Robert I. Toll - Chairman of the Board, Chief Executive Officer Joel H. Rassman - Chief Financial Officer, Executive Vice President, Treasurer, Director Don Salmon - President of TBI Mortgage Co.

David Goldberg - UBS Michael Rehaut - J.P. Morgan Ivy Zelman - Zelman & Associates Megan McGrath - Lehman Brothers Joel Locker - FBN Securities Nishu Sood - Deutsche Bank Timothy Jones - Wasserman & Associates Alex Barron - Agency Trading Group James McCanless - FTN Midwest Eric Landley - Morningstar Jim Wilson - JMP Securities

Good afternoon. My name is Tiara and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter earnings conference call. (Operator Instructions) Mr. Toll, you may begin your conference. Robert I. Toll: Thanks, Tiara. 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; Don Salmon, President of TBI Mortgage Co.; and Greg Zeigler, Vice President of Finance. Before I begin, I ask you to read the statement on forward-looking information in today’s release and on our website. I caution you that many statements on this call are based on 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 rtoll@tollbrothersinc.com. We’ll try to answer as many as possible. Today we announced final results for our second quarter ending April 30 ’08. I assume you’ve seen the release which we put out this morning and as on our website at tollbrothers.com. Therefore, I’ll try and hit the highlights, make a few comments, and then go to Q&A. In fiscal year ’08 second quarter, we generated a net loss of $93.7 million, or $0.59 per share diluted. This included pre-tax write-downs of $288.1 million, $85 million of which was attributable to joint ventures. After-tax write-downs totaled $174.6 million, or $1.06 per share diluted. Excluding write-downs, ‘08’s second-quarter earnings were $81.3 million, or $0.49 per share diluted. For comparison, fiscal year ‘07 second-quarter net income was $36.7 million, or $0.22 per share diluted, including pre-tax write-downs of $119.7 million, $72.9 million, or $0.44 per share diluted after-tax. Excluding write-downs, ‘07’s second-quarter earnings were $109.6 million, or $0.66 per share diluted. Fiscal year ‘08’s second quarter total revenues of $818.8 million were 30% lower than fiscal year 07’s. Fiscal year ‘08’s backlog at second-quarter-end of $2.08 billion was 50% lower than fiscal year ‘07’s and 13% lower than fiscal year ‘08’s first-quarter-end backlog. Fiscal year ’08’s second-quarter gross contracts of $730.5 million and 1,237 homes were 49% and 39% lower respectively than fiscal year ‘07’s. In fiscal year ‘08’s second quarter, we had 308 cancellations totaling $234.1 million, compared to 384 cancellations totaling $274.7 million in fiscal year ‘07’s second quarter. Fiscal year ‘08 second-quarter net contracts after cancellations totaled 929 homes, or $496.5 million, which were lower by 44% in units and 58% in dollars than fiscal year ‘07’s. The average price per unit of gross contracts signed in ‘08’s second quarter was $590,000 compared to $711,000 in ‘07’s second quarter and $634,000 in fiscal year ‘08’s first quarter. The lower average price was due to a combination of factors: higher incentives; a product mix which included a higher percentage of contracts from active adult and other lower priced communities; and fewer sales in high-priced markets such as California, where the market has slowed significantly, and Manhattan, where we are temporarily sold out of available inventory. The average price per unit of the second-quarter ‘’08’s cancellations was $760,000. The effect of these cancellations, coupled with the factors above, was to reduce the average price of net contracts in fiscal year ‘08’s second quarter to $534,000 per unit. This compared to $580,000 and $557,000 respectively in fiscal year ‘08’s first quarter and fiscal year ‘07’s fourth quarter, and $710,000 on year-ago in fiscal year ‘07’s second quarter. We ended fiscal year ’08’s second quarter with 51,800 lots owned and optioned compared to 91,200 at our peak at the end of the second quarter of fiscal year ’06. We ended ’08’s second quarter with 300 selling communities compared to 315 at ’08’s first quarter end and our peak of 325 at fiscal year ‘07’s second quarter end. We expect to be selling from 290 communities by fiscal-year-end ‘08. Maintaining a strong balance sheet is among our top priorities as we persevere through these tough times. We hope to position ourselves for opportunities that should arise from the continuing severe down-cycle. We finished this second quarter with a 22.7% net-debt-to-capital ratio, a record low, and over $2.5 billion of available capital comprised of over $1.23 billion of cash plus over $1.27 billion available under our bank credit facility, which expires in 2011. Demand continues to be weak in most markets as our clients worry about selling their existing homes or entering the market before prices stabilize. In this difficult market, we continue to develop incentive strategies when appropriate on a community-by-community basis, which has enabled us to continue to generate pre-write-off profits. Although this strategy has resulted in slower sales, we believe it has helped sustain the reputation of our communities and value for our home buyers. Now, Joel, please do the numbers. Joel H. Rassman: Thank you, Bob. Second quarter home-building cost of sales as a percentage of traditional home-building revenues before interest and write-downs was 75.2%. This was higher than 2007’s second quarter cost of sales of 73.1% and higher than 2008’s first quarter at 74.6%. The decrease in margins or the increase in cost of sales from the first quarter was principally a result of higher incentives and product mix. Second quarter interest expense was 2.8% of revenues, which is 30 basis points higher than 2008’s first quarter and principally a result of inventory turning less quickly while there is less inventory under construction over which to spread all of the interest costs. Interest expense as a percentage of revenues will probably continue to trend up slightly for the rest of the year. The second quarter pretax write-downs were $288.1 million, which included $85 million of write-downs attributable to joint ventures and $7.2 million attributable to options as we continue to reevaluate, renegotiate, and in some cases walk away from options. Approximately two-thirds of the second quarter write-downs, or $194 million, were in Nevada, Florida, and California. Second quarter SG&A was $108.7 million, approximately 13.3% of revenues, down from the $121.3 million or approximately 14.4% of revenue we expensed in the first quarter of 2008, and the $130.4 million, or approximately 11.1% of revenues expensed in the second quarter of ’07. Second quarter other income was $60.1 million, including approximately $40.2 million attributable to the proceeds of a condemnation judgment, $9.7 million of retained deposits, and $7 million of interest income. Given the lower investment rates available, I would expect interest income to be lower in the next few quarters. The effective tax benefit rate was approximately 38% for the first six months and 39% for the second quarter. The average number of shares used to calculate earnings per share was approximately 158.5 million for the first three months and 158.1 million for the six months. The creation of projections is difficult at any time. In the current climate, it is particularly difficult to provide guidance given the numerous uncertainties related to items such as sales paces, sales prices, mortgage markets, cancellations, consumer confidence, and the potential for and the size of future improvements. As a result, we will continue not to provide earnings guidance. However, subject to our normal caveats regarding forward-looking statements in today’s release and in our SEC filings, as well as the caveats discussed above, we estimate that deliveries for the year will be between 4,200 and 4,800 homes. The average delivered price for the year will be between $630,000 and $650,000 per home, which implies that the average delivered price for the rest of the year will probably be between $625,000 and $635,000 per home. We believe that due primarily to incentives and slower sales paces, sales per community, our cost of sales as a percentage of revenues before taking write-downs into account will be higher for the entire fiscal 2008 compared to 2007, and the third and fourth quarters as well, and will probably increase in each successive quarter. Additionally, we believe based on 2008’s lower projected revenues, our SG&A, which we expect will be lower in absolute dollars in each quarter of ’08 versus ’07, will be higher as a percentage of revenues and because revenues may be more evenly distributed throughout the year, may not show the normal decline in the fourth quarter as a percentage of revenues. At this point, I’ll turn it back to Bob. Robert I. Toll: Thanks, Joel. Now let me turn to my lobbying efforts. As we all know, Congress is considering many iterations of a housing stimulus and economy stimulus bill. We believe Congress should try and jump-start demand for new homes with an initiative that will bring buyers off the sidelines and into the market, and thereby stop the downward spiral of home prices. As we have said before, we favor a tax incentive for all those who buy homes within nine months of the Bill’s passage. The reason for the nine months is that we think it’s important to create a sense of urgency. Interest rates are now low, supply is abundant and a buyer’s market clearly prevails. With a little motivation, the new home market could turn around quickly. This would have a very positive impact on banks, bond prices most importantly, and many other areas of the economy. Once home prices stabilize, Congress could then in our opinion more successfully address mortgage issues. However, without stabilization of home prices, trying to address mortgage issues may be a waste of effort and money. Just one man’s opinion. Now let us turn it over for questions. Tiara.

