(From The New York Times)
On the Ethanol Bandwagon, Big Names and Big Risks
By Norm Alster
(March 26) -- Vinod Khosla was a founder of Sun Microsystems and then, as a partner at Kleiner Perkins Caufield & Byers, the Silicon Valley venture capital firm, he helped a host of technology companies get off the ground.
These days, Mr. Khosla, 51, is still investing in technology, but much of it has nothing to do with the world of network computing in which he made his name. He is particularly excited about new ways of producing ethanol — the plant-derived fuel that, he says, could rapidly displace gasoline. "I am convinced we can replace a majority of petroleum used for cars and light trucks with ethanol within 25 years," he said. He has already invested "tens of millions of dollars," he said, in private companies that are developing methods to produce ethanol using plant sources other than corn.
Mr. Khosla isn't the only big-name entrepreneur to embrace ethanol. Sir Richard Branson, chairman of the Virgin Group, plans to invest $300 million to $400 million to produce and market ethanol made from corn and other sources, said Will Whitehorn, a director of the company. Virgin expects to announce soon the site of its first production facility, probably in the eastern United States, with a second one likely to follow in the West, Mr. Whitehorn said.
Bill Gates has also made a move into the ethanol market. Cascade Investment, Mr. Gates's private investment firm, has declared its intention to buy $84 million in newly issued preferred convertible securities in Pacific Ethanol, according to William Langley, its chief financial officer. The company, which is based in Fresno, Calif., and is publicly traded, says it hopes to become the leader in the production and distribution of ethanol in the Western states.
Ethanol derived from corn now accounts for 3 percent of the American automotive fuel market. Most cars in the United States can already handle fuel that is up to 10 percent ethanol, and as many as five million are so-called flex-fuel vehicles that can use a fuel called E85, which is 85 percent ethanol and 15 percent gasoline.
The current excitement over ethanol derives from research that has cut the cost of converting nonfood plant matter like grasses and wood chips into alcohol. Mr. Khosla says he believes that such ethanol, called cellulosic ethanol, will eventually be cheaper to produce than both gasoline and corn-derived ethanol.
Can investors whose pockets are not as deep jump into the ethanol market? Yes, but they are taking a big risk. Picking long-term winners among the companies that make ethanol — or, for that matter, develop other alternative energy technologies — is a very uncertain business. The few public companies that focus on ethanol are typically unprofitable. Pacific Ethanol, for example, has not yet had a profitable quarter and will not until at least the fourth quarter, when its first plant is scheduled to begin production, Mr. Langley said.
Few mutual funds focus on alternative energy companies. "We are not going to start a dedicated alternative energy fund, period," said Wenhua Zhang, a technology analyst at T. Rowe Price. The company is avoiding the sector "for the same reason we didn't start an Internet fund in 2000: a dedicated very narrow sector fund with a single focus typically has a much higher risk."
Some publicly traded companies with operations linked to ethanol include Novozymes and Danisco, both based in Denmark, and Diversa of San Diego; all three have said they have made major gains in reducing the cost of the enzymes needed to produce ethanol from cellulose. Bigger, more diversified companies like Archer Daniels Midland and Monsanto have ethanol operations, too, though ethanol is but one of many businesses for these giants.
Two mutual funds that focus on alternative energy include some ethanol companies among their holdings. The New Alternatives fund holds shares of Abengoa and Acciona Energía, two Spanish companies investing in ethanol production. Another option is the PowerShares WilderHill Clean Energy Portfolio, an exchange-traded fund that tracks a basket of 40 alternative energy companies. Robert Wilder, who created the index on which the fund is based, said that it currently includes just two companies with significant ethanol interests: Pacific Ethanol and MGP Ingredients, an ethanol producer in Atchison, Kan.
Mr. Wilder said he expects to add other companies involved with ethanol. "It's very elegant," he said. "We can take an agricultural waste product we currently pay to get rid of and convert it into fuel."
But many ethanol companies are privately held, making them inaccessible to most investors. And there is certainly room for skepticism about ethanol's future. After all, corn ethanol has been around for years, and even with a current spike in demand, the industry commands only a 3 percent share of the market. Mr. Khosla counters that soaring energy prices have made corn-based ethanol more competitive, while research advances in breaking down cellulose into simple sugars have cut the cost of making ethanol from other sources.
"Ethanol is cheaper to produce, unsubsidized, than gasoline today," he said. "As these technologies ramp up, they will be cheaper — unsubsidized — than gasoline even if petroleum drops to $35 a barrel."
Brazil has proved that ethanol can be made competitively from sugar, said Daniel M. Kammen, a professor in the energy and resources group at the University of California, Berkeley. He estimates the cost of producing ethanol from sugar — including raw materials and processing — at $6 to $7 per gigajoule (a unit of energy) versus $14 a gigajoule for gasoline. In Brazil, roughly 70 percent of new vehicles are equipped to handle ethanol, and the country has been able to curb its dependence on foreign oil and turn ethanol into a growing export industry.
But cellulosic ethanol, the kind produced from nonfood plant matter, has some advantages over food-based ethanol. Because cellulosic ethanol is derived from plant waste, wood chips or wild grasses like miscanthus and switchgrass, it would not require costly cultivation; that would mean savings on labor, pesticides, fertilizers and irrigation.
And it is superior to corn-derived ethanol in reducing greenhouse gas emissions, Professor Kammen said. He expects cellulosic ethanol to catch on quickly. "I think you can really see ethanol comprising 25 to 30 percent of gasoline consumption within 10 years," he said.
FOR that to happen, automakers would need to build more flex-fuel cars. The cost of adding this capability to new cars has been estimated at roughly $100 a vehicle. And ethanol would need to be much more readily available at gas stations. Mr. Khosla has been lobbying in Washington for government help in both areas.
Smaller investors may be advised to just sit back and study developing opportunities. "This is an area where investors have to be patient and build up slowly," Mr. Khosla said.
But he said the potential payoff justifies his own aggressive bets. And ethanol's success, he said, would mean that more energy spending would flow to rural America. "You get a fuel that's cheaper and greener than gasoline," he said. "It gives us energy security."
(From CNN.com)
Brazil Leading World in Effort to Boost Use of Ethanol
SAO TOME, Brazil (AP) -- In an agroindustrial complex ringed by fields of 12-foot-high sugarcane, a giant mechanical claw dumps stalks by the tons into an even larger crushing machine. Here's where the renewable fuel used to power seven of every 10 new Brazilian cars gets its start.
