Good afternoon. My name is Dennis and I will be your conference operator today. At this time I would like to welcome everyone to the Toll Brothers third quarter outlook conference call. (Operator Instructions) I will now turn the call over to Mr. Robert Toll, Chief Executive Officer, Chairman of the Board. Please go ahead, sir.

Thanks, Dennis. Welcome, everybody. 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; Greg [Ziegler], AVP of Finance; and Don [Salmon], who runs TBI Mortgage Co., just in case you have any questions about mortgages. Those listening on the web can e-mail questions to rtoll@tollbrothersinc.com. We’ll try to answer as many questions as possible. Before I begin, I ask you to read the statement on forward-looking information in today’s release and on our website. I caution you that many events, 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 affect future results. We’ve just announced preliminary results for our third quarter and first nine months ending July 31, 2007. Third quarter home-building revenues were approximately $1.21 billion. Third quarter end backlog was approximately $3.67 billion and third quarter net signed contracts were approximately $727.2 million. These totals represent a decline of 21%, 34%, and 31% respectively compared to fiscal year ‘06’s third quarter results. For the nine-month period, home building revenues were approximately $3.47 billion and net signed contracts were approximately $265 billion -- sorry, $2.65 billion, a decline of 19% and 30% respectively versus fiscal year ‘06’s same period results. These results are preliminary and unaudited. We will announce final totals when we release third quarter and nine-month earnings results on August 22nd ’07. We are now in the 23rd month of a down housing market. Hesitant customers remain on the sidelines, unsure of whether home prices have bottomed. With supply plentiful and homesellers motivated to make deals, this may be the ideal time to…

Thank you, Bob. Many builders, including Toll, are receiving lots of questions with respect to mortgages, home building company liquidity, and balance sheets. Our mortgage company does not issue a mortgage and lock in rates with a customer generally until it has a commitment or obligation from an investor to buy the mortgage. The vast majority of our mortgages are placed with major investors, not small entities. These investors have continued to fund their obligations. Our buyers, with an average FICO score of 724, tend to be of a significantly higher quality than the general public. Only 1% of our mortgages would be categorized as sub-prime. Over 70% of our loans are made to buyers who have FICO scores of 720 or better and these are generally referred to as prime plus loans. Fifty-four percent of our loans are conforming, that’s balances of $417,600 or less, and 46% are jumbo. The year to date, 73% of our customers use fixed rate loans and 27% used the on products. We continually review our pipeline for potential customer mortgage problems, even if they do not use TBI Mortgage. During the third quarter, we did not see any significant change in reschedulings or cancellations as a result of mortgage problems compared to the prior quarter. However, the mortgage market continued to deteriorate through the quarter so the end of the quarter was clearly a little bit more difficult than the beginning. With respect to our liquidity, we finished the quarter with over $700 million in cash. We have $1.15 billion available under our credit facility and we have no major debt due before 2011. Our net leverage, which we define as debt less cash divided by the sum of debt plus equity less cash, was approximately 32% at April 30th and we would…

Thanks, Joel. Dennis, questions, please.

(Operator Instructions) Your first question will come from the line of Dan Oppenheim with Banc of America Securities.

Thanks very much. I was wondering if you could provide a little bit more color. You said the end of the third quarter was more difficult in terms of mortgages. As we head into this week of August, have you seen -- what can you tell us in terms of the activity in terms of cancellations due to mortgages and other issues there?

Cancellations due to mortgages, I’m not aware of being up in this last week, in the last several weeks. Anybody here --

We get very little closing volume that takes place during the first few weeks of August, so we would have no real statistics to give you.

Don, anything to add to that? Don Salmon, head of our mortgage company.

No, I have nothing to add. We haven’t -- we are reviewing the pipeline right now. I have nothing substantive to tell you at this time.

And then secondly, wondering in terms of --

It would make sense that it would be getting worse because the mortgage problems have ballooned in the last couple of weeks, but we haven’t felt it yet. Doesn’t mean we don’t expect to feel it but we haven’t yet.

Okay, and then secondly, just in terms of pricing, as you are looking at this environment with the excess levels of inventory, tougher mortgages, what are you going to do to try to work on order volume? I know bringing down the community count is certainly a good thing. With the communities that you have open right now, will you think more about adjusting pricing to move through those communities?

The question I think assumes in fact that things will get worse and we will want to maintain order volume, and I can’t subscribe to either. Dealing with a hypothetical, we will not look at increasing order volume in order to have volume. If things got tougher, we would look more at shedding overhead costs, unfortunately eliminating employees, doing the tough stuff that management is supposed to do in order to balance the ship. We would think that would be the way to go, rather than trying to sell ground, in effect, which is what you are doing when you lower the prices at a price that is less than we think the ground is worth. I’m sorry for that. I hope you understand.

Yes, thanks very much.

