xfdce NIGHTLY-BUSINESS-REPO-00
Show: NIGHTLY BUSINESS REPORT>
Date: November 24, 2003>
Time: 18:30:00>
Tran: 112400cb.118>
Type: SHOW>
Head: Nightly Business Report>
Sect: Business>
Byline: Paul Kangas, Susie Gharib>
Guest: William Parrett, Daniel Mitchell>
Spec: Business; Economy>
Time: 00:00:00>
PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: A bombshell at Boeing (BA). The company`s chief financial officer is fired for what the defense contractor says was unethical conduct. And the CFO isn`t the only one headed out the door.SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: A rally on Wall Street today. Investors bought up stock on new hopes of a strengthening economy. The Dow climbs 119 points and the NASDAQ gains 53.
KANGAS: It`s a war of words in the U.S. Senate over the new Medicare legislation. The bitter battle is going down to the wire despite the virtual certainty of the measure`s passage.
GHARIB: Also tonight, now you can take it with you, your cellular phone number, that is. New portability rules go into effect in the nation`s largest cities. We`ll tell you how investors can ring up profits in the deal.
KANGAS: I`m Paul Kangas.
GHARIB: And I`m Susie Gharib.
This is NIGHTLY BUSINESS REPORT for Monday, November 24.
Good evening, everyone.
A shocking announcement today from Boeing. It fired its Chief Financial Officer for unethical conduct. The company says an internal investigation showed that Michael Sears violated Boeing policy by communicating with a then senior air force procurement official about hiring her in the future. That official, Darleen Druyun, was eventually employed by Boeing and was also fired today. Sears was considered a key candidate for the chairman`s job on Phil Condit`s retirement.
In a statement, Condit and Boeing said, “Compelling evidence of this misconduct by Mr. Sears and Ms. Druyun came to light over the last two weeks.”
The company also says it doesn`t know what actions the government might take against the pair or Boeing itself.
And another surprise in the executive suite, this time from Delta Airlines (DAL). Chairman and CEO Leo Mullin is retiring. The news comes in the middle of a crucial set of negotiations with the carrier`s pilots union. Delta says Mullin`s decision to leave is personal and he leaves with conflicting emotions. Analysts say Delta will face tough challenges ahead.
RAY NEIDL, AIRLINE ANALYST, BLAYLOCK & PARTNERS: Their unit cost structure is probably a penny and a half higher than anybody else in the industry. And you can`t survive long-term with that high of a unit cost structure. So Delta has to be very aggressive in cutting costs and the big thing that has to be reduced is the outsized pilot contract that exists right now.
GHARIB: Taking over from Mullin, former General Motors (GM) head Jack Smith becomes Chairman. Former Burlington Northern (BNI) Chairman Gerald Grinstein becomes Chief Executive Officer.
KANGAS: Wall Street opened with a brisk rally prompted by stronger foreign stock markets, a rebound in the dollar and bargain buying after a two week downturn.
By midmorning, the Dow was sporting a 115 point gain and the NASDAQ Index was up 34 points.
The early rally lifted several averages above resistance levels, so computer driven buying helped the market maintain its gains. Continuing strength in the dollar amid growing confidence the U.S. economy is making a solid comeback kept stocks higher for the rest of the day.
The Dow Jones industrial average closed up 119 1/4 points, or 1.2 percent, at 9,747.79.
The NASDAQ Composite gained 53 1/4 points, or 2.8 percent, ending at 1,947.14.
The Standard & Poor`s 500 Index rose 16.80 points, or 1.6 percent. It now stands at 1.052.08.
Over in the bond market, the 10-year note fell 18/32, to par and 5/32, pushing the yield up to 4.23 percent.
A nail biter in the U.S. Senate today over a Medicare bill that would provide a prescription drug benefit. It was approved by the House over the weekend. This afternoon, the Senate voted 71-29 to cut off debate and vote on the bill, virtually guaranteeing final passage.
But as Stephanie Woods reports, the political battle still isn`t over.
STEPHANIE WOODS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Without the votes to block the bill, Democrats staged a parliamentary last ditch effort to send it back to be renegotiated.