Sugary slurry flows into a row of gleaming stainless steel distilling tanks, transforming cane harvested only hours earlier by machete-wielding farm laborers into ethanol, the alternative fuel now promoted by President George Bush to end what he calls America's addiction to imported oil.
While Bush set 2025 as the target date for replacing three-fourths of the oil imported from the Middle East with American ethanol, Brazil already satisfies nearly half of its domestic passenger vehicle fuel demand with ethanol.
After decades of government intervention and subsidies, the industry here is a thriving free market business, complete with ethanol pumps at every filling station in Latin America's largest country. Millions of cars run on either ethanol, gas or any combination of the two. And there's plenty more land available for sugarcane cultivation as the planet's biggest sugar producer gears up to become its undisputed long-term ethanol supplier.
Brazilian ethanol producers and international energy experts agree that the United States will probably never come close to reaching Brazil's potential as an ethanol superpower. But they say Brazil offers clear lessons on how to boost domestic ethanol use.
What the United States needs most, they say, are more cars that run on the fuel, and filling stations that offer it.
"Petroleum is almost history," warned Celso dos Santos, commercial director of the Cocamar farmers cooperative that owns the Sao Tome distillery. "People stopped using wood for fuel and replaced it with coal. Then came petroleum, but we're getting to the end of the petroleum era."
With the sickly scent of pure alcohol wafting through the air around the Cocamar plant, a thousand workers toil around the clock during the March to November cane harvest season, distilling 92,500 gallons of ethanol daily that is trucked away for immediate sale at the pumps.
Sugarcane waste is burned to generate steam for the turbines, meeting all the plant's electricity needs. Excess power will soon light up half the homes in Sao Tome, a southern Brazilian town of 6,000 people.
The technology isn't even cutting edge, but the industry is making profits like never before and has a bright future thanks to a 1970s decision by Brazil's former military dictators to subsidize ethanol production and require distribution at every gas station.
A 1980s Brazilian fad with cars that ran only on ethanol petered out when oil prices fell in the early 1990s. But the fuel came back into vogue in 2003 when automakers started rolling out cars that run on gasoline, ethanol or any combination of the two. With international oil prices reaching record highs, Brazilian drivers turned to "flex-fuel" cars, buying ethanol at half the price of gas until late last year.
Some experts predict flex-fuel car sales will reach 90 percent of Brazil's new car market within several years, while others say recent ethanol price hikes could keep penetration at the current level.
Getting a fraction of that acceptance in the United States could take decades, analysts say, even with new incentives and regulations.
"Since the government does not dictate what happens in the marketplace, the process will be much slower than what Brazil experienced," said Amani Elobeid, an economist and international sugar analyst at Iowa State University.
A small but growing percentage of American-made vehicles are manufactured to run on the U.S. version of ethanol called E85, which is 85 percent alcohol distilled from corn and 15 percent gasoline. But many American drivers don't even know their vehicles can run on E85, and the fuel is available at only 610 American filling stations.
Brazil's state-imposed pump price for gasoline includes much higher taxes than the price U.S. consumers pay. Gas in Brazil now costs the equivalent of $4.69 per gallon. Pure ethanol -- taxed at slightly lower levels and cheaper to produce -- goes for about $3.59 per gallon at all of the nation's 30,000 stations. It fueled 48 percent of Brazil's passenger vehicles last year.
Meanwhile, Brazil is trying to encourage ethanol use in countries from Asia to Europe.
President Luiz Inacio Lula da Silva said in Britain this week that Brazil wants "to plant the oil of the future" and promote radical changes in how world generates energy.
Brazilian ethanol makers intent on boosting exports have been beaming ever since Bush used his January State of the Union address to plug ethanol.
"We felt that in our share price," said a smiling Paulo Diniz, chief financial officer of Grupo Cosan, Brazil's largest ethanol producer and the world's second largest after the U.S.-based Archer Daniels Midland Co.
A few years ago, Cosan was lucky to host a tour every four or five months for big foreign investors. Now the firm gets visits every two weeks, including a VIP tour in February for Google Inc. billionaires Larry Page and Sergey Brin.
Cosan is considering an initial public offering on Wall Street within the next year and a half, Diniz said. Other foreign companies may consider jumping on the bandwagon by buying Brazilian ethanol firms.
"Phones have been ringing all over the world after Mr. Bush spoke," said Cristoph Berg, an ethanol analyst with Germany's F.O. Licht, a commodities research firm. Investors "are waking up to the notion that ethanol really seems to have entered the mainstream."
Brazil's ethanol experience hasn't been so rosy for consumers in recent months. Prices surged during the annual November-March production lull while the cane grew. Ethanol remains cheaper than gas, but flex-fuel car drivers can get better fuel efficiency with gas when the price difference between the two narrows significantly.
In Sao Tome, the cooperative that owns the ethanol distillery is betting on its best profits since it bought the operation in 1993. Cocamar's production cost is $1.10 per gallon, and wholesalers are buying the fuel for $2.68 -- up from $1.44 last year.
About the only thing that could hurt Brazil's ethanol industry now would be an almost unimaginable plunge in international crude oil prices, currently trading above $60 per barrel, said Almir Hawthorne, the distillery's industrial manager.
"Oil could drop to $35 or $40 per barrel, and ethanol producers would still make money."
A Closer Look at Forbes' Billionaries in Technology
By Olayinka Arowolo, MBA
The March 27 2006 issue of Forbes magazine is an ode to the world’s billionaires. The list comprises of mostly risk convening prodigies and move makers. All 793 members of this ultra elite club are from all around the world and earned their fortunes in various business ventures. A staggering percentage of these titans made their fortune in technology. Their initiatives have essentially changed the global landscape for decades to come.
The definition of billionaire is not limited to the numerical instance of wealth, it describes the very essence of an individuals drive to effect what drives commerce. Microsoft co-founder Bill Gates topped the list for a record 12th year in a row with a net worth estimated at $50 billion followed by; #6 Paul Allen $22.0, #12 Michael Dell $17.1, #14 Sheldon Adelson $16.1, #15 Lawrence Ellison $16.0, #24 Steven Ballmer $13.6, #25 Azim Premji $13.3, #26 Sergey Brin $12.9, #27 Larry Page $12.8, #129 Eric Schmidt $4.8, #140 Steven Jobs $4.4, #240 David Filo $2.9, #317 Jerry Yang $2.4, #486 Thomas Siebel $1.6, #645 Theodore Waitt $1.2 and 746 Charles Simonyi $1.0 billion.
