托爾兄弟 (TOL) 2002 Q3 法說會逐字稿

Good afternoon.

Welcome, ladies and gentlemen, to the Toll Brothers fiscal 2002 third quarter conference call.

At this time this conference is being recorded and that all participants are in a listen-only mode.

At the request of the company, we will open up the conference for questions and answers after the presentation.

I would now turn the conference over to Mr. Robert Toll, please go ahead, sir.

Thank you, Janine.

Welcome, everybody.

I appreciate you taking the time off to be with us instead of enjoying the last few days of summer.

We have about 120 people signed up today.

With me on the call are Joel Rassman, CFO, Fred Cooper, VP,Finance Joe, Chief Accounting Office and in spirit though not in person, Karen who may be listening, and I hope she's having a great vacation.

Before I start, I ask that you read the statement of forward-looking information in today's release or on our website.

I caution you many statements on this call are based on assumptions about the economy, world events, housing and financial markets, weather and other factors, whose performance is uncertain and could significantly affect future results.

Those listening on the web can e-mail questions to RToll@Toll Brothers ink.com.

We'll try to answer as many as possible.

The demand for Toll Brothers luxury homes remains unsated.

Since February, our deposits, traffic and contracts have substantially exceeded last year's record results.

Record third quarter signed contracts rose 30% to $704.2 million, and record nine-month contracts increased 24% to $2.09 billion.

Our record third-quarter backlog, which rose 21%, to $1.90 billion, was the highest quarter-end backlog in our history, giving investors pretty good visibility in the second quarter 2002 results.

Actually, wouldn't that be 2003, fellow?

Yes, I apologize.

As we have previously cussed sused, because of the lead time from when we sign a contract to the time we deliver a home, this quarter's revenues and earnings were impacted by the slowdown and demand in late summer 2001 and the further decline in the aftermath of the tragedies of Sept. 11.

Other factors impacting this quarter's earnings, which Joel will talk about it more detail, included a decline of $2.1 million in joint venture income and 2.9 million other income, versus 2001.

While the Company's selling in administration costs increased due to continued growth in new selling communities, revenue for the quarter did not compareably rise due, as outlined above, to the effects of the late summer 2001 slowdown and post-SEP 11th slowdown.

Even with the Company's continuing expansion plans, the relationship between SG&A and revenue growth should become more balanced as these new communities begin delivering homes.

Third-quarter earnings were 70 cents per share.

This exceeded by 9% the first call consensus of analysts estimates, which was 64 cents per share, and was better than our guidance.

Although it was down 9%, from 77 cents per share in last year's record third quarter.

Record 9-month earnings of $1.99 per share increased 8% versus 2001.

Third-quarter revenues were $580.7 million, versus 2001's third-quarter record of $584.1.

Record nine months revenues increased 3% to $1.62 billion.

Given the environment in which we began our fiscal year last November, we are very please pleased that at nine months we're 7% of last year totals.

The combination every increasing numbers of households, the maturing of the baby boomers, and a constricted approval pipeline for new home sites are fueling the current strong demand for luxury homes.

We believe the impact of attractive mortgage rates and the appeal of a home as a stable investment in this period of financial uncertainty are also contributing to healthy demand.

Our record backlog of 3,440 homes pressages strong results for at least the next nine months.

We expect to have open approximately 170 selling communities by our fiscal year end October 31st, and increase of 10% versus fiscal year end 2001, and preliminarily approximately 185 by fiscal year end 2003.

Based on this community growth, the strength of current demand, we foresee record deliveries of approximately 5,000 homes in 2003, and approximately 6,000 homes in 2004.

And with nearly 40,000 home sites under control in affluent markets nationwide, we're well positioned for further growth in this decade.

With the debate continuing about the possibility of a housing bauble and in light of yesterday's record new home sales data, I'd like to offer some thoughts on the topic.

Surely, housing cannot go straight up forever.

It's been strong for 11 years.

Despite minor dips in the past seven years.

At some point, the housing market must take a breather, or even drop slightly.

As an aside, if this happens, I think the large builders will have even more opportunity to increase market share.

Some investors still think of our industry based on the experience of the late 1980s.

However, I believe the housing market and the major builders are vastly different in 2002 than they were in 1988.

In the late 1980s, housing crashed because the FEDs slammed the brakes on the economy, with rising interest rates.

The economy was forced into recession.

The stock market plummeted.

And unemployment rose significantly.

In the early 1990s, a tepid housing and economic recovery began.

Which continued until about 1996.

We then experienced much stronger demand for the next five years, until along came the recession of 2001-2002.

