Good day, everyone and welcome to the KB Home fourth quarter and year end earnings conference call. (Operator Instructions) The recording will also be available via telephone replay until midnight on January 22. You can access this recording by dialing 719-457-0820, or 888-203-1112 and entering the replay pass code of 3687634. 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 of the company’s business activities, prospects, strategies, and financial and operational results. These statements are not guarantees of future performance and due to a 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 KB Home’s filings with the SEC, which the company urges you to read with care. KB Home’s comments today will also include non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and the other information required by Regulation G is in the company’s earnings release which has been posted on their website on the Investor Relation’s page under the Recent Releases link and is archived with their other releases under the Financial Information through the Releases link on the right hand side of the page. For opening remarks and introductions, I would like to turn the conference over to KB Home’s President and Chief Executive Officer, Mr. Jeffrey Mezger; please go ahead, sir.

Good morning and Happy New Year, I’d like to thank you for joining us today for a review of our 2009 fourth quarter and full year results. With me this morning are William Hollinger, our Senior Vice President and Chief Accounting Officer, and Kelly Masuda, our Senior Vice President and Treasurer. Looking back at 2009, KB Home substantially achieved our operational and financial objectives, ending the year with positive momentum that we look to build on in 2010. Throughout the year we focused on generating cash and strengthen our balance sheet, improving our business operations, carrying out strategies, that would enable us to successfully compete against the resale homes that dominate today’s housing market, and position ourselves to restore profitability. Despite very challenging housing market conditions, we concentrated on the areas of our business that were within our control, optimizing our performance for the current economic climate while also position ourselves to opportunistically capitalize on a housing recovery. By successfully executing against these commitments we are in a significantly better position as we head into 2010 than we were last year. In the fourth quarter our overall pretax performance improved by 69%. When we exclude inventory related charges and the losses incurred from land sales, KB Home posted a pretax profit of approximately $24 million in the quarter. We attribute much of this success to our KB Next operating model, the strategic transformation of our business and our financial discipline. As a result we now operate in markets that meet our criteria for both short and long-term housing growth, we have right sized our business, we introduced new home designs that meet the needs of today’s buyers, we achieved sustained operational traction as seen in our reduced cycle times, sales pace, and improving margins, and we have generated the cash…

Good morning everyone, as Jeffrey discussed in his opening remarks, 2009 was another challenging year for the homebuilding sector in terms of both broad industry data and our own operating strengths. Throughout the prolonged downturn though, we have been strategically transforming our business and managing our financial resources to navigate effectively through these times. As we entered 2009 our management team knew that we had three absolutely vital financial goals ahead of us. One, ensuring KB Home’s financial stability and liquidity. Two, restoring profitability, and three, maintaining competitive strength to strategically position KB Home for an eventual market recovery. Having now reached the end of 2009 we clearly have made substantial progress towards these goals. During the year we were focused on generating positive cash flow from operations and taking other steps to fortify our financial position. We ended the year with a strong conservatively leveraged balance sheet and a robust cash position that will enhance our ability to capitalize on emerging opportunities. At year-end KB Home had nearly $1.3 billion in cash and a net debt to capital ratio of just under 43%. We also pursued several initiatives throughout the year to restore the economic equilibrium of our homebuilding operations against the backdrop of excess new and resale homes and falling home prices. These initiatives included actions to enhance our productivity and to rethink and redesign our core product lines to provide a better value of today’s more cost conscious buyers. Our results demonstrate our substantial financial progress in each quarter of 2009 expanding our housing gross profit margins and reducing our pretax losses from the prior year despite significant decreases in our average selling prices and revenues. Our strong financial performance extended through the fourth quarter when we narrowed our pretax loss by 69% from a year ago.…

