Katie Murphree - IR Floyd Sherman - CEO Charles Horn - CFO

Jen Consoli - JPMorgan Nishu Sood - Deutsche Bank Michael Cox - Piper Jaffray Keith Hughes - SunTrust Robinson Humphrey Trey Grooms - Stephens Inc. Jay McCanless - FTN Midwest Robert Manowitz - RBS Dave Manthey - Robert W. Baird Walter Branson - Regiment Capital Nitin Dihialipitus - Lehman Brothers Kenneth Blue Shlemmel - Wolf Point Capital Tim McDowell - Group G Capital

Good morning, everyone, and welcome to the Builders FirstSource second quarter 2008 earnings conference call. Your host for today's call is Mr. Floyd Sherman, Chief Executive Officer. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Any reproduction of this call in whole or in part is not permitted without prior written authorization of Builders FirstSource. And as a reminder, this conference is being recorded today, August 1, 2008. I would now like to turn the call over to Katie Murphree, Director of Investor Relations and Financial Reporting, who will begin the call. Please go ahead.

Good morning and thank you for joining us to discuss our second quarter 2008 financial results. We issued a press release after the market closed yesterday. If you don't have a copy, you can find it on our website at bldr.com. Before we begin, I would like to remind you that during the course of this conference call, management may make statements concerning the Company's future prospects, business strategies and industry trends. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject certain risks and uncertainties which can cause actual results to differ materially from expectations. Please refer to our most recent Form 10-K filed with the Securities and Exchange Commission and other reports filed with the SEC for more information on those risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements. We have provided reconciliations of non-GAAP financial measures to their GAAP equivalents in our earnings press release and detailed explanations of non-GAAP financial measures in our form 8-K filed yesterday, both of which are available on our website. At this time, I will turn the call over to Floyd Sherman.

Thank you, Katie. Good morning and welcome to our second quarter 2008 earnings call. Joining me from our management team is Charles Horn, Senior Vice President, Chief Financial Officer. I will start with an overview of the second quarter. I will then turn the call over to Charles who will discuss our second quarter financial results in more detail. After my closing comments, regarding our outlook, we will take your questions. Although, national housing starts climbed back above the 1 million mark in June, single family housing starts, the biggest driver of our business, fell from the first quarter of 2008. Single family housing starts in June 2008 were 613,000 units compared to 621,000 units in March of 2008. Year-over-year, we estimate that the housing starts in our market declined 41.3%. As we continue to see declines on housing starts, our markets are becoming even more competitive. We experienced intense pricing pressure during the quarter which was reflected in our gross margin. Our margins declined to 21.6% from 25.1% in the year-ago quarter. We expect continued pressure on our margins as these difficult conditions persist. In response to these challenging conditions, we continue to focus on reducing operating costs, improving operating efficiencies, and growing market share to offset the portion of the negative economic drivers that affect our industry. Through a combination of expanding our customer base and outstanding service to our current customers, we successfully grew our market share by 8.2% for the current quarter compared to the second quarter of 2007. We were also able to reduce our salary and benefits within SG&A by $13.9 million or almost 23%. When compared to our sales volume decline of 32.5%, this reduction in salaries and benefits was 70% variable to our sales volume decline as we continue to increase employee efficiency. Although small victories, they are victories just the same, in very difficult economic conditions. I will now turn the call over to Charles who will review the financial results in more detail.

