托爾兄弟 (TOL) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by and welcome to Toll Brothers' second quarter 2011 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and answer-session.

(Operator instructions).

I will now turn the call over to Mr.

Douglas Yearley, Jr., Chief Executive Officer.

Please go ahead, sir.

Thank you, Sade.

Welcome and thank you all for joining us.

I am Doug Yearley, CEO, and with me today are Bob Toll, Executive Chairman; Marty Connor, Chief Financial Officer; Fred Cooper, Senior VP of Finance, International Development and Investor Relations; Joe Sicree, Chief Accounting Officer; Kira Sterling, Chief Marketing Officer; Mike Snyder, Chief Planning Officer; Don Salmon, President of TBI Mortgage Company; and Gregg Ziegler, Senior VP, Treasury.

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

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

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

At the suggestion of several of you, we're going to reduce our prepared remarks to provide more time for Q&A.

Since our detailed release has been out since early this morning and is posted on our website, I'm sure you have all read it, so I won't reread it for you.

We continue to see stability and, in some cases, improvement across our various luxury product lines.

Our target customers generally have remained employed during the downturn, and with their solid credit profiles have been able to secure mortgages at good rates.

We believe that some of our clients, after waiting so long, are starting to move off the fence and into the market, motivated by attractive pricing, low interest rates and, most importantly, the desire to take the next step in their lives.

The family with elementary school kids and a puppy when the housing debacle began five years ago now has middle school kids and the dog weighs 80 pounds.

The 55-year-old who wanted an active adult lifestyle in 2006 is now 60.

Some people would rather move on than wait for a better housing market.

Our fiscal year 2011 second-quarter net signed contracts rose 8% in dollars and 7% in units compared to 2010's second quarter.

The average price of net signed contracts was $570,000, an increase of 1% from 2010's second quarter.

Fiscal year 2011's second quarter net signed contracts of 4.35 units per community were approximately equal to 2010's second quarter total and exceeded 2009's second quarter by 87% and 2008's second quarter by 47%.

However, they were still well below our historical second-quarter average dating back to 1990 of 7.88 units per community.

Our contract cancellation rate of 3.9% in the second quarter compared to 5.3% in 2010's second quarter, which was better than the Company's pre-downturn historical average of about 7%.

Our fiscal year 2011 second-quarter-end backlog increased 1% in both dollars and units compared to 2010's second quarter end.

For the fourth consecutive quarter we achieved modest pre-tax profitability on a pre-impairment basis.

We reported a 2011 second-quarter net loss of $20.8 million or $0.12 per share compared to 2010's second-quarter net loss of $40.4 million or $0.24 per share.

2011's second quarter included a net tax benefit of $10.7 million compared to an $11.4 million net tax benefit in 2010's second quarter.

Fiscal year 2011's second quarter results included pre-tax write-downs and joint venture impairments totaling $32.5 million compared to 2010's second-quarter pre-tax write-downs totaling $42.3 million.

Excluding write-downs and joint venture impairments, 2011's second-quarter pre-tax income was $1 million compared to a pre-tax loss of $9.5 million in 2010's second quarter.

Fiscal year 2011's second-quarter revenues and homebuilding deliveries of $319.7 million and 591 units rose 3% in dollars and 9% in units compared to 2010's second-quarter results.

We believe we are gaining market share thanks in part to a flight to quality in the luxury market and a reduction in competition in some markets.

With our brand-name reputation, strong financial position and demonstrated reliability through this downturn, customers take comfort in our proven ability to deliver quality homes in well-located communities.

We end the quarter with over $2 billion of liquidity, including $1.25 billion of cash and marketable securities and $784 million available under our $885 million, 12-bank credit facility which matures on October 2014.

This gives us the liquidity to pursue growth opportunities as our land teams continue to search for good deals in roughly 50 markets where we operate.

In addition, Gibraltar Capital and Asset Management completed in joint venture its second portfolio purchase this past quarter.

Since last June, Gibraltar in joint ventures has acquired portfolios of development loans and real estate properties, primarily related to residential communities, with unpaid principal balances and/or book values totaling approximately $2 billion.

Gibraltar continues to see a steady flow of portfolio acquisitions and other investment opportunities.

Now let me turn it over to Marty.

Thanks, Doug, and good afternoon, everyone.

Second-quarter homebuilding cost of sales before interest and write-downs as a percentage of homebuilding revenues was 77% compared to 79.7% in 2010's second quarter.

2011's first quarter was 77.5%.

Our margin improvement of 272 basis points from Q2 2010 to Q2 2011 was due primarily to reduced incentives, closeout of certain lower-margin communities and cost savings driven by our regionalization of subcontractor trade purchasing.

The latter two of these items also drove the 46-basis-point margin improvement from Q1 of 2011 to Q2 of 2011.

Second-quarter interest expense included in cost of sales was 5.4% of revenues, consistent with our previous quarter, and about 60 basis points higher than our second quarter of 2010.

The increase over the prior year was caused by inventory being held longer and mix.

Second-quarter pre-tax write-downs of approximately $32.5 million included $10.7 million attributed to operating communities, approximately $2.2 million attributable to options and $19.6 million attributable to joint ventures.

While we don't discuss specific community or joint venture write-downs, I will point out that roughly 75% of our second-quarter write-downs came from projects in Florida and Nevada.

Second-quarter SG&A of approximately $67.1 million was higher than the $61.3 million in the first quarter of 2011 and higher than the $59.6 million in the second quarter of 2010.

Q1 2011 SG&A benefited from $6 million in the insurance proceeds and other accrual reverses.

Q2 2010 SG&A benefited from approximately $5 million in litigation settlements at amounts less than we had accrued.

Our 2011 second-quarter SG&A included the write-off of approximately $1.3 million in deferred marketing costs for a community being mothballed.

Direct interest expense in Q2 2011 declined to $400,000 from $1.1 million in Q1 2011 and $6.2 million in Q2 2010.

Qualifying inventory continues to grow as a percentage of outstanding debt, and we expect direct interest to continue to be nominal.

Second-quarter other income and income from joint ventures excluding the impairments was $12.2 million, reflecting the continued strong performance of our urban New York City joint ventures.

I want to remind you that, because we're in a fully reserved position on our deferred tax assets, we do not see much tax impact from our operations in our income statement.

We will continue to establish and reserve against deferred tax assets for book income or losses.

We will also accrue for interest and penalties on uncertain tax positions and release reserves established under FIN 48 upon statute expiration or settlements with tax authorities.

