Week in Review / TOP STORIES -- Jan. 26-31
AOL Reports Huge Loss; Turner Announces Exit
Media conglomerate AOL Time Warner Inc. was humbled by two stinging losses -- one financial, one largely symbolic. The company reported an annual loss of $98.7 billion, the most in U.S. corporate history, and separately, that its highest-profile executive, media titan Ted Turner, would resign as vice chairman.
Many analysts expected a substantial loss, though not anywhere near the amount reported. The company took a $45.5-billion fourth-quarter write-off, tied largely to the America Online unit.
But what caught everyone by surprise was the departure of Turner, the pioneering executive who watched the cable empire he built get swept up in an ill-fated merger.
Turner will step down as vice chairman at the company’s annual shareholders meeting in May, at the same time that Chairman Steve Case will depart. AOL Time Warner executives said that Chief Executive Richard Parsons expected Turner to remain on the company’s board but that Turner has not made up his mind.
Turner said he plans to devote more time to philanthropic interests and several “socially responsible business efforts.”
*
Bush Proposes Overhaul of Retirement Accounts
The Bush administration, amid criticism that its dividend tax cut proposal won’t benefit most Americans, proposed a new retirement savings approach that would let people withdraw earnings tax free with other benefits.
A new “lifetime savings account” is expected as part of a sweeping retirement savings package that makes major changes to tax laws governing 401(k)s, individual retirement accounts and other plans.
The package is to be included in President Bush’s 2004 budget proposal.
The administration is considering raising the $3,000 annual contribution limit for Roth IRAs. Also on the table is the elimination of the income limit on Roth IRAs. Traditional IRAs also could be phased out.
Ruling Lets NextWave Keep Wireless Licenses
The Supreme Court ruled that NextWave Telecom Inc. could keep licenses to wireless airwaves worth billions of dollars despite the company’s failure to pay for them -- a decision that could improve cellular phone service and lower prices by unlocking a huge swath of spectrum for commercial use.
In an 8-1 decision, the high court upheld a federal appeals court ruling that the Federal Communications Commission violated bankruptcy law two years ago when it repossessed NextWave’s licenses and resold them to Verizon Wireless Inc. and 19 other rivals.
The agency acted after NextWave failed to pay the federal government $4.7 billion and sought federal bankruptcy protection in 1998. The ruling paves the way for NextWave to enter the highly competitive mobile phone market. NextWave has said it would compete against other carriers by offering wireless data service.
*
Consumer Spending, Economic Growth Slow
The U.S. economy grew at a mere 0.7% pace last fall, the Commerce Department said, as consumers slowed their spending amid renewed fears over job security, stock declines and the prospect of war with Iraq.
The economy’s weak performance from October to December brought to 2.4% the growth rate for 2002. That’s an improvement on 2001’s 0.3% growth rate but nothing like the snapback that some economists had been forecasting.
Analysts found a glimmer of hope in an increase in business investment. But at a 1.5% pace in the latest quarter, the rise was not enough to make up for nearly flat consumer spending. Also, government spending rose at an 11.2% rate last quarter, up from 6.9% the previous quarter.
Wages and benefits rose at a 0.7% rate last quarter, the Bureau of Labor Statistics reported separately. That’s substantially less than analysts had predicted.
The economy has grown for five consecutive quarters, but improvement has been so weak that many Americans think the nation still is in recession.
Consumer spending grew 1% in the final quarter of last year, down from a 4.2% pace in the previous quarter.
*
Eisner Critic Loses Seat on Disney Board
Walt Disney Co. said four directors were leaving to help make the board more independent after years of criticism that its members were too cozy with Chairman Michael D. Eisner.
But departing director Andrea Van de Kamp accused the chairman of orchestrating her removal, according to several Disney directors.
Van de Kamp declined to comment. But in an e-mail to Eisner and some directors, Van de Kamp said she was singled out by Eisner for having sided against him on various issues. A Disney spokeswoman said that the decision to retire the four directors came not from Eisner but from a nominating and governance committee.
Also, Disney’s fiscal first-quarter net income fell 41% as the company took a hit from a bad airline-lease investment and a write-down from box-office flop “Treasure Planet.” Net income fell to $256 million, or 13 cents a share, from $438 million, or 21 cents, a year earlier. But operating profit beat expectations. Revenue rose 6% to $7.47 billion.
*
Boeing Reduces Profit Forecast for 2003
Boeing Co. reported sharply higher fourth-quarter net income, largely due to a write-off in the previous year, and cut its profit forecast for 2003.
The company said that for the first time it expected revenue this year from defense-related work to exceed that of its commercial aircraft operations.
Fourth-quarter net income increased to $590 million, or 73 cents a share, from $100 million, or 12 cents, a year earlier. Excluding a large write-off in 2001, however, profit fell 21%. Results were in line with analysts’ expectations. Sales dropped 13% to $13.7 billion as commercial jet deliveries continued to slow.
Boeing Chairman Philip Condit expects earnings of $1.90 to $2.10 a share in 2003, compared with analysts’ consensus estimate of $2.20.
*
Kazaa Fires Response at Music Labels, Studios
Raising the stakes in the battle over online piracy, the company behind the world’s most popular file-sharing service accused the major record labels and Hollywood studios of misusing copyrights and attempting to monopolize the market for digital music and movies.
Sharman Networks Ltd., which distributes Kazaa software, filed a response to the copyright-infringement lawsuit that the labels and studios brought against it last year. Sharman asked U.S. District Judge Stephen V. Wilson in Los Angeles to bar the labels and studios from enforcing copyrights on all music and movies until the alleged misuse has ended. The injunction would shield Sharman from damages and protect anyone who pirated the labels’ and studios’ works.
The move by Sharman came less than two weeks after Wilson confirmed that the labels and studios could sue Sharman -- which is incorporated in the South Pacific tax haven of Vanuatu -- in the U.S.
A spokesman for the Recording Industry Assn. of America scoffed at Sharman’s claims.
*
Federal Reserve Lets Key Interest Rate Stand
The Federal Reserve opted for a wait-and-see approach on U.S. short-term interest rates, keeping them at four-decade lows and expressing hopes that the economy will pick up steam once fears of a U.S.-Iraq war lift.
The central bank’s policy-setting Federal Open Market Committee unanimously voted to keep the federal funds rate -- the rate for overnight loans between banks -- at 1.25%. The Fed cut the rate to that level from 1.75% in November.
The Fed also kept its “bias” on credit neutral, signaling it feels no immediate pressure to raise or lower rates. In the central bank’s terminology, the outlook is “balanced” with respect to the economy’s prospects and the risk of higher inflation.
*
‘Barbie Girl’ Plays On as Mattel Goes Unheard
The Supreme Court declined to protect Mattel’s iconic toy from the lyrics of a 1997 song, “Barbie Girl,” that derides the doll as a “blond bimbo” whose “life in plastic” is “fantastic.”
Mattel said the song, by Danish group Aqua, tarnished and diluted the value of its brand-name doll. The toy maker sued MCA Records, a unit of Vivendi Universal, and other record labels that produced and distributed the album that included “Barbie Girl.” But a federal judge in Los Angeles threw out the suit before trial, and the 9th Circuit did the same in July.
The Supreme Court’s no-comment dismissal brings Mattel’s lawsuit to a close.
“Obviously, we are very disappointed,” a Mattel spokeswoman said.
MCA had defended the song as “social commentary.”
*
For a preview of this week’s business news, please see Monday’s Business section.