News Archive


Starbucks coffee in California must have cancer warning, judge says

(Reuters) – Starbucks Corp (SBUX.O) and other coffee sellers must put a cancer warning on coffee sold in California, a Los Angeles judge has ruled, possibly exposing the companies to millions of dollars in fines.

FILE PHOTO – A woman holds a Frappuccino at a Starbucks store inside the Tom Bradley terminal at LAX airport in Los Angeles, California, United States, October 27, 2015. REUTERS/Lucy Nicholson

A little-known not-for-profit group sued some 90 coffee retailers, including Starbucks, on grounds they were violating a California law requiring companies to warn consumers of chemicals in their products that could cause cancer.

One of those chemicals is acrylamide, a byproduct of roasting coffee beans that is present in high levels in brewed coffee.

Los Angeles Superior Court Judge Elihu Berle said in a decision dated Wednesday that Starbucks and other companies had failed to show there was no significant risk from a carcinogen produced in the coffee roasting process, court documents showed.

Starbucks and other defendants have until April 10 to file objections to the decision.

Starbucks declined to comment, referring reporters to a statement by the National Coffee Association (NCA) that said the industry was considering an appeal and further legal actions.

“Cancer warning labels on coffee would be misleading. The U.S. government’s own Dietary Guidelines state that coffee can be part of a healthy lifestyle,” the NCA statement said.

In his decision, Berle said: “Defendants failed to satisfy their burden of proving by a preponderance of evidence that consumption of coffee confers a benefit to human health.”

Officials from Dunkin’ Donuts (DNKN.O), McDonald’s Corp (MCD.N), Peet’s and other big coffee sellers did not immediately respond to requests for comment.

The lawsuit was filed in 2010 by the Council for Education and Research on Toxics (CERT). It calls for fines as large as $2,500 per person for every exposure to the chemical since 2002 at the defendants’ shops in California. Any civil penalties, which will be decided in a third phase of the trial, could be huge in California, which has a population of nearly 40 million.

CERT’s lawyer Raphael Metzger did not immediately respond to a request for comment.

Starbucks lost the first phase of the trial in which it failed to show the level of acrylamide in coffee was below that which would pose a significant risk of cancer. In the second phase of the trial, defendants failed to prove there was an acceptable “alternative” risk level for the carcinogen, court documents showed.

Several defendants in the case settled before Wednesday’s decision, agreeing to post signage about the cancer-linked chemical and pay millions in fines, according to published reports.

Reporting by Nate Raymond; Additional reporting by Lisa Baertlein; Writing by Andrew Hay; Editing by Richard Chang and Leslie Adler

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Walmart talking with Humana on closer ties; acquisition possible: sources

(Reuters) – U.S. retailer Walmart Inc (WMT.N) is in early-stage talks with health insurer Humana Inc (HUM.N) about developing closer ties, with the acquisition of Humana being discussed as one possibility, people familiar with the matter said on Thursday.

Shopping carts are seen outside a new Wal-Mart Express store in Chicago July 26, 2011. REUTERS/John Gress/Files

Should the talks lead to a tieup, it would be the latest deal to bring together a retail chain and a health insurer in the last few months, following CVS Health Corp’s (CVS.N) $69 billion deal to acquire Aetna Inc (AET.N) and Cigna Corp’s (CI.N) $54 billion deal to buy Express Scripts Holding Co (ESRX.O).

Walmart approached Humana earlier this month and the deliberations are preliminary, two of the sources said. While the conversations have focused on new partnerships, an acquisition of Humana by Walmart is also something being discussed, the sources added.

The sources asked not to be identified because the deliberations are confidential. Humana and Walmart declined to comment.

Walmart and Humana have market capitalizations of $264 billion and $37 billion, respectively.

An acquisition of Humana would represent a significant strategic shift for Walmart, which is the world’s largest retailer and has been focused on fending off Amazon.com Inc (AMZN.O) in online shopping.

