Good day, everyone and welcome to the KB Home third quarter earnings conference call. As a reminder, today’s conference is being recorded and webcast on the KB Home website at kbhome.com. The recording will also be available via telephone replay until midnight on October 5th. You can access this recording by dialing 719-457-0820, or 888-203-1112 and entering the replay pass code of 3439284. KB Home's discussion today may include certain predictions and other forward-looking statements that reflect management’s current expectations or forecasts of market and economic conditions and the company’s business activities, prospects, strategies, and financial and operational results. These statements are not guarantees of future performance and due to the number of risks, uncertainties, and other factors outside its control, KB Home's actual results could be materially different from those expressed in or implied by the forward-looking statements. Many of these risk factors are identified in the company’s filings with the SEC, which the company urges you to read with care. And now for opening remarks and introductions, I would like to turn the conference over to KB Home President and Chief Executive Officer, Mr. Jeffrey Mezger. Please go ahead, sir.

Thank you, Kelsey. Good morning. I would like to thank you for joining us today for a review of our 2009 third quarter results. With me this morning are Bill Hollinger, our Senior Vice President and Chief Accounting Officer; and Kelly Masuda, our Senior Vice President and Treasurer. I would also like to welcome our new Executive Vice President and Chief Financial Officer, Ray Silcock, to this call. We are pleased that Ray has joined our team and I know he looks forward to working with you in the coming months. During this call, I will discuss our third quarter performance and the progress we are making in managing our business to restore profitability. After Bill gives his review of our financial results, I will have some closing comments and then we will open up the phone lines for your questions. While the direction of the housing market remains uncertain, KB Home's business model is producing favorable results. By staying focused on specific and measurable ways to improve our operations, we are making progress on gross margin, SG&A, and in our sales rates. In the third quarter, we significantly narrowed our net loss on a year-over-year basis, continuing the favorable trends in our gross margin, SG&A, and impairment charges that we reported in the first two quarters. During the quarter, we also generated substantial growth in our net orders, largely due to the success of our new product line. By continuing to execute on our strategies, we believe we can achieve the important objective of restoring profitability and position our operations for opportunities we believe will arise as markets improve. During the third quarter, net orders rose 62% year over year as buyers continue responding positively to our new product line, which we have branded the open series, and our…

Thank you, Jeff. Good morning, everyone. Our third quarter results demonstrate that as we continue to execute on our strategic initiatives, we are moving our financial results in the right direction. Just as in the first three quarters of the year we significantly narrowed our net loss from the year earlier quarter largely through the success of initiatives that have expanded our housing gross profit margin, lowered selling, general, and administrative expenses, and reduced the need for asset impairment and land option contract abandonment charges. We achieved this improvement despite having delivered fewer homes at a lower average selling price and posting lower revenues for the period. In each quarter of 2009, we have advanced closer to our goal of profitability and we are more determined than ever to get there. Now let me take you through our third quarter financial highlights, starting with the top line. Our homebuilding revenues in the period totaled $456 million, down 33% from the third quarter of 2008 as a result of lower housing revenues. The year-over-year decline in housing revenues reflected a 20% decrease in the number of homes delivered, largely due to our reduced community count, and a 15% drop in the average selling price. Most of the decrease in homes delivered occurred in our Southwest and Southeast regions, where the number fell 26% and 47% respectively. In our West Coast region, the number of homes we delivered was down only 8% from a year ago while in our central region, the number actually increased by 5%. The decline in our average selling price to $202,800 in the third quarter reflected decreases in each of our geographic regions, ranging from 13% in the West Coast to 28% in the Southwest. In addition to pricing pressure from competition, we saw our third quarter…

