesandExchangeCommis- said it would buy back $4.5 billion in ease, the drug maker said. The re- 2008 raw-material costs. Hershey (US$110.3 million) based on the new sion, New York Attorney General An- auction-rate holdings from clients. sults showed using Advair can de- expects 2008 earnings per share terms, compared with NT$5.09 billion drew Cuomo and the Missouri secre- In recent weeks, Citigroup Inc., UBS crease the excess decline in lung from operations to be at the low end previously. Hynix, the world’s second- tary of state, Wachovia Securities AG and Merrill Lynch & Co. an- function by more than 50%, com- of its forecast of $1.85 to $1.90. The largestcomputermemory-chipmaker LLC and Wachovia Capital Markets nounced plans to buy back billions pared with patients receiving a pla- company expects net sales growth by revenue after Samsung Electronics LLC will buy back $5.7 billion in auc- of dollars of the securities. cebo. COPD is an umbrella term for of 3% to 4% for the year, with volume Co., will hold roughly an 8.6% stake in tion-rate securities by Nov. 28, ac- In other developments: lung diseases that inflame airways falling below expectations because ProMOS after the transaction. cording to the SEC. The twounits will n Mr. Cuomo sent a letter Friday and obstruct breathing. Advair, also of the price increases. buyanadditional$3.1 billionofthese- toMerrillLynch&Co.indicatinghein- sold as Seretide, is the drug maker’s Ping An Insurance (Group) Co. curities by next June, the SEC said. tends to take legal action against the top-selling product, reporting sales Mrs. Fields Famous Brands LLC A person close to the New York firm despite an offer from Merrill to of Œ3.5 billion ($5.1 billion) in 2007. PingAnInsurance(Group)Co.of attorney general said the buyback buy back auction-rate holdings from Mrs. Fields Famous Brands LLC, China Ltd. said first-half net profit numbers are estimates and that Mr. individual, or retail, investors be- UAL Corp. which serves up fresh-baked cook- fell 2% from a year earlier after a Cuomo’s office expects the bank to tweenJan.15, 2009, andJan.15, 2010. ies and TCBY frozen yogurt at more drop in investment gains more than purchase $6.4 billion in November Merrill’s retail clients hold about Jake Brace, executive vice presi- than 1,200 franchises across the offset a rise in premiums. Net profit and a further $2.1 billion in June. $12 billion in auction-rate securities, dent and chief financial officer of U.S. and at 80 locations internation- in the six months fell to 9.49 billion Wachovia, which neither admitted but the firm expects that number to United Airlines parent UAL Corp., ally, is planning to file for Chapter 11 yuan ($1.38 billion) from a revised nor denied wrongdoing, also will drop to less than $10 billion by Janu- will retire Nov. 1 after 25 years in the bankruptcy protection, according 9.69 billion yuan a year earlier. The pay $50 million in civil penalties. ary 2009 as a result of expected issuer industry. He will be succeeded by to a U.S. Securities and Exchange result was well above the average Theannouncementcameadayaf- redemptions. “We have been discuss- Kathryn Mikells, who is United’s vice Commission filing. The company forecast of 8.3 billion yuan by ana- terJ.P.MorganChase&Co.andMor- ing this issue with New York and other president of investor relations. Mr. was trying to negotiate a restructur- lysts who had expected Ping An’s ganStanleyagreedtobuyback more regulators” and “we thought we were Brace, 50 years old, joined United in ing accord with senior noteholders earnings to be badly hit by declines than$7billioninauction-ratesecuri- making progress,” the company said. 1988 and became finance chief in but warned in June that it might in both the Hong Kong and China eq- ties as part of an agreement to end n Mr. Cuomo’s office said it is in- 2001,justastheindustryheadedinto have to seek protection from credi- uities markets. Ping