Amazon has also been looking at entering the healthcare sector. Earlier this year, Amazon, Berkshire Hathaway Inc (BRKa.N) and JPMorgan Chase Co (JPM.N), said they would form a company aimed at cutting healthcare costs for their U.S. employees.

“The risks (for Walmart) of becoming entangled in the complex U.S. healthcare industry are considerable, especially at a time when Walmart is grappling with the competitive challenges of a rapidly shifting retail market,” Neil Saunders, managing director of retail consultancy GlobalData Retail, wrote in a note.

“The hammering out of any agreement, which would be Walmart’s largest ever corporate deal, would, of itself, be an enormous distraction,” Saunders added.

Walmart currently has a co-branded Medicare drug plan with Humana that steers patients to Walmart stores. The partnership offers a prescription drug plan that can save up to 20 percent in drug costs for customers.

Closer ties between the two companies could allow Walmart to tap into Humana’s patient population, expanding low-level medical services in its pharmacies to avoid ER visits. They could allow it to better manage prescription drug use though access to medical records.

Humana’s biggest business is managing Medicare Advantage health plans for older and disabled people, a heavily regulated business that Walmart would have to take on in an acquisition.

Memberships in retail Medicare Advantage plans – where individuals sign up directly with Humana – rose about 1 percent to 2.86 million, as of Dec. 31. Employer or other group-based Medicare Advantage membership climbed 24 percent to 441,400.

Last month, Walmart reported a sharp drop in profit and online sales growth during the critical holiday period and forecast annual profit at the lower end of expectations.

Reporting by Carl O’Donnell and Greg Roumeliotis in New York; Additional reporting by Nandita Bose and Michele Gershberg in New York; Editing by Sandra Maler and Leslie Adler

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Eager for calming news, investors look to earnings

NEW YORK (Reuters) – Nervous stock investors are hoping an unusually U.S. strong earnings season can restore some of the optimism that characterized equity markets last year.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 26, 2018. REUTERS/Brendan McDermid

Imploding technology stocks and fears of a trade war have pummeled the market in recent days. Given the surge in volatility this year, there is no guarantee that worst is over.

Analysts predict strong results when reporting season starts up next month, with first-quarter SP 500 profit growth on track to be the highest in seven years, according to Thomson Reuters data. That follows a blockbuster fourth-quarter period, and recent corporate tax cuts that boosted forecasts for all of 2018.

A robust earnings period would bring back the focus on fundamentals and possibly put a floor under prices, supporting views that the 9-year-old bull market will go on, strategists said.

“It’s going to be earnings,” said Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC in New York. “The market has given up so much that earnings can start to redirect attention back into a market that has gotten much cheaper relative to where we were.”

With this year’s sell-off and rising profit forecasts, stocks also are near the cheapest on a price-to-earnings basis that they have been since late 2016. The SP 500 is trading at about 16.5 times forward earnings, well below the 18.9 level it was at in mid-December, according to Thomson Reuters data.

(To view a graphic on SP PEs, click tmsnrt.rs/2E5ntYM)

Stocks’ rout in early February, and more recent selling following worries over a U.S. trade war with China, Facebook privacy issues and a collapse in other tech leaders, have made investors skittish and more likely to discount the relatively strong economic backdrop that persists.

“We’ve been caught up in all of these things that could happen and may happen and that the sky is falling, but once earnings season kicks in, it’s headline news and that steals away some of the negativity,” said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta.

To be sure, next week brings the monthly U.S. jobs report, a potential catalyst for further volatility. A strong payrolls report in early February had helped spark the stock sell-off that drove the SP 500 more than 10-percent below its Jan. 26 record high – a “correction.”

The job report briefly drove up bond yields and touched off worries that the Federal Reserve may need to speed up interest rate hikes. The SP 500 is now about 8 percent below its record.

Just in the first three months of this year, the SP has jumped or fallen 1 percent on 23 trading days, three times the number of 1-percent moves it made in all of 2017. In 2016, there were 48 such days.

