Thank you for joining us today for Hovnanian Enterprises fiscal 2008 third quarter earnings conference call. (Operator Instructions) By now, you should have all received a copy of the earnings press release. However, if anyone is missing a copy and would like one, please contact Donna Roberts at 732-383-2200. We will send you a copy of the release and insure that you’re one the Company’s distribution list. Management will be making some opening remarks about the third quarter results and then open up the line for questions. Before we begin, I’d like to remind everyone that cautionary language about forward-looking statements contained in the press release also applies to any comments made during this conference call and to the information in the slide presentation. I would now like to turn the conference call to Ara Hovnanian, President and Chief Executive Officer of Hovnanian Enterprises.

Thank you and thanks all for participating in today’s call to review the results of our third quarter and nine months ended July of ’08. Joining me today from the Company are Larry Sorsby, Executive Vice President and CFO; Paul Buchanan, Senior Vice President and Chief Accounting Officer, Brad O’Connor, Vice President and Corporate Controller; and Jeff O’Keefe, Director of Investor Relations. If you turn to slide number one, you can see that year-over-year comparisons for our third quarter in most key metrics were all from last year’s third quarter. We gave all of this data and a little more detail in our press release, which we issued yesterday, so, as usual, I will not go over every data point but instead I’m going to focus on some of the key perimeters driving our performance and talk about the current market conditions as well as our current initiatives. The challenging market conditions continue and there’s not yet any evidence of the overall housing market bottoming out. However, there are a few early signs of a market rebound in some individual markets that might end up proving to be the start of an improving trend, but it’s a little to say that a recovery is underway. I will discuss some of those potential early signs in a moment. The seasonally adjusted annual return of national housing starts has been running at or above a million housing starts per year for the last eight months. This is similar to the trough levels seen in the past three downturns. We have a handful of communities outside of Texas that are doing well, but I really can’t point to anyone product type or price point that is outperforming any of the others. Today in many of our communities, we’re still faced with a difficult…

Thank you, Ara. I’ll start by talking about the land related charges that we took in the third quarter. We walked away from 3,733 lots in the third quarter and took a write-off of 30.8 million related to these option lots. Slide 21 shows the geographic breakout of these charges which represent the amount invested in these options primarily through option deposits, but also in any predevelopment dollars we had invested in getting this land through the approval process. In our most challenging markets, we have significantly reduced our exposure to land options. 78% of a remaining lot options are in our better performing markets of Texas, Washington DC, Northeast, and the Carolinas. For most of these options, the price or terms or both have been renegotiated. Many in fact have been renegotiated multiple times. Nonetheless, we are constantly reevaluating every lot option before exercise to insure that the option take down makes economic sense based on today’s home prices and absorption levels. Our remaining investment in option deposits has also dropped dramatically from a peak of $466 million at the end of the second quarter of fiscal ’06 to $96.4 million at July ’08. The $96.4 million consists of $64.1 million of cash deposits and the other $32.2 million of deposits being letters of credit. Additionally, we have another $113.6 million invested in predevelopment expenses on these lot options. The next category of pretax charges relates to impairments. We incur impairment charges of $80.1 million related to land and communities that we own in the third quarter. This is significantly lower than the $226 million of impairment charges we took in the second quarter of ’08. While the trend is positive, if home prices continue to deteriorate, we will see additional impairments in future quarters. So far we have…

Thanks, Larry. We haven’t seen land prices on new deals that make economic sense just yet. At some point soon, the banks will take on more real estate owned, REO, from the smaller builders. Obviously banks don’t want REO and will mark down the land to levels that will allow them to move it off their books. This is definitely likely to be a greater factor in the next 12 months based on all of our current reconnaissance. This scenario will ultimately benefit the public builders because we could then buy land and build a home and generate a more typical appropriate margin assisting and betting back to operating profit more quickly. We bought a lot of land from the RTC in the last housing downturn of the early 1990s. Looking back, I wish we had bought more. Today, we have more leverage than we’re comfortable with and would not consider taking any more leverage to buy land. But one way that we’ll be able to take advantage of land prices that will inevitably present themselves is to partner with a financial institution. Let me take a few minutes to update you on the progress that we are making on forming such a joint venture with a financial partner. We have spoken to many private equity shops and hedge funds about the prospect of forming a joint venture to buy distressed asserts. We narrowed the field down to just a couple of firms and are very close to finalizing an agreement with one of these partners. The proposed structure would be similar to current and past joint ventures we have formed with financial partners, the summary of the balance sheets of which Larry just discussed. In this case, we would put up about 10% of the equity and the financial…

