Executive Business Briefing

Here is a look at more of Friday's top business stories:

Another tough year seen for U.S. telecoms

NEW YORK, Jan. 24 (UPI) -- The U.S. telecommunications industry faces another year of decline because of a weak economy and the aftermath of the 1990s investment boom.

AT&T "added to the gloom on Thursday, warning that spending on telecoms services was likely to fall again," the Financial Times reports. That spending cutback is likely to cause a further slide in its revenues, which fell 10 percent last year.

BellSouth, the big regional operator, had a 7-percent decline in 2002 revenues.

These results will heighten concern about the financial situation of the telecoms equipment manufacturers. AT&T said it would cut capital spending to $3.3 billion to $3.5 billion this year vs. $3.9 billion in 2002.

"Despite reporting heavy losses in the final months of last year, some of the biggest North American telecoms equipment makers said Thursday they thought the worst was behind them and that profits would return this year," the FT says, adding that "similar claims made a year ago turned out to be premature."

AT&T shares lost 19 percent, while shares in BellSouth lost 7 percent.

In Canada, Nortel Networks reported another quarterly loss despite better than expected sales, the Globe and Mail reports. The results prompted its chief executive, Frank Dunn, "to suggest the company has stabilized its business model.

"The embattled telephone equipment maker also confirmed it is en route to meeting its target of making money on an operating basis by the second quarter and said it ended the year with $1 billion more in cash," the newspaper said.

Results released after the close of trading on Thursday showed that in the fourth quarter, Nortel lost $248 million or 6 cents per share. It was Nortel's 12 straight loss -- but significantly less compared with the fourth quarter of 2001, when it lost $1.8 billion (57 cents per share). Fourth-quarter sales were $2.52 billion vs. $3.46 billion a year earlier.

It said demand for telecoms equipment would be "modestly" lower in 2003 than in 2002, the newspaper reports. Nortel also said it began to expense stock options, retroactive to Jan. 1.

Funds lose battle on proxy vote disclosures

WASHINGTON, Jan. 24 (UPI) -- The mutual funds industry has lost a battle with the U.S. Securities and Exchange Commission over disclosure of proxy voting records.

The SEC voted 4-1 on Thursday to require funds to disclose policies and procedures used in proxy votes, as well as voting records, the Financial Times reports. Those in favor of the change said such disclosures "might have helped prevent scandals such as Enron and Worldcom," the newspaper said.

The $6.6 trillion industry such disclosures regarding thousands of votes would impose heavy costs on them and distract them from the job of stock picking, but while the SEC rejected this claim, it "offered some relief, requiring annual disclosure rather than semi-annual as proposed," the FT said. The agency said companies could provide the information on their Web sites.

In a separate decision, the commission "bowed to pressure" from lawyers and delayed measures to force lawyers to report possible breaches of the law up the chain corporate command.

McDonald's reports first quarterly loss

NEW YORK, Jan. 24 (UPI) -- McDonald's has announced its first quarterly loss since going public in 1965 and announced the closure of some 700 under-performing outlets in the United States and Japan.

That's a larger number than previously anticipated. The chain also scrapped its double-digit earnings growth targets, the Financial Times says.

Fourth-quarter results show a net loss of $343.8 million or 27 cents per share, vs. a year-earlier profit of $271.9 million (21 cents per share). An $810.2 million one-time charge, mostly for closures and the cost of withdrawing from three non-U.S. markets, pushed the fast-food chain into the red.

Sales for company-owned and franchised stores rose 4 percent to $10.5 billion. But as the FT notes, comparable sales, excluding new outlets, fell 1.4 percent in the United States, 1.9 percent in Europe, and 6.1 percent in Asia, Pacific, the Middle East and Africa. Only Latin America showed positive comparable growth of 11.2 percent.

Japan credit quality better; outlook negative

NEW YORK, Jan. 24 (UPI) -- Japan's credit quality improved in the fourth quarter but remains negative, according to Standard & Poor's.

The credit rating agency, in a new report, said the country's credit ratio (downgrades per upgrade) improved because changes in both categories fell. The ratio was 1.0 in the fourth quarter vs. 20.0 in the first quarter and 4.5 and 2.8 in the second and third quarters, respectively.

