托爾兄弟 (TOL) 2007 Q1 法說會逐字稿

Good day, and welcome to this Toll Brothers first quarter 2007 earnings release conference call.

At this time, I would like to inform you that this conference is being recorded, and 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 will now turn the call over to Mr. Robert Toll.

Chairman and Chief Executive Officer.

Please, go ahead, sir.

Thank you, Cecilia.

Welcome everybody 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 Zigler, AVP of Finance.

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

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

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

We'll try and answer as many as possible.

We've just announced first quarter results for fiscal year '07 first quarter.

Fiscal year '07's first quarter net income was 54.3 million or$0.33 per share diluted compared to fiscal year '06 first quarter record of $163.9 million or $0.98 per share diluted.

In fiscal year '07's first quarter net income was reduced by pre-tax write-downs of $96.9 million, 59 million or $0.36 per share diluted after tax.

Plus 9 million, $0.03 per share after tax diluted, good will impairment charge related to our 1999 acquisition of the Silverman Companies in metro Detroit.

In fiscal year '06, first quarter pre-tax write-downs totaled 1.1 million or less than $0.01 per share diluted after tax.

Fiscal year '07's first quarter earnings per share, including write-downs, declined 66% versus fiscal year '06.

Excluding write-downs fiscal year '07's first quarter earnings per share were $0.72 diluted after 27% versus -- down 27% versus the same period in fiscal year '06.

Fiscal year '07's first quarter total revenues were $1.09 billion, a decline of 19%, compared to the first quarter record of $1.34 billion in revenues in fiscal year '06.

Fiscal year '07's first quarter end backlog was $4.15 billion, a decline of 30% compared to the first quarter record of $5.95 billion in fiscal year '06.

Fiscal year '07's first quarter net signed contracts were 749 million, a decline of 34% compared to fiscal year '06 first quarter total of 1.14 billion.

We declined -- we signed 1,463 contracts before cancellations in fiscal year '07's first quarter, a 14% decline from the 1,695 signed in fiscal year '06's first quarter.

Net of cancellations first quarter contracts totaled 1,027 units, down 33% from 1,544 in the first quarter of fiscal year '06.

First quarter fiscal year '07 cancellations totaled 436 units versus 585 units in fourth quarter fiscal year '06.

Fiscal year '07's first quarter cancellation rate of 29.8% was lower than the 36.9% cancellation rate in fourth quarter '06.

However, it was still well above the Company's historical average of about 7%.

In response to current market conditions, we continue to reevaluate, and in some cases, renegotiate or optioned land positions.

As a result of this ongoing review, we ended fiscal year '07's first quarter with approximately 67,500 lots under control, compared to approximately 73,800 lots and 83,200 lots at fiscal year end '06 and fiscal year end '05 respectively.

Our fiscal year '07 first quarter end total was 26% below our high of approximately 91,200 lots at fiscal year '06's second quarter end.

There are too many soft markets at this stage of the selling season to call a general upturn in the new home market.

Demand varies greatly from week to week in individual markets.

The metro New York City high-rise market offers a glimpse of what one might expect when consumer confidence rebounds.

An article in Monday's New York Times described multiple bids on properties that have been on the market for less than a week.

The New York City market is somewhat unique, in that it did not marketably decline to the degree most other markets have in the past 12 to 18 months.

It did experience some softness in the second half of '06 due to consumer concern about the direction of home prices, but this concern appears to have dramatically reversed itself, starting in January of '07.

We believe that pent up demand is building in many markets as potential buyers bide their time until they are confident prices have firmed.

Our financial strength was recognized this quarter by all three of the credit rating agencies that monitor our industry, as Fitch, Moody's and Standard and Poor's, each reaffirmed it's investment grade credit ratings for Toll Brothers.

We ended our first quarter with $1.1 billion unused and available under our bank revolving credit facility with nearly 450 million in cash and a net debt to capital ratio of 33.4%.

In the current challenging environment we believe our access to reliable capital and our strong balance sheet gives us an important competitive advantage, based on our experience during past cycles, we have learned that unexpected opportunities may arise in difficult times for those who are well prepared.

We believe that our solid financial base, our board geographic presence, our diversified product lines, and our national brand name all position us well for the future.

Now let me turn it over to Joel.

Joel?

Thank you Bob.

During the quarter we delivered 1,559 homes at an average price of $676,200 resulting in traditional home building revenues of $1,054,000,000.

First quarter cost of sales at 71.1% before interest and write-downs was approximately 340 basis points better or lower than the middle of the range of 7450 without write-downs and interest of our December guidance, as we benefited from a much richer mix of closings.

Write-downs were $96.9 million compared to our budget of $10 million and last year, the first quarter write-offs of $1 million.

As a result of these higher write-downs, cost of sales for traditional housing at 80.3% of revenues was higher than the middle of our range of December of 75.3.

Write-downs for this quarter included $13.9 million related to options and $83 million related to community zoned.

More than 2/3 of the write-downs were attributable to communities in Florida and Minnesota and one condo-convert community in Maryland.

As we discussed in the past, accounting for write-downs is a two part process.

