Good day everyone and welcome to the KB Home second quarter earnings conference call. (Operator Instructions) KB Home's discussion today may include certain predictions and other forward-looking statements. These statements may cover market or economic conditions, KB Home's business and prospects, its future financial and operational performance and/or future actions or strategies and their expected results. They are based on management’s current expectations and projections about future events and business conditions but are not guarantees of future performance. Due to a number of risks, uncertainties, assumptions and the events outside its control, KB Home's actual results could differ materially from those expressed in, or implied by the forward-looking statements. Many of these risk factors are identified in the company’s periodic reports and other filings with the SEC, which the company urges you to read with care. And now for opening remarks and introductions I would like to turn the call over to KB Home President and Chief Executive Officer, Mr. Jeffrey Mezger. Please go ahead Mr. Mezger.

Good morning everyone; thank you for joining us today for a review of our second quarter results. With me this morning are Domenico Cecere, our Executive Vice President and Chief Financial Officer, William Hollinger, our Senior VP and Chief Accounting Officer and Kelly Masuda, our Senior VP of Investor Relations and Treasurer. This morning I will cover the state of the housing market, our second quarter results and our outlook and strategies for the remainder of the year. Domenico will take you through our second quarter financial results and I will have some brief closing remarks before we open it up for your questions. Let’s start with market conditions, the second quarter remained very challenging for home builders. Inventories of both new and existing homes hovered at a 10 to 11 month supply throughout the period with buyers remaining on the sidelines concerned with the weakening economy and tightening mortgage lending standards. Foreclosure activity continues to rise, compounding the inventory overhang and maintaining pressure on prices. This is borne out by the SMP Case-Schiller composite 20 index which reported that prices in April had dropped 15.3% from a year earlier as well as the conference board’s recent release which indicated that the consumer confidence index fell to 50.4% in June, the lowest level since February, 1992. Taken as a whole, these operating conditions are some of the most difficult the home building industry has ever experienced. Our financial results for the second quarter reflect this persistently challenging environment and the decisive actions we have taken to address these conditions over the last two years. The market price declines in the quarter and the uncertain timeframe for housing market recovery required additional reevaluation of our assets in the quarter. We took pre-tax non-cash charges of $177 million for inventory and joint…

Thanks Jeffrey. Net orders of 4,200 new homes in the second quarter were down 42% on a year-over-year basis due primarily to a 37% decrease in our community accounts and a softening demand in a number of our served markets. We had 215 active selling communities in the second quarter of 2008 compared to 342 in the second quarter of 2007. Community count was lower in each of our four regions with decreases ranging from 24% to 45%. We anticipate operating with lower year-over-year community counts for the remainder of the year consistent with our renewed focus on restoring profitability. Second quarter net orders were nearly triple the 1,449 we posted in the first quarter of 2008 partly due to our improved cancellation rate. The order cancellation rate in the second quarter of 2008 improved to 27% of gross orders from 53% in the first quarter of 2008, 58% in the fourth quarter of 2007 and 34% in the year-earlier quarter. Cancellation rates have been volatile over the past couple of years but have recently returned to more normal levels. This metric may indicate some stability in returning to the market. We entered the second quarter with 4,843 sold homes in backlog and converted 2,810 or 58% of beginning backlog to revenue in the quarter. This compares to a conversion ratio of 43% in the second quarter of 2007. The higher conversion rate and lower cancellation rate suggests the quality of our backlog is improving. Our backlog does remain geographically diverse with the largest portion on a value basis in our West Coast and Southeast regions. We incurred a net loss of $256 million or $3.30 per diluted share in the second quarter largely due to pre-tax non-cash charges of $177 million in inventory and joint venture impairment and abandonments…

Thanks Domenico. Let me add a few comments before we take your questions. Although currently experiencing a prolonged downturn the housing market will return. People have and will continue to buy homes and the American dream will continue to exist for the substantial number of new US households that are country will experience in the next several decades. From the 2008 report of Harvard University’s joint center for housing studies issued this past week, we learned that changes in the number and age distribution of the adult population should lift household growth from 12.6 million in the decade of 1995-2005 to 14.4 million in the decade of 2010-2020. KB Home will be there and we’ll be ready to meet the demand generated from these expected demographic trends. In past calls we have discussed some of the distinct competitive advantages that differentiate KB Home from other home builders. I think they bear repeating. Our KB Next business model defines how we operate no matter what conditions exist. The KB Next discipline maintains our focus on our customer and employs a fact-based and process-driven approach to what and where we build. It helps us deliver even-flow production and outstanding customer service and its built-to-order system gives buyers both choice and value. There is no better model for both strong and challenging housing conditions. We are committed to our long-term strategy of providing high quality homes for the first time, first move-up and active adult buyer. No matter what market conditions exist, we firmly believe the desire for home ownership is a constant for Americans and fuels the first time buyer market. Serving first time buyers is an especially attractive position since they do not have the additional obstacle of selling an existing home. We remain fundamentally a pre-sold builder, a business model…

