KB Home is a Fortune 500 company listed on the New York Stock Exchange under the ticker symbol “KBH.” We are one of the nation’s largest homebuilders and commemorated our 50th year in the homebuilding industry in 2007.has been building homes for more than 50 years. We construct and sell homes through our operating divisions across the United States under the name KB Home. Unless the context indicates otherwise, the terms “the Company,” “we,” “our” and “us” used hereinin this report refer to KB Home, a Delaware corporation, and its predecessors and subsidiaries.

Beginning in 1957 and continuing until 1986, our business was operated throughconducted by various subsidiaries of Kaufman and Broad, Inc. (“KBI”) and its predecessors. In 1986, KBI transferred to us the outstanding capital stockall of its subsidiaries conducting KBI’s homebuilding and mortgage banking business.operations to us. Shortly thereafter,after the transfer, we completed an initial public offering of 8% of our common stock and began operating under the name Kaufman and Broad Home Corporation. In 1989, we were spun-off from KBI, which then changed its name to Broad Inc., and operated aswe became an independent public company, operating primarily in California and France. In 2001, we changed our name to KB Home. Since 1989, we have expandedToday, having sold our businessFrench operations in both our existing markets and into new markets through capital investments and acquisitions of a number of other homebuilders. Today,2007, we operate a geographically diverse homebuilding and financial services business serving homebuyers in markets across the United States. We believe our geographic diversity helps to mitigate the effects of local and regional economic cycles, enhancing our long-term growth potential.nationwide.

Our homebuilding operations, which are divided into four homebuildinggeographically defined segments for reporting purposes, offer a variety of homes designed primarily for first-time, firstmove-up and active adult buyers,homebuyers, including attached and detached single-family homes, townhomes and condominiums. We offer homes in development communities, at urban in-fill locations and as part of mixed-use projects. We use the term “home” to refer to a single-family residence, whether it is a single-family home or other type of residential property, and we use the term “community” to refer to a single development in which homes are constructed as part of an integrated plan.

WeThrough our homebuilding segments, we delivered 23,7437,346 homes in 2007 compared to our record 32,124 homes delivered in 2006. In 2007, ourat an average selling price of $261,600 decreased from $287,700$214,500 during the year ended November 30, 2010, compared to 8,488 homes delivered at an average selling price of $207,100 during the year ended November 30, 2009. Our homebuilding operations represent most of our business, accounting for 99.5% of our total revenues in 2006. We2010 and 2009.

In 2010, we generated total revenues of $6.42$1.59 billion and a net loss from continuing operations of $1.41 billion in 2007$69.4 million, compared to total revenues of $9.38$1.82 billion and income from continuing operationsa net loss of $392.9$101.8 million in 2006.2009. Our homebuilding revenues, which include revenues from land sales, accountedfinancial results for 99.8% of our total revenues2010 and 2009 reflect challenging operating conditions that have persisted in both 2007 and 2006. Our results in 2007 reflected the significant market downturn the homebuilding industry experienced throughoutto varying degrees since a general housing market downturn began inmid-2006, as well as our strategic actions since the year, and our actionsdownturn began to align our operations with the diminished sales environmentthese conditions and to strengthen our balance sheet.

Our principal executive offices are located at 10990 Wilshire Boulevard, Los Angeles, California 90024. The telephone number of our corporate headquarters is(310) 231-4000 and our website address is http://www.kbhome.com.kbhome.com. Our Spanish-language website is http://www.kbcasa.com.kbcasa.com. In addition, location and community information is available at (888)KB-HOMES.

Our homebuilding operations span the United States from coast to coast. Because ofReflecting the geographic reach of our homebuilding business, as of the date of this report, our principal operations are in the nine states and 30 major markets presented below. For reporting purposes, we haveorganize our homebuilding operations into four homebuilding segments based on the markets in which we construct homes — West Coast, Southwest, Central and Southeast. We operate in the 13 states and 35 major markets shown below:

Segment Operating Information.  The following table sets forth specificpresents certain operating information for our homebuilding reporting segments for the years ended November 30, 2007, 20062010, 2009 and 2005:2008:

Unconsolidated Joint Ventures.  The above tables dotable does not include deliverieshomes delivered from unconsolidated joint ventures. From time to time,ventures in which we participateparticipate. These unconsolidated joint ventures acquire and develop land and, in the acquisition, development, constructionsome cases, build and sale of residential properties throughdeliver homes on developed land. Our unconsolidated joint ventures delivered 102 homes in 2010, 141 homes in 2009 and 262 homes in 2008.