First we have to determine whether the net future revenues over future course is greater than our current basis.

This can be complicated, especially for larger communities where we estimate, not only future selling prices in paces, but where a decrease in estimated tastes may result in a number of years of communities open and an operation increasing, thereby increasing projected overheads.

This first test is done every quarter.

If the first test results even in $1 of loss, then an additional set of calculations is done.

The second set of calculations we present value all future estimated revenues and costs and then compare the net present value to the Company's current basis.

Obviously, many estimates, including sales prices, incentives, paces, costs and overheads all go into these estimates.

Adjustments are made quarterly to these estimates.

Change in circumstances, need for more incentives where slower annual sales paces, can result in a community meeting a write-off -- write-down when we test it, even if it didn't at an earlier date or could result in an additional write-down on a community which had previously had a write-down.

In addition to write-downs on communities we own, we look at all of our option agreements every quarter.

Most of these options are for parcels of ground we control while pursuing approvals.

Each quarter we evaluate the probability of success of obtaining the required approvals, and if the approvals are obtained the probability we will choose to acquire the land.

We attempt to renegotiate options that do not make business sense to close.

But, sometimes when a seller will not renegotiate or make adequate concessions, we write-down our investment.

In addition to community and option write-downs, as a result of the weak market conditions in the Detroit suburbs, the Company has written off approximately $9 million of good will associated with the acquisition of Silverman Homes.

This amount is included as a separate line item of expense in our financial statements.

Net profits from percentage of completion revenues at $7.2 million were lower than the December guidance of $11.2 million, principally as a result of lower revenues caused by slower construction.

Net profits from land sales at $2.4million was approximately 2 million higher than our previous guidance.

Interest expense at 2.1% of revenue has equaled our guidance.

Expenditures for SG&A of 134.2 million were only slightly higher than the low part of our guidance.

However, since revenues were lower than estimated SG&A at 12.3% of total revenues was higher than the top of our range of 11.9%.

Other income of $29 million was 10 million higher than estimated as we had more cash invested due to fewer land purchases and higher earnings from retained deposits on cancellations.

This quarters other income included a $9.5 million gain on the sale of some assets, which was included in our previous guidance.

In addition, joint venture income of 6.8million was higher than the $5 million of guidance as we settled more units in our condo convert in our joint venture in Hoboken than we had estimated.

The effective tax rate was 37.7 for the quarter, lower than the 39% principally as a result of higher tax free income from investments.

For purposes of diluted EPS, the average number of shares 164.2 million approximately equal to our guidance.

The result of all of the above is that net after tax earnings of 54.3 million or $0.33 a share was below the bottom of our range of earnings estimates of 85 million or $0.52 a share.

In the current environment giving any annual guidance is difficult.

Quarterly guidance, obviously, is even harder.

We believe, however, that providing some educated guidance, even with its uncertainties, is still better than no guidance.

Accordingly, we have filed an 8-K and put on our web site detailed guidance for the remainder of 2007 in an attempt to give you our best estimates.

We suggest you access that guidance to assist you in modeling.

We continue to review our guidance throughout the year and adjust guidance, if necessary, in future conference calls.

We normally do not, nor do we currently intend to, update earnings guidance in between conference calls.

In order to assist you in creating your annual and quarterly guidance, I highlight some information we believe you should consider.

We expect deliveries for the year to be between 6,000 and 7,000 homes, a decrease of 300 homes from our previous guidance of 6,300 to 7,300 homes.

We expect the average delivery price of between 670 and $680,000, an increase of $10,000 from our previous guidance.

We expect deliveries in the second quarter to be between 1,450 and 1,750 homes at an average price of 670 to $680,000 and a cost of sales between 25.75 and 26.5%.

Deliveries in the third quarter are expected to also be between 1,450 and 1,750 homes at an average price of 665 to $675,000 with a cost of sales between 77.5 and 78.75%.

Delivery in the fourth quarter are expected to be between 1,550 and 1,950 homes and average sales price of between 670 and $680,000 with a cost between 78.25 and 79%.

The cost of sales estimates include $20 million of write-downs in each quarter, although, of course, the actual write-downs can be larger or smaller than these amounts.

We project the percentage to completion revenues of between 70 and 75 million in the second quarter, 40 and 45 million in the third quarter, 35 and 40 million in the fourth quarter with a cost of sales of approximately 75%.

Future land sales will be minimum approximately $1 million each quarter, with an 80% cost of sales.

Interest expense is expected to still be around 2.1% of revenues.

We estimated that SG&A to between 11.3 and 11.8% of revenues in the second and third quarters, and between 10.4 and 10.9% of revenues in the fourth quarter.

We project other income of 10 million in the second quarter and approximately 5 million in each the third and fourth quarters.

And joint venture income to be 6 million in the second quarter and approximately 5 in each the third and fourth quarters.

We are using 165 million sharing outstanding to the calculation of EPS for each quarter.

The result of the above is that EPS for the second quarter is expected to be between $0.43 and $0.57 per share, in the third quarter to between $0.33 and $0.45 per share, and for the fourth quarter between $0.36 and $0.50 per share resulting in earnings per share for the year of between $1.46 and $1.85.

