Showing posts with label Business. Show all posts
Showing posts with label Business. Show all posts

Sequestration Takes Effect, but Impact Is Not Immediate





WASHINGTON — University officials, city managers, day care providers and others spent Saturday assessing how they would absorb their part of the across-the-board cuts in federal spending that began taking effect over the weekend.




But even as the institutions that depend on federal money nervously took stock, most Americans were largely unaffected by the cuts, at least for now. At Los Angeles International Airport, John Konopka, 45, suffered no delays as he arrived from Atlanta.


“This is just another travel day,” Mr. Konopka said. “I think all of it’s been talked up a bit, way too politically, to make it seem a lot worse than it is. I don’t think it’s going to be the gloom and doom that some people are saying it would be.”


Others were less sanguine. Joel Silver, 63, a retiree from the Bronx, said he feared the cuts would affect the most vulnerable. He said he was angry that President Obama and lawmakers had not prevented what he called “an invented crisis.”


“What’s the point of a Congress?” he asked. “Aren’t they supposed to sit down and talk about things and figure them out? The economy was just recovering and now it’s going to slide back.”


Across the country, the impact of sequestration, as the cuts are known, appeared to be as varied as the thousands of federal programs, big and small, that now have shrunken pots of money from which to draw.


In Baltimore, the mayor called for an emergency cabinet meeting to discuss the reductions in federal money and their impact on a city that already has a projected deficit of $750 million over the next decade.


At research universities, administrators sent e-mails to faculty members and students warning that changes were coming. Samuel L. Stanley Jr., the president of Stony Brook University, said the institution would lose $7.6 million in “vital federal funding” for research grants and other programs. The University of California, Berkeley, warned that “as sequestration translates into fewer federal grants, the campus will be forced to hire fewer researchers.”


The Air Force Thunderbirds, the elite team of F-16 pilots who perform flight maneuvers at air shows around the country, announced on their Web site that all of their shows had been canceled starting April 1.


Federal officials began sending letters to governors, informing them of smaller grants. Shaun Donovan, the secretary of housing and urban development, wrote to Gov. John R. Kasich of Ohio, “You can expect reductions totaling approximately $35 million.”


In a 70-page report to Congress accompanying the sequestration order and detailing the reductions — agency by agency and program by program — Jeffrey D. Zients, Mr. Obama’s budget director, called them “deeply destructive to national security, domestic investments and core government functions.”


Among the $85 billion in cuts for the fiscal year ending Sept. 30: $3 million less for Pacific coastal salmon recovery; $148 million less for the patent office; a $1 million cut in support by the Defense Department for international sporting competitions; $289 million less for the Centers for Disease Control and Prevention; a $1 million cut in the Interior Department’s helium fund; and $16 million less for the Sept. 11 victim compensation fund.


But even as the reductions became official, the result of a stalemate between Mr. Obama and Congressional Republicans over increasing taxes, some of the immediate impact was difficult to see.


The process of trimming government budgets is slow and cumbersome, involving notifications to unions about temporary furloughs, reductions in overtime pay and cuts in grant financing to state and local programs. Less federal money will, over time, mean fewer government contracts with private companies. Reduced overtime pay for airport security checkpoint officers will make lines longer, eventually.


And so as the first weekend began for the new, slimmer government, little of that was evident yet.


At Kennedy International Airport in New York, travelers who arrived extra early were greeted by short lines, not the drastic delays that federal transportation officials have said could emerge as security officers are furloughed to save money.


“The check-in was fine, at least for now. I’m surprised,” said Chris Achilefu, 45, who arrived at the airport four hours before his flight to Lagos, Nigeria. Normally Mr. Achilefu, an automotive exporter who lives in Upper Darby, Pa., would arrive two hours early, but he said he was concerned about lines.


“I was listening to what the president said yesterday, that it won’t kick in right away,” he said. “Hopefully the two parties will come together, hopefully they will resolve it before another month.”


At the main San Ysidro port of entry between Mexico and San Diego, traffic moved smoothly late Friday night, just hours after the sequestration began, and border lines had only a few dozen vehicles in each lane.


Vendors who line the street where cars sometimes idle for hours waiting to enter the United States perked up when they heard about the cuts.


“That’s good for business,” said Emilio Gomez, an employee at a stand selling rugs, china figurines and soda. “When people are waiting, they get bored and they buy more stuff.”


In his weekly address on Saturday, Mr. Obama acknowledged that not everyone would be affected equally. “While not everyone will feel the pain of these cuts right away, the pain will be real,” he said. “Many middle-class families will have their lives disrupted in a significant way.”


In the Republican response to Mr. Obama’s address, Representative Cathy McMorris Rodgers of Washington also called the cuts “devastating,” but said that Republicans in the House would not yield on taxes. “Spending is the problem, which means cutting spending is the solution,” she said. “It’s that simple.”


Reporting was contributed by Robbie Brown from Atlanta; Will Carless from San Ysidro, Calif.; Ian Lovett from Los Angeles; and Marc Santora and Ravi Somaiya from New York.



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Bits Blog: Judge Slashes Jury Award in Apple-Samsung Case

8:45 p.m. | Updated

A federal judge on Friday weakened the blow from Apple’s legal victory in a patent case against Samsung, lopping more than 40 percent off the damages a jury awarded Apple last year.

The ruling did not shift the case — one of the most closely watched in the high-tech industry — in Samsung’s favor. While Apple has lost other skirmishes against Samsung in courts around the world, the jury award in this case has been the biggest victory for either side so far.

Even at a reduced level, these would be among the highest damages in a patent dispute.

The judge ordered a new trial to recalculate a portion of those damages, leaving open the possibility that some of them could be restored.

She also indicated that Apple was entitled to additional damages for sales of Samsung products that have occurred since the jury’s decision last summer, which could further swell the amount Apple is owed by Samsung.

Tech companies around the world are waging legal battles over patents as they compete for supremacy in the lucrative smartphone market. Apple and Samsung are the most prominent combatants in that war; the two companies divide most of the profits in the surging mobile phone market.

Samsung has soared to the No. 1 spot in the smartphone business in recent years, but Apple says that it is, in part, because the company has swiped many of Apple’s ideas.

In her review of the jury’s decisions, which originally awarded Apple more than $1 billion for patent violations by Samsung in its mobile products, Judge Lucy H. Koh of the United States District Court in San Jose, Calif., knocked those damages down by $450 million, to $599 million. The new trial will determine how much of the $450 million, if any, should be restored.

“It will be years before the parties exhaust all of their litigation avenues and options,” said Alan M. Fisch, an intellectual property lawyer with Fisch Hoffman Sigler in Washington, who is not involved in the case. “Still, some form of patent cross-license between the two would not be an unsurprising final result.”

None of Judge Koh’s opinion changed the jury’s finding that Samsung violated a series of Apple patents in its smartphone and tablet products. But the judge took issue with how the jury calculated the damages Apple was entitled to from the Samsung devices named in the case, more than two dozen of them in all.

In her 27-page opinion, Judge Koh said that the jury failed to follow her instructions in calculating damages for a certain class of patents, known as utility patents.

She also decided in Samsung’s favor in a dispute between the two parties over when Apple notified Samsung that it was infringing Apple’s intellectual property. Evidence of such notice dates are important because they help determine how hefty the damages are in a court case, once the party being notified is found guilty of infringement.

Judge Koh chided Apple for using an expert in the case who used an “aggressive notice date” — meaning, an early one — to calculate damages.

“The need for a new trial could have been avoided had Apple chosen a more circumspect strategy or provided more evidence to allow the jury or the court to determine the appropriate award for a shorter notice period,” she said in her ruling.

Steve Dowling, a spokesman for Apple, declined to comment.

In a statement, Adam Yates, a Samsung spokesman, said that the company was pleased with the judge’s decision and that it intended to seek further review of the remaining award.

Apple and Samsung, meanwhile, continue to fight ferociously in the smartphone market, where Samsung has steadily worked its way to the No. 1 position over the last few years. In the fourth quarter, Samsung accounted for 29 percent of global smartphone shipments, while Apple accounted for 21.8 percent, according to IDC.

Mark A. Lemley, a professor at Stanford Law School, called the judge’s decision “an extremely careful and thorough opinion on a very difficult and interrelated set of issues.”