Good morning, everyone. We reported sales of $307.3 million in the second quarter of 2008 , a decrease of 33.9% compared to $465.1 million for the same 2007 period. Breaking down our sales by sales driver for the quarter, first we estimate that housing starts within our markets declined approximately 43% compared to the same period in 2007. Again, I will remind you, what we do is we'll lag permits within our markets for one month to an assumed start. Second, lower market prices on lumber and lumber sheet goods had less than a 1% impact on our sales for the second quarter. So again, a very nominal impact. Third, market share gains contributed about 8 percentage points to our sales. And lastly, new operations added almost 2% that being two acquisitions we completed late in 2007. If we further break it down on sales by product category, prefabricated components declined 40.9% from the second quarter of 2007, due to a combination of lower prices and lower volume and declined to 19.5% of total sales for the quarter. Windows and doors were down 29.6% and they represented 24.1% of our total second quarter sales, up from 22.6% last year. Lumber and lumber sheet goods, our base commodity products, declined 39.5% to $76.2 million and fell to 24.8% of sales from 27.1% of total sales in the year-ago quarter. We estimate that $43 million of the decrease is due to lower volume and $6.7 million due to lower prices. Millwork declines 24.7% and now represents 10.6% of sales, up from 9.2% last year. Finally, other building products and services decreased 27.8% and represents 21% of sales, up from 19.3% in the second quarter of 2007. Certain product mix shift that you see here over the last several quarters have been driven by the dynamic that more homes were completed than started. That trend narrowed during the second quarter of 2008 and will likely abate during the second half of this year. Accordingly, we would expect future sales declines if any to be more equalized among the broad product categories. Gross margins. The $50.4 million decline in gross margins was across all our product categories. Our margin percentage was 21.6% from the second quarter of 2008, compared to 25.1% in the second quarter of 2007. We experienced gross margin compression on all of our major product categories, the most significant in our manufactured products in commodity lumber and panel products. The deleveraging of our lower sales volumes to fix cost embedded within our cost of sales, lowered our gross margins by approximately 120 basis points. Gross margins on lumber and lumber sheet goods fell 2.4%, as it is a category with fewer varieties to competition or entry. In addition, market prices for lumber and lumber sheet goods increased on average approximately 12% from Q1 2008. And we were largely unsuccessful in passing these price increases through to our customers. Our selling general administrative expenses were $80.8 million, down $18.7 million from the second quarter of 2007. We reduced our salaries and benefits by almost 23% from last year on a sales and volume decline of 32.5% or about 70% variable. We reduced our full-time equivalent head count by 22% from the second quarter of '07. Although, we continue to look for operating efficiencies, we are nearing a core level of staffing in a number of locations. So, similar percentage reductions in full-time equivalent head count will be difficult for us to achieve in future quarters, should housing activity continue to fall. From the second quarter of 2007, we were also able to reduce our office SG&A expense by almost $3.5 million or 29.5%, and delivery costs by almost $2.1 million or 11.8%. Delivery costs did not decline commensurate with sales volumes, primarily due to higher fuel costs. Our fuel costs increased due to higher diesel prices and longer delivery distances as we endeavor to expand our customer base. Our occupancy expense was higher than in the first quarter of 2007, because of the two acquisitions completed finished late in 2008. Additionally, our bad debt expense and other customer write-offs increased $1.3million year-over-year, a result of a continued decline in economic conditions and its affect on our smaller customers. During the quarter, we recorded asset impairment charges totaling $14.2 million or $0.24 per share related to certain of our markets. The impairment charges are the result of the continued decline in economic conditions in these markets, and its affects on these markets current operating performance and our long-term expectations. Included in the asset impairment charges is $7.5 million of goodwill, $4.4 million of other intangible assets and $2.3 million of fixed assets. We will continue to assess the value of our reporting units. And further declines, if any, in housing activity could necessitate further impairments in 2008 and going forward. Our interest expense was $6.3 million for the second quarter, down about $300,000 from the year-ago timeframe. The decrease was primarily attributable to lower debt balance from June of 2007, as we paid off a $40 million term note in the fourth quarter of last year, as well as lower interest rates for the quarter. This decrease was partially offset by a decrease in interest income, due to lower average cash balances and an increase in commitment fees related to our new revolving credit facility entered into in November of 2007. During the second quarter, we recorded an after tax valuation allowance of $24.1 million or $0.68 per share on substantially all of our deferred tax assets. The continued deterioration in our macroeconomic conditions that affect our industry, as well as specific financial and non financial factors that arose during the second quarter of 2008, drove the need for this valuation allowance. Our net loss for the second quarter was $45.9 million or $1.29 per diluted share, compared to net income of $8.4 million or $0.23 per diluted share in the same period last year. Excluding the asset impairment charges and the tax valuation allowance, our net loss per share was $0.37. Adjusted EBITDA for the second quarter of 2008 was a negative $7 million compared to $25.3 million in the year ago quarter. Adjusted EBITDA, as a percentage of sales, decreased to a negative 2.3%, compared to 5.4% for the second quarter of last year. Maintaining a healthy balance sheet is critical in a prolonged difficult operating environment. We are proud of the fact that our balance sheet has remained healthy after nine straight quarters of declining housing starts. At the end of June, we had $75.2 million on cash on hand. And when combined with $137.6 million in available borrowing capacity, we had over $213 million in liquidity. We still believe, we are well-positioned to weather the current housing downturn. We used cash and operating activities during the quarter of $2.9 million due to our net operating loss which we were not able to completely offset with reductions in working capital. We did receive $6.8 million in income tax refunds during the second quarter. And we anticipate receiving $7 million to $9 million of additional tax refunds in the second half of 2008. Our operating cash flow did improve from the first quarter of 2008, as we improved our day sales outstanding and increased our inventory turns. Our inventory turns increased to 9.7 times, compared to 8.8 times in the first quarter of 2008. Our day-sales-outstanding lowered to 38 days from 40 days in the first quarter of 2008. In the current environment, we believe it is important to stay on top of our accounts receivable aging and we feel that we have managed our accounts receivable very prudently. At June 2008, only 5% of our accounts receivable portfolio was greater than 60 days past due. We previously anticipated that we would be able to make breakeven free cash flow for 2008, but the continued downward pressure on our gross margins makes this unlikely. We did however make improvement during the quarter as our cash use fell to only $6.6 million, compared to $15.7 million in Q1, 2008. I will now turn the call back over to Floyd for his closing comments.

