Transcript: Nightly Business Report – August 30, 2016

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

(BEGIN VIDEO CLIP)

MARGRETHE VESTAGER, EUROPEAN COMMISSION: We’re sending a message to any taxpayer in Europe, be multinational or standard                                                                           companies, being big companies or small companies,                                                                     European or foreign, that this is a wonderful way to                                                                       do business and to invest. But you have to play by the                                                                     rules and not to rely on unfair tax benefits.

(END VIDEO CLIP)

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Apple pay. The European commission hits the tech giant with a $14.5 billion bill for unpaid taxes. Reaction from both sides of the Atlantic and what does it mean for other multinationals doing business in Europe.

Losing its sizzle. Long the lynchpin of restaurants, hamburger sales are slowing, and that’s causing problems for companies. So, is the burger bubble bursting?

And rocky mountain high. Why Colorado is fast becoming a hub for the latest space race.

All that and more on NIGHTLY BUSINESS REPORT for Monday, August 30th.

Good evening, everyone, and welcome. I’m Sue Herera. Tyler Mathisen is off this evening.

Talk about running up a tab, the European Union’s antitrust regulator slapped Apple with a huge bill today. Its reason, Ireland granted the tech company unfair tax breaks for more than a decade and the back taxes come out to a whopping $14.5 billion.

And Apple isn’t happy about it, saying, quote, “The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws, and upend the international tax system in the process. The commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe.

Apple follows the law and pays all of the taxes we owe where ever we operate. We will appeal and we are confident the decision will be overturned.”

Julia Chatterley has more from Brussels.

(BEGIN VIDEOTAPE)

JULIA CHATTERLEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The European Commission, which is Europe’s executive body, has decided that Apple must pay up to $14 billion over to the Irish government in order to settle unpaid tax claims.

Now, this is because they believe that the tax arrangement between Ireland and Apple was unfair. It was too lenient toward Apple.

Now, the big irony here is that the Irish government don’t want the money. They went to protect their beneficial relationship with Apple and other U.S. firms that bring jobs and investment into Ireland.

Now, Apple has already responded. They say they believe this ruling is unfair and that it will ultimately be overturned. They say that this is less about the corporation tax that they’re paying, the rate of which is less than 1 percent in this case. They say it’s more about tackling the government and their tax practices, in this case, Ireland.

MARGRETHE VESTAGER, EUROPEAN COMMISSION: It’s up to the Irish authorities to make sure that the set up is in accordance both with Irish tax law and European state aid rules.

CHATTERLEY: Now, these aren’t the only people to complain. The U.S. Treasury has also stepped in today, too. And they said that ultimately, this will have a detrimental impact on U.S. firms investing in Europe.

I also tackled the competition commissioner on this and I said, what message are you sending here to U.S. firms that are actually trying to bring investment to Europe?

VESTAGER: We’re sending a message to any taxpayer in Europe, be multinational or standard companies, being big companies or small companies, European or foreign, that this is a wonderful way to do business and to invest. But you have to play by the rules and not to rely on unfair tax benefits.

Fourteen and a half billion dollars to Apple is nothing compared to the $215 billion that they have sitting overseas, around the world. They can afford this. And analysts at JPMorgan say actually, even if this amount is charged, ultimately, it won’t have an impact on Apple’s share price, but the ramifications are far bigger. What does this mean for U.S. firms operating here in Europe? There are investigations going on into Amazon and McDonald’s at this point, too, and what we’re looking at is one heck of a legal battle between Apple, between the Irish government and between European officials over who pays what tax that could have far greater ramifications going forward.

For NIGHTLY BUSINESS REPORT, I’m Julia Chatterley in Brussels.

(END VIDEOTAPE)

HERERA: Back here in the U.S., politicians on both sides were quick to react to the decision. And as Hampton Pearson tells us, not many were happy with the outcome.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Obama White House’s concern if Apple has to pay billions in back taxes to Ireland, American taxpayers may ultimately bear that burden.