Mr. Lemley predicted that Samsung would eventually win some reduction in the original $1 billion award, but “almost certainly” less than the $450 million that Judge Koh reduced it by on Friday.

“We’ll need a new trial to figure that out,” said Mr. Lemley, who has done legal work in the past for Google, maker of the Android operating system involved in the Samsung case and others. “Judge Koh has encouraged both sides to appeal first. That may clarify some questions, but it is unlikely to prevent a new trial, just delay it some.”

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DealBook: As Losses Mount, R.B.S. Unveils Plan to Sell Assets

LONDON – The Royal Bank of Scotland, hammered by losses, announced plans on Thursday to sell assets and pare back its investment banking business, in an effort to appease regulators and its biggest shareholder, the British government.

R.B.S. said it planned to sell a stake in the Citizens Financial Group, the American lender it bought in 1988, through an initial public offering in two years. The bank will also continue to reduce its investment banking operations, with plans to cut risky assets and eliminate jobs.

The moves are designed to help bolster the bank’s capital levels and refocus its operations, part of a multiyear turnaround effort initiated by its chief executive, Stephen Hester. In the end, R.B.S. will emerge a much smaller bank, largely focused on Britain.

“R.B.S. is four years into its recovery plan,” Mr. Hester said in a statement, “and good progress has been made. We are a much smaller, more focused and stronger bank. Our target is for 2013 to be the last big year of restructuring.”

Like many rivals, R.B.S. is struggling with the legacy of the financial crisis and a spate of legal issues. On Thursday, it reported a bigger-than-expected loss, in part tied to its legal troubles.

The bank, in which the British government holds an 82 percent stake after a bailout in 2008, posted a net loss of £5.97 billion ($9 billion) in 2012, much larger than the £2 billion loss recorded in 2011. Analysts had been expecting a loss of £5.1 billion. For the last quarter of 2012, R.B.S. reported a £2.6 billion loss, up from a £1.8 billion loss in the period a year earlier.

The rising losses reflect the bank’s regulatory and legal problems.

R.B.S. said on Thursday that it had set aside an additional £1.1 billion to compensate clients to which it improperly sold insurance products, bringing the total provision to £2.2 billion. It also estimated it would have to pay £700 million to compensate small businesses to which it improperly sold some interest-rate hedging products.

The bank agreed this year to pay $612 million to British and American authorities to settle accusations of rate-rigging. Since then, Mr. Hester has promised to tighten controls at the bank to limit the risk of future rate manipulation.

The head of R.B.S.’s investment banking division, John Hourican, resigned at the beginning of February as a result of the scandal related to manipulating the London interbank offered rate, or Libor. The bank plans to pay its fine with money clawed back from bonuses.

‘‘Along with the rest of the banking industry we faced significant reputational challenges,’’ Mr. Hester said in the statement. ‘‘We are determined to overcome the cultural and reputational baggage of precrisis times with the same focus we have applied to the financial cleanup from that era.’’

Eager to get back some of the £45.5 billion it invested in R.B.S., the British government recently increased pressure on the bank’s management to speed up the reorganization.

Some analysts said the government could start selling parts of its investment in the bank, even at a loss, before the next general election, which is set for 2015. R.B.S.’s shares are still trading at about half what the government paid for them in 2008. Some lawmakers said they would favor handing out shares to the public instead of a possible sale of the stake on the open market.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said there were signs that Mr. Hester’s efforts to turn around the bank had started to pay off, but that “the ongoing absence of a dividend and overhang of the government stake are negatives which need to be resolved.”

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DealBook: Court Approves Dewey Bankruptcy Plan, Officially Dissolving Firm

Nine months ago, when it filed the largest law firm bankruptcy case in United States history, Dewey & LeBoeuf effectively ceased to exist. But its carcass has languished in court, as restructuring experts handled the messy task of unwinding the firm and negotiating a plan to pay back its creditors.

On Wednesday, a federal bankruptcy judge confirmed that plan, a decision that officially dissolved Dewey, the once-venerable law firm that collapsed after financial problems led to an exodus of its partners.

“The court is very pleased,” said Judge Martin Glenn at the end of a three-hour hearing before a packed courtroom. “I want to congratulate all the professionals.”

Dewey’s liquidation plan lays out how its estate will compensate creditors, which have claims totaling about $550 million. At the heart of the proposal is an innovative arrangement under which about 450 former Dewey partners agreed to return a portion of their pay, raising about $72 million for creditors.

By accepting the deal, former Dewey partners insulate themselves from future lawsuits connected to the firm’s demise.

Al Togut, Dewey’s lead bankruptcy lawyer, who has been involved in a number of law firm bankruptcies, said that the winding down of Dewey had moved far more swiftly — and less contentiously — than previous liquidations of other large law firms.

“Here we are about to make history,” said Mr. Togut, just before Judge Glenn approved the plan. “This the diametric opposite of Finley Kumble, which took 20 years, or Shea & Gould, which took nine years, and even the modern-day Coudert Brothers case, which still isn’t done.”

Also not done is a criminal investigation into possible financial misconduct at Dewey. Steven H. Davis, the firm’s former chairman, and Stephen DiCarmine, the former executive director, are the focus of an investigation by the Manhattan district attorney’s office.

Prosecutors recently indicated that the inquiry was still active when it raised the issue that Mr. Davis’s criminal lawyer, Barry A. Bohrer, had a conflict of interest in representing him, according to a person with direct knowledge of the investigation.

The unusual situation arose earlier this month after Mr. Bohrer left his law firm, Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, for another firm, Schulte Roth & Zabel. That posed a conflict of interest, the district attorney’s office advised, because Schulte Roth represented JPMorgan Chase, a Dewey lender and possible victim, in the criminal inquiry, this person said.

Mr. Bohrer declined to comment, and Mr. Davis has previously denied any wrongdoing. Ned Bassen, a lawyer for Mr. DiCarmine, said that his client had done nothing wrong, either criminally or civilly.

While the government investigation continues, the judge’s ruling is the coda of the Chapter 11 case.

Trustees will now begin the process of returning money to Dewey’s creditors, which include the firm’s lenders Citigroup and JPMorgan, as well as a car service company and an executive recruiter. A large portion of the recovery, in addition to the former Dewey partners’ contributions, will come from collecting Dewey’s outstanding legal invoices.

The hearing lacked the drama that many participants had expected after a number of onetime Dewey partners filed protests to the plan this month. Two former Dewey partners accused Martin J. Bienenstock, the former head of Dewey’s bankruptcy practice, of devising a plan that paid him $6 million in 2010 while the pay of rank-and-file partners was deferred and ultimately was subject to being clawed back.

That objection, along with a handful of others, was withdrawn just hours before the session, allowing for a smooth confirmation hearing.

In an e-mail, Mr. Bienenstock, now a partner at the law firm Proskauer Rose, congratulated the advisers on what he called “the most successful and fastest law firm bankruptcy case.” But he criticized those who tried to block the plan.

“A small number of former partners tried to get special deals for themselves by making vicious accusations of fraud against the executive committee that structured the bankruptcy, having zero basis in fact, and predictably no wrongful conduct was proven,” Mr. Bienenstock said.

During the court session, Mr. Togut praised the former Dewey lawyers who signed on to the so-called partnership contribution plan, which he called “a template for future cases.”

The deal forced them to return a portion of their pay, in amounts based on a complex formula tied to their compensation. Those payments range from a minimum of $5,000 for retired partners to $3.5 million for the firm’s highest-paid lawyers.

“What makes this case so important is that this is the first time that such a large and diverse group of law partners accepted responsibility for their failed firm,” Mr. Togut said. “And they did it while they were still hurting, just after the firm failed, while they were trying to start their career and soothe unhappy spouses.”

Most former partners of Dewey, a firm that at its peak had nearly 1,400 lawyers across 26 offices globally, have landed on their feet. About 300 Dewey partners sought new employment as the firm failed; nearly all of them found homes at other large corporate firms. Winston & Strawn hired 23, led by the sports-industry litigator Jeffrey Kessler. Proskauer brought on 13 former Dewey partners.

Though the formal bankruptcy process has ended, the legal fallout from Dewey’s implosion is not over. In addition to the criminal investigation, several Dewey-related civil lawsuits are wending their way through the courts. One former partner has sued Citigroup, accusing the bank of conspiring with Dewey to hide the law firm’s true financial condition in the months before its collapse. A Citigroup spokeswoman declined to comment.