Even then, housing remains strong.

Through the 90s, housing has slowly and steadily increased in price, with a few dips in housing starts along the way.

In '95, '97 and 2000.

Although housing prices have risen more quickly in the last few years and in the early 90s, if you look at the average price increase for the past decade, it's been consistent with historical trends.

Particularly in relation to income growth.

So housing prices and income growth have pretty much been in balance with historical norms over the past decade.

From '83 to '87, for us at least, housing prices rose much more quickly.

I believe we started in '83 with an average single-family home selling for about $125,000.

And by 1997, we were selling homes for $300,000.

Now, the same home, basically.

You haven't seen that kind of appreciation yet.

In some cases, we found we were selling to speculators, although we didn't know it.

These people were buying condos to use as rentals, or signing and thing flipping for sale home contracts.

That is not happening this time.

Right now, the level of specs homes in the U.S. is near a record low in contrast and late 1980s, when builders built way ahead of contracts and lenders were helping builders get there.

Ultimately, many S and L's went bankrupt, and there was tremendous economic dislocation.

There is now much more liquidity in our industry, and lenders are more sophisticated, and the big builders are also.

In the mid to late 80s, there weren't any new or extraordinary physicals that were -- fundamentals driving home prices and home production.

They were driven more by speculation.

Similar to tulips and to Tech.

In this new decade, there are underlying demographic shifts that are drying demand and at the same time there are independent forces restricting supply.

These factors are having an effect on all housing, including the luxury market.

On the demand side, the largest number of baby boomers are rendering their peak earning and move-up home buying years.

Integration is bringing educated workers into the U.S. and the number of affluent households, those earning $100,000 or more, has been increasing 8 times faster than U.S. households in general.

By virtue of their age and affluence, these groups are the most likely to buy new homes.

On the supply-side, him in bee, not in my backyard politics, is constricting the supply of available new home sites.

Even as our population grew by 33 million in the past decade, the process for getting new lots approved got much longer and more expensive.

A prols are no longer assured and what used to take two years in New Jersey, or Pennsylvania, for instance, now takes five or six or in the case of our Princeton junction, a decade.

In Virginia, what used to take one year now takes three.

The situation is getting tougher and virtually every market we build.

With reduced supply and get greater demand, rising home prices are an anestable result.

There was an article this morning in the "Wall Street Journal." -- about the housing bauble, housing price bauble, whether there was one.

In the second part of the article, back in the paper, the statistics they gave were that new home sales were up by 16% in the midwest, and by 10% in the south, though they softened the bid in the east and the west.

I submit that the east and the west are the strongest markets, and the reason that housing -- that new home sales have softened is not they softened, but they're not available to be bought.

That's 80 think you see the highest price appreciation in the east and the west.

Now I'd like to turn it over to Joel Rassman, our CFO.

Joel.

Thank you, Bob.

This quarter's results were much stronger than any of us would have expected in November, when our fiscal year began.

Given the event of September 11th.

We achieved the second highest third quarter results for earnings and revenues in our history, and established nine month records for both.

For the third quarter, revenues from home sales totaled $565 million, which is only 1.5% below last year's results as the continued great weather allowed us to deliver more homes than we had projected, even as late as may.

Our average delivered price of $518,000 was at the low end of the guidance we previously gave you.

Land sale revenues varied significantly from quarter to quarter.

In this third quarter, it totaled 12 1/2 million dollars, nearly $10 million above last year's third quarter, and about 4 million dollars above our may guidance.

As we projected, third quarter income from joint ventures was $200,000, this quarter, down from the $2 million 3 in 2001's third quarter, and interest in other income was $2.6 million, down $2.million below 2001's numbers of $5.5 million.

Last year, we benefitted from the sale of an office building.

Gross margins for the quarter were 27.5%, compared to 27.2% in fiscal 2001, slightly better than our guidance because of slightly lower write-offs, 1.6 million dollars this year versus 2.3 million dollars last year.

And a slightly richer mix of closings.

SG&A at 10.7% of revenues was a little better than our guidance ws we benefited from the higher than expected home deliveries.

Increases were result of higher people count without the increases in revenues because of what we talked about earlier, and some additional insurance costs.

As of the fourth quarter, we believe that some of the additional closings in this third quarter were accelerated from the fourth quarter.

However, as Bob noted earlier, the slowdown from the event of last summer and the aftermath of September 11th meant that we did not really hit strides consistently with new contracts until late January 2002.

Accordingly, most of the contracts signed in the late part of our first quarter and those signed in our second quarter were not signed in time for delivery in this fiscal year, even with the great weather we are enjoying.

