NBR Transcripts - Feb. 8, 2005
Tuesday, February 08, 2005PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: Cisco is right on the money. After the bell, the computer networking giant reports second quarter earnings in line with what Wall Street had expected. That’s the good news. But there’s some not so good news as well. We’ll have details.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Taser shares in a takedown on Wall Street today. The maker of stun guns nearly doubles its revenues, but the stock gets hit hard. We’ll tell you why.
KANGAS: Scott Sullivan says Bernie Ebbers wore the chef’s hat when it came to cooking the books at WorldCom. The former chief financial officer was the star witness in Ebbers fraud trial today. We’ll have an update.
GHARIB: Then, this man has made a big difference in the lives of millions of people around the world simply by loaning each of them small amounts of money. We sit down with Muhammad Yunus, Bangladesh’s banker to the poor.
KANGAS: I’m Paul Kangas.
GHARIB: And I’m Susie Gharib. This is NIGHTLY BUSINESS REPORT for Tuesday, February 8. Good evening, everyone.
A mixed report from Cisco Systems tonight. After the closing bell, the tech titan said its quarterly earnings rose sharply. But sales came in lower than expected. The stock fell as much as 2 percent in after hours trading. Excluding special items, Cisco earned $0.22 a share in its fiscal second quarter. That was right in line with Street estimates. Revenues rose 12 percent to $6 billion. That was slightly shy of estimates for $6.1 billion.
Cisco Chairman John Chambers says he’s "cautiously optimistic about the current quarter" and expects revenues to increase between 8 to 10 percent. But some analysts are still concerned about high inventory levels. In after hours trading, the stock lost about $0.40 to $17.85. In regular trading, Cisco rose $0.08 to $18.24.
Meanwhile, in a New York courtroom today, fresh evidence in the fraud trial of WorldCom’s former CEO Bernie Ebbers. The government’s star witness, Scott Sullivan, WorldCom’s disgraced chief accountant, recounted how he and his former boss Ebbers cooked the books. In his second day on the stand, Sullivan described events that led to the biggest corporate bankruptcy in U.S. history. Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Two weeks into the fraud trial of former WorldCom chief Bernie Ebbers and things aren’t going so well for him. WorldCom’s ex-CFO detailed today how he, under pressure from Ebbers, falsified the company’s books to inflate earnings. In his second day on the stand, Scott Sullivan testified that from fall of 2000 to spring of 2002, Ebbers repeatedly urged him to quote, "hit the numbers," end quote.
That, prosecutors contend, was code for cooking the books. Sullivan explained that WorldCom’s stock would fall if the company failed to meet the earnings expectations of Wall Street analysts. He said quote, the source of the pressure was Bernie and the source of pressure was also the marketplace, end quote. Legal observers said Sullivan is directly implicating Ebbers in the fraud, but added the strongest points are often mired in accounting jargon.
JACOB ZAMANSKY, ATTORNEY, ZAMANSKY AND ASSOCIATES: I think the government should be focusing more on what were the discussions between Bernie Ebbers and Scott Sullivan. A lot of what they’re saying may be getting lost with all these numbers, but I think eventually the jury is getting it.
PRATT: Sullivan, who pleaded guilty to fraud last year, is the government’s star witness in the case against Ebbers. The defense has portrayed Ebbers as uncomfortable with accounting details, more of a big picture leader. It’s expected that on cross examination, Ebbers’ attorneys will challenge Sullivan’s credibility. The prosecution attempted to head off some of those challenges yesterday when it had Sullivan admit to using drugs while working at WorldCom. As for whether Ebbers will testify, legal observers say it’s unlikely.
SETH FARBER, ATTORNEY, DEWEY BALLANTINE: There’s always something of a temptation to put your client on the witness stand, but as soon as you do, the case moves from being a question of do you believe the government has met its burden of proof here? Do you believe the defendant or don’t you? Do you believe Bernie Ebbers or don’t you?
