Earnings Reports for Oct. 23

— -- Lucent Ousts Chairman as Profits Fall

Lucent Technologies fired Chairman and Chief Executive Rich McGinn today, posted a22-percent drop in fourth-quarter profits, and slashed its salesand profit outlook for the first quarter of 2001.

McGinn’s ouster follows several quarters of disappointingprofits at the world’s largest telecommunications equipmentmaker, as well as manufacturing constraints and lateintroductions of new optical-networking products.

Lucent said its fourth-quarter profits from continuingoperations fell to $600 million, or 18 cents a share, down from$768 million, or 24 cents a share a year ago. Revenues for thequarter, which ended Sept 30, rose 14.6 percent to $9.4 billion,up from $8.2 billion.

The results were in line with Wall Street analysts’ reducedexpectations of 17 cents a share, according to research firmFirst Call/Thomson Financial.

Lucent’s problems have been widespread. It cut its growthforecasts four times this year, fell behind rivals NortelNetworks Corp. and Cisco Systems Inc. in introducing newproducts, and failed to keep up with booming customer demand foroptical networking products.

The stock has fallen about 70 percent so far this year,erasing about $180 billion in market value. The stock closed at$22-1/16, down 9/16, on the New York Stock Exchange.

Murray Hill, N.J.-based Lucent cited several reason for itsdisappointing fourth-quarter performance. Its sales and grossmargins in the optical business were lower than expected, dueprimarily to the late development of new products.

Sales of its traditional telephone switching products werelower than expected. It also faced pricing pressure in its keyproduct areas, including optical, switching and wireless,Lucent’s Chief Financial Officer Deborah Hopkins said.

Lucent’s board decided on Sunday to fire McGinn after itbecame clear that the problems would linger into 2001, pushingits revenues down 7 percent and wiping out any hopes of a profitin the first fiscal quarter ending Dec. 31.

Analysts had expected the company to post a profit of 23cents a share in the first quarter, compared with 33 cents ayear ago. Lucent expects results from operations will improvesequentially each quarter for the rest of fiscal 2001, but itdid not provide specifics.

Tom Lauria, an analyst with ING Barings, said he wassurprised by the extent of the company’s expected first-quarterprofit shortfall. “How do you have zero profit on $8 billion inrevenues?” Lauria asked.

Lucent also warned that it does not expect a significantincrease in sales of its optical products. Its weak performancecomes even as the rest of the industry has experienced thebiggest boom in demand for optical and data networkingequipment.

Some analysts speculated that Lucent had lower sales to keycustomers such as its former parent company AT&T Corp., whichmay have turned to other manufacturers.

AT&T bought about $4 billion in equipment and services lastyear, representing about 13 percent of Lucent’s revenues. Thisyear, sales to AT&T may drop to about $3 billion, or about 10percent of Lucent’s total sales, Lauria said.

Rumours of McGinn’s demise have swirled for months. Lucenthas been working to rebuild investor confidence, catch up torivals, and restructure operations. Although McGinn had said thecompany’s problems were “fixable,” investors and analysts hadsaid a bold management shake-up was needed.

In addition to firing McGinn, Lucent needs to cut about12,000 workers, or about 10 percent of its workforce, reduce itsproduct-development times, and boost its manufacturing capacity,analysts said.

Lucent said it may cut some workers, but it declined toprovide specifics. In an effort to stop the streak of profitshortfalls, Lucent is reviewing its product portfolio,realigning marketing and sales resources, improving supply chainmanagement, and adding a new customer ordering system.

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3M’s Profits Rise on Solid Sales

Minnesota Mining andManufacturing, the diversified manufacturer better known as3M, said today its third-quarter net income climbed 8percent, beating the average analyst forecast by a penny, helpedby solid sales growth in Asia.

The maker of products ranging from Post-It Notes totelecommunications equipment also said it expects to meetearnings expectations for the fourth quarter and next year.

The St. Paul, Minnesota-based conglomerate said it earned$499 million, or $1.25 diluted per share, in the quarter endedSept. 30, compared with $462 million, or $1.14 a diluted share,in the same period a year ago.

Analysts on average had expected 3M to earn $1.24 a share,according to First Call/Thomson Financial, which tracks earningsdata.

“3M continues to deliver solid, top-line-driven earningsgrowth,” L.D. DeSimone, 3M chairman and chief executive, said ina statement.

Third-quarter net sales rose 6.4 percent to $4.25 billion.

The company said sales momentum was particularly strong inthe Asia Pacific region, where it continues to expand itsproduct offerings.

