Transcript: Nightly Business Report- November 3, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: All revved up, and
everywhere to go but up. Auto sales take off in October. With the economy
growing so tepidly, why is the industry on track for its best year ever?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Cutting cash. The
Federal Reserve temporarily stops billions of dollars of U.S. money from
going to Iraq`s central bank. And the reasons might surprise you.

MATHISEN: Tough medicine. And we`ll introduce you to a publicly
traded company under investigation in at least six states and shrouded in
controversy.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
November 3rd.

HERERA: Good evening, everyone, and welcome.

Talk about motoring along, America`s auto industry is now on pace to
have its best year ever after much better than expected October sales.

For the month, the annualized sales rate was nearly 18.25 million.
That`s the second straight month above 18 million and the only other time
that has happened was 15 years ago.

Phil LeBeau has more on the red hot sales and why the factors driving
it aren`t slowing down.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Americans are
buying new cars and trucks at a pace we haven`t seen since early 2000, with
almost every automaker posting better than expected sales, driving the busy
October, a powerful combination of low gas prices making trucks and SUVs
more attractive and low financing rates making monthly payments more
affordable. Throw in relatively strong consumer confidence and you see why
many Americans decided to buy a new vehicle last month.

BOB SMITH: Cars are affordable. Employment figures support it. And
the industry`s building the best and safest cars with the most innovative
technology so we`re very excited and bullish.

LEBEAU: The exceptionally strong sales mean auto assembly plants will
continue building and shipping vehicles at a near record pace.

The one exception? Volkswagen. In October, the first full month
since the diesel emission scandal erupted, sales were up just 0.24 percent.
The fractional gain comes as scores of diesel models are parked on dealer
lots because they can`t be sold. To bring in customers, VW boosted
incentives by almost 30 percent according to one research firm.

Despite the strong demand and near record sales, some automakers are
offering even greater incentives as they ahead into the end of the year.

Ford is now offering even greater discounts on virtually every model
in its lineup, as it hopes to win back a greater share of the U.S. market.
If those incentives are a hit, look for other automakers to match what Ford
is doing in November and December.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: So, will auto sales continue to thrive in an economy that
is growing in fits and starts?

Let`s asks Rebecca Lindland. She`s senior analyst at Kelley Blue
Book.

One of my favorite web sites, Rebecca, because I`m a car junkie. I`ve
got to tell you.

So, the basic question is, why are auto sales so strong if the economy
is so tepid?

REBECCA LINDLAND, KELLEY BLUE BOOK: Well, Tyler, first, thanks so
much for having me on. It`s great to be on with you, guys.

MATHISEN: Nice to have you.

LINDLAND: Thanks.

So, I think that it`s a combination of things. You know, people have
been really on the sidelines. The average vehicle age is still well over
11 years. So, there`s a lot of old cars out there.

The other thing that`s helped a lot is financing. Before in 2000, all
of those sales were really financed through home equity loans. People were
pulling out equity in their home. Instead what we`re doing is actually
extending the term of a loan now. So, it used to be 48 or 60-month loan,
now we`re looking at 72 and even 84 month loans.

MATHISEN: Wow.

LINDLAND: And with zero percent financing, those are really, really
cheap payments we`ve got going on.

HERERA: But longer term for the automakers may take a toll, right?
Because if you have a 72-month loan, you`re not going to be in the market
for a new car for a while.

LINDLAND: Well, exactly, Sue. We have seen that again in the past
where people don`t have equity in their vehicle. They go to trade it in,
but they owe more on it, so sometimes they`ll refinance the excess that
they owe.

So, we could really get ourselves into some trouble here. We need to
learn everyone lessons in the past and not repeat any of the history. We
need to finance wisely. We aren`t seeing a lot of substandard financing.
But we`re still going to be smart about this.

MATHISEN: Well, that`s interesting. Last night, Rebecca, we had on
Diana Olick who was saying right now, only people with pristine credit are
able to get mortgages. Is that comparable to what`s going on in the auto
market or can more people get automobile financing than, say, house
financing?

LINDLAND: Well, having just gone through my own refinancing I can
tell you. I have really good credit. It was painful.

So, financing a vehicle is completely different. You know, the
standards are very different. And also, it`s easier to repossess a car
than it is a house. So, we are, again, we just have to be disciplined in
our financing.

And people need to be disciplined in their financing, as well. If you
take on a car payment, you`re looking at anywhere everywhere probably
minimum of $400 a month. And suddenly, every month that comes about. So,
people need to be responsible with their financing.