(Operator Instructions) Your first question comes from David Goldberg. David Goldberg - UBS: Bob, I was wondering if you could give us your thoughts on what the competitive dynamics are at the high-end of the market, what you are seeing from your competitors, small or private builders. If you are seeing more distress and if you are seeing the bank start to act to possibly reclaim those assets, or do forced sales or something like. Robert I. Toll: We’re seeing a little bit of bank activity, not much. But we are not seeing much change from the competitors, private, small builders. They are still hanging in there. As a matter of fact, they are forced to hang in even more than the public well-financed builders because they keep themselves going by building and drawing down. So we haven’t seen them step back from the market. We have seen in certain cases some negative impact from foreclosure bus tours, realtors offering a bus ride for those would-be investors or new home buyers, take a tour through neighborhoods where there are foreclosures and while the impact of that has been very, very slight so far, we’d like not to see it increase, of course, and we fear that it probably will. David Goldberg - UBS: I guess my follow-up question is you guys obviously have a lot of cash now. There’s a lot of liquidity. What gives you the confidence that there’s going to be land that comes on the market, that you’re going to be able to buy the lots cheaply, relative to some other money that’s out. There’s obviously been a lot of money raised to try to buy dirt, and if you don’t find those opportunities come increased bank pressure, whether it be on the small builders or be on land developers, land sellers, what are the priorities for cash as you move past that? Robert I. Toll: Well, I’m not going to give priorities for cash past that. I mean, the obvious answers you’re aware of but certainly at this point in time, we wouldn’t consider doing anything with the cash other than sitting there with it, waiting for the opportunities or waiting to make sure that we have the ability, to the extent possible, to weather the storm. A generally accepted knowledge, if you call it, I guess guesstimate is that this down cycle isn’t going to go on for more than one year more, or one-and-a-half, but it could go on for two-and-a-half or three and we’re going to make sure that no matter how long it goes, to the extent possible that we’re still here. With respect to what will become available, I recall that you really didn’t start to see a lot of stuff in ’80 or ’81. It took until ’82 or ’83, oddly enough, which was when the market was getting healthy for the stuff to be disgorged by the banks. The same phenomena took place, the market went bad the latter part of ’87, with that 25% drop in the down on one day, and ’88, ’89 really didn’t see a lot of product. We didn’t see the product coming to us until ’90, ’91, ’92. So in that measure, we’ve only been into this for about two-and-a-half years, so we may not see the product, a lot of the product coming forward for another year-and-a-half or two, and we want to be there. The banks are definitely tightening the credit but that’s not what brings the product forward. What brings the product forward is when the banks are instructed, as we believe they are now, by the regulators to take the assets back and put them on the block. With respect to competing with funds that have been created specifically for the purpose, we think that we may because of that actually be able to do more than we would have before because we believe that from experience from phone calls and conversations and meetings, a lot of these funds are trying to align themselves up with knowledgeable players. They would like us to put skin in the game, say 10%, 20% and they’ll put 80% or 90% of skin in the game, but that gives us an opportunity to even leverage further the funds that we have available. Thank you. David Goldberg - UBS: Thank you.

