Corporate Profile: Progressive Corporation

Business Sketch

It's risky business, and Progressive loves it. Long a leader in nonstandard, high-risk personal auto insurance, The Progressive Corporation has motored beyond its traditional business into standard-risk and preferred auto insurance, as well as other personal-use vehicle coverage (motorcycles, recreational vehicles, and snowmobiles). Besides personal lines, the company's offerings include collateral insurance for auto lenders, directors' and officers' insurance, and employee misconduct insurance. The company markets directly to consumers via its Web site and toll-free telephone number and through 30,000 independent agents in the US.

Already among the top three US auto insurers based on volume (behind #1 State Farm and Allstate), Progressive says it aims to be on top in this decade. Personal lines make up about 90% of Progressive's premiums. Colorful chairman Peter Lewis (Warhol portraits of Chairman Mao adorn his office) is the son of one of the insurer's founders and owns almost 15% of the company. Lewis is picture above.

A favorable insurance climate and the improvement of the company's claims system have helped Progressive grow its treasure chest. Focusing on its core auto business, Progressive has stopped writing homeowners insurance.

History

Attorneys Jack Green and Joseph Lewis founded Progressive Mutual Insurance in Cleveland in 1937. Initially offering standard auto insurance, the company attracted customers through such innovations as installment plans for premiums (a payment method popularized during the Depression) and drive-in claims services (the company was headquartered in a garage).

Progressive's early years were uncertain -- at one point the founders were even advised to go out of business -- but the advent of WWII bolstered business: Car and insurance purchases were up, but accidents were down as gas rationing limited driving.

Then came the suburbs and cars of the 1950s. While most competitors sought low-risk drivers, Progressive exploited the high-risk niche through careful underwriting and statistical analysis. Subsidiary Progressive Casualty was founded in 1956 (the year after Joseph Lewis died) to insure the best of the worst. Lewis' son Peter joined the company in 1955 and helped engineer its early-1960s expansion outside Ohio. After Green retired in 1965, Peter gained control of the company through a leveraged buyout and renamed it The Progressive Corporation. Six years later, Lewis took it public and formed subsidiary Progressive American in Florida.

In the mid-1970s the industry went into a funk as it was hit by a wave of consolidations and rising interest rates. Lewis set a goal for the company to always earn an underwriting profit instead of depending on investments to make a profit. Progressive achieved stellar results during the 1970s, especially after states began requiring drivers to be insured and other insurers began weeding out higher risks.

Competition in nonstandard insurance grew in the 1980s, as major insurers such as Allstate and State Farm joined the fray with their larger sales forces and deeper pockets. In 1988 California's Proposition 103 retroactively reduced rates; Progressive fought California's demand for refunds but set aside reserves to pay them.

That year Lewis hired Cleveland financier Alfred Lerner to guide company investments. Lerner invested $75 million in Progressive via a convertible debenture; five years later he converted it to stock, half of which he sold for $122 million. Soon after, he was asked to resign. In 1993 Progressive settled with California for $51 million and applied to earnings the remaining $100 million in refund reserves. (Company soul-searching related to Proposition 103 led to the launch of Progressive's now-famous "Immediate Response" vehicles, which provide 24-hour claims service at accident sites.)

In 1995 Progressive's practice of using consumer credit information to make underwriting decisions drew the attention of Arkansas and Vermont insurance regulators, who said the company might be discriminating against people who didn't have the credit cards Progressive used to evaluate creditworthiness. In 1996 insurance regulators in Alaska, Maryland, and Texas also began probing Progressive's credit information practices.

In 1997 Progressive bought nonstandard auto insurer Midland Financial Group. As competition grew in 1999, the company cut rates and said it would write no new policies in Canada. In 2000 -- with underwriting margins dropping industrywide -- the company continued advertising aggressively. Progressive stopped writing new homeowners insurance in 2002, instead concentrating on its core operations.

Improved market conditions and improvements to the company's claims system in 2003 helped Progressive's bottom line and the company's agency auto operations showed a profit in 45 out of 48 states.

Sources: DTIA research, various business information sources

Canadian Innovation Centre

The Canadian Innovation Centre is to ideas as a birthing center is to babies. The Canadian Innovation Centre (CIC) provides inventors and innovative companies with such services as market research and concept appraisal.

CIC has worked with more then 70,000 Canadian inventors and innovating companies. The center has assesed over 13,000 new product ideas have been assessed and successfully guided thousands of products to the market. The CIC is an affiliate of the University of Waterloo and grew out of the university's Inventor's Assistance Program which began in 1976. The center was founded in 1981.

Go here to learn more.

Canadian Banking Industry Overview

Canadian banks are different in their structure and organization compared to their U.S. counterparts. For instance, while their core activities remain the same -- collecting deposits and making loans -- there are fewer than 20 domestic commercial banks in Canada (compared to more than 7,600 in the US), and several of those belong to the same corporate families. Approximately 90% of the industry’s $1.8 trillion of assets are held by six financial institutions -- the Big Five: Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC), and Bank of Montreal, plus National Bank of Canada. These six banks also are among the country’s largest employers.

However, other financial institutions such as credit unions and cooperative institutions (Vancity and Desjardins are the largest) remain significant provincial players, as are smaller commercial banks like Canadian Western Bank and Laurentian Bank. And there are actually more foreign banks with operations in Canada than domestics, with HSBC Bank Canada being the most prominent. That said, Canada's banking industry is one of the most technologically advanced in the world. It has the highest number of ATMs per capita in the world and also enjoys a high percentage of customers using low-cost access channels such as the Internet, telephone banking, and debit cards..

With their home market essentially saturated and government restrictions forbidding them from merging with each other (not that they haven’t tried over the years), Canada's banks are looking to the US for expansion. The Toronto-Dominion Bank (aka TD Financial) has been the most active, purchasing a majority stake in New England's Banknorth (now TD Banknorth) and arranging to acquire almost a third of online stock brokerage Ameritrade in 2005. Royal Bank of Canada owns RBC Centura Banks in the Southeast, while Bank of Montreal controls Chicago’s Harris Bank. Scotiabank and CIBC have corporate and investment banking offices south of the border and could be poised to make major US acquisitions as well. Each of the Big Five banks would rank among the ten largest in the US based on assets, so they have the size and wherewithal to continue to grow beyond their country's borders and give US banks a run for their money.

Sources: DTIA research (We are working in the Toronto area now.)

Ohio Governor Stumps for Auto Jobs

Probably a dollar short and a day late, but Ohio Governor is trying to beg the auto companies to keep their Ohio jobs.

In an effort to hold on to threatened auto jobs, Ohio Gov. Bob Taft was in southeast Michigan on January 12 proposing a new set of incentives intended to retain jobs in an industry that employs one of every six Ohioans.

Taft met with officials at Delphi Corp., the Chrysler Group of DaimlerChrysler AG and Ford Motor Co. to tout the benefits Ohio can offer to those companies, each of which has a significant presence in Ohio.

Read more here.

Proposed NM Space Station Impact Assessed

Two new economic impact studies project that New Mexico's proposed space station could bring into the state more than 2,000 new jobs and $1 billion-plus in revenues by its fifth year.

