托爾兄弟 (TOL) 2006 Q4 法說會逐字稿

Good day, everyone, and welcome to this Toll Brothers fourth quarter 2006 earnings release conference call. [OPERATOR INSTRUCTIONS] I will now turn the call over to Mr. Robert Toll, Chairman and Chief Executive Officer.

Mr. Toll, please go ahead, sir.

Thank you, Rufus.

Welcome and thank you for joining us.

With me today are Joel Rassman, Chief Financial Officer;

Fred Cooper, Senior Vice President of Finance and Investor Relations;

Joe Sicree, Chief Accounting Officer;

Kira McCarron,Chief Marketing Officer; and Greg [Ziegler] AVP of Finance.

Before I begin, I ask you to read the statement on forward-looking information in today's release and on our Website.

I caution you that many statements on this call are based on the assumptions about the economy, world events, housing and financial markets, weather and other factors beyond our control that could and will significantly affect future results.

Those listening on the Web can e-mail questions to rtoll@tollbrothersinc.com.

We'll try to answer as many as possible

Fiscal year '06's fourth quarter net income was $173.8 million or $1.07 million per share diluted.

In '06 fourth quarter net income included pretax writedowns of $115 million or $0.42 per share diluted after tax versus '05's $1.4 million or less than $0.01 per share after tax.

Fiscal year '06's fourth quarter earnings per share, including writedowns, declined 42% versus '05.

Excluding writedowns, earnings on a per share basis were down 19%.

Fiscal year '06 full year net income was $687.2 million or $4.17 per share.

Fiscal year '06's net income included pretax writedowns of $152 million or $0.56 per share fully diluted after tax.

'05 full-year pretax writedowns were $5.1 million or $0.02 per share after tax.

Fiscal year '06 earnings per share, including writedowns, declined 13% versus '05.

Excluding writedowns, earnings on a per share basis were down 1% versus '05. '06 writedowns were about 2.7% of our fiscal year-end '06 stockholders' equity.

In fiscal year end '06, stockholders' equity increased 24% over fiscal year end '05.

And returned on fiscal year '06 beginning equity was 25%.

Fiscal year '06's fourth quarter total revenues were $1.81 billion.

Fourth quarter end backlog was $4.49 billion and fourth quarter signed contracts were $706 million.

Revenues, backlog and contracts declined 10%, 25%, and 56% respectively compared to '05's record fourth quarter results. '06's full-year total revenues were a record $6.12 billion, up 6% over '05.

Full-year signed contracts were $4.46 billion, down 38% versus '05.

We continue to reevaluate and renegotiate our option land positions in response to current market conditions.

We ended fiscal year '06 with approximately 74,000 lots on the control, compared to approximately 83,200 at fiscal year end '05.

That is down 19% from a high of approximately 91,200 lots at fiscal year '06's second quarter end.

In tough times, our team produced our 15th consecutive year of record revenues and our second highest annual profits.

These accomplishments are exceptional, considering the significant rise in cancellations and our a tribute to our associates' commitment and hard work.

15 months into the current slow down, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above that.

For us, the northern Virginia, Washington, D.C. market was the first to slow down.

And now seems to have stabilized, although at levels much lower than those we have enjoyed over the past few years.

The Maryland D.C. market also seems to have stabilized, though at higher levels than northern Virginia, as that market never went down as much as northern Virginia.

As we previously announced, this quarter's results were negatively impacted by a higher than normal 585 cancellations.

With these cancellations creating unintended specs, we could face increasing margin pressure as we seek to move these homes.

Right now, it's a great time to buy a new luxury home.

Builders are motivated to sell their specs and the fundamentals that typically lead our industry out of a slowdown are already in place.

Interest rates are near historic lows, unemployment is near an all time low, and the stock market is setting records.

Experts project that population and household growth will continue.

The increase in affluent households continues to outpace that of households in general, which bodes well for the luxury niche.

We believe many buyers are waiting on the sidelines with concerns about the direction of home prices as builders compete to move their specs.

This is creating pent-up demand since landowners and builders are not being aggressive taking lots through approvals right now.

We could face a shortage of building sites in the early stages when the market turns.

We believe we are well positioned for the market rebound.

We have an experienced and seasoned management team, the industry's leading brand name, a portfolio of well located properties, and a broad array of product lines to attract urban and suburban luxury home buyers at all stages of their lives.

Last March, we increased our bank facility from $1.2 billion to $1.8 billion and extended it to March 2011.

With approximately $1.1 billion unused and available under the facility, plus over $600 million of cash in hand at fiscal year-end '06, we are ready to take advantage of opportunities that may arise in this market.

We've learned by managing through previous downturns, dating back to 1968, that times of stress in our industry often produce unexpected opportunities.

The last major downturn in the late 80's and early 90's provided a springboard for us to expand into northern Virginia, the New York City suburbs, southern Connecticut, metro Los Angeles, and San Francisco.

In that period, we took the first major steps to becoming the national brand for luxury new homes.

In fiscal year '06, we marked our 20th anniversary as a public Company and commenced our 40th year in the home building business.

We are proud of what our team has accomplished and the value we have created for our shareholders since going public in July '86.

As of Monday's close, at $31.91 per share, our stock price has grown nearly 3,000% from the day we offered it to the public.

The S&P 500 has gone up about 485% over the same period.

But we at Toll Brothers who own approximately 30% of the Company's stock are keenly aware of the 45% drop in our stock price since its peak in July '05.

We assure our fellow shareholders that we will not be satisfied until our earnings, revenues, backlogs and contracts are once again setting new records.

Now, it's time for Joel Rassman to do the numbers.

Joel?

Thank you, Bob.

Home building revenues for the fourth quarter and full year were approximately $1.8 billion and $6.1 billion respectively, as deliveries were at the bottom of our range and the percentage of the completion revenues were lower than our guidance.

Fourth quarter and full-year land sales at $250,000 and $8.2 million respectively were also lower than guidance.

Fourth quarter home building cost of sales as a percentage of home building revenues before interest and writedowns at 69.5% was in line with our previous guidance.

The fourth quarter interest expense at less than 2% of revenues was lower or better than guidance, principally based on mix.

When we held our conference call in November 7, we were in the initial stages of our review for writedowns.

The final determination of writedowns for the fourth quarter was $115 million, which is $15 million higher than the top of our range.

During this review, we determined some communities needed larger than originally anticipated writedowns and we also identified additional communities and options which required writedowns.

Writedowns relating to options were 60% of the total.

The majority of all fourth quarter writedowns where the options or communities zoned were in California or in Michigan.

Fourth quarter SG&A, at a little under 8% of revenues, was 60 basis points lower or better than our guidance, principally a result of lower payroll costs from staff reductions and lower bonus costs.

Joint venture income at $11.7 million was approximately equal to our previous guidance.

While other income at $20.7 million exceeded our guidance by over $13 million, due principally to retain deposits on cancellations and higher interest income.