At this point, I'd like to turn it back Rob.

Thank you, Joel.

Cecilia, do we have any questions?

[OPERATOR INSTRUCTIONS] We go first to Stephen Kim.

Hi guys.

Hi Stephen.

I was wondering if you could comment on your SG&A guidance going forward?

Can you remind us why, you are sort of, looking for elevator rates of SG&A, and when you think that may turn back down and see numbers more in sort of the high high single digits like we've been accustomed to?

We have lower volumes.

Some of our SG&A is fixed cost and some of our SG&A are variable costs, and as a result of lower volumes and costs that have already been capitalized in some cases we would expect that that number will stay high for the next year.

And then, if revenues and volumes increase in the subsequent year, we would expect to see those percentages go down.

Okay.

Okay.

Well, I guess the second question I had relates to your cancellation rate.

Obviously, that's something that pretty much caught us off guard over the last couple of quarters, I think yourselves as well.

And at this point, because I think that's already reflected into-- in your results now, obviously, I think, the question is going forward is hang time.

How much longer can these CAN rates sort of remain at multiples of historical levels?

My presumption would that it couldn't for very long.

Am I wrong in thinking that?

And is there any number-- is there any data you can give us to sort of give us some color around that?

About the only indication I can give you, Stephen, is that we had a total of 55% of our CAN rates from agreements that are more than a year old.

Oh.

173 that were from 1 year to 1.5 years and 53 from agreements that were more than 1.5 years old.

So that, presumably as we catch up with production and have shaken out those agreements that were entered into during the absolute top of the cycle or near thereto the CAN rates should go down.

Of course, read your prospectus carefully, no representation is made here.

That's just an observation, I think will apply not only to Toll but to most.

I think, basically, what happened was, we all were fooled by the great number of investors that we weren't selling to that showed up when it came time to close and who walked instead of closing.

Can you repeat those numbers again, just so I have them, you said 273?

Is that what you said?

It was 173 more than one year old and 53 that are more than 2 year-- more than 1.5 year old and that was 55% of the CANs in total for this first quarter.

Interesting.

That's very interesting.

And do you happen to know how many units in your backlog you have left that are-- that are-- that would sort of meet those kind of criteria?

Our average backlog time is over 10.5 months, so we have a lot of stuff that's sold but I can't tell you that what the average is now.

And every quarter that we go by, of course, puts the peak in the market further and further behind you.

So.

All right.

I appreciate that.

Thank you.

We'll go next to Ivy Zelman at Credit Suisse.

Hi, actually, it's Dennis [Sun].

Bob, just kind of thinking bigger picture, just wanted your perspective on the top landmark coming out of the early 90s.

There's obviously a lot of property put back to the RTC, and builders like yourself that were all capitalized benefited from that as the cycle came out of the downturn.

Do you see a similar type of environment with landfillers over the next year or two that could provide that opportunity or are land costs going to be more stable this time around making it difficult to buy on the cheap?

The latter.

I hope.

The market, it went bad at the end of '87, new Fed chairman named Greenspan who came in, raised interest rates precipitously.

The mount [inaudible] the stock market took a terrible tumble, and things were bad from the end of '87, as a matter of fact it was October '87, on, until we just began to sell in '91.

So, you had a pretty along time there, almost four years.

Because, the follow was, but, even though the market was getting better '91, '92, and bear in mind this was rolling, the market just started to go bad in California, as the market was just starting to recover in the northeast and mid-Atlanta states.

So you had banks going bad and being-- that we're going bad just gorging, after a four year period.

We went down in Katrina '05, so you're about a year and a quarter to a year and a half now, and the immediate pain wasn't felt, it wasn't known until about three months after Katrina.

So you haven't been that long into the cycle for things to go as bad.

So I want to watch what I wish for.

We are seeing some opportunities now.

But not nearly the number of opportunities that we saw in '90, '91, and '92.

And I would hope that we don't get to that point.

So, if I'm interpreting you right, it kind of sounds like it's still in a wait and see approach?

Sure.

The land speculators and owners were banked, haven't felt enough pain yet to be disgorging so much that you've got an over [inaudible] drop in price.

Definitely some deals out there.

But not nearly what you saw in the prior down cycle. [ Overlapping Speakers ] broke either.

If land prices, like your say, do stabilize, either because banks are better-- or holders are better capitalized and the market turns up, does that imply that the normalized return of the business isn't as robust as it may have been benefiting from that cheap land before?

That's probably accurate.

The land became so cheap that when you got your hands on it in '89, '90, '91, '92, by the time you brought it to market, you had pretty great margins.

Those margins pretty much were eaten up by '97, what you've been seeing for the last 10 years doesn't reflect the margins from the RTC fallout.

That's very helpful, Bob.

Just a couple of cleanup numbers, Joel, if you have them in front of you there.

The other 1/3 of the write-downs were those pretty well scattered?

They were scattered around the country, different states, but you can say Detroit had some additional write-downs.

And communities elsewhere.

Do you have the absolute number of specks, both this year and the year ago quarter, both [inaudible] started?

Traditional is 1233 specs versus-- at 800-- 700?