Thank you, sir. Ladies and gentlemen, the Company will now answer questions. (Operator Instructions). Your first question comes from the line of Carl Reichardt with Wachovia. Carl Reichardt – Wachovia Securities : I’m curious, Larry, if you can tell me, you talked about, or actually Ara, you talked about minimal overhead to keep the store open. Do you have some new merits, like on average what would be kind of the normal fixed costs that you need to cover to keep your doors open. I know it’s going to vary market-to-market, but I’m just kind of curious to get some numbers.

Well, it’s really not a matter of the velocity alone as to what justifies keeping a particular community open. It really has to do with the price versus our cost and so the analysis we do is the lot recovery. We look at how much of our investment we’re able to recoup by moving forward and building a house and if we don’t recoup enough, then we consider mothballing the community as we discussed during the call. What I was referring to really had to do more with just the challenge when you have, for example, a typical construction individual and a sales person that in normal environments as the sit in the construction trailer and a sales office with a model complex could between the two of them, for example, could easily produce let’s say 30 homes per year and instead at the moment, they are only producing 15 homes a year. The challenge is you can’t reduce more than one sales person and one construction person. You still have to have the sales office and models and the construction trailer, so it makes SG&A a real challenge in that environment. Nonetheless, as we do the lot recovery analysis, even though in that example SG&A would be virtually doubled from those two individuals, it still is typically well worth our while because we’re recouping some of our land investment and we’re anxious, as you know, to burn through our land investment today, which were at our older prices, and make room to refill our inventory position with new lower priced land. Carl Reichardt – Wachovia Securities : Secondly, just on the concept of the larger JV going forward, would you consider, this 10%, do you expect that to be cash or is that land in lieu of cash? What kind of communities would you expect to contribute to a joint venture assistance of equity owners?

Well first the contribution of a few communities, and it’s a small number, it is really the minority portion of the venture we’re establishing. The notion is just to seed it, get the relationship and reporting started so that we can build a relationship to move quickly when we get moving going forward. There’s a good chance that it will include some active adult communities, a small number, and I’m talking about three or four communities that we’re going to seed with it. It’s not that significant. There will be probably active adult communities, which typically have more investment so it makes more sense because they have the clubhouse and recreational facilities as amenities and those take some bigger dollars.

Just to put it into reference, what we’re currently contemplating is less than $100 million of purchase price of our assets would go into it. If you apply a 10% to that, it’s less than $10 million that we would put in in terms of our investment post the deal. So, as Ara mentioned, our real intent here is to take advantage of opportunities at the bottom of the cycle. We’re just seeding it to get it started with our own asserts. But the real purpose of the venture is to invest in new deals at the bottom.

I guess I should’ve mentioned the other part to your question, Carl. In the initial deal as we sell these assets to seed the deal, and let’s use the round number of $100 million for ease of sake, our equity contribution would be $10 million. But effectively if you use that number, we would receive cash of $100 million as the venture would buy the assets from our Company. That cash of $100 million would be able to fund our 10% investment on a billion dollars of acquisition, so the equity leverage power is huge. What’s attractive to us is that, as mentioned, if we just hit our pro forma returns, which when you’re buying at the bottom of the marketplace, should be achievable. By the way, our plan is not to buy with the hopes that the market recovers. We plan to do the same thing we’ve done with every one of the other housing downturns over our 50-year history. We will buy when you can make an economic return right then and there with the current lousy prices and the current lousy price [inaudible]. So if we make the pro forma returns on acquisition, we should get a number approaching 40% of the profit with only 10% and obviously if the market improves and our margin does better, then we’ll get even greater percentage. That is obviously something that’s attractive to us and we think is an excellent financial model for our company. We are more highly leveraged and will likely be much more highly leveraged. We’ll probably end the housing downturn with a balance sheet that looks more like a private company did at the peak of the market, but we will have lots of cash available. By using the joint venture, the cash flow that we will get will allow us to pay down our debt without using up our capital.