The tax rate was higher than guidance, resulting principally from some additional state accruals.

The number of shares we used to calculate earnings per share of 163.1 million for the quarter and 164.9 for the year were both in line with guidance.

Projections are subject to many uncertainties and can change for many reasons.

However, the current market conditions make it even more difficult to estimate revenues, costs or profits.

Accordingly, please recognize this additional uncertainty and read carefully the forward-looking cautionary language in our release, our financial statements and on our Website.

To assist you in preparing projections, this morning we filed an 8-K and posted on our Website detailed financial guidance by quarter.

For fiscal 2007, our projected deliveries are expected to be between 6,300 and 7,300 homes at an average price between $660,000 and $670,000 and are based on our backlog at the end of the year, as well as anticipated signings for contracts, which we expect to be able to deliver by the end of the year.

Because of uncertainties associated with the current market and its affect on land options and existing communities, we are including in our estimate $60 million of writedowns for the year. $10 million in each of the first and second quarter and $20 million in the third and fourth quarters.

Compared to the $16 million we have normally and previously included in our estimates.

This is not because we know that we will have these writedowns but rather as an estimate, which reflects the uncertainties of current market conditions.

Using this writedown number, we estimate that the cost of sales before interest as a percentage of home building revenues will be approximately 77% to 77.9%.

This increase in cost of sales reflects not only the estimate for write-offs but also as we previously discussed, a geographic mix shift to areas which have more competition and therefore lower margins, the effect of projective incentives, especially those related to specs created by cancellations.

And please remember that we do retentions and deposits as other income, not as a cost of sales reduction.

And increased overheads per home, resulting from lower deliveries per communities.

Offset, in part, by estimated cost reductions.

The Financial Accounting Standards Board has ratified the Emerging Issues Tax Force Recommendation affecting use of percentage of completion accounting subject to an additional comment period.

Accordingly, it appears likely that such change in accounting treatment will be approved.

Our guidance for 2007 assumes that we will use this new criteria.

And that only those buildings already accounted for using the percentage of completion method will continue to record revenues in that manner.

And that all other buildings will be accounted for under the completed contract method.

Accordingly, we estimate that the percentage of completion revenues in 2007 will be approximately $180 to $200 million, with gross margins of approximately 25%.

Most of this revenue would have been recorded even under the completed contract method at -- as these buildings are delivering homes during fiscal 2007.

If we continued using the old criteria in fiscal 2007 that we had used in 2006, we estimate that another $275 to $350 million of revenues would have been recorded above the $180 to $200 million.

We project land sales at about $5 million, down from last year's $8 million, with gross margins of approximately 20%.

And that interest expense will be approximately 2.1% of revenues.

We estimate SG&A as a percentage of total revenues for [2006] -- 2007 will be between 11.2% and 11.7% of total revenues, as a result of a reduction in anticipated revenues, the expenses associated with opening new communities, advertising expenditures to help promote sales.

We estimate that other income of approximately $36 million, which is lower than the $50.6 million we had in 2006.

This change is a result of fewer projected closings, making our mortgage and title businesses less profitable, and less projected interest income, offset in part by increased income from retained deposits and an asset sale.

Income from joint ventures is estimated at $22 million, significantly lower than the $48.4 million in 2006.

As we have fewer units from the Tea Building, which is our Hoboken condo conversion joint venture, that we can expect to deliver by year end.

And because of lower than anticipated profits from other joint ventures, particularly our sale joint ventures as we expect land sales to be spread over a longer periods of time reflecting the slower markets.

We expect that our tax rate will be approximately 39%.

The result of all of the above is that net income is projected to be between $260 and $340 million.

In order to assist you in preparing the quarterly 2007 models, I will highlight some quarterly information I think you should consider.

Information on a quarterly basis is subject to even more variances than annual information and can include large swings, which may be caused by items such as cancellations, weather, approvals and contractor and material shortages.

We estimate that for the first quarter, deliveries will be between 1,600 and 1,900 homes, with an average price of between $670,000 and $680,000.

Those are increased guidance.

We anticipate that deliveries for the second, third, and fourth quarters will be between 1,550 to 1,750 units; and 1,600 units to 1,850 units; and 1,550 units to 1,800 units respectively.

We estimate that the average delivered price will be a little higher in the second quarter between $665,000 and $675,000.

Decreasing thereafter based on mix to between $655,000 and $665,000 in the third quarter and $650,000 to $660,000 in the fourth quarter.

We would expect percentage of completion revenues of between $45 and $50 million in the first quarter; $65 and $70 million in the second quarter; $35 and $40 million in the third quarter; and $35 and $40 million in the fourth quarter.

Based on the backlog in place, we expect that first quarter will have the lowest cost of sales at between 75% and 75.6%.

With cost of sales increasing each quarter thereafter, so that the third and fourth quarters will be 75.6% for the second, to 76.5%; 78% to 79.1% for the third; 79.5% to 80.6% for the fourth.

SG&A varies significantly quarter to quarter, as we generally incur higher stock-option expense in the first quarter and more selling and advertising costs, as a percentage of revenue in the first and second quarters than in the third and fourth quarters.

As a result of reduced revenues, we expect selling costs as a percentage of revenues to increase.

SG&A as a percentage of revenues is expected to be 11.4% to 11.9% in the first quarter; 11.2% to 11.7% in the second quarter; 11% to 11.5% in each of the third and fourth quarters.

We have used an estimate of 164 million shares outstanding for the year and for each quarter.

And at this point, I'll turn it back to Bob.

Thank you, Joel.

Rufus, do we have any questions?

Thank you, sir. [OPERATOR INSTRUCTIONS] And for our first question we go to Alex Barron with JMP Securities.

Yes, thanks, guys.

I was hoping you could elaborate a little bit on your comments about stabilization in D.C.

What you guys are seeing that leads you to that -- to feeling that things are stabilizing?

Sure.

This past weekend for instance, we had quite a few communities sell -- take nonreservation, nonbinding deposits, these are the deposits before we go into the real deposits within agreement of sale, which are not returnable.

We had taken two deposits per community.

And that would give us heart to believe that the markets responding better than it had in the past.

And we saw this kind of pickup over the past month, approximately.

So, it would appear to us that whereas we've been -- as I said in the monologue, dancing along the bottom for a couple of months.

Recently last month it appears that we are now off the bottom, a level above it, and that heartens us.

We also noticed approximately the same thing in Maryland.

Though Maryland never went down as deeply, didn't go into the ash can as the northern Virginia market.

Probably because there was much less speculation, there were fewer lots available for construction in the Maryland market.

It was a tighter market.

So there, we're now at a level, which is pretty acceptable.

Florida picked up a little bit on the East Gulf Coast in primary markets.

And I think it picked up in Jacksonville.

One moment while I search for that.

Florida, east, central, north -- no, not really.

It didn't really pick up in Jacksonville.

