Good day everyone and welcome to the KB Home fourth 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, assumptions, uncertainties and 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. For opening remarks and introductions I would now like to turn the call over to KB Home’s President and Chief Executive Officer, Mr. Jeffrey Mezger; please go ahead sir.

Good morning everyone and Happy New Year. Thank you for joining us today for a review of our fourth quarter and fiscal year 2008results. This is our first call without Domenic Cecere, who has now officially retired. I would like to thank Domenic for all his contributions to KB Home. Here with me now are William Hollinger, our Senior Vice President and Chief Accounting Officer and Kelly Masuda, our Senior Vice President and Treasurer. In a few moments I will turn the call over to William who will provide a more detailed overview of our financial results. We will then open it up for questions at the end of our prepared remarks. I would like to start by offering some perspective on our performance, our strategy, and most importantly what we believe it takes to be a leader in current market conditions. As you have heard repeatedly from others in the industry the housing sector continues to confront unprecedented downturn pressures. The pace of foreclosure activity is continuing to inflate housing inventories driving prices steadily lower. Overall economic weakness and job losses have prompted a historic decline in consumer confidence which discourages major purchases. These conditions persist nationally with no visible signs of lessening in the near-term. Experts agree that a housing market recovery is essential to an overall economic recovery and we support any federal stimulus that can promote housing stabilization. That is why we are playing an active role in the fix housing first coalition along with many others in the building and related industries. All that being said we are not relying on outside intervention as a cure-all for the current distress in the housing market. It is our responsibility to continue improving our business to effectively compete and operate in any economic environment. So rather then…

Thank you Jeffrey and good morning everyone. This morning I will take you through some of the highlights of our fourth quarter financial results, our financial position, and our recent sales activity. In the fourth quarter of 2008 we generated a net loss of $307 million or $3.96 per diluted share compared to a net loss of $773 million or $9.99 per diluted share for the year earlier quarter. The fourth quarter net loss in each year resulted from significant non-cash charges taken for asset impairments and abandonments and valuation allowances on our deferred tax assets. Although we delivered half as many homes and recorded significantly less revenues in the 2008 fourth quarter our bottom line financial results improved from the year earlier quarter. This improvement was the result of a decrease in our asset valuation and abandonment charges and better operating performance as evidenced by our higher housing gross margin. Our 2008 fourth quarter included pre-tax non-cash charges of $309 million for the asset impairments and abandonments compared to $403 million of similar charges recognized in the year earlier quarter representing a year-over-year decrease of $94 million. Additionally in the fourth quarter we took an after-tax charge of $99 million to record a valuation allowance against our deferred tax assets. This was substantially lower then the $514 million charge taken in the 2007 fourth quarter. Excluding the asset impairment and abandonment charges and deferred tax asset valuation allowances we would have reported net income of approximately $12 million in the 2008 fourth quarter and $3 million in the 2007 fourth quarter. About $132 million or 50% of our inventory and joint venture and impairments and abandonments taken in the quarter were in our South Coast region while $74 million or 28% were in the South East region. These two…

Thanks William, before we take your questions I want to take this opportunity to thank the entire KB Home team. They rose to the occasion in 2008 and I know that they are ready to do even greater things in 2009. I’m continually energized by their enthusiasm in the face of a very difficult housing market. I do not want to minimize the challenge we face or the unpredictability of the macroeconomic environment. Housing market volatility will continue but our strong cash position, lack of any near-term debt maturities, and above all our proven KB next business model give us a competitive edge in 2009 and beyond. Much of the hard work to strength our balance sheet and reposition our business has been completed. We believe we have a strategy and business model that enable us to operate successfully under any condition and we are putting that to the test. Our goals of generating cash, gaining operational efficiencies, reducing overhead, lowering our cost to build, and introducing new products are part of an integrated strategy to restore profitability. The open series array of home designs are intended to compete head on with resales and foreclosures. Our ability to price them competitively and deliver them profitably is made possible only by our ability to lower direct costs. We are operating with a keen sense of urgency across KB Home to introduce these homes in our communities because we believe they will accelerate our return to profitability. We should begin to see the impact of our new products on our financial results in the second half of this year. While this product transition unfolds our top priority remains generating cash. A healthy balance sheet is absolutely essential in this economic environment. That is why I am so pleased with our ability to exceed our 2008 cash target and that we can upgrade our goal from operating cash neutral in 2009 to operating cash positive in 2009. So, we have an aggressive agenda for 2009 which I think shapes up to be one of the most significant years in KB Home’s history. We will concentrate on the business factors that are within our control to improve our overall performance and we will do what we must to protect and enhance shareholder value and ensure KB Home emerges from the downturn stronger then ever. I look forward to the challenge of helping KB Home fulfill its potential and to sharing our progress with all of you throughout the year. Thank you and now we will open up the line to questions.