Thanks William, I would like to clarify one number in William’s prepared comments, in the fourth quarter operating margin he stated 14.9 it was actually 4.9, still a nice number and the highest we’ve had in quite some time, but it was 4.9. Before we take your questions, I want to summarize where KB Home is positioned heading into 2010, we continue to sharpen our operational execution, as demonstrated by our improved margin performance, lower cost structure, shorter cycle times, and solid net order growth. At the same time our careful financial management has given us the flexibility to become increasingly opportunistic in our markets. With these improving fundamentals we believe we are well positioned to restore consistent profitability. While we continue to keep a close eye on our costs, our principal point of emphasis for restoring profitability going forward is to grow our top line, primarily through a focused land acquisition strategy. We recognize that the direction of the housing market in 2010 remains uncertain. If it stabilizes at today’s levels our current operational tempo positions us to restore profitability at some point during the second half of the year. But even if the housing market weakens, we believe we can still compete effectively. We are confident that our business model enables us to be nimble and opportunistic in any market environment. We’re also confident that our competitive landscape has changed favorably. There are now far fewer choices available for homebuyers who prefer a new home over an existing home. The new home industry has contracted sharply over the past few years as smaller builders have exited the market and the larger builders scale back. As a result the inventory of single family new homes is down to its lowest level in nearly 40 years, even as the US population has grown by 50% over the same period. In most of our markets there are only a handful of builders left who are building at any scale. We are in a good position regardless of the timing of a housing market recovery. We have the right strategy in place, the right products for these times, and the right markets for growth. Above all, we have the right team to achieve our 2010 goals and I would like to thank the people of KB Home for their passion and hard work. We all share a commitment to optimizing our performance in order to generate more value in 2010. Thank you again, and now we would be happy to take your questions.

(Operator Instructions) Your first question comes from the line of Daniel Oppenheim - Credit Suisse

I was wondering if you could talk about the delivery guidance of 8,000 to 9,000 homes in 2010, that’s basically in line with there was in 2009. Does that reflect basically anything in terms of a lower community count, caution in terms of the absorption, can you just give a little more color on that.

As William touched on in his comments as we sit here today we’re projecting a community count for the year, that ranges about the same from 2009 to 2010. We’re working to grow the community count and are hopeful as the markets stabilize that we can grow the community count coming out of 2010 but the average for the year will be about the same. Our per store sales continue at our normal levels, so we think we’re being realistic in that range. Its not conservatism or optimism either way, its just realistic based on our community count.

Relating the comments about the slowdown after the, or the tax credit and the impact at the start of the quarter, where the tax credit extended this year, have you thought about the strategy and what to do to make sure that you can get orders through April 30 this year. Would you start some specs, I know you have a policy against that in general, but how do you look at the extension of the tax credit here.

We remain firmly committed to our built to order business model. As William shared we had less than one spec per community entering 2010. We shared on the third quarter call and I again touched on it today, we were at a disadvantage primarily to resale’s, when our customer couldn’t take advantage of the tax credit last fall. We’re analyzing strategies, we haven’t finalized it yet, but in our stronger submarkets and stronger communities, we think there’s merit to positioning some homes through sheet rock and then holding them there in April so that a consumer at that time can still purchase and make the choices in our Studio before they then in turn close in time to get the tax credit. So we will have some type of strategy to avoid the situation we were in last fall.

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

First question you had said that, I just want to get back to Dan’s comments regarding community count and how you answered that, and more focusing on the order pace, with community count, I just want to make sure I understand if you’re assuming kind of a stable count would that also infer we also deduct from that that the year over year declines would steadily decrease throughout 2010 and at the same do you think you can still do better on a year over year basis in terms of sales per community.

What were you referred to as the steady decline, that sales community count—

If you’re talking about the average community count being roughly the same year over year in 2010 versus 2009, or that number to be perhaps steady by the end of the year, or sequentially, how do we think about quarter by quarter in terms of the community count. Right now it’s at a decent decline year over year, should that decline just narrow and at the same time in terms of sales per community when we’re thinking about orders, are you still expecting a higher year over year absorption per community.

