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CORPORATE WATCH B3 | WEATHER B5
A Top Delaware Judge
Blasts Fee in Talbots Case
Hollywood Studios Get
A $78 Million Holiday
CORPORATE LAW B2
MOVIES B3
© 2013 Dow Jones & Company. All Rights Reserved.
THE WALL STREET JOURNAL.
****
Friday, December 27, 2013 | B1
Behind UPS’s Christmas Eve Snafu
At Checkout
Holiday retail sales
2013
estimate
$602.1
BILLION
$600 billion
In the earliest hours of Dec.
24, packages poured into United
Parcel Service Inc.’s main air
hub in Louisville, Ky. And they
were piling up.
By Laura Stevens,
Serena Ng
and Shelly Banjo
450
300
150
0
2000
'10
Note: Data are for November and
December each year
Source: National Retail Federation
The Wall Street Journal
Employees responsible for
sorting packages—already deep
into a 100-hour week—were furiously getting them ready to be
sent on to their destinations at
airports around the country. But
dozens of other workers responsible for loading those packages
into planes to be shipped out
were left standing around idle,
because the unexpected glut of
packages from last-minute shop-
pers had swamped the company’s air fleet.
The dearth of planes
stranded a large volume of
packages in Louisville in the
early hours of Tuesday morning.
Many of those that did make it
out were shipped too late to
make delivery trucks’ pickup
schedules and were left sitting
in warehouses not far from their
destinations. By sundown, UPS
was forced to tell many Americans that the gifts they had ordered wouldn’t arrive before
Christmas as promised.
The bottleneck was largely in
UPS’s air business, which retailers leaned on heavily in the past
week as they scrambled to fill
down-to-the-wire orders. UPS
has a bigger share of retail e-
commerce business than FedEx
Corp., but its smaller fleet of
cargo planes might have been a
limiting factor, people in the industry said. UPS said it had
added 23 extra chartered aircraft
to its year-round operating fleet
of more than 237 planes and regular 293 daily charters. FedEx
owned 581 and leased 66 as of
May 31.
UPS originally expected to ship
about 7.75 million packages in its
air network Monday, with about
3.5 million of those sorted at
Worldport, as the Louisville hub
is known. The facility handles on
average 1.6 million packages a
day. It isn’t yet known how many
packages arrived at Worldport
during the last minute crush, but
on Christmas Eve UPS said the
volume of air packages in its system had exceeded its capacity.
It is still too early to know
what went wrong, UPS said, adding that the company is analyzing the situation.
Some shoppers also complained of delays with shipments
handled by FedEx. A spokeswoman said FedEx “experienced
no major service disruptions
during this holiday season, and
we experienced no major service
disruptions in the week before
Christmas, despite heavy volume.” She said FedEx is working
with customers “to address any
isolated incidents.”
UPS carefully plans how it will
handle the holiday peak. Extra
resources such as additional
cargo planes had been lined up
Whatever Happened to...?
The ill-fated Carnival cruise ship? The Heinz takeover? The horse meat in IKEA meatballs?
Journal reporters check back on the big stories of 2013 that fell out of the headlines
Carnival Cleans Up
After Problem Cruise
A Horse Is a Horse—
But Not in IKEA Meatballs
Apparently, the horse-meat
kerfuffle did little to curb customers’ appetites for IKEA
Corp.’s meatballs.
Clockwise from top: Carnival ‘s Triumph towed to shore; the soon-to-be-available ‘bionic eye’; Al Jazeera America suffered low ratings.
“We now sell more meatballs
than we did before,” says IKEA
spokeswoman Ylva Magnusson,
referring to the scandal earlier
in the year in which horse meat
was found in several manufac-
turers’ products, including
IKEA’s famous dish.
Samples showed that three
batches of meat heading for the
flat-pack furniture retailer’s restaurants contained horse. The
potential impact was huge—
food sales account for 5% of the
€27 billion ($37 billion) annual
revenue IKEA pulls in, and it
sells about 150 million meatballs
across the world in a year.
IKEA pulled potentially-affected meatballs from shelves
and store cafeterias in February
in several countries. Wiener
sausages were also tainted, and
Please turn to page B4
Getty Images
makers of Fin, Mistic and 21st
Century Smoke, have launched
inaugural TV ads in recent
months, part of a strategy to
separate themselves from a
pack of more than 200 rival
brands pitching “vaping’’
across the Internet, radio,
magazines and billboards.
E-cigarette companies already spent more than $15 million on TV ads in the first nine
months of 2013, up from $1.1
million in the year-earlier period, according to Kantar Media.
The ads have aired on cable
networks including ESPN, Comedy Channel and Spike TV and
local affiliates of broadcast
networks; NJOY reached about
10 million viewers during this
year’s Super Bowl.
Next year’s numbers could
be further inflated by the two
largest U.S. tobacco companies,
which are wading into e-cigarettes. Marlboro cigarette giant
Altria Group Inc., which recently launched its MarkTen ecigarette in Indiana and Arizona, hasn’t ruled out ecigarette TV ads next year.
Camel maker Reynolds American Inc. recently aired TV ads
in Colorado for its Vuse e-cigarette, a brand it plans to take
national next year.
There is growing scientific
consensus that e-cigarettes are
less harmful than traditional
Electronic cigarettes turn nicotine-laced liquid into vapor, representing an alternative to conventional cigarettes.
cigarettes, which release thousands of toxins through combustion. But critics say e-cigarette
ads
re-glamorize
cigarettes and could trigger a
new generation of smokers.