HERERA: So, does this 18 million unit figure, does that continue or
is this an anomaly? I know it`s two straight months that we`ve seen that.
But does this kind of strength continue, given the financing background and
backdrop and all of the incentives that are out there?

LINDLAND: Well, I think with Ford as Phil referenced in his piece,
was Ford offering these employee discounts, we could really see a run-up in
November sales.

But again, we`ve learned from the past, when the finance companies did
that back in 2000, 2001 — I`m sorry, 2005, we saw that actually then sales
dropped way off. So, we have to be careful that we`re not artificially
inflating these sales.

MATHISEN: Right.

LINDLAND: You know, so we have to again — it`s in moderation.

MATHISEN: All right. Rebecca, hope you got a good rate on your refi.
Rebecca Lindland with Kelley Blue Book.

LINDLAND: Thanks.

HERERA: Sticking with the auto sector, more trouble for Volkswagen.
The German automaker disclosing that internal emission testing has found
irregularities in about 800,000 cars. That would add an estimated $2.2
billion to the amount of money this ongoing scandal will cost the firm.

In a statement, the company said most of the issues were found in
diesel vehicles which could also mean that gas powered cars have been
impacted, as well.

MATHISEN: The airbag maker Takata is set to face a $70 million fine.
The settlement with U.S. regulators relates to the company`s handling of
its airbag recall. The defective parts have killed at least eight people
and injured close to 100 according to reports. The Japanese supplier could
also face an additional fine of $130 million.

HERERA: Those strong auto sales combined with a rise in the energy
sector led to a positive day on Wall Street. The Dow Jones industrial
average rose 89 points to 17,918. The NASDAQ climbed 18 and the S&P 500
was up nearly 6.

On the economic front, orders for factory goods fell for the second
straight month in September, down 1 percent but that obviously didn`t slow
stocks today.

MATHISEN: And, Sue, Activision Blizzard (NASDAQ:ATVI) agreeing to buy
King Digital for nearly $6 billion. King makes the popular “Candy Crush”
video game. Wall Street seemed to think the deal was a sweet one, sending
Activision up nearly 4 percent. King Digital up more than 14 percent,
almost 15.

Julia Boorstin takes a look what drove the deal.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Video game
giant Activision Blizzard (NASDAQ:ATVI) is known for strongholds in console
games, with huge hits including “Call of Duty”, “World of Warcraft”, and
its newest franchise, “Destiny”. Buying “Candy Crush” maker King
diversifies the console game leader in a whole new direction, giving it
access to the mobile gaming market. Expect it to generate more than $36
billion in revenue this year, on track to grow more than 50 percent in the
next four years.

BOBBY KOTICK, ACTIVISION BLIZZARD: Mobile is important but also
attracting women to gaming is really important part of our strategy. And
with King, 60 percent of the audience is now female, which is a really
great expansion opportunity for us. And they`re in 196 countries around
the world which is something that`s really exciting.

BOORSTIN: The combined company will have about half a billion monthly
active users around the world. The ideas that Activision will benefit from
King`s player network and King from Activision`s expertise in hard-core
games.

MIKE OLSON, PIPER JAFFRAY: I think King will work with Activision
going forward to potentially take some of Activision`s franchises and drive
them into the mobile market, and potentially, Activision will help King
kind of move into the mid-core hard-core titles versus the casual games
that they`ve been known for in the past.

BOORSTIN: Analysts are bullish on the fact the deal will add
significantly to Activision`s top and bottom line in 2016, and that`s
without accounting for synergies, though some have raised questions about
the risk of King`s reliance on its core franchise, “Candy Crush” and the
potential for it to lose its value over time.

But analyst Mike Olson points to the potential for Activision to make
the most out of that game and its revenue.

OLSON: We look at the opportunity to sustain some of that $700
million in operating profit. And I think there`s going to be some cost
cuts that happen within the King business, maybe a little bit less
investment on new initiatives, new games, and a focus on just kind of
milking the cash flow out of that “Candy Crush” franchise.

BOORSTIN: Activision also reported quarterly revenue that beat
expectations. Though guidance for the fourth came in lighter than
projected. Speculation about more consolidation in the gaming space sent
casual game maker Zynga (NASDAQ:ZNGA) and blue mobile higher in intraday
trading Tuesday. King shareholders still have to vote on the deal, which
is expected to close next spring.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

HERERA: We told you last night about AIG`s disappointing third
quarter results. As a result, the stock was down more than 4 percent
today. And selling pressure isn`t the only kind AIG faces. Activist
investor Carl Icahn wants to break up the company to unleash value.
Management thinks it`s got a better idea. It announced cost cuts totally
hundreds of millions of dollars a year.