That's about it.

Okay.

Thanks, Bob.

And my second question was, can you give us some kind of break down of where you took the impairments by region?

Joel?

We've indicated that the two major regions, which accounted for more than 70% of the total writedowns were in California and Michigan.

Okay.

Got it.

All right.

Thank you.

And for our next question, we go to Margaret Whelan with UBS.

Trying to get a sense for the big jump in your cancellation rate relative to your buyers and your backlog.

Do you get a sense that you actually accelerated that?

Did you go back and shake it out and try and get a sense for whether or not people were going to come to the closing table?

About 50%.

And 50% even worse.

Yes, we precipitated it by shaking the tree and saying, "all right, guys come clear here.

Are you going to come to the table or not?

If not, let's get it over with at this point in time."

Also, we gave charge to our management to proactively go do this and ask them to stop horsing around with would-be buyers who were indicating that they were probably not going to come to the closing table but that didn't want to say they were out.

Why should they?

Their deposit is up at stake, the longer they can keep an option cooking, the more construction we put into the home, perhaps the better deal they can expect on reconsideration note when we get to complete the home.

And so we proactively said to management go out and talk to these people and say, "hi, look if you're not intending to come to the table, let's call it quits now and understand it."

And so I think that had an impact and that's why you had to jump in a number.

And that's why you think about 50% of it is attributal to that?

I don't know what the percentage is attributal to that.

Anybody around here?

What did you say was 50%?

About 20% of it was clearly a shakeout that we --.

I thought it was much higher.

Well, the 20% we did in the last couple of weeks.

In the last couple of weeks.

That we just pushed people to find out what was going on.

20% of the 30% or 20% of the total?

Of the total.

Yes, and I think it's higher, Margaret.

So, we might expect your can rate to get a little higher before it comes down?

I don't think so.

And the second question I have, I'm trying to figure out what your free cash flow might be next.

How should we look at your inventory dollars relative to the can rate relative to the deliveries?

This is definitely for Joel.

Margaret, we, based on the deals we put under contract years ago, we still expect to buy more land than we will free up in inventory cost capitalized from previous -- in previous acquisitions in the current year.

So from a land relief standpoint, we will end up putting on our books more lots than we remove.

In terms of lots but dollars?

Dollars will follow lots.

Do you have a sense for the magnitude?

Probably $900 million of total additions is our current estimate.

Okay.

So it will go from 6 to about 7.

And then the last question I have, is at our conference last month, everyone had a different view on how much -- how on prices might go up or not go up or go down next year.

What is your sense for what you see in the market right now? and are you getting better terms, where you're actually seeing prices on land come down?

We're definitely getting better terms, especially from those people that we're already connected with through an option or who have become recently disconnected from some other builders who are in the market searching for someone to take their place.

And there's not a lot of buying going on out there.

So definitely, those that want to move property are giving better terms and better prices.

I'm aware of quite a few deals where the prices have dropped on average about 30% for the land.

On land prices?

Yes, for the land.

So, prices down 30% and whereas the terms of yesteryear, that's taking you all the way back about nine or 10 months, were all cash at closing.

Today, typical terms are three or four year mortgage with release clauses, similar to what was extant in the mid 90's.

Not mortgage, the terms they're giving on the debt for the land, right?

Well, yes.

So if land prices are down 30% and it looks like you're --?

And that's just the recent few deals that, well, more than a few, 10 or so deals that we're acquainted with in the last couple of weeks.

And relative to the decline in your order price, which is only about 5% from the peak, it would seem you'd have more impairment beyond the first half of '07, is that fair?

We're going to have more impairment first half of '07, I hope.

I don't think so.

We -- if you looked at the estimate that we gave you in 2007, it assumed that because we finished the evaluation process further into the next quarter than normal, that the beginning part of the year would have less impairments.

And that if any surprises come, it'll probably come more to the end of the year.

We don't think that impairments will be anything like 2006 impairments were.

And we don't have an estimate that that we can give you better than to tell you that you need to put a number into something to protect yourselves, which is what we did.

Okay.

Thank you.

And we go next to Stephen Kim with Citigroup.

Thanks.

My question relates first to your average price point.

I was wondering whether or not you anticipated that, that you might be able to see price increases revisit any of your communities sometime in the next 12 months?

Is that something that in any of your projections or planning you have incorporated?

We increased prices on approximately three communities this past week.

I can remember them specifically.

So there are price increases but they are rare right now, as logically, we are focused on just doing as much business as we can.

If you're asking me to predict where we're going in the future, I would quote a well known analyst who said, "we continue to believe home owner stocks will extend recent gains as return to positive order trends by first quarter '07, drives a return to PE evaluations.

We expect both timing and steepness of this rally to take most industry observers by surprise."

Now, this would only come from price increases in the markets.

So, we believe that this analyst knows what he's talking about and if not, from his mouth to God's ear.

Amen to that.

The second question relates to land.

One of the things that the market has generally been, I'm talking about Wall Street, has generally been focused on is the idea that land is pretty much first-in, first-out.

But my recollection is that when you get -- when you come out of a downturn, that oftentimes you have an opportunity to step in and acquire land parcels from some of the distressed players.

And that land may be a little bit more ready to go sooner.

Maybe they were half way through the community, couldn't make ends meet and so forth.

And so, you actually have an opportunity to acquire land that you don't necessarily have to wait three or four years, five years in some cases to actually build on.

That is true but I'm not certain that it will be in large enough quantity to make any difference this time around if we come out fairly soon.

Right.

If we come out in the next six months on a definite basis, you will not have had a long enough down period to have ruined enough builders and developers to have a meaningful amount of ground hit the market.

There's definitely some in the market already, I don't want to go into it, but you know it and I know it from certain companies that are struggling.

And some indeed that are in bankruptcy.

But I don't think that's a large enough amount yet to be a major factor with respect to the balance of supply and demand.

So, I would expect that when the market returns, I agree, I wasn't just kidding when I said I agree with that analyst who expected it to return more rapidly.

I do too.

And if that occurs, I don't think that you'll have enough land to have made a difference and available.

At least in terms of land you would be buying at the time, but certainly you'll be benefited from the stuff that you still have in the hopper.

Yes, I think that'll be true for us and all of the major builders that buy land, as opposed to just-in-time.

Great.

Thanks very much, guys.

We go next to Michael Rehaut with J.P. Morgan.

Good afternoon, guys.

A couple of questions, first, on the market commentary that you gave, certainly interesting regarding D.C. and similar to what we saw last week.

But you had mentioned in the press release that you may be seeing a floor in some markets.

And I was wondering if you mentioned Florida possibly, although, you backed off that a little bit.

Any other markets --?

I mentioned Florida.

I thought that Jacksonville, northern Florida, might have gone up, but I said on review.

And I'll review it again to make sure because it's in my mind.

No, it's not true.

No, that's the primary market.