SEN. TOM DASCHLE (D-SD), MINORITY LEADER: This is our last, last chance to do something to control the exploding costs that are absolutely guaranteed to occur for seniors and for the government unless we do something else.
WOODS: But Democrats lost that battle as Republicans called their bluff.
SEN. RICK SANTORUM (R), PENNSYLVANIA: In this case it truly is a gimmick, because we are within what was contemplated when we passed the budget back earlier this year for Medicare next year.
WOODS: Beginning in 2006, the Medicare bill would provide seniors the option of a prescription drug plan. The bill also gives $12 billion in subsides to private insurers that offer basic health insurance to Medicare recipients. And it allows $86 billion in direct payments and tax breaks for employers who keep retiree health care coverage.
Republican leaders were quick to play up the program`s benefits.
SEN. BILL FRIST (R-TN), MAJORITY LEADER: While the system is being set up, a prescription drug card will be available within a few months which will give immediate benefits to as many as 40 million seniors.
WOODS: Just six miles down the road, at the Columbia Senior Center, the Medicare debate hits close to home. Wayola Harris figures she spends $80 a month on medications. She`s eager for some relief soon.
WAYOLA HARRIS, MEDICARE RECIPIENT: Even if it wasn`t perfect, it would be something. It would be a start, a way that we can get things — we can work on it and come back to the table and bring it back to the table and do it again.
WOODS: Analysts say the bill gives a short-term boost to drug companies, HMOs and pharmacy benefit managers. But over the long-term, analysts say Medicare could end up with price controls over drugs.
ANDY LAPERRIERE, POLITICAL ANALYST, ISI: If you look at the very dire solvency problems for Medicare, I think you`d have to say down the road, this is probably going to end up being something the drug companies will regret.
WOODS: President Bush has scheduled two events for tomorrow to talk about Medicare. Clearly, he`s eager to set up a signing ceremony for the bill, one of his top domestic priorities.
Stephanie Woods, NIGHTLY BUSINESS REPORT, Washington.
GHARIB: Starting today, you can change your cell phone company and take your phone number with you. Under new government rules, Americans now have what`s called phone number portability, giving them more freedom in choosing their service provider.
Suzanne Pratt takes a look at what companies are likely to benefit.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: For America`s 150 million cell phone users, today has been touted as cell phone independence day. That`s because from now on, new government rules allow consumers and businesses to take their current cell numbers with them to a new carrier. Millions of consumers are expected to switch companies. And analysts agree most mobile customers will be big beneficiaries of this new flexibility because it will likely lead to improved pricing, better service and new technology.
RICHARD NESPOLA, CHAIRMAN, TMNG: It`s analogous back to when the long distance industry became competitive a little over 20 years ago. Introducing choice into the competitive mix is a winning proposition for both consumers and businesses and the American economy in general.
PRATT: Beyond that, experts say, cellular providers that offer the best quality airtime will be the biggest winners. Many see Verizon Wireless and Nextel (NXTL) as standouts, Nextel for its strong business clientele and walkie-talkie service, and Verizon because of its reputation for superior service.
TOM WATTS, WIRELESS COMM. ANALYST, S.G. COWEN: They have the reputation of the best network, the best coverage. Every survey they come out on top. And so we think that if people are going to be switching, the number one reason people switch is getting better coverage. And so that switch is probably to Verizon.
PRATT: Some of the big handset makers also stand to benefit from portability. That`s because the majority of customers who opt to switch will have to buy a new cell phone, as different carriers use different technologies to deliver their service. Nokia (NOK), Motorola (MOT) and Samsung sell the most cell phones in the U.S.
RICK BLACK, TELECOM ANALYST, BLAYLOCK PARTNERS: The more you switch, because you can`t use the same phone from the same carrier because of frequency as well as technology, it`s going to induce greater sales. So there is going to be a modest boost in sales for these companies. The problem is it`s already priced into the stocks.
PRATT: As of today, consumers can also transfer their home phone numbers to cell phones. For that reason, experts say some land line companies could be among the biggest losers in this new era of portability.
Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
GHARIB: The game of musical chairs for the ownership of Warner Music is over tonight and billionaire investor Edgar Bronfman, Jr. is the last man sitting. Bronfman and his private equity partners will pay more than $2.5 billion in cash to Time Warner (TWX) for the Warner Music Group, which is home to artists such as Madonna and the Red Hot Chili Peppers. The deal creates one of the world`s largest independent music and music publishing companies, with labels like Atlantic and Electra. This is Bronfman`s second foray into the music industry. He used to own Universal Music, sold it to Vivendi (V) three years ago, then tried unsuccessfully to buy it back. Bronfman will now take the top spot at the new company. And, Paul, it`ll keep the Warner Music name.
KANGAS: Well, as you might expect, Susie, the deal put Time Warner`s stock among the most active on today`s hit parade on the big board. And we`ll see it as we take a look at our stocks in the news tonight.
The most active big board issue on 24.8 million shares, Nokia (NOK), down $0.10, although it did trade as high as $18.20 in the morning after the company reaffirmed its previous fourth quarter earnings guidance and also said 2004 sales should rise by at least 10 percent.
Lucent Technologies (LU) gained a $0.01.
AT&T Wireless Group (AWE) a $0.31 rise.
Merck (MRK) down $0.14.
But Pfizer (PFE) moved up $0.71, fifth in big board volume.
G.E. (GE) a $0.19 gainer.
And there you see it, Time Warner (TWX) moving up $0.32.
ExxonMobil (XOM) gained $0.22.
Sprint PCS Group (PCS) up $0.26.
NorTel Networks (NT) rose $0.24, tenth in volume.
Citigroup (C) up $0.44 on the close. It traded as high as $47.04. A.G. Edwards Brokerage upgraded it from “hold” to a “buy.”
Boston Scientific (BSX) up $1.79. A district court denied Cordis` motion for an injunction against Boston Scientific`s Taxis drug eluding stent. But it also denied Boston Scientific`s motion for an injunction against Cordis` Cypher drug eluding stent. So they`ll both be able to market them in the U.S. Meanwhile, Bear Stearns repeated an “outperform” on Boston Scientific`s stock.
But J&J (JAJ), Johnson & Johnson, which owns Cordis, moved up $0.60 itself, to close at $51.48.
UniSource Energy (UNS) the big gainer of the day percentage wise, a $5.09 move. Saguaro Utility Group, a limited partnership, will acquire this company for $3 billion. That works out to $25.25 a share.
ArvinMeritor (ARM) up $0.72 on news the company is terminating its $18 a share cash buyout bid for Dana Corp. (DCN), whose board rejected that offer.
Dana itself moved up $0.23, to $15.23.
Delta Air Lines (DAL) up $0.82. As you heard, Leo Mullin stepping down as Chairman and CEO.
And then the home builders. Pulte (PHM) rising $4.53. Wachovia Securities upgraded it from “market perform” to “outperform” and that helped the whole group move higher.
Look at these gains in the home builders.
Centex (CTX) up nearly $4.50.
A similar gain in Hovnanian Enterprises (HOV).
Lennar (LEN) up $3.66.
And Ryland Group (RYL) gained $4.22.
Brink`s Company (BCO) gained $1.44. Positive comments in this week`s “Barron`s” financial magazine, which quotes a hedge fund manager who thinks the stock will go to $30 to $35 a share within the next 12 to 18 months.
Supervalu Incorporated (SVU) rising $1.44. Goldman Sachs upgraded it from “in line” to “outperform.”
And Baxter International (BAX), a big drug company, up $0.35. “Barron`s” financial this week notes the stock has lost over 50 percent since early 2002 and it may be a bargain at this level, especially in light of its new hemophilia drug.
Fairchild Semiconductor (FCS) rising $1.83. Lehman Brothers upgraded the stock from “equal weight” to “over weight,” also boosted its price target by $7 a share up to $27 a share. And most of the other semiconductor stocks got a boost from all of that news.
Microsoft (MSFT) topped the active list on NASDAQ, moving up $0.62.
Intel (INTC), in that strong semiconductor group, doing well, up $1.14.
Amgen (AMGN) gained $0.22.
But Lincare Holdings (LNCR) down another $3.73. It dropped $6.12 Friday on the threat of cuts in Medicare reimbursements for home oxygen operators like this one.
