Anything goes Featured

6:29am EDT January 30, 2003

Century Business Services Inc.
It’s been a year of unification and separation for Independence-based Century Business Services. CBIZ offers mainly tax and accounting services to small and mid-sized businesses, but also offers business insurance, HR service, litigation advisory services, government relations, business valuation and other services.

CBIZ came to offer all these services through mass acquisition of smaller companies all over the country and integrating them into the company. It continues to acquire, but CEO Steven Gerard’s main task for the last two years has been integration ... until ... remember an accounting firm called Andersen?

Andersen’s federal indictment and that of Enron sent shockwaves through the accounting industry. Turns out an accounting firm’s auditing services should not mix with its advisory services, as conflict of interest is an inherent problem.

New federal accounting regulations were passed and Andersen’s competitors stressed that their auditing services would not commingle with consulting services as they eagerly snapped up former Andersen clients.

CBIZ followed suit by forming an independent valuation division, CBIZ Valuation Group, and held a conference with U.S. Rep. Michael Oxley (R-OH), chairman of the House Committee on Financial Services, to talk about changes to the industry.

The fallout is by no means over. Next year and in the years to come, more scandals will be unearthed, and more regulations will be passed. It will be up to the survivors, including CBIZ, to restore the accounting profession to its former perch.


Christian & Timbers

The basic tenets of supply and demand don’t always work out for some industries.

Take, for example, the high-end corporate recruiting market of Christian & Timbers. According to the firm’s research, there was a 177 percent increase in the number of resumes received in September 2002 over September 2001. The Labor Department said first-time jobless claims rose by 83,000 to a seasonally adjusted 441,000 for the week ended Dec. 7, a six-month high.

With those figures, you’d think the executive search firm would have more work than it knows what to do with, but the problem lies in the demand.

In fact, Christian & Timbers, which has 14 offices in nine states, Canada and the United Kingdom, has added to the rolls of those looking for jobs after cutting close to a third of its own staff.

Unfortunately for co-CEO Jeff Christian, both the recruiting firm and his other business, C&T Access Ventures, a venture capital fund, are subject to the fickle economy. The VC firm specialized in high-growth technologies like broadband, wireless technologies, another area hit hard by the downturn.

Even though the company has been hit by ongoing economic problems, a turnaround and the inevitable employee drought that often follow a recession promise to revive the business if it can hold on.


Cleveland Cliffs
The last two years have been tough on most businesses, but brutal on manufacturers and suppliers. And Cleveland Cliffs, the company that supplies nearly all of North America’s integrated steel producers with iron ore pellets — the chief raw material in steel production — was no exception.
 
What Cliffs has in its favor is an extensive history in Cleveland and a huge capacity for production. But the shutdown of LTV, accounting changes and idled plants had Cleveland Cliffs reporting a third quarter net loss of $104 million, or $10.32 a share. In fiscal 2002, the company is recording its first operating loss since 1986 — not surprising when five of the 38 active blast furnaces in North America supplied by Cliffs shut down in 2002.

Even before the shutdowns, Cliffs was in the midst of a corporatewide cost reduction plan that includes the possible shutdown of its plant in Trinidad and the combining of mines in Michigan.

The company has also been forced to buy out its partners in its iron ore mines in Michigan in an attempt to help them continue to be viable customers.

There is some good news. The steel market is not dead yet, and the company announced the terms of a 15-year agreement in which Cliffs is the sole supplier of pellets for International Steel Group.

Pellet sales over 15 years could total more than 70 million tons and $2 billion in revenue. Cliffs also made a $13 million investment, representing 7 percent of ISG’s equity. The sales contract with ISG increased pellet sales about 13 million tons.

John Brinzo, Cliffs’ chairman and CEO, predicted that pellet sales will be in the 15 million ton range, and that projected sales revenue will allow the company to operate at capacity for 2004.

However, pension costs are eating away at profits, and if the steel industry experiences too many shakeups, Cliffs will have to cut jobs and close facilities.


GE Lighting
No one said that succeeding Jack Welch would be easy.

Perhaps feeling the pressure, new General Electric CEO Jeffrey Immelt in August combined the lighting and appliances divisions into a single GE Consumer Products division with headquarters in Louisville, Ky.

The move effectively ended a 101-year history of GE Lighting’s headquarters in Cleveland. GE reported that there would be continue to be a major employee presence at GE Lighting’s bucolic Nela Park office complex, but the sense in the city was that another corporate headquarters had left town.

What does this mean for GE Lighting, now dubbed “an operation of GE Consumer Products”? Not much, according to the parent company, but a spokesman told the Associated Press there “would be an (employment) impact over time.”

Some industry analysts believe the merger’s goal was to make the division more attractive to possible buyers, something the company wouldn’t comment on.

In a press release, Immelt said the division merger was to “create a simpler, more efficient business that will be competitive across all product lines.” He also indicated in the release that appliances and lighting divisions were not performing as well separately as the other GE divisions. Together, the divisions generate $8 billion in revenue.

It will be worth watching this year what happens to the new GE Consumer Products division and its lighting office. There are no doubt many competitors who would like to rid the GE name out of its market.