(Operator Instructions) Your first question comes from the line of Dan Oppenheim – Credit Suisse Dan Oppenheim – Credit Suisse: You mentioned that 50% of the targeted communities with the new product offering are schedule to open in the first half, could you clarify how much of your total communities that will be and then also last quarter you talked about how the sales trends in those communities where you had already opened them were seeing two sales per week, could you comment about the trends you saw in the fourth quarter in those communities relative to your other communities.

The reason that I clarified it as 50% of the targeted communities is that there are several locations in states like California where we don’t have the ability to change to a new product series because the product is approved with the map. Those are the communities where I’ve been referring to the value engineering, lowering spec levels, doing whatever we can to cut our cost. But it can’t go to this new product which is significantly more affordable to build and to offer to the consumer. We’re continuing to open these products around the system now however most of them are opened in December with a full grand opening here in January. So I can’t share with you the December results because we don’t share numbers within the quarter however we are seeing favorable positive sales where we’re opening these communities where they are outperforming their previous product or other communities we have open in the area. Dan Oppenheim – Credit Suisse: Could you talk at all about how should we think about the margins on these products. Have you taken enough cost out where we can see kind of maintaining margins or should we think about lower margins on these going forward.

Well certainly the intent is to elevate margins. We’ve been able to lower our cost, we are lowering the price of the product as well so its more affordable and more competitive with the resale and foreclosures. However we’re not lowering the price to the extent that we’re lowering our costs so at this time we’re actually seeing margin improvement as we introduce this new product. It was one of the components in why our margins were up incrementally in the fourth quarter because we’ve been able to lower our cost to build. We’ll give you more guidance on that as we go forward after we open up in the first quarter but our expectation is that margins will be enhanced with this product not reduced.

Your next question comes from the line of Carl Reichardt – Wachovia Securities Carl Reichardt – Wachovia Securities : As you’re looking at expanding community count in the next quarter or two, what kind of impact is that going to have from an SG&A perspective just given that you’ve been shrinking so much, I’m not surprised to see SG&A down as much as it was this quarter but going forward could you give a sense of if you’ll be able to maintain this kind of a level or seasonally you’ll go higher.

On a year-over-year track we expect our SG&A to be lower in 2009 then it was in 2008. Again in the fourth quarter we took a lot of steps whether it was headcount reduction that William mentioned, the consolidation of divisions in an effort to lower overhead and there’s always a time, I call it the tail on the comet where it takes a while for the expenses to wash through. We expect to see our overhead continue to actually go down in 2009 while retaining this growth platform.

Your next question comes from the line of Ivy Zelman – Zelman & Associates Ivy Zelman – Zelman & Associates: Could just clarify some of your comments on the 2009 cash flow. I realize, maybe start off with whether the tax refund is included in those comments but you’ve got backlog down over 60%, home prices will probably be lower, and you’re shrinking your communities by upwards of 30% so I’m just trying to understand the levers there that you’re are pulling to feel confident in being cash flow positive.