Although, we cannot predict how long this downturn will last, we generally expect these difficult operating conditions to at least continue through 2008 and 2009. We will continue to provide updated housing permit and commodity price data on our website each month to help guide you through the market uncertainties. This data is summarized and based on publicly available information. This quarter was yet another difficult quarter with a prolonged downturn. It is easy to continue to focus on the negatives, declining sales, margin compression, declining EBITDA, but we are looking at this downturn as a challenge to help us identify ways to make Builders FirstSource a better and stronger company. In the past, we have pointed out our ability to cut costs and increase our operating efficiency, as well as our continued focus on working capital and liquidity. But we have also been working on initiatives to off set our declining sales. Some of the success of these initiatives was evident in the quarter in our estimated market share growth of 8.2%. Two of the main initiatives that we have been working on to offset our declining sales is building customer relationships and diversifying our customer base. We believe building customer relationships through superior customer service and offering value-added solutions will help us to build customer loyalty in these difficult economic times. One example is in the -- to help us build customer loyalty is in the last half of 2008, we will be certifying our sales force through a web-based training program and best practices on green products and practices. So, our sales force will be able to offer our builder customers, green building solutions. We will be one of the first companies in our industry to certify our entire sales force in green building solutions. We have also focused on diversifying our customer base through cultivating relationships with custom builders and markets that we previously sold predominantly to national builders, expanding our delivery area in certain parts of our markets and expanding our presence in multi family and light commercial, in which we have over $25 million in projects awarded that are slated to begin in the third and fourth quarter of 2008. To mitigate some of the downward pressures that the competitive pricing environment is putting on our gross margins, we will continue to focus on our value-added as well as increase our manufacturing volume. Additionally, we will continue to focus our efforts on identifying initiatives to offset declining sales, reducing head count, driving operational improvements, and rationalized physical capacity and restructure underperforming locations. We will strive to maintain our market leadership and financial strength during this downturn. We rely on our employees to successfully employ this strategy. Their commitment to Builders FirstSource and their innovativeness has helped us to weather the downturn to-date, and we are counting on them to help us to continue to successfully employ our strategy through the remainder of the downturn. I will now turn the call over to the operator for Q&A.

Thank you, Mr. Sherman. (Operator Instructions) Our first question of the morning will go to Michael Rehaut at JP Morgan. Please go ahead. Jen Consoli - JPMorgan: Good morning. This is Jen Consoli on the line for Mike. How are you?

Great, how are you Jennifer?

Fine. Jen Consoli - JPMorgan: Good. My question is regarding the share gains. They accelerated nicely versus last quarter -- versus the last couple of quarters. How much of that is due to the fact that you were unable to pass through the lumber and the fuel cost increases? My question is what are your competitors doing and how are you going to balance the two going forward?

I think pricing was an element to it in the fact that we did have some pricing already set. We were somewhat aggressive in trying to maintain key customers during the quarter. I think the second piece of it though is where we've diversified and branched out into more multi family markets like commercial markets, trying to expand beyond just traditional single family. I think that's part of what you are seeing in the market share and gain number. Jen Consoli - JPMorgan: Okay. So, this higher level of share gains, is that something we can expect going forward? Or do you think as you try to get some of the price back, that that will drop back down maybe to the 4% to 5% range?

I think the -- as we work to push our margins up, it will affect our market share gains to a certain extent. We certainly will do everything possible to hold and continue building market share gains to the degree that we have, but it is going to be a lot tougher. There is no question in the second quarter, we did ease off somewhat and become more responsive to the pricing demands that our customers were placing on us. It definitely pushed more volume through, but now we have to start tightening up and see if we can't start moving the margins up. Jen Consoli - JPMorgan: Okay. Great. And then on the -- as far as your footprint, are you looking at any particular markets more closely in terms of maybe moth-balling or exiting? What is the strategy there as well?

I think we are looking at moth-balling some facilities and we would be looking at areas. Such as if you look at the Midwest and if you look some in Florida where housing continues correct far more than the national average, I think that's where you will see us look to see if there is further cost we can take out on our moth-balling facilities. Jen Consoli - JPMorgan: Okay. Great, thank you.

