Executive Summary

This report entails an analysis into Toll Brothers Inc., and how it has evolved over the years. In the following report, a brief introduction will be given for the company and the report will then go on to take into account various matrices that will help us identify which strategies need to be adopted by Toll Brothers. The vision and mission for the company has also been identified, in addition, the statement of the problem and how Toll Brothers came to that situation will also be put forward. Moreover, as mentioned already, matrices such as external evaluation matrix, internal evaluation matrix, SWOT matrix, and SPACE matrix have all been identified. Lastly, the report will formulate and recommend strategies for Toll Brothers.

Introduction
Toll Brothers designs, builds, markets and arranges financing for single family homes in middle and high income residential communities. It caters to "move-up", "empty-nester" and "age-qualified" homebuyers. Toll Brothers bargaining power and helps it compete effectively against regional players. However, slowdown in the US housing market has resulted in lower demand for the company s products and has adversely affected its operations.

Company Overview
Toll Brothers designs, builds, markets and arranges financing for single family homes in middle and high income residential communities. The company operates in 21 states and is located in six regions around the US. Toll Brothers is headquartered in Horsham, Pennsylvania and employs approximately 5,600 people. The company recorded revenues of $6,123.5 million during the fiscal year ended October 2006, an increase of 5.7% over 2005. The operating profit of the company was $1,025.6 million during fiscal year 2006, a decrease of 18.5% compared to 2005. The net profit was $687.2 million in fiscal year 2006, a decrease of 14.7% compared to 2005.

History
Toll Brothers was formed in 1986. That year also saw its initial public offering. In the late 1980s it expanded its operations to include the states of Delaware, Massachusetts and Maryland. In the 1990s, the company began operations in Virginia, Connecticut, New York, California, North Carolina, Texas, Florida, Arizona, Ohio, Nevada, Illinois and Michigan. Toll Brothers acquired Geoffrey H Edmunds, located in Arizona in 1995. The Toll Brothers Realty Trust Group was formed in 1998. In the same year Toll Brothers also acquired Coleman Homes Las Vegas division. A year later, Toll Brothers opened for sale its first active-adult, age-qualified community for households in which at least one member is 55 years of age. Silverman Homes in Detroit was also acquired.

In 2000, Toll Brothers began operations in Rhode Island and New Hampshire. The company expanded its operations to Colorado in 2001 and South Carolina in 2002. In 2003, the company acquired substantially all of the assets of Richard R Dostie, a privately owned home-builder in the Florida area. The same year, Toll Brothers acquired The Manhattan Building Company, a privately owned developer of urban infill locations in northern New Jersey. In June 2004, Toll Brothers, with other building firms, was the winning bidder of nearly 2000 acres in Nevada s Las Vegas Valley that was auctioned off by the federal government. Toll Brothers announced its entry into West Virginia s Martinsburg market in November 2005. Toll Brothers City Living, the urban division of Toll Brothers, opened its first Manhattan high-rise condominium building: One Ten Third in October 2006. In December 2006, Toll Brothers announced its intention to withdraw the listing of its common stock from NYSE Arca, formerly the Pacific Exchange. Standard & Poor s had affirmed BBB- investment grade corporate credit rating on Toll Brothers and its outlook of Stable in August 2007.

Mission and Vision Statement

y Current Mission Statement:

We design, market, and arrange financing for single/family detached and attached homes in luxury residential communities. We are also involved, directly and through joint ventures, in projects where we are building, or converting existing rental apartment buildings into high, mid, and low-rise luxury homes. We cater to move up, empty-nesters, active-adult, age qualified and second home buyers in 21 states of the United States.

Proposed Mission Statement: Toll Brothers not just build homes but also communities with recreational amenities in picturesque settings where luxury meets convenience. We design, build, market and arrange financing for both detached and attached homes in luxury residential communities to cater move-up, emptynesters, active-adult, age qualified, 2nd home as well as urban and sub-urban high density buyers in 21 states of the United States. We will persevere with a pro-active approach in management and use conservative philosophy in maintaining our financial soundness. We maintain our appetite in educating our employees to gain expertise in doing their jobs. Our commitment to our customers and homeowners giving them quality products, value, superior design and service plus our attention to balancing the appeal of growth with a healthy dose of concern for risk involved shall be our guidepost in serving our markets. Our strategy of geographic and product diversification with our dedication, diligence and commitment to value will continue to be our most distinctive advantage to propel us forward.

Proposed Vision Statement: To be the world leading homebuilder providing homes with the highest quality, superior design and artistic customization that will be epitome of luxury, elegance and lifestyle.

