The Wall Street Journal Weekly Quiz

Covering front-page articles from Mar 14 – Mar 18, 2005

Professor Guide with Summaries

Developed by: Scott R. Homan Ph.D., Purdue University

Questions 1 – 12 from The First Section, Section A

Cast Change Disney Turns to Insider Iger To Take CEO Reins From Eisner Longtime Chief to Leave Early And Give Up Board Seat;Critics Call Search 'Sham'

By MERISSA MARR, MYLENE MANGALINDAN and JOANN S. LUBLIN

March 14, 2005; Page A1

http://online.wsj.com/article/0,,SB111069770991777940,00.html

After a year of urgent shareholder calls for a fresh start at Walt Disney Co., the company's board yesterday named embattled Disney Chief Executive Michael Eisner's hand-picked choice to succeed him, veteran insider Robert Iger. The appointment of Mr. Iger, the company's president and chief operating officer, is intended to extend Disney's recent financial revival with a leader who is well-versed in its inner workings and unique culture. Mr. Iger, 54 years old, who rose up through the ranks of Disney's network-television business, will take over as chief executive on Sept. 30.At that point, Mr. Eisner -- who at times has lobbied hard for some continuing role at Disney -- will vacate his executive position, a year earlier than planned. He will stay on the Disney board until the end of his current term early in 2006, but has pledged not to seek re-election. The break with the longtime Disney chief is intended to signal that Mr. Iger, despite being Mr. Eisner's top pick, will run the company his own way. Critics have long argued that Mr. Iger wouldn't have true control of Disney as long as Mr. Eisner remained in the picture in any way. Some corporate-governance experts said yesterday that the six-month management transition period was still too long, though, especially given that Mr. Eisner and Mr. Iger will "share duties" during that time, according to Disney. Still, Mr. Eisner's eventual exit provides the board with some cover in appointing Mr. Iger over superstar outsider Meg Whitman, the eBay Inc. chief executive who interviewed for the job a week ago. She withdrew her name from consideration on Friday night because she felt the Disney board was dragging its feet and appeared to be set on Mr. Iger, people familiar with the situation said. Mr. Iger was tapped only after a lengthy debate among board members, some of whom were known to favor hiring a big-name outsider, according to people close to the situation.

1. The name of the new Disney Chief Executive is ______.

a. Donald Duck

b. Meg Whitman

c. Robert Tigger

d. Robert Iger Correct

2. Some corporate-governance experts said that a six-month management transition period is ______.

a. too short

b. too long Correct

c. just the right amount of time

d. unworkable

Crack in Computer Security Code Raises Red Flag Obscure but Worrying Flaw Compromises 'Fingerprint' Widely Used on Internet

By CHARLES FORELLE

March 15, 2005; Page A1

http://online.wsj.com/article/0,,SB111084838291579428,00.html

With worries about online security already at a high pitch, the discovery of a crack in a widely used Internet encryption technique has raised another red flag among government agencies and computer-code experts. The technique, called a "hash function," has been used for years by Web-site operators to scramble online transmissions containing credit-card information, Social Security numbers and other sensitive data. Hash functions are at work, for instance, for most of the millions of transactions that take place on the Internet every day. The system, involving an algorithm, or mathematical formula, was thought to be impenetrable. But last month, a team of researchers from Shandong University in eastern China began circulating a draft of a paper showing that a key hash function used in state-of-the-art encryption could be less resistant to an attack by hackers than had been thought. Hash functions generate digital fingerprints, or "hashes," of documents or data. As with fingerprints, the uniqueness of the hash is what makes hash functions a great tool for verifying the authenticity of information. But the Chinese team found different pieces of data that yielded the same hash when team members used a hash algorithm called SHA-1 -- and their method generated the identical hash far more efficiently than experts thought possible. SHA-1 is a federal standard promulgated by the National Institute of Standards and Technology and used by the government and private sector for handling sensitive information. It is thought to be the most widely used hash function, and it is regarded as the state of the art.

3. A technique, that has been used for years by Web-site operators to scramble online transmissions containing credit-card information is called

a. mash

b. hash function Correct

c. mash prefunction

d. dash function

4. Last month, a team of researchers from ______began circulating a draft of a paper showing that state-of-the-art encryption could be less resistant to an attack by hackers than had been thought.

a. Mexico

b. Russia

c. Iraq

d. China Correct

Standing Firm Despite Pressure, Samsung Resists Changing Its Ways Some Directors, Shareholders Want Better Disclosure As Electronics Giant Grows

Mr. Lee Runs a 'Lonely Race'

