Transcript: Nightly Business Report – August 18, 2016

NBR-ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue

shoppers. The world`s largest retailer surprised investors when it raised profit guidance for the year,                                                                       as many of its peers continue to struggle.

Department will no longer house inmates in private prisons, sending shares
of two for-profit prison companies tumbling.

MATHISEN: Death by another name. Is there an FDA loophole that is helping
medical device companies mask fatalities?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
August 18th.

HERERA: Good evening, everyone, and welcome.

Ringing up sales. It seems like it`s been quite a while since Walmart`s
been able to say that. But it rang true in the most recent quarter. The
world`s largest retailer reported its biggest same-store sales gain in four
years and topped both earnings and revenue expectations.

It also did something many retailers are struggling to do. It attracted
more shoppers to its stores. And the company lifted its profit outlook,
saying things are looking up for the rest of the year as well. Shares rose
nearly 2 percent, making it the best-performing Dow stock today.

Courtney Reagan takes a look at what`s going right for Walmart.


Target (NYSE:TGT) and Walmart operated in the same quarter. Like Target
(NYSE:TGT), Walmart did beat on earnings, but that`s where the comparisons
end. Walmart`s comparable sales were the strongest in three years in the
seventh straight quarter of growing traffic.

Conversely, Target`s comparable sales fell for the first time in two years
on the lowest traffic level in a year and a half. Further, Walmart raises
its full you`re forecast while Target (NYSE:TGT) lowers guidance. What`s
the reason for the divergence?

DANA TELSEY, TELSEY ADVISORY GROUP CEO: Overall, they`ve got traffic. If
you look at the traffic that Walmart got, it was very impressive. You had
consecutive quarters of traffic increases. The outlook is good. And,
frankly, they had good category performance in terms of aggressive (ph)
category performance. Target (NYSE:TGT) has some work to do.

REAGAN: Telsey thinks other pieces of the Walmart puzzle are falling into
place like the discounter`s approved marketing, merchandise, lower prices,
and overall better store atmosphere.

I spoke to Walmart`s CFO, Brett Biggs, on the phone, and he attributes the
U.S. store`s performance to basic things, like clean stores, in-stock
inventory and improved employee moral. He doesn`t see a market change in
the consumer but thinks there are things working in their favor, like
higher wages and gas prices.

Walmart also has a significant grocery business, representing more than
half its total sales while Target`s grocery business is just about 20
percent of its sales.

Groceries rise foot traffic into stores and it has a halo effect that helps
lift sales of other products as well. Walmart has been expanding into
organic and locally sourced food offerings and its also expanding its order
online pickup in store grocery program, which it says has been well-
received by shoppers. Grocery has also been a category Target (NYSE:TGT)
is working on, but the retailer said Thursday that it`s revisiting its
strategy with food.

On a media call, Walmart U.S. CEO Greg Foran says Walmart doesn`t break out
specific numbers from electronics, but it feels the performance across all
categories is very steady, food or general merchandise. That again is
different from Target (NYSE:TGT), when said electronic comparable sales
fell double digits with a third of the drop due to weak sales of Apple
(NASDAQ:AAPL) products.

Looking ahead, Foran told reporters Walmart is feeling, quote, “pretty
good” about going into the holidays. “We`re in better shape, cleaner and
better prepared.”



MATHISEN: The quarter however was not as strong for Gap (NYSE:GPS). Sales
growth decline and the retailer said its outlook for the year would come in
below analysts` expectations. Sales were down at Banana Republic as well
as at the namesake store Gap (NYSE:GPS) and were unchanged at Old Navy
despite customers` favor value. Shares were volatile, as you see right
there, in after-hours trading.

HERERA: The strong quarter from Walmart and rising oil prices were not
enough to give stocks a big lift today. So, instead, the major indexes
just inched higher. The Dow Jones Industrial Average rose 23 points to
18,597. The NASDAQ added 11. And the S&P 500 was up four.

As for oil, prices rose for the sixth straight day to more than $48 a

MATHISEN: The head of the New York Fed is upbeat on the economy and where
the job market is headed. At a briefing with reporters, Bill Dudley
reiterated his stance that job gains remain sturdy and explains why he
watches the labor market so closely.


the day, I mean, I put less emphasis on the GDP than I do on what`s
actually happening in the labor market for a couple of reasons. One, the
labor market data I think is more reliable. I think we count jobs better
than when we add up GDP.

