bizzXceleration: Performance, Value and Profit

Warren Buffett's Letters to Berkshire Shareholders As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.” By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear. This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly. Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic.

Business Management in Crisis

Corporate planning through the fog  “NOT to beat around the bush, but the budgeting process at most companies has to be the most ineffective practice in management.” Thus Jack Welch, the former boss of GE, in his book “Winning”, which was published several years ago. Many firms that put their 2009 budgets together at the end of last year will no doubt agree with him. Most of them will have already been consigned to the shredder, as the economic crisis has blown away the assumptions on which they were based. Faced with exceptionally volatile business conditions, senior executives are finding it harder than ever to gauge how their companies are likely to fare in the months ahead. Lego has also been using a monthly meeting of senior managers, known as the operations board, to pool knowledge of what is happening in its various markets. At each get-together, the firm’s executives not only discuss what has been going on that month, but also make their best guess about what is likely to happen in the 12 months to come. Some companies have formalised this kind of approach by creating “rolling forecasts”. At the end of, say, the first quarter of a financial year, managers forecast the remaining three quarters again and then add an extra quarter’s projections, worrying about only the most important financial variables. Yet with economies in free fall, managers also need up-to-date information about what is happening to their businesses, so that they can change course rapidly if necessary. Cisco, an American network-equipment giant, has invested over many years in the technology needed to generate such data. Frank Calderoni, the firm’s CFO, says that every day its senior executives can track exactly what orders are coming in from sales teams around the world, and identify emerging trends in each region and market segment. And at the end of each month, the firm can get reliable financial results within four hours of closing its books. Most firms have to wait days or even weeks for such certainty. . A rapid exchange of information and instructions is especially valuable if the company wants to alter course in stormy times. If everybody in a company can rapidly grasp what they have to do and how it is changing, they are more likely to get the job done. But some firms are reluctant to share their goals with the wider world.

Swinging the axe THE headlines screamed that January 26th was “Black Monday” for jobs, after firms such as Caterpillar, Corus, Home Depot, ING, Pfizer and Sprint Nextel announced cuts of several thousand jobs each, due mostly to the rapidly deteriorating global economy. Alas, the consensus among the corporate bigwigs gathered this week at the World Economic Forum in Davos was that this marked only the beginning of the axe-swinging, and that there are blacker days to come.This proved to be one of the big points of difference between the company bosses and the politicians brainstorming in the mountains. The politicians are primarily concerned with restoring demand enough to reverse the rising trend in unemployment; for many of the corporate leaders, ensuring the survival of their firms takes precedence over saving jobs. The difficult decision they face is not whether to cut, but how to do so in a way that strengthens their competitive position in the medium term rather than seriously damaging it. The gloomy mood among bosses in Davos makes the worst-case scenario outlined in a new forecast from the International Labour Organisation (ILO) seem the most plausible of its possible outcomes. Equally candidly, many bosses admit that the crisis is giving them a chance to restructure their firms in ways that they should have done before, but found a hard sell when things were going well. As a rule of thumb, a careful cull of the 10% of lowest performers can make a firm leaner by removing fat without damaging muscle. It is going beyond the 10%, as many firms are now starting to do, that poses the real risks to a firm’s competitiveness. During the relatively modest downturn at the start of this decade, for example, many professional-services firms cut too deeply, especially in their lower ranks, and found they were poorly positioned when strong growth resumed sooner than expected, says Heidi Gardner of Harvard Business School. This crisis is revealing how few firms have really thought through their talent strategies, says Mark Spelman of Accenture. Claims that “our workers are our most valuable assets” are too often platitudes, the emptiness of which is now being revealed. But those firms that have thought seriously about their talent needs have the opportunity to get ahead of those that haven’t, says Mr Spelman, not just by shedding poor performers but also hiring scarce talent from outside, in what is now a buyer’s market.