And we will go next to of Nishu Soon, I believe it is the Deutsche Bank. Please go ahead. Nishu Sood - Deutsche Bank: Thanks. Good morning, everyone.

Good morning. Nishu Sood - Deutsche Bank: I wanted to ask about the $1.3 million in bad debt expense. Charles, is that the write-off numbers that we are seeing which would be against the provision or is that the provisioning number?

It works hand in hand. What we did during the quarter is we wrote off directly against the reserve, close to $1.2 million for accounts that have either filed Chapter 7 or Chapter 11 or we now deem uncollectible. What we then do is we'll look at our aging buckets. And we do a run rate on each bucket in terms of how much provision we need. And so it works hand in hand. We did do a big charge off $1.2 million against the provision. Then we evaluated the in revised AR aging, in terms of how much allowance we needed to cover it. Nishu Sood - Deutsche Bank: And in terms of the allowances, those have been falling the last couple of quarters in absolute terms as well as a percentage of our trade receivables. Given that so many of your clients are facing severe distress and many are filing bankruptcy, shouldn't that number be headed the other direction?

Let's address that. If you go back to December of 2007, our allowance was 5.4% of our trade AR. This quarter it is 4.5% of our trade AR. But again, keeping in mind that we wrote-off a direct write-off of $1.2 million. That would normalize to 5.3%. It would be 5.3% apples-to-apples versus 5.4%. Now, the other dynamic we have to keep in mind is how old is our portfolio. As of December 2007, over 7% of our portfolio was over 60 days. We now drop that to about 5% of our AR portfolio, greater than 60 days past due. So that improvement in the currency, plus the fact that you have to normalize that direct write off, it keeps it apples-to-apples. And part of the improvements are the need for no further increases, due to fact that we're collecting our money more current and we have less old money sitting out there.

And traditionally, even under good times, that number was 3% to 3.5%. So, we are getting down to close to where we were under normal business conditions. Nishu Sood - Deutsche Bank: Got it. So, you are taking the age level of the -- how old basically the receivables are, as a the best indicator of distress among your customers.

That's correct. Nishu Sood - Deutsche Bank: Okay. And then my second question, I wanted to ask was you are going to get $7 million to $10 million in tax refunds in the second half of the year. Once you get those, will you have used up your claw back for the 2006 fiscal year? And also related to that, is there any cash tax positive payment that you can claw back from 2007? Or will we be pretty much done with that as a source of cash flow?

No. The receivables you see here relate to over payments we made in 2007. You know how you have to estimate it in the beginning of the year and make payments, plus losses in 2007 that we carry back to 2005. Current period losses that you also see coming into the income tax receivable number, we will carry back to ' 06 where we had ample taxable income that we paid taxes on. And that will probably be done in May, June of 2009 before we do that. So, the incremental $7 million to $10 million you see coming in relates purely to 2007. And then any loss we generate in 2008, we will be able to carry back to '06 and get that money in mid 2009. Nishu Sood - Deutsche Bank: About how much, I guess, what I'm trying to get a sense of how -- in terms if you could quantify, how much recovery you have left overall.

I would say it is going to be somewhere in the area of $60 million to $70 million potential that we can carry back to ' 06. Nishu Sood - Deutsche Bank: Got it. If I can sneak one last one in. The CapEx was $5.2 million this quarter. I wanted to get your sense -- or get some details as to why that's increased?

It really was a decision that Floyd and I made to try to buy off some of our rolling stock off of lease and then try to sell the equipment out in the open markets at what we feel is close to what our buy outs were. To try to reduce the fixed cost structure we have on our P&L. So, what you see is -- you also see proceeds from sales of property and planned equipment increasing. We will continue to try to sell that equipment to get the money back. It wasn't CapEx we were making to try to expand the business or maintenance CapEx. It was purely we were buying off leases and trying to sell the equipment, so we expect to get that money back in the later half of the year.

The lease buy outs were approximately $4.1 million.

Correct. Nishu Sood - Deutsche Bank: Okay. Thank you.

We'll go next to Michael Cox at Piper Jaffray. Please go ahead. Michael Cox - Piper Jaffray: Thank you very much for taking my questions. My first is on the sequential increase for the second quarter in terms of the sales. It was a little better than last year's Q1 to Q2. Anything to read into here?

No. If you look at it, it pretty much grew parallel with what the starts increased in Q2 versus Q1. It is sequenced just based upon an increase in starts. Michael Cox - Piper Jaffray: Okay. Looking at the gross margin, the gross margins come in from the peak range of the mid-26% range and now into the mid-21%. Is there a way to look at where you feel that this could floor at some point? Maybe in drawing on some of your historical experiences in this industry, a reasonable expectation there?