You’re welcome. Dennis, I have a question from Gregory Harrison, re: pent-up demand. He says Bob, you said there were signs of pent-up demand in February and you were dancing on the bottom last November -- that was off the bottom, by the way, Greg. Now once again you mention pent-up demand. What are you seeing that other builders are not? Probably not much. We have noticed stabilization, as I said in the monologue, at lower levels, however, taking place in the Washington, D.C., northern Virginia and Maryland markets. We’ve seen stabilization in Pennsylvania in the Philadelphia suburbs. We’ve seen some stabilization in Connecticut -- as a matter of fact, an increase in business in Connecticut. That doesn’t, however, give us the right to say that we believe that there is pent-up demand. The pent-up demand is on a theoretical basis of still a decent economy, low unemployment, relatively, even with this mortgage crisis, relatively low mortgage interest terms compared to the 40-year average, which would have been 8.5, so it is a theoretical answer. Dennis.

Your next question will come from the line of Stephen Kim with CitiGroup.

I wanted to follow up on the pent-up demand question a little bit as well. One of the things I’ve been thinking about is that in much the same way that folks maybe were paying a certain price or buying a home for speculative reasons, or with an air of speculation back a couple of years ago, that people are to the same degree not buying houses, despite an ability to do so perhaps or even a desire to do so, but just simply not doing so because they are basically speculating on the price of the home, that they think it is going to drop. I would think in your price point, that would be more profound, or it would be a larger part of your buyer pool. But what I’ve been kind of surprised by has been the stubbornness of your, even though the can rate has come down a bit, but it is still extremely high. I would just think that that kind of thinking would have occurred before they even put any money down at all. So I’m trying to figure out as you look at your business, is there any way for you to gauge the degree to which you are seeing this speculative speculation to the downside in your markets? Do you look at traffic? Do you look at other indications of interest? Can you talk about that?

Yes, we do. The traffic in the first six weeks of the quarter, and continuing, by the way, was the lowest traffic on a per community basis that we have had ever. There is a lack of traffic and the deposit, but as you go toward the end of the quarter you see that we are making sales that, on a ratio basis I would not have expected to make -- or I’m sorry, deposits, not sales, on the basis of the traffic that we saw in the beginning of the quarter.

So they were stronger than you would have thought?

Yes, and that gives me hope that there is significant pent-up demand and what we are gaining in sales, other than in New York and Jersey urban markets for New York City, are people that just can’t stand it anymore and have to make a move on the basis of either their very strong desire or their change in situations. Kids are getting bigger, dogs are getting bigger, whatever.

Okay, and following up on that, obviously a big source of the cancellations has been people who can’t sell their homes and what not, but obviously the majority of the people are still following through on the orders that they placed. Have you examined, for instance, what percentage or -- do you have any way of knowing how many of the people who do actually follow through and buy a home from you still have not sold their home?

We should have that info but I haven’t got it at hand because most of them, I would guess with a pretty good degree of certainty, come to us to help them get a bridge loan, one of the things that is going to disappear. Don Salmon says 9.2%, we would guess.

That’s probably low but 9.2% of our buyers get no ratio loans and --

That’s probably due to the bridge.

-- have to carrying two houses.

Right.

Okay, so about 9% of the buyers that actually follow through are probably carrying two houses is what you are saying.

It’s a guess based on a --

Or they don’t need your help to carry two houses. I mean, you wouldn’t see those.

Need our help?

In other words, if you have somebody who is paying cash, for instance, for a house that wouldn’t be in that 9% number, right?

No, it would not.

And the percentage of cash buyers is fairly small for you, isn’t it?

What is our -- how many? Ten percent?

It’s weighted a little bit. Yes, it is 10%. It is 7% of our non-active adult buyers and a higher percentage of our active buyers. The weighted average is 10%.

That’s probably not on a dollar buying basis. It’s probably a little less on the dollar buying because the active adult communities cost less. I’m sorry, Greg?

It was 9.3 this quarter.

Nine point three this quarter? Thank you very much.

Great. Thanks very much.

Your next question will come from the line of Myron Kaplan, a private investor.

Hello, guys. How you doing?

All things considered, doing okay. It’s still a decent country and we’re going to stay.

I wanted to ask you, by all accounts the land sellers have been very resistant or reluctant to cut their prices and assumptions and so forth. Are you starting to see with the pressure of the recent events, some kind of a give up or a give in that regard?

Not a lot yet. I think that the pool of opportunities, rather than coming from land sellers of the ordinary kind -- speculators, investors or farmers -- will come from land developers or more than likely will come from builders that are not able to weather the storm that we’ve been in for 23 months and no one knows how much longer will go on, but surely can go on for another year, year-and-a-half with no trouble at all. That’s where I expect the greatest opportunities will lie in the next year to two years.

So prices must have marginally declined but maybe not materially?

I haven’t even got a sense of land sellers prices marginally declining. I think rather, if you own the land, unless you are leveraged up, why would you sell in this market? You would hold it. But I think the opportunities will come from those that have to sell in this market and I would expect that if -- and believe me, I’m not wishing for it, but if the slowdown continues, we will see that opportunity.