We expect the difficult conditions we experienced in our served markets in 2007 to continue through 2008. Consistent with the general downturn inTo varying degrees since mid-2006, many housing markets across the United States, most of our served marketsincluding those we serve, have facedexperienced a prolonged downturn compared to the period from 2000 through 2005 due to a persistent oversupply of new and resale homes available for sale with some areas reaching historically high levels. In these markets, our business has encountered significant challenges from heightened builder and investor efforts to sell homesweak consumer demand for housing. Since 2008, a generally poor economic and land, increased foreclosure activity, consumer reluctance to purchase homes, tighter lending standards due to turmoilemployment environment as well as turbulence in the mortgage financefinancial and credit markets and reduced homehave worsened these conditions. Although housing affordability particularly in areas that experienced rapid sales price increaseshas been at historically high levels in the past few years leading updue to and including 2006. These conditions resulted in both lower overall sales in our homebuilding business compared to prior years and downward pressure on our selling prices and margins in 2007, as competitionrelatively low residential consumer mortgage interest rates, the negative supply and demand dynamics for sales drove marketing expenses higher and increased the need for sales incentives. We do not expecthomebuilding industry during the present business environment inhousing downturn have severely constrained our served markets or these trends to improve in 2008.net orders, revenues and profitability.

We believe housing markets will likely remain weak in 2011 and that our continued adherencebusiness and the homebuilding industry will experience uneven results before a sustained recovery takes hold. At this time, we cannot predict when such a recovery might occur. Based on this view, we intend to continue to focus on achieving three primary integrated strategic goals:

In pursuing these goals during the period from mid-2006 through 2009, we reduced our overhead, inventory and active community count levels to better align our operations with diminished home sales activity compared to the disciplinespeak levels reached in the period from 2000 through 2005. Consequently, we exited or reduced our investments in certain markets, sold land positions and interests, unwound our participation in certain unconsolidated joint ventures, and experienced a sharp decline in our backlog and homes delivered compared to our peak period performance primarily due to decreased demand and because we had fewer community locations from which we sold homes. During this period, we also focused on improving our operating efficiencies, investing selectively in a few markets with perceived strong growth prospects, and, as discussed further below, redesigning and re-engineering our product line to meet consumer demand for more affordable homes and to lower our direct construction costs and generate higher margins compared to our previous product.

While market conditions in 2011 will determine the degree to which we acquire or dispose of land assets in managing our inventory, the pace with which we open new home communities, and the manner in which we pursue and refine the execution of our primary integrated strategic goals, we will continue to operate in accordance with the principles of our core built-to-order operational business model, KBnxt, will enable us to manage through the current and expected near-term business environment. We believe it will also position us to capitalize on long-term growth opportunities that we expect will arise as housing supply and demand conditions in our served markets begin to stabilize.KBnxt.

KBnxt Operational Business Model.  We began operating under the principles of ourOur KBnxt operational business model, first implemented in 1997. The KBnxt operational business model1997, seeks to generate greater operating efficiencies and return on investment through a disciplined, fact-based and process-driven approach to homebuilding that is founded on a constant and systematic assessment of consumer preferences and market opportunities. We believe our KBnxt operational business model sets us apart from other homebuilders. The key principles of our KBnxt operational business model include:

OurThrough its disciplines and standards, our KBnxt operational business model is designed to help us achievebuild and maintain a leading position in our existing markets,markets; opportunistically expand our business into attractive new markets near our existing operations; exit investments that no longer meet our return standards or marketing strategy andstandards; calibrate our product linesdesigns to consumer preferences in both our existingpreferences; and new markets. Historically, this focus has allowed us to achieve lower costs and economies of scale with respect toin acquiring and developing land, purchasing building materials, subcontracting trade labor, and providing home design and product options to customers.

Our expansion into a new markets will dependmarket and our withdrawal from an existing market or submarket depends in each instance on our assessment of a potential newthe market’s viability and our ability to develop and/or sustain operations at a level that meets our investment standards. Similar considerations apply to potential asset acquisitions or dispositions in that new market. We will also continue to consider appropriate acquisitions, as market conditions may produce attractive opportunities. However, expansion into new markets and large acquisitions are not a priority for us in the near term.our existing markets.