Hold on, yes, actually Jacksonville did, this week it didn't do so well but in the last four weeks Jacksonville has picked up a bit.

So, I take back my correction of my gut.

Always go with your gut, it's generally right.

And I said east Florida.

Primary market.

East Florida, the primary market, right.

Would you say California is still kind of deteriorating from your perspective at this point?

Or given the write-offs that you've done there?

No, I don't think it's deteriorating any longer.

It seems to, if anything it seems to be coming back a little bit.

I'm looking at stats from this week and the past eight weeks, the past four weeks.

And I see some surprises in that instead of taking zero or one nonbinding reservation deposit per community, some communities are taking two and three, which is heart warming.

I wouldn't say that it's definitive of -- it doesn't prove anything but it gives an appearance of a market coming back a little bit.

Where in California would that be?

That was northern California, also known to you as the San Francisco and burb market.

Great.

Thanks.

And one other question if I could.

The --?

Pardon me, I'm sorry I have to correct.

For us, San Jose is also, looking at it from an East Coast perspective, San Jose is also San Francisco and environ market even though it may be billed separately by most of you.

And we've had a pick up there recently.

Appreciate that.

In terms of the quarterly progression that you outlined in the 8-K, looking at earnings kind of going from 1Q '07 to 4Q '07 being roughly cut in half.

In terms of -- I know this might be pretty even more forward-looking, but based on how '07 goes, are we to think that whether or not that 4Q '07 might be the trough?

If trends improve a little bit over the next 12 months, would that then play out in fiscal '08?

I'll let Joel talk to you but I must say, we're just not that good.

You're looking -- our crystal ball definitely doesn't go out to answer the questions that you're asking.

I have more knowledge of the closer-in settlements because they're coming out of backlog.

And we envisioned that some of the other settlements will come out of speculative homes, which will have greater incentives in them and so we've provided for that in our estimates.

We may be pleasantly surprised and we may not.

Fair enough.

Thanks.

You're very welcome.

I have Rufus, a bunch of questions here I'll try and go through some of them from the Internet.

This is from [Luciano Morrelli].

How can you say you may face a shortage of buildable lots in the beginning of an upturn?

You currently have 10 years worth of lots available now.

Well if I said that, I apologize, Luciano I didn't mean to.

What I was discussing with Stephen Kim, and I believe that's what this is in reference to.

From the scripted is, to also is, I'm talking about those builders, not us who have relied on just-in-time supply method, as opposed to those such as us who have built up a pretty good backlog in buildable lots.

So you're right, your question makes a statement and I think your statement is correct.

Thank you, Joel.

From [Chris Gilda.] Now that it is obvious that the recent highs in new housing production, ie. '04 and '05 was largely, were largely the result of speculative buying, what do you think is a more reasonable new housing build run rate for the next two or three years?

And the answer is, I don't know.

It would be ideal if we could get the market to cook along at 2002/2003 levels.

But I think what will happen is when we reach 2002/2003 levels of demand per a community, speculation will once again come into the market.

Builders will raise their prices to suit the demand.

As prices go up, more demand will come in on a speculative basis, so on and forth.

And then we'll be talking about the next downturn, instead of the next upturn.

And as a follow-up, Chris says;

What would you consider a reasonable gross margin percentage range over the long-term, given that we will not likely benefit from the rapid rise in home prices relative to land costs associated with those properties sold, as was the case between '03 and '05?

I think we could fairly take a guess at what we would consider a reasonable gross margin.

Joel?

What's a reasonable gross margin, Joel, is the question.

Not '05 --.

We had reasonable gross margins in 2002 and 2003 and in the 1990's.

I don't have that in front of me but I'll look it up while you're getting the next question.

Okay.

Rufus, we'll go back to questions from those you have.

And for our next question, we go to Timothy Jones with .

In answer to Joel, I want to give you congratulations to have the nerve or the chutzpah to put out an estimate, and we know all the problems that are going on.

But you have at least put it out and you're the only one that has.

I wasn't aware of that. [expletive] If they had told me I was the only one, I wouldn't do it.

No, no, it was smart.

We all know what's going on.

Well, thank you.

That's a compliment.

I know it is, that's why I said thank you.

Now, a couple of things.

One thing that worries me very big is, is the amount of land write-offs next year, estimates.

I think $150 million, roughly for last year and going down to $60 million.

I know what you were doing.

You had to make a number.

Going down to 1/3 of what it was.

Are those assumptions, and maybe it's for Joel, in the option or the writedown of subdivisions?

I think we tried to estimate both numbers but we don't know.

If we knew we would have already taken it, Tim.

It's kind of like an estimate to say you would expect conditions not to be as good as they were in 2003 and 2004 and 2005.

And so, you need to have some idea.

Historically, we have done under $10 million in writedowns for most years.

And I'm hoping that --.

That's for the entire year.

I'm hoping that when the conditions stabilize we'll be back to writedowns in those levels or less.

But right now, knowing that it could get worse in individual markets, we have to be cautious and give you an understanding.

It's prudent.

We're just being prudent.

Would you allow me to follow that one up, as my first question?

I think it's a critical.

Go ahead.

All right.

Now -- this is what's got people completely freaked out on the group.

Believe me.

It's not everything else, it's this writedown situation.

And I was talking to one of your competitors, actually not because not in your price range.

But they basically said if they had to write up anything, this quarter they would write nothing off more than they did the last quarter or very little.

Unless like I said under $10 million.

Are you seeing this same kind of thing.

Obviously, you're coming to end of your fiscal year, so you've been audited.

The auditors -- I would like to know how tough the auditors have been?

And are you guys really, if anything being overly conservative?

And not only for you, but for the industry.

I can't answer for what other people do.

How about what you did?

I can answer to what we did.

We did an incredibly exhaustive search all year long.

And this is the best estimates we can using reasonable sets of assumptions.

And our auditors were involved in the process as we fought through how we approached it and reviewed the numbers after we did our work.

But it is the Company's responsibility to do the initial go through.

And we look for write-offs every quarter.

And let me just ask this one because this is so important.

And that is this, would you think right now, are you comfortable that you could write off less than $10 million in the next -- I'm only going for the next quarter because --?

No, I wouldn't say that.

I would say that what we've said already is our best guess, Tim.

All right.

I appreciate that.

I'm going to leave you off on that.

Thank you very much.

Thank you.

Appreciate it.

To answer the previous question that was asked of margins, I would guess that if you look back historically, 25% or 26% margins were not unreasonable for Toll Brothers.

Right.

That was a question, from a previous questioner.

Rufus, I have some more Internet questions.

This one from [Michael Steinberg.] With the of recently constructed used and investor homes -- well they weren't investor homes if they were used, they were -- unless they were rented.

On the market, what differentiating features is Toll Brothers now including in its houses that did not exist a year or so ago?

It's actually a good question.

What we've done where we see that we have, I choose not to use the word glut, thank you, Michael.