In the second quarter we recognized a tax benefit of $10.7 million related primarily to the true-up of our estimated tax refunds to our tax return.

As a result of the filing of our tax return, in the second quarter we received a refund of approximately $154 million, which increased our cash position and lowered our net debt to capital ratio to 13.6% compared to 17.6% last quarter.

The average number of shares used to calculate earnings per share was approximately 166.9 million for the second quarter.

Subject to our normal caveats regarding forward-looking statements in today's release and in our SEC filings, we offer the following limited guidance.

We ended the second quarter of 2011 with a backlog of 1760 homes aggregating $1.01 billion, which was 1% higher in both units and dollars than a year ago.

We expect that deliveries in 2011 will be between 2300 and 2800 homes.

We estimate the average delivered price per home for the remainder of the year to be between $540,000 and $560,000.

Our average delivered price per home in the second quarter of 2011 declined to $541,000 due to an expected shift in geographic and product mix.

However, the average price in our current backlog and our net Q2 2011 signed contracts was $574,000 and $570,000, respectively.

We estimate absolute dollars expended for SG&A in each of the remaining quarters of fiscal 2011 to be relatively consistent with the total expended in the second quarter of fiscal year 2011.

Since we normally close more homes and record more revenue in our third and fourth fiscal quarters, we expect SG&A as a percentage of revenue to be lower in fiscal year 2011's remaining quarters than it was in the first half of the fiscal year.

In the final two quarters we expect that qualifying inventory will approximate or exceed debt.

And as mentioned earlier, therefore we will have little to no interest directly expensed going forward.

At this point I'll turn it over to Bob.

Thanks Marty.

Last year's second-quarter results across the industry were catalyzed by a tax credit that pulled demand forward at the bottom rungs of the homeownership ladder and may have energized activity in higher price points as well.

This year's second-quarter demand obviously was not accelerated by any such tax incentives.

We believe many have deferred their home buying decisions because of concerns over the direction of the economy and media headlines suggesting that all home prices continued to decline.

We questioned the many studies quoted in the media that combine distressed sale data, including foreclosures and short sales, with non-distressed home sales data.

We believe that averaging distressed and non-distressed sales data provides a misleading picture to the public regarding home price directions.

In contrast to these reports, according to a CoreLogic study, prices for non-distressed existing sales are up 3% in 2011's first quarter, the most since they started to decline in 2006, versus down 12% for distressed sales.

We are experiencing flat to slightly increasing prices in most of our markets.

As consumers better understand that prices are firming, we believe they will gain confidence, which will help release some of the pent-up demand that must be building in the market.

A different point of view than the Case-Schiller/Zillow view was recently published by Macroeconomic Advisers, based in Washington DC.

Their analysis is entitled, quote, The Long View on Housing -- There's a Boom out There Somewhere.

The report estimates that the need to build roughly 16 million new housing units by the end of 2020 -- demand will come from a number of sources, according to Macroeconomic Advisers.

The US will add nearly 14 million new households through 2020.

We will also need to replace about 11 million units lost to obsolescence.

While a small portion of the gap will be filled from current excess supply, manufactured housing and other sources, the study projects that there will need to be 1.6 million new starts per year for the next decade.

1.6 million new starts per year is not out of line with historic norms.

According to HUD, during the last four decades we have averaged over 1.54 million units annually with a smaller population.

And the report notes that its data does not include demand for second homes, which could revive based on baby boomer demographics and foreign buyer appetite, thanks to attractive US pricing.

At this point I turn it back to Doug to open it up for questions.

Thanks, Bob.

Sade, we are ready to go.

(Operator instructions) Ivy Zelman, Zelman & Associates.

Hey, guys, it's Alan.

I guess Ivy was (inaudible) on her cell, but I think she fell off.

So I'll hop in for her, if that's okay.

That AT&T circus she's got.

I guess my first question was just on the land purchases this quarter.

It looks like they fell off quite a bit versus where you were in the first quarter.

And I was just curious if that was by design or if you are seeing any changes in what's available on the land markets across your various footprints.

Well, it certainly wasn't by design.

You're right; we spent $37 million on land in Q2, and that's down significantly from the prior four or five quarters.

We are seeing good deal flow.

We remain very disciplined and conservative in our land buying.

I think the land spend will be lumpy, based on the opportunities that we see.

I wouldn't read too much into it.

I think the deal flow has been fairly consistent over the last year and a half, but it just happens that those deals we tied up some time ago that were ready to close this spring were a few fewer than what we have seen other quarters.

But it is tough out there; there's no question there's a lot of competition for the good pieces.

They are getting bid up, and so we're going to remain very disciplined and conservative.

And it is tough, but we are seeing decent flow.

So again, I wouldn't read too much into it.

In terms of your community count guidance, is it safe to assume that whatever communities you are planning on opening for the next couple of quarters or even to 2012 you already have under your control?

Or are you still looking for at least 2012 openings?

Is that somewhat contingent on there being a bounce back in the land market?

Well, certainly, the openings for the balance of this year, which we've given a total community count of 215 to 225, are communities that we have identified that we have control of and in almost all cases we own.

For 2012, we haven't given any numbers yet.

We won't do that until year end.

But right now, most of the communities that we anticipate opening in 2012 we have under control.

But with distressed deals that come in through banks that tend to be further along in entitlements, approvals or partial buildout, there are certainly some that we expect to buy during 2012 that would open in 2012.

We'll just have to see how that deal flow works out.

Okay, great.

And then finally, just if you can comment a little bit about the upcoming change in loan limits on the GSC side, we are seeing in the high-cost markets a drop from $729,000 to $625,000.

And I know, with your average price point, you are below that.

But just curious if you've looked at what impact do you think that might have on your business.

And given the long build cycle of your homes, if you have already recognized any changes from that.

Yes, we have certainly looked at it.

Don Salmon is here, President of TBI Mortgage.

Don, why don't you answer that one?

I think the issue really has to do with loans that are over 80% LTV because we have jumbos fairly well covered up to 80% LTV.

At the moment, there is not very many lenders out there lending at 81 and above.

We looked at our first two fiscal quarters this year, and there were a total of 26 conventional deals that had loans between $625,000 and $729,000.

Two of those had LTVs over 80%, so we don't think that's material to us.

We did have four FHA loans that were over 80%.

So with a total of six months in six months, we don't think it's material.

Great, I appreciate it.

Don, as long as you're talking, why don't you give the rest of the mortgage information, anticipating that there will be some question about it?