Mary Thompson has more.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The insurer AIG
trying to assure investors it`s on the right track.

PETER HANCOCK, AIG CEO: We`ll be eliminating 23 percent of the top
1,400 leaders of the company as we narrow our strategic focus on the areas
that we can win.

THOMPSON: CEO Peter Hancock saying the layoffs and other
restructuring moves will save the firm $500 million to $600 million a year,
and create a leaner more efficient operation. Hancock also dismissing
activist investor Carl Icahn`s call to split AIG`s core businesses into
separate firms, a move Icahn sees getting AIG out from under the Federal
Reserve`s oversight and freeing more capital to return to shareholders.

It`s a plan Hancock maintains won`t work.

HANCOCK: We are not averse to simplifying the company. But certainly
that split between property and casualty and life would not release any
additional capital.

THOMPSON: Once awarded the federal government, AIG returned $26
billion to shareholders, having transformed itself under its former CEO,
the late Bob Benmosche. He sold billions of dollars in assets aimed at
repaying taxpayers and aimed at getting the company on firmer footing. Two
years on the job, Hancock`s strategy is to improve underwriting standards
and modernize the firm`s tech infrastructure to cut costs and improve
profitability.

On that front, the firm failed in the third quarter, reporting
disappointing operating result that it blamed on declines in its investment
portfolio, and a variety of charges.

Though analyst Randy Binner points out, the firm`s core insurance
operations also failed to deliver.

RANDY BINNER, FBR & CO: Quarters like this show that the quality of
the business at AIG is reserves in particular are weak.

THOMPSON: The weakness in AIG`s core life and property and casualty
businesses putting added pressure on the company at a time investor
pressure is trying to force change at a firm that`s undergone lots of it
over the last decade.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.

(END VIDEOTAPE)

MATHISEN: Coming up, why billions of dollars from the U.S. Federal
Reserve stopped flowing to Iraq.

(MUSIC)

HERERA: Oh, those millennials. They`re the fussy and entitled
generation, right? Wrong. At least according to the new CNBC/All-American
survey. When it comes to those ages 18 to 34 and their place in the
economy, it seems they`re not so different after all.

Steve Liesman has the results.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Conventional
wisdom holds that the millennial generation influenced by the 9/11 attacks,
burdened with student debt and reared in a world of high speed mobile
devices is a unique group of young people.

But a special CNBC/All America economic survey focusing on
millennials, a group age 18 to 34 years old, finds them to be more similar
to the rest of the population than they are different. Like when it comes
to investments. Just a third think this is a good time to invest in
stocks. That`s about the same as the overall population. Forty-six
percent of millennials and all adults say it`s a bad time to invest.

One difference, fewer millennials say it`s a very bad time to invest.
As a group, they`re somewhat more risk averse than the rest of the
population. For example, 21 percent say savings account and cash are their
top investment choice. That compares with just 14 percent for all adults.
That could be a mistake.

PATRICK O`SHAUGHNESSY, OSAM: The real thing that is different about
this generation is the skepticism toward stocks. This preference for cash
is kind of the key instrument when you`re really young is totally
backwards. I understand why it`s the case because of the financial crisis,
but that`s the thing we should try to change for young people more than
anything else, because they have a great opportunity, even if they`re
investing a small amount, it should not be in cash.

LIESMAN: And looking at the importance of six traits in a potential
employer like ethics, environmental practices, work life ambulance and
diversity, millennial preferences are just about the same as the broader
population.

Millennials are different in some key areas at work. They`re more
likely to be concerned about opportunities to advance in their careers and
about flexible work hours. They also care less about an employer`s
retirement benefits, which you would expect from young people.

But millennials appear to be more satisfied with their conditions at
work than the average American, suggesting this is not the whiny and
disgruntled generation some made them out to be.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Mixed results from CBS (NYSE:CBS) is where we begin
tonight`s “Market Focus”.

The network posting a strong bottom line beat, but revenue miss
because of lower ad sales and content licensing fees. The owner of
Showtime and other properties blamed the miss in part of on nonrenewal of
sports contracts, among other things. Shares were volatile in initial
after-hours trading. During the regular session, the stock was up a
fraction to $48.24.

Tesla, bigger than expected loss. The electric carmaker said it
delivered more cars than estimated last month and is predicting it will
beat delivery estimates for the fourth quarter overall. Shares popped
right after the close. During the regular session, the stock was off 2.50
percent to $208.35.