An’s premiums probes by regulators into how they vestigating FidelityInvestmentsand a financial tailspin after the Sept. 11 tors if it couldn’t complete the deal rose24%to54.19billionyuan.Netin- Charles Schwab Corp. as part of his terrorist attacks. He presided over out of court. Mrs. Fields indicated it vestmentincomefell 64%to 9.28bil- probe into the marketing and sales of UAL’s three-year bankruptcy-court would file a prepackaged bank- lion yuan.Ping An is 16.8%-owned by auction-ratesecurities.Schwabis“co- reorganization. Mr.Brace also was at ruptcy reorganization plan with the HSBC Holdings PLC and is China’s operating with these requests,” said Executive Travel Program the forefront of UAL’s post-Chapter U.S. Bankruptcy Court in Wilming- second-largestlifeinsurer bypremi- Greg Gable, spokesman for the San 11 strategy of finding a merger part- ton, Del. The plan calls for notehold- ums after China Life Insurance Co. It Guests and clients of 320 leading hotels and car rental agencies Franciscomutual-fundcompany.Bos- ner. But the industry’s recurring fi- ers to exchange $195.7 million in also owns a 5% stake in Dutch finan- receive The Wall Street Journal ton-basedFidelitydeclinedtodiscuss nancial pressures brought on by sky- notes for $90 million in cash, $50 cial company Fortis NV. Europe daily, courtesy of communications with regulators. rocketing fuel prices caused UAL to million in new senior secured notes addictlab.comTM —Chad Bray, Judith Burns instead settle on a plan to form a and 87.5% of new common stock. global creative think tank and Jennifer Levitz close marketing alliance with Conti- Noteholders are expected to re- —Compiled from staff contributed to this article. nental Airlines Inc. cover 86.5% on their claims. and wire service reports. THE WALL STREET JOURNAL. MONDAY, AUGUST 18, 2008 9 ECONOMY & POLITICS

LIECHTENSTEIN OPEC U.S. 7 7 7 Banks aim to clamp down Economic slowdown could Manufacturing sector on tax dodges from abroad damp oil-demand growth shows improvement IECHTENSTEIN said its HE Organiza- HE U.S. manu- banks will do more to co- tion of Petro- facturing sector Loperate with other states T leum Exporting T is showing signs after a German scandal over Countries warned of life even as consum- tax dodgers who parked their that a global eco- ers stay gloomy. cash in the tiny principality. nomic slowdown will Industrial produc- But Prince Alois von und lead to further weak- tion increased 0.2% in zu Liechtenstein, left, the ening of oil-demand July after rising a re-

head of the tiny Alpine state, IndexOpen growth and high-

Fotosearch vised 0.4% in June, stopped short of giving details lighted the potential the Federal Reserve on the level of cooperation for a sharp build in crude-oil inventories. said. Manufacturing output rose 0.4%, driven by a

Associated Press Associated Liechtenstein would now offer The current “contango” structure of the crude 3.6% rise in motor-vehicle and parts production. countries such as Germany. market, in which near-term futures contracts It isn’t clear how much of the improvement in He said the days were long past when the princi- months are cheaper than delivery dates in the fu- manufacturing production was due to temporary fac- pality could rely on its renowned banking secrecy ture, indicates current supply is more than suffi- tors, like the end of a strike at an auto-parts maker. for the success of its banking business. cient and would further encourage stock building, But the data suggest that exports continue to prop Earlier this year, a German investigation forced the group said. It reiterated that demand for OPEC up an otherwise anemic American economy. the resignation of Deutsche Post Chief Executive crude is expected to decrease by around 700,000 A separate survey showed that consumers are Klaus Zumwinkel. —Reuters barrels a day next year. —Angela Henshall staying glum but are more hopeful about the future.