PRATT: Scott Sullivan is expected to remain on the stand at least through the end of the week. The Ebbers trial could continue for another month, if not longer. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
KANGAS: Stocks opened modestly higher with bullish confidence generated by yesterday’s mild consolidation of the recent big gains. The tech sector spearheaded the upturn, which lifted the Dow 25 points by late morning while the NASDAQ Composite was up 10 points. The market lost some of its steam this afternoon as investors grew hesitant ahead of Cisco’s after the bell earnings report. The Dow Jones Industrial Average closed up a modest 8.87 at 10,724.63. The NASDAQ Composite was up 4 2/3 points ending at 2,086.68. Standard & Poor’s 500 rose a half point to 1,202.30. In the bond market, the 10-year note rose 9/32 to 101 27/32, putting the yield down to 4.02 percent.
GHARIB: Credit rating agencies were in the spotlight on Capitol Hill today. Lawmakers are studying why the agencies that issue ratings on American companies from "AAA" to "D" are failing to make the grade themselves. As Stephanie Woods explains, investors rely on those grades to determine credit risk.
STEPHANIE WOODS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Standard & Poor’s and Moody’s kept investment grade ratings on Enron’s debt just days before the company collapsed. WorldCom’s bonds enjoyed good grades until just weeks before it filed for the biggest bankruptcy in the U.S. Critics told the Senate Banking Committee the major rating agencies are conflicted because they are paid by the companies they rate.
SEAN EGAN, MANAGING DIRECTOR, EGAN-JONES RATINGS: If I’m hiring a litigator and I find out that the litigator is paid by the other side, you have a basic conflict there. The Philadelphia Eagles just lost. If my son found out that Andy Reid was paid by the New England Patriots, he would hit the roof.
WOODS: The credit agencies say they were defrauded by Enron and WorldCom and that they follow strict ethical guidelines to manage conflicts of interest.
RAYMOND MCDANIEL, PRESIDENT & COO, MOODY’S INVESTORS SERVICES: We have a codification of all of our methodologies which are available publicly and there is a requirement that those methodologies be followed and we avoid concentration of fees from issuers.
WOODS: Only four credit rating agencies are nationally recognized statistical rating organizations, a special status given by the SEC. S&P, Moody’s Fitch and Dominion bond rating service handle 95 percent of the credit rating business.
SEN. RICHARD SHELBY, CHAIRMAN, SENATE BANKING COMMITTEE: The designation now serves as a universally accepted benchmark for investment quality and it’s been used in legislation, various regulations and financial contracts.
WOODS: The SEC doesn’t regulate the credit rating agencies. There have been calls to increase competition by granting more agencies the special designation, but rating firms that have tried to get recognized call it an exercise in delay and disappointment.
YASUHIRO HARADA, EXECUTIVE VP, R&I: The lack of the progress on our company’s application harms both R&I and investors.
WOODS: The Securities and Exchange Commission says it is working with the credit rating agencies to address the problems identified by the committee. Senate lawmakers warn if the SEC doesn’t crack down, they will. Stephanie Woods, NIGHTLY BUSINESS REPORT, Washington.
KANGAS: The United Nations says the south Asia tsunami was the biggest catastrophe ever to hit world tourism. Recovering from that disaster is the focus of the Phuket action plan adopted by the world tourism organization. And as Ashwini Devare of the BBC reports from Thailand, it may take some hotels years to rebuild.
ASHWINI DEVARE, BBC CORRESPONDENT: This is Khao Lak, a few miles north of the island. A newly developed resort town that was slowly making its presence felt on the tourist map. This resort town survived on tourist dollars. This is one of the 25 hotels and resorts that were destroyed during the tsunami and currently only four hotels are operating here. Reconstruction of the hotel industry in the Khao Lak region will take between one to two years and will cost around $300 million. The Merlin resort in Khao Lak opened less than a year ago. Today this is what remains
PRACHAK SVASTISINHA, GENERAL MANAGER, MERLIN RESORT: We have lost our 12 villas. DEVARE: Manager Prachak Svastisinha says he’s hoping to open for business in the next six weeks.
SVASTISINHA: Forty rooms have been damaged and then the restaurants and then the green areas right on the beach front. It will take us about, you know, over a year to have the business back to what it used to be.
DEVARE: The absence of resorts and tourists is a crippling blow to small businesses and entrepreneurs who supply the services to hotels.
JONRAK BOOU LING, SUPPLIER (through translator): This area used to be my shop. I used it for keeping vegetables and fruits. We used to supply 30 hotels around the Khao Lak area. Now we are left with nothing and we have no insurance.