Your next question comes from Michael Rehaut with J.P. Morgan. Michael Rehaut - J.P. Morgan: A couple of questions -- number one on the JV, it looks like your investment in unconsolidated entities actually went up by $40 million but you guys also took a $85 million charge to the JV. I was just wondering if you could provide some color to why that balance went up this quarter. Robert I. Toll: A, I can’t -- I couldn’t hear your question well; B, even though I could hear it, I think it’s a question for Joel. Joel. Joel H. Rassman: I’m not sure I have the answer to that question yet. Robert I. Toll: What’s the question? Joel H. Rassman: The question was although we wrote off -- we had losses on our investment in joint ventures through write-offs, it looked like the net impact was to an increase and that’s because we’ve accrued some exposure for land purchases through the investment that we are going to make out of the joint venture as part of our investment, rather than wait for the future. It’s a little bit technical but I don’t think it’s a material item. Michael Rehaut - J.P. Morgan: So it’s part of just the take down schedule for -- Joel H. Rassman: Yeah, just -- and it’s sitting in one place versus another. Michael Rehaut - J.P. Morgan: Okay. Is the $85 million part of the Inspirada joint venture? Joel H. Rassman: -- comment as to which joint ventures had write-downs. Michael Rehaut - J.P. Morgan: Okay. Then the second question on the SG&A, it looks like you guys brought that down pretty nicely on a dollar basis. Was that mostly just headcount reductions or are you guys doing some other initiatives right now in terms of cost cutting? Robert I. Toll: We are significantly, as you characterized, being guided by other issues -- that is a very strong desire to survive. So we are trying to keep our production and management capabilities in line with what we think we will need for the next year or two, so -- Joel H. Rassman: We are also being prudent -- Robert I. Toll: Dropping headcount. Joel H. Rassman: -- in other areas such as marketing and SG&A, and advertising and other areas where we are being very careful on how we spend our money. Michael Rehaut - J.P. Morgan: Okay, and then I guess as a follow-up to that, on the other cost side, are you guys doing anything with your supply chain or any [inaudible] type of supplier kind of initiatives that kind of reduce that part of the business in terms of cost? Robert I. Toll: Well, the obvious answer, you can state. The funny answer is yeah, we are making trips to Saudi Arabia to try to get them to cut down the price of oil so that every other product that we use doesn’t go up but unfortunately, they haven’t listened to us. But with respect to the real answer, which is with respect to the subs, subs are pretty well back against it now. They’ve been lower for the last two years. And the material men have been pretty cooperative but they are in an inflection point where they haven’t got a lot of room. Subcontractors also have an additional burden of getting to and from the job sites. You know, their vehicles, trucks, et cetera are not high efficiency and it’s I think going to be very tough from here on out to expect any lowering of square foot costs. If anything, unfortunately, I think we’ll be caught in a squeeze and those costs will go up a little bit if not more than a little bit. Certainly that’s the case with asphalt, its base products, et cetera. Thank you. Michael Rehaut - J.P. Morgan: Thank you.

Your next question comes from Ivy Zelman with Zelman & Associates. Ivy Zelman - Zelman & Associates: You know, I think that you are definitely in an enviable position because of your cash -- Robert I. Toll: Yeah, I’d like to -- I didn’t know it was so enviable, but go ahead. Ivy Zelman - Zelman & Associates: But one of the interesting things is looking at some builders that have liquidated a lot of assets and are sitting on a lot of cash and waiting for the market to get better and capitalize on all the opportunities everybody thinks are going to be prevalent. Many might be in a difficult position to ramp back up if they don’t have a lot of land. So although you were criticized by some for having 14 years worth of land over the next 12 month assuming closings in that 4,000 to 5,000 range, how much of that is finished lots roughly and how much is undeveloped? And then I’ll have a follow-up on that related to the ability to ramp up. Robert I. Toll: Joel, do you know? Joel H. Rassman: We own what, about 39,000. Robert I. Toll: Ivy didn’t ask you what you owned. Joel H. Rassman: Well, you need to own that -- but then from the 39,000 out of the 51,000, you go to -- 35,000? 34,000? Robert I. Toll: But Ivy’s question I feel was -- Joel H. Rassman: How much of it is improved. We’ll look it up in a minute. Robert I. Toll: I know we’ve got that because we give it to the board. Well, the follow-up -- Ivy Zelman - Zelman & Associates: So let’s just assume the -- let me ask you the question and then you can decide if hopefully you can answer it with the detail behind it but let’s assume that a portion of that is undeveloped. One of the issues today is that improvement costs in some markets are actually higher than the cost of finished lots. And we are trying to understand finished lot supply is coming to a diminishing level in some markets, like Las Vegas and/or Southern California, realizing what builders will do as a big conundrum of having undeveloped land that in order to develop it, it would actually exceed the cost of finished lots. And I’m wondering if you are in a position where maybe the undeveloped land you can impair it to zero where others, land sellers are not willing to lower prices. I’m just trying to understand how it’s going to all unfold because it seems as if it’s a very difficult position for those that own the undeveloped land to be in when the improvement costs cost more than the finished lots are being bid for. Robert I. Toll: Yeah, it’s a conundrum all right. With respect to how many lots we have improved -- Joel H. Rassman: About 15,000 lots primarily improved. Ivy Zelman - Zelman & Associates: So you have mostly -- (Multiple Speakers) Ivy Zelman - Zelman & Associates: -- would be the un-improved stuff? Robert I. Toll: I’m sorry? Ivy Zelman - Zelman & Associates: If I understood the numbers correctly, 15,000 would be the improved finished lots as a percent of the total? Joel H. Rassman: We call them primarily improved. They may not have top coats on or some other things, but primarily improved, yes. Ivy Zelman - Zelman & Associates: Okay, great. So what do you do with all this undeveloped land, Bob? Robert I. Toll: Well, it’s a simple mathematical problem. It’s not a philosophical or tactical problem. You put your pencil to paper and obviously if you can buy lots for less than you can improve the lot, you would probably buy the lots. But right now, we are not in that position. We have plenty of improved lots, so we haven’t reached a problem yet. But you are absolutely right -- if it cost you more to improve than it does to buy improved, why the hell would you improve a lot? Even if you would -- (Multiple Speakers) Ivy Zelman - Zelman & Associates: I guess I’m trying to think of a way for you to be -- if you are at an advantage, I understand like in Las Vegas, you know, finished lots are definitely trading well below what improvement costs are and sellers are unwilling to lower the cost of the undeveloped land. But if you are in a position where you own undeveloped land and you have it on your books at zero, would it be still impaired because the improvement costs are [inaudible] finished lots, or with a zero basis, you actually can make the numbers pencil? Robert I. Toll: Well, I don’t know the answer to that yet with respect to some of the sites that we’re on. I know some of the sites definitely we still -- even improving at cut-rate prices, it doesn’t get you the value, the low value that you can still go out and buy it. So Las Vegas -- Las Vegas has -- Ivy Zelman - Zelman & Associates: Got it. So it’s a big -- Robert I. Toll: Las Vegas is definitely in a world of hurt and we are just going to have to muddle through that and sit and wait for people to want to go to Vegas again. Ivy Zelman - Zelman & Associates: Bob, just a second area of discussion and I think you were always famous for your big checkbook post the RTC having taking control of all the troubled assets from the S&L crisis and you were able to really capitalize on that and drive returns for the next decade, and many are sitting today, especially Wall Street, with private equity at unprecedented levels of liquidity available to do just what you did back then. How does this unfold? Everybody wants to buy the distressed assets and clearly the level of bids today are at fractions on the dollar, then everybody’s got penciling the same numbers -- like you said, it’s math. It’s pretty simple on how you get there. How do you see this unfolding with Wall Street just drooling to pick up these assets competing with you? Robert I. Toll: Well, we’ve seen a couple of them where we’ve been outbid by the players that have raised the funds for this specific purpose. And I hope everything works out for them because in the -- super well for me and what I’ve got left in the same territory, but if it doesn’t, you may see that this prolongs for quite a bit of time the problems that we’ve got because if there’s guys jumping in at $100 million when we’ve assessed $60 million, and if we are right and you don’t make a real living until you write it down to $60 million, then the guys that have bought it for $100 million who then have to go hire the expertise to develop and build and sell in order to get out of it, they have prolonged the problem. So I don’t know. This is very philosophical speculation. We’re going to have to wait and see how it plays out. Ivy Zelman - Zelman & Associates: Great. Well, thanks for the thoughts. I appreciate it.