Thanks, Bill. KB Home continues to see many positive results from the strategic initiatives that began three years ago. While we do not yet know when housing markets will completely stabilize, we have repositioned the company to make the most of current market conditions. If where we are today represents a bottom, we are well-positioned to capture growth. If instead we experience more downward pressure going forward, we have the flexibility to respond appropriately. As part of our strategies, we are also seizing new market opportunities as they arise. A homebuilder should be able to both exit and enter markets rapidly depending on market conditions and opportunities. I previously said that we were comfortable with our growth platform and that is partly because we have this capability. That is why I am pleased to say that we are resuming operations in the Washington, D.C. metro market. We suspended operations previously as part of our strategy of generating cash and lowering overhead but maintained a foothold in the region through our customer service operations and have high quality land assets to start building on. The region is a top 10 market that is beginning to demonstrate stability and aligns perfectly with the development of our growth platform in the Southeast. This move is yet another example of how KB Home is responding to today’s housing environment. By diligently executing our business model, we have the ability to take advantage of whatever economic conditions we face. We like our product, our markets, our balance sheet, our strategy, and the trajectory we are on. And while there is still plenty of work left to do, profitability is achievable. I have every confidence that the KB Home team working together will enable us to reach this important goal. Now, Kelsey, let’s open the lines to questions.

(Operator Instructions) The first question comes from Michael Rehaut with JP Morgan.

The first question, with the continued success of the open series and you are getting orders back solidly on the positive side with better year-over-year absorption, I was wondering if you could give us a sense for the level of profitability of those new orders in terms of both gross margins and operating margins as -- I guess you are saying by, over the next several months you are going to be hitting the much higher levels of closings from these communities?

That’s true, Michael. As I shared in my comments, we have confirmed it will be over 50% of deliveries in the fourth quarter and we expect that trajectory to continue into 2010 and beyond. While I say that, the open series is having a positive impact on margin that was reflected in the numbers that we reported and some of the detail that Bill shared today. Bill also shared we expect sequential improvement in the fourth quarter from the third in gross margin in part because of a larger share of open series deliveries. Past that, it’s unclear. We think we will have incremental improvement from open series but we still have some lesser performing, non-open series communities that are part of the mix that would have a limiting effect on margin. So I’d say we expect incremental improvement going forward in Q4.

And just to get a little more granular in terms of the differential on at least a gross margin basis, is it 500 basis points, it is 1,000 basis points? Just to get some sense of the gap between open series and the rest of your communities?

Well, we look at the whole bucket, Michael. I don’t know that we have the numbers between open and non-open and it gets blurry based on the mix deliveries in the quarter or in the fourth quarter, so as we shared, we attribute some of our margin improvement to the open series mix and we think it will drive a little higher margin in the fourth quarter.

Your next question comes from Ivy Zelman with Zelman & Associates. Ivy Zelman - Zelman & Associates: Good morning, gentlemen. I wanted to understand if you could help us just a little bit, although community count, I didn’t get the number exactly quarter to quarter, I’m sure the community count went down and your sequential decline and orders. Was there in your opinion a slower-than-normal third quarter slowing? Because your market share as you’ve been gaining with the open series and your comments last quarter was that you thought you can sustain the same number of sales per neighborhood and it looks as if it slowed a little. So would you say that the market is showing any softening or is it just a timing issue because the summer or the spring was stronger than the summer and it’s as you would have expected?

It’s a good question, Ivy and as always, there’s a lot of moving parts that contribute to the results and I can share a couple of comments. First off, in the second quarter we had some communities where we introduced the open series where our sales rates exceeded our high side projection, so we actually were pushing price in those communities to slow down sales and raise margin, so that was a good result. So there was tempered sales in many communities because of our pricing strategy. Past that, normally I don’t like to share trends from month to month because you can't say that one month makes a trend but there are so many things going on right now in the economy and in the housing markets that we though we would provide a little color here on our third quarter sales trajectories. As we stated in our comments, we are a build-to-order builder and we are doing a great job shrinking the time from contract to delivery -- in many cases, four-and-a-half months. We have a federal tax credit that’s been a strong motivator we think for our consumer since we are 80% first-time buyer right now and they get the credit that as the quarter evolved, we had to stop promoting because in a build-to-order model, they would no longer be able to close on the home and qualify for the credit. As we de-emphasize the credit in August in many of our cities, we did see a softening in sales occur -- not huge but we did see a softening. We do think that impacted our sales trajectory as well. Ivy Zelman - Zelman & Associates: Jeff, that was very helpful, appreciate it. Just separately on your opportunities that you see with finished lots in the market to acquire them, with what you were able to acquire this quarter, can you give us some more disclosure and just a sense of where those were and roughly what you are underwriting those to, please?