DEVARE: So far, this vegetable supplier has not received any money or aid from the government to support him. While the bulk of the bigger hotels along the coast had insurance coverage, many of the independent businesses did not.
SUWALAI PINPRADAB, TOURISM AUTHORITY OF THAILAND: This hotel needs the money to recover, to rebuild buildings again. So our government gives them a soft loan with very low interest rate.
DEVARE: In contrast to Khao Lak, tourists are slowly trickling back into neighboring Phuket Island. Phuket is the backbone of Thailand’s tourist industry and pulled in more than four million tourists last year. It is a trickle not a flow. Flights to Phuket, which are usually running at 90 percent capacity this time of the year, are close to empty. Millions of dollars have been pledged in foreign aid for the relief effort. But in the long term, it’s tourists that the thousands of local businesses along the coast of Thailand will need to help rebuild their livelihoods. Ashwini Devare, BBC News, Thailand.
GHARIB: Changes could be coming here at the New York Stock Exchange. Big board Chairman John Thain said today the exchange will form a task force to evaluate switching to a for profit business. But he ruled out an IPO. A preliminary report is expected by April. In a meeting with reporters today, Thain also said he hopes to have a decision soon on whether to expand trading hours. And, Paul, while Thain said acquisitions are an option, he specifically said the NYSE is not interested in buying Instinet or the London stock exchange.
KANGAS: Susie, lets take a look at today’s trading on the big board with our stocks in the news tonight.
Big board volume leader on 33.6 million shares, Pfizer (PFE) moving up $0.64. The company’s medicine to treat a form of gastrointestinal cancer showed in Phase III trials to be safe and effective and that was seven months ahead of schedule. In addition, Lehman Brothers brokerage says the company may cut 30 percent of its 38,000 member sales force and that could boost annual earnings by about $0.15 a share.
Lucent Technologies (LU) rose a dime.
General Electric (GE) $0.20 gain there.
Texas Instruments (TXN) up $0.65.
Procter & Gamble (PG) down $0.55, fifth in big board volume.
ExxonMobil (XOM) edged up $0.65.
And then we had too quick of a move there, there we’re back, EMC Corp. (EMC) that’s a little better, now that’s a $0.05 gain.
And then Time Warner (TWX) rising $0.02.
Qwest Communications (Q) dropped a penny.
And tenth in volume was Tyco International (TYC) with a $0.56 gain.
SLM Corporation (SLM), used to be Student Loan Marketing, now SLM Corp., down $2.83. Friedman Billings Ramsey brokerage downgraded it from "outperform" to "market perform" on concern that President Bush’s proposed Federal budget would not be favorable to the student loan business, down went the stock.
NIKE (NKE) was off $2.25. Merrill Lynch downgraded it from "buy" to "neutral" in the belief that the company’s February earnings outlook is a little bit too rich.
Electronic Data Systems (EDS) off $1.30, turnaround, fourth quarter earnings of $0.10 versus a loss of $0.70 last year, but that was short of the company’s target and the company sees first quarter lower than expected at just break even or maybe a nickel in earnings. Jefferies brokerage downgraded the stock to an "under perform" rating.
NovaStar Financial (NFI) dropping $3.22, sharply lower fourth quarter earnings, $0.85, down from $1.45 and that was $0.02 below the Wall Street earnings estimate for the company.
W.R. Grace & Company (GRA) off $0.95. A grand jury has charged that the company and seven of its top employees knew a Montana mine was releasing cancer causing asbestos into the air and tried to hide that fact.
DJ Orthopedics (DJO) up $1.30 on higher fourth quarter earnings, $0.31 versus $0.21 last year. Revenues up a very respectable 25 percent.
And VF Corporation (VFC), which makes apparel like jeans and things like that, up $4.04. Nicely higher fourth quarter earnings, $1.10 versus last year’s $0.96 and revenues rose 12 percent.
Marriott International (MAR) was down $0.76, even though fourth quarter earnings were high, $0.79 versus $0.69 a year ago, but the company issued a first quarter earnings guidance of $0.52 to $0.54. The Street estimate was up there at $0.59 a share, so a little disappointing there.
McAfee.com (MFE) down $2.14. Stocks of anti-virus software makers fell today on news Microsoft is getting into the business through the acquisition of Sybari.
Volume leader on NASDAQ, NASDAQ 100 (QQQQ) up $0.07.