While most of the firm’s lawyers have found other employment and the bankruptcy process was declared a success, Mr. Togut on Wednesday acknowledged the sadness of Dewey’s demise.

“They say that a good settlement is where no one is happy,” Mr. Togut said. “Well, I can assure you, no one is happy.”

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BP Executive Testifies That Rig Explosion Was Known Risk





NEW ORLEANS — On the first day of testimony in the BP Gulf of Mexico oil spill trial, BP’s top executive for North American operations at the time of the disaster acknowledged on Tuesday that a well explosion had been identified as a risk before it happened.




“There was a risk identified for a blowout,” said Lamar McKay, the former president of BP America and current chief executive in charge of global upstream operations. “The blowout was an identified risk, and it was a big risk, yes.”


Robert Cunningham, a lawyer for private plaintiffs, tried to pin down Mr. McKay on BP’s responsibility for the 2010 disaster that killed 11 workers and dumped millions of barrels of oil into the gulf. Mr. Cunningham suggested that the British company’s cost-cutting and risk-taking culture were at the heart of the explosion and spill. He pressed Mr. McKay on the fact that a BP report on the accident held contractors responsible, but did not cite management failures.


Mr. McKay repeatedly responded that BP was responsible for designing the well, but that the rig, cement and other contractors shared responsibility for safety on the drilling operations.


“It’s a team effort,” he said. “It’s a shared responsibility to manage the safety and risk.”


Mr. McKay testified for more than an hour at the end of the day and will continue on Wednesday. He told the court that there were risks involved with drilling both in deep waters and in shallow waters, but that a blowout could be more difficult to control, and therefore more damaging, in deep waters. There was little, if anything, in his comments that diverged from what BP executives have said in the past.


After the April 2010 spill, internal BP documents showed that the company had struggled with a loss of “well control” in March, after several weeks of problems on the rig. And for months before that, it had been concerned about the well casing and the blowout preventer, which are considered critical pieces in the chain of events that led to the disaster.


On June 22, 2009, for example, BP engineers expressed concerns that the metal casing the company wanted to use might collapse under high pressure.


“This would certainly be a worst-case scenario,” Mark E. Hafle, a senior drilling engineer at BP, warned in an internal report. “However, I have seen it happen so know it can occur.”


Early in his testimony, Mr. McKay shifted and appeared uncomfortable on the witness stand. He acknowledged that he had never read a textbook on safety system engineering before or after the accident, or a safety report written by a BP consultant who testified earlier in the day.


Mr. McKay was the second witness to appear in a multiphase trial that will determine who was responsible for the accident, whether they were grossly negligent and how much oil was spilled. He followed Robert Bea, a professor emeritus of engineering at the University of California, Berkeley, and former safety systems consultant for BP, who largely blamed the company’s culture for the accident.


“It’s a culture of every dollar counts,” Dr. Bea said. “It’s a classic failure of management and leadership.”


The Federal District Court trial in New Orleans is bundling suits brought by the Justice Department, state governments, private businesses and individual claimants against BP and several of its contractors. Decisions on culpability and damages could be a year or more away, but they are likely to have profound effects on environmental law and on the viability of BP as a major oil company with global ambitions.


Under the Clean Water Act, fines against BP could range from $1,100 for every barrel spilled through simple negligence to as much as $4,300 a barrel if the company were found to have been grossly negligent. The federal government has estimated that about four million barrels of oil were spilled, meaning liabilities of as much as $4.4 billion to $17.2 billion. BP has claimed that the amount spilled was at most 3.1 million barrels.


This article has been revised to reflect the following correction:

Correction: February 26, 2013

An earlier version of this article misstated Lamar McKay’s title when he headed BP America. He was president, not chief executive. Because of an editing error, the article also misstated the federal government’s estimate of the number of barrels spilled. It is about four million barrels, meaning a liability range of $4.4 billion to $17.2 billion, not 4.9 million barrels and a liability range of $5.4 billion to $21 billion.



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Little Clarity in Italian Vote, Aside from Anger




Italians Head to the Polls:
Italians voted Sunday and Monday in a general election that is being closely watched to see whether a clear winner will emerge.







ROME — Italian voters delivered a rousing anti-austerity message and a strong rebuke to the existing political order in national elections on Monday, plunging the country into political paralysis after results failed to produce a clear winner.




Analysts said that the best-case scenario would be shaky coalition government, which would once again expose Italy and the euro zone to turmoil if markets question its commitment to measures that have kept the budget deficit within a tolerable 3 percent of gross domestic product. News of the stalemate sent tremors through the financial world, sending the Dow Jones Industrial Average down more than 200 points.


Although analysts blamed the large protest vote on Italy’s political morass and troubled electoral system, the results were also seen as a rejection of the rapid deficit-reduction strategy set by the European Commission and European Central Bank — from a country too big to fail and too big to bail out.


“No doubt Italy has an imperfect political culture, but this election I think is the logical consequence of pursuing policies that have dramatically worsened the economic and social picture in Italy,” said Simon Tilford, the chief economist of the Center for European Reform, a London research institute.


“People have been warning that if they adhere to this policy there will be a political cost, there will be backlash,” he added. “It couldn’t have taken place in a more pivotal country.”


In an election marked by voter anger and low turnout, the center-left Democratic Party appeared to be leading in the Lower House with 29.6 percent, with 99 percent of the votes counted, and in the Senate with one-third of the votes counted by midnight local time.


But that outcome did not give the Democrats a clear victory because the center-right People of Liberty Party of former Prime Minister Silvio Berlusconi was leading in several populous regions that carry more Senate seats, potentially giving him veto power and raising the prospect of political gridlock.


 Even before the final result, the election was a clear victory for the Five Star Movement of the former comedian Beppe Grillo, which in its first-ever national elections appeared to win about 25 percent of the vote in the Lower House. Italians from both right and left — and the wealthier north and poorer south — were drawn to Mr. Grillo’s opposition to austerity measures and cries to oust the existing political order.


And it was a stinging defeat for the caretaker prime minister, Mario Monti, a newly minted politician whose lackluster civic movement appeared to win around 10 percent in both houses. “Grillo had a devastating success; the rest of the situation is very unclear,” said Stefano Folli, a political columnist for the daily business newspaper Il Sole 24 Ore.


Either the Democratic Party and the People of Liberty Party “will form a grand coalition committed to reforms and changing the electoral law, which would be very difficult, or Italy will be ungovernable,” Mr. Folli added.


Mr. Monti’s caretaker government remains in place with full powers until a new government is formed. Appearing on television on Monday evening, Mr. Monti said he felt “tremendous regret” that during his tenure the political parties were not able to change Italy’s electoral law so as to guarantee more political stability. “It is a great responsibility of the political forces, and one of the reasons for the disaffection and distance from and the revindication of the political class,” he added.


Under Italy’s complex electoral laws, it is extremely hard for any one party to gain a strong ruling majority needed to manage an economy with rising unemployment and a credit crunch, let alone push through structural changes to the ossified economy. Instead, the parties have resisted change to protect their own power bases. 


The results of this election would appear to represent new depths of gridlock, and few experts expected any party to form a governing coalition strong enough to prevail for long. Nicolas Véron, an economist and a senior fellow at Bruegel, a Brussels-based research institute, said that regardless of who ultimately controls the levers of government, “The key question is whether we can have serious structural reform.”


Italy “was a work in progress before the elections,” Mr. Véron added, “and I think investors understand that it will remain a work in progress for some time.”


Gaia Pianigiani contributed reporting from Rome, and Nicola Clark from Paris.



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Many Cruise Ship Lack Backup Power Systems, Vexing Regulators


Denis Poroy/Associated Press


The Carnival Splendor cruise ship was towed into San Diego Bay in 2010, after a fire destroyed its electrical systems.







It is becoming a familiar tale: When the cruise ship was towed into port, the endless hours for passengers of sleeping on deck and going without electricity or toilets were finally over.




“It was really hell,” said Bernice Spreckman, who is 77 and lives in Yonkers, N.Y. “I used my life jacket, which was flashing with a little light on it, to find a bathroom it was so dark.”


Ms. Spreckman was not among the 4,200 people aboard the Carnival Triumph who this month endured five days of sewage-soaked carpets and ketchup sandwiches. Her trial at sea came in 2010, on another ship run by Carnival Cruises, called the Splendor, which carried 4,500 passengers.