Sure. Well, we shared a specific number in our second quarter call, Ivy and that was with intent because I wanted to send a message that we are back in the markets. I don’t want to start sharing that number every quarter like the weather report because every acquisition is going to have a different timeline when it turns to revenue but in the quarter, we did tie up some lots in all of our regions, primarily finished lots on easy rollers so the option deposits remain small. We want to retain flexibility in our cash and in most of these cases we’ll be able to start models right away and quickly turn them to revenue. But it wasn’t a bit -- it’s still not a big number. We did do more than the second quarter but we expect that we will be doing more going forward. We are under-writing to both a margin hurdle and a return hurdle with a real emphasis on returns, so our typical under-writing IRR is 27% to 30% today with an historical margin in the 20 range. Ivy Zelman - Zelman & Associates: Great job, thank you very much. Congratulations on the improvement.

Your next question comes from Steven East with Pali Capital.

Jeff, you talked some about the open series sales rate and what happened as it slowed. On your community penetration, where are we now as far as really the split between open series and traditional product being sold in the quarter?

Steve, as I shared on the last call, we also -- we stopped giving that number because it gets very blurry when you have a community that you can't remove the existing product yet you can introduce some new open series plans to the community, so you can count it as an open series community or a non-open series community and like sales, I hate to give a weather report every quarter and that’s why we guided that it will now be more than 50% of our deliveries in the fourth quarter and we expect that trajectory to go up in 10.

Okay, and then if -- different issue, a couple of your peers have looked at the equity issuance from an ATM perspective, all of that. How are you all looking at that situation and does it make sense for you to go out into the equity markets?

Well, as we run our business, Steve, we are always evaluating the different options that are out there and everything gets considered. I really don’t want to specifically talk to that because we haven’t done anything there but it’s one of the options just like debt or everything else we look at every day in our business.

Your next question comes from Ken Zener with Macquarie Capital.

I’m wondering, just to go back to the open series profitability, in the second quarter you said basically the open series, you know, you made the comment that it could lower prices by $60,000 and costs by $80,000. That’s a $20,000 net benefit on a 200 base -- it kind of implies a 10% differential between the open series and where you were last year, at a roughly 10% gross margin. Would you agree with that analysis?

That was specific to one community, not the whole company.

Mmmhmm -- so it would be a lot tighter spread, I take it?

It depends on the size of the home and the lot price of the home and the market that you are in. There’s a lot of things that go into your cost but across the system, we continued to be able to offer a lower priced product and raise margin because of the cost reductions in the open series.

But I thought -- given the absence of really a large degree of spec, the fact that your backlog conversions have been kind of in that 70% range, could you expand? Because it seems pretty significant on the fact that you are able to cut the closing -- well, the dates from sale to when you started construction but I believe you said 20 days and 50 days after the construction, or was that 50 in total? Could you expand on that because that seems pretty significant? Thank you.

Well, it is significant, Ken, and that’s a great point -- we wanted to reinforce that. I’ve always referred to the time from contract to close in our business model as cycle time and there’s three buckets to the cycle time and we’ve attacked all three -- you have the period from contract to start where the buyer gets their loan approval, goes to the studio, selects all their customized options, and then we start the home. And that’s the 20 day or 25 day reduction we shared, which is significant when you consider that a large percentage of our consumers are government loans where the approval process takes a little time and we’ve been able to shrink that timeframe down. On the build time side, because of the value engineering, enhanced execution in our system, and the product that we are offering, we’ve been able to drop our build time 50 days from 2006, so between the two -- we haven’t shaved too much off of the third bucket, which is from completion to close because we want to make sure the home is complete and the buyer is 100% satisfied before the closing occurs. But between the two, we now have many divisions in our company that are running four-and-a-half months from contract to close on a build-to-order home, compared to our historical business model was six months and at the peak of the market a few years ago, we were as high as eight months. So we’ve taken the time down with intent -- A, it helps your returns but B, it makes you more competitive with a resale where people -- you know, they will wait four-and-a-half months to get the custom home of their dreams versus the six months or eight months that we were incurring a few years ago.

