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Executive Business Briefing

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


Fed takes market into account when evaluating economy

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WASHINGTON, Nov. 30 (UPI) -- Federal Reserve Gov. Edward Gramlich reiterated that the Fed takes the stock market into account when evaluating the nation's economy, but does not target a particular level of equity prices.

"The stock market plays the same role in our analysis as does any other influence on our outlook," Gramlich said in prepared remarks to the New Technologies and Monetary Policy International Symposium in Paris.

"While our goal of price stability can foster a favorable environment for business investment, we make no pretense of being able to control how that plays out in the stock market," he said.

Fed officials have repeatedly emphasized that they do not target a particular level of the stock market, but at the same time continue to stress its importance in influencing consumer spending.

Gramlich, who is a voting member of the policy-setting Federal Open Market Committee, acknowledged that stock market movements in recent years have been enormous and appear to have had substantial effects on the economy.

Unlike other Fed officials in recent days, Gramlich did not make any remarks about the U.S. economic outlook in what was a largely academic speech.

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The U.S. economy has slowed "very sharply" over the past two years following the Fed's rate hikes that began in mid-1999 and has been further weighed down by "heightened uncertainty" stemming from the Sept. 11 terrorist attacks, he said.

The terrorist attacks, among other factors, have prompted the Fed to "shift the stance of monetary policy aggressively" and slash interest rates by 450 basis points this year, Gramlich said.

He noted that the ratio of wealth to disposable income has fallen after peaking in early 2000, but said it is "still a bit high by historical standards."

The Wilshire 5000 stock market index, which the Fed considers one of the best measures of consumer wealth, has dropped by about one-third since peaking in early 2000, corresponding to a loss in wealth of roughly $6 trillion, Gramlich said.

In mid-1999 when the Fed began hiking rates, its objective was "not to bring down the stock market, but rather to bring the growth of aggregate demand and aggregate supply into better alignment," Gramlich said.


Home Depot sees higher earnings

ATLANTA, Nov. 30 (UPI) -- The Home Depot said it expects its earnings and per-share profits to increase by 18 percent to 20 percent annually over the next 12 quarters.

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Home Depot, whose earnings grew 22 percent to 25 percent in previous years, told analysts at a meeting in Atlanta that it expects revenues to grow 15 percent to 18 percent annually from 2002 to 2004.

Robert Nardelli, Home Depot chief executive, said he expects fiscal 2001 sales to approach $53 billion. Home Depot expects earnings of 28 cents a share for the 2001 fourth quarter and $1.27 a share for the fiscal year, he said, in line with analysts' consensus forecasts compiled by Thomson Financial/First Call.

Nardelli also said Home Depot will open about 200 stores each year over the next three years, down from the store-opening pace of previous years.

In fiscal 2002 the company will add 184 Home Depot stores, 10 Expo Design Centers, four stores for the professional customer, and two smaller Home Depot Urban stores.

"We are enhancing our relationship with current customers, expanding our product and service offerings, and extending our brand into new business ventures, allowing us to grow our current business and tap into large new markets," Nardelli said.

"Whether you look at market share, store productivity, store profitability, or return on capital, Home Depot is the absolute home improvement leader, and we expect this leadership to continue" Nardelli said.

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Nardelli also announced that in 2002 Home Depot will unveil "HD Supply" and test several Home Depot Pro stores to focus more resources on reaching out to larger commercial and industrial customers.

The Home Depot operates 1,303 stores in 48 states, Puerto Rico, seven Canadian provinces and Mexico.


Eastman Kodak to exchange stock options

ROCHESTER, N.Y., Nov. 30 (UPI) -- Eastman Kodak Co. said it will allow 61,000 employees to exchange stock options that are currently priced well above market prices for a lesser number of lower-priced options sometime next year.

The manufacturer of photographic film said the offer affects 33 million options issued in 1998 that allows employees to buy shares at either $65.91 or $53.94.

The current price of Kodak stock makes those options essentially worthless, since shares closed Thursday trading at $29.50, up 62 cents.

Stock options that are priced above current market prices are popularly known as being "underwater."

Kodak said employees will be able to exchange those options for new options, generally at a ratio of two or three old options for one new option, although an unspecified minority of the options will be able to be exchanged on a one-for-one basis.

Kodak said the exchange program will be voluntary and requires shareholder approval.

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Assuming it is approved, the company said the new options will be priced at market prices at the time of the new grant in the third quarter of 2002.

"When we issued these options, our intention was to provide people with performance-based rewards that recognize and provide an incentive to employees," said Kodak Chief Executive Officer Daniel Carp.

"We want to establish new performance incentives for employees. This option exchange program provides a fresh start by putting reward and recognition back on an even footing," he said.

The company said the option exchange will not be open to the six highest-ranking officers of the company.


Tellabs buys Ocular Networks

NAPERVILLE, Ill., Nov. 30 (UPI) -- Telecommunications equipment maker Tellabs Inc. said it will acquire optical equipment company Ocular Networks for about $355 million in cash and options.

Tellabs said the deal will expand its market by up to $5 billion in 2003 and $9 billion in 2005 by combining its customer relationships, distribution channels, customer service and field support with Ocular's technology.

The deal, which is subject to regulatory approval, is expected to close in first quarter 2002.


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