Nonetheless, we are raising our projected range of unit deliveries for the year to between 42.75 and 44.25, up from the guidance we gave you in may.

Which means that the fourth quarter deliveries estimates are between 1120 and 1270 homes.

We are in crossing slightly our projection for the fourth quarter average sales price to a range every 530 to 540,000 dollars, up from the 525 to 535,000 we previously gave you.

Which brings our average sales price to the year to be between 510 and 520,000 dollars.

We project land sales for the fourth quarter at 10 million dollars, which is higher than the previous guidance of 3 million dollars.

We are estimating land sales gross margins to be about 25% for the fourth quarter.

We expect no material joint venture in the fourth quarter and reduce our estimate to other income to $3 million, from the $5 million guidance we previously gave you.

We reiterate our guidance that fourth quarter gross margins should be between 100 and 175 basis points below last year's fourth quarter.

This is due both to mix issues and the impact of incentives during last summer's slowing economy and the aftermath of September 11th.

This should bring gross margins for the year to about 25 to 60 basis points higher than last year.

We now believe that SG&A will be about 100 to -- 50 to 100 basis points higher as a percentage of revenue in this fourth quarter than in last year's, again as a result of a higher costs as we wrap up production, higher insurance costs, higher professional fees, and the effect of the acceleration of revenues which we borrowed from the fourth your into the third.

Our interest expense should remain at about 2.7%.

We believe our tax rate for the fourth quarter will be about 37%.

Obviously, the share count for the fourth quarter and full year will depend to some degree on the share price for the remainder of the fiscal year.

We currently estimate the average number of shares outstanding for the fourth quarter will be about 76.2 million, and for the year to be about 76 million shares.

The housing market has remained strong, with 3440 homes at backlog at year end and a community count continuing to grow, we are looking forward with optimism to 2003.

We believe we have the opportunity to continue to gain market share even if the national housing starts stay flat or slow.

This is because of the excellent land locations and position in lots.

Based on current strong demand, our record backlog and projected community openings, we believe we can deliver approximately 5,000 homes in 2003, maybe a little more.

We will keep updating you as as the year progresses g progresses.

We currently expect an average delivery price in 2003 to be about approximately 525,000 to 530,000 dollars, and this would mean home revenue -- home building revenues of about 2.6 billion dollars.

We have a significant number of new communities delivering their first revenues in the fourth quarter or next year.

In addition, a higher percentage of deliveries will come from the lower margin lower regions, so we may be cautious about margin guidance.

In 2003, we expect margins for the year to be 50 to 100 basis points lower than this year.

We currently estimate land sales to be 18 million dollars, with the cost of sales at approximately 75%.

Other income in 2003 is estimated to be about $11 million, roughly equivalent to the projection for this year.

We would expect income from joint ventures to be between 4 and 5 million dollars, as our joint ventures start to deliver home sites to other builders in South Carolina and in California.

These profits will probably not be realized until the second half of 2003.

In 2003, we believe our SG&A as a percentage of total revenues will be flat orer than in 2002 as we continue to open new master plan communities and wrap up for projected in could in deliveries in fiscal 2004.

Remember, it takes us months to build a home after we've sold it, and selling administrative and advertising costs are expensed in the pre-delivery stages of revenue.

We expect interest expense to remain at approximately 2.7% of revenues, and a tax rate at about 37%.

At this point, let me turn it back to Bob for questions.

Thank you, Joel.

Thank you.

The question and answer session will begin at this time.

If you're using a speaker phone, please pick up the handset before pressing any numbers.

Should you have a question, please press star 1 on your push button telephone.

If you wish to withdraw your questions, please press star 2.

Your questions will be taken in the order they are received.

Please stand by for your first question.

Our first question comes from Joseph Shiroka.

Please state your affiliation and your question.

Good afternoon.

Hello, everyone.

Hi, Joe.

You can sort of give some color on what a richer mix of closings meant, that brought the margins in stronger?

Joel, we had a little more in the Pennsylvania division than we had originally projected, and a little more in the Virginia division than we had originally projected.

And I think that's what gave rise to the slightly higher margins.

So more of a gree geographic people, not people adding options.

That is correct.

It's got to do primarily I think in the Pennsylvania case with the length of time it takes for approvals.

But by the time you deliver a home in Pennsylvania, you may be 7 or 8 years into the process of -- from the beginning, and you've had such appreciation, you get pretty high margins.

In the case of Virginia, there is such tremendous demand within increasing constriction of supply because of the him in bee politics I pokes spoke about earlier, that you're getting pretty good price push there, not from the length of time but from the tremendous growing strength of demand of these -- vis-a-vis the available supply.