Your next question comes from Megan McGrath with Lehman Brothers. Megan McGrath - Lehman Brothers: A couple of questions; Bob, I wanted to see if we could get anymore color from you. You’ve mentioned the success of some promotions in the last couple of calls and when you have them, they work. Just wondering if you can give us anymore detail -- have you changed the type of promotions? We’ve seen some builders offer more financing incentives lately. And as a follow-up, is there any type of promotion that seems to be working in particular geographies but not in others? Robert I. Toll: No to the latter, and there’s many and various kinds of promotions. The financing promotions don’t seem to work best for us. We offer them. They are fairly inexpensive because you are at a mortgage rate 5-7/8, I think -- we’re 6 today? Oops. But the jumbos, talking to Don Salmon, as I understand it are at the same rate?

The agency jumbo loans, those in certain markets go up to 729 are at the same rate as the regular conforming loans today, on fixed rate -- on 30-year fixed rate. Robert I. Toll: Which is pretty terrific. Is this the first day that that’s happened, or the second day?

Yesterday afternoon is when they -- Robert I. Toll: Yesterday afternoon we reached -- what’s the fancy word -- equilibrium -- parity, right, between jumbos and what were known as conformings because the jumbos, up to 720 now, 729, are now conforming. So you can get a jumbo at 6 today, yesterday 5-7/8 in certain counties and certain locations, right, as easily as you can get the 5 -- the limit used to be what, 419? 417. But I don’t think the mortgage packages really do it. I think the clients, especially our kind of clients, primarily are still looking for the personal satisfaction of buying a life’s dream, making a statement with that home, and I don’t think financing does it. We have been able to motivate most effectively by combining exposition kinds of days where the builders, the project managers, the vice presidents, the mortgage people, the sales people are there to answer any of your questions with respect to anything and, while we are doing that, we also offer for this week only a special of you get an elite room attached to your home for either your pool table or your swimming pool. There’s a garden room that you can have attached to your kitchen for no extra cost. The subs have thrown in their labor for nothing, by the way, to help with these kinds of promotions. Material men are giving us the product at their cost, without even charging for delivery. But as I’ve said in the past, you can drive drum up an awful lot of business but then the people go home and think about it and not as much sticks as we would ordinarily expect through ordinary conversion rates. Megan McGrath - Lehman Brothers: Okay, thanks, that’s helpful. And then just another quick one, if I could; just curious, a broader question, given where we are in the cycle, have you seen any changes from governments or municipalities and your ability to get land approvals or entitlements when you want them, or any movement in terms of things like impact fees? Robert I. Toll: No we haven’t -- give me an opportunity for an advertisement here, but the local municipalities that govern zoning and planning [in the Northeast] are just as stringent as they always were. They didn’t want you then, they don’t want you now in my backyard still prevails. On a county wide and state-wide basis, we’ve seen a change. Those territories that are being driven by the larger -- what do you -- the larger areas of population especially have become more interested in working with in order to create some business. There is talk in New Jersey, for instance, that the legislature may extend the permit times because generally when you secured approval, it’s good for five years and if you don’t start in five years, then you lose your approvals. In the last recession, Jersey extended those time periods and it appears as though they’d be willing to do it again. They are discussing it anyway in their legislature. That’s all I can say about that. Megan McGrath - Lehman Brothers: Thanks very much. Robert I. Toll: Okay. Tiara, I have a question from Barton -- not Barton; I’m sorry for -- from Philips Briggs or Briggs Philips, I’m sorry for messing it up, if I have; in your first quarter fiscal ’08 10-Q -- I can tell this is heading towards your direction, Joel -- you used the wording impairment charges and write-offs to describe the losses you generated during the quarter. Although in your most recent second quarter ’08 press release, you chose to use the wording write-downs to describe the losses you generated. Can you please explain the difference between impairment charges and write-offs and write-downs? Yes, I would say basically we’re sloppy, not thinking as a good lawyer should and there’s probably on our part no difference between impairments, write-offs, and write-downs. Joel H. Rassman: There is no difference. Robert I. Toll: Okay. I have a question -- oh, the second question from Briggs -- you exited first quarter ’08 with capitalized interest of $227.7 million, which translates to approximately 83,600 a backlog unit. Is this an appropriate way to assign the value of your capitalized interest? If not, what is the most appropriate way to assign this value? Joel. Joel H. Rassman: It really is lot related, not house related alone. Interest gets capitalized to all land in production as well as to houses in production, so land that’s in production also bears its fair value, and that’s a little hard to get because then we’d have to break out the amount of land that’s in production versus the amount of land that’s not in production and we don’t really do it that way. So the right way is not -- you can’t look at it backlog, per backlog unit. That would be misleading. Robert I. Toll: All right. Briggs has other questions which I don’t think it’s fair to address now. Two to a customer is pretty good, so Fred, if you’ll call Briggs back afterward, you can get to additionally A, B, and C. Next question comes in from -- from Carol [Fromus]. Bob wanted to correct -- the question, where is that? Can you update us on the New York City market? Yes. Since we spoke last, which was about three weeks ago, I’m happy to report that Brooklyn may have demonstrated the fasted comeback in the real estate business. And we are doing rather better there. Hoboken and Jersey City, the six boroughs are doing very well. They were doing very well three weeks ago and they are still doing very well. New York urban market is having a pretty good time of it right now. Tiara.