Statement of the Problem

1993 2003: A PERIOD OF SUSTAINED PROSPERITY 2004: SPECULATION AND LIQUIDITY ACCELERATE HOME PRICES 2005:THE MARKET TURNS DOWN 2006:A LIQUIDITY CRUNCH

As a result of these events, currently there is an oversupply of unsold housing inventory in many markets. This excess supply has been slow to clear because customers remain concerned about selling their existing homes or committing to purchase today in fear that prices will be lower tomorrow. The challenge for builders and the economy in general is to reverse that loss of confidence among potential home buyers. Once buyers regain confidence, we believe they will move off the sidelines and into the housing market, absorbing the excess supply and leading the housing market into recovery.
WHAT STRATEGIES SHOULD TOLL BROTHERS IMPLEMENT TO DEAL WITH CURRENT HOUSING DOWNTURN AND PREPARE FOR THE UPTURN?

Internal Audit
1. 2. 3. 4. 5. 6. 7. 8. Strengths Strong market position. Broad product lines and services. Strong performance of south segment. Modest amount of cash and a secured bank credit facility. Broad geographic presence. Expertise in finding, evaluating approval and developing land. Experienced management team Strong relationship with mortgage providers and has a mortgage subsidiary. 1. 2. 3. 4. 5. 6. Weaknesses Weak profitability. Declining cash from operations. Declining order backlogs High inventory. Increasing liabilities. Lack of vision statement

IFE Matrix
Weight 1. 2. 3. 4. 5. 6. 7. 8. Strengths Strong market position. Broad product lines and services. Strong performance of south segment. Modest amount of cash and a secured bank credit facility. Broad geographic presence. Expertise in finding, evaluating approval and developing land. Experienced management team Strong relationship with mortgage providers and has a mortgage subsidiary. Weaknesses Weak profitability. Declining cash from operations. Declining order backlogs High inventory. Increasing liabilities. Lack of vision statement .09 .10 .04 .09 .10 .04 .07 .08 .10 .06 .06 .09 .07 .01 1.0 Rate 3 4 3 4 4 3 3 3 2 1 1 2 2 1 Weighted Score .27 .40 .12 .36 .40 .12 .21 .24 .20 .06 .06 .15 .14 .01 2.74

1. 2. 3. 4. 5. 6.

External Audit
1. 2. 3. 4. 5. 6. Opportunities Aging population Consolidation in homebuilding industry Entry into Atlanta Market Significant growth in urban luxury market Low interest rates for home buyers Possibility of distressed properties arising out of current housing downturn 1. 2. Threats Slowdown in US housing market Extensive and complex laws and regulations in land approval and development Possibility of increase number and rising expenditures of noncompetitive land parcels. Other home builders advertising price reduction and increased sales incentives Reduce home mortgage application due to tighter credit standards

3.

4.

5.

EFE Matrix
Weight Opportunities 1. 2. 3. 4. 5. 6. Aging population Consolidation in homebuilding industry Entry into Atlanta Market Significant growth in urban luxury market Low interest rates for home buyers Possibility of distressed properties arising out of current housing downturn Threats Slowdown in US housing market Extensive and complex laws and regulations in land approval and development Possibility of increase number and rising expenditures of non-competitive land parcels. Other home builders advertising price reduction and increased sales incentives Reduce home mortgage application due to tighter credit standards .12 .08 .07 .09 .06 .14 .13 .08 .06 .09 .08 1.0 4 3 2 4 1 4 2 3 2 2 2 .48 .24 .14 .36 .06 .56 .26 .24 .12 .18 .16 2.80 Rate Weighted Score

1. 2. 3. 4. 5.

Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix

1. 2. 3. 4. 5. 6. 7. 8. Strengths Strong market position. Broad product lines and services. Strong performance of south segment. Modest amount of cash and a secured bank credit facility. Broad geographic presence. Expertise in finding, evaluating approval and developing land. Experienced management team Strong relationship with mortgage providers and has a mortgage subsidiary. 1. 2. 3. 4. 5. 6. Weaknesses Weak profitability. Declining cash from operations. Declining order backlogs High inventory of homes and land. Increasing liabilities. Lack of vision statement

1. 2. 3. 4. 5. 6.

Opportunities Aging population 1. Consolidation in homebuilding industry Entry into Atlanta Market Significant growth in urban luxury 2. market Low interest rates for home buyers Possibility of distressed properties 3. arising out of current housing downturn 4.