Okay.

And just one clean-up question, Joel, what did you say the 2003 anticipated land sales would be?

18 million dollars, I believe.

Perfect.

Thank you.

Thank you, Joe.

Thank you.

Our next question comes from Steven Kin.

Please state your affiliation and your question.

Solomon Smith Barney.

Strong quarter, gentlemen.

Had a couple questions about the longer term outlook for starters.

In 2003 and 2004, I think you mentioned you expected closing to move from 5,000 to 6,000 units, is that right?

That's right.

By guess what I was thinking is that your ramp and subdivision counts, doesn't quite appear to be squaring up with that kind of a growth in closings.

I guess I was wondering, is there potentially upside to your selling community count by the time you reach the end of next year?

In other words, could you perhaps not do just 185 but be somewhat larger or higher than that?

Or are we moving to much larger communities and therefore the absorption is higher.

Good question.

Joel.

Steve, I think that the impact is that we have more deliveries expected to come from master plan communities and on average they deliver more homes per communities than a stand-alone, smaller subdivision.

And so that is what you're seeing in those estimates.

Is there anything, Joel, about the way profits -- or the communities season in terms of profitability, you know -- your typical subdivision I assume has a certain seasoning factor, where maybe margins in the third quarter of the life of that community is maybe the highest.

But whatever that seasoning factor is, do you experience a much different seasoning factor in your master plan communities?

It's a good question, but it requires a very long answer.

I'm not sure we have the timing.

First of all, with respect to a stand-alone, let's take an 80-lot subdivision in New Jersey, Pennsylvania, or Orange County.

The more years you go on, the generally greater margin you see, just because of the ordinary price appreciation, inflation and housing.

On an average basis.

If you're in a hot market, of course you'll see in excess of.

In the multi-family -- not multi-family, in the multi-product communities, the PUDs, the exact same forces are at work.

Generally, we -- as a matter of fact, always, I believe, I hope, we embark on these only in areas where things are hot.

Because they're large, they require large investment, and you don't want to be taking a risk with that large an investment because of the pack man effect of the interest clock.

So you generally got a hotter market, and you see in a shorter period of time a greater appreciation in prices in those, only because those have been embarked upon generally -- we open -- in areas where we expect things to be pretty hot.

No guarantee, of course.

We can guess wrong.

I hope that answers your question.

I guess what I'm hearing you say is that would imply that three and maybe even early '0e 4, the margins you get from those master plan communities which are in the relatively earlier stages might be higher than they might be if those units came from more traditional -- [ NOT UNDERSTANDABLE ]

I try to say that they were going to be about -- they would be about the same.

Okay.

But it depends very much on sales pace.

If -- right now, sales pace is very strong.

In the master plan communities.

Should sales pace slow down, should demand slow down, you would see a faster incentivizing a slower price increase, in a large community than in a small one because of the carry factor.

Okay.

So, you know, you win faster but you might not see the same price appreciation if things slowed down.

Got it.

Okay.

Last question, the SG&A components, you indicated the part was insurance, can you break that out?

I imagine that's probably something does not really go down, going forward?

Yeah, insurance -- all over the country.

Check with buffet.

You got the wrong guys here to tell you the price of insurance is going.

I imagine like everything it will go down in time, but right now you're in a non-competitive situation.

So we're all taking it in the year -- ear with price increases for insurance.

But in time, competition will reassert itself, I'll bet.

Very much depends on whether we see any more tragedies as well. 92 thanks, Steve.

Thanks.

Thank you.

Our next question comes from Steve Perco.

Please state your affiliation.

Lark Research, thanks.

Just following up on that first of all, when I've looked at this issue of selling faster versus slower, it's always come out because of the carry that the faster you sell your homes, the higher your return on investment.

Is that not true?

Do you see it differently?

Definitely.

Sure, Steve.

If you've got a hot community, you may -- and your carrier isn't horrible, you may want to purposely slow down sales by raising prices to as we would call it suck on the lollipop.

If you've got a real sweet community, why run the sales out fast?

Why not run them out slowly and take the benefit of the price increases that you're able to generate?

That's the opposite of what I said.

Because of the carry, it usually pays -- unless you're guaranteed of getting the price increases over time, and they're substantial.

I mean, I don't know where the tradeoff is at this point, but a higher return on investment almost always results from selling the homes faster and getting out of your investment as quickly as possible.

Sounds like a statement, not a question.

But thank you, Steve.

Well, I mean, is that true?

I've given you my answer.

It ain't necessarily so.