A more noteworthy aspect than the enormous wealth these entrepreneurs have amassed is the considerable impact their ventures have had globally. Gates, Allen, Ballmer and Charles Simonyi are all Microsoft billionaires. Page, Brin and Schmidt are Google billionaires, Filo and Yang are Yahoo billionaires. Their impact in the marketing business is astounding and permanent. Azim Premji started Wipro. Michael Dell has Dell computers and Steve Jobs is behind the iPod revolution. Ted Waitt founded Gateway and Thomas Siebel made his money from Siebel CRM software used globally in all fortune 500 companies.
Technology billionaires have a common philosophy to their business model, faster, smaller, accessible and relevant. This attitude towards product deployment and process development has mass appeal on a universal scale and that is the very quintessence of the phenomenal wealth they have generated and will continue to proliferate well after they are gone. Any applicants into this illustrious club have to at a minimum understand their business philosophy and incorporate into all ventures.
Olayinka Arowolo is president of Atlanta-based Aroviz Online and Associates, LLC. Aroviz is a provider of video mail and audition automation software platforms.
(From USA Today)
Lawyer for Scrushy sees Skilling, Lay as 'doomed'
News analysis by Greg Farrell, USA TODAY
Houston — As if former Enron CEOs Ken Lay and Jeff Skilling don't have enough to worry about with the government's star witness expected to begin testifying against them today, a prominent defense lawyer who helped win an acquittal for another embattled CEO says the two men are already toast, at least in the courtroom.
Donald Watkins, a civil rights lawyer and businessman who last year helped former HealthSouth CEO Richard Scrushy beat charges that he masterminded a $2.7 billion fraud, said in an interview Friday that Lay and Skilling are "doomed."
"There comes a time when you can forecast the outcome of a contest," said Watkins, who has not attended the trial but has followed it closely in the media. "In this contest, these guys have lost."
The reason, according to Watkins, is that the two men settled on the wrong defense strategy. In their opening arguments, lawyers for the two men told the jury that Enron was a solid company done in by a loss of confidence among investors and trading partners after the disclosure that former chief financial officer Andrew Fastow had diverted tens of millions of dollars into his own pocket.
Watkins says this defense — that Enron was fundamentally a healthy company — is a non-starter. "Nobody's going to buy that," he says. Further, the tactics used so far by the defense — vigorous cross-examinations of cooperating witnesses who have already pleaded guilty — "lacks imagination."
"These types of trials involve not only legal issues, but political and social issues. You have to address all of that. They have ignored the political and social angles. When you do that, you lose every time. They never put the government on trial."
"Lay and Skilling are the poster boys for Sarbanes-Oxley," says Watkins, referring to the law passed after the exposure of accounting problems drove Enron and WorldCom into bankruptcy. "They're part of a Justice Department campaign to clean up accounting in Corporate America. The defense is treating it like it is a regular white-collar criminal case."
Watkins says the Lay-Skilling defense would have been better off putting the government itself on trial, digging into the process by which prosecutors built their case. In the Scrushy trial last year in Birmingham, Ala., Watkins and his legal team challenged the prosecution at every turn, forcing the government to put FBI agents on the stand to testify about how secret recordings of the defendant were made and handled.
"There are certain things that resonate with jurors," Watkins says. "They will not tolerate government misconduct, period. Every juror scans the courtroom and wonders privately, 'If I were sitting there, would they be coming after me, too?' You have to address these thoughts and make them think, 'Yes, they would steamroll me, too.' "
Hard to handicap from afar
Lay's attorney, Mike Ramsey, respectfully disagreed with Watkins, saying, "It's very hard to handicap a case without being in the middle of it." But he did concede that so far, at least, "There have not been a lot of over-the-top attacks on people in the courtroom."
But after five weeks, Ramsey says, "I'm very happy with the position we're in right now. It's hard to know in the middle of a fight, in the fog of battle, whether you're winning. We're probably in better shape now than we thought."
As for the prosecution, Watkins says it is doing a good job pacing the trial. For the first two weeks, jurors listened to testimony from Mark Koenig, Enron's former head of investor relations. Koenig, who pleaded guilty to one count of aiding and abetting securities fraud, was a minor player in the fraud that Lay and Skilling are alleged to have covered up at Enron, but he came across as credible and set the table for a number of issues that subsequent witnesses addressed.
Since Koenig stepped down, nine others have testified about accounting problems at Enron or other related issues. Today, prosecutors will call Fastow, and he is expected to implicate Lay and Skilling in the conspiracy to prop up Enron's earnings.
"In Scrushy's case, the government couldn't wait to trot out their big cooperators," Watkins says. The Enron prosecutors brought out "their more credible witnesses first" and put their biggest witness in a position where the entire case doesn't ride on his credibility.
According to Watkins' rules for managing white-collar criminal cases, there is some hope. In the Scrushy trial, the primary defense lawyer, Jim Parkman, emerged as a folksy, likable character who frequently got jurors and the judge to laugh.
"If the jury is not laughing with you, you are losing," Watkins says. In the Scrushy trial, "They bonded with Parkman. I have never seen jurors convict a defendant when they're laughing with a defendant. If there's no smiles, no laughter, those guys are doomed."
That's good news for Skilling. His lead attorney, Daniel Petrocelli, has emerged as the star of the trial, cracking up jurors with unscripted remarks and amusing U.S. District Judge Sim Lake with lively banter.
As for Watkins, Ramsey suggested he travel to Houston this week "to watch us work over Mr. Fastow."
(From CNNMoney.com)
5 Audit Red Flags
By David Ellis, CNNMoney.com staff writer
More and more people are battling with the IRS. Last year audits were up by 20 percent.
Think you know how the IRS picks its audit victims? You may want to reconsider that notion.
Even most accountants say they don't know how to crack the IRS' audit formula.
But with the tax agency auditing 1.2 million individuals last year and the IRS ramping up its enforcement spending in recent years, experts say it might be worth taking a look at your return to make sure you aren't making yourself a target for the tax man.
Overkill on charitable contributions
While giving to your favorite non-profit can be rewarding both personally and for the tax break, giving to charity could attract the attention of the IRS, especially if the donation is disproportionate to your annual income.