See if you can get up some things.

It was 1232, but I don't remember what it was last year.

And that's just traditional?

You can't use high-rise or anything.

That's all for us.

Thanks.

We'll go next to Margaret Whelan at UBS.

It's actually Dave Goldberg on for Margaret.

How you doing?

Good, thank you.

I was wondering, it kind of appears the tone in the release this morning was different than the tone of the preconference release two weeks ago, is that a misinterpretation or have things kind of changed over the [inaudible] or something changed?

No.

The only things I can think of Californias, I remember were a bunch of As, and we now rated-- we would now rate California as a B and a B plus.

On the other hand, New York guys, I mentioned in the monologue, got even stronger, the New York suburbs got even stronger.

No.

I don't think there's that much of a difference.

You're kind of general take on how things are playing out through the selling season is, there hasn't been much change in the last couple weeks?

I think we're a little more disappointed than we were two weeks ago, because the top selling weeks of the year for the new home business are the weekend that runs into President's Day week, and then the following weekend, which we have coming.

And for President's Day weekend we had good sales, but we didn't have anywhere near the bump up that we normally see.

So that's disappointing.

And I guess my second question.

I was wondering if you could talk about, and maybe Joel, you could give some more detail on how you guys arrive at the unit delivery guidance.

It would seem like it was a pretty large backlog in terms of months of closings, and that would give you more visibility, the delivery guidance seems to change pretty frequently.

Maybe you could just talk about how you arrive at that?

What's causing the changes?

Is it just higher cancellations?

And how that kind of affects the land pipeline?

We're a little bit-- cancellations continued to be a little higher than we would have liked and we built that in the future model.

In addition, we had a little bit less, probably net, as a result of the cancellations, net contracts signed in the first quarter than when we talked about it at the year end what I was building into my model and that worked itself in.

The net effect is, I took about 100 units away from each quarter, didn't quite come that way but that's basically what I did.

And we backed into total guidance using five or six different sets of metrics, and you still could get to higher numbers and lower numbers that I gave you, but if you look at the bell shaped curve it's about what I gave you.

That's the bulk of the bell shaped curve.

So, what's the effect on the land pipeline?

If you're continuing lowering guidance and you have more lots outstanding still?

Every one of our land acquisitions is individually assessed.

And, if we can find more ground we'd love to have it, if it beats our current underwriting standards.

And, I think that if a deal pencils out well and it's a good deal we still do it.

It's not a matter of each community is looking at a separate business so it's not a matter of how many I sell this year, if I have a good store that I can open-- we can open up, we'll open up another good store.

And if I could just get one more question.

We've heard a couple builders that have been moving out of the high-rise business in the last couple quarters, and I was wondering if you guys are seeing more opportunities there than maybe what you would see six months or nine months ago?

Not really.

We just saw two more opportunities in Manhattan, but we've been looking there for over a year.

We've got one going now.

We haven't seen any more come to us in Brooklyn.

We've got five now cooking, two of them not started yet.

No, we have four cooking and two not started yet.

But we haven't seen anything come to us.

Queens weren't around, say we haven't seen anything more.

Hoboken we haven't seen anything more, so.

Chicago we sold one.

So, no, we don't see a lot more coming to us.

Are there any markets where you think that might be an-- might opportunities that you can go pursue that you're not building the high-rise now?

I really don't.

I think we're in the high-rise markets that we want to be in, not aware of others that we should be looking in.

Excuse me.

Yes, [Fred]? [whispering] Chicago we're there.

We're doing some low-rise/mid-rise and we have a deal cooking right now.

I can't say that it will come through, but it's pretty close.

As a matter of fact, we have two deals cooking in Chicago high-rise.

But that's a market we're already in.

I don't see Boston right now.

But it may be in the future, Joel.

Thank you.

You're very welcome.

We'll take our next question from Nishu Sood at Deutsche Bank.

Thanks.

First, I just wanted to ask about the analogy used the New York City market.

I mean, some might call the New York City market, let's say, a super-luxury market, whereas, most of your product is traditional luxury product.

Excuse me.

I wouldn't call it super-luxury for those young buyers.

It's super expensive.

I'm not so sure it's super-luxury.

But, go ahead.

So, I guess, I just wanted to, what are the parallels that you see in the New York City market that might apply to some of your more traditional communities?

What are some of the differences you might see?

What I implied in the monologue was that, here is a market that admittedly had not gone down to the extend that the average markets have in the United-- other average markets have in the United States.

But that did go soft, to some extent, in the second half of '06, that now is roaring back, and by implication, what I am saying, is that you may find the traditional luxury markets come back faster than is expected, though I don't mean to imply at all that it will be as rapid as the New York market's recovery was from its decline that was minimal.

But I'm making the statement that, pent up demand is such that when confidence returns, I think it will return possibly with a vengeance.

Right.

Okay.

And second question just following up on when you were responding to Steve Kim's question.

The-- one of the functions, or I guess things that happened during the boom, was a lengthening delivery times, delays, regulatory delays, construction delays, and that obviously you've seen in a lot of the other builders results begun to reverse, in your case would you say that a lot of those issues are pretty much in the rear view mirror now or are you still experiencing delays of one form or the other in any of your communities or projects?