The studies were commissioned by state Economic Development Secretary Rick Homans in response to why the state should invest upwards of $225 million in the development of a commercial spaceport near Las Cruces.

Read more here.

Dan is the Man in Greensboro

Dan Lynch, an ED professional who helped to negotiate Citi Cards move to the Greensboro region and other projects, has been named president of the Greensboro Economic Development Project.Lynch had been acting as interim head of the business recruiting group since Andy Burke left the office in September. Congratulations Dan. Read more here.

Corporate History: The Timken Company

Veteran St. Louis carriage maker Henry Timken patented a design in 1898 for tapered roller bearings (enclosed bearings between a pair of concentric rings). The following year Timken and his sons, William and Henry (H. H.) Timken, founded the Timken Roller Bearing Axle Company to make bearings for carriage axles.

In 1902 the company moved to Canton, Ohio, to be near the growing steelworks of Pittsburgh and the new auto industries of Buffalo, New York; Cleveland; and Detroit. With the debut of the Model T in 1908, the Timkens' business soared. In 1909 Henry Timken died. That year a separate company, the Timken-Detroit Axle Company, was formed in Detroit to serve the auto industry. The original company changed its name to the Timken Roller Bearing Company and continued to produce bearings. Also in 1909 Vickers began making bearings and axles under license from Timken (Timken acquired that operation in 1959).

The story of The Timken Company starts at a point where traditional success stories usually end, at the conclusion of a long and profitable career. This was when Henry Timken, a 19th century visionary and innovator in carriage manufacturing, patented the tapered roller bearing, in 1898. The following year, he formed a company to produce his innovation. Through a century, the company grew to make bearings of all types, specialty steel and an array of related products and services. That growth has included a number of acquisitions, the largest of which was The Torrington Company, in 2003. Today, The Timken Company is a global leader in friction management and power transmission. Sales have grown to $4.5 billion with 26,000 associates in 27 countries.

Suffering steel shortages during WWI, in 1916 the company began making its own steel. By the 1920s the rail industry had adopted Timken bearings to increase the speed of trains. Timken stock was sold to the public for the first time in 1922.

WWII created increased demand for Timken's products, and the company opened several new plants. The AP bearing -- a revolutionary prelubricated, self-contained railroad bearing unveiled by Timken in 1954 -- boosted the company's railroad segment, and a new plant, the Columbus Railroad Bearing Plant, opened in 1958.

H. H. Timken's son, W. Robert Timken, became president in 1960 and chairman in 1968. The company continued to grow during the 1960s by opening plants in Brazil and France. It adopted its current name in 1970. W. R. Timken Jr., grandson of the founder, became chairman in 1975. That year the company bought specialty alloy maker Latrobe Steel.

In 1982, with increasing competition from Europe and Japan, the company suffered its first loss since the Depression. Five years later it established Indian joint venture Tata Timken to make bearings for agricultural equipment, heavy machinery, and railcars.

Timken bought precision-bearing maker MPB Corporation in 1990. The company opened its first European steel operations in 1993 and the following year introduced its environmentally progressive Dynametal steel products. It bought the Rail Bearing Service Corporation in 1995.

Timken formed joint venture Yantai Timken in 1996 to make bearings in China. It also acquired US steel firms Ohio Alloy Steels and Houghton & Richards, Sanderson Kayser in the UK (now called Sanderson Special Steels), and Prema Milmet (bearings) in Poland. In 1997 Timken purchased Gnutti Carlo SpA (bearings, Italy) and the aerospace bearing operations of UK-based Torrington.

The company opened a bearings plant in the UK in 1998, and in December of that year it bought UK-based Desford Steel Tubes. The General Motors strike, transformer outages, and new equipment costs hurt the company's earnings, however. As a result, Timken closed its Australian bearing-manufacturing operations.

In 1999 Timken cut production capacity to 80% and continued to consolidate operations and restructure into global business units. The company closed plants in Australia, restructured operations in South Africa (cutting about 1,700 jobs), and transferred its European distribution to an outside company in France.

To meet European demand, Timken expanded production at its plants in Poland and Romania in 2000. In early 2001 the company announced that it would lay off more than 7% of its workforce. Timken entered into a joint venture with SKF (ball bearings, Sweden) in 2001 to make bearing components in Brazil. Later Timken acquired French steel component maker Lecheres Industries SAS. The next year Timken divided its aerospace and super precision (miniature bearings and precision assemblies) division into four integrated global businesses.

Timken acquired the Ingersoll-Rand unit, The Torrington Co., for $840 million in 2003. That next year, the company enhanced its Timken Aerospace subsidiary through the acquisition of Alcor Engine Company and Advance Repair Technologies. It also acquired SES LLC's Technical Group, a provider of infrared thermography and vibration analysis.

Learn more about Timken here. Photo Credit: The Timken Company

Corporate History: Goodyear Tire & Rubber

Akron, for many years, was known as the "Rubber City." No place on earth had a higher concentration of tire manufacturers. That has all changed. You might find this short history of Goodyear to be of some interest.

In 1898 Frank and Charles Seiberling founded a tire and rubber company in Akron, Ohio, and named it after Charles Goodyear (inventor of the vulcanization process, 1839). The debut of the Quick Detachable tire and the Universal Rim (1903) made Goodyear the world's largest tire maker by 1916.

The responsibility for the adoption of the Wingfoot symbol (figure to left), known today in every civilized country on earth, rests to a great extent with Frank Seiberling, the founder and for many years president of The Goodyear Tire & Rubber Company. In the old Seiberling home in Akron, on a newel post of the stairway there stood a statue of the famous god of mythology known to the ancient Romans as Mercury, and to the Greeks as Hermes.

Looking back, the founding of The Goodyear Tire & Rubber Company in 1898 seems especially remarkable, for the beginning was anything but auspicious. The 38-year-old founder, Frank Seiberling, purchased the company's first plant with a $3,500 down payment - using money he borrowed from a brother-in-law. The rubber and cotton that were the lifeblood of the industry had to be transported from halfway around the world, to a landlocked town that had only limited rail transportation. Even the man the company's name memorialized, Charles Goodyear, had died penniless 30 years earlier despite his discovery of vulcanization after a long and courageous search.

Yet the timing couldn't have been better. The bicycle craze of the 1890s was booming. The horseless carriage, some ventured to call it the automobile, was a wide-open challenge. Even the depression of 1893 was beginning to fade. So on August 29, 1898, Goodyear was incorporated with a capital stock of $100,000.

Goodyear began manufacturing in Canada in 1910, and over the next two decades it expanded into Argentina, Australia, and the Dutch East Indies. The company established its own rubber plantations in Sumatra (now part of Indonesia) in 1916.

Financial woes led to reorganization in 1921, and investment bankers forced the Seiberlings out. Succeeding caretaker management, Paul Litchfield began three decades as CEO in 1926, a time in which Goodyear had emerged to become the world's largest rubber company.

Goodyear blimps served as floating billboards nationwide by the 1930s. During that decade Goodyear opened company stores, acquired tire maker Kelly-Springfield (1935), and began producing tires made from synthetic rubber (1937). After WWII Goodyear was an innovative leader in technologies such as polyester tire cord (1962) and the bias-belted tire (1967).

