tollbrothers 10-Q_jan_2008

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)
¥ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2008
or
n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9186

TOLL BROTHERS, INC.
(Exact name of registrant as specified in its charter)

Delaware 23-2416878
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Gibraltar Road, Horsham, Pennsylvania 19044
(Address of principal executive offices) (Zip Code)

(215) 938-8000
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¥ No n
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¥ Accelerated filer n Non-accelerated filer n Smaller reporting company n
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Yes n No ¥
Act)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable
date:
At March 2, 2008, there were approximately 158,524,000 shares of Common Stock, $.01 par value, outstanding.

TOLL BROTHERS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

Page No.

Statement on Forward-Looking Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at January 31, 2008 (Unaudited) and October 31,
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Operations (Unaudited) For the Three Months
Ended January 31, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months
Ended January 31, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Condensed Consolidated Financial Statements (Unaudited). . . . . . . . . . . . . . . . . 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . 37
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 38
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds . . . . . . . . . . ............ 39
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 40
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . ............ 40
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 40
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 40
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 42

STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included in this report or in other materials we have filed or will file with the Securities and
Exchange Commission (the “SEC”) (as well as information included in oral statements or other written statements
made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They contain words such as “anticipate,” “estimate,” “expect,” “project,”
“intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should” and other words or phrases of similar meaning
in connection with any discussion of future operating or financial performance. Such statements may include
information relating to anticipated operating results (including changes in revenues, profitability and operating
margins), financial resources, interest expense, inventory write-downs, changes in accounting treatment, effects of
homebuyer cancellations, growth and expansion, anticipated income or loss to be realized from our investments in
unconsolidated entities, the ability to acquire land, the ability to gain approvals and to open new communities, the
ability to sell homes and properties, the ability to deliver homes from backlog, the ability to secure materials and
subcontractors, the ability to produce the liquidity and capital necessary to expand and take advantage of
opportunities in the future, industry trends, and stock market valuations. From time to time, forward-looking
statements also are included in our Form 10-K and other periodic reports on Forms 10-Q and 8-K, in press releases,
in presentations, on our web site and in other materials released to the public.
Any or all of the forward-looking statements included in this report and in any other reports or public
statements made by us are not guarantees of future performance and may turn out to be inaccurate. This can occur as
a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties. These risks and
uncertainties include local, regional and national economic conditions, the demand for homes, domestic and
international political events, uncertainties created by terrorist attacks, the effects of governmental regulation, the
competitive environment in which the Company operates, fluctuations in interest rates, changes in home prices, the
availability and cost of land for future growth, adverse market conditions that could result in substantial inventory
writedowns, the availability of capital, uncertainties and fluctuations in capital and securities markets, changes in
tax laws and their interpretation, legal proceedings, the availability of adequate insurance at reasonable cost, the
ability of customers to obtain adequate and affordable financing for the purchase of homes, the ability of home
buyers to sell their existing homes, the ability of the participants in our various joint ventures to honor their
commitments, the availability and cost of labor and materials, construction delays and weather conditions.
The factors mentioned in this report or in other reports or public statements made by us will be important in
determining our future performance. Consequently, actual results may differ materially from those that might be
anticipated from our forward-looking statements. If one or more of the assumptions underlying our forward-looking
statements proves incorrect, then our actual results, performance or achievements could differ materially from those
expressed in, or implied by the forward-looking statements contained in this report. Therefore, we caution you not
to place undue reliance on our forward-looking statements. This statement is provided as permitted by the Private
Securities Litigation Reform Act of 1995.
Additional information concerning potential factors that we believe could cause our actual results to differ
materially from expected and historical results is included in Item 1A “Risk Factors” of our Annual Report on
Form 10-K for the fiscal year ended October 31, 2007.
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Toll Brothers, Inc. and its
subsidiaries, unless the context otherwise requires. Reference herein to “fiscal 2008,” “fiscal 2007,” “fiscal 2006,”
and “fiscal 2005,” refer to our fiscal year ending October 31, 2008, and our fiscal years ended October 31, 2007,
October 31, 2006 and October 31, 2005, respectively.
Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly
update any forward-looking statements, whether as a result of new information, future events or otherwise.
However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K
should be consulted. On February 27, 2008, we issued a press release and held a conference call to review the results
of operations for the three-month period ended January 31, 2008 and to discuss the current state of our business. The
information contained in this report is the same information given in the press release and on the conference call on
February 27, 2008, and we are not reconfirming or updating that information in this Form 10-Q.

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
January 31, October 31,
2008 2007
(Unaudited)
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 956,644 $ 900,337
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,273,702 5,572,655
Property, construction and office equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 98,342 84,265
Receivables, prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,331 135,910
Contracts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,471 46,525
Mortgage loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,544 93,189
Customer deposits held in escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,824 34,367
Investments in and advances to unconsolidated entities . . . . . . . . . . . . . . . . . . . . . 156,931 183,171
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,830 169,897
$7,020,619 $7,220,316

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 712,015 $ 696,814
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,142,591 1,142,306
Senior subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000 350,000
Mortgage company warehouse loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,605 76,730
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,713 260,155
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,346 236,877
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 694,283 724,229
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,670 197,960
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,599,223 3,685,071
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,014 8,011
Stockholders’ equity:
Preferred stock, none issued
Common stock, 158,531 shares and 157,028 shares issued at January 31, 2008
and October 31, 2007, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,585 1,570
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258,718 227,561
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,155,508 3,298,925
Treasury stock, at cost — 38 shares and 20 shares at January 31, 2008 and
October 31, 2007, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (787) (425)
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,642) (397)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,413,382 3,527,234
$7,020,619 $7,220,316

See accompanying notes

2

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Three months ended January 31,
2008 2007
(Unaudited)
Revenues:
Completed contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 826,534 $1,054,136
Percentage of completion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,795 33,085
Land sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523 3,390
842,852 1,090,611
Cost of revenues:
Completed contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 834,196 846,403
Percentage of completion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,888 25,897
Land sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434 1,037
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,967 22,643
868,485 895,980
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 121,318 134,210
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,973
(Loss) income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (146,951) 51,448
Other:
(Loss) earnings from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . (24,086) 6,792
Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,082 28,960
(Loss) income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (151,955) 87,200
Income tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (55,998) 32,884
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (95,957) $ 54,316
(Loss) earnings per share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.61) $ 0.35
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.61) $ 0.33
Weighted-average number of shares:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,813 154,212
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,813 164,048