Yes, sir. Your next question comes from Joel Locker with FBN Securities. Joel Locker - FBN Securities: Just on the deposit rate, I see it’s up to about 9.8% of backlog versus only 6.4% at the end of the fiscal year. Just wondering if there was something in the numbers or you are just significantly increasing the deposit percentage? Robert I. Toll: We’re increasing the deposit percentage. You’d have to be foolish not too. Joel Locker - FBN Securities: So it’s running like, you know, [in the domain] of 10% versus maybe it used to be 6% or 7% or -- I mean, those -- Robert I. Toll: That comes from California, which in -- California has laws on the books which limits you in liquidated damages. However, there’s a caveat that if you can prove your damage is greater than the amount that the California law provides, which I think is 3%, well then you can collect it. Well obviously in this market as opposed to a market where it was hard to prove damage because we selling every house for more money, in this market we feel that we can charge a much greater down-payment. And there’s other situations like that. So we’ve just -- well, in Florida, for instance, where everybody was charging $10,000 or $20,000 and we were being hit by our managers saying if you want to be competitive, you’ve got to get down there with these guys. We didn’t get quite down there but we did go down below what we considered ordinary risk, but what the hey. We were having such a good time, you didn’t really feel the risk. All you did was slobber over the reward, so as things go the other way, you say now let’s right that. We go back to our formulas for down-payments and people come by and say well, we’re not going to buy from you because you are insisting on 7% or 8% down plus 50% of extras and the guy next door will take only $10,000 down, we say go buy from the guy next door. Joel Locker - FBN Securities: Right, and just a follow-up on the SG&A, you know, it decreased around $13 million sequentially. What was the greatest decrease? Was it the selling expenses or just the decrease in overhead? Robert I. Toll: Joel. Joel H. Rassman: I think it’s a combination of things, but the count of overhead, of people was part of the -- Robert I. Toll: Compensation costs? Thank you, Joe. Compensation costs were the biggest savings. Savings is harsh word for that reason for the decrease. Joel Locker - FBN Securities: All right. Thanks a lot.

Your next question comes from Nishu Sood with Deutsche Bank. Nishu Sood - Deutsche Bank: Thanks. The first question I wanted to ask you was there’s obviously been a lot of discussion about your pricing strategy in existing communities, your preference for a tailored community-by-community incentive approach. I wanted to ask how you have been approaching recently your pricing on new communities that you are opening. I imagine there’s not as many as you had planned but are you kind of saying this was the -- X was the price that we had originally penciled in but we are going to come in much lower than that to reflect the market conditions. How are you thinking about that approach? Robert I. Toll: A two-part question -- the first part, the community-by-community is what we say on our releases. I don’t want to get into anymore detail than that for a release but the reality is the incentive-based programs that we put in place are house-by-house as opposed to community-by-community. We go over pretty thoroughly. We are almost totally sold out of our speculative inventory on the single family, multi-family town-home kind of communities now. We still have more than we’d like on the larger density projects but for the back-bone of the business, we’re way down to what we would have in good times for product that’s built without being sold, one or two per community. When we analyze the to-be-built for new communities or in existing communities, we are satisfied taking less than we ordinarily would take in a good market, so we’ve got the product priced closer to costs than we had. For instance, we may have been ordinarily been expecting to make $60,000. We will settle to try and make $40,000 on that product, so we are pricing it a little closer. With respect to communities that are set to open, well, the answer I just gave you is the way we view how to set the prices. We obviously want to create some decent demand to give the community a kick-off and then be able to raise prices, although that’s a tough thing in this market because people are so fearful. Thank you.