Cisco Systems (CSCO) gained $0.63, number five in dollar volume on NASDAQ.
InterActive Corp. (IACI) a $0.54 rise.
eBay (EBAY) had a good day, up $2.69.
and Dell Incorporated (DELL) up $0.62. The company said because of many complaints about thick accents and scripted responses, the firm has stopped using a technical support center in India for corporate customers. And I stress corporate customers.
Applied Materials (AMAT) up $0.83.
Yahoo! (YHOO) gained $2.30, tenth in volume on NASDAQ.
Antigenics Incorporated (AGEN) rising $2.02. The FDA has lifted a partial halt of clinical trials for the company`s anti-cancer vaccine called Oncophage.
And Adobe (ADBE) had a good day, rising $2.04 on news that UBS Financial Brokerage upgraded the stock from “neutral” to “buy.”
And those are the stocks in the news tonight.
Susie?
GHARIB: Thanks, Paul.
Reuters (RTRSY) is reporting tonight that New York`s attorney general and the Securities and Exchange Commission are expected to bring criminal and civil charges against a large retirement plan services company tomorrow. The charges against Security Trust Company are part of a continuing investigation into abusive trading in the mutual fund shares.
As controversy swirls around that industry, the accounting industry has mostly recovered from its own scandals. To get a sense of how the big four accounting firms are faring, I talked today with Deloitte Chief Executive William Parrett and asked him how Deloitte has changed.
WILLIAM PARRETT, GLOBAL CEO, DELOITTE: We have established the position of chief ethics officer. We`ve established the position of chief ethics officer globally, as well. We`ve increased the training of our people. We`ve increased the awareness of our people through communications. We`ve increased the tone of the top, from myself and other senior partners in the firm, as to the importance of these issues.
We have focused our consultative services primarily on the clients that we do not audit, the companies we do not audit, and we`ve focused our audit services on those companies that really just engage us from an audit standpoint. It`s not to suggest that we don`t do consulting services for audit clients. We do on occasion. But we only do those that are, in fact, permitted by the Securities Exchange Commission and also by the federal government.
GHARIB: Mr. Parrett, how has the accounting profession changed?
PARRETT: Some of the firms have separated parts of their business. The number of young people coming into the organization has increased, actually, because of the attention that`s being paid to the industry, and that`s good.
But on the other side, the number of experienced people, quite a number of people are leaving the profession because of all of the adverse publicity and so on. So that`s something that`s concerning us long-term.
In terms of where we`re going from here going forward, we as a firm are really dedicating a lot more time and effort to the training of our people, to the development of our people. We`re trying to build more sophisticated tools to deal with some of the challenges of the past and we`re trying to be more transparent around the types of disclosures that we have about our firm and about the financial statements themselves.
GHARIB: The one thing that really hasn`t changed are the accounting principles themselves. They`re still very complicated and, you know, one could make the case that the more complicated they are, the easier it is for crooks to abuse them.
How do you feel about that?
PARRETT: Well, I think we, as a profession, really do have to look at the accounting principals and the accounting standards from a number of different vantage points. I think we have to move to more principal based rules, where more judgment can be brought into play, where we don`t actually have such a prescriptive approach, where people can really think more about what the right answer is.
And then second of all, we have to harmonize global standards, because having a number of different standards around the world really creates an opportunity for arbitrage between the standards. And I think we`d be much better off by having a single global standard.
GHARIB: Do you think that the accounting profession has restored its credibility with the public or is there still more work to be done?
PARRETT: I think we`ve made some progress, but there`s a lot more work to be done. We have a good profession. We have 120,000 people around the world working in our firm. These are good people, people that are your neighbors and my neighbors and people that are really dedicated to doing a good job. But at the same time, we have a lot more work to be done before we can really say we`ve restored the confidence in our firm and our profession.
GHARIB: As you know, the mutual fund scandal has been the latest disappoint for investors. What do you think that that industry is going to have to do to win back investor confidence?
PARRETT: I think the mutual fund industry is going to have to recommit themselves trust and recommit themselves to doing the right thing. They`re going to have to take a look at the rules that they, in fact, follow. There`s probably some changes that they have to make. They`ll have to be more transparent with their individual investors and make sure that they don`t make another mistake because the investing public will not be tolerant of another mistake. And I think they`re up to it.