3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Three months ended January 31,
2008 2007
(Unaudited)
Cash flow from operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (95,957) $ 54,316
Adjustments to reconcile net(loss) income to net cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,961 7,849
Amortization of initial benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . 442
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,374 12,888
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . (6,853) (2,976)
Loss (earnings) from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . 24,086 (6,792)
Distributions of earnings from unconsolidated entities . . . . . . . . . . . . . . . . . 4,971 6,653
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (99,933) (37,874)
Inventory impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,660 96,901
Gain on sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,565)
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,973
Changes in operating assets and liabilities, net of assets and liabilities
acquired
Decrease (increase) in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,819 (186,705)
Origination of mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (275,230) (281,317)
Sale of mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289,875 333,298
Decrease in contracts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,054 3,224
Decrease in receivables, prepaid expenses and other assets . . . . . . . . . . . . 4,718 6,293
Decrease in customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,899) (16,805)
Decrease in accounts payable and accrued expenses . . . . . . . . . . . . . . . . . (70,924) (95,232)
Decrease in current income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . (22,537) (7,291)
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . 60,185 (113,720)
Cash flow from investing activities:
Purchase of property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,791) (7,025)
Purchase of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,371,742) (1,186,525)
Sale of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,371,742 1,186,525
Proceeds from sale of ancillary business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,755
Investment in and advances to unconsolidated entities . . . . . . . . . . . . . . . . . . . (8,713) (7,551)
Return of investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . 2,623
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . (9,881) 1,179
Cash flow from financing activities:
Proceeds from loans payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,988 287,270
Principal payments of loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (313,893) (365,501)
Proceeds from stock-based benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,413 3,317
Proceeds from restricted stock award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . 6,853 2,976
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (361) (656)
Change in minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 60
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . 6,003 (70,734)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 56,307 (183,275)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 900,337 632,524
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 956,644 $ 449,249


4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Toll
Brothers, Inc. (the “Company”), a Delaware corporation, and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Investments in 50% or less owned partnerships and
affiliates are accounted for using the equity method unless it is determined that the Company has effective control of
the entity, in which case the entity would be consolidated.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial
information. The October 31, 2007 balance sheet amounts and disclosures included herein have been derived
from our October 31, 2007 audited financial statements. Since the accompanying condensed consolidated financial
statements do not include all the information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements, the Company suggests that they be read in conjunction with the
consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year
ended October 31, 2007. In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the
Company’s financial position as of January 31, 2008, and the results of its operations and cash flows for the three
months ended January 31, 2008 and 2007. The results of operations for such interim periods are not necessarily
indicative of the results to be expected for the full year.

Income Taxes
On November 1, 2007, the Company adopted the provisions of the Financial Accounting Standards Board (the
“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 109, “Accounting for Income Taxes”, and prescribes a recognition threshold and
measurement attributes for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition. FIN 48 requires a company to recognize the
financial statement effect of a tax position when it is more-likely-than-not (defined as a likelihood of more than
50 percent), based on the technical merits of the position, that the position will be sustained upon examination. A tax
position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit
to be recognized in the financial statements based upon the largest amount of benefit that is greater than 50 percent
likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant
information. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that tax
position is not recognized in the financial statements. See Note 6, “Income Taxes”, for information concerning the
adoption of FIN 48.

Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”).
SFAS 158 requires the Company to (a) recognize in its statement of financial position the overfunded or
underfunded status of a defined benefit postretirement plan, measured as the difference between the fair value
of plan assets and the benefit obligation, (b) recognize as a component of other comprehensive income, net of tax,
the actuarial gains and losses and the prior service costs and credits that arise during the period, (c) measure defined
benefit plan assets and defined benefit plan obligations as of the date of the Company’s statement of financial
position, and (d) disclose additional information about certain effects on net periodic benefit costs in the upcoming

5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

fiscal year that arise from the delayed recognition of the actuarial gains and losses and the prior service costs and
credits. The Company adopted SFAS 158 effective October 31, 2007 related to its recognition of accumulated other
comprehensive income, net of tax. The Company’s adoption of SFAS 158 did not have a material effect on its
financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157
provides guidance for using fair value to measure assets and liabilities. SFAS 157 also responds to investors’
requests for expanded information about the extent to which a company measures assets and liabilities at fair value,
the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 will be
effective for the Company’s fiscal year beginning November 1, 2008. The Company is currently reviewing the
effect SFAS 157 will have on its financial statements; however, it is not expected to have a material impact on the
Company’s consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities, Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to
choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses on items for
which the fair value option has been elected will be reported in earnings. SFAS No. 159 will be effective for the
Company’s fiscal year beginning November 1, 2008. The Company is currently reviewing the effect SFAS 159 will
have on its financial statements; however, it is not expected to have a material impact on the Company’s
consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an Amendment to ARB No. 51” (“SFAS 160”). Under the provisions of SFAS 160, a noncontrolling
interest in a subsidiary, or minority interest, must be classified as equity and the amount of consolidated net income
specifically attributable to the minority interest must be clearly identified in the consolidated statement of
operations. SFAS 160 also requires consistency in the manner of reporting changes in the parent’s ownership
interest and requires fair value measurement of any noncontrolling interest retained in a deconsolidation. SFAS 160
will be effective for the Company’s fiscal year beginning November 1, 2009. The Company is currently evaluating
the impact of the adoption of SFAS 160; however, it is not expected to have a material impact on the Company’s
consolidated financial position, results of operations or cash flows.

Reclassification

The presentation of certain prior year amounts have been reclassified to conform to the fiscal 2008
presentation.