(Operator Instructions) Your first question comes from the line of Dan Oppenheim – Credit Suisse Dan Oppenheim – Credit Suisse: Can you talk about some of the markets where you saw better order trends and kind of what did you have to do on pricing in those markets to get there?

I don’t know that we have that kind of detail because the story will vary by community and by submarket within a city. I think we do have the sales by region. It’s in the press release. What I can tell you is that our entry level products and our more affordably priced products are selling better then the move-up products where the buyer has a home to sell. Dan Oppenheim – Credit Suisse: Could you give us an idea of how orders trended throughout the quarter?

We don’t normally disclose that data. You can’t respond too much to what happens in one month. It’s a quarterly look for us.

Your next question comes from the line of Dennis McGill – Zelman & Associates Dennis McGill – Zelman & Associates: On the carry back opportunity for what you get in 2009, what’s the amount that you paid a couple of years ago?

I think we’ve used it all up. Dennis McGill – Zelman & Associates: Did you say the $21 million of option abandonments related to 800 option lots or 8,000?

It was 800.

Your next question comes from the line of Michael Rehaut - JP Morgan

Your comments about the low exposure to the down payment assistance program really surprised me, a few years ago we had it that you had about 13% of your consumers using down payment assistance, the FHA as an overall entity about 35% of their loans have down payment assistance, and yesterday [Lenar] said about a third of their loans use down payment assistance, so its just kind of surprising to hear you say only 74 closings, I was wondering if you could describe how you get to that conclusion, how you track your mortgages?

Within our venture we have the ability to track loan specific, what loan type it was. I can tell you that a few years ago we moved away from DPA, stopped offering it altogether. There is a lot of pressure as you’ve seen in the news from congress to eliminate the program and we’re sensitive to that so we don’t want to create a business that relies on something that could possibly go away in the future.

So you’re pretty comfortable that, with the accuracy of that statistic then?

Yes we are.

Your next question comes from the line of Jim Wilson - JMP Securities

I was just wondering if you could talk a little bit about as you’re targeting deploying capital, how you feel about your inventory position in certain markets. You’ve reduced it significantly, are there places now you really feel you’re short and you might be targeting or is it just purely any market price driven?

I believe strongly that a land light position right now is very prudent and the right position to be in. We do have markets that by the end of 2009 will be tight on lots. However I think that’s a healthy tension right now because there are opportunities coming across the transom every week in just about every market now to acquire lots. We’re remaining very patient because I think the opportunities will get better. The only deals we’re doing right now are those that are in A submarkets at a price point that we feel is strategic for that market. So preferably at the low end of the price scale in that market and we’re also being very cautious in our underwriting to ensure we have some cushion in case the market were to erode further where ever that asset is.

And we like much better being in a position to pick up finished lots where our cash inflow to first delivery is probably a year quicker then it would be if we had to develop those lots.

What are the terms on those look like, are you able, say cash are you actually going to buy lots, can you option them, do the terms look seemingly different then they did in prior years?

Every story is different as you know. The terms loosened up a year ago so terms have been out there and it’s the trade-off. If you do an option you’re probably going to pay a little higher price. If you pay cash you’ll get a little lower price. Most of the deals we’re doing right now are on easy rollers. We’re not doing a lot of cash bulk; I don’t think we’re doing any cash bulk deals right now. It’s all small option takes.

Your next question comes from the line of David Goldberg – UBS Securities David Goldberg – UBS Securities: Could you give us a little bit more color on the cost side of the business and really, the direct cost and material cost and what kind of savings do you think you’re seeing there, and then also some of the efforts you have put forward on the logistic side of the business, supply chain and where that stands?