And number two, that`s really the thing that we`re targeting. We`re not
targeting GDP growth. We`re targeting maximum sustainable employment in
the context of price stability.


MATHISEN: Dudley also said he sees second half economic growth, whatever
the reliability of the print, coming in stronger than the annual growth
rate in the first six months of the year.

HERERA: The number of Americans filing new applications for unemployment
benefits declined last week. Initial claims for jobless benefits fell
4,000 last week. That report is considered a proxy for layoffs across the

MATHISEN: Housing has been one of the economy`s bright spots. But there
are still substantial pockets of pain.

As Diana Olick reports, a sizable number of borrowers remain underwater on
their homes.


but five years after the U.S. housing recovery began with home prices
reaching new peaks in some markets, nearly 6 million borrowers still owe
more on their mortgages than their homes are worth. The so-called negative
equity rate is at 12 percent of all mortgaged homeowners, and that`s
according to Zillow. It`s down from over 30 percent at the worst of the
crisis, and it does fall every quarter.

But the numbers are still high. And equally spread across urban and
suburban communities. Markets in the west like San Francisco, Portland,
Denver, and Dallas have the least borrowers in a negative equity position.
That`s due to strong employment and competitive housing markets. But
others, like Cleveland and Detroit, have more bifurcated markets with
negative equity downtown and lower in suburban neighborhoods. Detroit`s
urban rate is twice that of its suburban rate. Chicago and Las Vegas share
the dubious honor of carrying the highest number of borrowers carrying more
than their homes are worth.

Negative equity, ironically, is one of the driving factors of high home
prices. Homeowners in this position are unlikely to sell at a loss, so
they stay, which in turn lowers the number of homes available for sale.
Fewer listings means more competition, which drives prices hire.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.


HERERA: Still ahead, was a $400 million cash payment to Iran tied to the
release of a group of American prisoners? Tonight, we have new


HERERA: A new development in the cash payment to Iran that we told you
about earlier this month. The State Department today said that the $400
million was tied to the release of the four American citizens. But it may
be a little bit more complicated than that.

Eamon Javers is following the story for us from Washington.

Eamon, the State Department did have more to say on the matter. What is
the latest?

Sue. In briefing reporters earlier today, John Kirby (NYSE:KEX), the
spokesman for the State Department, had this to say today to reporters. He
said, “With concerns that Iran may renege on the prisoner release, we of
course sought to retain maximum leverage until after American citizens were

So, the whole question here is whether or not this was a ransom payment.
President Obama, speaking back on August 4th, had this to say, that we do
not pay ransom for hostages. He also said, though, in the course of this
overall negotiation in terms of the Iran nuclear deal, the ability to clear
accounts on a number of different issues converged right at the same time,

MATHISEN: So when does leverage cross that line and become something else,
something that sounds or feels or looks like ransom?

JAVERS: Boy, it is a real semantic debate right now. Republicans on
Capitol Hill are saying, look, if it looks like a duck a it sounds like a
duck, then it`s a duck.

The Obama administration says that it`s not ransom for this reason, even
though the timing was clearly contingent, they would not pay the money
until the prisoners were released, until their plane was out of there, it`s
not ransom because this was Iranian money to begin with. Remember, the
money here came from the Iranian government before the revolution back in
1979, was frozen in the United States, and the Iranians have been trying to
get it back for years. So, that was a separate negotiation on a separate
track, the Obama administration says.

HERERA: I think we`re going to hear a lot about this tomorrow, Eamon.

JAVERS: I bet we will.

HERERA: Thank you so much. Eamon Javers in Washington.

JAVERS: You bet.

MATHISEN: Private prison stocks found themselves in the slammer today
after the Justice Department said it plans to end use of private prisons
for federal inmates, because they are less safe and less effective than
those run by the government. That sent shares of Corrections Corp. of
America and Geo Group (NYSE:GEO), two of the largest private prison
companies, plunging.

Diana Gusovsky has the details.


Department says it will end its use of private prisons, meaning their
contracts for these controversial facilities would not be renewed.

But why now?

research has shown that private, for-profit prisons often cut corners on
staffing and other basic services, and that`s led to negative impacts on
safety. So we see very high rates of assaults in these facilities. And
so, the decision today is one we believe is very good and encouraging and
is in some ways long overdue.

GUSOVSKY: The decision comes on the heels of a damaging report released
last week by the DOJ`s office of inspector general, which found that
contract prisons were overall more dangerous and less efficient than
comparable Bureau of Prisons facilities.

that in most key areas we looked at, these contract prisons had a higher
rate of safety and security incidents.