On both ships, fires broke out below decks, destroying the electrical systems and leaving them helpless. A preliminary Coast Guard inquiry into the Splendor found glaring deficiencies in its firefighting operations, including manuals that called for crew members to “pull” valves that were designed to turn.


But more than two years after the episode, the final report about what happened on the Splendor has yet to appear, a reflection of what critics say is a pattern of international regulatory roulette that governs cruise ship safety.


While the Splendor was based in the United States, the ship was legally registered in Panama, meaning the Panamanian Maritime Authority had the right to lead the investigation. But after the 2010 fire, Panamanian regulators chose to have the Coast Guard take over the inquiry. Then, officials in both countries apparently spent months trading drafts of their reports.


One official in Panama said the authority had completed its review of the Splendor report in October 2012. But a Coast Guard spokeswoman, Lisa Novak, said it still had not “finalized” the report. In the case of the Carnival Triumph, the regulatory scene will shift to the Bahamas, where that ship was registered.


In a recent letter to Coast Guard officials, Senator Jay Rockefeller, Democrat of West Virginia, said that cruise ships seemed to have two separate lives. Only during days near port are they closely monitored.


“Once they are beyond three nautical miles from shore, the world is theirs,” said the letter from Senator Rockefeller, who has headed recent inquiries into cruise ship safety.


Cruise industry officials point out that seaborne vacations are extremely safe and that some 20 million people go on cruises annually, with few problems. The most glaring exception to that record occurred last year when a vessel operated by a subsidiary of Carnival, the Costa Concordia, ran aground off the coast of Italy, resulting in 32 deaths.


In the Triumph’s case, the Coast Guard has said that the ship’s safety equipment failed to contain the blaze. And both the Triumph and the Splendor returned from their aborted voyages without serious injuries to passengers or crew.


But those successes also underscore what most travelers do not realize when they book cruises: nearly all ships lack backup systems to help them return to port should power fail because to install them would have cost operators more money.


The results are repeated episodes involving dead ships, with all the discomforts and potential dangers such situations can bring. In another case, in late 2012, the Costa Allegra cruise ship, a sister ship of the Concordia, lost power after a fire in the generator room and it had to be towed under guard from its location in the Indian Ocean.


In many ways, passengers aboard boats like the Triumph and Splendor were lucky because their ships were disabled in calm weather, when instead they could have been knocked out during storms, or when they were far out at sea or in pirate-infested waters, experts said.


“Anything that knocks a ship dead in the water is serious,” said Mark Gaouette, a safety expert and former Navy officer.


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Major Banks Aid in Payday Loans Banned by States


Major banks have quickly become behind-the-scenes allies of Internet-based payday lenders that offer short-term loans with interest rates sometimes exceeding 500 percent.


With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates.


While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.


“Without the assistance of the banks in processing and sending electronic funds, these lenders simply couldn’t operate,” said Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, which works with community groups in New York.


The banking industry says it is simply serving customers who have authorized the lenders to withdraw money from their accounts. “The industry is not in a position to monitor customer accounts to see where their payments are going,” said Virginia O’Neill, senior counsel with the American Bankers Association.


But state and federal officials are taking aim at the banks’ role at a time when authorities are increasing their efforts to clamp down on payday lending and its practice of providing quick money to borrowers who need cash.


The Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau are examining banks’ roles in the online loans, according to several people with direct knowledge of the matter. Benjamin M. Lawsky, who heads New York State’s Department of Financial Services, is investigating how banks enable the online lenders to skirt New York law and make loans to residents of the state, where interest rates are capped at 25 percent.


For the banks, it can be a lucrative partnership. At first blush, processing automatic withdrawals hardly seems like a source of profit. But many customers are already on shaky financial footing. The withdrawals often set off a cascade of fees from problems like overdrafts. Roughly 27 percent of payday loan borrowers say that the loans caused them to overdraw their accounts, according to a report released this month by the Pew Charitable Trusts. That fee income is coveted, given that financial regulations limiting fees on debit and credit cards have cost banks billions of dollars.


Some state and federal authorities say the banks’ role in enabling the lenders has frustrated government efforts to shield people from predatory loans — an issue that gained urgency after reckless mortgage lending helped precipitate the 2008 financial crisis.


Lawmakers, led by Senator Jeff Merkley, Democrat of Oregon, introduced a bill in July aimed at reining in the lenders, in part, by forcing them to abide by the laws of the state where the borrower lives, rather than where the lender is. The legislation, pending in Congress, would also allow borrowers to cancel automatic withdrawals more easily. “Technology has taken a lot of these scams online, and it’s time to crack down,” Mr. Merkley said in a statement when the bill was introduced.


While the loans are simple to obtain — some online lenders promise approval in minutes with no credit check — they are tough to get rid of. Customers who want to repay their loan in full typically must contact the online lender at least three days before the next withdrawal. Otherwise, the lender automatically renews the loans at least monthly and withdraws only the interest owed. Under federal law, customers are allowed to stop authorized withdrawals from their account. Still, some borrowers say their banks do not heed requests to stop the loans.


Ivy Brodsky, 37, thought she had figured out a way to stop six payday lenders from taking money from her account when she visited her Chase branch in Brighton Beach in Brooklyn in March to close it. But Chase kept the account open and between April and May, the six Internet lenders tried to withdraw money from Ms. Brodsky’s account 55 times, according to bank records reviewed by The New York Times. Chase charged her $1,523 in fees — a combination of 44 insufficient fund fees, extended overdraft fees and service fees.


For Subrina Baptiste, 33, an educational assistant in Brooklyn, the overdraft fees levied by Chase cannibalized her child support income. She said she applied for a $400 loan from Loanshoponline.com and a $700 loan from Advancemetoday.com in 2011. The loans, with annual interest rates of 730 percent and 584 percent respectively, skirt New York law.


Ms. Baptiste said she asked Chase to revoke the automatic withdrawals in October 2011, but was told that she had to ask the lenders instead. In one month, her bank records show, the lenders tried to take money from her account at least six times. Chase charged her $812 in fees and deducted over $600 from her child-support payments to cover them.


“I don’t understand why my own bank just wouldn’t listen to me,” Ms. Baptiste said, adding that Chase ultimately closed her account last January, three months after she asked.


A spokeswoman for Bank of America said the bank always honored requests to stop automatic withdrawals. Wells Fargo declined to comment. Kristin Lemkau, a spokeswoman for Chase, said: “We are working with the customers to resolve these cases.” Online lenders say they work to abide by state laws.


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F.A.A. Sets Terms for Boeing’s Battery Fixes on 787





After meeting with Boeing executives, top federal aviation officials said on Friday that they would not approve any fix to the battery problems on the 787 jetliner until they were certain that the batteries would not fail again.




“The safety of the flying public is our top priority and we won’t allow the 787 to return to commercial service until we’re confident that any proposed solution has addressed the battery failure risks,” Laura J. Brown, a spokeswoman for the Federal Aviation Administration, said in a statement.


At the meeting on Friday, more than five weeks after the plane was grounded, Boeing executives outlined the company’s latest proposals on how to keep the 787’s new lithium-ion batteries from overheating and how to vent any smoke or hazardous gases out of the plane.


Raymond L. Conner, the president of Boeing’s commercial airplane division, led the group of executives that met with Michael P. Huerta, the administrator of the F.A.A., and John Porcari, the deputy transportation secretary.


The meeting, however, was unlikely to bring about a quick lifting of the 787s’ grounding order. Boeing is asking the F.A.A. to approve the fixes even though safety investigators have not figured out precisely what caused the battery on one plane to ignite and the battery on another to start smoking last month.


After the meeting, federal officials said Boeing would be allowed to conduct a series of test flights to see how the fixes work and to fine-tune its proposals.


Boeing officials say that even though the causes of the battery episodes have not been determined, they have identified the most likely ways in which the new lithium-ion batteries failed. They now want the F.A.A. to approve changes meant to virtually eliminate the odds of future cases and to protect the plane and its passengers if a problem does arise.


In that sense, the meeting on Friday was also aimed at expanding the company’s emphasis from engineering work to the political arena. Besides evaluating the merits of its proposals, Mr. Huerta and the transportation secretary, Ray LaHood, might have to make difficult decisions about how well the fixes minimize the safety risk. Mr. LaHood said last month that the planes “won’t fly until we’re one thousand percent sure they are safe to fly.”


