P2JW361000-4-B00100-1--------XA CMYK Composite CL,CN,CX,DL,DM,DX,EE,EU,FL,HO,KC,MW,NC,NE,NY,PH,PN,RM,SA,SC,SL,SW,TU,WB,WE BG,BM,BP,CC,CH,CK,CP,CT,DN,DR,FW,HL,HW,KS,LA,LG,LK,MI,ML,NM,PA,PI,PV,TD,TS,UT,WO CORPORATE WATCH B3 | WEATHER B5 A Top Delaware Judge Blasts Fee in Talbots Case Hollywood Studios Get A $78 Million Holiday CORPORATE LAW B2 MOVIES B3 © 2013 Dow Jones & Company. All Rights Reserved. THE WALL STREET JOURNAL. **** Friday, December 27, 2013 | B1 Behind UPS’s Christmas Eve Snafu At Checkout Holiday retail sales 2013 estimate $602.1 BILLION $600 billion In the earliest hours of Dec. 24, packages poured into United Parcel Service Inc.’s main air hub in Louisville, Ky. And they were piling up. By Laura Stevens, Serena Ng and Shelly Banjo 450 300 150 0 2000 '10 Note: Data are for November and December each year Source: National Retail Federation The Wall Street Journal Employees responsible for sorting packages—already deep into a 100-hour week—were furiously getting them ready to be sent on to their destinations at airports around the country. But dozens of other workers responsible for loading those packages into planes to be shipped out were left standing around idle, because the unexpected glut of packages from last-minute shop- pers had swamped the company’s air fleet. The dearth of planes stranded a large volume of packages in Louisville in the early hours of Tuesday morning. Many of those that did make it out were shipped too late to make delivery trucks’ pickup schedules and were left sitting in warehouses not far from their destinations. By sundown, UPS was forced to tell many Americans that the gifts they had ordered wouldn’t arrive before Christmas as promised. The bottleneck was largely in UPS’s air business, which retailers leaned on heavily in the past week as they scrambled to fill down-to-the-wire orders. UPS has a bigger share of retail e- commerce business than FedEx Corp., but its smaller fleet of cargo planes might have been a limiting factor, people in the industry said. UPS said it had added 23 extra chartered aircraft to its year-round operating fleet of more than 237 planes and regular 293 daily charters. FedEx owned 581 and leased 66 as of May 31. UPS originally expected to ship about 7.75 million packages in its air network Monday, with about 3.5 million of those sorted at Worldport, as the Louisville hub is known. The facility handles on average 1.6 million packages a day. It isn’t yet known how many packages arrived at Worldport during the last minute crush, but on Christmas Eve UPS said the volume of air packages in its system had exceeded its capacity. It is still too early to know what went wrong, UPS said, adding that the company is analyzing the situation. Some shoppers also complained of delays with shipments handled by FedEx. A spokeswoman said FedEx “experienced no major service disruptions during this holiday season, and we experienced no major service disruptions in the week before Christmas, despite heavy volume.” She said FedEx is working with customers “to address any isolated incidents.” UPS carefully plans how it will handle the holiday peak. Extra resources such as additional cargo planes had been lined up Whatever Happened to...? The ill-fated Carnival cruise ship? The Heinz takeover? The horse meat in IKEA meatballs? Journal reporters check back on the big stories of 2013 that fell out of the headlines Carnival Cleans Up After Problem Cruise A Horse Is a Horse— But Not in IKEA Meatballs Apparently, the horse-meat kerfuffle did little to curb customers’ appetites for IKEA Corp.’s meatballs. Clockwise from top: Carnival ‘s Triumph towed to shore; the soon-to-be-available ‘bionic eye’; Al Jazeera America suffered low ratings. “We now sell more meatballs than we did before,” says IKEA spokeswoman Ylva Magnusson, referring to the scandal earlier in the year in which horse meat was found in several manufac- turers’ products, including IKEA’s famous dish. Samples showed that three batches of meat heading for the flat-pack furniture retailer’s restaurants contained horse. The potential impact was huge— food sales account for 5% of the €27 billion ($37 billion) annual revenue IKEA pulls in, and it sells about 150 million meatballs across the world in a year. IKEA pulled potentially-affected meatballs from shelves and store cafeterias in February in several countries. Wiener sausages were also tainted, and Please turn to page B4 Getty Images makers of Fin, Mistic and 21st Century Smoke, have launched inaugural TV ads in recent months, part of a strategy to separate themselves from a pack of more than 200 rival brands pitching “vaping’’ across the Internet, radio, magazines and billboards. E-cigarette companies already spent more than $15 million on TV ads in the first nine months of 2013, up from $1.1 million in the year-earlier period, according to Kantar Media. The ads have aired on cable networks including ESPN, Comedy Channel and Spike TV and local affiliates of broadcast networks; NJOY reached about 10 million viewers during this year’s Super Bowl. Next year’s numbers could be further inflated by the two largest U.S. tobacco companies, which are wading into e-cigarettes. Marlboro cigarette giant Altria Group Inc., which recently launched its MarkTen ecigarette in Indiana and Arizona, hasn’t ruled out ecigarette TV ads next year. Camel maker Reynolds American Inc. recently aired TV ads in Colorado for its Vuse e-cigarette, a brand it plans to take national next year. There is growing scientific consensus that e-cigarettes are less harmful than traditional Electronic cigarettes turn nicotine-laced liquid into vapor, representing an alternative to conventional cigarettes. cigarettes, which release thousands of toxins through combustion. But critics say e-cigarette ads re-glamorize cigarettes and could trigger a new generation of smokers. Regulators already restrict advertisements for traditional cigarettes to magazines, direct mailings and store displays. Attorneys general from 40 states urged the FDA in September to rein in e-cigarette marketing, arguing TV is “making it easier for those advertisements to reach children.’’ House Democrats on the Committee on Energy and Commerce also sent a letter to the FDA in November, complaining e-cigarette ads mimic those of traditional smokes from half a century ago, including celebrity endorsements. “How much do we have to close our eyes to history?’’ said Matthew Myers, president of Campaign for Tobacco-Free Kids, an antismoking group urging tough e-cigarette regulations. The FDA won’t comment on Please turn to page B4 P2JW361000-4-B00100-1--------XA Composite The electronic-cigarette industry has big television advertising plans for 2014—if they’re not snuffed out first. The Food and Drug Administration is expected as early as January to propose curbs on the battery-powered devices amid calls from politicians and anti-tobacco groups to regulate them like traditional smokes, which haven’t been allowed in TV commercials since 1971. Rather than retreat, e-cigarette makers are unleashing a flurry of new TV ads to reach as many consumers as quickly as possible and cement their brands nationally. E-cigarettes turn nicotinelaced liquid into vapor, representing a small but fast-growing alternative to conventional cigarettes. Lorillard Inc. launched two new TV ads for top-selling blu this month and plans to spend more on marketing next year than in 2013, when it spent about $30 million. No. 2 player NJOY Inc. began airing a new TV ad for its eponymous e-cigarette Thursday and is budgeting more than $30 million for U.S. marketing in 2014, triple this year’s outlay. Both say TV will command the lion’s share. Smaller rivals, including the Track complete coverage and analysis of the holiday season’s retail sales, at WSJ.com/Business. The Tiny Change Shaking Boards When Verizon Communications Inc. agreed this month to a step that should give shareholders more influence over its board, the company said it was “committed to best practices in governance.” But there could be another reason for the directors’ goodwill: fear of losing their jobs. A little-noticed change in the way an influential shareholder adviser makes its up-or-down recommendations on director elections may have some companies like Verizon rethinking their responses to investor proposals. The tweak could also give activist funds a boost heading into the busy annual-meeting season. The tweak focuses on the difference between shares that are outstanding and shares that are voted. Starting in 2014, Institutional Shareholder Services Inc. is changing its guidelines to recommend ousting directors who don’t implement a shareholder Holy Smokes: E-Cigarette Ads Hit TV Airwaves BY MIKE ESTERL Online>> BY LIZ HOFFMAN (Top) Associated Press; (bottom left) Agence France-Presse/Getty Images; (bottom right) Zuma Press The Carnival Triumph, once nicknamed the “poop cruise,” is again plying the seas. But whether Carnival Corp. can recover from the public-relations debacle remains to be seen. An engine-room fire aboard the Triumph in February left more than 3,000 passengers adrift in the Gulf of Mexico without power or functioning lavatories. The incident drew blanket cable-news coverage, with passengers complaining about overflowing toilets and nasty smells. To correct course, Carnival Cruise Lines said it would invest $300 million to upgrade fire suppression systems and add emergency generator power across its fleet. It also launched a program in September that promised to refund passengers 110% of their fares if they were dissatisfied within the first day of their trips. Micky Arison, son of Carnival’s founder, stepped down as chief executive in June, though he retained his chairmanship. He was replaced by Arnold Donald, an outside director. The company announced a wider shake-up of its management team in November. The namesake brand has recovered 70% in opinion surveys, Carnival says. —Arian Campo-Flores as “hot spares”—company lingo for aircraft that could be fired up quickly in case of a logistics emergency. But it ran into a confluence of factors. Retailers have been encouraging online sales, which have grown much faster than retail sales overall. And retailers likely contributed to the logjam by offering some of their best discounts late in the season in a final push for sales. Many chains dropped prices on the final Saturday before Christmas to levels below what they were ofPlease turn to the next page At least two dozen of the largest 1,000 public U.S. companies could be affected by the ISS change. proposal that got a majority of the votes cast at the 2013 meeting. Previously, ISS recommended “no” votes on directors only if the proposal received a majority of all the shares outstanding—a more forgiving standard for directors because many shares go uncast. In Verizon’s case, the measure—which would let longtime stockholders nominate directors—got support from just 33% of the shares outstanding last May but 52% of the shares that were actually voted. A Verizon spokesman declined to comment. The ISS change has drawn the wrath of some company advisers. Law firm Wachtell, Lipton, Rosen & Katz, noted for its defense of corporate boards, called the policy “grossly unfair” when it was first proposed last year. “This is potentially a real issue where directors are being held accountable by ISS to a vocal minority of the total shareholder base,” said Steven Haas, a Hunton & Williams LLP lawyer who advises companies on governance issues. Many large pension and mutual funds follow ISS’s recommendations on director elections, giving the proxy adviser influence over the outcomes. Patrick McGurn, ISS’s special counsel, said ISS was responding to investor clients who “wanted to see a higher bar” set for boards. He added that the policy doesn’t mean an automatic censure for directors and that ISS will consider the specifics of each situation before making its voting recommendations. At least two dozen of the largest 1,000 public U.S. companies will potentially be affected by the ISS change in the coming Please turn to the next page MAGENTA BLACK CYAN YELLOW