2. Inventory

Inventory consisted of the following (amounts in thousands):
2008 2007

Land and land development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,718,983 $1,749,652
Construction in progress — completed contract . . . . . . . . . . . . . . . . . . . . 2,908,152 3,109,243
Construction in progress — percentage of completion . . . . . . . . . . . . . . . 60,688 62,677
Sample homes and sales offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,799 357,322
Land deposits and costs of future development . . . . . . . . . . . . . . . . . . . . 211,960 274,799
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,120 18,962
$5,273,702 $5,572,655

6


Construction in progress includes the cost of homes under construction, land and land development costs and
the carrying cost of home sites that have been substantially improved.

The Company capitalizes certain interest costs to inventory during the development and construction period.
Capitalized interest is charged to cost of revenues when the related inventory is delivered for homes accounted for
under the completed contract method or when the related inventory is charged to cost of revenues under percentage
of completion accounting. Interest incurred, capitalized and expensed for the three months ended January 31, 2008
and 2007, was as follows (amounts in thousands):
2008 2007

Interest capitalized, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . $215,571 $181,465
Interest incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 33,105 34,151
Interest expensed to cost of revenues . . . . . . . . . . . . . . . ............... (20,967) (22,643)
Write-off against other income. . . . . . . . . . . . . . . . . . . . ............... — (40)
Interest capitalized, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $227,709 $192,933

Inventory impairment charges are recognized against all inventory costs of a community, such as land, land
improvements, cost of home construction and capitalized interest. The amounts included in the above table reflect
the gross amount of capitalized interest before allocation of any impairment charges recognized.

Interest included in cost of revenues for the three months ended January 31, 2008 and 2007, was as follows
(amounts in thousands):
2008 2007

Completed contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,701 $21,737
Percentage of completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 905
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1
$20,967 $22,643

The Company recognized inventory impairment charges and the expensing of costs that it believed not to be
recoverable in the three months ended January 31, 2008 and 2007, as follows (amounts in thousands):
2008 2007

Land controlled for future communities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,485 $13,939
Operating communities and land owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,175 82,962
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $217,660 $96,901

At the end of each fiscal quarter, the Company evaluates its operating communities and land owned to
determine their estimated fair value and whether their estimated fair value exceeded their carrying costs. In the
three-month period ended January 31, 2008, the Company recognized $145.2 million of impairment charges related
to 38 operating communities and land owned; the fair value of such communities and land, net of the impairment
charges, was $339.3 million at January 31, 2008. In the three-month period ended January 31, 2007, the Company
recognized $83.0 million of impairment charges related to 18 operating communities and land owned; the fair value
of those communities and land, net of the impairment charges was $211.8 million at January 31, 2007.

At January 31, 2008, the Company evaluated its land purchase contracts to determine if any of the selling
entities were variable interest entities (“VIEs”) and, if they were, whether the Company was the primary beneficiary
of any of them. Under these purchase contracts, the Company does not possess legal title to the land and its risk is
generally limited to deposits paid to the sellers; the creditors of the sellers generally have no recourse against the

7


Company. At January 31, 2008, the Company had determined that it was the primary beneficiary of one VIE related
to a land purchase contract and had recorded $15.3 million of inventory and $12.0 million of accrued expenses.

3. Investments in and Advances to Unconsolidated Entities
The Company has investments in and advances to several joint ventures with unrelated parties to develop land.
Some of these joint ventures develop land for the sole use of the venture participants, including the Company, and
others develop land for sale to the venture participants and to unrelated builders. The Company recognizes its share
of earnings from the sale of home sites to other builders. The Company does not recognize earnings from home sites
it purchases from the joint ventures, but instead reduces its cost basis in those home sites by its share of the earnings
on the home sites. At January 31, 2008, the Company had approximately $72.2 million invested in or advanced to
these joint ventures and was committed to contributing additional capital in an aggregate amount of approximately
$217.1 million (net of the Company’s $121.7 million of loan guarantees related to two of these joint ventures’ loans)
if required by the joint ventures. At January 31, 2008, three of these joint ventures had an aggregate of $1.22 billion
of loan commitments, and had approximately $1.06 billion borrowed against the commitments, of which the
Company’s guarantees of its pro-rata share of the borrowings were $99.4 million. The Company has recognized
cumulative impairment charges of $87.0 million ($27.8 million in the three-month period ended January 31, 2008
and $59.2 million in the three-month period ended October 31, 2007) against two of its investment in these entities
because it did not believe that its investments were recoverable.
The Company has investments in and advances to two joint ventures with unrelated parties to develop luxury
condominium projects, including for-sale residential units and commercial space. At January 31, 2008, the
Company had investments in and advances to these joint ventures of $26.3 million, was committed to making up to
$123.1 million of additional investments in and advances to these joint ventures if required by the joint ventures, and
guaranteed $18.6 million of loans of these joint ventures. At January 31, 2008, these joint ventures had an aggregate
of $307.3 million of loan commitments and had approximately $179.6 million borrowed against the commitments.
The Company has a 50% interest in a joint venture with an unrelated party to convert a 525-unit apartment
complex, The Hudson Tea Buildings, located in Hoboken, New Jersey, into luxury condominium units. At
January 31, 2008, the Company had investments in and advances to this joint venture of $48.7 million, and was
committed to making up to $1.5 million of additional investments in and advances to it.
In fiscal 2005, the Company, together with the Pennsylvania State Employees Retirement System
(“PASERS”), formed Toll Brothers Realty Trust II (“Trust II”) to be in a position to take advantage of commercial
real estate opportunities. Trust II is owned 50% by the Company and 50% by PASERS. At January 31, 2008, the
Company had an investment of $9.8 million in Trust II. In addition, the Company and PASERS each entered into
subscription agreements that expire in September 2009, whereby each agreed to invest additional capital in an
amount not to exceed $11.1 million if required by Trust II. Prior to the formation of Trust II, the Company used Toll
Brothers Realty Trust (the “Trust”) to invest in commercial real estate opportunities.
The Company formed the Trust in 1998 to take advantage of commercial real estate opportunities. The Trust is
effectively owned one-third by the Company; one-third by Robert I. Toll, Bruce E. Toll (and trusts established for
the benefit of members of his family), Zvi Barzilay (and trusts established for the benefit of members of his family),
Joel H. Rassman, and other members of the Company’s current and former senior management; and one-third by
PASERS. During fiscal 2007, the Company received distributions from the Trust that resulted in reducing the
carrying value of its investment in the Trust to zero. The Company provides development, finance and management
services to the Trust and recognized fees under the terms of various agreements in the amounts of $0.5 million and
$0.5 million in the three-month periods ended January 31, 2008 and 2007, respectively. The Company believes that
the transactions between itself and the Trust were on terms no less favorable than it would have agreed to with
unrelated parties.
The Company’s investments in these entities are accounted for using the equity method.