But where we have more specs, certainly, than we ever expected or wanted.

We have changed appliance packages.

So that when you walk into the home you see and Bosch and [Mely] and Viking and Wolf and Subzero instead of the great stuff we've been using, it's just as good, looks just as good but doesn't have that brand recognition.

So, that's an example of one of the things we're doing to move.

Let me see, Joel's recommending.

Go ahead Joel.

I think that if you look historically, a Toll Brothers home has maintained its value better than our competitors and has been easier to sell than our competitors' homes when we look back on the resale market.

And we think we build quality into our homes at all times and I hope we continue to do that.

Michael goes on to say; examples might include better hurricane protection in Florida and other things.

Have we considered exceeding local building codes to differentiate?

Yes, definitely we have and we do.

So thank you, Michael.

Rufus?

And for our next question we go to Ken Zener with Merrill Lynch.

Afternoon.

I'm wondering if you can expand on some of the data you put in your detailed estimates about the quarterly gross margins.

Because it's roughly 25% in the first quarter, going down towards the fourth quarter.

I realize the minority of that is attributal to your higher expected impairment rates.

But why wouldn't that be kind of the run rate or why wouldn't that trend continue into '08 if we're seeing a core deterioration in the gross margin throughout the year?

And these are really homes that you're preselling right now, right?

They're not incentivized homes.

Good question.

Joel?

As I think I said, but if I didn't, I'll make sure it's clearer.

Because we don't know what deliveries will consist of in the third and fourth quarter, particularly because we believe it will have a higher number of homes that will be canceled homes currently in our portfolio; we have built in additional incentives into those sales prices.

If it turns out, we don't need them, then obviously the margins will be higher.

But to be prudent, we have built those in.

Right.

And you're stabilizing.

I don't understand, it seems to be there's kind of two sides to that.

If you think things are kind of stabilizing, why are you expecting increase in can rates?

I already have the cancellations, I now have to sell the homes.

Right.

And the other question is if you can explain a little bit more the tower revenue.

I know the miss in the third quarter was expected -- was attributed to slower than expected construction.

And then the percent completion for existing towers is slower going into '07.

Is there something structural about that business that you didn't expect?

Or what was the miss coming from?

The accounting rules are changing and we anticipate that the new accounting rules or interpretations of the rules will be passed finally in our first or second quarter of 2007.

Anticipating that change in accounting rules, although we could have waited to 2008 based on the current draft, we believe that we will adopt the use of the newer criteria in 2007.

Which means some of the buildings, which previously we had expected to account for using the percentage of completion method will be accounted for using the completed contract method.

And that's why we reconciled effectively the impact of that change in criteria in the release.

What Joel is saying is, and therefore, because of early adoption of this method for calculating revenues and earnings we'll transfer to further out years the revenue and profits.

But you didn't expect the revenue from the fourth quarter into beyond '07?

No, no.

I'm looking at the difference between the $31 million reported --.

No, that was just, we had two buildings that would have qualified.

We had expected construction to have qualified it in the fourth quarter.

To have started to use the percentage of completion method.

They didn't get to that level of construction.

And now they will not ever get to that level of construction because under the new rules we will not use it.

So, it might be pushed out.

Right.

Just to go into that percent of completion, I realize it's winding down as far as it impacts '07.

If you have a building, let's say like in Hoboken at 700 grot, which is getting towards completion.

Exactly right, go ahead.

But you probably -- if you said two weeks ago 2/3 of the building was sold.

You probably accounted for more than 2/3 of the revenue.

Am I mistaken given it's farther along in the construction process?

And what type of liability does that intend in '07?

If we -- for a percentage of completion revenues already recorded, it is only those units that we have under agreement of sale at the end of the year.

For the units that we're projecting, we're including what we estimate what we will sell during the year and probably deliver most of during the year anyway because the building will be complete.

And we go next to Ivy Zelman with Credit Suisse.

I'm just kind of curious, Bob.

Realizing it's the beginning of December, which is typically a time where most builders we talk to are not willing to make a stance one way or the other on what the next several months or even year will bring with respect to the outlook, especially because most builders are waiting until post Super Bowl to make a stance based on how the spring selling season actually pans out.

Now, here you are Mr., seems much more bullish, talking about big pent-up demand.

And clearly, you were surprised on the spiral downward and for the first time in 15 years your earnings are going to be down versus '06.

And I think that you seem like a very broken man the last time you were on the call and here you are a new man.

And I'm wondering, which Kool-Aid you're drinking because I want some.

Because it's not what we're hearing from a lot of the other -- no one else in the industry is willing to stick their neck out.

And a lot of people got burned.

And I'm wondering, what do you see in the data?

Because your numbers certainly don't show it today and there's clearly a lot of risk that '07 won't bring the optimism to reality that you're seeing.

So, why put your neck out, now, Bob?

Well, I don't think I put my neck out.

I think I made a statement with regard to what I witnessed.

And I thought I should make that statement because I witnessed it just as I made the statement many moon ago that things stink and that we're getting chopped.

But I don't think I've made a statement with respect to the future.

I don't think that I've said because of what we've witnessed that we are going to.

I'm just told the market what we've witnessed so that they have that information to deal with.

I'm sorry, I thought I heard you say there was a lot of pent-up demand and that you're not being concerned.

The demand statement, I believe is accurate.

And I think it falls logically.

Let's just take the D.C. market as an example.

Sales have fallen in the D.C. market.

The D.C. market probably has an unemployment rate of about 0%.

And come to think of it, I think every committee in Congress, both houses, is going to change its staff entirely, not to mention that there's 40 or 50 odd people that have not been in Washington and will be soon.

So, there's some minor demand coming from switch in politics.

But with the unemployment in D.C. being near 0 and with sales going down and with more people moving into the District, and with business going up in the District, it would logically, not definitely, but it would logically follow that demand is increasing in the D.C. market.

And yet sales were going down, until we saw them recently coming off the bottom and dancing above the bottom.

And therefore, we don't think that it's illogical to assume that pent-up demand is building, using that market as an example.

That is all that we're saying.

Well, I think that's fair.

Bob, I would wonder, then why to be a little more pointed, if you were as optimistic as you seem and --?

Again, I didn't mean to project optimism.

I only meant to project what I'd seen in the past.

Okay.

Well let's just say that you read in a sell-side analyst's work, that you said the stocks you think will continue to surge.

I didn't say that.

Why only buy 12,000 shares of your stock?

Why not buy a boat load of stock back if you really believe the stocks were headed north here?

Well, I referred to someone else's belief.

But let us say I believed, which I'm unwilling to make a statement on -- let us assume your proposition that I believe, which I don't necessarily, but let us assume that I do.

Your question of why wouldn't I buy stock?

And the answer is I believe I can make more money with my powder cash of buying land and expanding the business than I believe I could make by buying my stock.

Buying a stock is kind of a one-time thing, I think.