Okay, capture rate this quarter was 70%.

Of the mix of Toll Brothers business, 65% was conforming or FHA/VA, 12% was jumbo and 23% was true cash.

That's a little bit higher than our normal.

Interest rates are still very, very attractive -- 4.5% on a conforming 30-year fixed with zero points in most markets for well-qualified buyers, add 0.125 points for a high balance conforming to 4.625, and true jumbo is about 5% -- again, in most markets with good buyers.

And they are all with zero points.

99%, 98.9% of our buyers were prime loans.

We did one brokered subprime deal; that was an FHA loan with a 613 credit score, and seven high quality Alt-A deals.

So I think overall it's very strong.

If you look at our credit score mix, the conforming credit scores was 761 in the second quarter, jumbo was 754, FHA was 716 for an average credit score of 755.

LTV's came in at an average of 70%, including 96% LTVs on our government loans, 78% LTVs on our jumbo and 65% on our conforming.

If you have any other questions, I'm happy to answer them.

Thanks, Don.

Sade, back to you.

David Goldberg, UBS.

My first question -- we hear builders in other price points and other buyer segments talk about the cancellation rates and how aggressive they are being from a sales perspective, almost as though they are trying to manage to a certain cancellation rate.

In other words, if it's too low you need to become more aggressive and if it's too high you need to become less aggressive.

And I'm just wondering, on the high end in the luxury business, how much can you guys control the cancellation rates by the aggressiveness of your sales tactics?

And are you worried with the cancellation rate that's low relative to where you have been even in normal times, that maybe your sales will need to get a little bit more aggressive in terms of trying to bring customers in?

I really don't understand the question or I don't understand how the other builders are operating.

We don't manage our cancellation rate.

We take a deposit and we move it to an agreement and then we go through the color selection process and we start the home.

God forbid something has happened to our buyer and he decides to change his mind.

For the most part, we keep the deposit unless it's a hell of a story.

We thought it was noteworthy that our cancellation rate was so low compared to historic standards, and we ascribed it to the fact that the buyers that we are seeing are so serious because they are moving along, primarily, in their life trajectory, that it's unusual that we have such a low cancellation rate.

Let me try to clarify it -- not saying that other builders are trying to manage it to a cancellation rate, but that they can manage to a certain aggressiveness in terms of sales behavior which will result in a certain cancellation rate, if that makes sense.

I think what David is suggesting is if we took a smaller down payment, we would have more sales.

Precisely.

But then we would be, since you usually don't find out that your buyer is defaulting until very close to closing, you find yourself with spec inventory that we don't want.

So we are very happy in taking the standard deposit that we've been taking for many years, and we think it's very good news that the can rate is as low as it is.

Okay, good.

A quick follow-up -- I just wonder, with the guidance on closings for the back half of the year, it still seems pretty wide to me, 2300 to 2800.

I know you narrowed it a little bit versus last quarter.

What's the delta there in terms of the discrepancy, and how can we reconcile that as we move forward?

Well, I think, David, our backlog as it stands at this point is 1760 units.

And it takes us, on average, nine months to complete a home, and we don't have as many spec units.

So I think that's what's driving the width of the guidance between 2300 and 2800.

It's relatively consistent with where we have been in the past, and it's what we feel comfortable with.

So it's just a question of how quickly those 1700 convert, effectively?

Yes.

Is there some that get pushed into next year?

There could be some that get pushed into that next year, and there could the some multifamily freestanding build units that could close this year that haven't hit backlog at.

Okay, got it, thanks guys.

Dan Oppenheim, Credit Suisse.

I was wondering if you could just talk about the new community openings.

Not a shock when you say that the impairment are located in the bottom and Florida.

When you think about the new community openings, how many -- are those focused in the sort of DC to Boston area, where you are seeing the [biggest] traction on sales?

Is that also the focus on land?

We have 35 projected openings between now and year end.

We have a number of communities that are selling out, which is why the net number will go from 203 to something between 215 and 225.

A nice number of those 35 is in the mid-Atlantic/Northeast.

Gregg, why don't you give the breakdown?

Yes, we are looking -- if we open 35 communities, let's say 30 to 35 in the next two quarters, probably about two thirds of those will be in that corridor you described from Boston down to Virginia, probably a pretty even mix between what we consider the north and the mid-Atlantic.

Okay, great.

And then second question -- after some of the competitors have decided to try to compete with foreclosures for the past couple years of going after to the low-end buyer, they are now talking about the move-up market.

Any concerns about more supply coming in or [confident in] the brand?

How do you look at that in terms of just others trying to go for more of the move-up buyers now?

Well, I think what they're talking about is more of a first-time move-up, and we tend to be second, even third time move-up.

Our brand has been there for a long time.

We continue to enhance it.

I'm not worried about more supply hitting.

There's just not land out there, and I think the Northeast/mid-Atlantic corridor, where 60% plus of our business is located, is a very, very land constrained corridor where we have a great brand.

There's a huge barrier to entry there.

It's also a tough business.

The customization of these homes is something that is difficult.

It has taken a long time for us to perfect or come close to perfecting, and so I think we are comfortable with where we are.

Great, thanks very much.

Michael Rehaut, JP Morgan.

First question -- just one of the comments from the press release you had thrown in was on pricing, specifically that you are seeing flat to slightly improvement in most of your markets.

I was wondering if you could drill down a little bit by region or geography to give us a sense of where you are seeing maybe a little bit of improvement, where things are stable, and if anything has changed in the last three or six months.

Washington to Boston continues to be the strongest corridor for us with New York City/New Jersey urban, our City Living brand, being far and away our best performer.

We recently opened a new building in Hoboken.

We've taken 23 deposits and 13 agreements in four weeks, and we would have taken more, but we are working through a long VIP list, and it takes time to convert those people.

We are seeing price increases in Brooklyn, in Manhattan and in Hoboken.

I would say we are up probably 10% over the past year, and again, that's our best performer.

Those are big numbers, too.

10% on $1 million --

That's right.

So, $100,000.

That's right.

Outside of Boston to Washington, shockingly, Michigan, southeastern Michigan for us, greater Detroit, is performing very well.

That's primarily because we are about the only ones left.

But we recently had 16 deposits and eight agreements over an eight-week period of time at a premier resort community, mid-$500,000 price point.

So we are seeing -- and there we raised price.

So we are seeing pricing power in a variety of places.

It's flat in many parts of the country.

We have tried adding incentives to see if that would do anything to stimulate demand, and it has not.