There’s a lot that goes into cost, as we’ve shared now strategically for the last 18 months to two years, we’ve been working diligently to retool our product lines to go to smaller footages then we had back in 2005 and 2006. As Domenico mentioned on the call our average sized home was down about 10% in the last 12 months. So it lowers your cost an equivalent amount to whatever our average price per foot is you can take that right off as a cost savings. For the year right now we’re tracking, we’re approaching a 10% reduction in directs. I am concerned with the unknowns out there about what the price of fuel does to directs going forward. So we’ll continue to fight that fight. On our direct buy third party logistics program that you referred to we’ve rolled it out in Southern California. It’s working very well. We are seeing some synergies due to the direct buy and distribution. We’re about to put it on the test pilot in Texas where we’re expecting to see similar synergies. But it’s still in its infancy. These things take time to rollout and we’ll have a better story for you by the end of the year.

One way you can look at it is that our prices dropped sequentially 7% in the fourth quarter and they dropped another 8% and 9% this quarter yet our margins on the business have remained relatively flat, they’re down slightly but we have reduced price and part of that is because we reduced square footage and taken some the amenities out of the house but also its been cost reduction that has helped us to kind of hold the margin while making a home much more affordable. David Goldberg – UBS Securities: You were talking about the ENERGY STAR program and the energy efficiency and I’m just wondering how much more it costs you to put in the ENERGY STAR appliances relative, doing some of the more environmentally friendly stuff and if consumers are starting to pay a premium for homes that are energy efficient and environmentally friendly.

As we shared in the past the cost increase to go to ENERGY STAR was very, very minimal in part because we have one business model we could roll it across the whole system and work with Whirlpool on a volume scale for ENERGY STAR and get better pricing. So there wasn’t a margin adjustment for us as a result of the ENERGY STAR appliances. We continue to endeavor to find additional low-hanging fruit that we can offer to the consumer that don’t increase our costs a lot. The mainstream consumer right now is focused on affordability, can I really buy this home or not, they’ll purchase options where there’s an economic trade-off. Where they know over a period of time they can recoup their investment and that’s the beauty of our studios. For the buyer that’s really into the environmental side they have the choice to go buy whatever they want and then the mainstream consumer that’s into the environment but maybe not to the same degree, we’re offering what we can that doesn’t increase our costs. So we’re hitting it both ways.

Your next question comes from the line of Timothy Jones - Wasserman & Associates Timothy Jones - Wasserman & Associates: Your margins continue to be at high single-digit right now and you’re operating margin before impairments was about a 10% loss, one of your competitors had a similar thing last quarter saying basically there were getting rid of a lot of spec units, and [inaudible] competitor earned about 0.5% and another one lost maybe 2%. Why are your losses so much greater given the fact that you really are holding down your spec units?

I don’t think it’s directly related to spec units. Timothy Jones - Wasserman & Associates: Is it related to California?

No, where we are now is if there’s a loss it’s because our SG&A has moved up a little bit and that for us has been really essentially the fact that revenue is down 50% and we were able to take our costs down almost 40%. Timothy Jones - Wasserman & Associates: I know the SG&A but the gross margin of 8.7 that was bothering me.

And there are a few things that impact that, it bothers us also and it’s where we’re spending a lot of our time right now. We know that we’re not going to see a lot of price increase obviously in the short-run so the only way to improve your margin is cost or being a little more strategic on pricing one plan to another if they’re not tracking. But as we continue to whittle away at our community count and our investment some of the cost, there’s a tail to, I always call it the tail to the comet, where your overhead doesn’t move down as fast as your revenue because you have a lag on the cost side. So as we closed out a lot of communities, there’s another quarter where the costs continue to flow through the system while the revenue is gone. And our challenge right now is how do we keep lowering our overhead, how do we keep lowering our cost to produce the houses and at the right time reload with a lower lot that’s going to really lift our margins.

And we said in the overall Q&A or discussion that we had focused for a long time on generating a lot of cash. We will continue to be cash flow positive this first half of the year. Some others were not and we said that we’ll be positive cash flow in the second half of the year. And then said strategically we’re going to go back and try to work the margins back up because we’ve done all the heavy lifting on becoming, generating cash and holding our inventories. We’ve done a good job on the balance sheet and now we’re going back to focus on profitability. Timothy Jones - Wasserman & Associates: One of the questions is one competitor went up to 230 basis points saying they benefited from that 9% decline in raw materials, 7%, 8% decline and two, obviously they’ve written down land of a year ago, coming into cheaper prices. Why aren’t you benefiting from that kind of thing?