Market participants agree that U.S. stocks are unlikely to return to the unusually calm conditions seen last year, when the Cboe Volatility Index, the most widely-followed barometer of expected near-term ups and downs for the SP 500, logged a record low daily average reading of 11. The VIX hit a two-and-a-half-year high above 50 in early February.

Expectations for U.S. earnings this year have jumped since December, when U.S. lawmakers approved sweeping changes to the tax law, including slashing the corporate tax rate to 21 percent from 35 percent. Growth in other major economies has also lifted profit forecasts for the large stocks that generate a lot of sales overseas.

Analysts now expect first-quarter earnings for SP 500 companies to rise 18.5 percent from a year ago, according to Thomson Reuters data.

The first-quarter SP profit forecast is up 6.3 percentage points since Jan. 1, while the forecast for all of 2018 is up 7.7 points since then, based on Thomson Reuters data.

That suggests the bar might be relatively low for the first quarter. “You still could see some relative upside there,” said Keith Parker, U.S. equity strategist at UBS.

Many companies already have announced plans for increased buybacks and dividends, or bringing cash back from overseas, and other ways to use their tax savings. More news on that front is expected this reporting period, which is set to start with reports from JPMorgan Chase and others April 13.

“If we get a discussion of repatriation – what companies are going to bring back … that will have a positive effect on the market,” said Bucky Hellwig, senior vice president at BBT Wealth Management in Birmingham, Alabama.

Reporting by Caroline Valetkevitch; additional reporting by Saqib Iqbal Ahmed; editing by Alden Bentley and Nick Zieminski

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FirstEnergy seeks emergency lifeline for U.S. nuclear, coal plants

NEW YORK/WASHINGTON (Reuters) – U.S. power company FirstEnergy Corp (FE.N) urged the federal government on Thursday to evoke little-used emergency powers to help it keep several struggling nuclear and coal-fired power plants open, a move critics blasted as an attempt at a corporate bailout.

FILE PHOTO – U.S. Energy Secretary Rick Perry speaks to reporters during a briefing at the White House in Washington, U.S., June 27, 2017. REUTERS/Kevin Lamarque

FirstEnergy’s FirstEnergy Solutions unit called on U.S. Energy Secretary Rick Perry to use the emergency powers to order PJM Interconnection, the regional power grid operator, to negotiate a contract that would compensate owners of coal and nuclear plants for the benefits such as reliability and jobs those units provide.

On Wednesday, the company said it would shut several nuclear plants in Ohio and Pennsylvania in the next three years without some kind of relief.

PJM, in response, rejected the need for an emergency order to help FirstEnergy. “Nothing we have seen suggests there is any kind of emergency from these units retiring,” said Vincent Duane, senior vice president at PJM, calling the problem “fundamentally a corporate issue.”

Coal and nuclear power plant operators have struggled in recent years as low natural gas prices from the shale boom have spurred utilities to retire dirtier coal plants. Last year, Perry proposed a plan that would subsidize coal and nuclear for providing what is known as base-load generation, which refer to units that run around the clock.

However, U.S. regulators rejected that proposal in January, and said they would conduct a study on grid resilience. Many grid operators, including PJM, have said they already factor in reliability of their systems and the fuel resources available to generate electricity.

FirstEnergy said in November 2016 that it would exit the competitive generation business overseen by FirstEnergy Solutions as natural gas has taken up a greater part of the power load.

On Wednesday, FirstEnergy Solutions said it told PJM it would retire all of its nuclear reactors in Ohio and Pennsylvania, totaling 4,048 megawatts (MW), in 2020 and 2021.

One megawatt is enough power for 1,000 U.S. homes.

FirstEnergy said it wants an emergency order because the power grid’s reliability is threatened, due to the “premature retirement of plants that have many years of useful life but cannot operate profitably under current market conditions.”

PJM said, however, that FirstEnergy’s assets “have been financially stressed for some time.”

The U.S. Department of Energy said it received FirstEnergy’s request and will now go through its standard review process, but it did not comment further. PJM said such a request, if granted, would effectively circumvent the Federal Energy Regulatory Commission, putting it in “uncharted waters.”