We continue to maintain that pricing is very inelastic right now, and so we are quite comfortable that our pricing is where it is or will go up.

Dallas has also been strong.

The weak areas continue to be Vegas, Phoenix, Chicago and the second home market of Florida.

Great, thanks.

And just a second question here, if I could, on the land market -- you said that you are still seeing good deal flow but remain disciplined.

And obviously, there's still competition for the better lots.

I was wondering if you could also drill down a little bit by geography.

Are there certain regions that you're seeing better flow or maybe versus others?

And again, has that changed at all over the last three or six months?

But the only thing we haven't mentioned is (technical difficulty) operations that we have in California have been pretty decent.

Other than that, I think we have already mentioned enough times where the good margins are for Toll.

On the land side, we are seeing a lot of good deal flow out of Texas.

For us, that's Houston and Dallas.

And they tend to be option deals which we are comfortable doing in those markets.

California -- the land market is overheated.

We're back to those days of building price appreciation into the underwriting for land, and that scares us off in many cases.

So we are being very selective.

The Midwest, we are really not in the land market at the moment, although we are considering a few small pieces in Ann Arbor, Michigan, which has continued to be a pretty good market.

There are some opportunities coming out of Florida, and we like Florida in the long-term.

And then Boston to Washington -- we have great land teams, we have great connections.

So we are seeing good flow that generally doesn't hit the radar screen, and we are taking advantage of those opportunities.

But they tend to be smaller deals, and that's primarily because the Northeast/mid Atlantic is built out.

Does that help?

That's great, thanks very much.

Adam Rudiger, Wells Fargo Securities.

-- to ask a follow-up question on pricing.

I think last quarter you said incentives were about $40,000 per home.

So I was wondering what they were this quarter and I was wondering if you could comment at all on what stability or trajectory of gross margins would be for the rest of the year.

I think we are pleased to report that incentives are flat.

They have been relatively flat for 12 months now, and they are running at 5%, 6%, 7% of sales price.

And gross margin?

Do you have a projection?

The gross margin projection -- I'll reiterate what I said three months ago.

It's really going to take pricing power and volume to show significant improvements in the gross margin.

So at the current time, we are not willing to put an official projection out there, but we are kind of comfortable with where we are and hope to grow it but only through pricing and volume power.

And then my second question is on Gibraltar.

Could you tell us what the financial impact was, if any, in the income statement this quarter and what you have learned or what you are seeing or are experiencing on the first portfolio that you bought?

Sure.

I think the net results from Gibraltar would show up in the earnings from JV line, are approximately $800,000 to $1 million with this most recently completed quarter.

I think we are happy with the results we have seen on the initial portfolio.

It's a little too early to tell on the portfolio we just acquired at the end of March, but we are excited about the prospects for Gibraltar in terms of the deals we have in place and the deals were seeing.

All right, thank you.

Jonathan Ellis, Bank of America Merrill Lynch.

First question, just on gross margins -- I know last quarter you talked about a change in the accounting treatment for the mortgage subsidiary and how that may start to flow through your gross margin.

Was there any impact this quarter, any expected impact for the balance of the year?

It has all been restated, effective as of that previous quarter.

So all that data was in our first quarter 10-Q.

That has been restated.

2010 has been restated.

I think the number was approximately $250,000.

Okay.

And a second question, just on spec inventory, can you tell us what your actual spec inventory was as of the end of the quarter, both, if you have it, single-family and multi-family?

And then sort of secondarily, as you think through the outlook for the second half of the year in terms of pricing on deliveries vis-a-vis your pricing and your backlog right now, can you help us understand what is going to be driving down the delivery pricing relative to the backlog pricing, if you are not going to see some pickup in spec sales?

Sure.

I think, to address the spec inventory that we have right now, we have about 182 single-family specs, just over one per community.

That's consistent with where we like it to be and where we have been historically in normal times.

We have 175 specs in the multi-family product type, and in the high density we have 383.

That 383 is up from about 317 at the end of the first quarter because we have 75 units that are added to that at 1450 Washington Street, which is the next building at the Hudson Tea Complex that is topped off.

Once we get above the first story; we say it's spec inventory.

Okay, that's important for the listener to understand, that for us a spec is when we drop lumber or get above the first floor.

1450 Washington Street -- you won't be able to move in there, no matter how hard you try, for --

May, May of 2012.

May of 2012.

One year.

So, although we count it as a spec, I think it gives you the wrong impression to call it a spec because you can't move in until 2012.

We hope that, by the time you can move in, that the whole building will be sold.

Okay, that's helpful.

And then just the other related question about pricing and backlog versus delivery pricing for the balance of the year and then (multiple speakers).

I think it's a function of the mix.

I think the best way to look at those is to look back at what our sales, our order prices were two, three and four quarters ago because that's what's going to deliver -- I'm sorry, one, two and three quarters ago because that's what's going to deliver in the back end of this year.

So it's really just a function of the geographic and product type mix being in areas that have generally lower prices or a mix of less single-family homes in the higher-priced areas and maybe more single-family homes in the lower-priced areas.

It's a tough equation to point to any one particular factor for.

Okay, thanks, guys.

Stephen East, Ticonderoga Securities.

If I could step back and look just a little bit broader, you have got about 10,000 lots developed.

I'm interested in a few things there -- one, how much of that is what you all would consider new?

And if you had today's product on it, what type of impact?

And I would assume that would be a positive impact, what type of impact that would have on your gross margin.

But more generally, even before the boom your op margin was running around low-teens-type levels.

What is it going to take for you all to get back there?

Your SG&A needs to be cut more than half.

Your gross margin probably needs to move up 700 to 900 BPS or so.

So when you all look at the world, how do you see that occurring?

Primarily through increased demand, which will lead to increased prices, greater absorptions.

We continue to cut.

We continue to become a little more efficient, but it is primarily on the demand side.

In terms of your land question, Stephen, we don't have a great breakdown and generally don't report what the differential in our margins is from our new communities versus our older ones.

It's a slight bit higher but not as dramatic as you might expect.

Okay, I appreciate that.

Just going back on that question that you answered, when you look at it, I would assume, to get that -- for it to be volume-driven, you all are probably thinking internally a doubling plus of your volumes to get your SG&A down to that historical level.

But I guess I'm wondering, are you counting a lot on price improvement on the gross margin side, or do you have a lot of land positions that are going to drive that meaningfully?

It's a combination.

We had 325 communities open for sale in 2005, and we were as low as 190 a year ago.

We are beginning to build that community count back up.