In terms of the community count trajectory, we think we’ll be slightly lower in the first half of the year and slightly higher in the second half of the year as we bring on more communities. But the average for the year will be about the same. When you get back to sales pace we’re hesitant to give guidance because we don’t know what the spring selling season will bring with all the variable factors that are in play as I mentioned in my prepared comments. So we’re not managing the company right now to push volumes and generate cash, we’re managing the company to improve margins and get back to profitability. So rather than chase more units we’ll chase, how do we make money on a per community basis. We’ll manage to normalize sales rates and keep pushing our margin up a little bit and grow the top line as we introduce more communities.

And then on the comments about gross margin and also profitability you had said that you expect or hope to have gross margins up year over year in 2010, I just wanted to know if that comment applies, that expectation applies to every quarter of the year that you expect it to be up year over year and also when you talked about restoring profitability at some point in the second half of the year, just want to make sure we understand, does that mean that at this point, just given the way revenues would flow through, particularly from an SG&A side that just given the way you have leverage work that in the first half that its more likely that you’d still be running at a loss.

Yes, that would be our view. We’re not going to make money in the first quarter. And the second half of the year, it depends on what happens with the spring selling season. You touched on leverage, our gross margin, and our SG&A margins were very favorable in the fourth quarter in part because of leverage and in our normal year, margins come down in Q1 and Q2 and then ramp back up with leverage. Our guidance was that we expect our Q1 margins in 2010 to be higher than they were in the first quarter of 2009. But as to what range we’re not going to give you guidance on how much higher.

Your next question comes from the line of Carl Reichardt - Wells Fargo Securities

I’m curious you mentioned or talked a little bit about the ease in competitive landscape from I think you mentioned both resale and other builders, obviously many of your public peers have been moving on, private peers, have been moving price points downstream pretty aggressively especially over the last six to nine months, and I’m curious whether or not you think that’s impacted your sales rate at all or may in 2010. How do you expect to, what is your strategy for fighting against their move downstream. Is that any different than it was nine months ago when they weren’t offering products like that.

I think every community has its own story. Our prices were down a little bit in Q4 but I don’t think it was because of brand X across the street or down the street, its how we’ve positioned our product primarily to be competitive with resale’s. And if resale prices hold where they’re at I think our prices will hold and sales will be fine. If resale prices go down further, that’s what I think would pressure our prices down. What’s the number right now, 250,000 new homes for sale, and six million resales. So the resale pressure is much stronger than the new home pressure.

And what, if you look at your cycle times just on open series, and just as a side note, curious what percentage of your deliveries you think open series will be, but also how far do you think you could take the cycle times down. What’s the reasonable maximum you can do if you don’t build spec and get to a sort of a company wide cycle time. How far away are you from that.

As we’ve shared through 2009 we projected that coming out of 2009 over 50% of our deliveries would be from the open series product. And we accomplished that and we expect that percentage to go up in 2010. There’s some communities we’re in as we’ve shared where we can’t change product and we can’t introduce open series so, the percentage wouldn’t get close to 100 for some time but it will be higher than 50 in 2010 and head north from there. Our cycle time as a company while many divisions are down in the 4.5 range, there’s others that are at 5.5. I think overall we could probably shave another three to four weeks off, best case, no more. There comes a point where you’re running the engine just too hot but we’re pretty comfortable at the 4.5 month pace right now and as backlog builds and sales grow, it will probably extend a little bit back from there. That would be a nice problem to have.

Three to four weeks sounds like a reasonably good amount, so that’s all I wanted to say.