Searching for More Tools to Trim Costs  Prompted by slackening demand for consumer electronics and automobiles, chip maker ON Semiconductor Corp. will cut 1,850 jobs -- nearly 13% of its work force -- and close four fabrication plants by early next year. But that's not all. ON is also suspending bonuses and raises, cutting discretionary spending, idling factories for as many as 12 weeks and requiring managers to take as much as six weeks off without pay. Employees at ON and elsewhere are learning that in this recession layoffs are only part of the pain. Many companies are also cutting the pay, hours and benefits of those who survive. On Thursday, Hewlett-Packard Co., which was already cutting 24,000 jobs following a big acquisition, cut salaries by 2.5% to 20% and reduced contributions to employee 401(k) plans. Last year, HP asked employees to take unpaid vacation days and extended a planned holiday shutdown to two weeks. On average, employers cutting costs have implemented five belt-tightening measures and are considering four others, according to a January survey of 513 U.S.-based companies by consultant Towers Perrin. There are no comparable data from earlier recessions. But Laura Sejen, director of the strategic-rewards practice at consultant Watson Wyatt Worldwide Inc., says companies are trimming costs in more ways than in previous downturns, when they relied more heavily on layoffs. She and other experts cite two principal reasons for the shift: The speed and depth of this recession is forcing employers to cut costs steeply, and many also worry about retaining enough talented workers. When the economy recovers, "those may be heads you wish you hadn't cut," Ms. Sejen says.

Leaders and Examples

For GE's Immelt, Blue-Chip Blues A sliding stock market is turning up the heat on executives at blue-chip companies. Just ask General Electric Co.'s chairman and chief executive, Jeffrey Immelt. "There's a real drumbeat of negative sentiment out there," said Peter Sorrentino, a portfolio manager at Huntington Asset Advisors in Cincinnati, which owns GE shares. "I'm not sure it is legitimate." He said Mr. Immelt and other GE executives have been making strides in shrinking the company's riskier financial units and being transparent about company strategy. Beyond the broader market decline that dragged GE down Friday, some speculated that GE was also hurt by a report from Sanford C. Bernstein & Co. analyst Steven Winoker that predicted lower profits at GE because of "declines never seen before at GE Capital." Others speculated that short-sellers also weighed GE's shares down. In past years, half the company's profit came from financial services, which have been hit hard by losses and delinquencies during the credit crisis and economic downturn in the past 18 months. GE, one of the largest corporate-bond issuers, saw liquidity seize up last fall and had to use a government bond-guarantee program to issue bonds in recent months. It also had to sell commercial paper to the government last fall when such short-term funding markets dried up. "This is not a great scenario to have government as debt investor," said Mr. Immelt earlier this month, in an interview with The Wall Street Journal. "But you don't have a lot of options." In recent weeks, many institutional investors believed the company was out of the woods as its stock price hovered between $10 and $15 and the company made moves to reduce its debt, shrink its financial business and cut costs through layoffs. At the same time, it has been focusing on its more profitable industrial businesses. "You can't fault them," said Deane Dray, an analyst with FBR Capital Markets in New York. "If they had been asleep at the switch during this process, you can criticize them. But they have been pretty proactive." Mr. Immelt and other executives have indicated the company shifted into survival mode last fall as major banks began failing and stress on GE's finance unit intensified. It stepped up the business-unit reviews the company is known for. "Everything we used to do weekly, we are doing daily. Everything we used to do monthly, we are doing weekly," he said. But, in the past year, GE has been unable to sell underperforming businesses such as its $30 billion private-label credit-card operations and its appliances and light-bulb units. GE now must hold and operate those businesses.

GE’s Immelt Accepts Blame Amid ‘Opportunity of a Lifetime’  General Electric Co. Chief Executive Officer Jeffrey Immelt, two weeks after turning down $11.7 million in bonus pay, took responsibility for eroded investor trust and said he will work to restore faith in GE. “Our company’s reputation was tarnished because we weren’t the ‘safe and reliable’ growth company that is our aspiration,” Immelt, 53, said in his yearly letter to shareholders dated Feb. 6 and released yesterday with the annual report. “I accept responsibility for this. But, I think the environment presents an opportunity of a lifetime.”  A “brutal” global economy means GE and capitalism itself will have to be “reset,” Immelt said. He’s shrinking GE Capital to provide just 30 percent of total profit this year, down from about half in 2007, to ease investors’ concerns and try to stem the freefall. “We intend to reset this business to be smaller, less volatile and more connected to the GE core,” Immelt wrote of GE Capital. As for the economy, “we are going through more than a cycle. The global economy, and capitalism, will be ‘reset’ in several important ways. The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.” The CEO made it clear he intends to see GE through the crisis. “The current crisis offers the challenge of our lifetime,” Immelt said. “I’ve told our leaders at GE that if they are frightened by this concept, they shouldn’t be here. But if they’re energized, and desire to play a part in transforming the company for the future, then this is going to be a thrilling time to be a part of GE.”

