Good day everyone and welcome to the KB Home’s second quarter earnings conference call. Today’s conference call is being recorded and webcast on KB Home’s Web site at kbhome.com. The recording will be available via telephone replay until midnight on July 5th by calling 719-457-0820 or 888-203-1112 and using the replay pass code of 3914926. KB Home’s discussion today may include certain predictions and other forward-looking statements that reflect management’s current expectations or forecast 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 materially be 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 may 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 other Regulation G required information is provided in the Company’s earnings release, which is posted on the “Investor Relations” page of the Company’s Web site under “Recent Releases” and through the “Financial Information News Releases” link on the right hand side of the page. And now, it is my pleasure to turn the conference over to Mr. Jeff Mezger. Please go ahead, sir.

Thank you, Kelsey. Good morning, everyone. Thank you for joining us today for a discussion of our second quarter 2010 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’d also like to welcome Jeff Kaminski, our Executive Vice President and Chief Financial Officer, who joined the KB Home team earlier this month. We are very pleased to have Jeff with us and we look forward to the value he will add in the years ahead. I will begin with an overview of today’s housing market environment followed by a summary of KB Home’s operating strategy within this context. Next, I will provide a review of our second quarter results along with our actions to grow revenues and improve our business results going forward. Finally, I will comment on our outlook and competitive position for the remainder of 2010 and beyond. A combination of both positive and negative factors continues to impact the housing market. On the positive side, affordability remains at incredible levels. By taking advantage of lower prices and historically, low interest rates, home buyers, especially, first time buyers, are finding they can now afford to buy the home they want in their preferred location. In fact, as a result of today’s low prices and interest rates, mortgage payments on a median priced home have dropped below 20% of median household income. This is the lowest level on record dating back to 1971 according to the State of the Nation’s Housing report released last week by the Joint Center for Housing Studies of Harvard University. This extraordinary housing affordability has helped to spur activity, clear inventory and even stabilize prices in many areas. At the same time, however, the disappointing employment report…

Thank you, Mr. Mezger. (Operator instructions). We’ll go first to Michael Rehaut with JP Morgan. Michael Rehaut – JP Morgan: Thanks. Good morning, everyone. First question, I just wanted to drill down a little bit on the differences in gross margin and also SG&A and appreciate some of the commentary you provided Jeff on the SG&A in particular, but kind of a two parter, I guess, on the gross margin can you review kind of some of the puts and takes as to the sequential decline when you exclude the charges from first quarter to second quarter of about 110 bps and what you expect to see in the back half for the year? And then also with the SG&A, kind of the second part of the question, you certainly have some wood to chop in the second half in terms of the ratio to get to 18.5%. And I was wondering if you can give us a little more granularity in terms of what cost you expect to pull out of the picture in the back half?

On a per unit basis the dollar margin per unit was the same, but due to the two things I mentioned, it is down 1%. And as we go forward and you look at our business, margins will range where they’re at to tick up slightly, depending on mix and the better way for us to grow margin is through top-line and units. Bill, do you want to cover SG&A?

It’s important to keep in mind that at our current low revenue levels, the changes in expenses can have a dramatic impact on our SG&A percentage. If you recall last year, we had a much flatter trajectory in our SG&A percentage, in that we started the year of last year at 20.1%, we ended the year at, I think for a full year of 17.2%. We’re starting this year at 27.5% and as you saw in the second quarter, we’ve brought it down already 510 basis points to the 22.4%. We see that gap continuing to narrow into the third quarter, as we end or as we hope to target the 18.5% at the end of the year. So you’ll just see a much steeper decline in our ratio and one coming much more into a normalized level I guess. Michael Rehaut – JP Morgan: Specifically, I guess when you kind of highlighted the legal costs, are some of those going to pull back or do you have identifiable dollars on that line that you expect to decrease?

Yes. We are expecting going forward that the legal costs should abate. Michael Rehaut – JP Morgan: Okay. Second question, if I could, on just order trend throughout the quarter and as we sit here in June, you kind of alluded to the fact that you pulled back on spec a little bit or you sold out sooner than you expected during the second quarter. I was wondering if you could just give us a sense of month-to-month order trends on a year-over-year basis. Yesterday, Lennar saw that June improved a little bit for them on an orders basis, also a traffic basis. I was wondering if you could provide any color to that, this month that we are in right now as well.

