There is no way to look back...

There is no way to look back on 2001 except through the prism of Sept. 11. The events that day rocked every corner of the economy, and in many cases the tremors haven’t stopped.

But by Sept. 11, the economy was already in a recession, and the Federal Reserve had cut interest rates seven times in an effort to boost spending (for a total of 11 cuts by year’s end). California was grappling with its dysfunctional energy situation, and the technology sector was still contracting.

The year began with the formation of the world’s biggest media company, AOL Time Warner Inc., and ended with the stunning announcement that the architect of the deal, Chief Executive Gerald Levin, was retiring.

Globalization lived up to its name with the long-awaited acceptance of the most populous nation--China--into the World Trade Organization, further opening up one of the world’s most lucrative markets.

In 2001, a number of Southland companies made some of the year’s biggest acquisitions.

Thousand Oaks-based Amgen Inc. announced plans to buy rival Immunex Inc. for $16 billion in one of the largest biotechnology deals ever.

And Los Angeles-based Northrop Grumman Corp. is on the verge of becoming the world’s largest military shipbuilder once its acquisition of Newport News Shipbuilding Inc. is complete. In April, Northrop bought cross-town competitor Litton Industries Inc. for $3.8 billion.

But the mantle of biggest corporate newsmaker of 2001 belongs to Enron Corp. Even in light of the Sept. 11 events, the once-highflying energy company’s collapse was dramatic--it lost about $60 billion in stock market value in a year and became the largest bankruptcy in history.

Enron’s fall also became a potent symbol for the growing movement among investors seeking greater accuracy in financial reporting. The company’s denouement followed the disclosure that certain results were flawed, and that put the spotlight on the independent auditors who approved the reports.

As a result, the push for greater transparency in U.S. corporate financial reporting is expected to be a key issue in 2002; the SEC is poised to start suing companies that mislead investors with “pro forma� accounting.

But before we jump to 2002, here’s a look back at the year that was.

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AIRLINES

Unprecedented

Turbulence

The airline industry is turbulent in the best of times, but nothing prepared the carriers for the nightmare of Sept. 11. Not only were four jetliners used in the terrorist attacks, but the horror also sparked chaos and change for the airlines, their employees, passengers and everyone else involved in air travel worldwide.

Immediately after the attacks, the U.S. commercial airline system was shut down for two days--an unprecedented event. Then came a slow, ragged reopening of the nation’s airports and a resumption of flights, but the public’s desire to fly had instantly evaporated.

The airlines, already reeling from the economy’s downturn, were quickly pushed to the brink. Fears of bankruptcies prompted the industry to plead for a federal bailout. Congress and the Bush administration complied with a $15-billion package, including $5 billion of direct cash payments.

The airlines wasted no time scaling back their operations. Nearly all of the major companies slashed their schedules by about 20%, which meant laying off a combined 100,000 workers and grounding hundreds of aircraft.

Fare sales helped lure travelers in the final months of 2001, but passenger traffic remains about 20% below pre-Sept. 11 levels.

And those who are flying are paying another price: long lines at airport ticket counters and security checkpoints because of new security measures.

Some airlines also had to grapple with conventional problems. United’s 15,000 mechanics called for a strike this month to protest their contract negotiations, but President Bush--citing the potential harm to an already fragile travel system--blocked the walkout by creating an emergency board to review the dispute.

There are hopeful signs. The airlines are benefiting from declining jet-fuel prices. Some carriers are starting to add back flights. Analysts see a few airlines turning profitable again in mid-2002. But that will be only after the industry has posted a stunning 2001 loss that’s expected to reach $6 billion or more.

Many foreign airlines are faring poorly as demand for their U.S. service stays weak. But they, too, remain hopeful of a recovery next year. “We are still optimistic,� said Ng Chin Hwee, head of Singapore Airlines’ Americas unit. “It’s only a question of when.�

James F. Peltz

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AUTOS

Sales Rose,

but at a Price

It was a year of dramatic overhaul in Detroit. New teams of executives were installed to run the North American businesses of General Motors Corp. and Ford Motor Co., and Ford has a new chief executive.

The year was marked by the implosion of Jacques Nasser’s reign at the helm of Ford. Seen as the strongest manager in town a mere 18 months ago, Nasser was plagued by crisis after crisis on his watch--some of it his doing, much of it not.

The Firestone tire recall fiasco continued to take its toll, as did quality glitches that dogged the all-new 2002 Explorer and the new Thunderbird. Slips in quality and productivity ranking, dwindling market share and huge lawsuit costs caused Ford to lose money in both the second and third quarters, and no doubt the fourth, and Nasser was booted in October, replaced by William Clay Ford, Jr., great-grandson of Henry.