JOSH EARNEST, WHITE HOUSE PRESS SECRETARY: The consequences for that transfer would be that it could be treated system as a current tax payment, that would allow essentially Apple to deduct that E.U. tax payment from their U.S. taxes. That wouldn’t be fair to U.S. taxpayers.

PEARSON: International trade experts say the E.U. decision is an additional challenge to the sovereignty of the individual countries in a post-Brexit Europe. And they say it will impact the business climate.

CARLOS GUTIERREZ, FORMER COMMERCE SECRETARY: Coming off Brexit where, you know, you have countries who feel like they’re getting suffocated by all these regulations coming out of Brussels, all of a sudden, a claw back on an agreement that a sovereign nation made with a company, I think that’s going to scare away investors.

PEARSON: In recent years, Tim Cook and Apple have been criticized on Capitol Hill for keeping billions of dollars in profits offshore and not paying taxes. Today, the condemnation of the E.U. ruling was bipartisan. House Speaker Paul Ryan said slamming a company with a giant tax bill years after the fact sends exactly the wrong message to job creators on both sides of the Atlantic. New York Senator Charles Schumer pulled no punches, calling the move a cheap money grab.

EARNEST: We are concerned about a unilateral approach in state aid negotiations that threaten to undermine progress that we have made collaboratively with the Europeans to make the international taxation system fair.

PEARSON: It’s not clear what if anything Washington can do to counter that E.U. order, but it does add a new dimension to the tax reform debate involving the treatment of some $2 trillion in corporate profits currently held offshore to avoid U.S. taxes.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.

(END VIDEOTAPE)

HERERA: Let’s turn now to Lilian Faulhaber to discuss what today’s decision by the European Commission could mean for other big U.S. multinational companies that do business in Europe. She teaches international law and tax policy at Georgetown University Law Center.

Welcome. It’s nice to have you here.

LILIAN FAULHABER, GEORGETOWN LAW PROFESSOR: Thank you. It’s nice to be here.

HERERA: Apple says — part of its response and we quoted it earlier — it will have a profound and harmful effect on investment and job creation in Europe. Do you agree with that?

FAULHABER: I think it will change how companies make their decisions about how to invest in Europe and how to structure their entities in Europe. It’s not clear what the actual overall effect will be, but I think that it will definitely change their calculus and I think they can no longer rely on tax rulings to the same extent that they could before.

HERERA: You know, Tim Cook had an interesting quote as well and I’d like to react to that. He says, quote, “We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them anymore than we’ve already paid. It’s a difficult decision not only for the company but for the Irish government.

FAULHABER: Yes. No, I mean, I think this is what’s so fascinating about state aid is that it’s essentially Ireland is getting to have its cake and eat it, too. It’s getting to have attracted Apple and other U.S. entities and multinational companies to Ireland and not charge them taxes. And at the end of the day, the European Union is essentially forcing it to charge $14.5 billion in taxes.

So I think that it’s an interesting, ironic twist to this. I think it’s also interesting to think that Ireland currently wants to appeal this decision even though as Tim Cook points out, Ireland is really the one that could benefit short-term, but perhaps not long-term.

HERERA: What about other companies that do business there, that Google is there, Dell is there. McDonald’s is there, J&J, Pfizer. Have they made changes considering this investigation has been going on for a while? Or is there more of this to come?

FAULHABER: Well, several companies including Apple had made some changes. They’ll note that the rule — the decision itself actually both ended after 2014 because Apple no longer had the structure, so many companies have been aware that this was going on for the last few years. However, as you can see with the decision, it goes back ten years. So, even if they made changes, there could still to be investigations into their previous tax treatment. So, companies may have started to make decision, but they could still be on the hook for taxes that the commission argues that they owed up to ten years ago.

HERERA: Right. Very quickly, is this an inflection point that we may look back on later and say, you know, that’s a decision that triggered more countries going the way of the U.K. or more companies deciding to go to London instead of say Brussels?

FAULHABER: Well, I think London, maybe not right now, but in a few years if Brexit goes into effect, then, yes, maybe that will more appealing.