Your next question comes from the line of Ivy Zelman with Zelman. Ivy Zelman – Zelman & Associates: Ara, you point out some positives that referring to markets, Northern Cal and Augusta and Stockton and other areas where the market’s seen an improvement in existing home sales, you know ironically the increase in existing home sales is coming from foreclosures and dominating markets as much as 50% to as high as 75% of those existing home sale increases, and we know that through title companies and work we’ve done that half of those and maybe even more, many are being purchased by investors. The good news is that it’s moving inventory. The bad news is that there’s for every house that’s taken off, there’s more in the pipeline to come. The other bad news is it’s taking share from your new home market and your prices, although in many cases you may not be making money now, are likely to go lower because appraisals are coming in lower because the comparables are foreclosures. So I’m really having a hard time seeing the light at the end of the tunnel that you seem to see. If you could take out the foreclosure sale activity, which arguably we could be creating another investors gone wild down the road, you’re looking at primary sellers who are going to be looking at comparables significantly lower and in many cases could be under water. As you refer to gross margin improving and going higher, I’m curious how you’re going to do that as prices are likely to have to go lower because of the competition with these foreclosures.

Well, first of all, I tried to be careful to make clear we thought it might be a glimpse of an early indicator. I’m far from popping the champagne cork at this stage. But what is important is to clear the inventory and frankly whether it’s cleared through foreclosures, which are selling often on through MLS, or it’s clear through a normal non-foreclosure sale, the point is it’s clearing the market. That is an important fundamental step to take place. There are new foreclosures being lifted, but obviously for outstanding listings to becoming down, that means more sales are happening each month for the last few months than new listings come on to the marketplace, that’s a healthy situation. What it is is a healthy trend. It’s still a very challenging marketplace there, believe me, and we’re not excited about it. But what it does do is start clearing the decks and getting to a more balanced market condition. It’s an important first step. In regard to the other point you mentioned, it is true clearly that our pricing has been affected by the existing homes. What was interesting is that typically new homes sell at a premium to comparable existing homes. For a while, the public homebuilders lowered their prices more than the existing homebuilders will willing to lower their prices and it created this odd situation where new home prices were at a discount to existing homes. What we’ve seen recently and a lot of that is thanks to pressures, competitive pressures from existing homes, they have finally moved prices down below as well and it’s getting a normal scenario. Nonetheless, that’s obviously affected our pricing and has obviously affected our margins. We’re taking into that account as we are looking at margins and we’re still comfortable with…

We have only a month and a half left of our year end, a lot of that is in backlog. We are not planning nor feel like we need to plan for a lot of additional, anything out of the ordinary for what we’ve been doing in terms of promotions right now. We have tried to factor in our absolute most recent current pricing into the impairments that we recently took, so we’re reasonably comfortable at this stage. Having said that, it’s not an environment where we’re raising prices very much and it’s clearly a challenging environment. But at this stager we’re comfortable with the numbers we just gave.

Your next question comes from the line of David Goldberg with UBS. David Goldberg – UBS: Actually kind of following up on Ivy’s question, I was wondering if you could give us an idea around the communities that you kind of pointed out where the average pricing had fallen and you’d seen some pick up in terms of sales base, maybe what you think generally that pricing looks like relative to where new homes are pricing on a square foot basis? Then maybe also just suppose that against your cost structure relative to maybe your raw material costs and what would be left to think about buying land and what you could pay for lots?

Well obviously that’s a difficult question to answer given that everything is so locally specific. But I would say in those markets, I’m actually in California and I was just in Northern California touring and analyzing several communities, and in those particular locations I just viewed, the existing home prices per square foot in that particular county is basically has finally come down to levels that are competitive with new home prices per square foot. They were very similar in that particular example to what we are offering. So that I think is what finally had prompted existing home sales in that location to start selling, and that’s an important part of the marketplace because for somebody, for a homebuilder to sell a move up house, for example, because not all of our homes are first time homebuyers, our customers have to sell their existing home. So if there’s finally activity in the sales of existing homes, that begins that food chain and then buyers can sell and hopefully move up to one of our homes. So pricing if existing homes were selling at a premium… Let me rephrase that. If they were asking a premium price and there was very little velocity, they’ve dropped their prices to the more appropriate and more normal relationship with new homes and it’s starting activity back up. David Goldberg – UBS: Relative to the hard cost in the house, the actual construction costs.

In terms of the land or house? David Goldberg – UBS: The house itself.