We need to continue that, and that's why we are out buying ground, looking for opportunities.

But as we do that and as we add new communities into operations, we also need demand to pick up, volumes to pick up.

Okay.

And is it more pricing, or is it more, do you think, embedded potential gross margin you have in your new land?

I think it's more pricing.

Sure.

All right, thanks (multiple speakers).

Stephen, we are operating at approximately 300,000 new homes sales per year on an annualized basis.

And the market for the last 40 or 50 years has averaged 1 to 1.5 in single-family sales.

Until you get back to somewhere near the norm, it's going to be difficult to play the game by cutting your SG&A to be in proportion to the sales that you are now making.

I think it's more important to have your organization ready so that when the demand returns, and it's, I believe, only a matter of when, I don't think it's a matter of if, we will be prepared to take advantage of it in two ways -- A, answering the demand for volume; and, B, raising the prices because when you get the demand you get the opportunity to raise your prices.

Okay.

And -- and that's what I'm getting at; I totally agree with you.

We are at ridiculous levels.

I'm just trying to understand your all's thought process about how you think it plays off and what it looks like to get back to that type of thing.

And your last comment sort of answered that.

Thank you.

Josh Levin, Citi.

Looking forward, how many communities or JVs would you say are close to possibly tipping over into the impairment bucket?

(Laughter) it reminds me of that movie Chicago, let's see a little tap dance.

Well, we look at a significant number of communities each quarter.

I'm happy to report that that significant number today is a lot different than the significant number from previous years.

There are not a lot that have sizable inventory balances within them that are close to the tipping point.

There are a few, but not a lot.

Okay.

And what are you seeing in terms of raw material costs?

How are you managing them, and how might they impact the margins going forward?

Gregg?

The raw material cost, as we look over the last six months, even over the last year, the material cost has not been that significant for us.

We have embarked upon a lot of kind of labor savings initiatives that we've been rolling out across the country.

But if you want to talk about materials, lumber, for example, for all of last year was up a few hundred dollars a house and up a bit in Q1.

But then in Q2, we got most of that back.

And then it has been some minor stuff in steel and petroleum-based products.

But we are trying to more than offset that with our contract renegotiations with our subcontractors.

Okay, thank you.

Ken Zener, KeyBanc.

I just wanted to go back to the community count and what looks to be a growth rate in 2012 that will be similar or likely in excess of what we are seeing in this year's 10% rates, given that you guys have taken down roughly 8000 lots.

It sounds like maybe 30% of those are largely finished.

And with your absorption base stabilizing, it implies that you are rapidly gaining share, at least in your categories in those markets.

Is there any reason to think that on just the lots you are buying, your community count wouldn't be -- the growth wouldn't be any less than we are seeing this year, in addition to bringing back mothballed communities, potentially?

We are not going to discuss 2012 community count until year end.

Certainly, if demand picks up there are a number of communities that will open earlier than we now project.

And I just caution, on the land we have been buying, remember a lot of that land is in very different entitlement areas.

And so, even though it might have been a distressed purchase, there may still be permitting to left.

So don't assume that that's all ready to come online.

Some of it is, but some of it may have years of permitting left.

So right now I think we just need to sit tight until year end until we can give some better guidance.

Yes, I just was saying it because you guys talked about your finished lot count last year at this quarter.

It's down a little bit, but you have obviously delivered homes.

So that implies -- maybe a quarter or a third of that is actually finished.

I guess the other question I have is, given the current level of interest expense at roughly 5.4% of sales, how long do you think being driven by turnover as well as the age of the land -- how long do you think that will take to get back more towards the normalized 3% level, assuming interest rates don't go sky-high?

Well, remember that we have taken roughly $2 billion of impairments over the downturn here, and we have allocated all of those impairments against land basis and none of it against capitalized interest basis.

If we had done it on a pro rata basis, capitalized interest would he a smaller balance, and thus the interest expensed would be a smaller number.

But cost of sales might have been higher as a percentage because the land was not written down as far.

So it's tough to look at any one of those items in isolation.

I think we are pleased that the balance has stabilized at 5.4% now.

We're getting into a situation where we will not have a dollar of debt associated with a dollar of inventory; we might only have $0.90 of debt associated with $1 of inventory moving forward, as we have more inventory that qualifies for capitalization.

And so that should help bring the balance down.

Thank you.

Nishu Sood, Deutsche Bank.

First question I wanted to ask was about the strength that you are seeing in your business compared to, let's say, some of your peers that focus on the lower end.

Last year investors' theory was generally that the move up-market is going to lag because people are locked in their homes or trapped in their homes by negative equity.

And surprise, surprise -- this year it has been the exact opposite of what folks have generally expected with strength in the higher price points.

I was wondering -- I know it's a very general question.

But wondering if you could just opine on that, how do we reconcile?

They were wrong.

It never made sense to believe that those that are buying a less expensive house and who are, a fortiori, on a more stringent budget are going to be in the market in greater numbers than those who have a more liberal budget or no budget at all and are not impacted as negatively as the lower rung of the market is impacted.

By definition, the rich are rich, and the lower rungs of the economic scales are the lower rungs and have a more difficult time in financing and meeting their desires to be able to move on.

Those who are well off can say to themselves, as Doug implied in the opening monologue, that I used to be 55 and I wanted to go to a resort community in Florida.

Here I am 60; I'm still not there.

I can afford to get there, or I could wait for a better housing market.

One thing's for sure -- I'm not going to live forever.

And so I think you see just natural, logical results in the housing market for the luxury brand -- the luxury class, to have more business.

So, of your -- look at it another way.

Like your 879 buyers, Marty mentioned or -- I'm sorry, Doug mentioned that there's a higher cash percentage.

So that helps to explain a little bit the remainder.

So what's the deal there?

Is it that we are just talking about there's -- negative equity problems aren't, obviously, evenly distributed.

So maybe we are just talking about the small uptick is in the parts where people don't have that problem or were these people, renters -- what does your data tell you?

I think what has happened is, in 2007 and 2008, the few people that came to our sales centers were very concerned about their job security and they were very concerned about the ability to sell their existing home.

And they had stuck in their head in 2007 and 2008 the 2005 value for their existing home.

We are now in 2011.

They are no longer concerned about their job security, most people, and the unemployment rate of our buyer, the college grad, is less than 5%.

And they have accepted the value of their home.

They may not be back to the 2005 number, but enough time has passed that they have accepted the value.

Our buyers are either buying with cash, 23%.