Your next question comes from David Goldberg with UBS.

Jeff, I was hoping we could follow-up on that question Ken just asked and really focus on the second bucket in terms of the build cycle, in terms of the actual construction times. And I’m trying to get an idea of in that, of the benefit that you guys have realized, is there any benefit that is coming simply because there’s fewer delays in the municipality level? You know, there’s fewer kind of wait times for things to get approved by folks from municipalities? And do you think you can sustain the benefits that you have seen if you were to start to see an acceleration in demand?

The delays from a municipal standpoint, David, normally occur before you start the home because it was lengthening the permit times. From start to close, the cities are fairly responsive. If you inspection, they show up in their normal timeframes. I don’t know that we’ve seen a lot of time savings there. I do think if the markets were to overheat and there’s a little strain on contractor base, which would be a great problem to have, that you could see our build times lengthen but I don’t think you are going to see that for some time. And we are comfortable we can hold or even shrink a little further from what we are currently generating.

Got it -- a follow-up, a second question, and I understand you guys don’t want to give weather reports every quarter but I know in the past you’ve kind of shared what percent of lots that were delivered, homes that were delivered from land that had been impaired as a percentage in calls historically -- do you have any idea what that would be this quarter?

For the quarter, it was 88%.

And just -- I think it was in the 70s last quarter, is that correct?

Roughly.

Okay, great. Thank you.

Your next question comes from Jim Wilson with JMP Securities.

My questions are kind of about your JV, so obviously good job continuing to reposition them but I was wondering about the remaining exposure, just looking at what you have invested -- 16, that sort of averages $10 million a piece and I was wondering more about the bigger concentration assets and kind of where you think they stand and whether you feel you’ve adequately reserved for them now, particularly in Las Vegas?

As Bill shared in his comments, Jim, and I’ll turn it to Kelly to give you the specifics here in a second but as Bill shared in his comments, we’ve significantly reduced the JV activity year over year, dropping our debt roughly $1 billion. So we’ve made great progress. We are down to 16 JVs in the whole system, so we’ve materially lowered activity levels and investment and it continues to be a strategy to reduce going forward. Kelly, do you want to give them some of the details?

Really on the JVs, when you talk about the reserves, we treat our JV assets like we do any other asset in the company in terms of impairment calculations and carrying values. So they are reevaluated every quarter and we think we have the appropriate reserves. Specifically to your exposure, we do have three JVs with loan-to-value maintenance guarantees and if the values of these projects drop to zero, our exposure under these guarantees is approximately $11 million, so Jeff, that’s compared to $90 million a year ago so we’ve significantly worked down our exposure as we worked down the number of JVs that we’ve got outstanding.

Great. And I guess -- I mean, take it from your results and as you gave your order trend but I guess -- I was wondering within the central, was that particular strength in Texas, I would assume? I just want to ask that question.

It is. That’s the lion’s share of our central region.

All right. Okay, that’s all I have. Thanks.

Your next question comes from Megan McGrath with Barclays Capital.

Thanks. I wanted to follow-up on the absorption piece a little. First if you could actually give us what your active community count was in the quarter and given what you saw in August in terms of not promoting the tax credit, what are your feelings on how that might look in the fourth quarter?

I’ll let Kelly give you the community count in a minute but I wanted to touch on the tax credit because we are competing primarily with resales that the consumer can still get the credit but that disadvantage that we have is about to end. But we really don’t know what impact it will have if the tax credit doesn’t get extended and the consumer doesn’t have this additional incentive, so we are not giving any real guidance go-forward because we just don’t know. But there was a slight down-tick in sales in August where we stopped promoting it. Kelly, do you want to give her some of the --

Our community counts were down 37% year over year to 147 from 232 the prior year.