Your next question comes from the line of Ivy Zelman - Zelman & Associates Ivy Zelman - Zelman & Associates : I think that you have done, congratulations on really doing a good job and improving your profitability and I think [our] people want to understand of course what that trajectory looks like and you don’t have a crystal ball any better than the next guy does on what demand will be and certainly the risk associated with some of the headwinds out there related to the stimulus, after the tax credit expires or if [SAK] were to tighten and so I think looking at your community count growth the question would be if you actually had a really strong spring selling season, much better than anticipated, what’s the flexibility of the community count going up and not being flat, actually growing, is there a possibility that community count can actually grow 10% and absorptions are higher so you can wind up actually having like a 20% type revenue growth number in a best case scenario or should I say volume as opposed to ASP. The second question is as you open your new communities and you bring them on, recognizing that it’s a great IRR, you’re getting a huge return, it sounds like plug and play, at some point that probably is more challenging in the right locations as market demand is so strong for the best finished lots and you start to get this situation where you actually have to put some cash into the ground and put a shovel in the ground and start to look at getting ground to a finished lot, completion in the time it takes. So if you were looking at modeling which is what we’re ultimately all trying to achieve, what type of trajectory with respect to revenue growth, sort of two to three year out type of thought process, could you see coming to fruition in a best case scenario. I mean some analysts might say, oh there’s going to be a huge snapback in homebuilding demand and housing starts are going to go up and new home demand is going to be up and certainly that’s a possibility but are there limitations on what a company can efficiently do in terms of opening new communities, managing the people, getting those communities open and certainly there’s costs associated with them, so can you help us, just walk us through sort of the prudent or realistic best case scenario on what that might look like.

I can try, that was a long question so I’ll try to touch on all the points you raised. As for the first one, I shared the Houston example and we’ve shared many others in the past year where we can quickly build models open for sale and deliver homes. So we have the capability to open communities very quickly and could still identify things today that could generate deliveries in the second half of this year. The pause is for a couple of reasons, one, we’re being diligent. We’re only chasing lots that are aligned with our product strategy so you won’t see us go back into second move up lots and there’s some of those out there. And it has to be in a submarket where we were comfortable that prices have stabilized. We don’t want to catch the falling knife and I think that’s still a wildcard in that we don’t know where the economy is headed in the spring. If things stabilized where they are today there’s a lot of opportunity out there to acquire finished lots. One of the unknowns is the hundreds of thousands of lots, finished lots, that the banks have, at what price and at what pace do they put them back on the market. We’re seeing deal flow from banks or from sellers and it is picking up from where it was even last summer or last fall, but there hasn’t been the flood yet if you recognize how many lots are being held by the banks. And I think if markets stabilize the banks would start to release some of that inventory back into the marketplace and that’s where the lots will come from. That has to occur before you’d see us all start investing in raw land, pay cash, develop lots, and bring those to the market. If you look out over time, as we’ve stated on this call the markets we’re in today, we delivered 28,000 houses at our peak. So we have significant upside in our served markets to take it as fast as we could. Now do we have the infrastructure today in place to deliver 28,000 houses, no we don’t. Do we have the ability to quickly leverage ourselves up from where we are today, absolutely. So if things were stable and you’re moving along, I think 20% to 30% growth rate is realistic in units. Buts it’s a combination of everything has to line up for you to get there. For a snapback to double your size in 18 months, I don’t think that would happen. Ivy Zelman - Zelman & Associates : That was exactly what I was hoping you would help me understand, thank you very much.

Your next question comes from the line of Stephen East - Pali Research

If I could first follow-up on the profits, you talked about if you, are you comparing when you say that you won’t be profitable until the latter half of 2010, even though you were profitable on the housing operating margin front, are you comparing that 2010 result to what you were talking about on your margin for housing in the fourth quarter.

In the guidance for 2010 one of the differences would be that we don’t expect the impairment level we had in 2009 so the earnings we would project in the latter half of 2010 would be after impairments.

And then if we switch gears and look at pricing, what you’re seeing in your markets, the Southeast and West were big surprises in opposite directions for me, can you talk about one, what’s going on in your markets, and two, what are your strategies as you move through 2010 on the pricing.

As has been the case, its really a mixed bag right now. California prices have held well for several months now, six or seven months, and we in fact have seen some price increase in California where we’ve had successful openings of our product.

Are you moving the product offering up as well as pricing or is it just purely pricing.