In recent years, in light of difficult market conditions, we have sold some of our land and interests in land and have abandoned a portion of our options to acquire land. Consistent with our KBnxt operational business model, weWe determined that these sold or abandoned properties no longer met our investment or marketing standards. Although we shifted our strategic needs orfocus in 2010 to acquiring land assets in order to open more new home communities and increase our internal investment standards. Ifrevenues, as discussed above under “Strategy,” if market conditions remain challenging, we may sell more of our land and interests in land, and we may abandon or try to sell more of our options or other agreements to acquire land.

The following table showspresents the number of inventory lots we owned, in various stages of development, andor controlled under land option contracts or other agreements in our homebuilding segments as of November 30, 20072010 and 2006.2009. The table does not include approximately 376316 acres owned and 64 acres optioned as of November 30, 20072010 and 393approximately 316 acres optionedowned as of November 30, 20062009 that havehad not yet been approved for subdivision into lots.

Reflecting our geographic diversity and relatively balanced operations,operational footprint, as of November 30, 2007, 22%2010, 24% of the inventory lots we owned or controlled were located in the West Coast reporting segment, 24%23% were in the Southwest reporting segment, 24%28% were in the Central reporting segment and 30%25% were in the Southeast reporting segment.

The following table showspresents the dollar value of inventory we owned, in various stages of development, andor controlled under land option contracts or other agreements in our homebuilding segments as of November 30, 20072010 and 20062009 (in thousands):

Home Construction and Sale.  Following the purchase of land and, if necessary, the completionfinishing of the entitlement process,lots, we typically begin marketing homes for sale and constructing model homes. The time required for construction of our homes depends on the weather, time of year, local labor supply, availability of materials and supplies and other factors. To minimize the costs and risks of standing inventory, we generally begin construction of a home only when we have contracteda signed purchase contract with a homebuyer. However, cancellations of home purchase contracts prior to the delivery of the underlying homes, or specific strategic considerations, may cause us to have standing inventory of completed or partially completed homes. During the present housing downturn, we have experienced more volatility in our cancellation rates than in the years immediately before the downturn began. In 2010, we built unsold homes in some communities to help increase sales before the expiration of a federal homebuyer tax credit in April. As a result, at times during the year we had slightly more standing inventory than we have had historically. Market conditions and strategic considerations will determine our standing inventory levels in 2011.

We act as the general contractor for the majority of our communities and hire experienced subcontractors for all production activities. The use ofOur contracts with our subcontractors enables usrequire that they comply with all laws applicable to reduce our investment in directtheir work, including labor costs, equipmentlaws, meet performance standards, and facilities. Where practical, we use mass production techniques,follow local building codes and pre-made, standardized components and materials to

We sell our homes under standard purchase contracts, which generally require a customerhomebuyer deposit at the time of signing. The amount of the deposit required varies among markets and communities. Homebuyers are also generally required to pay additional deposits when they select options or upgrades for their homes. Most of our saleshome purchase contracts stipulate that if a homebuyer cancels a contract with us, we have the right to retain the homebuyer’s earnest money and option or upgrade deposits. However, we generally permit customersour homebuyers to cancel their obligations and obtain refunds of all or a portion of their depositdeposits in the event mortgage financing cannot be obtained within a period of time, as specified in their contract. Since 2008, tightened residential consumer mortgage lending standards have led to higher cancellation rates than those experienced before then, and we expect these standards to continue to have a negative impact on our cancellation rates in 2011.

“Backlog” consists of homes that are under contract but have not yet been delivered. Ending backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders for homes less cancellations) takengenerated during the current period minus the number of homes delivered during the current period. The backlog at any given time will be affected by cancellations. In addition, deliveriesThe number of new homes typically increasedelivered has historically increased from the first to the fourth quarter in any year.

Our backlog at November 30, 2007,2010, excluding backlog of unconsolidated joint ventures, consisted of 6,3221,336 homes, down 40%a decrease of 37% from the 10,5752,126 homes in backlog at year-end 2006.November 30, 2009. The decrease in our backlog levels in 2010 primarily reflected our strategic decisions in the mid-2006 through 2009 time period to reduce our inventory and active community counts to align our operations with diminished housing market activity and overall lower net orders. Our backlog ratio was 68% forat November 30, 2010 represented potential future housing revenues of approximately $263.8 million, a 38% decrease from potential future housing revenues of $422.5 million at November 30, 2009, resulting primarily from the fourth quarterlower number of 2007 and 60% for the fourth quarter of 2006. (Backloghomes in backlog. Our backlog ratio, is defined as homes delivered in the quarter as a percentage of backlog at the beginning backlog inof the quarter.)quarter, was 88% for the quarter ended November 30, 2010 and 82% for the quarter ended November 30, 2009.