Okay, thanks and then if I could just follow-up on the gross margin a little bit to get a little bit more color, last quarter you I think had been anticipating that gross margins would be relatively flat sequentially, so you certainly did better than your expectations there. And then you had also said that you expected them to go up pretty significantly in the fourth quarter, so trying to get a sense of did you pull some of that significant up-tick into the third quarter because your mix was a little bit better than expected or are you still expecting 4Q to see a pretty significant up-tick? So I’m trying to get a sense of where the outperformance came from in this quarter.

As I’ve already shared, Megan, it won't be a significant up-tick in Q4. We do expect that it will go up sequentially and it’s in part due to the mix of more -- our open series. With our build times dropping, we were able to pull some open series deliveries into the Q3 that we thought we were going to deliver in Q4, so that did have a positive impact in the third quarter but for fourth quarter, we are showing sequentially slightly up.

Thank you.

Your next question comes from Joshua Pollard with Goldman Sachs.

I wanted to follow-up on the joint ventures -- can you give us the numbers on how much debt you took on your balance sheet to consolidate joint ventures in addition to how much cash was paid in the form of land purchases and debt guarantees for the quarter?

On the debt consolidated, it was about $130 million on the JVs that we consolidated during the quarter. What was your second question?

If you guys purchased any land out of the joint ventures or paid any additional cash in the form of debt guarantees and if you could provide an outlook on what you guys are looking or willing to spend on taking in those joint ventures. I assume that you guys are doing that on an opportunistic, not an obligatory basis?

Yeah, we have capital calls on a number of our joint ventures as we continue to develop and work through the lots. As far as specific related to debt, there was minimal re-margin payments but we continue to work through these JVs.

Okay, great. My quick follow-up is on SG&A -- could you provide us with the split of your SG&A that’s fixed versus variable? Ultimately I am trying to determine if KB Home can see revenues grow and SG&A still decline in an effort to get to historical OpEx to revenue levels.

As you know, Josh, for the last couple of years, we’ve been chasing our revenue down and it’s always difficult to get your SG&A back in line when revenues dropped as much as ours have. We were encouraged in the third quarter that our revenues dropped and our SG&A percentage dropped further -- it was an encouraging sign for us because it was the first time in a few quarters that we were able to accomplish that and we are continuing to try to identify ways to lower SG&A further. Do you want to give any color, Bill, on the split between fixed and variable?

I don’t have anything that is with precision but I would just say that as Jeff alluded to, it’s a bit of a lagging effect in that our revenues have come down just so quickly that our SG&A has followed and lagged behind. We would see that even with the revenues flattening and/or starting to increase that we would still be able to take out some more fixed as well as, you know, again because of the lagging kind of effect, so the proportions are a little hard to determine with precision.

Got it. If I could just slide one more quick one in there, your tax rate -- could you explain what you guys are looking for going forward? I personally wasn’t forecasting you guys to have an $11 million benefit in the quarter.

That was a little bit of an aberration that -- it was a good thing in that we had previously reserved for some tax issues that we resolved to our benefit in the quarter. However, taking out that noise from that benefit, our overall rate for the year would be roughly around 40%.

Your next question comes from Nishu Sood with Deutsche Bank.

I wanted to ask a question just about the competitive field out there -- I think it’s safe to say that you folks were pretty early in recognizing the need to compete with foreclosures and to recast your product line more towards the first-time buyer but you might also say that after that, that philosophy has become the industry standard pretty quick. What I am thinking back to is at the beginning of the year when you folks were kind of early on it, you were confident enough in the open series plan that you thought orders might improve throughout the year and obviously it hasn’t come in that way and I’m wondering if the rapid adoption of your strategy across the industry might be the main reason for that.