Aiming high High-income taxpayers account for the vast majority of reported Obama lays out tax plan capital gains in the U.S. 0.3% 2.7 Adjusted gross Capital gains as a Jason Furman, Sen. Obama’s eco- in that capital could hurt business 15.1% income (AGI) percentage of AGI Proposed higher levy nomic-policy director, said the plan and the U.S. economy, Mr. Josten 16.8 more than 39.5% would cut taxes to less than 18.2% of said. He said the business commu- 16.1 60.6% $1 million on gains, dividends grossdomesticproduct.“That’slower nity also is concerned that Sen. than the level of taxes when Ronald Obama’s broader tax plan would re- $200,000– 13.5 comes under fire Reagan was president,” he said. move more individuals from the in- 32.0 $1 million The proposed rates are below come-tax rolls, a situation that could 80.3 By Deborah Solomon the levels many had expected, given lead to future tax increases on $75,000– 3.6 Sen. Obama’s campaign rhetoric. wealthier Americans. 22.0 200,000 EMOCRATIC U.S. presiden- Nonetheless, critics said the plan The Obama campaign called on 36.8 tial contender Barack Obama would exacerbate an economic slow- former Clinton administration Trea- 11.2 less than 1.8 D sought to quiet critics by of- down and harm workers. sury Secretary Lawrence Summers 6.2 $75,000 fering specifics about his tax plan, “The U.S. economy is in a weak to defend Sen. Obama’s plans. “At a share of share of adjusted share of but his proposal to raise tax rates on state. We’ve got a credit crunch, high time when the 10-year interest rate tax returns gross income capital gains Note: Figures may not total 100% due to rounding. Data exclude short-term investment income and expand pay- oil prices…this is not the time to be is in the three’s, at a time when it is Source: Tax Policy Center gains taxed as ordinary income roll taxes is continuing to draw fire raising anybody’s taxes,” said John clearly lack of demand for products from some who say it will harm Taylor, a Stanford University econo- rather than the cost of capital that is workers and the economy. mist who is advising Sen. Obama’s ri- inhibiting investment, the idea that raising taxes on capital gains and div- lion individuals from the income-tax Sen. Obama outlined a plan val, Republican Sen. John McCain. a return to the tax policies of the idends will only further endanger an rolls. He would roll back some of Thursday to raise tax rates on capi- “When the investment tax rate is 1990s would somehow damage the already-weakening economy and President George W. Bush’s 2001 and tal gains and dividend income from higher it affects behavior because economy in a substantial way seems punish the more than half of all 2003 tax cuts and raise taxes on fami- 15% to 20% for individuals and fami- we see a retrenchment of companies to me supported by neither theory American households that are in- lies earning more than $250,000. lies making more than $200,000 and paying dividends,” said Bruce Jos- nor evidence nor the longer-term his- vested in the stock market,” said Sen. McCain’s plan would benefit $250,000, respectively. He also de- ten, executive vice president of gov- tory,” Mr. Summers said. Travis Larson, a spokesman for the wealthier Americans because he has tailed a plan to levy payroll taxes on ernment affairs at the U.S. Chamber The Securities Industry and Fi- group. vowed to keep all of Mr. Bush’s tax earnings above $250,000 at a rate be- of Commerce. nancial Markets Association, a trade Both Sens. Obama and McCain cuts in place. tween 2% and 4%, though that in- Dividends and capital gains lure group, criticized the proposed in- promise to cut taxes for the majority The Obama campaign has said crease wouldn’t occur for at least a investors to participate in the stock vestment-income tax increases as of Americans. Sen. Obama would that repealing the Bush tax cuts decade. Right now, payroll taxes, market, and their investment pro- dangerous. “The next occupant of skew his cuts toward lower- and mid- wouldboost revenue by $100 billion a used to fund retirement benefits, vides capital for companies to use to the Oval Office is going to face some dle-income groups and has said his year,including$15billionfromhigher are levied on income up to $102,000. expand their business. A reduction tough choices on fiscal policy, but plans could remove as many as 17 mil- capital-gains and dividend taxes. Obama raises nearly twice McCain’s tally,but outlays soar By Christopher Cooper ended the month with $65.8 million lions of dollars on a ground organiza- Obama campaign’s burgeoning ex- you have to close one, it can become a in cash, about $5 million less than it tion manned by hundreds of staffers. penses is the number of field offices it huge local news story.’’ WASHINGTON—U.S. presidential reported on hand June 30, excluding This organization is concentrating has opened. The campaign reports it But Joe Trippi, who ran cam- hopeful Barack Obama beat John debt. That suggests the campaign’s on registering new voters. The cam- has 131 such offices in five potential paigns for Democrats Howard Dean in McCaininfundraisingforJuly,butthe spending more than doubled month paign focus likely will shift to a voter- battleground states, compared to 13 2004 and John Edwards this year said Illinois Democrat appears to have to month, to nearly $56 million in identification strategy, in reported by the McCain cam- the ground presence could put Sen. needed every penny, because the ex- July from $25.7 million in June. Sen. which the campaign will at- paign. In Florida, for exam- Obama over the top. “Any political op- penseofhislargefieldoperationateup McCain also spent more than he tempt to guide these new ple, the Obama campaign erative, Obama’s included, will tell several million dollars more took in: He ended July with registrants to the polls. lists 32 local offices, com- you that a big field operation is good thanhetookinforthemonth. about $4 million less on Neither campaign has re- pared to three for Sen. for three or four points, and in a close The Obama campaign hand. But his monthly leased itemized expense fig- McCain. In Missouri, the ra- state, that could be enough,’’ he said. said over the weekend it spending remained steady ures for July. In early June, tio is 29 to 1, while in New The donor figures belie a more raised more than $51 mil- in July at about $31 million. the Obama campaign un- Mexico it stands at 23 to 1. level playing field between the two. lion last month, typically a The spending of the two veiled a volunteer program Democratic and Republi- Sen. McCain has chosen to receive slow time for fund raising. offers a view of their strate- that called on supporters to can strategists differ on the federal campaign funds, so his total Sen. McCain reported $27 gies. Sen. McCain trails Sen. donate 30 hours of time a wisdom of Sen. Obama’s independent fund raising is limited million in July donations. Obama in overall fund rais- week, with the promise strategy. Scott Reed, who by federal rules. Come September, af- While Sen. Obama’s ing and is apparently shep- they would be put on the John McCain ran the presidential cam- ter the Republican nominating con- fund raising has smashed herding his money, aiming paid staff if they did this for paign of former Republican vention, he will be entitled to $84.5 records—his campaign to run a conventional cam- six weeks. Some 3,500 people re- Sen. Bob Dole, said Sen. Obama’s defi- million in taxpayer money to bank- claims two million people Barack Obama paign that will rely on a tar- sponded. Converting those volun- cit spending in July should trouble roll his general election bid. Sen. have given a cumulative geted television blitz. Sen. teers to paid staff could account for him. “That’s the first sign that Obama has opted out of public financ- $390 million to his campaign—the Il- Obama, whose fortunes have ridden much of the organization’s balloon- they’re going to have difficulties in ing, and so won’t receive any public linois senator is spending at a on getting new and irregular voters ing expenses in July. the fall,’’ he said. “Maintaining local money. But he isn’t constrained by record clip. The campaign said it to the polls, has spent tens of mil- The other likely reason for the offices is really expensive—and if the program’s spending limits. 10 MONDAY, AUGUST 18, 2008 THE WALL STREET JOURNAL. ECONOMY & POLITICS Partytime for U.S. parties Some Democrats face Lawmakers, lobbyists challenge from the left By Brad Haynes Porter rather than the Democratic to skirt ethics rules nominee, Kathy Dahlkemper. Mr. FACTORYVILLE, Pa.