The significant decrease in backlog levels in 2007 reflected an overall decrease in net orders and lower average selling prices compared to prior years, reflecting the persistently challenging conditions in the housing market that began in 2006. Our net orders declined 13% to 19,490totaled 6,556 in 20072010, a decrease of 21% from 22,4598,341 net orders in 2006.2009. Our average cancellation rate based on gross orders was 28% in 2007 was 42%, improving from2010, compared to an average of 47%25% in 2006.2009. During the fourth quarter of 2007,2010, our net orders decreased 32%declined 25% from the corresponding quarter of 2009, primarily due to a 24% decrease in our overall average active community count, generally weak economic and housing market conditions, and tightened residential consumer mortgage lending standards. As a percentage of gross orders, our cancellation rate was 37% in the fourth quarter of 2006, reflecting decreases2010, compared to 31% in each of our reporting segments. Thethe fourth quarter 2007 cancellation rate of 58% was the same as the cancellation rate we experienced in the year-earlier quarter, and 8 percentage points higher than the 50% cancellation rate we experienced in the third quarter of 2007.2009.

The following table sets forthtables present homes delivered, net orders and ending backlogcancellation rates (based on gross orders) by homebuilding reporting segment and with respect to our unconsolidated joint ventures for each quarter during the years ended November 30, 20072010 and 2006:2009, and our ending backlog at the end of each quarter within those years:

We currently own or control enough land to meet our forecasted production goals for approximately the next three to four years, andgoals. As discussed above, however, depending on market conditions we believe that we will be ablemay continue to acquire land on acceptable terms for future communities as needed.assets in 2011 or we may sell certain land or land interests. In

We do not generally finance the development of our communities with project financing. By “project financing,” we mean proceeds of loans specifically obtained for, or secured by, particular communities. Instead, our operations have historically been primarily funded by results of operations, public debt and equity financing, and borrowings under ouran unsecured revolving credit facility with various banksfinancial institutions (the “Credit Facility”). In 2010, however, anticipating that we would not need to borrow any funds under the Credit Facility before its scheduled maturity in November 2010, we voluntarily terminated the Credit Facility effective March 31, 2010 to eliminate the costs of maintaining it.

As part of our due diligence process for all land acquisitions, our policy is towe often use third-party environmental consultants to investigate forpotential environmental risks and towe require disclosuredisclosures and representations and warranties from land sellers of known environmental risks. Despite these precautions,efforts, there can be no assurance that we will avoid material liabilities relating to the existence or removal of toxic wastes, site restoration, monitoring or other environmental matters affecting properties currently or previously owned or controlled by us. No estimate of any potential liabilities can be made although we may, from time to time, purchase property that requires modestus to incur environmental clean-up costs after appropriate due diligence.diligence, including, but not limited to, using detailed investigations performed by environmental consultants. In such instances, we take steps prior to acquisition to gain reasonable assurance as to the precise scope of work required and the costs associated with removal, site restoration and/or monitoring, using detailed investigations performed by environmental consultants.monitoring. To the extent contamination or other environmental issues have occurred in the past, we believe we may be ablewill attempt to recover restoration costs from third parties, such as the generators of hazardous waste, land sellers or others in the prior chain of title and/or their insurers. Based on these practices, we anticipate that it is unlikely that environmental clean-up costs will have a material effect on our future consolidated financial position or results of operations. We have not been notified by any governmental agency of any claim that any of the properties owned or formerly owned by us are identified by the U.S. Environmental Protection Agency (“EPA”)EPA as being a “Superfund” clean-up site requiring remediation, which could have a material effect on our future consolidated financial position or results of operations. Costs associated with the use of environmental consultants are not material to our consolidated financial position or results of operations.

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). We make our public SEC filings available, at no cost, through our websitehttp://kbhome.com, as soon as reasonably practicable after the report is electronically filed with, or furnished to, the SEC. We will also provide these reports in electronic or paper format free of charge upon request made to our investor relations department at investorrelations@kbhome.com or at our principal executive offices. Our SEC filings are also available to the public over the Internet at the SEC’s website at http://www.sec.gov.sec.gov. The public may also read and copy any document we file at the SEC’s public reference room located at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330 for further information on the operation of the public reference room.

In addition to the risks and the challenging market conditions previously mentioned, theThe following important factors could adversely impact our business. These factors could cause our actual results to differ materially from the forward-looking and other statements (i) that we make in registration statements, periodic reports and other filings with the SEC and that we make from time to time in our news releases, annual reports and other written reports or communications, as well as oral forward-looking(ii) that we post on or make available through our website, and other statements(iii) made orally from time to time by our personnel and representatives.