GHARIB: On a completely different subject, today a survey of economists came out saying they see strong economic growth through next year, job growth, strong consumer spending. Now, I know that Deloitte has some of the biggest customers around the world. What is the feedback that you`re getting from your clients on their outlook for the economy?
PARRETT: In the United States, they`re very, very positive. In fact, four out of five CEOs and coos that we surveyed are very positive about the economy in 2004. They`re seeing that their costs are now in control. They`ve really spent a fair amount of time getting those costs in control. They`re focusing on the customer going into the future. They`re seeing that the customers are being very, very receptive to the quality of the products that they`re, in fact, producing. They`ve been in the process of outsourcing some of their jobs to different parts of the world, which should translate into good bottom line performance for the companies that we talk to.
GHARIB: Mr. Parrett, thank you very much for your time.
PARRETT: Thank you very much, Susie.
KANGAS: Tomorrow, it`s one thing you can bank on in the banking industry — constant change.
GHARIB: With just days to go until Thanksgiving, the California grocery store strike is heating up. The United Food and Commercial Workers Union is expanding its strike of 860 Vaughn`s, Ralph`s and Albertson`s (ABS) stores in southern California to stores in northern California and Washington, D.C. Also today, the Teamsters Union said it would stop deliveries to the southern California stores affected by the strike. The stores say they`ll remain open.
KANGAS: Defections continue from Putnam Investments. The company says its assets under management fell by another $9 billion last week as investors bailed out. It now has $247 billion in assets. Putnam and two of its fund managers were accused of civil fraud last month for alleged market timing of mutual fund trades. GHARIB: Here`s a look now at what`s happening tomorrow. The preliminary report on third quarter gross domestic product comes out. Also tomorrow, the October report on existing home sales and the Conference Board`s November consumer confidence numbers.
Earnings wise, Deere and Company (DE), H&R Block (HRB), HJ Heinz (HNZ) and Michaels Stores (MIK) are all scheduled to report.
As we`ve reported this evening, the new Medicare bill making its way through Congress is not universally popular.
One person who doesn`t like it is tonight`s commentator, Dan Mitchell, Senior Fellow at the Heritage Foundation.
DANIEL MITCHELL, COMMENTARY: If both Republicans and Democrats agree on something, you can bet the farm it`s a bad idea. And the new Medicare entitlement for prescription drugs is a perfect example.
Politicians of both parties think they are buying reelection, and maybe they are, but taxpayers are the ones who will pay a steep price. The actual cost of this new program will probably be at least twice as high as the current 10 wear projection of more than $400 billion. This massive new entitlement almost surely will lead to future tax increases and it greatly undermines tax reform.
I`m not a fortuneteller, but here are three predictions. One, a new entitlement will make America more like Europe`s welfare states, meaning less economic growth and higher unemployment. Indeed, the unfunded Medicare expansion is essentially a huge future tax increase since the population of Medicare recipients will more than double.
Two, President Bush`s recently enacted tax cuts will be repealed. The bulk of the 2001 and 2003 tax cuts expire at the end of 2008 and 2010. Well, extending these tax cuts will be enormously difficult in an environment of skyrocketing spending for government provided health care.
Three, lawmakers seeking to create a simple and fair tax code like the flat tax will face much bigger political obstacles because of giant deficits.
Last but not least, it is also worth noting that the Medicare prescription drug proposal is bad health policy, exacerbating the flaws in a system that has almost no market based incentives to improve service and control costs.
I`m Dan Mitchell.
KANGAS: Recapping today`s market action, a rebound in the dollar sparks a rebound on Wall Street. The Dow gains 119 points and the NASDAQ Composite climbs 53 points.
And please be sure to join us at our World Wide Web site, nbr.com.
GHARIB: And that`s NIGHTLY BUSINESS REPORT for Monday, November 24. I`m Susie Gharib. Good night, everyone. And good night to you, Paul.
KANGAS: Good night, Susie. I`m Paul Kangas wishing all of you the best of good buys.
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