We paid off the December debt, the $200 million. We do expect the tax refund here in the first quarter in February so that will offset the debt reduction. Past that what we’re seeing is as we continue to scale our business to the current revenue it reduces the cash consumption for overhead and we’re also lowering our expectation for land spend in 2009. With the size of the business and the lots we control we don’t have to buy any lots to hit our 2009 plan. We’ll continue to reduce inventory with the lower overhead spend and an actual improvement in margin as this new product rolls out so we expect now that we’ll be cash flow positive for the year. Ivy Zelman – Zelman & Associates: And just to clarify that does include the refund.

It does. Ivy Zelman – Zelman & Associates: On the product are you able to change the density of the product in some of these areas where you’re also changing the floor plan?

In some cases we are. As you can imagine in the heated pace of 2004, 2005 or 2006 the focus was on get the community open and there were occasions where we mapped parcels for product that did not max density. We’re now going back in to those situations and remapping to a higher density and the cities are responding very favorably to this move. But that takes time and that’s not as big a driver in 2009 as just retooling product on the same size lot that we already have in our portfolio. Ivy Zelman – Zelman & Associates: Are you saying SG&A in absolute dollars certainly will be down but will you be able to offset the deleveraging of the top line as well so that as a percentage of sales you expect it to be lower?

Certainly that’s our goal. It will depend frankly on how sales evolve through the year with this new product. As we shared we dropped our SG&A $100 million year-over-year in the fourth quarter so there was a significant reduction and we intend to keep chiseling away at it and do whatever we can to lower the SG&A.

Your next question comes from the line of Michael Rehaut - JPMorgan

Just on the gross margin I was wondering if you could give a little more granularity. Certainly you mentioned that some of the rollout of the new communities or the product reformulation and the lower costs have helped, is it, what percent of communities that is flowing into that 13.9 ex charges gross margin number and also if possible to give the benefit from prior impairments, what it was this quarter and last quarter in terms of how that’s also influencing the margins.

Its very difficult to identify for a quarter what percentage was X, Y or Z of the factors. There’s a lot of factors that play into why our margins were up. Its not so much this open series rollout as it was a lot of the efforts we made in 2008 just through lowering our cost and lowering our spec level that finally played out at the end of the year because our directs were down and are part of it. As you may recall earlier in the year we slowed down sales intentionally to try to raise margins. That played into it a little bit. And then we delivered more in the fourth quarter so that would have played into it a little bit and in part its mix because we were closing out communities and your margins are lower on the last view versus your ongoing.

As we’ve said in the past, we think it’s a bit difficult to ascertain what the actual impact is in terms of dollars on our gross margins but having said that in terms of the units, we believe that about 70% of the units we delivered in this quarter compared to about 25% in the fourth quarter of a year ago were units that had impairments taken.

So just to understand in terms of the gross margins, because you’ve had up until this quarter four consecutive quarters of between roughly 9 and 10% and in September I think you were talking about a post impairment gross margin for the communities in a 9 to 11% range. And so certainly you’ve had some success with the cost reductions and product reformulation but looking forward do you see this type of 13, 14% margin sustainable. Do you see it actually improving or expanding due to the fact that more communities will be rolled out this way and are you also taking into account further pressure in home prices as all indicators are that the environment is still pretty challenging in general.

Keep in mind also the comment that we made that we’ve done the heavy lifting on repositioning our balance sheet and creating dry powder and over the last two years there were times that we were moving product through at a lower price and a lower margin due to our focus on generating cash. We now have the dry powder in a war chest to run this business and be opportunistic. My sense is just with that change in strategy you’ll see margin improvement. As I said a lot of what you saw in the fourth quarter was the fruit from efforts through [2009] whether it was pricing and pacing, whether it was our direct cost, the scale or the impairments that have been flowing through. While we gave you the percent of deliveries we don’t go back and track was that an impairment from 2006, 2007 or 2008, we just know that the lot was impaired to that amount. Going forward a lot of the margin will be a direct reflection of where the market is. We expect prices to go down. That’s why we’re pushing to bring in a whole new product line at significantly lower cost to build then even the lower levels that we achieved in the fourth quarter of 2008. So we’re anticipating price going down, we’re doing everything we can to restore profitability and I don’t think you’ll see margins down where they were in Q2 or Q3, but we also aren’t ready to tell you where they’ll be until we’ve opened all this product up and see what the market will give us.