Google (GOOG) up $2.61.
Intel (INTC) rose a half a dollar.
Cisco Systems (CSCO) up $0.08 on the close, but then a drop and down around as low as $17.84 after the earnings. Now it’s above 18 again.
eBay (EBAY) was up $2.94. JPMorgan repeated an "out perform" rating there.
Microsoft (MSFT) itself up $0.08.
Apple Computer (AAPL) $1.96 gain.
SINA.com (SINA) down $2.96. The Chinese Internet portal says first quarter revenues will be hurt by a Chinese government ban on advertising for cell phone fortune telling.
Symantec (SYMC), that’s another virus company, down $1.52, anti-virus I should say.
Applied Materials (AMAT) was up $0.15.
Taser International (TASR) down $1.94. Fourth quarter earnings $0.08, up from $0.05 last year, but $0.02 below the Street estimate.
And then Ariba (ARBA) fell $1.71. The company lost a patent infringement suit to ePlus Incorporated.
And those are the stocks in the news tonight, Susie.
GHARIB: Thank you Pal. You may not know a lot about Muhammad Yunus. He was chosen by the Wharton School as one of NIGHTLY BUSINESS REPORT’s 25 most influential business people of the last 25 years. But while others on that list work on a grand scale, Yunus works on a small one. He started the practice of micro-credit lending with Grameen Bank in Bangladesh. At the World Health Congress in Washington recently, Linda O’Bryon talked with Yunus and began by asking him how he invented the micro-credit movement.
PROF. MUHAMMAD YUNUS, MANAGING DIRECTOR, GRAMEEN BANK: I had no idea that I would ever get involved with something of lending money to people, poor people, through circumstances in which I was working in Bangladesh. I was teaching in the university, one of the universities in Bangladesh, at the time when the country was going through a severe famine. So people were dying of hunger and I felt very helpless. As an economist, I have no tool in my tool box of what to do in a situation where people are dying of hunger.
LINDA O’BRYON, NIGHTLY BUSINESS REPORT CORRESPONDENT: So what gave you this idea to give people tools?
YUNUS: Well, I went around. I thought as a person, forget about the tool box. As a human being, I can go out and be available to help another person. So that’s what I started doing. This was back in 1974, ‘75, and I saw how people suffered for tiny, little money. They had to borrow from the money lender and moneylender took this advantage and squeezed them in a way that all the benefits passed on to the money lender than remaining with the person who borrowed. So I made a list of people who needed that kind of money. When the list was complete, there were 42 names on my list. The total money they needed was $27, and I was shocked. Here we are talking about economic development, development plans, billions of dollars to invest in and so on, and I see it’s not billions of dollars people needed right away. They needed tiny, little money.
O’BRYON: All right then, how did you get from that first $27 to working with Grameen Bank and expanding this around the globe?
YUNUS: They got very excited that I gave them the money. They thought it’s almost like a miracle happened to them. And seeing them, a question came to my mind. If you can make so many people so happy with such a small amount of money, why shouldn’t you do more of it? So I wanted to do more of it, reach out to many more people. I thought I should. I can do this by linking these people with a bank. Bank can lend them the money. So I went to the bank, proposed that they should lend money to the poor people. They almost fell from the sky. They couldn’t believe what had been proposed to them. They explained to me the bank cannot lend money to poor people because they are not credit worthy. So a long series of debates began with me and the banking system. Finally, I resolved it after about six months, offering myself as a guarantor. I said I’ll sign all your papers. I’ll take the risk and you give the money. So that was resolved in that manner and I took the money, offering myself as a guarantor and gave it to people. And luckily for me, all the people, everybody paid back.
O’BRYON: What is your vision for the future?
YUNUS: Two things: to make credit as a human right so that each individual human being will have the opportunity to take loans and pay on their ideas and implement them so self exploration becomes possible. And the second thing is to lead to a world where nobody has to suffer from poverty, a world completely free from poverty. Not a single human being will suffer from the misery and indignity of poverty. And it’s unnecessary. The human being is quite capable of taking care of himself and herself, but we have created a society not to allow the opportunities to those people to take care of themselves because we have denied those facilities. I have described poor people as like a bonsai, as a bonsai tree, that little tree which grows in a flower pot. I said you pick the best seed of the tallest tree in the forest and plant it in a flower pot to grow the tiny tree. Is there anything wrong with the seed? Nothing wrong with the seed. We’ve got the best seed. Then why is it tiny? Because you planted it in a flower pot. You didn’t allow it to grow in the real soil. And the poor people are the bonsai people. Society has not allowed them the real soil. If you allow them the real soil, real opportunities, they will grow as tall as everybody else. It’s in the human being.