And you might even want to think long and hard before you start inflating the value of that 1982 Dodge Diplomat you donated this summer or the Paul Cezanne painting you gave to charity, says Jeffrey Kelson, a partner at the New York offices of accounting firm BDO Seidman.
Many individuals, says Kelson, will overvalue those items and think that the IRS won't notice.
"You have to be careful if you take large, non-cash contributions," says Kelson. "You have to back them up with receipts."
Too many deductions for the self-employed
For those Americans that are self-employed or run a small business, the IRS is really watching you. "That's part of the territory," says Kathy Burlison, the director of tax implementation at H&R Block.
While filing a Schedule C alone may not be a red flag, the IRS is wary of these taxpayers since they contributed about $68 billion to the $345 billion tax gap as of 2001.
The tax man knows there is a temptation by self-employed taxpayers to blur the distinction between personal and business expenses, such as a mileage deduction on your car or calling that room in the basement of your home your office.
But don't think you're fooling anyone with that trick, says Burlison. In fact, the IRS will probably size up your expenses relative to your business to make sure your return is honest. "Those are areas that the IRS tends to be more concerned about being abused so they are more likely to be audited," she says.
Above-average deductions
Martin Kaplan, a certified public accountant and the author of "What the IRS Doesn't Want You To Know," says that the IRS is also closely looking at unusually high deductions.
If you earned $100,000 from your day job, but gambled in the real estate market this year and claimed a $40,000 loss, you might become audit material. "The [IRS] computer definitely generates a much greater amount of audits based on categories where incomes and losses are offsetting each other," says Kaplan.
At the same time, the tax man will weigh the deductions and expenses on your return against other taxpayers in your income bracket (see chart). While you might not be able to do anything about that $20,000 medical bill or the inheritance you received from a departed relative last year, if your deductions or expenses tend to be higher than normal that could raise a red flag.
Making six figures
It may not be promising news for those individuals on the higher end of the tax strata, but believe it or not, if you make over $100,000 a year, that could draw some attention to your tax return.
During the fiscal year 2005, audits of taxpayers taking home over $100,000 annually reached 221,000, double the number in 2001.
And if that's not enough to convince you, in November, IRS Commissioner Mark Everson said in a statement that the coverage of this category "still too low".
According to tax experts, those individuals are lucrative targets for the IRS. "They are focusing on taxpayers making $100,000," says Kelson. "They want to get a return on those returns."
Careless omissions
Kaplan, who has served as a certified public accountant in New York City for the past 35 years, also stressed the importance of keeping your return as neat and slim as possible.
That means filing electronically instead of handwriting your return and avoid attaching out any unnecessary forms to your tax return. "If there is a need for additional info they'll ask for it," says Kaplan. "You're trying to avoid someone putting hands on your return."
But maybe the best advice, says H&R Block's Burlison, is to provide as transparent a return as possible. "The number one thing to avoid contact from the IRS is to make sure you report everything."
Internet Censorship
By Olayinka Arowolo, MBA
ATLANTA (February 20, 2006) -- The internet currently is the only market space where strict censorship standards have not been codified or enforced. Recently, the Justice Department’s subpoena request for one million random search page records from Google to “identify internet search patterns of sexual predators on the internet” was rejected by the company citing consumer privacy violations. It’s a controversial issue that cannot be remedied without substantial grey areas. Do we really want to create a virtual society that is as controlled and as restricted as the Chinese? They heavily regulate the internet use of Chinese citizens.
How should high tech companies balance international compliance requirements when they jeopardize fundamental freedoms? From a corporate perspective, freedom is relative depending on the form of government in place. Google has had to launch a "censorship friendly" version of its search engine in China that blocks content Chinese officials find "objectionable” Google, Microsoft, Yahoo and Cisco came under criticism last week at a briefing on internet freedom in China. The tech giants are currently cooperating with Chinese censorship requirements.
The principal threat of internet censorship today is the Communications Decency Act, a law passed by Congress and signed by the President in January, 1996 which would apply quite radical regulations to speech on the internet. What is the Communications Decency Act (CDA)? The CDA criminalizes "indecent" speech on the internet. One section of the CDA defines indecency as speech depicting or describing sexual or excretory acts or organs in a patently offensive fashion under contemporary community standards. Each of these clauses--indecent, depicting or describing, patently offensive, and contemporary community standards--hides a landmine threatening the future of freedom of speech.
There is no justification for treating the printed and electronic word differently. The consequences of doing so will become most apparent in the next century, as printed books and magazines continue to decline in importance compared to the sheer volume of words available online. If the full protection of the First Amendment applies only to books and magazines printed on paper, then the First Amendment will become a historical curiosity.
The Supreme Court ruled that the internet is a unique medium entitled to the highest protection under the free speech protections of the First Amendment to the US Constitution. This gives the internet same free speech protection as print. The Court struck down the Communications Decency Act (CDA), Congress' first attempt to censor speech online.
Olayinka Arowolo is president of Atlanta-based Aroviz Online and Associates, LLC. Aroviz is a provider of video mail and audition automation software platforms.
A New Threat To Your Credit Rating
Staff Reporter, The Wall Streer Journal
January 3, 2006
A growing number of routine municipal fines and fees -- including unpaid parking tickets, library fines, and trash-collection charges -- are starting to damage consumer-credit scores.
In the face of budget crunches, major cities, including New York, Chicago and Miami, are hiring private collection agencies to chase down small debts that are frequently shrugged off by consumers. Since an outstanding account handled by a private collection company can wind up in a credit file, more consumers are discovering that niggling government fees -- like unpaid speeding tickets or dog-catcher fines -- are marring their credit. It's up to each city to decide whether such information will end up in a consumer's credit file.
Claude DaCorsi, a management consultant in Portland, Ore., used to pride himself on his near-perfect credit rating. But during a recent routine credit check, he discovered his credit scores had plunged to "below average."
The reason: Two late library books, including a picture book taken out for his two-year-old son. The library had turned over the $40 late fee to a private collection agency.
Mr. DaCorsi, who says the black mark affected his interest rate on a home loan, has since barred his children from visiting the library. "We go to Barnes & Noble now," he says. "We can get books there without fear of retribution."
