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Blame it on Sept. 11, say scores of struggling firms
What do Martha Stewart, Big Steel, automakers, Planet Hollywood, trendy clothing manufacturers, software companies, Donald Trump and Scottish pubs have in common?
Each is blaming poor financial performance on the recent terrorist attacks. To hear executives tell it, lagging attendance at the MGM film "Bandits," a dip in burger sales at Wendy's International Inc. and fewer portabello mushroom pies ordered at California Pizza Kitchen Inc. restaurants are explained by two words: Sept. 11.
Not since the Persian Gulf War a decade ago has business latched on to a single uncontrollable event to account for lousy financial results. Airlines, hotels and the TV networks clearly were pummeled by fallout from the tragedy, but economists said that other industries may be using the terrorist attacks as cover for long-standing problems or as an excuse for job cuts.
During the last two weeks, scores of companies have cited the attacks as having affected their third-quarter earnings, although the quarter was more than 75% over when Sept. 11 came around. All this has economists and business analysts wondering what, if anything, companies legitimately can attribute to the attacks.
"There's no way of knowing, except in the most obvious cases," said Russell Roberts, an economist at Washington University in St. Louis. "But it's a handy thing to invoke as a cause, even when it may have nothing to do with the results."
No doubt the attacks cut a wide swath through the economy. They created anxiety among consumers, threw a curve at corporate spending plans and kept potential shoppers at home to watch the latest news developments.
Although the attacks jolted the nation's business climate, skeptics point out that the economy was sliding well before Sept. 11. And in many cases, companies citing the attacks were having troubles anyway.
Take the Planet Hollywood International Inc. restaurant chain. The company cited a slowdown in tourism last month when it sought protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. The trip to Bankruptcy Court was the company's second in two years and followed lengthy financial problems.
Likewise, Bethlehem Steel Corp. cited Sept. 11 as one of many reasons for its Chapter 11 filing in October. In a media release, the company said the attacks "contributed to a further weakening in demand for consumer products that rely on steel, such as automobiles, appliances and new homes, and to a worsening outlook for our near-term performance."
Since 1998, the last full year Bethlehem posted a profit, the company has piled up $1.8 billion in losses, largely because of competition from inexpensive steel imports and the slowing economy.
"This is becoming the excuse du jour," said Richard Wynne, a bankruptcy lawyer with Kirkland & Ellis in Los Angeles who is not involved in the case of Planet Hollywood or Bethlehem Steel.
The Financial Accounting Standards Board, which oversees corporate accounting standards, touched off a controversy in September when it said companies couldn't designate losses tied to the attacks as "extraordinary items" in their earnings announcements. Critics said that has encouraged companies to lump together a wide-ranging list of previous troubles, all the while suggesting that Sept. 11 contributed to their woes.
Expert says companies stretch the truth
Clouding the issue is that virtually every company can make an argument that the attacks had some effect.
"There's no doubt Sept. 11 had some impact, but to try and lay primary blame on it is a stretch in many cases. Companies could list a lot of other things too," Harvard Business School professor David Hawkins said.
Still, not everyone is blaming Sept. 11.
Software maker Electronic Data Systems Corp. expressed optimism in an earnings report, saying that the events showed why its products are needed in emergencies. Campbell Soup Co. released a statement saying that while people were glued to TV sets watching the news after the attacks, "the company experienced a significant increase in consumer purchases of U.S. soup and sauces."
Campbell, like nearly every other company citing an impact from Sept. 11, didn't offer specifics, underscoring that many of the claims at this point have to be taken on faith.
"It all becomes very anecdotal. It's extremely hard to know the impact for any individual company except for industries like financial services, the airlines or the travel business," said Grady Means, a managing partner with accounting and consulting giant PricewaterhouseCoopers.
Skeptics also said that companies deal with unusual events all the time, from blizzards to work stoppages, that don't get nearly the same attention as Sept. 11. Entertainment companies, for example, routinely have their box-office results skewed by weather or television events such as the Olympics.
That hasn't stopped a potpourri of businesses from at least trying to make a case that they were in some way hurt by the terrorist attacks.
Palm Inc., the maker of Palm Pilots and other hand-held devices whose sales have ebbed as the economy and technology sector dipped, cited the attacks, as did clothing company Eddie Bauer Inc. and drugstore chain operator CVS Corp. Brown-Forman Corp. said "the Sept. 11 attacks have had a dramatic impact" on orders for its Lenox china and Hartmann luggage, less so for its spirits, such as Jack Daniels.
MGM said it lost a few million dollars at the box office when middle-aged moviegoers chose to stay home instead of seeing the Bruce Willis comedy "Bandits" during its opening weekend last month. But a rival movie, Warner Bros.' "Training Day," did fine.
MGM executives said youthful moviegoers, a target audience for "Training Day," were less affected by the tragic events.
Trendy footwear designers Steven Madden Ltd. and Kenneth Cole Productions Inc. said they were hurt. Martha Stewart Living Omnimedia Inc., the umbrella company for the lifestyle maven, announced favorable earnings, but said it suffered a setback when news coverage preempted its TV shows.
Restaurants, pubs say they're hurting
Jack in the Box Inc. and California Pizza Kitchen said they saw fewer diners at their restaurants after the attacks. Sept. 11 was even cited as a principal reason for the failure of the proposed sale of the historic Raymond Theater in Pasadena.
Even Scottish pubs weighed in. Paul Waterson, spokesman for the Scottish Licence Trade Assn., at a convention of publicans bemoaned that business was down as much as 40% at some pubs.
"We know that Americans will not want to travel at this time, and even in this country, people are feeling down," Waterson told the Glasgow Herald. "They don't seem to be going out to the pub."