By EVAN RAMSTAD

March 16, 2005; Page A1

http://online.wsj.com/article/0,,SB111091824876780254,00.html

SEOUL, South Korea -- At Samsung Electronics Co.'s boisterous annual meeting last year, a shareholder suggested the company's chairman should step down. In response, Samsung's chief executive officer lost his cool. "Just how many shares do you have?" Yun Jong Yong shouted at the shareholder. "Stop saying 'our company.'" Samsung Electronics has become a household name in consumer electronics and a leading supplier of components to manufacturers world-wide. In 2004, its net income was greater than that of either Microsoft Corp. or Intel Corp. By Samsung's own reckoning, it accounts for 16% of South Korea's exports and 18% of the country's stock-market capitalization. Yet as it takes a larger role in the global economy, Samsung is resisting pressure to retool its paternalistic and secretive corporate governance. The family that controls Samsung through a minority stake has battled to maintain its grip and often shields itself through appeals to Korean nationalism. Samsung provides scanty financial information to investors. With a market capitalization of about $70 billion, it's one of the world's most valuable companies without a stock listing in a major financial market, something that would subject it to tougher accounting rules. In interviews, four of Samsung's independent board members say the company has made strides in recent years, including providing more information to directors and encouraging discussion. But they also say their roles are limited; although independent directors make up a majority of the 13-person board, none are involved in long-range planning, for example. "The company is majority held by foreign shareholders now but it's still run as a family concern," says Devan Kaloo, fund manager at Aberdeen Asset Management in Singapore, which owns Samsung stock. As a result, Samsung's shares trade in Seoul at a discount to other tech companies. Because the details of its operations are shielded from public view, investors worry that a crisis could develop without warning, much as it did in the late 1990s when overspending at Samsung and other companies contributed to a run on the currency that pushed South Korea to the brink of insolvency. Some say they have only a murky picture of the company's true financial health.

5. In 2004, which of the following had net income greater than that of either Microsoft Corp. or Intel Corp.

a. Singsam

b. Samsing

c. Samsung Correct

d. Dansingsum

6. Samsung's market capitalization is about $______.

a. 70 billion Correct

b. 700 billion

c. 70 million

d. 700 million

Verdict Is Warning to Other CEOs Of the Risks of Pleading Ignorance

By JOHN R. EMSHWILLER and DAN MORSE

March 16, 2005; Page A1

http://online.wsj.com/article/0,,SB111093820681780747,00.html

The conviction of Bernard J. Ebbers could be a blow to other chief executives who are facing fraud trials and claiming they were left in the dark. The former chief executive of WorldCom Inc., who was found guilty of fraud and conspiracy charges yesterday by a federal jury in New York, built what prosecutors called his "Aw, shucks" defense on the claim that he was an accounting ignoramus who knew nothing of the massive fraud that took place on his watch. But jurors said that they bought the argument of prosecutors that the CEO had to be aware of the fraud.

That could be worrisome for executives facing their own federal fraud cases, like Richard Scrushy and Kenneth Lay. Mr. Scrushy is the fired CEO of HealthSouth Corp. who is on trial now in Birmingham, Ala., while Mr. Lay, the former chairman and chief executive of Enron Corp., is scheduled to go on trial in January in a Houston federal court. Both have portrayed themselves as well-meaning executives heading complicated operations who were duped by malicious underlings. "This verdict is devastating for any other CEO or senior executive who intends to use the defense that 'I did not know,' " said Jacob Frenkel, a former enforcement attorney for the Securities and Exchange Commission who is now in private practice in Rockville, Md. Mr. Ebbers's conviction, he said, "is a missile blowing that defense out of the sky." Gerald Lefcourt, a criminal defense attorney and former president of the National Association of Criminal Defense Lawyers, agreed that the verdict shows the challenges facing defendants. "The government sort of has the crowd at a sporting event on their side, because of all this massive negative publicity about fraud in business and in the markets," he said. "It's like a home-court advantage." To be sure, each case has its own complicated history and details to sort out. Though federal prosecutors scored a huge win yesterday, they have stumbled in other recent fraud-related prosecutions. The prosecution of four former midlevel executives at Qwest Communications International Inc. failed to net any convictions, while the trial of former Cendant Corp. chairman Walter A. Forbes ended in a hung jury in January, though former Vice Chairman E. Kirk Shelton was convicted on 12 counts. Mr. Forbes is to be retried in September. Both the Qwest and the Cendant trials were lengthy and complicated, and both were followed by drawn-out jury deliberations. In contrast, the Ebbers trial was fairly quick, and though jurors deliberated for eight days, the complicated fraud at the company was acknowledged by all sides, sparing them many days of potentially mind-numbing testimony. Still, lawyers on all sides of other corporate-fraud cases are closely studying how the Ebbers trial played out as they shape their own strategies. Yesterday, one of Mr. Scrushy's attorneys, Donald Watkins, pointed out that his client is being tried before a home-grown jury. Mr. Ebbers was convicted in New York, far from Clinton, Miss., where WorldCom was based.