Let me -- one issue that I -- you gave a lot of reasons for the strength of the housing market, where it's come.

But certainly you must be concerned about some aspects of the housing market today.

Let me focus on one, we've seen no employment growth since 2000.

Employment is actually down over that period.

And since I've been following the sector, the builders have said that the primary driver of housing demands is employment growth, people don't have jobs, they can't form new households.

And yet, we've been able to sustain a strong housing pace here, in spite of a slight decline in employment.

It leads me to say that all of the positive momentum that we've had in the housing market has been driven by interest rates and perhaps maybe some disenchantment with the stock market.

Given that we've seen pickups and defaults and -- in the core mortgage market and also in other sectors like manufactured housing and subprime lending and all of that too, it raises the specter that we -- if we see an appreciable pickup to false mortgage rates could end up moving up.

And that just following on my line of thought with the return often investment, why -- I would think that in this environment, you would be trying to sell and close houses as quickly as possible, given the risk that the bottom could fall out of this market if employment growth keeps its trend, that -- you know, as soon as you'd get an order in, I would think would you want to close it asas quickly as possible.

Thank you, Steve.

Thank you.

Our next question comes from Todd Boyd.

Pleads state your affiliation followed by your question.

Yes, hi.

Cliffwood Partners.

Hi, Todd.

I was wondering if you could talk about your buyers today.

Are you seeing a consistent amount of down payment they're making?

Are you seeing less down payment than you have in the past or what is the average down payment?

We're seeing about the same that we've seen his for chri for -- historically for at least a decade.

I think it's about a 70% loans value, so we're seeing about a 30% average down payment.

Okay.

Great.

That's good news.

I also -- Excuse me, Todd.

The reason is because in the line that we're in, the luxury product, most of our buyers generate the down payments for that product from sale of their older homes.

Sure.

They're moving the equity that's been generated and their older home into the newer home, and that's why you see such a large -- such a low loan value ratio for a mortgage.

That makes sense.

I would love you to discuss more in detail your margin expectations going forward, and I know it's a moving target and everything, and really from less from the top line out of the margin but more from the expense out of margin and the biggest function of expense, which is land, and I know you have seven, eight years of land on your balance sheet.

When you look at your community that you will be building going forward, what is -- is the average cost per lot in creasing in price, or is there any risk to margins from a guess the land sales -- other land costs of the equation?

There's always risk but I'll turn this over to Joel Rassman.

Joel.

First, we don't have eight years supply of land on a balance sheet.

We have eight years supply owned and controlled.

So.

Okay.

And since we've acquired control of many of the properties, three, four, five six years ago, they're at cost levels which are cost levels which we believe should keep our margins relatively the same or better.

We just got to prove they -- after 10-plus year battle, Princeton junction, I can guarantee you that product today when we opened it up for sale will have a much higher margin than it would have had 10 years ago, given the appreciation that's taken place over that period of time.

Sure.

Sure.

Okay.

Lastly, I'd like to better understand seems you're having great success selling land to other parties, and I'm wondering if you could disclose who the parties are.

And more directly, do you sell any land to the private toll reef?

The sales out of the master plan communities to other builders are to the usual suspects in California.

I don't know the memorized, but it will be leading builders, Horton and Lyons, I don't know whether we sold any to Len or -- Lenore, warming ton, perhaps.

But it's the big builders in that subdivision.

Great.

Do you still have any -- sell any land to the -- [ NOT UNDERSTANDABLE ]

We don't sell land to the Toll reap.

We have not sold any land to the Toll reap.

Everything in the toll reef has a -- been acquired so far from outside sources.

Yeah, but we may.

Sure.

If you see when we do a large community, couple thousand units, master plan, commercial ground very often comes along with it.

And currently, we have offed that from Toll Brothers into the reef to separate the businesses, one from another, because housing is analyzed one way and income-producing properties analyzed another way.

So we have sold -- we would plan on sell off the commercial property.

In the one office building instance, we were going to sell -- move that land to the reef, but the people we were negotiating with for the office building decided they wanted to buy it instead of lease it.

If it turns into a sales situation, there's no reason to move it from Toll Brothers to the reef so we keep it and analyzed the same way.

How is the -- I guess the -- if there's any conflict of interest, how is that rectified?

Is it the independent board members, do they look at the deal and sign off?

That's -- absolutely.

And there's appraisals that would be had to be make sure that it's kosher, and there are third parties who sanitize the deal.

Great.

In addition, the company continues to participate in the third of the profits, future profits from the ownership, and gets developers' fees for managing the development process.

I know, it's -- it is great.

