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CNBC Media Alert:  David Stockman, Former Reagan Administration Budget Director And Former Chief Executive Of Collins & Aikman To Be Interviewed On Kudlow & Company Auto Forwarded By A Rule (Transcript Included)

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What: David Stockman, former Reagan Administration Budget Director and former Chief Executive of Collins & Aikman to be interviewed on Kudlow & Company today.

When: Tuesday, March 27th at 5 PM ET

Where: CNBC's Kudlow & Company

The following is the unofficial transcript of a CNBC interview with former Reagan Adiministration Budget Director and former Chief Executive of Collins & Aikman David Stockman on "Kudlow & Company" today at 5PM ET. All references must be sourced to CNBC.

In his first television interview, Stockman discusses a variety of topics including his indictment.


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LARRY KUDLOW: JOINING ME NOW WITH HIS SIDE OF THE STORY IS THE SIXTH HIS FORMER BUDGET DIRECTOR UNDER PRESIDENT REAGAN, AND FOR FULL DISCLOSURE I SERVED AS ASSOCIATE DIRECTOR PER ECONOMICS AND THE OFFICE OF MANAGEMENT AND BUDGET WHEN MR. STOCKMAN WAS DIRECTOR. DAVID STOCKMAN WELCOME BACK TO KUDLOW & COMPANY. LEGAL A TOUGH CHARGES HERE. U.S. ATTORNEY SAID RESORTED TO LIES TRICKS AND A BROAD. THE TOP SEC ENFORCEMENT PERSON LINDA THOMAS SAID YOU FABRICATED EARNINGS. OBVIOUSLY THEIR ARE VERY DIFFICULT CRIMINAL AND CIVIL CHARGES WHAT IS YOUR RESPONSE.

DAVID STOCKMAN: THOSE ARE REALLY POPPYCOCK. ANYBODY CAN SEE THAT TO SPEND A MINUTE LOOKING AT OUR CASE. THIS WAS NOT AN ECONOMIC JOYRIDE LIKE SOME OTHER OPERATION FOR THE PUBLIC SUFFERED. THIS WAS AN EPIC STRUGGLE STRUGGLE FOR SURVIVAL ON THE PART OF AN AUTO SUPPLIER THAT GOT CAUGHT IN A VICIOUS CRUNCH ON THE PART OF THE BIG THREE AS IT TRIED TO MAKE PARTS AND SURVIVE. IN THE END IT WAS A VICTIM OF A SPASM OF SARBANES-OXLEY GONE WILD THAT PUSHED THE COMPANY UNDER. AND NOW LOOK WHAT I DID WHILE I WAS THERE. MY FUND WAS A 40% INVESTOR. ALONG WITH OTHER AFFILIATE'S 75%. LARRY, WHY WOULD A 75% OWNER TRY TO DECEIVE HIMSELF AND SHAREHOLDERS WHEN WE WERE THE SHAREHOLDERS? SECONDLY, DURING THE ENTIRE PERIOD THE GOVERNMENT IS OUTLINE ALL THESE ALLEGATIONS, WE WERE BUYING STOCK IN THE MARKET EVERY DAY. ON 150 LOCATIONS I PERSONALLY BOUGHT STOCK OR MY FUND BOUGHT STOCK $25 MILLION BECAUSE WE BELIEVED WHAT WE WERE REPORTING WAS REAL AND THE COMPANY COULD BE TURNED AROUND. WHEN THINGS REALLY GOT DYER, I MOVED OUT TO DETROIT INTO A MOTEL AND NEXT TO HEADQUARTERS DAY AND NIGHT NO SALARY. ONE THE COMPANY COULDN'T AFFORD THINGS, I PUT MY OWN MONEY INTO THE COMPANY FOR A CHRISTMAS PARTY FOR THE PEOPLE WHO WERE JUST EXHAUSTED OUT THERE WHO WERE TRYING TO COPE WITH THIS MELTDOWN IN THE AUTO INDUSTRY. SO THAT WAS THE CIRCUMSTANCE UNDER WHICH ALL OF THIS HAPPENED. I SPENT A WHOLE CAREER AS A CONGRESSMAN IN THE REAGAN ADMINISTRATION, ON WALL STREET AS YOU KNOW NO ONE HAS EVER QUESTIONED MY ETHICS. I DID NOT START A CRIME SPREE AT AGE 55. THAT IS RIDICULOUS. THE GOVERNMENT HAS TAKEN HYPERTECHNICAL ISSUES OF ACCOUNTING AND DISCLOSURE IN ATTEMPTING TO BLOW THEM UP AND MAKE THEM LOOK LIKE CRIMES AND FRANKLY, IT IS SCARY BECAUSE IF THIS BECOMES THE PATTERN OF AMERICAN BUSINESS WILL BE IN TROUBLE.