7. The former chief executive of WorldCom Inc convicted of fraud and conspiracy charges this week is ______.

a. Gerald Lefcourt

b. Donald Watkins

c. Walter A. Forbe

d. Bernard J. Ebbers Correct

8. This verdict at WorldCom is devastating for any other CEO or senior executive who intends to use the defense that ______.

a. I had other companies to run also

b. my computer crashed the night before

c. I could not get my group to work well together around my schedule

d. I did not know Correct

GM Cuts Outlook For 2005 Profit, Reviews Strategy Auto Giant's Shares Fall 14% In Setback for CEO Wagoner; 'We Do Have to Drive Hard'

By LEE HAWKINS JR.

March 17, 2005; Page A1

http://online.wsj.com/article/0,,SB111097647493781006,00.html

DETROIT – Auto giant General Motors Corp. rattled financial markets as it slashed its earnings estimates for the first quarter and full year of 2005 and said that the strategy Chairman and Chief Executive Officer Rick Wagoner has pursued since 2001 to sustain profitability needs an accelerated overhaul. The abrupt profit warning from the world's largest auto maker represents a big setback for Mr. Wagoner, CEO since 2000, and his efforts to streamline GM's high-cost North American operations without resorting to radical cuts. After the terrorist attacks of Sept. 11, 2001, GM, worried that consumer spending was poised to drop, launched an aggressive round of heavy rebates and cut-rate financing to keep sales in North America flowing, while waiting for attrition to gradually reduce its costly unionized work force. But GM continues to see its market share fall and inventories of unsold vehicles in North America rise. New models it has touted have failed to grab consumers' attention. It faces increased competition from nimbler overseas rivals, especially Japan's Toyota Motor Corp., and is burdened by heavy costs from health-care and pension obligations to its 1.1 million employees, retirees and their dependents. The announcement sent GM's shares and debt reeling. Shares dropped nearly 14%, or $4.71, to $29.01 in 4 p.m. composite trading on the New York Stock Exchange. Yesterday's close was the lowest in more than 10 years, on a split-adjusted basis. The decline trimmed about $2.7 billion off the company's market capitalization, and accounted for nearly 35 points of the 112.03-point drop in the Dow Jones Industrial Average, which ended at 10633.07.

9. Auto giant General Motors Corp. rattled financial markets as it ______for the first quarter and full year of 2005.

a. made only 100,000 new cars

b. made no new cars

c. slashed its earnings estimates Correct

d. revised upward it earnings estimates

10. GM continues to see its market share ______.

a. rise

b. fall Correct

c. stay the same

d. drive to Japan

Oil Companies Reap Cash Windfall From Price Surge Investors Say Big Stockpiles Can Help Pump Up Returns; Exxon's $23.1 Billion Hoard

By JEFFREY BALL and RUSSELL GOLD

March 18, 2005; Page A1

http://online.wsj.com/article/0,,SB111109232516782746,00.html

The surge in oil prices over the past year is generating an immense cascade of cash that is flooding the coffers of oil companies, raising pressure on their bosses to pursue acquisitions, further boost spending on production or give more of the gains to shareholders. So far, big Western oil companies have been reluctant to commit the bulk of that cash toward any of those ends, over concern that the rise in oil prices will prove temporary. They argue that big acquisitions could lose value if oil prices drop, and say it's not worth pouring even their extra resources into further development if returns don't justify the expense -- despite rising competition from oil-hungry nations like China and India. Moreover, though the cash windfall is large -- Exxon Mobil Corp., the world's biggest oil company, ended 2004 with $23.1 billion in cash on hand, more than double its hoard from a year earlier -- plans at most oil companies assume prices will drop from today's highs. But some shareholders say they should get a big share of that windfall -- perhaps with a special dividend like the one Microsoft Corp. paid investors last year, worth $32.6 billion. With the tax rate on dividends at 15%, and the possibility that could rise in the future, Frederick Leuffer, an oil analyst at Bear Stearns, says a special payment this year is preferable to incremental boosts over several years. Investors also say they're concerned because cash sitting on a company's books typically earns far less than when it's invested in an oil or natural-gas project. Despite company assertions that they have plenty of oil left to pump, some investors argue the industry lacks investment options in parts of the world that have the most fossil fuel -- particularly the Middle East. To be sure, most oil companies have been boosting regular dividends and buying back shares; Exxon, for instance, raised spending on dividends and buybacks to $14.9 billion in 2004 from $11.5 billion a year earlier. Additionally, at least two large companies, ChevronTexaco Corp. and Eni SpA, are said to be considering a deal for Unocal Corp., which could be valued at $17 billion. In response to questions from investors, industry executives preach patience. At a meeting with analysts last week in New York, Exxon Chairman and Chief Executive Lee Raymond said the company is carefully watching spending and doesn't plan a major acquisition soon. Exxon officials say a one-time special dividend wouldn't do much to boost the long-term value of the stock.