But battery and aviation-safety experts say that it could be hard to meet that standard if the causes of the recent episodes are not totally clear. And the F.A.A. often has to walk a delicate line in balancing its role in promoting aviation as well as ensuring safety.


Engineers at the agency have worked closely with Boeing in developing the possible fixes, and their general support for the concept was crucial in enabling the company to bring those proposals to Mr. Huerta and Mr. Porcari.


But Peter Goelz, a former managing director of the National Transportation Safety Board, an independent board that is investigating the battery problems, said: “These kinds of things always raise the basic question: Is the F.A.A. really a participant or a regulator in this, and how does it play the role of regulator when the only way to get to a solution is by being a partner? It’s always a fine line.”


Mr. Goelz and other former safety officials said Boeing’s proposals were on the right track. But some battery experts said they would like to hear more details about how Boeing would keep the batteries from overheating before judging how well the plans would work.


Boeing has delivered 50 787s so far to eight airlines. The company has much riding on the innovative planes. They are the first commercial jets to be built mostly out of lightweight composite materials that reduce fuel costs. Boeing has orders for 800 more of these planes, nicknamed the Dreamliner.


Investigators at the safety board said a battery that ignited on a 787 parked at Logan Airport in Boston in January had suffered thermal runaway, a chemical reaction that leads the battery to overact. They said the problem started in one of the eight cells in the batteries and spread to the others.


On Friday, Boeing proposed adding insulation between the cells to minimize the risk of a short-circuit cascading through most or all of them.


The company also proposed to add systems to monitor the temperature and activity inside each cell. It would enclose the batteries in sturdier steel boxes to contain any fire, and it would create tubes to vent hazardous gases outside the plane.


Boeing said the redesigned batteries would fit in the same space. After the meeting, it also said in a statement that it was “encouraged by the progress being made toward resolving the issue and returning the 787 to flight for our customers and their passengers around the world.”


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Citigroup Toughens Executive Bonus Rules





Responding to anger over executive pay, Citigroup is changing the way it calculates the bonuses given to top executives. It announced on Thursday that part of the $11.5 million in compensation awarded to the new chief executive, Michael L. Corbat, would be closely tied to performance. So far, though, the changes are only affecting a small portion of Citigroup’s executive compensation packages without reining in the big bonuses that have become one of the hallmarks of Wall Street.




Citigroup has been a prominent symbol in the debate over the outsize Wall Street compensation. The changes come less than a year after Citi shareholders voted against a $15 million pay package for Vikram S. Pandit, then the chief executive. That vote was the first time shareholders had united to oppose compensation at a giant financial firm.


In April, the bank’s powerful chairman, Michael O’Neill, took the reins of a five-member committee on executive pay. He said in a regulatory filing Thursday that the committee had come to its new formula after meeting with investors who hold more than 30 percent of the bank’s total outstanding shares.


A portion of the pay packages given to Citi’s executive will now be linked to the company’s performance relative to other big banks. “When our shareholders spoke last year about Citi’s compensation structure, we listened,” Mr. O’Neill said in the filing.


Nell Minow, a shareholder advocate at GMI Ratings, said the new approach was “far from perfect, or even good, but it’s less terrible than it used to be.”


Citi’s board members will continue to approve base salaries, cash bonuses and deferred stock given to top Citi executives, the same way they were in the past. But now a new segment of the pay, called performance share units, will be linked to the new metrics. For 2012, Mr. Corbat was awarded $3.1 million in performance share units. That amounts to 27 percent of his total $11.5 million pay package.


The new formula still puts Mr. Corbat at a similar compensation level to his peers. Mr. Corbat is being paid the same amount for 2012 that JPMorgan Chase recently said it was handing to its chief executive, Jamie Dimon. JPMorgan’s board cut Mr. Dimon’s pay from $23 million a year earlier after the bank suffered a multibillion-dollar trading loss. Bank of America announced this week that its chief executive, Brian T. Moynihan, would receive $12.1 million, a raise from 2011.


United States politicians and regulators have chosen not to impose significant new rules on how company’s determine their executive pay, despite widespread public anger about the ballooning bonuses across corporate America in the wake of the financial crisis.


The 2010 Dodd-Frank Act for financial regulation mandated that banks offer shareholders a chance to approve their executive compensation plans. But the votes are not binding.


Last April, 55 percent of Citi’s shareholders voted against the bank’s bonus packages, after compensation experts criticized the bank for leaving the pay up to the discretion of the board. The vote was seen as a stinging rebuke for the bank, which has struggled to recover from the financial crisis.


Citigroup has been steadily working through soured loans, whittling costs and unwinding unprofitable business lines. As part of its stark cost-cutting, the bank also announced in December that it would slash 11,000 jobs worldwide.


Since Citi’s shareholders rejected Mr. Pandit’s compensation, Citi has overhauled its top management. In a move that surprised Wall Street, Mr. O’Neill abruptly unseated Mr. Pandit and his top lieutenant, John P. Havens. Mr. Corbat, who was chosen to take over as chief, has vowed to continue the cost-cutting and refocusing that began under Mr. Pandit.


The company’s filing Thursday laid out the formula that will be used to calculate the new performance share units, incorporating both the performance of the company’s stock compared with similar banks, and the so-called return on assets, a measure of a bank’s profit relative to its overall size.


Anne Simpson, the director of corporate governance for the country’s largest pension fund, the California Public Employees’ Retirement System, said she was glad the bank had responded to the shareholder vote. But she said she was concerned that it had not adequately taken into account the amount of risk the bank was taking.


“We’d like to make sure that the incentive structures aren’t focusing on revenues and returns without thinking about risk, because that’s how we got ourselves into the financial crisis,” said Ms. Simpson.


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With PlayStation 4, Sony Aims for Return to Glory





For the Sony Corporation, a tech industry also-ran, the moment of reckoning is here.




The first three generations of PlayStation sold more than 300 million units, pioneered a new style of serious video games and produced hefty profits. PlayStation 4, introduced by Sony Wednesday evening, is a bold bid to recapture those glory days of innovation and success.


The first new PlayStation in seven years was promoted by Sony as being like a “supercharged PC.” It has a souped-up eight-core processor to juggle more complex tasks simultaneously, enhanced graphics, the ability to play games even as they are being downloaded, and a new controller designed in tandem with a stereo camera that can sense the depth of the environment in front of it.


All of that should make for more compelling play for the hard-core gamers at the heart of the PlayStation market. The blood effects in Killzone: Shadow Fall, shown to a preview audience of 1,200 at the Hammerstein at Manhattan Center Wednesday night, looked chillingly real.


The console itself was never shown during the two-hour presentation. No release date was given, although before the Christmas holidays is a good possibility. No price was mentioned.


With PlayStation 4, serious games are about to become much more social. A player can broadcast his game play in real time, and his friend can peek into his game and hop in to help. Also, players will now be able to upload recordings of themselves playing and send them to their friends.


These and other new features cannot hide the fact that PlayStation 4 is still a console, a way of playing games on compact discs that was cool when cellphones were not smart.


Much of the excitement in video games has shifted to the Web and mobile devices, which is cheap, easy and fast. Nintendo’s new Wii, introduced in November, has been a disappointment. Microsoft’s Xbox, the third major console, is racing to become a home entertainment center as fast as it can.


“Today marks a moment of truth and a bold step forward for PlayStation,” Andrew House, chief executive of Sony Computer Entertainment, told the crowd. He said the new device “represents a significant shift of thinking of PlayStation as merely a box or console to thinking as a leading authority on play.”


But the new PlayStation will have a difficult time, like the character in Killzone who was shooting at the people in the helicopter while hanging from the helicopter. Sales of consoles from all makers peaked in 2008, when about 55 million units were sold, according to the research firm I.D.C. By last year, that was down to 34 million.


For 2014, Lewis Ward, I.D.C.’s research manager for video games, forecast a recovery to about 44.5 million.


“From peak to peak, we’ll be down about 10 million,” he said. “There was attrition to alternative gaming platforms like tablets, but the trough was exacerbated by the 2008-9 recession. It did not permit as many people to buy who under normal economic conditions would have bought a console.”


That was reflected in Sony’s miserable financial results. The company has lost money for the last three years, hampered not only by slower console sales but also by a range of unexciting electronic products, a strong yen and the 2011 tsunami that struck Japan.