And a wider than expected loss from Sprint. The wireless carrier
posted a 15 cent a share loss nearly double what was expected. Revenue
also below forecast. This comes as promotional price cuts helped the
company add subscribers but weighed on results. Shares down 7 percent to a
fairly light $4.51.

HERERA: A similar story for Archer Daniels Midland. The corn
processor missed on both the top and bottom line. The stronger dollar and
a glut in the commodities market weighed on its quarterlies. Shares slid
nearly 7 percent to $43.15.

The maker of Polaroid cameras is suing GoPro. Polaroid, which has its
own cube shaped action camera, claims GoPro`s Hero4 Session camera
infringes on its patent. Shares of GoPro tumbled more than 2 percent to
$25.

And despite an earnings miss, the online coupon site Retail Me Not
hiked its full year revenue guidance. This as quarter revenue beat
estimates. Profits did tumble nearly 90 percent but investors overlooked
that and shares soared 20 percent to $10.53.

MATHISEN: A troubling report today in “The Wall Street Journal.”
According to their front page article, the Federal Reserve and Treasury
Department temporarily shutoff the flow of money to Iraq`s central bank out
of concerns the funds were ending up in Iran, and in the hands of ISIS.

Eamon Javers has reported extensively on the money that flows in and
out of Iraq and he joins us now with more.

Eamon, where does this money come from?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tyler, the money
originates inside the New York Fed. It`s a vault in New Jersey off of
Route 17 there.

These are Iraqi funds though. A lot of people look at the story and
they think it`s American dollars going overseas. No, these are Iraqi funds
that are denominated in U.S. dollars that are withdrawn by the Iraqi
central bank from its account at the New York Fed and driven down I-95 to
Andrews Air Force base and flown over to Baghdad often on Air Force planes.

There, it`s distributed to the central bank of Iraq and the concern
that American officials had was they had visibility into what was happening
to these billions of dollars in physical cash, bills shrink wrapped and
lifted on forklifts into the airplane.

HERERA: Wow.

JAVERS: They didn`t know where that money was going once it got to
the Iraqi side. Their concerns were that it was somehow making its way to
ISIS and over the border to Iran.

HERERA: So, it doesn`t sound like there`s any way to track the cash,
especially after it leaves the U.S.

JAVERS: That`s right. Because it`s Iraqi government cash, the U.S.
government doesn`t have that much ability to see into Iraq to see where the
bills are going. But officials tell me that the U.S. does keep track of
the serial numbers of the bills that are sent and the date those bills are
sent. So, if they do circulate to ISIS and U.S. Special Forces team, for
example, are were to capture them, they would have a little bit of
visibility into where that cash actually came from.

But because these circulate inside the Iraqi economy, you don`t know
just how many stops that bill made between the central bank of Iraq and
ISIS coffers.

MATHISEN: Yes, this is eye opening.

Have the shipments of the cash resumed and how do we know whether will
the money is being handled correctly now?

JAVERS: I`m told that the shipments of cash have now resumed. These
date back all the way to right after the U.S. invasion of Iraq when the
U.S. government decided to unseal the assets of the Saddam Hussein regime
and turn those over to the current Iraqi government. They have resumed and
we are told that the Iraqi government has given account U.S. side some
assurances where the money is going.

MATHISEN: All right. Eamon Javers, reporting tonight from
Washington.

HERERA: Coming up, how one drug company managed to grow 600 percent
despite only having one product on the market and a raft of controversy.

(MUSIC)

HERERA: Here is what to watch for tomorrow. ADP is out with its
private employment report which comes ahead of Friday`s big jobs number.
Fed chair Janet Yellen testifies before the House Financial Services
Committee about the Fed`s plans for bank regulation. And we`ll also get
the results of a closely watched read on international trade. That is what
to watch for Wednesday.

MATHISEN: GlaxoSmithKline unveiling an aggressive expansion plan
today. The drugmaker could seek regulatory approval for up to 20 new
treatments before the year 2020. The CEO explains how reaching this goal
would help the firm.

(BEGIN VIDEO CLIP)

ANDREW WITTY, GLAXOSMITHKLINE: That clearly is the fuel that can
drive our pharma business and as we again, we saw in Q3 as these different
divisions are now moving to scale and the innovation starts to come through
to the marketplace, we`re getting pretty optimistic about our ability to
deliver earnings growth over the next five years.

(END VIDEO CLIP)

MATHISEN: The move is an effort to rejuvenate its portfolio that`s
been impacted by falling sales of key drugs.