However, currency translation reduced global sales by 3percent.

The company said its strong international presence, flow ofnew products and diversified portfolio helped to cushion it fromdisruptions in any single market or region.

“We’re confident in our ability to continue to deliversolid, consistent earnings growth,” DeSimone said.

The manufacturer’s range of products spans medicalequipment, pharmaceuticals and electronics to such familiarconsumer brands as Scotch tape and O-Cel-O sponges.BACK TO TOP

Corning More than Doubles Earnings

Fiber optics maker Corning said today its third-quarter profits more than doubled amid surging demand for optical fiber and components used incommunications networks, and that it expects earnings to growabout 25 percent next year.

Corning’s third-quarter pro forma earnings rose to $317million, or 35 cents a share, compared with $148.1 million, or19 cents a share, a year ago.

Earlier this month Corning said it expected earnings in therange of 34-35 cents a share. Analysts had expected the companyto earn 34 cents a share, according to research firm FirstCall/Thomson Financial.

Including one-time items, Corning’s net income totaled $254million, or 28 cents a share, compared with $142 million, or 18cents a share a year ago.

Revenues rose 54 percent to $1.9 billion, compared with$1.25 billion a year ago. Excluding the impact of acquisitions,sales increased 37 percent.

The Corning, N.Y.-based company said its solidthird-quarter performance was driven by strong demand forhigh-data-rate optical fiber and cable, optical amplifiers, andflat-panel display glass. Sales of photonic technologies grew113 percent, led by optical amplifier demand.

Optical fiber and components allow information to be sentacross glass cables using beams of light. Fiber optics allowmore data to be sent at faster speeds than traditional coppernetworks.

Corning and rivals such as JDS Uniphase and Nortel Networks have benefited from the surging demand for optical fiber as telephone and Internet companies race toupgrade their networks to handle increasing amounts of data,voice and video traffic.

Due to this booming demand, Corning recently raised itsgrowth outlook for 2000. It reiterated on Monday that itexpects full-year pro forma earnings per share in the range of$1.15 to $1.17, an increase of about 70 percent over lastyear’s earnings of 67 cents a share.

It also expects its 2001 growth to exceed Wall Streetexpectations.

“We believe our key growth businesses will lead the way forstrong revenue and earnings growth throughout 2001. Consistentwith our long-term growth objectives, we expect earnings togrow next year at a rate of about 25 percent,” said CorningChairman Roger Ackerman.

Its pending acquisition of Pirelli SpA’s optical-componentsbusiness will dampen growth by somewhat less than 5 percent,resulting in expected 2001 pro forma earnings per share in therange of $1.40 to $1.43.

Analysts currently expect Corning to earn $1.38 a share,compared with $1.17 a share in 2001, according to FirstCall/Thomson Financial.

Last month Corning said it would acquire a 90 percent stakein optical components maker Optical Technologies from Italiancable and tire company Pirelli SpA for $3.6 billion in aneffort to expand its product mix.

The deal will give Corning gets access to new products suchas speciality fibers, which manage light signals as they travelacross networks, or fiber gratings, which help manipulate orredirect light wavelengths. The equipment helps glass fibernetworks carry more data at faster speeds.

Separately, communications Level 3 Communications Inc.said Corning will be its worldwide supplier of optical fiberand cable for at least the next four years and will supply morethan 10 million kilometers of fiber.

Under the agreement, Level 3 and Corning will cooperativelyresearch, develop and deploy new and more cost effectivegenerations of optical fiber.

The deal builds on the two companies existing relationship.In August, Corning agreed to supply more than 2 millionkilometres of an enhanced generation optical fiber.

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SBC’s Earnings Fall

Local telephone company SBC Communications said today its third-quarter operatingprofits fell 0.7 percent but beat Wall Street expectations asresults were driven by strong growth in wireless and dataoperations.

San Antonio-based SBC’s third-quarter profits, excludingone-time items, fell to $1.96 billion, or 57 cents a share,compared with $1.97 billion, or 57 cents a share, a year ago. Theresults beat analysts’ consensus estimate of 56 cents a share,according to research firm First Call/Thomson Financial.

Including one-time items, SBC’s profits were $3 billion, or 88cents a share, compared with $1.1 billion, or 33 cents a share, ayear ago. Revenues rose 8 percent to $13.5 billion.

SBC, which has 53 million customers from Ohio to California,said its data revenues increased 46.1 percent to $2 billion.Wireless subscriber revenues jumped 20 percent to $1.7 billion asit added 486,000 subscribers in the quarter. SBC added 117,000digital subscriber line (DSL) subscribers, bringing the total to516,000.