LARRY: LYNNDIE ASK YOU A QUESTION. THIS GENTLEMAN WHO WAS A BOARD MEMBER APPARENTLY LAUNDERED COMPANY $3 MILLION. PART OF THE ISSUE I TAKE FROM READING THESE ACCOUNTS IS HOW THAT $3 MILLION WAS ACCOUNTED FOR. WAS IT A REVENUE, EARNINGS, LEGITIMATE CASH FLOW, ALONE, IS THAT PART OF THE ISSUE HERE? HIS $3 MILLION LOAN.

STOCKMAN: IT'S AN EXAMPLE OF ONE OF MANY OF THE GOVERNMENT'S BILL YEAR TO UNDERSTAND CORPORATE FINANCE. THIS IS A $4 BILLION A YEAR COMPANY. WE HAD $300 MILLION A YEAR IN CASH FLOW OR EBITDA UP. THIS IS EVERYBODY ON MATERIAL HE SUPPLIED TO US BECAUSE PRICES WERE TOO HIGH SO WE SAID GIVE US A PRICE CUT.



LARRY: HOW IS A REBATE ACCOUNTED FOR.

STOCKMAN: THAT'S RIGHT.

LARRY: IT IS A REBATE NORMAL REVENUE THAT CAN BE RECOGNIZED, CAN REBATE COMEBACK TO THE BOTTOM LINE AS A MATTER OF EARNINGS?
I THINK THIS IS PART OF THE ISSUES.

STOCKMAN: IT IS FUNDAMENTAL AND IN THE AUTO SECTOR WITH THIS MELTDOWN AND COLLAPSE, EVERYTHING GOT CHANGE. EVERYBODY CAME IN AND SAID GIVE ME A GIVEBACK. THE CITI AS I KNOW I OWE YOU $5 FOR THAT PART BUT I WANT $4. WE HAD TO DO THE SAME THING WITH OUR SUPPLIERS. IF THE REBATE WAS NONREFUNDABLE, THE SUPPLIER COULD NOT GIVE IT BACK NO MATTER WHAT HAPPENED IN THE FUTURE, IT WAS BUCKLED IN THE CURRENT PERIOD AND SHOULD BE.

LARRY: WHY DID THE AUTHORITIES DISAGREE WITH THAT? LINDA THOMPSON AT THE SEC ACCUSES YOU OF FABRICATING EARNINGS BY CONVINCING MCCALLUM THE LOAN YOU MONEY WHICH WAS TO DELETE IT REPORTED FOR INCOME OPERATIONS. YOU ARE SAYING THAT WAS NOT ALONE, IT WAS A REBATE WHICH WAS NON-REFUNDABLE.

STOCKMAN: EXACTLY WRITE. OKAY? ON TOP OF THAT THEY HAVE GONE INTO OTHER TRANSACTIONS WERE BOUGHT SOME BUSINESSES AT VERY LOW CASH FLOW MULTIPLES ANY BANKER WOULD SAY THAT WAS A STEAL OR A GREAT BARGAIN. AND WE OVERPAID FOR THOSE BUSINESSES AND THAT IS HOW THE LOAN OCCUR. IT SEEMS TO ME A VERY MINOR ASPECT OF THIS. THIS IS THE GOVERNMENT DIGGING AROUND AND WE HAVE SOME REAL PROBLEMS WITH SARBANES-OXLEY WITH PROSECUTORS, DIGGING THROUGH THE WRECKAGE OF THIS COMPANY THAT WAS ACTUALLY PUT INTO CHAPTER 11 BY AN EXCESS ON THE PART OF A LAW FIRM RETAINED BY THE AUDIT COMMITTEE TO INVESTIGATE THERE REBATES THAT WE ALREADY ANNOUNCED WE WANTED TO RESTATE.

LARRY: ANOTHER QUESTION. IN APRIL 2005, YOU ARE ON THE PHONE WITH ONE OF YOUR BANKERS, CREDIT SUISSE, YOU SAY AS REPORTED, THE YOU HAVE $110 MILLION IN LIQUIDITY. I GUESS THAT MEANS AND THE BANK. SUBSEQUENTLY CREDITS WAS USING THAT CASH FLOW GIVE YOU A $75 MILLION LOAN. BY MAY 1 MONTH LATER IT IS ALL GONE AND YOU ARE FILING FOR BANKRUPTCY FIVE DAYS LATER. AND YOU'RE AT YOURSELF OR ASKED TO RESIGN FROM THE BOARD. HOW DID THINGS CHANGE FROM A BOWL WITH $110 MILLION TO MAY WHEN IT WAS COMPLETELY EMPTY?

STOCKMAN: THAT IS A TREMENDOUS DISTORTION OF WHAT HAPPENED. WHEN YOUR COMPANY AND ANYONE WHO WAS FAMILIAR WITH THE BANKING WORLD KNOWS, YOU DON'T TELL THAT BANK HOW MUCH YOU HAVE IN THE BANK, IT TELLS YOU. ON THAT CALL I DID NOT DECEIVE OR MISLEAD ANY BANKS. THEY MADE A $75 MILLION LOAN AND THEY KNEW WHAT OUR BALANCE WAS.

LARRY: TODAY HAVE AUDITORS INSIDE COLLINS AND AIKMAN?