—In 2006, Klein has praised the third-party run at convention fetes liberal and centrist Democrats put and helped Mr. Porter raise money aside longstanding differences to despite Democratic concerns that a By Brody Mullins support candidates across the politi- divided liberal vote will hurt the And Elizabeth Williamson cal spectrum in pursuit of the par- odds of a party pickup in a tight race. ty’s first congressional majority in In 2006, Mr. Carney “portrayed WASHINGTON—When the Demo- 12 years. Now, as Democrats have himself as a progressive to us,” says cratic Party holds its convention start- grown confident about expanding Mr. Klein, who now calls him a “mas- ing Aug. 25, members of the U.S. Con- that majority, old fissures are re- ter triangulator.” gress will be able to hear singer Kanye emerging as some left-leaning activ- Meanwhile, just as Blue America West at an all-expenses paid party ists once again emphasize loyalty to has rebuked Mr. Carney, he has sponsored by the recording industry. their ideas over loyalty to the party. backed away from the party’s lib- They can play in a poker tourna- One of the first big battle- eral wing. “If the extremes on both ment with actor Ben Affleck, courtesy grounds is in northeastern Pennsyl- sides are attacking me, I’m probably of the poker industry. They can try to vania, where liberal bloggers who where I need to be,” he said, while hit a home run at Coors Field, home of boosted Rep. Chris Carney’s 2006 shooting skeet at a campaign event the Colorado Rockies professional upset win over a four-term Republi- in his sprawling rural district. baseball team, thanks to AT&T Corp. Press Associated can incumbent have this year The first Democrat to represent Free drinks and cigars will be on offer Despite ethics laws adopted by Congress in 2007, politicians and lobbyists will be turned against the freshman Demo- his conservative-leaning district at a bash thrown by the liquor indus- hosting a slew of lavish parties at this year’s Democratic National Convention in crat, actively campaigning for his de- since 1961, the freshman representa- try. Denver. feat in November. Upset by Mr. Car- tive has distanced himself from the The corporate largesse is on tap de- ney’s advocacy of President George 2006 support of liberal groups such spite new ethics laws and rules that W. Bush’s domestic-surveillance leg- as Blue America, MoveOn and the both chambers of Congress adopted order to promote solutions to global Democratic Sen. Barack Obama, said islation, his former supporters have Brady gun-control campaign. Instead, in 2007, aimed at weakening the links AIDS and poverty. Literature on the Sen. Obama wants to change the way attacked him with television, radio he is courting prominent local Repub- between lawmakers and lobbyists. topic will be available at the event and the conventions are funded, but and newspaper ads as he faces a lican leaders and proudly pointing Spearheaded by the Democratic several speakers will address poverty wasn’t able to do so this year “due to tough re-election fight against mil- out that half of his staff is Republican. Party, the ethics effort included an at- relief before the concert. the very late end to the primary sea- lionaire Republican Chris Hackett. “He doesn’t ask anybody about tempt to ban corporations and lobby- “The truth is the ethics changes son.” The McCain campaign declined The narrator in one commercial party affiliation,” said supporter ists from throwing lavish parties for haven’t affected our parties very to comment. blames the congressman for approv- Eric Grimes, who has served on his members at the national political con- much,” said Jonathan Lamy, a spokes- The convention parties are the lat- ing “the same un-American spying county’s Republican committee and ventions. man for the trade association. est examples of how lawmakers and powers they have in Russia and Com- voted for Ron Paul in the presiden- lobbyists have been finding ways to But in the months since the new Likewise, when the Distilled Spir- munist China.” A series of full-page tial primary this year. Wearing a skirt such rules since they were rules took effect, lawmakers have wa- its Council throws the “Spirits of Den- newspaper ads accused him of hav- “Sportsmen for Carney” hat, Mr. passed. Faced with a ban on giving tered down the guidelines and, work- ver,” party goers will hear a brief pre- ing “sold out the Constitution for Grimes gestured toward the con- tickets to pricey charity events di- ing with lobbyists, have found ways sentation on how to prevent underage tens of thousands in campaign con- gressman and the dozens of Na- drinking. rectly to lawmakers, corporations tributions.” tional Rifle Association members around the guidelines as written. Poli- have in recent months been buying The council also is adapting to an- Mr. Carney is the most vulnera- gathered at the range, wearing the ticians and lobbyists are now prepar- tickets at hundreds of dollars apiece, ing about 400 of the biggest parties— other new rule that forbids gifts for ble target so far this year