8


4. Goodwill Impairment
In the three-month period ended January 31, 2007, due to the continued decline of the Detroit market, the
Company re-evaluated the carrying value of goodwill that resulted from a 1999 acquisition in accordance with
SFAS No. 142, “Goodwill and Other Intangible Assets”. The Company estimated the fair value of its assets in this
market, including goodwill. Fair value was determined based on the discounted future cash flow expected to be
generated in this market. Based upon this evaluation and the Company’s expectation that this market would not
recover for a number of years, the Company determined that the related goodwill was impaired. The Company
recognized a $9.0 million impairment charge in the first quarter of fiscal 2007. After recognizing this charge, the
Company did not have any goodwill remaining from this acquisition.

5. Accrued Expenses
Accrued expenses at January 31, 2008 and October 31, 2007 consisted of the following (amounts in
thousands):
2008 2007

Land, land development and construction. . . . . . . . . . . . . . . . . . . . . . . . . . $238,713 $275,114
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,519 100,893
Insurance and litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,835 144,349
Warranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,350 59,249
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,732 47,136
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,134 97,488
$694,283 $724,229

The Company accrues for expected warranty costs at the time each home is closed and title and possession are
transferred to the home buyer. Costs are accrued based upon historical experience. Changes in the warranty accrual
for the three-month periods ended January 31, 2008 and 2007 were as follows (amounts in thousands):
2008 2007

Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $59,249 $57,414
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,347 7,534
Charges incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,246) (7,113)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,350 $57,835

6. Income Taxes
As of November 1, 2007, the Company recorded a $47.5 million charge ($79.1 million before recognition of
tax benefit) to retained earnings to recognize the net cumulative effect of the adoption of FIN 48. As of November 1,
2007, after adoption of FIN 48, the cumulative net unrecognized tax benefits were $218.6 million ($364.3 million
before recognition of tax benefit). Interest and penalties are recognized as a component of the provision for income
taxes which is consistent with the Company’s historical accounting policy. During the three-month period ended
January 31, 2008, the Company utilized $33.0 million of net unrecognized tax benefits ($55.0 million before
recognition of tax benefit) for the partial settlement of its Internal Revenue Service (“IRS”) tax audits for fiscal
years 2003 through 2005, State of California tax audits for fiscal years 2002 and 2003, and certain other amended
filings; the Company expects to utilize an additional $15.0 million of net unrecognized tax benefits ($25.0 million
before recognition of tax benefit) to complete these settlements in subsequent quarters. The state impact of any
amended federal returns remains subject to examination by various states for a period of up to one year after formal
notification of such amendments to the states. The Company and its subsidiaries have various state and other income

9


tax returns in the process of examination or administrative appeal. The Company does not anticipate any material
adjustments to its financial statements resulting from tax examinations currently in progress.

During the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will
decrease primarily from expiration of tax statutes, but the Company does not believe these reversals will have a
material impact on the Company’s financial statements. The Company’s unrecognized net tax benefits at January 31,
2008, amounted to $187.7 million ($312.8 million before recognition of tax benefit) and are included in “Income
taxes payable” on the Company’s Condensed Consolidated Balance Sheet at January 31, 2008. If these tax benefits
reverse in the future, they would have an impact on the Company’s effective rate.

During the three months ended January 31, 2008 and 2007, the Company recognized in its tax provision,
before reduction for applicable taxes, interest and penalties of approximately $3.5 million and $1.0 million,
respectively. At January 31, 2008 and October 31, 2007, the Company had accrued interest and penalties, before
reduction of applicable taxes, of $143.6 million and $54.8 million, respectively; these amounts were included in
“Income taxes payable” on the Company’s Condensed Consolidated Balance Sheet. The increase in the three-
month period ended January 31, 2008 relates primarily to the adoption of FIN 48.

7. Comprehensive Loss

The components of other comprehensive loss in the three-month period ended January 31, 2008 were as
follows (amounts in thousands):
Net loss as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(95,957)
Changes in pension liability, net of tax
Change in benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,056)
Change in actuarial assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,701
Amortization of prior service cost and unrecognized gains . . . . . . . . . . . . 110
(1,245)
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(97,202)

Changes in accumulated other comprehensive loss in the three-month period ended January 31, 2008 were as
follows (amounts in thousands):
Balance at November 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (397)
Changes in pension liability, net of tax
Change in benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,056)
Change in actuarial assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,701
Amortization of prior service cost and unrecognized gains . . . . . . . . . . . . . . . . . . . . . 110
Balance at January 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,642)

8. Employee Retirement Plan

In December 2007, the Company amended its Supplemental Executive Retirement Plan to provide for
increased benefits to certain participants if such participants continue to work beyond retirement age. Based on this
amendment and a concomitant change in the assumption related to the participants’ retirement dates, the
Company’s unrecognized prior service cost increased by $5.1 million and its unrecognized actuarial gains
increased by $2.8 million. The additional unrecognized prior service cost and unrecognized actuarial gains will
be amortized over the extended period that the Company has estimated that the participant will continue to work.

