Toll Brothers posts 3Q loss as revenue falls

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WORLD BUSINESS
SEPTEMBER 8, 2008

TEHRAN TIMES INTERNATIONAL DAILY

Gabelli says there's reason to worry about earnings
Slower consumer spending may drag down profit at U.S. companies next year and overshadow growing demand from developing markets, investor Mario Gabelli said. ``The concern over the earnings outlook for 2009 is well founded,'' Gabelli, who oversees $28.3 billion as the chief executive officer of Gamco Investors Inc., said in a Bloomberg Television interview in New York today. ``The U.S. consumer is greater than China, Russia, India and Brazil in terms of the impact. As we're slowing down, we're slowing down the world. The consumer has been in a recession since November of 2007.'' The 66-year-old investor said Congress may need to boost the economy with additional tax rebates after sending checks for $117 billion earlier this year. The government must take over Fannie Mae and Freddie Mac, the largest U.S. mortgage financiers, before the housing market can recover from its worst period since the Great Depression, Gabelli added. The Standard & Poor's 500 Index has lost 16 percent in 2008 as sub-prime-related losses at banks topped $500 billion worldwide and the U.S. economy teetered on the brink of a recession. This week's retreat pared the rebound in the benchmark stock index to 1.8 percent from an almost three-year low set on July 15. Trading in stock-index futures today indicate the S&P 500 may sink to a new low. Companies in the S&P 500 will report a 1.7 percent drop in profit during 2008, before posting a 24 percent increase next year, according to the average of analyst estimates in a Bloomberg survey. The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a fiveyear high of 6.1 percent, heightening the risk that the economic slowdown will worsen. The Labor Department said today that payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months. Grain prices will probably retreat as economies outside the U.S. slow, Gabelli said. The S&P 500 pulled ahead of benchmark indexes in Brazil, Russia, India and China last month for the first time in 2008, spurred by the Federal Reserve's efforts to cut borrowing costs even as the biggest developing countries are raising theirs. Gabelli also said he's opening a hedge fund to invest in ``green'' companies that benefit the environment. ``We think there's money in alternative energy,'' he said. More Than Goldman Gabelli received $70.9 million in compensation for 2007, more than the head of Wall Street's most-profitable securities firm, Goldman Sachs Group Inc. He didn't get a fixed salary or bonus, the Rye, New York-based money manager said in an April regulatory filing. His compensation was based on a portion of Gamco's pretax profits and portfolio-management fees, according to the filing. Gamco's CEO made less than hedge-fund managers such as John Paulson, founder of New York-based Paulson & Co., who was paid an estimated $3.7 billion last year, according to Institutional Investor's Alpha Magazine. George Soros was paid about $2.9 billion, while James Simons made an estimated $2.8 billion. (Source: Bloomberg)

Tension grows between Porsche and VW ahead of takeover
FRANKFURT (AFP) — The takeover of Volkswagen by Porsche has sparked union anger and possibly raised tempers within both companies. German media reports last week spoke of a possible departure of Porsche boss Wendelin Wiedeking, who could be sacrificed by dealmaker Ferdinand Piech to appease unions. Piech, a co-owner of Porsche and president of the VW supervisory board, was said to be highly irritated by tense relations between Wiedeking, one of the best-paid German bosses, and unions who play a crucial role at VW. German industrial tradition that gives unions an oversight capacity in strategic decisions is firmly anchored in Volkswagen, the biggest European carmaker. That has been the case since the end of World War II when unions were first associated with the running of a group that was once a jewel of the former Nazi regime. The voting of a so-called VW Law in 1960, when the maker of the Beetle and Golf was privatized, gave unions more power than in any other German company. But Wiedeking, head of what could be VW's new owner, does not see things that way. the VW takeover. Its head, a former boxer named Uwe Hueck, has repeatedly expressed support for the move, and says Osterloh is only trying to maintain his power. In addition, a cousin of Piech, who represents the other branch of the Porsche family, Wolfgang Porsche, is reportedly a strong supporter of Wiedeking. Nothing has indicated Wolfgang Porsche is ready to dump a boss who has turned the maker of the 911 sports car into the most profitable auto maker in the world. Finally, a new version of the VW Law that was drawn up after the original text was rejected by the European Court of Justice last year, goes before parliament soon for what could be a spirited debate. Berlin, under pressure from unions, maintained a veto held by VW's public shareholder, the state of Lower Saxony, which owns 20 percent of the company, which could provoke fresh conflict with the European Commission. A meeting of the VW supervisory board is scheduled for September 12, with a discussion of the law likely to be on the agenda. IG Metall has called for workers to demonstrate in front of the company's headquarters that day.