It is a very difficult question. It is hard to know how quickly capacity is going to shake out of the markets we compete, and take some of the pricing pressure off of us and maybe a few other key competitors. That is taking place. It is not taking place as quickly as we would like to see. But I think over the next six months, you could see more capacity drop and that could take some of the pressure off. Then if we look at it in on a sequential quarter basis, in the first quarter we were at 22.5% margins, dropping to 21.6%. If you look at that sequential change, it was all in distributed products not manufactured, and predominately was due to the commodity lumber products where we experienced increases in raw material or purchase costs, but we couldn't pass it through. That was probably about 60 basis points. So, I think that did put some pressure on the quarter that was more driven by the fact that we had a duration difference between our pricing to customers and then, how long we were carrying the inventory levels. Long-winded way of saying, some of these decreases this quarter was just due to the market change. Some of that could come back, but conversely to really get it back to a higher level, we need capacity to drop out of the markets. Michael Cox - Piper Jaffray Okay. That's very helpful. In terms of the asset impairment, the impairment that was taken this quarter, is it in the same markets that it had been taken in the past? Is there any way to quantify how much left there could be to impair in those markets if that was the case?

One of them relates to a previous market which is up in the upper Midwest. There we have taken all the fixed asset impairments and goodwill impairments left. The newcomer in terms of the impairments is Florida, which hit this quarter where we impaired some intangibles lists, customer intangibles as well as some goodwill. Really, I don't expect a huge amount to come there, just for the fact that Florida is already down over 60% from where it was. That is a market that adjusted fast. If the market continues to get worse, there could be more but at this point we don't anticipate it. But to your other question, there is still a substantial amount of goodwill sitting on that reporting unit. Michael Cox - Piper Jaffray Okay. Thank you very much.

And our next question goes to Keith Hughes of SunTrust Robinson Humphrey. Go ahead. Keith Hughes - SunTrust Robinson Humphrey: Thank you. You talked a lot about your liquidity on the call. Just wondering if the Board has considered or would consider some type of equity raise in the future to get you off the defensive and onto the offensive at some point in the future when it is appropriate to do that?

I think Keith that would have to be more event driven, some compelling acquisition, something that would necessitate the use of the funds. Again with the ABO we have in place, there are no affirmative covenants. We are not worried about our EBITDA levels. We're not worried about our funded debt levels, as much as we are worried about how much our availability is. How much cash do we have on hand and what is the collateral base supporting the ABL. So, I don't believe there is a compelling reason for them to go out and raise equity or do a writes offering, absent some need for the funds or the liquidity. Keith Hughes - SunTrust Robinson Humphrey: Okay. And within the -- you talked about SG&A, cutting it to the bone here. Have you exited any geographies yet? Is that something that could be on the table in 2009 given your view of the market?

We have really not exited any of our major markets to-date, Keith. We have consolidated within some of the markets and we are still servicing those markets from -- out of fewer locations. If we continue to see the pattern of the decreasing housing starts continue on into 2009, yes, there could be some markets that we will exit from. But it will be done with a lot of careful consideration, because once you exit a market, very, very difficult to go back in. Very expensive to try to restart your position in the markets. That will be reviewed carefully. If we deem that in our long-term best interest that that market is not critical and the risks of continued losses in the market far outweigh what our potential gain is, then that decision will be made. Keith Hughes - SunTrust Robinson Humphrey: Okay. Thank you.

And we'll go next to Trey Grooms at Stephens, Inc. Please go ahead. Trey Grooms - Stephens Inc.: Good morning. With the jump up in CapEx in the quarter with the lease buy outs, is there any further lease buy outs that you guys are looking at? Is that all done? With that, what is your CapEx goals for the year now? For ' 08?

I would say, Trey, that's largely done. We're going to try to monetize that equipment, sell it, and get cash proceeds in. I would say for the remainder of the year, we are looking no more at $3 million to $4 million maximum in terms of CapEx.

Our CapEx will only be on an emergency basis and for something that -- where the returns are just so overwhelming that it dictates that you go ahead. But don't anticipate much in that area. Trey Grooms - Stephens Inc.: Okay. And then, you guys said that you are down to pretty close to core levels of staffing at most of your facilities. You were able to flex salaries and benefits about 70% with sales falling off. Looking out for the rest of the year since you are getting closer to core levels, what level of flexibility do you still have here?