Just want to understand if there wasn't an incentive or a way to -- land into the reef to help make numbers.

No, there's no incentive.

To help make numbers.

It's actually a shame that we can't somehow get commercial analyzed the same way as house sales, but we can't.

Sure.

Okay.

Thank you very much.

You're welcome.

Thank you.

Our next question comes from Carlos Ramiro.

Credit Suisse first Boston.

Congratulations on a solid quarter.

Thank you, Carlos.

Bob, can you talk about business trends, traffic trends for the first couple weeks in August?

Sure.

Traffic trends.

One moment, please.

Oh, traffic -- in August, first week, August 4th, was down 7% per community.

Same store information I'm giving you.

August 11th was up 8% per community.

August 18th was down 1% -- was up 1% per community.

And this past week, August 25, was down 11% per community.

But that number has to be tempered by the fact that we opened last year's same week a community that went through the roof, where we sold looks like about 40 or 50 homes.

It was a -- age restricted community, that had a huge waiting list and generated tremendous traffic.

Eyeballing it going back even further, traffic is generally up for the third quarter, giving you May, June, July.

Basically, traffic is up -- same-store basis over same-week last year.

Okay.

How are your absorption rates in saug?

Same store deposits up year over year?

As far as you can see?

On a same store basis, going back four weeks, adjusted for new openings, our didn't, not agreements, but our didn't are up on a four-week basis, yes.

Which is pretty good.

Considering the traffic patterns are mixed, yeah.

Yeah.

Do you normally agree to contingent contracts, basically -- No.

No, no.

Okay.

That would be very abnormal, if we've got a slow community, very slow community, we would agree to that.

Because we're holding it anyway.

But -- if it's a normal, normally selling community, no, we would not agree to a contingent contract.

Fair enough.

There is -- by the way, there is some contingency to some extent in the -- in that the buyer has to go out and secure a mortgage.

And he can -- if he wanted to, try and stall his mortgage while he sees what is happening with his home.

But we're playing the same game, with the commitment to make sure that we have it before we start something that we don't think is worth starting.

And then we point out to the buyer that the commitments, one you get them, even though they say they are conditioned upon the sale of your current home, we point out that our agreement is not contingent upon that.

Our agreement is just contingent upon you receiving a mortgage commitment, not upon receiving a mortgage commitment without conditions.

So that's well understood by our buyers.

Got a question about one of your smaller markets, Denver obviously you guys --

We just started in Denver.

We haven't gotten our models kmeetd yes.

But go ahead.

We can give you -- My question has more to do with your targets and goals here for '03 and even '04 for Denver market, in terms of community openings or --

We don't have -- we've got two communities within one master plan community, Castle Pines.

We have been very slow to date.

Traffic has been very slow.

And we believe that this is a very localized kind of offering, that we will probably market primarily through mailings.

If you want to live in Castle Pines, you must see the Toll Brothers homes, that kind of things.

It's not -- the kind of offering that is for the general Denver market, even the general upscale market.

You got to want to live in in area.

And in this kind of community to come to our home.

We haven't got any other contracts yet.

We want to get our feet on the ground, understand the subcontract market, gain some experience before we start making deals for more ground.

Okay.

Just lastly, you guys mentioned on your previous conference call, new orders, what was your share of purchase, how many shares did you repurchase?

Shy of 900,000 shares.

Okay.

What do you have remaining, Joel?

.7 million.

Great.

For those who may not have understood the question werk have approved a 10 million share buyback.

We have bought 5.3 million of those 10 million shares, leaving us 4.7 million shares to still be bought back under at provl.

Thank you very much.

You're welcome.

Thank you.

Thank you.

Our next question comes from Mike Berk.

Please state your affiliation.

Hi, guys.

Mike Berk from Basics Capital.

I was wondering, are there any markets that you are having to exit because they're oversaturated?

Maybe -- 92 there are markets that we may exit.

Nashville we may exit.

We only have basically one community going there now.

There are no other markets that we're in that we are can even considering exiting.

Some markets that are not so great.

But none that we're considering exiting.

Are there any that are not -- what were the ones that aren't performing as well as you'd like, I guess?

Boston.

Okay.

The -- Charlotte.

In Boston it's the market and Charlotte it may be us.

Any other markets not performing as well as we expect?

No.

Not at this point.

The rest of them are doing as well as we would have expected.

Rler in the year.

Are there ones doing better than you thought?

Yeah.

We're always and continually shocked by the greater New York market, which means half of New Jersey, as well as Connecticut.

The Pennsylvania, Delaware markets, Maryland and northern Virginia continue to stun us.