And interestingly, 47% of the active adult buyer is all cash -- or they are putting 30% down, on average, and getting a loan of 70%.

So they have waited long enough.

It's what Bob said about the active adult.

The family -- our typical buyer, the family five years ago had the kids in elementary school.

They wanted to move to a better town, the better school district, the bigger Toll Brothers home.

And those kids are now in middle school.

And they are not trying to time the perfect opportunity to get into the real estate market; it's time for them to move on.

And they have the ability to do it, and that's the difference with the luxury end.

And we are seeing the benefits of that.

Look what's happening in New York City.

Many people have gone through the lifecycle of feeding the -- was that an 80-pound dog, I think I said (multiple speakers)

It is now an 80 pound dog.

Taking care of the kids, cutting the lawn, playing with the sandbox, etc.

And they now want a pied a terre in New York.

Several things have happened.

A, they have lost five years of their life; and, B, the real estate in New York has went up in price and continues to go up in price.

And I think you are going to see a snowball impact in New York City, and you are going to start to see that in some of the suburban markets that have not shown any movement in the last five years.

I also think the negative equity situation is a phenomenon only for people who bought in a certain 5- to 6-year cycle from, let's say, 2003 to 2008.

If you bought earlier than that, you probably have positive equity in your home.

So negative equity or positive equity is not impacting the rich the same way that it impacts the middle class or the lower class.

Got it, got it, no, very helpful.

The other question I had was on your longer-term land purchases.

And I think Doug was just talking a minute ago about the many different states of the land that you folks are buying, some of it being many years out and needing to be entitled and then developed.

How do you model that nowadays?

You consider the factors, the uncertainties, what's going to happen to the mortgage interest deduction, what's going to happen to the mortgage market, are we becoming a land of renters, as some people like to say?

How do you model like what sort of product you are going to be delivering and what sort of prices you are going to be able to realize when you've got such significant uncertainties out there?

Model it the same way we always did -- Heaven is now.

We don't make assumptions of changes in the market, we don't make assumptions of changes in prices or of pace, of volume.

However, we don't make assumptions that things are going to be much tougher because the mortgage deduction is going to be less.

Frankly, we don't know where that's going.

So we model it on the basis of what we believe now compared to the comps that we are analyzing and our costs, and come to an answer that says, buy and build or don't buy and build because it doesn't meet our expectations.

Okay, thanks a lot.

(inaudible).

I just had some questions.

Could you elaborate on your comments about the California market overheating and having to factor price [appreciation] to land?

Is that just for certain markets?

Is it just by the coast, or is it in-land?

Doug didn't say the market was overheating; he said it was overheating in the competition to buy the land, I think.

Correct.

That's correct, yes.

And it's (multiple speakers) which tend to be the luxury markets -- Orange County, pockets of Ventura County, South Bay, East Bay -- this has happened for decades in California.

There has been so much money made in California by homebuilders that right now those with cash who have had a great track record in California over those decades, we believe, are beginning to build appreciation into the underwriting of land.

And we believe that because they are beating us by so much on the purchase we believe that must be happening.

So we have to be careful.

This happened in the early 2000s and we missed out on opportunities for the same reasons.

All right, great, thank you.

Jay McCanless, Guggenheim.

First question -- when you do return to GAAP profitability, what tax rate should we use for modeling?

I think from a modeling perspective, I'd use 38%.

But, remember, we have a deferred tax asset of $415 million which shelters approximately $1.2 billion of taxable income.

So it's a long time before we will pay cash taxes.

Okay, but we will still need to show that 38% in the income statement?

No, no, Jay.

We won't show any 38% in the income statement until the valuation allowance on the deferred tax asset is reversed.

Okay, okay.

And then my other question -- I wanted to reconcile the statement that you all made in today's -- or in the release saying that you are getting pricing power back, you are feeling like you can raise price in certain areas versus the volatility that we've seen in the average closing price over the last six quarters.

Should that volatility go down as more communities are opened, or how should we think about that going forward?

As we mentioned, the volatility in price is geographic, in product mix, our incentives have been flat over the last year.

So don't misunderstand; that reduction in price is not because of a softer market.

Even with the decline that we saw in the West, the closing prices in the West?

It looked like a pretty sharp drop in the West closing prices year-over-year.

That was strictly mix.

I think that was a function of having fewer single-family homes and more multis deliver.

Okay, all right, thank you.

Bob Wetenhall, RBC.

In your $540,000 to $560,000 range, if you had to shade one way or the other, to the low or high, which side would you shade too?

The good news is, we don't have to shade.

If you were closer to $540,000, do you think, or closer to $560,000?

I think what I was encouraged by this quarter is that our margins held up despite the lower average selling price delivered.

Got it, and it sounds like you are set on the $540,000 to $560,000 range, and that is influenced heavily by mix.

Do you think mix is going to pick up and shift in a favorable direction based on new orders, as you move into 2012?

(multiple speakers) This reminds me of 20 questions.

Is it bigger than a bread box?

Is it smaller than an elephant?

I think we're going to take a pass.

All right, one final question -- how is traffic since the end of the quarter?

First three weeks of May, traffic has been flat.

Hold on; I'm getting the numbers in front of me.

We have been running 17 visitors -- excuse me, that was for the Q2.

We are running about 12 visitors per community per week, which is fairly consistent with the last four years.

Okay, thanks very much.

You are into the season, come the end of the quarter, which is April 30, when you start to clean up the house, plant vegetables, plant the flowers (multiple speakers) graduations, right.

The new home sale market runs pretty much from the middle of January to the early part of April, and then people start to switch gears.

And the gears don't get switched again until approximately after July 4.

Go it, so you would just characterize the spring selling season, then, as pretty flat with last year?

Correct.

Okay, thanks very much.

Michael Smith, JMP Securities.

Just real quick, as most everything has been answered, can you talk a little bit on the Gibraltar side on what the deal flow out there looks like?

Are you guys finding enough deals to do that you would like to?

Are banks getting any more willing to put assets to market, or any less willing?

Any color on that would be great.

Banks seem to be more willing to put assets to market.

We have only done two deals, as you know, through Gibraltar.

We have about $75 million invested in Gibraltar.

The deal flow right now I would describe as good to excellent, and I'm hopeful that we'll have a few more deals soon.

But it certainly seems like the banks are more interested in moving some of their pools of loans off.

Which makes sense, since the regulators have noticed that the banks are getting richer once again, and they now have the opportunity to kick them in the backside and say, disgorge some of these portfolios that you have that have not been performing for the last couple of years.

