TOP STORIES -- Dec. 2-7
AOL Unveils Web Plan, Warns of Ad Sales Slump
AOL Time Warner Inc. laid down its long-term recovery plan for its Internet unit, but Wall Street appeared more worried about the company’s short-term financial slump.
Shares of AOL Time Warner fell more than 14% the day after the New York-based media giant announced that advertising revenue at the America Online division would drop as much as 50% next year to levels last seen in 1998.
Now that ad sales are slumping and government investigators are examining how AOL accounted for some deals, the company is trying to retrain investors to focus instead on other aspects, including new content deals and the potential to sell customers premium services.
AOL warned that 2003 overall revenue for the online unit, including subscriptions and advertising, would be flat and earnings before interest, taxes, depreciation and amortization would fall 15% to 25%. The company said the drop in ad revenue, which could fall from an estimated $1.5 billion to $1.6 billion this year to as low as $750 million in 2003, was due chiefly to the expiration of $500 million in long-term ad contracts signed in the dot-com heyday.
Last week’s meeting was the first opportunity for new America Online Chief Executive Jonathan Miller to lay out his strategy for getting the Internet unit back on track. The plan focuses on beefing up the online service with features and exclusive content provided by AOL Time Warner’s entertainment properties.
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Disney Cuts $47 Million From 4th-Quarter Profit
Walt Disney Co. lopped $47 million off its previously reported fourth-quarter earnings after its latest film, “Treasure Planet,” failed to strike gold.
Although the Space Age version of “Treasure Island” had been in theaters only a few days, last week’s announcement shows that Disney already has written off any hope for the movie: It opened to generally poor reviews and just $12.1 million at the box office, one of the weakest openings ever for a Disney animated film.
The disclosure came after Disney announced a series of reforms to its board. Those changes included a more stringent definition of what constitutes an “independent” director, but one that also could diminish the role of businessman Stanley P. Gold, a chief critic of Disney Chief Executive Michael Eisner.
Separately, the Burbank entertainment giant said it was cooperating with a Securities and Exchange Commission inquiry into whether it should have publicly revealed earlier than August that four directors had relatives working for the company or its affiliates.
Disney said it expects the pretax loss on “Treasure Planet” to come to $74 million.
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Former El Paso Trader Faces Indictment
A former El Paso Corp. energy trader was indicted for allegedly reporting fictitious natural gas transactions to an industry publication in an effort to boost prices and company profit. The action came as part of a broad investigation into whether energy companies hoodwinked investors and energy ratepayers, including those in California.
A two-count indictment by a Houston grand jury was unsealed against Todd Geiger, a vice president on the Canadian natural gas trading desk for El Paso Merchant Energy, a subsidiary of Houston-based El Paso Corp. Geiger, 38, was charged with wire fraud and filing a false report after allegedly telling a trade publication, Inside FERC Gas Market Report, that he had made 48 natural gas trades Nov. 30, 2001. The trades turned out to be nonexistent, according to the indictment.
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Tenet Slashes Forecast, Plans New Pricing Policy
Tenet Healthcare Corp. slashed its earnings outlook for the next two years and outlined a new approach to hospital pricing that includes discounts for uninsured patients.
The nation’s second-largest for-profit hospital chain told financial analysts in New York that about half its earnings growth in the last two years came from special Medicare reimbursements known as outliers, which regulators are now auditing. Santa Barbara-based Tenet has acknowledged that it doubled its outlier payments in the last two years, to about $750 million last year, by aggressively raising its hospital charges.
Spurred by Tenet’s sizable Medicare outlier payments, the agency that oversees Medicare said it will step up its scrutiny of hospitals that generate unusually large outliers. Tom Scully, administrator of the Centers for Medicare and Medicaid Services, said hospitals suspected of inflating their charges to boost outlier payments could be investigated by the Office of the Inspector General.
Tenet officials said their earnings from operations will range from $2.38 to $2.78 a share in the current fiscal year. That would compare to a profit of $2.34 a share in fiscal 2002. Previously, the company estimated that its current-year earnings would grow by at least 25%.
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Federal Panel Rejects Loan Backing for United
A United Airlines bankruptcy filing became almost certain after a federal panel rejected a $1.8-billion government loan guarantee that the carrier needed in order to avoid running out of cash this winter.
Despite United’s furious efforts in recent weeks to line up $5.2 billion in labor cost savings to win approval of the bailout, the Air Transportation Stabilization Board described the airline’s recovery plan as “not financially sound” and said it would not put taxpayers’ money at risk.
Even with the loan backing, “United would face a high probability of another liquidity crisis within the next few years,” the ATSB said.
UAL Corp.’s United has said it would file under Chapter 11 of the bankruptcy law without the loan guarantee.
Analysts said that Elk Grove Village, Ill.-based United probably would make sharp cuts in its flight schedule as creditors demand that the carrier scale back to conserve cash. Many of United’s 80,000 jobs -- including some of the 6,500 in Southern California -- would be in jeopardy, and its union contracts could be scrapped.
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U.S. Retailers Report Mixed November Sales
The nation’s big retailers reported mixed November sales results Thursday despite a surge in Thanksgiving weekend shopping, while some California firms told of solid gains.
Sales at stores open at least a year fell 0.1% last month from a year earlier, the first such drop in November since at least 1970, according to Bank of Tokyo-Mitsubishi.
San Francisco-based Gap Inc., parent of Gap, Old Navy and Banana Republic stores, said same-store sales rose 9% in November, compared with a 25% decrease in the same period last year. Pacific Sunwear of California Inc., an Anaheim company that sells casual clothes to teens, said same-store sales jumped 11.7% last month, while Industry-based Hot Topic Inc., which sells music-themed apparel and accessories to teens, said comparable-store sales rose 4.7%.
Elsewhere, sales drooped in November, even among industry darlings. Wisconsin-based Kohl’s Corp., a discount apparel retailer that plans to open 28 stores in Southern California next spring, said same-store sales dropped 3.4% for the month.
Discounter Target Corp. of Minneapolis, which operates Target, Mervyn’s and Marshall Field’s stores, said comparable-store sales fell 6.7% from the year before.
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Bush Dismisses Two From Economic Team
President George W. Bush dismissed Treasury Secretary Paul O’Neill and White House economic advisor Lawrence Lindsey, shaking up his economic team amid a faltering recovery. The biggest overhaul of the 2-year-old Bush administration came after the Labor Department reported that unemployment reached a seven-month high of 6% last month.
The departures will accelerate Bush’s efforts to revive the economy as he looks ahead to the 2004 elections, investors and political analysts said. O’Neill resisted calls by some Republican officials and legislators to deepen tax cuts, urging caution to avoid adding to the budget deficit.
The White House didn’t name successors, leaving the administration’s economic and financial team in disarray. Securities and Exchange Commission Chairman Harvey L. Pitt submitted his resignation in November, and the administration still is looking for a head for its new accounting oversight board after William Webster also quit last month.
Bush, who has been focusing on terrorism and a possible attack on Iraq, wants to avoid the mistakes of his father, George H. W. Bush, who lost the White House in 1992 because of a weak economy, investors said. The U.S. has lost more than 1.6 million jobs since March 2001. Among measures more likely to be pushed are tax cuts for low- and middle-income consumers and elimination of the double tax on corporate dividends.