Purely price, it’s the same product, and you push a thousand here and a thousand there and get what you can. So while we’ve seen price stability and it appears the market is stable today in California, the wildcards are the things that we’ve been talking about and where things are headed in the spring selling season. As you go across the country Texas is soft but stable I’d say. Parts of Florida, we’re still seeing price pressure. Carolina’s we’re still seeing price pressure. Vegas we’re still seeing price pressure. So there aren’t a lot of markets that we would view as stable and ready to move up. They’re still all kind of wobbly out there, so it’s a little tenuous.

And your strategy then of to focus on pricing, are you worried about some of those markets giving up a lot of the demand side of the equation.

I don’t know that demand right now is going away. If you look where prices have dropped the most, like a Phoenix or a Vegas, resale numbers are very strong. So there’s a lot of sales occurring at those prices and its what happens to price for instance when the shadow inventory comes on the market is the current price sufficient to clear the inventory like it has been for the last few months, or does inventory go up and then therefore price goes down a little more. But if you get back to our business model, we don’t forecast price increase in our guidance to you so we’re assuming if markets stay where they’re at today, then our pricing would hold where it is today.

And just any update on the SEC investigation.

Not really at this time, we’re cooperating, there’s nothing new to share.

Your next question comes from the line of Nishu Sood - Deutsche Bank

I just wanted to get some color, some numbers on the fourth quarter land activity. You had $50 million of land sold, I just wanted to get the number of lots there. You also said you purchased a lot of, most of your purchase activity was in the fourth quarter so the same numbers, the quantity, and dollars for the fourth quarter. And then qualitatively I wanted to get a sense of with the movement in and out of the land pipeline, what were you effectively doing in the fourth quarter. Were you swapping for example raw lots for finished lots, larger communities for smaller communities, outlying areas for closer in areas, so I just wanted to get some color on the land activity.

On the land sales we’re not going to give you the specific details of each transaction but in summary we were able to dispose of some non-strategic assets, in one case move up finished lots that weren’t part of our business strategy. In other cases in submarkets that where its either it’s a [C] location or a submarket that’s not that strong we were able to dispose of lots, generate cash, take advantage of NOL, improve our balance sheet, it was a very nice move for us. Its not something we see, we anticipate a lot of that activity going forward. On the community count side we did tie up more lots than we did in the previous quarter in more locations, in all regions, primarily rolling options and its part of what will allow us to grow our community count coming out of 2010. But we’re hesitant every quarter to give you guys what I call the weather report because every community has its own story relative to status of the lots, how quickly can you get to deliveries and we don’t want to start getting into that kind of detail. But when we do the K, when we distribute the K, it will have the detail for what lots we own and control by region so you’ll be able to back into how the lots moved in and out with deliveries, land sales, and acquisitions.

And taking a step back, if I contrast come of your peers, kind of management commentary with what I’m hearing from you today, and in your prior quarters, one contrast you could detect is that some of your peers are putting land acquisition front and center so almost a stance like a land fund would have, distressed opportunities that could end up being transformative for the organization, if I listen to your commentary, operations, revenue growth, profitability, are front and center and land is just an input. So if there are opportunities, there are opportunities. So I wanted to get a sense from you, is this could just be an issue of communication and how you’re communicating your strategy, is there a difference between how you’re viewing the landscape from some of the more opportunistic stances that I’m describing and if so, what kind of drove that strategic difference.

I don’t necessarily think there’s a big difference, I like being a merchant builder, making margin on finished lots versus taking land risk. If you look at what we’ve shared today, pro forma we have a $1.5 billion in cash. We don’t need a land fund to go be opportunistic and acquire lots and we’re definitely out in every market today combing for things that are consistent with our business model and give us returns. There’s hundreds of thousands of lots out on the landscape out there depending on which city you’re looking at. So you don’t need to go acquire big parcels and big communities and create value through entitlements and improvements today and we’d rather stay focused on picking up finished lots in the markets we’re in and grow our business that way. The strategic alliance funds are out there for everyone, we just haven’t announced anything and right now we’re focused on core business, pick up lots, and grow the business. But its definitely in an opportunistic mode. We think with our business model and our price points and our product, that we can quickly as I call it, plug and play and grow in a hurry when each of these markets stabilize.