Fannie Mae investor sues Citigroup, Merrill over stock drop
Citigroup Inc., Merrill Lynch & Co. and three other banks were accused in a shareholder lawsuit of failing to warn investors about proposed accounting-rule changes that lowered the value of preferred Fannie Mae stock. Karen Orkin, who bought 600 shares of Fannie Mae's Series T Preferred Stock in May, filed a complaint in New York State Supreme Court in Manhattan in a proposed class-action, or group, lawsuit. Orkin said about 89 million shares of the stock were sold, and the stock dropped 44 percent in value in four months. ``Defendants were negligent in failing to warn plaintiff and other members,'' Orkin said in the complaint filed yesterday. ``The offering circular and other offering materials omitted to state material facts,'' she said in the complaint. The banks were a syndicate of underwriters to the Series T preferred shares, Orkin said in the complaint. Proposed changes in accounting rules, known as FAS No. 140, by the Financial Accounting Standards Board, ``allowed Fannie Mae to remove certain liabilities from its balance sheet and to put them into trusts,'' Orkin said in the lawsuit. Morgan Stanley, UBS AG and Wachovia Corp. are also defendants in the case. FASB is considering changes to Financial Accounting Standard 140 that may require Fannie Mae and Freddie Mac to bring a combined $3.7 trillion in off balance sheet assets on to their books, which would substantially raise their capital requirements. ``When news about these new accounting rules and their possible effect upon Fannie Mae became public, the company's stock dropped substantially,'' Orkin said. Fannie Mae, the largest U.S. mortgage finance company, and Freddie Mac have posted combined losses of $14.9 billion in the past four quarters as mortgage delinquencies rose. Orkin said she purchased her preferred stock on May 13 at $25 per share and that it's now trading below $14 a share. ``Should FAS 140 be changed as described above, Fannie Mae could be required to raise up to $46 billion of capital, an amount that would have a substantial impact upon the company,'' Orkin said in the lawsuit. Her lawyer, Ronen Sarraf, couldn't immediately be reached for comment. Congress created Fannie Mae and McLean, Virginiabased Freddie Mac to increase financing for low-income homebuyers. The companies own or guarantee 40 percent of the $10.5 trillion residential mortgage market and are the biggest borrowers in the U.S. after the federal government. Stephen Cohen, a Citigroup spokesman, and Wachovia spokesman Tony Mattera didn't return voice-mail messages left at their offices after business hours. Morgan Stanley spokeswoman Marie Ali, UBS spokesman Doug Morris and Merrill spokesman William Halldin declined to comment. The case is Orkin v. Merrill Lynch, Pierce, Fenner & Smith Inc., 08602564, Supreme Court of the State of New York (Manhattan). (Source: Bloomberg)

As soon as Porsche began increasing its stake in VW, he dropped a bomb by saying there would be no "sacred cows" at the much bigger car company. Since then Wiedeking has become embroiled in a dispute with IG Metall, which represents 90 percent of VW workers. One of the main reasons concerns the level of staff representation in the holding company that would control both car makers. Porsche sees it at parity for each company, even though VW employs more than 20 times as many workers. Judicial proceedings over the dispute are ongoing, while media-

tion between the two sides set for September 10 has already failed. IG Metall said in late August it would not take part. Union representatives, meanwhile, have had harsh words for Porsche and its boss. VW works committee boss Bernd Osterloh has slammed the "arrogance of an absolute monarch," and called Wiedeking a "dilettante." But it is not just a matter of a faceoff between Wiedeking and VW staff that would be arbitrated by Piech in his dual role of co-owner of one and supervisory board president of the other. The IG Metall union chapter at Porsche, for example, is in favor of