“We are confident in our ability to deliver our targeteddouble-digit revenue growth and mid-teens earnings growthbeginning in 2001,” Chairman and Chief Executive Edward Whitacresaid.

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Radio Shack’s Profits Jump 29 Percent

Consumer electronicsretailer Radio Shack reported today a 29 percentincrease in third-quarter earnings that beat Wall Streetforecasts, as sales of digital products such as wireless phoneshelped results.

Net income in the third quarter ended September 30 rose to$77.1 million, or 39 cents a diluted share, compared with $59.8million, or 29 cents, in the same quarter a year ago.

Analysts on average had expected the Fort Worth, Texas-basedretailer to report a third-quarter profit of 38 cents a share,according to First Call/Thomson Financial.

RadioShack, which has more than 7,100 stores and dealers,reported sales of $1.14 billion, up from $960.3 million in theyear-ago quarter.

“All year long, consumer demand for digital products hasdriven RadioShack’s business, enabling us to achieve solid topline and bottom line growth in all three quarters of the year,”Leonard Roberts, chairman, president and chief executive ofRadioShack, said in a statement.

RadioShack is faring better than rival Circuit City Stores, which warned on Friday of a third-quarter loss due to asignificant decline in sales during the past four weeks.

Analysts said that although consumer electronics sales haveslowed from last year’s pace, Circuit City’s problems areexacerbated by the fact that the chain is undergoing anambitious three-year plan to remodel all of its stores, aprocess that can disrupt store traffic.

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American Express Meets Expectations

Financial services companyAmerican Express said today its third-quarter profitsrose 14 percent, as its customers all over the world spent moremoney with their charge cards.

The New York-based company, known for its signature greencharge cards and travelers checks, earned $737 million, or 54cents per diluted share, in the quarter, compared with $648million, or 47 cents, a year ago.

Wall Street had expected American Express to earn 54 centsa share, according to a consensus of analysts’ estimatescompiled by tracking service First Call/Thomson Financial.

American Express’s profits rose as it gained new customers,its cardholders rang up larger shopping bills on their chargeand credit cards, and more retailers accepted the cards.

Consumers continue to spend even as the U.S. FederalReserve put brakes on fast-paced U.S. economic growth throughsix interest rate increases between June last year and May thisyear.

The credit card industry also has become slightly lesscompetitive lately, as big players like Chicago-based Bank Onehave been sidelined by internal troubles.

American Express customers charged about 6 percent more ontheir credit cards in the third quarter than they did in theprior-year period. Card-holders charged an average of $2,041each in the quarter, up from $1,935 a year ago.

The number of its cards in circulation rose to 50.4 millionfrom 44.8 million in the quarter.

The company’s revenues rose to $5.55 billion in the thirdquarter from $4.92 billion last year. Its total billed businessrose to $74.8 billion, up from $64.1 billion a year ago.

At its travel-related services unit, which includes itscharge card business, American Express earned a record $507million in the quarter, up 14 percent from a year ago. Cardrewards program encouraged spending, and expanded merchantacceptance of its cards also helped, the company said.

Its Minneapolis-based investment advisory arm, AmericanExpress Financial Advisers, reported $269 million in profits,up 12 percent from last year. An increase in assets undermanagement boosted fee revenues, American Express said.BACK TO TOP

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Quaker Oats Q3 Profit Up 16%

Quaker Oats, maker of hotand cold cereals, said today its third-quarter earningsrose 16 percent, beating the average analyst forecast, oncontinued robust demand for its Gatorade sports drink.

The company also said it expects full-year 2000 earnings pershare growth before items in the range of 20 percent or slightlybetter.

The Chicago-based food company, whose stable of productsincludes breakfast bars, Rice-A-Roni side dishes and Aunt Jemimapancake mixes and syrup, said earnings rose to $159.2 million,or $1.15 per diluted share, in the quarter. That compares with$137.3 million, or $1.01 a diluted share, excluding unusualitems in the same period a year ago.

Analysts on average had expected the company to earn $1.11 ashare, according to First Call/Thomson Financial, which tracksearnings data.

Third-quarter net sales rose to $1.48 billion from $1.38billion a year ago.

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Gillette’s Profits Fall; Names New CEO

Gillette today reportedits third-quarter earnings fell 1 percent, meeting WallStreet’s estimates, as currency problems plagued the consumerproducts giant.