Your next question comes from the line of David Goldberg - UBS Securities

First question is trying to follow-up a little bit maybe on Nishu’s question, maybe asked a little bit differently. What I’m trying to understand is if you compared the lots that you’re purchasing today on average, the finished lots that you put under option I should say, where do you think the costs are of those lots relative to the lots that you’re delivering after the impairments in the current quarter or maybe for 2009 in general. What I’m trying to get an idea of here is can you continue to keep your land cost at [post] impaired levels as you move forward for some period of time.

Yes, I think margins are up on the new assets we’re bringing in so you’re basis as a percent of revenue is actually lower than it is on a current book.

And then my second question kind of has to deal with some of the comments you made about existing home inventories and competing against the existing home inventories, one of your peers noted last week that they felt like a lot of the foreclosure stock was not necessarily in the same areas as some of the new home communities and that there was so little new home inventory out there that they felt like they were starting to get some pricing accordingly and I wanted to get your thoughts about that. If you feel like a lot of the foreclosures that are coming to the market now are really in different areas, different parts of communities relative to where your new communities are and if you really feel like maybe there’s as much competition today as they were for you let’s say a year ago.

I don’t want to state to the comments from last week, but the markets we’re in, there’s foreclosures around us. I think there’s a consumer that really values the benefits of a new home and they’re willing to pay more or not have the foreclosure process aggravation in order to pick their custom home with energy efficient features and have a brand new home of their dreams versus buying the five year old or ten year old foreclosure. If there is any price of either the value of the product we’re offering and the value equation to the consumer or competitively in that submarket there may not be a lot of inventory but I think there’s pretty broad spread of shadow inventory around the country and its not just in the C minus locations. I think its everywhere.

Your next question comes from the line of Josh Levin - Citi Investment Research

Let’s assume that the spring selling season is strong, and as you go through the spring selling season as you think about operational planning for the second half of 2010 how will you be able to distinguish genuine sustainable demand versus demand that might have been pulled forward by the tax credit.

Every market has a different balance of supply and demand. So if inventory, historical levels, what we’re, every submarket you’ll have a different story and if there’s no inventory out there you may pull some sales forward, who knows, but there’s more demand behind that so you would just keep going. If there’s, at the end of the tax credit period, if there’s still excess inventory in that submarket, we’re not going to go open up more communities there.

I wanted to ask about the weather, its been unusually cold for the past few weeks in many parts of the country, does that kind of cold have a material effect on traffic and sales and does it prevent you from starting homes.

Only in a very few communities. As you know, we’re primarily in the Sun Belt and while people are complaining in Florida that its in the 30’s and 40’s, they’ll still go look at houses and we can still build houses. Reno or Denver, are really the only two places we build that come to mind where the weather is any kind of an issue at all.

Your next question comes from the line of Megan McGrath - Barclays Capital

My first question, I want to beat the profitability dead horse a little bit here, because I’m still a little confused about what you’re trying to say on gross margin, to see a year over year increase in the first half of the year versus the 4Q level you put up leaves us about 600 basis points to play with there. So I guess asking it this way, aside from any significant pressure on prices that you see, is there any reason why we should see a meaningful sequential decline in gross margin.

We always have a sequential decline from Q4 to Q1 because we don’t have the volume leverage. So you will see gross margins drop in Q1. We expect them to be higher than Q1 of 2009 and you’ll see SG&A lift because of the drop in volume.

How much of your gross margin would you say is variable. I was always assuming it was a pretty small percentage.

A couple of points.

And then in terms of your cancellation rate, you seem to have bottomed in the May quarter and its up a little bit since then, I don’t know if some of that is seasonal as well, but if you could give us any color on what you’re hearing from your buyers that would be great.

People that are making the home buying decision today are committed to the purchase and we have a very good filtering process if you will, before we start the home so our can rate after start is actually below 10% again which makes a very predictable business once we start the home. So its dropped back to historical normalized levels. The consumer is confident when they make the decision, they recognize what a great affordability opportunity it is right now.