Could you elaborate on the question; I’m not sure. David Goldberg – UBS: Well what I’m trying to get an idea of is if you know that you’re selling for let’s say $170 a square foot, what does it cost you to actually build the house on a square footage basis, i.e., what’s left for your margin and to buy the finished lot itself or the raw land?

It varies dramatically from market-to-market. I mean in some cases, for example, the developed lot is 15% of the sales price in normal environments. In another higher end market in California or Northern New Jersey, it could be 40% or even 45%. The construction cost would obviously be the corollary in that kind of relationship. I can say at the moment, typically speaking new land if you want to make a profit, a fair profit at today’s house prices, there are very few land opportunities yet that make sense. But this is typical in the cycles. I mean we’ve been through so many of these and I remember as peacefully as the ‘90s downturn, our last one, it took awhile for land prices to come down to a level that made economic sense at today’s level factoring in the land price and also construction costs. But what it takes is for this last leg of the housing correct to happen and that last leg is more financial institutions to take over the land and then sell it to other homebuilders, whatever the case may be. That last leg doesn’t really affect house prices very much, but what it does do is make land available finally at prices that can make economic sense; and I don’t think that’s too far off.

Suffice it to Say, David, that what we would do if we saw an opportunity is we know what our current hard and soft costs are to build that house; we know what our current absorption face is in that particular location; we also know what kind of return we would want to generate based on today’s prices in places, we would back in to what we could afford to pay for the land, which is significantly lower number than it would’ve been four years ago. David Goldberg – UBS: If I could just get one more quick question actually…

Your next question comes from the line of Mike Rehaut with JP Morgan.

Sorry about that cut off by the way. I think that was the operator, not us though, so you don’t get insulted. Go ahead, Mike. Michael Rehaut – JP Morgan Securities: I appreciate the detail on the DPA for the first nine months of the year. I was wondering if you could provide that for quarter-by-quarter and 1Q, 2Q, and 3Q.

I don’t have it right at my fingertips, but we can get back to you on that. It did climb higher sequentially throughout the year. I just don’t have the numbers off the top of my head. Michael Rehaut – JP Morgan Securities: If we could, I’d love to circle back with you on that. The other question I have is when you talked about the tax credit and you kind of compared it to the Down-Payment Assistance, one part that was not mentioned was the fact that it’s really a 15-year loan and would be in some ways added to a person’s debt profile and debt burden. I was just wondering, number one, as yourselves and others in the industry make consumers aware of the tax credit, is that understood and how does that or how is that going to come into the decision making process and if you’ve seen any type of reaction by consumers given that fact.

Certainly we make them aware that it is interest-free loan. We explain to them in great detail how the program works. The fact is that people want to buy a house and this helps them have the needed funds to pull it off, and I think it’s being favorably received. Would it be better if it wasn’t a loan? Sure. But I don’t think that it’s an interest-free loan is going to make the program not work.

By the way, I do not believe, although I don’t think it’s been completely crystallized, but I don’t believe because it’s an interest-free loan with long maturity, I do not believe that that goes into the, at least in the interest payment calcs unqualifying the customer. What is interesting also is that while it is effectively an interest-free loan, it’s a little bit better than that because there is $500 a year re-payment required starting in the third year, so you do get a couple years of grace; but the balance is due upon resale unless the proceeds and the profit from the resale are not enough to pay it. Then it’s forgiven. So it’s not as good as an absolute credit. On the other hand, it’s not as bad as debt because it’s interest-free, nominal amortization, and in a bad scenario where you don’t sell it for a sufficient profit, you actually don’t have to pay it back, so there are some good features. As we pointed out in the presentation, the down-payment assistance can actually get you 100% financing in lower priced homes, as like the $150,000 priced home we gave in our example. You could actually get 102% financing so to speak, which we think would be enticing for customers, and that extra financing again is interest-free and potentially repayment-free in a bad, downside scenario.

Your next question comes from the line of Dan Oppenheim with Credit Suisse. Analyst for Dan Oppenheim – Credit Suisse: Along the same lines, with down-payment systems going away, we’ve heard that in this environment it takes at least 30 days to get a loan approved with an appraisal so given that that needs to be done by October 1st. I’ve kind of heard of two different things happening in August where one part kind of seeing it pick up initially in buyers with kind of rushing to get into these programs before they’re eliminated. But then as the month progressed, heard of activity really dying off and starting to see the real impact of: Okay, what’s it going to be like once this program goes away since these loans, that would be on contract for the end of August and beginning of September, there would be a good chance that they couldn’t use the program anyway. Could you just comment on if you saw similar things in August?