Up until recently the bank could reply, well, it's funny you want me to disgorge because there was a guy in here last week offering me $1 billion to stay afloat.

And that's no longer the case, so I think we are going to start to see all -- I think we have already seen an increase in availability.

Let me actually ask one other real quick question.

Any sense -- I'm not sure if you guys even track this.

But any sense what percentage of your buyers this quarter were either buying a second home or a pied a terre, as somebody else said, in New York, something like that, or even maybe buying a new home before they have actually sold their old one?

I assume some of your active adults buy (multiple speakers) --

We have the info.

I don't know if it's available right now.

The second home numbers are very consistent.

They were 6% for this quarter, and they have been 5% and 6% for [low] -- statistics here last couple of years, even, with kind of hanging out [in that area].

Do you assume everybody at Frenchman's or everybody at Maxwell B or 3rd and 33rd, are a second home or a first one?

How do you get that?

Well, that QQ, or that qualifying question (multiple speakers) coming in, answering and saying if this is a primary or a secondary.

Oh, right, okay, so that's good.

And the mortgage they apply for --.

Right.

-- tells you that.

Yes; we track that.

I don't have it with me.

So that hasn't changed significantly over the last few quarters?

No.

Okay, thanks guys, I appreciate it.

Alex Barron, Housing Research Center.

I wanted to ask you -- when I look at your inventory, you have got about $3.4 billion of homes and land.

I look at your backlog and you've got about $1 billion of backlog.

So I assume roughly the difference between that and the inventory is land.

So my question is, when I look at that land balance -- well, first, tell me if that's correct.

Second, how would you split -- how many of those dollars are what I would call the new land deals, maybe stuff you've bought in the last two years?

And how much of that is old stuff?

I think what our call the residual land balance in your equation is actually a little higher than you would think because not every last board has been nailed on the $1 billion of homes in backlog.

So subtracting a full $1 billion from our inventory balance is understating the case.

Understating the case of what the land is?

Of what the residual land is.

Overstated.

Overstated, yes, [the plans].

(inaudible) (multiple speakers)

-- because we have improvements in there.

We will be right with you.

Gregg, you want to speak with the (inaudible).

No; it's -- Marty already answered it.

You cannot just subtract it from there to get it.

Okay, but I guess I'm just trying to get a sense for like how much is the value of all the land you guys have bought in the last two years?

Well, we've bought around $600 million worth of land in the last six quarters.

Got it, okay.

My second question has to do with -- I understand you said you are not going to be expensing interest anymore because your inventory balance is higher than your debt.

But my question is, you've got roughly $150 million of interest incurred and you only expensed about $80 million this year.

So is that number going to be closer next year, the interest, I guess, expensed and the cost of goods sold?

Yes.

As we grow, the interest that gets expensed down of cost of goods sold grows.

Okay, thanks.

Joshua Pollard, Goldman Sachs.

This is [Anton] for Joshua.

Our first question -- can you help us understand your split of business from high-rise and where it has been trending over the past couple of quarters?

Ultimately, what kind of lumpiness is, if any, is this causing in the orders that you are seeing?

High-rise is about 15% of our business, and that's inflated because it's the best performing sector for us.

And there's no question, it's lumpy.

You build the building and then you hopefully, if it's sold, deliver it at a pace of one or two closings per day.

In the good times, closings were based upon elevator use, so you could close one in the morning and one in the afternoon, and so you could have -- it wasn't unusual to have 30 to 45 closings per month.

So there's no question that business is lumpy and I'm sure -- Gregg, you have the numbers, but I'm sure over the last year, that has proven out.

That's exactly right, yes.

And what has been New York's share over the past couple of quarters?

And can you help us understand that?

So what has been Manhattan, Brooklyn, Hoboken?

Well, the building delivering in Manhattan and the building delivering in Brooklyn right now are in joint venture, so they are not built into our units, they are coming in as other income.

Most of the activity in Hoboken is not in joint venture.

And, going forward, the new building we mentioned earlier in Hoboken that just opened for sale -- that is not a joint venture.

A new building in DUMBO, Brooklyn is not in joint venture.

And the new boutique high-end building at 55th and Lex, the [Terrain], is also not in joint venture.

So moving forward, most of the sales coming out of city living will be reported in units and revenue, with the exception of the leftover Williamsburg and New York City building.

The second question is we would love to hear your read on the price variance that you are seeing between distressed and non-distressed properties.

If you can comment if that had been similar, if not compatible periods when you actually kind of saw this kind of divergence where you were able to increase prices on new homes when resale home prices are declining.

We are all making hand signals around the table at one another.

It's got a handle on the question, and the answer is I only know what I read in the newspapers, and it's not too reliable.

So I can't give you an answer.

Does anybody here know?

No.

No.

I think the reason is, it's all over the lot.

To put it another way, the notion of increasing prices on new homes while existing home prices are still declining seems to be quite difficult for some to grasp.

Have you seen periods, prior periods, you know, prior years where this kind of disconnect existed?

Well, what we stated was just factual, if you believe CoreLogic's representations were accurate, and I have no reason to believe they aren't accurate; they were backed by ISI, a pretty good outfit.

And it makes a lot of sense.

It doesn't make sense to you who are an analyst looking at numbers.

Mathematically, you are correct; it doesn't make sense.

But new home purchasing versus used home purchasing versus purchasing of distressed inventory are not run on the basis of logic and math.

It's as much an emotional decision to be made as it is a mathematical decision.

While there is some overlap, some people who will consider a new home versus an existing home versus a distressed home, most of the market, a large part of the market, will not consider shifting from one of the three segments that I just mentioned to the other.

And so you get a misunderstanding from the numbers that are being shown, which are just the average as opposed to looking at each segment of the residential market separately.

Do you follow?

Yes, yes, yes, yes.

The only answer I can give you -- you are saying, how in blazes, with distressed going down, can new and existing go up?

The answer is, it does.

Thank you.

(Operator instructions) Ivy Zelman, Zelman & Associates.

Hey, guys, I think you're going to have the world record for the longest conference call.

And unfortunately, I wasn't on for all of it, so hopefully this is not a repeat question.

You missed the greatest.

Go ahead.

I did hear the opening, I just didn't hear a lot of the Q&A at the beginning.

In terms of the, I guess, customer of your 879 or whatever the number for contracts and what you see in the market, do you have any statistics on the demographics of that buyer, whether they were an owner-occupied person prior to coming in via Toll, or they had been renting and had been on the sidelines?