The use of emergency orders related to power generation has been minimal, having been evoked only eight times since December 2000, according to the Energy Department, usually in response to natural disasters or blackouts.

Advanced Energy Economy, a efficient energy trade group, called the move a “blatant appeal” by FirstEnergy for a corporate bailout.

“This outrageous attempt to evade established market procedures is unprecedented,” said Malcolm Woolf, senior vice president of policy for AEE.

Other companies have sought assistance from federal, state and regional officials to keep their coal and nuclear plants in service, and some states, including New York and Illinois, have offered subsidies to nuclear plants.

These companies argue that the diversification of fuel sources is necessary to keep the power grid operating in the most optimal way. More coal plants are expected to be decommissioned in coming years, and natural gas recently surpassed coal as the biggest source of power generation in the United States.

Most states are also putting rules in place to boost generation through renewable sources.

Reporting by Scott DiSavino in New York and Valerie Volcovici in Washington; editing by David Gaffen, Steve Orlofsky and Tom Brown

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U.S. stocks jump in upbeat end to tumultuous quarter

NEW YORK (Reuters) – Wall Street jumped on Thursday, and was on track to end a holiday-shortened and tumultuous week in positive territory as investors returned to technology stocks.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 26, 2018. REUTERS/Brendan McDermid

As March drew to a close, however, the SP 500 .SPX and the Dow Jones Industrial Average .DJI were on pace for their worst quarterly declines in more than two years.

“Markets are closing out a weak quarter as they adjust to a new regime of higher rates, potential higher inflation and political uncertainty,” said David Carter, chief investment officer at Lenox Wealth Advisors in New York. “Fundamentals, however, like economic growth and equity valuations, remain supportive.”

The year started strong, but early gains evaporated as the markets entered a correction over interest rate jitters, fears of a global trade war, and a selloff in the tech sector.

Tech stocks reversed course on Thursday as the SP 500 information technology index .SPLRCT rose 2.5 percent and helped push the SP 500 more than 1 percent higher, with the Dow and Nasdaq also rallying.

Technology gains were led by Facebook (FB.O), Apple (AAPL.O), Alphabet (GOOGL.O) and Microsoft (MSFT.O) shares.

“Tech recovered after a weak few days as the sector remains one of the few to offer very strong growth in the near future,” said Carter.

At 2:13PM ET, the Dow Jones Industrial Average .DJI was up 365.84 points, or 1.53 percent, at 24,214.26, the SP 500 .SPX gained 41.9 points, or 1.61 percent, to 2,646.9 and the Nasdaq Composite .IXIC added 136.93 points, or 1.97 percent, to 7,086.15.

Trading volume was light ahead of the long holiday weekend.

Investors were unfazed by economic reports showing a slight increase in consumer spending and initial jobless claims dropping to more than a 45-year low.

In other data, core personal consumption expenditures (PCE) rose by 1.6 percent year-on-year. The price index is the U.S. Federal Reserve’s preferred inflation measure, and has been below the central bank’s 2 percent target since mid-2012.

Amazon.com (AMZN.O) climbed 1.0 percent, recovering from a 4.6 percent drop after President Donald Trump criticized the online retailer via Twitter early Thursday, claiming without evidence that the company pays “little to no taxes to state local governments.”

Stocks shot up earlier in the week as comments from officials in the United States and China suggested the world’s two largest economies would renegotiate tariffs and trade imbalances, averting a trade war.

But trade war fears led global investors to cut their equity exposure to a four-month low in March and reduce their holdings of U.S. stocks to the lowest in nearly two years, according to a Reuters poll.

Advancing issues outnumbered declining ones on the NYSE by a 5.03-to-1 ratio; on Nasdaq, a 3.57-to-1 ratio favored advancers.

Reporting by Stephen Culp; Editing by Susan Thomas

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Trump escalates attack on Amazon, focusing on tax, shipping

WASHINGTON (Reuters) – U.S. President Donald Trump accused Amazon.com Inc (AMZN.O) on Thursday of not paying enough tax, taking advantage of the U.S. postal system and putting small retailers out of business, but did not present any evidence to back up his criticisms or suggest any specific actions he planned to take.