No, I don’t think we’ve seen similar things in August. In fact, we’ve been pretty pleased with our recent, just the past week and the prior couple weeks to that have been good weeks from our perspective from a sales point of view, so we didn’t see any tailing off. I guess it’s still theoretically possible that it’s still people trying to jump on the bandwagon before it ends; but I don’t have any evidence that that’s the case. Analyst for Dan Oppenheim – Credit Suisse: So no view of kind of what the impact could be yet? It’s still too early.

No, in fact my suspicion is is that many of the people that were getting the Down-Payment Assistance Program to get the 100% financing can actually come up with the 3% modest down-payment that FHA’s normal programs require. There’ll be some percentage of them that can’t, but I think the vast majority can. So I don’t think the impact of the elimination of The Down-Payment Assistance Program will be anything close to eliminating, in our case, I think we had 16% over the last nine months. I think the vast majority of that 16% would still be able to qualify for a loan. Analyst for Dan Oppenheim – Credit Suisse: So then just the follow-up: on the joint venture, you mentioned that you had narrowed the list down to several finalists and we’re close to announcing one partnership. Is this something where you could potentially, this would be one of several that may be announced over the next few months or is it just going to be one initially; and if just one initially, are you considering if this is successful, doing more?

First of all, we literally, the interest out there of financial institutions, money managers, hedge funds, equity shops, etcetera, of investing with us was just enormous. Literally, I think if we were interested, we could have gotten a couple of billion dollars of commitment. What we’ve chosen to do is start with one fund and one relationship and do basically one at a time and see how that relationship goes. We thought it’s best not to do multiple funds simultaneously or multiple ventures because then you get into a question as to: Okay, well, you get a land opportunity. Which funds get to buy it and did one fund get the good deals and another one get the bad deals? So we think the appropriate thing to do is to do one at a time. The good news is the institution that we’re about to finalize the deal with has a pretty big appetite. We feel pretty good about the opportunity, but the other good news is there are many others that are interested as well with significant investment dollars.

Your next question comes from the line of Nishu Sood with Deutsche Bank. Please proceed. Nishu Sood – Deutsche Bank : I wanted to ask about mothballing. I imagine earlier in the downturn, a lot of the community were mothballing where probably hadn’t open the sales center yet or maybe were at a major breakpoint. More recently we’ve been hearing in places like Bakersfield, you folks are mothballing or curtailing construction kind of even mid-phase. I imagine in that type of situation, you’re not even generating enough cash on each sale to cover your cash costs or your sticks and bricks. I wanted to ask how widespread this type of dynamic might be and also what happens to the land in that type of situation because you would think that that land would need to be written down to if not a zero basis, nearly a zero basis.

First of all, you are correct that we have mothballed the community in Bakersfield. I think two of them actually, but it’s not because the cash flow generation was at zero. It’s just that the cash flow generation was just not sufficient and basically what it meant, you were not really recouping enough for the land investment, and we felt we’d be again having gone through the cycles and not being forced to liquidate land on a basis that doesn’t make economic sense. We said, “Hey, we’d rather hold onto this land. Let’s make the market. Let the market recover and ultimately the cash generation will be far better.” So that’s really a criterion and in none of the conditions have we gotten to a point of zero cash flow. We would mothball a community long before that. Keep in mind, in the development, what’s typically what we’re seeing is you have some sections of lots and some are developed and some are partially developed, some are fully developed in one community which is already open. So you may complete a section and you may say, “Okay, after this section, I’m not going to continue on anymore sales. I’d rather hold onto the land.” In terms of impairments, some of that is clearly recurring in land that has been impaired. So that is part of our impairment challenge and part of the impairment that we’ve taken. Nishu Sood – Deutsche Bank : The other question I wanted to ask was about your backlog and your cash flow. You’ve been converting your backlog at a higher pace this year than you have last year. So your backlog is down a lot, 58%. You mentioned you’re not planning aggressive promotions, anything like a deal of the century. You’ve taken on the $600 million of debt at a higher interest rate. So factoring all that in, should we expect there to be a lot of pressure on cash flows? Maybe cash flows wouldn’t be anywhere near next year what they were this year?