By 1980 Goodyear had introduced radial tire brands such as the all-weather Tiempo, the Eagle, and the Arriva, as it led the US market.

Thwarting British financier Sir James Goldsmith's takeover attempt in 1986, CEO Robert Mercer raised $1.7 billion by selling the company's non-tire businesses (Motor Wheel, Goodyear Aerospace) and by borrowing heavily.

Recession, overcapacity, and price-cutting in 1990 led to hard times for tire makers. After suffering through 1990, its first money-losing year since the Depression, Goodyear lured Stanley Gault out of retirement. He ceased marketing tires exclusively through Goodyear's dealer network by selling tires through Wal-Mart, Kmart, and Sears. Gault also cut costs through layoffs, plant closures, and spending reductions and returned Goodyear to profitability in 1991.

The company increased its presence in the US retail market in 1995 when it began selling tires through 860 Penske Auto Centers and 300 Montgomery Ward auto centers. President Samir Gibara succeeded chairman Gault as CEO in 1996. That year Goodyear bought Poland's leading tire maker, T C Debica, and a 60% stake in South African tire maker Contred (acquiring the rest in 1998).

In 1997 Goodyear formed an alliance with Kobe, Japan-based Sumitomo Rubber Industries, under which the companies agreed to make and market tires for one another in Asia and North America. The next year Goodyear sold its Celeron Oil subsidiary, which operated the All American Pipeline, and acquired the remaining 26% stake in tire distributor Brad Ragan (commercial and retail outlets in the US) for $20.7 million.

The company acquired Sumitomo Rubber Industries' North American and European Dunlop tire businesses in 1999. The acquisition returned Goodyear to its #1 position in the tire-making industry. However, the company recorded drastically low profits that year because it had cut tire production and was unable to meet supplier demands.

To improve profitability, Goodyear increased tire prices in 2000 and began consolidating its manufacturing operations. Goodyear also announced plans to combine its commercial tire service centers with those of Treadco through a joint venture named Wingfoot Commercial Tire Systems. Despite record sales in 2000, the company's profits hit some hard road, prompting Goodyear to lay off 10% of its workforce and implement other cost-cutting efforts.

Early in 2001 the company announced that it would close its Mexican tire plant. The same year the company agreed to replace Firestone Wilderness AT tires with Goodyear tires for Ford owners as part of Ford's big Firestone tire recall.

Early in 2002 Goodyear announced that its recent job cuts and manufacturing consolidation resulted in an $85 million decrease in annual operating costs. Later in the year the tire maker became embroiled in an age discrimination lawsuit claiming unfair job evaluations for the company's older employees. Blaming a slow US economy, Goodyear announced plans to cut 450 jobs at its Union City, Tennessee, manufacturing plant.

Although Goodyear once owned about 10% of its Sumitomo Rubber Industries, it sold more than 20 million shares of its Japanese counterpart stock back to the tire maker in 2003; Goodyear now owns just over 1% of Sumitomo. Later in the year as the company was embroiled in a lengthy debate with the United Steelworkers union it was announced that the Huntsville, Alabama, tire manufacturing plant would be closed. Goodyear also announced that it would cut 500 nonunion salaried employees in North America. Later that same year it was announced that Goodyear was chosen by Volvo to be the truck manufacturer's primary tire supplier in North America; Goodyear has a similar contract with Mac Truck.

Qantas Airways announced in early 2004 that it has chosen Goodyear to provide tires for the Australia-based company's Jetstar Airways. Later in the year Goodyear acquired the shares of Slovenia-based Sava Tires it did not already own, and the company's Goodyear Dunlop Tires Europe unit purchased the Sweden-based Dackia retail tire stores. The company announced more job cuts in the non-tire sector in 2004, affecting Goodyear's engineered products and chemical units.

Goodyear sold its farm tire business to Titan International for $100 million in 2005. Later that year the company sold its Wingtack adhesive resin business to Sartomer Company Inc. (a subsidiary of France's TOTAL S.A.) for about $65 million.

Corporate timeline here. Photo Credit: The Goodyear Company

Corporate History: Lincoln Electric

Lincoln Electric is a long time corporate citizen on Greater Cleveland.

John Lincoln founded Lincoln Electric Co. in 1895 to make and repair electric motors. John C. Lincoln Founded The Lincoln Electric Company with a capital investment of $200.00. The product: electric motors of his own design. By the time his younger brother James joined Lincoln as a salesman in 1907, John had expanded into rechargeable batteries and had also begun researching arc welding. John dedicated himself to research and left James to handle management.

In the workplace, James formed an advisory board made up of elected employee representatives from each department. Its twice-monthly meetings became a cornerstone of the company's Incentive Management System, which Lincoln based on six tenets: people as assets, Christian ethics, principles, simplicity, competition, and customer satisfaction. As part of the system, piecework pay and group life insurance (unusual at the time) were begun in 1915. Meanwhile, John perfected the electric arc welding machine that soon became the company's chief product, and in 1917 he formed The Lincoln Electric Welding School.

In 1934 workers offered to work longer hours during the Depression in exchange for a share of the company's profits; that year bonuses averaged 30% of pay. By the 1940s Lincoln was the world's #1 maker of arc-welding equipment, with subsidiaries in Australia, Canada, and the UK and licensees in Argentina, Brazil, Canada, and Mexico. Lincoln added a pension plan and an internal promotion program during WWII as ship manufacturing fueled demand for its products.

William Irrgang, a German engineer with 26 years at the company, succeeded James Lincoln as president in 1954 (James became chairman). Under Irrgang and Lincoln the company practiced conservative policies: It prohibited capital spending projects with paybacks greater than one year. Irrgang became chairman in 1965 and was named CEO (a new title) in 1972, the same year George Willis, a Harvard MBA and devotee of the Incentive Management System, became president. Willis was constrained by Irrgang's conservatism and the economic woes of the early 1980s. Sales dropped and though Lincoln's policy of not laying off workers was strained, workers shifted jobs into maintenance or sales work.

Irrgang died in 1986, leaving Willis in control. Willis quickly expanded product lines and geographic coverage. Soon the company's offerings included robotic and gas-based welding products. When he retired the next year, Willis left a legacy of expansion and debt. Though sales had doubled and the company's international presence had grown to 15 countries, debt had risen from about $18 million in 1988 to $222 million in 1993. Lincoln also had trouble exporting its incentive system to other countries. The company returned to profitability in 1994, cutting jobs and closing factories in Europe and Latin America and adding jobs in the US.

Anthony Massaro became CEO in 1996. He looked overseas for opportunities, including deals in China, Indonesia, and Italy. In 1997 Lincoln consolidated production at its European plants and agreed to settle some of the lawsuits alleging that a type of its welding wire contributed to building damage in California's 1994 Northridge earthquake.

In 1998 the company acquired Indalco, a Canada-based maker of aluminum welding wire, and Germany-based Uhrhan & Schwill, which made pipe-welding systems. It also obtained a 50% stake in Turkish welding company AS Kaynak and opened a distribution center near Johannesburg, South Africa. In 1999 Lincoln sold its electric motors business to Regal-Beloit.