Okay, thanks.

Your next question will come from the line of Mike Rehaut with JP Morgan.

Good afternoon.

Hi, Michael. I noticed on the release this morning that you talked about the percentage of write-offs as it related to a period. It gave the impression that our book had gone down. Our book actually has gone up during the write-offs.

Right, the percentage refers to just purely looking at the charge itself, as a percent of equity on an after-tax basis.

Okay. I just wanted it noted that our book so far hasn’t gone down.

That’s a fair point. My question focuses on just perhaps to get a little bit more color on some of the markets. You were kind enough to say that, give some color on D.C., northern Virginia, Maryland and Philly still, while at much lower levels, still showing some signs of stability or stabilization at these levels, even a little bit of improvement in Connecticut. Which markets in your view have worsened throughout the quarter, that you’ve been able to observe?

Which markets have worsened -- Massachusetts has worsened. The New York suburbs that I spoke about as giving us some signs of stabilization, albeit at a lower level, have also worsened to that lower level that I spoke about. Let’s see -- New Jersey appears to have worsened a little bit. I’m sorry? Yes, that’s suburban New Jersey, not urban New Jersey. Not Jersey City and Hoboken. Poconos has worsened. I’m only giving the worsened ones, of course, here. Let me see -- yes, Raleigh. Raleigh has worsened for us. I don’t know that we would characterize Florida as having worsened since it was so bad before. I don’t think it’s changed. Vegas and Reno have worsened considerably. Colorado has worsened. That’s a brief look at some of our markets that have worsened.

And California? Can you give us a feel I guess with --

California -- northern California is now a -- I would rate it as a C-minus market. The Silicon Valley is a little better than the rest of Northern California. Southern California we rate as a D-plus market currently. Palm Springs, it’s a D-minus market but this is not the season to be selling in Palm Springs, so it may come back but I don’t know.

Thank you, Bob, and then just to follow up on your other comment of traffic, you said -- I just want to make sure I heard this right -- that you felt that it was the worst ever, or -- were you referring to this quarter or the previous quarter in terms of traffic trends?

I was referring to the earlier part of this quarter that we had quite a few weeks, I think it was like six weeks, that were the worst quarters that we’ve ever had on a per community basis. I’m not talking on a gross basis because that’s not relevant. We’re talking on a per community basis.

Okay, great.

You’re very welcome. Dennis, I’ve got a question from Jason Probert, who says rates on jumbo loans have increased over the last three months -- I would say they’ve increased over the last three weeks more than three months -- despite a decreasing 10-year treasury rate -- ah, you noticed that; so did I. Going forward, do you believe that this trend will continue? I do not. And how much impact will this have along potential buyers of your luxury homes? I think it will have an immediate negative impact on buyers of my luxury homes because a great many more of them require or seek jumbo loans than you have for people buying non-luxury homes. They would fall under the conforming Freddie Fannie rates. I think that the credit market will straighten itself out. Jumbos are, as it were, baby with the bathwater, with the dislocations in the credit markets, you are seeking credit, you’re seeking bonds, securities that you don’t have to worry about. You go right to the standard Fannie Freddie and you just tell your desk I don’t want to see anything other than that. But I think in the not too distant future you will see good jumbos again coming along with the other rates, and you are absolutely right. With 10-year treasuries going down to 4.74, 4.75 prox, that you can expect probably mortgage rates to drop for prime mortgages. What will happen is I think we will witness a severe dislocation for those that are not prime. The Alt-A mortgages and the sub-prime mortgages are going to go either way up in price or/and out of sight, in that they won’t be available any longer. Thank you, Jason. Dennis.

Your next question will come from the line of Alex Barron with Agency Trading Group.

I wanted to focus a little bit on the impairments. I realize maybe it is still preliminary but if we just took the midpoint, the $150 million, I’m just trying to understand how many -- what percentage of your lots or how many lots have been or would have been impaired to date over the last 12 months or so?

Good question. I don’t have any idea. Joel.

We’ll try to give you some color on that in the next conference call. Since we have not finished our review, anything would be only what I gave you previously in previous conference calls.

Yes, but we never gave how many lots were impaired.

No, we gave an idea I think of the magnitude, the number of communities that we had impairment on I thought last quarter.

How many communities last quarter? Do you guys remember? Okay, well, while we’re digging for that info --

Yes, I just wanted to get a sense of what percentage of your total --

It’s a good question, yes. I don’t know.

If you have it handy or if not, maybe for the next conference call, if you can comment if any of these have been re-impairments.

I know we have had some re-impairments. Not a lot.

You look at the impairments every quarter and as things change, you make adjustments to the impairment calculation, so the answer is yes. But they are generally small adjustments, not large.

On that same topic, can you just comment generally on the assumptions you guys make when you do that analysis in terms of sales pace? Do you just maintain it at the current pace all the way through the end of the community or do you assume it bounces back next year or something like that?