Mike, I couldn’t tell you what the monthly comp is year-over-year, but we also don’t want to get into the specifics of the month-to-month track during the quarter. As I shared in the prepared comments, May was off significantly post-tax credit. Getting back to our strategy and how we set up our business, heading into this tax credit expiration, we remained a pre-sold builder. We’re firmly committed to our business model. As we looked back on what happened with the last tax credit, we were totally at a disadvantage because we had no inventory to take advantage of the deadline and it did hurt our sales. Post-tax credit last year there was definitely a low in sales just like you are seeing now. As we look forward to this tax credit expiration, we did put some limited inventory on the ground in markets with price stability where the community targeted first-time buyers. And what was interesting for us is a big chunk of those spec starts actually sold as the foundations were being poured and the buyer still had the opportunity to go to the studio and make all of their selections other than the floor plan and the exterior elevation. But we did not have a huge spec inventory out there. What we did start recovered and then as April unfolded, our buyers could no longer once again take advantage of the tax credit because we couldn’t get the home built by the end of June. So we were once again at a competitive disadvantage. So the tax credit, while it absolutely helps to clear inventory and it did recreate some incentive for our consumer, it also created a disruption to our business model. And now that we’re moving past the tax credit period, we’re looking forward to things getting to a more stabilized supply and demand environment where the strengths of our business model can once again emerge. On the June sales front, we’re not going to give any color on that either because it’s too early in the month. And as things bump along, we don’t want to overreact to one week or two week activity. We’ll share more color at the end of our third quarter.

Our next question will come from Dan Oppenheim with Credit Suisse. Dan Oppenheim – Credit Suisse: Great. Thanks very much. Jeff, just wondering if you can just talk a little bit more, you spend a lot of time talking about the growth strategy and the demands going to return. We understand that it’s something we can all look at for the past few years. But I guess given the declining trends in May and what seem to be still weak conditions in June, how is that you’re responding to the current market and adjusting your plans? I understand you don’t want to alter the long-term strategy, but what do you do differently here at the end of June than you would have done if we’d seen strength in the market?

Are you referring, Dan, to our investment strategy or our sales strategy? Dan Oppenheim – Credit Suisse: Both, whether you will alter the land purchases and also what do you think about in terms of sales?

We’re all watchful and everybody has their own crystal ball on what’s going to happen post-tax credit environment here, but we look at each community specifically. We’re competing with resales in that market and we’ll take whatever steps we need to balance a sales rate with a margin, with the asset and the investment there. So we’re not doing anything dramatic as a result of what happened to our May sales. We’ll be a watchful and deal with each community based on the dynamics in that location. On the investment side, again, the communities that I used as examples and we could have picked more, they’re all priced very competitive with resales. They’re all selling at price points comparable to product that’s already been selling for many months in those location. So we’re comfortable with our underwriting and our investment decision. Wherever the selling environment takes us and whatever happens to supply and demand in that location would influence our investment strategy going forward, but we’re chasing 5 million resale units. So there are a lot of places we can go to compete in and continue to grow the business. Dan Oppenheim – Credit Suisse: Great, thanks. I guess if you can talk a little bit more in terms of the comments on the closings also SG&A. The guidance for SG&A assumes I guess a significant improvement in terms of closing for back half of the year. What are the assumptions in terms of when demand does return? And then also on SG&A, how significant was the improvement in SG&A that occurred unfortunately based on the decline in stock price during the quarter? I imagine that was probably a couple of hundred basis points.

I can let Bill speak to that side, Dan. But, again as I shared in my comments, we’re continuing to see great progress in compressing our cycle times. In fact for the quarter, our average build time was 86 days. You’ve covered us for quite some time, so you know that in the old days “Our business model was a six-month cycle time.” We’re now down in many divisions running below four months because of the simpler product to build and the sub base we have in our business model. So we are able to sell deeper into the year and still hit our deliveries for the year. So I’ve given you the range of units for the year and assuming we hit that range and that’s where we’re targeting right now, we’ll hit the SG&A ratio that we guided to. We’ll continue to chip away at our costs while we push the top-line and we’re expecting higher conversions because of a shorter cycle time going forward.

Moving on to Ivy Zelman with Zelman & Associates. Ivy Zelman – Zelman & Associates: Good morning, everybody. I think just to follow on Dan’s comments recognizing that you don’t have a crystal ball, but I think your confidence in holding margin going into the back half of the year, improving margins, having a hard time digesting that, given the weakness we’re seeing in order trends currently. I know builders talk about low levels of inventory in new homes, but as you pointed out, Jeff, you’re really competing against existing homes. And we recognize that you have to sell houses in order to cover G&A and to obviously generate revenue. So how you feel as confident as you do that you won’t need to accelerate incentives in order whether it would be closing costs as you experienced in this second quarter with respect to more people needing the down payment that you needed the fund to close or closing costs I mean. I just want to understand where your confidence comes from? And I’m also kind of perplexed that you’re using the Joint Center long-term housing forecast to talk about what’s going on, given that today we’ve got so much excess inventory in the market from an existing home standpoint, as well as a lack of formations, households peaks for today that’s actually almost non-existent. So hopefully, you’re not running your business on Joint Center and can you give us more of a understanding of how you actually think about opening new communities, how many new communities will you open in 3Q and 4Q or how many would you postpone possibly if for whatever reason demand doesn’t pick up without government providing stimulus as they’ve done through the past year? So I’m a little confused and concerned.