In 2000 Lincoln bought a 35% stake in the Kuang Tai Metal Industrial, a Taiwan-based company that makes mild and stainless-steel welding wires. That year Lincoln was poised to acquire Italian welding consumables maker C.I.F.E., but canceled the deal and went after UK-based welding-equipment maker Charter. Unfortunately, that deal didn't work out either. In 2001 the company opened a new research facility in Cleveland; the next year it acquired 85% of Polish welding equipment maker Bester S.A.

In 2004 John Stropki replaced Anthony Massaro as president and CEO of Lincoln Electric. Mr. Stropki also became chairman when Mr. Massaro retired near the end of 2004.

Photo Credit: Lincoln Electric Company

Corporate History: Eaton Corporation

Eaton Corporation has a long and interesting history in the Greater Cleveland area.

In 1911 Joseph O. Eaton (Pictured at left) and Viggo Torbensen started the Torbensen Gear and Axle Company to make an internal-gear rear truck axle that Torbensen had patented in 1902. The company moved from Newark, New Jersey, to Cleveland in 1914. After Republic Motor Truck bought Torbensen (1917), Eaton formed the Eaton Axle Company (1919), repurchased Torbensen (1922), and by 1931 had bought 11 more auto parts businesses. In 1932 it became Eaton Manufacturing.

The Depression flattened auto sales, and Eaton's profits fell. WWII sparked demand that helped the company recover. Joseph Eaton died in 1949. During the 1950s and 1960s, Eaton diversified and expanded geographically. It bought Fuller Manufacturing (truck transmissions, 1958), Dole Valve (1963), and Yale & Towne Manufacturing (locks and forklifts, 1963). Eaton's international business grew, with foreign sales increasing from almost nil in 1961 to 20% of sales by 1966.

Eaton sold its lock business in 1978 and bought Cutler-Hammer (electronics), Kenway (automated storage and retrieval systems), and Samuel Moore (plastics and fluid power). Downturns in the truck and auto industries forced Eaton to close 30 plants and trim 23,000 jobs between 1979 and 1983. The company reported its first loss in 50 years in 1982 and decided to diversify into high technology and to expand operations overseas.

From 1984 to 1993 Eaton spent almost $4 billion in capital improvements and R&D. In 1986 it bought Consolidated Controls (precision instruments), Pacific-Sierra Research (computer and defense systems), and Singer Controls (valves and switches).

Eaton's acquisitions in the 1990s included Nordhauser Ventil (automotive engine valves, Germany), Control Displays (flight-deck equipment), Heinemann Electric (hydraulic-magnetic circuit breakers), and the automotive switch business of Illinois Tool Works. In 1994 Eaton tripled the size of its electrical power and controls operation with its $1.1 billion purchase of Westinghouse's electrical distribution and control business. The next year it bought Emwest Products (electrical switch gear and controls, Australia) and the IKU Group, a Dutch auto-controls firm. It purchased CAPCO Automotive Products (truck transmissions, Brazil) in 1996.

In its repositioning, the company in 1997 sold off its appliance-control business to Siebe PLC and a majority stake in its high-tech defense electronics subsidiary, AIL Systems, to management. The next year Eaton sold its heavy-axle and brake business to Dana and its suspension business to Oxford Automotive. Eaton closed and consolidated plants and laid off more than 1,000 workers in its chip division in 1998.

The company increased its share of the hydraulics market in 1999 by spending $1.7 billion for Aeroquip-Vickers. To help pay for the purchase, Eaton sold its engineered-fasteners business to TransTechnology, its fluid power division (cooling systems for cars and trucks) to Borg-Warner (now BorgWarner), and its mobile agricultural hydraulic cylinder business to Hyco International. Eaton also unloaded Vickers' machine-tool controls business later that year.

In 2000 Eaton sold its specialty power resistor business to industrial products maker Halma. That year its Aeroquip unit acquired the fluid connectors business of Honeywell, and Eaton spun off its Axcelis Technologies subsidiary. As part of its bid to reduce debt, the company sold its automotive electronic switch division and its commercial and residential air-conditioning and refrigeration division, in 2001.

Eaton sold its naval controls unit (shipboard integrated electrical power distribution and control systems) to DRS Technologies for $92 million in 2002. Later in the year Eaton signed a deal with Volvo to manufacture heavy-duty transmissions for the company's South American truck market. Eaton also bought the product lines and the intellectual property of the Aerospace Division of Mechanical Products Inc. In early 2003 the company completed the acquisition of Delta plc's electrical division for a reported $215 million.

In 2004 Eaton acquired Powerware, an uninterruptible power supply and power management system manufacturer, from UK-based Invensys for $560 million. Early in 2005 the company acquired Walterscheid Rohrverbindungstechnik GmbH, the tube connecting systems business of GKN plc, for about $48 million. It also bought the Chinese hydraulic hose fitting maker Winner Group Holdings Ltd.

In 2005, Eaton purchased: Pigozzi S.A. Engrenagens e Transmissões, an agricultural powertrain business located in Caxias do Sul, Brazil, the businesses of Winner Group Holdings Ltd., a China-based company that produces hydraulic hose fittings and adapters for the greater Chinese market, and the Mexican automotive lifter manufacturer Morestana S.A. de C.V.

Photo Credit: Automotive Hall of Fame

Nanotech Gets Big Boast in Albany

New York State has been chosen as one of only two US regions in the country to receive funds to establish an Institute for Nanoelectronics Discovery and Exploration (INDEX) facility for advanced research into a wide range of nanoelectronics. The new facility will be located at the Center of Excellence in Nanoelectronics at the University at Albany. The second similar institute yet to be formally announced will be located in the Silicon Valley in California.

The project will see the construction of a new 250,000 square foot building that will house a new 100,000 square foot cleanroom at an estimated cost of $275 million US dollars. $160 million of the projects $435 million budget will be used for operating expenses. New York State is committing $80 million in matching funds to help INDEX establish the scientific, technical and manufacturing infrastructure, as well as training.

Read more here.

Greater Baltimore Committee 2006 Priorities

Enactment of more aggressive tax creditprograms and other funding to nurture the growth of life sciences andtechnology businesses are among the Greater Baltimore Committee's (GBC) top legislative priorities for the 2006 Maryland General Assembly session. The GBC will also work to oppose legislation that could inhibit thestate's use of eminent domain to acquire land for economic development purposes. Read more here.

Corporate History: Lubrizol Corporation

Lubrizol is a major corporation based in the Greater Cleveland area. Here is a short history of the company. Learn more about Lubrizol here.

The company that eventually became Lubrizol was founded in 1928 by the Smith (Kelvin, Kent [Pictured at left], and Vincent) and Nason (Alex and Frank) brothers, along with their friend, Thomas James.

Chemistry was in the Smiths' blood; all three had worked at Dow Chemical, a company their chemist father helped start. Known originally as The Graphite Oil Products Company, Lubrizol's first product, Lubri-graph, was a suspended graphite and oil product designed to keep car springs quiet. Following the success of their anti-squeak product, the principals turned their attention to the gunk that built up from the mineral oil used in car engines. Cars of the era overheated often and pistons frequently became stuck from excessive heat or sludge build-up. Graphite Oil chemists discovered that the addition of chlorine to lubricants solved the overheating problem. The new product (and later the company) was named Lubrizol.