Your next question comes from the line of David Goldberg – UBS Securities David Goldberg – UBS Securities: You mentioned that you’re expecting prices to go down as you look forward and what I’m trying to get an idea of is if I have it correctly, you are pricing the new product to really be more competitive with foreclosures and more inline with foreclosures, albeit a smaller product obviously, how would you respond next year if foreclosure pricing starts to fall. Strategically does that mean redesigning the product again or does it mean that at some point you’re just not going to make smaller homes and if you’re priced above the foreclosure levels that that’s kind of what it is.

We’re always going to be pushing the envelope on our product to cater to the realities of the market at that time, but go back to the reference I made in my script where foreclosures are large in Southern Cal yet inventories are going down. Prices are at a level now where there’s a lot of buyers out there. It’s the affordability opportunity they haven’t seen in many, many years in Southern Cal and that’s why sales volumes are up a couple hundred percent on the resale basis year-over-year. So prices have now reset at a lower level where inventory is clearing very quickly and our intent with this product is to target that price level because that seems to be where the market is stabilizing. David Goldberg – UBS Securities: If we could go back to the free cash flow guidance you mentioned that sales in the newer community were outpacing either the product that had been there before or comparable, comparable to that older product in the same market, and I’m wondering when you look forward to your free cash flow and the guidance and being free cash flow in fiscal 2009, does that assume that that same sales pace outperformance against the older product that stay consistent, i.e. if you were selling two homes a month on the older product and now maybe you’re selling three, does that spread stay consistent when you look at sales moving forward.

We’re always conservative in our forward look and our guidance to you people and its my expectation, if you think about it for a moment, again go back to Southern Cal, if a year ago we were selling 3,000 square foot homes for $400,000 and its now a 1,500 foot home for $250,000 you’re going to sell more houses. Its just a function of the price point so there’s probably some additional absorption included but when we build our business planning we assume current sales rates.

Your next question comes from the line of Stephen East – Pali Research Stephen East – Pali Research: Around sustainability, is your operating margin that we saw this quarter is that sustainable as you go through 2009 with this new product and your cash flow generation on a per house basis, that was nearly 35% of average selling price. Are those two metrics sustainable moving through 2009.

Well 35% of revenue is typically what your lot cost would be on an average around the system so we’re not buying a lot of lots today. I guess that’s your cash generation so we are, I don’t think you’ll see that kind of positive cash flow quarter over quarter because it was a larger delivery quarter but as the year unfolds, we again, we’re targeting to have positive cash flow for the year. I don’t know that I can give you a per unit because there’s a lot of things that go into that mix. Stephen East – Pali Research: On the margin side, you think that’s sustainable or is that a growing thing as the open series takes hold.

It will improve through the year because our volumes will pick up as we continue to roll out this product and reopen many of the communities we kind of paused on while we were retooling. Stephen East – Pali Research: Any update on [Enspirada] and the Vegas market in general.

There’s a lawsuit filed so we can’t comment on [Enspirada] much beyond that. We can say though that both the bank syndicate and the consortium have hired restructuring advisors and we have been actively discussing potential solutions. Stephen East – Pali Research: Where can we find the series now and is your rollout timeframe, will you be totally rolled out in six months on it.

On existing products, that’s our goal. Whenever these markets settle and we acquire additional lots at a lower basis we will be rolling out this product. That’s the product we’re targeting on the new acquisitions as well but its system wide. We’re rolling it out right now in Florida, in the Carolinas, in Texas, in Arizona and we’re seeing incredible savings on the directs. I can actually share with you, in the past we talked just about Southern California and we’ve now opened up in Tuscan and to illustrate the magnitude of this product that used to build, we opened some models last week in Tuscan where a 1,700 foot home that built for $89,000 now builds for $63,000. So we dropped our directs $26,000 on the same size home. It’s a significant game changer in terms of the cost to produce your product.