What’s interesting is that the commission is trying to appeal to the taxpayers and the citizens who are getting tax revenues from big U.S. multinationals without having to pay taxes themselves. It’s the governments that are opposed to this. So, it’s the citizens see this as a way of the commission pushing back against the United States, the E.U. may be more appealing.

HERERA: Thank you so much for joining us, Lilian Faulhaber with —

FAULHABER: Thank you.

HERERA: — Georgetown University Law Center.

Yesterday, we told you that investors bought stocks because they were not worried about rising interest rates. Today, they had a change of heart. Fed Vice Chair Stanley Fischer said the employment market is almost at full strength and that rate increases will depend on the economy. Add to that, consumer confidence in August hit its highest level in nearly a year, and you have a little recipe for a little doubt creeping in. Just a little.

The Dow Jones Industrial Average fell 48 points to 18,454. The NASDAQ gave back nine and S&P500 was off four.

Home prices continue to rise, but the growth slowed ever so slightly. The closely watches S&P Core Logic Case-Schiller Index showed national home prices in June rose 5.1 percent year over year. That’s a pullback from May’s 5.3 percent gain. The biggest gains were in Denver, Seattle, Portland, Oregon.

More lending helped banks add to their coffers in the second quarter. The Federal Deposit Insurance Corporation better known as the FDIC says U.S. banks earned $43.6 billion in the quarter, up from $43 billion a year earlier. That’s a rise of nearly 1.5 percent.

And now that summer is drawing to a close, Wall Street will be looking for what’s hot to come in the fall.

Bob Pisani takes a look at what’s working and what’s not in the IPO market, and what to expect when the leaves begin to change.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: On the surface, it’s been a terrible year, only 59 IPOs have priced. That’s half what normally would be recent IPOs have begun outperforming the markets however.

Just look at Acacia. It’s up 400 percent. Twilio up 260 percent since its IPO. Talend is up 60 percent since its IPO. Those are terrific numbers.

They’ve got two characteristics in common. First, they’re a technology stock. And second, they’ve got growth. Several tech companies with good growth have a shot at going public soon.

Nutanix for example does data center storage, while Apptio is a subscription service for CIOs, chief information officers, to manage their technology.

There are several consumer companies as well with growth, including E.L.F. Beauty, that’s a low cost cosmetics company. And Yeti, they make high end coolers. That’s right, coolers.

There’s also older companies with strong brand names but not a lot of top line growth like Valvoline. They make automotive lubricants. And CBS Radio, they’re the second largest radio group in the country.

What’s not working? Right now, biotech and unicorns are now working. So, biotech is the worst performing sector this year. The stocks usually depend on aggressive drug pricing. And after this huge stinkweed seen around the EpiPen fiasco and drug pricing in general, they’re going to have a tougher time going public.

Unicorns are a separate problem. Uber, Airbnb, Palantir, Snapchat, Pinterest, Dropbox, Spotify, all have high private valuations, but without earnings, it’s going to be hard to support that in the public markets. Don’t look for many this year if any at all.

For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA: Coming up, why start ups and small businesses are finding main street appeal in one Midwest city.

(MUSIC)

HERERA: McDonald’s, Burger King, Wendy’s and Shake Shack are all primarily known as hamburger restaurants and all of them are suffering from slowing sales in the recent quarter. In fact, Americans are eating fewer hamburgers than they did six years ago.

Susan Li has a look at whether the burger bubble is bursting.

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SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hamburgers, an American staple, but not selling as well as they used. Americans are still eating a whole lot of them. More than 8.5 billion in the past 12 months until June. That’s according to the research firm NPD Group.

It’s still a huge number, but less than in 2015 and also fewer than in 2010. And the slowdown is taking place across all segments, from fast food, fast casual, casual dining and even family style restaurants.

NICK SETYAN, WEDBUSH SECURITIES: I expect stocks to remain negative industry-wide, at least for the next, you know, six to 12 months. I expect about 1 percent to 2 percent negative transactions. I expect the QSR guys to outperform fast casual and casual dining.