We still view our main competition as resale. While some builders have introduced lower priced product, that’s not our primary competitor today. It continues to be resales and foreclosures and if you go back over the track, as the momentum picked up in our introduction of the product, we actually in the second quarter exceeded our high side projection on sales and at the time, we guided that we wouldn’t have sequential in the third quarter because the second quarter was so strong; however, we also guided we’d be positive on a year-over-year basis in the third quarter. So our sales per community are still tracking probably the highest in the industry as you look at it and I don’t think it’s because of competitive pressure from the other builders. People ask me all the time, well, why won't everybody else do what you do? I also believe we are the only national first-time builder that has studios and is on a build-to-order business model, where everything is presold and the buyer gets a customized house. And past that, I can also tell you that one 1600 foot single storey is different than another and we believe that our designs and the way we put these plans together are the way to go and give us a competitive advantage. But if you go back to up top, we still view our toughest and biggest competitor is the resale market.

Got it, no that’s helpful. And the second question, I wanted to ask about your re-entry into the DC market -- what exactly that will involve operationally and from a land purchase perspective -- is that simply going to be reopening parcels that you already control, like a crown farm maybe I think if that’s been worked out? Or are you out there purchasing new land to build out?

It will be both, Nishu. We have more than one asset in the metro area that we will be opening back up with open series product hopefully over the next year and while we assemble the team and gain momentum on our current holdings, we will be looking for additional acquisitions. But we view this as a long-term move, not just to work through a couple of assets.

Okay, thanks a lot.

Your next question comes from Alex Barron with Agency Trading Group.

My first question has to do with your communities -- I guess it’s come down a lot in the last couple of years and I’m guessing that’s because you mothballed a lot of communities. I’m just kind of wondering, are you basically now going to start reversing that trend at a pretty fast clip and can you give us a sense of how fast?

Alex, let me clarify -- it’s not that we just mothballed communities. We built through a lot of communities too over the last couple of years and as we shared, we now only -- we own 31,000 lots roughly and control a total of 40, so we are in a fairly land light position. I shared in my prepared comments that we have not seen capitulation yet in many of the markets. We are anxious to be opportunistic but we are also going to be very diligent and patient and underwriting only to those things that meet our standards in a market that we think has settled. So we are hopeful to load in a lot of acquisitions over the next couple of years but it will depend on the conditions in each specific market.

Okay, that’s helpful. My other question had to do with your joint ventures, just kind of elaborating on that a little bit more. So you guys had impairments this quarter of I believe $23 million; your equity or your investments in the JVs was roughly flat, and then you mentioned you took on some JVs on balance sheet. Were some of those JVs [Ensperada] and [Kyle Canyon] in particular?

No, Alex, in fact, the JVs we consolidated are vertical JVs where we have condo buildings under construction and will be delivering into revenue here in the future.

Ladies and gentlemen, unfortunately we only have time to field one more question -- that will come from Susan Berliner with J.P. Morgan.

Sorry to beat a dead horse on the joint ventures, I guess in terms of the joint venture debt maturing, trying to get at is it possible that additional joint ventures could be moved on to your balance sheet?

Well, we opportunistically look at joint ventures like we do any other asset so if there is an opportunity to take out a partner or we have a disagreement with a partner, we could certainly come to an agreement and [we can] have further consolidation.

But I guess -- is it a case that there could be more debt coming on with these joint ventures more so than offsetting of inventory?

It’s nothing that we project but the ones that came on this past quarter is we opportunistically unwound and took out our partners and as a result consolidated the JV and have full control over the project which we see as a big positive to maximize the value of the asset.

Okay, and then I apologize if I missed this, I know you guys talked about increasing your land purchases, I was wondering if you had an updated amount of land spend that you were targeting for this year?

Our targeted land spend, land and land development, is $360 million versus last year -- last year was over $500 million, still down.

Down significantly year over year.

And last quarter, was it -- so that’s not -- it doesn’t sound like it’s up pretty materially though.

No, it was about $90 million in land and land development in the past quarter.

Okay, great. Thank you.

Ladies and gentlemen, that is all the time we have for questions. Mr. Mezger, I will turn it back to you for closing or additional remarks.

Thanks, Kelsey. Thank you again for joining us. We look forward to seeing you over the next few months. Have a great day.

Thank you, Mr. Mezger. Again, ladies and gentlemen, that concludes our conference for today. On behalf of KB Home, we thank you all for your participation.