Every community is looked at individually. Every community has different facts and circumstances with respect to that community, and it would be inappropriate to try to generalize that. It would end up giving you misleading inferences.

One-hundred-and-one communities were impaired, owned and optioned. Okay.

Out of a total of how many, I’m sorry?

It would have been about --

No, plus options. About 450 or 500 communities.

Okay, right. That’s right because it’s all the communities going forward, communities we don’t include and count, right. Because a few sales just came on, right. So it’s about what, 450?

Well, it’s probably over 500 including options.

Really? Okay.

I’m not sure you look at it that way, so --

Okay, and one last one, you mentioned a bunch of stuff of your mortgage operations. What percentage of your buyers were getting Alt-A loans?

Percentage of our buyers getting Alt-A loans were about 44 -- 43.4, as a matter of fact, because I looked at that. Excuse me, Joe, say again about the impaired communities?

Impaired communities, operating communities, we did 42 in the first half.

Forty-two impaired communities in the first half -- of operating communities?

Operating communities.

So that is out of a number of like 350 -- no, because we have more operating than we -- okay. I’m sorry we’re giving you different information.

So the balance of the 101 and the 42 is non-operating communities?

Must be. I don’t know.

I’m not sure that’s a meaningful number when you deal with write-offs. Write-offs of options, or just walk away from options is not I don’t think a meaningful number.

You might have been counting that, Greg, when we -- oh, you are, okay.

So the Joe Sicree number, which is --

Is more relevant.

Is more relevant, which is 42 for the six months.

Yes, but what Greg is describing with the larger number is if we are 100,000 into a community in pre-development work and we’ve decided to pull the plug, we walk away from our 100,000. We may have a deposit of a number that we’d walk away from and that’s a community that Greg counted as impaired. Dennis.

Your next question will come from the line of Ken Zener with Merrill Lynch.

Good afternoon. Of these communities that you are decreasing, you know, you are taking down your community count and you guys used the word delaying communities. Can you describe how many of those communities are being delayed and the logic that you guys are walking through to delay a community? Because obviously mothballing has its own costs, and if you could describe that.

I can give you the logic real easily. Community, west coast, Florida: we think great location. Management comes at pricing and says we need to sell these homes at X $350,000 in order to get any decent volume. We call that decent volume 25 a year. Actually, on that basis, we’d be losing $50,000 a house. That drops all the way down to the ground, which would bring my ground value down to $25,000 a lot. I think these lots are worth more than $25,000 even in this rotten market in the west coast Florida vicinity, region and I am unwilling to go to market to try to get rid of this, to go to liquidity trying to get rid of this ground at that price. I would rather pull the flags, pull the trailer, we’ll maintain the entrance, we’ll cut the grass and we’ll let this ground sit there for a different market. It goes all the way back to Myron Kaplan’s question, as it where, when Myron was asking about sellers of ground. If what I’ve got is decent ground, why would I sell it into this market? If I haven’t started the community, I’ll just sit on it.

How many communities are in this delayed definition? And B, it sounds like not -- you are basically marking it to your own model of what it is worth rather than impairing it, or are you impairing this, recognizing there are further costs?

We probably would be impairing.

Many of them have already had impairment charges against them. There may be some where we have a community still operating that we had expected to have sold out and the market isn’t strong enough to have two communities in nearby location that we’ve delayed and not have needed an impairment on that community, but the majority of them probably have been impaired.

Sure, and for the number -- I would take a guess around 40.

Thirty-five have been delayed, some of which have been delayed at the option stage and some of which we may have owned and had been delayed --

Right, so you basically delayed these, you’ve taken impairments you say on the vast majority but because you are now mothballing them, they are not subject to further impairments essentially?

No, we look for impairments. We look for impairments every quarter whether they are operating, owned, optioned or in any other form you think. That’s the way we’ve always operated.

I guess I was just confused then because Bob, you were saying to sell the house, you would have to eat $50,000 in lot costs, bringing your lot costs down to $25,000. Is that what it is impaired at? Or you said you are sitting on it because you didn’t want to recognize that value?

No, once you go to impairment, you don’t impair to break even. Remember, you impair to make money. You’ve got to go down low enough with your impairments so that you make money after you’ve impaired. So no, you don’t impair to break even. You don’t just go down what we were talking about as --

Okay, I just thought it sounded like you said it was worth 25 in the market but you didn’t think it was. I guess the other point, the 8%, the sub-prime, it’s interesting because we actually -- it was noted in the Journal earlier this week about the jumbo rates going up and we called one of your communities and they basically said a jumbo would cost 8.1% today based on full dock, 20% down, 700 FICO compared to 7.2% last week. What gives you conviction that this is going to be a short-term --

What’s the rate today on a FICO -- what was that, seven what?

It was 20% down, 700 full doc and they said it was --

What have you got for 15-day and what have you got for 10 months, Don?

I guess why do you think it is going to go down as well? Thank you.