10


For the three-month periods ended January 31, 2008 and 2007, the Company recognized costs and made
payments related to its supplemental retirement plans as follows (amounts in thousands):
2008 2007

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53 $ 83
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 253
Amortization of initial benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 442
Amortization of unrecognized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (160)
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 541 $778
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29 $ 91

9. Stock-Based Benefit Plans
The fair value of each option award is estimated on the date of grant using a lattice-based option valuation
model that uses assumptions noted in the following table. The lattice-based option valuation model incorporates
ranges of assumptions for inputs; those ranges are disclosed in the table below. Expected volatilities were based on
implied volatilities from traded options on the Company’s stock, historical volatility of the Company’s stock and
other factors. The expected lives of options granted were derived from the historical exercise patterns and
anticipated future patterns and represents the period of time that options granted are expected to be outstanding; the
range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of
grant.
The weighted-average assumptions and the fair value used for stock option grants for the three-month periods
ended January 31, 2008 and 2007 were as follows:
2008 2007

Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46.67% - 48.63% 36.32% - 38.22%
Weighted-average volatility . . . . . . . . . . . . . . . . . . . . . . . . . 47.61% 37.16%
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.32% - 3.85% 4.57% - 4.61%
Expected life (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.29 - 8.32 3.69 - 8.12
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . none none
Weighted-average grant date fair value
per share of options granted . . . . . . . . . . . . . . . . . . . . . . $9.50 $11.17
In the three-month period ended January 31, 2008, the Company recognized $12.2 million of stock com-
pensation expense and $4.8 million of income tax benefit related to stock option grants. In the three-month period
ended January 31, 2007, the Company recognized $12.8 million of stock compensation expense and $4.8 million of
income tax benefit related to stock option grants.
The Company expects to recognize approximately $21.8 million of stock compensation expense and
$8.7 million of income tax benefit for fiscal 2008 related to stock option grants. The Company recognized
approximately $27.0 million of stock compensation expense and $10.1 million of income tax benefit for the full
fiscal 2007 year related to stock option grants.

11


10. Earnings per Share Information
Information pertaining to the calculation of earnings per share for the three-month periods ended January 31,
2008 and 2007 is as follows (amounts in thousands):
2008 2007

Basic weighted-average shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,813 154,212
Common stock equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,836
Diluted weighted-average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,813 164,048

For the three months ended January 31, 2008, there were no incremental shares attributed to outstanding
options to purchase common stock because the Company had a net loss for the period, and any incremental shares
would not be dilutive.
At January 31, 2008, the exercise price of approximately 9.3 million outstanding options was higher than the
average closing price of the Company’s common stock on the New York Stock Exchange (the “NYSE”) for the
three-month period ended January 31, 2008. At January 31, 2007, the exercise price of approximately 5.7 million
outstanding options was higher than the average closing price of the Company’s common stock on the NYSE for the
three-month period ended January 31, 2007.

11. Stock Repurchase Program
In March 2003, the Company’s Board of Directors authorized the repurchase of up to 20 million shares of its
common stock, par value $.01, from time to time, in open market transactions or otherwise, for the purpose of
providing shares for its various employee benefit plans. At January 31, 2008, the Company was authorized to
repurchase approximately 12.0 million shares.

12. Commitments and Contingencies
At January 31, 2008, the aggregate purchase price of land parcels under option and purchase agreements,
excluding parcels that the Company does not expect to acquire, was approximately $2.01 billion (including
$1.22 billion of land to be acquired from joint ventures in which the Company has investments). Of the $2.01 billion
of land purchase commitments, the Company had paid or deposited $95.7 million, and had investments in, or
guarantees on behalf of, the aforementioned joint ventures totaling $193.4 million. The Company’s option
agreements to acquire the home sites do not require the Company to buy the home sites, although the Company
may, in some cases, forfeit any deposit balance outstanding if and when it terminates an option agreement. Of the
$95.7 million the Company had paid or deposited on these option agreements, $74.8 million was non-refundable at
January 31, 2008. Any deposit in the form of a standby letter of credit is recorded as a liability at the time the
standby letter of credit is issued. At January 31, 2008, accrued expenses included $31.9 million, representing the
Company’s outstanding standby letters of credit issued in connection with options to purchase home sites.
At January 31, 2008, the Company had $156.9 million of investments in and advances to a number of
unconsolidated entities, was committed to invest or advance an additional $352.7 million in the aggregate to these
entities if needed and had guaranteed approximately $140.3 million of these entities’ indebtedness and/or loan
commitments. See Note 3, “Investments in and Advances to Unconsolidated Entities” for more information
regarding these entities.
At January 31, 2008, the Company had outstanding surety bonds amounting to $639.3 million, related
primarily to its obligations to various governmental entities to construct improvements in the Company’s various
communities. The Company estimates that $248.5 million of work remains on these improvements. The Company
has an additional $125.6 million of surety bonds outstanding that guarantee other obligations of the Company. The
Company does not believe it is likely that any outstanding bonds will be drawn upon.

12


At January 31, 2008, the Company had agreements of sale outstanding to deliver 3,341 homes with an
aggregate sales value of $2.42 billion, of which the Company has recognized $24.3 million of revenues with regard
to a portion of such homes using the percentage of completion accounting method.
At January 31, 2008, the Company’s mortgage subsidiary was committed to fund $871.1 million of mortgage
loans, $231.7 million of these commitments, as well as $78.5 million of mortgage loans receivable, have “locked in”
interest rates. The mortgage subsidiary has commitments from recognized outside mortgage financing institutions
to acquire $309.4 million of these “locked-in” loans and receivables. Our home buyers have not “locked-in” the
interest rate on the remaining $639.5 million.
In January 2006, the Company received a request for information pursuant to Section 308 of the Clean Water
Act from Region 3 of the U.S. Environmental Protection Agency (the “EPA”) requesting information about storm
water discharge practices in connection with its homebuilding projects in the states that comprise EPA Region 3.
The U.S. Department of Justice (“DOJ”) has now assumed responsibility for the oversight of this matter. To the
extent the DOJ’s review were to lead it to assert violations of state and/or federal regulatory requirements and
request injunctive relief and/or civil penalties, the Company would defend and attempt to resolve any such asserted
violations. At this time, the Company cannot predict the outcome of the DOJ’s review.
On April 17, 2007, a securities class action suit was filed against Toll Brothers, Inc. and Robert I. Toll and
Bruce E. Toll in the U.S. District Court for the Eastern District of Pennsylvania. The original plaintiff, Desmond
Lowrey, has been replaced by two new lead plaintiffs — The City of Hialeah Employees’ Retirement System and
the Laborers Pension Trust Funds for Northern California. On August 14, 2007, an amended complaint was filed on
behalf of the purported class of purchasers of the Company’s common stock between December 9, 2004 and
November 8, 2005 and the following individual defendants, who are directors and/or officers of Toll Brothers, Inc.,
were added to the suit: Zvi Barzilay, Joel H. Rassman, Robert S. Blank, Paul E. Shapiro, Carl B. Marbach, Richard
Braemer, and Joseph R. Sicree. The amended complaint filed on behalf of the purported class alleges that the
defendants violated federal securities laws by issuing various materially false and misleading statements that had
the effect of artificially inflating the market price of the Company’s stock. They further allege that, during the class
period, the individual defendants sold shares for a substantial gain. The purported class is seeking compensatory
damages, counsel fees, and expert costs. The Company has responded to the amended complaint by filing a motion
to dismiss, challenging the sufficiency of the pleadings. There has not yet been any ruling on the Company’s motion.
The Company believes that this lawsuit is without merit and intends to continue to vigorously defend against it.
A second securities class action suit was filed on September 7, 2007 in federal court in the Central District of
California. In the complaint, the plaintiff, on behalf of the purported class of stockholders, alleges that the Chief
Financial Officer of the Company violated federal securities laws by issuing various materially false and misleading
statements and seeks compensatory damages, counsel fees and expert costs. The alleged class period is December 8,
2005 to August 22, 2007. The original plaintiff, Kathy Mankofsky, has been replaced by a new lead plaintiff — the
Massachusetts Bricklayers & Masons Trust Funds. The new lead plaintiff must file an amended complaint no later
than March 21, 2008. The Company intends to reply to it with a motion to dismiss the suit. The Company believes
that this lawsuit is without merit and intends to vigorously defend against it.
The Company is involved in various other claims and litigation arising in the ordinary course of business. The
Company believes that the disposition of these matters will not have a material effect on the business or on the
financial condition of the Company.