A handful of cities, including San Diego and Chicago, have worked with collection agencies since the late 1990s. But the trend is spreading rapidly around the country as strapped local governments look for creative ways to boost revenue without raising taxes and fees. Over the past few years, local governments in places including Seattle; Anchorage, Alaska; Austin, Texas; and Florida's Miami-Dade County have contracted with private agencies to collect late parking tickets and court fees. In New York City, Baltimore and Dallas, libraries use private collection firms to recover fines. New York state recently hired a collection company to pursue overdue E-ZPass toll bills.
While shaking down citizens over small debts might sound petty, hundreds of cities around the country are owed millions of dollars in unpaid fines. Since 1997, when Chicago began using a collection agency to track down unpaid parking fines, ticket revenue has more than doubled, rising from $68 million to $154 million last year. (The total number of parking tickets issued has dropped slightly over the period.) Since the Omaha, Neb., public-library system hired a private collection company in March, it has collected more than $40,000 in fines and recovered about $75,000 worth of overdue books and materials.
Local governments are also using collection agencies to track down some more-unusual fees. In Florida, some municipalities have used a private agency to track down swimmers who fail to pay "beach rescue" fees after they are rescued by lifeguards. San Diego courts have used collection agencies to collect fines issued to people caught riding the trolley system without tickets, according to AllianceOne, a Pennsylvania-based collection firm that works with court systems around the country.
As local governments increasingly outsource collections, more companies are focusing on collecting for public agencies. Unique Management Services in Indiana works exclusively with libraries, and currently handles collections for about 750 of them in North America. The company says it has annual revenue in the millions of dollars, and the business has been growing at about 15% a year.
Since its clients usually want to maintain good relations with patrons, Unique Management says it tries to avoid the hardball tactics normally associated with collection agencies. "We use a gentle tone of voice," says Kenes Bowling, manager of customer development at Unique. "We let patrons know that the library isn't angry with them, and wants them to return the books." (About half of the company's call-center employees are students from a local Baptist seminary.) Still, patrons who don't pay up are sometimes reported to credit bureaus.
City officials say the revenue from aggressive collections efforts can help keep taxes low. They're also an issue of fairness. "We have a responsibility to apply the law equitably," says Bea Reyna-Hickey, director of revenue for Chicago. "It's not fair to have some people paying parking tickets, and other people just ignoring them." Typically, a collection agency takes between 15% and 35% of whatever it successfully collects, according to Kaulkin Ginsberg Co., a collections-industry research firm.
Some cities are using collection agencies to chase down debts that are over a decade old, which can lead to surprises for consumers. Last July, Phillip Remstein of King of Prussia, Pa., received a notice in the mail from a collections company requesting $53 for a Philadelphia parking ticket issued in 1993. "It was ridiculous," says Mr. Remstein. "I didn't hear from them for 12 years and suddenly they want to collect?"
Mr. Remstein says he is sure he resolved the ticket at the time, but he has no record since it was so long ago. The Philadelphia Parking Authority had contracted with a collections agency to pursue about $8 million in unpaid tickets that were more than seven years old. But after numerous complaints from consumers like Mr. Remstein as well as media coverage, the city called off the collections program in November. However, the city still uses a private collection agency to go after unpaid fines on current parking violations.
Technically, any bill more than 30 days old can be reported to a credit bureau, though many local governments opt to give citizens more time before deploying hardball tactics. Both TransUnion LLC and Experian, two of the country's three major credit bureaus that compile information about consumers' credit history, include information about overdue municipal fines and fees on credit reports. Equifax Inc., the third credit bureau, makes an effort to weed out small charges like library books and parking violations from credit files. The company says it is not fair to include them in credit reports since municipal fines are reported unevenly around the country.
Even when the dollar amounts involved in the fines are small, any collections activity in a credit file can do serious damage to a credit score. "It's a very serious negative item on your report, on par with a tax lien or a bankruptcy," says Maxine Sweet, vice president of public education at Experian. "You will definitely pay more for your credit, in higher interest rates and higher down payments."
A library fine reported to a credit bureau, for example, can knock as much as 100 points off a credit score, making it difficult for someone with previously good credit to get the best rate on a loan, consumers and industry experts say. (Credit scores calculated by Fair Isaac Corp., the leading provider of such scores, typically range from 300 to 850; any score above 700 will generally get you the best rate on a loan.) Collections activity can stay on a report for seven years.
Consumers hoping to get municipal fines wiped off their credit records do have some options. Since collections activity can stay on a credit file even after the bill is paid, consumers should try to come to an arrangement before they pay. They should call the government agency or collection company and try to strike a deal that if they pay the fine, it will be removed from their file. The Web site creditboards.com1 offers sample letters to collection agencies and other advice to help consumers get items removed from their credit files.
Battling a collection agency can be an ordeal. Kevin Howard, a Houston attorney, estimates he spent about 25 hours last year trying to get a $30 library fine removed from his credit file. He says he has spoken up about his experience at two city council meetings, told his story on the local news and contacted the Federal Trade Commission, which enforces the Fair Credit Reporting Act, but he's yet to get the item removed.
H&R Block Gets Its Own Taxes Wrong
By Alistair Barr, Dow Jones
San Francisco (Feb. 24) - H&R Block Inc., the nation's largest tax preparer, said the costs of settling a number of class-action lawsuits and slower-than-expected business in its tax and mortgage arms caused its third-quarter profit to drop 68 percent and forced the company to lower annual revenue estimates.
In addition, H&R Block said Thursday it will restate earnings for fiscal years 2004 and 2005, as well as the first two quarters of this year, to correct accounting errors it said led to the company understating its income tax liability last year by $32 million.
For the three months ending Jan. 31, the Kansas City-based company reported earnings of $28.9 million, or 9 cents per share, compared with $92.3 million, or 28 cents per share, during the same period a year ago. Analysts surveyed by Thomson Financial had expected earnings of 26 cents per share.
Shares for H&R Block, which released its earnings after the markets closed Thursday, fell 31 cents, or 1.2 percent, to close at $25.19 on the New York Stock Exchange. The stock was down $1.87, or more than 7 percent, to $23.32 in after-hours trading. It had traded in a 52-week range of $23.01 to $30.
The company said it recorded an after-tax charge of $31.7 million, or 10 cents per share, in litigation expenses.
H&R Block announced Dec. 21 that it had agreed to pay $62.5 million to settle four class-action suits filed in West Virginia, Ohio, Alabama and Maryland, as well as to resolve claims pending in 22 other states and the District of Columbia.