GUSOVSKY: What seems to be a recurring pattern.

HOROWITZ: In recent years, disturbances in several contract prisons
resulted in extensive property damage, bodily injury, and even the death of
a corrections officer.

GUSOVSKY: According to the inspector general, the Bureau of Prisons
currently uses 14 contract prisons, housing 22,000 federal inmates, costing
taxpayers more than $600 million per year. Most inmates classified as low

The Justice Department is calling this the first step in the process of
reducing and ultimately ending the use of privately operated prisons.
Experts we spoke with said they viewed this decision as part of a larger
trend, a country pivoting away from mass incarceration.

Other said although this is a blow to the private prison industry in the
short term, the long term impact remains unclear, especially because most
prisons in the United States are operated not by federal but by local and
state governments. And, of course, the next president could reverse the
decision as well.



HERERA: Scott Cohn has covered the prison system for years and he joins us
now from San Jose.

Scott, it`s always good to have you join us.

We saw the severe reaction in the stock prices. But from your vantage
point, what is the real impact likely to be for these companies?

severe as the stock price would suggest. It`s a material impact on these
companies, make no mistake. Corrections Corporation of America, CCA, says
this is about 7 percent of its revenue, so about $125 million on a $1.8
billion a year company.

And the government is not totally getting out of the private prison
business overnight. They`re going to phase these contracts out.

And there is still business for these companies in a couple of areas.
Number one, they`re operating reentry facilities that are not going away,
basically getting prisoners back into the general population, the public.
And also immigration detention, which is under Department of Homeland
Security, that`s not going away.

And the other things that these companies are doing is getting away from
prison management and into real estate. You still have to put 2 million
prisoners in both the federal and state systems somewhere. So, these
companies can own the real estate while the government can manage and
operate the prisons.

MATHISEN: And I suspect state contracts with these companies are not
affected in this either.

As Dina mentioned there, Scott, a new president could have a different view
of this entire matter. What have the candidates said if anything about the
use of private prisons and the ultimate outcome depend on the elections?

COHN: Again, not as much as people might think. There`s been a bipartisan
push, Tyler, for prison reform. People have realized we`ve got 2 million
people, more than any other nation in the planet, behind bars.

And so, in fact, the leader in prison reform has been the conservative
state of Texas, getting people out of prisons and actually deferring
building prisons. So, there may be some impact, depending on the elections
for sure. But there is very much a bipartisan push to change this system.

HERERA: All right, Scott. We`ll leave it there, thank you. Scott Cohn in
San Jose.

MATHISEN: One of the biggest investment managers in the world sues Valeant
and that is where we begin tonight`s “Market Focus”.

T. Rowe Price alleges that the drug company engaged in a, quote,
“fraudulent scheme” that costs it billions of dollars. The suit claims
that Valeant used a secret pharmacy network, deceptive pricing and
fictitious accounting methods to artificially inflate revenue and profits.
Valeant shares fell more than 2 1/2 percent to $29.19. T. Rowe`s shares
were up a tick at $69.12.

Sales continue to fall at Caterpillar (NYSE:CAT). The maker of industrial
machines and equipment saw retail sales decline 19 percent year over year
for a three-month period that ended in July. And things aren`t expected to
improve anytime soon.

Last week, Caterpillar (NYSE:CAT) said low commodity prices will continue
to weaken demand for its machinery. Shares today off 1 percent at $83.38.

Portola Pharmaceuticals said its application for a drug intended to reverse
the effect of blood coagulates has been rejected by the Food and Drug
Administration. The agency requested that Portola send additional
information regarding manufacturing. The drug maker said it is committed
to working with the FDA to secure eventual approval. Shares plummeted 15
percent to $20.12.

HERERA: Gannett (NYSE:GCI) isn`t giving up on its proposed takeover of
Tronc. According to “The Wall Street Journal”, Gannett (NYSE:GCI) has
upped its bid once again for the newspaper publisher which was formerly
known as Tribune Publishing. Tronc rejected Gannett`s proposals twice
before but is expected to respond to this new offer by the end of the week.
Shares of Gannett (NYSE:GCI) up a penny to $12.14. Tronc rose 4 percent.

Hormel saw both profit and revenue rise in the latest quarter, thanks to
strong demand for the company`s Skippy Peanut Butter and Muscle milk
products prompted the food maker to raise its guidance for the year.
Shares finished up the day 2 percent, to $37.05.