Alex Nason went to Detroit in 1935 and convinced General Motors to add Lubrizol to its list of recommended products. Following that success Lubrizol was used extensively during WWII by the military, which established performance standards. During the war the company stopped producing lubricants and concentrated solely on additives, including rust inhibitors, detergents, and chemicals to slow oil breakdown.

After WWII performance standards for cars were set, and Lubrizol cleaned up, having patented many ingredients and processes used to manufacture lubricants. By the 1950s the privately held corporation was the #1 petroleum additive company in the world. It was during this time that the company made its first acquisition, R.O. Hull Company, a rustproofing chemicals manufacturer (it has since been sold). Lubrizol went public in 1960.

The company benefited as environmental regulations grew, since unleaded gas and catalytic converters required new additives. Lubrizol also benefited from the oil crisis in the early 1970s because the more fuel-efficient cars that resulted required new transmission fluids, fuel additives, and gear lubricants. Even the recession helped the slippery company, as industrial companies relied more on quality lubricants and additives to protect costly machinery.

Lubrizol purchased lithium battery maker Althus Corporation in 1979 and moved into biotechnology soon afterward. In 1985 the firm bought Agrigenetics Corporation and focused its biotechnology efforts on genetically altered plants. Biotechnology seemed to offer vast patent potential, whereas additives had become so effective that growth opportunities there seemed limited in comparison. However, after seven costly years, Lubrizol sold a controlling interest in Agrigenetics, which had become the sixth-largest seed company in the US, to Mycogen (acquired by Dow Chemical in 1998).

Lubrizol continued divesting noncore interests, and by 1996 it was back to being an additives company. Despite the turmoil in Asia, the company formed two joint ventures in China in 1997. The next year Lubrizol acquired the Adibis unit of BP Chemicals (now called BP Petrochemicals) and five other companies, adding a few additional percentage points to its share of the additives market. Shrinking profits caused the company to cut production by approximately 20% and its workforce by 11% between 1999 and 2000.

In 2000 Lubrizol bought RPM's Alox metalworking additive business. The next year it acquired ROSS Chem, a privately held maker of antifoam and defoaming agents used by the coatings, inks, textile, food, and metalworking industries. The company's 2002 acquisitions have included Kabo International (defoaming products), Chemron (specialty surfactants), and Lambent Technologies (silicone defoamers).

Over the next year and a half the company continued to buy when the mood struck. Lubrizol bought the additives business of Avecia in a deal that closed in January 2004. The former Avecia unit makes pigment and color dispersants for inks and coatings under the brand names Solsperse, Solplus, and Solthix. Later that year it bought up the formerly private company Noveon , which had announced its intention to go public. Noveon makes polymers and additives used in food and pharmaceuticals. The total price Lubrizol paid for the company was $1.84 billion (about $900 million cash and the assumption of another $900 million in debt). The deal triggered a restructuring that resulted in Lubrizol's two main operating segments: its former activities called Lubricant Additives and Noveon's operations making up the specialty chemicals segment.

Photo Credit: Case Western Reserve University

Business History: Xerox Corporation, One That Got Away from Rochester

I find business history to be a fascinating subject. Here is a quick history of the Xerox Corporation, a well-known business innovation story.

Current Snapshot

Xerox Corporation (NYSE:XRX) is a $15.7 billion technology and services enterprise that helps businesses deploy Smarter Document Management strategies and find better ways to work. Its intent is to constantly lead with innovative technologies, products and services that customers can depend upon to improve business results.

Headquartered in Stamford, Conn., Xerox is No. 130 among the Fortune 500 with 56,300 employees worldwide, including 30,300 in the United States (October 2005). The company's operations are guided by customer-focused and employee-centered core values -- such as social responsibility, diversity and quality -- augmented by a passion for innovation, speed and adaptability.

Early Beginnings

The Haloid Company was incorporated in Rochester, NY in 1906 to make and sell photographic paper. (Note: Xerox relocated from Rochester to Stamford in 1969. Needless to say, this was a major loss to the Rochester area.) In 1935 it bought photocopier company Rectigraph, which led Haloid to buy a license for a new process called electrophotography (renamed xerography from the ancient Greek words for "dry" and "writing") from the Battelle Memorial Institute in 1947. Battelle backed inventor Chester Carlson (Photo below), who had worked to perfect a process for transferring electrostatic images from a photoconductive surface to paper.

Download a report on the story of xerography here.

Haloid commercialized xerography with the Model A copier in 1949 and the Xerox Copyflo in 1955, and by 1956 xerographic products represented 40% of sales. The company changed its name to Haloid Xerox in 1958 (Haloid was dropped from the name in 1961), and in 1959 it introduced the first simplified office copier. That machine took the world by storm, beating out such competing technologies as mimeograph (A.B.Dick), thermal paper (3M), and damp copy (Kodak). Sales soared to nearly $270 million in 1965.

Xerox branched out in the 1960s by buying three publishing companies and a computer unit; all were later sold or disbanded. In the 1970s Xerox bought printer, plotter, and disk drive businesses, as well as record carrier Western Union (1979; sold in 1982). In 1974 the FTC, believing Xerox was too market-dominant, forced the company to license its technology.

More Recent History

In the 1980s Xerox bought companies specializing in optical character recognition, scanning, faxing, and desktop publishing. It also diversified by buying insurance and investment banking firms, among others. In 1986 Paul Allaire, who had joined Xerox in 1966, was elected president. He was named CEO in 1990 and became chairman in 1991.

Eyeing future alliances, Xerox agreed to supply computer print engines to Compaq (1992) and Apple (1993). In 1995 it introduced networked color laser printers and software for printing Web documents. Between 1996 and 1998 Xerox sold its struggling insurance units.

Xerox bought Rank's 20% stake in Rank Xerox, the two companies' 41-year-old global marketing joint venture, in 1997. That year Xerox launched a $500 PC printer, copier, and scanner -- its first product specifically for home use -- and Allaire hired IBM CFO Richard Thoman as president and COO to spearhead a push into network and digital products. In 1998 Xerox bought technology consultant XLConnect (renamed Xerox Connect) and parent company Intelligent Electronics.

In 1999 Xerox named Thoman CEO to replace Allaire, who remained chairman. That year Xerox bought France's SET Electronique (high-speed digital printers). The company began selling its products online and reorganized its sales force by customer industry rather than geography. Layoffs also continued, totaling 14,000 for 1998 and 1999.

In an effort to stake a larger claim in the office color printing market, Xerox bought Tektronix's ailing color printing and imaging division in early 2000. The company also formed an Internet unit, formed a joint venture with Fuji and Sharp to make low-cost ink jet printers, and spun off its digital rights management technology unit as ContentGuard. With profits shrinking and market value flagging, Thoman resigned in May 2000 amid pressure from the board. Allaire assumed the CEO post once again. Also that year the company sold its operations in China and Hong Kong to Fuji Xerox.

Xerox's R&D/innovation strategy here.

