Earnings Reports for Jan. 26

— -- Ericsson Plans to Exit Mobile Phone Production Business

Ericsson, the world's third-largestmobile phone maker, is getting out of the business of making phonehandsets so it can focus on its core business of developingwireless technology and network equipment.

Ericsson, which disclosed the plan today as it reported a 63percent plunge in fourth-quarter earnings, is selling its handsetfactories to an outside manufacturer, but will continue to sell itsown brand of phones produced by those plants.

The move out of handset production had been widely expected asEricsson has long suffered weakness in that business. Analysts saidthe move will strengthen the company's position as a leading forcein the industry's move toward advanced wireless technologies thatwill enable mobile devices to connect with the Internet.

"They also get rid of the parts that have brought the Ericssonshares downstream the past years," said Paer Johansson, seniorwireless executive with Noblestar, a Swedish consulting companythat works with Ericsson. "They can totally focus on the systemsside and developing applications as well as infrastructure and bythat be a more competitive technology supplier."

Ericsson said it had signed a deal under which Singapore-basedFlextronics International will take over its mobile phoneproduction facilities in Brazil, Malaysia, Sweden, Britain andparts of a U.S. plant in Virginia.

The deal with Flextronics, which will include the transfer of4,200 employees and the layoff of about 700 others, is to takeeffect April 1, subject to final agreements.

It also signed an agreement to have the Taiwanese electronicmanufacturer GVC handle some of its product development andproduction, complementing its partnership with Arima of Taiwan onentry-level phones.

Chief executive Kurt Hellstroem said the moves are designed tosave $1.6 billion in costs a year starting next year.

Ericsson's fourth-quarter net income dropped to $239 million, or 3 cents per share.

Its consumer product division's profit fell $1.6 billion.

The company blamed delivery problems and an inadequateentry-level product mix that hit sales and gross margins, as wellas an aggressive restructuring program for the phone operationsthat brought additional costs.

For the year, Ericsson earned $2.2 billion. Net sales rose 27percent to $29 billion.

Ericsson, which has more than 105,000 employees in 140countries, said it expected continued strong growth for systems andlower sales for phones.BACK TO TOP

Georgia-Pacific Reports Fourth-quarter Loss

Paper and tissue giantGeorgia-Pacific posted a fourth-quarter loss todayas a result of huge special charges for a mill closure and amajor acquisition as well as lower demand for its products.

The maker of Dixie Cups, Northern Quilted toilet paper andBrawny kitchen rolls reported a net loss of $187 million or 98cents per share, compared with income of $175 million or $1.00a share, a year earlier.

Even before the charges, the results fell far short of WallStreet's already lowered expectations.

The company said in a statement that it took after-taxcharges of $184 million, or 96 cents a share, primarily for awrite-down of the Georgia-Pacific Tissue assets, which is beingdivested, and the closure of a paper mill at Kalamazoo, Mich.

Excluding the charge, it said, it lost $3 million, or 2cents a share, for the quarter.

Georgia-Pacific Group, the manufacturing and distributionbusiness of Georgia-Pacific, said the results alsoinclude the impact of the $7.3 billion purchase of rival FortJames Corp. and related interest on acquisition debt thatreduced net income by $23 million, or 12 cents a share.

Last month, Georgia-Pacific, which also sells woodproducts, said fourth-quarter operating profits would fall"substantially" below Wall Street estimates, partly due to weakdemand and prices for building materials.

Before the shortfall warning, analysts polled by FirstCall/Thomson Financial had on average expected earnings of 58cents a share. Afterward, that was lowered to 32 cents.

Net sales for the quarter rose to $5.52 billion from $5.31billion.

"Despite our efforts to match production with demand duringthe fourth quarter, we were unable to overcome the effects ofthe slowing U.S. economy and higher energy costs as well asoverwhelming declines in building products prices," saidGeorgia-Pacific Chairman and Chief Executive A.D. "Pete"Correll.

"Late in the fourth quarter, we began to experience weakmarket conditions that could persist for the next severalmonths," he said. "Looking ahead, we expect market conditionsto remain depressed in nearly all our businesses with theexception of consumer products, which we believe will weatherthe current economic downturn."