Of those that you mentioned, I would not suggest that because of the drop in the market that the regulatory agencies on planning and zoning boards, the elected agencies if you will ,have decided to go easier.

I don't see that.

So, no, I don't think there's any change in that regard.

Okay.

What about on the construction side of things?

For us, construction is much longer, average cycle time is much longer than the average new home builder.

Our average price is close to 700, and theirs, the other builders, average price is 300 to 350.

It probably takes us twice as long.

We have had, yes, a decrease in the backlog.

Obviously, that's a decrease in buildout time for those orders that we now receive.

But it doesn't bring us down that much.

You go from an average of 12 months down to an average of 9 months.

It's hard for us to get much below 9 months, except for some more standard ordinary product, which we do, with high price, in certain markets.

But the ordinary product being as complicated as it is, can't be delivered in less than 8, 9 months on average.

Just a final quick housekeeping question, I'm not sure if I missed it, but, did you give the breakout of the 67,000 lots optioned and owned?

No, I didn't.

Joel?

Okay.

Over to Greg.

Speak up, Greg.

Sorry.

Next time.

We have 41,500 owned which is about 62% of the land zoned.

Thank you.

Did you get that?

Yes, thanks.

You're welcome.

Cecelia, we have a question from John [Kohler] over the internet.

It says; [e-mail question] In parts of Florida there, I guess is supposed to say, there are a number of listings that is increasing as the selling season is underway.

Yes. [e-mail question] Is Toll seeing the number of existing houses for sale in its markets increasing?

I really don't know.

I have to get our Florida guys here.

It hasn't been reported to me.

So-- but I wouldn't use that as an indication of yes or no. [e-mail question] Is this having an impact on the ability of your customers to sell their houses and move in the new Toll homes.

Well, if what you say is so, it certainly should if we're dealing with a move-up market in Florida.

To some extent we are, we have snow birds even, who have a home that want to move into a bigger one and sell theirs.

So, if what you say is true, that will impact our market.

How much of Toll's mortgages-- well, let's stay on the Florida-- I'll volunteer that the Florida markets are very soft.

The west coast is especially soft.

East coast seems to be coming back every so slightly.

Jacksonville is 75% a primary market so it's not as impacted.

But in general, the Florida market is down.

And I wouldn't ascribe that primarily to existing homes being on the market are increasing, as much as the confidence level and those who would like to move but don't want to catch a falling knife.

The second part of your question is;

How much of Toll's mortgages are load dock and/or no dock?

Do you guys know?

We don't know that.

We do monitor sub-prime loans, particularly that which is a second loan, because people can't sell their house those are sub-prime.

That runs maybe 1% of our total deals.

To 1.5.

To 1.5, right.

Cecilia?

We will go next to [Myron Caplin].

Hi guys.

Hi, Myron.

How you doing?

Good.

I want to ask if you would do your stellar review of markets?

Well, we just did it two weeks ago, Myron.

And there hasn't been much of a change.

I would say basically things are pretty much the same.

I've already volunteered those changes to, California, I think, came off a notch.

Otherwise-- and I said that New York suburbs moved up and New York City is still strong as can be.

Hoboken, Jersey City are still outstanding markets.

How about D.C?

They're pretty much the same as I gave you the last time around.

What's the condition in D.C.?

Condition in D.C., I don't know what we rated it.

When we rated it, the Maryland part of the D.C. market is a B. The Washington, D.C., Virginia market is a D plus on average.

We're heartened in that certain weeks over the last four weeks and especially in this past week, we had three sales in a community.

Four sales in a community.

Two sales in a bunch of communities.

And that would indicate that the market that's certainly not dying.

Neither is it dead.

On the other hand, when we look at the number of communities that we have in Washington, we don't see, on a per community basis, anywhere near what we would expect to see at this time of the year.

Okay.

Thank you.

You're welcome, Myron.

And we'll take our next question from Joel Locker, FBN Securities.

Hi, guys.

Just wanted to see if you had an inventory breakdown between work in progress, land in development, and land not owned?

Of the--

I don't have it now.

Got a lot of them shaking their heads from left to right.

Hold on.

You have got it Joe?

He's working on it, but, I didn't--

I guess while we wait on that.

How much good will do you guys have left on the balance sheet?

A couple million dollars.

Maybe it's 3.

Just 3 million?

Yes.

And I guess one more.

On the customer deposits, what's the easiest way to get that as a percentage of backlog, if you look at the balance sheet?

I think you have one line item that's--

You can see the number of customer deposits-- it's right on the financial statements, and it runs about 7.5%, I think, on average.

I saw it was 8.3.

Can you just use the 344.7 million and divide that by the dollar backlog?

Yes.

All right.

And the--

It's really the dollar backlog before relief of percentage completion revenue.

Before that.

I got it.

And did you guys get something on the--

Land and land development costs are about 2.1 million, and construction probably was about 3.4 million.

I think it was 1 billion.