All the cases involved loans that allow customers to borrow against expected tax refunds. Consumer advocates say the loans take advantage of low-income customers who don't understand the steep fees charged for the service or their alternatives.
California Attorney General Bill Lockyer last week filed another lawsuit against Block's loan program, with similar claims, and the company is scheduled to defend the program from federal racketeering charges in May.
Quarterly revenues increased 11 percent to $1.16 billion, but missed analyst predictions of $1.21 billion.
The company's tax business saw quarterly revenues increase 3.2 percent to $548.5 million. But H&R Block said its retail offices have seen 4.1 percent fewer clients through the first month-and-a-half of the U.S. tax season, eking out a slight increase in revenue from a 6.1 percent increase in average fees per client.
During a conference call with analysts, company chairman and chief executive Mark Ernst said software problems during the first half of January likely prevented the company from serving an estimated 250,000 clients.
"While we have recovered from these problems and have since then seen performance in line with our expectations for the year, those early weeks have created a hole out of which we are working to climb," he said, estimating it will reduce client traffic for the year by 2 percent.
H&R Block, trying to ward off competitors such as Jackson Hewitt Tax Service and Liberty Tax Service, this year expanded the number of retail offices and department store kiosks by 9 percent to 12,165.
The company's mortgage business saw quarterly revenues decline 4 percent to $296.5 million, as rising interest rates have cut into margins. Ernst said the company has consolidated branch offices and regional call centers for its Option One subsidiary and will cut its work force by 600 positions, actions that will require a fourth-quarter charge of between $10 million and $12 million.
"The changes we're making will help ensure the long-term competitiveness of our mortgage businesses," Ernst said in a written statement.
Still, the combination of slow tax and mortgage businesses forced the company to lower its annual earnings guidance to between $1.65 to $1.85 per share, down from earlier guidance of $1.90 to $2.15 per share. Analysts expected annual earnings of $1.86 per share.
"We believe that it is prudent to take a cautious view of the fourth quarter," Ernst said.
H&R Block's business accounting arm saw revenues rise 77 percent to $235.8 million, while its investment business increased sales 18 percent to $73.2 million.
For the second time in six months, H&R Block said it will have to restate past earnings because of accounting problems.
In the latest case, the company said it plans to reduce fiscal year 2005 earnings by 7 cents per share and reduce 2004 earnings by 2 cents. Officials said the mistakes had to do with estimating the company's state effective income tax rate.
Last August, H&R Block disclosed it had to raise 2004 earnings by 6 cents per share and lower 2003 earnings by 8 cents per share because of tax accounting problems surrounding its 2000 acquisition of Olde Financial Corp.
Chief Financial Officer Bill Trubeck said the company will likely request an extension to file its quarterly report with securities officials to give it more time to determine the full impact of restating earnings.
Will Wireless Technology Bridge the Digital Divide?
By Olayinka Arowolo, MBA
ATLANTA (January 21, 2006) -- The term "digital divide" describes the perceived growing gap between those who have access to and the skills to use technological devices and those who, for socio-economic and/or geographical reasons, have limited or no access. This definition is derived from ever evolving economic factors that cause the separation of those with means and those without. Wireless technology as seen and observed in common everyday devices are generally used in mobile IT equipment. It encompasses cellular telephones, personal digital assistants (PDA's), and wireless networking via lap top computers. As technology becomes cheaper, more efficient, and more competitive, the technological divide will loose its definition and basis in the global market space.
How? The technological divide in black America was and to some extent still is a major roadblock with regards to technological education, development and advancement in the black community primarily due to a lack of access. With regards to cellular phone technology, the expansion of wireless systems in black economies of scale is bridging the gap and proving extremely profitable for cellular corporations with aggressive technological investment agendas in black America.
Confused? The cell phone industry is a resounding example of this fact. Not only is this industry a driving force in bridging the technological divide via its products, it re-invests millions annually back into black music, culture and trends using these as a basis of key marketing and technological choices. Still confused? Well, the ring tone business is a 4 billion dollar a year business with a resounding 78% of downloaded tones being black hip hop music. It is thus in this industries best interest to invest in a culture and community that is key in driving revenue. .
The “gap” in terms of digital technologies - is closing very quickly unfortunately not because of PC penetration, but because of mobile phone technologies. Computer integration is a more superior and necessary educational indispensable life tool and its complete acceptance and integration in the black community would be more valuable. The divide still exists on an economic basis for the rollout of expensive infrastructures that PCs require. Communities that can’t afford or maintain these infrastructures have a chance to now completely eradicate the divide as wireless devices evolve and gain relevance.
A paradigm shift from PCs to laptops will develop as cell phones did with regards to hard line phones. A revolutionary roll out of laptops as seen in the case of cell phone technologies will follow allowing people with less means more access and ability to incorporate computer technology into their everyday lives. The corporations and service providers in charge of wireless access will incorporate laptop accessibility into their marketing agendas to drive their subscription sales; and as competition bottlenecks in major markets they are bound to go black trumping their way into minority markets. Poorer communities will take on a different scene as every other person will own a laptop as opposed to just cell phones.
Olayinka Arowolo is president of Atlanta-based Aroviz Online and Associates, LLC. Aroviz is a provider of video mail and audition automation software platforms.
From Fortune.com
The Man Who Saved Richard Scrushy
Monday, July 11, 2005
By John Helyar
Richard Scrushy's $2.7 billion accounting-fraud trial looked like a slam-dunk for the prosecution. All five CFOs who had ever reported to the former HealthSouth CEO copped guilty pleas and agreed to testify against him. Ten lesser company officials also pleaded guilty and agreed to testify. Yet the prosecutors threw up 36 airballs, failing to score with a Birmingham, Ala., jury on any of the three dozen counts.
What happened? Scrushy's lead attorney, Donald Watkins, would be glad to explain—and to continue the hoops metaphor. "They never expected a hard, full-court press throughout the trial, and that's what they got. It was unrelenting," says Watkins, who put together an unlikely defense team and unleashed it on what he calls the "overconfident" feds. Art Leach was the Designated Objector, contesting prosecutors' questions frequently and knocking them off stride. Jim Parkman was the cross-examiner whose down-home demeanor won over the jury even as he destroyed witnesses' credibility.