Invacare
Wheelchair maker Invacare went to battle with The Plain Dealer last year over a September article that criticized the company’s recall procedures for battery-operated wheelchairs with defective wiring. The article, on the front page of the Sunday business section, alleged that Invacare did not begin a recall on 215,000 of the defective chairs until years after a flaw was found, and only after reports started to surface that the chair had burned and even killed its owners.

Invacare, which up until that point had a squeaky-clean public image, responded with an all-out media blitz, positioning itself as both sympathetic to the victims while attacking the article as inaccurate to flat-out wrong.

“Invacare responded appropriately and aggressively to correct problems that came to our attention,” Invacare CEO Malachi Mixon said in a press release. “There have been no serious injuries or deaths reported over the last three years; moreover, there are no pending lawsuits related to fires involving Invacare power wheelchairs.”

The article alleges Invacare knew about problems as early as August 1993, nearly seven years before the recall launched in April 2000.

Invacare&#

x2019;s stock did not suffer as a result of the article, despite the publicity it garnered, and as of press time, the company was on pace to surpass $1 billion in sales in 2002, according to its latest estimates.

Invacare seems to have survived this PR crisis well, but it will be interesting to see how forthcoming it will be with future recall notices, especially with the press and the SEC.


Keithley Instruments
The glory days are over for Solon-based Keithley Instruments Inc.

The maker of sophisticated electronic measurement equipment posted losses for all four quarters of its fiscal year. It closed with a 35 percent drop in sales, to $96.9 million, and a $3.1 million earnings loss from the previous fiscal year.

Likewise, the company’s stock, which traded as high as $107 a share in July 2000, slumped to as low as $8 in November last year before rebounding into the mid-$12 range by the middle of December.

But the ever-optimistic CEO Joseph Keithley said that there are a number of steps underway to return the company to the heights of 2000. “We are looking forward to receiving the benefits during 2003 from the investments we have made during this past year and will continue to make throughout 2003,” Keithley said in the company’s fiscal year-end report.

Included in those steps were several new product introductions last year, and launches of offices in Tokyo and Osaka, Japan.

This month, Keithley will switch from an outsourced sales force to one made up of his own employees. “With application experts who focus 100 percent of their time on our product solutions, (that) enhances our ability to build long-term, collaborative relationships with our customers,” Keithley said.

Also this year and next, Keithley said he will launch new customer relationship management and enterprise resource planning (systems to streamline operations. The investments will cost the company $1.5 million to $2 million, but Keithley believes it will pay off.


Quark Biotech Inc.
If technology transfer and the biotech industry are the saviors of Cleveland’s lagging economy, Quark Biotech Inc. (QBI) is our local wunderkind.

QBI, founded in 1994, is a Cleveland-headquartered, privately-held genomic-based drug discovery company with research facilities in Chicago and Israel.

The company, whose board of directors includes Oracle founder Larry Ellison, has a multiyear research agreement with the Cleveland Clinic, 300 employees globally, a series of drugs in preclinical and clinical trials and a strategic initial public offering planned for 2003.

In 2002, QBI established a partnership with a Japanese pharmaceutical company and acquired Incyte Genomics Microarray Co. to help it with cutting-edge research on cancer, cardiovascular disease and diabetes, among other ailments.

If the whole thing sound too good to be true, recently Boaz Loar, president of QBI’s U.S. operations, publicly complained about the difficulty of attracting Ph.D. level job candidates to the area. Citing the fact that the Plain Dealer doesn’t even have a biotech section in its classifieds, Loar has suggested that key drug discovery testing could be moved to Israel if the drought of talent persists.

And all of this despite the $1.5 million Technology Action Fund grant Ohio awarded the company and the $1.9 million from the city of Cleveland, proving that if Northeast Ohio is really serious about attracting biotech, we will have to more than offer relatively small monetary incentives.

Who knows? The glory days may one day return to Keithley Instruments.


Quark Biotech Inc.
If technology transfer and the biotech industry are the saviors of Cleveland’s lagging economy, Quark Biotech Inc. (QBI) is our local wunderkind.

QBI, founded in 1994, is a Cleveland-headquartered, privately-held genomic-based drug discovery company with research facilities in Chicago and Israel.

The company, whose board of directors includes Oracle founder Larry Ellison, has a multiyear research agreement with the Cleveland Clinic, 300 employees globally, a series of drugs in preclinical and clinical trials and a strategic initial public offering planned for 2003.

In 2002, QBI established a partnership with a Japanese pharmaceutical company and acquired Incyte Genomics Microarray Co. to help it with cutting-edge research on cancer, cardiovascular disease and diabetes, among other ailments.

If the whole thing sound too good to be true, recently Boaz Loar, president of QBI’s U.S. operations, publicly complained about the difficulty of attracting Ph.D. level job candidates to the area. Citing the fact that the Plain Dealer doesn’t even have a biotech section in its classifieds, Loar has suggested that key drug discovery testing could be moved to Israel if the drought of talent persists.

And all of this despite the $1.5 million Technology Action Fund grant Ohio awarded the company and the $1.9 million from the city of Cleveland, proving that if Northeast Ohio is really serious about attracting biotech, we will have to more than offer relatively small monetary incentives.