STOCKMAN: THEY WERE THE LEADING BANK IN OUR BANK SAID IT.

LARRY: DID.

STOCKMAN: YES YES YES THEY KNEW WHAT OUR GREAT BALANCE AND CASH WAS.

LARRY: IS THIS PART OF THE KEY? THAT YOU RECEIVE YOUR BANKERS INCLUDING CREDIT SUISSE AND THEIR INVESTORS AND STOCKHOLDERS.
IS THE ESSENTIAL TO THAT CHARGE THIS $110 MILLION.

STOCKMAN: I DON'T THINK IT IS. I THINK IT'S AN EXAMPLE OF PERCEIVED MISUNDERSTANDING HOW BANKING FACILITIES WORK HELP CORPORATE FINANCE WORKS. A COMPANY DOES NOT TELL A BANK THAT HAS A CONFIDENTIALITY AGREEMENT AND NO SHIRT INNERMOST SECRETS, HOW MUCH MONEY YOU HAVE BEEN THE BIG. THE BANK TELLS YOU. THIS IS ONE OF MANY DOZENS OF ALLEGATIONS WHERE COMMON EVERYDAY BUSINESS PRACTICES OR ACCOUNTING PRACTICES WHERE THERE MAY BE GREAT AREAS OF BUSINESS JUDGMENT, REASONABLE BUSINESS JUDGMENT ARE TOTALLY MISUNDERSTOOD BY SOME PEOPLE, IT MAY BE OVERZEALOUS OVERZEALOUS, AND THEY ARE CRIMINALIZING DAILY BUSINESS PRACTICES.



LARRY: WE'RE OPTIMISTIC DURING THIS PERIOD? ARE THEY CRIMINALIZING nOPTIMISM? IS AT AN ISSUE WITH RESPECT TO SARBANES?

STOCKMAN: I THINK THAT AS PART OF IT. WHEN YOU'RE RUNNING A COMPANY I HAD AN EARNINGS CALL A COUPLE WEEKS BEFORE THAT.

SAID WE ARE IN THE WORST ENVIRONMENT IN 3340 YEARS. OIL IS GOING UP AND STEEL IS GOING UP AND PRICES ARE GOING DOWN. BUT I LAID OUT A PLAN WERE I THOUGHT WE COULD SURVIVE. I DIDN'T TELL BY MY COMPANY, I DIDN'T THROW IN THE TOWEL. I STAYED ON THE DECK OF THE SHIP AND WE ACHIEVED TO DAYS BEFORE I LEFT A BREAKTHROUGH WITH OUR BIGGEST CUSTOMER TO GET PRICE RELIEF. I ANNOUNCED IT TO THE BOARD BUT IT DID NOT STOP THIS LAW FIRM FROM SHOOTING IN THE BACK. LEAVING THE COMPANY IN A LURCH, AND WITHIN DAYS EVERYTHING PARALYZED, NOT BECAUSE OF WHAT WAS GOING ON DURING APRIL OR MAY OR OTHER PERIODS, BUT BECAUSE OF WHAT THIS OUTSIDE LAW FIRM DID WITH ALMOST RECKLESS ABANDON.

LARRY: I HAVE KNOWN YOU FOR 25 YEARS. HOW WERE YOU FEELING? THE EMOTIONALLY? ARE YOU PREPARED TO WAGE THIS FIGHT? YOU BASICALLY GOT THE GOVERNMENT PROSECUTORS AGAINST DO. YOU'VE BEEN DOWN THIS ROAD BEFORE HOW WILL YOU DO THIS?

STOCKMAN: THERE IS A SAYING NO GOOD DEED GOES UNPUNISHED. BUT I WILL NOT LET THAT HAPPEN. I WILL FIGHT THIS ALL THE WAY THROUGH.

IT IS THE INTEREST OF THE POOR SALARYMAN WHO WORKED OUT AT SEA AND A WHO WERE INDICTED THE OTHER DAY. THESE PEOPLE HAD NOTHING TO GAIN NO BONUS NO OPTIONS, NOTHING. THEY WERE TOILING IN ONE OF THE BIGGEST DISASTERS WE HAVE EVER HAD. $50BILLION IN SUPPLIERS WENT UNDER. I WANT TO FIGHT FOR THEM AND IT BECAUSE IT IS IMPORTANT FOR ALL AMERICAN BUSINESS IS. IF WE ALLOW PROSECUTORS TO TAKE THIS TYPE OF THE GREAT AREA ACCOUNTING ISSUES AND GRAY BEHAVIOR AND TURN THEM UPSIDE DOWN, ARE HAVE PEOPLE THAT ARE TOTALLY NAIVE WHEN IT COMES TO BANKING AND CORPORATE FINANCE, TURN EVERY DAY PRACTICES INTO CRIME, LARRY, WE WILL HAVE A PROBLEM OF WHAT I CALL A CHILLING AFFECT. A PARALYSIS.

LARRY: ALL RIGHT. I APPRECIATE YOUR POINT DID YOU VERY MUCH. WE WILL HAVE TO LEAVE IT THERE. DAVID STOCKMAN.


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