You just asked like 15 questions, Ivy. But I’ll try to answer as many as I can recall from what you just rattled off. We’re using the Harvard data to illustrate that in the long run this is still a very vibrant industry. And some of the lack of household growth right now that was actually shared at the Harvard Board meeting is people that are customarily home buyers are staying in the nest, where people are actually getting married, but not moving out from underneath the parent umbrella because of uncertainty or lack of confidence in their job or whatever. So household growth is still occurring and population and demographics are going to drive our industry in the long run. So that’s what I was sharing before. At the same time, this is a very local business and I walked through a couple of examples here of communities where we are selling well in those areas today and we are reinvesting to have more lots and to continue or open new communities in those specific submarkets. In those cases if there was a lull in sales for a while, we’re still going to open the community, because it’s positioned extremely well relative to resale. I don’t recall that I guided margins up for the rest of the year. We ranged them because it’s our business model range of gross margin is 18% to 20%. I think you and I have actually talked about normalized margins in our industry over the years as kind of a normalized range. Everybody has a crystal ball and everybody’s got a different view on whether the May drop in activity is one month, three months, five months. Everybody’s going to have a different opinion. But everybody agrees it’s going to come back. It’s too early in this thing. Just like when the last tax credit expired there was this lull and then it slowly rebuilt. And we think that’s the trajectory that you’ll see as the economy gets on firmer ground. Now, if the markets were to go south, we’re going to have to do some things that could impact our margin. So I’m not saying that it’s going up. I’m not saying it’s going down. I’m saying we’ll react to whatever market conditions we face at that time.

We’ll now hear from Stephen East with Ticonderoga. Stephen East – Ticonderoga: Thank you. If we could go back to the SG&A a little bit, last quarter you said about $12 million was from non-business. I think the phrase you used was non-business expense and legal and the long-term cash comp, etc., what was it this quarter?

I don’t think we really want to get into the detail. Again, I think what you need to take away from this is that we are focused on the SG&A. We will bring it down. We think it will more normalize as we get into the second half. And again, we think it will be at about 18.5% by the time we end the year, which is really up only about roughly a 1.5% from where we were last year, not the 740 basis points that we were in the first quarter or the 500 basis points that we were in the second quarter. So again, I think we really want to focus on more where this is headed, not where it is that we are.

As we shared, Stephen, we are always looking at ways to cut cost and we’ll chip around the edges. We’ve guided that the cost will ease through the second half of the year and at the same time, we expect the leverage from more top line to lower the ratio. That’s why we’re comfortable guiding at the 18.5 right now. Stephen East – Ticonderoga: Okay. I appreciate that you typically don’t want to talk about it month-over-month and I think generally that’s a good policy. But given that this quarter did have the expiration of the tax credit, all of us are trying to understand for all builders what May really look like year-over-year and what that means as we sort of climb out of this hole. So if there’s any more color you could give on May and how much it fell off year-over-year. And also then on the gross margin, you talked about product mix pushing it down, your gross margins come down two quarters in a row. So I want to understand, is there something going on that from a product mix standpoint that will continue or what should we expect moving forward there?

I think our growth on a product mix, it’s not just product mix; it could be product mix and it could be geographic mix, timing of communities, making delivery. I think the point is, is that, if you look at our gross profit contribution on a per unit basis, it is flat sequentially and up more than $9,000 year-over-year.

And we now hear from Joshua Pollard with Goldman Sachs. Joshua Pollard – Goldman Sachs: Hey, guys. A quick question on your strategy. You are, as far as I can tell, solely building homes to order and over the two most recent upticks in housing that’s led to some under penetration on the new home side. My thought process is interest rates are likely to rise as an economic and housing recovery stage. So do you think that the time that it takes or the time that consumers want to actually get a home delivered has shortened at least for a couple of years and it may be worthwhile to revisit the strategy to build homes that are not to order?