Western Florida, the -- I'm sorry, the west gold coast, the Naples kind of market in Florida, has been doing better than we would have expected.

Arizona, Scottsdale, Phoenix -- this time of year is doing better than we would have expected.

So is palm desert, Palm Springs.

Who would buy a house, 120 degrees, and yert seeing good traffic and good sales.

Northern California is a mystery.

It doesn't exceed our expectations of three years ago, but it certainly exceeds our expectations of one year ago.

One year ago, you couldn't give a house away in northern California.

And now you have tremendous demand.

Southern California, it's great but it doesn't exceed our expectations.

You don't have any lots being produced primarily -- from the ordinary sources other than the master plan communities, so you've got tremendous demand set against the supply.

Anything else, guys?

All right.

Thank you.

Thank you.

Oh, yeah, Michigan is -- the Detroit market surprises us.

Its strength is a little bit of a surprise because not knowing much about the industry, but reading, you would think that it wouldn't be that great, but it is.

Thank you.

Thank you.

Our next question comes from Myron Kaplan.

Please state your affiliation and your question.

Hi, guys.

Hi, Myron.

I guess you gave a good reprise of the market, so I would just ask if you would -- could expand a little bit about the newer forms of product, like the assisted living or active adults or what have you.

The assisted living we're not in, Myron.

With no intentions of --

No, we have no intentions of going into assisted living.

The assisted living business.

As a matter of fact, we have one active out of community next to an assisted living product, and that does less than we expected it do.

And the reason we have figured out is that it is close to an assisted living offering, and the active buyer does not want to be reminded or even think in terms of needing assistance.

Other than on the golf swing and the tennis

-- Right, makes them nervous.

Yes.

The surprise we have is that we are -- if there's any product we're surprised with it, it's that we're doing as well as we are doing with the active adult market.

We are generally offering our homes for more money than any other active adults are in the same markets that we're in, and we're selling with tremendous pace.

We're scared to raise the prices more than a couple thousand a week because we're fearful that at some point we may run off a cliff with u fear ya and find out we've just blown past the ability of this market to pay.

But that doesn't seem to be so.

It just keeps on going and going, and we keep on raising prices.

So the product that we have in that market is doing well for us.

The other market is the second home market.

Even the second homes within primary markets, such as northern Virginia, the villas, the villa product, the carriage product -- I'm sorry, the small jewel box product on a golf course, the semi-detached or triplex property on a golf course, or with a view, those products are very much in demand.

At this point, I guess we're really not surprised because we've had a couple years' experience.

It's the demographic working for us.

All right.

Thank you very much.

Keep it up, please.

Thank you.

Thank you.

Ladies and gentlemen, should you have a question, please press star 1 at this time.

Our next question comes from John Soden.

Please state your affiliation and your question.

Banc One.

Hi, John.

Congratulations.

I just had a couple questions, just to understand the kind of dip in in quarter.

You mentioned that there's about a 35% drop coming out of the recession and 9/11, and then things picked up during January.

And you mentioned deposits being forfeitted, aspect foreign and forfeitted.

Did that -- in -- do you have the sense that businesses went away, or did it show up again?

Did people come back and we're seeing that feed through now and in the next quarter?

First, I don't believe we -- yeah, we had seen -- no, did we say 35?

We said sflif immediately after September 11th.

Oh, that was just right on the unfortunate event.

Right.

Okay.

Okay.

Go ahead, Joel.

I can't -- we did see immediately after September 11th a reduction in sales contracts of about 35%.

And that is what has been reflected in the deliveries that we're seeing now and in the fourth quarter.

Those reduced contracts during that brief period of time.

As to the buyers come back?

Yes, they came back -- about Thanksgiving time.

And I remember because generally, between Thanksgiving and New Year's, it's the season to be jolly, not to be selling homes.

And you don't see much action.

And it was easy to see that we were seeing a resurgence in the business because it sticks out, especially in comparison to statistics for the same stores statistics for the same week in the prior year.

So business started to come back Thanksgiving and continued to pick up in December, and by January we were running pretty strong.

Thank you.

Just another question on the tremendous strength in the market that you have.

You've talked at length about land.

But are there any other factors, tradesmen, managers, architects, materials, technology, that you feel would prevent you from expanding as rapidly as you'd like to take advantages every these conditions?

Yeah, I think we have to be sensitive to the span of management we control.

We have to make certain that before we expand, that we know we have the ability to manage it.

It's definitely not one of those things where expand it and they will come.

The business doesn't work that way.

So we're continually running pretty intensive training course within what is known as Toll U, Toll university, and we probably use as much from the forest for paper as we do for studs.