"For the year as a whole, 51 downgrades and 11 upgrades were recorded, compared with 31 downgrades and four upgrades a year earlier," S&P said Thursday.

Downgrades affected long-term rated debt worth about $75 billion, while upgrades affected $6.3 billion.

"The outlook for Japanese credit quality remains highly negative, judging both by the renewed weakening in the macroeconomic fundamentals as well as the distribution of potential rating changes, said Diane Vazza, head of S&P's Global Fixed Income Research group.

"Weak corporate earnings and persistent deflation will have a negative impact on corporate credit quality."

Banks saw the greatest credit deterioration, with 12 downgrades affecting $31.8 billion of long-term rated debt and no upgrades.

Although no rated issuer defaulted on its debt obligations in 2002, S&P said, 19,458 companies declared bankruptcy vs. 19,441 in 2001. The total debt affected was $110 billion.

EU tax harmony leads business wish-list

BRUSSELS, Jan. 24 (UPI) -- Businesses believe that greater tax harmonization across the European Union would benefit them more than any other EU-related improvement.

That's according to a survey of more than 1,000 top executives released on Friday, the Financial Times notes.

The findings "could strengthen calls to reduce the wide difference in indirect taxation systems among the EU's 15 members. The European Commission's 36-year effort to harmonize (value-added tax) regimes and rates -- which vary from 15 percent to 25 percent across the European Union -- has been blocked by national governments."

The poll of 1,450 company directors in seven of the largest EU members was conducted by the U.S.-based delivery company UPS. More than one in three of the directors picked tax harmonization as the top issue, ranking it as more important than an EU-wide set of rules on company laws, electricity liberalization, post and rail markets, or pensions.

Support for harmonized taxes was highest in Italy (47 percent) and lowest in the United Kingdom (25 percent). "Executives said tax harmonization would save companies money by enabling them to set one price for the $995 billion worth of goods traded within the EU each year," the FT says.

World economy 'unbalanced,' dollar weaker

DAVOS, Switzerland, Jan. 24 (UPI) -- International economists and bankers believe the world economy will be more unbalanced this year and the dollar will be weaker.

The Financial Times, reporting on the World Economic Forum, says that a top official of the Bank of China warned about "very volatile" exchange rates -- including those for the dollar. Last year the dollar fell more on a trade-weighted basis than in any year since 1987.

Despite this gloomy outlook for the U.S. currency, "there was general agreement that the outlook for the world is, for the immediate future at least, synonymous with the outlook for the United States. Since 1995, the United States has accounted for very nearly two-thirds of the growth in global gross domestic product and there are few indications that this dependence is changing," the FT said.

Economists at the forum forecast that the U.S. economy might grow by 2 percent to 3 percent this year. If so, "it is likely once more to be the best performer of the world's five biggest economies," surpassing an expected 0.8 expansion in the eurozone and growth of 0.6 percent in Japan.

The dollar's problem is that capital flows from Europe and Japan to the United States have been falling, and by the fourth quarter of 2002, the main inflow was from Asian countries other than Japan. Economists at the forum said this wasn't sustainable.

GE back in international bond market

NEW YORK, Jan. 24 (UPI) -- General Electric has returned to the international bond market after almost two decades.

In its first such deal since the 1980s, the company went to the market Thursday with a $5 billion, 10-year deal that's intended to pay off short-term debt incurred by an equity infusion to its financing arm, GECC, the Financial Times notes. It says that GE usually raises money through that unit, and the parent probably won't launch further bond deals this year.

The bonds, rated triple A, had a higher than expected yield: 112 basis points over 10-year U.S. Treasurys. This indicates that investors already had a lot of GE debt and "need an incentive to buy more." By comparison, brewer Anheuser-Busch's 12-year issue this week yielded just 75 bps over Treasurys.

"But traders said late (Thursday) that spreads on GE's bonds had already tightened by about 4 bps in the secondary market, reflecting the fact that safe-haven corporate debt is still in demand in the current uncertain climate," the FT reports.