O’BRYON: Thank you very much Muhammed Yunus.
YUNUS: Thank you very much.
KANGAS: Tomorrow, a look at the nation’s building blocks. We talk iron and steel with U.S. Steel President and CEO John Surma.
GHARIB: A reorganization today for Playtex products. The maker of baby products and household gloves will trim its workforce by 20 percent this year, or roughly 300 people. Playtex also plans to outsource its household glove manufacturing to Malaysia and reduce office space at its headquarters in Connecticut. The company will take a charge of $17 to $19 million to cover these costs. Playtex shares added $0.22 today to $8.40.
KANGAS: A new format for Sears. As the company continues to merge with discounter K-Mart, Sears will launch 25 new off-mall stores this spring called Sears Essentials. The mid-size outlets will carry its most popular brands, like Kenmore Appliances and Craftsman tools. K-Mart says Sears Essentials is part of a strategy for sustaining sales at Sears. Kmart’s acquisition of Sears is set to close next month.
GHARIB: Here’s a look at what’s happening for tomorrow. December’s wholesale trade report comes out. Also tomorrow, Treasury Secretary John Snow testifies before the House Budget panel. On the earnings calendar, Adolph Coors, Cigna, Friedman Billings Ramsey, MetLife and Whole Foods Market. They’re all scheduled to report.
Tonight’s commentator asks is America ready for the ownership society? Here’s Daniel Henninger, deputy editor of the editorial page of the "Wall Street Journal."
DANIEL HENNINGER, DEPUTY EDITOR, WALL STREET JOURNAL EDITORIAL PAGE: So what exactly is an ownership society? With Mr. Bush’s state of the union speech behind us, that question finally departs the realm of campaign politics and enters the national policy debate. He’s proposing to put privatization of Social Security at the center of his ownership society. Well, we know what it means to own a car or a house but a society?
Maybe it will make sense if we think about owning a share of stock. Shareholders own the corporation, not the managers who often thought they did until the shareholder revolution of the 1980s. Power flowed away from managers and back to shareholders. The idea now is to push this into the political realm. Think of the politicians in Washington as the hired managers and tax payers as the shareholders. As with the shareholder revolution the question is whether Social Security is being run in the interest of the politicians who manage it or workers who pay for it. There’s unrealized value locked up in those payroll taxes.
Will younger workers become the true owners of their retirement if they’re allowed to seek a stronger financial return from investing part of the payroll tax? Not least, are most Americans in fact pretty comfortable with Social Security, the only system we’ve ever known? The ownership society has been an interesting metaphor. In the next four to six months after much debate about costs and possible system collapse, we’re going to find out whether we’re ready to buy into the ownership society. I’m Dan Henninger.
KANGAS: Recapping today’s market action, stocks close the day with just small gains. The Dow ends up almost nine points, while the NASDAQ gains four. To learn more about the stories in tonight’s broadcast, go to nbr.com.
GHARIB: And finally tonight, it’s the ultimate in luxury for your loved one. The Ritz Carlton Hotel in Saint Louis is offering a Valentine’s Day package that includes a $5,000 shopping spree and a night in the hotel’s presidential suite, which will be decked out in a sea of red roses. Also thrown into the deal, a platinum charm bracelet set with diamonds from Tiffany; a sumptuous dinner, complete with strawberries and champagne; and a fabulous breakfast the next morning. And Paul, I know what you’re going to ask. How much does it all cost? Well, it’s $25,000. But I’m sure you’d agree, that love is priceless, isn’t it?
KANGAS: Except... Generally, but in this case it’s pretty specific, isn’t it, 25Gs, period.
GHARIB: You’ll think of something good for your loved one, I’m sure. That’s NIGHTLY BUSINESS REPORT for Tuesday, February 8. I’m Susie Gharib. Goodnight, everyone. Good night to you, Paul.
KANGAS: Goodnight, Susie. I’m Paul Kangas wishing all of you the best of good buys.