Analysts have made dire remarks about the one-time powerhouse’s viability. But Sony seems to have bottomed out, helped by a yen that has now weakened. Sony executives said this month that they expected a profit in 2013.


Sony’s new chief executive, Kazuo Hirai, has a longtime personal connection to the PlayStation franchise and is making it one of the core elements of a more tightly focused company. Mr. Hirai became known for some of his more confident statements about the PlayStation, particularly a 2006 swipe at Microsoft: “The next generation doesn’t start until we say it does.”


These days, the next generation is playing games on the Web. Console makers typically sell their consoles for a loss and generate profit through sales of games. In 2012, American consumers spent $14.8 billion on game content, including computer and video games, down from $16.34 billion in the previous year, according to the NDP Group, a research firm.


Instead of buying traditional games, which typically cost $50 or more, many consumers are being drawn to the cheaper, sometimes free games available for their smartphones and tablets, analysts say.


PlayStation 4 games can be streamed to the PlayStation Vita, Sony’s portable game device, among other features.


“The architecture is like a PC in many ways, but supercharged to bring out its full potential as a gaming platform,” said Mark Cerny, Sony’s lead system architect.


James L. McQuivey, a Forrester analyst, said that for the PlayStation 4 to succeed, Sony needed to think beyond games. The console will have to provide other types of content and services, like video conferencing, third-party apps and a TV service to create a deeper, long-term relationship with the customer.


By comparison, Apple, the world’s leading consumer electronics maker, does not just sell hardware. It also has a universe of digital content including apps, music, movies and e-books to make people come back for more Apple gear every year. Apple generally takes an enviable 30 percent cut of all media it sells. Microsoft, Google and Amazon are making similar moves to create such a product array.


“Then and only then can Sony hope to learn enough about its users to overcome its own bias toward preferring to design products in response to engineering principles rather than customer needs,” Mr. McQuivey said.


This article has been revised to reflect the following correction:

Correction: February 20, 2013

An earlier version of this article misstated the number of consecutive years in which Sony has lost money. It is three years, not four.



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Obama Turns Up Pressure for Deal on Budget Cuts




Seeking to Avoid the Sequester:
The Times’s Michael D. Shear on how President Obama put pressure on Congress to avoid the across-the-board budget cuts.







WASHINGTON — Days away from another fiscal crisis and with Congress on vacation, President Obama began marshaling the powers of the presidency on Tuesday to try to shame Republicans into a compromise that could avoid further self-inflicted job losses and damage to the fragile recovery. But so far, Republicans were declining to engage.




To turn up the pressure on the absent lawmakers, Mr. Obama warned in calamitous terms of the costs to military readiness, domestic investments and vital services if a “meat-cleaver” approach of indiscriminate, across-the-board spending cuts takes effect on March 1. Surrounding him in a White House auditorium were solemn, uniformed emergency responders, invited to illustrate the sort of critical services at risk.


The president plans to keep up the pressure through next week for an alternative deficit-reduction deal that includes both spending cuts and new revenues through closing tax loopholes. He will have daily events underscoring the potential ramifications of the automatic cuts, aides said, and next week will travel outside Washington to take his case to the public, as he did late last year in another fiscal fight on which he prevailed.


In stern tones, Mr. Obama said that the automatic cuts, known in budget terms as a sequester, would “affect our responsibility to respond to threats in unstable parts of the world” and “add thousands of Americans to the unemployment rolls.”


He framed the debate in the way that he hopes will force Republicans into accepting some higher tax revenues, something they so far refuse to do.


“Republicans in Congress face a simple choice,” Mr. Obama said. “Are they willing to compromise to protect vital investments in education and health care and national security and all the jobs that depend on them, or would they rather put hundreds of thousands of jobs and our entire economy at risk just to protect a few special-interest tax loopholes that benefit only the wealthiest Americans and biggest corporations?”


Mr. Obama once again finds himself in a budget showdown with the opposing party, and numerous polls show his position to be more popular than Republican calls for spending cuts only, including cuts in Medicare. Mr. Obama and senior aides hardly disguised their sense of political advantage.


“We are trouncing them,” said one senior administration official about the Republicans.


Still, the president’s leverage might in fact be limited, since by all appearances he seems to want a deal far more than Republicans do. As the leader of the nation, Mr. Obama is eager to see an end to the repeated evidence of Washington dysfunction, or what he referred to again on Tuesday as the cycle of “manufactured crisis.” And with his legacy ultimately at stake, he needs to lift the fiscal uncertainty that since 2011 has held down economic growth.


Despite the risks of an impasse for Republicans, those who control the House have all but forfeited this battle to Mr. Obama and seem poised to let the automatic cuts take effect. Many Republicans, particularly newer members elected with Tea Party support, have pushed party leaders to accept the sequester and lock in the spending cuts rather than compromise. The leaders seem to have decided to wage battle later this spring in the larger fight over the annual federal budget.


Contributing to Republican calculations is the fact that at least in the short term, an impasse over the sequester is not as potentially catastrophic as the threats that loomed in past partisan showdowns, like a full shutdown of government or the nation’s first-ever default on its global debt obligations.


The potential impact is potentially hazardous nonetheless, both economically and politically. As Mr. Obama noted, the prospect of the sequester has already affected military deployments and hiring by military contractors, and threatens layoffs of teachers, air traffic controllers and researchers, among others.


Hours after the president’s remarks, economic forecasters at Macroeconomic Advisers, based in St. Louis, projected that sequestration would reduce the firm’s forecast of growth this year by nearly a quarter, 0.6 percent, and cost roughly 700,000 civilian and military jobs through 2014, with heightened unemployment lingering for several years.


“By far the preferable policy,” the analysis said, “is a credible long-term plan to shrink the deficit more slowly through some combination of revenue increases within broad tax reform” as well as “more carefully considered cuts” in spending programs, including Medicare and Medicaid. That prescription for both long-term spending reductions and revenue increases, as an alternative to immediate deep spending cuts that inhibit job growth, generally tracks Mr. Obama’s approach.


He has proposed $1.5 trillion in spending cuts over 10 years and revenue increases that would build on the roughly $2.5 trillion over the decade that he and Congress have agreed to in the past two years. The total, $4 trillion, is the minimum reduction that many economists say is necessary to stabilize the growth of the nation’s debt at a time when the population is aging and health care costs are rising.


That approach mixing spending cuts and increased revenues got another endorsement on Tuesday when the chairmen of Mr. Obama’s 2010 debt-reduction commission — former Senator Alan K. Simpson, a Republican, and Erskine B. Bowles, a Democrat and former chief of staff to President Bill Clinton — released a revised fiscal plan that would reduce annual deficits by $2.4 trillion in a decade through spending cuts, including in Medicare and Social Security benefits, and an overhaul of the tax system.


But Republicans say they will not consider additional tax increases since Mr. Obama in January won more than $600 billion over 10 years in higher revenues from the wealthiest taxpayers. “The revenue debate is now closed,” Speaker John A. Boehner said in a statement reacting to the president’s remarks.


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DealBook: Reader's Digest Files for Bankruptcy, Again

Executives at Reader’s Digest must be hoping that the magazine’s second trip to bankruptcy court in under four years will be its last.

The magazine’s parent, RDA Holding, filed for Chapter 11 protection late on Sunday in another effort to cut down the debt that has plagued the pocket-size publication for years. The company is hoping to convert about $465 million of its debt into equity held by its creditors.

In a court filing, Reader’s Digest said it held about $1.1 billion in assets and just under $1.2 billion in debt. It has provisionally lined up about $105 million in financing to keep it afloat during the Chapter 11 case.

This week’s filing is the latest effort by the 91-year-old publisher, whose magazine once resided on many American coffee tables, to fix itself in a difficult economic environment.

“After considering a wide range of alternatives, we believe this course of action will most effectively enable us to maintain our momentum in transforming the business and allow us to capitalize on the growing strength and presence of our outstanding brands and products,” Robert E. Guth, the company’s chief executive, said in a statement.

Reader’s Digest last filed for bankruptcy in 2009, emerging a year later under the control of lenders like JPMorgan Chase.

That reorganization substantially cut the publisher’s debt, and afterward the company worked to further shrink its footprint. It jettisoned nonessential publications in a series of deals, including the $180 million sale of Allrecipes.com and the $4.3 million sale of Every Day With Rachael Ray, both to the Meredith Corporation.