for online same orange hats. “He’s one of us.” then donating them back to the spon- activists unified under the political A lieutenant commander in the both at the Democratic gathering in anything more than “nominal” soring charity to give away—along Colorado and when Republicans con- value—a phrase interpreted as under action committee Blue America. But Navy Reserve with rural roots and a with a list of lawmakers the compa- the organizers behind the attack call big family, Mr. Carney has put his vene the following week in Minnesota— $10. (Under the old rules, anything nies wish to attend. that conventioneers have ever seen. worth up to $50 was acceptable.) Peo- it a “template” for punishing the conservative supporters at ease and Corporations and trade groups most “right-wing” Democrats in fu- is at home in his tiny town outside of “Despite a slight chilling effect, ple who attend the spirits party will say that they are paying strict atten- ture elections and have raised half a Scranton, where he taught political the types of events you can hold really get the traditional gift bag with cigars tion to the letter of the new law. In million dollars for efforts of its kind. science. “Between me, my wife Jen hasn’t changed very much,” says El- from Rocky Patel Premium Cigar Co. preparation for the conventions, their Mr. Carney’s liberal detractors and our five kids, we make up about liot Berke, a Washington campaign-fi- But the cigars will be lower-grade lobbyists and lawyers have been pre- haven’t endorsed his Republican 10% of the population,” he said. nance and ethics lawyer. “It’s just a than in previous years. senting convention party plans to the challenger but say they wouldn’t be With his politics, too, Mr. Carney question of adhering to the new guid- “We want to showcase our fine House and Senate ethics committees, bothered if the seat turned Republi- has blended with his surroundings. ance.” products and be 100% within the rules seeking an official nod on their legal- and the law,” says Frank Coleman, the can once again. The first two positions he empha- The ethics rules that legislators ity. Lawmakers too have been seeking “Our goal is to attach a real price sizes on his campaign Web site are a spokesman for the distilled spirits in- published guidance from their col- drafted for themselves in response to to the type of things Chris Carney is defense of Second Amendment gun dustry. leagues on those committees for ac- the law sought in principle to ban law- doing. If that means he ends up losing, rights and a crackdown on illegal im- Lawmakers and aides who attend ceptable convention-time behavior. makers and their staff from accepting then so be it,” said Glenn Greenwald, a migration. Mr. Carney rejects am- the Republican convention will be That guidance has so weakened gifts, meals, trips or tickets from lob- columnist at Salon magazine and one nesty for unregistered aliens and treated to their own set of concerts Congress’s own curbs on convention byists and from corporations that em- of the organizers behind the effort. “I supports English as the official na- and bashes. A conservative organiza- parties that some ethics experts say ploy lobbyists. But they also included would rather see a smaller majority tional language. tion run by former Rep. Tom DeLay is the parties are potentially more lavish dozens of exceptions. but fewer Blue Dogs than a big major- When Mr. Carney joined 20 Blue throwing a concert with the rock bank now than they were in 2004. The rules don’t apply to charitable ity with the Blue Dogs in charge.” Dogs this spring in pushing House Smash Mouth. Mr. DeLay has made The new thicket of rules has “had fundraisers. So lawmakers and aides The Blue Dogs are a coalition of leadership to approve domestic-sur- the event a fundraiser for his organiza- the effect of making people more are free to play in a poker tournament more fiscally and socially conserva- veillance legislation that protected tion, the Coalition for a Conservative thoughtful and more careful,” says sponsored by the Poker Players Alli- tive Democrats who trace their roots telecommunications companies Majority, and thus aides say it com- Robert L. Walker, a former chief coun- ance. Funding for the event and chari- to the party’s historical stronghold from prosecution, Blue America table contributions come from the alli- plies with the law. sel to both the House and Senate eth- ics committees and now an attorney in the South. Mr. Carney is a member formed a fund to “get even” with ance and various other sponsors. Be- Parties like this weren’t supposed of the caucus, whose ranks have Democrats like him. Mr. Carney said cause proceeds will go to the Para- to happen at this year’s conventions. with Wiley Rein LLP.