HERERA: Painkillers dispensed in the U.S. nearly quadrupled from 1999
to 2010, but Americans report they still have the same amount of pain,
according to the Centers for Disease Control and Prevention. The CDC also
says that more than 20,000 people, about 45 a day, died last year from
prescription pain killer overdoses. Pretty grim statistics that make the
alleged business practices of one publicly traded pharmaceutical company
even more disturbing.

Dina Gusovsky has more in her series “Pushing Pain, Profits Before
Patients.”

(BEGIN VIDEOTAPE)

MICHAEL BABICH, INSYS THERAPEUTICS: The device that I brought with me
today allows the patient to simply with no priming spray the drug
underneath their tongue.

DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: That spray is a
highly addictive opiate, 100 times more powerful than morphine called
Subsys fentanyl.

ANNOUNCER: Raise your tongue toward the roof of your mouth.

GUSOVSKY: It can cost between $900 to over $3,000 per package.

According to the FDA, Subsys is only meant to be used for persistent
cancer pain. But Insys Therapeutics is accused of pushing it far beyond
cancer patients, trying to turn the drug into a cash machine.

SHANNON WALSH, FORMER INSYS SALES REPRESENTATIVE: I ended up
resigning October 2nd of this year.

GUSOVSKY: Former Insys sales representative Shannon Walsh told CNBC
she had to leave the company after she realized.

WALSH: There was insatiable greed as far as trying to just get as
many prescriptions as possible, titrate these patients up to the highest
dose possible.

GUSOVSKY: That alleged strategy seemed to work. Insys stock is now
up over 600 percent since the stratospheric raise from the May 2013 IPO.

But exactly how the company achieved the growth is now being
investigated in at least six states. California, Massachusetts,
Connecticut, Arizona, Illinois, and in Oregon, where the state accused
Insys of engaging in kickback schemes, having pharmaceutical reps taking
doctors out on “tequila dates” and off-label marketing, all in an effort to
boost sales.

DAVID HART, ASSISTANT ATTORNEY GENERAL: I`ve been investigating drug
cases for about 15 years now. And the conduct that we saw in this case is
among the most unconscionable I`ve seen.

GUSOVSKY: Insys declined an on-camera interview and refused to
respond to CNBC`s repeated requests for comment. Reports also say that
some Insys employees were able to push the pain killer by teaming up with
physicians, like Dr. James Gallant, who was the top prescriber of Subsys in
Oregon. According to this report, he had a long history of running into
trouble with medical boards, including having his license suspended 2014 in
part because he misprescribed opiates.

CNBC made multiple attempts to contact Dr. Gallant who is still
employed at an internal medicine clinic in Oregon, but our calls were not
return. But Insys payments to Dr. Gallant were nothing compared to what
the company paid other doctors. Several of them have been arrested and are
currently under investigation, revealing exactly how the company used
medical professionals to grow profits.

HART: There was harm done to patients on a level that I`m not used to
seeing.

(END VIDEOTAPE)

HERERA: Insist settled with Oregon for more than a million dollars,
almost double how much Subsys it sold in the state. It entered into an
assurance of voluntary compliance, agreeing to adhere to regulations set
forth by the state, but at the same time not admitting to any wrongdoing.

We also need to point out that the that stock has a heavy short
position and the company is scheduled to report earnings on Thursday.

And Dina joins us now on set.

And, Dina, it`s such an interesting story. This drug is so potent, it
has a special designation. Can you tell us about that?

GUSOVSKY: Absolutely. Because of the risk of misuse, abuse and
overdose, the FDA says that physicians who prescribe this drug have to be
enrolled in a special program which basically says that the benefits of
taking this drug for a patient far out weigh the risks because, again, the
chance of addiction for Subsys or any fentanyl, opiates in general, is just
so high.

MATHISEN: This story reminds me in a way of Valeant whose business
practices have been called into question, in part targeted by short
sellers. How is this case similar and/or different?

GUSOVSKY: Right. And Valeant became a story because of that report,
versus in this case, everything that was in our story has been backed up by
legal documentation. So, we know when it comes to Insys, they`re being
investigated on the state and federal level. Doctors associated with the
company are also being investigated and, of course, in their own 10Q
filings, they reveal there are at least six states looking into their
business practices.

HERERA: We look forward to the second installment tomorrow, Dina.
Thank you very much.

All right.

MATHISEN: All right.

HERERA: That will do it.

MATHISEN: That will do it.

I`m Tyler Mathisen. Thanks so much for watching NIGHTLY BUSINESS
REPORT.

HERERA: I`m Sue Herera. Have a great evening. We`ll see you again
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) 2015 CNBC, Inc.

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