Your next question comes from the line of Kenneth Zener – Macquarie Research Kenneth Zener – Macquarie Research: Just following up on that Tuscan example, the $89 to $63, could you give us the break down between the direct meaning the labor as opposed to the materials that you’re buying on a per square foot.

I don’t have those numbers with me but materials are 60% of your budget, I don’t know. There’s both material and labor savings I can tell you that. Its on both sides. My hunch is the proportionate ratio will be the same its just all coming down as we identify all the different ways you can value engineer a more efficient product. Kenneth Zener – Macquarie Research: Can you talk about your, because you expect to lower direct cost, the sustainability of that in light of the fact that other builders also will be getting material costs, that’s just being a net neutral for the industry as opposed to a benefit to your margins.

My challenge there would be the savings here are not because commodity prices moved down. This is actual hard savings that are within the design of the product and I think as the markets stabilize this will be one of the differentiators between the top performers and the lesser performers is how good are they at bringing product to the market at an affordable number. We think we do that extremely well.

Your next question comes from the line of Megan Talbott McGrath – Barclay’s Capital Megan Talbott McGrath – Barclay’s Capital: I want to follow-up on what you were talking about in the beginning about where your projects are geographically, it sounds like you’re much more comfortable now with where you’re located, is that a fair interpretation or do you expect to continue to exit any markets.

Two years ago I was comfortable with where we were at that time as well and we keep reacting to these markets as they’re shifting. Its very fluid out there. If you look at the markets we exited the majority of them we had only been in for a few years. They weren’t big businesses, they weren’t profit contributors necessarily to our overall results and we’ve elected strategically to revert back to focus on the large metropolitan areas where we have a brand, we have a franchise and we have a history of performing at a high level. If you look at the total as I shared in my comments, the markets we’re in today generated 29,000 deliveries in 2006. So we still have a significant growth platform from our current level of business and they are all in markets that we think long-term have great prospects and solid economies. Megan Talbott McGrath – Barclay’s Capital: You talked about how you saw sequential improvement throughout the quarter, one of the things we’ve been hearing is that all of this talk around stimulus packages and potential mortgage rate buy downs could be keeping some buyers out of the market as they wait to see if they can get a better deal, have you heard that from any of your customers.

I think there’s a general nature and tendency in today’s consumer to take their time and make sure that they’re making the right decision. We normally don’t share what goes on sequentially in a quarter and I asked William to highlight that in that I’ve heard a lot of feedback where people were concerned our sales would stop because the DPA programs went away. And DPA went away on October 1 and we actually saw sales momentum not lessening after DPA went away so that’s why I asked William to raise it. I think we’re seeing around the system people visiting five, six, seven times before they make the purchase decision versus one time or two times a couple of years ago. They’re being diligent, they’re doing their homework. I’ve not heard they’re waiting for a tax credit. I do think if the stimulus package included a credit or the subsidized rate that we’re trying to get I think it will get more people off the fence but in many of our markets it’s a very compelling time to buy if people have the conviction for home ownership.

And interest rates or mortgage rates are at a 37-year low and affordability is at the highest level it has been in 20 years so it’s a pretty good time to buy a house. Megan Talbott McGrath – Barclay’s Capital: On the cash flow when you talk about negative cash flow in the first half of the year, are you talking operating cash flow or total net cash flow.

We’re talking operating cash flow. Megan Talbott McGrath – Barclay’s Capital: So that includes the tax refund, still negative.

It will be because that’s offsetting the debt we just paid off in December. Megan Talbott McGrath – Barclay’s Capital: But that wouldn’t be in the operating cash flow line.

Yes that is correct. That’s geography, I’d have to look at that that way. Because you’re right. The payment down of the debt will be done in the financing activities in the collection of the receivables up under operating.

Your next question comes from the line of Nishu Sood – Deutsche Bank Nishu Sood – Deutsche Bank: Regarding the $220 million refund that you’re going to be getting soon, since you didn’t have the big land sales that helped some of the other builders claw back their previous taxes paid, I would imagine that that was mostly the marked down land that you were delivering under your closings, so is that the correct way to understand it and numerically would that imply then if we just take a 35% tax rate roughly that on your closings you were delivering land that had been marked down roughly $500 million or so, is that the correct way to look at it.