2.1 billion

Thank you. [multiple speakers]

And about 3.4 billion and then there's a bunch of sample homes and other things, and it'll be in our release that will be out in a couple of weeks, you can get all the detail.

That's the big part of it.

And the other income guidance.

I guess, just looking at it, it seems like it's dropping off pretty far from the first quarter, is that just implying or the way you've modeled it that there's going to be less cancellations going forward in the second half, so less of keeping of the customer deposits?

No.

We had a sale of some assets for $9.5 million of profits in the first quarter, which we had given you in our guidance.

And once you sell the assets you don't repeat it every quarter.

So it comes off 9.5 million.

And we also didn't purchase as much ground as we had budgeted.

That increased the interest income over our estimates, actual interest over our estimates significantly by a couple of million dollars.

And I hope cancellations come down.

I'm not anticipating that we'll continue to see the high cancellations.

[inaudible] What part of the 29 million was customer deposits that you kept?

9-- little over 9 million, maybe $9.5 million for this quarter.

Thanks a lot.

You're welcome, thank you.

Thank you.

And we'll now go to Kenneth Zener at Merrill Lynch.

Afternoon.

I have the inventory on Orlando and it went up 9% sequentially in January to 21,000 units, which is now a record high.

Does this-- Landstar, Joel, you just said 3 million in good will is what you have left?

No.

We don't-- but that wasn't the Landstar, we have no good will in Landstar.

It was allocated to land acquisitions or advertising intangible.

Okay.

So, you commented that a richer mix of deliveries contributed to the 340 basis point from that guidance in the first quarter, roughly $0.13.

What was the regional mix?

Was it less Florida or was it better pricing in specks?

It was a little less Florida because cancellations were still higher, and a little less than some of the communities that had lower margins than we had originally expected.

And I guess, your-- because it was a richer mix in the first quarter, given your increasing expectations for margins relative to what you were at in December, when or why won't we see the dilution from these remaining deliveries in '07?

Well we try to estimate actual closings at a backlog projected closings for things that may not yet be in backlog quarter by quarter, and that's why I give you guidance on cost of sales.

And if you noted, we've improved the volumes on cost of sales as we've been able to basically get prices probably a little higher than we thought we may have to, given less incentives.

Okay.

And I guess, what is the benefit you expect to get in 2007, based on your roughly $176 million in charges taken to assets not options over the last four quarters?

I'm sorry, could you repeat the question?

You've taken roughly 176 million in charges for assets not options over the last four quarters.

How much of that, for example 100 million, will benefit your 2007 costs?

I don't know.

Do you think it's roughly 1/2 like it's been with other builders?

Many of our communities run three to seven years and you would expect to see it amortized over three to seven years.

But if I had margins in those communities I wouldn't be having a write-off.

I would suggest that you're not going to see the benefit, as you put it, or the accounting results, more accurately stated, for a couple of years.

Obviously, what we're taking write-downs in are communities, impairments in communities that are not working well.

Right.

As you strike it down and continue to do business, the benefit should show up in the out years.

I'm sure that is in '07, depending upon the market it could be '08.

Okay.

And then my last question, if you look past the current downturn, as you move into new markets that are not land constrained, can you quantify the change in profitability you're expecting?

Because you guys are going to be selling in Atlanta, I guess, by the fall.

What you are your margins expectations for these new markets where there is an absence of a long position and land appreciation relative to your past.

So, is it going to be 3, 400 basis points less in gross margin in these newer markets?

In general we don't move into markets that are not land constrained, that's one of the models that we pretty much stick by.

Except for Texas.

Guys, have you got any answer for this question?

No.

No.

Thank you.

You're welcome.

And we'll go now to Dan Oppenheim at Banc Of America Securities.

Thanks, very much.

I was wondering about your comments that you didn't see the typical uptick that you see on sales and traffic or the President's Day weekend this year versus others.

Can you talk about your sales year over year for this weekend?

Yes I can.

I'll have to get the paper.

Thank you very much.

That is exactly what I want.

Let's see.

This year on a gross basis, we did 276.

Last year-- these are deposits.

Last year we did 293.

However, on a per community basis, which is the same-store analysis, we did .85 versus 1.11.

So that gives you a pretty good indication.

Got it.

Thank you.

And wondering, in terms of the two things related to cancellations.

One, if we look at your closing guidance over the next couple of quarters, looks relatively wide or we wouldn't expect to see construction delays.

So, wondering, is that just driven with an expectation that the high cancellations continue?

And secondly relates to cancellations, previously you talked about a lot of cancellations coming from the Orlando market, I think that was in the fourth quarter.

If we exclude Orlando, have you seen your cancellation rate coming down?

In Orlando, I think we said on our last conference call, we had also seen our cancellations improving a little.

In most markets, other than Northern California, I think we had commented last time, cancellations were coming down.

Okay.

And then, on the closings, is that expectation that cancellations stay somewhat elevated?

On the closings, it's the uncertainty that I have as to which quarter something will close on.

Because, if there's problems coordinating the selling of a house, for example, the closing of the persons house to sell, that can move between quarters and there's more likelihood that that happens in this market than it did in the past.

Thanks very much.

You're welcome.