Toll Brothers posts 3Q loss as revenue falls
LOS ANGELES (AP) — Toll Brothers Inc. said it swung to a loss in its fiscal third quarter as weak demand for new homes forced the luxury builder to mark down the value of its land and unsold homes. But Chief Executive Robert Toll said he is seeing signs the market is stabilizing — the company had the lowest contract cancellation rate in more than two years, and more buyers are putting down deposits. "We believe that there is pent-up demand," Toll said in a statement, but noted the housing market won't begin to recover until the trove of foreclosed homes on the market are sold. "Unfortunately, we can't predict when that will occur," he said. The Horsham, Pa.-based builder lost $29.3 million, or 18 cents a share, in the three months that ended July 31. That's a reversal from a profit of $26.5 million, or 16 cents a share, in the year-ago quarter. Toll absorbed $84.3 million in after-tax write-downs in the quarter. Excluding the charges, earnings were $55 million, or 35 cents a share, and in line with Wall Street estimates. Quarterly revenue fell 34 percent to $797.7 million from $1.21 billion, as revenue from completed contracts declined. Still, investors were pleased. Toll's shares rose 27 cents, or about 1 percent, to $25.07 on Thursday. Like other homebuilders, Toll's venture with a financial partner he did not name. "We are not ready to buy new land today, but ... when we see opportunities to buy land we can move quickly," he said. On Wednesday, Red Bank, N.J.-based Hovnanian reported its fiscal third-quarter loss more than doubled from a year ago. Hovnanian and Toll each said they saw signs some markets could be improving, but were cautious to call any kind of turnaround. "I don't mean to suggest that things can't get worse, but it's worth noting some sunlight during otherwise stormy conditions," Toll said. Hovnanian noted that sales have increased in some markets hardest hit by foreclosures, potentially bringing builders one step closer to better days. "If these trends continue and start to develop in other markets and month's supply can return to normalized levels and remain there, we could see stability in these and other challenging markets," Hovnanian said. For the first nine months of its fiscal year, Toll posted a net loss of $219 million, or $1.38 a share. This compared with a net profit of $117.5 million, or 72 cents a share, for the same period a year ago. Excluding write-downs, the builder earned $193.6 million, or $1.18 a share. Revenues in the first nine months of fiscal 2008 were $2.46 billion, a drop of 29 percent from $3.48 billion in the year-ago period.

business has suffered through the third year of a housing market downturn the CEO called the worst in the company's history. Home sales are declining in the face of competition from heavily discounted foreclosed properties, tougher mortgage lending standards and lagging consumer confidence. Toll's net contracts for the third quarter plunged 27 percent to 812 homes versus the same quarter last year. On the bright side, only 195 buyers canceled their contracts. The company also closed the quarter with a balance-sheet bolstering cash reserve of more than $1.5 billion — a key positive that investors look for in weighing how well the builder can weather the downturn and seize opportunities. Looking ahead, Toll projected it will deliver between 850 and 1,050 homes in the fourth quarter with an

average price between $640,000 and $650,000. As a result, the company said its fourth-quarter revenue will be lower than in the latest quarter, in part due to generous buyer incentives. The builder declined to offer earnings guidance. During a conference call with Wall Street analysts, Toll noted he's seeing interest on the part of hedge funds and banks looking to partner with builders to snap up discounted land in preparation for when the market recovers. "I expect we'll see some of that teaming up occur in the next six months," Toll said. In an earlier, separate conference call with analysts, Hovnanian Enterprises Inc. Chief Executive Ara Hovnanian said that while land prices have yet to fall to levels that make economic sense, the homebuilder is already exploring a joint

Swedish fund pressuring Daimler to hive off trucks: report
BERLIN (AFP) — German car maker Daimler will not countenance any move to hive off its truck and van division, a spokesman said Saturday in response to reports that it is under pressure from a Swedish investment fund. "It is not a subject for discussion," a spokesman for the Stuttgart-based manufacturer, whose most prestigious brand is Mercedes-Benz, told AFP. "We are against detaching the utility vehicles division." In a report to appear Monday, the weekly magazine Focus says representatives of Cevian Capital had called on Daimler boss Dieter Zetschke to break up the division and sell off the heavy vehicles subsidiary. The Daimler spokesman refused to comment on reports that Cevian was aiming at taking a significant slice of the company's capital, saying only According to Focus the fund now owns some 2.0 percent of Daimler. There are legal declaration levels of 3.0 and 5.0 percent. The shares have fallen by 42 percent in the past year, making Daimler's stock attractive to investors. It is also spread among a multitude of shareholders, with only the Emirate of Kuwait's holding of 7.6 percent exceeding the market's lowest benchmark of 3.0 percent. The head of the company works committee, Erich Klemm, said in a separate interview with the weekly Der Spiegel that he was worried about the reports of moves to break up the company. Workers would put up massive resistance to such a move, he said, adding that selling the trucks division would severely weaken the group, which is a leader in the sector.

that "every new investor is welcome." Last month the Sueddeutsche Zeitung daily quoted an unidentified fund manager as saying that Cevian, which also owns stock in the Swedish group Volvo, had bought packets of Daimler shares.