LI: The second quarter of this year, the largest fast food chains all reported slowing same store sales. McDonald’s, Burger King, Wendy’s, Shake Shack, all saw comparable sales falling short of market expectation. So, why are consumers passing on the burgers?

One reason might be cheaper groceries, with Wendy’s president saying that the gap between eating out and eating at home at the widest since the Great Recession.

Another, maybe higher demand for chicken offerings. Research group Technomic says that the top 250 limited service chains in the U.S. added 78 new chicken items in the first six months of 2016, compared that to only 15 new beef offerings in a tough restaurant environment.

One analyst says it comes down to price.

SETYAN: You know, in the near term, I think cheap is on and that’s going to be working. By near term, the next six to 12 months, the chicken players, the taco players, pizza — I mean, you have to be able to effectively compete with the grocery channel.

LI: There are a lot of players in the hamburger businesses and some say it’s a crowded field that too many offerings and low barriers to entry, but it is important to remember that even with slowing sale, hamburgers aren’t going away with Americans still enjoying them by the billions.

For NIGHTLY BUSINESS REPORT, I’m Susan Li.

(END VIDEOTAPE)

HERERA: Sales fall for the 14th straight quarter at Abercrombie & Fitch, and that’s where we begin tonight’s “Market Focus”.

The apparel retailer said lower foot traffic hurt results, causing the company to post a wider loss and a bigger than expected decline in same store sales. Abercrombie also warned business likely will not improve in the second half of the year. Shares were punished following 20 percent to $18.29.

G-III Apparel Group which owns brands like Tommy Hilfiger and Calvin Klein posted an unexpected losses, cost associated with the plan merger impacted its results. Sales also fell more than expected, prompting the company to trim its earnings and revenue guidance for the year. Shares plunged 20 percent to $33.14.

But DSW posted better than expected revenue as strong demand for women’s athletic shoes help lift results. But the retailer said profit and same store sales fell. So, DSW finished the day down 10 percent to $23.33.

Canadian fertilizer companies Agrium and Potash said they have entered into talks regarding a potential tie up. A deal would value the combined companies at more than $28 billion. Shares of Potash popped 10 percent to $17.79 and Agrium shares rose 7 percent to $95.76.

H&R Block said revenue fell more than expected as currency head winds and impacts from the divestiture of the company’s bank unit dragged down results. The tax preparation company also posted a wider than anticipated loss. Shares initially fell in the extended session after finishing the regular day down 1 percent to $24.20.

When you think of small business, do you think of Ohio? Well, the state’s capital is fast becoming a hot bed, ranking in the top 15 on the Kauffman Foundation’s list for start up activity.

In our on going look at small business cities, Kate Rogers takes us to Columbus, Ohio.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hot Chicken Takeover may be known for its widely popular Nashville-style hot chicken, but the business has a social mission that’s more rewarding to its owner, Joe DeLoss, than the long lines outside of his store.

UNIDENTIFIED FEMALE: Let’s get ready for chicken!

ROGERS: DeLoss is employing a workforce that’s largely impacted by incarceration. Some have arrests on their rap sheets, while others have served time for everything from felony to misdemeanor.

JOE DELOSS, HOT CHICKEN TAKEOVER FOUNDER: What we found is if somebody is accepting that fair chance back to employment, their determination and will power and motivation is significantly higher. So, at this point, it’s not a nice to do for the community. It’s a must do for our business.

ROGERS: In a way, Hot Chicken Takeover is symbolic of Columbus, Ohio, the city it calls home. The area has a thriving small business community built on Midwestern values of lifting one another up for the greater good.

That foundation coupled with affordability and a coalition of successful big businesses headquartered here from DSW to L Brands, have paved the way for startups like Tanisha Robinson’s Print Syndicate. The company launched in 2012 printing quirky quotes on t-shirts, posters and home goods, aiming to sell $1 million in product. Instead, they sold $4 million. This year, they’re on track to sell $14 million worth of merchandise.