Cecilia, we have a question over the internet from Steven Donahue. [e-mail question] All right.

Market conditions.

Mr. Toll, so far new home builders like Toll Brothers, that's as Toll Brothers have been able to generate continuing sales by offering incentives and price reductions, which have generally kept new homes a better bargain for purchasers than resale homes.

Well, thank you very much for that, Steven.

[e-mail question] How will you projections be affected if there is a substantial across the board break in the price of resale homes?

I guess what you're saying, what will happen if resale prices go down to a greater extent than anybody believes will happen.

It's kind of a rhetorical question, Steven.

I think you've answered it.

If the market busts, the market will bust.

We don't see that.

Thank you, Steven.

Cecilia?

[OPERATOR INSTRUCTIONS] And we will now go to Carl Reichardt at Wachovia Securities.

Morning guys, how are you?

Good.

Thanks, Carl.

Bob, I have a broader question about price versus absorptions.

You talked about confidence and the return of it.

I mean, if we look at consumer confidence is okay and the percentage of people think it's a good time to buy and the University of Michigan surveys improving a lot, traffic is okay.

I'm trying to figure out if the real issue isn't confidence, but price.

And, specifically, your prices, and, I mean your absorptions are down a lot, year on year per store and two years ago.

What point do we get when you start to sacrifice price to improve those absorptions?

And if we don't get a pickup of absorptions isn't that going to lead to more substantial write-downs for you in particular, on the long buildout communities?

If it gets worse, you would have write-downs.

If it stays the same, we've done our best, we believe, we've tried our hardest to write-off everything that we're aware of.

That we believe should be written-off.

So if things stay the same you shouldn't see inordinate write-downs.

If things get worse, you should see greater write-downs.

With respect to, when are we going to switch our mode from looking for the margin rather than looking for the action, not for a long time to come.

We said in the monologue, our leverage is down at 33-point something.

We're sitting on 1.5 billion available cash, we're not unhappy with that position.

We're having a rotten year.

Naturally, falling right out of the drop in sales in '06.

Deliver them in '07.

We had projected that we'll end up making 270 million, approximately.

Middle of the range.

That's the middle of the range.

Thank you Joel.

And I'm reminded that, in '03 we made 260 million.

It went up to 400 million in '04 and '05 it went to 800 million, in '06 it went back to roughly 700 million and now down to 270, so we're back to where we were in '03.

I'm reminded that in '88 a long time ago in a distant galaxy, we made 24 million. '89 we were down to 13, '90, 10, '91, 5, '92, 16.5, '93, 28.

So that was a longer cycle than this.

Hopefully, if we watch our business and are diligent and continue to operate the way we have, we can see the same return.

No promise of course, [inaudible] will affect us.

But we're pretty happy with the model that we've got, and are not going to look to shed the real estate to do the volume business, because, we believe the business we're in, which is luxury homes, is 100% dependent on having the right locations and the right pieces of ground.

We think we've got them.

We're not going to give them away just in order to do volume.

Okay.

Makes sense.

Sorry for that long answer.

No.

Sorry for the long question.

And, one just follow-up for [inaudible].

If we look at the longer build-out communities, you're effectively by the same absorptions that you've projected for those would be relatively consistent with current conditions.

So that, even on the fixed cost build underneath those, which would be substantial in the long build out at flow absorptions, you're still comfortable where you are now, in terms of the write-downs and unless those absorptions change to the negative you feel comfortable where you are.

Is that kind of the right paraphrase?

It sound right.

But, let me give that one to Joel.

No.

It's not 100% right.

We do not assume that if you're not selling a house in Reno you're never going to sell a house in Reno.

That would be a silly assumption.

At least we think so.

We have built in long periods of down time.

And then very modest increases in pace after a year, two or three.

Never getting to paces that we had before.

Okay.

Good.

That's perfect.

Thanks so much, guys, appreciate it.

You're welcome.

And we'll go to Wayne Cooperman at Cobalt Capital.

Hey, guys.

Just a question on the write-offs on the options, how much of that is just an accounting adjustment and how many of you actually walked away from or in case you still have the option, but you just wrote down the value?

I don't have that in front of me.

I thought you already answered that.

No.

No.

How much was impairment--

He didn't want that.

I just wondered if you walked away from options or still have the options, you just wrote-off the value on the balance sheet?

We have not walked away from all of the options we've taken write-downs on.

You have or have not?

Not.

Right.

Do you have that number or you don't have that?

No, we do not.

Thanks.

You're welcome.

Cecilia, I have a question from Jason [Norbeck] on the subject is homeowners insurance.

[e-mail question] In your opinion have the current issues with homeowners insurance in the costal areas impacted your business?

And if so, to what extent?

The answer is yes, and I don't know.

I would think, naturally, the homeowners insurance increase has got to have impacted Florida sales, but I have no quantity quantification that I can fall back on, so I just don't know.

Cecelia?

We will now go to Wayne Cooperman-- I'm sorry Alex Barron at JMP Securities.

Thanks, Bob, thanks, Joel, sorry my voice is a little rough today.

Anyway, I wanted to ask you how many communities were written down this quarter associated with the 83 million?