13


13. Business Segments
Revenue and (loss) income before income taxes for each of the Company’s geographic segments for the three
months ended January 31, 2008 and 2007 were as follows (amounts in thousands):
2008 2007

Revenue
North . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 226,775 $ 211,147
Mid-Atlantic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 250,354 331,322
South . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 139,313 247,766
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 226,410 300,376
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 842,852 $1,090,611
(Loss) income before income taxes
North . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,692 $ (646)
Mid-Atlantic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,938 52,561
South . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (111,554) 4,398
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,193) 56,866
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,838) (25,979)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(151,955) $ 87,200

“Corporate and other” is comprised principally of general corporate expenses such as the Offices of the Chief
Executive Officer and President, and the corporate finance, accounting, audit, tax, human resources, risk man-
agement, marketing and legal groups, offset in part by interest income and income from the Company’s ancillary
businesses.
Inventory write-downs and the expensing of costs that the Company believed not to be recoverable for the
three-month periods ended January 31, 2008 and 2007 were as follows (amounts in thousands):
2008 2007

Land controlled for future communities:
North . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,210 $ 933
Mid-Atlantic . . . . . . . . . . . . . . . . . . . . . . ......................... 6,109 1,352
South . . . . . . . . . . . . . . . . . . . . . . . . . . . ......................... 40,437 2,382
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......................... 6,729 9,272
72,485 13,939
Operating communities:
North . . . . . . . . . . . . . . . . . . . . . . . . . . . ......................... 18,600 32,200
Mid-Atlantic . . . . . . . . . . . . . . . . . . . . . . ......................... 16,650 21,500
South . . . . . . . . . . . . . . . . . . . . . . . . . . . ......................... 75,725 28,100
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......................... 34,200 1,162
145,175 82,962
$217,660 $96,901

14


Total assets for each of the Company’s geographic segments at January 31, 2008 and October 31, 2007
(amounts in thousands) were as follows:
2008 2007

North . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,530,352 $1,589,119
Mid-Atlantic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,475,355 1,523,447
South . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,032,182 1,180,325
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,507,845 1,616,395
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,474,885 1,311,030
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,020,619 $7,220,316

“Corporate and other” is comprised principally of cash and cash equivalents and the assets of the Company’s
manufacturing facilities and mortgage subsidiary.

14. Supplemental Disclosure to Statements of Cash Flows
The following are supplemental disclosures to the statements of cash flows for the three months ended
January 31, 2008 and 2007 (amounts in thousands):
2008 2007

Cash flow information:
Interest paid, net of amount capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,910 $ 4,785
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $66,472 $78,050
Non-cash activity:
Adoption of FIN 48. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47,460
Reclassification of inventory to property, construction and office
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,103
Reduction of investment in unconsolidated entities due to reduction
of letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,024 $ 2,562
Reclassification of accrued liabilities to loans payable . . . . . . . . . . . . . . . . . $ 2,163
Cost of inventory acquired through seller financing . . . . . . . . . . . . . . . . . . . $ 3,976 $ 7,042
Land returned to seller subject to loan payable . . . . . . . . . . . . . . . . . . . . . . . $ 7,750 $ 8,693
Income tax benefit related to exercise of employee stock options . . . . . . . . . $ 1,532 $ 230
Stock bonus awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26 $ 7,042
Disposition of ancillary business:
Fair value of assets sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,790
Liabilities incurred in sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 400
Cash received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,755

15. Supplemental Guarantor Information
Toll Brothers Finance Corp., a 100% owned, indirect subsidiary (the “Subsidiary Issuer”) of the Company, is
the issuer of four series of senior notes aggregating $1.15 billion. The obligations of the Subsidiary Issuer to pay
principal, premiums, if any, and interest are guaranteed jointly and severally on a senior basis by the Company and
substantially all of its 100% owned home building subsidiaries (the “Guarantor Subsidiaries”). The guarantees are
full and unconditional. The Company’s non-home building subsidiaries and certain home building subsidiaries (the
“Non-Guarantor Subsidiaries”) do not guarantee the debt. Separate financial statements and other disclosures

15


concerning the Guarantor Subsidiaries are not presented because management has determined that such disclosures
would not be material to investors. The Subsidiary Issuer has not had and does not have any operations other than
the issuance of the four series of senior notes and the lending of the proceeds from the senior notes to other
subsidiaries of the Company. Supplemental consolidating financial information of the Company, the Subsidiary
Issuer, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the eliminations to arrive at the Company on
a consolidated basis are as follows:

Condensed Consolidating Balance Sheet at January 31, 2008 ($ in thousands):
Toll Non-
Brothers, Subsidiary Guarantor Guarantor
Inc. Issuer Subsidiaries Subsidiaries Eliminations Consolidated

ASSETS
Cash and cash equivalents . . . . . . . . . 834,245 122,399 956,644
Inventory . . . . . . . . . . . . . . . . . . . . . . 4,866,970 406,732 5,273,702
Property, construction and office
equipment, net . . . . . . . . . . . . . . . . 95,556 2,786 98,342
Receivables, prepaid expenses and
other assets . . . . . . . . . . . . . . . . . . 4,068 95,066 35,743 (4,546) 130,331
Contracts receivable . . . . . . . . . . . . . . 22,478 1,993 24,471
Mortgage loans receivable . . . . . . . . . 78,544 78,544
Customer deposits held in escrow . . . . 29,270 2,554 31,824
Investments in and advances to
unconsolidated entities . . . . . . . . . . 156,931 156,931
Deferred tax assets, net . . . . . . . . . . . 269,830 269,830
consolidated entities . . . . . . . . . . . . 3,359,222 1,158,254 (1,071,097) (103,284) (3,343,095) —
3,629,052 1,162,322 5,029,419 547,467 (3,347,641) 7,020,619

Liabilities:
Loans payable . . . . . . . . . . . . . . . . 477,576 234,439 712,015
Senior notes. . . . . . . . . . . . . . . . . . 1,142,591 1,142,591
Senior subordinated notes . . . . . . . . 350,000 350,000
Mortgage company warehouse
loan . . . . . . . . . . . . . . . . . . . . . . 67,605 67,605
Customer deposits . . . . . . . . . . . . . 196,299 30,414 226,713
Accounts payable . . . . . . . . . . . . . . 186,234 6,112 192,346
Accrued expenses . . . . . . . . . . . . . 19,731 538,735 140,529 (4,712) 694,283
Income taxes payable . . . . . . . . . . . 215,670 (2,000) 213,670
Total liabilities . . . . . . . . . . . . . . 215,670 1,162,322 1,748,844 477,099 (4,712) 3,599,223
Minority interest . . . . . . . . . . . . . . . . 8,014 8,014
Common stock. . . . . . . . . . . . . . . . 1,585 2,003 (2,003) 1,585
Additional paid-in capital . . . . . . . . 258,718 4,420 2,734 (7,154) 258,718
Retained earnings. . . . . . . . . . . . . . 3,155,508 3,277,797 57,617 (3,335,414) 3,155,508
Treasury stock, at cost . . . . . . . . . . (787) (787)
Accumulated other comprehensive
loss . . . . . . . . . . . . . . . . . . . . . . (1,642) (1,642) 1,642 (1,642)
Total stockholders’ equity . . . . . . 3,413,382 — 3,280,575 62,354 (3,342,929) 3,413,382
3,629,052 1,162,322 5,029,419 547,467 (3,347,641) 7,020,619

16


Condensed Consolidating Balance Sheet at October 31, 2007 ($ in thousands):
Toll Non-

ASSETS
Cash and cash equivalents . . . . . . . . . 783,891 116,446 900,337
Inventory . . . . . . . . . . . . . . . . . . . . . . 5,183,247 389,408 5,572,655
Property, construction and office
equipment, net . . . . . . . . . . . . . . . . 81,832 2,433 84,265
Receivables, prepaid expenses and
other assets . . . . . . . . . . . . . . . . . . 4,241 105,316 32,465 (6,112) 135,910
Contracts receivable . . . . . . . . . . . . . . 45,472 1,053 46,525
Mortgage loans receivable . . . . . . . . . 93,189 93,189
Customer deposits held in escrow . . . . 33,689 678 34,367
unconsolidated entities . . . . . . . . . . 183,171 183,171
Deferred tax asset . . . . . . . . . . . . . . . 169,897 169,897
consolidated entities . . . . . . . . . . . . 3,557,297 1,159,384 (1,175,807) (94,835) (3,446,039) —
3,727,194 1,163,625 5,240,811 540,837 (3,452,151) 7,220,316

Liabilities:
Loans payable . . . . . . . . . . . . . . . . 481,262 215,552 696,814
Senior notes. . . . . . . . . . . . . . . . . . 1,142,306 1,142,306
Senior subordinated notes . . . . . . . . 350,000 350,000
Mortgage company warehouse
loan . . . . . . . . . . . . . . . . . . . . . . 76,730 76,730
Customer deposits . . . . . . . . . . . . . 230,982 29,173 260,155
Accounts payable . . . . . . . . . . . . . . 229,448 7,429 236,877
Accrued expenses . . . . . . . . . . . . . 21,319 563,016 146,156 (6,262) 724,229
Income taxes payable . . . . . . . . . . . 199,960 (2,000) 197,960
Total liabilities . . . . . . . . . . . . . . 199,960 1,163,625 1,854,708 473,040 (6,262) 3,685,071
Minority interest . . . . . . . . . . . . . . . . 8,011 8,011
Common stock. . . . . . . . . . . . . . . . 1,570 2,003 (2,003) 1,570
Additional paid-in capital . . . . . . . . 227,561 4,420 2,734 (7,154) 227,561
Retained earnings. . . . . . . . . . . . . . 3,298,925 3,382,080 55,049 (3,437,129) 3,298,925
Treasury stock, at cost . . . . . . . . . . (425) (425)
Accumulated other comprehensive
loss . . . . . . . . . . . . . . . . . . . . . . (397) (397) 397 (397)
Total stockholders’ equity . . . . . . 3,527,234 — 3,386,103 59,786 (3,445,889) 3,527,234
3,727,194 1,163,625 5,240,811 540,837 (3,452,151) 7,220,316

17


Condensed Consolidating Statement of Operations for the three months ended January 31, 2008 ($ in thousands):
Toll Non-