Being located in the Midwest means she can access affordable space and pay her workers well above the local minimum wage of $8.10 an hour. Like other local start ups, Robinson is committed to creating jobs in the community.

TANISHA ROBINSON, PRINT SYNDICATE CO-FOUNDER: I think there’s a consensus that we need a lot of big ones here to try to drive the city forward. And that we can have an impact here.

ROGERS: The local government is doing its part to make an impact, implementing the nation’s first small business concierge in 2012. It’s a one stop shop to help entrepreneurs get off the ground. It’s also free, which is important for cash-strapped small businesses.

Alex Bandar is also helping to get local ventures off the ground with the Idea Foundry, a 60,000 square foot old manufacturing facility filled with members who run the gamut from welders to video game designers and sculptors. They’re leveraging the tools the foundry makes available to them for a monthly fee.

ALEX BANDAR, IDEA FOUNDRY FOUNDER: A hundred yeas ago, they built shoes here. Now, we have 300 members. We teach classes daily on everything form 3D printing to blacksmithing. We help people pursue their passions to create art or they can start businesses.

ROGERS: Back at hot chicken takeover, DeLoss has plans to one day take his business model across the country. But for now, he’s proud and thankful to call Columbus home.

For NIGHTLY BUSINESS REPORT, I’m Kate Rogers in Columbus, Ohio.

(END VIDEOTAPE)

HERERA: Up next, how Colorado is carving out its place in the rapidly growing space economy.

(MUSIC)

HERERA: NASA is keeping a close eye on some major storms. This is the view from International Space Station of Hurricane Lester, currently churning in the Pacific Ocean. Then, there’s Madeline, which is prompting a hurricane warning for Hawaii’s big island and Hurricane Gaston is growing stronger over the Atlantic Ocean. But it is not expected to impact the U.S.

And finally tonight, while the space race is seeing the big boys, like Boeing, Virgin Galactic and SpaceX, places like California and Florida, one Rocky Mountain state is gets a lot of traction with smaller players.

In tonight’s “Mission Space”, Phil LeBeau is in Louisville, Colorado.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s called the Dream Chaser. A spacecraft designed to carry satellite, cargo, even people into orbit, and then turn around and land back on earth.

It’s being built in Louisville, Colorado, by the Sierra Nevada Corporation.

MARK SIRANGELO, SIERRA NEVADA CORP: We want to be the transporter of anything to space. And we also want to be the vehicle to be able to go out and fix and maintain what you put into space.

LEBEAU: Sierra Nevada Space Division has already built one Dream Chaser, and has plans for several more over the next few years, and as it begins flying missions. As a result, it’s hiring several hundred more workers. Opening aerospace in nearby Littleton, Colorado, is also expanding as it works to meet growing demand for small satellites.

MAUREEN O’BRIEN, OAKMAN AEROSPACE CEO: A number of people in this industry have long realized that small satellites are the wave of the future.

UNIDENTIFIED MALE: We have entered our second throttle phase —

LEBEAU: But Colorado is not the only state trying to win the space race. California, Texas and Florida all have operations and companies with space operations including space sports.

The FAA has licensed ten space ports in the U.S., most near a coast and far from cities, which makes vertical launches with rockets safes. Still, the folks at the front range airport not far from Denver, are applying to be a space port, believing they have the perfect location for horizontal launches and landings of spacecrafts.

DAVE RUPPEL, FRONT RANGE AIRPORT DIRECTOR: It’s an easier, less expensive way to get to space, so as companies look at opportunities to reduce the cost of getting up into space, things like the horizontal launch ideas make that easier.

LEBEAU: Easier and more frequent space trips. The goal of Colorado companies with big dreams.

For NIGHTLY BUSINESS REPORT, I’m Phil LeBeau, Louisville, Colorado.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. Thanks for watching.

And we want to remind you that this is the time of year your public television station seeks your support. Thank you. Have a great evening. See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2016 CNBC, Inc.

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