Early in 2001 the company laid off 4,000 more employees. That year Xerox sold half of its 50% stake in Fuji Xerox to Fuji Photo Film, and it discontinued its product lines aimed at consumer and small office users, including its personal copiers and ink jet printers. Allaire stepped down as chief executive; COO Anne Mulcahy was named as his successor. Looking to reduce its massive debt, Xerox transferred most of its US customer financing operations to GE Capital in a deal including $1 billion in cash financing from the lending giant (it later formed similar arrangements with GE Capital for many of its international operations). Xerox also began selling manufacturing operations to contract manufacturer Flextronics International.

In early 2002 CEO Anne Mulcahy replaced Allaire as chairman. Also that year Xerox agreed to pay a $10 million fine to settle a complaint brought by the SEC alleging financial reporting violations. After the settlement Xerox -- which had fired KPMG as its auditors the previous year and brought in PricewaterhouseCoopers -- initiated an audit of its financial statements from 1997 through 2001; as a result of the audit, in June 2002 the company restated about $2 billion in revenues over the five-year period.

Photo Credit: Xerox Corporation

Eastman Kodak: Another Rochester Success Story

After developing a method for dry-plate photography, George Eastman (Pictured below) established The Eastman Dry Plate and Film Company in 1884. In 1888 it introduced its first camera, a small, easy-to-use device that was loaded with enough film for 100 pictures. Owners mailed the camera back to the company, which returned it with the pictures and more film. The firm settled on the name Eastman Kodak in 1892, after Eastman tried many combinations of letters starting and ending with "k," which he thought was a "strong, incisive sort of letter." The user-friendly Brownie camera followed in 1900. Three years later Kodak introduced a home movie camera, projector, and film.

Ailing and convinced that his work was done, Eastman committed suicide in 1932. Kodak continued to dominate the photography industry with the introduction of color film (Kodachrome, 1935) and a handheld movie camera (1951). The company established US plants to produce the chemicals, plastics, and fibers used in its film production.

The Instamatic, introduced in 1963, became Kodak's biggest success. The camera's foolproof film cartridge eliminated the need for loading in the dark. By 1976 Kodak had sold an estimated 60 million Instamatics, 50 million more cameras than all its competitors combined. Subsequent introductions included the Kodak instant camera (1976) and the unsuccessful disc camera (1982).

In the 1980s Kodak diversified into electronic publishing, batteries, floppy disks (Verbatim, 1985, sold 1990), pharmaceuticals (Sterling Drug, sold 1994), and do-it-yourself and household products (L&F Products, sold 1994).

Kodak entered a joint research and development project with four Japanese photo giants (Canon, Nikon, Minolta, and Fuji Photo Film) in 1992 to develop the Advanced Photography System. Also that year the company introduced the Photo CD, a CD capable of storing photographs.

George Fisher, former chairman of Motorola, became Kodak's chairman and CEO in 1993. Fisher began cutting debt by selling noncore assets. Kodak spun off Eastman Chemical in 1994. Sales in 1996 included its money-losing copier sales and services business.

Kodak wrote off nearly $1.5 billion in 1997, mostly because of costs related to the layoffs. That year Kodak bought the document management operations from Wang Laboratories (now part of Getronics), and the next year it formed deals to expand its digital offerings, including a collaboration with Intel and Adobe Systems allowing consumers to manipulate, print, and send personal photos from their PCs. Kodak acquired the medical imaging business of Imation in 1998, but it also unloaded more of its noncore operations, including its 450-store Fox Photo chain.

President and COO Daniel Carp replaced Fisher as CEO in early 2000. Also that year Kodak formed a joint venture with computer giant Hewlett-Packard to develop photofinishing equipment for digital photography; extended its push into the online photo business by buying the remaining shares (it already owned 51%) of PictureVision, a digital image storage service; and acquired Lumisys, a maker of digital imaging systems for the medical industry.

In early 2001 Kodak announced a three-year plan to introduce camera and film vending machines in about 10,000 high-traffic US locations (amusement parks, zoos, airports, ski resorts, and other tourist spots). The company also completed its acquisition of Bell & Howell's (now ProQuest) imaging operations. In April former Avaya executive Patricia Russo was named president and COO; Carp remained chairman and CEO. Also in 2001 Kodak acquired Ofoto (rebranded in early 2005 as Kodak Imaging Network), a provider of online photo albums (EasyShare Gallery) that friends and families of registered users can view and download.

Further hits to the economy and Kodak's revenue prompted management in 2001 to eliminate regional divisions and realign the business along product lines. In December, Kodak and SANYO Electric Co. announced the formation of a business venture to manufacture OLED displays for cameras, PDAs, and other devices. In January 2002 Russo left to rejoin Lucent Technologies; Carp assumed her responsibilities as president and COO. In May, Kodak renewed a multi-year agreement that secured its position as the exclusive imaging supplier of film and related products for The Walt Disney Company.

In April 2003 former Hewlett-Packard executive Antonio Perez was named president and COO, and in June, Kodak closed its only single-use camera factory in the US and shifted operations overseas. A month later Kodak said it would purchase PracticeWorks, a dental imaging and software business. In July, the company announced it would cut as many as 6,000 jobs worldwide. This came after reducing as many as 2,200 jobs in the US and Western Europe earlier in the year and cutting as many as 7,000 jobs worldwide in 2002. In October, Kodak purchased LaserPacific Media Corporation, which provides post-production film editing and processing for television, video, and motion pictures. In November, the company purchased Algotec Systems; a developer of advanced picture-archiving-and-communications systems (PACS).

In January 2004 the company completed its purchase of Scitex Digital Printing. The company, which Kodak renamed Versamark, makes commercial, high-speed inkjet printers. Also in January, on the heels of its announcement that it would stop selling film-based cameras in Western markets by year’s end, Kodak said it would also stop global production of its Advantix Advanced Photo System (APS) cameras, but production of APS film would not be affected. In February, Kodak Japan purchased the outstanding shares of digital camera developer Chinon Industries (it already owned about 60% of the company) and made it a wholly owned subsidiary.

Kodak sold its Remote Sensing Systems (RSS) business (including the Research Systems subsidiary) to optical imaging component maker ITT Industries in early 2004. The RSS unit designed satellite imaging systems for the aerospace and defense industries. The sale was in line with the company's strategy to focus on digital technologies and consumer and health imaging. It also acquired the Digital Print division of Heidelberger Druckmaschinen, as well as the company's 50% interest in NexPress, maker of high-end digital color printing systems.

In May Kodak completed a licensing agreement for Lexar Media to make Kodak-branded memory cards. The company renamed its Commercial Printing group to the Graphic Communications group, which consists of the Encad, NexPress, and Versamark subsidiaries, as well as the management of its Kodak Polychrome Graphics. Also that month the company announced a deal with one of China's largest telecommunications companies, China Putian, involving the sale of the company's mobile phones in Kodak's some 9,000 film and digital developing outlets throughout China.

More about Eastman Kodak here. Photo Credit: Eastman Kodak

Bausch & Lomb: A Rochester Success Story

In 1853 German immigrant Jacob Bausch opened a small store in Rochester, New York, to sell European optical imports. Henry Lomb soon became a partner by lending Bausch $60. (Both founders pictured at left).