I think a lot of people if they ever follow you Bob in your buying and selling, personally, they've made a lot of money and I'll leave it at that.

Thank you, Ivy.

Appreciate your question, thank you.

And we go next to Rob Stevenson with Morgan Stanley.

Good afternoon, guys.

Bob, you talked before about markets that you saw improving.

What are the worst markets our there that you guys are operating in today?

Worst markets.

Well, there's a bunch of them.

Recently, probably the worst -- well, definitely the worst market is Reno.

It's a market that we definitely missed the call on.

I think that the Las Vegas market, in comparison to what it had been doing, qualifies for rotten market.

And most recently, the Phoenix market, which did well for us long after everybody else pretty much everybody else had said poor things about has turned sour for us.

Now, Kira, just handed me a note reminding me of Detroit.

Actually, we commented, Kira, this weekend we sold five homes in Detroit.

That's fabulous.

Who knows what's going on in Michigan and in Detroit but we've been doing that for a couple of weeks now.

Minnesota is a definitely an F market for us.

So, I hope that gives you some idea of where it stinks.

All right.

And how many land parcels did the $69 million of option write-offs during the quarter relate to?

Joel, do you know that, Joe, Greg?

We do have it.

We have it.

Don't know what we did with it.

Pages are being turned and we'll get back to you an answer.

Okay.

And then one other question on the writedowns.

Did all of the $115 pretax come at the cost of home sales line items or is it in any of the line items, as well?

Joel?

The writedowns are listed in cost of sales.

Okay.

Thanks, guys.

You're welcome.

We'll get that answer to you shortly.

And we go next to [Stewart Hozenski] with Vanguard.

Yes, thank you very much.

I actually have a very quick question for you.

In the D.C. market where you indicated that things looked as though they were improving a little bit, you had some nonbinding contracts.

Right.

Can you talk at all about what you've done with pricing and incentives in that market?

And the reason I'm asking is because I've heard from other builders that when they reduce prices enough, the demand absolutely is there.

That would figure.

It's what I try to explain when we went through the example using D.C. to Ivy, right, pent-up demand.

We have not cut our prices nor increased our incentives, we believe, as much as the other guys.

When we've been handed spec inventory, we have put on extra incentives.

But again, not quite as much as the other guys.

Does that answer your question?

Yes.

And when you do -- when there is a nonbinding contract signed --?

Actually it's -- let me clarify that.

Okay.

You walk into the model, you and your wife express interest, you're taken out, you're shown the lots.

You say, "all right, I want to buy an Andover home in home in the Winner Circle phase.

We like lot number 3."

We'd say, "well, give us $5,000 as a nonbinding reservation for that lot.

No obligation, we'll return that $5,000 if you change your mind, of course, and let us draw the contract."

And then we call you in for the contract signing.

At that point, you would put down on a $700,000 home probably about $40,000 to $45,000.

We'd hope to pick up another $15,000 or $20,000 from you in down payment for options.

At that point, it's all binding.

So, there's two stages.

First, the nonreservation -- I mean the nonbinding reservation stage, then there's the contract.

And then finally, there's the sale or settlement.

And in those markets or those communities where you were getting some of those, some of that flow, how long had it been since you had gotten interest before?

Well, the -- we were talking about the Washington, D.C. market.

And I think I said in the last month things picked up, which would leave you with all of those months prior to that where things were slower.

What heartened us was we were seeing, instead of one or none, we were seeing some twos and threes per community.

And that was pretty heartening to us because it gave us warm memory of those great days of yesteryear when two or three per community per week was the average of demand that we were witnessing.

You have the answer?

30.

It was roughly 30 communities that we took writedowns with respect to lot options this quarter.

There's another 10 or 15 that had residual writedowns with respect to lots we took in previous quarters but some expenses trailed in.

Thank you.

You're welcome.

Do we have anymore from the Internet?

I have this one, I'll take this one.

We were asked to provide the detailed break down of land, construction progress, percentage of completion, sample homes and land deposits.

And we will do that as part of last -- as part of our next filing.

I'm not going -- which will be coming out shortly.

Thank you, Joel.

Rufus?

And we go next to Steve Fockens with Lehman Brothers.

Hi, guys.

Bob, I know you've already talked about several markets but it's also nice, in the past you've done a market by market grading.

I'm just wondering, the last time you did this call, you basically gave Delaware, Texas, D.C. and Maryland B grades.

And everything else basically C's, D's, and F's.

Has there been any change by market along those lines, since the last time you gave that market by market description?

Let's take a look.

Texas I know is still doing well.

Delaware --.

What I'm going to asking, is it too inconvenient to ask you to go market by market and give a grade?

I've covered pretty much, Delaware is now, I would rate this as a C. If I rated it as a B before, it is going in the wrong direction.

What were the other ones?

You said Delaware, Texas.

What were the other markets you mentioned?

I think you mentioned the Texas market as B's and D.C. --.

They still are.

And I think last month you said D.C. and Maryland were B's?

No.

D's or F's.

Maryland would have been a B, I think, and still is, maybe a little better.

And D.C. would have been a D or an F, I can't remember.

Probably a D.

And now you call it a B?

No.

Still --?

I didn't give a rating for it.

I said it was off the floor a little bit.

It's probably in the C- instead of a B and at a D.

Maybe just to quickly summarize.

Things across the board --?

You may summarize, I may not but go ahead.

It's not as if things are -- in a few markets, you're seeing some things getting a little bit better.

But across most of the markets, relative to a month ago, not a whole lot of change.

That's correct.

Okay.

And then one last question.

Joel, you said the inventory next year on the land side maybe about $900 million higher than this year.

I didn't, if I said that, I misspoke.

I said I expect that we will -- based on deals we have in processes, assuming theres no slippage, we would expect that we will acquire about $900 million worth of land this year on deals that we have put under the contract three, four, five, six years ago that are coming out of the approval process.

That's a gross not a net number?

That's correct.

Okay.

So it is possible next year that inventories may not be a whole lot different than today?

It's possible.

I don't have an estimate for balance sheets yet to give you.

Okay.

Fair enough.

Thanks very much.

You're welcome.

And we go next to Dan Oppenheim with Bank of America Securities.

Thanks very much.

I was wondering if you could talk about your guidance for closings in the first quarter of '07 for that increase?

Was that due to better luck selling previously canceled homes than you expected?

Or is there something else driving that?

No, it had to do we just got, last week, a revised settling sheet of estimates and closings for this quarter, which are more up to date and include deals, which we thought we were going to close in the next quarter but have now been scheduled.

It's just a revision of numbers at our normal course.

Okay.

Thanks.

And can you comment on anything in terms of your cancellation rate during the month of November?

It's hard to --.

Go ahead, I don't know.

It's hard in mid month to get a sense of what the cancellations rates would be in actual numbers.

It doesn't appear it's as bad as it was last quarter but I can't tell you that that's what it will end up at the end of the quarter.