Georgia-Pacific is a leading manufacturer of tissue, pulp,paper and building products and related chemicals. With annualsales of approximately $27 billion, the company employs morethan 85,000 people at 600 locations in North America andEurope.BACK TO TOP

Restructuring Shaves Gillette's Profits

Shaving products giant Gillette posted a lossof $85 million in the fourth quarter due to a restructuring charge,but its profit before onetime items beat Wall Street expectations.

The company lost 8 cents a share in the October-December perioddue to a restructuring charge of $430 million, or 41 cents a share,for previously disclosed plans to cut 2,700 jobs and to close somefactories.

It earned $339 million, or 32 cents per share, a year earlier.

But it said earnings before the onetime charge rose 3 percent to$345 million, or 33 cents per share, in the latest period. That wasslightly better than the 32 cents expected by analysts surveyed byFirst Call/Thomson Financial.

Sales rose to $2.82 billion for the quarter from $2.8 billion ayear earlier.

The company has a strong portfolio of brands, but has seenmostly disappointing earnings reports in recent years.

As part of its plan to boost profit growth, the company lastmonth announced a restructuring program, saying it planned toeliminate about 8 percent of its work force and close eightfactories and 13 distribution centers.

Earlier this week, the company announced that James M. Kiltswould take over as chairman and chief executive, replacing DeGraan,who had been serving as acting CEO. Kilts, who engineered adramatic turnaround at Nabisco, will be the fourth CEO in twoyears.

For the year, the company earned $392 million, or 37 cents pershare, compared with $1.3 billion, or $1.14 per share, in 1999.Sales rose to $9.3 billion from $9.15 billion in 1999.

Edward F. DeGraan, president and chief operating officer, saidthe company made progress in reducing working capital requirementsand "addressing our underperforming product lines."

The company makes and sells a wide range of products, but isknown most notably for its razors and toiletry products for bothmen and women. It also produces alkaline batteries, hair products,toothbrushes, and small household appliances.BACK TO TOP

Honeywell's Net Income Drops by 10 Percent

High-tech manufacturer Honeywell International reported today a 10 percent drop in fourth-quarter income before special charges, due to highermaterials and overhead costs and business decisions related to itspending merger with General Electric.

The maker of aerospace, automotive and electronic productsposted income before charges of $569 million, or 70 cents pershare, in its October-December quarter. That just missed theforecast of analysts surveyed by First Call/Thompson Financial, whowere expecting earnings of 71 cents per share.

In the year-ago quarter, Morris Township-based Honeywellreported income of $630 million, or 78 cents per share, afteradjustments for several special charges.

Revenues for the quarter were up nearly 5 percent to $6.45billion from $6.16 billion.

Honeywell spokesman Tom Crane said earnings were reducedsomewhat because the company had halted some small divestitures and"a lot of the business activities that we were in the middle of inthe fourth quarter, primarily because of the GE merger."

Including one-time charges of $410 million, or $315 millionafter taxes, fourth-quarter net income was $254 million, or 39cents per share. The charges include costs of ongoing environmentalcleanups, write-downs of factory equipment that has depreciated,been sold or is no longer in use, and severance and other chargesrelated to the 1999 merger of AlliedSignal and Honeywell.

Including charges, Honeywell earned $7 million, or 1 cents ashare, in the fourth quarter a year ago.

For all of 2000, Honeywell earned $1.66 billion, or $2.05 pershare, up 7.7 percent from net income of $1.54 billion, or $1.90per share, a year earlier.

Revenues for the year rose 5.4 percent, to $25.02 billion from$23.74 billion.

"While our overall performance in 2000 was below expectations,we saw signs of encouragement in the second half of 2000, withsignificant contract wins in both aerospace and industrialcontrol" divisions, said Michael R. Bonsignore, Honeywell'schairman and chief executive Officer.

Honeywell makes equipment for aerospace systems, powergeneration, transportation and factory automation, as well asspecialty chemicals, plastics, fibers and other industrialmaterials. It was created in December 1999 when Minneapolis-basedHoneywell was acquired by Morris Township-based AlliedSignal.

In October, Honeywell agreed to be acquired by General Electricfor $45 billion in stock, although the value of the deal hasdeclined as GE's stock price has slumped. Crane said the merger isstill scheduled to be completed by the end of this quarter.