• Immelt’s  Shareholders Letter, GE’s Annual Report

Warren Buffett's Letters to Berkshire Shareholders Most of the Berkshire businesses whose results are significantly affected by the economy earned below their potential last year, and that will be true in 2009 as well. Our retailers were hit particularly hard, as were our operations tied to residential construction. In aggregate, however, our manufacturing, service and retail businesses earned substantial sums and most of them – particularly the larger ones – continue to strengthen their competitive positions. Moreover, we are fortunate that Berkshire’s two most important businesses – our insurance and utility groups – produce earnings that are not correlated to those of the general economy. Both businesses delivered outstanding results in 2008 and have excellent prospects. As predicted in last year’s report, the exceptional underwriting profits that our insurance businesses realized in 2007 were not repeated in 2008. Nevertheless, the insurance group delivered an underwriting gain for the sixth consecutive year. This means that our $58.5 billion of insurance “float” – money that doesn’t belong to us but that we hold and invest for our own benefit – cost us less than zero. In fact, we were paid $2.8 billion to hold our float during 2008. Charlie and I find this enjoyable. Over time, most insurers experience a substantial underwriting loss, which makes their economics far different from ours. Of course, we too will experience underwriting losses in some years. But we have the best group of managers in the insurance business, and in most cases they oversee entrenched and valuable franchises.Considering these strengths, I believe that we will earn an underwriting profit over the years and that our float will therefore cost us nothing. Our insurance operation, the core business of Berkshire, is an economic powerhouse. Charlie and I are equally enthusiastic about our utility business, which had record earnings last year and is poised for future gains. Dave Sokol and Greg Abel, the managers of this operation, have achieved results unmatched elsewhere in the utility industry. I love it when they come up with new projects because in this capital-intensive business these ventures are often large. Such projects offer Berkshire the opportunity to put outsubstantial sums at decent returns.

• Buffett's Berkshire cuts jobs broadly, more coming

Michael Moritz: Lessons from a Long-Ball Hitter  Can great companies be built in bad times? Some of that is true. In bitter and cold times only the brave are going to venture out into the cold and the lily-livered posers are going to stay tucked into their bed clothes. It makes life easier for us. The people we are meeting are the genuine article as opposed to the pretenders. The only people who venture out are on a mission, which is what you need. What about Cisco ? (Sequoia invested in Cisco two months after the 1987 stock market crash.) For us, Cisco is always the company we think of when we think about bad times. I had been here a couple of years. I was the guy who sat around the table and said nothing. The one thing I remember was the vociferousness with which they talked about the business. They had a mantra: "We network the networks." Many investors had already passed on the opportunity. What people forget is that many companies were doing something similar: DEC, IBM (3Com, and many startups. There were 20 companies. So why did it succeed? They had a very good understanding of what the customer wanted. They didn't have to run any advertisements until Year Five. They had a very aggressive sales machine. John Morgridge, the CEO, had lived through some tough experiences. He had this wonderful mixture of experience and an avuncular calming presence and a taste for frugality. They didn't do anything extraneous. They outsourced manufacturing. It allowed them to ramp up quickly. So what has changed? What has changed is that there are more smart people elsewhere. Good ideas spread more quickly. Are there any benefits to building a business in a downturn? There's less frenzied money. There's more time to think. The hiring environment is a lot easier and the money goes a lot further.

Key Industries: Finance & Autos

Where Will Finance Go? 3 Veterans Are Unsure At a panel called “The Big Fix,” three big names in high finance were asked Thursday how Wall Street got to its current prostrated state, and where it would go from there. Not surprisingly, the three panelists — Peter G. Peterson, Maurice R. Greenberg and J. Christopher Flowers — had some diverging views on both counts. But all three also had some common ground in their perspectives. What was clear from the discussion, held by Source Communications and moderated by the Vanity Fair columnist Michael Wolff, was that even men who had seen multiple ups and downs on Wall Street have just witnessed a downturn unlike any they had seen before. But Mr. Peterson also took a more philosophical view. Part of the shift happened when Wall Street firms converted from private partnerships to public companies whose shareholders demanded ever-higher returns on equity. Coupled with the now-infamous compensation system of bonuses and what Mr. Peterson described as a rise in “short-term” culture, Wall Street firms leaped headlong into leverage and trading in instruments they didn’t fully understand. “I thought we violated the risk-reward equation,” Mr. Peterson told about 150 people at Thursday’s event. “When I would talk to management about how these derivatives work, I got very uneasy feelings.” What lies ahead? All three agreed that regulation was coming. But Mr. Greenberg, who has long banged the table about the government’s handling of A.I.G., and did so again, insistently, at the panel, was the most adamant about the likelihood of overregulation.