There is some. There is probably the potential -- take it more in absolute terms, 200 to 300 people that we can do on maybe a 10% further decline in housing levels. Again you run into -- and it goes back to an earlier question. The best way to take additional head count out is to moth-ball facilities. Those two decisions go hand in hand. What we know is from a structure standpoint, we are in a very good position in that we have fewer facilities than most of our competitors. Therefore, we have fewer fixed costs. You still have to have a manager and dispatcher and so forth within each location. In terms of just flexing at the location, taking out some admin, some ability to do so but it will be more driven by moth-balling facilities. Trey Grooms - Stephens Inc.: Okay. That's helpful. And then, the improvement that we saw in inventory turns and DSOs, are those levels of inventory turns and DSOs, are those sustainable as you look out into the rest of ' 08?

I think they are sustainable and personally believe that we can improve slightly on our inventory turns. Any time when you are down at this level or the lower volume of operations, inventory management becomes a tougher and tougher problem. But like anything, you can continue to fine tune. You continue to tweak. The overall, what the management oversight of inventory, making those proper decisions. I think there is still some improvement to go. Trey Grooms - Stephens Inc.: Okay. And then, just one final question. If you look out at the different regions that you guys operate in, is there any that you saw in the quarter and what you've seen thus far in expectations for this quarter, are there any regions that are looking or performing better than you expected? Or better than the rest of the group from a demand standpoint?

I would say the some of our South Carolina markets, they are doing, Charlotte included within that group, looking better than our markets. We seem to be stabilizing in the mid-Atlantic areas. But overall, it is still a very tough situation. There was not a single market that had a positive growth in it as compared to last year. Trey Grooms - Stephens Inc.: Okay. Thank you guys very much.

And we'll go next to Jay McCanless at FTN Midwest. Please go ahead. Jay McCanless - FTN Midwest: Good morning. Just wanted to find out what lumber prices have done since the end of the quarter?

Plumber prices have just moved up very slightly. The lumber manufacturers are trying their best to keep and push prices up. We are finding in many cases their responses -- they have no product to sell. But when you look into the inventories that are being held at mill level, you obviously see that they have a growing inventory situation on their hands. We would like to see higher lumber prices, but I don't think right now under current conditions that it is going to be sustainable to -- at the levels where we are now. Could see a slight decrease, but it's pretty static as -- over the last few weeks. During the quarter, we had an unusual spike. We paid the price on it. There was a very significant jump. We are talking better than 20% over a four-week period. When you are trying to really manage your inventory and spin your inventory, it caught us as Charles indicated. But right now, the prices have come back down. I think that's what we are going to see for the next month or so. Jay McCanless - FTN Midwest: Okay. And then following on that. With the dislocation in the market, I just wanted to check about segment profitability. Is prefab components still the most profitable? How would you rank the profitability of the different market segments now?

In terms of ranking, I wouldn't put prefab or obviously lumber and lumber sheet goods at the top of it. If you look at the areas that gross margins have held in the basket, it's still going to be in your windows and doors, millwork and your other products and services. Part of the reason your manufactured product is down, is we have a lot of excess physical capacity. Our utilization in our plants is around 55%. When you seeing on that level of overhead, it makes profitability a little bit more difficult. Obviously, with pricing for commodity products, your lumber and panels that's out trading very much close to variable cost out in the markets. If I had to sort them at this point in the game, I would say windows and doors, millwork, other products and services, manufactured, and then commodity. Jay McCanless - FTN Midwest: Okay. All right, thank you.

We will go next to Robert Manowitz at RBS. Robert Manowitz - RBS: Hi, good morning.

Hi Rob. Robert Manowitz - RBS: As I look at your accounts payable, the number of days did increase sequentially. But year-over-year, it is actually retreated a little bit by my accounts. Maybe the acquisitions in late '07 might influence that a little bit. Should we read into that anything? Is anything going on in terms of the extension of credit with you guys? Or are people pretty comfortable with your access to your ABL?

At this point, we've really had no issues with these suppliers in terms of their comfort level or trying pulling back on our terms. Our terms are very equivalent to what we had last year. It was around 30.8 for the quarter versus slightly over 31 last year. Some of that just gets into timing. It's when we (inaudible) and it then flips to an accrued liability. In terms of terms, we are very comfortable that they are going to hold static or maybe increase a little bit. We are really not feeling any pressure at this juncture. Robert Manowitz - RBS: Great. And if you could help me better understand your comments earlier on the potential for a tax refund in '09. You gave us $60 million to $70 million number.

Yes. Robert Manowitz - RBS: Are you saying that if you were to post negative pretax income in 2008 of $150 million or so, not that that's our expectation, the maximum amount that you can collect in a refund then would be roughly 38% of that? So kind of $60 million to $70 million? Did I think about it the right way?

Yes. Robert Manowitz - RBS: Okay.