I’m asking Don to give you the numbers today.

Jumbo or conforming?

Jumbo.

Jumbo, we’re at about 7.25 with 1.4, 10-month delivery.

Seven-and-a-quarter for 10-month delivery. How about for a short-term delivery?

We are well below seven.

Below seven.

Right. Well below.

Could you give me a number? What is -- you’re not a mortgage broker now. You’re talking to me here.

We’re about 6.5% today.

What?

For prime short-term delivery.

Short-term delivery, okay. Does that help you?

Yes, well, you said prime and I was talking about Jumbo, unless we got the wrong rate from your --

No, it was -- prime refers to the kind of -- like prime meat, we’re talking prime --

All right. Thank you.

Your next question will come from the line of Timothy Jones with Wasserman & Associates. Timothy Jones - Wasserman & Associates: You said something that interests me. You said that 9.2% of your buyers get no ratio loans and that they pick up a bridge loan for the 20%. Then I thought I heard you say that you finance that. Is that correct or not?

No, somebody asked us that. No, we did not say we finance that. What we do is go out and get financing for people who need bridge loans who need to carry the existing home as well as the new home. Of course, the reason they have to carry the two is it is time to close and they have put significant money down and we require them to close and they say they would rather not close because they own a home already and we say that’s unfortunate. We’ll try and help you secure financing for the two homes but we insist on a closing. Timothy Jones - Wasserman & Associates: But it’s done with a third party?

Yes, not by us. I assure you not by us. Timothy Jones - Wasserman & Associates: That’s what surprised me, to say the least. The other thing is you’ve got 43% of your Alt-As. I’ve seen a study that 50% of Alt-A loans are no doc and 30% of jumbos. Can you say of your Alt-As and jumbos how much of the percentage are no docs?

No doc, and I don’t have it broken down here between jumbo and conformed. Timothy Jones - Wasserman & Associates: Just a total will be fine.

But our no doc is 3.4% of our deals. This is for all of ’07, up through July 31. Timothy Jones - Wasserman & Associates: The study I saw showed about a third, about 30% of all mortgages are no doc, so that’s a fabulous number.

Ours is 3.4%. I don’t even know how somebody gets away with it but it was explained to me that the lender goes and looks at the credit history and looks at the equity in the new home plus in any other collateral the dude might own, and on that basis they grant a no doc mortgage. I would expect that kind of thing will go out of business but I don’t know. Timothy Jones - Wasserman & Associates: And real quickly, you said that you expected that Alt-A mortgages would go up significantly, along with sub-prime, and then you are sort of saying you think they are going to go down. Which is it?

No, I think the prime will go down. Timothy Jones - Wasserman & Associates: The prime will go down, but the Alt-A, which is 43% of your business, you said is going to go up, correct?

Yes, but it depends on what kind of Alt-A it is. I think there will be also a differentiation within the category of Alt-A. You can have stated income and stated assets in Alt-A as opposed to full doc. You haven’t given earning power -- yes, you have. You’ve given stated income and stated assets. What’s missing from that, Don?

No verified. We take their word for it.

Oh, no -- stated is the magic word. It’s not verified. You have no ratio mortgages. In other words, the ratios are bad but there is enough collateral, otherwise there is enough collateral in the home, there’s good credit rating, and that will go down okay but the no doc loan, I think that is going to have a very expensive price on it. Timothy Jones - Wasserman & Associates: Would you just say, since you gave the 7.2 and one point on your jumbos, what the rate is on the Alt-As? Is it similar for 10 months out?

I don’t think I have that now. Do you know?

I don’t have it at my fingertips but it is probably a 50 basis points premium in rate. Timothy Jones - Wasserman & Associates: Okay. Thank you so much, Bobby.

You’re welcome. Thank you, Tim. Dennis.

Your next question will come from the line of Rob Stevenson with Morgan Stanley.

Good afternoon. Joel, you talked before about the decline in price in the quarter was more a function of mix rather than discounts. Can you talk about where discounts were as a percentage of the sales price during the quarter?

They are roughly the same as where we were before. We are roughly 32,000 -- no, this is incentives currently offered. During the quarter? No, this is -- they ran around $26,000 a house.

Okay, and how about options? What are you seeing these days in terms of option take rate and where is that as a percentage of the sales price these days?

That hasn’t changed.

Last we looked, it hadn’t changed.

Okay. Thanks, guys.

You’re welcome. What, Fred? The option rate is about 20% of the base price of the home. So if it is a $500,000 home, they are taking on average $100,000 in options.

Your next question will come from the line of Carl Reichardt with Wachovia Securities.

Good morning, guys. How are you? Good afternoon, I guess.

Say, you must be out west.

I had two questions. Bob, in some of the markets where you have a more kind of embryonic presence, have you guys looked at or plan in the near future to exit any metropolitan geographies?

No.