Trump has attacked Amazon and its Chief Executive Jeff Bezos several times, and his latest comment on Twitter came a day after news website Axios reported that Trump was obsessed with the world’s largest online retailer and wanted to rein in its growing power with federal antitrust laws.

“I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!” Trump tweeted early on Thursday.

Amazon shares fell as much as 4.5 percent in morning trade, but later pared losses, down 1.3 percent at midday. The stock dropped 5 percent on Wednesday following the Axios report. Amazon declined to comment on the tweet.

It was not clear what Trump’s comments were based on.

Amazon has in the past been criticized for attempting to skirt state sales taxes, but since April last year it has voluntarily collected state sales tax on items it sells direct to customers in all 45 states that have one. Amazon does not have to collect taxes on third-party or marketplace sellers.

States and municipalities could gain between $8 billion and $13 billion in annual revenue if they could require online retailers to collect sales tax, according to the non-partisan Government Accountability Office.

  • Trump ‘has no actions’ against Amazon: White House
  • Amazon’s Washington influence machine built to withstand Trump’s attacks

The issue is still being disputed at the federal level, with the U.S. Supreme Court set to hear oral arguments on April 17 in a case which could reverse a 1992 decision and let states require online retailers to collect state sales tax.

Washington and Pennsylvania recently enacted laws requiring collection of third-party merchants’ sales taxes, and other states are expected to follow.

POST DISPUTE

Trump’s charge that Amazon causes the United States Postal Service (USPS) to lose money is unsubstantiated.

Details of Amazon’s payments to USPS, which delivers its packages to millions of U.S. consumers and businesses, are not publicly known. USPS declined to comment on Trump’s tweet.

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An independent agency of the U.S. federal government, USPS reported a net loss of $2.7 billion for fiscal 2017, largely due to increased costs of retirement benefits.

Lucrative online retail delivery for Amazon and other online retailers is the fastest-growing part of USPS’ business, helping offset a sharp decline in regular first-class mail. Its revenue from shipping and packages in fiscal 2017 was $19.5 billion, up 13 percent from the previous year.

“Common sense suggests USPS needs Amazon more than Amazon needs USPS,” Stifel analysts wrote in a research report this week.

PERSONAL VENDETTA?

Amazon founder Bezos also privately owns the Washington Post, which won a Pulitzer Prize last year for its investigation of Trump’s donations to charities. The probe found that many of Trump’s philanthropic claims were exaggerated and often were not charitable donations. Trump often refers to the paper on Twitter as the #AmazonWashingtonPost.

White House Deputy Press Secretary Raj Shah denied on Thursday that Trump’s criticism was a personal grudge.

“A lot of people have made this, with respect to Amazon, about personalities and the CEO at Amazon – we’re talking about Jeff Bezos here,” he said on Thursday on the Fox News channel. “It’s really about policy.”

Shah said Trump was not making specific policy changes.

“There are a number of proposals that have worked their ways through the House and the Senate or have been considered by the House and the Senate. He’d be supportive of such efforts,” he said.

Additional reporting by Damon Darlin in Washington and Sonam Rai in Bengaluru; Editing by Mary Milliken and Bill Rigby

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Melrose wins UK engineer GKN with $11 billion hostile bid

LONDON (Reuters) – Melrose Industries (MRON.L) has narrowly clinched an 8 billion-pound ($11 billion) takeover of British engineer GKN (GKN.L), winning an acrimonious three-month battle for control of the FTSE-100 company.

FILE PHOTO: Branding is seen outside the headquarters of GKN in Redditch, Britain, March 12, 2018. REUTERS/Hannah McKay/File Photo

The UK-based turnaround specialist said on Thursday that 52.4 percent of GKN’s shareholders had accepted its hostile cash-and-shares offer by the time the deadline for a deal expired at 1200 GMT.