Revenues:
Completed contract . . . . . . . . . . . . . . 826,534 826,534
Percentage of completion . . . . . . . . . 12,345 3,450 15,795
Land sales. . . . . . . . . . . . . . . . . . . . . 523 523
— — 839,402 3,450 — 842,852
Costs of revenues:
Completed contract . . . . . . . . . . . . . . 833,887 536 (227) 834,196
Percentage of completion . . . . . . . . . 10,064 2,824 12,888
Land sales. . . . . . . . . . . . . . . . . . . . . 434 434
Interest . . . . . . . . . . . . . . . . . . . . . . . 16,735 20,870 97 (16,735) 20,967
— 16,735 865,255 3,457 (16,962) 868,485
Selling, general and administrative . . . . 1 176 121,664 7,353 (7,876) 121,318
Loss from operations . . . . . . . . . . . . . . (1) (16,911) (147,517) (7,360) 24,838 (146,951)
Other:
Loss from unconsolidated entities . . . (24,086) (24,086)
Interest and other . . . . . . . . . . . . . . . 16,911 19,649 9,167 (26,645) 19,082
Loss from subsidiaries . . . . . . . . . . . . (151,954) 151,954 —
(Loss) earnings before income taxes . . . (151,955) — (151,954) 1,807 150,147 (151,955)
Income tax (benefit) provision . . . . . . . . (55,998) (64,617) 723 63,894 (55,998)
Net (loss) income . . . . . . . . . . . . . . . . . (95,957) — (87,337) 1,084 86,253 (95,957)

18


Condensed Consolidating Statement of Operations for the three months ended January 31, 2007 ($ in thousands):
Toll Non-

Revenues:
Completed contract . . . . . . . . . . . . . . . 1,054,136 1,054,136
Percentage of completion . . . . . . . . . . 14,896 18,189 33,085
Land sales . . . . . . . . . . . . . . . . . . . . . 3,390 3,390
— — 1,072,422 18,189 — 1,090,611
Costs of revenues:
Completed contract . . . . . . . . . . . . . . . 846,177 1,566 (1,340) 846,403
Percentage of completion . . . . . . . . . . 12,473 13,424 25,897
Land sales . . . . . . . . . . . . . . . . . . . . . 1,037 1,037
Interest . . . . . . . . . . . . . . . . . . . . . . . . 16,735 18,989 3,654 (16,735) 22,643
— 16,735 878,676 18,644 (18,075) 895,980
Selling, general and administrative . . . . . 7 180 134,425 8,403 (8,805) 134,210
Goodwill impairment . . . . . . . . . . . . . . . 8,973 8,973
Income (loss) from operations . . . . . . . . (7) (16,915) 50,348 (8,858) 26,880 51,448
Other:
Equity earnings . . . . . . . . . . . . . . . . . 6,792 6,792
Interest and other . . . . . . . . . . . . . . . . 16,915 30,067 21,109 (39,131) 28,960
Earnings from subsidiaries . . . . . . . . . 87,207 (87,207) —
Income before income taxes . . . . . . . . . . 87,200 — 87,207 12,251 (99,458) 87,200
Income taxes . . . . . . . . . . . . . . . . . . . . . 32,884 32,051 4,791 (38,842) 32,884
Net income . . . . . . . . . . . . . . . . . . . . . . 54,316 — 55,156 7,460 (62,616) 54,316

19


Condensed Consolidating Statement of Cash Flows for the three months ended January 31, 2008 ($ in thousands):
Toll Non-

Cash flow from operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . (95,957) (87,337) 1,084 86,253 (95,957)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . 285 6,586 90 6,961
Stock-based compensation . . . . . . . . . . . . . . 12,374 12,374
Excess tax benefit from stock-based
compensation . . . . . . . . . . . . . . . . . . . . . (6,853) (6,853)
Loss from unconsolidated entities . . . . . . . . . 24,086 24,086
Distributions from unconsolidated entities . . . 4,971 4,971
Deferred tax provision . . . . . . . . . . . . . . . . . (99,933) (99,933)
Inventory impairments . . . . . . . . . . . . . . . . . 217,660 217,660
Changes in operating assets and liabilities
Decrease (increase) in inventory. . . . . . . . . 97,143 (17,324) 79,819
Origination of mortgage loans . . . . . . . . . . (275,230) (275,230)
Sale of mortgage loans . . . . . . . . . . . . . . . 289,875 289,875
Decrease (increase) in contracts
receivable . . . . . . . . . . . . . . . . . . . . . . 22,994 (940) 22,054
Decrease (increase) in receivables, prepaid
expenses and other assets . . . . . . . . . . . 198,074 1,303 (111,439) 6,655 (89,875) 4,718
Decrease in customer deposits . . . . . . . . . . (30,264) (635) (30,899)
Decrease in accounts payable and accrued
expenses . . . . . . . . . . . . . . . . . . . . . . . (2,073) (1,588) (63,941) (6,944) 3,622 (70,924)
Decrease in current income taxes payable . . (22,537) (22,537)
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . (16,905) — 80,459 (3,369) — 60,185
Cash flow from investing activities:
Purchase of property and equipment, net . . . . . . (3,348) (443) (3,791)
Purchase of marketable securities . . . . . . . . . . . (1,311,742) (60,000) (1,371,742)
Sale of marketable securities . . . . . . . . . . . . . . 1,311,742 60,000 1,371,742
Investments in and advances to unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,713) (8,713)
Distributions from unconsolidated entities . . . . . 2,623 2,623
Net cash used in investing activities . . . . — — (9,438) (443) — (9,881)
Cash flow from financing activities:
Proceeds from loans payable . . . . . . . . . . . . . . 629 302,359 302,988
Principal payments of loans payable . . . . . . . . . (21,296) (292,597) (313,893)
Proceeds from stock based benefit plans . . . . . . 10,413 10,413
Excess tax benefit from . . . . . . . . . . . . . . . . . .
stock-based compensation . . . . . . . . . . . . . 6,853 6,853
Purchase of treasury stock . . . . . . . . . . . . . . . . (361) (361)
Change in minority interest . . . . . . . . . . . . . . . 3 3
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . 16,905 — (20,667) 9,765 — 6,003
Net increase in cash and cash equivalents . . . . . . . — — 50,354 5,953 — 56,307
Cash and cash equivalents, beginning of period . . . 783,891 116,446 900,337
Cash and cash equivalents, end of period . . . . . . . — — 834,245 122,399 — 956,644

20

tollbrothers 10-Q_jan_2008

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