Okay. That was easy. Next is related to your liquidity. $700 million in cash, no big bullets, and obviously the fourth quarter ought to be reasonably good. How do we think, given that the land markets appear to still be relatively stable in price about where we should put your liquidity right now? Is it time to start thinking more seriously about buy-backs? Is it something you guys have been doing or how do I think about where I should put that as it comes through the cash flow statement?

I can’t give you advice on that, as to when I’m going to pull the trigger and buy some stock back. I think that’s the question. I have no answer for you.

As for liquidity, we will use some cash in the next few months to buy deals that we have been postponing that we expect to open in 2008, so there will be some cash going out to buy some deals. You would expect that to happen.

Okay. Thanks, guys.

(Operator Instructions) Your next question will come from the line of Steven Fox with Circle T Partners. Mr. Fox, your line is open.

My question has been answered. Thanks.

Okay, Steven. Dennis, I have a question from Timothy Millway, who asks how would you characterize Florida -- oh, this will be fun -- by market weakness stabilization? How is traffic? Any land options you may have walked from? The answer is blowing in the wind. The answer is Florida Central, the Orlando market, is an F for flunk, with lots of cancellations. Florida East is flunk minus, if you can get below flunk, Florida East has got there. Florida North, which is the Jacksonville market, is a D-plus. Florida Tampa market is again an F-minus, and Florida West is an F-minus and with lots of cancellations, and traffic is of course very weak there, as well as you would have expected. And have we walked away from options in that market? Yes, we certainly have. Thank you, Timothy. Dennis.

Your next question will come from the line of Tony Campbell with Dorset Asset.

Good afternoon, Bob. My questions have been answered. Thanks a lot.

You’re welcome. Dennis.

Your next question will come from the line of Chris Hussey with Goldman Sachs.

A question if I could on the mortgage business again. In as much as you rely, as you characterize it as an investment by the mortgages that you originate, have you seen any change in their behavior? Are you still able to find investors ahead of time for your mortgages? And are you having to raise the rates?

If we couldn’t find investors ahead of time for our mortgages, we’d be out of the mortgage business. We are not in the risk business. We are in the service business.

Right, and are you finding that or do you believe that the squeeze on the number of investors who are willing to get into this business at this point is going to continue to force mortgage rates up to attract more investors, or do you think that they are all going to come to their senses pretty soon and that’s going to be what’s going to trigger the mortgage rates coming down again?

I already spoke to that. What I said was I think there is going to be a bifurcation, a divergence. I think the old time religion mortgages, you know, 80% LTVs, prime mortgage, good credit rating, are going to come back into line with 10-year treasuries. And I believe what you will start to see is packaging of the prime mortgages without the various tranches in one kind of security. And I think that for alternate mortgages, certainly a no doc mortgage, I think the price is going to go very high. I think what you are going to see is a differentiation in the market that will to a large extent take away the business that was done in ’04 and ’05 where people were buying homes 100% mortgage, no doc, no credit rating -- not credit rating, but you know, no earnings to represent ability to carry, just a desire to buy a home and a desire from a mortgage broker to get a commission and a desire from some packager to take that and put it into a security. I think you are going to miss that -- I think that part of the market is going to go away.

That makes sense. And then a separate question, a little bit more conceptual but really trying to get at the supply/demand dynamics that are in the housing market today, and maybe use Florida as an example as you walked through a series of F and F-minus, which reminded me of my report card one day. What is going to correct that supply/demand imbalance that is creating these F-minuses? Does it make sense for homebuilders to be building homes at all in a market that you would characterize as an F-minus?

Not on spec, for certain and I don’t believe you’ll see many built there on spec, although there are some builders, very few left who still are doing spec business. For us, it doesn’t make sense anywhere to build homes without have orders first.

With your cancellation rate remaining high, aren’t you concerned that you are building maybe too many of your houses on spec unintentionally?

Yes. Yes, we are very worried about that and we are on top of the buyers like blankets trying to limit our exposure. We have of course specs that we never intended to have and we are doing everything we can to make sure that we don’t get anymore than we have. In fact, if we reduce it, that’s where the bargains are, that’s where the incentives are increased to get rid of the specs. I don’t mind carrying dirt. I don’t want to carry homes.

Is there anything you guys can do in terms of thinking about the way you sell homes, the business model, how you go about as a homebuilder that you may have to change in an environment where you may have these cancellation rates high for a long time? Is there anything you guys are thinking about in terms of you know what, we just have to sell houses differently or --

I don’t think you have to sell them differently but you certainly have to market them differently.

Okay. Thanks.

Your next question will come from the line of Larry Taylor with Credit Suisse.

Thanks very much. A couple of things; Bob, I wonder whether you’ve seen any notable change in competitive behavior as sort of a two-part question -- one, among the production builders where you are competing against their higher end product in some markets, and then two, against some of the smaller builders that you compete against in a number of markets? Is there a change from where they were one, two three quarters ago in terms of how they are acting?