Josh, I think you and I have actually talked about this. I shared on my prepared comments that we will be selling homes in late August that close in November, that are sold, the buyer goes to the studio, we get the loan approval, then we start the home and we will close it in November. So, it’s a 95-day, 105-day, 120-day turn. You’ve heard the horror stories of consumers getting frustrated trying to buy short sales, foreclosures. I think the normal resale cycle is 45 days to 60 days. And in these foreclosures the short sales is well longer than that. So we actually think we are very competitive now. And would you wait an extra 30 days to get your own custom home versus go through the headaches of foreclosure or resale? So we think what we’ve done strategically is absolutely the right place to be. Joshua Pollard – Goldman Sachs: Understood. The other question I had is could you actually quantify what you’re looking for community count growth in 2011? And if you would be willing to give a trajectory for the second half of 2010, that’d be helpful as well? Thank you.

Josh, I think for the remainder of 2010, we think community count will be slightly down in Q3. For the year, it’ll be slightly down which implies some growth in Q4. And as we said in our prepared remarks, we’re projecting community count growth of 25% in 2011.

Our next question will come from Jonathan Ellis with Bank of America/Merrill Lynch. Jonathan Ellis – Bank of America/Merrill Lynch: Thank you. The first question I wanted to ask about the profitability guidance that you offered up and I’m wondering just to help get some framework around that. Any guidance you can give with respect to what percentage of homes would need to be sold through the Open Series product line and/or percentage of homes sold on new or recent land purchases in order to meet that profitability target?

Jonathan, I’ll have Kelly respond on the Open Series percentage, but on the market, again, this tax credit has created an interesting disruption in our normal business flow. In that, you have this deadline now in June, where we will have a spike in deliveries in June that we normally don’t see. And as we go forward through the balance of this year, we shared our deliveries will be up in Q3. Our fourth quarter deliveries are going to be tied frankly in part to how sales materialize over the next eight weeks to 10 weeks. So as we shared in our comments, we’re approaching profitability. You can see it, but there’s a variable now of what happened to the market and what happens with our delivery sequence. Having said all that, we still think we’re positioned at a gross margin and with the top-line growth we’re positioning for next year that will be profitable.

Jon, as far as the Open Series, it’s represented more than 50% of our deliveries for the last four quarters. So I think part of our profitability equation is related to two things. One is the Open Series is becoming a bigger portion of our delivery. Secondly, as we start rolling out new communities on new land with Open Series, we expect to move close to the normalized margins. Jonathan Ellis – Bank of America/Merrill Lynch: Great. My second question, just in terms of the order declines, particularly, in the California market, in the context of the tax credit that California has in place right now. Can you just talk about what you saw specifically on the West Coast market this past quarter? Did the state tax credit seem to provide any stability in May or was just a function of so many macro factors that led to the slowdown in orders in the West Coast?

Jonathan, any time the government offers a tax credit incentive, to me in part, it’s a message to the consumer that now is a good time to buy a house. And that’s always helpful with the consumer psyche. When you compare this year’s tax credit in California to last year’s, last year has worked extremely well. This year’s has been much more muted and that the payback this time around is over three years, whereas last year it was received right back in the same year. And for our consumer in California, we’re not seeing it as a primary motivator. Now, prior to April, if they were a Federal tax credit buyer and a State tax credit beneficiary, I think it would be a positive impact, but it hasn’t been a real driver before or after April 30.

Our next question will come from Michael Smith [ph] with JMP Securities. Michael Smith – JMP Securities: Hey, guys, good morning. Just a couple of quick things. One is what you are talking about with the color, with the specs and the disadvantage you guys are at? I am wondering if you can quantify that, can you give us what percentage approximately, I mean you can give me a quarter, a half or whatever came from specs in March and April and how that actually compared with say, February and January?

You are talking about our sales? Michael Smith – JMP Securities: Not your sales, your orders.

As I shared in the comments, it was a limited number. It was in some communities, as I said, where we had price stability and it’s a first time buyer product, we may have thrown one month’s worth of sales in the ground earlier in a year, so you are talking four, five, six, eight homes no more in that location and it wasn’t company-wide. So it definitely helped our sales for the quarter, because we may not have otherwise received the sale, but it wasn’t the lion’s share of our sales, by any means. I don’t know that we have the number broken out that way. Michael Smith – JMP Securities: That’s helpful. Does that mean then, is it safe to assume that, I mean are you hearing about good traffic coming through in March and April and then people leaving for subdivision down the street, because maybe they have more specs or leaving to buy an existing home. I mean, is that what we’re talking about, where people are actually coming and where interested and then being turned away because you guys (inaudible) on the ground?

If you think about it, Mike, and again, we are competing more with the five million resells that are out there. If on April 15th, the realtor takes a buyer to our community and they like the home, but down the street, there is a recently completed resale, where they automatically have an $800,000 free benefit. So we were definitely at a disadvantage in that period of time. That’s now gone.