Thanks very much.

You're very welcome.

And we go next to Wayne Cooperman with Cobalt Capital.

And you guys have been in a lot of markets for a long time.

Any chance that you guys see us sort of stabilizing at this low level and kind of staying there for a long time or is that not really what's ever happened before?

Could be.

Can't say.

No, it hasn't happened before that it stays there for a long time after stabilizing.

But that's probably definition and you have to define what, one man's long time is another man's short time.

But, again, it's hard to reconcile the things would stay down.

But this is for Ivy's benefit, certainly theoretical, I'm not making a representation.

But it's hard to reconcile staying down for a long time with the dynamics of the macroeconomic picture as they exist now.

Where we are hot, we see it continuing, which gives us comfort.

But again, I'm not making a -- I'm not a prophet, I'm not predicting the future, I don't know it.

The New York metro market, Hoboken, Jersey City, Brooklyn, Queens, Long Island City, Manhattan, they're roaring for us.

As I said last time, they're an oasis.

And markets such as Raleigh are doing very well.

So, it just -- I just don't see the environment that we saw at the end of '87, '88 and '89 that I see now.

It's just a guess.

But we also have demographic trends, which seem to indicate demand at significantly higher levels than the example.

Again that's just theoretical, though.

Right.

And how much, where do you think -- I think someone asked you before on margins.

But where do you think they would stabilize out?

Probably --.

Assuming the last couple of years are probably above where they end up?

I think Joel said 24% to 25%.

On the gross and then --?

I looked at the historical stuff in the 1990's and 2000's and it looks like it ran 24% to 25%.

And your SG&A would be approximately 10ish% and 11%?

I'm sorry?

SG&A, about 10%?

I think that we would go down below that if we normalize.

But at these levels we're at 11% plus.

Right.

So, you're 10% --?

So, below 10% is not unreasonable.

Got you.

All right.

Thanks a lot.

I hope you guys are right.

We don't -- we can't be right or wrong because we have said we don't know.

We go next to Ben Segal with Winchester Capital.

So let me get this straight, you said that north Jersey is still very strong for you?

Actually North Jersey, I don't think we commented on, unless you're --?

Not Hoboken and Jersey City.

Not Hoboken and Jersey City.

North Jersey, one moment.

Sorry, would it hurt if it gave you all of Jersey?

Sure.

Because we don't separate it.

I would rate that market for the last four weeks all but around the Princeton area, I would rate that market as a D for dog.

Around the Princeton market I would rate it as a B for beautiful, on this climate.

Can you discuss your -- just in general, if you're gaining market share in your markets now?

And over the next year or two, do you see yourself gaining market share?

It's impossible for us to tell whether we're gaining market share in this market because we need two sets of information and we only have one.

We only know how we're doing, we don't know how the other guys are doing.

I would assume -- I wouldn't assume that we're doing one or the other.

If we are gaining market share, it's so slight as to be imperceptible, I would think because our sales are nowhere near what they would be on a normalized basis.

So, I wouldn't think that we could be gaining much market share.

Do you perceive over the next couple of years that you will be gaining market share?

I can't perceive it, all I can say is I hope so.

Okay.

Thank you.

You're welcome.

We go next to Susan Berliner with Bear Stearns.

Good afternoon.

One quick housekeeping question and then I had kind of a broad question.

If you can just tell me on the lots, what percentage is owned versus optioned right now?

What percentage is owned versus optioned?

41 -- 42 out of the 74,000 lots are owned.

Great.

And then, I guess --?

You have more option than you have owned --

No the 42 are owned out of the 74, so, that's more than 50%.

Not percentages, it's 42,000 lots out of 74,000 lots.

That makes sense, sure.

When you cancel deals, the ones you're canceling are the ones you don't own, otherwise you can't cancel them.

And Bob, I was wondering if you could comment.

If the markets are truly bouncing along the bottom, if you can just update us on your thoughts on the M&A in sector and specifically how you guys would go about gaining market share?

The latter just by doing what we've been doing, keeping our nose down and working harder.

The former, I don't think it's appropriate for me to comment on the M&A activity that may or may not happen in the industry.

It's too speculative for me to comment on, other than over a beer, just one on one.

And that's as far as I would go with M&A activity.

So, Toll's strategy would certainly be organic?

I'm sorry, what would be organic?

Would Toll's strategy would be clearly be organic or not necessarily?

Yes, we're sticking to our knitting right now.

Okay.

Thank you.

Thank you.

And we go next to Joel Locker with FTN Securities.

Hi, guys.

Just going back to the nonbinding versus binding deposits.

How long is it usually the time period in between those before you have to actually sign a binding contract?

We, depending upon the heat in the community, give anywhere from a week to two weeks.

So these two per week in D.C. you should know if they're binding by the end of the week, at least?

Yes.

And I was just wondering, on the -- if you're getting any interest from international buyers now that some of the dollar is weakening if you're seeing anything special on the coast?

If you're seeing any foreign money coming in?

Well, not enough for me to have noticed, other than than in the Orlando market where they appear to rent the homes because they put a deposit down and then cancel and then we sell the same home again.

Hoboken, yes, we have international we've noted in Hoboken.

We should have noted at 110 1/3 in Manhattan, but I haven't -- nobody's told me about that so I -- and I haven't asked the question because frankly, Scarlett.

All right.

Just the inventory on the balance sheet, how much of that is landowner development and how much of that is WIP?

Joel?

We'll be putting out a balance sheet shortly.

I don't have all of the accurate numbers.

We haven't finished our balance sheet by categories yet.

All right.

Thanks a lot.

You're welcome.

Joel, do you have any Internets?

No?

Good.

Rufus?

And we go next to [Darren Firestein with Wachovia Securities].

Hi, thanks, guys.

Just to put this in perspective a little bit.

Could you let us know, in D.C., perhaps at the pace of sales what it is stabilize versus the peak?

And perhaps what it looked like versus the trough and how much things have changed?

We have that info but I haven't got it in my head.

The question, Joe, which would come from the [Mike Schneider] analysis of Sunday night's per community per region would be what's normalized per community sales in the D.C. market.

And you can get that, I would imagine by going back to '02 and taking a look at the per community sales.

Per community nonbinding reservation deposits would be more accurate.

I'm really just trying to get a sense of --.

I know, and I'm trying to get an answer.

I haven't got it at my fingertips but we do have it.

And believe it or not, it is written down and kept track of because we do follow this stuff.

Joe, have you got, can you find --?

Why don't you go onto the question, we'll find it and come back.

Okay.

If you show it to me, I can find it.

This is Washington, here's '02, that's traffic, well give me deposits.

Here's '02 deposits.

It looks like it was running on average, well, this time of the year it would be about one per community in the fourth quarter.

Our fiscal fourth quarter ending 10/31, just eyeballing it, it looks like it would be 1.35 per community.

Okay.