Not really. You see increased incentives coming into the market in an effort to get a client to buy at Build X as opposed to at Toll Brothers. Other than that, I would say things are about the same. We no longer, of course, see the competition for land. Up until September, or Katrina ’05, there was a great competition for land buying and for buying smaller builders. Of course, you don’t see that anymore. Otherwise, it’s a normal competitive situation. Us vis-à-vis smaller builders -- a couple of smaller builders have gone broke, so that changes the competitive situation but among the major private builders in our territories and the public builders, we don’t see much of a change.

Okay, thanks. That’s helpful. And then a question for Don; understanding, based on the comments earlier in the call that you don’t commit to mortgages until you have funding sources or sold them, when you look down that pipeline towards the securitization or source of funds for those who are purchasing mortgages from you, are you seeing any -- not necessarily issues there but pressures or other things based on the uncertainty in the marketplace?

We have very strong relationships with major partners. We don’t do business with anybody that we don’t think has strong capital and staying power. We don’t see any major issues down the road with that.

Thank you very much.

Your next question is a follow-up question from Alex Barron with Agency Trading Group.

Thanks. I wanted to just ask you guys how should I think about land? I guess you said you would rather sit on the dirt than develop it, but for stuff that is land that you’ve decided to go ahead and develop, can you just give me some guidelines of how much extra capital you need to put into the land to take it to a finished state? I guess what I’m asking is if you think about a finished lot, what percentage of that lot is the value of the raw land and what percentage of it is the development cost? It may vary by markets but just to get a sense.

It is a little more to develop than it is to buy. Have any of you got stats on it?

Roughly 50-50.

It is roughly 50-50. It’s now a little more expensive to develop. The development costs, the entrance, the infrastructure, the no-load road, boulevard, bringing people into the community, the marketing, the flags, the landscape, the lake, the spritzer -- all of that adds up to a little more than the land cost. Probably on average 55-45, development versus land costs. That’s about it, Joe? Right.

Okay, well that’s helpful. The other question I have going back to your Alt-A, I guess we’ve been hearing that the majority of the originators have discontinued stated doc loans altogether, so I’m just trying to figure out, you know, what do you think is going to happen to those borrowers? How are they going to get financing?

They are going to have to do more than state. They are going to have to prove, and if they don’t prove, they won’t buy. You won’t be able to just walk up -- although, if a guy’s got stated income and stated assets as opposed to having them verified, and he’s got a good credit rating, and he’s going for an 80% mortgage, he’ll still be able to get a mortgage. If he can’t on an -- let’s suggest an 80 LTV basis. He says I’m worth a million bucks and I’m making $200,000 a year, but he doesn’t want to have it verified, what might happen is the mortgage co. will say to him look, we can’t get you an 80, how about a 70? Why don’t you throw in another 10% and then you can buy the home because you’ve now left so much equity on the table that I can go get you a mortgage because the lender has no fear that you are going to walk away from 30% of, in our case average price what, 680? So another $68,000 on the table together with the $136,000 before might do it. Now you’ve got $200,000 on the table. It might be enough to get the guy a mortgage.

If you looked at our LTVs taking away the more starter product and the condo converts, which are generally sold to people with less capital to put on, our LTVs are probably still around 70% excluding those buyers, and so a 70% LTV probably has -- and a high FICO score probably has a much better chance of getting financed, even in today’s market.

Got it, and just what percentage of your buyers were stated income or stated asset?

We do have that. Stated income, stated asset, 24%.

Okay. All right, thanks a lot, guys.

Alex, just to reiterate, which hopefully people know, we always still do run credit scores on people, even if they are not providing us any documentation.

Yes, as a matter of fact, the average FICO score on the stated income, stated assets for us was 758. It exceeded the full doc mortgage.

You mean for the stated guys?

Yes, for stated income, stated assets, but it’s not verified, the FICO scores, because you still do a credit search, were 758.

Why do you suppose they don’t just go through the normal process then?

Because they are lying, cheating dogs not paying their taxes.

All right.

That’s just a guess. Dennis, I have a question from Robert Tracey; how does the current downturn compare to past downturns? Well, Robert, I’ve spoken about it before that this is unique, this downturn, in that it is the first one in my 40 years of experience in the business that occurred at a time where you have an up-stock market, low unemployment, decent job growth, a very decent economy, and for the housing market to have gone into the ash bin during that period of time is for me a first and is fairly remarkable. In terms of how does the downturn compare to the past in terms of times, we went down in the latter part of ’87 when Greenspan came in, raised interest rates and sent the economy into a tailspin that took a long time to recover. We stayed down for all of ’88, all of ’89, all of ’90, and then a very tepid recovery began with Desert Storm and the first Iraq war. And things were fairly tepid, growing slowly in demand from ’91 until ’95, and then in ’95 we started to get pretty healthy and by ’96, ’97 we were moving right along. And as we entered the year 2000, things were great. So that gives you what you can compare to, but remember this downturn is very different. If the economy gets better, I think this downturn will not be as long as that downturn was. If the downturn, if the economy gets worse, then I think you could see a much lengthier downturn for housing. Thank you, Robert Tracey. Dennis.