In 2007,recent years, many of our served markets and the U.S. homebuilding industry as a whole continued to experiencehave experienced a significant and sustained decrease in demand for new homes and an oversupply of new and existing homes available for

While we have been successful in generating positive operating cash flow and reducing our inventories in 2007,since the housing downturn began, we have done so at significantly reduced gross profit levels and, until 2010, have incurred significant asset impairment charges.charges compared to the period from 2000 through 2005. Moreover, many of our strategic initiatives during the housing downturn to generate cash and improve our operating efficiency have involved lowering overhead through workforce reductions, for which we incurred significant costs, and reducing our active community count through strategic wind downs, reduced investments or market exits, curbs in development and sales of land interests. These strategic steps have resulted in our generating to varying degrees fewer net orders, homes delivered and revenues compared to periods before the housing downturn began, and have contributed to the net losslosses we have recognized in 2007. Also,recent years.

In an effort to generate higher revenues and restore and maintain our homebuilding operations’ profitability, beginning in 2007,late 2008 and continuing through 2010, we rolled out new, more flexible product designs, includingThe

These integrated strategic steps helped us narrow our net losses and improve our operating margins in each quarter of 2010 compared to the corresponding year-earlier periods. However, there can be no assurance that these trends will continue in 2011 or at all, that we will successfully increase our average active community count and inventory base with desirable land assets at a reasonable cost, or that we will achieve or maintain profitability in the near future. In addition, notwithstanding our sales strategies, we continued to experience an elevated ratehave experienced volatility in our net orders and in cancellations of sales contract cancellations.home purchase contracts by buyers throughout the present housing downturn, including in 2010. We believe that the elevatedour volatile net order and cancellation ratelevels have largely reflects a decrease inreflected weak homebuyer confidence with continueddue to sustained home sales price declines, and increasesincreased offerings of sales incentives in the level of sales incentivesmarketplace for both new and existing homes, promptingtightened residential consumer mortgage lending standards, and generally poor economic and employment conditions, all of which have prompted homebuyers to forgo or delay home purchases. A more restrictiveAdditional volatility arose in 2010 with the April 30 expiration of the federal homebuyer tax credit, which likely pulled demand forward to the first two quarters of the year and led to a drop in net orders and customer traffic in the periods that followed. The relatively tight consumer mortgage lending environment and the inability of some buyershomebuyers to sell their existing homes have also led to cancellations.lower demand for new homes and to volatility in home purchase contract cancellations for us and the homebuilding industry. Many of thethese factors that affect newaffecting our net orders and cancellation rates, and the related market dynamics that put downward pressure on our average selling prices, are beyond our control. It is uncertain how long the reduced sales levelsand to what degree these factors, and the increased levelvolatility in net orders and home purchase contract cancellations we have experienced, will continue. To the extent that they do, and to the extent that they depress our average selling prices, we expect that they will have a negative effect on our business and our results of cancellations will continue.operations.

Our businessresults of operations can be substantially affected by adverse changes in general economic or business conditions that are outside of our control, including changes in:

Adverse changes in these conditions may affect our business nationally or may be more prevalent or concentrated in particular regions or localities in which we operate. In 2007, adverserecent years, unfavorable changes in many of these factors negatively affected all of our served markets, and we expect the widespread nature of the present housing downturn in the housing market to continue at least through 2008. A downturn in the economy would likely exacerbate the adverse trends the housing market experienced in 2007.

Fluctuating lumber prices and shortages, as well as shortages or price fluctuations in other building materials or commodities, can have an adverse effect on our business. Similarly,Inclement weather, natural disasters, such as earthquakes, hurricanes, tornadoes, floods, droughts, fires and other environmental conditions, and labor shortages or unrestdisruptions among key trades, such as carpenters, roofers, electricians and plumbers, can delay the delivery of our homes andand/or increase our costs. Civil unrest or acts of terrorism can also have a negative effect on our business.

The potential difficulties described above can cause demand and prices for our homes to diminishfall or cause us to take longer and incur more costs to build our homes. We may not be able to recover these increased costs by raising prices because of market conditions and because the price of each home we sell is usually set several months before the home is delivered, as our customers typically sign their home purchase contracts before construction begins. The potential difficulties described above could causealso lead some homebuyers to cancel or refuse to honor their home purchase contracts altogether. In fact, reflectingReflecting the difficult conditions in our served markets and the impact of the termination, expiration or scaling back of homebuyer tax credits and other government programs supportive of home sales, we continued to experience elevated cancellation rateshave experienced volatility in 2007our net orders and in home purchase contract cancellations in recent years, and we may experience similar cancellation ratesor increased volatility in 2008.2011.