Watkins, of course, was the coach—and, it turns out, the perfect person for the role. His worldview was shaped by his youth in civil-rights-era Montgomery. Though the son of a university president, he knew the indignities of drinking from separate water fountains and the stresses of integration. Now 56, he was one of the first blacks to attend the University of Alabama law school in the 1960s. Even decades later, the emotions and fissures of that era's upheaval profoundly influence Alabama's dynamics—and, as necessary, Watkins's tactics.
And so he deployed a brilliant, if controversial, racial strategy in a city where blacks and whites still, according to Watkins, view certain things very differently. "Black people are more open to receiving their information in the courtroom," he says. "Whites will buy into the media hype put out by the U.S. Attorney and Justice Department for two years...." Watkins tried to maximize the number of black jurors—seven of 12 would be African American. He seemed to be speaking directly to those jurors in his closing argument, comparing the legal travails of Richard Scrushy (who—need it be noted?—is a wealthy white man) to the struggles of blacks in the 1950s and 1960s. Outside the court, the black community was wooed by Scrushy himself, who joined a black church, and preached or donated to other black congregations. Some of them sat behind the defense table at trial in what became known as his "amen corner." Critics saw that as an effort to influence jurors; Watkins asserts it was an unbidden show of support.
Maybe. But Donald Watkins's genius is to play his cases as multidimensional chess. He made his name in Birmingham in the early 1990s by representing Mayor Richard Arrington, then under investigation for corruption. Watkins didn't just defend the city's first black mayor; he went on the offensive, leveling charges of racism. Arrington, who was never charged, put Scrushy together with Watkins even though his old attorney hadn't practiced law since 1998. In recent years Watkins has founded a bank and invested in energy deals. He was bidding (unsuccessfully) for the Anaheim Angels baseball team in 2003 when Arrington urged him to represent Scrushy.
Watkins admits he was greatly aided by two government gaffes. First, it tried the case in Birmingham rather than New York or Washington, D.C. He had many more moves to make on the home court. Two, it assembled an awkward coalition of prosecutors—some from Washington, some from Birmingham—who meandered through eye-glazing accounting and compensation technicalities. Doug Jones, a former U.S. Attorney in Birmingham, believes prosecutors had a "fundamental misunderstanding" of the case. "What the defense understood is that this was a street brawl," he says. (U.S. Attorney Alice Martin counters that hers was a well-presented case and the venue was proper, since the HealthSouth pleas were entered in Birmingham. "You can't run to New York for everything," she says.)
Scrushy still faces a wave of civil litigation, including an SEC suit. Watkins will put a lot less time into this phase of Scrushy's defense—he wants to get back to his business interests—but vows to be no less aggressive: "The government will have to work for every inch of ground."
Miami Beach gains a new heavy hitter
By Malena Cunningham
One of the richest African-Americans in the nation, a banker and attorney who has pursued ownership of three major league baseball teams, has moved to Miami Beach.
Donald Watkins also was in the news earlier this year for successfully leading the defense of former HealthSouth CEO Richard Scrushy.
While he has enjoyed strolling along Miami Beach and taking swims since moving there in September, he is planning to expand Alamerica, the bank he founded in 2001 in Birmingham.
"We are looking to open a branch here in the Miami metro area first and, if not Miami, in the Florida panhandle," he said. He also hopes to expand Alamerica to the Bahamas, capping off two years of conversations with officials there.
"Miami is an international city, known all over the world, and there's an abundance of major capital here with lots of players in the business world," Watkins said, adding that it's also a great place to network.
"And best of all, there is no personal state income tax, which is an added benefit to me these days," he said.
Watkins is believed to be one of the richest African-Americans in this country. Three years ago, when he tried to buy the Minnesota Twins, it was estimated he was worth $1.4 billion, a figure he will neither confirm nor deny.
As part of his bid, he said he would build a stadium (estimated price: $350 million) that taxpayers in Minnesota didn't want to pay for.
Watkins ended up not buying the team and the Twins, still owned by Carl Pohlad, announced a proposal in April for a $360 million ballpark that would include a $125 million contribution from the team.
The Florida Marlins have been pursuing a new, retractable-roof stadium near the Orange Bowl, but the funding gap that has been estimated at between $30 million and $100 million. There has been widespread speculation the team, which has won two World Series championships, could move to Las Vegas if a stadium deal isn't finalized.
Watkins struck out on his quest to become the first African-American owner in the major leagues when his efforts to buy the Tampa Bay Devil Rays, the Anaheim Angels and the Twins fell through.
Not giving up
But, he says he hasn't given up.
"Back in May, I got an application from the league when the Washington Nationals were for sale, but didn't send it in," he said.
Watkins, anticipating a bidding war, said he passed on the opportunity. In retrospect, he was correct.
"The price got up to $450 million. That's out of my league," he said.
"Any doubts about my ability to buy a team have been removed," he said. "Since winning the Scrushy case, I have removed all questions about credentials and credibility."
The question likely to come up in South Florida is whether Watkins will use those credentials to seek ownership of the Marlins, which are owned by Jeffrey H. Loria. Watkins' effort to pursue a major league team was interrupted when Scrushy was charged in March 2003 with masterminding a $2.4 billion fraud and conspiracy at the company he founded.
Watkins, hired to head Scrushy's defense team a few months later, said in an exclusive television interview: "Richard Scrushy is my friend, and when my friend is in trouble, I drop everything to come to his rescue."
Watkins said he believed the government was trying to make Scrushy the poster child for corporate fraud under the newly passed Sarbanes-Oxley Act.
Because it had been years since Watkins practiced law, there was doubt that Scrushy could beat the charges. After all, 18 former HealthSouth executives - five former CFOs among them - pointed the finger at Scrushy.
Watkins said he had no doubts.
In June, he and the team of lawyers he assembled won a decisive victory when Scrushy was found not guilty on all counts. Since then, Watkins said, he's been contacted by at least a dozen heads of industry.
"I think they recognize the legal ability to get one out of legal trouble, should one get in that place, plus I think they enjoy the personal relationship," he said.
After 32 months' work on the Scrushy case, however, Watkins said he has no intention of spending months inside another courtroom. He is not yet listed as a Florida attorney on the Florida Bar's Web site.
Watkins said it's time now to catch up on business. He said he had no idea the positive impact the trial would have on his personal and professional life.
"Winning that case opened doors in ways I would never have imagined. I have met people in the business arena I never would have met," he said.