Regulators already restrict advertisements for traditional
cigarettes to magazines, direct
mailings and store displays.
Attorneys general from 40
states urged the FDA in September to rein in e-cigarette
marketing, arguing TV is “making it easier for those advertisements to reach children.’’
House Democrats on the Committee on Energy and Commerce also sent a letter to the
FDA in November, complaining
e-cigarette ads mimic those of
traditional smokes from half a
century ago, including celebrity endorsements.
“How much do we have to
close our eyes to history?’’
said Matthew Myers, president
of Campaign for Tobacco-Free
Kids, an antismoking group
urging tough e-cigarette regulations.
The FDA won’t comment on
Please turn to page B4
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The electronic-cigarette industry has big television advertising plans for 2014—if
they’re not snuffed out first.
The Food and Drug Administration is expected as early as
January to propose curbs on
the battery-powered devices
amid calls from politicians and
anti-tobacco groups to regulate
them like traditional smokes,
which haven’t been allowed in
TV commercials since 1971.
Rather than retreat, e-cigarette makers are unleashing a
flurry of new TV ads to reach
as many consumers as quickly
as possible and cement their
brands nationally.
E-cigarettes turn nicotinelaced liquid into vapor, representing a small but fast-growing alternative to conventional
cigarettes.
Lorillard Inc. launched two
new TV ads for top-selling blu
this month and plans to spend
more on marketing next year
than in 2013, when it spent
about $30 million.
No. 2 player NJOY Inc. began airing a new TV ad for its
eponymous e-cigarette Thursday and is budgeting more
than $30 million for U.S. marketing in 2014, triple this
year’s outlay. Both say TV will
command the lion’s share.
Smaller rivals, including the
Track complete coverage and
analysis of the holiday season’s
retail sales, at WSJ.com/Business.
The Tiny
Change
Shaking
Boards
When Verizon Communications Inc. agreed this month to a
step that should give shareholders more influence over its
board, the company said it was
“committed to best practices in
governance.”
But there could be another
reason for the directors’ goodwill: fear of losing their jobs.
A little-noticed change in the
way an influential shareholder
adviser makes its up-or-down
recommendations on director
elections may have some companies like Verizon rethinking their
responses to investor proposals.
The tweak could also give activist funds a boost heading into
the busy annual-meeting season.
The tweak focuses on the difference between shares that are
outstanding and shares that are
voted.
Starting in 2014, Institutional
Shareholder Services Inc. is
changing its guidelines to recommend ousting directors who
don’t implement a shareholder
Holy Smokes: E-Cigarette Ads Hit TV Airwaves
BY MIKE ESTERL
Online>>
BY LIZ HOFFMAN
(Top) Associated Press; (bottom left) Agence France-Presse/Getty Images; (bottom right) Zuma Press
The Carnival Triumph, once
nicknamed the “poop cruise,” is
again plying the seas.
But whether Carnival Corp.
can recover from the public-relations debacle remains to be
seen. An engine-room fire
aboard the Triumph in February left more than 3,000 passengers adrift in the Gulf of
Mexico without power or functioning lavatories. The incident
drew blanket cable-news coverage, with passengers complaining about overflowing toilets
and nasty smells.
To correct course, Carnival
Cruise Lines said it would invest $300 million to upgrade
fire suppression systems and
add emergency generator
power across its fleet. It also
launched a program in September that promised to refund
passengers 110% of their fares if
they were dissatisfied within
the first day of their trips.
Micky Arison, son of Carnival’s founder, stepped down as
chief executive in June, though
he retained his chairmanship.
He was replaced by Arnold
Donald, an outside director. The
company announced a wider
shake-up of its management
team in November.
The namesake brand has recovered 70% in opinion surveys,
Carnival says.
—Arian Campo-Flores
as “hot spares”—company lingo
for aircraft that could be fired up
quickly in case of a logistics
emergency. But it ran into a confluence of factors. Retailers have
been encouraging online sales,
which have grown much faster
than retail sales overall. And retailers likely contributed to the
logjam by offering some of their
best discounts late in the season
in a final push for sales. Many
chains dropped prices on the final Saturday before Christmas to
levels below what they were ofPlease turn to the next page
At least two dozen of
the largest 1,000
public U.S. companies
could be affected by
the ISS change.
proposal that got a majority of
the votes cast at the 2013 meeting. Previously, ISS recommended “no” votes on directors
only if the proposal received a
majority of all the shares outstanding—a more forgiving standard for directors because many
shares go uncast.
In Verizon’s case, the measure—which would let longtime
stockholders nominate directors—got support from just 33%
of the shares outstanding last
May but 52% of the shares that
were actually voted.
A Verizon spokesman declined to comment.
The ISS change has drawn the
wrath of some company advisers. Law firm Wachtell, Lipton,
Rosen & Katz, noted for its defense of corporate boards, called
the policy “grossly unfair” when
it was first proposed last year.
“This is potentially a real issue where directors are being
held accountable by ISS to a vocal minority of the total shareholder base,” said Steven Haas, a
Hunton & Williams LLP lawyer
who advises companies on governance issues.
Many large pension and mutual funds follow ISS’s recommendations on director elections, giving the proxy adviser
influence over the outcomes.
Patrick McGurn, ISS’s special
counsel, said ISS was responding
to investor clients who “wanted
to see a higher bar” set for
boards. He added that the policy
doesn’t mean an automatic censure for directors and that ISS
will consider the specifics of
each situation before making its
voting recommendations.
At least two dozen of the
largest 1,000 public U.S. companies will potentially be affected
by the ISS change in the coming
Please turn to the next page
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