TheThere is a high level of competition in the homebuilding industry is highly competitive for skilled labor and building materials. Increased costs or shortages in building materials or skilled labor could cause increases in construction costs and construction delays. We generally are unable to pass on increases in construction costs to customershomebuyers who have already entered into saleshome purchase contracts, as the salespurchase contracts generally fix the price of the home at the time the contract is signed, and may be signed well in advance of when construction commences. Further, we may not be able to pass on increases in construction costs because of market conditions. Sustained increases in construction costs may, over time, erode our margins, and pricingdue to competition for materials and skilled labor and higher commodity prices (including prices for lumber, metals and other building material inputs), among other things, may, restrict our ability to pass on any additional costs, thereby decreasingover time, decrease our margins.

Inflation can have a long-terman adverse impact on usour results of operations because increasing costs offor land, building materials and skilled labor may callraise a need for us to increase saleshome selling prices of homes in order to maintain satisfactory margins. In 2010, worldwide demand for certain commodities and monetary policy actions have led to price increases for raw materials that are used in construction, including lumber and metals. These pricing trends are expected to continue into 2011 and, in combination with Federal Reserve policies and programs designed to boost economic growth, may lead to a general increase in inflation. However, if the current challenging and highly competitive conditions in the homebuildinghousing market persist, we may not be requiredable to increase, and may need to decrease, our home selling prices in an attempt to help stimulate sales volume. This potentialsales. If determined necessary, our lowering of saleshome selling prices, in addition to impacting our margins, on new homes, may also reduce the value of our land inventory, including the assets we purchased in 2010 pursuant to our strategic land acquisition initiative, and make it more difficult for us to recover the full cost of previously purchased land in newwith home salesselling prices or, if we choose, in the dispositiondisposing of land assets. In addition, depressed land values may cause us to abandon and forfeit deposits on land option contracts if we cannot satisfactorily renegotiate the purchase price of the optioned land. We may incur non-cashnoncash charges against our earnings for inventory impairments or land option contract abandonments if the value of our owned inventory is so reduced or for land option contract abandonments if we choose not to exercise land option contracts.contracts, and these charges may be substantial as has occurred in certain periods during the present housing downturn.

We incur many costs even before we begin to build homes in a community. Depending on thea land parcel’s stage of development when acquired, these include costs of preparing land, finishing and entitling lots, and installing roads, sewage and other utilities, as well as taxes and other costs related to ownership of the land on which we plan to build homes. ReducingIn addition, local municipalities may impose requirements resulting in additional costs. If the rate at which we buildsell and deliver homes extendsslows or falls, which has occurred throughout the lengthpresent housing downturn, we may incur additional costs and it will take a longer period of time it takesfor us to recover these costs. Also,our costs, including the costs we frequently acquireincurred in 2010 to purchase assets pursuant to our strategic land acquisition initiative. Furthermore, due to market conditions during the current housing downturn, we have abandoned some options to purchase land, and make deposits that will be forfeited if we do not exercise the options within specified periods. Because of current market conditions, we have had to terminate some of these options, resulting in the forfeiture of deposits and unrecoverable due diligence and development costs.

The value of the land and housing inventory we currently own or control depends on market conditions, including estimates of future demand for, and the revenues that can be generated from, suchthis inventory. The market value of our land inventory can vary considerably because there is often a significant amount of time between our initial acquisition or optioning of land and the delivery of homes on that land. The housing downturn, in the housing marketwhich has generally depressed home sales and selling prices, has caused the fair market value of certain of our owned or controlled inventory to fall, in some cases well below the estimated fair market value at the time we acquired it. Depending onThrough our assessmentperiodic assessments of fair market value, we may needhave been required to write down the carrying value of certain of our inventory, including inventory that we have previously written down, and takerecord corresponding non-cashnoncash charges against our earnings to reflect the impaired value. We mayhave also abandontaken noncash charges in connection with abandoning our interests in certain landoptioned inventory that no longer meets our internal investment standards, which would also require usor marketing standards. Although the magnitude of such noncash charges diminished significantly in 2010 compared to take non-cash charges. Ifprior periods, if the current downturn in the housing marketdownturn continues, we may need to take additional charges against