Your next question will come from the line of Buck Horne with Raymond James.

Good afternoon, guys. I was wondering if you have the spec count of both the completed homes and under construction homes at quarter end?

We do. Can you differentiate the multis, -- [Multiple Speakers]

-- age restricted, which is what we normally look at because mid-rise and high-rise and condo converts aren’t -- we are at 1179 as of the end of July and --

That’s over how many communities? It should be about 320.

No, it’s -- because that doesn’t count high-rise and mid-rise in there.

Right. I took those out, I thought.

I think we are probably at the high 200s, and that was compared to 1,092 at the end of the April quarter.

Great. Would you guys consider reducing prices further, or increasing discounts to reach a certain absorption rate, given what we’ve seen in the mortgage market recently? Or has it gotten to a point where further price reductions just wouldn’t make a difference right now?

No, there will be further price reductions on spec inventory. On to-be-built inventory, we should pretty much be there, although there are some places where we are still making a lot of money and if things slow down, we may decide to make a little less.

Thank you very much.

Today’s final question will come from the line of Timothy Jones with Wasserman & Associates.

Two bites? Timothy Jones - Wasserman & Associates: Yes, why not? First of all, you said something but I’m sure that you said your mortgage company is a service.

That is its primary purpose. Timothy Jones - Wasserman & Associates: To serve a client, not to do servicing?

No, not to do servicing. You are very correct, Tim. That’s a term of art in the mortgage business and I should have selected another word. To handle the client and make the transaction seamless form first contact through settlement and warranty work is Toll Brothers' goal. We want to make it as easy an experience and as happy an experience as that can be and that’s why we provide primarily the mortgage company business. Timothy Jones - Wasserman & Associates: My second question is I ask you -- in terms of you’ve given selected markets, just go down your market grades. I have it for last quarter. It would be interesting to -- I know the press used it a lot last quarter.

Okay. Dennis, look what you’ve done? Massachusetts and Rhode Island are F-minus; Connecticut is an A; New York suburbs is a C-minus, but in the last four weeks has gone down to a D, but it’s C-minus on an eight-week basis; City Living, which is our tower business in New York, is a B-plus; City Living in New Jersey, that’s Hoboken and Jersey City, B-plus; New Jersey suburbs is a D-plus/C-minus; Michigan is an F-plus -- it’s not totally dead. Michigan actually is a better market than Vegas; Illinois is a D-plus; Minnesota is an F; Philadelphia suburbs is a C; Poconos, an F; Delaware, a B-minus; Maryland Shore, as opposed to Washington, D.C. Maryland, is a D-plus, that’s up a bunch; Northern Virginia, Washington, D.C., a D-plus -- still dancing off the bottom but stayed there and stabilized there; the Maryland Washington D.C. market is a C-minus. In the South, Raleigh is a D, a significant change; North Carolina, Charlotte is a C-plus; Hiltonhead is an F-plus; Florida I gave you but I’ll give you again -- Central Florida, F, lots of cancellations; East Florida Gold Coast, F-minus; Florida North, that’s Jacksonville, D-plus; Florida Tampa, F-minus; Florida West Coast, with lots of cancellations, F-minus; Austin, Texas, C-minus; Dallas, Texas, lately D-plus; San Antonio, D-plus. In the west, Northern California, C-minus; Southern California, D-plus; California Palm Springs, D-minus; Arizona, D-minus; Vegas, F-minus-minus; Reno, F; Colorado, now F-plus, down from a C-minus. I’m sorry? We have one more question? All right. Thank you, Fred. Tim, thank you. Dennis.

Yes, sir. The next question will come from the line of Jesse Baker with [Valpost].

Two questions; the first is what is your actual average dollar cost for horizontal lot development -- ratio, I didn’t hear a number.

Let’s take the average third of an acre lot. Horizontal cost is, what, 80? You say 65? I’ve got to get you guys to build for less -- I mean, to build for us. I would have thought 80, but these guys think it’s about 65, 70.

Okay, that’s a good range.

Average horizontal costs for a lot, Joel, is what the question is.

For the improvements?

It’s improvements. That’s what horizontal is.

Yes, at $55,000 to $65,000 on average.

I think it’s a little bit more but you guys do the numbers, so I’ll defer. Okay.

Yes, and one more; if you could freeze the world today and your average selling price stuck at 650, your land cost is written down to whatever it is, and you just -- everything froze and you just built out for the next five, 10 years -- what do you think your gross and EBITDA margins would be?

I have no idea. Joel.

We will not do that exercise, so --

Joel says we are not going to answer it, so thank you very much, but I’m sorry. Okay, Dennis, thank you. I appreciate everybody’s time.

Thank you very much, Mr. Toll and ladies and gentlemen, this does conclude today’s Toll Brothers third quarter outlook conference call. You may now disconnect. The “Second Wave” Housing Tsunami of 2007-2011: