Good day, everyone and welcome to KB Home's first quarter earnings conference call. As a reminder, today’s conference is being recorded and webcast on KB Home's website at kbhome.com. The recording will also be available via telephone replay until midnight on April 6, 2008. You can access this recording by dialing 719-457-0820, or 888-203-1112 and entering the replay pass code of 7868747. 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 and their expected results. They are based on management’s current expectations and projections for future events but none are 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.

Thanks, Courtney. Good morning, everyone. Thank you for joining us today for an update on our first quarter results. With me this morning are Dom Cecere, our Executive Vice President and CFO; Bill Hollinger, our Senior Vice President and Chief Accounting Officer; and Kelly Masuda, our Senior Vice President of Investor Relations and Treasurer. The first quarter of 2008 continued to be challenging. The most recent available national data indicates year-over-year declines in both sales activity and sales prices for new and existing homes. Inventory levels in both categories remain elevated at about a 10-month supply. Additionally, the ongoing turmoil in the financial markets and rising concerns about recession are negatively impacting consumer confidence. Earlier this week, the conference board reported that the consumer confidence index fell 11.9 points to 64.5 in February, a level usually seen only during recessions. In addition, consumer expectations about the future fell to their lowest point since 1973 when a recession was followed by inflation. Many potential buyers either cannot or will not make a purchase commitment today. Some are worried about losing their jobs, others believe prices have further to fall. Many are simply unable to qualify for financing, given the more restrictive lending environment. Competition remains fierce for buyers who are prepared to close a sale, a reality which continues to pressure both home prices and margins. While these factors impacted our first quarter financial results, the good news is that the apparent acceleration of these negative trends also gets us closer to the eventual recovery. For the quarter, we took $224 million of impairment and abandonment charges and a $100 million charge for a deferred tax asset valuation allowance. Largely as a result of these charges, we reported a net loss for the quarter of $268.2 million, or $3.47 per diluted…

Thanks, Jeff. Let us start with operating results. Reflecting the actions we have taken over the past few quarters to reduce inventory and community counts by consolidating or exiting underperforming communities, net orders of 1,449 new homes in the first quarter were down 75% on a year-over-year basis. Community counts in the first quarter of 2008 were down 38% from the prior year. We had 224 active selling communities in the first quarter of 2008, compared to 364 in the first quarter of 2007. Our community count was lower in each of the four segments, with year-over-year decreases ranging from 19% to 56%. The decline in net orders also reflects challenging conditions in most of our markets. Our conscious decision to wind down operations in certain markets, our efforts to hold the line on pricing and margins, our growing supply of new and existing homes, including increased foreclosures, and tighter consumer mortgage lending standards, as well as the decreased consumer confidence. The cancellation rate in the first quarter of 2008 was 26% of beginning backlog. Over the last several quarters, the ratio of cancellations to beginning backlog has ranged between 26% and 33%. Weak overall demand for housing has negatively impacted the cancellation rate when compared to gross orders and this comparison, the cancellation rate in the first quarter was 53%, an improvement from 58% in the fourth quarter of 2007 but up from 34% in the year earlier quarter, which was closer to our normal historical rate. We entered the first quarter with 6,322 sold homes in backlog and converted 2,928, or 46% of our backlog to revenue. This compares to a conversion ratio of 49% in the first quarter of 2007. Our backlog remains geographically diverse with the largest portion of our backlog value in the West Coast…

Thanks, Dom. I’ve just a couple of closing comments before we begin to take questions. A few weeks ago, the NEHB research center announced that KB Home was the first builder in the U.S. to achieve national certification under the national housing quality program. This means that we are the first and only national builder to have completed a rigorous quality audit in all of our divisions, ensuring that our top notch quality assurance systems and those of our trade partners are aligned to improve both quality, performance, and customer satisfaction. It is an achievement that we feel sets the bar for quality in our industry and is something we are celebrating and promoting in all of our sales offices across the country. In these market conditions, product quality and customer satisfaction will be a true differentiator. While today’s market is difficult for homebuilders, people have and will continue to buy homes. The challenge is capturing a larger share of the more limited pool of consumers in a buyer’s market. We have implemented a number of strategies that position us not just for when the market recovers but for selling homes today. We are firmly committed to our long-term strategy of providing a high quality, built-to-order home for the first time, first move-up, and active adult buyer. No matter what the market is doing, the desire for home ownership remains constant, especially for the first-time buyer. I am confident that once we turn the corner on today’s challenging economic conditions, the future will once again look bright. Favorable demographics and ongoing population growth in the markets we serve will provide and expanding pool of renter households to drive first-time homebuyer demand for years to come. We will be there to make sure their dream of home ownership becomes a reality. Our decisive actions taken in 2007 to bolster our cash position, reduce inventory and community count, and consolidate or exit underperforming markets puts us on the path to ensure that we are building a bright future for our company, our homeowners, and our shareholders. For more than 50 years, KB Home has driven innovation and progress in the homebuilding industry. This KB Home team has skillfully navigated many difficult market cycles, each time emerging as an even stronger company and we will once again. But we are not waiting for the future to come to us. I am privileged to work with a seasoned and talented leadership team with deep expertise in this industry who have and will continue to see out the opportunities that the market presents today. As we move ahead, we will continue to realign our business to the shifting market while also strategically capitalizing on emerging opportunities in order to drive results that we are proud of. With that, let me open up the call for your questions.

(Operator Instructions) We’ll take our first question from David Goldberg with UBS.

The first question is really about the gross margin and the gross margin trend. Domenico, you commented that gross margins are going to be compressed for the rest of ’08. I guess the question is as you look forward to the land position and the cost basis on the land position, when do you see those pressures abating a little bit and where do you think, assuming prices were to stay stable, where do you think margins can get to as we look out a little bit further?

Well, David, the big question is what’s going to happen to resale prices over the next several quarters and that’s the factor that is very difficult to predict. I mean, there was a significant decline in the last couple of months and the [inventory has yet to crack], so if I had a crystal ball that could be able to forecast what happens to resale prices, I could have a better understanding of what would happen to our margins.

Maybe the better way to ask the question is how much lower is the cost basis, maybe percentage wise, on land out in the future versus land that you are delivering on now?

Well, I mean I think as we reload, you know, and since we have a lean land position, as we reload new lots, we’re reloading those lots with margins closer to our normal levels, which would be closer to 20%. But with the existing lots that we have today, there’s still not a lot of margin in those lots.

And if I could just get a follow-up; Jeff, you were talking about price protection and rate locks, and I was just wondering how extensive the use of those were, if we had like an idea how you are thinking about it, especially if we think there’s going to be some price declines moving forward, how you are thinking about what the potential liability that creates for you guys.

Well, the liability is only to that home under construction for that period of time, Dave. We rolled the program out in January. It’s been well-received by the consumer. Frankly, if you have a home in backlog with an approved loan and a buyer is ready to close and markets erode around you, you have to react to that anyways. And all we commit to is if we were to lower the prices of our homes in that community while their home is under construction, we’ll give them the lower price. It has nothing to do with what a competitor does across the street or a resale down the street.

And with the rates, you just lock it up for the construction period then?

Correct, and there’s no risk to that for us. It’s one of the synergies we have with our partnership with Countrywide.

Okay, great. Thank you.

Thank you. We’ll hear next from Michael Rehaut with JP Morgan.

The first question relates to comments you made earlier about order trends and I think you kind of indicated that aside from the difficult market conditions, that you had tried to hold price to some degree and the market kind of got away from you a little bit. I was wondering if you could give some color in terms of perhaps over the next quarter or two what the degree of incremental price cutting you might have to do and in particular, on a percentage basis from where you are today, which regions in particular do you feel that -- that you felt this more, you know, relative to others -- more acutely relative to other regions.

Obviously, Mike, it’s a market specific and community specific answer because there’s different price trends and pressures depending on the inventory in that sub-market. The impairments that were taken in February were a reflection of the steps we took to adjust to market conditions coming out of the quarter and on a price range in a region, it could be 2% to 5%.

Two to 5%, and so which regions do you feel that you -- you know, that you took the more full brunt of that? Was it inland California? Was it Vegas? Was it other areas that kind of stand out?

I don’t have the data in front of me, Mike, but it will be in the Q and I can tell you that it was in the markets that ran up the hottest in the good times, continued to slide the most in the down time, so the coastal markets.

Okay. Just one other question -- you know, you had -- Dom had kind of reviewed some information on the JVs and I understand that you might not be able to talk about specifics, but you know, JV, individual JVs, but I was wondering if you could give us an idea of the amount of debt that’s associated with the JVs in its entirety. How much of that is currently not -- the interest is not being paid on the debt, where the liabilities in terms of future impairments or re-margining or where you might be more susceptible? If you can just give us an idea of the overall debt levels and percent of debt that is not properly functioning.

The information on the amount of debt will be in the Q, so you will have to wait for that. But I want to go back to something we had said, which is that we only have 28 joint ventures and only 10 have more than $50 million in assets. So we are really settled down. There’s five JVs that represent 80% of our investment and that’s where most of our debt is, and that is where the majority of large public builders and financially sound developers, so we think we have a good handle around it.

And re-margin payments? I mean, is there an expectation there over the next quarter or two to keep some of them more solvent?

There will always be some margin repayments but I can’t tell you exactly how much there will be today. Again, I would say our portfolio of joint ventures is not onerous.

Thank you. We’ll next hear from Alan Ratner with Zelman and Associates.

Dom, I was hoping to follow-up a little bit on a comment you made I think to David on his question about the idea of prices stabilizing, and you mentioned it will depend on what happens in the existing home market. Several builders have kind of commented in recent quarters that one advantage in the new home market right now from an affordability standpoint is that prices are actually below existing homes in many markets and that kind of is opposite of what it has historically been. And they’ve kind of argued that kind of has a buffer built in towards some of the existing home price declines that may happen. Do you think that if existing home prices start to come down, whether it’s a function of foreclosures or other things in the market, that the new homebuilders will respond in step to keep pricing below the existing market? Or do you think that that gap eventually closes and kind of returns back to what it’s been historically?

I think over time it will stabilize because the consumer does put a premium on new home versus used. In our case, we are certainly we feel below the medians in every one of the markets we operate in. We are below the resale median but it depends on how deep the resale adjustment is to clear inventory will impact what the new home pricing does. And that’s what is still to be told. You mentioned foreclosures. That’s really a gray area. We can’t get our arms around what the foreclosure activity is, how many are actually going on, how many are selling, what it’s doing to pricing. But it’s -- there’s a lack of clarity for us on where the resale pricing will get to, other than we know it has to come down further to clear inventory. And if it comes down too much, then we’ll have to adjust our prices more.

And Jeff, you had mentioned kind of that you have taken steps in 2Q to reduce inventory and gotten a little bit more aggressive on pricing than you may have been in the first quarter, and that contributed to a lot of your impairments in the quarter. What was the exact timing in terms of your aggressiveness on the pricing? Did it happen in February or has it been kind of subsequent to the quarter? And have you seen any kind of improvement in absorptions as a result of that aggressiveness?

We don’t talk intra-quarter about trends in that quarter, Alan, but the steps we took were the latter part of February.

The latter part, okay, so that would -- it would completely be captured in your impairments, there wouldn’t be any kind of risk based on the pricing that you’ve taken for --

No. We do our impairment process every quarter at the end of the quarter and this quarter’s scrub included any steps we took to generate sales.

Okay, perfect.

Thank you. We’ll move next to Kenneth Zener with Merrill Lynch.

I just want to discuss you guys paring down the business, or your exit strategy. Because in my mind, I think there’s a big difference Chicago, D.C., which are very large markets for the public builders, and smaller places like Albuquerque and Indianapolis. So can you talk about how you think about Chicago, D.C., these markets longer term given your prior interest and what your motivation is for trimming those markets? Is it really just to get the G&A out? Because I know you are still building out those 15 odd communities. So it seems like you will be revisiting these markets given their appeal over the long-term, so I’m surprised you guys are pulling out, given that land prices are collapsing and given your very strong liquidity.

Ken, you are absolutely right; we could revisit it some day but it won’t be in the -- we don’t feel in the short run. The filters that we use as we evaluate the markets are where we see the trends in the marketplace relative to pricing and lot prices and supply and demand, and our view of the profit projections going forward over the next two to three years, offset by whether we have a franchise in place and a real brand in that marketplace. And in the case of D.C. and Chicago, we entered the markets later in the cycle. We never really got to scale. They are both markets that you could get back into if you wanted to and rather than continue to carry the overhead to support a small entry where you are not going to reinvest because we feel that lot prices are still declining and land prices are out of whack, we decided to leave. If you go to Albuquerque, it’s a little different look, in that Albuquerque’s a market that we call a secondary market -- much smaller. It was a distorted market over the last few years in that it was larger in activity levels than the underlying economic demand would support. It was fueled a lot by investor activity from other areas. As that market has receded, it’s back down to a scale that we don’t think supports our business model. Where we look at a market and want to have a large business, there’s a certain activity level that you need to sustain in order to support the cost of a studio and get your returns. And we didn’t feel that Albuquerque strategically fit that need. While I say that, what we also mention in the release, the markets we are in have significant upside in market share and we’d rather focus on the markets where we’ve been a long time, we have a brand, there’s a lot of upside to our business there where we could grow our business significantly without entering any markets for a while, and at a point in time where we’ve achieved that and we are getting the critical mass again in many of our markets, we would revisit -- okay, what’s the next growth platform? But we don’t see the need to look for that growth platform for years.

All right, well, given that price is really the prominent dictator, when you guys made the go/no-go decision to exit let’s say D.C., what were your numbers telling you that land was still overpriced?

It’s not that necessarily our land is overpriced because we deal with it every quarter, as we said on our --

Right, the buyers, or the seller’s price.

Within the marketplace, we didn’t see opportunities to acquire assets that would hit our financial thresholds, IRR or margin.

(Operator Instructions) We’ll take our next question from Jim Wilson with JMP Securities.

I was wondering on the cancellation rate front, and I know it would seem that you are -- obviously you are almost entirely focused on the entry level and the lower end, so it’s going to be higher. But do you see things evolving in just the underwriting process, the pre-screening process in and of itself, particularly as things have changed over the last couple of months that might start to lead to better cancellation rate experience?

Jim, there was a nuance to the data that we share in the script, that Dom shared. Our can rate as a percent of backlog was 26%, which is actually the lowest its been in several quarters. Our backlog is firmed up relative to what we saw through ’07. The can rate as a percent of orders was distorted because frankly we didn’t have a high enough gross level. We converted our deliveries to our historical percentage of backlog, so we did fine delivering the backlog but we didn’t sell enough houses. And my expectation is we get our sales pace back on the growth side, you’ll see our can rate settle right back down to more historical levels.

Okay, that makes sense. And then just one other thing, and I know you -- it’s great you’ve given the detail on the JV, those five largest at 75%. Is it safe to say or can you say the two, your investment of the two in Las Vegas, is that kind of even half of the total for those five, or something in that neighborhood?

We don’t give out the detail by [project] but obviously Las Vegas is a large investment for us.

Okay. All right, thanks.

Thank you. We’ll move on next to Timothy Jones with Wasserman & Associates. Timothy Jones - Wasserman & Associates: I’m still confused on these three large markets that you said you were either getting out of or slowing down. I applaud getting rid of all the [inaudible] ones you got out of the five, but on Washington, D.C., Chicago, and New Mexico, are you saying you are not buying more land? Are you saying you are decreasing your exposure by X percent or are you saying you are getting out of these markets?

What we stated in our release is it is a withdrawal from the market. We’ve made the decision not to invest additional dollars there, so we have assets in every one of these markets we have to manage to. But our view today is that we wouldn’t invest additional dollars, Tim. But if you put it in perspective, in Chicago in ’07, I think we delivered 150 homes, or something like that. It’s not a large business. D.C. it was the first year of deliveries, a very young start-up without a lot of deliveries, so -- Timothy Jones - Wasserman & Associates: How many there?

Less than 100, I think. I don’t know. Timothy Jones - Wasserman & Associates: And how about New Mexico? Are you talking about Las Vegas or what?

No, no -- Albuquerque -- 300 miles from -- Timothy Jones - Wasserman & Associates: That’s what had me confused. I can’t believe you’d be leaving New Mexico.

No, Las Vegas is in Nevada. Timothy Jones - Wasserman & Associates: I’m having a blonde moment. That’s okay.

I don’t think you can say that. Timothy Jones - Wasserman & Associates: Can I ask my second question? Can I just get some housekeeping -- you gave us the -- which is an excellent number, I might add -- your homes under construction, your inventory unsold under construction and finished inventory for this year. Could you give me the comparable numbers for last year with the 4,600, the 14, and the 900?

I could get it to you. If you call, Kelly will give it to you right after the phone call.

Thank you. We’ll move next to Joel Locker with FBN Securities.

I just wanted to talk to you about your SG&A a little bit. Just -- you know, saw the 38% improvement year over year but with the revenue starting to slip a lot further than that, just wondering when you think the actual SG&A as a percentage of revenues would start to stabilize and head down to the low double-digits or so?

Well, in the first quarter our -- and remember, that’s always our most difficult quarter because that’s our least amount of deliveries, but it was -- sales were down 43%, SG&A was down 38%. We did significantly cut SG&A. It was down close to $80 million year over year. And we also announced that we were, you know, as Jeff just talked about, getting out of some markets. As those unwind, that saves us G&A, so it will come back into balance when you start to see some demand pick up a bit.

And just going forward, I guess, with the backlog down almost 60% or so on a dollar basis, I mean, I guess you would really have to start cutting SG&A. And could you, even exiting those markets, could you cut SG&A by 60%, which looks like what your revenues will start to be down, at least in the next couple of quarters? Or will it -- you know, will it linger around these higher levels for at least until --

It will be around the higher levels at least for the next several quarters.

Higher than ’07.

But you know, a lot of our SG&A isn’t fixed. I mean, you’ve got a lot of selling expenses and fees and everything else, the commissions that follow revenue, so it’s not like it’s a fixed cost totally that doesn’t adjust when volume adjusts.

Right, just one last one, in the first quarter, do you have a breakdown of the SG&A between headcount and actually the selling expenses?

No, I don’t have it off the top of my head.

Joel, what I can tell you is we’ve demonstrated over the years that we’ve been aggressive and persistent in lowering our overhead and we took a lot of steps in ’07 and made significant progress, and we’ll continue to do so in ’08, but it’s a tougher challenge now with -- as you mentioned, our scale is going to be down, unclear what. We’ll be able to tell you after our selling season concludes. But you are chasing revenue.

And remember, a large portion of it centers around marketing, advertising, sales allowances, and sales commissions. Our sales headcount is all commission based, so -- I mean, when you adjust your community counts, these expenses automatically adjust with them.

We’ll go next to Nishu Sood with Deutsche Bank.

I wanted to ask you about -- you mentioned that you have begun to offer loans under the higher FHA and conforming loan limits. I’m just wondering, what’s the rate differential on the loans under the higher limit versus the loans under the prior limits?

That’s one of the things that’s still being resolved, Nishu. The loan limit between the old limit and the new increased limit we’re being told may have a slightly, an incrementally higher rate because it will be in a different bond when it’s sold.

Got it, so do you have a sense of any kind of ballpark range? Is it going to be like 30 basis points, 100?

Less than 100 and possibly less than 30. They are talking 25.

Okay, great. And the second question, a lot of the builders have been talking about the concept of price inelasticity, the stage at which a community gets to the point where lowering prices isn’t really going to drive your absorptions anymore. I can imagine that that phenomenon is going to pick up as the pricing in the resale market continues to adjust. What percentage of your communities would you estimate -- you know, just roughly ballpark, are in a state of price inelasticity already?

Let me answer with a different response to your question. The price inelasticity is at the higher price points. If you have a $700,000 home, that’s a jumbo loan or above conforming and you drop the price $100,000, and the buyer has a home to sell, it’s still pretty inelastic. When you are dealing with the lower price points and a first-time buyer, it’s all about affordability. So any time you move your price, you are expanding your buyer pool.

Thank you. Next we’ll move on to Stephen Kim with Alpine.

A couple of questions for you; first, can you give us a sense for what percent of your buyers currently have a house to sell and whether that ratio has changed at all over the last year or so?

It’s very limited, Steve. We have some very strict requirements before we’ll even take a contingent sale -- larger deposits, we have a lot of filters. It’s one of the benefits of having a JV partner in Countrywide where we can flag a contingency at loan app because we don’t like them. We like to sell homes where we get paid for them when they can close and we don’t view a contingency sale as a sale today. So I won’t say that we don’t have any because there’s some, but it’s a very limited amount. I couldn’t tell you what it was last year but I know it was higher than it is today. That’s why our backlog is a solid backlog. We need to sell more houses.

Okay, great. The second question I have relates to your option deposits and letters of credit. Do you know what that amount was if you include the letters of credit? And what purchase price, underlying purchase price they are related to?

Kelly, at all? I don’t even know how to --

Well, we had about $229 million of letters of credit and generally between 50% and 60% are related to communities, with the balance being deposits. But part of that is also earnest money deposits, Steve.

Okay, the 229 includes cash deposits, you’re saying?

No, no, the $229 million includes letters of credit related to communities and letters of credit related to deposits on land purchases, of which part of that is earnest money deposits and part of that is hard deposits.

I see. Okay. Well, great. I’ll use that. Thanks.

Thank you. We’ll move next to Alex Barron with Agency Trading Group.

I wanted to -- I think you mentioned cash flow but I didn’t catch the amount, if you mentioned that this quarter, the operating cash flow.

It was just slightly positive this quarter. You’ll see it in the Q, and what we had said in the comments on the cash flow is generally we use cash in the first half and generate cash in the second half, so we went through the first quarter with really not having used any cash. We really felt that was a positive.

Okay. Were there any amounts that you had to spend on joint ventures, like either buying up your share of joint venture lots or making the re-margin payments or anything like that?

That will all be in the Q.

Okay, my other question is --

I would say that the amount of money we spend on land purchases and land development is significantly lower than what’s it been the last several years.

Right. My other question has to do with your community count. You said that the community count has been coming down and I guess some of it, I am assuming it’s communities you sold out of and others it’s the ones that you shut down, so I was wondering if you had a breakdown of those two.

No, we don’t track that. I mean, we said that our community counts were down about 38% in the first quarter. That trend will probably continue through the year.

Last question, if I could; what’s happening in Texas? I mean, I guess that seemed to be market that was holding up pretty well but it looked like your orders were down quite a bit. Is it just becoming more competitive or what would you say is happening in Texas?

Texas held up better than the coasts in ’07, Alex, and we are seeing it soften some.

Thank you very much. That does conclude the question-and-answer session today. At this time, I would like to turn the conference back over to Mr. Mezger for any closing or additional remarks.

Thank you for joining us today for our first quarter ’08 call. Have a great day and we look forward to speaking with all of you again soon. Thank you.

Again, that does conclude today’s program. We thank you for attending and have a great day.