The Boston-based maker of razors and blades, Oral Btoothbrushes and Duracell batteries, also said Chairman andChief Executive Michael Hawley was retiring immediately. EdwardDegraan was named acting chief executive and Richard Pivirottowas named non-executive chairman of the board.

Gillette posted third-quarter earnings of $350 million, or33 cents a share, from continuing operations, compared withearnings of $355 million, or 32 cents per diluted share for thesame period in 1999.

Analysts surveyed by First Call/Thomson Financial hadestimated Gillette would earn 33 cents a share in the thirdquarter.

The company has had a string of disappointing earningsreports dating back to 1999, blaming a combination of foreignexchange rates and proper inventory stocking.

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AHP’s Profits Rise 18% Before Charge

American Home Products posted today a steep rise in quarterly operating profits,matching analyst expectations, but the No. 5 U.S. drug makersaid it would have to set aside additional funds for its dietdrug settlement for which it has already paid billions in the“fen-phen” case.

The Madison, N.J.-based maker of Advil, Robitussin and theoestrogen replacement drug Premarin reported net income of $762million, or 58 cents per share, in the third quarter vs. a netloss of $2.87 billion, or $2.20 cents, in the year-ago period.

The year-ago loss mainly reflected a $4.75 billionlitigation charge for a settlement related to the diet drugsRedux and Pondimin. Excluding this charge from the 1999third-quarter results, income from continuing operations in thelatest quarter increased 18 percent to $762 million from $645million.

Analysts on average had estimated that the company, whoseWyeth-Ayerst unit will pay the U.S. government $30 million forviolations at two plants, would post earnings of 58 cents pershare, according to research firm First Call/ThomsonFinancial.

Looking forward, AHP said it expects additional reserveswill be required in the diet drug settlement. It said thatthough it is still unclear how much that will amount to, AHPexpects it to be lower than the $4.75 billion recorded in the1999 third quarter.

A spokesman for the company declined to specify a range ofthe amount of reserves that would be used.

Patients typically combined either Pondimin or Redux withanother diet suppressant called phentermine to make the“fen-phen” diet cocktail. AHP recalled Pondimin and Redux in1997 after some of the 6 million Americans who had takenfen-phen developed heart problems, including leaky valves.

Overall net sales increased 13 percent from the samequarter last year.

Worldwide pharmaceutical sales increased 14 percent for thequarter, sparked by higher revenues from recently approvedpneumococcal vaccine Prevnar, meningitis treatment Meningitic,arthritis treatment Enbrel and ulcer medicine Protonix. Salesof Effexor XR, for which American Home Products received anexpanded indication, also showed strong growth.

Excluding the negative impact of foreign exchange rates,worldwide pharmaceutical sales increased 17 percent for the2000 third quarter.

Global consumer health care sales increased 7 percent forthe quarter, as sales of the Centrum family of vitamin productsrose. However, the company experienced a sales slowdown forcold, cough and allergy products, as well as for pain relieverAnacin.

Excluding the effect of weak foreign currencies, worldwideconsumer health care sales increased 8 percent for thequarter.

“The double-digit sales and earnings growth through thefirst three quarters of 2000 have been driven by increaseddemand for franchise products and enhanced by an impressivenumber of new products introduced into the marketplace,” saidChairman and Chief Executive Officer John Stafford in astatement.BACK TO TOP

Raytheon Meets Expectations

Raytheon’s third-quarter earningsmet Wall Street’s expectations, reversing a loss from the year-agoperiod, helped by an increase in aircraft deliveries.

For the three months ended Sept. 30, Raytheon earned $105million, or 31 cents per share, up from a loss of $163 million, or48 cents per share in the year-ago period.

Earnings from continuing operations were $133 million, or 39cents per share, in line with a consensus estimate from analystssurveyed by First Call/Thomson Financial.

The Lexington, Mass.-based aerospace and defense company lost $89 million, or 26 cents pershare, from continuing operations in the year-ago period, in partdue to charges of $464 million, or 84 cents per share.

Revenue rose to $4.16 billion, up from $4.12 billion a year ago.

Sales in most divisions were similar to a year ago. TheElectronic Systems division reported sales of $1.9 billion, downfrom $2.0 billion.

Raytheon Aircraft Company, a division the company is reportedlytrying to sell to reduce its debt burden, recorded sales of $749million, up 6 percent from a year ago due to higher aircraftdeliveries.

For the nine months ending Oct. 1, Raytheon recorded net salesof $12.56 billion, down 4 percent from $13.02 billion over the sameperiod last year. Raytheon has a net loss for the first nine monthsof the year of $23 million, compared with earnings of $332 millionin the year-ago period.