Where Wall Street, Detroit Intersect The Detroit autoworker and the Wall Street investment banker live in totally different economic realities -- or so it seems to just about everyone. One is unionized, the other not. One is semi-skilled, most likely with a high school diploma, the other an MBA from some fancy school. One is middle class, dependent on generous hourly wages and benefits, the other reliant on lavish performance bonuses that have put him squarely in the economic elite. Yet in some important ways, the autoworker and the investment banker are really variations on the same story -- a story that in both instances has reached a crucial turning point. From the 1950s until -- well, until just now -- the unionized workers at General Motors, Ford and Chrysler were the aristocrats of the blue-collar workforce, earning well above what others made with similar skills and education. In the 1950s and '60s, before the advent of foreign competition, their companies competed in almost every way except price, earning above-average profit margins. And thanks to a strong union, favorable labor laws and a generally paternalistic attitude on the part of corporate America, autoworkers captured a significant portion of those above-market returns. Over the past 30 years, the returns have gradually disappeared under the pressure of foreign and domestic competition. Yet despite the gradual decline in the power of the union movement, autoworkers have nonetheless been able to negotiate pay and benefits, job security and work rules that have remained significantly more favorable than those at nonunionized factories run by foreign firms in the United States. Now, as General Motors and Chrysler enter the final phase of what amounts to a bankruptcy-like reorganization under the auspices of the U.S. Treasury, that unsustainable old model is at long last being put to rest. Instead, a new model is emerging that follows the outline of earlier restructurings in the steel and other heavily unionized industries. For years, Wall Street has earned above-average returns by taking advantage of customers, hiding behind regulations and competing with rivals on the basis of anything other than price. And for years, Wall Street firms have passed along the lion's share of these outsized profits to executives and employees in the form of astronomical bonuses that bear no relationship to the pay of workers in other industries with similar skills and work ethics. Indeed, just as the unionized autoworkers were the aristocrats of the blue-collar world, Wall Street traders and investment bankers were the aristocrats of the white-collar world. Both came to look on their above-market pay not just as the result of hard work and good fortune, but as an entitlement. In time, this sense of entitlement led firms to pursue strategies that drained the companies of financial strength and led them to the brink of a collapse that now requires a massive government rescue. At the most fundamental level, what did in Citigroup was the same thing that did in General Motors -- an arrogant and insular business culture that failed to put the customer first, failed to rein in employee pay and failed to make the difficult decisions necessary for the survival of the enterprise.

• A Scion Drives Toyota Back to Basics
• Ford Benefits as GM, Chrysler Stumble
• Auditors Raise Doubts About G.M.’s Viability

Industries and Exemplars: SBUX, Retail/WMT/HD, XOM(Exxon)

Just add water NO ONE can accuse Howard Schultz of inaction since he returned as chief executive of Starbucks, the firm he built into a multinational only to watch it stumble under his successor. Barely a month has gone by over the past year without the firm announcing some new initiative or other. The latest came on February 17th in New York, when Mr Schultz unveiled Via, an instant coffee which, he claims, tastes just as good as Java brewed in the shop by one of the firm’s baristas. Mr Schultz hopes to win a share of the $17 billion or so the world spends on instant coffee—a product which, he sniffs, has not improved in decades. Starbucks itself has spent 20 years pursuing the holy grail of an instant coffee that tastes as good as the fresh stuff. Don Valencia, the firm’s first head of research and development, who created the blended and frozen frappuccino drinks that earn Starbucks $2 billion a year, could never find a way to scale up an instant formula he had developed at home. When Mr Schultz returned as chief executive, he noticed that there had been some technological advances, allowing finer grinding, for example. So he asked the R&D team to repeat the recently deceased Valencia’s experiments, and found that “we had broken the code”. The name Via is a hat-tip to Valencia—though during development it was known as Jaws (just add water, stir). Starbucks says it has patents that should prevent competitors from quickly replicating Via, which will go on sale in some American stores next month. The opportunity may, however, be biggest in other countries: in Britain over 80% of coffee sold is instant, compared with just 10% in America.