Banking is hardly his only interest. He said he currently is exploring opportunities in energy, gaming and global military procurement. Watkins said he's not sure if he'll bring any of his new ventures back to Birmingham.
Now 58, Watkins said he hopes to attain all of his business goals in the next five years so he can retire. "I'll just follow all my business interests on the computer screen."
And that will leave lots of time for strolls on the beach.
(From Kiplingers.com)
Cut Down the Phone Tree
By Cameron Huddleston
Tired of being forced into the abyss of automated phone systems every time you call an organization? Here's how to reach an actual human.
Earlier this year, Paul English decided he'd had enough.
He had called his phone-service provider, Verizon, in an attempt to talk to a customer service representative. He obediently followed all the prompts in the automated phone menu -- only to get disconnected before he ever reached a human. He tried again, navigating his way through Verizon's phone tree maze. "It was excruciating how many menus I went through," says English of Arlington, Mass.
He had a similar experience with his bank, Fleet. Press 1, press 2, press 3, enter your 16-digit ATM number, press 1 again. By the time he reached a human and the person asked for his ATM number, which he'd already entered, English said, "I wanted to reach through the phone and strangle the person."
Instead of just getting mad, though, the 42-year-old software engineer did something about it.
He figured out how to beat the system at ten companies that infuriated him most and posted his interactive voice response, or IVR, cheat sheet in March on his Web log. It was a hit instantly. Readers of his blog started writing in with shortcuts they'd discovered through other IVR systems.
Now his IVR cheat sheet has tips on how to reach a human at 110 organizations. And he's got 200 more waiting to be posted once they've been verified, he says.
English says he is surprised how popular the IVR cheat sheet has become. The page on his site has gotten more than 1 million page views, he's been interviewed on MSNBC, ABC World News Tonight, NBC Nightly News and for People magazine, and he even gets calls from company employees telling him how to navigate their IVR system.
But for anyone who has ever dealt with the maze of a computerized service line (and that's most of us), it comes as no surprise how popular English's cheat sheet is. These automated systems frequently are consumers' number-one source of frustration, says Scott Broetzmann, the founder of Customer Care Alliance and president of Customer Care Measurement and Consulting, which conduct customer satisfaction studies.
THE RISE OF IVR
In a yet-to-be released study by Customer Care Alliance, fewer than half of 100 companies called had the words "talk to" or "speak with" in their automated greetings, Broetzmann said. Yet, what most consumers want is to have a conversation, he says. "Most automated telephone systems are not designed to encourage conversations," Broetzmann says. "They're set up to process transactions."
Although studies show consumers want to speak with a human, "self service via the phone and Web is here to stay," Broetzmann says.
That's because automated services are cheaper than agent-assisted services, says Brad Cleveland, president of Incoming Calls Management Institute, a call center consulting firm in Annapolis, Md. Web transactions cost organizations 25 to 50 cents each, IVR costs between 35 to 40 cents, and agent-assisted calls usually cost more than $5 each, he says.
"In an attempt to cut costs, many companies are making it more difficult to reach a person," Cleveland says.
That's why you often cannot just press zero when you call a company to get an operator. In fact, many companies have camouflaged the route to a human so callers are forced to use their automated systems, says Broetzmann.
"Sometimes you press a sequence of digits, or digit #, or digit *," he says. "Sometimes if you stand on your left foot and point at the sun, you might get through."
Or, according to English's IVR cheat sheet, after selecting English, press 2 6 2 4 (with a two second delay between each), if you want to reach a person at the Immigration and Naturalization Service. For Dell Computer service, choose option 1, extension 7266966, option 1, option 4, option 4. To reach a person at IKEA, dial 0 many times fast. If you do it once, or too slow, the menu will repeat itself.
"I wish all companies allowed me to always type "0" to get to a human immediately," English writes on his Web site. That's all a person has to do to talk to someone at Kayak.com, the travel search engine English helped create. Or simply click the feedback button on the kayak.com site, and you'll get a personal reply from English, who is the chief technical officer, or his co-founder.
With most companies, though, using their e-mail system to lodge a complaint or comment is a crapshoot, says Broetzmann. You'll often get an automated response, or none at all, he says.
So if you need to speak to someone quickly, you usually are better off trying your luck with the automated phone system. If you can't find a phone number on a company's Web site, English lists phone numbers for the companies on his IVR cheat sheet -- even the number for Amazon.com, which English said he had to use his own search software to find. If you can't find the number you're looking for on his cheat sheet, English suggests trying your luck with search engines, such as Google.
REACHING A HUMAN
Now that you know the self-service system is here to stay, here are some tips to cut through all the layers of menus and reach an actual person. First, check English's IVR cheat sheet to see if the company or organization you want to reach is among the 110 listed on his Web site.
Otherwise, Cleveland offers this advice:
Start by giving the process a chance. Dial the right number and enter the information requested by the system; the best organizations use that information to handle contacts more effectively. If that doesn't work ...
There are usually escape codes, although they may be more difficult to find than in the past. For example, hitting zero, zero then pound, or saying "agent" once the first menu options are presented will sometimes get you to a person. But first check for a menu alternative that gives you that choice. If unsuccessful, ask the agent you do eventually reach if there is an easier way to get through next time.
Avoid busy hours. Just like the highway system, call centers have rush hours. Monday mornings tend to be the worst; midweek (Tuesday through Thursday) afternoons or evenings are often the best. Ask the organization when, for future contacts, the best times are to call.
Give automated services a try. Like ATMs at banks and credit/debit card systems at the gas pumps, you may like the organization's automated Web and phone services if you try them.
Make your views heard. If you encounter poor service, send an e-mail, write a letter, or talk to a manager. If an organization provides chronic poor service, take your business elsewhere -- and let them know why you are leaving.
Complain Effectively
If and when you do reach a human, don't waste your time ranting about how irritating the phone menu is. Broetzmann says you have to assume the complaints will fall on deaf ears because call center agents handle up to 100 calls a day, hear complaints all the time and have no authority to deal with them.
"Many in the service industry are stressed out, worn out and burnt out, and there hasn't been much they haven't heard," Broetzmann says. "To them, you're just one more angry customer." So the saying "you can attract more flies with honey" applies.
Don't loose your cool. The quickest way to ensure you won't get what you want is to raise your voice, Broetzmann says.
Be respectful.
Be clear about what you want: an apology, a refund, a new product, etc.