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Mattel’s Profits Fall

Mattel, in the midst of arestructuring and under new leadership, said its profit fell 22percent in the third quarter because of declining sales.

The company said today it earned $174.3 million, or 41 centsper share, from continuing operations in the quarter ended Sept. 30as compared with profits of $222.2 million, or 52 cents per sharein the same period last year.

The results were in line with estimates of analysts surveyed byFirst Call/Thomson Financial.

Sales increased by 2 percent in the United States, but fell 5percent in international markets, the company reported. Sales ofthe company’s two largest brands — Barbie and Fisher-Price —increased during the quarter.

Mattel reported its earnings the day after the sale of itsmoney-losing interactive toy division, The Learning Co.

Mattel took a one-time charge of $441 million as the result ofthe sale, but said the sale would save it $1 million a day inoperating losses.

The company’s disastrous experience with The Learning Co. costformer chief executive Jill Barad her job. Barad was replaced inMay by chief executive Robert A. Eckert.

The company also took a restructuring charge of $74 million, or18 cents per share. Including one-time charges, the company lost$336.8 million, or 79 cents per share, in the quarter.

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U.S. Airways Loses $30 Million in Q3

U.S. Airways, the No.6 U.S. airline, said today it lost $30 million in thethird quarter, more than expected, amid tough competition andfuel costs 75 percent higher than a year earlier.

Arlington, Va.-based US Airways, which has agreed to bebought by United Airlines parent UAL for $4.3 billion,said it lost 45 cents a share, compared with a loss of $85million, or $1.19 a share, in the period a year earlier, whenthe carrier suffered from a high degree of cancellationsbecause of bad weather and a slowdown by mechanics.

Analysts had on average forecast that US Airways would lose19 cents a share in the recent quarter, according to FirstCall/Thomson Financial.

Revenues rose 13 percent, to $2.38 billion from $2.10billion a year earlier.

US Airways shares closed at $32-1/4 on Tuesday, down 9/16,despite the $60 a share offer price in the UAL deal, amidwidespread doubts that regulators will allow the deal to closeas envisioned.

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Wachovia Will Cut JobsSoutheast U.S. regional bankWachovia reported today a 20 percent drop inthird-quarter net income because of merger costs and chargesrelated to a sweeping restructuring plan, but operating resultsmet Wall Street expectations.

Excluding merger costs and restructuring charges, theWinston-Salem, N.C.-based bank’s earnings were up about 4percent to $270.2 million, or $1.32 a share. Including thecharges, Wachovia earned $205.3 million, or $1.00 a dilutedshare, in the third quarter. That compares with reported netincome of $257.5 million, or $1.25 a share, a year ago.

Wall Street was expecting the company to post operatingearnings of $1.32 a share, according to market research firmFirst Call/Thomson Financial. Wachovia, which is the process ofcutting 1,800 jobs as it revamps its operations, said pre-taxrestructuring charges and merger-related costs totalled $99.8million in the third quarter. The bank said the rest of therestructuring charges, about $30 million, will be taken in thenext two quarters.

Wachovia’s provision for loan losses in the third quarterwas $124 million, up from $76.8 million during the same periodlast year. Net interest income, after the provision for loanlosses, fell 6 percent to $506.8 million.

The bank holding company in June warned investors thatrising interest rates would hurt second-quarter and full-yearprofits. In September it said its president and chief operatingofficer, G. Joseph Prendergast, would retire after the end ofthis year.

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Visteon Earnings Fall

Third-quarter earnings at auto parts supplierVisteon Corp. fell 69 percent due to price and production cuts byits former parent, Ford Motor Co.

Visteon said its earnings totaled $48 million, or 37cents a share, for the three months ended Sept. 30, compared with$155 million, or $1.19 a share, in the year-ago period.

The results equaled Wall Street expectations that Visteon hadlowered in August, according to analysts surveyed by FirstCall/Thomson Financial.

Revenues fell 4 percent, from $4.6 billion to $4.4 billion.

Visteon attributed the earnings decline to a 5 percent price cutgiven to Ford before being spun off as a separately traded company.Ford accounted for 83 percent of Visteon’s business in the thirdquarter, Visteon’s first full quarter on its own since the spinoffin June.

Visteon also was hurt by the shutdown at three Ford factories toshift tires from new cars to replacing 6.5 million recalledFirestone tires. The parts maker also said the weakness of the euroagainst the dollar dragged on profits as well.

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