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Jeffrey Immelt has even more reason to care about cash flow than he did before. In another sign that Corporate America's love affair with stock options is on the wane, the General Electric (GE) chief has a new equity package that will grant him stock only if the company's cash flow from operations rises at least 10% annually over the next five years.

The other half of the so-called performance share units, which are currently valued at $7.5 million, will go to him if GE stock meets or exceeds the performance of the Standard & Poor's 500-stock index over the same period. The deal replaces stock options, which GE is now expensing. Last year, Immelt got 1 million stock options, which vest in equal parts over five years.

GE also has changed the equity packages of several hundred other GE execs to give them a mix of options and restricted stock, rather than just options. For a company that has handed out options to more than 45,000 employees since 1989, it's a significant shift. But faced with the likelihood of having to expense options in the future, more companies may follow GE's lead. Tobacco companies have recently been battling on two fronts: smoker lawsuits and discount competition. On Sept. 16, the industry had a victory on one but suffered a loss on the other the next day. Good news came from the Illinois Supreme Court, which ruled that Altria (MO) Group's U.S. tobacco division could post a $6.8 billion bond in a class action, instead of $12.1 billion. That drove shares of the Marlboro maker up 10.4%, to $44.65. The court also agreed to the company's request that it review that loss. Analysts now expect an accelerated resolution of the class action. But the next morning, bad news came from Altria rival R.J. Reynolds (RJR) Tobacco. Citing a drop in both volume and margins, the maker of Camels and Winstons announced it would cut 40% of its workforce. The move will eliminate 2,600 jobs and carry $425 million in earnings charges. Investors greeted the news by bidding up RJR shares 13.7%, to $38.86. What did Enron's bankers know? Plenty, according to the Justice Dept. On Sept. 17, Justice indicted three Merrill Lynch (MER) execs for their alleged role in Enron's accounting shenanigans. At issue is a 1999 deal in which Merrill's bankers helped Enron boost profits by temporarily buying several power barges from the Houston energy trader. The Merrill executives, who are the first Wall Streeters to be indicted in the Enron scandal, pleaded not guilty. In an unusual deal, Merrill agreed to establish a panel of executives to approve all complex transactions conducted by its clients, hire an outside auditor, and retain an attorney -- handpicked by Justice -- to keep tabs on that auditor's work.

Corrections and Clarifications

"Enron's bankers feel the heat" (In Business This Week, Sept. 29) should have noted that the three Merrill Lynch employees indicted by the Justice Dept. no longer are with the company.

In the past two years, Krispy Kreme Doughnuts' (KKD) earnings have been sweeter than one of its glazed doughnuts. But suddenly sales aren't looking so delectable. Although operating earnings have averaged 63% quarterly growth over the past 10 quarters, overall average weekly stores sales were down 1.1% in the fiscal second quarter. "New unit productivity will continue to be a drag on systemwide average weekly sales," says John Ivankoe, a J.P. Morgan Securities analyst who recently downgraded the stock to "underweight." As for Winston-Salem (N.C.)-based Krispy Kreme, it insists results will keep rising in the double digits. Lockheed Martin (LMT) continued the defense industry's flight toward information technology with its Sept. 15 deal to buy San Diego-based Titan (TTN) for $2.4 billion. The Bethesda (Md.) company, the world's largest defense contractor, is buying a unit that could expand the intelligence, communications, and computer services it can offer the Pentagon. In August, Lockheed Martin agreed to buy much of the federal computer business of Dallas-based Affiliated Computer Services. The Senate dealt Federal Communications Commission Chairman Michael Powell another blow. On Sept. 16, the legislative body voted 55-40 to veto sweeping new rules passed by the FCC just three months ago to allow greater media consolidation. The vote is likely to be only a symbolic victory, however, because it falls short of the two-thirds majority needed to block a veto threatened by the White House. House Speaker J. Dennis Hastert (R-Ill.) has also vowed to block any companion resolution from reaching a vote in the House of Representatives. Still, he could be overruled if 218 House members request such a vote. -- United Airlines (UAL) parent UAL will launch a low-fare carrier next February.

-- Boston Scientific (BSX) revealed data showing its new drug-coated stent works as well as Johnson & Johnson (JNJ)

-- Sears (S) acquired the Structure men's brand from Limited Brands (LTD) Accounting scandals and terrorism should be a windfall for Kroll, which specializes in reducing corporate risk. But no one said there wouldn't be bumps along the way. Investors knocked 13% off Kroll shares, to $21.80, on Sept. 17, after it said it would miss its annual forecast because of a restructuring charge.

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