• Starbucks Addresses the Price Issue, and Breakfast

Home Depot reports 4th-quarter loss of $54M Home Depot Inc., the nation's largest home improvement retailer, reported a fiscal fourth-quarter loss of $54 million Tuesday mostly due to its plan to shut its four smaller home-improvement brands, but adjusted results topped analysts' estimates. The Atlanta-based company posted a loss of 3 cents per share. That compares with a profit of $671 million, or 40 cents per share, a year ago. Excluding the charge related to the closings and other items, the retailer's profit was 19 cents per share. Last month Home Depot said it planned to close Expo Design Centers, YardBIRDS, Design Centers and HD Bath, a bath remodeling business. The company has suffered under the weight of the collapsing housing market as fewer of its customers are buying new homes and spending money on repairs and remodels. Revenue for the period ended Feb. 1 slid 17 percent to $14.61 billion from $17.66 billion, with same-store sales down 13 percent for the quarter. Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance since they measure growth at existing stores rather than newly opened ones. Analysts forecast a fourth-quarter profit of 15 cents per share on revenue of $14.67 billion.

• Retail Earnings Reflect Slowdown
• Retail Sales Slide Further, Except at Wal-Mart

Despite Recession and Prices, Exxon Plans for Expansion Exxon Mobil put out a show of strength on Thursday, pledging to increase investments in coming years, chiding rivals for mistimed acquisitions and reminding everyone it had the financial strength to make headway even as other companies pull back. “The question now becomes who can be successful in more challenging times,” Rex W. Tillerson, Exxon’s chairman and chief executive, said at the company’s annual investor presentation at the New York Stock Exchange. Mr. Tillerson had a ready answer for his own question. Exxon, based in Irving, Tex., earned $45 billion in 2008, gave back $40 billion to its shareholders, invested $26 billion around the world, and managed to find more oil than it produced. It also outperformed all of its rivals like Chevron and Royal Dutch Shell. Undaunted by the sharp collapse in oil prices and the most severe global financial crisis since the 1930s, Exxon will dial up its investments over the next five years. It plans to spend as much as $150 billion through 2014. Its oil and gas production, which was stagnant recently, is expected to grow 2 to 3 percent a year in the next five years, thanks in part to the company’s big natural gas projects in the Middle East. Since 2004, the company has distributed $146 billion to its shareholders, either through dividend payments or share buybacks, more than was given back by Royal Dutch Shell, BP, and Chevron combined.

Technology

Chip Makers Watch Sales Fall SharplyWhile accustomed to the boom-and-bust nature of their industry, the companies making the semiconductor chips that run computers, cellphones, digital cameras and even cars find themselves in the middle of a collapse in sales that resembles total chaos. With sales of most manufactured goods plunging in this recession, demand for chips is evaporating. In January alone, chip sales plummeted by almost a third from the previous year, to $15.3 billion, according to the Semiconductor Industry Association. “This is the worst recession the semiconductor industry has seen since its inception,” said Sean M. Maloney, the chief sales and marketing officer at Intel, at a news conference Monday. Consumers have benefited from some of the underlying turmoil. Smartphones and the cheap laptops known as netbooks are getting more powerful even as they drop in price. And the prices for the memory chips used to store information in iPods, digital cameras and cable set-top boxes are plummeting as the companies making the products grapple with overcapacity at their factories. Major chip makers like Intel, Advanced Micro Devices and Nvidia have felt the sting of businesses and consumers curtailing their spending on computers. Last month, Hewlett-Packard, the world’s largest PC maker, reported a 19 percent drop in computer sales, while Dell, the second-largest PC maker, posted a 27 percent decline in desktop sales.  On Monday, the research firm Gartner predicted that computer shipments would dive by 12 percent in 2009 to 257 million units — the steepest decline ever. In the memory chip industry, conditions have turned cataclysmic.

Cisco CEO Sees Harder Times Ahead  Cisco Systems Inc. posted a 27% drop in quarterly profit and warned that businesses are increasingly scaling back their technology spending. The big Silicon Valley maker of networking gear said revenue fell 7.5% in its fiscal second quarter, which ended Jan. 24. It also signaled that conditions had worsened, predicting revenue in the current period could drop 15% to 20% from a year earlier. "It is now clear that we are in a global economic slowdown," Chief Executive John Chambers said Wednesday in a call with analysts. He said it is difficult to make an accurate prediction given the current economic climate, but added that "we will obviously be impacted." The San Jose, Calif., company is one of the first to report earnings that include January, and its results are a closely watched barometer of corporate technology spending. Overall, Cisco's orders for the second quarter shrank 14%, but in January orders were down 20% from a year ago. Cisco's corporate customers have steadily cut the amount they have spent on technology over the last year, though some of those losses have been offset by phone and cable companies, which have bought Cisco gear in order to keep pace with increasing Internet traffic. But in the January quarter these U.S. companies placed 30% fewer orders than the year-ago quarter, Cisco said.Despite the recession, Cisco has continued to move into new markets. Examples include consumer-electronics, such as a home speaker system unveiled in January, and Cisco is believed to be developing a server system that would take it for the first time into the computer business.