Obviously there is a threshold where if the net operating losses get over a certain amount, it would not be carried back to 2006. It would then be a carry forward. Robert Manowitz - RBS: Right. And that threshold is that $60 million to $70 million that could be looked back to. Is that right?

Yes. At this point, I do not anticipate our net operating losses for the year will exceed our ability to carry back. Robert Manowitz - RBS: Thank you.

Our next question goes to Kyle O'Meara at Robert W. Baird. Please go ahead. Dave Manthey - Robert W. Baird: Hi. It is Dave Manthey at Baird. I was wondering, if you can talk about the diversification into multi family. Is part of the lower margins as a result of moving into new markets and having a low price to try to make in roads? Then if you could also just discuss the core single family market. I assume that you are making positive share gains and your margins were weaker in the core single family business as well. If you could just talk about the impact of the diversification effort.

Yes. Definitely the move into multi family, light commercial does have a downward affect on your margins. A lot of that is due, Dave, to you put in a lot of advanced costs into estimating, bidding those projects and that is typically far in excess time-wise of what you have on repeat single family business. And so, you have a lot of up front costs that are incurred in that business. And typically, you are bidding against multi people, competing for that business. And so, it definitely affected the margins. I can't sit here and tell you exactly how much it did, but I can see it in our design and engineering costs. That part of the explanation. Dave Manthey - Robert W. Baird: But in your core single family business, you still had significant share gains and you saw some margin degradation there as well, right?

Yes, correct. Dave Manthey - Robert W. Baird: Okay. And then definitionally in terms of -- Charles, you talked about moth-balling facilities. Floyd, you were mentioning earlier about exiting a market, I am just wondering are those the same thing or is moth-balling the first step and exiting the next step?

The moth ball is where you shut down the plants, but you keep the facility. You take out the people, so you are taking out fixed costs associated with personnel. The facility is still there. You continue to pay the rent. You are not trying to sublet it. You are going to hold onto it until you see a market recovery. When you exit a market, you pretty…

Let me add, the other point is that you may moth-ball facility, but then you continue servicing that market out of other facilities that can do it on a lower cost basis. You are still selling in that market. You still have a presence in that market. You just may not be utilizing one of the facilities to produce a product or distribute the product from it.

When you exit a market, you are actually leaving the market. You do not have any other facilities that can ship into the market. You are now closing your facilities. You are trying to sublet them or sell them if you own the facility. You are trying to monetize your working capital. And at that point, you are not trying to engage or shift into the market from anywhere else. Dave Manthey - Robert W. Baird: Are these just production facilities or are they distribution facilities also?

It can be a combination of both. Dave Manthey - Robert W. Baird: Okay. All right, thank you.

And we'll go next to Walter Branson at Regiment Capital. Please go ahead. Walter Branson - Regiment Capital: Thank you. I have a couple things. You said that you are withdrawing your guidance for breakeven free cash flow for the year. Obviously, you are a ways off of that for the first half. At this point, what is your outlook for free cash flow in the second haft of the year?

What I think is that you will see -- and again, this is just a broad range, anywhere from 15 to 25 of negative cash flow for the second half of the year. That will be very dependent upon start levels if it stays stable versus decline and obviously gross margin levels. Walter Branson - Regiment Capital: And is that negative 15 to 25 include the benefit of the tax refund?

Yes. Walter Branson - Regiment Capital: And within that, I mean, so is working capital likely to be a use of cash in the second half as well?

No, it depends, if things static -- starts stay static, then it would be flat. If starts go down, you will see it as a provider of cash. Walter Branson - Regiment Capital: Okay. Previously, you have expressed a keen interest in making acquisitions once you think the market has bottomed out. Does that remain the case? Or have you changed you viewpoint on that?

No, I think we are still very focused on it. If a deal is available that we can make sense from a structural standpoint, liquidity, the financing markets would bear it. And then the last point would be whether long-term it really gives us opportunities to extract synergies and future value creation. What we don't want to do is just chase any deal. There is a number of small deals out in the market right now which we could do, but may not make any sense long-term in terms of value creation. It would really have to be something that makes a great deal of sense, a compelling acquisition for us to do it.

If we look at a potential situation that may arise within a market where we are currently operating -- for us to be interested in it, we would really have to really be able to see that we could take capacity out of that market and retain the sales and so forth. But we are not going to just buy up facilities and not be able to take capacity out of the market. Because right now, capacity is one of the key issues that are affecting our business. Walter Branson - Regiment Capital: Okay. It sounds like -- tell me if I'm wrong, it sounds like I'm hearing a little bit of different change in the nuance of you are saying. Because I thought previously, you were very interested in buying things cheap when the market had bottomed. I think you said it was number two for use of cash, besides protecting the existing business. Have you changed at all?