SO Strategy Enhance the balance of product 1. diversification to take advantage of the favorable demographics. (S2:O1) Enhance geographic presence in south segment by entering Metro-Atlanta market.(S3:O3) Give more focus in building high and mid rise communities to cater urban luxury market. (S2:O4) Use the significant amount of cash and credit facility with broad geographic presence to identify and capitalized on arising distressed properties.(S4:S5:O6)

WO Strategy Apply low interest rates for home buyers to further reduce inventory. (W4:O5)

Threats 1. 2. Slowdown in US housing market Extensive and complex laws and regulations in land approval and development Possibility of increase number and rising expenditures of noncompetitive land parcels. Other home builders advertising price reduction and increased sales incentives Reduce home mortgage application due to tighter credit standards 1.

ST Strategy Reduce land controlled 1. through options by evaluating and renegotiating lands that are noncompetitive. Rely more on options and use expertise in land approval and development to take advantage of more attractive land in short length of time.(S6:T2:T3) Use the mortgage subsidiary and relationship with mortgage providers and lenders to arrange mortgage for home buyers. (S8:T5) Apply experienced learned by management team in past downturns to the current distressed market (S7:T1)

WT Strategy Use sales incentives to decrease inventory and lessen cancellations and downturn in sales. (W4:T4)

3.

4.

2.

5.

3.

Strategic Position and Action Evaluation (SPACE) Matrix

Competitive Advantage (CA) Brand Popularity Product Quality Market Share Latest Technology Product Diversification Competition Utilization -1 -2 -3 -2 -1 -3 -2.0 Point on X-Axis= 1.7 Environmental Stability (ES) 3 Technological Changes 2 Demand Variability 4 Price Elasticity of Demand 3 Barriers to Entry into Markets 2 Competitive Pressure 1 Rate of Inflation 3 2.6 Point on Y-Axis= -1.4 Industry Strength (IS) Growth Potential Access to Financing Consolidation Technological Know How Financial Stability Resource Utilization 4 2 5 5 2 4 3.7

Financial Strength (FS) ROI Leverage Liquidity Working Capital Cash Flow Inventory Turnover Earnings per Share

-3 -6 -3 -5 -4 -3 -4.0

Strategy Recommendation
Toll Brothers falls on competitive quadrant. It shows that they have strong competitive advantage and has a modest financial strength but is operating in a attractive industry but unstable environment. Appropriate strategy shall be cost reduction, productivity improvement and raising capital to follow opportunities and strengthen competitiveness. In order to deal with current distress market the business should focus on strengthening its balance sheet. To respond to the downturn and prepare for the upturn, the company should: >Enhance use its geographic diversification by entering Atlanta market to identify and take advantage of anticipated growth opportunities in this market. >Enhance balance of product diversification by reducing its focus in single family homes give more attention to move-up, active adult and mid and high rise communities to take advantage of the aging population. >Maintain liquidity. >Manage carefully land position. >Use sales incentives in communities where demand for home is weak. >Provide mortgage for homebuyers. Once the market condition has been stabilized and became favorable, The expectation is that the smaller builders who are Toll Brothers primary competitors will be weakened due to rising cost and tighter lending restrictions. This small builders will make appealing candidates for toll brothers and will further increase the scope of Toll operations.

Projected Financial Statements

Projected Statement of Financial Position(in U$)
2006 Assets Cash and Marketable Securities Inventory Other Assets Total Assets Liabilities Loans Payable Senior Notes Subordinated Notes Mortgage Warehouse Line Total Liabilities Equity Total Liabilities and Equity 736,934 1,141,167 350,000 119,705 2,347,806 5,235,735 7,583,541 696,814 1,142,306 350,000 76,730 2,265,850 4,954,466 7,220,316 613,594 1,043,445 343,000 37,867 2,037,906 4,012,615 6,050,521 472,854 845,665 247,872 27,015 1,593,406 3,588,403 5,181,809 632,524 6,095,702 855,315 7,583,541 900,337 5,572,655 747,324 7,220,316 1,908,894 3,416,723 724,904 6,050,521 1,236,927 3,241,725 703,157 5,181,809 2007 2008 2009

Projected Income Statement ( U$ amount in millions)

2007 Revenues Cost of Revenue Selling, general and administrative expenses Goodwill Impairment Gross Income Other: (Loss) Income from unconsolidated entities Interest and other income Expenses related to early retirement of debt (Loss) Income before income taxes Income tax provision (benefit) Net (loss) Income 40.4 118.5 -13.7 338.8 35.0 373.8 46.7 204.4 -21.5 229.6 68.0 298 54.2 121.9 -61.9 343 62 404.8 4,635.1 3,916.9 516.7 7.9 193.6 2008 4,119.8 3,498.2 429.9 3.2 188.5 228.9 2009 4,589.2 3,968.4 391.9