And how many lot options associated with the 13.9 million?

We are not going to go through individual communities, it would be misleading.

Some had big numbers and some had small numbers, and would be misleading to do so unless I went through all the detail, and so, I'd really rather not do that?

So, you--

-- dollars and some had multi-millions.

Okay.

How about for last year?

How many communities did you write-down last year?

I don't know.

I apologize to you, I really don't have that detail.

It's not something we track.

Okay.

My second question is, I know you said you didn't have any good will associated with Landstar.

But like what rough kind of premium or something.

Have your guys written down that to some extent or not at all?

We never had a good will allocation for Landstar.

We believed that the majority of the value was attributable to actual land that we acquired, options that we acquired, and therefore it got allocated to that land or those options, and they were a little bit of intangibles to employees and some other things that get amortized over time.

So there is no in good will on that deal.

But have you written down any land that we acquired--

Yes, we did write-down, we did write-down land we acquired in the Landstar acquisition.

Okay.

All right.

That's all I got for now.

Thanks.

You're welcome.

And now we'll go to Timothy Jones with Wasserman and Associates.

Hi, Bob.

Hi, how you doing?

I'm fine, hi, Joel.

Couple of questions.

I was pulled off the phone twice, never give up an order.

I think you'd agree with that.

Anyways, the land impairments, I guess it was-- that was the one that Joel was going over, it was 83 for this quarter.

Do you have what it is last year so I can just see how much total land you've done?

You mean a year ago?

No, no.

The last fiscal year, so I can add the 83 million on to that to get a total number.

61 million for land impairment last year.

61 plus 83?

That's it.

Now, with the rate you were taking-- doing this accounting though, it is not taking any effect for inflation the way the-- I went through it with you, Joel, offline, and I don't understand why, with any kind of turn around [inaudible] that you could pick up a lot of this with 145 million back into future profits.

Some we will, to the extent we sell houses that [aren't] making the earnings, they're not going to be in profits.

If I use Detroit as an example.

Where I've taken a write-down in Detroit, I will expect that I will be absorbing an inventory and not have a significant amount of profits in the Detroit jobs.

Detroit's a different market, Joel.

I mean, most markets, I mean you're not looking at what's happened in Detroit.

Even in Florida, where I may have taken write-downs in the Florida communities to the extent I sell those homes before those communities-- before those markets recover.

I will not see that as additional margins.

I will see some small margins from the sales.

Okay.

Last question is, your 6 or 7000 units.

How do you handle on the percentage, does that include the percentage of the accounting units, or how do you handle that?

It's kind of strange here, but you've only got like 57 million remaining from your last year [buy block], don't those units have to be counted some time?

I'm sorry.

I don't understand the question.

Could you repeat it?

Tim, I'm sorry.

Sure.

In other words, Joel, you show very little right now in your delivery from the percentage of completion units.

Okay.

But a year ago, you had-- you only had 57 million left to be recognized.

Once these units are completed, don't you have to flow them into your unit number of 6 or 7000.

When a building is treated as a percentage of completion building, even if the unit closes after the building is completed, it still falls into the percentage of completion column for recording, and at buildings that aren't treated as percentage of completion are treated as traditional houses when they close.

Different way.

The 6 to 7,000 units, it that, is that just traditional houses, or does it include a percentage of completion?

It does not include percentage of completion.

In addition to that, we will have hundreds of houses that will be completed and delivered where I've already recognized the revenues over the next two years.

I understand that.

Thank you, so much.

You're welcome.

Thank you, Tim.

Cecelia?

We'll take our final question from Steve Fockens at Lehman Brothers.

Hi.

Thanks.

Just two quick questions.

First, over the last two or three quarters, what would incentives as a percentage of sales price look like relative to not necessarily '04, '05, which I would guess were quite low, but more your long term average?

I don't know that, but I think we told you that it was roughly $30,000 a house on average. $31,000 a house is roughly what we're offering incentives across the board if you look at it.

Some, obviously, you've got-- that includes incentives on specks and other things and that's total.

And how would that compare to three or four years ago?

Any rough idea?

Three or four years ago?

How about zero.

Well, okay, maybe I should say, average of the last 10?

Pretty close to zero if you wipe out the last year and a half.

Probably 1 or 2% you would have concessions in a budget and then you would have a higher sales price and maybe do some negotiation.

Okay.

And then--

-- come and buy from you.

Secondly, on the private builders, who I would guess are more your competition than other publics, are you seeing any of those at an increasing rate coming to you and saying, hey, we've got land for sale, or we're in some trouble want, to help us out? or are you going to more of them and finding them receptive to selling you land or is it too early to see if that's going to happen or not?

It's the former.

We've had some come to us, some old friends.

And say, we'd like to be helped out of some of our land.

Fair enough.

Thanks very much.

You're very welcome.

Cecilia, is that it?

That does conclude the question and answer session.

I'd like to turn it back over to you for any additional or closing remarks.

Well, thank you very much, everybody.

I look forward to speaking to you in a couple of months.

Bye.

That does conclude today's conference, ladies and gentlemen.

Again, thank you for your participation today, and you may now disconnect.

Thank you.