Harley-Davidson (NYSE:HOG) will pay $15 million to the U.S. government to
settle claims it sold motorcycle engine devices that violated air pollution
standards. The motorcycle maker did not admit to any wrongdoing but said
it would buy back and destroy any devices that are still stocked at
dealerships. Shares fell more than 1.5 percent on the news to $53.55.

MATHISEN: When is a death not a death? A joint investigation by CNBC and
our partners at NBC New York found that medical companies are classifying
thousands of patient fatalities as injuries. And the FDA says it`s okay.

They`re referring to death by another name. But critics say it could mask
real health problems. Investigative reporter Chris Glorioso has our story.


CONNIE WALTON, SHELLY WILHITE`S MOTHER: You know, we`re still in shock.
It`s a never-ending nightmare. I`ll never forget this as long as I live.
He calls me, “Nana, my mama has died.”

this medical device played a role in her daughter`s death. It`s called the
vagal nerve stimulator or VNS. And back in 2010, Oklahoma`s Shelly Wilhite
thought it was the cure for her epileptic seizures.

The device is designed to generate small electric shocks that block
seizures but four months after surgery, on a Friday afternoon, Wilhite`s
family say she started feeling abnormal painful shocks. With VNS, you`re
not supposed to feel anything.

shocked her really bad and almost dropped her to her knees.

GLORIOSO: Wilhite planned to call the doctor on Monday, but —

COLEMAN: She never made it to Monday.

GLORIOSO: She died on Sunday.

COLEMAN: On Sunday.

GLORIOSO: Wilhite`s daughter found her dead on the bathroom floor. Her
cause of death, cardiac arrest brought on by a suspected seizure.

WALTON: I don`t think we`ll ever get over it.

GLORIOSO: Shelly Wilhite wasn`t the only one complaining about the nerve
stimulator. By the time she died, the Food and Drug Administration had
received thousands of reports of problems with the device. Some of those
reports had a startling discrepancy.

MADRIS TOMES, FORMER FDA CONSULTANT: I absolutely had to do a double take.
There are a lot of reports in there that really made me question the
integrity of the reporter.

GLORIOSO: Madris Tomes is a former FDA consultant who now runs a company
called Device Events which offers a simplified way to search FDA safety
data. She scoured through 30,000 VNS safety reports going back to 1996 and
she found 38 patient deaths reported as injuries or malfunctions. They
include five patients who developed fatal pneumonia. But the deaths were
labeled as four injuries and one malfunction.

In another example, a VNS battery depleted with zero years remaining, the
patient died. But the event was called an injury.

When you saw a report that mentioned a patient`s death but was categorized
as an injury, what did you think?

TOMES: I was very alarmed.

GLORIOSO: Did you find that deceptive?


GLORIOSO: Medical device makers are supposed to report any event that
reasonably suggests a device may have caused or contributed to a death or
serious injury. Checking the death box is not an admission of fault.
Despite that, Tomes says companies sometimes downgrade patient deaths,
arguing the fatalities are unrelated to the product. She says that can
throw regulators off the trail of health hazards.

TOMES: The way the FDA reviews the reports is in order of importance by
the classification that`s checked on the form. And so, if it`s an injury
or malfunction, it could take them weeks to months to get to reading them.

GLORIOSO: Cyberonics (NASDAQ:CYBX), the company that makes the nerve
stimulator, said three of those pneumonia deaths were properly reported.
And the other two reports were human errors. But the company also
conducted an internal review, finding a total of 108 misclassified deaths,
some going back to 2005.

Cyberonics (NASDAQ:CYBX) told us it never purposely manipulated safety
data, and those errors comprise less than 1 percent of the company`s safety
reports, concluding there have not been any significant misclassifications.

But the vagal nerve stimulator is only one device we found with patient
deaths listed as something less serious. We looked at five years of FDA
safety reports and found more than 4,000 patient fatalities all listed as
injuries or simple malfunctions.

A knee injection patient developed a septic infection and died, but the
event was listed as an injury. Another patient fell from a safety bed and
died on the floor. That was called a simple malfunction. A stent was
implanted damaged and stretched. A few hours later, the patient died but
again it was listed as a malfunction.

We asked the FDA about those reports and more. A spokesperson said the
reports were likely classified correctly.

The FDA says this is not a problem. What do you say?

TOMES: I think that when you have a lot of patients being injured and a
lot of deaths occurring, that it`s always a problem.


