xfdce NIGHTLY-BUSINESS-REPO-00

Show: NIGHTLY BUSINESS REPORT>

Date: February 4, 2004>

Time: 18:30:00>

Tran: 020400cb.118>

Type: SHOW>

Head: Nightly Business Report>

Sect: Business>

Byline: Susie Gharib, Jeff Yastine>

Guest: Ronald Sugar, Kevin McCormally>

Spec: Business; Economy>

Time: 00:00:00>

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: A damaging day for the defense in the case of the government versus Martha Stewart (MSO). The prosecution`s star witness tells all about Stewart`s sale of ImClone (IMCL) stock.JEFF YASTINE, NIGHTLY BUSINESS REPORT ANCHOR: He was the big winner in yesterday`s Democratic presidential primaries, but does Senator John Kerry have what it takes to defeat George Bush in November? A look at Kerry`s chances coming up.

GHARIB: Buick has been called a dying brand, but General Motors (GM) says it won`t go quietly into the night. We`ll look at the new breed of Buick being launched at the Chicago Auto Show.

YASTINE: Then, teenagers love to spend money, but we`ll tell you how your child could be building wealth. That as our “Tax Tips” series continues.

GHARIB: I`m Susie Gharib.

YASTINE: And I`m Jeff Yastine. Paul Kangas is off tonight. This is NIGHTLY BUSINESS REPORT for Wednesday, February 4.

GHARIB: Good evening, everyone.

A setback today for Martha Stewart. The government`s star witness testified that the homemaking mogul authorized the sale of all her shares of ImClone stock based on an inside tip from her Merrill Lynch (MER) broker. Today`s testimony was central to the government case against Stewart and also revealed details of an alleged hasty cover-up.

Suzanne Pratt reports.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The most damaging evidence so far against Martha Stewart and her former broker, Peter Bacanovic, came out today in the second day of testimony by the government`s key witness. Former Merrill Lynch assistant Douglas Faneuil said he illegally passed on a secret stock tip to Stewart just before she sold her shares of ImClone. Faneuil described a conversation he had with Stewart in late 2001 when she asked him what was going on with Sam Waksal and ImClone. Faneuil said, “I told her that Sam was trying to sell.” Later in the call, Faneuil said he gave Stewart a quote on ImClone and she then ordered him to sell her ImClone shares at the market price.

NEIL GETNICK, ATTORNEY, GETNICK & GETNICK: Faneuil`s testimony is crucial. He is the lynchpin of the prosecution`s case. In effect, this is a “he said, she said” case and Faneuil is the he. He is the case.

PRATT: Prosecutors charge that Stewart and Bacanovic lied to investigators to hide questionable details about the ImClone sale. Faneuil went on to detail how Bacanovic, in the weeks following the ImClone sale, pressured him to support two separate explanations for the trade. First, Bacanovic told him it was for tax-loss selling, then changed his story and said he spoke with Stewart and “everyone is on the same page.” It was a $60 stop- loss order. During cross examination of Faneuil which began this afternoon, Faneuil admitted that Bacanovic never directly ordered him to lie about Stewart`s sale of her ImClone stock. The judge also allowed the defense to question Faneuil about his use of drugs. Experts say delving into Faneuil`s involvement with drugs is just one tactic the defense will use in an effort to impeach him.

ROBERT GORDON, FORMER PROSECUTOR, WEITZ & LUXENBERG: They will try to find anything that could discredit him in terms of any of his personal habits or anything he`s ever done in his life to try to make this jury think that he`s not truthful.

PRATT: The remaining big question in all of this is whether Martha Stewart will take the stand. Experts say in celebrity trials, in particular, the jury is anxious to hear the celebrity tell her side of the story.

Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.

YASTINE: Now that John Kerry has pulled away from the Democratic pack, securing his front-runner status, the senator`s record is sure to get more attention. But what will the markets make of the front-runner`s economic message?

Darren Gersh reports.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: On the stump, Kerry`s talk is populist; a Massachusetts liberal, conservatives would say. But centrist Democrats believe voters who look closer will find a Clinton- moderate.

WILL MARSHALL, PRES., PROGRESSIVE POLICY INSTITUTE: They are going to learn he is pro-growth, that he is pro-fiscal discipline, that he wants to maintain tax cuts for the middle class.

GERSH: In other words, Kerry`s economic message is “back to the `90s,” when fiscal discipline helped fuel strong growth. As the former chairman of the Senate Committee on Small Business, Kerry has also shown a special concern for manufacturing.