No. That is still right. It would still be number two, but again liquidity is still the key. The first part is now probably a little more on our minds, that's why we would be less active in terms of acquisitions. Walter Branson - Regiment Capital: Got it. Thanks very much.

And we'll go next to [Nitin Dihialipitus] at Lehman Brothers. Please go ahead. Nitin Dihialipitus - Lehman Brothers: Thank you. Charles, did I hear you right that you said 15 to 25 negative FCS just in the second half. Or is that for the year?

That would be for the second half. That's an estimate on our part that starts could fall some in the second half of this year and that the trends from a run rate standpoint on our gross margin stays where it is. Nitin Dihialipitus - Lehman Brothers: That it's continue to decline some?

Yes. Nitin Dihialipitus - Lehman Brothers: I see. You mentioned that a lot of your business is getting to a core staffing level. What does that equate to in terms of starts number that core staff level can support, if you like?

The staff level goal versus what Nitin? Nitin Dihialipitus - Lehman Brothers: Versus basically what's the starts number? And on the core level does that equate towards a 1.2 million starts number, total starts. Or does that equate to 1 million total starts number?

We look at the single family start level right now which fully equipped, right around 670 annualized. We would be looking at the single family size, because that's still where we are more exposed as a company. And that's what we would tie it to. But again, facility is your key driver of your staffing which we have an advantage having fewer facilities. But again, should starts fall further, it still means you have too much capacity in the markets and you have to moth-ball to really get the variable costs up, and in your fixed costs in terms of head count. So, the point is if we keep our facility open, you will still going to have your core infrastructure which would be your manager, your dispatcher, your credit personnel. And you will still going to have some delivery and some variable cost in your warehousing. Nitin Dihialipitus - Lehman Brothers: I understand. Okay. So it is not as much how many starts can they support, it is how many facilities can this core level support?

I think that's the bigger issue. Yes. Nitin Dihialipitus - Lehman Brothers: Okay. Fair enough. And in terms of lumber, you mentioned that there is a 12% increase in the second quarter. In terms of timing, have you been able to take some of that pricing in the third quarter or is that 60 basis point margin and almost permanent?

If you looked at what happened is the run up took place over a four or five-week timeframe in Q1, which is when we were procuring. By the end of the quarter, it was already dropping back. So, at the point we're in negotiating with customers who had already pulled in some. So, we experienced the intra-quarter detriment but didn't really have the higher price to pass on beginning of the second quarter. Again, if you remember, many big customers will want to price a commodity product for a quarterly basis at the very beginning of the quarter. And so, they will look at random links at that point in time and that will be the key determinant of the pricing. Where we got hurt is that the price ran up intra-quarter, and then fell back down by the time we had re-set opportunities with our customers. Nitin Dihialipitus - Lehman Brothers: So, if you don't expect to occur -- then shouldn't that actually in some sense come back to your gross margin?

Yes. Nitin Dihialipitus - Lehman Brothers: I see. Okay. So, you are already factoring that into your guidance?

We are definitely considering that, yes. Nitin Dihialipitus - Lehman Brothers: Okay. Great, thank you very much.

(Operator Instructions) We will go to [Kenneth Blue Shlemmel] at Wolf Point Capital. Please go ahead. Kenneth Blue Shlemmel - Wolf Point Capital: Two questions. What do you expect asset sales to be in the second half of the year with the lease buy outs you did and now you will sell those assets and any other assets?

It would be less than $1.5 million. Kenneth Blue Shlemmel - Wolf Point Capital: Just $1.5 million? And then back to the tax refund question one more time. Is $60 million to $70 million the maximum or is that what you expect to get back, based on current trends and forecast?

That would be the maximum. Kenneth Blue Shlemmel - Wolf Point Capital: What is your best guess, based on where we are today in terms of what your outlook is for losses this year? What do you think the expected tax refund might look like?

Hard to say, but I do not think we will exceed that amount, but I think we will be pretty close to it. Kenneth Blue Shlemmel - Wolf Point Capital: Well, that is probably close to the expected amount?

I think we'll be somewhat close to the expected amount. Yes. Kenneth Blue Shlemmel - Wolf Point Capital: Thank you.

And we'll go next to Tim McDowell at Group G Capital. Please go ahead. Tim McDowell - Group G Capital: My questions have all been addressed. Thanks.

And gentlemen, we have no other questions remaining in the queue. So, I would like to turn it back to you for any closing comments.

There are no other comments from us. We really appreciate you joining us today. If you have any further questions, please feel free to contact Charles.

Thank you. That does conclude the call. We do appreciate your participation. At this time, you may disconnect. Thank you.