Great.

Thank you very much.

This only gives me the five year change, Joel.

Rufus?

And we go next to Michael Rehaut with J.P. Morgan.

Hi, thanks.

I wasn't expecting to get back there.

Just a follow-up on the margins in the back half of '07.

Joel, you had said that kind of building in the specs from the cancellations that you've seen over the last three months.

I was just surprised on that that you wouldn't be able to sell those -- that those would be -- wouldn't be more higher priority and you wouldn't try to sell those in the next and deliver in the next six months rather than, pushing it out six to 12?

Not all of our specs, Michael, are completed units, in fact, most of them are not.

So even though they're specs, they're not yet ready for delivery.

Okay.

So, most of the cancellations you'd say are earlier in the construction process?

A lot of them are, yes.

Not most, but a lot of them are.

And we'll take a follow-up question from Ivy Zelman with Credit Suisse.

Wow, I didn't think they were going to let me back on.

Thanks, Bob.

Why not, Ivy?

I don't know.

Actually, I was thinking about what you were saying about sales improving and you sold five in Detroit.

And I couldn't help but wonder what kind of margins?

When you're -- everybody's talking about sales are improving and things are getting better.

But a lot of the private builders that are seeing the same sales improvement are saying, "but I don't want to upgrade the grade from the D in dog or the F in Frank because the margins are just getting whacked significantly to continue to sell these units."

Absolutely, the margins are getting whacked in a place like Detroit.

I can tell you exactly.

And are those possible units that you took a write-off on?

As Joel says, I can't tell you exactly but I can tell you sort of.

If you'll wait one moment.

Bob, while you're looking, is it possible some of those houses you actually wrote down the land, so that you can sell them at a normalized margin and that might be part of why you can sell them at a pretty big discount now?

That would be into Joel Rassman's --.

I don't think that it's quick enough for us to tell you that the writedowns had an impact on anything else and we don't look at it that way.

We look at whatever it takes to sell a house in terms of an individual community by looking at the community activity every week.

And it doesn't matter whether we wrote it down or didn't.

Whatever it sells for is what it sells for.

But in general, when you're looking at the margins that you're now selling, where you're seeing the improvement, the thing that I would believe --?

Now, you're asking us to shift gears and take a look at Washington, Ivy?

No, I don't want you to look at Washington, I just want you to --?

We still have pretty good margins, as a matter of fact very good margins there.

But Michigan, to answer your question, your supposition was correct, our margins are like zilch in the Michigan market.

I'm just wondering, Bob, wouldn't -- rather than just looking at sales pace, wouldn't it be more an inflection point to think that things are getting better when margins stabilize?

And are you seeing any market where you're selling houses today where margins you can say are stabilizing?

Yes.

Okay and where would those markets be?

Well, Washington, D.C., I said to you just a little while ago.

So margins, you don't think can go lower even though --?

Now, Ivy, with respect to me predicting the future.

When you say, "I don't think margins can go lower", I don't have a crystal ball.

Well, beyond, you also commented quite on other markets showing some improvement.

Are there any other markets that you have seen stabilization in margins besides metro D.C.?

Yes, I'm sure.

Can you tell us some of those, please?

Well, I've got to take two tables out and run down margins against sales and I haven't got that.

Joel, have you --?

Just as an example, we have slow margins in the Hoboken area, the New York City area, at least on paper.

Texas has had slower --. [Talking at once.]

Texas, slower in Raleigh --.

Okay.

Let me try it better this way.

In the markets where we all know that the inventories and the excesses were the greatest, the markets that were the greatest, that are now on their downward spiral not the Texas and Raleigh's of the world.

Besides metro D.C., are there any markets that you can say that the margins are stabilizing because pricing is no longer under pressure and incentives are not significant?

Trying to think, yes, Maryland.

Okay.

Is Vegas, Phoenix, California, Florida, some of those markets --?

Phoenix, if you recall, I said, was going down for us.

Okay.

California, we haven't, we haven't lowered the price and did a little more business, I said in northern California, which was San Jose and San Francisco markets.

We haven't lowered the margins there.

Let me think, if I can grab that.

Somebody take my margin book?

Here, it is, sorry.

Take a look at that.

Northern California still had some pretty significant margins.

Now, that just might be our stubbornness, too.

Thank you, Ivy.

Okay, thanks, Bob.

Welcome.

Also with a follow-up question we return to Timothy Jones with Wasserman and Associates.

I'm so close to being the old Tim Jones and throwing 100 miles an hour fast ball by someone's head but I'm not going to do it.

But let me ask you a couple questions, okay?

The one thing that was really interesting, not only is that you're the only builder that I know of that has said they are going to buy more land next year than they did this year.

Obviously, that is because of the long lead time.

Would you like to give me more color on that?

Yes, sure, Tim.

I think we're going to buy land next year because if the market still stinks, we're going to have a pretty great opportunity.

And if the market doesn't stink, then we better get ourselves back in gear in our ordinary business.

Right now, our thresholds are higher for purchase but we see that opportunity.

And next year, we would assume that if things return to more normalized conditions, we'll have more normalized buying.

And every other builder will be out there buying, as well.

That was fairly vanilla.

Can I get a little bit more color on it?

No, I'm sorry, I don't have more.

Well, let me ask you.

Go ahead.

Let's go into the markets itself.

Are these markets really the markets you'd locked up in the northeast, which had a five or seven year time frame to get unlocked?

Are you buying land in markets like Florida or some of these others or California?

Could you give me some color on that, Bobby?

Yes.

We looked at a deal last night in --.

Land that I'm currently going to buy in the current year take title to.

I'm sorry.

Generally, are deals we put under contract three, four or five years ago.

Is that what you were asking, Tim?

Yes.

But is there certain markets.

Is it all locked up in that the stuff that you've locked up four to five years ago?

I think you probably saying yes because you're the only one that's going to increase your landholdings of any builder I know and I follow 20.

Well, what I can say?

No, is that a correct assumption, that you've locked up most of that land about four or five years ago?

Some was three years ago, some was four years ago, some was five years ago.

I think you're right, Tim.

Land that we're taking down is land we locked off probably four or five years ago.

Okay.

That's fine.

Thank you for the answer.

Rufus, we've got to run.

We've got some other things we've got to do.

If there are questions left, we will e-mail them and try to get back.

Rufus.

Yes, sir?

If there are other questions still hanging out there, obviously, they've been waiting a good long time and I'd like to get to them.

If they'll e-mail to me, we'll get back to those questioners.

Okay?

Thank you, sir.

All right.

So, thank you all very much.

I appreciate your participation in this call.

I look forward to speaking to you in the future.

Have a great one.

Bye bye.

Thank you, Rufus.

You're welcome.

Thank you, sir.

And ladies and gentlemen, this does conclude the Toll Brothers fourth quarter 2006 earnings release conference call.

We do appreciate your participation, and you may disconnect at this time.