"These two didn't win the jackpot, they stole it" --Kenneth Chalifoux, N.Y. assistant district attorney, in his opening argument in the trial of former Tyco executives L. Dennis Kozlowski and Mark Swartz Investors are wondering how a truck accident could throw off sales at drugmaker Biovail. The company says that because a truck carrying its Wellbutrin XL antidepressant was in an accident on Oct. 1, third-quarter sales will be down at least $15 million -- and off for the year.
Biovail, however, is being unclear about the value of those drugs. It has disappointed investors two quarters in a row. Now, it appears that more than half the drug's quarterly sales may have shipped in that truck Sept. 30. "There are serious questions," says analyst David Marris of Banc of America Securities.
Biovail is just being conservative, says Ken Howling, vice-president for finance. So far this year, the company has shipped $20 million of the drug -- well below its $60 million goal. When General Motors (GM) brought retired Chrysler (DCX) car guru Robert Lutz on board two years ago, his first mission was to build a cool sports car for Pontiac. BusinessWeek has learned that GM will build the car, likely showing a production-ready version of the model at the Detroit auto show in January. The Pontiac Solstice is a sexy two-seater that will cost a little more than $20,000 and could hit showrooms as early as 2005.
GM wants the Solstice to give Pontiac real sports-car cachet, as the Miata gave Mazda when it came out in the mid-1980s. Pontiac plans to price the Solstice below cars like the Miata to lure younger buyers. But building a sports car with a low sticker price that can be sold profitably is no easy task.
To cut production costs, GM will fashion sections of the car's frame via a process called hydroforming, which uses water at high pressure to bend steel tubes into shape. That's instead of stamping individual pieces out using big, expensive dies. The frame will cost GM $150 million -- roughly half what rivals spend to get a sports car rolling -- and could be used to build sporty cars for Buick or Saturn. Then GM could be cruising in style. BusinessWeek's Sept. 29 cover story, "Fees! Fees! Fees!" showed how hidden charges have become part of pricing. It sparked a spate of letters -- so many that we've started a discussion group at businessweek.com. Here's a sampling:
-- FirstMerit Bank (FMER) charged David Myers in Chippewa Lake, Ohio, $30 to halt an automatic withdrawal from his bank account. The bank says this is a published fee in line with those charged by other banks.
-- Cheryl Taylor in Chesterfield, Mich., says Sprint (FON) charges people $5 to pay their bill at their service counters. "What does 'service' mean to them?" Taylor writes. "And why on earth would they charge you to give them money?" Sprint says there are free payment options and that the fees help manage staffing and related expenses.
-- Alfred Dombrowski of Depoe Bay, Ore., paid Orbitz $74.66 for a hotel reservation. When he checked out, he discovered the room cost only $58.41 -- the extra $16.25 was an Orbitz fee. Orbitz says the hotel mistakenly gave Dombrowski a receipt showing the wholesale rate.
-- Don Wiss of Brooklyn, N.Y., says a $169 American Airlines (AMR) special round-trip fare to Bermuda had taxes and fees adding $73.20 to the price. American says the additional charges are actually even higher -- $75.70.
-- Igeborg Allen of Ontario, Calif., tried to avoid Ticketmaster (IACIZ) fees by going directly to the venue but found fees applied there, too. "I have not attended an increasing number of events because the fees make a $6 ticket cost more than $10," she writes. "That is just a ridiculously high fee to process a credit card and print tickets." Ticketmaster says it splits fees with the venue and the promotion company. U.S. jobs aren't the only thing being exported to China. U.S. junk is, too. Scrap-metal companies are going gangbusters thanks to big demand from China, which turns the scrap into finished steel for building projects. That has driven scrap prices sky-high. Daniel Dienst, chairman of recycler Metal Management (MTLM), is shipping scrap to China at $188 per ton, twice the price of two years ago. This has helped companies such as Metal Management and Schnitzer Steel (SCHN), which have shed debt and shined up their balance sheets. Schnitzer's shares have gained 270% on the year, closing at $37 on Oct. 8. What's that old saw about one man's trash? Sri Sri Ravi Shankar, a 47-year-old ascetic, has become the guru to the digerati. Disciples say his Art of Living classes -- known to his 4 million followers by the techie acronym AOL -- help them find meaning and relief in their stress-filled jobs.
Sri Sri is a disciple of Maharishi Mahesh Yogi, who brought Transcendental Meditation to the West in the 1960s. Now his followers give $150-a-head seminars at Oracle (ORCL), Sun Microsystems (SUNW), and Cisco (CSCO). "The knife of job loss is hanging over our heads. The fear leads people to join the courses," says Ravi Phatak, an Oracle engineer who runs the seminars. As long as tech remains stressful, Sri Sri will have disciples. -Manjeet Kripalani It doesn't have reliable running water or electricity, but Iraq might be sitting on a lucrative high-tech asset. The country's Internet address, .iq, has languished since December, when the FBI raided the Richardson (Tex.) offices of InfoCom, the manager of the address. The FBI arrested four employees: CEO Bayan Elashi and three of his brothers, also InfoCom principals. The FBI claims InfoCom was funneling computer equipment and funds, including fees for registering .iq sites, to terrorist groups. Elashi's case is set to go to trial on Mar. 8.
Meanwhile, the Internet address sits idle when it could be generating revenue for Iraq. All government officials have to do is sell Web addresses with the .iq designation. One holdup: The Internet Corporation for Assigned Names & Numbers (ICANN), which governs domains, is reluctant to re-delegate .iq without a nod from Baghdad. BusinessWeek has learned that the fledgling Iraqi Communications Ministry is planning to petition ICANN for ownership of the address.
A competing bid has been made by Onega, the London-based manager of the .uk address. However, its Committee for Information Technology Reconstruction in Iraq is having trouble raising money to woo political leaders in Baghdad to support its own bid. With Iraq in disarray, Internet infrastructure isn't a top priority. "It would be great to have a team of lobbyists," says Onega director Ben Fitzgerald-O'Connor. But the .iq domain isn't on the Pentagon's radar, a spokesman concedes. First they've got to get the water and electricity running. When the Commerce Dept. gives its first estimate of third-quarter growth on Oct. 30, it's likely to say corporate profits were running at an annual rate of nearly $1 trillion. But that mouth-watering number could be misleading. On closer look, profits are still anemic, says Merrill Lynch (MER) economist Ron Wexler. His case:
-- Profit figures may be inflated: While the net income of the S&P 500 doubled from the end of the recession through the second quarter, operating cash flow rose just 3.8%.
-- Aftertax profits are weak: They're up 4.7% since the end of the 2001 recession, as measured by the government. This far into most other recoveries, profits were up 39% on average.
-- Profit margins stink: They were just below 10% in the second quarter. At this stage in most other recoveries, they were 11% to 20%.
But don't despair. Margins are so thin that even modest growth will translate into a big percentage gain in profits.