I think one thing you need to keep in mind as you look at our conversion of backlog was that we had a significant number. I think close to 1,500 deliveries from Fort Myers that was cash flow neutral this year and, in fact, really didn’t contribute. You really need to ignore that when you’re calculating the backlog conversions. I don’t think our backlog conversion is going to be all that different going forward than it has been historically.

Your next question comes from the line of Timothy Jones with Wasserman and Associates. Please proceed. Timothy Jones – Wasserman and Associates: Follow-up on the prior question, on that $422 million, how much of it was land or the write down of $147, either way you want to do it, and how much was development either land development or other amenities?

We don’t differentiate or allocate the impairment to the type of inventory to the community as a whole, so impairment is on the community. It’s made up of land, land development, some construction, whatever. Timothy Jones – Wasserman and Associates: Yeah, but it’s mostly land, right?

Yeah, allocate to whatever you want to first. I mean it’s really a judgment call but argument they could be the land, I think.

The developed land. Timothy Jones – Wasserman and Associates: The second one would be you had about $120 million rise in land and options held for future development or sale. Why did that go up? Did that include that $422 million or is that inventoried or somewhere else and what was that increase due to then?

It’s exactly what you just said. It’s when the communities move into being mothballed; they just go into that end planning and move from active, so that’s what’s causing that increasing.

Your next question comes from the line of Megan McGrath with Lehman Brothers. Please proceed. Megan Talbott McGrath – Lehman Brothers: Want to just follow-up on some of your comments around gross margin. You talked about a few factors that would influence it going forward. Understanding that you don’t want to give guidance, I’m just wondering if you could give us anymore color on how much of an improvement you could see. What’s the second to third quarter improvement, the scale of that improvement? Is that sort of fair to assume going forward on a quarterly basis, or could you see a higher jump as you get sell-off of some of this impaired land?

You’re trying to trick us into giving you (inaudible). Megan Talbott McGrath – Lehman Brothers: I am.

We can’t go there. Go try though. Megan Talbott McGrath – Lehman Brothers: The next question is going to be on your staff. We’ve heard from a couple of your peers that they’re starting to feel a little bit more comfortable with the amount of specs that they’re holding and may not be as aggressive going forward and trying to sell it. How are you on a scale of how you feel about your spec? Are you still being pretty aggressive in trying to sell that down?

Obviously, there’s less of them out there now. We’ve made significant reductions over the past year, year-and-a-half, so the reductions going forward will be much less. We really look at it on a per-community basis and there’s some markets to where you have to have a couple pre-started homes per community in order to insure that you have product necessary to meet the demands of someone who recently sold their home that has to move out of their existing home and into the new home. So I think it’s safe to say that the reduction will be less than it’s been over the last year of so.

Yes, we are at a point today where our spec inventory is not accidental spec to speak that we have all of these unsold homes. Oh my lord, we have to sell through these. We are consciously putting these specs up, as Larry said. But what we’re not doing is just randomly building specs. If we have three specs and we sell two of them, then we’ll star two more because, as Larry pointed out, that’s in a particular community, there are customers, they’re not signing a contract early in advance and going to backlog. They’re waiting till they sell their existing home and then they have to move quickly to buy a new home and that by definition has to be a spec because you typically can’t build a new house fast enough. So we are keeping a certain minimal level of specs in the ground at all times. I mean if you just look at a ballpark basis and you said you have 350 communities and you want to keep three homes on hand that you’ve at least started and then by definition you’d have whatever that is, about 1,200 specs, plus you have models on top of that at all times. Megan Talbott McGrath – Lehman Brothers: On a margin perspective given that you’ve worked through most of your accidental specs, are they about comparable on a gross margin basis to a to-be built model.

I really can’t comment on that. It varies dramatically. In some markets, like Houston or even some markets in Southern California, most of our sales come about because we [inaudible] the spec. But I guess in general, I’d say there are more comparable today.

Your next question comes from the line of Alex Barron with Agency Trading Group. Alex Barron – Agency Trading Group: I guess I wanted to talk about your gross margins and your impairment methodology. I believe in the press release it said they were 3.5% after interest expense. I guess I was just kind of wondering what it is in the impairment methodology that doesn’t cause the margins to be higher at this rate or in other words why maybe haven’t the impairments been a little higher so that the margin would be higher?