In contrast, GM came through the year with flying colors, if not a huge profit. GM halted its slide in market share, regained leadership in the overall U.S. truck market and took the lead in showing how the auto industry can nudge the economy away from a free-fall--at least temporarily--through its interest-free financing on new cars after the terrorist attacks.

The tactic was followed by Ford and Chrysler as well as some import brands and helped bring 2001 sales to the second-highest annual level--although at great expense to the auto makers.

Industry executives worry, however, that sales have been stolen from next year’s first quarter.

Toyota, Honda and Nissan have aggressive plans for new vehicles in the U.S. market, and South Korea’s Hyundai is looking for a location to build or buy a factory to produce cars here.

Lexus and BMW are going like gangbusters in the luxury segment, and sport-utility vehicles and pickup trucks continue to gain in popularity.

Terril Yue Jones

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TECHNOLOGY

Deals Made,

And Flayed

The technology trial of the century reached a climax in the new millennium, but Microsoft Corp. and government antitrust enforcers are far from a final resolution of the 3-year-old case.

A federal appeals court ruled in June that the world’s largest software maker engaged in illegal conduct to protect its monopoly on Windows, the software that runs more than 90% of personal computers, and Microsoft agreed to a controversial settlement with federal antitrust enforcers in November. It prevents Microsoft from dictating to PC makers what features can be loaded and requires the company to disclose more information about how Windows works with other software.

But nine of the 18 states that joined the suit worry that the settlement is too lenient, and they proposed tougher measures. Prospects for a final resolution in 2002 are bleak.

While Microsoft’s critics were trying to trim the company back, Hewlett-Packard Co. tried to bulk up with a $25-billion offer in September for Compaq Computer Corp. The combination was immediately panned by Wall Street--which shaved billions of dollars off the value of the deal--and later by the family foundations of HP’s two founders, whose opposition has put the deal in jeopardy.

HP Chief Executive Carly Fiorina, who has lost some credibility with investors for missing profit forecasts and pushing a short-lived plan to buy consulting firm PricewaterhouseCoopers, is fighting to save the blockbuster deal--and her own job.

The telecommunications industry’s woes worsened in 2001, with stock prices hitting new lows and equipment firms such as Lucent Technologies Inc. and Nortel Networks Corp. selling off units and laying off employees to bring expenses in line with falling revenue.

The circle of doom also reined in service providers such as NorthPoint Communications and Rhythms Netconnections Inc., sending dozens of small firms into bankruptcy and millions of customers scrambling for new Internet connections.

The most spectacular collapse was Excite@Home, which left 4.1 million customers stranded this month.

Karen Kaplan

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ENTERTAINMENT

Movies Provided

the Great Escape

Strong attendance and slightly higher ticket prices in 2001 helped catapult receipts at movie box offices in North America to record heights--to more than $8 billion.

Early concerns that moviegoers would stay home after Sept. 11 were unfounded. With the exception of two weekends, including Thanksgiving, every weekend since the terrorist attacks has performed better than the comparable period last year.

Warner Bros. Pictures was expected to set an individual studio domestic box-office record with $1.26 billion in 2001; the studio’s “Harry Potter and the Sorcerer’s Stone,� released in November, became the year’s highest-grossing film in the final week of the year, hauling in more than $267.7 million.

For Walt Disney Co., though, 2001 was mostly a year the company would just as soon forget.

The year saw a lackluster opening for Disney’s new Anaheim theme park, California Adventure, a slide in ratings at its ABC television network and a continued decline in the company’s stock price, which has dropped about 25% this year. Reeling from a slowdown in the economy and a bleak advertising market, Disney cut 4,000 jobs.

The Sept. 11 fallout hit Disney much harder than other media and entertainment companies because of its heavy dependence on advertising and tourism. The travel slowdown has been especially severe at Walt Disney World in Orlando, Fla., where attendance is down 25% from a year ago.

On a positive note, after a disappointment with the animated film “Atlantis,� Disney got big lift with “Monsters Inc.,� jointly produced with Pixar Animation Studios.

And Disney continued to expand internationally, opening a second theme park in Japan while expanding its investments in China.

Meg James, Richard Verrier

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MEDIA

Big Players

Got Bigger

A slowdown in advertising hung over the industry, and most major companies laid off workers and slashed budgets. The September attacks only added to the pain, as advertisers pulled back further and news organizations incurred huge costs in covering the crisis.

Deregulation and consolidation also continued to reshape the landscape, with the dominant handful of media conglomerates rounding out their assets through acquisitions. Taking advantage of new rules allowing single companies to own two TV stations in a market, News Corp. bought Chris-Craft Industries, becoming the nation’s biggest station owner and the broadcaster with the most of these “duopolies.� Similarly, NBC agreed to buy Telemundo, becoming the only broadcaster with both an English and a Spanish-language network, with two stations in many of the major markets.

Cable channels continued to sell for record prices in 2001 as media companies sought the dual streams of advertising and subscription revenues and added outlets for their TV shows and movies. Walt Disney Co. paid $5.1 billion for Fox Family Worldwide, hoping to use the renamed ABC Family channel to rerun programs from its ABC TV network. Vivendi Universal stepped back into the television business, agreeing to pay $11.7 billion to USA Networks Inc. for the USA, Sci-Fi and Trio channels--and for the services of media mogul Barry Diller, who agreed to be chief executive of the company’s new entertainment group. Vivendi also bought a stake in satellite TV operator EchoStar Communications Corp.

In one of the biggest business upsets of the year, News Corp. was edged out by EchoStar in a bidding war for Hughes Electronics Corp., the parent of DirecTV. Investors drove down shares of Hughes, fearful that regulators will not allow the nation’s only two satellite companies to merge. But EchoStar and DirecTV argue that their merger would create a bona fide competitor to cable.

The week before Christmas, AT&T; Corp. gave in to shareholder pressure and agreed to sell its cable business, the nation’s largest, to Comcast Corp. in a deal valued at $72 billion. Although AT&T;’s stock declined by two-thirds under his leadership, AT&T; Chairman C. Michael Armstrong salvaged his image by becoming chairman of the proposed new cable company, AT&T; Comcast Corp., which will reach one in five of the nation’s households.

Sallie Hofmeister

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MUSIC

More Misses

Than Hits

With U.S. album sales declining in 2001 for the first time in at least a decade and retailers flailing, major record companies suffered from a “perfect storm� of online piracy, skyrocketing costs and scant hits.

The industry began the year notching a win against Napster Inc., the Internet file-swapping service that many music label executives viewed as a source of massive piracy that undercut CD sales. But numerous other similar online services have since sprouted up, and few label executives are optimistic about the prospects of the paid online subscription services being launched by their companies.

Record companies are likely to release fewer albums next year in hopes of focusing their resources on marketing each one. The music conglomerates may also sell or consolidate their manufacturing operations. The labels will continue cutting employees and artists to maintain profits as the $40-billion global music industry copes with a market that, at best, is expected to remain flat in 2002.

With teen pop losing some steam and alternative rock showing only modest growth, label chiefs will need more than a few aging superstars to boost sales. And given music fans’ fickle buying habits, the labels are entering an environment in which nothing is certain.

Jeff Leeds

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WORKPLACE

Payback Time

for Employees

Legal battles in the workplace led to significant developments on a number of fronts, including victories for salaried workers owed overtime pay.

Farmers Insurance was hit with a $90-million judgment for denying 2,400 of its claims adjusters overtime pay for years.

The damage award, which is being appealed, sent shock waves across a swath of industries that are facing similar suits. Pacific Bell agreed to pay a record $35-million out-of-court settlement to about 1,500 engineers employed in California. PacBell admitted no wrongdoing.

And Microsoft Corp. settled an 8-year-old class-action lawsuit by agreeing to pay $97 million to up to 12,000 temporary employees who said they were treated as full-time workers but were not paid as such.

A Seattle pharmacy manager won the nation’s first federal court order that employers must include female contraceptives in health insurance coverage, giving a boost to similar suits around the country.

The suspicions of a Nebraska railroad workers’ wife prompted the government to file its first suit against an employer for genetic testing. Burlington Northern & Sante Fe Railway Co. had subjected employee blood samples to genetic tests in the course of injury investigations--without informing workers. The railroad stopped the practice, but the controversy reignited calls for a federal ban on genetic testing in the workplace.

Record jury verdicts and the highest number of asbestos injury claims since 1989 prompted five major companies to file for bankruptcy protection. The increase was blamed largely on claims from people who allege they were exposed to asbestos but who are not sick, renewing calls for curbs on such suits.

A state appellate court ruled that California employers can be held strictly liable under state law for workplace sexual harassment by bosses--even if firms took steps to correct the behavior or were unaware of it.

Lisa Girion