Bausch & Lomb's first major breakthrough came with Bausch's invention of Vulcanite (a hard rubber) eyeglass frames. The company fitted the frames with European lenses and by 1880 had a New York City sales office. Bausch & Lomb later began making microscopes, binoculars, and telescopes.

The company incorporated in 1908 as Bausch & Lomb Optical Co. In 1912 Jacob's son, William Bausch, became one of the few to make optical-quality glass in the US. During WWI, Bausch & Lomb supplied the military with lenses for binoculars, searchlights, rifle scopes, and telescopes.

The Army Air Corps commissioned the company in 1929 to create lenses to reduce sun glare for pilots. Bausch & Lomb responded with Ray-Ban sunglasses; they were made available to the public in 1936 and went on to become a company mainstay. Bausch & Lomb went public in 1938.
The company won an Oscar in the 1950s for its Cinemascope lens; it won government contracts for lenses used in satellite and missile systems in the 1960s. Bausch & Lomb also bought such firms as Ferson Optics (1968) and Reese Optical (1969). It began concentrating on contact lenses after the FDA approved its soft lenses in 1971.

In 1981 Daniel Gill, who had helped build the soft contact lens business, became CEO. He sold the company's prescription eyeglass services and industrial instruments units and diversified into medical products and research.

Earnings soared in the 1990s with foreign expansion and acquisitions, including Steri-Oss (dental implants); the Curel and Soft Sense skin care lines from S.C. Johnson & Son; Award, a Scottish manufacturer of disposable contacts (1996); and Arnette Optic Illusions sport sunglasses (1996).

However, Gill's insistence on double-digit growth contributed to a dubious ethical climate in which some executives used questionable tactics to put more sales on the books. This led to an SEC probe (closed in 1997 with no fines or penalties assessed) and a shareholder lawsuit (settled in 1997 for $42 million). That year, the company also paid $1.7 million to settle a class action lawsuit alleging Bausch & Lomb was marketing one type of contact lens under several different product names with varying prices. Gill resigned under fire in 1995 and was replaced by outside director William Waltrip; he turned the reins over to William Carpenter in 1997.

Noncore divisions were sold (oral care and dental implant businesses in 1996; skin care line to Kao subsidiary Andrew Jergens in 1998) in a $100 million restructuring program, and 1,900 jobs were cut. The company entered the cataract and refractive surgery market, buying Chiron's vision unit in 1998 and ophthalmic diagnostic technology company Orbtek in 1999.

To focus on eye care, in 1999 the company sold its sunglasses unit to Luxottica, Amplifon S.p.A., and Charles River Laboratories to an affiliate of Donaldson, Lufkin & Jenrette, now Credit Suisse First Boston (USA). Bausch & Lomb then consolidated its manufacturing operations and cut its workforce.

Facing off with rivals Johnson & Johnson and Novartis' CIBA Vision unit over its new PureVision extended-wear lenses, the company withdrew disputed product ads after an FDA warning in 1999. In 2000 the company made a failed bid for tinted contact lensmaker Wesley Jessen VisionCare (which was later bought by and merged into CIBA Vision). The company's successful purchases that year included Groupe Chauvin, a maker of ophthalmic pharmaceuticals. In 2001 Bausch & Lomb bought the ophthalmic business of Pharmos Corporation.

Ronald Zarrella became chairman and CEO of Bausch & Lomb in 2001, after seven years with General Motors.

Learn more about the company here.

Hurricane Impacts on the Building Materials Industry

The Impact of Hurricane Katrina

Hurricane Katrina's devastating impact on the Gulf Coast region of the United States could have a profound impact on the entire building materials industry. The industry has yet to fully recover from supply shocks in cement in 2004. But hurricane Katrina could cause far more supply disruptions for the building materials industry. First, the industry could witnesses shortages in lumber, plywood, cement, piping, and glass products.

Hurricane Katrina funds will be directed towards construction, engineering, and building materials firm.

Hurricane Damage is a Boon to the Building Materials Industry

Building material shortages will keep building costs elevated throughout the United States because of the sheer size of the damage to commercial and residential structures in Louisiana, Texas, and Mississippi. This will have a ripple effect in the West Midwest, south, and eastern regions of the United States which will cause home construction to skyrocket and thus keep home prices relatively elevated for some time to come. This is a similar effect in the spring of 2004, when there was a shortage of Portland cement on the U.S. market. This caused supply disruptions that rippled throughout the United States.

U.S. Gross Domestic Product will experience a boost due to rebuilding activities in the Gulf Coast region. Gross Metro Product within the Gulf Coast region will experience the greatest increase due to the massive rebuilding effort. The private rebuilding effort will be partially paid for through insurance and low rate federal government loans and grants. The cost of capital will be low due to the federal governments sponsorship of low cost loans. The short term drop in net domestic product will apparently be offset by significant construction activities that could last through the year 2007.

There are certain issues that could forestall the rebuilding efforts. Material and labor are in short supply. This could delay many commercial and residential rebuilding efforts. Many residents migrated to different states and there is no apparent likelihood they will return at any time. In addition, lumber prices , cement, drywall, and roof shingles are in short supply nationwide due to the vibrant housing market and last years Florida hurricances.

A possibility that could occur would be the higher interest rate environment could slow down home construction nationwide. But the Gulf Region could pickup the slack from the fall off since building construction is virtually federally mandated and interest -rate insensitive due to low cost loans. The building materials industry would benefit with either scenario.

The building materials industry may actually benefit from the reduced volume of product on the market. The shortage of product on the market in all building material sectors will be a boon to those companies. The limited supply of product on the market will mean higher prices. Thus, the limited supply of current product on the market will skyrocket. But the higher prices will likely offset and absorb the reduced volume shipped in the market.

The real losers will by be the home building industry and prospective new home buyers.

The building materials industry has continued to benefit from strong residential construction activity. Home construction rose 2/10ths of 1 percent in May 2005 which was the fifth increase in six months. Thus, new home sales are running at a record annual pace.

The strength in housing is unsustainable based on two fronts. A rising interest rate environment which will diminish prospects of both first time home buyers and speculators. Second, rising unemployment will play a factor in home construction activity. U.S. unemployment is currently about 5.1% as of September 2005 which is a rise 2/10ths of 1 percent. This was primarily due to the hurricane Katrina catastrophe which experienced higher than normal unemployment claims in the southeast. Third, the supply of new homes on the market has been rising. In April 2005, the supply of new homes rose 15.2 % year-over-year which is a strong indication that higher interest rates are having an impact on home building construction. In addition, home construction permits declined 4.6% as of May 2005.

Higher Interest Rates

Higher building material prices coupled with rising interest rates could be a recipe for disaster to come. The Federal Reserve Bank raised the discount rate another 0.25 basis points to 3.75%. If the fed tightens too much, it very well could shock the construction market. First, you have higher prices due to a shortage of materials on the market which will cause new home construction to rise. Second, the cost of money is rising with a quarter of 1 percent rise in the discount fee. This could shock the housing market in which the full effect will not fully known until early spring 2006.