GLORIOSO: The family of Shelly Wilhite sued Cyberonics (NASDAQ:CYBX),
whose parent company Liva Nova is publicly traded. But that company has
effective immunity from liability suits because the nerve stimulator was
approved through the FDA`s most stringent process. Now, the FDA stressed
companies are allowed to classify a parent fatality as an injury if there`s
not enough information to establish causality. The agency also said it has
analytical tools to spot deaths even if they`re not labeled as deaths, and
those labels aren`t the only way that analysts prioritize their work.

MATHISEN: So, Chris, who is doing the categorizations here? Is it a
physician? Is it a company individual? Who?

GLORIOSO: Well, that really is one of the major questions here. And the
critics would point out, most of the time, it is actually the manufacturer
that writes these reports and has the discretion to decide whether a device
caused an injury, caused a death, or didn`t cause anything. Some people
say there`s a conflict of interest.

MATHISEN: Did you or your source find any cases where they actually did
say it was death?

GLORIOSO: Oh, certainly. There are many cases where companies report
deaths as deaths. But we found many more — I should say we found most
cases, deaths are reported as deaths. But we found, as you saw, more than
4,000 where patients die but those deaths are not reported as deaths.

MATHISEN: All right, Chris, thank you very much. Really good reporting.
Chris Glorioso, we appreciate it.

Still ahead, shifting gears. Is a fleet of self-driving cars come into a
city near you?


HERERA: As we reported yesterday, settlement talks are under way between
Viacom (NYSE:VIA) and controlling shareholders Sumner Redstone to end a
very bitter legal battle. If as part of that deal, Viacom`s CEO Philippe
Dauman leaves, he would reportedly be in line for the second biggest cash
severance ever among all S&P 500 CEOs, coming in at $72 million. Golden
parachutes can include cash, accelerated stock vesting, and other benefits.

MATHISEN: If you live in Pittsburgh and you use Uber, you will soon be
able to summon, yes, a driverless car. The fast-growing ride-hailing
company is also partnering with Volvo to give it an edge in the race to
make autonomous vehicles widely available.

Kate Rogers (NYSE:ROG) has more.


Uber making an even bigger investment into the driving experience of the
future. The company announced Thursday a $300 million partnership with
Volvo to co-develop autonomous SUVs. As a part of that, Uber will roll off
100 autonomous Volvo XC90 sport utility vehicles on the road at the end of
the year.

Uber is also launching an autonomous driver program in Pittsburgh in the
weeks to come. The initial pilot will be free for passengers but it`s
unclear how it may evolve in the future, and where else the service might
become available. The pilot has been in the works for some time.

Earlier in May, Uber announced it would begin testing a self-driving Ford
Fusion on the streets of Steel City. Autonomous Ford Fusions will also be
in the driverless car pilot mix alongside the Volvo XE90. And human
drivers will also be on hand while the cars operate to ensure safety.

The move signals an urgency on behalf of Uber to get in the driverless car
race as big players from GM to Google (NASDAQ:GOOG) attempt to bring the
technology mainstream.

represents safety to a lot of American customers. And it`s true, because
they back it up with having the research in place. Volvo has said it will
assume liability for accidents that occurs.

Now, whether we see this play out as these cars hit the streets, that
remains to be seen. But I think that it`s a signal that Uber is sending
that they want to be aligned with a company that`s known for safety, and
not so much known for taking risks.

ROGERS: But it`s not just self-driving cars Uber is interested in. The
company is also leveraging autonomous driving technology in the delivery
space, announcing its acquisition of Otto, the San Francisco tech startup
for self driving tractor trailers. Sources close to the matter say the
deal was worth 1 percent of Uber as its current valuation, $68 billion.

For NIGHTLY BUSINESS REPORT, in Washington, D.C., I`m Kate Rogers


MATHISEN: I`m not sure I`m ready to get into a driverless Uber.

HERERA: I`m not either, not yet. I know it`s coming, and I know we have
to accept the technology. I`m just not sure that I can —

MATHISEN: That you want to be the first, right?

HERERA: I don`t want to be the first. Maybe the millionth.

MATHISEN: I`m not there yet.

HERERA: I`m not either.

MATHISEN: All right.

HERERA: That does it for us on NIGHTLY BUSINESS REPORT, I`m Sue Herera.
Thanks for joining us.

MATHISEN: I`m Tyler Mathisen. Have a great evening, everybody. I`m going
to go get in my driverless car.

HERERA: No, you`re not.

MATHISEN: And take myself home. I`ll see you tomorrow.


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