GE, based in Fairfield, Conn., is a diversified company thatproduces power plant parts, aircraft engines, appliances and ownsthe NBC television network.BACK TO TOP

International Paper makes paper, packaging and wood andbuilding products, as well as being the largest private forestlandowner in the world. It has operations in nearly 50countries, employs more than 117,000 people and exports itsproducts to more than 130 nations.BACK TO TOP

Mad Cow Takes a Bite out of McDonald's

Fast food giant McDonald's said today its fourth-quarter earnings fell 7percent as an outbreak of mad cow disease in Europe pushed theregion's sales down 10 percent and threatened to weaken thecompany's first quarter results.

Net income at the Oak Brook, Ill.-based hamburger maker,the largest restaurant company in the world, fell to $452 million,or 34 cents a share, from $486.2 million, or 35 cents a share, ayear earlier. McDonald's was expected to earn 35 cents a share,according to a recent poll of analysts by First Call/ThomsonFinancial.

McDonald's, which operates nearly 5,500 restaurants in Europe,its second-largest market behind the United States, has sinceNovember seen sales erode amid an outbreak of mad cow disease, orbovine spongiform encephalopathy, on the continent.

BSE is a chronic degenerative disease affecting the centralnervous system of cattle and is believed to be contracted throughfeed containing animal by-products. It has been linked to asimilar brain-wasting disease in humans.

CEO Jack Greenberg said in a statement that he expects adifficult first quarter of 2001 due to continued mad cow concerns,tough comparisons from last year, and an extra trading day in2000.

"We expect the first quarter to be very challenging, due tooutstanding results and an extra trading day in 2000, andcontinuing consumer confidence issues about European beef," hesaid.

The company has been battling public fears with stepped upadvertising and greater promotion of non-beef products.

Sales to Europe, the company's second-largest market behindthe U.S., fell 10 percent in the quarter to $2.21 billion from$2.45 billion one year ago. Operating income fell 17 percent to$267.3 million from $322.2 million.

"Europe got hit pretty hard," said Bear Stearns analyst JoeBuckley, who in June lowered his rating on McDonald's shares toneutral due to broader international concerns, includingfluctuations in the euro. "The problem with mad cow is that it isan unknown. No one knows how long these concerns last."

Systemwide sales, which include sales from restaurants ownedby franchises and those owned by the company, rose to $9.92billion from $9.75 billion a year ago.

Sales in the United States, McDonald's largest market, rose 3 percentto $4.82 billion, from $4.68 billion one year ago. Operatingincome rose 14 percent to $385.3 million from $338.9 million.Sales in Asia Pacific, McDonald's third-largest market, rose 3percent to $1.75 billion from $1.70 billion a year ago.

"Despite a number of operating challenges, our worldwidecomparable sales were positive and systemwide sales increasedseven percent in constant currencies for the year," Greenbergsaid.

The company plans to add about 1,700 restaurants in 2001, hesaid. The company said that 2001 per share earnings were expectedto grow between 10 percent to 13 percent, excluding the impact of foreigncurrency translation.

In the year, it plans to buy back about $1.2 billion in stock,the remainder of a three-year $4.5 billion plan. In 2000, itpurchased $2.0 billion worth.BACK TO TOP

Qwest Tops Wall Street

Telephone and data servicesprovider Qwest Communications todayposted a better-than-expected 44 percent jump in fourth-quarterprofits, propelled by robust growth in Internet, data andwireless telephone revenues.

Qwest, which acquired regional phone company U S West Inc.last year in a $36 billion deal, said in a statement it was ontrack to meet its targets for 2001 revenues and earnings beforeinterest, taxes, depreciation and amortization, or EBITDA, akey measure of a company's performance.

Andrew Hamerling, an analyst with Banc of America, calledthe results "terrific."

"Everything is as expected," he said. "Overall I'd say it'sa great quarter."

The Denver-based company said pro forma profits excludingone-time items rose to $270 million, or 16 cents a dilutedshare, compared with $188 million, or 11 cents a share, a yearago.

The results beat Wall Street expectations of 14 cents ashare, according to research firm First Call/ThomsonFinancial.