“But at the end of the day, the application and interpre- grown in recent years as Democrats his firsthand experience with mili- lyzed Veterans of America, the poker On the first day Democrats took con- have picked up seats in conservative tary intelligence convinced him of lobby can pick up the tab for the event trol of Congress in 2007, they intro- tation of those rules...may allow a fairly significant amount of entertain- bastions, making their 47 votes—out the importance of the domestic spy- and attend along with about 200 duced legislation and new rules ban- of 236 Democrats—a crucial swing ing program. poker celebrities, lawmakers, aides ning or forcing broader disclosure of a ment at most of these events.” Take the new rules banning par- bloc in the House. Of the $350,000 Blue America and delegates. Guests will be given range of campaign contributions, But even as the newest round of has raised, nearly $100,000 went $5,000 worth of chips for the four- travel, gifts and meals given to law- ties that honor a specific lawmaker. Ethics committees for the House and self-proclaimed conservative Demo- into ads against Mr. Carney in May. hour tournament, with the winnings makers by corporations and the lobby- Senate have helped lobbyists and cor- crats works to expand the majority Mr. Greenwald expects to spend at going to the veterans group. A spokes- ists they employ. porate sponsors by issuing loose inter- and the Blue Dogs’ role within it this least $100,000 more in September woman for the alliance says the event House Speaker Nancy Pelosi of Cal- pretations of that rule for the conven- November, they face party mem- and October, when the advertising complies with the law. ifornia called it the Democrats’ signal tions. Neither committee commented bers openly calling for their defeat. will have maximum effect. This Another popular party exemption effort to “drain the swamp.” Breaking for this story. “We’re not just Democrats, we’re month, through a related group, Ac- is the so-called widely attended event the ties between lobbyists and law- The House is allowing corpora- progressives. We’re not about get- countability Now, Mr. Greenwald clause. Under that rule, corporations makers was necessitated, Democratic tions to fete a group of individuals— ting the leadership of the Democratic and another blogger raised an addi- can pick up the tab for parties if they lawmakers said, by a host of scandals even if the group consists entirely of party more power,” explains online tional $150,000 for the cause. meet two conditions. One is that at under the Republican-run Congress. lawmakers. That will allow dozens of activist Howie Klein of Blue America, Blue America has also spent least 25 people invited aren’t mem- Brendan Daly, a spokesman for companies to throw a late-night “Blue which has raised more than $1 mil- $30,000 on robocalls and ads bers of Congress or staff. The second Rep. Pelosi, said Congress made Night in Denver” party for the 47 fis- lion since he co-founded it in 2005. against Majority Leader Steny condition, which applies only to progress by banning parties at con- cally conservative House Democrats “Blue America is about better Demo- Hoyer this year to try to “soften him House members: The party must have ventions in honor of specific mem- who belong to the Blue Dog Coalition. crats, not more Democrats.” up” for a 2010 challenger in his some element that relates to official bers, but acknowledged that people “That is flatly absurd,” said Craig In northwestern Pennsylvania, Maryland district. The group has congressional business. have found ways around that rule. “If Holman, government-affairs lobbyist where two-time Democratic chal- spent thousands against Demo- So when the Recording Industry those parties prove to be a problem, at Public Citizen, a nonpartisan gov- lenger Steven Porter has launched cratic Rep. John Barrow in Georgia Association of America decided to then we can revisit it when we do the ernment watchdog group. The Blue an independent progressive bid as well but curtailed spending when throw the Kanye West party, it ethics rules next year.” Dog Coalition couldn’t immediately against Republican Rep. Phil En- internal polls showed Mr. Barrow teamed up with the One Campaign in Tommy Vietor, a spokesman for be reached for comment. glish, Blue America has endorsed Mr. was “not vulnerable enough.”