That just surpassed the acceptance threshold of 50 percent plus one share that Melrose had set for the takeover of the aerospace and automotive parts supplier.

It means Melrose has triumphed with Britain’s biggest hostile bid since Kraft pounced on confectionery giant Cadbury in 2009.

GKN supplies parts to carmakers such as Volkswagen, components to aircraft including the Eurofighter Typhoon and produced Spitfires during the Second World War.

Given its status as a mainstay of British engineering, Melrose’s bid has attracted close scrutiny from politicians.

The turnaround specialist’s motto is “buy, improve, sell” which provoked fears among some lawmakers about the security of GKN’s 6,000 British employees and the future of the engineer’s pension schemes.

It also raised concerns Melrose could in the future sell GKN’s aerospace business, which is involved in defense programs, on to an overseas buyer in a move that might have implications for national security.

Seeking to address such concerns, Melrose made a series of legally binding commitments about GKN’s future this week. They included pledges on research and development expenditure and a promise the combined firm would remain headquartered in Britain.

FILE PHOTO: Branding is seen outside the headquarters of GKN in Redditch, Britain, March 12, 2018. REUTERS/Hannah McKay/File Photo

“During the bid, Melrose made commitments which they are bound to honor,” business minister Greg Clark said.

“Now that shareholders have made their decision the government has a statutory responsibility to consider whether the merger in its proposed final form gives rise to public interest concerns,” he added.

“This assessment will be made by the appropriate authorities and the conclusion set out in due course.”

The trustees of GKN’s pension schemes said they were looking forward to working with Melrose.

Rebecca Long-Bailey, business spokeswoman for the main opposition Labour Party, said the government had “acted too little, too late.”

“They have allowed a takeover to happen which may harm both our national security and industrial strategy,” she said.

SHARES RISE

GKN, led by chief executive Anne Stevens, had put up a staunch defense that included striking a separate deal to merge its autos division with U.S. firm Dana (DAN.N), a tie-up that was dependent on the failure of the Melrose takeover.

“We are delighted and grateful to have received support from GKN shareholders for our plan to create a UK industrial powerhouse with a market capitalization of over 10 billion pounds and a tremendous future,” said Christopher Miller, Melrose’s chairman.

Melrose added that it urged hold-out GKN shareholders to accept its bid, which will now stay open. It expects to declare the offer unconditional by April 19.

Melrose shares closed up 3.4 percent at 231 pence, lifting the value of its offer for the engineer to about 471.4 pence per GKN share. That values GKN as a whole at about 8 billion pounds.

Shares in GKN finished up 9.5 percent at 463 pence.

Despite Melrose’s victory, GKN said it still believed the bid “fundamentally undervalues” its business.

However, given Melrose will take control of the engineer when the offer is declared unconditional, GKN said it now recommended its shareholders accept the bid.

Melrose plans to delist the company if it secures acceptances from 75 percent, which would leave investors who have still not backed the offer with a stake in an unlisted business.

The statement from GKN did not include a comment from either Stevens or Chairman Mike Turner, who have both fiercely opposed Melrose since it first made an approach in early January and quickly became embroiled in a war of words with the bidder.

Meanwhile, the chief executive of Ohio-based Dana, James Kamsickas, said he was disappointed by the outcome. He added the U.S. firm still believed it was “the best owner and operator” of GKN’s auto parts business.

It is possible that Dana could revive a deal for the business with Melrose in the future, a source close to GKN said.

($1 = 0.7128 pounds)

Reporting by Ben Martin; Editing by Adrian Croft and Mark Potter

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Apple unveils new privacy tools ahead of EU law

BRUSSELS (Reuters) – Apple is introducing new tools that will allow consumers to control how their data are used and deactivate their Apple ID accounts, as tech companies strive to bring their services into line with a tough new EU data protection law.

A 3D printed Apple logo is seen in front of a displayed European Union flag in this illustration taken September 2, 2016. REUTERS/Dado Ruvic/Illustration

Tech companies have long been scrutinized for how they protect their customers’ data and Facebook is currently embroiled in a huge scandal where millions of users’ data were improperly accessed by a political consultancy.