One thing for sure is that every community has an impaired. So if they have low margins, they may not have triggered an impairment yet. You don’t take that impairment yet, the other thing that happen is even once you book an impairment, the margins could improve but we could have price decline since we recorded those impairments, but those declines have not happened enough to cause a follow-on impairment. So it all depends on the community and the specifics with that community. Prices in some place they’ve taken impairments over the last few years, so there’s certainly some communities where we’ve taken impairments and prices have declined further since then but not enough to take another impairment. Some communities we have second impairment, so it really is the mix of how those impairments are taken and where there are in relation to triggering another impairment [inaudible].

But beyond that, the way the GAAP methodology works, typically when you do an impairment, it doesn’t bring the land or the asset value all the way down to a point where you’re back to normalized 25% gross margins. It definitely improves; and it’s definitely positive gross margins, but there are much lower gross margins than what you would have in a normal marketplace. Alex Barron – Agency Trading Group: My second question is on a slightly different topic. I guess given that your backlog is down significantly year-over-year in sales and everything, I was just kind of curious why we haven’t seen a comparable decrease in your accounts payable.

Before our financial people answer that, I will remind you one time, as Larry pointed out earlier, a large chunk of inventory reduction just during this current period when you compare the first nine months toward the period now compared to a year ago, a lot of that was in Fort Meyers where we had construction perm and they were delivered, and that definitely.. While that was technically backlogged, that was very different from our normal backlog and had very different impacts on accounts payable. Brad or Paul, did you want to add anything to the accounts payable numbers. I know we have reductions. Brad O’Connor or Paul Buchanan: That may be something we can back to him on because nothing immediately comes to mind here.

In the accounts payable number that’s on the balance sheet, there are other liabilities there impacting that as well. So accounts payable by itself is down slightly from the last quarter and from year end, but there are other liabilities that were in there at year end as well.

Your next question is from the line of Joel Locker with FBN Securities. Joel Locker – FBN Securities : Just on your 23,100 option lots, what’s total dollar exposure including LOCs and pre acquisition costs?

I went through that in my portion of the script. Let me go back and see if I can get there again, Joel. Joel Locker – FBN Securities : I guess while you’re looking for that, on the corporate expenses, it’s been around $21 million for the last four quarters, is there any way you can get that down or what’s involved in most of that? Revenues been coming down but obviously that hasn’t been coming.

I mean corporates a harder number to reduce because we’re still having to file appropriate SEC filings and that type of thing, so even though our business has shrunk, the work hasn’t shrunk a whole lot at corporate. We’re taking a hard look at it. We continue to try to right-size corporate. At the same time, we’re right sizing our other business units, but it’s a harder number to bring down. As of July 31st, the deposits on letter of credit was $96.4 million, including $64 million of cash and $32 million of letters of credit. Joel Locker – FBN Securities : One last one, do you have the impairment reversible numbers for the third quarter?

$44 million.

Your next question comes from the line of Vicki Bryan with Gimme Credit. Vicki Bryan – Gimme Credit: I just have a couple of questions. One is housekeeping about your revolver, what was you available credit at the end of the quarter?

It was $300 million facility of which we had used $217/$220, something like that in letters of credit. Vicki Bryan – Gimme Credit: So about the same as last quarter?

A little less

Just to reiterate what we mentioned before, we are not really using our revolving or line of credit for anything other than LCs. Our LC usage is just been steadily trending down overall. Vicki Bryan – Gimme Credit: Right, I see that. Then my second question, I was noticing on your cancellation rates, you seem to be improving not just relative to 2007 but 2006 the last couple of quarters. I was wondering with six weeks into this fourth quarter, if you got enough visibility see that kind of continuing, if it maybe has to do with that you’re not doing big promotions in neighborhoods and so the quality of your quarters is more stable and what does that maybe say about your backlog?

I don’t think we’re prepared to comment on our cancellation rates so far in the fourth quarter. We’ll do that next quarter when it’s over, Vicki.

