The Texas economy is one of the most robust in the world. Wildly profitable companies and ingenious entrepreneurs call this state home, and what happens here influences businesses around the nation. Here’s a slice of the profits, losses, big deals, and backroom decisions happening across
Quake Up Call
Natural gas drilling may have contributed to nearly seventy minor earthquakes in the Barnett Shale region in northwestern Texas from 2009 to 2011, according to a University of Texas study released Monday. That number is eight times as many as the National Earthquake Information Center had officially reported, but many of the quakes had magnitudes of less than 3.0 and went unnoticed by residents in the area, the New York Times reports.
All of the earthquakes occurred within two miles of high-volume wastewater disposal sites where more than 150,000 barrels of fluids were injected each month as part of the hydraulic fracturing (fracking) process. However, the Times notes, “not all injection wells with such high volumes of output had quake epicenters recorded nearby.”
The Bottom Line: The study stopped short of pinpointing why the earthquakes “occur some places and not others,” and researchers say there is a need to investigate whether there is “a threshold for the rate of injection that we can set which would reduce the frequency of earthquakes.”
Fine the Friendly Skies
The financial tailspin at American Airlines continues. This week the Federal Aviation Administration announced it will seek $162.4 million in fines from the beleaguered carrier—the largest penalty ever levied against an airline—for “alleged violations of U.S. safety standards going back several years,” according to a Wall Street Journal report. The sanctions stem from issues with American’s aircraft maintenance program, including fines for allegedly failing to repair wiring, landing gear, and engines according to federal regulations. The airline said it intends to negotiate for lower penalties.
The previous record for FAA sanctions, also held by American, was a $24.2 million fine “for alleged improper repairs of wiring” around the landing gear of some planes in 2010, Businessweek reports.
The Bottom Line: American’s parent company AMR has been fighting to stay aloft since filing for bankruptcy in November. The company, which has lost more than $10 billion since 2001, is mired in labor disputes with pilots, flight attendants and ground workers. The president of the pilots union resigned this week after union members voted to reject an offer from the airline’s management that he supported, according to Businessweek.
Shares in Dallas-based Brinker International—the owner of the Chili’s and Maggiano's casual dining chains— reached a five-year high this week, Businessweek reports. Its net income for the 2012 fiscal year was also up from last year, increasing to $151.2 million, or $1.87 per share, from $141.1 million.
The company, which is also a part-owner of Romano's Macaroni Grill, credits “higher prices and an increased number of customers” for the boom.
The Bottom Line: Brinker forecasts that it will earn $2.30 to $2.45 per share in 2013, which would be higher than analysts’ projection of $2.28.
Winners of the Week: Merging CEOs
A new University of Houston study out this week finds that executives who oversee their companies during mergers earn about five percent more than their counterparts at similar firms. The researchers also found evidence that “mergers and acquisitions financed with stock resulted in greater gains for the CEOs than deals done with cash.”
Houston Chronicle business columnist Loren Steffy writes that the report offers insight into the motivations of large banks in the years leading up to the 2008 recession. He points to former Citigroup Chairman Sandy Weill as an example of an executive who “raised the practice of profiting from acquisitions to an art form,” strategically scooping up more than 100 companies and accumulating hundreds of millions of dollars in compensation in the last few decades.
Loser of the Week: J.C. Penney (Again)
On the heels of a financially devastating spring , J.C. Penney delivered even more bad news this week, announcing a $147 million net loss in its second quarter. That compares to a profit of $14 million just a year ago, according to the Dallas Business Journal. The retailer posted an even bigger loss in the first quarter, to the tune of $163 million.
The company’s attempt to “transition from a highly promotional business model to one based on everyday value” has yet to resonate with customers: Sales this quarter declined nearly 22 percent at stores that have been open at least a year.