Your next question comes from Carl Reichardt with Wachovia Securities. Nishu Sood - Deutsche Bank: Actually, it’s Nishu. I did want to -- I’ve been canvassing some of the builders about their concept on foreclosures, though a lot of folks ask us questions about how foreclosures will impact your business, and some CEOs have said that there’s a disconnect, given the transaction costs and time required to buy a foreclosure, relative to a new house. Now you are building in at different -- Robert I. Toll: Well, these guys must be selling houses in a -- half to two weeks -- I don’t see that disconnect. Yeah, sure, you’ve got to go through [Falderal] to buy a foreclosed home as opposed to dealing with a suite agent that -- sales people that we have on site but I wouldn’t’ say that’s an overriding factor. I’m not buying that. Nishu Sood - Deutsche Bank: Okay. And from a -- and on -- when you are not moving spec units and you are selling from the ground up, has there been a significant change in the options, the percentage of the sales price that buyers are asking for? Is that relative to -- Robert I. Toll: That’s maintained itself. Those who want, want it pretty much at the same level. Joel wrinkled his nose at me. Go ahead, Joel. Joel H. Rassman: I think that there, when we look at it a little further down, since we are including more free options as part -- Joe disagrees with me. Robert I. Toll: Yeah, Joe -- Joel H. Rassman: He doesn’t know. I looked at it. It looked like it was slightly down because we have more free options included in some of the houses. Robert I. Toll: I forgot about that. Yeah, that would be right. Joel H. Rassman: So there’s probably a small change. Nishu Sood - Deutsche Bank: Okay, great. Thanks, guys. Appreciate it.

Your next question comes from Timothy Jones with Wasserman & Associates. Timothy Jones - Wasserman & Associates: First question, on the $40 million condemnation, how did that result and why wasn’t it considered as an extraordinary item? Robert I. Toll: How did it result? It resulted from a judge and jury’s opinion -- actually, from a jury’s opinion. Why isn’t it an extraordinary, Joel? Joel H. Rassman: It’s not the definition of an extraordinary. If anything, maybe I could have called it land sale but I thought it would be misleading to call it land sale. Robert I. Toll: So what did you call it? Joel H. Rassman: We called it other income rather than call it land sale. Timothy Jones - Wasserman & Associates: Why wouldn’t it be as a non-recurring item? Robert I. Toll: It sure is. Joel H. Rassman: But it’s not. We have lots of non-recurring items that are not considered for accounting purposes extraordinary. The definition of extraordinary has changed significantly. Timothy Jones - Wasserman & Associates: Okay, well, this month is my 40th year at being -- following you and the building industry and I’ve only heard this question once before. In 1991, I had asked [Chad Ryder] when he was at KB how much his raw land was worth and he said it was worth nothing in those days because he couldn’t pay the taxes. You had this raw land and where you’ve talked about that you can’t even -- you know, you can’t build on it just for the development costs, which probably in your case are 40% of the costs because you have high-priced land, but normally it’s 50%. But the point is if the land is -- have you actually written down land, the raw land to below zero? Robert I. Toll: No. Wouldn’t that be silly, Tim? Timothy Jones - Wasserman & Associates: Then what do you -- okay, then what is your -- no, it isn’t silly because what is your alternative if you can’t sell it? Robert I. Toll: Well, Tim, if I call you and say I’ve got a thousand lots, would you like to buy them for $1 a piece, don’t you think I’d get some interest here? I mean, let’s not be silly. The land is worth something. It’s not zero. I’ll make a standing offer right now. You go find me the land that I can buy for zero, I’m a buyer. Also, we’re talking about very unique situations here. Ivey was talking about Las Vegas. I don’t want to imply that that’s a situation in most of our other territories. Vegas has been pretty hard hit but still, you don’t take the land to zero. But it was a way of examining the philosophical questions that were being asked -- what if the land were zero and the improvements cost more than you could buy a replacement, what then? And then answer was I don’t know -- what then? Timothy Jones - Wasserman & Associates: Okay. All right, well, thank you very much.

Your next question comes from Alex Barron with Agency Trading Group. Alex Barron - Agency Trading Group: I wanted to ask if you have some kind of a running count or a total of how many communities as a percent of your total have been impaired to date, whether it’s once or twice, doesn’t matter. Joel H. Rassman: About a third, because some communities two years ago are no longer in existence. I tried to do this number in total over the two-year period of time. About a third of our total population of potential communities have had some kind of impairment, either to model -- to speculative homes that were in the -- that we had to mark down or to the land. Robert I. Toll: And some have had two write-downs. Joel H. Rassman: A about a third of the third has had two write-downs. Alex Barron - Agency Trading Group: Got it. That’s great. The other question I wanted to ask you was -- (Multiple Speakers) Robert I. Toll: -- you must be a short seller. Go ahead. Alex Barron - Agency Trading Group: No, I mean, that’s a good answer is what I meant. Robert I. Toll: Okay. Thank you. Alex Barron - Agency Trading Group: Anyway, what I wanted to ask you though as a result of these previous impairments, I guess your gross margins are probably a little bit higher than they would be otherwise, so the question is what would the gross margins have been if you hadn’t had any impairment? Joel H. Rassman: It hasn’t been material and we didn’t look at it yet this quarter. In the previous quarters, it ran between $10 million and $20 million at maximum additional gross margins on turnarounds, but I don’t have the number for this quarter. Robert I. Toll: The nifty thing about the impairment business is that you know, you think you’ve impaired it so that now you can make 10%. Well, unfortunately when you finally get around to selling the homes you’re making, it doesn’t come in at the 10% because you’re impairing the stinky communities, the ones that -- actually, they are not stinky communities but they are ones that are stuck in a rough place. Joel H. Rassman: And 10% is Bob’s non-GAAP language. Alex Barron - Agency Trading Group: My last question, Bob, was you mentioned in your prepared comments you thought it would be a good idea for congress to stimulate demand of new housing. Robert I. Toll: Well, they are definitely on the case. They want to stimulate the economy and they definitely want to do something for housing. What I’m trying to suggest, Alex, is that going about it by trying to give money to FHA, a very brilliant man, Barney Frank, has authored and pushed through it seems legislation that gives FHA $300 billion of backing to go into the market to do its business. All that I’m suggesting is that we’re attacking it backwards. To try and attack the credit and mortgage problem first I think is the same as trying to get rid of strep throat with lozenges as opposed to antibiotics. The problem is the down price in homes, and if home prices go down, it doesn’t matter if you’ve given the guy a new mortgage and that mortgage has now dropped the price of the home by 20% and now you’ve given the guy a 90% mortgage, so the guy is in at 72%. If the house drops more than 28% from its original price and it goes down 30% or 35%, which is not unrealistic in some of our markets, you’ve got the same problem back. And so what I’m suggesting is the way to attack this is to try and increase the price of homes and that only would come with demand. It was done in ’75. Gerald Ford got together with a democratic congress and passed a tax incentive where you got $2,000 right off your income tax bill if you bought a new home in a very short period of time. And this got the economy spurred and going again, and then you got out of the credit market problems. So that’s all I was trying to suggest. Alex Barron - Agency Trading Group: But don’t you think the problem is that there’s excess supply and this would in turn cause more builders to start throwing more supply at an already over-supplied market? Robert I. Toll: No, I don’t. There definitely is excess supply. If [inaudible] -- if there weren’t more supply than there was demand, we wouldn’t have downward price spiral. We would have upward price mobility. So obviously you’ve got more supply right now than you’ve got demand. What I’m trying to suggest is that by giving a tax break, you create demand that more than offsets the supply that you currently have. It will not take a lot for us to get into the same problem that we had before where supply couldn’t meet demand. I don’t think it’s as bad as it’s scored up to be, because only so many lots have been going through the approval meat grinder in the last -- certainly in the last couple of years you haven’t seen anything go through. Alex Barron - Agency Trading Group: Right. Okay, thanks.