The average benchmark rate on a 30-year fixed mortgage is about 5.98% as of October 2005. This is a rise of over 30 basis points since June 25, 2005.

To get a price quote on a detailed industry profile, contact ED Futures at dtia@don-iannone.com or by phone at: 440.449.0753.

Policy Issues Impact the Medical Equipment Industry

Many areas are working to grow their medical equipment industries. This article identifies some major public policy trends that should be considered as ED organizations work within this sector.

Federal and State Budgetary Problems Impact Prospects

The growing U.S. budget deficit could have wide ranging implications for all industry players in the healthcare market. This includes medical equipment and supply vendors, pharmaceutical companies, and healthcare facility operators. Though, medical equipment manufacturers have not received as much flack over pricing as pharmaceuticals have experienced, they too could be exposed to more federal Medicare cutbacks which will reduce prospects. Federal budget problems will increasingly weigh in on the availability of funds . In addition, health insurers are increasingly shifting more financial responsibility on the insured.

Economic recovery among different states continues to be mediocre, uneven, and unpredictable. Problems persist in midwest states with relatively high unemployment levels such as Indiana, Michigan, and Ohio. In addition, western states such as California are mired in huge state deficits with state bonds coming due with little support to pay for the state's mushrooming infrastructure. Southern states such as Alabama and Tennessee have state spending pressures which remain intense despite cost reduction measures. The problems in individual states will ultimately impact and reduce Medicaid expenditures.

According to the Congressional Budget Office (CBO), the Medicare Prescription Drug, Improvement, and Modernization Act will increase federal spending on healthcare substantially through 2013. This could represent up to $400 billion dollars over the next 10 years which represents about 0.4% of GDP.

Growth of Medicare is a Major Concern for Society

Medicare is the second largest federal program with outlays representing about $280 billion dollars in fiscal 2003. We anticipate this growth will be much more intensive with passage of the Medicare Prescription Drug, Improvement, and Modernization Act in 2003. The Congressional Budget Office projects Medicare spending will rise about 9 % through year 2014. Medicare is a potential target for budgetary cuts which puts extreme pressure on medical equipment companies for re-imbursement rates for medical device equipment, orthopedic products, and related goods.

It does not appear there will be significant Medicare cuts for equipment and devices. Here's why. If new technologies and technological developments can be shown to lower the cost of patient care and overall healthcare costs, there could be a boost to reimbursement rates for certain types of medical devices such as drug-coated stents, implantable defibrillators, spinal implants, and ventricular devices. We believe there would be Medicare cuts where there are reasonable alternatives and substitutes for healthcare needs such as increasing the use of generic pharmaceutical drugs instead of branded pharmaceutical drugs. Or using lower cost private outpatient services to keep hospital costs down.

Medicare Reimbursement Rates are Rising

A boon to all medical equipment and device manufacturers is the continued rise in reimbursement rates. The Centers for Medicare & Medicaid Services (CMS) under the Health Care Financing Administration has proposed medical reimbursement rates increases for all sectors of the medical equipment industry. For orthopedics, the hospital inpatient prospective payment rules have increased about 5% from $100 billion to $105 billion dollars for fiscal 2005. Within each category, hip and knee total joint replacement procedures experienced a 3% rate increase, cervical fusion rose 4.5%, and bar spine fusion rates received a 6% rise in reimbursement.

The cardiology sector proposals include a 2.1% increase for implantable cardioverter defribrillators (ICDs). In addition, the CMS has approved add-on payments of up to $16,262 per case for newer devices that are designed to treat congestive heart failure and for those patients at risk for sudden cardiac death. Heart pacemakers have experienced a 2.6% rise for standard devices and 4.1% for devices that incorporate cardiac resynchronization therapy. The drug-coated stent sector will largely remain unchanged except for patients with acute myocardial infarcation, in which reimbursement will rise 2.2%. This is surprising considering the industry is using more drug-coated stents and will eventually become the primary method that stents will be administered in hospitals by cardiologists. Without an increase in reimbursements, hospitals will probably absorb the cost of multiple stents used in each patient. At a cost of about $2,800 per stent, this could become a substantial burden to hospitals.

To get a price quote on a detailed industry profile, contact ED Futures at dtia@don-iannone.com or by phone at: 440.449.0753.

ED Futures Newsletter

January 8, 2006

Dear ED Futures Reader:

First, I'd like to thank the readers commenting on the 2006 Outlook issue from last week. It seems the issue was well-received and helpful. I am pleased to hear this.

Your comments indicate there is a need for a longer view of economic events and developments. I will honor this interest with more "longer view" articles during the new year.

Below are links to some interesting articles from the past week. I am especially interested in your views of the "business legacy cost" issue. It is a controversial issue, but I believe that the business world needs to change how it thinks about its commitments. Moreover, I believe the economic development community needs to reward business commitment, longevity, and innovation over the long haul.

Finally, I would argue that the economic development community should be more willing to look at the long term impact it has and does not have on the competitiveness of local and state economies. In the past couple of weeks, I have read several EDO annual reports and statements of accomplishment for 2005, and find virtually NO reference to the long term.

Like the businesses we are so eager to serve, our profession has become consumed with the short-term bottom line. That's not enough! If you have not already published your annual report for 2005, do yourself a favor and include at least a few sentences about the long term impact and significance of what you do. If you do, share a copy with me and I will publish it here at ED Futures.

Hop in a plane and take a 30,000-foot view of your area economy at the start of the new year. You may discover many things that you won't see from a windshield driving survey of your area.

Recent ED Futures Articles:

U.S. Jobs Still Lagging

Indiana's ED Performance in 2005

Baby Boomers and Florida's Palm Coast

U.S. Auto Sales in 2005: Domestics Losing Ground

Target Industry: Paper Products Manufacturing

Target Industry: Fruit and Vegetable Processing

Another Take on Business Legacy Costs

Should The Dow Ditch General Motors?

Wal-Mart Does So So During Holiday Season

Best of luck!

Don Iannone
ED Futures Publisher
Email: dtia@don-iannone.com
Phone: 440.449.0753

University of Central Florida: Practical Example of Higher Education-Economic Development Partnering

If you are looking for practical examples of how a university can strengthen its role in regional economic development, take a look at what the University of Central Florida is up to. Click here to read about its efforts to create a new medical school and other actions to build region's technology sector.

Vacation Travel Interests are Shifting

While travel to perennial favorites like Los Angeles, Orlando, New York and Las Vegas is always strong, some unexpected destinations -- from Colorado and Arizona to Croatia and China -- are showing up as hot spots for travel as the 2006 season begins. Read more here. If your area is a vacation destination, you may want to read up on what the new Lonely Planet report has to say.

Norwood, Ohio Eminent Domain Case

This eminent domain issue is getting a lot of attention. You might want to watch the Norwood case being considered by the Ohio Supreme Court, if eminent domain is on the radar screen. Click here to read more.

Columbus Partnership Update

The Columbus Partnership has taken inventory of its recent accomplishments. You can read a summary of the organization's activities in this article. One of its activities in 2005 was to work with the Columbus Chamber to create CompeteColumbus, a new group focused on industry cluster development in the Columbus/Central Ohio region.