Most of the money from those transactions went to pay down a still significant debt burden. But the company remained pressured by what it described in a court filing as steep declines that still bedevil the media industry. Last year, the publisher began negotiating with its lenders, including Wells Fargo, about amending some of its debt obligations. That process eventually led to a “pre-negotiated agreement” with creditors, which will be put into effect by the bankruptcy filing.

This time, Reader’s Digest is hoping to spend even less time in court. Mr. Guth said in a court filing that the publisher aims to emerge from bankruptcy protection in about four months.

The company’s biggest unsecured creditors include firms represented by Luxor Capital. The Federal Trade Commission also contends that it is owed $8.8 million in a settlement claim.

Reader’s Digest is being advised by Evercore Partners and the law firm Weil, Gotshal & Manges.

Reader's Digest bankruptcy petition (2013) by

Declaration by Reader's Digest Chief Executive by

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The Media Equation: In Omaha Manhole Fire Photo, Logging Off in Search of Some Clues


Stephanie Sands


This image, which was taken after an underground fire cut power in half of downtown Omaha, captivated the Web last month.







When photographs of spontaneous events miraculously appear on the Web, it generally prompts two responses: wonder and skepticism.




So it was with an image of exploding manhole covers in Omaha that took over the Web last month. On Sunday, Jan. 27, an underground fire cut power in half of downtown. A vivid photograph of unknown provenance, showing fire shooting out of manholes on a city street, began popping up on Reddit, where it had 1.5 million views, and Gawker.


The photo — an indifferently composed shot of an event that looks very far away — would not win any Pulitzers, but something incredible seems to be under way at the precise moment it was taken. You can almost hear the sequential explosions emanating below the street: boom, boom, boom as flames appear to shoot up from hell itself.


In this age of Photoshop, it wasn’t long before the debates cropped up, on the Web and in Omaha, about the picture’s authenticity.


Matthew Hansen, a columnist at The Omaha World-Herald, wondered the same thing, and one night found himself in a bar engaged in the real-versus-fake debate. Like many photos on the Web, this one came from everywhere — forwarded, tweeted and blogged — and nowhere — there was no name on the image nor any text to indicate its origin.


Mr. Hansen, intrepid journalist that he is, solved the mystery and wrote a column about it. The photo was real, it turned out, but not in the way people thought. (More on that later.) So, did Mr. Hansen use deep photo analytics or examine metadata to peel back the truth?


Nope. There was a notebook involved, a lawyer, some phone calls, a cursory digital investigation and some street reporting, which included an interview with a man with no pants.


Shoe leather never looked or smelled so good.


Mr. Hansen’s first step in solving what he called the “Great Omaha Manhole Fire Photo of 2013” was to determine from the angle of the photo that it could have been taken from only one apartment building — called the Kensington Tower. He then used an architectural detail to conclude that it was shot from the top floor, on the west side.


He managed to gain entry to the building — that is, he sneaked in — and made his way to the top floor, where he began knocking on doors.


Mr. Hansen found a man named Kenneth who would not let Mr. Hansen in because he was indisposed — he became “Pantsless Kenneth” in the column — but said that he knew the photo in question and thought his neighbor had taken it.


But the neighbor wasn’t home, so Mr. Hansen stuck his business card in the door jamb and left.


When he returned to the office, Mr. Hansen jumped onto Reddit, found the person who had originally posted the photo there and through him found the person, Gwendolyn Olney, who had posted the photo on her Facebook page, the source for the Reddit posting.


Ms. Olney happened to be the associate counsel for The World-Herald. “Omaha is indeed a small town,” Mr. Hansen wrote in his column. He began to follow the pixilated bread crumbs.


“Gwen didn’t take the photo,” he added. “She got it from Rebecca, who didn’t take the photo. She got it from Brandon, who didn’t take the photo. They led me to Gwen’s friend Andrea, who didn’t take the photo, who led me to ... well, she couldn’t remember who she had gotten the photo from.”


Reading the column, you could almost hear his sigh when he wrote, “Dead end.”


Then his phone rang. “I took that photo,” the voice said.


The caller was Stephanie Sands, a graduate student at the University of Nebraska at Omaha. She said that the day after she took the photo, which she had no idea had become a sensation, she learned from her friends that a reporter was asking about it.


“I was impressed that he had sneaked upstairs and put a card in my door, so I called him,” she said in an interview by phone.


Ms. Sands agreed to meet Mr. Hansen and told him that she had heard the explosion and took two photos with her phone. She sent one to friends and thought nothing more of it.


“I was actually disappointed in how it turned out,” she told me. “Because I was shooting at a distance with an iPhone, it didn’t really capture the severity of what I saw and heard.”


This article has been revised to reflect the following correction:

Correction: February 17, 2013

An earlier version of this column misidentified the author of a profile of Edna Buchanan. The writer was Calvin Trillin, not Gay Talese. 



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The Education Revolution: In China, Families Bet It All on a Child in College


Chang W. Lee/The New York Times


Wu Caoying studied English under her father’s watchful eye in 2006. She is now a sophomore in college. More Photos »







HANJING, China — Wu Yiebing has been going down coal shafts practically every workday of his life, wrestling an electric drill for $500 a month in the choking dust of claustrophobic tunnels, with one goal in mind: paying for his daughter’s education.




His wife, Cao Weiping, toils from dawn to sunset in orchards every day during apple season in May and June. She earns $12 a day tying little plastic bags one at a time around 3,000 young apples on trees, to protect them from insects. The rest of the year she works as a substitute store clerk, earning several dollars a day, all going toward their daughter’s education.


Many families in the West sacrifice to put their children through school, saving for college educations that they hope will lead to a better life. Few efforts can compare with the heavy financial burden that millions of lower-income Chinese parents now endure as they push their children to obtain as much education as possible.


Yet a college degree no longer ensures a well-paying job, because the number of graduates in China has quadrupled in the last decade.


Mr. Wu and Mrs. Cao, who grew up in tiny villages in western China and became migrants in search of better-paying work, have scrimped their entire lives. For nearly two decades, they have lived in a cramped and drafty 200-square-foot house with a thatch roof. They have never owned a car. They do not take vacations — they have never seen the ocean. They have skipped traditional New Year trips to their ancestral village for up to five straight years to save on bus fares and gifts, and for Mr. Wu to earn extra holiday pay in the mines. Despite their frugality, they have essentially no retirement savings.


Thanks to these sacrifices, their daughter, Wu Caoying, is now a 19-year-old college sophomore. She is among the growing millions of Chinese college students who have gone much farther than their parents could have dreamed when they were growing up. For all the hard work of Ms. Wu’s father and mother, however, they aren’t certain it will pay off. Their daughter is ambivalent about staying in school, where the tuition, room and board cost more than half her parents’ combined annual income. A slightly above-average student, she thinks of dropping out, finding a job and earning money.


“Every time my daughter calls home, she says, ‘I don’t want to continue this,’ ” Mrs. Cao said. “And I say, ‘You’ve got to keep studying to take care of us when we get old’, and she says, ‘That’s too much pressure, I don’t want to think about all that responsibility.’ ”


Ms. Wu dreams of working at a big company, but knows that many graduates end up jobless. “I think I may start my own small company,” she says, while acknowledging she doesn’t have the money or experience to run one.


For a rural parent in China, each year of higher education costs six to 15 months’ labor, and it is hard for children from poor families to get scholarships or other government financial support. A year at the average private university in the United States similarly equals almost a year’s income for the average wage earner, while an in-state public university costs about six months’ pay, but financial aid is generally easier to obtain than in China. Moreover, an American family that spends half its income helping a child through college has more spending power with the other half of its income than a rural Chinese family earning less than $5,000 a year.


It isn’t just the cost of college that burdens Chinese parents. They face many fees associated with sending their children to elementary, middle and high schools. Many parents also hire tutors, so their children can score high enough on entrance exams to get into college. American families that invest heavily in their children’s educations can fall back on Medicare, Social Security and other social programs in their old age. Chinese citizens who bet all of their savings on their children’s educations have far fewer options if their offspring are unable to find a job on graduation.


The experiences of Wu Caoying, whose family The New York Times has tracked for seven years, are a window into the expanding educational opportunities and the financial obstacles faced by families all over China.