Your next question comes from the line of Andy Schaefer of Phonics. Andy Schafer – Phonics: With respect to your joint ventures, is that going to be an open ended type of an arrangement or is it will be set period where say there’s a three-year timeframe for you to go out and purchase lots to develop? Then depending upon how you answer that, how do you decide whether something is better for the joint venture or for your base business because as the market improves and whatever you still have in your inventory in terms of lots and options, the value of that would tend to improve it. So it seems that there would be a conflict of interest as you move forward with that joint venture.

First of all, we earmarked initially about a quarter of billion dollars of equity for the venture as opposed to a timeframe and our plan and agreement is that basically so that there isn’t a conflict of interest, we will offer all new acquisition opportunities above a certain minimal amount of several million dollars. Anything of substance, we will offer to the venture first and only after the venture would we… If the venture declines, only then we would look at purchasing it on our own. Andy Schafer – Phonics: In other words, it’s a set total dollar amount and once the joint venture runs through that, you would have a decision to make with your partners as to whether or not you would continue it and re-up the funding.

Yes, either we would re-up it. By the way, our partner initially wanted to do a much larger number, but I think we both finally agreed: Let’s get the relationship going and if things go well, we’ll both be pleased to do it. But either we increase the initial funding if we go through that or go and find an additional or new partner or do some of it on our own balance sheet. Andy Schafer – Phonics: So given that your 10%, the $2.5 billion sort of is what you’re thinking about initially?

No, no the 250 is not what we have earmarked. That’s what we earmarked together with our partner, [inaudible] would be $25 million.

Your next question comes from the line of Mike Rehaut with JP Morgan. Michael Rehaut – JP Morgan Securities: Just had a follow-up: I was wondering if you could just hit on the cash flow generation? You’re expecting to do about 125 in the fourth quarter which is I believe down from reading this, down from a year ago in contrast to the rest of the year having a better performance relative to ’07. So I was wondering, number one, why that is and, number two, if it just has more to do with the prior couple quarters having such strong cash flow or stronger cash flow? Looking into ’09, with backlogs declines continuing to worsen and now at around 60% if you look at backlog dollars, what we might expect for ’09 cash flow being higher or lower than ’08?

Well first, Mike, as you know, we’re not projecting ’09 cash flow levels as is the situation with most of our peers. But in regard to fourth quarter cash flow, it will be our highest quarter cash flow. I think sequentially our cash flow position has been better every quarter. It’s not as big as the fourth quarter last year for two reasons. Number one, overall our deliveries and sales our down in ’08 compared to ’07, so I think it’s natural to get a little cash flow. But secondly, we did a better job as you know generating cash flow earlier in the year and have a little more balance than even year in terms of cash flow than we did in ’07. In ’07, it was a really fourth quarter act and we mentioned this year, we almost had $200 million just in the third quarter. So I think we’ve been able to balance the cash flow more evenly this year.

On the earlier part of that answer, Mike, Ara was talking about excluding the tax refund, cash flow.

That’s correct. If you take out the cash flow from the responders plus or minus $100 million and therefore the $125 million in the fourth quarter is going to be greater number of cash flow excluding that tax refund.

Suffice it to say, we remain laser-like focused on maximizing cash flow every quarter going forward. Andy Schafer – Phonics: Just to follow up on that. In terms of cash out the door, land spend and development, I was wondering if you could just remind us what those numbers were in fiscal ’06 and ’07 and what you believe they’re on track to be for this year.

I don’t think we’ve every provided a historical number for what we’ve spent for land development, so I can’t give you that for ’06 or ’07. We don’t have it for the remainder of this year available at our fingertips. So it’s something that we’re looking at potentially providing in the future, but we’re not in a position to do so now.

Suffice it to say, we’re burning through a lot more land than we’re buying. I think we gave the example we delivered about 2,200 homes, only bought about 400 lots and locations we already bought lots, a lot of them were in Texas or North Carolina, which are very low land costs markets. In those markets, we do a lot of on the developed lot basis. So that is a big part of what’s generating cash flow, we’re simply selling a lot more land with a house under it than investing in new lots right now.

There are no further questions in the queue at this time.

Thank you very much. Obviously as you know, it’s been a challenging marketplace, continues to be a challenging marketplace for our Company and for the entire industry. However, there a few early signs, not cause for celebration yet, but early signs that the market may slowly be getting into a better balance in terms of supply and demand and that’s an important first step to get a more normalized market overall. We’ll continue to work hard for all our shareholders, and we’ll look forward to giving you an update on our next quarter. Thank you so much.