Your next question comes from James McCanless with FTN Midwest. James McCanless - FTN Midwest: Good afternoon. I’ve got two questions for you. The first one I wanted to jump back to the JVs, and if I understood the 10-Q from the first quarter correctly, there’s approximately $350 million potential additional investments that you might have to make in the joint ventures you participate in. Did the flow of funds with the $40 million increase from last quarter to this quarter and then the $85 million write-off, did any of that reduce that potential $350 million investment you might have to make? Joel H. Rassman: The biggest questions of the $350 million were commitments we made to our partners -- Joe, correct me if I’m wrong -- commitments we made to our partners that if we were to do certain things, for example, we have a joint venture in New Jersey where it’s right now just raw land and we can give it back to the land seller, get our money back plus interest. If we go forward and if we can’t find financing and we agree to go forward without financing, we’ve agreed to fund our -- if both partners have to agree to that, we have each agreed if we both agree to fund our share of those funds, which would be roughly $145 million for Toll in that community, I think was the number. We don’t expect that will ever happen. But as a legal responsibility, we have made a commitment to our partner that if both of us agree at some time in the future, we will fund that. So you can’t just look at that number and assume it is an absolute liability to fund. It is not. James McCanless - FTN Midwest: Okay, but the potential, even though it may never happen, there’s still roughly $350 million that could be at play at some point? Joel H. Rassman: It could be but it would require both us and our partner to agree to it and it’s unlikely that we would agree to fund something that’s underwater. It’s not a bank decision. James McCanless - FTN Midwest: Okay, and then my second question is a little more hypothetical. I know a couple of other people have discussed what the intrinsic value of the land and I think that’s what a lot of people are trying to figure out now, is if you had to go back and re-permit the 51,000 lots that you have on the books now, what -- have you all ever thought about or could you give us an idea of what the cost magnitude over what you originally paid to do that is and how much more difficult would it be now to go back in and get that land back up to spec where you could start building homes on it? Could you all maybe address that a little bit? Robert I. Toll: Yeah, it would be very difficult. The process every year becomes more and more difficult, so I’m not -- I would guess that you couldn’t replace some portion of it. You couldn’t re-permit it. But I have no numbers. Joel H. Rassman: In New Jersey, as an example, it may take six or seven years on average to get an approval. Robert I. Toll: It would take a lot longer than that if you are in the highlands, if you’re in the lowlands, if you’re in the pine-lands. You know, there’s one spot somewhere that’s been designated for a permit but nobody can find it. The permits in Jersey are pretty valuable. The same thing is true of Pennsylvania and New York, Massachusetts. And it’s gotten a lot tougher in Virginia. Merlin is very tough. James McCanless - FTN Midwest: Okay, great. Thank you. Robert I. Toll: You’re welcome. I have a question from Doug Weiss; at the beginning of the call, you suggested markets could rebound quickly under the right circumstances. Is a quick recovery possible in Florida? Probably not because of the extent of the inventory but still a lot quicker than people believe. And California? Again, a ton of inventory in California but not as much as Florida in terms of already approved ground. In my opinion, California could turn more quickly. Given inventory levels and ongoing foreclosures -- yep, same answer. Tiara.