Her parents’ sacrifices to educate their daughter explain how the country has managed to leap far ahead of the United States in producing college graduates over the last decade, with eight million Chinese now getting degrees annually from universities and community colleges.


But high education costs coincide with slower growth of the Chinese economy and surging unemployment among recent college graduates. Whether young people like Ms. Wu find jobs on graduation that allow them to earn a living, much less support their parents, could test China’s ability to maintain rapid economic growth and preserve political and social stability in the years ahead.


Leaving the Village


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Airbus and Boeing on Different Paths on Battery





When it comes to the volatile new lithium-ion battery technology, Boeing and Airbus are heading in different directions.




Faced with the potential of a lengthy investigation into what caused batteries on two Boeing 787 jets to ignite or emit smoke last month, Airbus said Friday that it had dropped plans to use the technology on its forthcoming wide-body jet, the A350-XWB, to avoid possible delays in producing the planes. But Boeing, which has much more at stake, said later in the day that it would stick with the batteries and that it was working with regulators to reduce risks even if the cause of the hazards is not clearly found.


All 50 of the 787s delivered so far were grounded in mid-January. And even though the problems have embarrassed Boeing and could cost it hundreds of millions of dollars, the company said Friday, “There’s nothing we’ve learned in the investigations that would lead us to a different decision regarding lithium-ion batteries.”


To some extent, Boeing’s bravado reflects a sense among battery experts that they have narrowed down the ways that the batteries, made by a Japanese company, GS Yuasa, could fail. That then increases the chances that a handful of changes may eventually provide enough assurance that the batteries would be safe to use.


Airbus was planning on a more limited use of the lithium-ion batteries than Boeing, and by switching to the more traditional nickel-cadmium batteries, the company can make the necessary changes as it is building the planes. Boeing, on the other hand, has a strong motivation to stick with the lithium-ion batteries in hopes that a solution will emerge.


Under flight safety regulations, industry and government officials said, Boeing might not have to go through as extensive — and time-consuming — an approval process if it redesigned the lithium-ion batteries as it would if it switched to the conventional batteries.


Even though the behavior of the more traditional batteries is better understood, they have not yet been certified for use in the 787s, and the batteries and related parts of the plane’s electrical system would have to be created and tested from scratch. Under the safety directive grounding the planes, Boeing might have a more straightforward path to get them flying again if it could persuade the Federal Aviation Administration that redesigning the lithium-ion batteries would work.


Federal and industry officials said Boeing would probably have to spread the eight cells in the batteries farther apart — or increase the insulation between them — to keep a failure in one cell from cascading to the others in the “thermal runaway” that led to the smoke and fire. Battery experts are also looking into whether vibrations in flight could have added to the risks of unwanted contact between the cells. And Boeing would undoubtedly have to wall off the battery within a sturdier metal container and make it easier to vent any hazardous materials outside the plane.


Aviation experts said the examination of such changes reflected what could end up being a difficult calculation for safety regulators: Will there be a way to assure the safety of the batteries if they cannot tell for certain what set off the problems on the two planes?


Until now, most of the public statements by regulators have focused on the need to pin down the cause of the battery problems. But investigators, now weeks into their work, have only been able to find limited clues in the charred remains of the two batteries.


As a result, government and outside experts, working closely with Boeing engineers, have been studying the research on lithium-ion batteries carried out since Boeing won approval for its batteries in 2007 and, in essence, trying to come up with a safer design.


Government and industry officials said Friday that it was still too early to know if Boeing could devise enough changes to satisfy regulators and the flying public.


Airbus said it started informing airline customers on Thursday that it would not move ahead with an original plan to use the lithium-ion batteries on its A350s.


“Airbus considers this to be the most appropriate way forward in the interest of program execution and reliability,” said Marcella Muratore, an Airbus spokeswoman.


This article has been revised to reflect the following correction:

Correction: February 15, 2013

An earlier version of this article mischaracterized incidents in January involving lithium-ion batteries in Boeing 787 Dreamliners. In one case a battery caught fire, and in another a battery emitted smoke; both batteries did not catch fire.



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Media Decoder Blog: CBS Reports Record Operating Income for 4th Quarter

The CBS Corporation set records in the fourth quarter for operating income and adjusted operating income, the company said Thursday, but the results were short of some analysts’ expectations and its share price fell in after-hours trading.

The adjusted net earnings of $414 million produced earnings of 64 cents a share, also a quarterly record for CBS, though some analysts had forecast income as high as 69 cents.

CBS, which reported full-year results for 2012 as well as for the quarter ending Dec. 31, also announced an additional stock buyback of $1 billion. That brings the total amount of stock CBS has committed to repurchasing for the current year to $2.2 billion.

Over all, CBS demonstrated improved results in most financial categories and divisions. Revenues for the quarter rose to $3.7 billion, up 2 percent from $3.61 billion for the comparable quarter in 2011.

The company reported net income of $393 million, or 60 cents a share, up 6.2 percent from $370 million, or 55 cents a share, in the fourth quarter of 2011.

CBS cited increases in advertising revenue in the quarter, partly driven by political commercials in an election year. The CBS broadcast network continues to be the most watched in television and will most likely beat all its competitors in the significant ratings categories for the current season.

The company also had increases from subscription fees, driven by improvement in its cable networks. Showtime, the pay-cable channel owned by CBS, has experienced growth in subscriptions, thanks in part to its award-winning drama “Homeland.” CBS has pressed for years for increased compensation from cable systems for the rights to carry CBS broadcast stations, and Thursday the company reported that retransmission fees were also up for the quarter, part of 9 percent growth overall in affiliate and subscription fees.

Adjusted operating income before depreciation and amortization increased 6 percent to $866 million, from $814 million the year before. Operating income increased 12 percent to $726 million, up from $647 million.

For the full year CBS also produced some encouraging results. The company reported revenue of $14.09 billion, up 3 percent from $13.64 billion in 2011. Adjusted income increased to $3.49 billion from $3.16 billion. Operating income of $2.98 billion was up from $2.62 billion in 2011. All represented new highs for CBS.

One troubling area was publishing. Revenue decreased at CBS’s Simon & Schuster unit, to $215 million from $229 million in 2011. CBS attributed the drop to decreasing print book sales that could not be offset by increasing e-book sales.

CBS reported its financial results after the stock market closed. In after-hours trading, its stock fell 44 cents, to $42.50.

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WellPoint Hires Joseph Swedish of Trinity Health as C.E.O.





WellPoint, one of the nation’s largest health insurers, announced on Tuesday that it had chosen an experienced hospital executive to lead it through sweeping changes created by the federal health care overhaul law.




Joseph R. Swedish, the 61-year-old chief executive of a major nonprofit Catholic-owned health system, Trinity Health, will become WellPoint’s chief executive on March 25. He will be responsible for leading the company, which operates profit-making Blue Cross plans in 14 states, into a future in which health insurers will sell insurance through state and federal exchanges and to work in new ways with hospitals and doctors.


“It truly is a transformational period,” said Mr. Swedish, who helped build Trinity Health into a $9 billion health system with 47 hospitals in 10 states. He became chief executive at Trinity Health in 2004.


WellPoint “has aggressively examined the marketplace,” he said, and is getting ready to compete for customers in highly regulated exchanges, where it must offer coverage even to people with serious medical conditions. WellPoint also bought a large insurer specializing in Medicaid, Amerigroup, last year, in its effort to adapt to the Affordable Care Act that expands the program.


Mr. Swedish succeeds Angela F. Braly, the former chief whose trouble with regulators and uneven performance led to her departure last August. WellPoint, which has a significant national share in providing insurance to individuals and small businesses, has struggled to prove to investors that it can capitalize on its Blue Cross brand in the new business environment.


“Joe’s background, in concert with our management’s insurance market expertise, creates a team uniquely qualified to manage all facets of our evolving health care system,” Jackie M. Ward, chairwoman of WellPoint’s board, said in a statement.


WellPoint’s decision to name a hospital executive “is a natural choice these days,” said Jaime A. Estupiñán, a partner at Booz & Company, a consulting firm. Given the changing nature of the business, both as a result of the health care law and the pressure to find ways to offer better care at lower cost, large health systems “are the biggest threats to insurers,” he said, and the lines between those systems and traditional insurers are blurring.


While choosing a hospital executive is not completely out of the ordinary, Mr. Swedish’s experience will be helpful as WellPoint works more closely with doctors and hospitals, analysts said.


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