Your next question comes from the line of Joshua Pollard - Goldman Sachs

Another question on profits, I’m looking to get a better handle on your profit guidance, do you expect the second half profits to offset the first half losses that you’re speaking about.

A lot of the second half profits will be predicated on what happens in the spring selling season because we’ll sell in the spring and deliver in the fall, but at this time I don’t think that the second half would cover the first half. It depends on what happens in the spring selling season.

My other question was around land, you’re goal was to spend $360 million in 2009, what did you actually spend, what is your goal for 2010, and then could you talk about what percentage of the lots owned that you have are still mothballed or you don’t plan to build on them over the next call it two years. Ultimately I’m trying to determine what portion of your inventory will likely stand idle for multiple years from here.

We spent about $375 million in 2009 on land and land development. And our budget for 2010 is close to double that amount. And in terms of mothballed lots, if you look at our $1.5 billion of inventory, about 70% of it is related to backlog and lots that are more than 50% developed.

Your next question comes from the line of Stephen Kim – Alpine Woods Stephen Kim – Alpine Woods: You made a comment I think, you commented on your SG&A, I think you said that you’re going to be in 2010 focused primarily on achieving, or you expect to see any improvement in SG&A due to an improved increase in your top line and leverage from the top line as opposed to sort of dramatic cuts on an absolute basis. First of all did I get that right and if that’s the case, that would suggest a degree of optimism around where volumes might be this year was a little greater than what you’re other commentary has been and so my question is first of all did I get that right and then secondarily, if I did, would it be fair to say that on the things that you can control at this time, that you are prepared to rise to a level of volume that is higher than a flat year over year comparison.

Let me make a couple of comments and then William can chime in, in a presold business you have your sales pace and you know where your revenue is headed but you do what you can to adjust your overhead levels according to your sales pace. And part of what William was referring to is the big drops in SG&A are behind us. To get any more significant drop you’d have to probably leave some markets which we are not prepared to do right now. We like the markets we’re in, we want to grow from where we are today and we think there’s the potential for a spring coil effect where we can top our top line without having to increase SG&A much at all, only the variable side per unit. So the message is, we’re always going to be looking for reductions in overhead but the significant drops are behind us.

I think Jeffrey said it well. Where we dropped about $200 million year over year between 2009 and 2008 or what was about 40% we think our absolute amounts for 2010 are going to really bounce right around the $300 million mark. Again, correlated with our revenues, our volumes, and so that’s what I meant that we don’t really see any real further reductions absolute wise. Our ratio leverage will come as again we grow the business through volume and revenues and so the percentage SG&A again, will only improve as we get to more top line growth.

I think also, to shape it this way for you, we know that we can grow the top line out of our current markets and our current SG&A level, it’s a question of timing. If the markets are stable you’ll see it sooner, if the markets stay wobbly and soften a bit, it will take a little longer before we get top line growth. Stephen Kim – Alpine Woods: Second question relates to land and opportunities within markets obviously we have not seen as many deals come actually come forward as we would have liked but everyone is talking about the stuff that hopefully will be sprung loose here over the course of the next year or so. My question for you is as you look across the country and the markets that you really care about and you’re looking at the land deals in the areas that particularly get you interested, not the far flung stuff, but the stuff that’s actually in areas where you really feel strongly that the demand is going to come back there very quickly, can you give me an idea of how many lots fit that kind of description which are not yet maybe available but you know they’re there and you know that they’re probably going to be coming at some point. In any way that you choose to give that kind of size, description, maybe as a, in terms of year supply in the market, or what amount you would be interested in purchasing like would that only amount to 20% of those lots, just give me some help here in trying to figure out how many of those really prime lots are out there.