Your next question comes from Eric Landley with Morningstar. Eric Landley - Morningstar: I understand the gain was some land in Scottsdale. Am I correct in assuming you received $82 million for that land? Robert I. Toll: Not counting interest. With interest, it was $91 million, something like that. Eric Landley - Morningstar: Okay, and have you received the cash for that? Robert I. Toll: Roger. Eric Landley - Morningstar: Okay. Joel H. Rassman: We had received a significant portion of that cash many years ago in the first condemnation process, part of the process. Eric Landley - Morningstar: Okay, so then do you have any preliminary number for cash flow, excluding the payment for that land in the quarter? Joel H. Rassman: No, you can work it out. We don’t do it that way, but you can back into it. Eric Landley - Morningstar: Okay, and then last question on the JVs, am I understanding correctly that you did not have any re-margin payments or loan-to-value payments or anything like that in the quarter? Joel H. Rassman: That is correct. Our JVs do not include re-margining. Eric Landley - Morningstar: Okay. And Bob, real quick, just philosophically, you know, these JVs have been sort of a problem for the industry for the past year or two. I was wondering if I could get your thoughts on how these JVs may look in the future or how the industry may resolve -- the industry as a whole may resolve this whole JV thing going forward. Robert I. Toll: I think the JVs are, from your question, being looked at in the wrong light, with a wrong analysis. The JVs are not something different than the ordinary play of the home-building business. You put money down, you take ground through an approval process, you close on the ground, and you build models, you build -- you hope to get orders, you build homes, you settle homes, you make a living. The JVs came about because there were large tracks of land that were greater than we wanted to invest in by ourselves, and that was true also for all the major players. We all know one another. We are all bidding on the same piece. A fella comes to you, one of the guys, it wasn’t me but it could have be -- though it was me in another case -- and says hey, do you want to take 15% or 20% of this deal, I’ll take 15 or 20, another guy will take 15 or 20 -- let’s get five or six of us together and then we can do this multi hundreds of millions, almost a $1 billion residential development that can’t miss. You know, Phoenix and Vegas or whatever, growing, and we bought our own BS but it seemed at the time to be a good idea and that’s all the JVs represent, is buying more than you would have bought if you were on your own. Eric Landley - Morningstar: So what do you think about the leverage aspects of these things right now currently? Robert I. Toll: They were leveraged -- if you bought on your own, if when Toll Brothers went to buy, they were leveraged in effect through our individual borrowing. Here you went out and borrowed on the deal, which made it more attractive because that was off balance sheet. Everybody’s got 15%, you’ve got six guys, nobody’s got the on-balance sheet tally so it makes your balance sheet look a little better. And there was another incentive which surely will be remembered as not something to be thought of again as an advantage. Although wait until we get to the top of the next up cycle and we’ll make the same mistakes. Eric Landley - Morningstar: At any rate, it’s not going to be back for a while. I mean, it’s something that -- Robert I. Toll: No, it would appear for a while, but how long is a while -- I don’t know whether we’re talking three years, five years, or 10 years. That’s the tricky question and nobody’s got the answer. Eric Landley - Morningstar: Okay, thanks.

Your next question comes from Jim Wilson with JMP Securities. Jim Wilson - JMP Securities: I just had one follow-up and I might have missed this at the beginning of the call, I missed the first couple of minutes but Joel, your margins ex impairments, sort of both what they look like in the quarter and then what they are shaped up to be in the backlog. Could you give a little color on that? Joel H. Rassman: We didn’t give backlog. We just indicated that margins for the next two quarters will be higher than -- probably higher than they were last year and sequentially higher than they were this year for this second quarter. And they were up -- margins will be higher -- lower, rather, I’m sorry. Costs will be higher. Robert I. Toll: It’s the other higher. Joel H. Rassman: Costs will be higher, sorry, thank you, and we don’t give estimated margins in our backlog. When we get delivery, we’ll give you the margins. Until we get it, we don’t count it. Jim Wilson - JMP Securities: Okay, and so what did the margins ex impairments relative to your gross margins look like for Q2 then? Joel H. Rassman: 75 -- 24.4? 24.4. Jim Wilson - JMP Securities: Great. Okay, thanks. That’s all I have.

You have a follow-up question from Ivy Zelman with Zelman & Associates. Analyst for Ivy Zelman - Zelman & Associates: It’s actually Alan on. Just a quick follow-up; I think you were talking a little bit about the COGS breakdown in terms of some of the material costs you are seeing and labor. Just wondering if you can give some year over year numbers in terms of what different materials and labors are up or down versus a year ago. Robert I. Toll: I’m not equipped to do that. Anybody here? Joel H. Rassman: Yeah, we have it. Robert I. Toll: We do? Good. Joel H. Rassman: We have -- lumber costs, it varies place to place but lumbers costs look like they are down $3,000, $4,000 a house year over year and for the second quarter, the average price of a house, for materials and labor, looks like they went down a couple grand. Robert I. Toll: Not much? Joel H. Rassman: A couple grand just for the second quarter. Robert I. Toll: Oh, for the second quarter, okay. But as I suggested, I think that’s going to come to an end. We may be at the bottom of something and it’s decreasing price and costs for homebuilding. Analyst for Ivy Zelman - Zelman & Associates: So if lumber is down 3 to 4 and the total costs are down a couple grand, which components are up to offset that? Joel H. Rassman: I think Bob indicated things that are -- asphalt, petroleum related, and also probably copper and concrete. Robert I. Toll: Copper, steel, concrete. Where’s drywall? Next quarter up but for the past quarter it was down a couple hundred dollars a house. That makes sense. Analyst for Ivy Zelman - Zelman & Associates: Great. Thank you.

Your next question comes from Timothy Jones with Wasserman & Associates. Robert I. Toll: Hey, I heard this guy before. Tim? See, I was right, Tiara. He left. Tiara?

Yes. Timothy, your line is open. Timothy Jones - Wasserman & Associates: I’m here. Can’t you hear me? Robert I. Toll: Yeah, I can hear you well. Timothy Jones - Wasserman & Associates: Okay. Just a question -- you may have covered it in the first 10 minutes of your call and I missed it. Of the $85 million of JVs, obviously all your JVs around the New York City area are doing well. Where were these write-downs, where do they take place? Joel H. Rassman: We did not specify. We don’t talk about individual write-downs in JVs. Timothy Jones - Wasserman & Associates: Joel, come on. Robert I. Toll: Well, I’ll tell you what -- call Joel, cross-examine him, and do what you want to do with him, Tim, but there it is. Timothy Jones - Wasserman & Associates: Okay. Thank you. Robert I. Toll: You’re welcome, Tim. Tiara, I think we are going to sign off. Is there one more question?

There are no further audio questions at this time. Robert I. Toll: That’s great. How do you like that? Well, thanks, everybody. Appreciate it. Tiara, thank you very much too.

Thank you, sir. This concludes today’s second quarter earnings conference call. You may now disconnect.