MARSHALL: He has been a strong proponent of the new economy, of investments in innovation, the idea that innovation is now what is really going to fuel robust growth rates, and help generate the high paying jobs.

GERSH: So far, markets have paid little attention to specific Kerry policies, says conservative political analyst Stuart Sweet, but that could change. Sweet helped organize the 1996 Republican convention. He expects Kerry to bounce ahead of Bush in the polls after the Democratic convention in Boston.

STUART SWEET, PRES., CAPITOL ANALYSIS NETWORK: After Boston is when the stock market will pay attention to politics and there will be certain sectors in the stock market which will be especially sensitive to the rising fortunes of John Kerry, assuming he`s the nominee.

GERSH: While markets still consider Bush a strong favorite to keep his job, Sweet says a Kerry surge would likely hurt defense and health care stocks while helping mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), traditional favorites of Democrats. Overall, Sweet calls Kerry a centrist to left-of-center Democrat.

SWEET: He has not been at the forefront of many of the large fiscal fights. He`s made more of a mark on foreign policy in the Senate than he has on spending issues.

GERSH: Even if Kerry maintains his lead and takes the White House, Republicans are expected to keep control of Congress, that could mean a return to legislative gridlock, which was a good outcome for investors through most of the `90s.

Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.

YASTINE: Well, the Dow appeared gridlocked itself today, although tech stocks were swept lower. Cisco Systems` (CSCO) cautious optimism about technology spending provided a nice excuse for some profit-taking. The Dow held to nearly breakeven levels all morning, but the NASDAQ opened about 25 points lower. It wasn`t just the Cisco-related networking stocks going down, but software and semiconductor shares as well. In afternoon trading, the Dow managed to break into the green, helped in part by buying in IBM (IBM) and 3M (MMM) shares. But in the last hour, the NASDAQ broke through the morning lows and kept heading south, dragging the Dow back into the red. The Dow went on to close with a loss of 34 1/2 points at 10,470.74. The NASDAQ slid more than 52 points to 2014.14. And the S&P 500 finished down 9 1/2 points. Bond prices weakened, with two reports suggesting a strengthening U.S. economy. The Institute for Supply Management`s services index registered its highest reading since 1997. And U.S. factory orders in December were nearly 1 percentage point higher than expected. So the 10- year note fell 6/32 to 101 1/32, and that puts the yield at 4.12 percent.

GHARIB: The takeover tussle for PeopleSoft (PSFT) continues. Oracle (ORCL) has upped its hostile bid for PeopleSoft to $9.4 billion. That`s about $2 billion more than its previous offer. Oracle calls this its final price. The higher offer is the second time that Oracle has sweetened its bid for the rival software firm since launching its original offer last June. PeopleSoft says its board of directors will consider the offer. It has previously rebuffed Oracle, saying it undervalued the company.

YASTINE: Profits for U.S. defense contractor Northrop Grumman (NOC) came in flat for the quarter, but its sales rose by more than 40 percent. Earnings from continuing operations came in a penny better than analysts` expectations, at $1.11 per share, compared to $1.73 in the year-ago period. The drop in per-share earnings was due to an increase in Northrop`s shares outstanding when it acquired TRW (TRW) last year, and higher pension costs. But its net income remained the same at $224 million. I spoke with Northrop chairman and CEO Ronald Sugar earlier today and began by asking him about the company`s fourth-quarter performance.

RONALD SUGAR, CEO, NORTHROP GRUMMAN: I think we had an outstanding fourth quarter and a really powerful 2003. We delivered real solid earnings, great cash flow, and a significant increase in revenues. And the most important thing is that we did all of this while we were integrating TRW, paying off an awful lot of debt, and helping to sell the automotive piece of TRW which we acquired.

YASTINE: You logged significant sales growth for the quarter, what parts of Northrop Grumman`s many businesses did the best in terms of logging those sales, the growth centers for the company?

SUGAR: Well, we had strong performance as a result of the organic growth of our existing Northrop Grumman businesses. Ships did extremely well, for example. We also had significant benefit from the new TRW sectors in space and our missions systems sector.

YASTINE: Now the quarterly results were held somewhat back by the pension costs, about $145 million. Is that going to be something that Northrop Grumman is having to catch up on? I know that`s something that obviously a lot of corporations are having to deal with, with pension deficits. Although it`s somewhat surprising given the gains in the stock market over the past year. Where is this coming from, this particular charge?

SUGAR: Well, Northrop Grumman accounts for pensions a little differently than other companies, we basically mark to market every year, so the results for `03 were based upon a set of pension assumptions that were laid out at the beginning of the year. Now going forward as we look to next year, the results of the market`s performance in `03 will have a significant benefit for us in our earnings `04.

YASTINE: Now you talked about integrating the TRW side of the company. Do you feel like the company is pretty much past that, or is there still more work to go in terms of bringing them into the company in a significant way?

SUGAR: I couldn`t be more pleased with the way the integration and the stand-up of the TRW business has progressed over the last year. We`re essentially done. There`s obviously some back office issues that will be finished up over time. But all the management, financial reporting, operating, signage, all the things that are associated with integration, are behind us now.

YASTINE: Now what`s your thought as far as going forward here? What do you tell shareholders in terms of where you see the growth in the company`s many businesses?

SUGAR: Well, we`re projecting revenues of $28 billion for `04. And we`re looking at earnings per share of significant growth, a double-digit growth, and then some, over this year, up to the range of $5.60 to $5.90 a share. We`re seeing significant opportunities in areas like missile defense, unmanned aerial systems, space, and even ship building.

YASTINE: Well, that`s one thing I wanted to bring up regarding the new budget proposals. And as you were bringing up some of these: $1 1/2 billion has been requested by the Pentagon for the new DDX class of Navy ships, which you guys build or partly build; $1.2 billion for missile defense spending; and $1 1/2 billion for future combat systems, which you also have a piece of. Explain a little bit about how the company expects to benefit from those, presuming they`re approved in pretty much the way they`ve been proposed here by the Pentagon.

SUGAR: Well, certainly the DDX program is the future for the Navy in terms of its surface combatants. These will replace the existing class of Arleigh Burke destroyers and guided missile cruisers over time. We are the prime contractor, so we have the majority of activity there. With respect to some of the other programs, a future combat system, we have nearly a half a billion dollars of initial work on the future combat system, as a partner with Boeing (BA) and SAIC Corporation. We see that being a significant growth area as well. And as I mentioned, unmanned air systems, some significant increases in space systems, which we planned over the `05 and `06, will help us.

YASTINE: All right. So overall, it sounds like you`re pretty optimistic given the outlook for defense spending.

SUGAR: Yes, I think the most important thing to recognize is that the world is not getting safer, and over the next several years, certainly in the period of up to `09, at least, which is the visibility we have, we`re seeing something on the order of 6 percent compound annual growth in the defense budget, reflecting quite frankly the threat that`s there. Northrop Grumman`s position in the programs that we`re involved in is absolutely essential to this, and so we believe the future is going to be very strong for the company.

YASTINE: Al right. We`ll end it there. Mr. Sugar, thank you very much.

SUGAR: You bet.

YASTINE: Our guest, Ron Sugar, chairman and CEO of Northrop Grumman.

GHARIB: Pixar (PIXR) found big profits in the fourth quarter, thanks to “Finding Nemo.” The animation studio earned $1.44 a share, that`s $0.17 better than Wall Street estimates. That surge in earnings was tied directly to the DVD release of “Finding Nemo,” the biggest-selling DVD ever. Last week Pixar surprised investors, saying it would drop Disney (DIS) as its distribution partner. And that announcement came after years of collaborating on a string of hit movies, Jeff, like “Finding Nemo, “Toy Story” and “Monsters Incorporated (sic).”

YASTINE: Well, Pixar shares were up fractionally in after-hours trading, but fell $0.66 in regular trading session to about $63.54. Now, let`s take a look at our other “Stocks in the News” tonight.

And topping our list, as it almost always does, NorTel Networks (NT) down $0.49 in the wake of Cisco`s quarterly results and conservative outlook. Most tech stocks were down today.

Lucent Technologies (LU) losing $0.29.

Pfizer (PFE) ended up $0.56.

EMC (EMC) down $0.39.

And Sprint PCS (PCS) up $0.43. Management confirming plans to outsource most of its customer service functions to IBM (IBM). It`s also putting up $5 billion to upgrade its networks and computers, especially dealing with phone number portability issues.

GE (GE) falling a fraction.

Ford (F) rising $0.17, reporting U.S. auto sales yesterday falling 5 percent.

AT&T Wireless (AWE) advancing a nickel.

Time Warner (TWX) dropping $0.07.

And Hewlett-Packard (HPQ) losing $0.72. HP announced plans to acquire Novadigm (NVDM), which is a New Jersey-based software firm for $6.10 a share.

And shares in GreenPoint Financial (GPT) bolting up over $4. The savings and loan based in New York is thinking about putting itself up for sale. And analysts think that HSBC (HBC) or Wachovia (WB) might be a possible buyer for the company.

Fisher Scientific (FSH) jumping $4. The company posting stronger-than- expected fourth-quarter sales and earnings, and predicted 2004 profits would come in at the high end of forecasts.

Pentair (PNR) soaring nearly 5, fourth-quarter operating earnings coming in at $0.69. And that was $0.03 above analyst estimates.

Also shares of Linens `n Things (LIN) fluffed up, rising nearly $3. The holiday season a good one for the retailer, profits coming in at a $1.02 a share, that was a penny above estimates.

In the minus column, General Mills (GIS) falling $0.74. The SEC is investigating here with the company`s sales practices. Analysts think the SEC wants to see if its – the company is stuffing the channel, shipping goods to retailers ahead schedule to meet quarterly sales targets. The company says it has complied with all rules and regulations.

Harrah`s (HET) tumbling nearly 4. The hotel and casino operator posting disappointing fourth-quarter earnings that were $0.03 below Wall Street projections.

And R.G. Barry (RGB) plunged $1.40. The footwear maker may be on the brink of default after management acknowledged it has not been able to find or renegotiate credit terms with lenders to get more funding it needs for next month.

Over on the NASDAQ, mostly lower ones here, Cisco (CSCO) tumbling over $2 after its earnings release yesterday. CEO John Chambers` remarks dousing hopes for a strong recovery in the tech sector.

Intel (INTC) dropping $1.34.

Microsoft (MSFT) falling $0.28.

D.E. – or Dell (DELL), rather, down $1.31.

Amazon (AMZN) finding support, though, rising $0.45.

PeopleSoft (PSFT) advanced $0.81. As you heard, Oracle (ORCL) has sweetened its buyout bid for PeopleSoft by $6 1/2 to $26 a share.

SanDisk (SNDK) rising nearly a dollar.

Amgen (AMGN) down about $0.87.

SINA (SINA) falling $2 1/4. It signaled first-quarter revenues will not be as impressive as in the past, and down went the stock.

Applied Materials (AMAT) losing $0.30.

CIENA (CIEN) off $1.30. Shares fell after the company issued a warning on its sales forecast.

WebEx Communications (WEBX) jumping more than 4. The company said net profits for 2003 and in the fourth quarter more than tripled.

Superconductor Technologies (SCON) falling 1 1/2. Investors are spooked by the company`s warning that revenues from its government business will decline throughout the year. Although it hopes commercial accounts will offset that starting in the second quarter.

And finally, Rainbow Rentals (RBOW) getting its pot of gold thanks to a buyout from Rent-A-Center (RCII), shareholders will get $16 each for their shares.

And those are our “Stocks in the News” tonight, Susie?

GHARIB: Thanks, Jeff.

General Motors wants to give Buick a Cadillac-style makeover. The automaker is rolling out several new models and wants to spiff up Buick`s image. But as Diane Eastabrook reports, making the 100-year-old brand hip again could be difficult.

DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: GM unveiled the new Buick Lacrosse today at the Chicago Auto Show, calling it the first volley in a product renaissance.

GARY COWGER, PRESIDENT, GM NORTH AMERICA: It`s a transformation that will eventually be every bit as dramatic as what has taken place at Cadillac today.

EASTABROOK: GM thinks the type of make-over that revived sluggish sales at Cadillac can be successfully repeated at Buick. This fall, its first minivan, the Terraza, will arrive at showrooms with the new Lacrosse sedan. GM is updating Buick`s image by offering more products that will hopefully appeal to a broader audience.

C.J. FRALEIGH, GENERAL MANAGER, BUICK MOTOR DIVISION: When you look inside here…

EASTABROOK: C.J. Fraleigh is leading the drive to spiff up Buick. The 40- year-old marketing whiz spent 12 years at Pepsi (PEP) before joining GM a few years ago.

FRALEIGH: I think one of the key ingredients is really understanding what drives the consumer, and as I said, in this category it tends to be product. And then we`re going to marry that with marketing that helps tell a better story of what great products we have.

EASTABROOK: Buick was one of the original cornerstones of General Motors and was a trendsetter. It offered the first eight cylinder engine and first hard top convertible. Buick sales peaked in 1984 at a million vehicles, but they`ve been declining ever since. The division sold roughly 300,000 vehicles last year. While Buick cars still win accolades for quality, the average buyer is about 60. The division wants to attract younger buyers with hipper styles, just as Cadillac has done. But analysts think the transformation at Buick will be much harder than it was at Cadillac.

CHRISTOPHER STRUVE, AUTO ANALYST, FITCH RATINGS: It tends to be easier to revitalize a luxury brand because, frankly, you can add content and you can do things that your customers will pay for. Buick is a little bit – is kind of a mid-market brand. It`s not quite clear what it stands for in many people`s minds today.

EASTABROOK: GM dismisses speculation that Buick could be phased out like Oldsmobile. The company says it is going to invest $3 billion in the division over the next few years and is committed to growing the brand.

Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.

YASTINE: Tomorrow, it`s the nation`s largest seller of new and used vehicles. We talk earnings with AutoNation (AN) chairman and CEO, Michael Jackson.

GHARIB: More wrangling today in the trial of former Tyco (TYC) executives Dennis Kozlowski and Mark Swartz. Defense attorneys asked the judge to throw out all charges against the two men, saying that prosecutors failed to prove their case. This comes after four months of testimony and a day after the prosecution rested its case. No decision yet on that dismissal request. Meanwhile, the defense is scheduled to begin presenting its case next week.

YASTINE: Massachusetts securities regulators have charged Franklin Resources (BEN) with fraud. They claim the parent of Franklin Templeton Investments allowed a big money investor to market-time the company`s mutual funds in exchange for a $10 million investment in a Franklin hedge fund. Franklin says the actions were unauthorized and rejected by management and that it is committed to working with Massachusetts regulators to resolve the situation.

GHARIB: Here`s a look now at what`s happening tomorrow: weekly jobless claims come out. Also tomorrow: earnings from Allstate (ALL); AutoNation, as we mentioned; Electronic Data Systems (EDS); PepsiCo; and Watson Pharmaceuticals (WPI).

Well, when it comes to tax-free savings, it`s never too early to start. Tonight, we take a look at building your child`s future through IRA contributions, as our “Tax Tips” series continues. Here`s Kevin McCormally, editorial director of “Kiplinger`s Personal Finance.”

KEVIN MCCORMALLY, EDITORIAL DIR., “KIPLINGER`S PERSONAL FINANCE”: There`s a lot of talk about the national debt this week, but don`t let that make you feel the least bit guilty about taking advantage of every tax break you can. Tonight, in fact, I want to encourage you to start teaching your children about tax shelters. As soon as a child has earnings from a job, from baby sitting, say, or working behind the counter at a retailer, he or she should have an individual retirement account. And, although your son or daughter must have a job to have an IRA, there`s no rule that his or her own money has to go into the account.

That`s where mom and dad, or maybe the grandparents, come in. You can provide the cash or maybe match your child`s contributions dollar-for- dollar. The IRA limit for 2003 is $3000, but if that`s too rich for your blood, how about $1000, the amount the child credit saves qualifying parents. Or $750, which is what you save by claiming the child as your dependent, if you`re in the 25 percent bracket.

Imagine this: $1000 goes into an IRA from the time your daughter is 16 until she graduates from college at 22. Assuming no additional deposits, that original $7000 will grow to $265,000 by the time your daughter is 65, assuming an 8 percent return. And if it earns 10 percent, the IRA will hold $625,000.

Even if inflation averages 3 percent a year, that will still have the buying power of close to $150,000 of today`s dollars. And in a Roth IRA, every dime will be tax-free. Now some financial institutions will tell you that a minor can`t have an IRA, but that`s wrong. If they have earnings from a job, they can take advantage of this tax shelter.

I`m Kevin McCormally.

YASTINE: If you would like to ask your tax question to Kevin McCormally, you can do it on our Web site, which is NBR.com.

And recapping today`s market action: a tech sell-off on Wall Street, the Dow losing 34 points, the NASDAQ dropping 52 points or 2 1/2 percent. And that`s NIGHTLY BUSINESS REPORT for Wednesday, February 4. I`m Jeff Yastine. Good night, everyone.

Good night to you, Susie.

GHARIB: And good night to you, Jeff.

I`m Susie Gharib. Hope to see all of you again tomorrow night.

END

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