When we track the finished lots in every market and what keeps getting the attention in the media is the broadcast bid that the bank flips with a broker and a broker flips to an investor and here you go and our success has been far more localized through our network where we’ll go to sellers whether it’s a builder or a bank and we’ll preempt the broker broadcast and just cut a deal. And its tied to the relationships we have in all the cities we’re in and also the fact that the sellers have confidence that we have the ability to build homes in a hurry. One of the things that’s a wildcard with investors looking for terms or flippers and all that, is they’re not builders and they don’t have a story that they can bring with them as to the final disposition of the lots. So there’s a lot of people that want to sell to someone who has an appetite to build a home today and deliver it to a consumer today and get rid of the lots that way. I couldn’t tell you what the percentage is or the number is. I know we’ll take every lot we can that’s aligned with our strategy in the markets that we’re in that hits our financial hurdles. And there’s lots on the ground in every city that we’re pursuing and in talks with sellers today and I think there’s a lot more behind it. So there’s not a shortage of lots out there. Its having confidence that it’s the right financial returns and the right market dynamics today that make a prudent investment.

Your next question comes from the line of Kenneth Zener - Macquarie Securities USA

Can you to the extent of the gross margin so the split between your newer redesigned products and your older ones and how the margins held up verse your estimates as well as what percent of closings you expect next year on that 8,000 to 9,000 from newly acquired lots.

I think, I don’t want to speak for William and Kelly, but we’re pleased with our margins. I think they’re actually a little higher than we thought they would be nine months ago. While we knew they’d be better they [inaudible] in Q4. We’re not going to track for you how many deliveries in the fourth quarter are coming from new communities because its too variable a mix based on how our existing communities sell and how many new communities we can load in in time to have deliveries in the third and fourth quarter.

I think the good news is about 80% of our Q4 deliveries were to first time buyers and we did achieve our goal that more than 50% of our deliveries were open to [this] product line.

And so if you look to 2010 since you gave and we appreciate it, at least the volume guidance, what percent of those closings do you expect to be on newly acquired lots let’s say in the last two quarters and the second question is can you give us guidance for what you think interest expense in 2010 given the increasing investment in land.

The guidance we’re sharing is based on lots we own and control today.

I was saying closings for lots that you have recently acquired if you can give that, as well as for your interest expense, how you think that will run into 2010 given that you’re increasing your inventory investment.

We think the fourth quarter of 2009 is a good proxy for next year so I think if you were modeling about $16 million a quarter or $64 million for the year is an appropriate range. If we were to acquire more dirt in all likelihood we would be able to capitalize interest on that and thus don’t see really interest changing substantially from the fourth quarter run rate.

Your final question comes from the line of Joe Locker – FBN Securities Joe Locker – FBN Securities : Just on the material side, are you starting to feel some price pressure just because the commodity run up, I mean copper has more than doubled and oil has more than doubled from the beginning of this year.

A little bit but not much. Lumber was bumping up, now its kind of flattened again. For everything that bumps up there’s something else bumping down. We’re still able to achieve some overall savings in our cost to build. I do think there will be pressure on commodities going forward. I can share an interesting anecdote because we have one business model and we’re building the same products nationally, there’s a lot of best practices coming out of our cost to build and just last week, we had all our purchasing managers in the country together in one location comparing notes on what it costs to build for framing and plumbing and sheet rock and everything on the plan 1622. And a lot of great ideas came out of it so we’re able to continue to find ways to lower our cost to build which could either help margin or could offset any of the commodity prices that do go up. I think until the economy gets some more traction, I don’t think you’ll see a lot of upward movement in the commodity prices overall. Joe Locker – FBN Securities : And just some housekeeping questions, on what percentage of your finished lots are, of your lots, of the 28,400 owned are finished and what was your community count at the end of the fourth quarter and what do you expect it to be at the end of the first quarter.

Our community count average for the fourth quarter was 174 and I think Jeffrey said that we’d be relatively flat, slightly down in Q1, 2010. Your second question was on the finished lots— Joe Locker – FBN Securities : Percentage of your owned lots that are finished of the 28,400.

It was about 70% of the dollars and about close to 18,000 lots were finished and in backlog or at least more than 50% complete.

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

Thank you again for joining us. We look forward to seeing you over the next few months. Everyone have a great day. Thank you.