Crisis for tech workers: Life after layoffs? San Francisco - Signs everywhere point to the plight of the laid-off tech worker. Tech consultancy BearingPoint files for bankruptcy. Hewlett-Packard's profits plummet. Silicon Valley employment falls for the first time in several years. With daily layoffs and few new jobs available, techies have seen their careers careening off track -- and now they need to reinvent themselves or get off the tech train altogether. There's no question the job market is getting worse: Companies are shifting more IT operations overseas, gutting IT staffs, and replacing seasoned veterans with cheap labor, all in a desperate effort to cut costs. Business survival trumps technical innovation. The sage advice that techies should hone their business skills to make themselves more valuable has taken on a chilling sense of urgency. So far some 200,000 tech workers have faced the firing squad, according to TechCrunch. Gold says he has a strong technical background with little business acumen, which was part of his problem. Over the past few years, he realized that he wanted to make more money than the salary technical skills commanded. Tech salaries have been under assault from cheap foreign labor for years. Even worse, Gold figures a majority of technical skills are now easily commoditized and able to be shipped elsewhere. "The day of the IT expert is a thing of the past," he says. Yet this doesn't mean the end of the tech career, rather a change in the skill sets that make it up. Gold believes business skills coupled with technical ones can guard against offshoring, outsourcing, and even H-1B competition. "Very few IT people can tell you the business strategy, and they are good candidates for the outsourcing model," he says.

Level 3 Communications Inc. was supposed to have died after the last great boom. Sucking up $12 billion in new capital, it assembled a 77,000 mile network of fiber-optic cables, most of it built in the late 1990s and early 2000s. That seemed a sure thing back then. Soon reality set in for investors: Level 3 wasn't the only one running cable across the planet, and the promised profits never materialized. Since 2001, it has been paying $500 million to $600 million a year in interest. Yet it has never been able to cut its long-term debt load below $5 billion. Even worse, Level 3 hasn't made a penny of profit since 1999. Its stock has traded below $8 for the past eight years. It closed at 98 cents on Monday. Level 3 seemed a prime target to get pulled into today's great credit maw, where decent but otherwise cash-strapped companies go to die. By November, bond investors were seriously doubting the company's ability to pay off $1.1 billion in debt coming due this year and next, valuing its bonds as low as 30 cents on the dollar. Level 3 Chief Financial Officer Sunit Patel was in the offices of Lehman Brothers Holdings Inc. two days before the firm declared bankruptcy on Sept. 15. "The mood was quite poor," he says. "It was evident confidence was fading fast." That would soon have its effect on Level 3, which is based in the Denver suburbs. "We have to deal with upcoming maturities. And when credit markets shut down, it puts corporations like us in a dire position." This is exactly the worry facing hundreds of companies around the country. And it is this dilemma -- as much as the banks themselves -- that should be frightening President Barack Obama and his aides. If otherwise solid companies can't roll over their debt obligations they will fail, costing jobs.

Yahoo CEO Plans Overhaul  Not yet six weeks into the job, Yahoo Inc. Chief Executive Carol Bartz is preparing a company-wide reorganization that underscores the new CEO's belief in a more top-down managerial approach. The plan aims to speed-up decision-making and give Yahoo products a more consistent appearance by consolidating certain functions that have previously been spread out across the company -- like product development and marketing -- into single, standalone departments, people familiar with the matter say. Ms. Bartz has completed a blueprint for the organization, these people say, and details are being finalized. The plan could be announced this week, they add. One likely scenario under discussion is that Yahoo's chief technology officer, Aristotle Balogh, would expand his role to become head of product, say people familiar with the matter. The move would put Mr. Balogh in charge of product strategy and management in addition to product technology. Hilary Schneider, currently in charge of the company's advertising, publishing and audience groups in the U.S., would become head of North America. Yahoo's European, Asian and emerging markets divisions would be consolidated under one boss, said these people, cautioning that the roles and executives tapped to fill them could change. Implications of the changes -- including likely departures -- could take months to trickle down. Ms. Bartz has initiated searches for a number of high-level executives, including a search for a chief marketing officer and other senior leaders, people familiar with the matter said. Ms. Bartz is following a pattern she set while CEO of software company Autodesk Inc. After joining that company in 1992, Ms. Bartz moved quickly to bring in new executives and more hands-on leadership.