The European Union General Data Protection Regulation (GDPR) enters into force on May 25 and is the biggest shake-up of privacy rules since the birth of the internet. It introduces stiff fines of up to 4 percent of global turnover for companies found to be in breach.

Apple users worldwide will see a new data privacy information page when they update the software from Thursday on their iPhones explaining an icon which will appear when an Apple feature collects personal information.

The icon will not appear on features such as Apple’s Maps or Siri, for example, because they do not collect user data, whereas it will appear on the App Store or iTunes.

FILE PHOTO – A customer compares his newly purchased iPhone X to an older phone at an Apple store in New York, U.S., November 3, 2017. REUTERS/Lucas Jackson

From May the device-maker will introduce new privacy management tools on the Apple ID website allowing users to get a copy of all their data held by Apple, request a correction, deactivate or delete their account.

Facebook has also announced some privacy changes ahead of the entry into force of the EU law which is seen as raising standards worldwide as companies introduce changes globally.

Apple has distanced itself from the likes of Google and Facebook who collect user data to serve them targeted advertising, saying its customers are not the product.

Apple’s changes are designed to give users the right to data portability, a new right introduced by GDPR, by allowing them to get a copy of their data which can be transferred to another service.

Reporting by Julia Fioretti; Editing by Keith Weir

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GE charge, restatement may help explain cash issues

NEW YORK (Reuters) – General Electric Co is poised to shine light into a sizable part of its financial black box, an area that governs how it estimates revenue from long-term contracts.

The logo of General Electric Co. is pictured at the Global Operations Center in San Pedro Garza Garcia, neighbouring Monterrey, Mexico, May 12, 2017. REUTERS/Daniel Becerril

The 126-year-old, Boston-based industrial conglomerate is due to publish figures soon that analysts say should help explain why it receives less cash from earnings than the industry average. The company has indicated it may release the figures by the end of this month.

The increased disclosure stems from new accounting standards that require companies to reveal more about how they estimate revenue from such long-term contracts, known as contract assets.

Companies typically use the cost of providing services as a basis for revenue estimates, but the process can lead to over- or under-estimating the value of the contracts, experts say.

GE’s contract asset tally has soared 70 percent to $28.8 billion in 2017, from $16.9 billion in 2014, most of it in its power and aviation units. The majority of the total reflects revenue GE has already booked but for which it has not billed customers, which creates the gap between profit and cash flow, according to GE’s regulatory filings.

GE’s accounting is under scrutiny after earnings swung to a loss last year and GE said its 2018 results would be at the low end of its forecasted range. The U.S. Securities and Exchange Commission also is looking into GE’s accounting for contract assets, raising investor concern. GE has said it is not overly concerned about the investigation.

The logo of General Electric is seen at its plant in Baden, Switzerland November 15, 2017. REUTERS/Arnd Wiegmann

GE said in February that it expects to take a $4.2 billion accounting charge as it switches to the new standard. Some analysts think the charge could be higher, since competitors of GE’s power business say the company is signing long-term service contracts at low prices to win equipment sales.

“That’s what the competitors have been grousing,” Deane Dray, analyst at RBC Capital Markets, said on Wednesday.

If the charge is close to what GE disclosed, it could bolster GE Chief Executive John Flannery’s credibility, which has been dented by falling profit and a charge for old insurance policies revealed in January.

GE also is restating financial results for 2016 and 2017 so that 2018 results will be comparable. The company’s financial situation has prompted talk that it might raise capital. Its shares rose on Tuesday after reports that billionaire investor Warren Buffett may buy a stake after selling last year.

GE declined to comment on the Buffett reports. It said it chose to restate prior earnings – a more exacting standard under the new rules – because it will allow investors to compare 2018 results with the prior years on the same basis. “We chose that approach because we believe that it is the most helpful to our investors,” GE spokeswoman Jennifer Erickson said.

Reporting by Alwyn Scott; Editing by Matthew Lewis

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