In trying to generate reports and management capability.

So that is our greatest strength.

There's no doubt about it.

But looking out to '03, '04, you overcome with that trading and getting --?

We had the managers in hand being trained.

What we do is we go to the colleges and we recruit right out of the colleges or the MBA or the law programs, same as the law firms and the investment banks and the banks.

We bring in extra people per community, and train them as distant project managers or assistant construction managers for a year or two, so that they're skilled and ready to operate and control when our expansion takes place, and we pretty much have a good idea of what our expansion will be through 2006.

Because we have that land going through the approval process.

Thank you.

Lastly, your leverage came down, you talked about sharing purchase.

Where do you think you'll finish with that cap or neck that cap by year end?

That's a Joel Rassman question, Joel.

I'm just kidding.

Please.

We are very comfortable operating in the 50-plus range.

And we go down under 50 from time to time.

We generate 45 million dollars a month in what we call free cash flow adjusted for land additions, and that gives us the ability to repay debt relatively quickly if we need to.

So I think historic kinds of relationships, sometimes it will blip up as we start new communities, but historic relationships are probably what we would expect yg gun.

Thank you very much.

Thank you.

Thank you.

Our next question comes from Carl Ryker, please state your affiliation and your question.

Hi, it's Bank of America Securities.

Hi, Carl.

Question answered, but I wondered you talked about 70%, Bob.

Percentage are paying all cash now?

I don't know.

Anybody here know?

We don't know.

Sorry.

We don't have the info.

Question you don't know the answer to, amazing.

I know, are you relatively happy with your geographic mix now, Bob?

Can we expect that to change in any significant way next year?

Am I happy with it geographic -- Just looking at it -- will question -- Other markets I'd like to be in.

And there are some markets that we're in that we've already mentioned that I would like to see do much better.

I think what I'm asking is, are we going to see any significant shift -- let's say out of mid-Atlantic and to the midwest or something?

I don't think so.

We're going to grow the midwest and Chicago markets, but we're not going to shift out of the mid-Atlantic market.

We're going to grow the northern California market.

I think you'll see that.

Basically, we're opportunisticly driven and where the deals come that are good, we will go.

We do not allocate capital on a regional or market basis.

Okay.

It will be -- there will be a movement -- we will grow faster in the newer areas as a percentage than we will in some overruled areas, so there will be a switch which we've talked about over the last few years, where a higher percentage of units coming from our newer regions next year than this year.

Sure.

Chicago right now we have only one community working, we hope to have three or four, so you'd have tripling.

But that's the -- won't represent a shift in my mind.

If you've got a thousand units being generated in Virginia and you've got a percentage, it is still more than going up as we expect to in Chicago.

Okay.

I'm just looking at the decline in gross nar gin you'll projecting and wondering if that's more product orgyography.

There's a mixed shift.

There's a higher percentage of units coming from home deliveries coming from new regions.

That happens from time to time.

Some is a result of community openings and where they are.

We've gone from -- we flip-flopped at a couple years before.

Okay.

That helps.

And then this is maybe opening a can of worms, but Joel do you have or plan on giving us some guidance on quarters for '03?

Yeah, we are in the process of trying to work that through now.

Thank you.

Thank you, Carl.

Thank you.

Our next question comes from Michael Mallscap.

Please state your affiliation and your question.

Bear Stearns.

Just a couple quick questions.

The price per home, what did you say it was for this quarter?

We delivered a 518, $518,000 for home delivered.

As far as on the last conference call, the deliveries you had projected was 1185 to 1335.

And you've lowered 65.

Is that because of --

We took some units from the fourth quarter and put them into the third quarter based on the good weather, and as we said we couldn't sell -- we didn't sign contracts quick enough to be able to take units from the first quarter and put them into the second quarter.

But our guidance has gone up so we expect to deliver more units now in the -- total for the year than we would have expected six months ago.

And you expect the price per home is 535, 540?

That's our current expectation, that's correct.

Thank you.

Thank you.

Our last question comes from Matt Moyer.

Good afternoon, AG Edwards.

Joel, did you give guidance for '03 shares?

No, I did not.

I would have to try to figure out where the price of the shares would be at the end of the year, and then move it towards there.

As we see what -- how the stock market'ths maybe I'll feel more comfortable.

If you figure out, give me a call first.

I hope you have a good summer.

Thank you.

Thank you very much.

Thanks, everyone.

I appreciate your attention.

Look forward to talking to you next quarter.

Bye.

Ladies and gentlemen, that concludes our conference for today.

Thank you all for participating and have a nice day.

All parties may now disconnect.