We’ll now move to David Goldberg with UBS. David Goldberg – UBS: Thanks. Good morning, guys. Question here is on cancellation rates and if you guys had expected to see the cancellation rate maybe drop off a little bit more? And talk about maybe where people were canceling in the process, in other words, is that creating any kind of inventory areas fairly early on?

David, to me our can rates were right in the normal range that we typically run. And as you know, in our business model, the preponderance of our cans occur before we start the home, where you’ve got the filtering process, you take the contract and if they’re unable to get their loan approved or they change their mind, it happens pre-start to construction. Our can rate post-start remains very low. As I look back, I don’t know that there was any extra influence on the can rate up or down, because it was fairly typical quarter for us. David Goldberg – UBS: Got it. The follow-up question is actually on the land market. It’s good to see you guys being pretty aggressive on the land market and finding opportunities. But I’m just wondering if you can kind of talk about where the opportunity is coming from, we’ve been hearing increasingly that land prices are getting better for certain, especially for quality lots and there’s kind of a constrain on A quality or B quality lots in the market right now, being able to repurchase at affordable prices. So I’m trying to get an idea kind of where you’re getting access to lots? Clearly, you think they’re pretty high quality and what that means as you kind of look forward?

It’s absolutely a mixed bag, David. We are not players really in the large bank portfolios that are being shopped around and that’s what a lot of the media coverage is regarding, where prices are getting pushed up. You’re only as good in each city as your land team and it’s tied to relationships you have on the ground. So, our lots are coming from other builders, land developers, land owners, in some cases, banks that are offloading a single community of lots and you have to be on the ground working the relationships there. So before the tax credit dynamic, we were actually seeing and continue to see an increase in opportunities out there and a little less frenzy push in price up.

Our next question will come from Nishu Sood with Deutsche Bank. Rob Hansen – Deutsche Bank: Hi, this is Rob Hansen on for Nishu. With the kind of recent slowdown in May and June, have you seen any signs that the builders having second thoughts in terms of the land deals that are currently in the pipeline?

No. I mean it’s too early, Rob. Rob Hansen – Deutsche Bank: Okay. And then, foreclosing this quarter, what percent were pre-sold versus specs?

I don’t know that we track it that way, Rob, but my hunch is preponderance would be pre-sold. Rob Hansen – Deutsche Bank: All right. Thanks very much.

Our next question will come from Buck Home with Raymond James. Buck Home – Raymond James: Hi, thanks. Just briefly on the SEC, I know you are limited here, but is there any way you can give us an indication if the SEC is looking at your potential impairments or the impairments you either didn’t take enough in those communities or were a little bit too aggressive, any indication in which direction they were looking?

We’ve shared the comments that we can relative to the SEC. I wanted to touch on it because many people have enquired, but it’s ongoing and we just don’t want to speculate. Buck Home – Raymond James: Fair enough. Also, do you have the ending spec home count that you finished the quarter with and also, if you have it, the number of finished model homes you might have?

Buck, we had 3,176 homes in production, of which 534 homes were not sold and of that 534 homes, there were 152 finished unsold homes.

And we’ll now move on to Mike Widner with Stifel Nicolaus. Mike Widner – Stifel Nicolaus: Hey, good morning, guys. Just wanted to follow-up on a couple of things. First, did I hear you right the guidance you gave for deliveries this year was 8,000 units to 8,500 units?

Yes. Mike Widner – Stifel Nicolaus: Okay. So that’s a substantial increase in the second half. About 60% up from first half run rate. I do realize you got a June spike coming. But how should we think about that in terms of your assumptions on orders per community? It seems to imply that you expect a big boost in orders for community going forward even with the tax credit gone?

I’m not sure that that would be the case, Mike. Our orders per community in Q2 were 18 per community. You can do the math with the units we’ve closed, where our backlog is and how many homes we still have to sell. Mike Widner – Stifel Nicolaus: I was just doing the math and I come out to, you need to deliver 100% of your backlog next quarter, and then have a pretty strong orders volume next quarter. I mean if that’s the math that you are suggesting and I guess that’s the math you are suggesting, I was just trying to –

It’s really not because if you look at our community count, what we said is it’s going to be slightly down in Q3 and slightly down for the year, which implies it’s going to be slightly up in Q4. Our community counts were down more in Q1 and Q2. We expect a very strong level of backlog conversion in Q3 just given the June deliveries from the tax credit expiration.

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

Thanks, Kelsey. Thank you, again for joining us this morning. We remain confident in our strategy and enthusiastic about our long-term outlook for housing and for our Company. Thank you, again and everyone have a great day.

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