So any -- how many of them are married, single, just interesting on the statistics?

And I know, Bob, you and I have chatted in the past about consumer confidence.

I'm kind of wondering, is there anything that would suggest to you that there's a lot of pent-up demand and people actually can afford and they are just now recognizing -- I know the increase in your activity is suggesting that.

But there's still a lot of people on the sidelines.

Is there anything from a consumer confidence perspective that, if Washington was to do something policy wise that would actually create a more robust environment for housing?

And have you talked to people in policy or anything that you are aware of that can stimulate that confidence?

Or how much do you put on the confidence factor?

I know, Doug, we talked about this, too, so just your perception on how important confidence is.

Well, I think confidence is the most important factor.

And I think you have seen a slight, a slight return to some confidence.

That is evidenced by the increased sales and by the slightly increased prices.

There is no doubt that it could be a stampede if Washington wanted it to be.

And there's indications, finally, that Washington is coming to the dance, recognizing that there is no way that unemployment is going to drop significantly enough without the participation of housing.

Having said that, the very conversations taking place are of a detriment and kill confidence.

What is the point of raising the specter of raising FHA-required down payments, of discussing mortgage interest deductions disappearing?

What is the point of that conversation when what you are trying to do is, you would think logically, revive housing so you can put the people back to work whose jobs are not fungible?

The people that bang nails, the people that knock tin, the people that put on roof tiles have a very difficult time of it, unfortunately, in trying to switch vocations.

So they are stuck watching daytime TV, and even that's starting to disappear.

Don, do you have some answers from the mortgage side about the demographics?

(inaudible) Bob.

We don't track marital status and those kinds of things because we can't make decisions on it.

I can help a little bit.

The average income of our buyer is relatively flat; it's around $170,000 per household.

Age -- tough to comment on because our segments are so different.

Active adult is obviously 55 to 62.

Move-up is mid to late thirties, into the early 40s.

Urban -- you've got the 28-year-old hotshots and then you've got to move-down couples.

That really hasn't changed.

I don't know if you were on before.

We mentioned that 47% of our active adults are now all-cash, which is up significantly.

And (multiple speakers) our average buyer putting 30% down on the mortgage.

I guess I was just wondering how many people were previously renting and doing so because they were worried about the housing market and might have sold or just delayed the opportunity and now are stepping up, so the renter versus prior owner, if you had any statistics there.

I can say empirically, without having any hard numbers empirically, the vast majority of our people are not prior renters.

Most of them have a house to sell.

We have some first-time home buyers in some of the communities -- for example, Stratford Club, Lakeland Station, some in Dublin Ranch, our first-time home buyers.

So they were renting.

The vast majority of our people who are moving up do have a house to sell.

I think it's pretty rare to have the couple who has sold their home, been renting for the last year and now step up to the beautiful third move-up Toll Brothers house in Bucks County and decide to buy it.

I know you hear of those stories, but I think that's pretty rare.

I think most people are still believing they can sell their house in the nine months it takes for us to deliver, and they have accepted the price they will get for their house, and they are okay; they are ready to move on.

I think that's the question, Doug.

If you have the price that they are willing to accept, the value that Toll Brothers is offering for a new home, which is a very small percent of transactions right now in the country, 9% of all sales today are new homes versus 16% going back 30 years, even in recessions of 1981-1982.

So there's really very little new home.

So the question is, do you have any statistics that would suggest how much of a price cut they are willing to take because they are getting a great value in return?

And if you don't have that, in the future it might be helpful for you to track that because what it suggests is that you are offering them something very compelling, even if it means they have to sell the house less than what they may have thought the selling price was.

Understood.

And we don't go back and track what they actually ended up selling their house for and how much of a discount that was not only off their asking price, but off the value of that home back in 2005.

I'm not sure we could even figure that out.

But we certainly market the fact that the Toll Brothers house is a great value.

And so maybe you're not getting what you thought you could get for your home, but you are trading up to a house that has been set to market.

And, by the way, interest rates are at a fabulous rate, and it's time to go.

I was just handed by Fred Cooper the lead editorial in the New York Times today, and the headline is, As Housing Goes, So Goes the Economy -- The Ailing Market is Not Going to Heal Itself." The New York Times says this.

Perhaps in Washington they are starting to recognize this.

I know when I was down lobbying two years ago, I was met with total resistance by the administration, which looked upon all housing as interchangeable and said, with some logic, that there's too much of an overhang in the market now; why should we attempt to spur housing until the overhang in the market, the short sales and the distressed sales, the foreclosed sales, are taken off the market, until we get back to some kind of parity as we used to have between buyers and sellers.

It's not intelligent for Washington to aid housing.

Well, the answer, I think, is in the headlines that I just read.

And I think Washington is starting to recognize it.

If they wanted to, there's many schemes that could be adopted that would create an avalanche of new home orders.

Such as?

Well, if the government were to say, we will give you special tax credit if there is -- not for buying, but if the home you buy goes down in value when mark-to-market we will give you a tax deduction for that for the next year or for the next two years, or any of the other obvious games, which have to do with tax credits.

And if they would not mix the policy, as was done in the past, by saying that here's a credit for a house purchase but you have to be a first-time home buyer or you have to have an income under a certain amount of money.

If they would do what was done back in Gerald Ford's day, with a Democratic Congress, you could create an avalanche of housing and put a whole lot of people back to work.

Who knows what's going to happen?

The best thing that could be happening that we could expect is if everybody would just stay away from it, drop the conversation, talk about Medicare and give us just eight or nine months left alone, I think we can get this thing rolling again.

Thanks, guys.

Alex Barron, Housing Research Center.

I wanted to talk about new communities versus legacy.

Can you give us an idea of, in your orders, what percentage are coming from new versus legacy?

And then deliveries, how many are new versus legacy?

And also, what is the gross margin differential between new and legacy?

Gregg is reaching for some of the specifics.

I know, from a gross margin perspective it's not dramatically different between the new and the legacy.

The new is slightly better.

And in terms of new orders, there's not much difference in terms of

(inaudible) (multiple speakers)

New orders -- there's not much difference in terms of older lot/land purchases and newer lot/land purchase communities.

Ah, that's what legacy means.

I've been trying to figure it out.

All I could think of is seats in Yankee Stadium.

Are they very expensive?

Yes, they are.

(inaudible) (multiple speakers) empty.

At this time, there are no further questions.

We don't need to encourage anymore.

This has been a marathon.

Thank you, Sade, thanks, everyone.

This concludes today's conference call.

You may now disconnect.