I don’t think you can take one or two quarters and say we are or we’re not benefiting. You’ve got to look at it in the long-term and I think when we come out of this you’ll see the full benefit.

You can also link it back, we are benefiting in that our price was down significantly because we’re repositioning for first time buyers, insolating ourselves from any additional resale market downturn yet our margins were flat.

Your next question comes from the line of Joel Locker - FBN Securities

Just on the order front, obviously they improved a lot from the first quarter and I’m wondering if you could give some kind of a figure on how much your price per order declined sequentially?

I think it was probably pretty consistent, wouldn’t you? When we looked at our price in backlog I would say it’s pretty consistent with what you saw first quarter, second quarter deliveries where our prices I think sequentially were down 8% to 9%. I think the backlog would be similar.

Have you seen, there’s a lot of management teams from the private side that are out of work now and a lot of the capital on the private equity side, have you seen any new home builders actually in the stages of being formed where those are split to capital with the private equity, hire the management team and then go to the distressed land sellers and buy permanent property or lots to actually build on?

Where the builder would go to a fund to buy the assets?

No not a builder, out of work say management team hooks up with a private equity who puts a billion dollars in there to buy land from distressed land sellers.

The one theme that we’ve been hearing is they can generate some equity but they’re having a hard time finding the debt side of capital to go with the equity to do deals so I don’t think you’ve seen a whole lot being done.

There are a lot of funds that have been created and a lot of home building executives that have gone to manage those funds but they aren’t doing a lot of transactions today. And at the right point in time we will align ourselves with the right fund, with the right managers and take advantage of that for future opportunities.

Your next question comes from the line of Larry Taylor – Credit Suisse Larry Taylor – Credit Suisse: Net debt at 856 has been about flat for the last couple of quarters, you’re going to use cash to repay this debt that you’re going to take out in July, is that about the right number, somewhere in that range that you are sort of comfortable supporting as far as net debt is concerned given the current earnings power?

Well it will probably improve because we said we’d be positive cash flow in the second half of the year so you’d probably the net net, it should actually go down. Larry Taylor – Credit Suisse: When we think about the order of magnitude of the land purchases that you might do opportunistically in the second half of this year relative to the potential for cash flow how should we think about that in terms of a [plug] versus how much debt the business is supporting today?

Our strategy right now is to hold our ratio between 40% and 50% and one of the keys to the reload is to continue to get terms to align yourself strategically so you’re not using all your cash but we do think that when the opportunities hit that we’re going to use some of our cash and the ratio is going to go up from whatever level it is at that time.

And don’t forget that we have $720 million of deferred tax asset that when we [return] to property will be an influx of cash for us.

Your next question comes from the line of Alex Barron - Agency Trading Group

If you could give us of the communities that you currently have, how many have been impaired at least once and I’m trying to understand a little bit of your impairment methodology because my impression was that if impairments are taken that at some point the gross margins would start trending back up and so since we haven’t seen that, I’m just trying to understand what might be going on there.

Actually when you take an impairment you’re not going to see a much higher gross margin then we have today. You’ve got some price back or your cost down to bring your margins up. Generally the impairments don’t yield a higher margin then, I don’t know, would you say at 10%, 11%, 12% max. Kelly do you know how many have impaired more then once of our communities?

Of our current impairments for the quarter about half the projects were impaired more then once and in aggregate a little bit more then 100 of our communities have been impaired more then once.

Your next question comes from the line of Jay McCanless – FTN Midwest Securities Jay McCanless – FTN Midwest Securities: Just wanted to talk very quickly about the deferred tax asset that’s rolling back onto the income statement, how many quarters of profitability do you think you’ll have to see in order to get those back?

They haven’t come out with a clear rule on how fast that can be restored. Jay McCanless – FTN Midwest Securities: I wanted to ask on the foreclosures, I would assume that the markets that ran up the most during the upturn are the ones where you’re seeing the most foreclosures, but are there any specific markets where you’re having undue burden from foreclosures?

The markets that we referenced in our comments, the Nevada, Arizona, Florida, and California is where the foreclosure levels are the highest and based on the research we’ve seen, it’s expected to continue at high levels for a little while still.

That is all the time we have today for questions so Mr. Mezger, I’ll turn the conference back to you for closing or additional remarks.

Thank you for joining us today for our second quarter 2008 conference call. Have a great day and we’ll look forward to speaking with you again soon.