"With the initial integration of the [U S West] mergersuccessfully completed, we are on track to meet our expectedgrowth rates," Chairman and Chief Executive Joseph Nacchio saidin a statement.

Qwest said revenues rose 9.9 percent to $5.02 billion. Theincrease was driven by growth of almost 40 percent in Internetand data services.

Wireless revenues rose 90 percent to almost $150 million.The number of wireless customers increased to more than805,000, above the company's target of 800,000 for the end of2000.

Fourth-quarter EBITDA was up 19.7 percent, to $1.99billion.

Shares of Qwest have fallen about 10 percent amid sharpdeclines throughout the telecom sector over the past year. Itsstock has underperformed the Standard & Poor's 500 index byabout 4 percent.

The company also said it expected to double the number ofcustomers for its digital subscriber line (DSL) service, whichprovides high-speed Internet access over conventional phonelines, to 500,000 by the end of the year.

Qwest said it ended 2000 with more than 255,000 DSLcustomers, above its target of 250,000.

It also said it expected to file with the FederalCommunications Commission to enter long-distance service inseveral states by the end of 2001.

It expects to apply to reenter long-distance business inone of the states in its local service area by the summer.

Tavis McCourt, an analyst with Morgan Keegan & Co. Inc. inMemphis, Tenn., said entry into long-distance markets was vitalfor Qwest's growth.

"Certainly they are going to be as aggressive as possibleto make that a reality," he said.

Qwest reiterated that it expected 2001 revenues to be inthe range of $21.3 billion to $21.7 billion and EBITDA to be$8.5 billion to $8.7 billion.

Hamerling, the Banc of America analyst, said the biggestchallenge facing Qwest was to meet its target of 20 percentlong-term EBITDA growth.

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Whirlpool Reiterates Job Cuts

Appliance maker Whirlpool metWall Street's lowered fourth-quarter earnings expectations andaffirmed its global restructuring plan will mean up to 6,000 jobscut in the coming year.

The company said today it expects to trim more than 2,000jobs worldwide as part of the restructuring's first phase, withmore details to be announced within two weeks.

All told, the company shake-up — which will pare 10 percent ofWhirlpool's 60,000-member work force — will result in pre-taxcharges of $300 million to $350 million, with annualized savings of$225 million to $250 million, the company said.

"This will be a year of challenge and opportunity," David R.Whitwam, Whirlpool's chairman and chief executive, said in astatement. "We believe that our strong brands, global platform,innovative products and consumer focus — combined with ourrestructuring efforts and the associated lower cost structure —will produce a strong operational performance and solid financialresults in 2001."

Whirlpool said its fourth-quarter net earnings were $67 million,or $1 per share, compared with $113 million, or $1.51 per share,during the year-ago period.

Analysts surveyed by First Call/Thomson Financial were expecting99 cents per share, having lowered their estimate from $1.42 ashare after Whirlpool issued an earnings warning last month. At thetime, Whirlpool blamed intensified price competition, risingmaterial costs, and slowing or declining demand.

The company said sales during the three months ended Dec. 31were $2.58 billion, down 4 percent from $2.69 billion in theyear-ago period.

It added that it expects its first-quarter performance,excluding charges, to be in line with fourth-quarter earnings of $1per share. Analysts surveyed by First Call/Thomson Financial hadbeen expecting $1.02 per share.

The North American appliance industry has been expected to bedown 7 percent to 8 percent in the fourth quarter versus the sameperiod in 1999, Whirlpool said last month. Earlier companyestimates forecast a fourth-quarter decline in industry shipmentsof 2 percent to 3 percent.

Whirlpool has said its restructuring involves a reduction andreconfiguration of global operations, including the closure of someplants.

For the year, Whirlpool earned $367 million, or $5.20 per share,on sales of $10.33 billion. In the previous year, the companyearned $347 million, or $4.56 per share, on sales of $10.51billion.

Whirlpool is the world's largest manufacturer and marketer ofmajor home appliances. It sells products under 11 brand names inmore than 170 countries. The Benton Harbor-based company has majoroperations in seven states — Arkansas, Indiana, Michigan,Mississippi, Ohio, Oklahoma and Tennessee — and 12 countries,including Canada and Mexico.

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