Your first question yes, it is correct that we had no real big land sale losses that generated in the big receivable, this is really coming from just the delivery of previously impaired projects and so that is correct. Obviously you know taxes are very complicated but what we’re saying is I think that what we would say is just that same kind of situation going forward that our tax year losses for 2009 and 2010 would be more or less the same kind of impact, nothing big and dramatic but more of a flow through kind of basis.

We did drop our inventory levels 11% outside of impairment so that’s also the cash that came back in. Nishu Sood – Deutsche Bank: The five year window that’s being proposed extends the amount of time over which you’d be able to claw back taxes, would that have any effect on your behavior. Obviously you’ve chosen not to do the major land sales but there are other tactics that you could use like accelerating closings at the end of a fiscal year. So if it does get extended will that come into your calculus on how you deliver units for the next couple of years.

I don’t think it will. It’s a proposal, its got a lot of moving parts, its got a lot of complexity to it. We’re certainly hopeful that the government does something here to help stimulate the economy and stabilize home ownership but we’re going to run the business and its unclear to us, we’ve been trying to understand the proposal and what it would mean for us but I don’t think it would drive any different behavior then we’ve outlined today.

Your next question comes from the line of Susan Berlinger – JPMorgan Susan Berlinger – JPMorgan : On joint ventures it seems to me that you’re overall debt increased slightly from last quarter about $61 million while your joint venture investments dropped more so and I’m just trying to figure out what went on there.

We terminated our unwound five joint ventures during the quarter which included opportunistically buying out two partners so that’s where you saw the debt come on a consolidated basis. Susan Berlinger – JPMorgan : Will we see a notable drop when you put out your Q in terms of how much debt is associated with the joint ventures.

Yes, and we said that remember we said that our debt was $1.5 billion on the joint venture, the combined joint ventures and right now we disclosed that its around $800 million so yes, it dropped by about $700 million.

It is our expectation that you’ll see continued reduction in our JV investment and activity. We’ll continue to unwind these in 2009.

Your next question comes from the line of Analyst – FTN Midwest Analyst – FTN Midwest: On the open series pricing, how stable has that been and have you been able to hold prices, do you think you’ll be able to hold them going forward.

It will be a community specific issue. Where we’ve opened it we’ve strategically targeted to be competitive with the foreclosures at this time so if foreclosure and resale prices hold, we’ll be able to hold. If the markets deteriorate and prices go down we’ll have to come up with steps to remain competitive and move the product. Analyst – FTN Midwest: What is the average dollar value of incentives that going into your closings now and how does that compare to last year.

We really don’t share that.

We don’t have that number and it’s a definition within the industry that everyone defines it differently. What we’ve seen is that the incentives and the way that we track it has not materially changed sequentially through the year or comparatively against last year.

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

Regarding SG&A, can you just give specific between overhead, corporate, and selling expenses and if there were any severance cost or lease termination costs in the $121 million number.

Yes, there were. We haven’t quantified it because there were a lot of things going on in the quarter but just to give you a sense though as we mentioned in the script we reduced our workforce within the quarter by about 11% but so there’s more then just severance but there were other things, as we said, exiting other markets and so forth so there were some but we haven’t really aggregated all of that.

Do you have what percentage may be corporate though other then overhead.

We really don’t break those out. The reason that its hard to identify is as I said earlier, there’s a tail to this comet so if we decide to leave Atlanta like we did and we’ll book the one-time charges and then something else comes up that you didn’t consider or you’re going to get out of an office lease in December and it takes until February, whatever it is, there’s a lot of little costs that keep cropping up for a while on a diminishing basis and we did in the fourth quarter we did consolidate seven divisions so there were one-time costs that we incurred and there will be some costs of those wind downs going forward but it will continue to diminish and go away and stabilize over time.

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

I’d like to thank everyone for attending the call. We look forward to sharing our update on our new product and the market as 2009 unfolds and hope to talk to you again soon. Have a great day.